<PAGE> 1
As Filed with the Securities and Exchange Commission on January 24, 1996
Registration Nos. 33-[ ]
811-[ ]
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO.
(Check appropriate box or boxes)
-----------------
FS FUNDS Trust
(Exact Name of Registrant as Specified in Charter)
805 Third Avenue
30th Floor
New York, New York 10022
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (800)_____________
John J. Pileggi
237 Park Avenue
New York, New York 10017
(Name and Address of Agent for Service)
Copy to:
Steven R. Howard, Esq.
Baker & McKenzie
805 Third Avenue
New York, New York 10022
Approximate date of proposed public offering: As soon as
practicable after the effective date of the Registration Statement.
Registration has elected, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, to register an indefinite number of shares by
this registration statement. In accordance with Rule 24f-2, a registration fee
in the amount of $500 has previously been paid.
-----------------
Registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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Total Pages: ___
Exhibit Index: ___
<PAGE> 2
FS FUNDS TRUST
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
under the Securities Act of 1933
U.S. TREASURY RESERVE MONEY MARKET FUND
CASH RESERVE MONEY MARKET FUND
SHORT-TERM TREASURY INCOME FUND
INTERMEDIATE BOND INCOME FUND
BOND INCOME FUND
STOCK APPRECIATION FUND
AGGRESSIVE STOCK APPRECIATION FUND
VALUE STOCK APPRECIATION FUND
INTERNATIONAL EQUITY FUND
SERVICE CLASS PROSPECTUS
<TABLE>
<CAPTION>
Part A Prospectus Caption
------ ------------------
<S> <C> <C>
Item 1. Cover Page . . . . . . Cover Page
Item 2. Synopsis . . . . . . . Fund Expenses; Fee Table
Item 3. Condensed Financial
Information . . . . . Not Applicable
Item 4. General Description of
Registrant . . . . . The Funds; The Investment
Policies and Practices of
the Funds
Item 5. Management of the Fund Management of the Funds
Item 5A. Management's Discussion of
Fund Performance . . . Not Applicable
Item 6. Capital Stock and Other
Securities . . . . . Dividends, Distributions
and Federal Income Tax;
Other Information
Item 7. Purchase of Securities
Being Offered . . . . Fund Valuation; Pricing
and Purchase of Fund
Shares
Item 8. Redemption or
Repurchase . . . . . Redemption of Fund Shares
Item 9. Legal Proceedings . . . Not Applicable
</TABLE>
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<PAGE> 3
PREMIUM CLASS PROSPECTUS
U.S. TREASURY RESERVE MONEY MARKET FUND
CASH RESERVE MONEY MARKET FUND
SHORT-TERM TREASURY INCOME FUND
INTERMEDIATE BOND INCOME FUND
BOND INCOME FUND
STOCK APPRECIATION FUND
AGGRESSIVE STOCK APPRECIATION FUND
VALUE STOCK APPRECIATION FUND
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Part A Prospectus Caption
------ ------------------
<S> <C> <C>
Item 1. Cover Page . . . . . . Cover Page
Item 2. Synopsis . . . . . . . Fund Expenses; Fee Table
Item 3. Condensed Financial
Information . . . . . Not Applicable
Item 4. General Description of
Registrant . . . . . The Funds; The Investment
Policies and Practices of
the Funds
Item 5. Management of the
Fund . . . . . . . . Management of the Funds
Item 5A. Management's Discussion of
Fund Performance . . . Not Applicable
Item 6. Capital Stock and Other
Securities . . . . . Dividends, Distributions
and Federal Income Tax;
Other Information
Item 7. Purchase of Securities
Being Offered . . . . Fund Valuation; Pricing
and Purchase of Fund
Shares
Item 8. Redemption or
Repurchase . . . . . Redemption of Fund Shares
Item 9. Legal Proceedings . . . Not Applicable
</TABLE>
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<PAGE> 4
U.S. INTERMEDIATE TAX EXEMPT FUND
KANSAS INTERMEDIATE TAX EXEMPT FUND
SERVICE CLASS PROSPECTUS
<TABLE>
<CAPTION>
Part A Prospectus Caption
------ ------------------
<S> <C> <C>
Item 1. Cover Page . . . . . . Cover Page
Item 2. Synopsis . . . . . . . Fund Expenses; Fee Table
Item 3. Condensed Financial
Information . . . . . Not Applicable
Item 4. General Description of
Registrant . . . . . The Funds; The Investment
Policies and Practices of
the Funds
Item 5. Management of the
Fund . . . . . . . . Management of the Funds
Item 5A. Management's Discussion of
Fund Performance . . . Not Applicable
Item 6. Capital Stock and Other
Securities . . . . . Dividends, Distributions
and Federal Income Tax;
Other Information
Item 7. Purchase of Securities
Being Offered . . . . Fund Valuation; Pricing
and Purchase of Fund
Shares
Item 8. Redemption or
Repurchase . . . . . Redemption of Fund Shares
Item 9. Legal Proceedings . . . Not Applicable
</TABLE>
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<PAGE> 5
U.S. INTERMEDIATE TAX EXEMPT FUND
KANSAS INTERMEDIATE TAX EXEMPT FUND
PREMIUM CLASS PROSPECTUS
<TABLE>
<CAPTION>
Part A Prospectus Caption
------ ------------------
<S> <C> <C>
Item 1. Cover Page . . . . . . Cover Page
Item 2. Synopsis . . . . . . . Fund Expenses; Fee Table
Item 3. Condensed Financial
Information . . . . . Not Applicable
Item 4. General Description of
Registrant . . . . . The Funds; The Investment
Policies and Practices of
the Funds
Item 5. Management of the
Fund . . . . . . . . Management of the Funds
Item 5A. Management's Discussion of
Fund Performance . . . Not Applicable
Item 6. Capital Stock and Other
Securities . . . . . Dividends, Distributions
and Federal Income Tax;
Other Information
Item 7. Purchase of Securities
Being Offered . . . . Fund Valuation; Pricing
and Purchase of Fund
Shares
Item 8. Redemption or
Repurchase . . . . . Redemption of Fund Shares
Item 9. Legal Proceedings . . . Not Applicable
</TABLE>
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<PAGE> 6
U.S. TREASURY RESERVE MONEY MARKET FUND
CASH RESERVE MONEY MARKET FUND
SHORT-TERM TREASURY INCOME FUND
INTERMEDIATE BOND INCOME FUND
BOND INCOME FUND
STOCK APPRECIATION FUND
AGGRESSIVE STOCK APPRECIATION FUND
VALUE STOCK APPRECIATION FUND
INTERNATIONAL EQUITY FUND
U.S. INTERMEDIATE TAX EXEMPT FUND
KANSAS INTERMEDIATE TAX EXEMPT FUND
<TABLE>
<CAPTION>
Statement of Additional
Part B Information Caption
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<S> <C> <C>
Item 10. Cover Page . . . . . . Cover Page
Item 11. Table of Contents . . . Table of Contents
Item 12. General Information and
History . . . . . . . Not Applicable
Item 13. Investment Objective and
Policies . . . . . . . Investment Policies;
Investment Restrictions
Item 14. Management of the
Registrant . . . . . . Management
Item 15. Control Persons and
Principal Holders of
Securities . . . . . Management
Item 16. Investment Advisory and
Other Services . . . Management; Custodian;
Experts
Item 17. Brokerage Allocation . Portfolio Transactions
Item 18. Capital Stock and Other
Securities . . . . . Shares of Beneficial
Interest
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered . . . . Pricing and Purchase of
Fund Shares (Part A);
Redemption of Fund Shares
(Part A); Determination
of Net Asset Value
Item 20. Tax Status . . . . . . Taxation
Item 21. Underwriters . . . . . Management
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
Statement of Additional
Part B Information Caption
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<S> <C> <C>
Item 22. Calculation of Performance
Data . . . . . . . . Calculation of Yields and
Performance Information
Item 23. Financial Statements . Not Applicable
</TABLE>
- vi -
<PAGE> 8
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.
- vii -
<PAGE> 9
FS FUNDS TRUST
[ADDRESS]
GENERAL AND ACCOUNT INFORMATION:
(800) __________
SERVICE CLASS PROSPECTUS
________--INVESTMENT ADVISOR
("______" OR THE "ADVISER")
_____________________--INVESTMENT ADVISOR
FOR THE CASH RESERVE MONEY MARKET FUND
("_______")
____________________________--ADMINISTRATOR AND SPONSOR
("____________")
________________--DISTRIBUTOR
("___" OR THE "DISTRIBUTOR")
This Prospectus describes nine funds, two money market funds (the
"Money Market Funds") and seven non-money market funds (the "Non Money Market
Funds") (collectively, the "Funds"), all of which are managed by _______,
except the Cash Reserve Money Market Fund, which is managed by ___. The Funds
and their investment objectives are:
- THE U.S. TREASURY RESERVE MONEY MARKET FUND SEEKS TO PROVIDE
INVESTORS WITH AS HIGH A LEVEL OF CURRENT INCOME AS IS CONSISTENT
WITH LIQUIDITY, STABILITY, MAXIMUM SAFETY OF PRINCIPAL AND THE
MAINTENANCE OF A STABLE $1.00 NET ASSET VALUE.
- THE CASH RESERVE MONEY MARKET FUND SEEKS TO PROVIDE INVESTORS WITH
CURRENT INCOME, LIQUIDITY AND THE MAINTENANCE OF A STABLE $1.00
NET ASSET VALUE BY INVESTING IN HIGH QUALITY, SHORT-TERM
OBLIGATIONS.
- THE SHORT-TERM TREASURY INCOME FUND SEEKS TO PROVIDE INVESTORS
WITH AS HIGH A LEVEL OF CURRENT INCOME AS IS CONSISTENT WITH
LIQUIDITY AND SAFETY OF PRINCIPAL.
- THE INTERMEDIATE BOND INCOME FUND SEEKS TO PROVIDE INVESTORS WITH
AS HIGH A LEVEL OF CURRENT INCOME AS IS CONSISTENT WITH MANAGING
FOR TOTAL RETURN BY INVESTING IN FIXED INCOME SECURITIES.
- THE BOND INCOME FUND SEEKS TO PROVIDE INVESTORS WITH AS HIGH A
LEVEL OF CURRENT INCOME AS IS CONSISTENT WITH MANAGING FOR TOTAL
RETURN BY INVESTING IN FIXED INCOME SECURITIES.
- THE STOCK APPRECIATION FUND SEEKS TO PROVIDE INVESTORS WITH
LONG-TERM CAPITAL APPRECIATION.
- THE AGGRESSIVE STOCK APPRECIATION FUND SEEKS TO PROVIDE INVESTORS
WITH AGGRESSIVE LONG-TERM CAPITAL APPRECIATION.
- THE VALUE STOCK APPRECIATION FUND SEEKS TO PROVIDE INVESTORS WITH
LONG-TERM CAPITAL APPRECIATION AND DIVIDEND INCOME.
- THE INTERNATIONAL EQUITY FUND SEEKS TO PROVIDE INVESTORS WITH
LONG-TERM CAPITAL APPRECIATION BY INVESTING, DIRECTLY OR
INDIRECTLY, IN HIGH QUALITY COMPANIES BASED OUTSIDE THE UNITED
STATES.
This Prospectus describes only the "Service Class" of each Fund. Each
Fund also offers a Premium Class of shares. See "Other Information" --
"Capitalization". The Funds are separate investment funds of FS FUNDS Trust
(the "Trust"), a Delaware business trust and registered management investment
company.
The International Equity Fund, unlike other mutual funds which
directly acquire and manage their own portfolio of securities, seeks to achieve
its investment objectives by investing all of its investable assets in another
mutual fund. The International Equity Fund employs a two-tier master feeder
fund structure.
AN INVESTMENT IN SHARES OF THE TRUST IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET FUNDS
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. SHARES
OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
_______, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY, AND MAY
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION A PROSPECTIVE
INVESTOR SHOULD KNOW BEFORE INVESTING IN ANY OF THE FUNDS AND SHOULD BE READ
AND RETAINED FOR INFORMATION ABOUT EACH FUND.
A Statement of Additional Information (the "SAI"), dated January __,
1996, containing additional and more detailed information about the Funds has
been filed with the Securities and Exchange Commission ("SEC") and is hereby
incorporated by reference into this Prospectus. It is available without charge
and can be obtained by writing or calling the Funds at the address and
information numbers printed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Prospectus is January __, 1996.
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
FUND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
FEE TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
THE INVESTMENT POLICIES AND PRACTICES OF THE FUNDS . . . . . . . . . . . . 10
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 21
RISKS OF INVESTING IN THE FUNDS . . . . . . . . . . . . . . . . . . . . . . 21
MANAGEMENT OF THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . 23
FUND SHARE VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PRICING AND PURCHASE OF FUND SHARES . . . . . . . . . . . . . . . . . . . . 28
MINIMUM PURCHASE REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . 29
INDIVIDUAL RETIREMENT ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . 29
EXCHANGE OF FUND SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 29
REDEMPTION OF FUND SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 30
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX . . . . . . . . . . . . . . 32
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
i
<PAGE> 11
FUND EXPENSES
The following expense table lists the costs and expenses that an
investor in the Service Class of shares will incur either directly or
indirectly as a shareholder of a Fund. The information is based upon
estimates. Shareholders in the Premium Class of shares may be subject to an
additional shareholder servicing charge of up to 0.50% of average daily net
assets.
FEE TABLE
<TABLE>
<CAPTION>
U.S.
Treasury Cash Short-
Reserve Reserve Term Intermediate Aggressive Value
Money Money Treasury Bond Bond Stock Stock Stock Int'l
Market Market Income Income Income Appreciation Appreciation Appreciation Equity
Fund Fund Fund Fund Fund Fund Fund Fund Fund
------ ------ ------ ---------- ------ --------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) . . . . . . None None None None None None None None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) None None None None None None None None None
Deferred Sales Load (as a None None None None None None None None None
percentage of redemption
proceeds) . . . . . . . . .
Redemption Fees(1). . . . . . None None None None None None None None None
Exchange Fees . . . . . . . None None None None None None None None None
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average
net assets)
Management Fees . . . . . . . 0.15% 0.20% 0.30% 0.40% 0.40% 0.65% 0.745% 0.65% 0.75%
12b-1 Fees
(after waivers)(2). . . . . . 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other Expenses . . . . . . . 0.32% 0.30% 0.45%(3) 0.35% 0.56% 0.35% 0.49% 0.53% 0.24%(3)(4)
----- ----- ----- ----- ----- ------ ----- ----- ----
Total Portfolio Operating
Expenses(1)(2) . . . . . . . 0.47% 0.50% 0.75% 0.75% 0.96% 1.00% 1.23% 1.18% 0.99%(3)(4)
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- ----------------------------------
(1) Shareholders may be charged a wire redemption fee by their bank for
receiving a wire payment on their behalf.
(2) The fee under each Fund's Distribution Plan and Agreement is calculated on
the basis of the average net assets of each Fund at an annual rate not to
exceed 0.25%.
(3) [Absent 12b-1 fee waivers, which may be discontinued at any time, Total
Portfolio Operating Expenses would be 0.72% for the U.S. Treasury Reserve
Money Market Fund, 0.75% for the Cash Reserve Money Market Fund, 1.00% for
the Short-Term Treasury Income Fund, 1.00% for the Intermediate Bond
Income Fund, 1.21% for the Bond Income Fund, 1.25% for the Stock
Appreciation Fund, 1.48% for the Aggressive Stock Appreciation Fund, 1.43%
for the Value Stock Appreciation Fund, and 1.49% for the International
Equity Fund.]
(4) [The International Equity Fund pays [ADMINISTRATOR] a 0.15% administrative
fee and has other expenses of ____% and the Portfolio pays advisory and
administrative fees, of which the International Equity Fund bears its pro
rata portion. The Trust's Board of Trustees believes that the aggregate
per share expenses of the Fund and the Portfolio will be approximately
equal to the expenses the Fund would incur if its assets were invested
directly in foreign securities. Investment Advisory Fees are those
incurred by the Portfolio; as long as its assets are invested in the
Portfolio, the Fund pays no investment advisory fees directly. For the
first year of the International Equity Fund's operation, ______ will
reimburse 0.10% to the Fund and [ADMINISTRATOR] will waive its fee.
Absent such reimbursement and waiver and 12b-1 waiver, Other Expenses and
Total Portfolio Operating Expenses would be 0.49% and 1.49%,
respectively.]
1
<PAGE> 12
The purpose of this table is to assist a shareholder in the Service
Class of shares in understanding the various costs and expenses that an
investor in the Funds will bear.
Example:*
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
U.S.
Treasury Cash Short-
Reserve Reserve Term Intermediate Aggressive Value
Money Money Treasury Bond Bond Stock Stock Stock
Market Market Income Income Income Appreciation Appreciation Appreciation Int'l
Fund Fund Fund Fund Fund Fund Fund Fund Fund
------ ------ ------- ----------- ------ ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year . . . . . . . . . . . $5 $5 $8 $8 $10 $10 $13 $12 $10
3 years . . . . . . . . . . $15 $16 $24 $24 $31 $32 $39 $37 $32
</TABLE>
- ----------------------------------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return
is hypothetical and should not be considered a representation of past or
future annual return; actual return may be greater or less than the
assumed amount.
- 2 -
<PAGE> 13
HIGHLIGHTS
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
This Prospectus describes nine funds, two money market funds and seven
non-money market funds (collectively, the "Funds"), all of which are managed by
[ADVISOR'S NAME], except the Cash Reserve Money Market Fund which is managed by
[ADVISOR'S NAME]. Each Fund has distinct investment objectives and policies.
MONEY MARKET FUNDS:
U.S. Treasury Reserve Money Market Fund. The investment objective of
the U.S. Treasury Reserve Money Market Fund is to seek as high a level of
current income as is consistent with liquidity, stability and maximum safety of
principal and the maintenance of a stable $1.00 net asset value per share. The
Fund invests exclusively in short-term obligations of the United States
Treasury, which are backed by the full faith and credit of the United States
Government, and repurchase agreements in respect of such obligations. This
fund is not currently in operation.
Cash Reserve Money Market Fund. The investment objectives of the Cash
Reserve Money Market Fund are current income, liquidity and the maintenance of
a stable $1.00 net asset value per share by investing in high quality, U.S.
dollar-denominated short-term obligations which are determined by the
investment advisor to present minimal credit risks.
The Cash Reserve Money Market Fund may invest in obligations permitted
to be purchased under Rule 2a-7 of the Investment Company Act of 1940 (the
"1940 Act") including, but not limited to, (1) obligations of the U.S.
Government or its agencies or instrumentalities; (2) commercial paper, loan
participation interests, medium-term notes, asset-backed securities and other
promissory notes, including floating or variable rate obligations; and (3)
domestic, Yankee dollar and Eurodollar certificates of deposit, time deposits,
bankers' acceptances, commercial paper, bearer deposit notes and other
promissory notes, including floating or variable rate obligations issued by
U.S. or foreign bank holding companies and their bank subsidiaries, branches
and agencies. The Cash Reserve Money Market Fund will invest only in issuers
or instruments that at the time of purchase (1) have received the highest
short-term rating by at least two Nationally Recognized Statistical Rating
Organizations ("NRSROs") such as "A-1" by Standard & Poor's and "P-1" by
Moody's; (2) are single rated and have received the highest short-term rating
by a NRSRO (and provided the purchase is approved or ratified by the Board of
Trustees); or (3) are unrated, but are determined to be of comparable quality
by [ADVISOR'S NAME] pursuant to guidelines approved by the Board and subject to
ratification by the Board. The Cash Reserve Money Market Fund may also
purchase securities on a "when-issued" basis and purchase or sell them on a
"forward commitment" basis.
The Cash Reserve Money Market Fund will concentrate its investments in
obligations issued by the banking industry. Concentration in this context
means the investment of more than 25% of the Cash Reserve Money Market Fund's
assets in such investments. However, for temporary defensive purposes during
periods when [ADVISOR'S NAME] believes that maintaining this concentration may
be inconsistent with the best interest of shareholders, the Cash Reserve Money
Market Fund will not maintain this concentration. The Cash Reserve Money
Market Fund's policy of concentration in the banking industry increases the
Fund's exposure to market conditions prevailing in that industry.
The Cash Reserve Money Market Fund may also invest in variable amount
master demand obligations which are unsecured demand notes that permit the
indebtedness thereunder to vary, and provide for periodic adjustments in the
interest rate. Because master demand obligations are direct lending
arrangements between the Cash Reserve Money Market Fund and the issuer, they
are not normally traded. There is no secondary market for the notes; however,
the period of time remaining until payment of principal and accrued interest
can be recovered under a variable amount master demand obligation generally
shall not exceed seven days. To the extent this period is exceeded, the
obligation in question would be considered illiquid. Issuers of variable
amount master demand obligations must satisfy the same
- 3 -
<PAGE> 14
criteria as set forth for other promissory notes (e.g., commercial paper). The
Cash Reserve Money Market Fund will invest in variable amount master demand
obligations only when such obligations are determined by [ADVISOR'S NAME],
pursuant to guidelines established by the Board of Trustees, to be of
comparable quality to rated issuers or instruments eligible for investment by
the Cash Reserve Money Market Fund. In determining weighted average dollar
portfolio maturity, a variable amount master demand obligation will be deemed
to have a maturity equal to the longer of the period of time remaining until
the next readjustment of the interest rate or the period of time remaining
until the principal amount can be recovered from the issuer on demand.
Amortized Cost Method of Valuation for the Money Market Funds
Portfolio investments of each Money Market Fund are valued based on
the amortized cost valuation technique pursuant to Rule 2a-7 under the 1940
Act. Obligations in which the Money Market Funds invest generally have
remaining maturities of 397 days or less, although instruments subject to
repurchase agreements and certain variable and floating rate obligations may
bear longer final maturities. The weighted average dollar portfolio maturity
of each Money Market Fund will not exceed 90 days. See the SAI for an
explanation of the amortized cost valuation method.
NON-MONEY MARKET FUNDS:
Short-Term Treasury Income Fund. The investment objective of this
Fund is to seek as high a level of current income as is consistent with
liquidity and safety of principal. The Fund invests at least 65% of its total
assets in U.S. Treasury obligations and it is the current intent of [ADVISOR'S
NAME] to maintain an average maturity range between 1 to 3 years.
Intermediate Bond Income Fund. The investment objective of the
Intermediate Bond Income Fund is to provide as high a level of current income
as is consistent with managing for total return by investing at least 65% of
its total assets in fixed income securities. The Fund invests primarily in
high quality fixed income securities such as U.S. Government securities,
corporate bonds and asset-backed securities (including mortgage-backed
securities). A minimum of 65% of the Fund's total assets will be invested in
securities rated "A" or better by a primary credit rating agency and the Fund
will seek to maintain a minimum average portfolio quality rating of "AA". All
securities will be rated "BBB" or better by a primary credit rating agency at
the time of purchase. Fixed income securities downgraded to below BBB
subsequent to purchase may be retained in the portfolio when deemed by the
advisor to be in the best interest of Fund shareholders. The Fund may also
invest in convertible securities, preferred stocks and debt of foreign
governments or corporations. Futures and/or options may be used to hedge the
portfolio against reinvestment and interest rate risk when deemed necessary.
For purposes of this Fund, a "bond" is defined as a debt instrument with a
fixed interest rate. The average maturity of the Intermediate Income Fund will
generally range between three and ten years.
Bond Income Fund. The investment objective of the Bond Income Fund is
to provide as high a level of current income as is consistent with managing for
total return by investing at least 65% of its total assets in fixed income
securities. The Fund primarily invests in high quality fixed income securities
such as U.S. Government securities, corporate bonds and asset-backed securities
(including mortgage-backed securities). A minimum of 65% of the portfolio will
be invested in securities rated "A" or better by a primary credit rating agency
and the Fund will seek to maintain a minimum average portfolio quality of "AA".
All securities will be rated "BBB" or better by a primary credit rating agency
at the time of purchase. Fixed income securities downgraded to below BBB
subsequent to purchase may be retained in the portfolio when deemed by the
advisor to be in the best interests of Fund shareholders. The Fund may also
invest in convertible securities, preferred stocks and debt of foreign
governments or corporations. Futures and/or options may be used to hedge the
portfolio against reinvestment and interest rate risk when deemed necessary.
For purposes of this Fund, a "bond" is defined as a debt instrument with a
fixed interest rate. The average maturity of the Bond Income Fund will
generally range between seven and fifteen years.
- 4 -
<PAGE> 15
Stock Appreciation Fund. The objective of the Stock Appreciation Fund
is to seek long-term capital appreciation through investment in a diversified
portfolio of common stock (and securities convertible into common stock) of
domestic companies. The Fund may also invest, to a far lesser extent, in
securities of foreign companies, primarily through securities represented by
American Depositary Receipts (ADRs). Under normal market conditions, at least
65% of the Fund's total assets will consist of common stocks. Each stock that
is purchased will be selected on the weight of available evidence, including
but not limited to: (1) the company's fundamental business outlook and
competitive position, (2) the valuation of the security relative to its own
historical norms, to the industry in which the company competes, and to the
market as a whole, and (3) the momentum of earnings growth expected to be
generated by the company. [ADVISOR'S NAME] will seek to control performance
risk in two ways: (1) relative to the market, by diversifying investments
across economic sectors and amongst small-, medium-, and large-capitalization
companies, and (2) by increasing the level of money market reserves and/or
employing hedging vehicles (futures and/or options) when risks of a substantial
stock market correction have risen to levels where such action appears
warranted. In addition, assets may be held in securities convertible into
common stock, debt securities (it is the Fund's current intention to restrict
these debt securities to those rated in the top three quality categories by
Moody's Investors Service, Inc. or Standard & Poor's Corporation or determined
to be of equivalent quality by [ADVISOR'S NAME]), cash or cash equivalents,
U.S. Government securities, or nonconvertible preferred stock.
Aggressive Stock Appreciation Fund. The objective of the Aggressive
Stock Appreciation Fund is to aggressively seek long-term capital appreciation
through investment in a diversified portfolio of common stock (and securities
convertible into common stock) of domestic companies. The Fund may also
invest, to a far lesser extent, in securities of foreign companies, primarily
through securities represented by ADRs. The Fund will invest primarily in the
stocks of companies expected to increase their earnings at a rate that exceeds
the growth rate expected of the market. (Periodically, however, the emphasis
on growth as a selection factor may be tempered by market conditions). While
the Fund will always hold a broad array of larger-capitalization stocks
(approximately $4 billion and greater), there will often be an emphasis on
investing in mid-capitalization issues (between approximately $1 billion and $4
billion), and to a much lesser extent, smaller-capitalization stocks
(approximately $1 billion market capitalization and under). The decision to
emphasize stocks of mid- to smaller-capitalization companies will be based on a
positive outlook for the market in general, favorable stock valuation
comparisons relative to larger-company stocks, and attractive relative growth
characteristics. Under normal market conditions, at least 65% of the Fund's
total assets will consist of common stocks. Each stock that is purchased will
be selected on the weight of available evidence, including but not limited to:
(1) the company's fundamental business outlook and competitive position, (2)
the momentum of earnings growth expected to be generated by the company, and
(3) the valuation of the security relative to its own historic norms, to the
industry in which the company competes, and to the market as a whole. Although
the Fund will have representation in all major economic sectors and amongst
small-, medium-, and large-capitalization companies, [ADVISOR'S NAME] generally
will attempt to add considerable value relative to the market by emphasizing
those stocks, investment themes, and/or industry groups with the greatest
overall appeal and most attractive reward/risk characteristics. At times, the
Fund may hold considerable positions (relative to the market) in
broadly-defined economic sectors with growth potential unreflected in then
current stock prices. [ADVISOR'S NAME] may increase the level of money market
reserves and/or employ hedging vehicles (futures and/or options) when risks of
a substantial market correction have risen to levels where such action appears
warranted. In addition, assets may be held in securities convertible into
common stocks, debt securities (it is the Fund's current intention to restrict
these debt securities to those rated in the top three quality categories by
Moody's Investors Service, Inc. or Standard & Poor's Corporation or determined
to be of equivalent quality by [ADVISOR'S NAME]), cash or cash equivalents,
U.S. Government securities, or nonconvertible preferred stocks. Aggressive
stock funds generally involve a higher degree of risk in search of higher
returns.
The Value Stock Appreciation Fund. The objective of the Value Stock
Appreciation Fund is to seek long-term capital appreciation and dividend income
through investment in a diversified portfolio of common stocks (and securities
convertible into common stock) of domestic companies. The Fund may also
invest, to a far lesser extent, in securities of foreign companies, primarily
through securities represented by American Depositary Receipts (ADRs). The
Fund will employ a "value style" of equity management. Stocks selected for use
in the Fund may generally be expected to exhibit the following characteristics:
1) sell at a discount to their underlying "intrinsic value" determined by
discounting
- 5 -
<PAGE> 16
the stock's expected future dividends to their present day value and/or 2)
possess relative low price/earnings ratios and/or 3) possess relative low
price/cash flow ratios. A "dividend discount model" methodology is a
contributing component in the determination of a stocks "intrinsic value".
Frequently, these stocks may have a higher-than-average dividend yield. Often,
stocks exhibiting the above noted characteristics are described as being
"underowned" or "out of favor". Stock investments are selected from a universe
of high quality large, medium, and small capitalization companies. Quality is
determined based on a company's fundamental financial strength, size and
earnings visibility. Stocks are purchased with a long-term investment time
horizon in mind and are generally sold when their market price rises above
intrinsic value and/or their underlying fundamentals begin to deteriorate.
[ADVISOR'S NAME] may increase the level of money market reserves and/or employ
hedging vehicles (futures and/or options) when risks of a substantial market
correction have risen to levels where such action appears warranted. In
addition, assets may be held in securities convertible into common stocks,
straight debt securities (it is the Fund's current intention to restrict these
debt securities to those rated in the top three quality categories by Moody's
Investors Service, Inc. or Standard & Poor's Corporation or determined to be of
equivalent quality by [ADVISOR'S NAME]), cash or cash equivalents, U.S.
Government securities, or nonconvertible preferred stocks.
International Equity Fund
The International Equity Fund seeks long-term capital appreciation by
investing, directing or indirectly, in high quality companies based outside the
Untied States. Currently, the International Equity Fund invests exclusively in
the ____________ (the "Portfolio"), a series of ____________ ("______ Trust"),
itself a registered open-end management investment company. Accordingly, the
investment experience of the International Equity Fund will correspond directly
with the investment experience of the Portfolio. See "Other Information -
International Equity Fund Structure." The Portfolio has the same investment
objective and policies as the International Equity Fund.
The Portfolio's investment adviser is
______________________________________ ("__________"). __________, a
registered investment adviser under the Investment Advisers Act of 1940,
specializes in providing international investment advice to various clients.
See "Management - Investment Advisory Services."
The International Equity Fund is designed for investors who desire to
achieve international diversification of their investments by participating in
foreign securities markets. Because international investments generally
involve risks in addition to those risks associated with investment in the
United States, the International Equity Fund should be considered only as a
vehicle for international diversification and not as a complete investment
program.
There can be no assurance that the International Equity Fund or the
Portfolio will achieve its investment objective.
Under normal circumstances, the Portfolio will invest substantially
all of its assets, but not less than 65% of its total assets, in equity
securities of companies domiciled outside the United States. The Portfolio
selects its investments on the basis of their potential for capital
appreciation without regard to current income. The Portfolio may also invest
in the securities of domestic closed-end investment companies investing
primarily in foreign securities and may invest in debt obligations of foreign
governments or their political subdivisions, agencies or instrumentalities, of
supranational organizations and of foreign corporations. The Fund will not
observe any minimum ratings requirement for debt obligations in which it
invests. Such debt obligations may have predominantly speculative
characteristics. Investment will be diversified among securities of issuers in
foreign countries including, but not limited to, Japan, Germany, the United
Kingdom, France, the Netherlands, Hong Kong, Singapore and Australia. Under
normal market conditions the Portfolio will invest at all times in at least
three countries outside the United States. In general, the Portfolio will
invest only in securities of companies and governments in countries that
[ADVISOR'S NAME], in its judgment, considers both politically and economically
stable. The Portfolio has no limit on the amount of its assets which may be
invested in any one type of foreign instrument or in any foreign country;
however, to the extent the Portfolio concentrates its assets in a foreign
country, it will incur greater risks.
- 6 -
<PAGE> 17
The Portfolio may also enter into foreign exchange contracts,
including forward contracts to purchase or sell foreign currencies, in
anticipation of its currency requirements and to protect against possible
adverse movements in foreign exchange rates. Although such contracts may
reduce the risk of loss to the Portfolio from adverse movements in currency
values, the contracts also limit possible gains from favorable movements.
When business or adverse financial conditions warrant, the Portfolio
may assume a temporary defensive position and invest without limit in domestic
or foreign cash or in cash equivalents, including (i) short-term U.S.
Government Securities, (ii) prime quality short-term instruments of commercial
banks, (iii) prime quality commercial paper, (iv) repurchase agreements with
banks and broker-dealers covering any of the securities in which the Portfolio
may invest directly and (v) shares of money market funds to the extent
permitted by the 1940 Act. During periods when and to the extent that the
Portfolio has assumed a temporary defensive position, it may not be pursuing
its investment objective. The Portfolio may hold cash and bank instruments
denominated in any major foreign currency.
Short-Term Trading for the Stock Funds
Under certain market conditions, the Stock Appreciation Fund,
Aggressive Stock Appreciation Fund, Value Stock Appreciation Fund and
International Equity Fund may seek profits by short-term trading. The length
of time a Fund has held a particular security is not generally a consideration
in investment decisions. A change in the number of securities owned by a Fund
is known as "portfolio turnover". To the extent short-term trading strategies
are used, a Fund's portfolio turnover rate may be higher than that of other
mutual funds. Portfolio turnover generally involves some expense to a Fund,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains.
RISKS OF INVESTING IN THE FUNDS
The Money Market Funds attempt to maintain the value of their shares
at a constant $1.00 share price, although there can be no assurance that the
Money Market Funds will always be able to do so. The Money Market Funds may
not achieve as high a level of current income as other funds that do not limit
their investments to the high quality securities in which the Money Market
Funds invest.
The price per share of the Non-Money Market Funds will fluctuate with
changes in value of the investments held by each Fund. Additionally, there can
be no assurance that a Fund will achieve its investment objective or be
successful in preventing or minimizing the risk of loss that is inherent in
investing in particular types of securities. Such risks include the
sensitivity of the cash flows and yields of separately traded interest and
principal components of obligations to the rate of principal payments
(including prepayments). With respect to mortgage-backed securities, risks
include a similar sensitivity to the rate of prepayments in that, although the
value of fixed-income securities generally increases during periods of falling
interest rates, as a result of prepayments and other factors, this is not
always the case with respect to mortgage-backed securities. Asset-backed
securities involve the risk that such securities do not usually have the
benefit of a complete security interest in the related collateral. Positions
in options, futures and options on futures involve the risks that such options
and futures may fail as hedging techniques, that the loss from investing in
futures transactions is potentially unlimited and that closing transactions may
not be effected where a secondary liquid market does not exist. Further,
investment in the securities of issuers in any foreign country involves special
risks and considerations not typically associated with investing in U.S.
issuers.
An investment in the International Equity Fund involves certain risks,
depending on the types of investments made and the types of investment
techniques employed. All investments by the International Equity Fund entail
some risk. The International Equity Fund's policy of investing directly or
indirectly in foreign issuers entails certain risks in addition to those
normally associated with investments in equity securities. See "Investment
Objective and Policies - Investment Policies - Foreign Investment Risks and
Considerations."
- 7 -
<PAGE> 18
By investing solely in the Portfolio, the International Equity Fund
may achieve certain efficiencies and economies of scale. Nonetheless, this
investment could also have potential adverse effects on the Fund. Investors in
the Fund should consider these risks, as described under "Other Information -
International Equity Fund Structure."
MANAGEMENT OF THE FUNDS
[ADVISOR'S NAME] acts as investment advisor to all of the Funds,
except the Cash Reserve Money Market Fund for which [ADVISOR'S NAME] acts as
investment advisor. For its services, [ADVISOR'S NAME] receives a fee from
each Fund (other than the Cash Reserve Money Market Fund) based upon each
Fund's average daily net assets. [ADVISOR'S NAME] receives a fee from the Cash
Reserve Money Market Fund based upon that Fund's average daily net assets. See
"Fee Table" in this Prospectus.
The International Equity Fund currently invests all of its assets in
the Portfolio. The International Equity Fund may withdraw its investment from
the Portfolio, for which [ADVISOR'S NAME] serves as investment adviser, at any
time if the Board determines that it is in the best interests of the
International Equity Fund and its shareholders to do so. See "Other
Information - International Equity Fund Structure." Accordingly, the
International Equity Fund has retained the Adviser as its investment adviser
and [ADVISOR'S NAME] as its investment subadviser to manage the International
Equity Fund's assets in the event the International Equity Fund so withdraws
its investment. Neither the Adviser or [ADVISOR'S NAME] will receive any
advisory or subadvisory fees with respect to the International Equity Fund as
long as the International Equity Fund remains completely invested in the
Portfolio or any other investment company.
[ADMINISTRATOR] acts as administrator and sponsor to the Funds. For
its services, [ADMINISTRATOR] receives a fee from the Funds based on each
Fund's average daily net assets. See "Management of the Fund" in this
Prospectus. [DISTRIBUTOR'S NAME] ("_____") distributes the Funds' shares and
may be reimbursed for certain of its distribution-related expenses.
GUIDE TO INVESTING IN THE __________ FAMILY OF FUNDS
Purchase orders for the Money Market Funds received by 12:00 noon
Eastern time will become effective that day. Purchase orders for all other
Funds received by your broker or Service Organization in proper form prior to
4:15 p.m., Eastern time, and transmitted to _____ prior to 5:00 p.m. Eastern
time, will become effective that day.
<TABLE>
<S> <C> <C>
- - Minimum Initial Investment . . . . . . . . . . . . . . . $1,000
- - Minimum Initial Investment for IRAs . . . . . . . . . . . $ 250
- - Minimum Subsequent Investment . . . . . . . . . . . . . . $ 50
</TABLE>
The Funds are purchased at net asset value.
Shareholders may exchange shares between Funds in the Trust by
telephone or mail. Exchanges may not be effected by facsimile.
<TABLE>
<S> <C> <C>
- - Minimum initial exchange . . . . . . . . . . . . . . . . . .$ 500
(minimum for subsequent exchanges)
</TABLE>
Shareholders may redeem shares by telephone, mail, wire, or by writing
a check (the Money Market Funds only). Shares may not be redeemed by
facsimile.
- 8 -
<PAGE> 19
- If a redemption request is received by 12:00 noon
Eastern time, proceeds for the Money Market Funds
will be transferred to a designated account that day.
- Minimum check amount is $500.
- The Funds reserve the right to redeem upon not less
than 30 days' notice all shares in a Fund's account
which have an aggregate value of $500 or less.
[(Redemption by telephone, wire and check writing is not available for
IRAs and trust relationships of ___________.)
All dividends and distributions will be automatically paid in
additional shares at net asset value of the applicable Fund unless cash payment
is requested.
- Distributions for the Stock Appreciation Fund,
Aggressive Stock Appreciation Fund, Stock
Appreciation Fund, and International Equity Fund are
paid at least once annually and distributions for the
other Funds are paid monthly.
- 9 -
<PAGE> 20
THE INVESTMENT POLICIES AND PRACTICES OF THE FUNDS
Each Fund is a separate investment fund or portfolio, commonly known
as a mutual fund. The Funds are portfolios of a Delaware business trust,
[_________] Trust, organized under the laws of Delaware as an open-end,
management investment company. The Trust's Board of Trustees oversees the
overall management of the Funds and elects the officers of the Trust.
- The investment objective of the U.S. Treasury Reserve Money
Market Fund is to provide investors with as high a level of
current income as is consistent with liquidity, stability,
maximum safety of principal and the maintenance of a stable
$1.00 net asset value per share.
- The investment objective of the Cash Reserve Money Market Fund
is to provide investors with current income, liquidity and the
maintenance of a stable $1.00 net asset value by investing in
high quality, short-term obligations.
- The investment objective of the Short-Term Treasury Income
Fund is to provide investors with as high a level of current
income as is consistent with liquidity and safety of
principal.
- The investment objective of the Intermediate Bond Income Fund
is to provide investors with as high a level of current income
as is consistent with managing for total return by investing
in fixed income securities.
- The investment objective of the Bond Income Fund is to provide
investors with as high a level of current income as is
consistent with managing for total return by investing in
fixed income securities.
- The investment objective of the Stock Appreciation Fund is to
provide investors with long-term capital appreciation.
- The investment objective of the Aggressive Stock Appreciation
Fund is to provide investors with aggressive long-term capital
appreciation.
- The investment objective of the Value Stock Appreciation Fund
is to provide investors with long-term capital appreciation
and dividend income.
- The investment objective of the International Equity Fund is
to provide investors long-term capital appreciation.
Each Fund follows its own investment objectives and policies,
including certain investment restrictions. The SAI contains specific
investment restrictions which govern the Funds' investments. Those
restrictions and the Funds' investment objectives are fundamental policies,
which means that they may not be changed without a majority vote of
shareholders of the affected Fund. Except for the objectives and those
restrictions specifically identified as fundamental, all other investment
policies and practices described in this Prospectus and in the SAI are not
fundamental and may change solely with Board of Trustees approval.
[ADVISOR'S NAME] and [ADVISOR'S NAME] select investments and make
investment decisions based on the investment objective and policies of each
Fund. The following is a description of securities and investment practices.
- 10 -
<PAGE> 21
U.S. Treasury Obligations (All Funds). The Funds may invest in U.S.
Treasury obligations, which are backed by the full faith and credit of the
United States Government as to the timely payment of principal and interest.
U.S. Treasury obligations consist of bills, notes, and bonds and separately
traded interest and principal component parts of such obligations known as
STRIPS which generally differ in their interest rates and maturities. U.S.
Treasury bills, which have original maturities of up to one year, notes, which
have maturities ranging from one year to 10 years, and bonds, which have
original maturities of 10 to 30 years, are direct obligations of the United
States Government.
U.S. Government Securities (All Funds, except U.S. Treasury Reserve
Money Market Fund and Short-Term Treasury Income Fund). U.S. Government
securities are obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. U.S. Government securities include debt
securities issued or guaranteed by U.S. Government-sponsored enterprises and
federal agencies and instrumentalities. Some types of U.S. Government
securities are supported by the full faith and credit of the United States
Government or U.S. Treasury guarantees, such as mortgage-backed certificates
guaranteed by the Government National Mortgage Association ("GNMA"). Other
types of U.S. Government securities, such as obligations of the Student Loan
Marketing Association, provide recourse only to the credit of the agency or
instrumentality issuing the obligation. In the case of obligations not backed
by the full faith and credit of the United States Government, the investor must
look to the agency issuing or guaranteeing the obligation for ultimate
repayment.
Commercial Paper (All Funds, except U.S. Treasury Reserve Money Market
Fund and Short-Term Treasury Income Fund). Commercial paper includes
short-term unsecured promissory notes, variable rate demand notes and variable
rate master demand notes issued by both domestic and foreign bank holding
companies, corporations and financial institutions and United States Government
agencies and instrumentalities. All commercial paper purchased by the Funds
is, at the time of investment, rated in one of the top two rating categories of
at least one NRSRO, or, if not rated is, in the opinion of [ADVISOR'S NAME] or
[ADVISOR'S NAME], of an investment quality comparable to rated commercial paper
in which the Funds may invest, or, with respect to the Cash Reserve Money
Market Fund, (i) rated "P-1" by Moody's Investors Service, Inc. ("Moody's")
and "A-1" or better by Standard & Poor's Corporation ("S&P") or in a comparable
rating category by any two NRSROs that have rated the commercial paper or (ii)
rated in a comparable category by only one such organization if it is the only
organization that has rated the commercial paper (and provided the purchase is
approved or ratified by the Board of Trustees).
Corporate Debt Securities (All Funds, except U.S. Treasury Reserve
Money Market Fund and Short-Term Treasury Income Fund). These Funds may
purchase corporate debt securities, subject to the rating and quality
requirements specified with respect to each Fund. The Funds may invest in both
rated commercial paper and rated corporate debt obligations of foreign issuers
that meet the same quality criteria applicable to investments by the Funds in
commercial paper and corporate debt obligations of domestic issuers. These
investments, therefore, are not expected to involve significant additional
risks as compared to the risks of investing in comparable domestic securities.
Generally, all foreign investments carry with them both opportunities and risks
not applicable to investments in securities of domestic issuers, such as risks
of foreign political and economic instability, adverse movements in foreign
exchange rates, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital, changes in foreign governmental
attitudes toward private investment (possibly leading to nationalization,
increased taxation or confiscation of foreign assets) and added difficulties
inherent in obtaining and enforcing a judgment against a foreign issuer of
securities should it default.
Mortgage-Related Securities (All Funds, except U.S. Treasury Reserve
Money Market Fund and Short-Term Treasury Income Fund). These Funds are
permitted to invest in mortgage-related securities subject to the rating and
quality requirements specified with respect to each such Fund. Mortgage
pass-through securities are securities representing interests in "pools" of
mortgages in which payments of both interest and principal on the securities
are made monthly, in effect, "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net
of fees paid to the issuer or guarantor of the securities). Early repayment of
principal on mortgage pass-through securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose a Fund to a lower rate
of return
- 11 -
<PAGE> 22
upon reinvestment of principal. Also, if a security subject to prepayment has
been purchased at a premium, in the event of prepayment the value of the
premium would be lost. Like other fixed-income securities, when interest rates
rise, the value of mortgage-related securities generally will decline; however,
when interest rates decline, the value of mortgage-related securities with
prepayment features may not increase as much as other fixed-income securities.
In recognition of this prepayment risk to investors, the Public Securities
Association (the "PSA") has standardized the method of measuring the rate of
mortgage loan principal prepayments. The PSA formula, the Constant Prepayment
Rate or other similar models that are standard in the industry will be used by
the Funds in calculating maturity for purposes of investment in
mortgage-related securities. The inverse relation between interest rates and
value of fixed income securities will be more pronounced with respect to
investments by the Fund in mortgage-related securities, the value of which may
be more sensitive to interest ratemeasuring
Payment of principal and interest on some mortgage pass-through
securities (but not the market value of the securities themselves) may be
guaranteed by the full faith and credit of the U.S. Government (in the case of
securities guaranteed by GNMA or guaranteed by agencies or instrumentalities of
the U.S. Government (in the case of securities guaranteed by the Federal
National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC"), which are supported only by the discretionary authority
of the U.S. Government to purchase the agency's obligations). Mortgage
pass-through securities created by non-governmental issuers (such as commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers) may be supported in
various forms of insurance or guarantees issued by governmental entities.
Collateralized Mortgage Obligations ("CMOs") are hybrid instruments
with characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal on a CMO are
paid, in most cases, semi-annually. CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured
in multiple classes, with each class bearing a different stated maturity or
interest rate. The inverse relation between interest rates and value of fixed
income securities will be more pronounced with respect to investments by the
Fund in mortgage-related securities, the value of which may be more sensitive
to interest rate changes.
Asset-Backed Securities (Cash Reserve Money Market Fund, Intermediate
Bond Income Fund and Bond Income Fund). These Funds are permitted to invest in
asset-backed securities, subject to the rating and quality requirements
specified with respect to each such Fund. Through the use of trusts and
special purpose subsidiaries, various types of assets, primarily home equity
loans and automobile and credit card receivables, are being securitized in
pass-through structures similar to the mortgage pass-through structures
described above. Consistent with the Funds' investment objectives, policies
and quality standards, a Fund may invest in these and other types of
asset-backed securities which may be developed in the future.
Asset-backed securities involve certain risks that are not posed by
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the benefit of a complete security interest
in the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, some of which may reduce the ability to
obtain full payment. In the case of automobile receivables, due to various
legal and economic factors, proceeds from repossessed collateral may not always
be sufficient to support payments on these securities. The risks associated
with asset-backed securities are often reduced by the addition of credit
enhancements such as a letter of credit from a bank, excess collateral or a
third-party guarantee.
Municipal Commercial Paper (Intermediate Bond Income Fund, Bond Income
Fund). Municipal commercial paper is a debt obligation with a stated maturity
of one year or less which is issued to finance seasonal working capital needs
or as short-term financing in anticipation of longer-term debt. Investments in
municipal commercial paper are limited to commercial paper which is rated at
the date of purchase: (i) "P-1" by Moody's and "A-1" or "A-1+" by S&P "P-2"
(Prime-2) or better by Moody's and "A-2" or better by S&P or (ii) in a
comparable rating category by any two of the NRSROs that have rated commercial
paper or (iii) in a comparable rating category by only one such organization
- 12 -
<PAGE> 23
if it is the only organization that has rated the commercial paper or (iv) if
not rated, is, in the opinion of [ADVISOR'S NAME], of comparable investment
quality and within the credit quality policies and guidelines established by
the Board of Trustees.
Issuers of municipal commercial paper rated "P-1" have a "superior
capacity for repayment of short-term promissory obligations". The "A-1" rating
for commercial paper under the S&P classification indicates that the "degree of
safety regarding timely payment is either overwhelming or very strong."
Commercial paper with "overwhelming safety characteristics" will be rated
"A-1+". Commercial paper receiving a "P-2" rating has a strong capacity for
repayment of short-term promissory obligations. Commercial paper rated "A-2"
has the capacity for timely payment although the relative degree of safety is
not as overwhelming as for issues designated "A-1". See the Appendix for a
more complete description of securities ratings.
Municipal Notes (Intermediate Bond Income Fund, Bond Income Fund).
Municipal notes are generally sold as interim financing in anticipation of the
collection of taxes, a bond sale or receipt of other revenue. Municipal notes
generally have maturities at the time of issuance of one year or less.
Investments in municipal notes are limited to notes which are rated at the date
of purchase: (i) MIG 1 or MIG 2 by Moody's and in a comparable rating category
by at least one other nationally recognized statistical rating organization
that has rated the notes, or (ii) in a comparable rating category by only one
such organization, including Moody's, if it is the only organization that has
rated the notes, or (iii) if not rated, are, in the opinion of [ADVISOR'S
NAME], of comparable investment quality and within the credit quality policies
and guidelines established by the Board of Trustees.
Notes rated "MIG 1" are judged to be of the "best quality" and carry
the smallest amount of investment risk. Notes rated "MIG 2" are judged to be
of "high quality, with margins of protection ample although not as large as in
the preceding group."
Municipal Bonds (Intermediate Bond Income Fund, Bond Income Fund).
Municipal bonds generally have a maturity at the time of issuance of more than
one year. Municipal bonds may be issued to raise money for various public
purposes -- such as constructing public facilities and making loans to public
institutions. There are generally two types of municipal bonds: general
obligation bonds and revenue bonds. General obligation bonds are backed by the
taxing power of the issuing municipality and are considered the safest type of
municipal bond. Revenue bonds are backed by the revenues of a project or
facility -- tolls from a toll road, for example. Certain types of municipal
bonds are issued to obtain funding for privately operated facilities.
Industrial development revenue bonds (which are private activity bonds) are a
specific type of revenue bond backed by the credit and security of a private
user, and therefore investments in these bonds have more potential risk.
Investments in municipal bonds are limited to bonds which are rated at the time
of purchase "A" or better by a NRSRO. Municipal bonds generally have a
maturity at the time of issuance of more than one year.
Common Stocks (Stock Appreciation Fund, Aggressive Stock Appreciation
Fund, Value Stock Appreciation Fund and International Equity Fund). Common
stock represents the residual ownership interest in the issuer after all of its
obligations and preferred stocks are satisfied. Common stock fluctuates in
price in response to many factors, including historical and prospective
earnings of the issuer, the value of its assets, general economic conditions,
interest rates, investor perceptions and market volatility.
Preferred Stocks (Intermediate Bond Income Fund, Bond Income Fund,
Stock Appreciation Fund, Aggressive Stock Appreciation Fund, Value Stock
Appreciation Fund and International Equity Fund). Preferred stock has a
preference over common stock in liquidation and generally in dividends as well,
but is subordinated to the liabilities of the issuer in all respects.
Preferred stock may or may not be convertible into common stock. As a general
rule, the market value of preferred stock with a fixed dividend rate and no
conversion element varies inversely with interest rates and perceived credit
risk. Because preferred stock is junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the issuer
will cause greater changes in the value of a preferred stock than in a more
senior debt security with similar stated yield characteristics.
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American Depository Receipts (Intermediate Bond Income Fund, Bond
Income Fund, Stock Appreciation Fund, Aggressive Stock Appreciation Fund, Value
Stock Appreciation Fund, and International Equity Fund). American Depository
Receipts are U.S. dollar-denominated receipts generally issued by domestic
banks, which evidence the deposit with the bank of the common stock of a
foreign issuer and which are publicly traded on exchanges or over-the-counter
in the United States.
These Funds may each invest in both sponsored and unsponsored ADR
programs. There are certain risks associated with investments in unsponsored
ADR programs. Because the non-U.S. company does not actively participate in
the creation of the ADR program, the underlying agreement for service and
payment will be between the depository and the shareholder. The Company
issuing the stock underlying the ADR pays nothing to establish the unsponsored
facility, as fees for ADR issuance and cancellation are paid by brokers.
Investors directly bear the expenses associated with certificate transfer,
custody and dividend payment.
In an unsponsored ADR program, there also may be several depositories
with no defined legal obligations to the non-U.S. company. The duplicate
depositories may lead to marketplace confusion because there would be no
central source of information to buyers, sellers and intermediaries. The
efficiency of centralization gained in a sponsored program can greatly reduce
the delays in delivery of dividends and annual reports. In addition, with
respect to all ADRs there is always the risk of loss due to currency
fluctuations.
Investments in ADRs involve certain risks not typically involved in
purely domestic investments, including future foreign political and economic
developments, and the possible imposition of foreign governmental laws or
restrictions applicable to such investments. Securities of foreign issuers
through ADRs are subject to different economic, financial, political and social
factors. Individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. With respect to certain countries, there is the possibility
of expropriation of assets, confiscatory taxation, political or social
instability or diplomatic developments which could adversely affect the value
of the particular ADR. There may be less publicly available information about
a foreign company than about a U.S. company, and foreign companies may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those of U.S. companies. The International Equity
Fund may also invest in European Depository Receipts, which are receipts issued
by a European financial institution evidencing an arrangement similar to ADRs,
and in other similar instruments representing securities of foreign companies.
Investment in Foreign Securities (Intermediate Bond Income Fund, Bond
Income Fund, Stock Appreciation Fund, Aggressive Stock Appreciation Fund, Value
Stock Appreciation Fund and International Equity Fund). These Funds may each
invest in securities of foreign governmental and private issuers that are
generally denominated in and pay interest in U.S. dollars. Investments in
foreign securities involve certain considerations that are not typically
associated with investing in domestic securities. There may be less publicly
available information about a foreign issuer than about a domestic issuer.
Foreign issuers also are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to domestic
issuers. In addition, with respect to certain foreign countries, interest may
be withheld at the source under foreign income tax laws, and there is a
possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in securities of issuers located in those countries.
Convertible and Exchangeable Securities (Intermediate Bond Income
Fund, Bond Income Fund, Stock Appreciation Fund, Aggressive Stock Appreciation
Fund, Value Stock Appreciation Fund and International Equity Fund). These
Funds are permitted to invest in convertible and exchangeable securities,
subject to the rating and quality requirements specified with respect to each
such Fund. Convertible securities generally offer fixed interest or dividend
yields and may be converted either at a stated price or stated rate for common
or preferred stock. Exchangeable securities may be exchanged on specified
terms for common or preferred stock. Although to a lesser extent than with
fixed income securities generally, the market value of convertible securities
tends to decline as interest rates increase and, conversely, tends to increase
as interest rates decline. In addition, because of the conversion or exchange
feature,
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<PAGE> 25
the market value of convertible or exchangeable securities tends to vary with
fluctuations in the market value of the underlying common or preferred stock.
Debt securities that are convertible into or exchangeable for preferred or
common stock are liabilities of the issuer but are generally subordinated to
senior debt of the issuer.
Domestic and Foreign Bank Obligations (All Funds, except U.S. Treasury
Reserve Money Market Fund and Short-Term Treasury Income Fund). These
obligations include but are not restricted to certificates of deposit,
commercial paper, Yankee certificates of deposit, bankers' acceptances,
Eurodollar certificates of deposit and time deposits, promissory notes and
medium term deposit notes. The Funds will not invest in any obligations of
their affiliates, as defined under the 1940 Act.
Each Fund limits its investment in United States bank obligations to
obligations of United States banks (including foreign branches). Each Fund
limits its investment in foreign bank obligations to United States
dollar-denominated obligations of foreign banks (including United States
branches of foreign banks) which in the opinion of [ADVISOR'S NAME] or
[ADVISOR'S NAME], are of an investment quality comparable to obligations of
United States banks which may be purchased by the Funds. There is no
limitation on the amount of the Funds' assets which may be invested in
obligations of foreign banks which meet the conditions set forth herein.
Fixed time deposits may be withdrawn on demand by the investor, but
may be subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Investments in fixed time deposits subject to withdrawal penalties
maturing from two days through seven days may not exceed 15% of the value of
the total assets of the Non-Money Market Funds and 10% of the value of the
total assets of the Money Market Funds.
Obligations of foreign banks involve somewhat different investment
risks than those affecting obligations of United States banks, including the
possibilities that their liquidity could be impaired because of future
political and economic developments, that the obligations may be less
marketable than comparable obligations of United States banks, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that foreign deposits may be seized or nationalized, that foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal and interest on those obligations and
that the selection of those obligations may be more difficult because there may
be less publicly available information concerning foreign banks or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks may differ from those applicable to
Untied States banks. In that connection, foreign banks are not subject to
examination by any United States Government agency or instrumentality.
Investments in Eurodollar and Yankeedollar obligations involve
additional risks. Most notably, there generally is less publicly available
information about foreign companies; there may be less governmental regulation
and supervision; they may use different accounting and financial standards; and
the adoption of foreign governmental restrictions may adversely affect the
payment of principal and interest on foreign investments. In addition, not all
foreign branches of United States banks are supervised or examined by
regulatory authorities as are United States banks, and such branches may not be
subject to reserve requirements.
Zero Coupon Securities (All Funds). The Funds may invest in zero
coupon securities. A zero coupon security pays no interest to its holder
during its life and is sold at a discount to its face value at maturity. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are more
sensitive to changes in interest rates than non-zero coupon securities having
similar maturities and credit qualities.
Variable rate demand obligations (All Funds, except U.S. Treasury
Reserve Money Market Fund and Short-Term Treasury Income Fund). Variable rate
demand obligations have a maturity of 397 days or less with respect to the
Money Market Funds or five to twenty years with respect to the Non-Money Market
Funds, but carry with them the right
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<PAGE> 26
of the holder to put the securities to a remarketing agent or other entity on
short notice, typically seven days or less. Generally, the remarketing agent
will adjust the interest rate every seven days (or at other intervals
corresponding to the notice period for the put), in order to maintain the
interest rate at the prevailing rate for securities with a seven-day maturity.
The remarketing agent is typically a financial intermediary that has agreed to
perform these services. Variable rate master demand obligations permit a Fund
to invest fluctuating amounts at varying rates of interest pursuant to direct
arrangements between the Funds, as lender, and the borrower. Because the
obligations are direct lending arrangements between the Funds and the borrower,
they will not generally be traded, and there is no secondary market for them,
although they are redeemable (and thus immediately repayable by the borrower)
at principal amount, plus accrued interest, at any time. The borrower also may
prepay up to the full amount of the obligation without penalty. While master
demand obligations, as such, are not typically rated by credit rating agencies,
if not so rated, a Fund may, under its minimum rating standards, invest in them
only if, in the opinion of [ADVISOR'S NAME] or [ADVISOR'S NAME], they are of an
investment quality comparable to other debt obligations in which the Funds may
invest and are within the credit quality policies, guidelines and procedures
established by the Board of Trustees. See the SAI for further details on
variable rate demand obligations and variable rate master demand obligations.
Other Mutual Funds (All Funds). Each Fund may invest in shares of
other open-end, management investment companies, subject to the limitations of
the 1940 Act and subject to such investments being consistent with the overall
objective and policies of the Fund making such investment, provided that any
such purchases will be limited to short-term investments in shares of
unaffiliated investment companies. The purchase of securities of other mutual
funds results in duplication of expenses such that investors indirectly bear a
proportionate share of the expenses of such mutual funds including operating
costs, and investment advisory and administrative fees.
Options on Securities (All Funds, except U.S. Treasury Reserve Money
Market Fund and Cash Reserve Money Market Fund). The Funds may purchase put
and call options and write covered put and call options on securities in which
each Fund may invest directly and that are traded on registered domestic
securities exchanges or that result from separate, privately negotiated
transactions (i.e., over-the-counter (OTC) options). The writer of a call
option, who receives a premium, has the obligation, upon exercise, to deliver
the underlying security against payment of the exercise price during the option
period. The writer of a put, who receives a premium, has the obligation to buy
the underlying security, upon exercise, at the exercise price during the option
period.
The Funds may write put and call options on securities only if they
are covered, and such options must remain covered as long as the Fund is
obligated as a writer. A call option is covered if a Fund owns the underlying
security covered by the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration if the underlying security is held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A put option is covered if a Fund maintains cash, U.S. Treasury
bills or other high grade short-term obligations with a value equal to the
exercise price in a segregated account with its custodian.
The principal reason for writing put and call options is to attempt to
realize, through the receipt of premiums, a greater current return than would
be realized on the underlying securities alone. In return for the premium
received for a call option, the Funds forego the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
the option remains open, but retain the risk of loss should the price of the
security decline. In return for the premium received for a put option, the
Funds assume the risk that the price of the underlying security will decline
below the exercise price, in which case the put would be exercised and the Fund
would suffer a loss. The Funds may purchase put options in an effort to
protect the value of a security it owns against a possible decline in market
value.
Writing of options involves the risk that there will be no market in
which to effect a closing transaction. An exchange-traded option may be closed
out only on an exchange that provides a secondary market for an option of the
same series. OTC options are not generally terminable at the option of the
writer and may be closed out only by negotiation with the holder. There is
also no assurance that a liquid secondary market on an exchange will exist. In
addition, because OTC options are issued in privately negotiated transactions
exempt from registration under the
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<PAGE> 27
Securities Act of 1933, there is no assurance that the Funds will succeed in
negotiating a closing out of a particular OTC option at any particular time.
If a Fund, as covered call option writer, is unable to effect a closing
purchase transaction in the secondary market or otherwise, it will not be able
to sell the underlying security until the option expires or it delivers the
underlying security upon exercise.
The staff of the SEC has taken the position that purchased options not
traded on registered domestic securities exchanges and the assets used as cover
for written options not traded on such exchanges are generally illiquid
securities. However, the staff has also opined that, to the extent a mutual
fund sells an OTC option to a primary dealer that it considers creditworthy and
contracts with such primary dealer to establish a formula price at which the
fund would have the absolute right to repurchase the option, the fund would
only be required to treat as illiquid the portion of the assets used to cover
such option equal to the formula price minus the amount by which the option is
in-the-money. Pending resolution of the issue, the Funds will treat such
options and, except to the extent permitted through the procedure described in
the preceding sentence, assets as subject to each such Fund's limitation on
investments in securities that are not readily marketable.
Futures, Related Options and Options on Stock Indices (Stock
Appreciation Fund, Aggressive Stock Appreciation Fund, Value Stock Appreciation
Fund and International Equity Fund). Each Fund may attempt to reduce the risk
of investment in equity securities by hedging a portion of its portfolio
through the use of certain futures transactions, options on futures traded on a
board of trade and options on stock indices traded on national securities
exchanges. In addition, each Fund may hedge a portion of its portfolio by
purchasing such instruments during a market advance or when [ADVISOR'S NAME]
anticipates an advance. In attempting to hedge a portfolio, a Fund may enter
into contracts for the future delivery of securities and futures contracts
based on a specific security, class of securities or an index, purchase or sell
options on any such futures contracts, and engage in related closing
transactions. Each Fund will use these instruments primarily as a hedge
against changes resulting from market conditions in the values of securities
held in its portfolio or which it intends to purchase.
A stock index assigns relative weighing to the common stocks in the
index, and the index generally fluctuates with changes in the market values of
these stocks. A stock index futures contract is an agreement in which one
party agrees to deliver to the other an amount of cash equal to a specific
dollar amount times the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. Each Fund will sell stock index futures only if the amount
resulting from the multiplication of the then current level of the indices upon
which such futures contracts are based, and the number of futures contracts
which would be outstanding, do not exceed one-third of the value of the Fund's
net assets.
When a futures contract is executed, each party deposits with a broker
or in a segregated custodial account up to 5% of the contract amount, called
the "initial margin," and during the term of the contract, the amount of the
deposit is adjusted based on the current value of the futures contract by
payments of variation margin to or from the broker or segregated account.
In the case of options on stock index futures, the holder of the
option pays a premium and receives the right, upon exercise of the option at a
specified price during the option period, to assume the option writer's
position in a stock index futures contract. If the option is exercised by the
holder before the last trading day during the option period, the option writer
delivers the futures position, as well as any balance in the writer's futures
margin account. If it is exercised on the last trading day, the option writer
delivers to the option holder cash in an amount equal to the difference between
the option exercise price and the closing level of the relevant index on the
date the option expires. In the case of options on stock indexes, the holder
of the option pays a premium and receives the right, upon exercise of the
option at a specified price during the option period, to receive cash equal to
the dollar amount of the difference between the closing price of the relevant
index and the option exercise price times a specified multiple, called the
"multiplier."
During a market decline or when [ADVISOR'S NAME] anticipates a
decline, each Fund may hedge a portion of its portfolio by selling futures
contracts or purchasing puts on such contracts or on a stock index in order to
limit
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<PAGE> 28
exposure to the decline. This provides an alternative to liquidation of
securities positions and the corresponding costs of such liquidation.
Conversely, during a market advance or when [ADVISOR'S NAME] anticipates an
advance, each Fund may hedge a portion of its portfolio by purchasing futures,
options on these futures or options on stock indices. This affords a hedge
against a Fund not participating in a market advance at a time when it is not
fully invested and serves as a temporary substitute for the purchase of
individual securities which may later be purchased in a more advantageous
manner. Each Fund will sell options on futures and on stock indices only to
close out existing positions.
Interest Rate Futures Contracts (All Funds, except U.S. Treasury
Reserve Money Market Fund). These Funds may, to a limited extent, enter into
interest rate futures contracts--i.e., contracts for the future delivery of
securities or index-based futures contracts--that are, in the opinion of
[ADVISOR'S NAME], sufficiently correlated with the Fund's portfolio. These
investments will be made primarily in an attempt to protect a Fund against the
effects of adverse changes in interest rates (i.e., "hedging"). When interest
rates are increasing and portfolio values are falling, the sale of futures
contracts can offset a decline in the value of a Fund's current portfolio
securities. The Funds will engage in such transactions primarily for bona fide
hedging purposes.
Options on Interest Rate Futures Contracts (All Funds, except U.S.
Treasury Reserve Money Market Fund). These Funds may purchase put and call
options on interest rate futures contracts, which give a Fund the right to sell
or purchase the underlying futures contract for a specified price upon exercise
of the option at any time during the option period. Each Fund may also write
(sell) put and call options on such futures contracts. For options on interest
rate futures that a Fund writes, such Fund will receive a premium in return for
granting to the buyer the right to sell to the Fund or to buy from the Fund the
underlying futures contract for a specified price at any time during the option
period. As with futures contracts, each Fund will purchase or sell options on
interest rate futures contracts primarily for bona fide hedging purposes.
Foreign Exchange Contracts (International Equity Fund). Changes in
foreign currency exchange rates will affect the U.S. dollar values of
securities denominated in currencies other than the U.S. dollar. The rate of
exchange between the U.S. dollar and other currencies fluctuates in response to
forces of supply and demand in the foreign exchange markets. These forces are
affected by the international balance of payments and other economic and
financial conditions, government invention, speculation and other factors.
When investing in foreign securities, the Portfolio usually effects currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign exchange market. The Portfolio incurs foreign exchange expenses
in converting assets from one currency to another.
The Portfolio may enter into foreign currency forward contracts or currency
futures or options contracts for the purchase or sale of foreign currency to
"lock in" the U.S. dollar price of the securities denominated in a foreign
currency or the U.S. dollar value of interest and dividends to be paid on such
securities, or to hedge against the possibility that the currency of a foreign
country in which the Portfolio has investments may suffer a decline against the
U.S. dollar. A forward currency contract is an obligation to purchase or sell
a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time for the contract. This method of attempting to hedge the value of the
Portfolio's portfolio securities again a decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities.
Although the strategy of engaging in foreign currency transactions could reduce
the risk of loss due to a decline in the value of the hedged currency, it could
also limit the potential gain from an increase in the value of the currency.
The Portfolio does not intend to maintain a net exposure to such contracts
where the fulfillment of the Portfolio's obligations under such contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of
the value of the Portfolio's portfolio securities or other assets denominated
in the currency. The Portfolio will not enter into these contracts for
speculative purposes and will not enter into non-hedging currency contracts.
These contracts involve a risk of loss if [SUBADVISOR'S NAME] fails to predict
currency values correctly. The Portfolio has no present intention to enter
into currency futures or options contracts buy may do so in the future.
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<PAGE> 29
Risks of Options and Futures Contracts. One risk involved in the
purchase and sale of futures and options is that a Fund may not be able to
effect closing transactions at a time when it wishes to do so. Positions in
futures contracts and options on futures contracts may be closed out only on an
exchange or board of trade that provides an active market for them, and there
can be no assurance that a liquid market will exist for the contract or the
option at any particular time. To mitigate this risk, each Fund will ordinarily
purchase and write options only if a secondary market for the options exists on
a national securities exchange or in the over-the-counter market. Another risk
is that during the option period, if a Fund has written a covered call option,
it will have given up the opportunity to profit from a price increase in the
underlying securities above the exercise price in return for the premium on the
option (although the premium can be used to offset any losses or add to a
Fund's income) but, as long as its obligation as a writer continues, such Fund
will have retained the risk of loss should the price of the underlying security
decline. Investors should note that because of the volatility of the market
value of the underlying security, the loss from investing in futures
transactions is potentially unlimited. In addition, a Fund has no control over
the time when it may be required to fulfill its obligation as a writer of the
option. Once a Fund has received an exercise notice, it cannot effect a
closing transaction in order to terminate its obligation under the option and
must deliver the underlying securities at the exercise price.
The Funds' successful use of stock index futures contracts, options on
such contracts and options on indices depends upon the ability of [ADVISOR'S
NAME] to predict the direction of the market and is subject to various
additional risks. The correlation between movements in the price of the
futures contract and the price of the securities being hedged is imperfect and
the risk from imperfect correlation increases in the case of stock index
futures as the composition of the Funds' portfolios diverge from the
composition of the relevant index. Such imperfect correlation may prevent the
Funds from achieving the intended hedge or may expose the Funds to risk of
loss. In addition, if the Funds purchase futures to hedge against market
advances before they can invest in common stock in an advantageous manner and
the market declines, the Funds might create a loss on the futures contract.
Particularly in the case of options on stock index futures and on stock
indices, the Funds' ability to establish and maintain positions will depend on
market liquidity. The successful utilization of options and futures
transactions requires skills different from those needed in the selection of
the Funds' portfolio securities. The Funds believe that [ADVISOR'S NAME]
possesses the skills necessary for the successful utilization of such
transactions.
The Funds are permitted to engage in bona fide hedging transactions
(as defined in the rules and regulations of the Commodity Futures Trading
Commission) without any quantitative limitations. Futures and related option
transactions which are not for bona fide hedging purposes may be used provided
the total amount of the initial margin and any option premiums attributable to
such positions does not exceed 5% of each Fund's liquidating value after taking
into account unrealized profits and unrealized losses, and excluding any
in-the-money option premiums paid. The Funds will not market, and are not
marketing, themselves as commodity pools or otherwise as vehicles for trading
in futures and related options. The Funds will segregate liquid assets such as
cash, U.S. Government securities or other liquid high grade debt obligations to
cover the futures and options.
"When Issued" and "Forward Commitment" Transactions (All Funds). The
Funds may purchase securities on a when issued and delayed delivery basis and
may purchase or sell securities on a forward commitment basis. When issued or
delayed delivery transactions arise when securities are purchased by a Fund
with payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time of
entering into the transaction. A forward commitment transaction is an
agreement by a Fund to purchase or sell securities at a specified future date.
When a Fund engages in these transactions, the Fund relies on the buyer or
seller, as the case may be, to consummate the sale. Failure to do so may
result in the Fund missing the opportunity to obtain a price or yield
considered to be advantageous. When issued and delayed delivery transactions
and forward commitment transactions may be expected to occur a month or more
before delivery is due. However, no payment or delivery is made by a Fund
until it receives payment or delivery from the other party to the transaction.
A separate account containing only liquid assets such as cash, U.S. Government
securities, or other liquid high grade debt obligations equal to the value of
purchase commitments will be maintained until payment is made. Such securities
have the effect of leverage on the Funds and may contribute to volatility of a
Fund's net asset value. For further information, see the SAI.
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<PAGE> 30
Loans of Portfolio Securities (All Funds). To increase current
income, each Fund may lend its portfolio securities in an amount up to 33 1/3%
of each such Fund's total assets to brokers, dealers and financial
institutions, provided certain conditions are met, including the condition that
each loan is secured continuously by collateral maintained on a daily
mark-to-market basis in an amount at least equal to the current market value of
the securities loaned. These transactions involve a loan by the applicable
Fund and are subject to the same risks as repurchase agreements. For further
information, see the SAI.
Repurchase Agreements (All Funds, except the Short-Term Treasury
Income Fund). The Funds may enter into repurchase agreements with any bank and
broker-dealer which, in the opinion of the Trustees, presents a minimum risk of
bankruptcy. Under a repurchase agreement a Fund acquires securities and
obtains a simultaneous commitment from the seller to repurchase the securities
at a specified time and at an agreed upon yield. The agreements will be fully
collateralized and the value of the collateral, including accrued interest,
marked-to-market daily. The agreements may be considered to be loans made by
the purchaser, collateralized by the underlying securities. If the seller
should default on its obligation to repurchase the securities, a Fund may
experience a loss of income from the loaned securities and a decrease in the
value of any collateral, problems in exercising its rights to the underlying
securities and costs and time delays in connection with the disposition of
securities. No Money Market Fund may invest more than 10% and no Non-Money
Market Fund may invest more than 15% of its net assets in repurchase agreements
maturing in more than seven business days and in securities for which market
quotations are not readily available. For more information about repurchase
agreements, see "Investment Policies" in the SAI.
Reverse Repurchase Agreements (All Funds).
The Funds may also enter into reverse repurchase agreements to avoid
selling securities during unfavorable market conditions to meet redemptions.
Pursuant to a reverse repurchase agreement, a Fund will sell portfolio
securities and agree to repurchase them from the buyer at a particular date and
price. Whenever a Fund enters into a reverse repurchase agreement, it will
establish a segregated account in which it will maintain liquid assets in an
amount at least equal to the repurchase price marked to market daily (including
accrued interest), and will subsequently monitor the account to ensure that
such equivalent value is maintained. The Fund pays interest on amounts
obtained pursuant to reverse repurchase agreements. Reverse repurchase
agreements are considered to be borrowings by a Fund under the 1940 Act.
Portfolio Turnover. The Funds generally will not engage in the
trading of securities for the purpose of realizing short-term profits, but each
Fund will adjust its portfolio as it deems advisable in view of prevailing or
anticipated market conditions or fluctuations in interest rates to accomplish
its respective investment objective. For example, each Fund may sell portfolio
securities in anticipation of an adverse market movement. Other than for tax
purposes, frequency of portfolio turnover will not be a limiting factor if a
Fund considers it advantageous to purchase or sell securities. The Funds do
not anticipate that the respective annual portfolio turnover rates will exceed
the following: Short-Term Treasury Income Fund, 400%; Intermediate Income Fund,
500%; Bond Income Fund, 500%; Stock Appreciation Fund, 85%; Aggressive Stock
Appreciation Fund, 85%; Value Stock Appreciation Fund, 85% and International
Equity Fund, 100%. A high rate of portfolio turnover involves correspondingly
greater transaction expenses than a lower rate, which expenses must be borne by
each Fund and its shareholders. High portfolio turnover rates may also make it
more difficult for the Funds to satisfy the requirement for qualification as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"), that less than 30% of each Funds' gross income in any tax
year be derived from gains on the sale of securities held for less than less
than three months.
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<PAGE> 31
INVESTMENT RESTRICTIONS
(ALL FUNDS, EXCEPT AS INDICATED)
(1) No Fund may invest more than 15% (10% with respect to the
Money Market Funds) of the aggregate value of its net assets in investments
which are illiquid, or not readily marketable (including repurchase agreements
having maturities of more than seven calendar days, time deposits having
maturities of more than seven calendar days, and securities of foreign issuers
that are not listed on a recognized domestic or foreign securities exchange).
(2) No Fund may borrow money or pledge or mortgage its assets,
except that a Fund may borrow from banks up to 10% of the current value of its
total net assets for temporary or emergency purposes and those borrowings may
be secured by the pledge of not more than 15% of the current value of that
Fund's total net assets (but investments may not be purchased by a Fund while
any such borrowings exist).
(3) No Fund may make loans, except loans of portfolio securities
and except that a Fund may enter into repurchase agreements with respect to its
portfolio securities and may purchase the types of debt instruments described
in this Prospectus.
The foregoing investment restrictions and those described in the SAI
as fundamental are policies of each Fund which may be changed only when
permitted by law and approved by the holders of a majority of the applicable
Fund's outstanding voting securities as described under "Other
Information--Voting."
In addition, each Fund is a diversified fund. As such, each will not,
with respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of any one issuer (except for U.S. Government
securities), provided that the International Equity Fund will invest 100% of
its assets in the Portfolio, or purchase more than 10% of the outstanding
voting securities of any such issuer. The Money Market Funds are subject to
further diversification requirements with respect to 100% of their assets.
Also, each Fund will invest less than 25% of its total assets in the securities
of any one industry, excluding the Cash Reserve Money Market Fund which may
invest more than 25% of its total assets in instruments issued by the banking
industry. For this purpose, U.S. Government securities (and repurchase
agreements related thereto) are not considered securities of a single industry.
If a percentage restriction on investment policies or the investment
or use of assets set forth in this Prospectus are adhered to at the time a
transaction is effected, later changes in percentage resulting from changing
asset values will not be considered a violation.
RISKS OF INVESTING IN THE FUNDS
CERTAIN RISK CONSIDERATIONS
The Money Market Funds attempt to maintain a constant net asset value
of $1.00 per share, although there can be no assurance that the Money Market
Funds will always be able to do so. The Money Market Funds may not achieve as
high a level of current income as other funds that do not limit their
investment to the high quality securities in which the Money Market Funds
invest.
The price per share of each of the other Funds will fluctuate with
changes in value of the investments held by the Fund. For example, the value
of a bond Fund's shares will generally fluctuate inversely with the movements
in interest rates and a stock Fund's shares will generally fluctuate as a
result of numerous factors, including but not limited to investors'
expectations about the economy and corporate earnings and interest rates.
Shareholders of a Fund should expect the value of their shares to fluctuate
with changes in the value of the securities owned by that Fund. Additionally,
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<PAGE> 32
a Fund's investment in smaller companies may involve greater risks than
investments in large companies due to such factors as limited product lines,
markets and financial or managerial resources, and less frequently traded
securities that may be subject to more abrupt price movements than securities
of larger companies.
There is, of course, no assurance that a Fund will achieve its
investment objective or be successful in preventing or minimizing the risk of
loss that is inherent in investing in particular types of investment products.
In order to attempt to minimize that risk, [ADVISOR'S NAME] and [ADVISOR'S
NAME] monitor developments in the economy, the securities markets, and with
each particular issuer. Also, as noted earlier, each diversified Fund is
managed within certain limitations that restrict the amount of a Fund's
investment in any single issuer.
Foreign Securities (All Funds, except the U.S. Treasury Reserve Money
Market Fund and Short-Term Treasury Income Fund). Investing in the securities
of issuers in any foreign country, including ADRs, involves special risks and
considerations not typically associated with investing in U.S. companies.
These include differences in accounting, auditing and financial reporting
standards; generally higher commission rates on foreign portfolio transactions;
the possibility of nationalization, expropriation or confiscatory taxation;
adverse changes in investment or exchange control regulations (which may
include suspension of the ability to transfer currency from a country); and
political instability which could affect U.S. investments in foreign countries.
Additionally, foreign securities and dividends and interest payable on those
securities may be subject to foreign taxes, including taxes withheld from
payments on those securities. Foreign securities often trade with less
frequency and volume than domestic securities and, therefore, may exhibit
greater price volatility. Additional costs associated with an investment in
foreign securities may include higher custodial fees than apply to domestic
custodial arrangements and transaction costs of foreign currency conversions.
Changes in foreign exchange rates also will affect the value of securities
denominated or quoted in currencies other than the U.S. dollar and, with
respect to the Money Market Fund, may affect the ability to maintain net asset
value. A Fund's objectives may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments. Through a Fund's flexible policies, management
endeavors to avoid unfavorable consequences and to take advantage of favorable
developments in particular nations where, from time to time, it places a Fund's
investments. See the SAI for further information about foreign securities.
Small Capitalization Stocks (Stock Appreciation Fund, Aggressive Stock
Appreciation Fund, Value Stock Appreciation Fund). Small capitalization stocks
are more volatile than larger capitalization stocks. The Fund may invest in
relatively new or unseasoned companies, which are in their early stages of
development, or small companies positioned in new and emerging industries.
Securities of small and unseasoned companies present greater risks than
securities of larger, more established companies. The companies in which the
Fund may invest may have relatively small revenues and limited product lines,
and may have a small share of the market for their products or services. Small
companies may lack depth of management. They may be unable to internally
generate funds necessary for growth or potential development or to generate
such funds through external financing on favorable terms. They may be
developing or marketing new products or services for which markets are not yet
established and may never become established. Due to these and other factors,
small companies may incur significant losses, and investments in such companies
are therefore speculative.
CERTAIN RISKS OF INVESTING IN THE INTERNATIONAL EQUITY FUND
The International Equity Fund's investment in the Portfolio may be
affected by the actions of other large investors in the Portfolio, if any. For
example, if the Portfolio had a large investor other than the International
Equity Fund that redeemed its interest in the Portfolio, the Portfolio's
remaining investors (including the International Equity Fund) might, as a
result, experience higher pro rata operating expenses, thereby producing lower
returns.
The International Equity Fund may withdraw it s entire investment from
the Portfolio at any time, if the Board determines that it is in the best
interests of the International Equity Fund and its shareholders to do so. The
International Equity Fund might withdraw, for example, if there were other
investors in the Portfolio with power to, and who did by
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<PAGE> 33
a vote of the shareholders of all investors (including the International Equity
Fund), change the investment objective or policies of the Portfolio in a manner
not acceptable to the Board. A withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) by the
Portfolio. That distribution could result in a less diversified portfolio of
investments for the International Equity Fund and could affect adversely the
liquidity of the International Equity Fund's portfolio. If the International
Equity Fund decided to convert those securities to cash, it usually would incur
brokerage fees or other transaction costs. If the International Equity Fund
withdrew its investment from the Portfolio, the Board would consider what
action might be taken, including the management of the International Equity
Fund's assets in accordance with its investment objective and policies by the
Adviser and [SUBADVISER'S NAME], the International Equity Fund's investment
adviser and subadviser, respectively, or the investment of all of the
International Equity Fund's investable assets in another pooled investment
entity having substantially the same investment objective as the International
Equity Fund. The inability of the International Equity Fund to find a suitable
replacement investment, in the event the Board decided not to permit the
Adviser and [SUBADVISER'S NAME] to manage the International Equity Fund's
assets, could have a significant impact on shareholders of the International
Equity Fund.
[Each investor in the Portfolio, including the International Equity
Fund, will be liable for all obligations of the Portfolio, but not any other
portfolio of __________.] The risk to an investor in the Portfolio of
incurring financial loss on account of such liability, however, would be
limited to circumstances in which the Portfolio was unable to meet its
obligations. Upon liquidation of the Portfolio, investors would be entitled to
share pro rata in the net assets of the Portfolio available for distribution to
investors.
MANAGEMENT OF THE FUNDS
The business and affairs of each Fund are managed under the direction
of the Board of Trustees. Information about the Trustees, as well as the
Trust's executive officers, may be found in the SAI under the heading
"Management--Trustees and Officers."
THE ADVISORS: [ADVISOR'S NAME]
[ADVISOR'S NAME] ("__________") has provided investment
advisory services to the Funds since inception (except the
Cash Reserve Money Market Fund) pursuant to an Advisory
Agreement with the Trust (the "Advisory Agreement"). Subject
to such policies as the Trust's Board of Trustees may
determine, [ADVISOR'S NAME] makes investment decisions for the
Funds. For the advisory services it provides to the Funds,
[ADVISOR'S NAME] receives fees based on average daily net
assets up to the following annualized rates: U.S. Treasury
Reserve Money Market Fund, 0.15%; Short-Term Treasury Income
Fund, 0.30%; Intermediate Bond Income Fund, 0.40%; Bond Income
Fund, 0.40%; Stock Appreciation Fund, 0.65%; Aggressive Stock
Appreciation Fund, 0.745%; and Value Stock Appreciation Fund,
0.65%. [ADVISOR'S NAME] does not receive advisory fees with
respect to the International Equity Fund, as long as the Fund
remains completely invested in the Portfolio or any other
investment company.
Each of the portfolio managers listed below has significant
experience in managing investment portfolios similar to the
Funds. ___________, an_______________________of [ADVISOR'S
NAME], is responsible for the day-to-day management of the
Short-Term Treasury Income Fund's portfolio. ___________ has
been with [ADVISOR'S NAME] since_______ and was previously
with ________________ from ____ to ____. Mr. __________, an
_________________ of [ADVISOR'S NAME], is responsible for the
day-to- day management of the portfolios of the Intermediate
Income Fund and the Bond Income Fund. Mr. ______ has been
with [ADVISOR'S NAME] since ____ and was previously with
_____________ from ____ to ____ and _________________ from
____ to ____.
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<PAGE> 34
Mr. _______, a ________________ of [ADVISOR'S NAME], is
responsible for the day-to-day management of the portfolios of
the Stock Appreciation Fund and the Aggressive Stock
Appreciation Fund. Mr. ______ has been with [ADVISOR'S NAME]
since ____. Mr. ___________, Vice President of [ADVISOR'S
NAME], is responsible for the day-to-day management of the
Value Stock Appreciation Fund's portfolio. Mr. _______ has
been with [ADVISOR'S NAME] since ____.
[ADVISOR'S NAME], whose predecessor was formed in ____, is the
____________________ largest ___________ in_______ and
provides ________________ services to _______________. It is
a wholly-owned subsidiary of ____________. [ADVISOR'S NAME]
acts as the investment advisor to a wide variety of trusts,
individuals, institutions and corporations. Its investment
management responsibilities, as of _________ 199_, included
accounts with aggregate assets of approximately $_____
billion. The principal business address of [ADVISOR'S NAME]
is _______________________.
[ADDITIONAL ADVISOR'S NAME AND DESCRIPTION]
[SUBADVISER'S NAME AND DESCRIPTION]
The investment advisory fees payable to [SUBADVISOR'S NAME]
by_________ Trust are 0.75% of the average annual daily net assets of the
Portfolio. The investment advisory agreement for the International Equity Fund
provides for an investment advisory fee payable to [ADVISOR'S NAME] by the
Trust of 0.75% of the average annual daily net assets of the Fund in the event
that the Fund is not completely invested in the Portfolio or another investment
company. All investment advisory fees are accrued daily and paid monthly.
[Based upon the advice of counsel, [ADVISOR'S NAME] believes that the
performance of investment advisory services for the Funds will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent [ADVISOR'S NAME] from continuing to perform such
services for the Funds. If [ADVISOR'S NAME] were prohibited from acting as
investment advisor to the Funds, it is expected that the Board of Trustees
would recommend to shareholders approval of a new investment advisory agreement
with another qualified investment advisor selected by the Board or that the
Board would recommend other appropriate action.
THE SPONSOR AND DISTRIBUTOR
[ADMINISTRATOR],[ADDRESS], acts as Sponsor of the Funds.
[ADMINISTRATOR] is primarily an institutional brokerage firm with membership on
the New York, American, Boston, Midwest, Pacific and Philadelphia Stock
Exchanges. [ADMINISTRATOR] also serves as administrator and distributor of
other mutual funds. ________ Distributor Inc. ("___") is an affiliate of [
] and was organized specifically to distribute the ________ Funds.
In addition to sales charges paid to dealers, ___ may from time to
time pay a bonus or other incentive to dealers which employ registered
representatives who sell a minimum dollar amount of shares of the Funds. Such
bonus or other incentive may take the form of payment for travel expenses,
including lodging, incurred in connection with trips taken by qualifying
registered representatives and members of their families to places within or
without the United States, or other bonuses, such as gift certificates or the
cash equivalent of such bonuses.
The Funds have adopted a Rule 12b-1 Distribution Plan and Agreement
(the "Plan") pursuant to which each Fund may reimburse the Distributor on a
monthly basis for costs and expenses of the Distribution in connection with the
distribution and marketing of shares. These costs and expenses, which are
subject to a maximum limit of 0.25% per
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<PAGE> 35
annum of the average daily net assets of the Fund, include (i) advertising by
radio, television, newspapers, magazines, brochures, sales literature, direct
mail or any other form of advertising, (ii) expenses of employees or agents of
the Distributor, including salary, commissions, travel and related expenses,
(iii) payments to broker-dealers and financial institutions for services in
connection with the distribution of shares, including promotional incentives
and fees calculated with reference to the average daily net asset value of
shares held by shareholders who have a brokerage or other service relationship
with the broker-dealer or other institution receiving such fees, (iv) costs of
printing prospectuses, statements of additional information and other materials
to be given or sent to prospective investors, (v) such other similar services
as the Trustees determine to be reasonably calculated to result in the sale of
shares of the Funds, (vi) costs of shareholder servicing which may be incurred
by broker-dealers, banks or other financial institutions, and (vii) other
direct and indirect distribution-related expenses, including the provision of
services with respect to maintaining the assets of the Funds. Each Fund will
pay all costs and expenses in connection with the preparation, printing and
distribution of its Prospectus to current shareholders and the operation of its
Plan, including related legal and accounting fees. No Fund will be liable for
distribution expenditures made by the Distributor in any given year in excess
of the maximum amount payable under the Plan for that Fund year.
ADMINISTRATIVE SERVICES
The Funds have also entered into an Administrative Services Contract
with[ADMINISTRATOR] pursuant to which [ADMINISTRATOR] provides certain
management and administrative services necessary for the Funds' operations
including: (i) general supervision of the operation of the Funds including
coordination of the services performed by the Funds' Advisors, transfer agent,
custodian, independent accountants and legal counsel, regulatory compliance,
including the compilation of information for documents such as reports to, and
filings with, the SEC and state securities commissions, and preparation of
proxy statements and shareholder reports for the Funds; (ii) general
supervision relative to the compilation of data required for the preparation of
periodic reports distributed to the Funds' Officers and Board of Trustees; and
(iii) furnishing office space and certain facilities required for conducting
the business of the Funds. For these services, [ADMINISTRATOR] receives from
each Fund a fee, payable monthly, at the annual rate of 0.15% of each Fund's
average daily net assets. Pursuant to a Services Agreement between the Trust
and the Administrator, [ADMINISTRATOR] assists the Trust with certain transfer
and dividend disbursing agent functions and receives a fee of $15 per account
per year plus out-of-pocket expenses. Pursuant to a Fund Accounting Agreement
between the Trust and the Administrator, the Administrator assists the Trust in
calculating net asset values and provides certain other accounting services for
each Fund described therein, for an annual fee of $30,000 per Fund plus
out-of-pocket expenses.
For the International Equity Fund, in lieu of the fees set forth
above, [ADMINISTRATOR] is paid 0.15% of assets for administrative services.
SERVICE ORGANIZATIONS
Various banks, trust companies, broker-dealers (other than the
Sponsor) or other financial organizations (collectively, "Service
Organizations") also may provide administrative services for the Funds, such as
maintaining shareholder accounts and records. The Funds may pay fees to
Service Organizations (which vary depending upon the services provided) in
amounts up to an annual rate of 0.05% (0.08% for the International Equity Fund)
of the daily net asset value of the Funds' shares owned by shareholders with
whom the Service Organization has a servicing relationship.
Some Service Organizations may impose additional or different
conditions on their clients, such as requiring their clients to invest more
than a Fund's minimum initial or subsequent investments or charging a direct
fee for servicing. If imposed, these fees would be in addition to any amounts
which might be paid to the Service Organization by the Funds. Each Service
Organization has agreed to transmit to its clients a schedule of any such fees.
Shareholders using Service Organizations are urged to consult with them
regarding any such fees or conditions.
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<PAGE> 36
The Glass-Steagall Act and other applicable laws provide that, among
other things, banks may not engage in the business of underwriting, selling or
distributing securities. There is currently no precedent prohibiting banks
from performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or
interpretations of such laws, as well as changes in either Federal or state
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, could prevent a bank Service Organization from
continuing to perform all or a part of its servicing activities. If a bank
were prohibited from so acting, its shareholder clients would be permitted to
remain shareholders of the Funds and alternative means for continuing the
servicing of such shareholders would be sought. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences.
OTHER EXPENSES
Each Fund bears all costs of its operations other than expenses
specifically assumed by [ADMINISTRATOR], [DISTRIBUTOR'S NAME], [ADVISOR'S NAME]
or [ADVISOR'S NAME]. The costs borne by the Funds include legal and accounting
expenses; Trustees' fees and expenses; insurance premiums; custodian and
transfer agent fees and expenses; expenses incurred in acquiring or disposing
of the Funds' portfolio securities; expenses of registering and qualifying the
Funds' shares for sale with the SEC and with various state securities
commissions; expenses of obtaining quotations on the Funds' portfolio
securities and pricing of the Funds' shares; expenses of maintaining the Funds'
legal existence and of shareholders' meetings; and expenses of preparation and
distribution to existing shareholders of reports, proxies and prospectuses.
Each Fund bears its own expenses associated with its establishment as a series
of the Trust; these expenses are amortized over a five-year period from the
commencement of a Fund's operations. See "Management" in the SAI. Trust
expenses directly attributable to a Fund are charged to that Fund; other
expenses are allocated proportionately among all of the Funds in the Trust in
relation to the net assets of each Fund.
PORTFOLIO TRANSACTIONS
Pursuant to the applicable Advisory Agreement, [ADVISOR'S
NAME] and [ADVISOR'S NAME] place orders for the purchase and sale of portfolio
investments for the Funds' accounts with brokers or dealers selected by it in
its discretion. In effecting purchases and sales of portfolio securities for
the account of the Funds, [ADVISOR'S NAME] and [ADVISOR'S NAME] will seek the
best available price and most favorable execution of the Funds' orders.
Trading does, however, involve transaction costs. Transactions with dealers
serving as primary market makers reflect the spread between the bid and asked
prices. Purchases of underwritten issues may be made, which will include an
underwriting fee paid to the underwriter. Purchases and sales of securities
are generally placed by [ADVISOR'S NAME] with broker-dealers which, in
[ADVISOR'S NAME]'s judgment, provide prompt and reliable execution at favorable
security prices and reasonable commission rates. [ADVISOR'S NAME] may cause a
Fund to pay commissions higher than another broker-dealer would have charged if
[ADVISOR'S NAME] believes the commission paid is reasonable in relation to the
value of the brokerage and research services received by [ADVISOR'S NAME].
Broker-dealers are selected on the basis of a variety of factors such as
reputation, capital strength, size and difficulty of order, sale of Fund shares
and research provided to [ADVISOR'S NAME] and [ADVISOR'S NAME]. Consistent
with its policy of seeking best execution of portfolio transactions, the Fund
may place orders to purchase or sell securities with affiliates. Affiliates
will not, however, execute as principal, any transactions for or with the Fund.
The Fund has adopted procedures under Rule 17e-1 of the Investment Company Act
of 1940 governing brokerage transactions with affiliates.
For the Portfolio in which the International Equity Fund
invests, [SUBADVISOR'S NAME] places orders for the purchase and sale of the
Portfolio's assets with brokers and dealers its selects. [SUBADVISOR'S NAME]
seeks "best execution" for all portfolio transactions, but the Portfolio may
pay higher than the lowest available commission rates when [SUBADVISOR'S NAME]
believes it is reasonable to do so in light of the value for the brokerage and
research services provided by the broker effecting the transaction. Commission
rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to the
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<PAGE> 37
Portfolio than would be the case for comparable transactions effected on United
States securities exchanges. Subject to the Portfolio's policy of obtaining
the best price consistent with the quality of execution of transactions,
consistent with the quality of execution of transactions, [SUBADVISOR'S NAME]
may employ _______________ and other broker-dealer affiliates of [SUBADVISOR'S
NAME] or the Adviser to effect brokerage transactions for the Portfolio. The
Portfolio's payment of commission for these affiliated brokers is subject to
procedures adopted by_________Trust's board of trustees to provide that the
commissions will not exceed the usual and customary broker's commissions
charged by unaffiliated brokers. No specific portion of the Portfolio's
brokerage will be directed to an affiliated broker and in no event will a
broker affiliated with [SUBADVISOR'S NAME] or the Adviser receive brokerage
transactions in recognition of research services provided to [SUBADVISOR'S
NAME] or the Adviser.
[SUBADVISOR'S NAME] anticipates that the annual portfolio turnover
rate in the Portfolio will be less than 100%.
FUND SHARE VALUATION
The net asset value per share of the Funds is calculated at 12:00 noon
(Eastern time) for the Money Market Funds and at 4:15 p.m. (Eastern time) for
each of the Non-Money Market Funds, Monday through Friday, on each day the New
York Stock Exchange is open for trading, which excludes the following business
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day; and the
following additional business holidays for the Money Market Funds: Martin
Luther King's Birthday, Columbus Day and Veterans Day. The net asset value per
share of each share class is computed by dividing the value of the net assets
attributable to each class (i.e., the value of the assets less the liabilities)
by the total number of such class's outstanding shares. All expenses,
including fees paid to the Advisor, [ADMINISTRATOR] and [Distributor], are
accrued daily and taken into account for the purpose of determining the net
asset value. Expenses directly attributable to a Fund are charged to the Fund;
other expenses are allocated proportionately among each Fund within the Trust
in relation to the net assets of each Fund, or on another reasonable basis.
Each share class within the Fund is charged with the direct expenses of that
class and with a proportion of the general expenses of the Fund. These general
expenses (e.g., investment advisory fees) are allocated among the classes of
shares based on the relative value of their outstanding shares.
Securities listed on an exchange are valued on the basis of the last
sale prior to the time the valuation is made. If there has been no sale since
the immediately previous valuation, then the current bid price is used.
Quotations are taken from the exchange where the security is primarily traded.
Portfolio securities which are primarily traded on foreign exchanges may be
valued with the assistance of a pricing service and are generally valued at the
preceding closing values of such securities on their respective exchanges,
except that when an occurrence subsequent to the time a foreign security is
valued is likely to have changed such value, then the fair value of those
securities will be determined by consideration of other factors by or under the
direction of the Board of Trustees. Over-the-counter securities are valued on
the basis of the bid price at the close of business on each business day.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by or at the direction of the Board of
Trustees. Notwithstanding the above, bonds and other fixed-income securities
are valued by using market quotations and may be valued on the basis of prices
provided by a pricing service approved by the Board of Trustees. All assets
and liabilities initially expressed in foreign currencies will be converted
into U.S. dollars at the mean between the bid and asked prices of such
currencies against U.S. dollars as last quoted by any major bank.
Trading in securities on European, Far Eastern and other international
securities exchanges and over-the-counter markets is normally completed well
before the close of business of each Fund Business Day. In addition, trading
in foreign securities generally or in a particular country or countries may not
take place on all Fund Business Days. Trading does take place in various
foreign markets, however, on days on which the International Equity Fund's net
asset value is not calculated. Calculation of the net asset value per share of
the International Equity Fund
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<PAGE> 38
may not occur contemporaneously with the determination of the prices of the
foreign securities used in the calculation. Events affecting the values of
foreign securities that occur after the time their prices are determined and
before the International Equity Fund's determination of net asset value will
not be reflected in the International Equity Fund's calculation of net asset
value unless the Adviser or [Subadvisor's Name] determines that the particular
event would materially affect net asset value, in which case an adjustment will
be made.
All assets and liabilities of the International Equity Fund
denominated in foreign currencies are converted into United States dollars at
the mean of the bid and asked prices of such currencies against the United
States dollar last quoted by a major bank prior to the time of conversion.
The Money Market Funds use the amortized cost method to value their
portfolio securities and seek to maintain a constant net asset value of $1.00
per share, although there may be circumstances under which this goal cannot be
achieved. The amortized cost method involves valuing a security at its cost
and amortizing any discount or premium over the period until maturity,
regardless of the impact of fluctuating interest rates on the market value of
the security. See the SAI for a more complete description of the amortized
cost method.
PRICING AND PURCHASE OF FUND SHARES
Orders for the purchase of shares will be executed at the net asset
value per share next determined after an order has been received.
[The following purchase procedures do not apply to certain fund or
trust accounts that are managed by [ADVISOR'S NAME]. The customer should
consult his or her trust administrator for proper instructions.]
All funds received are invested in full and fractional shares of the
appropriate Fund. Certificates for shares are not issued.[ADMINISTRATOR]
maintains records of each shareholder's holdings of Fund shares, and each
shareholder receives a statement of transactions, holdings and dividends. The
Funds reserve the right to reject any purchase.
An investment may be made using any of the following methods:
Through an Authorized Broker, Investment Advisor or Service
Organization. Shares are available to new and existing shareholders through
authorized brokers, investment advisors and Service Organizations. To make an
investment using this method, simply complete a Purchase Application and
contact your broker, investment advisor or Service Organization with
instructions as to the amount you wish to invest. Your broker will then
contact [DISTRIBUTOR'S NAME] to place the order on your behalf on that day.
Orders received by your broker or Service Organization for the
Non-Money Market Funds in proper order prior to the determination of net asset
value and transmitted to [DISTRIBUTOR'S NAME] prior to the close of its
business day (which is currently 5:00 p.m., Eastern time), will become
effective that day. Orders for the Money Market Funds received prior to 12:00
noon will become effective that day. Brokers who receive orders are obligated
to transmit them promptly. You should receive written confirmation of your
order within a few days of receipt of instructions from your broker.
By Wire. Investments may be made directly through the use of wire
transfers of Federal funds. Contact your bank and request it to wire Federal
funds to the applicable Fund. In most cases, your bank will either be a member
of the Federal Reserve Banking System or have a relationship with a bank that
is. Your bank may charge a fee for handling the transaction. To purchase
shares by a Federal funds wire, please first contact [ADMINISTRATOR] Mutual
Funds Client Services at (800) ________. They will establish a record of
information for the wire to insure the correct processing of funds. You can
reach the Wire Desk at (800) ________.
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<PAGE> 39
Then, have your bank wire funds using the following instructions:
[Instructions]
---------------------
---------------------
---------------------
As long as you have read the Prospectus, you may establish a new
regular account through the Wire Desk; IRAs may not be opened in this way.
When new accounts are established by wire, the distribution options will be set
to reinvest and the social security or tax identification number ("TIN") will
not be certified until a signed application is received. Completed
applications should be forwarded immediately to [DISTRIBUTOR'S NAME]. With the
Purchase Application, the shareholder can specify other distribution options
and add any special features offered by a Fund. Should any dividend
distributions or redemptions be paid before the TIN is certified, they will be
subject to 31% Federal tax withholding.
Institutional Accounts. Bank trust departments and other
institutional accounts may place orders directly with [DISTRIBUTOR'S NAME] by
telephone at (800) _______.
MINIMUM PURCHASE REQUIREMENTS
[The minimum initial investment in the Funds is $1,000 unless the
investor is a purchaser who at the time of purchase, has a balance of $1,000 or
more in any of the ________ Funds, is a purchaser through a trust investment
manager or account manager or is administered by the Advisor, is an employee or
an ex-employee of _________________ or is an employee of any of its affiliates,
___,[ADMINISTRATOR], or any other service provider, or is an employee of any
trust customer of ____________ or any of its affiliates. Note that the minimum
is $250 for an IRA, other than an IRA for which Fourth Financial Corporation or
any of its affiliates acts as trustee or custodian. Any subsequent investments
must be at least $50, including an IRA investment. All initial investments
should be accompanied by a completed Purchase Application. A Purchase
Application accompanies this Prospectus. Different minimums apply, and a
separate application is required for IRA investments. The Funds reserve the
right to reject purchase orders.
INDIVIDUAL RETIREMENT ACCOUNTS
All Funds may be used as a funding medium for IRAs. Shares may also
be purchased for IRAs established with __________________________ or any of its
affiliates or other authorized custodians. Completion of a special application
is required in order to create such an account, and the minimum initial
investment for an IRA is $250. Contributions to IRAs are subject to prevailing
amount limits set by the Internal Revenue Service. A $7.50 establishment fee
and an annual $15 maintenance and custody fee is payable with respect to each
IRA, and there will be a $12 termination fee when the account is closed. For
more information and IRA information, call the Funds at (800) _______.
EXCHANGE OF FUND SHARES
The Funds offer two convenient ways to exchange shares in one Fund for
shares in another Fund in the Trust. Before engaging in an exchange
transaction, a shareholder should read carefully the Prospectus describing the
Fund into which the exchange will occur, which is available without charge and
can be obtained by writing to the Fund at 237 Park Avenue, New York, New York
10017, or by calling (800) ________. A shareholder may not exchange shares of
one
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<PAGE> 40
Fund for shares of another Fund if the new Fund is not qualified for sale in
the state of the shareholder's residence. The minimum amount for an initial
exchange is $500. No minimum is required in subsequent exchanges. The Trust
may terminate or amend the terms of the exchange privilege at any time.
A new account opened by exchange must be established with the same
name(s), address and social security number as the existing account. All
exchanges will be made based on the net asset value next determined following
receipt of the request by a Fund in good order, plus any applicable sales
charge. An exchange is taxable as a sale of a security on which a gain or loss
may be recognized. Shareholders should receive written confirmation of the
exchange within a few days of the completion of the transaction. Shareholders
will receive at least 60 days' prior written notice of any modification or
termination of the exchange privilege.
Exchange by Mail. To exchange Fund shares by mail, simply send a
letter of instruction to [ADMINISTRATOR]. The letter of instruction must
include: (i) your account number; (ii) the Fund from and the Fund into which
you wish to exchange your investment; (iii) the dollar or share amount you wish
to exchange; and (iv) the signatures of all registered owners or authorized
parties. All signatures must be guaranteed by an eligible guarantor
institution including a member of a national securities exchange or by a
commercial bank or trust company, broker-dealers, credit unions and savings
associations.
Exchange by Telephone. To exchange Fund shares by telephone or if you
have any questions simply call the Funds at (800)____________ You should be
prepared to give the telephone representative the following information: (i)
your account number, social security or tax identification number and account
registration; (ii) the name of the Fund from and the Fund into which you wish
to transfer your investment; and (iii) the dollar or share amount you wish to
exchange. The conversation may be recorded to protect you and the Funds.
Telephone exchanges are available only if the shareholder so indicates by
checking the "yes" box on the Purchase Application. See "Redemption of Fund
Shares--By Telephone" for a discussion of telephone transactions generally.
Automatic Investment Program. An eligible shareholder may also
participate in the Automatic Investment Program, an investment plan that
automatically debits money from the shareholder's bank account and invests it
in one or more of the Funds in the Trust through the use of electronic funds
transfers or automatic bank drafts. Shareholders may elect to make subsequent
investments by transfers of a minimum of $50 on either the fifth or twentieth
day of each month into their established Fund account. Contact the Funds for
more information about the Automatic Investment Program.
REDEMPTION OF FUND SHARES
Shareholders may redeem their shares, in whole or in part, on any
business day. Shares will be redeemed at the net asset value next determined
after a redemption request in good order has been received by the applicable
Fund. See "Determination of Net Asset Value." A redemption may be a taxable
transaction on which gain or loss may be recognized. Generally, however, gain
or loss is not expected to be realized on a redemption of shares of the Money
Market Funds, both of which seek to maintain a net asset value per share of
$1.00.
Where the shares to be redeemed have been purchased by check, the
redemption request will be returned if the purchasing check has not cleared,
which may take up to 15 days. Shareholders may avoid this delay by investing
through wire transfers of Federal funds. During the period prior to the time
the shares are redeemed, dividends on the shares will continue to accrue and be
payable and the shareholder will be entitled to exercise all other beneficial
rights of ownership.
Once the shares are redeemed, a Fund will ordinarily send the proceeds
by check to the shareholder at the address of record on the next business day.
The Funds may, however, take up to seven days to make payment. This will not
be the customary practice. Also, if the New York Stock Exchange is closed (or
when trading is restricted) for
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<PAGE> 41
any reason other than the customary weekend or holiday closing or if an
emergency condition as determined by the SEC merits such action, the Funds may
suspend redemptions or postpone payment dates.
Redemption Methods. To ensure acceptance of your redemption request,
it is important to follow the procedures described below. Although the Funds
have no present intention to do so, the Funds reserve the right to refuse or to
limit the frequency of any telephone or wire redemptions. Of course, it may be
difficult to place orders by telephone during periods of severe market or
economic change, and a shareholder should consider alternative methods of
communications, such as couriers. The Funds' services and their provisions may
be modified or terminated at any time by the Funds. If the Funds terminate any
particular service, they will do so only after giving written notice to
shareholders. Redemption by mail will always be available to shareholders.
You may redeem your shares using any of the following methods:
Through an Authorized Broker, Investment Advisor or Service
Organization. You may redeem your shares by contacting your broker or
investment advisor and instructing him or her to redeem your shares. He or she
will then contact [DISTRIBUTOR'S NAME] and place a redemption trade on your
behalf. He or she may charge you a fee for this service.
By Mail. You may redeem your shares by sending a letter directly to
[DISTRIBUTOR'S NAME]. To be accepted, a letter requesting redemption must
include: (i) the Fund name and account registration from which you are
redeeming shares; (ii) your account number; (iii) the amount to be redeemed,
(iv) the signatures of all registered owners; and (v) a signature guarantee by
any eligible guarantor institution including a member of a national securities
exchange or a commercial bank or trust company, broker-dealers, credit unions
and savings associations. Corporations, partnerships, trusts or other legal
entities will be required to submit additional documentation.
By Telephone. You may redeem your shares by calling the Funds toll
free at (800) _______. You should be prepared to give the telephone
representative the following information: (i) your account number, social
security number and account registration; (ii) the Fund name from which you are
redeeming shares; and (iii) the amount to be redeemed. The conversation may be
recorded to protect you and the Funds. Telephone redemptions are available
only if the shareholder so indicates by checking the "yes" box on the Purchase
Application or on the Optional Services Form. The Funds employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
If the Funds fail to employ such reasonable procedures, they may be liable for
any loss, damage or expense arising out of any telephone transactions
purporting to be on a shareholder's behalf. In order to assure the accuracy of
instructions received by telephone, the Funds require some form of personal
identification prior to acting upon instructions received by telephone, record
telephone instructions and provide written confirmation to investors of such
transactions. Redemption requests transmitted via facsimile will not be
accepted.
By Wire. You may redeem your shares by contacting the Funds by mail
or telephone and instructing them to send a wire transmission to your personal
bank. Proceeds of wire redemption for the Money Market Funds generally will be
transferred to the designated account on the day the request is received,
provided that it is received by 12:00 Noon (Eastern time).
Your instructions should include: (i) your account number, social
security or tax identification number and account registration; (ii) the Fund
name from which you are redeeming shares; and (iii) the amount to be redeemed.
Wire redemptions can be made only if the "yes" box has been checked on your
Purchase Application, and attach a copy of a void check of account where
proceeds are to be wired. Your bank may charge you a fee for receiving a wire
payment on your behalf.
Check Writing. A check redemption ($500 minimum, no maximum) feature
is available with respect to the Money Market Funds. Checks are free and may
be obtained from the Funds. It is not possible to use a check to close out
your account since additional shares accrue daily.
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<PAGE> 42
The above-mentioned services "By Telephone," "By Wire" and "Check
Writing" are not available for IRAs and trust relationships of [ADVISOR'S
NAME].
Systematic Withdrawal Plan. An owner of $10,000 or more of shares of
a Fund may elect to have periodic redemptions from his or her account to be
paid on a monthly, quarterly, semi-annual or annual basis. The minimum
periodic payment is $100. A sufficient number of shares to make the scheduled
redemption will normally be redeemed on the date selected by the shareholder.
Depending on the size of the payment requested and fluctuation in the net asset
value, if any, of the shares redeemed, redemptions for the purpose of making
such payments may reduce or even exhaust the account. A shareholder may
request that these payments be sent to a predesignated bank or other designated
party. Capital gains and dividend distributions paid to the account will
automatically be reinvested at net asset value on the distribution payment
date.
Redemption of Small Accounts. Due to the disproportionately higher
cost of servicing small accounts, each Fund reserves the right to redeem, on
not less than 30 days' notice, an account in a Fund that has been reduced by a
shareholder to $500 or less. However, if during the 30-day notice period the
shareholder purchases sufficient shares to bring the value of the account above
$500, this restriction will not apply.
Redemption in Kind. All redemptions of shares of the Funds shall be
made in cash, except that the commitment to redeem shares in cash extends only
to redemption requests made by each shareholder of a Fund during any 90-day
period of up to the lesser of $250,000 or 1% of the net asset value of that
Fund at the beginning of such period. This commitment is irrevocable without
the prior approval of the SEC and is a fundamental policy of the Funds that may
not be changed without shareholder approval. In the case of redemption
requests by shareholders in excess of such amounts, the Board of Trustees
reserves the right to have the Funds make payment, in whole or in part, in
securities or other assets, in case of an emergency or any time a cash
distribution would impair the liquidity of a Fund to the detriment of the
existing shareholders. In this event, the securities would be valued in the
same manner as the securities of that Fund are valued. If the recipient were
to sell such securities, he or she could receive less than the redemption value
of the securities and could incur certain transaction costs.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX
Each Fund intends to qualify annually and to elect to be treated as a
regulated investment company pursuant to the provisions of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). By so qualifying and
electing, each Fund generally will not be subject to Federal income tax to the
extent that it distributes investment company taxable income and net capital
gains in the manner required under the Code.
Each Fund intends to distribute to its shareholders substantially all
of its investment company taxable income (which includes, among other items,
dividends and interest and the excess, if any, of net short-term capital gains
(generally including any net option premium income) over net long-term capital
losses). The Money Market Funds, the Intermediate Bond Income Fund, the Bond
Income Fund and the Short-Term Treasury Income Fund will declare distributions
of such income daily and pay those dividends monthly; the Stock Appreciation
Fund, the Aggressive Stock Appreciation Fund, Value Stock Appreciation Fund and
International Equity Fund will pay dividends at least once annually. Each Fund
intends to distribute, at least annually, substantially all net capital gains
(the excess of net long-term capital gains over net short-term capital losses).
In determining amounts of capital gains to be distributed, any capital loss
carryovers from prior years will be applied against capital gains.
Distributions will be paid in additional Fund shares based on the net
asset value at the close of business on the payment date of the distribution,
unless the shareholder elects in writing, not less than five full business days
prior to the record date, to receive such distributions in cash. Dividends
declared in, and attributable to, the preceding month will be paid within five
business days after the end of each month.
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<PAGE> 43
In the case of the Money Market Funds, shares purchased will begin
earning dividends on the day the purchase order is executed and shares redeemed
will earn dividends through the previous day. Net investment income for a
Saturday, Sunday or a holiday will be declared as a dividend on the previous
business day. In the case of the other Funds that declare daily dividends,
shares purchased will begin earning dividends on the day after the purchase
order is executed, and shares redeemed will earn dividends through the day the
redemption is executed.
Investors who redeem all or a portion of Fund shares prior to a
dividend payment date will be entitled on the next dividend payment date to all
dividends declared but unpaid on those shares at the time of their redemption.
Distributions of investment company taxable income (regardless of
whether derived from dividends, interest or short-term capital gains) will be
taxable to shareholders as ordinary income. Distributions of net long-term
capital gains properly designated by a Fund as capital gain dividends will be
taxable as long-term capital gains, regardless of how long a shareholder has
held his Fund shares. Distributions are taxable in the same manner whether
received in additional shares or in cash.
Earnings of the Funds not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To prevent imposition of this tax, each Fund intends to comply
with this distribution requirement.
A distribution, including an "exempt-interest dividend," will be
treated as paid on December 31 of the calendar year if it is declared by a Fund
during October, November, or December of that year to shareholders of record in
such a month and paid by a Fund during January of the following calendar year.
Such distributions will be treated as received by shareholders in the calendar
year in which the distributions are declared, rather than the calendar year in
which the distributions are received.
A Fund's distributions with respect to a given taxable year may exceed
the current and accumulated earnings and profits of that Fund available for
distribution. In that event, distributions in excess of such earnings and
profits would be characterized as a return of capital to shareholders for
Federal income tax purposes, thus reducing each shareholder's cost basis in his
Fund shares. Such distributions in excess of a shareholder's cost basis in his
shares would be treated as a gain realized from a sale of such shares.
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of a Fund, or upon receipt of a distribution in complete
liquidation of a Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. A loss realized by a shareholder on a redemption, sale,
or exchange of shares of a Fund held six months or less with respect to which
capital gain dividends have been paid will be characterized as a long-term
capital loss to the extent of such capital gain dividends.
It is anticipated that a portion of the dividends paid by the Funds
(except the Money Market Funds, Intermediate Bond Income and Bond Income Funds)
will qualify and be designated by such Funds as dividends eligible for the
dividends-received deduction available to corporations. The Code imposes
various limitations restricting the availability of the dividends received
deduction. Investors should consult their own tax advisers in this regard.
The Funds may be required to withhold for Federal income tax ("backup
withholding") 31% of the distributions and the proceeds of redemptions payable
to shareholders who fail to provide a correct taxpayer identification number or
to make required certifications, or where a Fund or shareholder has been
notified by the Internal Revenue Service that the shareholder is subject to
backup withholding. Most corporate shareholders and certain other shareholders
specified in the Code and regulations are exempt from backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may be
credited against the shareholder's U.S. Federal income tax liability.
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<PAGE> 44
Those Funds that may invest in securities of foreign issuers may be
subject to withholding and other similar income taxes imposed by a foreign
country. Each of these Funds intends to elect, if it is eligible to do so
under the Code, to "pass-through" to its shareholders the amount of such
foreign taxes paid. If such an election is made by a Fund, each shareholder of
that Fund would be required to include in gross income the taxable dividends
received and the amount of pro rata share of those foreign taxes paid by the
Fund. Each shareholder would be entitled either to deduct (as an itemized
deduction) his pro rata share of the foreign taxes in computing his taxable
income or to use it (subject to limitations) as a foreign tax credit against
his U.S. Federal income tax liability. No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions. Each shareholder
will be notified within 60 days after the close of a Fund's taxable year
whether the foreign taxes paid by the Fund will "pass-through" for that year.
Shareholders will be notified annually by the Trust as to the Federal
tax status of distributions made by the Fund(s) in which they invest.
Depending on the residence of the shareholder for tax purposes, distributions
also may be subject to state and local taxes, including withholding taxes.
Foreign shareholders may, for example, be subject to special withholding
requirements. Special tax treatment, including a penalty on certain
pre-retirement distributions, is accorded to accounts maintained as IRAs.
Shareholders should consult their own tax advisors as to the Federal, state and
local tax consequences of ownership of shares of the Funds in their particular
circumstances.
The Portfolio in which the International Equity Fund invests is not
required to pay Federal income taxes on its net investment income and capital
gain, as it is treated as a partnership for Federal income tax purposes. All
interest, dividends and gains and losses of the Portfolio are deemed to have
been "passed through" to the International Equity Fund in proportion to its
holdings of the Portfolio, regardless of whether such interest, dividends or
gains have been distributed by the Portfolio or losses have been realized by
the Portfolio. Investment income received by the International Equity Fund
from sources within foreign countries may be subject to foreign income or other
taxes. The International Equity Fund intends to elect, if eligible to do so,
to permit its shareholders to take a credit (or a deduction) for foreign income
and other taxes paid by the Portfolio. Shareholders of the International
Equity Fund will be notified of their share of those taxes and will be required
to include that amount as income. In that event, the shareholder may be
entitled to claim a credit or deduction for those taxes.
OTHER INFORMATION
CAPITALIZATION STRUCTURE
__________ Trust was organized as a Delaware business trust on
__________, 1996, and currently consists of eleven separately managed
portfolios. The Board of Trustees may establish additional portfolios in the
future. The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. When issued,
shares of the Funds are fully paid, non-assessable and freely transferable.
Each Fund also offers a Premium Class of shares. The Service Class
shares are offered at net asset value without a sales load only to certain
institutional investors, or other investors who at the time of purchase have a
balance of $1,000 or more invested in any of the _________ Funds, are purchased
through a trust investment manager or account manager or administered by the
Advisor, are employees or ex-employees of __________________ or any of its
affiliates, employees of ____, [ADMINISTRATOR], or any other service provider,
or employees of any trust customer of __________________________ or any of its
affiliates. Shareholders in the Premium Class of shares may be subject to an
additional shareholder servicing charge of up to 0.50% of average net assets.
Call 800-_______ or contact your sales representative, broker-dealer or bank to
obtain more information about the Funds' classes of shares.
Under Delaware law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust and
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<PAGE> 45
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or the Trustees. The Declaration of
Trust provides for indemnification out of Trust property for all loss and
expense of any shareholder held personally liable for the obligations of the
Trust. The risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations and should be considered remote.
INTERNATIONAL EQUITY FUND STRUCTURE
The International Equity Fund invests all of its assets in the
Portfolio, a separate series of ______ Trust, a business trust organized under
the laws of the State of Delaware in ________, 1996. ______ Trust is
registered under the 1940 Act as an open-end management investment company and
currently has _____ separate portfolios. The Assets of the Portfolio, a
diversified portfolio, belong only to, and the liabilities of the Portfolio are
borne solely by, the Portfolio and no other portfolio of ______ Trust.
The International Equity Fund seeks to achieve its investment
objective by investing all of its investable assets in the Portfolio, which has
the same investment objective and policies as the International Equity Fund.
Accordingly, the Portfolio directly acquires its own securities and the
International Equity Fund acquires an indirect interest in those securities.
The investment objective and fundamental investment policies of the
International Equity Fund and the Portfolio can be changed only with
shareholder approval. See "Synopsis," "Investment Objective and Policies," and
"Management" for a complete description of the Portfolio's investment
objective, policies, restrictions, management, and expenses.
The International Equity Fund's investment in the Portfolio is in the
form of a non-transferable beneficial interest. As of the date of this
Prospectus, the International Equity Fund is the only institutional investor
that has invested all of its assets in the Portfolio. The Portfolio may permit
other investment companies or institutional investors to invest in it. All
investors in the Portfolio will invest on the same terms and conditions as the
International Equity Fund and will pay a proportionate share of the Portfolio's
expenses.
The Portfolio normally will not hold meetings of investors except as
required by the 1940 Act. Each investor in the Portfolio will be entitled to
vote in proportion to its relative beneficial interest in the Portfolio. On
most issues subject to a vote of investors, as required by the 1940 Act and
other applicable law, the International Equity Fund will solicit proxies from
shareholders of the International Equity Fund and will vote its interest in the
Portfolio in proportion to the votes cast by its shareholders. If there are
other investors in the Portfolio, there can be no assurance that any issue that
receives a majority of the votes cast by International Equity Fund shareholders
will receive a majority of votes cast by all investors in the Portfolio;
indeed, if other investors hold a majority interest in the Portfolio, they
could hold have voting control of the Portfolio.
The Portfolio will not sell its shares directly to members of the
general public. Another investor in the Portfolio, such as an investment
company, that might sell its shares to members of the general public would not
be required to sell its shares at the same public offering price as the
International Equity Fund, could have different advisory and other fees and
expenses than the International Equity Fund. Therefore, International Equity
Fund shareholders may have different returns than shareholders in another
investment company that invests exclusively in the Portfolio. There is
currently no such other investment company that offers its shares to members of
the general public. Information regarding any such funds in the future will be
available from ______ Trust by calling ____________.
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<PAGE> 46
VOTING
Shareholders have the right to vote in the election of Trustees and on
any and all matters on which, by law or under the provisions of the Declaration
of Trust, they may be entitled to vote. The Trust is not required to hold
regular annual meetings of the Funds' shareholders and does not intend to do
so. The Trustees are required to call a meeting for the purpose of considering
the removal of a person serving as Trustee if requested in writing to do so by
the holders of not less than 10% of the outstanding shares of the Trust and in
connection with such meeting to comply with the shareholders' communications
provisions of Section 16(c) of the Act. See "Other Information--Voting Rights"
in the SAI.
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). As used in this Prospectus, the phrase "vote of
a majority of the outstanding shares" of a Fund (or the Trust) means the vote
of the lesser of: (1) 67% of the shares of a Fund (or the Trust) present at a
meeting if the holders of more than 50% of the outstanding shares are present
in person or by proxy; or (2) more than 50% of the outstanding shares of a Fund
(or the Trust).
PERFORMANCE INFORMATION
A Fund may, from time to time, include its yield and total return in
advertisements or reports to shareholders or prospective investors.
Shareholders of the Premium Class of shares will experience a lower net return
on their investment than shareholders of the Service Class of Shares because of
the additional shareholder servicing charge to which Premium Class shareholders
are subject. The methods used to calculate the yield and total return of the
Funds are mandated by the SEC. Quotations of "yield" for a Fund (other than
the Money Market Funds) will be based on the investment income per share during
a particular 30-day (or one month) period (including dividends and interest),
less expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the maximum public offering price
per share on the last day of the period.
Quotations of "yield" for the Money Market Funds will be based on the
income received by a hypothetical investment (less a pro-rata share of Fund
expenses) over a particular seven-day period, which is then "annualized" (i.e.,
assuming that the seven-day yield would be received for 52 weeks, stated in
terms of an annual percentage return on the investment).
"Effective yield" for the Money Market Funds is calculated in a manner
similar to that used to calculate yield, but includes the compounding effect of
earnings on reinvested dividends.
Quotations of yield and effective yield reflect only a Fund's
performance during the particular period on which the calculations are based.
Yield and effective yield for a Fund will vary based on changes in market
conditions, the level of interest rates and the level of that Fund's expenses,
and no reported performance figure should be considered an indication of
performance which may be expected in the future.
Quotations of average annual total return for a Fund (other than the
Money Market Funds) will be expressed in terms of the average annual compounded
rate of return of a hypothetical investment in that Fund over periods of 1, 5
and 10 years (up to the life of that Fund), reflect the deduction of a
proportional share of Fund expenses (on an annual basis), and assume that all
dividends and distributions are reinvested when paid.
Performance information for a Fund may be compared to various
unmanaged indices, such as those indices prepared by Lipper Analytical
Services, Standard & Poor's 500 Stock Index, the Dow Jones Industrial Average
and other entities or organizations which track the performance of investment
companies. Any performance information should be considered in light of the
Fund's investment objectives and policies, characteristics and quality of the
Funds and the market conditions during the time period indicated, and should
not be considered to be representative of what may be
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<PAGE> 47
achieved in the future. For a description of the methods used to determine
yield and total return for the Funds, see the SAI.
[The International Fund invests all of its assets in the Portfolio.
Prior to ____________, the Portfolio was the ________________________ Fund.
Average annualized total return for the ___________________ Fund as of October
31, 1995 are as follows:
<TABLE>
<S> <C>
1 Year: ____%
3 Years ____%
5 Years ____%
Since Inception ____%
</TABLE>
ACCOUNT SERVICES
All transactions in shares of the Funds will be reflected in a
statement for each shareholder. In those cases where a Service Organization or
its nominee is shareholder of record of shares purchased for its customer, the
Funds have been advised that the statement may be transmitted to the customer
at the discretion of the Service Organization.
[ADMINISTRATOR] acts as the Funds' transfer agent. The Trust
compensates [ADMINISTRATOR], the Trust's administrator, pursuant to a Services
Agreement described in "Management of the Fund -- Administrative Services" of
this Prospectus, for providing personnel and facilities to perform dividend
disbursing and transfer agency-related services for the Trust.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Funds at 237
Park Avenue, New York, New York 10017.
General and Account Information: (800) _______.
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<PAGE> 48
APPENDIX
DESCRIPTION OF MOODY'S BOND RATINGS:
Excerpts from Moody's description of its four highest bond ratings are
listed as follows: Aaa -- judged to be the best quality and they carry the
smallest degree of investment risk; Aa--judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds; A--possess many favorable investment attributes and are to
be considered as "upper medium grade obligations"; Baa--considered to be medium
grade obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Other Moody's bond descriptions
include: Ba -- judged to have speculative elements, their future cannot be
considered as well assured; B -- generally lack characteristics of the
desirable investment; Caa -- are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest; Ca -- speculative in a high degree, often in default; C -- lowest
rated class of bonds, regarded as having extremely poor prospects.
Moody's also supplies numerical indicators 1, 2 and 3 to rating
categories. The modifier 1 indicates that the security is in the higher end of
its rating category; the modifier 2 indicates a mid-range ranking; and modifier
3 indicates a ranking toward the lower end of the category.
DESCRIPTION OF S&P'S BOND RATINGS:
Excerpts from S&P's description of its four highest bond ratings are
listed as follows: AAA-- highest grade obligations, in which capacity to pay
interest and repay principal is extremely strong; AA--also qualify as high
grade obligations, having a very strong capacity to pay interest and repay
principal, and differs from AAA issues only in a small degree; A--regarded as
upper medium grade, having a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories; BBB--regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC: Debt rated in these categories is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CI: The "CI" rating is reserved for income bonds on which no interest
is being paid.
S&P applies indicators "+, -," no character, and relative standing
within the major rating categories.
DESCRIPTION OF MOODY'S RATINGS OF NOTES AND VARIABLE RATE DEMAND INSTRUMENTS:
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or MIG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable rate demand obligations) are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payments
relying on external liquidity.
A-1
<PAGE> 49
MIG 1/VMIG 1: This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This denotes high quality. Margins of protection are ample
although not as large as in the preceding group.
A-2
<PAGE> 50
<TABLE>
<CAPTION>
FS FUNDS __________ TRUST
<S> <C>
A FAMILY OF
Address for MUTUAL FUNDS
Trust Clients of [ADVISOR'S NAME]
----------------------------------------------
[Address _______________ The U.S. Treasury Reserve Money Market Fund seeks
_______________________] to provide investors with as high a level of
current income as is consistent with liquidity,
Investment Advisors stability, maximum safety of principal and the
------------------- maintenance of a stable $1.00 net asset value per
share
[ADVISOR'S NAME]
[Address _______________
_______________________] The Cash Reserve Money Market Fund seeks to
provide investors with current income, liquidity
[ADVISOR'S NAME] and the maintenance of a stable $1.00 net asset
[Address _______________ value by investing in high quality, short-term
_______________________] obligations
(Cash Reserve Money Market Fund only)
The Short-Term Treasury Income Fund seeks to
Administrator and Sponsor provide investors with as high a level of current
------------------------- income as is consistent with liquidity and safety
of principal
[ADMINISTRATOR]
[ADDRESS]
The Intermediate Bond Income Fund seeks to provide
Distributor investors with as high a level of current income
----------- as is consistent with managing for total return by
investing in fixed income securities managed for
__________ Distributor Inc. total return
[ADDRESS]
Custodian The Bond Income Fund seeks to provide investors
--------- with as high a level of current income as is
consistent with managing for total return by
[CUSTODIAN'S NAME] investing in fixed income securities
[Address _______________
_______________________]
The Stock Appreciation Fund seeks to provide
Counsel investors with long-term capital appreciation
-------
Baker & McKenzie The Aggressive Stock Appreciation Fund seeks to
805 Third Avenue provide investors with aggressive long-term
New York, New York 10022 capital appreciation
Independent Accountants The Value Stock Appreciation Fund seeks to provide
----------------------- investors with long-term capital appreciation and
dividend income.
[INDEPENDENT ACCOUNTANT]
[Address _______________
_______________________] The International Equity Fund seeks to provide
investors with long-term capital appreciation.
PROSPECTUS
January ___, 1996
Investment Advisor
[ADVISOR'S NAME]
[ADVISOR'S NAME]
(Cash Reserve Money Market Fund Only).
</TABLE>
<PAGE> 51
FS FUNDS TRUST
[ADDRESS]
GENERAL AND ACCOUNT INFORMATION:
(800)____________
PREMIUM CLASS PROSPECTUS
________--INVESTMENT ADVISOR
("______" OR THE "ADVISER")
_____________________--INVESTMENT ADVISOR
FOR THE CASH RESERVE MONEY MARKET FUND
("_______")
____________________________--ADMINISTRATOR AND SPONSOR
("___________")
________________--DISTRIBUTOR
("___" OR THE "DISTRIBUTOR")
This Prospectus describes nine funds, two money market funds
(the "Money Market Funds") and seven non-money market funds (the "Non Money
Market Funds") (collectively, the "Funds"), all of which are managed by
_______, except the Cash Reserve Money Market Fund, which is managed by ___.
The Funds and their investment objectives are:
- THE U.S. TREASURY RESERVE MONEY MARKET FUND SEEKS TO
PROVIDE INVESTORS WITH AS HIGH A LEVEL OF CURRENT INCOME
AS IS CONSISTENT WITH LIQUIDITY, STABILITY, MAXIMUM
SAFETY OF PRINCIPAL AND THE MAINTENANCE OF A STABLE $1.00
NET ASSET VALUE.
- THE CASH RESERVE MONEY MARKET FUND SEEKS TO PROVIDE
INVESTORS WITH CURRENT INCOME, LIQUIDITY AND THE
MAINTENANCE OF A STABLE $1.00 NET ASSET VALUE BY
INVESTING IN HIGH QUALITY, SHORT-TERM OBLIGATIONS.
- THE SHORT-TERM TREASURY INCOME FUND SEEKS TO PROVIDE
INVESTORS WITH AS HIGH A LEVEL OF CURRENT INCOME AS IS
CONSISTENT WITH LIQUIDITY AND SAFETY OF PRINCIPAL.
- THE INTERMEDIATE BOND INCOME FUND SEEKS TO PROVIDE
INVESTORS WITH AS HIGH A LEVEL OF CURRENT INCOME AS IS
CONSISTENT WITH MANAGING FOR TOTAL RETURN BY INVESTING IN
FIXED INCOME SECURITIES.
- THE BOND INCOME FUND SEEKS TO PROVIDE INVESTORS WITH AS
HIGH A LEVEL OF CURRENT INCOME AS IS CONSISTENT WITH
MANAGING FOR TOTAL RETURN BY INVESTING IN FIXED INCOME
SECURITIES.
- THE STOCK APPRECIATION FUND SEEKS TO PROVIDE INVESTORS
WITH LONG-TERM CAPITAL APPRECIATION.
- THE AGGRESSIVE STOCK APPRECIATION FUND SEEKS TO PROVIDE
INVESTORS WITH AGGRESSIVE LONG-TERM CAPITAL APPRECIATION.
- THE VALUE STOCK APPRECIATION FUND SEEKS TO PROVIDE
INVESTORS WITH LONG-TERM CAPITAL APPRECIATION AND
DIVIDEND INCOME.
- THE INTERNATIONAL EQUITY FUND SEEKS TO PROVIDE INVESTORS
WITH LONG-TERM CAPITAL APPRECIATION BY INVESTING,
DIRECTLY OR INDIRECTLY, IN HIGH QUALITY COMPANIES BASED
OUTSIDE THE UNITED STATES.
This Prospectus describes only the "Premium Class" of each
Fund. Each Fund also offers a Service Class of shares which only certain
institutional investors are qualified to purchase. See "Other Information" --
"Capitalization". The Funds are separate investment funds of FS FUNDS Trust
(the "Trust"), a Delaware business trust and registered management investment
company.
The International Equity Fund, unlike other mutual funds which
directly acquire and manage their own portfolio of securities, seeks to achieve
its investment objectives by investing all of its investable assets in another
mutual fund. The International Equity Fund employs a two-tier master feeder
fund structure.
AN INVESTMENT IN SHARES OF THE TRUST IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE MONEY
MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE. SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, _______, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT
AGENCY, AND MAY INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION A
PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING IN ANY OF THE FUNDS AND
SHOULD BE READ AND RETAINED FOR INFORMATION ABOUT EACH FUND.
A Statement of Additional Information (the "SAI"), dated
January __, 1996, containing additional and more detailed information about the
Funds has been filed with the Securities and Exchange Commission ("SEC") and is
hereby incorporated by reference into this Prospectus. It is available without
charge and can be obtained by writing or calling the Funds at the address and
information numbers printed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Prospectus is January __, 1996.
<PAGE> 52
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
FUND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
FEE TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
THE INVESTMENT POLICIES AND PRACTICES OF THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
RISKS OF INVESTING IN THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
MANAGEMENT OF THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
FUND SHARE VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PRICING AND PURCHASE OF FUND SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
MINIMUM PURCHASE REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
INDIVIDUAL RETIREMENT ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
EXCHANGE OF FUND SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
REDEMPTION OF FUND SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
i
<PAGE> 53
FUND EXPENSES
The following expense table lists the costs and expenses that
an investor in the Premium Class of shares will incur either directly or
indirectly as a shareholder of a Fund. The information is based upon expenses
during the first year of operations. Shareholders in the Premium Class of
shares are subject to an additional shareholder servicing charge of up to 0.50%
of average daily net assets to which Service Class shareholders are not
subject(1).
FEE TABLE
<TABLE>
<CAPTION>
U.S.
Treasury Cash Short-
Reserve Reserve Term Intermediate Aggressive
Money Money Treasury Bond Bond Stock Stock
Market Market Income Income Income Appreciation Appreciation
Fund Fund Fund Fund Fund Fund Fund
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) . . . . . . None None None None None None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) None None None None None None None
Deferred Sales Load (as a None None None None None None None
percentage of redemption
proceeds) . . . . . . . . .
Redemption Fees(2). . . . . . None None None None None None None
Exchange Fees . . . . . . . None None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Management Fees (after fee
waivers) . . . . . . . . . . 0.15% 0.20% 0.12% 0.35% 0.40% 0.65% 0.745%
12b-1 Fees
(after waivers)(3). . . . . . 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other Expenses
(after waiver for Short-Term
Treasury Income Fund, Bond
Income Fund and Value Stock
Appreciation Fund)(4) . . . . 0.82% 0.30% 0.63% 0.40% 0.56% 0.35% 0.49%
------ ------ ------ ------ ------ ------ ------
Total Portfolio Operating
Expenses (after waiver)(2)(4) 0.97% 0.50% 0.75% 0.75% 0.96% 1.00% 1.23%
====== ====== ====== ====== ====== ====== ======
<Capton>
Value
Stock Int'l.
Appreciation Equity
Fund Fund
------ ------
<S> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) . . . . . . None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) None None
Deferred Sales Load (as a None None
percentage of redemption
proceeds) . . . . . . . . .
Redemption Fees(2). . . . . . None None
Exchange Fees . . . . . . . None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Management Fees (after fee 0.65% 0.80%
waivers) . . . . . . . . . .
12b-1 Fees
(after waivers)(3). . . . . . 0.00 0.00
Other Expenses
(after waiver for Short-Term
Treasury Income Fund, Bond
Income Fund and Value Stock
Appreciation Fund)(4) . . . . 0.53% 0.82%
------ ------
Total Portfolio Operating
Expenses (after waver)(2)(4). 1.18% 1.62%(5)
====== ======
</TABLE>
The purpose of this table is to assist a shareholder in the
Premium Class of shares in understanding the various costs and expenses that an
investor in the Funds will bear.
- --------------------------------
(1) Service Class shares are offered only to certain institutional
investors, or other investors who at the time of purchase have a
balance of $1,000 or more invested in any of the _____________
Funds, are purchasers through a trust investment manager or account
manager or administered by the Advisor, are employees or
ex-employees of [ ] or any of its affiliates, employees of,
[ ][ADMINISTRATOR], or any other service provider, or employees
of any trust customer of [ ] or any of its affiliates.
(2) Shareholders may be charged a wire redemption fee by their bank for
receiving a wire payment on their behalf.
(3) The fee under each Fund's Distribution Plan and Agreement is
calculated on the basis of the average net assets of each Fund at
an annual rate not to exceed 0.25%.
(4) _________________ has agreed to waive its custodian fee and its
service organization fee and the Administrator has waived its
administrative services fee for the Short-Term Treasury Fund, Bond
Income Fund and the Value Stock Fund to maintain the Total
Portfolio Operating Expenses shown above for these Funds. Absent
such waiver and 12b-1 fee waivers, which may be discontinued at any
time, Other Expenses and Total Portfolio Operating Expenses for
these Funds would be 1.19% and 1.74% for the Short-Term Treasury
Fund, 1.30% and 1.95% for the Bond Income Fund, and 1.28% and 2.18%
for the Value Stock Fund, respectively, and Total Portfolio
Operating Expenses would be 0.72% for the U.S. Treasury Reserve
Money Market Funds, 0.75% for the Cash Reserve Money Market Fund,
1.01% for the Intermediate Bond Income Fund, 1.25% for the Stock
Appreciation Fund, 1.595% for the Aggressive Stock Appreciation
Fund, and ____% for the International Equity Fund.
(5) The International Equity Fund pays [ADMINISTRATOR] a _____%
administrative fee and has other expenses of ____% and the
Portfolio pays advisory and administrative fees, of which the
International Equity Fund bears its pro rata portion. The Trust's
Board of Trustees believes that the aggregate per share expenses of
the Fund and the Portfolio will be approximately equal to the
expenses the Fund would incur if its assets were invested directly
in foreign securities. Investment Advisory Fees are those incurred
by the Portfolio; as long as its assets are invested in the
Portfolio, the Fund pays no investment advisory fees directly.
1
<PAGE> 54
Example:*
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% gross annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
U.S.
Treasury Cash Short-
Reserve Reserve Term Intermediate Aggressive Value
Money Money Treasury Bond Bond Stock Stock Stock
Market Market Income Income Income Appreciation Appreciation Appreciation Int'l
Fund Fund Fund Fund Fund Fund Fund Fund Fund
------ ------ ------ ------ ------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year . . . . . . . . . . . $10 $5 $8 $8 $10 $10 $13 $12 $10
3 years . . . . . . . . . . $31 $16 $24 $24 $31 $32 $39 $37 $32
</TABLE>
- ----------------------------------
* This example should not be considered a representation of future
expenses which may be more or less than those shown. The assumed
5% annual return is hypothetical and should not be considered a
representation of past or future annual return; actual return may
be greater or less than the assumed amount.
- 2 -
<PAGE> 55
HIGHLIGHTS
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
This Prospectus describes nine funds, two money market funds and
seven non-money market funds (collectively, the "Funds"), all of which are
managed by [ADVISOR'S NAME], except the Cash Reserve Money Market Fund which is
managed by [ADVISOR'S NAME]. Each Fund has distinct investment objectives
and policies.
MONEY MARKET FUNDS:
U.S. Treasury Reserve Money Market Fund. The investment objective
of the U.S. Treasury Reserve Money Market Fund is to seek as high a level of
current income as is consistent with liquidity, stability and maximum safety of
principal and the maintenance of a stable $1.00 net asset value per share. The
Fund invests exclusively in short-term obligations of the United States
Treasury, which are backed by the full faith and credit of the United States
Government, and repurchase agreements in respect of such obligations. This
fund is not currently in operation.
Cash Reserve Money Market Fund. The investment objectives of the
Cash Reserve Money Market Fund are current income, liquidity and the
maintenance of a stable $1.00 net asset value per share by investing in high
quality, U.S. dollar-denominated short-term obligations which are determined
by the investment advisor to present minimal credit risks.
The Cash Reserve Money Market Fund may invest in obligations
permitted to be purchased under Rule 2a-7 of the Investment Company Act of 1940
(the "1940 Act") including, but not limited to, (1) obligations of the U.S.
Government or its agencies or instrumentalities; (2) commercial paper, loan
participation interests, medium-term notes, asset-backed securities and other
promissory notes, including floating or variable rate obligations; and (3)
domestic, Yankee dollar and Eurodollar certificates of deposit, time deposits,
bankers' acceptances, commercial paper, bearer deposit notes and other
promissory notes, including floating or variable rate obligations issued by
U.S. or foreign bank holding companies and their bank subsidiaries, branches
and agencies. The Cash Reserve Money Market Fund will invest only in issuers
or instruments that at the time of purchase (1) have received the highest
short-term rating by at least two Nationally Recognized Statistical Rating
Organizations ("NRSROs") such as "A-1" by Standard & Poor's and "P-1" by
Moody's; (2) are single rated and have received the highest short-term rating
by a NRSRO (and provided the purchase is approved or ratified by the Board of
Trustees); or (3) are unrated, but are determined to be of comparable quality
by [ADVISOR'S NAME] pursuant to guidelines approved by the Board and subject to
ratification by the Board. The Cash Reserve Money Market Fund may also
purchase securities on a "when-issued" basis and purchase or sell them on a
"forward commitment" basis.
The Cash Reserve Money Market Fund will concentrate its
investments in obligations issued by the banking industry. Concentration in
this context means the investment of more than 25% of the Cash Reserve Money
Market Fund's assets in such investments. However, for temporary defensive
purposes during periods when [ADVISOR'S NAME] believes that maintaining this
concentration may be inconsistent with the best interest of shareholders, the
Cash Reserve Money Market Fund will not maintain this concentration. The Cash
Reserve Money Market Fund's policy of concentration in the banking industry
increases the Fund's exposure to market conditions prevailing in that industry.
The Cash Reserve Money Market Fund may also invest in variable
amount master demand obligations which are unsecured demand notes that permit
the indebtedness thereunder to vary, and provide for periodic adjustments in
the interest rate. Because master demand obligations are direct lending
arrangements between the Cash Reserve Money Market Fund and the issuer, they
are not normally traded. There is no secondary market for the notes; however,
the period of time remaining until payment of principal and accrued interest
can be recovered under a variable amount master demand obligation generally
shall not exceed seven days. To the extent this period is exceeded, the
obligation in question would be considered illiquid. Issuers of variable
amount master demand obligations must satisfy the same
- 3 -
<PAGE> 56
criteria as set forth for other promissory notes (e.g., commercial paper). The
Cash Reserve Money Market Fund will invest in variable amount master demand
obligations only when such obligations are determined by [ADVISOR'S NAME],
pursuant to guidelines established by the Board of Trustees, to be of
comparable quality to rated issuers or instruments eligible for investment by
the Cash Reserve Money Market Fund. In determining weighted average dollar
portfolio maturity, a variable amount master demand obligation will be deemed
to have a maturity equal to the longer of the period of time remaining until
the next readjustment of the interest rate or the period of time remaining
until the principal amount can be recovered from the issuer on demand.
Amortized Cost Method of Valuation for the Money Market Funds
Portfolio investments of each Money Market Fund are valued based
on the amortized cost valuation technique pursuant to Rule 2a-7 under the 1940
Act. Obligations in which the Money Market Funds invest generally have
remaining maturities of 397 days or less, although instruments subject to
repurchase agreements and certain variable and floating rate obligations may
bear longer final maturities. The weighted average dollar portfolio maturity
of each Money Market Fund will not exceed 90 days. See the SAI for an
explanation of the amortized cost valuation method.
NON-MONEY MARKET FUNDS:
Short-Term Treasury Income Fund. The investment objective of this
Fund is to seek as high a level of current income as is consistent with
liquidity and safety of principal. The Fund invests at least 65% of its total
assets in U.S. Treasury obligations and it is the current intent of [ADVISOR'S
NAME] to maintain an average maturity range between 1 to 3 years.
Intermediate Bond Income Fund. The investment objective of the
Intermediate Bond Income Fund is to provide as high a level of current income
as is consistent with managing for total return by investing at least 65% of
its total assets in fixed income securities. The Fund invests primarily in
high quality fixed income securities such as U.S. Government securities,
corporate bonds and asset-backed securities (including mortgage-backed
securities). A minimum of 65% of the Fund's total assets will be invested in
securities rated "A" or better by a primary credit rating agency and the Fund
will seek to maintain a minimum average portfolio quality rating of "AA". All
securities will be rated "BBB" or better by a primary credit rating agency at
the time of purchase. Fixed income securities downgraded to below BBB
subsequent to purchase may be retained in the portfolio when deemed by the
advisor to be in the best interest of Fund shareholders. The Fund may also
invest in convertible securities, preferred stocks and debt of foreign
governments or corporations. Futures and/or options may be used to hedge the
portfolio against reinvestment and interest rate risk when deemed necessary.
For purposes of this Fund, a "bond" is defined as a debt instrument with a
fixed interest rate. The average maturity of the Intermediate Income Fund will
generally range between three and ten years.
Bond Income Fund. The investment objective of the Bond Income
Fund is to provide as high a level of current income as is consistent with
managing for total return by investing at least 65% of its total assets in
fixed income securities. The Fund primarily invests in high quality fixed
income securities such as U.S. Government securities, corporate bonds and
asset-backed securities (including mortgage-backed securities). A minimum of
65% of the portfolio will be invested in securities rated "A" or better by a
primary credit rating agency and the Fund will seek to maintain a minimum
average portfolio quality of "AA". All securities will be rated "BBB" or
better by a primary credit rating agency at the time of purchase. Fixed income
securities downgraded to below BBB subsequent to purchase may be retained in
the portfolio when deemed by the advisor to be in the best interests of Fund
shareholders. The Fund may also invest in convertible securities, preferred
stocks and debt of foreign governments or corporations. Futures and/or options
may be used to hedge the portfolio against reinvestment and interest rate risk
when deemed necessary. For purposes of this Fund, a "bond" is defined as a
debt instrument with a fixed interest rate. The average maturity of the Bond
Income Fund will generally range between seven and fifteen years.
- 4 -
<PAGE> 57
Stock Appreciation Fund. The objective of the Stock Appreciation
Fund is to seek long-term capital appreciation through investment in a
diversified portfolio of common stock (and securities convertible into common
stock) of domestic companies. The Fund may also invest, to a far lesser
extent, in securities of foreign companies, primarily through securities
represented by American Depositary Receipts (ADRs). Under normal market
conditions, at least 65% of the Fund's total assets will consist of common
stocks. Each stock that is purchased will be selected on the weight of
available evidence, including but not limited to: (1) the company's
fundamental business outlook and competitive position, (2) the valuation of the
security relative to its own historical norms, to the industry in which the
company competes, and to the market as a whole, and (3) the momentum of
earnings growth expected to be generated by the company. [ADVISOR'S NAME] will
seek to control performance risk in two ways: (1) relative to the market, by
diversifying investments across economic sectors and amongst small-, medium-,
and large-capitalization companies, and (2) by increasing the level of money
market reserves and/or employing hedging vehicles (futures and/or options) when
risks of a substantial stock market correction have risen to levels where such
action appears warranted. In addition, assets may be held in securities
convertible into common stock, debt securities (it is the Fund's current
intention to restrict these debt securities to those rated in the top three
quality categories by Moody's Investors Service, Inc. or Standard & Poor's
Corporation or determined to be of equivalent quality by [ADVISOR'S NAME]),
cash or cash equivalents, U.S. Government securities, or nonconvertible
preferred stock.
Aggressive Stock Appreciation Fund. The objective of the
Aggressive Stock Appreciation Fund is to aggressively seek long-term capital
appreciation through investment in a diversified portfolio of common stock (and
securities convertible into common stock) of domestic companies. The Fund may
also invest, to a far lesser extent, in securities of foreign companies,
primarily through securities represented by ADRs. The Fund will invest
primarily in the stocks of companies expected to increase their earnings at a
rate that exceeds the growth rate expected of the market. (Periodically,
however, the emphasis on growth as a selection factor may be tempered by market
conditions). While the Fund will always hold a broad array of
larger-capitalization stocks (approximately $4 billion and greater), there will
often be an emphasis on investing in mid-capitalization issues (between
approximately $1 billion and $4 billion), and to a much lesser extent,
smaller-capitalization stocks (approximately $1 billion market capitalization
and under). The decision to emphasize stocks of mid- to smaller-capitalization
companies will be based on a positive outlook for the market in general,
favorable stock valuation comparisons relative to larger-company stocks, and
attractive relative growth characteristics. Under normal market conditions, at
least 65% of the Fund's total assets will consist of common stocks. Each stock
that is purchased will be selected on the weight of available evidence,
including but not limited to: (1) the company's fundamental business outlook
and competitive position, (2) the momentum of earnings growth expected to be
generated by the company, and (3) the valuation of the security relative to its
own historic norms, to the industry in which the company competes, and to the
market as a whole. Although the Fund will have representation in all major
economic sectors and amongst small-, medium-, and large-capitalization
companies, [ADVISOR'S NAME] generally will attempt to add considerable value
relative to the market by emphasizing those stocks, investment themes, and/or
industry groups with the greatest overall appeal and most attractive
reward/risk characteristics. At times, the Fund may hold considerable
positions (relative to the market) in broadly-defined economic sectors with
growth potential unreflected in then current stock prices. [ADVISOR'S NAME]
may increase the level of money market reserves and/or employ hedging vehicles
(futures and/or options) when risks of a substantial market correction have
risen to levels where such action appears warranted. In addition, assets may
be held in securities convertible into common stocks, debt securities (it is
the Fund's current intention to restrict these debt securities to those rated
in the top three quality categories by Moody's Investors Service, Inc. or
Standard & Poor's Corporation or determined to be of equivalent quality by
[ADVISOR'S NAME]), cash or cash equivalents, U.S. Government securities, or
nonconvertible preferred stocks. Aggressive stock funds generally involve a
higher degree of risk in search of higher returns.
The Value Stock Appreciation Fund. The objective of the Value
Stock Appreciation Fund is to seek long-term capital appreciation and dividend
income through investment in a diversified portfolio of common stocks (and
securities convertible into common stock) of domestic companies. The Fund may
also invest, to a far lesser extent, in securities of foreign companies,
primarily through securities represented by American Depositary Receipts
(ADRs). The Fund will employ a "value style" of equity management. Stocks
selected for use in the Fund may generally be expected to exhibit the following
characteristics: 1) sell at a discount to their underlying "intrinsic value"
determined by discounting
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the stock's expected future dividends to their present day value and/or 2)
possess relative low price/earnings ratios and/or 3) possess relative low
price/cash flow ratios. A "dividend discount model" methodology is a
contributing component in the determination of a stocks "intrinsic value".
Frequently, these stocks may have a higher-than-average dividend yield. Often,
stocks exhibiting the above noted characteristics are described as being
"underowned" or "out of favor". Stock investments are selected from a universe
of high quality large, medium, and small capitalization companies. Quality is
determined based on a company's fundamental financial strength, size and
earnings visibility. Stocks are purchased with a long-term investment time
horizon in mind and are generally sold when their market price rises above
intrinsic value and/or their underlying fundamentals begin to deteriorate.
[ADVISOR'S NAME] may increase the level of money market reserves and/or employ
hedging vehicles (futures and/or options) when risks of a substantial market
correction have risen to levels where such action appears warranted. In
addition, assets may be held in securities convertible into common stocks,
straight debt securities (it is the Fund's current intention to restrict these
debt securities to those rated in the top three quality categories by Moody's
Investors Service, Inc. or Standard & Poor's Corporation or determined to be of
equivalent quality by [ADVISOR'S NAME]), cash or cash equivalents, U.S.
Government securities, or nonconvertible preferred stocks.
International Equity Fund
The International Equity Fund seeks long-term capital appreciation
by investing, directing or indirectly, in high quality companies based outside
the Untied States. Currently, the International Equity Fund invests
exclusively in the ____________ (the "Portfolio"), a series of ____________
("______ Trust"), itself a registered open-end management investment company.
Accordingly, the investment experience of the International Equity Fund will
correspond directly with the investment experience of the Portfolio. See
"Other Information - International Equity Fund Structure." The Portfolio has
the same investment objective and policies as the International Equity Fund.
The Portfolio's investment adviser is
______________________________________ ("__________"). __________, a
registered investment adviser under the Investment Advisers Act of 1940,
specializes in providing international investment advice to various clients.
See "Management - Investment Advisory Services."
The International Equity Fund is designed for investors who desire
to achieve international diversification of their investments by participating
in foreign securities markets. Because international investments generally
involve risks in addition to those risks associated with investment in the
United States, the International Equity Fund should be considered only as a
vehicle for international diversification and not as a complete investment
program.
There can be no assurance that the International Equity Fund or
the Portfolio will achieve its investment objective.
Under normal circumstances, the Portfolio will invest
substantially all of its assets, but not less than 65% of its total assets, in
equity securities of companies domiciled outside the United States. The
Portfolio selects its investments on the basis of their potential for capital
appreciation without regard to current income. The Portfolio may also invest
in the securities of domestic closed-end investment companies investing
primarily in foreign securities and may invest in debt obligations of foreign
governments or their political subdivisions, agencies or instrumentalities, of
supranational organizations and of foreign corporations. The Fund will not
observe any minimum ratings requirement for debt obligations in which it
invests. Such debt obligations may have predominantly speculative
characteristics. Investment will be diversified among securities of issuers in
foreign countries including, but not limited to, Japan, Germany, the United
Kingdom, France, the Netherlands, Hong Kong, Singapore and Australia. Under
normal market conditions the Portfolio will invest at all times in at least
three countries outside the United States. In general, the Portfolio will
invest only in securities of companies and governments in countries that
[ADVISOR'S NAME], in its judgment, considers both politically and economically
stable. The Portfolio has no limit on the amount of its assets which may be
invested in any one type of foreign instrument or in any foreign country;
however, to the extent the Portfolio concentrates its assets in a foreign
country, it will incur greater risks.
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<PAGE> 59
The Portfolio may also enter into foreign exchange contracts,
including forward contracts to purchase or sell foreign currencies, in
anticipation of its currency requirements and to protect against possible
adverse movements in foreign exchange rates. Although such contracts may
reduce the risk of loss to the Portfolio from adverse movements in currency
values, the contracts also limit possible gains from favorable movements.
When business or adverse financial conditions warrant, the
Portfolio may assume a temporary defensive position and invest without limit in
domestic or foreign cash or in cash equivalents, including (i) short-term U.S.
Government Securities, (ii) prime quality short-term instruments of commercial
banks, (iii) prime quality commercial paper, (iv) repurchase agreements with
banks and broker-dealers covering any of the securities in which the Portfolio
may invest directly and (v) shares of money market funds to the extent
permitted by the 1940 Act. During periods when and to the extent that the
Portfolio has assumed a temporary defensive position, it may not be pursuing
its investment objective. The Portfolio may hold cash and bank instruments
denominated in any major foreign currency.
Short-Term Trading for the Stock Funds
Under certain market conditions, the Stock Appreciation Fund,
Aggressive Stock Appreciation Fund, Value Stock Appreciation Fund and
International Equity Fund may seek profits by short-term trading. The length
of time a Fund has held a particular security is not generally a consideration
in investment decisions. A change in the number of securities owned by a Fund
is known as "portfolio turnover". To the extent short-term trading strategies
are used, a Fund's portfolio turnover rate may be higher than that of other
mutual funds. Portfolio turnover generally involves some expense to a Fund,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains.
RISKS OF INVESTING IN THE FUNDS
The Money Market Funds attempt to maintain the value of their
shares at a constant $1.00 share price, although there can be no assurance that
the Money Market Funds will always be able to do so. The Money Market Funds
may not achieve as high a level of current income as other funds that do not
limit their investments to the high quality securities in which the Money
Market Funds invest.
The price per share of the Non-Money Market Funds will fluctuate
with changes in value of the investments held by each Fund. Additionally,
there can be no assurance that a Fund will achieve its investment objective or
be successful in preventing or minimizing the risk of loss that is inherent in
investing in particular types of securities. Such risks include the
sensitivity of the cash flows and yields of separately traded interest and
principal components of obligations to the rate of principal payments
(including prepayments). With respect to mortgage-backed securities, risks
include a similar sensitivity to the rate of prepayments in that, although the
value of fixed-income securities generally increases during periods of falling
interest rates, as a result of prepayments and other factors, this is not
always the case with respect to mortgage-backed securities. Asset-backed
securities --involve the risk that such securities do not usually have the
benefit of a complete security interest in the related collateral. Positions
in options, futures and options on futures involve the risks that such options
and futures may fail as hedging techniques, that the loss from investing in
futures transactions is potentially unlimited and that closing transactions may
not be effected where a secondary liquid market does not exist. Further,
investment in the securities of issuers in any foreign country involves special
risks and considerations not typically associated with investing in U.S.
issuers.
An investment in the International Equity Fund involves certain
risks, depending on the types of investments made and the types of investment
techniques employed. All investments by the International Equity Fund entail
some risk. The International Equity Fund's policy of investing directly or
indirectly in foreign issuers entails certain risks in addition to those
normally associated with investments in equity securities. See "Investment
Objective and Policies - Investment Policies - Foreign Investment Risks and
Considerations."
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<PAGE> 60
By investing solely in the Portfolio, the International Equity
Fund may achieve certain efficiencies and economies of scale. Nonetheless,
this investment could also have potential adverse effects on the Fund.
Investors in the Fund should consider these risks, as described under "Other
Information - International Equity Fund Structure."
MANAGEMENT OF THE FUNDS
[ADVISOR'S NAME] acts as investment advisor to all of the Funds,
except the Cash Reserve Money Market Fund for which [ADVISOR'S NAME] acts as
investment advisor. For its services, [ADVISOR'S NAME] receives a fee from
each Fund (other than the Cash Reserve Money Market Fund) based upon each
Fund's average daily net assets. [ADVISOR'S NAME] receives a fee from the Cash
Reserve Money Market Fund based upon that Fund's average daily net assets. See
"Fee Table" in this Prospectus.
The International Equity Fund currently invests all of its assets
in the Portfolio. The International Equity Fund may withdraw its investment
from the Portfolio, for which [ADVISOR'S NAME] serves as investment adviser,
at any time if the Board determines that it is in the best interests of the
International Equity Fund and its shareholders to do so. See "Other
Information - International Equity Fund Structure." Accordingly, the
International Equity Fund has retained the Adviser as its investment adviser
and [ADVISOR'S NAME] as its investment subadviser to manage the International
Equity Fund's assets in the event the International Equity Fund so withdraws
its investment. Neither the Adviser or [ADVISOR'S NAME] will receive any
advisory or subadvisory fees with respect to the International Equity Fund as
long as the International Equity Fund remains completely invested in the
Portfolio or any other investment company.
[ADMINISTRATOR] acts as administrator and sponsor to the Funds.
For its services, [ADMINISTRATOR] receives a fee from the Funds based on each
Fund's average daily net assets. See "Management of the Fund" in this
Prospectus. [DISTRIBUTOR'S NAME] ("_____") distributes the Funds' shares and
may be reimbursed for certain of its distribution-related expenses.
GUIDE TO INVESTING IN THE __________ FAMILY OF FUNDS
Purchase orders for the Money Market Funds received by 12:00 noon
Eastern time will become effective that day. Purchase orders for all other
Funds received by your broker or Service Organization in proper form prior to
4:15 p.m., Eastern time, and transmitted to _____ prior to 5:00 p.m. Eastern
time, will become effective that day.
<TABLE>
<S> <C>
- Minimum Initial Investment . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000
- Minimum Initial Investment for IRAs . . . . . . . . . . . . . . . . . . . . . $ 250
- Minimum Subsequent Investment . . . . . . . . . . . . . . . . . . . . . . . . $ 50
</TABLE>
The Funds are purchased at net asset value.
Shareholders may exchange shares between Funds in the Trust by
telephone or mail. Exchanges may not be effected by facsimile.
<TABLE>
<S> <C>
- Minimum initial exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 500
(minimum for subsequent exchanges)
</TABLE>
Shareholders may redeem shares by telephone, mail, wire, or by writing
a check (the Money Market Funds only). Shares may not be redeemed by
facsimile.
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<PAGE> 61
<TABLE>
<S> <C>
- If a redemption request is received by 12:00 noon Eastern time, proceeds for the Money Market Funds
will be transferred to a designated account that day.
- Minimum check amount is $500.
- The Funds reserve the right to redeem upon not less than 30 days' notice all shares in a Fund's account
which have an aggregate value of $500 or less.
</TABLE>
[(Redemption by telephone, wire and check writing is not available for
IRAs and trust relationships of ___________.)
All dividends and distributions will be automatically paid in
additional shares at net asset value of the applicable Fund unless cash payment
is requested.
<TABLE>
<S> <C>
- Distributions for the Stock Appreciation Fund, Aggressive Stock Appreciation Fund, Stock Appreciation
Fund, and International Equity Fund are paid at least once annually and distributions for the other
Funds are paid monthly.
</TABLE>
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<PAGE> 62
THE INVESTMENT POLICIES AND PRACTICES OF THE FUNDS
Each Fund is a separate investment fund or portfolio, commonly known as
a mutual fund. The Funds are portfolios of a Delaware business trust,
[_________] Trust, organized under the laws of Delaware as an open-end,
management investment company. The Trust's Board of Trustees oversees the
overall management of the Funds and elects the officers of the Trust.
- The investment objective of the U.S. Treasury Reserve Money
Market Fund is to provide investors with as high a level of
current income as is consistent with liquidity, stability,
maximum safety of principal and the maintenance of a stable
$1.00 net asset value per share.
- The investment objective of the Cash Reserve Money Market Fund
is to provide investors with current income, liquidity and the
maintenance of a stable $1.00 net asset value by investing in
high quality, short-term obligations.
- The investment objective of the Short-Term Treasury Income
Fund is to provide investors with as high a level of current
income as is consistent with liquidity and safety of
principal.
- The investment objective of the Intermediate Bond Income Fund
is to provide investors with as high a level of current income
as is consistent with managing for total return by investing
in fixed income securities.
- The investment objective of the Bond Income Fund is to provide
investors with as high a level of current income as is
consistent with managing for total return by investing in
fixed income securities.
- The investment objective of the Stock Appreciation Fund is to
provide investors with long-term capital appreciation.
- The investment objective of the Aggressive Stock Appreciation
Fund is to provide investors with aggressive long-term capital
appreciation.
- The investment objective of the Value Stock Appreciation Fund
is to provide investors with long-term capital appreciation
and dividend income.
- The investment objective of the International Equity Fund is
to provide investors long-term capital appreciation.
Each Fund follows its own investment objectives and policies, including
certain investment restrictions. The SAI contains specific investment
restrictions which govern the Funds' investments. Those restrictions and the
Funds' investment objectives are fundamental policies, which means that they
may not be changed without a majority vote of shareholders of the affected
Fund. Except for the objectives and those restrictions specifically identified
as fundamental, all other investment policies and practices described in this
Prospectus and in the SAI are not fundamental and may change solely with Board
of Trustees approval.
[ADVISOR'S NAME] and [ADVISOR'S NAME] select investments and make
investment decisions based on the investment objective and policies of each
Fund. The following is a description of securities and investment practices.
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<PAGE> 63
U.S. Treasury Obligations (All Funds). The Funds may invest in U.S.
Treasury obligations, which are backed by the full faith and credit of the
United States Government as to the timely payment of principal and interest.
U.S. Treasury obligations consist of bills, notes, and bonds and separately
traded interest and principal component parts of such obligations known as
STRIPS which generally differ in their interest rates and maturities. U.S.
Treasury bills, which have original maturities of up to one year, notes, which
have maturities ranging from one year to 10 years, and bonds, which have
original maturities of 10 to 30 years, are direct obligations of the United
States Government.
U.S. Government Securities (All Funds, except U.S. Treasury Reserve
Money Market Fund and Short-Term Treasury Income Fund). U.S. Government
securities are obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. U.S. Government securities include debt
securities issued or guaranteed by U.S. Government-sponsored enterprises and
federal agencies and instrumentalities. Some types of U.S. Government
securities are supported by the full faith and credit of the United States
Government or U.S. Treasury guarantees, such as mortgage-backed certificates
guaranteed by the Government National Mortgage Association ("GNMA"). Other
types of U.S. Government securities, such as obligations of the Student Loan
Marketing Association, provide recourse only to the credit of the agency or
instrumentality issuing the obligation. In the case of obligations not backed
by the full faith and credit of the United States Government, the investor must
look to the agency issuing or guaranteeing the obligation for ultimate
repayment.
Commercial Paper (All Funds, except U.S. Treasury Reserve Money Market
Fund and Short-Term Treasury Income Fund). Commercial paper includes
short-term unsecured promissory notes, variable rate demand notes and variable
rate master demand notes issued by both domestic and foreign bank holding
companies, corporations and financial institutions and United States Government
agencies and instrumentalities. All commercial paper purchased by the Funds
is, at the time of investment, rated in one of the top two rating categories of
at least one NRSRO, or, if not rated is, in the opinion of [ADVISOR'S NAME] or
[ADVISOR'S NAME], of an investment quality comparable to rated commercial paper
in which the Funds may invest, or, with respect to the Cash Reserve Money
Market Fund, (i) rated "P-1" by Moody's Investors Service, Inc. ("Moody's") and
"A-1" or better by Standard & Poor's Corporation ("S&P") or in a comparable
rating category by any two NRSROs that have rated the commercial paper or (ii)
rated in a comparable category by only one such organization if it is the only
organization that has rated the commercial paper (and provided the purchase is
approved or ratified by the Board of Trustees).
Corporate Debt Securities (All Funds, except U.S. Treasury Reserve
Money Market Fund and Short-Term Treasury Income Fund). These Funds may
purchase corporate debt securities, subject to the rating and quality
requirements specified with respect to each Fund. The Funds may invest in both
rated commercial paper and rated corporate debt obligations of foreign issuers
that meet the same quality criteria applicable to investments by the Funds in
commercial paper and corporate debt obligations of domestic issuers. These
investments, therefore, are not expected to involve significant additional
risks as compared to the risks of investing in comparable domestic securities.
Generally, all foreign investments carry with them both opportunities and risks
not applicable to investments in securities of domestic issuers, such as risks
of foreign political and economic instability, adverse movements in foreign
exchange rates, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital, changes in foreign governmental
attitudes toward private investment (possibly leading to nationalization,
increased taxation or confiscation of foreign assets) and added difficulties
inherent in obtaining and enforcing a judgment against a foreign issuer of
securities should it default.
Mortgage-Related Securities (All Funds, except U.S. Treasury Reserve
Money Market Fund and Short-Term Treasury Income Fund). These Funds are
permitted to invest in mortgage-related securities subject to the rating and
quality requirements specified with respect to each such Fund. Mortgage
pass-through securities are securities representing interests in "pools" of
mortgages in which payments of both interest and principal on the securities
are made monthly, in effect, "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net
of fees paid to the issuer or guarantor of the securities). Early repayment of
principal on mortgage pass-through securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose a Fund to a lower rate
of return
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<PAGE> 64
upon reinvestment of principal. Also, if a security subject to prepayment has
been purchased at a premium, in the event of prepayment the value of the
premium would be lost. Like other fixed-income securities, when interest rates
rise, the value of mortgage-related securities generally will decline; however,
when interest rates decline, the value of mortgage-related securities with
prepayment features may not increase as much as other fixed-income securities.
In recognition of this prepayment risk to investors, the Public Securities
Association (the "PSA") has standardized the method of measuring the rate of
mortgage loan principal prepayments. The PSA formula, the Constant Prepayment
Rate or other similar models that are standard in the industry will be used by
the Funds in calculating maturity for purposes of investment in
mortgage-related securities. The inverse relation between interest rates and
value of fixed income securities will be more pronounced with respect to
investments by the Fund in mortgage-related securities, the value of which may
be more sensitive to interest rate changes.
Payment of principal and interest on some mortgage pass-through
securities (but not the market value of the securities themselves) may be
guaranteed by the full faith and credit of the U.S. Government (in the case of
securities guaranteed by GNMA or guaranteed by agencies or instrumentalities of
the U.S. Government (in the case of securities guaranteed by the Federal
National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC"), which are supported only by the discretionary authority
of the U.S. Government to purchase the agency's obligations). Mortgage
pass-through securities created by non-governmental issuers (such as commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers) may be supported in
various forms of insurance or guarantees issued by governmental entities.
Collateralized Mortgage Obligations ("CMOs") are hybrid instruments
with characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal on a CMO are
paid, in most cases, semi-annually. CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured
in multiple classes, with each class bearing a different stated maturity or
interest rate. The inverse relation between interest rates and value of fixed
income securities will be more pronounced with respect to investments by the
Fund in mortgage-related securities, the value of which may be more sensitive
to interest rate changes.
Asset-Backed Securities (Cash Reserve Money Market Fund, Intermediate
Bond Income Fund and Bond Income Fund). These Funds are permitted to invest in
asset-backed securities, subject to the rating and quality requirements
specified with respect to each such Fund. Through the use of trusts and
special purpose subsidiaries, various types of assets, primarily home equity
loans and automobile and credit card receivables, are being securitized in
pass-through structures similar to the mortgage pass-through structures
described above. Consistent with the Funds' investment objectives, policies
and quality standards, a Fund may invest in these and other types of
asset-backed securities which may be developed in the future.
Asset-backed securities involve certain risks that are not posed by
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the benefit of a complete security interest
in the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, some of which may reduce the ability to
obtain full payment. In the case of automobile receivables, due to various
legal and economic factors, proceeds from repossessed collateral may not always
be sufficient to support payments on these securities. The risks associated
with asset-backed securities are often reduced by the addition of credit
enhancements such as a letter of credit from a bank, excess collateral or a
third-party guarantee.
Municipal Commercial Paper (Intermediate Bond Income Fund, Bond Income
Fund). Municipal commercial paper is a debt obligation with a stated maturity
of one year or less which is issued to finance seasonal working capital needs
or as short-term financing in anticipation of longer-term debt. Investments in
municipal commercial paper are limited to commercial paper which is rated at
the date of purchase: (i) "P-1" by Moody's and "A-1" or "A-1+" by S&P "P-2"
(Prime-2) or better by Moody's and "A-2" or better by S&P or (ii) in a
comparable rating category by any two of the NRSROs that have rated commercial
paper or (iii) in a comparable rating category by only one such organization
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<PAGE> 65
if it is the only organization that has rated the commercial paper or (iv) if
not rated, is, in the opinion of [ADVISOR'S NAME], of comparable investment
quality and within the credit quality policies and guidelines established by
the Board of Trustees.
Issuers of municipal commercial paper rated "P-1" have a "superior
capacity for repayment of short-term promissory obligations". The "A-1" rating
for commercial paper under the S&P classification indicates that the "degree of
safety regarding timely payment is either overwhelming or very strong."
Commercial paper with "overwhelming safety characteristics" will be rated
"A-1+". Commercial paper receiving a "P-2" rating has a strong capacity for
repayment of short-term promissory obligations. Commercial paper rated "A-2"
has the capacity for timely payment although the relative degree of safety is
not as overwhelming as for issues designated "A-1". See the Appendix for a
more complete description of securities ratings.
Municipal Notes (Intermediate Bond Income Fund, Bond Income Fund).
Municipal notes are generally sold as interim financing in anticipation of the
collection of taxes, a bond sale or receipt of other revenue. Municipal notes
generally have maturities at the time of issuance of one year or less.
Investments in municipal notes are limited to notes which are rated at the date
of purchase: (i) MIG 1 or MIG 2 by Moody's and in a comparable rating category
by at least one other nationally recognized statistical rating organization
that has rated the notes, or (ii) in a comparable rating category by only one
such organization, including Moody's, if it is the only organization that has
rated the notes, or (iii) if not rated, are, in the opinion of [ADVISOR'S
NAME], of comparable investment quality and within the credit quality policies
and guidelines established by the Board of Trustees.
Notes rated "MIG 1" are judged to be of the "best quality" and carry
the smallest amount of investment risk. Notes rated "MIG 2" are judged to be
of "high quality, with margins of protection ample although not as large as in
the preceding group."
Municipal Bonds (Intermediate Bond Income Fund, Bond Income Fund).
Municipal bonds generally have a maturity at the time of issuance of more than
one year. Municipal bonds may be issued to raise money for various public
purposes -- such as constructing public facilities and making loans to public
institutions. There are generally two types of municipal bonds: general
obligation bonds and revenue bonds. General obligation bonds are backed by the
taxing power of the issuing municipality and are considered the safest type of
municipal bond. Revenue bonds are backed by the revenues of a project or
facility -- tolls from a toll road, for example. Certain types of municipal
bonds are issued to obtain funding for privately operated facilities.
Industrial development revenue bonds (which are private activity bonds) are a
specific type of revenue bond backed by the credit and security of a private
user, and therefore investments in these bonds have more potential risk.
Investments in municipal bonds are limited to bonds which are rated at the time
of purchase "A" or better by a NRSRO. Municipal bonds generally have a
maturity at the time of issuance of more than one year.
Common Stocks (Stock Appreciation Fund, Aggressive Stock Appreciation
Fund, Value Stock Appreciation Fund and International Equity Fund). Common
stock represents the residual ownership interest in the issuer after all of its
obligations and preferred stocks are satisfied. Common stock fluctuates in
price in response to many factors, including historical and prospective
earnings of the issuer, the value of its assets, general economic conditions,
interest rates, investor perceptions and market volatility.
Preferred Stocks (Intermediate Bond Income Fund, Bond Income Fund,
Stock Appreciation Fund, Aggressive Stock Appreciation Fund, Value Stock
Appreciation Fund and International Equity Fund). Preferred stock has a
preference over common stock in liquidation and generally in dividends as well,
but is subordinated to the liabilities of the issuer in all respects.
Preferred stock may or may not be convertible into common stock. As a general
rule, the market value of preferred stock with a fixed dividend rate and no
conversion element varies inversely with interest rates and perceived credit
risk. Because preferred stock is junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the issuer
will cause greater changes in the value of a preferred stock than in a more
senior debt security with similar stated yield characteristics.
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American Depository Receipts (Intermediate Bond Income Fund, Bond
Income Fund, Stock Appreciation Fund, Aggressive Stock Appreciation Fund, Value
Stock Appreciation Fund, and International Equity Fund). American Depository
Receipts are U.S. dollar-denominated receipts generally issued by domestic
banks, which evidence the deposit with the bank of the common stock of a
foreign issuer and which are publicly traded on exchanges or over-the-counter
in the United States.
These Funds may each invest in both sponsored and unsponsored ADR
programs. There are certain risks associated with investments in unsponsored
ADR programs. Because the non-U.S. company does not actively participate in
the creation of the ADR program, the underlying agreement for service and
payment will be between the depository and the shareholder. The Company
issuing the stock underlying the ADR pays nothing to establish the unsponsored
facility, as fees for ADR issuance and cancellation are paid by brokers.
Investors directly bear the expenses associated with certificate transfer,
custody and dividend payment.
In an unsponsored ADR program, there also may be several depositories
with no defined legal obligations to the non-U.S. company. The duplicate
depositories may lead to marketplace confusion because there would be no
central source of information to buyers, sellers and intermediaries. The
efficiency of centralization gained in a sponsored program can greatly reduce
the delays in delivery of dividends and annual reports. In addition, with
respect to all ADRs there is always the risk of loss due to currency
fluctuations.
Investments in ADRs involve certain risks not typically involved in
purely domestic investments, including future foreign political and economic
developments, and the possible imposition of foreign governmental laws or
restrictions applicable to such investments. Securities of foreign issuers
through ADRs are subject to different economic, financial, political and social
factors. Individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. With respect to certain countries, there is the possibility
of expropriation of assets, confiscatory taxation, political or social
instability or diplomatic developments which could adversely affect the value
of the particular ADR. There may be less publicly available information about
a foreign company than about a U.S. company, and foreign companies may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those of U.S. companies. The International Equity
Fund may also invest in European Depository Receipts, which are receipts issued
by a European financial institution evidencing an arrangement similar to ADRs,
and in other similar instruments representing securities of foreign companies.
Investment in Foreign Securities (Intermediate Bond Income Fund, Bond
Income Fund, Stock Appreciation Fund, Aggressive Stock Appreciation Fund, Value
Stock Appreciation Fund and International Equity Fund). These Funds may each
invest in securities of foreign governmental and private issuers that are
generally denominated in and pay interest in U.S. dollars. Investments in
foreign securities involve certain considerations that are not typically
associated with investing in domestic securities. There may be less publicly
available information about a foreign issuer than about a domestic issuer.
Foreign issuers also are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to domestic
issuers. In addition, with respect to certain foreign countries, interest may
be withheld at the source under foreign income tax laws, and there is a
possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in securities of issuers located in those countries.
Convertible and Exchangeable Securities (Intermediate Bond Income Fund,
Bond Income Fund, Stock Appreciation Fund, Aggressive Stock Appreciation Fund,
Value Stock Appreciation Fund and International Equity Fund). These Funds are
permitted to invest in convertible and exchangeable securities, subject to the
rating and quality requirements specified with respect to each such Fund.
Convertible securities generally offer fixed interest or dividend yields and
may be converted either at a stated price or stated rate for common or
preferred stock. Exchangeable securities may be exchanged on specified terms
for common or preferred stock. Although to a lesser extent than with fixed
income securities generally, the market value of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature,
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the market value of convertible or exchangeable securities tends to vary with
fluctuations in the market value of the underlying common or preferred stock.
Debt securities that are convertible into or exchangeable for preferred or
common stock are liabilities of the issuer but are generally subordinated to
senior debt of the issuer.
Domestic and Foreign Bank Obligations (All Funds, except U.S. Treasury
Reserve Money Market Fund and Short-Term Treasury Income Fund). These
obligations include but are not restricted to certificates of deposit,
commercial paper, Yankee certificates of deposit, bankers' acceptances,
Eurodollar certificates of deposit and time deposits, promissory notes and
medium term deposit notes. The Funds will not invest in any obligations of
their affiliates, as defined under the 1940 Act.
Each Fund limits its investment in United States bank obligations to
obligations of United States banks (including foreign branches). Each Fund
limits its investment in foreign bank obligations to United States
dollar-denominated obligations of foreign banks (including United States
branches of foreign banks) which in the opinion of [ADVISOR'S NAME] or
[ADVISOR'S NAME], are of an investment quality comparable to obligations of
United States banks which may be purchased by the Funds. There is no
limitation on the amount of the Funds' assets which may be invested in
obligations of foreign banks which meet the conditions set forth herein.
Fixed time deposits may be withdrawn on demand by the investor, but may
be subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Investments in fixed time deposits subject to withdrawal penalties
maturing from two days through seven days may not exceed 15% of the value of
the total assets of the Non-Money Market Funds and 10% of the value of the
total assets of the Money Market Funds.
Obligations of foreign banks involve somewhat different investment
risks than those affecting obligations of United States banks, including the
possibilities that their liquidity could be impaired because of future
political and economic developments, that the obligations may be less
marketable than comparable obligations of United States banks, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that foreign deposits may be seized or nationalized, that foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal and interest on those obligations and
that the selection of those obligations may be more difficult because there may
be less publicly available information concerning foreign banks or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks may differ from those applicable to
Untied States banks. In that connection, foreign banks are not subject to
examination by any United States Government agency or instrumentality.
Investments in Eurodollar and Yankeedollar obligations involve
additional risks. Most notably, there generally is less publicly available
information about foreign companies; there may be less governmental regulation
and supervision; they may use different accounting and financial standards; and
the adoption of foreign governmental restrictions may adversely affect the
payment of principal and interest on foreign investments. In addition, not all
foreign branches of United States banks are supervised or examined by
regulatory authorities as are United States banks, and such branches may not be
subject to reserve requirements.
Zero Coupon Securities (All Funds). The Funds may invest in zero
coupon securities. A zero coupon security pays no interest to its holder
during its life and is sold at a discount to its face value at maturity. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are more
sensitive to changes in interest rates than non-zero coupon securities having
similar maturities and credit qualities.
Variable rate demand obligations (All Funds, except U.S. Treasury
Reserve Money Market Fund and Short-Term Treasury Income Fund). Variable rate
demand obligations have a maturity of 397 days or less with respect to the
Money Market Funds or five to twenty years with respect to the Non-Money Market
Funds, but carry with them the right
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of the holder to put the securities to a remarketing agent or other entity on
short notice, typically seven days or less. Generally, the remarketing agent
will adjust the interest rate every seven days (or at other intervals
corresponding to the notice period for the put), in order to maintain the
interest rate at the prevailing rate for securities with a seven-day maturity.
The remarketing agent is typically a financial intermediary that has agreed to
perform these services. Variable rate master demand obligations permit a Fund
to invest fluctuating amounts at varying rates of interest pursuant to direct
arrangements between the Funds, as lender, and the borrower. Because the
obligations are direct lending arrangements between the Funds and the borrower,
they will not generally be traded, and there is no secondary market for them,
although they are redeemable (and thus immediately repayable by the borrower)
at principal amount, plus accrued interest, at any time. The borrower also may
prepay up to the full amount of the obligation without penalty. While master
demand obligations, as such, are not typically rated by credit rating agencies,
if not so rated, a Fund may, under its minimum rating standards, invest in them
only if, in the opinion of [ADVISOR'S NAME] or [ADVISOR'S NAME], they are of an
investment quality comparable to other debt obligations in which the Funds may
invest and are within the credit quality policies, guidelines and procedures
established by the Board of Trustees. See the SAI for further details on
variable rate demand obligations and variable rate master demand obligations.
Other Mutual Funds (All Funds). Each Fund may invest in shares of
other open-end, management investment companies, subject to the limitations of
the 1940 Act and subject to such investments being consistent with the overall
objective and policies of the Fund making such investment, provided that any
such purchases will be limited to short-term investments in shares of
unaffiliated investment companies. The purchase of securities of other mutual
funds results in duplication of expenses such that investors indirectly bear a
proportionate share of the expenses of such mutual funds including operating
costs, and investment advisory and administrative fees.
Options on Securities (All Funds, except U.S. Treasury Reserve Money
Market Fund and Cash Reserve Money Market Fund). The Funds may purchase put
and call options and write covered put and call options on securities in which
each Fund may invest directly and that are traded on registered domestic
securities exchanges or that result from separate, privately negotiated
transactions (i.e., over-the-counter (OTC) options). The writer of a call
option, who receives a premium, has the obligation, upon exercise, to deliver
the underlying security against payment of the exercise price during the option
period. The writer of a put, who receives a premium, has the obligation to buy
the underlying security, upon exercise, at the exercise price during the option
period.
The Funds may write put and call options on securities only if they are
covered, and such options must remain covered as long as the Fund is obligated
as a writer. A call option is covered if a Fund owns the underlying security
covered by the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration if the underlying security is held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A put option is covered if a Fund maintains cash, U.S. Treasury
bills or other high grade short-term obligations with a value equal to the
exercise price in a segregated account with its custodian.
The principal reason for writing put and call options is to attempt to
realize, through the receipt of premiums, a greater current return than would
be realized on the underlying securities alone. In return for the premium
received for a call option, the Funds forego the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
the option remains open, but retain the risk of loss should the price of the
security decline. In return for the premium received for a put option, the
Funds assume the risk that the price of the underlying security will decline
below the exercise price, in which case the put would be exercised and the Fund
would suffer a loss. The Funds may purchase put options in an effort to
protect the value of a security it owns against a possible decline in market
value.
Writing of options involves the risk that there will be no market in
which to effect a closing transaction. An exchange-traded option may be closed
out only on an exchange that provides a secondary market for an option of the
same series. OTC options are not generally terminable at the option of the
writer and may be closed out only by negotiation with the holder. There is
also no assurance that a liquid secondary market on an exchange will exist. In
addition, because OTC options are issued in privately negotiated transactions
exempt from registration under the
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<PAGE> 69
Securities Act of 1933, there is no assurance that the Funds will succeed in
negotiating a closing out of a particular OTC option at any particular time.
If a Fund, as covered call option writer, is unable to effect a closing
purchase transaction in the secondary market or otherwise, it will not be able
to sell the underlying security until the option expires or it delivers the
underlying security upon exercise.
The staff of the SEC has taken the position that purchased options not
traded on registered domestic securities exchanges and the assets used as cover
for written options not traded on such exchanges are generally illiquid
securities. However, the staff has also opined that, to the extent a mutual
fund sells an OTC option to a primary dealer that it considers creditworthy and
contracts with such primary dealer to establish a formula price at which the
fund would have the absolute right to repurchase the option, the fund would
only be required to treat as illiquid the portion of the assets used to cover
such option equal to the formula price minus the amount by which the option is
in-the-money. Pending resolution of the issue, the Funds will treat such
options and, except to the extent permitted through the procedure described in
the preceding sentence, assets as subject to each such Fund's limitation on
investments in securities that are not readily marketable.
Futures, Related Options and Options on Stock Indices (Stock
Appreciation Fund, Aggressive Stock Appreciation Fund, Value Stock Appreciation
Fund and International Equity Fund). Each Fund may attempt to reduce the risk
of investment in equity securities by hedging a portion of its portfolio
through the use of certain futures transactions, options on futures traded on a
board of trade and options on stock indices traded on national securities
exchanges. In addition, each Fund may hedge a portion of its portfolio by
purchasing such instruments during a market advance or when [ADVISOR'S NAME]
anticipates an advance. In attempting to hedge a portfolio, a Fund may enter
into contracts for the future delivery of securities and futures contracts
based on a specific security, class of securities or an index, purchase or sell
options on any such futures contracts, and engage in related closing
transactions. Each Fund will use these instruments primarily as a hedge
against changes resulting from market conditions in the values of securities
held in its portfolio or which it intends to purchase.
A stock index assigns relative weighing to the common stocks in the
index, and the index generally fluctuates with changes in the market values of
these stocks. A stock index futures contract is an agreement in which one
party agrees to deliver to the other an amount of cash equal to a specific
dollar amount times the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. Each Fund will sell stock index futures only if the amount
resulting from the multiplication of the then current level of the indices upon
which such futures contracts are based, and the number of futures contracts
which would be outstanding, do not exceed one-third of the value of the Fund's
net assets.
When a futures contract is executed, each party deposits with a broker
or in a segregated custodial account up to 5% of the contract amount, called
the "initial margin," and during the term of the contract, the amount of the
deposit is adjusted based on the current value of the futures contract by
payments of variation margin to or from the broker or segregated account.
In the case of options on stock index futures, the holder of the option
pays a premium and receives the right, upon exercise of the option at a
specified price during the option period, to assume the option writer's
position in a stock index futures contract. If the option is exercised by the
holder before the last trading day during the option period, the option writer
delivers the futures position, as well as any balance in the writer's futures
margin account. If it is exercised on the last trading day, the option writer
delivers to the option holder cash in an amount equal to the difference between
the option exercise price and the closing level of the relevant index on the
date the option expires. In the case of options on stock indexes, the holder
of the option pays a premium and receives the right, upon exercise of the
option at a specified price during the option period, to receive cash equal to
the dollar amount of the difference between the closing price of the relevant
index and the option exercise price times a specified multiple, called the
"multiplier."
During a market decline or when [ADVISOR'S NAME] anticipates a decline,
each Fund may hedge a portion of its portfolio by selling futures contracts or
purchasing puts on such contracts or on a stock index in order to limit
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exposure to the decline. This provides an alternative to liquidation of
securities positions and the corresponding costs of such liquidation.
Conversely, during a market advance or when [ADVISOR'S NAME] anticipates an
advance, each Fund may hedge a portion of its portfolio by purchasing futures,
options on these futures or options on stock indices. This affords a hedge
against a Fund not participating in a market advance at a time when it is not
fully invested and serves as a temporary substitute for the purchase of
individual securities which may later be purchased in a more advantageous
manner. Each Fund will sell options on futures and on stock indices only to
close out existing positions.
Interest Rate Futures Contracts (All Funds, except U.S. Treasury
Reserve Money Market Fund). These Funds may, to a limited extent, enter into
interest rate futures contracts--i.e., contracts for the future delivery of
securities or index-based futures contracts--that are, in the opinion of
[ADVISOR'S NAME], sufficiently correlated with the Fund's portfolio. These
investments will be made primarily in an attempt to protect a Fund against the
effects of adverse changes in interest rates (i.e., "hedging"). When interest
rates are increasing and portfolio values are falling, the sale of futures
contracts can offset a decline in the value of a Fund's current portfolio
securities. The Funds will engage in such transactions primarily for bona fide
hedging purposes.
Options on Interest Rate Futures Contracts (All Funds, except U.S.
Treasury Reserve Money Market Fund). These Funds may purchase put and call
options on interest rate futures contracts, which give a Fund the right to sell
or purchase the underlying futures contract for a specified price upon exercise
of the option at any time during the option period. Each Fund may also write
(sell) put and call options on such futures contracts. For options on interest
rate futures that a Fund writes, such Fund will receive a premium in return for
granting to the buyer the right to sell to the Fund or to buy from the Fund the
underlying futures contract for a specified price at any time during the option
period. As with futures contracts, each Fund will purchase or sell options on
interest rate futures contracts primarily for bona fide hedging purposes.
Foreign Exchange Contracts (International Equity Fund). Changes in
foreign currency exchange rates will affect the U.S. dollar values of
securities denominated in currencies other than the U.S. dollar. The rate of
exchange between the U.S. dollar and other currencies fluctuates in response to
forces of supply and demand in the foreign exchange markets. These forces are
affected by the international balance of payments and other economic and
financial conditions, government invention, speculation and other factors.
When investing in foreign securities, the Portfolio usually effects currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign exchange market. The Portfolio incurs foreign exchange expenses
in converting assets from one currency to another.
The Portfolio may enter into foreign currency forward contracts or currency
futures or options contracts for the purchase or sale of foreign currency to
"lock in" the U.S. dollar price of the securities denominated in a foreign
currency or the U.S. dollar value of interest and dividends to be paid on such
securities, or to hedge against the possibility that the currency of a foreign
country in which the Portfolio has investments may suffer a decline against the
U.S. dollar. A forward currency contract is an obligation to purchase or sell
a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time for the contract. This method of attempting to hedge the value of the
Portfolio's portfolio securities again a decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities.
Although the strategy of engaging in foreign currency transactions could reduce
the risk of loss due to a decline in the value of the hedged currency, it could
also limit the potential gain from an increase in the value of the currency.
The Portfolio does not intend to maintain a net exposure to such contracts
where the fulfillment of the Portfolio's obligations under such contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of
the value of the Portfolio's portfolio securities or other assets denominated
in the currency. The Portfolio will not enter into these contracts for
speculative purposes and will not enter into non-hedging currency contracts.
These contracts involve a risk of loss if [SUBADVISOR'S NAME] fails to predict
currency values correctly. The Portfolio has no present intention to enter
into currency futures or options contracts buy may do so in the future.
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Risks of Options and Futures Contracts. One risk involved in the
purchase and sale of futures and options is that a Fund may not be able to
effect closing transactions at a time when it wishes to do so. Positions in
futures contracts and options on futures contracts may be closed out only on an
exchange or board of trade that provides an active market for them, and there
can be no assurance that a liquid market will exist for the contract or the
option at any particular time. To mitigate this risk, each Fund will ordinarily
purchase and write options only if a secondary market for the options exists on
a national securities exchange or in the over-the-counter market. Another risk
is that during the option period, if a Fund has written a covered call option,
it will have given up the opportunity to profit from a price increase in the
underlying securities above the exercise price in return for the premium on the
option (although the premium can be used to offset any losses or add to a
Fund's income) but, as long as its obligation as a writer continues, such Fund
will have retained the risk of loss should the price of the underlying security
decline. Investors should note that because of the volatility of the market
value of the underlying security, the loss from investing in futures
transactions is potentially unlimited. In addition, a Fund has no control over
the time when it may be required to fulfill its obligation as a writer of the
option. Once a Fund has received an exercise notice, it cannot effect a
closing transaction in order to terminate its obligation under the option and
must deliver the underlying securities at the exercise price.
The Funds' successful use of stock index futures contracts, options on
such contracts and options on indices depends upon the ability of [ADVISOR'S
NAME] to predict the direction of the market and is subject to various
additional risks. The correlation between movements in the price of the
futures contract and the price of the securities being hedged is imperfect and
the risk from imperfect correlation increases in the case of stock index
futures as the composition of the Funds' portfolios diverge from the
composition of the relevant index. Such imperfect correlation may prevent the
Funds from achieving the intended hedge or may expose the Funds to risk of
loss. In addition, if the Funds purchase futures to hedge against market
advances before they can invest in common stock in an advantageous manner and
the market declines, the Funds might create a loss on the futures contract.
Particularly in the case of options on stock index futures and on stock
indices, the Funds' ability to establish and maintain positions will depend on
market liquidity. The successful utilization of options and futures
transactions requires skills different from those needed in the selection of
the Funds' portfolio securities. The Funds believe that [ADVISOR'S NAME]
possesses the skills necessary for the successful utilization of such
transactions.
The Funds are permitted to engage in bona fide hedging transactions (as
defined in the rules and regulations of the Commodity Futures Trading
Commission) without any quantitative limitations. Futures and related option
transactions which are not for bona fide hedging purposes may be used provided
the total amount of the initial margin and any option premiums attributable to
such positions does not exceed 5% of each Fund's liquidating value after taking
into account unrealized profits and unrealized losses, and excluding any
in-the-money option premiums paid. The Funds will not market, and are not
marketing, themselves as commodity pools or otherwise as vehicles for trading
in futures and related options. The Funds will segregate liquid assets such as
cash, U.S. Government securities or other liquid high grade debt obligations to
cover the futures and options.
"When Issued" and "Forward Commitment" Transactions (All Funds). The
Funds may purchase securities on a when issued and delayed delivery basis and
may purchase or sell securities on a forward commitment basis. When issued or
delayed delivery transactions arise when securities are purchased by a Fund
with payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time of
entering into the transaction. A forward commitment transaction is an
agreement by a Fund to purchase or sell securities at a specified future date.
When a Fund engages in these transactions, the Fund relies on the buyer or
seller, as the case may be, to consummate the sale. Failure to do so may
result in the Fund missing the opportunity to obtain a price or yield
considered to be advantageous. When issued and delayed delivery transactions
and forward commitment transactions may be expected to occur a month or more
before delivery is due. However, no payment or delivery is made by a Fund
until it receives payment or delivery from the other party to the transaction.
A separate account containing only liquid assets such as cash, U.S. Government
securities, or other liquid high grade debt obligations equal to the value of
purchase commitments will be maintained until payment is made. Such securities
have the effect of leverage on the Funds and may contribute to volatility of a
Fund's net asset value. For further information, see the SAI.
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Loans of Portfolio Securities (All Funds). To increase current income,
each Fund may lend its portfolio securities in an amount up to 33 1/3% of each
such Fund's total assets to brokers, dealers and financial institutions,
provided certain conditions are met, including the condition that each loan is
secured continuously by collateral maintained on a daily mark-to-market basis
in an amount at least equal to the current market value of the securities
loaned. These transactions involve a loan by the applicable Fund and are
subject to the same risks as repurchase agreements. For further information,
see the SAI.
Repurchase Agreements (All Funds, except the Short-Term Treasury Income
Fund). The Funds may enter into repurchase agreements with any bank and
broker-dealer which, in the opinion of the Trustees, presents a minimum risk of
bankruptcy. Under a repurchase agreement a Fund acquires securities and
obtains a simultaneous commitment from the seller to repurchase the securities
at a specified time and at an agreed upon yield. The agreements will be fully
collateralized and the value of the collateral, including accrued interest,
marked-to-market daily. The agreements may be considered to be loans made by
the purchaser, collateralized by the underlying securities. If the seller
should default on its obligation to repurchase the securities, a Fund may
experience a loss of income from the loaned securities and a decrease in the
value of any collateral, problems in exercising its rights to the underlying
securities and costs and time delays in connection with the disposition of
securities. No Money Market Fund may invest more than 10% and no Non-Money
Market Fund may invest more than 15% of its net assets in repurchase agreements
maturing in more than seven business days and in securities for which market
quotations are not readily available. For more information about repurchase
agreements, see "Investment Policies" in the SAI.
Reverse Repurchase Agreements (All Funds).
The Funds may also enter into reverse repurchase agreements to avoid
selling securities during unfavorable market conditions to meet redemptions.
Pursuant to a reverse repurchase agreement, a Fund will sell portfolio
securities and agree to repurchase them from the buyer at a particular date and
price. Whenever a Fund enters into a reverse repurchase agreement, it will
establish a segregated account in which it will maintain liquid assets in an
amount at least equal to the repurchase price marked to market daily (including
accrued interest), and will subsequently monitor the account to ensure that
such equivalent value is maintained. The Fund pays interest on amounts
obtained pursuant to reverse repurchase agreements. Reverse repurchase
agreements are considered to be borrowings by a Fund under the 1940 Act.
Portfolio Turnover. The Funds generally will not engage in the trading
of securities for the purpose of realizing short-term profits, but each Fund
will adjust its portfolio as it deems advisable in view of prevailing or
anticipated market conditions or fluctuations in interest rates to accomplish
its respective investment objective. For example, each Fund may sell portfolio
securities in anticipation of an adverse market movement. Other than for tax
purposes, frequency of portfolio turnover will not be a limiting factor if a
Fund considers it advantageous to purchase or sell securities. The Funds do
not anticipate that the respective annual portfolio turnover rates will exceed
the following: Short-Term Treasury Income Fund, 400%; Intermediate Income Fund,
500%; Bond Income Fund, 500%; Stock Appreciation Fund, 85%; Aggressive Stock
Appreciation Fund, 85%; Value Stock Appreciation Fund, 85% and International
Equity Fund, 100%. A high rate of portfolio turnover involves correspondingly
greater transaction expenses than a lower rate, which expenses must be borne by
each Fund and its shareholders. High portfolio turnover rates may also make it
more difficult for the Funds to satisfy the requirement for qualification as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"), that less than 30% of each Funds' gross income in any tax
year be derived from gains on the sale of securities held for less than less
than three months.
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INVESTMENT RESTRICTIONS
(ALL FUNDS, EXCEPT AS INDICATED)
(1) No Fund may invest more than 15% (10% with respect to the
Money Market Funds) of the aggregate value of its net assets in investments
which are illiquid, or not readily marketable (including repurchase agreements
having maturities of more than seven calendar days, time deposits having
maturities of more than seven calendar days, and securities of foreign issuers
that are not listed on a recognized domestic or foreign securities exchange).
(2) No Fund may borrow money or pledge or mortgage its assets,
except that a Fund may borrow from banks up to 10% of the current value of its
total net assets for temporary or emergency purposes and those borrowings may
be secured by the pledge of not more than 15% of the current value of that
Fund's total net assets (but investments may not be purchased by a Fund while
any such borrowings exist).
(3) No Fund may make loans, except loans of portfolio securities
and except that a Fund may enter into repurchase agreements with respect to its
portfolio securities and may purchase the types of debt instruments described
in this Prospectus.
The foregoing investment restrictions and those described in the SAI as
fundamental are policies of each Fund which may be changed only when permitted
by law and approved by the holders of a majority of the applicable Fund's
outstanding voting securities as described under "Other Information--Voting."
In addition, each Fund is a diversified fund. As such, each will not,
with respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of any one issuer (except for U.S. Government
securities), provided that the International Equity Fund will invest 100% of
its assets in the Portfolio, or purchase more than 10% of the outstanding
voting securities of any such issuer. The Money Market Funds are subject to
further diversification requirements with respect to 100% of their assets.
Also, each Fund will invest less than 25% of its total assets in the securities
of any one industry, excluding the Cash Reserve Money Market Fund which may
invest more than 25% of its total assets in instruments issued by the banking
industry. For this purpose, U.S. Government securities (and repurchase
agreements related thereto) are not considered securities of a single industry.
If a percentage restriction on investment policies or the investment or
use of assets set forth in this Prospectus are adhered to at the time a
transaction is effected, later changes in percentage resulting from changing
asset values will not be considered a violation.
RISKS OF INVESTING IN THE FUNDS
CERTAIN RISK CONSIDERATIONS
The Money Market Funds attempt to maintain a constant net asset value
of $1.00 per share, although there can be no assurance that the Money Market
Funds will always be able to do so. The Money Market Funds may not achieve as
high a level of current income as other funds that do not limit their
investment to the high quality securities in which the Money Market Funds
invest.
The price per share of each of the other Funds will fluctuate with
changes in value of the investments held by the Fund. For example, the value
of a bond Fund's shares will generally fluctuate inversely with the movements
in interest rates and a stock Fund's shares will generally fluctuate as a
result of numerous factors, including but not limited to investors'
expectations about the economy and corporate earnings and interest rates.
Shareholders of a Fund should expect the value of their shares to fluctuate
with changes in the value of the securities owned by that Fund. Additionally,
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a Fund's investment in smaller companies may involve greater risks than
investments in large companies due to such factors as limited product lines,
markets and financial or managerial resources, and less frequently traded
securities that may be subject to more abrupt price movements than securities
of larger companies.
There is, of course, no assurance that a Fund will achieve its
investment objective or be successful in preventing or minimizing the risk of
loss that is inherent in investing in particular types of investment products.
In order to attempt to minimize that risk, [ADVISOR'S NAME] and [ADVISOR'S
NAME] monitor developments in the economy, the securities markets, and with
each particular issuer. Also, as noted earlier, each diversified Fund is
managed within certain limitations that restrict the amount of a Fund's
investment in any single issuer.
Foreign Securities (All Funds, except the U.S. Treasury Reserve Money
Market Fund and Short-Term Treasury Income Fund). Investing in the securities
of issuers in any foreign country, including ADRs, involves special risks and
considerations not typically associated with investing in U.S. companies.
These include differences in accounting, auditing and financial reporting
standards; generally higher commission rates on foreign portfolio transactions;
the possibility of nationalization, expropriation or confiscatory taxation;
adverse changes in investment or exchange control regulations (which may
include suspension of the ability to transfer currency from a country); and
political instability which could affect U.S. investments in foreign countries.
Additionally, foreign securities and dividends and interest payable on those
securities may be subject to foreign taxes, including taxes withheld from
payments on those securities. Foreign securities often trade with less
frequency and volume than domestic securities and, therefore, may exhibit
greater price volatility. Additional costs associated with an investment in
foreign securities may include higher custodial fees than apply to domestic
custodial arrangements and transaction costs of foreign currency conversions.
Changes in foreign exchange rates also will affect the value of securities
denominated or quoted in currencies other than the U.S. dollar and, with
respect to the Money Market Fund, may affect the ability to maintain net asset
value. A Fund's objectives may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments. Through a Fund's flexible policies, management
endeavors to avoid unfavorable consequences and to take advantage of favorable
developments in particular nations where, from time to time, it places a Fund's
investments. See the SAI for further information about foreign securities.
Small Capitalization Stocks (Stock Appreciation Fund, Aggressive Stock
Appreciation Fund, Value Stock Appreciation Fund). Small capitalization stocks
are more volatile than larger capitalization stocks. The Fund may invest in
relatively new or unseasoned companies, which are in their early stages of
development, or small companies positioned in new and emerging industries.
Securities of small and unseasoned companies present greater risks than
securities of larger, more established companies. The companies in which the
Fund may invest may have relatively small revenues and limited product lines,
and may have a small share of the market for their products or services. Small
companies may lack depth of management. They may be unable to internally
generate funds necessary for growth or potential development or to generate
such funds through external financing on favorable terms. They may be
developing or marketing new products or services for which markets are not yet
established and may never become established. Due to these and other factors,
small companies may incur significant losses, and investments in such companies
are therefore speculative.
CERTAIN RISKS OF INVESTING IN THE INTERNATIONAL EQUITY FUND
The International Equity Fund's investment in the Portfolio may be
affected by the actions of other large investors in the Portfolio, if any. For
example, if the Portfolio had a large investor other than the International
Equity Fund that redeemed its interest in the Portfolio, the Portfolio's
remaining investors (including the International Equity Fund) might, as a
result, experience higher pro rata operating expenses, thereby producing lower
returns.
The International Equity Fund may withdraw it s entire investment from
the Portfolio at any time, if the Board determines that it is in the best
interests of the International Equity Fund and its shareholders to do so. The
International Equity Fund might withdraw, for example, if there were other
investors in the Portfolio with power to, and who did by
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<PAGE> 75
a vote of the shareholders of all investors (including the International Equity
Fund), change the investment objective or policies of the Portfolio in a manner
not acceptable to the Board. A withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) by the
Portfolio. That distribution could result in a less diversified portfolio of
investments for the International Equity Fund and could affect adversely the
liquidity of the International Equity Fund's portfolio. If the International
Equity Fund decided to convert those securities to cash, it usually would incur
brokerage fees or other transaction costs. If the International Equity Fund
withdrew its investment from the Portfolio, the Board would consider what
action might be taken, including the management of the International Equity
Fund's assets in accordance with its investment objective and policies by the
Adviser and [SUBADVISER'S NAME], the International Equity Fund's investment
adviser and subadviser, respectively, or the investment of all of the
International Equity Fund's investable assets in another pooled investment
entity having substantially the same investment objective as the International
Equity Fund. The inability of the International Equity Fund to find a suitable
replacement investment, in the event the Board decided not to permit the
Adviser and [SUBADVISER'S NAME] to manage the International Equity Fund's
assets, could have a significant impact on shareholders of the International
Equity Fund.
[Each investor in the Portfolio, including the International Equity
Fund, will be liable for all obligations of the Portfolio, but not any other
portfolio of __________.] The risk to an investor in the Portfolio of
incurring financial loss on account of such liability, however, would be
limited to circumstances in which the Portfolio was unable to meet its
obligations. Upon liquidation of the Portfolio, investors would be entitled to
share pro rata in the net assets of the Portfolio available for distribution to
investors.
MANAGEMENT OF THE FUNDS
The business and affairs of each Fund are managed under the direction
of the Board of Trustees. Information about the Trustees, as well as the
Trust's executive officers, may be found in the SAI under the heading
"Management--Trustees and Officers."
THE ADVISORS: [ADVISOR'S NAME]
[ADVISOR'S NAME] ("__________") has provided investment
advisory services to the Funds since inception (except the
Cash Reserve Money Market Fund) pursuant to an Advisory
Agreement with the Trust (the "Advisory Agreement"). Subject
to such policies as the Trust's Board of Trustees may
determine, [ADVISOR'S NAME] makes investment decisions for the
Funds. For the advisory services it provides to the Funds,
[ADVISOR'S NAME] receives fees based on average daily net
assets up to the following annualized rates: U.S. Treasury
Reserve Money Market Fund, 0.15%; Short-Term Treasury Income
Fund, 0.30%; Intermediate Bond Income Fund, 0.40%; Bond Income
Fund, 0.40%; Stock Appreciation Fund, 0.65%; Aggressive Stock
Appreciation Fund, 0.745%; and Value Stock Appreciation Fund,
0.65%. [ADVISOR'S NAME] does not receive advisory fees with
respect to the International Equity Fund, as long as the Fund
remains completely invested in the Portfolio or any other
investment company.
Each of the portfolio managers listed below has significant
experience in managing investment portfolios similar to the
Funds. ___________, an_______________________of [ADVISOR'S
NAME], is responsible for the day-to-day management of the
Short-Term Treasury Income Fund's portfolio. ___________ has
been with [ADVISOR'S NAME] since_______ and was previously
with ________________ from ____ to ____. Mr. __________, an
_____________ ___ of [ADVISOR'S NAME], is responsible for the
day-to-day management of the portfolios of the Intermediate
Income Fund and the Bond Income Fund. Mr. ______ has been
with [ADVISOR'S NAME] since ____ and was previously with
_____________ from ____ to ____ and _________________ from
____ to ____.
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<PAGE> 76
Mr. _______, a ________________ of [ADVISOR'S NAME], is
responsible for the day-to-day management of the portfolios of
the Stock Appreciation Fund and the Aggressive Stock
Appreciation Fund. Mr. ______ has been with [ADVISOR'S NAME]
since ____. Mr. ___________, Vice President of [ADVISOR'S
NAME], is responsible for the day-to-day management of the
Value Stock Appreciation Fund's portfolio. Mr. _______ has
been with [ADVISOR'S NAME] since ____.
[ADVISOR'S NAME], whose predecessor was formed in ____, is the
____________________ largest ___________ in____ __ and
provides ________________ services to _______________. It is
a wholly-owned subsidiary of ____________. [ADVISOR'S NAME]
acts as the investment advisor to a wide variety of trusts,
individuals, institutions and corporations. Its investment
management responsibilities, as of _________ 199_, included
accounts with aggregate assets of approximately $_____
billion. The principal business address of [ADVISOR'S NAME]
is _______________________.
[ADDITIONAL ADVISOR'S NAME AND DESCRIPTION]
[SUBADVISER'S NAME AND DESCRIPTION]
The investment advisory fees payable to [SUBADVISOR'S NAME] by_________
Trust are 0.75% of the average annual daily net assets of the Portfolio. The
investment advisory agreement for the International Equity Fund provides for an
investment advisory fee payable to [ADVISOR'S NAME] by the Trust of 0.75% of
the average annual daily net assets of the Fund in the event that the Fund is
not completely invested in the Portfolio or another investment company. All
investment advisory fees are accrued daily and paid monthly.
[Based upon the advice of counsel, [ADVISOR'S NAME] believes that the
performance of investment advisory services for the Funds will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent [ADVISOR'S NAME] from continuing to perform such
services for the Funds. If [ADVISOR'S NAME] were prohibited from acting as
investment advisor to the Funds, it is expected that the Board of Trustees
would recommend to shareholders approval of a new investment advisory agreement
with another qualified investment advisor selected by the Board or that the
Board would recommend other appropriate action.
THE SPONSOR AND DISTRIBUTOR
[ADMINISTRATOR], [ADDRESS], acts as Sponsor of the Funds.
[ADMINISTRATOR] is primarily an institutional brokerage firm with membership on
the New York, American, Boston, Midwest, Pacific and Philadelphia Stock
Exchanges. [ADMINISTRATOR] also serves as administrator and distributor of
other mutual funds. ________ Distributor Inc. ("___") is an affiliate
of[ADMINISTRATOR] and was organized specifically to distribute the ________
Funds.
In addition to sales charges paid to dealers, ___ may from time to time
pay a bonus or other incentive to dealers which employ registered
representatives who sell a minimum dollar amount of shares of the Funds. Such
bonus or other incentive may take the form of payment for travel expenses,
including lodging, incurred in connection with trips taken by qualifying
registered representatives and members of their families to places within or
without the United States, or other bonuses, such as gift certificates or the
cash equivalent of such bonuses.
The Funds have adopted a Rule 12b-1 Distribution Plan and Agreement
(the "Plan") pursuant to which each Fund may reimburse the Distributor on a
monthly basis for costs and expenses of the Distribution in connection with the
distribution and marketing of shares. These costs and expenses, which are
subject to a maximum limit of 0.25% per
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<PAGE> 77
annum of the average daily net assets of the Fund, include (i) advertising by
radio, television, newspapers, magazines, brochures, sales literature, direct
mail or any other form of advertising, (ii) expenses of employees or agents of
the Distributor, including salary, commissions, travel and related expenses,
(iii) payments to broker-dealers and financial institutions for services in
connection with the distribution of shares, including promotional incentives
and fees calculated with reference to the average daily net asset value of
shares held by shareholders who have a brokerage or other service relationship
with the broker-dealer or other institution receiving such fees, (iv) costs of
printing prospectuses, statements of additional information and other materials
to be given or sent to prospective investors, (v) such other similar services
as the Trustees determine to be reasonably calculated to result in the sale of
shares of the Funds, (vi) costs of shareholder servicing which may be incurred
by broker-dealers, banks or other financial institutions, and (vii) other
direct and indirect distribution-related expenses, including the provision of
services with respect to maintaining the assets of the Funds. Each Fund will
pay all costs and expenses in connection with the preparation, printing and
distribution of its Prospectus to current shareholders and the operation of its
Plan, including related legal and accounting fees. No Fund will be liable for
distribution expenditures made by the Distributor in any given year in excess
of the maximum amount payable under the Plan for that Fund year.
ADMINISTRATIVE SERVICES
The Funds have also entered into an Administrative Services Contract
with [ADMINISTRATOR] pursuant to which [ADMINISTRATOR] provides certain
management and administrative services necessary for the Funds' operations
including: (i) general supervision of the operation of the Funds including
coordination of the services performed by the Funds' Advisors, transfer agent,
custodian, independent accountants and legal counsel, regulatory compliance,
including the compilation of information for documents such as reports to, and
filings with, the SEC and state securities commissions, and preparation of
proxy statements and shareholder reports for the Funds; (ii) general
supervision relative to the compilation of data required for the preparation of
periodic reports distributed to the Funds' Officers and Board of Trustees; and
(iii) furnishing office space and certain facilities required for conducting
the business of the Funds. For these services, [ADMINISTRATOR] receives from
each Fund a fee, payable monthly, at the annual rate of 0.15% of each Fund's
average daily net assets. Pursuant to a Services Agreement between the Trust
and the Administrator, [ADMINISTRATOR] assists the Trust with certain transfer
and dividend disbursing agent functions and receives a fee of $15 per account
per year plus out-of-pocket expenses. Pursuant to a Fund Accounting Agreement
between the Trust and the Administrator, the Administrator assists the Trust in
calculating net asset values and provides certain other accounting services for
each Fund described therein, for an annual fee of $30,000 per Fund plus
out-of-pocket expenses.
For the International Equity Fund, in lieu of the fees set forth above,
[ADMINISTRATOR] is paid 0.15% of assets for administrative services.
SERVICE ORGANIZATIONS
Various banks, trust companies, broker-dealers (other than the Sponsor)
or other financial organizations (collectively, "Service Organizations") also
may provide administrative services for the Funds, such as maintaining
shareholder accounts and records. The Funds may pay fees to Service
Organizations (which vary depending upon the services provided) in amounts up
to an annual rate of 0.05% (0.08% for the International Equity Fund) of the
daily net asset value of the Funds' shares owned by shareholders with whom the
Service Organization has a servicing relationship.
Some Service Organizations may impose additional or different
conditions on their clients, such as requiring their clients to invest more
than a Fund's minimum initial or subsequent investments or charging a direct
fee for servicing. If imposed, these fees would be in addition to any amounts
which might be paid to the Service Organization by the Funds. Each Service
Organization has agreed to transmit to its clients a schedule of any such fees.
Shareholders using Service Organizations are urged to consult with them
regarding any such fees or conditions.
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<PAGE> 78
The Glass-Steagall Act and other applicable laws provide that, among
other things, banks may not engage in the business of underwriting, selling or
distributing securities. There is currently no precedent prohibiting banks
from performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or
interpretations of such laws, as well as changes in either Federal or state
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, could prevent a bank Service Organization from
continuing to perform all or a part of its servicing activities. If a bank
were prohibited from so acting, its shareholder clients would be permitted to
remain shareholders of the Funds and alternative means for continuing the
servicing of such shareholders would be sought. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences.
OTHER EXPENSES
Each Fund bears all costs of its operations other than expenses
specifically assumed by [ADMINISTRATOR], [DISTRIBUTOR'S NAME], [ADVISOR'S NAME]
or [ADVISOR'S NAME]. The costs borne by the Funds include legal and accounting
expenses; Trustees' fees and expenses; insurance premiums; custodian and
transfer agent fees and expenses; expenses incurred in acquiring or disposing
of the Funds' portfolio securities; expenses of registering and qualifying the
Funds' shares for sale with the SEC and with various state securities
commissions; expenses of obtaining quotations on the Funds' portfolio
securities and pricing of the Funds' shares; expenses of maintaining the Funds'
legal existence and of shareholders' meetings; and expenses of preparation and
distribution to existing shareholders of reports, proxies and prospectuses.
Each Fund bears its own expenses associated with its establishment as a series
of the Trust; these expenses are amortized over a five-year period from the
commencement of a Fund's operations. See "Management" in the SAI. Trust
expenses directly attributable to a Fund are charged to that Fund; other
expenses are allocated proportionately among all of the Funds in the Trust in
relation to the net assets of each Fund.
PORTFOLIO TRANSACTIONS
Pursuant to the applicable Advisory Agreement, [ADVISOR'S
NAME] and [ADVISOR'S NAME] place orders for the purchase and sale of portfolio
investments for the Funds' accounts with brokers or dealers selected by it in
its discretion. In effecting purchases and sales of portfolio securities for
the account of the Funds, [ADVISOR'S NAME] and [ADVISOR'S NAME] will seek the
best available price and most favorable execution of the Funds' orders.
Trading does, however, involve transaction costs. Transactions with dealers
serving as primary market makers reflect the spread between the bid and asked
prices. Purchases of underwritten issues may be made, which will include an
underwriting fee paid to the underwriter. Purchases and sales of securities
are generally placed by [ADVISOR'S NAME] with broker-dealers which, in
[ADVISOR'S NAME]'s judgment, provide prompt and reliable execution at favorable
security prices and reasonable commission rates. [ADVISOR'S NAME] may cause a
Fund to pay commissions higher than another broker-dealer would have charged if
[ADVISOR'S NAME] believes the commission paid is reasonable in relation to the
value of the brokerage and research services received by [ADVISOR'S NAME].
Broker-dealers are selected on the basis of a variety of factors such as
reputation, capital strength, size and difficulty of order, sale of Fund shares
and research provided to [ADVISOR'S NAME] and [ADVISOR'S NAME]. Consistent
with its policy of seeking best execution of portfolio transactions, the Fund
may place orders to purchase or sell securities with affiliates. Affiliates
will not, however, execute as principal, any transactions for or with the Fund.
The Fund has adopted procedures under Rule 17e-1 of the Investment Company Act
of 1940 governing brokerage transactions with affiliates.
For the Portfolio in which the International Equity Fund
invests, [SUBADVISOR'S NAME] places orders for the purchase and sale of the
Portfolio's assets with brokers and dealers its selects. [SUBADVISOR'S NAME]
seeks "best execution" for all portfolio transactions, but the Portfolio may
pay higher than the lowest available commission rates when [SUBADVISOR'S NAME]
believes it is reasonable to do so in light of the value for the brokerage and
research services provided by the broker effecting the transaction. Commission
rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to the
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<PAGE> 79
Portfolio than would be the case for comparable transactions effected on United
States securities exchanges. Subject to the Portfolio's policy of obtaining
the best price consistent with the quality of execution of transactions,
consistent with the quality of execution of transactions, [SUBADVISOR'S NAME]
may employ _______________ and other broker-dealer affiliates of [SUBADVISOR'S
NAME] or the Adviser to effect brokerage transactions for the Portfolio. The
Portfolio's payment of commission for these affiliated brokers is subject to
procedures adopted by_________Trust's board of trustees to provide that the
commissions will not exceed the usual and customary broker's commissions
charged by unaffiliated brokers. No specific portion of the Portfolio's
brokerage will be directed to an affiliated broker and in no event will a
broker affiliated with [SUBADVISOR'S NAME] or the Adviser receive brokerage
transactions in recognition of research services provided to [SUBADVISOR'S
NAME] or the Adviser.
[SUBADVISOR'S NAME] anticipates that the annual portfolio turnover rate
in the Portfolio will be less than 100%.
FUND SHARE VALUATION
The net asset value per share of the Funds is calculated at 12:00 noon
(Eastern time) for the Money Market Funds and at 4:15 p.m. (Eastern time) for
each of the Non-Money Market Funds, Monday through Friday, on each day the New
York Stock Exchange is open for trading, which excludes the following business
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day; and the
following additional business holidays for the Money Market Funds: Martin
Luther King's Birthday, Columbus Day and Veterans Day. The net asset value per
share of each share class is computed by dividing the value of the net assets
attributable to each class (i.e., the value of the assets less the liabilities)
by the total number of such class's outstanding shares. All expenses,
including fees paid to the Advisor, [ADMINISTRATOR] and [Distributor], are
accrued daily and taken into account for the purpose of determining the net
asset value. Expenses directly attributable to a Fund are charged to the Fund;
other expenses are allocated proportionately among each Fund within the Trust
in relation to the net assets of each Fund, or on another reasonable basis.
Each share class within the Fund is charged with the direct expenses of that
class and with a proportion of the general expenses of the Fund. These general
expenses (e.g., investment advisory fees) are allocated among the classes of
shares based on the relative value of their outstanding shares.
Securities listed on an exchange are valued on the basis of the last
sale prior to the time the valuation is made. If there has been no sale since
the immediately previous valuation, then the current bid price is used.
Quotations are taken from the exchange where the security is primarily traded.
Portfolio securities which are primarily traded on foreign exchanges may be
valued with the assistance of a pricing service and are generally valued at the
preceding closing values of such securities on their respective exchanges,
except that when an occurrence subsequent to the time a foreign security is
valued is likely to have changed such value, then the fair value of those
securities will be determined by consideration of other factors by or under the
direction of the Board of Trustees. Over-the-counter securities are valued on
the basis of the bid price at the close of business on each business day.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by or at the direction of the Board of
Trustees. Notwithstanding the above, bonds and other fixed-income securities
are valued by using market quotations and may be valued on the basis of prices
provided by a pricing service approved by the Board of Trustees. All assets
and liabilities initially expressed in foreign currencies will be converted
into U.S. dollars at the mean between the bid and asked prices of such
currencies against U.S. dollars as last quoted by any major bank.
Trading in securities on European, Far Eastern and other international
securities exchanges and over-the-counter markets is normally completed well
before the close of business of each Fund Business Day. In addition, trading
in foreign securities generally or in a particular country or countries may not
take place on all Fund Business Days. Trading does take place in various
foreign markets, however, on days on which the International Equity Fund's net
asset value is not calculated. Calculation of the net asset value per share of
the International Equity Fund
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<PAGE> 80
may not occur contemporaneously with the determination of the prices of the
foreign securities used in the calculation. Events affecting the values of
foreign securities that occur after the time their prices are determined and
before the International Equity Fund's determination of net asset value will
not be reflected in the International Equity Fund's calculation of net asset
value unless the Adviser or [Subadvisor's Name] determines that the particular
event would materially affect net asset value, in which case an adjustment will
be made.
All assets and liabilities of the International Equity Fund denominated
in foreign currencies are converted into United States dollars at the mean of
the bid and asked prices of such currencies against the United States dollar
last quoted by a major bank prior to the time of conversion.
The Money Market Funds use the amortized cost method to value their
portfolio securities and seek to maintain a constant net asset value of $1.00
per share, although there may be circumstances under which this goal cannot be
achieved. The amortized cost method involves valuing a security at its cost
and amortizing any discount or premium over the period until maturity,
regardless of the impact of fluctuating interest rates on the market value of
the security. See the SAI for a more complete description of the amortized
cost method.
PRICING AND PURCHASE OF FUND SHARES
Orders for the purchase of shares will be executed at the net asset
value per share next determined after an order has been received.
[The following purchase procedures do not apply to certain fund or
trust accounts that are managed by [ADVISOR'S NAME]. The customer should
consult his or her trust administrator for proper instructions.]
All funds received are invested in full and fractional shares of the
appropriate Fund. Certificates for shares are not issued.[ADMINISTRATOR]
maintains records of each shareholder's holdings of Fund shares, and each
shareholder receives a statement of transactions, holdings and dividends. The
Funds reserve the right to reject any purchase.
An investment may be made using any of the following methods:
Through an Authorized Broker, Investment Advisor or Service
Organization. Shares are available to new and existing shareholders through
authorized brokers, investment advisors and Service Organizations. To make an
investment using this method, simply complete a Purchase Application and
contact your broker, investment advisor or Service Organization with
instructions as to the amount you wish to invest. Your broker will then
contact [DISTRIBUTOR'S NAME] to place the order on your behalf on that day.
Orders received by your broker or Service Organization for the
Non-Money Market Funds in proper order prior to the determination of net asset
value and transmitted to [DISTRIBUTOR'S NAME] prior to the close of its
business day (which is currently 5:00 p.m., Eastern time), will become
effective that day. Orders for the Money Market Funds received prior to 12:00
noon will become effective that day. Brokers who receive orders are obligated
to transmit them promptly. You should receive written confirmation of your
order within a few days of receipt of instructions from your broker.
By Wire. Investments may be made directly through the use of wire
transfers of Federal funds. Contact your bank and request it to wire Federal
funds to the applicable Fund. In most cases, your bank will either be a member
of the Federal Reserve Banking System or have a relationship with a bank that
is. Your bank may charge a fee for handling the transaction. To purchase
shares by a Federal funds wire, please first contact [ADMINISTRATOR] Mutual
Funds Client Services at (800) ________. They will establish a record of
information for the wire to insure the correct processing of funds. You can
reach the Wire Desk at (800) ________.
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<PAGE> 81
Then, have your bank wire funds using the following instructions:
[Instructions]
------------------------
------------------------
------------------------
As long as you have read the Prospectus, you may establish a new
regular account through the Wire Desk; IRAs may not be opened in this way.
When new accounts are established by wire, the distribution options will be set
to reinvest and the social security or tax identification number ("TIN") will
not be certified until a signed application is received. Completed
applications should be forwarded immediately to [DISTRIBUTOR'S NAME]. With the
Purchase Application, the shareholder can specify other distribution options
and add any special features offered by a Fund. Should any dividend
distributions or redemptions be paid before the TIN is certified, they will be
subject to 31% Federal tax withholding.
Institutional Accounts. Bank trust departments and other institutional
accounts may place orders directly with [DISTRIBUTOR'S NAME] by telephone at
(800) _______.
MINIMUM PURCHASE REQUIREMENTS
[The minimum initial investment in the Funds is $1,000 unless the
investor is a purchaser who at the time of purchase, has a balance of $1,000 or
more in any of the ________ Funds, is a purchaser through a trust investment
manager or account manager or is administered by the Advisor, is an employee or
an ex-employee of _________________ or is an employee of any of its affiliates,
___, [ADMINISTRATOR], or any other service provider, or is an employee of any
trust customer of ____________ or any of its affiliates. Note that the minimum
is $250 for an IRA, other than an IRA for which Fourth Financial Corporation or
any of its affiliates acts as trustee or custodian. Any subsequent investments
must be at least $50, including an IRA investment. All initial investments
should be accompanied by a completed Purchase Application. A Purchase
Application accompanies this Prospectus. Different minimums apply, and a
separate application is required for IRA investments. The Funds reserve the
right to reject purchase orders.
INDIVIDUAL RETIREMENT ACCOUNTS
All Funds may be used as a funding medium for IRAs. Shares may also be
purchased for IRAs established with __________________________ or any of its
affiliates or other authorized custodians. Completion of a special application
is required in order to create such an account, and the minimum initial
investment for an IRA is $250. Contributions to IRAs are subject to prevailing
amount limits set by the Internal Revenue Service. A $7.50 establishment fee
and an annual $15 maintenance and custody fee is payable with respect to each
IRA, and there will be a $12 termination fee when the account is closed. For
more information and IRA information, call the Funds at (800) _______.
EXCHANGE OF FUND SHARES
The Funds offer two convenient ways to exchange shares in one Fund for
shares in another Fund in the Trust. Before engaging in an exchange
transaction, a shareholder should read carefully the Prospectus describing the
Fund into which the exchange will occur, which is available without charge and
can be obtained by writing to the Fund at 237 Park Avenue, New York, New York
10017, or by calling (800) ________. A shareholder may not exchange shares of
one
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Fund for shares of another Fund if the new Fund is not qualified for sale in
the state of the shareholder's residence. The minimum amount for an initial
exchange is $500. No minimum is required in subsequent exchanges. The Trust
may terminate or amend the terms of the exchange privilege at any time.
A new account opened by exchange must be established with the same
name(s), address and social security number as the existing account. All
exchanges will be made based on the net asset value next determined following
receipt of the request by a Fund in good order, plus any applicable sales
charge. An exchange is taxable as a sale of a security on which a gain or loss
may be recognized. Shareholders should receive written confirmation of the
exchange within a few days of the completion of the transaction. Shareholders
will receive at least 60 days' prior written notice of any modification or
termination of the exchange privilege.
Exchange by Mail. To exchange Fund shares by mail, simply send a
letter of instruction to[ADMINISTRATOR]. The letter of instruction must
include: (i) your account number; (ii) the Fund from and the Fund into which
you wish to exchange your investment; (iii) the dollar or share amount you wish
to exchange; and (iv) the signatures of all registered owners or authorized
parties. All signatures must be guaranteed by an eligible guarantor
institution including a member of a national securities exchange or by a
commercial bank or trust company, broker-dealers, credit unions and savings
associations.
Exchange by Telephone. To exchange Fund shares by telephone or if you
have any questions simply call the Funds at (800)_ __________ You should be
prepared to give the telephone representative the following information: (i)
your account number, social security or tax identification number and account
registration; (ii) the name of the Fund from and the Fund into which you wish
to transfer your investment; and (iii) the dollar or share amount you wish to
exchange. The conversation may be recorded to protect you and the Funds.
Telephone exchanges are available only if the shareholder so indicates by
checking the "yes" box on the Purchase Application. See "Redemption of Fund
Shares--By Telephone" for a discussion of telephone transactions generally.
Automatic Investment Program. An eligible shareholder may also
participate in the Automatic Investment Program, an investment plan that
automatically debits money from the shareholder's bank account and invests it
in one or more of the Funds in the Trust through the use of electronic funds
transfers or automatic bank drafts. Shareholders may elect to make subsequent
investments by transfers of a minimum of $50 on either the fifth or twentieth
day of each month into their established Fund account. Contact the Funds for
more information about the Automatic Investment Program.
REDEMPTION OF FUND SHARES
Shareholders may redeem their shares, in whole or in part, on any
business day. Shares will be redeemed at the net asset value next determined
after a redemption request in good order has been received by the applicable
Fund. See "Determination of Net Asset Value." A redemption may be a taxable
transaction on which gain or loss may be recognized. Generally, however, gain
or loss is not expected to be realized on a redemption of shares of the Money
Market Funds, both of which seek to maintain a net asset value per share of
$1.00.
Where the shares to be redeemed have been purchased by check, the
redemption request will be returned if the purchasing check has not cleared,
which may take up to 15 days. Shareholders may avoid this delay by investing
through wire transfers of Federal funds. During the period prior to the time
the shares are redeemed, dividends on the shares will continue to accrue and be
payable and the shareholder will be entitled to exercise all other beneficial
rights of ownership.
Once the shares are redeemed, a Fund will ordinarily send the proceeds
by check to the shareholder at the address of record on the next business day.
The Funds may, however, take up to seven days to make payment. This will not
be the customary practice. Also, if the New York Stock Exchange is closed (or
when trading is restricted) for
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any reason other than the customary weekend or holiday closing or if an
emergency condition as determined by the SEC merits such action, the Funds may
suspend redemptions or postpone payment dates.
Redemption Methods. To ensure acceptance of your redemption request,
it is important to follow the procedures described below. Although the Funds
have no present intention to do so, the Funds reserve the right to refuse or to
limit the frequency of any telephone or wire redemptions. Of course, it may be
difficult to place orders by telephone during periods of severe market or
economic change, and a shareholder should consider alternative methods of
communications, such as couriers. The Funds' services and their provisions may
be modified or terminated at any time by the Funds. If the Funds terminate any
particular service, they will do so only after giving written notice to
shareholders. Redemption by mail will always be available to shareholders.
You may redeem your shares using any of the following methods:
Through an Authorized Broker, Investment Advisor or Service
Organization. You may redeem your shares by contacting your broker or
investment advisor and instructing him or her to redeem your shares. He or she
will then contact [DISTRIBUTOR'S NAME] and place a redemption trade on your
behalf. He or she may charge you a fee for this service.
By Mail. You may redeem your shares by sending a letter directly to
[DISTRIBUTOR'S NAME]. To be accepted, a letter requesting redemption must
include: (i) the Fund name and account registration from which you are
redeeming shares; (ii) your account number; (iii) the amount to be redeemed,
(iv) the signatures of all registered owners; and (v) a signature guarantee by
any eligible guarantor institution including a member of a national securities
exchange or a commercial bank or trust company, broker-dealers, credit unions
and savings associations. Corporations, partnerships, trusts or other legal
entities will be required to submit additional documentation.
By Telephone. You may redeem your shares by calling the Funds toll
free at (800) _______. You should be prepared to give the telephone
representative the following information: (i) your account number, social
security number and account registration; (ii) the Fund name from which you are
redeeming shares; and (iii) the amount to be redeemed. The conversation may be
recorded to protect you and the Funds. Telephone redemptions are available
only if the shareholder so indicates by checking the "yes" box on the Purchase
Application or on the Optional Services Form. The Funds employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
If the Funds fail to employ such reasonable procedures, they may be liable for
any loss, damage or expense arising out of any telephone transactions
purporting to be on a shareholder's behalf. In order to assure the accuracy of
instructions received by telephone, the Funds require some form of personal
identification prior to acting upon instructions received by telephone, record
telephone instructions and provide written confirmation to investors of such
transactions. Redemption requests transmitted via facsimile will not be
accepted.
By Wire. You may redeem your shares by contacting the Funds by mail or
telephone and instructing them to send a wire transmission to your personal
bank. Proceeds of wire redemption for the Money Market Funds generally will be
transferred to the designated account on the day the request is received,
provided that it is received by 12:00 Noon (Eastern time).
Your instructions should include: (i) your account number, social
security or tax identification number and account registration; (ii) the Fund
name from which you are redeeming shares; and (iii) the amount to be redeemed.
Wire redemptions can be made only if the "yes" box has been checked on your
Purchase Application, and attach a copy of a void check of account where
proceeds are to be wired. Your bank may charge you a fee for receiving a wire
payment on your behalf.
Check Writing. A check redemption ($500 minimum, no maximum) feature
is available with respect to the Money Market Funds. Checks are free and may
be obtained from the Funds. It is not possible to use a check to close out
your account since additional shares accrue daily.
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<PAGE> 84
The above-mentioned services "By Telephone," "By Wire" and "Check
Writing" are not available for IRAs and trust relationships of [ADVISOR'S
NAME].
Systematic Withdrawal Plan. An owner of $10,000 or more of shares of a
Fund may elect to have periodic redemptions from his or her account to be paid
on a monthly, quarterly, semi-annual or annual basis. The minimum periodic
payment is $100. A sufficient number of shares to make the scheduled
redemption will normally be redeemed on the date selected by the shareholder.
Depending on the size of the payment requested and fluctuation in the net asset
value, if any, of the shares redeemed, redemptions for the purpose of making
such payments may reduce or even exhaust the account. A shareholder may
request that these payments be sent to a predesignated bank or other designated
party. Capital gains and dividend distributions paid to the account will
automatically be reinvested at net asset value on the distribution payment
date.
Redemption of Small Accounts. Due to the disproportionately higher
cost of servicing small accounts, each Fund reserves the right to redeem, on
not less than 30 days' notice, an account in a Fund that has been reduced by a
shareholder to $500 or less. However, if during the 30-day notice period the
shareholder purchases sufficient shares to bring the value of the account above
$500, this restriction will not apply.
Redemption in Kind. All redemptions of shares of the Funds shall be
made in cash, except that the commitment to redeem shares in cash extends only
to redemption requests made by each shareholder of a Fund during any 90-day
period of up to the lesser of $250,000 or 1% of the net asset value of that
Fund at the beginning of such period. This commitment is irrevocable without
the prior approval of the SEC and is a fundamental policy of the Funds that may
not be changed without shareholder approval. In the case of redemption
requests by shareholders in excess of such amounts, the Board of Trustees
reserves the right to have the Funds make payment, in whole or in part, in
securities or other assets, in case of an emergency or any time a cash
distribution would impair the liquidity of a Fund to the detriment of the
existing shareholders. In this event, the securities would be valued in the
same manner as the securities of that Fund are valued. If the recipient were
to sell such securities, he or she could receive less than the redemption value
of the securities and could incur certain transaction costs.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX
Each Fund intends to qualify annually and to elect to be treated as a
regulated investment company pursuant to the provisions of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). By so qualifying and
electing, each Fund generally will not be subject to Federal income tax to the
extent that it distributes investment company taxable income and net capital
gains in the manner required under the Code.
Each Fund intends to distribute to its shareholders substantially all
of its investment company taxable income (which includes, among other items,
dividends and interest and the excess, if any, of net short-term capital gains
(generally including any net option premium income) over net long-term capital
losses). The Money Market Funds, the Intermediate Bond Income Fund, the Bond
Income Fund and the Short-Term Treasury Income Fund will declare distributions
of such income daily and pay those dividends monthly; the Stock Appreciation
Fund, the Aggressive Stock Appreciation Fund, Value Stock Appreciation Fund and
International Equity Fund will pay dividends at least once annually. Each Fund
intends to distribute, at least annually, substantially all net capital gains
(the excess of net long-term capital gains over net short-term capital losses).
In determining amounts of capital gains to be distributed, any capital loss
carryovers from prior years will be applied against capital gains.
Distributions will be paid in additional Fund shares based on the net
asset value at the close of business on the payment date of the distribution,
unless the shareholder elects in writing, not less than five full business days
prior to the record date, to receive such distributions in cash. Dividends
declared in, and attributable to, the preceding month will be paid within five
business days after the end of each month.
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<PAGE> 85
In the case of the Money Market Funds, shares purchased will begin
earning dividends on the day the purchase order is executed and shares redeemed
will earn dividends through the previous day. Net investment income for a
Saturday, Sunday or a holiday will be declared as a dividend on the previous
business day. In the case of the other Funds that declare daily dividends,
shares purchased will begin earning dividends on the day after the purchase
order is executed, and shares redeemed will earn dividends through the day the
redemption is executed.
Investors who redeem all or a portion of Fund shares prior to a
dividend payment date will be entitled on the next dividend payment date to all
dividends declared but unpaid on those shares at the time of their redemption.
Distributions of investment company taxable income (regardless of
whether derived from dividends, interest or short-term capital gains) will be
taxable to shareholders as ordinary income. Distributions of net long-term
capital gains properly designated by a Fund as capital gain dividends will be
taxable as long-term capital gains, regardless of how long a shareholder has
held his Fund shares. Distributions are taxable in the same manner whether
received in additional shares or in cash.
Earnings of the Funds not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To prevent imposition of this tax, each Fund intends to comply
with this distribution requirement.
A distribution, including an "exempt-interest dividend," will be
treated as paid on December 31 of the calendar year if it is declared by a Fund
during October, November, or December of that year to shareholders of record in
such a month and paid by a Fund during January of the following calendar year.
Such distributions will be treated as received by shareholders in the calendar
year in which the distributions are declared, rather than the calendar year in
which the distributions are received.
A Fund's distributions with respect to a given taxable year may exceed
the current and accumulated earnings and profits of that Fund available for
distribution. In that event, distributions in excess of such earnings and
profits would be characterized as a return of capital to shareholders for
Federal income tax purposes, thus reducing each shareholder's cost basis in his
Fund shares. Such distributions in excess of a shareholder's cost basis in his
shares would be treated as a gain realized from a sale of such shares.
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of a Fund, or upon receipt of a distribution in complete
liquidation of a Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. A loss realized by a shareholder on a redemption, sale,
or exchange of shares of a Fund held six months or less with respect to which
capital gain dividends have been paid will be characterized as a long-term
capital loss to the extent of such capital gain dividends.
It is anticipated that a portion of the dividends paid by the Funds
(except the Money Market Funds, Intermediate Bond Income and Bond Income Funds)
will qualify and be designated by such Funds as dividends eligible for the
dividends-received deduction available to corporations. The Code imposes
various limitations restricting the availability of the dividends received
deduction. Investors should consult their own tax advisers in this regard.
The Funds may be required to withhold for Federal income tax ("backup
withholding") 31% of the distributions and the proceeds of redemptions payable
to shareholders who fail to provide a correct taxpayer identification number or
to make required certifications, or where a Fund or shareholder has been
notified by the Internal Revenue Service that the shareholder is subject to
backup withholding. Most corporate shareholders and certain other shareholders
specified in the Code and regulations are exempt from backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may be
credited against the shareholder's U.S. Federal income tax liability.
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<PAGE> 86
Those Funds that may invest in securities of foreign issuers may be
subject to withholding and other similar income taxes imposed by a foreign
country. Each of these Funds intends to elect, if it is eligible to do so
under the Code, to "pass-through" to its shareholders the amount of such
foreign taxes paid. If such an election is made by a Fund, each shareholder of
that Fund would be required to include in gross income the taxable dividends
received and the amount of pro rata share of those foreign taxes paid by the
Fund. Each shareholder would be entitled either to deduct (as an itemized
deduction) his pro rata share of the foreign taxes in computing his taxable
income or to use it (subject to limitations) as a foreign tax credit against
his U.S. Federal income tax liability. No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions. Each shareholder
will be notified within 60 days after the close of a Fund's taxable year
whether the foreign taxes paid by the Fund will "pass-through" for that year.
Shareholders will be notified annually by the Trust as to the Federal
tax status of distributions made by the Fund(s) in which they invest.
Depending on the residence of the shareholder for tax purposes, distributions
also may be subject to state and local taxes, including withholding taxes.
Foreign shareholders may, for example, be subject to special withholding
requirements. Special tax treatment, including a penalty on certain
pre-retirement distributions, is accorded to accounts maintained as IRAs.
Shareholders should consult their own tax advisors as to the Federal, state and
local tax consequences of ownership of shares of the Funds in their particular
circumstances.
The Portfolio in which the International Equity Fund invests is not
required to pay Federal income taxes on its net investment income and capital
gain, as it is treated as a partnership for Federal income tax purposes. All
interest, dividends and gains and losses of the Portfolio are deemed to have
been "passed through" to the International Equity Fund in proportion to its
holdings of the Portfolio, regardless of whether such interest, dividends or
gains have been distributed by the Portfolio or losses have been realized by
the Portfolio. Investment income received by the International Equity Fund
from sources within foreign countries may be subject to foreign income or other
taxes. The International Equity Fund intends to elect, if eligible to do so,
to permit its shareholders to take a credit (or a deduction) for foreign income
and other taxes paid by the Portfolio. Shareholders of the International
Equity Fund will be notified of their share of those taxes and will be required
to include that amount as income. In that event, the shareholder may be
entitled to claim a credit or deduction for those taxes.
OTHER INFORMATION
CAPITALIZATION STRUCTURE
__________ Trust was organized as a Delaware business trust on
__________, 1996, and currently consists of eleven separately managed
portfolios. The Board of Trustees may establish additional portfolios in the
future. The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. When issued,
shares of the Funds are fully paid, non-assessable and freely transferable.
Each Fund also offers a Service Class of shares. The Service Class
shares are offered at net asset value without a sales load only to certain
institutional investors, or other investors who at the time of purchase have a
balance of $1,000 or more invested in any of the _________ Funds, are purchased
through a trust investment manager or account manager or administered by the
Advisor, are employees or ex-employees of __________________ or any of its
affiliates, employees of ____, [ADMINISTRATOR], or any other service provider,
or employees of any trust customer of __________________________ or any of its
affiliates. Shareholders in the Premium Class of shares may be subject to an
additional shareholder servicing charge of up to 0.50% of average net assets.
Call 800-_______ or contact your sales representative, broker-dealer or bank to
obtain more information about the Funds' classes of shares.
Under Delaware law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust and
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<PAGE> 87
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or the Trustees. The Declaration of
Trust provides for indemnification out of Trust property for all loss and
expense of any shareholder held personally liable for the obligations of the
Trust. The risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations and should be considered remote.
INTERNATIONAL EQUITY FUND STRUCTURE
The International Equity Fund invests all of its assets in the
Portfolio, a separate series of ______ Trust, a business trust organized under
the laws of the State of Delaware in ________, 1996. ______ Trust is
registered under the 1940 Act as an open-end management investment company and
currently has _____ separate portfolios. The Assets of the Portfolio, a
diversified portfolio, belong only to, and the liabilities of the Portfolio are
borne solely by, the Portfolio and no other portfolio of ______ Trust.
The International Equity Fund seeks to achieve its investment objective
by investing all of its investable assets in the Portfolio, which has the same
investment objective and policies as the International Equity Fund.
Accordingly, the Portfolio directly acquires its own securities and the
International Equity Fund acquires an indirect interest in those securities.
The investment objective and fundamental investment policies of the
International Equity Fund and the Portfolio can be changed only with
shareholder approval. See "Synopsis," "Investment Objective and Policies," and
"Management" for a complete description of the Portfolio's investment
objective, policies, restrictions, management, and expenses.
The International Equity Fund's investment in the Portfolio is in the
form of a non-transferable beneficial interest. As of the date of this
Prospectus, the International Equity Fund is the only institutional investor
that has invested all of its assets in the Portfolio. The Portfolio may permit
other investment companies or institutional investors to invest in it. All
investors in the Portfolio will invest on the same terms and conditions as the
International Equity Fund and will pay a proportionate share of the Portfolio's
expenses.
The Portfolio normally will not hold meetings of investors except as
required by the 1940 Act. Each investor in the Portfolio will be entitled to
vote in proportion to its relative beneficial interest in the Portfolio. On
most issues subject to a vote of investors, as required by the 1940 Act and
other applicable law, the International Equity Fund will solicit proxies from
shareholders of the International Equity Fund and will vote its interest in the
Portfolio in proportion to the votes cast by its shareholders. If there are
other investors in the Portfolio, there can be no assurance that any issue that
receives a majority of the votes cast by International Equity Fund shareholders
will receive a majority of votes cast by all investors in the Portfolio;
indeed, if other investors hold a majority interest in the Portfolio, they
could hold have voting control of the Portfolio.
The Portfolio will not sell its shares directly to members of the
general public. Another investor in the Portfolio, such as an investment
company, that might sell its shares to members of the general public would not
be required to sell its shares at the same public offering price as the
International Equity Fund, could have different advisory and other fees and
expenses than the International Equity Fund. Therefore, International Equity
Fund shareholders may have different returns than shareholders in another
investment company that invests exclusively in the Portfolio. There is
currently no such other investment company that offers its shares to members of
the general public. Information regarding any such funds in the future will be
available from ______ Trust by calling ____________.
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VOTING
Shareholders have the right to vote in the election of Trustees and on
any and all matters on which, by law or under the provisions of the Declaration
of Trust, they may be entitled to vote. The Trust is not required to hold
regular annual meetings of the Funds' shareholders and does not intend to do
so. The Trustees are required to call a meeting for the purpose of considering
the removal of a person serving as Trustee if requested in writing to do so by
the holders of not less than 10% of the outstanding shares of the Trust and in
connection with such meeting to comply with the shareholders' communications
provisions of Section 16(c) of the Act. See "Other Information--Voting Rights"
in the SAI.
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). As used in this Prospectus, the phrase "vote of
a majority of the outstanding shares" of a Fund (or the Trust) means the vote
of the lesser of: (1) 67% of the shares of a Fund (or the Trust) present at a
meeting if the holders of more than 50% of the outstanding shares are present
in person or by proxy; or (2) more than 50% of the outstanding shares of a Fund
(or the Trust).
PERFORMANCE INFORMATION
A Fund may, from time to time, include its yield and total return in
advertisements or reports to shareholders or prospective investors.
Shareholders of the Premium Class of shares will experience a lower net return
on their investment than shareholders of the Service Class of Shares because of
the additional shareholder servicing charge to which Premium Class shareholders
are subject. The methods used to calculate the yield and total return of the
Funds are mandated by the SEC. Quotations of "yield" for a Fund (other than
the Money Market Funds) will be based on the investment income per share during
a particular 30-day (or one month) period (including dividends and interest),
less expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the maximum public offering price
per share on the last day of the period.
Quotations of "yield" for the Money Market Funds will be based on the
income received by a hypothetical investment (less a pro-rata share of Fund
expenses) over a particular seven-day period, which is then "annualized" (i.e.,
assuming that the seven-day yield would be received for 52 weeks, stated in
terms of an annual percentage return on the investment).
"Effective yield" for the Money Market Funds is calculated in a manner
similar to that used to calculate yield, but includes the compounding effect of
earnings on reinvested dividends.
Quotations of yield and effective yield reflect only a Fund's
performance during the particular period on which the calculations are based.
Yield and effective yield for a Fund will vary based on changes in market
conditions, the level of interest rates and the level of that Fund's expenses,
and no reported performance figure should be considered an indication of
performance which may be expected in the future.
Quotations of average annual total return for a Fund (other than the
Money Market Funds) will be expressed in terms of the average annual compounded
rate of return of a hypothetical investment in that Fund over periods of 1, 5
and 10 years (up to the life of that Fund), reflect the deduction of a
proportional share of Fund expenses (on an annual basis), and assume that all
dividends and distributions are reinvested when paid.
Performance information for a Fund may be compared to various unmanaged
indices, such as those indices prepared by Lipper Analytical Services, Standard
& Poor's 500 Stock Index, the Dow Jones Industrial Average and other entities
or organizations which track the performance of investment companies. Any
performance information should be considered in light of the Fund's investment
objectives and policies, characteristics and quality of the Funds and the
market conditions during the time period indicated, and should not be
considered to be representative of what may be
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<PAGE> 89
achieved in the future. For a description of the methods used to determine
yield and total return for the Funds, see the SAI.
[The International Fund invests all of its assets in the Portfolio.
Prior to ____________, the Portfolio was the ________________________ Fund.
Average annualized total return for the ___________________ Fund as of October
31, 1995 are as follows:
<TABLE>
<S> <C>
1 Year: ____%
3 Years ____%
5 Years ____%
Since Inception ____%
</TABLE>
ACCOUNT SERVICES
All transactions in shares of the Funds will be reflected in a
statement for each shareholder. In those cases where a Service Organization or
its nominee is shareholder of record of shares purchased for its customer, the
Funds have been advised that the statement may be transmitted to the customer
at the discretion of the Service Organization.
[ADMINISTRATOR] acts as the Funds' transfer agent. The Trust
compensates [ADMINISTRATOR], the Trust's administrator, pursuant to a Services
Agreement described in "Management of the Fund -- Administrative Services" of
this Prospectus, for providing personnel and facilities to perform dividend
disbursing and transfer agency-related services for the Trust.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Funds at 237 Park
Avenue, New York, New York 10017.
General and Account Information: (800) _______.
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<PAGE> 90
APPENDIX
DESCRIPTION OF MOODY'S BOND RATINGS:
Excerpts from Moody's description of its four highest bond ratings are
listed as follows: Aaa -- judged to be the best quality and they carry the
smallest degree of investment risk; Aa--judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds; A--possess many favorable investment attributes and are to
be considered as "upper medium grade obligations"; Baa--considered to be medium
grade obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Other Moody's bond descriptions
include: Ba -- judged to have speculative elements, their future cannot be
considered as well assured; B -- generally lack characteristics of the
desirable investment; Caa -- are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest; Ca -- speculative in a high degree, often in default; C -- lowest
rated class of bonds, regarded as having extremely poor prospects.
Moody's also supplies numerical indicators 1, 2 and 3 to rating
categories. The modifier 1 indicates that the security is in the higher end of
its rating category; the modifier 2 indicates a mid-range ranking; and modifier
3 indicates a ranking toward the lower end of the category.
DESCRIPTION OF S&P'S BOND RATINGS:
Excerpts from S&P's description of its four highest bond ratings are
listed as follows: AAA-- highest grade obligations, in which capacity to pay
interest and repay principal is extremely strong; AA--also qualify as high
grade obligations, having a very strong capacity to pay interest and repay
principal, and differs from AAA issues only in a small degree; A--regarded as
upper medium grade, having a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories; BBB--regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC: Debt rated in these categories is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CI: The "CI" rating is reserved for income bonds on which no interest
is being paid.
S&P applies indicators "+, -," no character, and relative standing
within the major rating categories.
DESCRIPTION OF MOODY'S RATINGS OF NOTES AND VARIABLE RATE DEMAND INSTRUMENTS:
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or MIG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable rate demand obligations) are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payments
relying on external liquidity.
A-1
<PAGE> 91
MIG 1/VMIG 1: This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This denotes high quality. Margins of protection are ample
although not as large as in the preceding group.
A-2
<PAGE> 92
<TABLE>
<CAPTION>
FS FUNDS __________ TRUST
<S> <C>
Address for A FAMILY OF
Trust Clients of [ADVISOR'S NAME] MUTUAL FUNDS
- ----------------------------------------------
[Address _______________
_______________________] The U.S. Treasury Reserve Money Market Fund seeks
to provide investors with as high a level of
Investment Advisors current income as is consistent with liquidity,
- ------------------- stability, maximum safety of principal and the
maintenance of a stable $1.00 net asset value per
[ADVISOR'S NAME] share
[Address _______________
_______________________]
The Cash Reserve Money Market Fund seeks to
[ADVISOR'S NAME] provide investors with current income, liquidity
[Address _______________ and the maintenance of a stable $1.00 net asset
_______________________] value by investing in high quality, short-term
(Cash Reserve Money Market Fund only) obligations
Administrator and Sponsor The Short-Term Treasury Income Fund seeks to
- ------------------------- provide investors with as high a level of current
income as is consistent with liquidity and safety
[ADMINISTRATOR] of principal
[ADDRESS]
Distributor The Intermediate Bond Income Fund seeks to provide
- ----------- investors with as high a level of current income
as is consistent with managing for total return by
__________ Distributor Inc. investing in fixed income securities managed for
[ADDRESS] total return
Custodian
- ---------
The Bond Income Fund seeks to provide investors
[CUSTODIAN'S NAME] with as high a level of current income as is
[Address _______________ consistent with managing for total return by
_______________________] investing in fixed income securities
Counsel
- ------- The Stock Appreciation Fund seeks to provide
investors with long-term capital appreciation
Baker & McKenzie
805 Third Avenue The Aggressive Stock Appreciation Fund seeks to
New York, New York 10022 provide investors with aggressive long-term
capital appreciation
Independent Accountants
- -----------------------
The Value Stock Appreciation Fund seeks to provide
[INDEPENDENT ACCOUNTANT] investors with long-term capital appreciation and
[Address _______________ dividend income.
_______________________]
The International Equity Fund seeks to provide
investors with long-term capital appreciation.
PROSPECTUS
January ___, 1996
Investment Advisor
[ADVISOR'S NAME]
[ADVISOR'S NAME]
(Cash Reserve Money Market Fund Only).
</TABLE>
<PAGE> 93
FS FUNDS TRUST
[ADDRESS]
GENERAL AND ACCOUNT INFORMATION:
(800) ______________
SERVICE CLASS PROSPECTUS
[ADVISOR'S NAME]--INVESTMENT ADVISER
("_________" OR THE "ADVISER")
[ADMINISTRATOR]--ADMINISTRATOR AND SPONSOR
("__________")
[ ].--DISTRIBUTOR
("____" OR THE "DISTRIBUTOR")
This Prospectus describes two tax exempt funds (the "Funds") managed
by [ADVISOR'S NAME]. The Funds and their investment objectives are:
- KANSAS INTERMEDIATE TAX EXEMPT FUND SEEKS TO PROVIDE CURRENT
INCOME EXEMPT FROM FEDERAL AND KANSAS TAXATION.
- U.S. INTERMEDIATE TAX EXEMPT FUND SEEKS TO PROVIDE INCOME
EXEMPT FROM FEDERAL TAXATION.
This Prospectus describes only the "Service Class" of each Fund, which
only certain institutional investors are qualified to purchase. Each Fund also
offers a Premium Class of shares. See "Other Information" --
"Capitalization". The Funds are separate investment funds of FS FUNDS Trust
(the "Trust"), a Delaware business trust and registered management investment
company.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION A PROSPECTIVE
INVESTOR SHOULD KNOW BEFORE INVESTING IN ANY OF THE FUNDS AND SHOULD BE READ
AND RETAINED FOR INFORMATION ABOUT EACH FUND.
A Statement of Additional Information (the "SAI"), dated _________
,1996 containing additional and more detailed information about the Funds has
been filed with the Securities and Exchange Commission ("SEC") and is hereby
incorporated by reference into this Prospectus. It is available without charge
and can be obtained by writing or calling the Funds at the address and
information numbers printed above.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, [ADVISOR'S NAME], AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY, AND MAY INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Prospectus is ________, 1996
<PAGE> 94
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
FUND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
FEE TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
THE INVESTMENT POLICIES AND PRACTICES OF THE FUNDS . . . . . . . . . . . . . . . . . 5
MANAGEMENT OF THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
FUND SHARE VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PRICING AND PURCHASE OF FUND SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 12
MINIMUM PURCHASE REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
EXCHANGE OF FUND SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
REDEMPTION OF FUND SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX . . . . . . . . . . . . . . . . . . . 16
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
RISKS OF INVESTING IN THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
- i -
<PAGE> 95
HIGHLIGHTS
This Prospectus describes two tax exempt funds (the "Funds") managed
by [ADVISOR'S NAME]. Each Fund has distinct investment objectives and
policies.
THE FUNDS' INVESTMENT OBJECTIVES
Kansas Intermediate Tax Exempt Fund. The investment objective of this
Fund is to provide current income exempt from Federal and Kansas taxation. The
Fund invests primarily in investment grade securities with maturities generally
ranging 1 to 15 years. It is the intent of [ADVISOR'S NAME] to maintain an
effective average weighted maturity between 5 and 7 years. As a fundamental
policy, at least 80% of the Fund's net assets will be invested in tax-exempt
securities.
U.S. Intermediate Tax Exempt Fund. The investment objective of this
Fund is to provide income exempt from Federal income tax. The Fund will invest
primarily in investment grade tax-exempt bonds and maintain an effective
average weighted maturity between 5-8 years. As a fundamental policy, at least
80% of the Fund's net assets will be invested in tax-exempt securities.
RISKS OF INVESTING IN THE FUNDS
The price per share of the Funds will fluctuate with changes in value
of the investments held by each Fund. As a non-diversified Fund, the Kansas
Tax-Exempt Fund may concentrate its investments in securities of Kansas
governmental issuers and may therefore be affected by political, economic or
regulatory factors that may impair the ability of Kansas issuers to pay
interest on or to repay the principal of their debt obligations. See "Risks of
Investing in the Funds" and "Kansas Risk Factors" in the SAI. Additionally,
there can be no assurance that a Fund will achieve its investment objective or
be successful in preventing or minimizing the risk of loss that is inherent in
investing in particular types of securities.
MANAGEMENT OF THE FUNDS
[ADVISOR'S NAME] acts as investment adviser to the Funds. For its
services, [ADVISOR'S NAME] receives a fee from the Funds based upon each Fund's
average daily net assets. See "Fee Table" and "Management of the Funds" in
this Prospectus.
[ADMINISTRATOR] acts as administrator and sponsor to the Funds. For
its services,[ADMINISTRATOR] receives a fee from the Funds based on each Fund's
average daily net assets. See "Management of the Funds" in this Prospectus.
[DISTRIBUTOR'S NAME ] distributes the Funds' shares and may be reimbursed for
certain of its distribution-related expenses.
GUIDE TO INVESTING IN THE [ ] FAMILY OF FUNDS
Purchase orders for the Funds received by your broker or Service
Organization in proper form prior to 4:15 p.m., Eastern time, and transmitted
to [DISTRIBUTOR] prior to 5:00 p.m. Eastern time will become effective that
day.
<TABLE>
<S> <C> <C>
- Minimum Initial Investment . . . . . . . . . . . . . . . $1,000
- Minimum Subsequent Investment . . . . . . . . . . . . . $ 50
</TABLE>
<PAGE> 96
The Funds are purchased at net asset value.
Shareholders may exchange shares between Funds in the Trust by
telephone or mail. Shareholders may not exchange shares by facsimile.
<TABLE>
<S> <C> <C>
- Minimum initial exchange . . . . . . . . . . . . . . . . $ 500
(No minimum for subsequent exchanges)
</TABLE>
Shareholders may redeem shares by telephone, mail or wire.
Shareholders may not redeem shares by facsimile.
- The Funds reserve the right to redeem upon not less than 30
days notice all shares in a Fund's account which have an
aggregate value of $500 or less.
All dividends and distributions will be automatically paid in
additional shares at net asset value of the applicable Fund unless cash payment
is requested.
- Distributions for the Funds are paid monthly.
- 2 -
<PAGE> 97
FUND EXPENSES
The following expense table lists the costs and expenses that an
investor in the Service Class of shares will incur either directly or
indirectly as a shareholder of a Fund. The information is based upon estimated
expenses during the first year of operations. Shareholders in the Premium
Class of shares may be subject to an additional shareholder servicing charge of
up to 0.50% of average daily net assets.
FEE TABLE
<TABLE>
<CAPTION>
KANSAS INTERMEDIATE TAX EXEMPT U.S. INTERMEDIATE TAX EXEMPT
FUND FUND
<S> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) . . . . . . . . . None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) . . None None
Deferred Sales Load (as a percentage
of redemption
proceeds) . . . . . . . . . . . . None None
Redemption Fees . . . . . . . . . None None
Exchange Fees . . . . . . . . . . None None
ANNUAL FUND OPERATING EXPENSES (as a
percentage of average net assets)
Management Fees . . . . . . . . . 0.30% 0.30%
12b-1 Fees . . . . . . . . . . . . None None
Other Expenses(1) . . . . . . . . . 0.45% 0.45%
----- -----
Total Portfolio Operating Expenses(2) 0.75% 0.75%
===== =====
</TABLE>
- -------------------------------
(1) As a result of the additional shareholder servicing charge, Other
Expenses for the Premium Class of shares is 0.95%. Compensation to
salespersons may vary depending upon whether Service Class or Premium
Class shares are sold.
(2) Shareholders may be charged a wire redemption fee by their bank for
receiving a wire payment on their behalf.
- 3 -
<PAGE> 98
The purpose of this table is to assist a shareholder in the Service Class
of shares in understanding the various costs and expenses that an investor in
the Funds will bear.
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
KANSAS INTERMEDIATE TAX EXEMPT U.S. INTERMEDIATE TAX EXEMPT
------------------------------ ----------------------------
<S> <C> <C>
1 year . . . . . . . . . $ 8 $ 8
3 years . . . . . . . . $ 24 $ 24
</TABLE>
- -------------------------------
- - This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return
is hypothetical and should not be considered a representation of past or
future annual return; actual return may be greater or less than the
assumed amount.
- 4 -
<PAGE> 99
THE INVESTMENT POLICIES AND PRACTICES OF THE FUNDS
Each Fund is a separate investment fund or portfolio, commonly known
as a mutual fund. The Funds are portfolios of a Delaware business trust,
[ ] Trust, organized under the laws of Delaware as an open-end,
management investment company. The Trust's Board of Trustees oversees the
overall management of the Funds and elects the officers of each Fund.
- KANSAS INTERMEDIATE TAX EXEMPT FUND SEEKS TO PROVIDE CURRENT
INCOME EXEMPT FROM FEDERAL AND KANSAS TAXATION.
- U.S. INTERMEDIATE TAX EXEMPT FUND SEEKS TO PROVIDE INCOME
EXEMPT FROM FEDERAL TAXATION AND THE ALTERNATIVE MINIMUM TAX.
Each Fund follows its own investment policies and practices, including
certain investment restrictions. The SAI contains specific investment
restrictions which govern the Funds' investments. Those restrictions and the
Funds' investment objectives are fundamental policies, which means that they
may not be changed without a majority vote of shareholders of the affected
Fund. Except for the objectives and those restrictions specifically identified
as fundamental, all other investment policies and practices described in this
Prospectus and in the SAI are not fundamental, so that the Board of Trustees of
the Trust may change them without shareholder approval.
The Adviser selects investments and makes investment decisions based
on the investment objective and policies of each Fund. The following is a
description of securities and investment practices.
U.S. Treasury Obligations (Both Funds). The Funds may invest in U.S.
Treasury obligations, which are backed by the full faith and credit of the U.S.
Government as to the timely payment of principal and interest. U.S. Treasury
obligations consist of bills, notes, and bonds and separately traded interest
and principal component parts of such obligations known as STRIPS which
generally differ in their interest rates and maturities. U.S. Treasury bills,
which have maturities of up to one year, notes, which have maturities ranging
from one year to 10 years, and bonds, which have maturities of 10 to 30 years,
are direct obligations of the United States Government.
Municipal Commercial Paper (Both Funds). Municipal commercial paper
is a debt obligation with a stated maturity of one year or less which is issued
to finance seasonal working capital needs or as short-term financing in
anticipation of longer-term debt. Investments in municipal commercial paper
are limited to commercial paper which is rated at the date of purchase: (i)
"P-1" by Moody's and "A-1" or "A-1+" by S&P "P-2" (Prime-2) or better by
Moody's and "A-2" or better by S&P or (ii) in a comparable rating category by
any two of the nationally recognized statistical rating organizations that have
rated commercial paper or (iii) in a comparable rating category by only one
such organization if it is the only organization that has rated the commercial
paper or (iv) if not rated, is, in the opinion of the Adviser, of comparable
investment quality and within the credit quality policies and guidelines
established by the Board of Trustees.
Issuers of municipal commercial paper rated "P-1" have a "superior
capacity for repayment of short-term promissory obligations". The "A-1" rating
for commercial paper under the S&P classification indicates that the "degree of
safety regarding timely payment is either overwhelming or very strong."
Commercial paper with "overwhelming safety characteristics" will be rated
"A-1+". Commercial paper receiving a "P-2" rating has a strong capacity for
repayment of short-term promissory obligations. Commercial paper rated "A-2"
has the capacity for timely payment although the relative degree of safety is
not as overwhelming as for issues designated "A-1". See the Appendix for a
more complete description of securities ratings.
- 5 -
<PAGE> 100
Municipal Notes (Both Funds). Municipal notes are generally sold as
interim financing in anticipation of the collection of taxes, a bond sale or
receipt of other revenue. Municipal notes generally have maturities at the
time of issuance of one year or less. Investments in municipal notes are
limited to notes which are rated at the date of purchase: (i) MIG 1 or MIG 2
by Moody's and in a comparable rating category by at least one other nationally
recognized statistical rating organization that has rated the notes, or (ii) in
a comparable rating category by only one such organization, including Moody's,
if it is the only organization that has rated the notes, or (iii) if not rated,
are, in the opinion of the Adviser, of comparable investment quality and within
the credit quality policies and guidelines established by the Board of
Trustees.
Notes rated "MIG 1" are judged to be of the "best quality" and carry
the smallest amount of investment risk. Notes rated "MIG 2" are judged to be
of "high quality, with margins of protection ample although not as large as in
the preceding group."
Municipal Bonds (Both Funds). Municipal bonds generally have a
maturity at the time of issuance of more than one year. Municipal bonds may be
issued to raise money for various public purposes -- such as constructing
public facilities and making loans to public institutions. There are generally
two types of municipal bonds: general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality and are considered the safest type of municipal bond. Revenue
bonds are backed by the revenues of a project or facility -- tolls from a toll
road, for example. Certain types of municipal bonds are issued to obtain
funding for privately operated facilities. Industrial development revenue
bonds (which are private activity bonds) are a specific type of revenue bond
backed by the credit and security of a private user, and therefore investments
in these bonds have more potential risk.
Municipal Leases (Both Funds). Each Fund may invest in instruments,
or participations in instruments, issued in connection with lease obligations
or installment purchase contract obligations of municipalities. Although
municipal lease obligations do not constitute general obligations of the
issuing municipality, a lease obligation is ordinarily backed by the
municipality's covenant to budget for, appropriate funds for, and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses, which provide that the municipality has no
obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose in the relevant years. Municipal
lease obligations will be treated as liquid only if they satisfy criteria set
forth in guidelines established by the Board of Trustees, and there can be no
assurance that a market will exist or continue to exist for any municipal lease
obligation.
Zero Coupon Securities (Both Funds). The Funds may invest in zero
coupon securities. A zero coupon security pays no interest to its holder
during its life and is sold at a discount to its face value at maturity. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are more
sensitive to changes in interest rates than non-zero coupon securities having
similar maturities and credit qualifies.
Variable Rate Demand Obligations (Both Funds). Variable rate demand
obligations have a maturity in the five to twenty year range but carry with
them the right of the holder to put the securities to a remarketing agent or
other entity on short notice, typically seven days or less. Generally, the
remarketing agent will adjust the interest rate every seven days (or at other
intervals corresponding to the notice period for the put), in order to maintain
the interest rate at the prevailing rate for securities with a seven-day
maturity. The remarketing agent is typically a financial intermediary that has
agreed to perform these services. Variable rate master demand obligations
permit a Fund to invest fluctuating amounts at varying rates of interest
pursuant to direct arrangements between the Funds, as lender, and the borrower.
Because the obligations are direct lending arrangements between the Funds and
the borrower, they will not generally be traded, and there is no secondary
market for them, although they are redeemable (and thus immediately repayable
by the borrower) at principal amount, plus accrued interest, at any time. The
borrower also may prepay up to the full amount of the obligation without
penalty. While master demand obligations, as such, are not typically rated by
credit rating agencies, if not so rated, a Fund may, under its minimum rating
standards, invest in them only if, in the opinion
- 6 -
<PAGE> 101
of the Adviser, they are of an investment quality comparable to other debt
obligations in which the Funds may invest and are within the credit quality
policies, guidelines and procedures established by the Board of Trustees. See
the SAI for further details on variable rate demand obligations and variable
rate master demand obligations.
Other Mutual Funds (Both Funds). Each of the Funds may invest in
shares of other open-end, management investment companies, subject to the
limitations of the Act and subject to such investments being consistent with
the overall objective and policies of the Fund making such investment, provided
that any such purchases will be limited to short-term investments in shares of
unaffiliated investment companies. The purchase of securities of other mutual
funds results in duplication of expenses such that investors indirectly bear a
proportionate share of the expenses of such mutual funds including operating
costs, and investment advisory and administrative fees.
Options on Securities (Both Funds). The Funds may purchase put and
call options and write covered put and call options on securities in which each
Fund may invest directly and that are traded on registered domestic securities
exchanges or that result from separate, privately negotiated transactions
(i.e., over-the-counter (OTC) options). The writer of a call option, who
receives a premium, has the obligation, upon exercise, to deliver the
underlying security against payment of the exercise price during the option
period. The writer of a put, who receives a premium, has the obligation to buy
the underlying security, upon exercise, at the exercise price during the option
period.
The Funds may write put and call options on securities only if they
are covered, and such options must remain covered as long as the Fund is
obligated as a writer. A call option is covered if a Fund owns the underlying
security covered by the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration if the underlying security is held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A put option is covered if a Fund maintains cash, U.S. Treasury
bills or other high grade short-term obligations with a value equal to the
exercise price in a segregated account with its custodian.
The principal reason for writing put and call options is to attempt to
realize, through the receipt of premiums, a greater current return than would
be realized on the underlying securities alone. In return for the premium
received for a call option, the Funds forego the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
the option remains open, but retain the risk of loss should the price of the
security decline. In return for the premium received for a put option, the
Funds assume the risk that the price of the underlying security will decline
below the exercise price, in which case the put would be exercised and the Fund
would suffer a loss. A Fund may purchase put options in an effort to protect
the value of a security it owns against a possible decline in market value.
Writing of options involves the risk that there will be no market in
which to effect a closing transaction. An exchange-traded option may be closed
out only on an exchange that provides a secondary market for an option of the
same series. OTC options are not generally terminable at the option of the
writer and may be closed out only by negotiation with the holder. There is
also no assurance that a liquid secondary market on an exchange will exist. In
addition, because OTC options are issued in privately negotiated transactions
exempt from registration under the Securities Act of 1933, there is no
assurance that the Funds will succeed in negotiating a closing out of a
particular OTC option at any particular time. If a Fund, as covered call
option writer, is unable to effect a closing purchase transaction in the
secondary market or otherwise, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise.
The staff of the SEC has taken the position that purchased options not
traded on registered domestic securities exchanges and the assets used as cover
for written options not traded on such exchanges are generally illiquid
securities. However, the staff has also opined that, to the extent a mutual
fund sells an OTC option to a primary dealer that it considers creditworthy and
contracts with such primary dealer to establish a formula price at which the
fund would have the absolute right to repurchase the option, the fund would
only be required to treat as illiquid the portion of the assets used to cover
such option equal to the formula price minus the amount by which the option is
in-the-money. Pending resolution of the issue, the Funds will treat such
options and, except to the extent permitted through the procedure
- 7 -
<PAGE> 102
described in the preceding sentence, assets as subject to each such Fund's
limitation on investments in securities that are not readily marketable.
Interest Rate Futures Contracts (Both Funds). Although neither Fund
presently intends to do so, each Fund may, to a limited extent, enter into
interest rate futures contracts--i.e., contracts for the future delivery of
securities or index-based futures contracts--that are, in the opinion of the
Adviser, sufficiently correlated with the Fund's portfolio. These investments
will be made primarily in an attempt to protect a Fund against the effects of
adverse changes in interest rates (i.e., "hedging"). When interest rates are
increasing and portfolio values are falling, the sale of futures contracts can
offset a decline in the value of a Fund's current portfolio securities. The
Funds will engage in such transactions primarily for bona fide hedging
purposes.
Options on Interest Rate Futures Contracts (Both Funds). The Funds
may purchase put and call options on interest rate futures contracts, which
give a Fund the right to sell or purchase the underlying futures contract for a
specified price upon exercise of the option at any time during the option
period. Each Fund may also write (sell) put and call options on such futures
contracts. For options on interest rate futures that a Fund writes, such Fund
will receive a premium in return for granting to the buyer the right to sell to
the Fund or to buy from the Fund the underlying futures contract for a
specified price at any time during the option period. As with futures
contracts, each Fund will purchase or sell options on interest rate futures
contracts primarily for bona fide hedging purposes.
Risks of Options and Futures Contracts. A risk involved in the
purchase and sale of futures and options is that a Fund may not be able to
effect closing transactions at a time when it wishes to do so. Positions in
futures contracts and options on futures contracts may be closed out only on an
exchange or board of trade that provides an active market for them, and there
can be no assurance that a liquid market will exist for the contract or the
option at any particular time. To mitigate this risk, each Fund will ordinarily
purchase and write options only if a secondary market for the options exists on
a national securities exchange or in the over-the-counter market. Another risk
is that during the option period, if a Fund has written a covered call option,
it will have given up the opportunity to profit from a price increase in the
underlying securities above the exercise price in return for the premium on the
option (although, of course, the premium can be used to offset any losses or
add to a Fund's income) but, as long as its obligation as a writer continues,
such Fund will have retained the risk of loss should the price of the
underlying security decline. In addition, a Fund has no control over the time
when it may be required to fulfill its obligation as a writer of the option;
once a Fund has received an exercise notice, it cannot effect a closing
transaction in order to terminate its obligation under the option and must
deliver the underlying securities at the exercise price.
The Funds are permitted to engage in bona fide hedging transactions
(as defined in the rules and regulations of the Commodity Futures Trading
Commission) without any quantitative limitations. Futures and related option
transactions which are not for bona fide hedging purposes may be used provided
the total amount of the initial margin and any option premiums attributable to
such positions does not exceed 5% of each Fund's liquidating value after taking
into account unrealized profits and unrealized losses, and excluding any
in-the-money option premiums paid. The Funds will not market, and are not
marketing, themselves as commodity pools or otherwise as vehicles for trading
in futures and related options. The Funds will segregate liquid assets such as
cash, U.S. Government securities or other liquid high grade debt obligations to
cover the futures and options.
"When Issued" and "Forward Commitment" Transactions (Both Funds). The
Funds may purchase securities on a when issued and delayed delivery basis and
may purchase or sell securities on a forward commitment basis. When issued or
delayed delivery transactions arise when securities are purchased by a Fund
with payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time of
entering into the transaction. A forward commitment transaction is an
agreement by a Fund to purchase or sell securities at a specified future date.
When a Fund engages in these transactions, the Fund relies on the buyer or
seller, as the case may be, to consummate the sale. Failure to do so may
result in the Fund missing the opportunity to obtain a price or yield
considered to be advantageous. When issued and delayed delivery transactions
and forward commitment transactions may be expected to occur a month or more
before delivery is due. However, no payment or delivery is
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made by a Fund until it receives payment or delivery from the other party to
the transaction. A separate account of liquid assets equal to the value of
purchase commitments will be maintained until payment is made. A separate
account containing only liquid assets such as cash, U.S. Government Securities,
or other liquid high grade debt obligations equal to the value of purchase
commitments will be maintained with the Funds' custodian until payment is made.
Loans of Portfolio Securities (Both Funds). To increase current
income, each Fund may lend its portfolio securities in an amount up to 33 1/3%
of each such Fund's total assets to brokers, dealers and financial
institutions, provided certain conditions are met, including the condition that
each loan is secured continuously by collateral maintained on a daily
mark-to-market basis in an amount at least equal to the current market value of
the securities loaned.
Repurchase Agreements (Both Funds). The Funds may enter into
repurchase agreements with U.S. banks and broker-dealers under which it
acquires securities and obtains a simultaneous commitment from the seller to
repurchase the securities at a specified time and at an agreed upon yield. The
agreements will be fully collateralized and the value of the collateral,
including accrued interest, marked-to-market daily. The agreements may be
considered to be loans made by the purchaser, collateralized by the underlying
securities. If the seller should default on its obligation to repurchase the
securities, a Fund may experience a loss of income from the loaned securities
and a decrease in the value of any collateral maintained, problems in
exercising its rights to the underlying securities and costs and time delays in
connection with the disposition of securities. No Fund may invest more than
15% of its net assets in repurchase agreements maturing in more than seven
business days and in securities for which market quotations are not readily
available. For more information about repurchase agreements, see "Investment
Policies" in the SAI.
Taxable Securities (Both Funds). Each Fund may at times elect to
invest temporarily up to 20% of the current value of its total assets in
taxable securities of the type described below pending the investment in tax
exempt securities of proceeds of sales of Fund shares or proceeds from the sale
of portfolio securities or in anticipation of redemptions. In addition, each
Fund may invest up to 100% of its total assets in such taxable securities to
maintain a temporary "defensive" posture during the existence of abnormal
market or economic conditions, when, in the opinion of [ADVISOR'S NAME], it is
advisable to do so. Each Fund may, under certain circumstances, invest up to
20% of its net assets in securities subject to the alternative minimum tax.
During times when the Funds are maintaining a temporary defensive posture, they
may be unable to achieve fully their investment objective.
The types of taxable securities in which the Funds may invest include
certain mortgage related securities and the following money market instruments
which have remaining maturities not exceeding one year: (i) obligations of the
United States Government, its agencies or instrumentalities; (ii) negotiable
certificates of deposit and bankers' acceptances of United States banks which
have more than $1 billion in total assets at the time of investment and are
members of the Federal Reserve System or are examined by the Comptroller of the
Currency or whose deposits are insured by the Federal Deposit Insurance
Corporation; (iii) domestic commercial paper rated "P-1" by Moody's or "A-1" or
"A-1+" by S&P or comparably rated by another nationally recognized statistical
rating organization; and (iv) repurchase agreements. The Funds also have the
right to hold cash equivalents of up to 100% of their total assets when
[ADVISOR'S NAME] deems it necessary for temporary defensive purposes.
Portfolio Turnover. The Funds generally will not engage in the
trading of securities for the purpose of realizing short-term profits, but each
Fund will adjust its portfolio as it deems advisable in view of prevailing or
anticipated market conditions or fluctuations in interest rates to accomplish
its respective investment objective. For example, each Fund may sell portfolio
securities in anticipation of an adverse market movement. Other than for tax
purposes, frequency of portfolio turnover will not be a limiting factor if a
Fund considers it advantageous to purchase or sell securities. The Funds do
not anticipate that the annual portfolio turnover rate will be in excess of
150% with respect to the Kansas Tax Exempt Fund and 300% with respect to the
U.S. Intermediate Tax Exempt Fund. A high rate of portfolio turnover involves
correspondingly greater transaction expenses than a lower rate, which expenses
must be borne by each Fund and its shareholders. High portfolio turnover rates
may also make it more difficult for the Funds to satisfy the requirement for
qualification as a regulated investment company under the Internal Revenue Code
of 1986,
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as amended (the "Code"), that less than 30% of each Funds' gross income in any
tax year be derived from gains on the sale of securities held for less than
three months.
MANAGEMENT OF THE FUNDS
The business and affairs of each Fund are managed under the direction
of the Board of Trustees. Information about the Trustees, as well as the
Trust's executive officers, may be found in the SAI under the heading
"Management--Trustees and Officers."
THE ADVISER: [ADVISOR'S NAME]
[ADVISOR'S NAME] ("________") provides investment advisory services to
the Funds pursuant to an Advisory Agreement with the Trust (the "Advisory
Agreement"). Subject to such policies as the Trust's Board of Trustees may
determine, [ADVISOR'S NAME] makes investment decisions for the Funds. The
Advisory Agreement provides that as compensation for services thereunder,
[ADVISOR'S NAME] is entitled to receive from each Fund it manages a monthly fee
at an annual rate based upon average daily net assets of each Fund of 0.30%.
While [ADVISOR'S NAME] has no significant experience in managing
registered mutual funds, Ms. , an ___________ of [ADVISOR'S NAME], has
significant experience in managing portfolios similar to the Funds.
Ms.________ has been with [ADVISOR'S NAME] since [ ] and was previously
with [ ] from______ to_______.
[ADVISOR'S NAME], whose predecessor was formed in______, is the
largest___________ in_______and provides____________________ ________services
to______________. It is a wholly-owned subsidiary of__________________.
[ADVISOR'S NAME] acts as the investment adviser to a wide variety of trusts,
individuals, institutions and corporations. Its investment management
responsibilities, as of _ _________,199_ included accounts with aggregate
assets of approximately $_____billion. The principal business address of
[ADVISOR'S NAME][ADDRESS]
Based upon the advice of counsel, [ADVISOR'S NAME] believes that the
performance of investment advisory services for the Funds will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent [ADVISOR'S NAME] from continuing to perform such
services for the Funds. If [ADVISOR'S NAME] were prohibited from acting as
investment adviser to the Funds, it is expected that the Board of Trustees
would recommend to shareholders approval of a new investment advisory agreement
with another qualified investment adviser selected by the Board or that the
Board would recommend other appropriate action.
THE SPONSOR AND DISTRIBUTOR
[ADMINISTRATOR], [ADDRESS], acts as Sponsor of the Funds.
[ADMINISTRATOR] is primarily an institutional brokerage firm with membership on
the New York, American, Boston, Midwest, Pacific and Philadelphia Stock
Exchanges. [ADMINISTRATOR] also serves as administrator and distributor of
other mutual funds. [DISTRIBUTOR'S NAME] is a subsidiary of [ADMINISTRATOR] and
was organized specifically to distribute the [ ] Funds.
In addition to sales charges paid to dealers, [DISTRIBUTOR'S NAME] may
from time to time pay a bonus or other incentive to dealers which employ
registered representatives who sell a minimum dollar amount of shares of the
Funds. Such bonus or other incentive may take the form of payment for travel
expenses, including lodging, incurred
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in connection with trips taken by qualifying registered representatives and
members of their families to places within or without the United States, or
other bonuses, such as gift certificates or the cash equivalent of such
bonuses.
ADMINISTRATIVE SERVICES
The Funds have also entered into an Administrative Services Contract
with [ADMINISTRATOR] pursuant to which [ADMINISTRATOR] provides certain
management and administrative services necessary for the Funds' operations
including: (i) general supervision of the operation of the Funds including
coordination of the services performed by the Funds' investment adviser,
transfer agent, custodian, independent accountants and legal counsel,
regulatory compliance, including the compilation of information for documents
such as reports to, and filings with, the SEC and state securities commissions,
and preparation of proxy statements and shareholder reports for the Funds; (ii)
general supervision relative to the compilation of data required for the
preparation of periodic reports distributed to the Funds' Officers and Board of
Trustees; and (iii) furnishing office space and certain facilities required for
conducting the business of the Funds. For these services, [ADMINISTRATOR]
receives from each Fund a fee, payable monthly, at the annual rate of 0.15% of
each Fund's average daily net assets. Pursuant to a Services Agreement between
the Trust and the Administrator, [ADMINISTRATOR] assists the Trust with certain
transfer and dividend disbursing agent functions and receives a fee of $15 per
account per year plus out-of-pocket expenses. Pursuant to a Fund Accounting
Agreement between the Trust and the Administrator, the Administrator assists
the Trust in calculating net asset values and provides certain other accounting
services for each Fund described therein, for an annual fee of $30,000 per Fund
plus out-of-pocket expenses.
SERVICE ORGANIZATIONS
Various banks, trust companies, broker-dealers (other than the
Sponsor) or other financial organizations (collectively, "Service
Organizations") also may provide administrative services for the Funds, such as
maintaining shareholder accounts and records. The Funds may pay fees to
Service Organizations (which vary depending upon the services provided) in
amounts up to an annual rate of 0.05% of the daily net asset value of the
Funds' shares owned by shareholders with whom the Service Organization has a
servicing relationship.
Some Service Organizations may impose additional or different
conditions on their clients, such as requiring their clients to invest more
than a Fund's minimum initial or subsequent investments or charging a direct
fee for servicing. If imposed, these fees would be in addition to any amounts
which might be paid to the Service Organization by the Funds. Each Service
Organization has agreed to transmit to its clients a schedule of any such fees.
Shareholders using Service Organizations are urged to consult with them
regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws provide that, among
other things, banks may not engage in the business of underwriting, selling or
distributing securities. There is currently no precedent prohibiting banks
from performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or
interpretations of such laws, as well as changes in either Federal or state
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, could prevent a bank Service Organization from
continuing to perform all or a part of its servicing activities. If a bank
were prohibited from so acting, its shareholder clients would be permitted to
remain shareholders of the Funds and alternative means for continuing the
servicing of such shareholders would be sought. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences.
OTHER EXPENSES
Each Fund bears all costs of its operations other than expenses
specifically assumed by [ADMINISTRATOR], [DISTRIBUTOR'S NAME] or [ADVISOR'S
NAME]. The costs borne by the Funds include legal and accounting
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expenses; Trustees' fees and expenses; insurance premiums; custodian and
transfer agent fees and expenses; expenses incurred in acquiring or disposing
of the Funds' portfolio securities; expenses of registering and qualifying the
Funds' shares for sale with the SEC and with various state securities
commissions; expenses of obtaining quotations on the Funds' portfolio
securities and pricing of the Funds' shares; expenses of maintaining the Funds'
legal existence and of shareholders' meetings; and expenses of preparation and
distribution to existing shareholders of reports, proxies and prospectuses.
Each Fund bears its own expenses associated with its establishment as a series
of the Trust; these expenses are amortized over a five-year period from the
commencement of a Fund's operations. See "Management" in the SAI. Trust
expenses directly attributable to a Fund are charged to that Fund; other
expenses are allocated proportionately among all of the Funds in the Trust in
relation to the net assets of each Fund.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Contract, the Adviser places
orders for the purchase and sale of portfolio investments for the Funds'
accounts with brokers or dealers selected by it in its discretion.
In effecting purchases and sales of portfolio securities for the
account of the Funds, the Adviser will seek the best available price and most
favorable execution of the Funds' orders. Trading does, however, involve
transaction costs. Purchases of underwritten issues may be made, which will
include an underwriting fee paid to the underwriter. The Adviser may cause a
Fund to pay commissions higher than another broker-dealer would have charged if
the Adviser believes the commission paid is reasonable in relation to the value
of the brokerage and research services received by the Adviser. Broker-dealers
are selected on the basis of a variety of factors such as reputation, capital
strength, size and difficulty of order, sale of Fund shares and research
provided to the Adviser.
FUND SHARE VALUATION
The net asset value per share of the Funds is calculated at 4:15 p.m.
(Eastern time), Monday through Friday, on each day the New York Stock Exchange
is open for trading, which excludes the following business holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The net asset value per share of the Funds
is computed by dividing the value of each Fund's net assets (i.e., the value of
the assets less the liabilities) by the total number of such Fund's outstanding
shares. All expenses, including fees paid to the Adviser, [ADMINISTRATOR] and
[DISTRIBUTOR'S NAME], are accrued daily and taken into account for the purpose
of determining the net asset value.
Securities listed on an exchange are valued on the basis of the last
sale prior to the time the valuation is made. If there has been no sale since
the immediately previous valuation, then the current bid price is used.
Quotations are taken for the exchange where the security is primarily traded.
Over-the-counter securities are valued on the basis of the bid price at the
close of business on each business day. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by or at the direction of the Board of Trustees. Notwithstanding the above,
bonds and other fixed-income securities are valued by using market quotations
and may be valued on the basis of prices provided by a pricing service approved
by the Board of Trustees.
PRICING AND PURCHASE OF FUND SHARES
Orders for the purchase of shares will be executed at the net asset
value per share next determined after an order has been received.
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<PAGE> 107
All funds received by the Funds are invested in full and fractional
shares of the appropriate Fund. Certificates for shares are not issued.
[ADMINISTRATOR] maintains records of each shareholder's holdings of Fund
shares, and each shareholder receives a statement of transactions, holdings and
dividends. The Funds reserve the right to reject any purchase.
An investment may be made using any of the following methods:
Through an Authorized Broker, Investment Adviser or Service
Organization. Shares are available to new and existing shareholders through
authorized brokers, investment advisers and Service Organizations. To make an
investment using this method, simply complete a Purchase Application and
contact your broker, investment adviser or Service Organization with
instructions as to the amount you wish to invest. Your broker will then
contact [DISTRIBUTOR'S NAME] to place the order on your behalf on that day.
Orders received by your broker or Service Organization for a Fund in
proper order prior to the determination of net asset value and transmitted to
[DISTRIBUTOR'S NAME] prior to the close of its business day (which is currently
5:00 p.m., Eastern time), will become effective that day. Brokers who receive
orders are obligated to transmit them promptly. You should receive written
confirmation of your order within a few days of receipt of instructions from
your broker.
By Wire. Investments may be made directly through the use of wire
transfers of Federal funds. Contact your bank and request it to wire Federal
funds to the applicable Fund. In most cases, your bank will either be a member
of the Federal Reserve Banking System or have a relationship with a bank that
is. Your bank will normally charge you a fee for handling the transaction. To
purchase shares by a Federal funds wire, please first contact [ADMINISTRATOR]
Mutual Funds Client Services at (800) 557-3768. They will establish a record
of information for the wire to insure the correct processing of funds. You can
reach the Wire Desk at (800) 557-3768.
Then, have your bank wire funds using the following instructions:
[INSTRUCTIONS]
As long as you have read the Prospectus, you may establish a new
regular account through the Wire Desk; IRAs may not be opened in this way.
When new accounts are established by wire, the distribution options will be set
to reinvest and the social security or tax identification number ("TIN") will
not be certified until a signed application is received. Completed
applications should be forwarded immediately to [DISTRIBUTOR'S NAME]. With the
Purchase Application, the shareholder can specify other distribution options
and add any special features offered by a Fund. Should any dividend
distributions or redemptions be paid before the TIN is certified, they will be
subject to 31% Federal tax withholding.
Institutional Accounts. Bank trust departments and other
institutional accounts, not subject to sales charges, may place orders directly
with [DISTRIBUTOR'S NAME] by telephone at (800) 557-3768.
MINIMUM PURCHASE REQUIREMENTS
The minimum initial investment in a Fund is $1,000 unless the investor
is a purchaser who (i) at the time of purchase, has a balance of $1,000 or more
in any of the [ ] Funds, is a purchaser through a trust investment
manager or account manager or is administered by the Adviser, is an employee or
an ex-employee of Fourth Financial Corporation or is an employee of any of its
affiliates, [ ],[ADMINISTRATOR], or any other service provider, or
is an employee of any trust customer of Fourth Financial Corporation or any of
its affiliates. Any subsequent investments must be at least $50. All initial
investments should be accompanied by a completed Purchase
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<PAGE> 108
Application. A Purchase Application accompanies this Prospectus. The Funds
reserve the right to reject purchase orders.
EXCHANGE OF FUND SHARES
The Funds offer two convenient ways to exchange shares in one Fund for
shares in another Fund in the Trust. Before engaging in an exchange
transaction, a shareholder should read carefully the Prospectus describing the
Fund into which the exchange will occur, which is available without charge and
can be obtained by writing to [ADMINISTRATOR] Mutual Fund Department, 237 Park
Avenue, New York, New York 10017, or by calling (800) 557-3768. A shareholder
may not exchange shares of one Fund for shares of another Fund if both or
either are not qualified for sale in the state of the shareholder's residence.
The minimum amount for an initial exchange is $500. No minimum is required in
subsequent exchanges. The Trust may terminate or amend the terms of the
exchange privilege at any time.
A new account opened by exchange must be established with the same
name(s), address and social security number as the existing account. All
exchanges will be made based on the net asset value next determined following
receipt of the request by a Fund in good order.
An exchange is taxable as a sale of a security on which a gain or loss
may be recognized. Shareholders should receive written confirmation of the
exchange within a few days of the completion of the transaction. Shareholders
will receive at least 60 days' prior written notice of any modification or
termination of the exchange privilege.
Exchange by Mail. To exchange Fund shares by mail, simply send a
letter of instruction to [ADMINISTRATOR]. The letter of instruction must
include: (i) your account number; (ii) the Fund from and the Fund into which
you wish to exchange your investment; (iii) the dollar or share amount you wish
to exchange; and (iv) the signatures of all registered owners or authorized
parties. All signatures must be guaranteed by an eligible guarantor
institution including a member of a national securities exchange or by a
commercial bank or trust company, broker-dealers, credit unions and savings
associations.
Exchange by Telephone. To exchange Fund shares by telephone or if you
have any questions simply call the Funds at (800) 557-3768. You should be
prepared to give the telephone representative the following information: (i)
your account number, social security number and account registration; (ii) the
name of the Fund from and the Fund into which you wish to transfer your
investment; and (iii) the dollar or share amount you wish to exchange. The
conversation may be recorded to protect you and the Funds. Telephone exchanges
are available only if the shareholder so indicates by checking the "yes" box on
the Purchase Application. See "Redemption of Fund Shares--By Telephone" for a
discussion of telephone transactions generally.
Automatic Investment Program. An eligible shareholder may also
participate in the Automatic Investment Program, an investment plan that
automatically debits money from the shareholder's bank account and invests it
in one or more of the Funds in the Trust through the use of electronic funds
transfers or automatic bank drafts. Shareholders may elect to make subsequent
investments by transfers of a minimum of $500 on either the fifth or twentieth
day of each month into their established Fund account. Contact the Funds for
more information about the Automatic Investment Program.
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<PAGE> 109
REDEMPTION OF FUND SHARES
Shareholders may redeem their shares, in whole or in part, on any
business day. Shares will be redeemed at the net asset value next determined
after a redemption request in good order has been received by the applicable
Fund. See "Determination of Net Asset Value." A redemption may be a taxable
transaction on which gain or loss may be recognized.
Where the shares to be redeemed have been purchased by check, the
redemption request will be returned if the purchasing check has not cleared,
which may take up to 15 days. Shareholders may avoid this delay by investing
through wire transfers of Federal funds. During the period prior to the time
the shares are redeemed, dividends on the shares will continue to accrue and be
payable and the shareholder will be entitled to exercise all other beneficial
rights of ownership.
Once the shares are redeemed, a Fund will ordinarily send the proceeds
by check to the shareholder at the address of record on the next business day.
The Funds may, however, take up to seven days to make payment. This will not
be the customary practice. Also, if the New York Stock Exchange is closed (or
when trading is restricted) for any reason other than the customary weekend or
holiday closing or if an emergency condition as determined by the SEC merits
such action, the Funds may suspend redemptions or postpone payment dates.
Redemption Methods. To ensure acceptance of your redemption request,
it is important to follow the procedures described below. Although the Funds
have no present intention to do so, the Funds reserve the right to refuse or to
limit the frequency of any telephone or wire redemptions. Of course, it may be
difficult to place orders by telephone during periods of severe market or
economic change, and a shareholder should consider alternative methods of
communications, such as couriers. The Funds' services and their provisions may
be modified or terminated at any time by the Funds. If the Funds terminate any
particular service, they will do so only after giving written notice to
shareholders. Redemption by mail will always be available to shareholders.
You may redeem your shares using any of the following methods:
Through an Authorized Broker, Investment Adviser or Service
Organization. You may redeem your shares by contacting your broker or
investment adviser and instructing him or her to redeem your shares. He or she
will then contact [DISTRIBUTOR'S NAME] and place a redemption trade on your
behalf. He or she may charge you a fee for this service.
By Mail. You may redeem your shares by sending a letter directly to
[DISTRIBUTOR'S NAME]. To be accepted, a letter requesting redemption must
include: (i) the Fund name and account registration from which you are
redeeming shares; (ii) your account number; (iii) the amount to be redeemed,
(iv) the signatures of all registered owners; and (v) a signature guarantee by
any eligible guarantor institution including a member of a national securities
exchange or a commercial bank or trust company, broker-dealers, credit unions
and savings associations. Corporations, partnerships, trusts or other legal
entities will be required to submit additional documentation.
By Telephone. You may redeem your shares by calling the Funds toll
free at (800) 557-3768. You should be prepared to give the telephone
representative the following information: (i) your account number, social
security number and account registration; (ii) the Fund name from which you are
redeeming shares; and (iii) the amount to be redeemed. The conversation may be
recorded to protect you and the Funds. Telephone redemptions are available
only if the shareholder so indicates by checking the "yes" box on the Purchase
Application or on the Optional Services Form. The Funds employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
If the Funds fail to employ such reasonable procedures, they may be liable for
any loss, damage or expense arising out of any telephone transactions
purporting to be on a shareholder's behalf. In order to assure the accuracy of
instructions received by
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<PAGE> 110
telephone, the Funds require some form of personal identification prior to
acting upon instructions received by telephone, record telephone instructions
and provide written confirmation to investors of such transactions. Redemption
requests transmitted via facsimile will not be accepted.
By Wire. You may redeem your shares by contacting the Funds by mail
or telephone and instructing them to send a wire transmission to your personal
bank.
Your instructions should include: (i) your account number, social
security or tax identification number and account registration; (ii) the Fund
name from which you are redeeming shares; and (iii) the amount to be redeemed.
Wire redemptions can be made only if the "yes" box has been checked on your
Purchase Application, and attach a copy of a void check of account where
proceeds are to be wired. Your bank may charge you a fee for receiving a wire
payment on your behalf.
Systematic Withdrawal Plan. An owner of $10,000 or more of shares of
a Fund may elect to have periodic redemptions from his account to be paid on a
monthly, quarterly, semiannual or annual basis. The minimum periodic payment
is $100. A sufficient number of shares to make the scheduled redemption will
normally be redeemed on the date selected by the shareholder. Depending on the
size of the payment requested and fluctuation in the net asset value, if any,
of the shares redeemed, redemptions for the purpose of making such payments may
reduce or even exhaust the account. A shareholder may request that these
payments be sent to a predesignated bank or other designated party. Capital
gains and dividend distributions paid to the account will automatically be
reinvested at net asset value on the distribution payment date.
Redemption of Small Accounts. Due to the disproportionately higher
cost of servicing small accounts, each Fund reserves the right to redeem, on
not less than 30 days' notice, an account in a Fund that has been reduced by a
shareholder to $500 or less. However, if during the 30-day notice period the
shareholder purchases sufficient shares to bring the value of the account above
$500, this restriction will not apply.
Redemption in Kind. All redemptions of shares of the Funds shall be
made in cash, except that the commitment to redeem shares in cash extends only
to redemption requests made by each shareholder of a Fund during any 90-day
period of up to the less of $250,000 or 1% of the net asset value of that Fund
at the beginning of such period. This commitment is irrevocable without the
prior approval of the SEC and is a fundamental policy of the Funds that may not
be changed without shareholder approval. In the case of redemption requests by
shareholders in excess of such amounts, the Board of Trustees reserves the
right to have the Funds make payment, in whole or in part, in securities or
other assets, in case of an emergency or any time a cash distribution would
impair the liquidity of a Fund to the detriment of the existing shareholders.
In this event, the securities would be valued in the same manner as the
securities of that Fund are valued. If the recipient were to sell such
securities, he or she could receive less than the redemption value of the
securities and could incur certain transaction costs.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX
The Funds intend to distribute to their shareholders substantially all
of their net tax-exempt interest income and their investment company taxable
income (which includes, among other items, dividends and taxable interest in
excess of expenses and, if any, net short-term capital gains over net long-term
capital losses). The Funds will declare distributions of such income daily and
pay those dividends monthly. The Funds intend to distribute, at least
annually, substantially all net capital gain (the excess of net long-term
capital gains over net short-term capital losses). In determining amounts of
capital gains to be distributed, any capital loss carryovers from prior years
will be applied against capital gains.
Distributions will be paid in additional Fund shares based on the net
asset value at the close of business on the payment date of the distribution,
unless the shareholder elects in writing, not less than five full business days
prior to
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the record date, to receive such distributions in cash. Dividends declared in,
and attributable to, the preceding month will be paid within five business days
after the end of each month. Shares purchased will begin earning dividends on
the day after the purchase order is executed, and shares redeemed will earn
dividends through the day the redemption is executed. Investors who redeem all
or a portion of Fund shares prior to a dividend payment date will be entitled
on the next dividend payment date to all dividends declared but unpaid on those
shares at the time of their redemption.
Each Fund intends to be treated as a regulated investment company
under the Federal tax law. As such, the Funds generally will not pay Federal
income tax on the income and gains a Fund pays as dividends to its
shareholders. In order to avoid a 4% Federal excise tax, the Funds intend to
distribute each year all of their income and gains.
To the extent that a Fund's dividends distributed to shareholders are
derived from interest income exempt from Federal income tax and are designated
as exempt-interest dividends by the Fund, they will be excludable from a
shareholder's gross income for regular Federal income tax purposes. A Fund
will be qualified to pay exempt-interest dividends if, at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of securities on which interest payments are exempt from Federal
income tax under section 103 of the Internal Revenue Code of 1986, as amended
(the "Code"). The Funds will inform shareholders annually as to the portion of
the distribution paid which constitutes exempt-interest dividends. The Funds
are authorized to make investments which will give rise to taxable rather that
tax-exempt income. To the extent that a Fund's dividends are derived from
income from its taxable investments and from gain recognized by it, they will
be taxable to shareholders in the manner described above.
Tax-exempt interest on private activity bonds and exempt-interest
dividends attributable to private activity bonds generally are treated as tax
preference items for purposes of the Federal alternative minimum tax. The
Funds may purchase private activity bonds, such as industrial development bonds
that may be subject to the alternative minimum tax.
The entire amount of exempt-interest dividends received from a Fund
will be part of an adjustment in computing Federal alternative minimum taxable
income for purposes of the Alternative Minimum Tax and the Environmental Tax
under Code Section 59A.
Up to 85% of an individual's social security benefits and certain
railroad retirement benefits may be subject to Federal income tax. Along with
other factors, total tax-exempt income, including exempt-interest dividends, is
used to calculate the portion of such benefits that are taxed.
There could be retroactive revocation of the tax-exempt status of
certain municipal obligations after their issuance. It is not possible to
predict the precise impact of these provisions, but they may affect the value
of the securities in a Fund's portfolio.
Shareholders should be aware that redeeming shares of a Fund after
tax-exempt interest income has been accrued by the Fund but before that income
has been declared as a dividend may be disadvantageous. This is because the
gain, if any, on the redemption will be taxable, even though such gain may be
attributable in part to the accrued tax-exempt interest which, if distributed
to the shareholder as a dividend rather that as redemption proceeds, might have
qualified as an exempt interest dividend. All or a portion of interest on
indebtedness incurred or continued (or deemed under tax rules to be incurred or
continued) by shareholders to purchase or carry shares of the Funds may not be
deductible for Federal income tax purposes.
The treatment for state, local and municipal tax purposes of
distributions of exempt-interest dividends and dividends derived from interest
on certain Federal obligations will vary according to the laws of state and
local taxing authorities. Exempt-interest dividends and other dividends may be
subject to state and local taxation. Investors should consult with their tax
advisers as to the availability of any exemptions from such taxes. Persons who
may be "substantial users" (or "related persons" of substantial users) of
facilities financed by private activity bonds may suffer adverse tax
- 17 -
<PAGE> 112
consequences from investing in a Fund and, therefore, should consult their tax
advisers before purchasing a Fund's shares. In some instances, a state or city
may exempt from tax the portion of the distribution from a Fund that represents
interest received on obligations of that state or its political subdivisions
and on certain Federal obligations. Under the laws of certain other states and
cities, the entire amount of any such distribution may be taxable.
The preceding discussion primarily relates to Federal income taxes;
the consequences under other tax laws may differ. For additional information
relating to taxation, see the SAI.
INVESTMENT RESTRICTIONS
(1) The Funds may not borrow money or pledge or mortgage their assets,
except that a Fund may borrow from banks up to 10% of the current value of its
total net assets for temporary or emergency purposes and those borrowings may
be secured by the pledge of not more than 15% of the current value of the
Fund's total net assets (but investments may not be purchased by a Fund while
any such borrowings exist).
(2) The Funds may not make loans, except that the Funds may enter into
repurchase agreements with respect to portfolio securities and may purchase the
types of debt instruments described in this Prospectus.
The foregoing investment restrictions and those described in the SAI
as fundamental are policies of the Fund which may be changed only when
permitted by law and approved by the holders of a majority of a Fund's
outstanding voting securities as described under "Other Information Voting."
Each Fund will invest less than 25% of its total assets in the
securities of any one industry. For this purpose, U.S. Government securities
(and repurchase agreements related thereto) and Kansas Municipal Obligations
are not considered securities of a single industry.
If a percentage restriction on investment policies or the investment
or use of assets set forth in this Prospectus are adhered to at the time a
transaction is effected, later changes in percentage resulting from changing
values will not be considered a violation.
RISKS OF INVESTING IN THE FUNDS
CERTAIN RISK CONSIDERATIONS
The price per share of the Funds will fluctuate with changes in value
of the investments held by the Funds. For example, the value of shares of the
Funds will generally fluctuate inversely with the movements in interest rates.
There is, of course, no assurance that a Fund will achieve its
investment objective or be successful in preventing or minimizing the risk of
loss that is inherent in investing in particular types of investment products.
In order to attempt to minimize that risk, the Adviser monitors developments in
the economy, the securities markets, and with each particular issuer.
Because the Kansas Tax-Free Fund will concentrate its investment in
Kansas Municipal Obligations, it may be affected by political, economic or
regulatory factors that may impair the ability of Kansas issuers to pay
interest on or to repay the principal of their debt obligations. Kansas
Municipal Obligations may be subject to greater price volatility than municipal
obligations in general as a result of the effect of supply and demand for these
securities which, in turn, could cause greater volatility in the value of the
shares of the Kansas Tax-Free Fund.
- 18 -
<PAGE> 113
[Kansas ranks as the thirty-second largest state in terms of
population. As of July, 1993 population is estimated to be 2,531,000 which is
up 0.6% from July, 1992. Population increased 4.8% over the 10 year period
1980 through 1990 as compared with the national growth rate of 9.8%. Its
economy is based primarily on agriculture. Based on March 1994 employment
statistics from the U.S. Bureau of Labor Statistics, services is the largest
employment sector with 24.0% of non-farm employment followed by trade at
23.87%, government at 20.72%, manufacturing at 15.80%, transportation and
public utilities at 5.89%, financial insurance and real estate at 5.07%, and
construction at 3.91% and mining less than 1%. Unemployment is at 5.8%,
compared to a national rate of 6.5%. The 1993 state per capita personal income
was $20,139, which was 97% of the national average of $20,817. Little
long-term effects are effected from earlier floods.]
[The State's 1993 general fund showed total revenues of 2.93 billion
against total expenditures of 2.69 billion. The primary revenue source of the
state are taxes which contributed 57% of total revenue in fiscal 1990. The
general fund currently has a balance of $385 million. Currently, the State has
no long-term debt, therefore there are no debt ratings to report.]
To provide somewhat greater investment flexibility, The Kansas
Tax-Free Fund is a "nondiversified" fund under the Investment Company Act of
1940 and, as such, is not required to meet any diversification requirements
under that Act. However, the Fund must, nevertheless, meet certain
diversification tests to qualify as a regulated investment company under the
Code. The Fund may use its ability as a non-diversified fund to concentrate
its assets in the securities of a smaller number of issuers which the Adviser
deems to be attractive investments, rather than invest in a larger number of
securities merely to satisfy non-tax diversification requirements. While the
Adviser believes that this ability to concentrate the investments of the Fund
in particular issuers is an advantage when investing in Kansas Municipal
Obligations, such concentration also involves a risk of loss to the Fund should
the issuer be unable to make interest or principal payments thereon or should
the market value of such securities decline. Investment in a non-diversified
Fund could, therefore, entail greater risks than investment in a "diversified"
Fund, including a risk of greater fluctuations in yield and share price.
Obligations of issuers of Kansas Municipal Obligations are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of creditors, such as the Federal Bank Reform Act of 1978. In
addition, the obligations of such issuers may become subject to the laws
enacted in the future by Congress or the Kansas legislatures or by referenda
extending the time for payment or principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. There is also the possibility that, as a result of legislation or other
conditions, the power or ability of any issuer to pay, when due, the principal
of and interest on its Kansas Municipal Obligations may be materially affected.
Additional considerations relating to the risks of investing in Kansas
Municipal Obligations are presented in the SAI.
OTHER INFORMATION
CAPITALIZATION
[ ] Trust was organized as a Delaware business trust on
________,1996 and currently consists of nine separately managed portfolios,
three of which are described in this Prospectus. The Board of Trustees may
establish additional portfolios in the future. The capitalization of the Trust
consists solely of an unlimited number of shares of beneficial interest with a
par value of $0.001 each. When issued, shares of the Funds are fully paid,
non-assessable and freely transferable.
Each Fund also offers a Premium Class of shares. Service Class shares
are offered at net asset value only to certain institutional investors, or
other investors who at the time of purchase have a balance of $1,000 or more
invested in any of the [ ] Funds, are purchasers through a trust investment
manager or account manager or administered
- 19 -
<PAGE> 114
by the Adviser, are employees or ex-employees of [ ]Corporation or
any of its affiliates, employees of [ ], [ADMINISTRATOR], or any other service
provider, or employees of any trust customer of [ ]Corporation or
any of its affiliates. Shareholders in the Premium Class of shares may be
subject to an additional shareholder servicing charge of up to 0.50% of average
net assets.
Under Delaware law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for
indemnification out of Trust property for all loss and expense of any
shareholder held personally liable for the obligations of the Trust. The risk
of a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the Trust itself would be unable to meet
its obligations and should be considered remote.
VOTING
Shareholders have the right to vote in the election of Trustees and on
any and all matters on which, by law or under the provisions of the Declaration
of Trust, they may be entitled to vote. The Trust is not required to hold
regular annual meetings of the Funds' shareholders and does not intend to do
so. The Trustees are required to call a meeting for the purpose of considering
the removal of a person serving as Trustee if requested in writing to do so by
the holders of not less than 10% of the outstanding shares of the Trust and in
connection with such meeting to comply with the shareholders' communications
provisions of Section 16(c) of the Act. See "Other Information--Voting Rights"
in the SAI.
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). As used in this Prospectus, the phrase "vote of
a majority of the outstanding shares" of a Fund (or the Trust) means the vote
of the lesser of: (1) 67% of the shares of a Fund (or the Trust) present at a
meeting if the holders of more than 50% of the outstanding shares are present
in person or by proxy; or (2) more than 50% of the outstanding shares of a Fund
(or the Trust).
PERFORMANCE INFORMATION
The Funds may, from time to time, include yield and total return
information in advertisements or reports to shareholders or prospective
investors. Shareholders of the Premium Class of shares will experience a lower
net return on their investment than shareholders of the Service Class of shares
because of the additional shareholder servicing charge to which Premium Class
shareholders are subject. The methods used to calculate the yield and total
return of the Funds are mandated by the SEC.
Quotations of "yield" will be based on the investment income per share
during a particular 30-day (or one month) period (including dividends and
interest), less expenses accrued during the period ("net investment income"),
and will be computed by dividing net investment income by the maximum public
offering price per share on the last day of the period.
Quotations of yield and effective yield reflect only a Fund's
performance during the particular period on which the calculations are based.
Yield and effective yield for a Fund will vary based on changes in market
conditions, the level of interest rates and the level of that Fund's expenses,
and no reported performance figure should be considered an indication of
performance which may be expected in the future.
Quotations of average annual total return for a Fund will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in that Fund over periods of 1, 5 and 10 years (up to the life of
- 20 -
<PAGE> 115
that Fund), reflect the deduction of a proportional share of Fund expenses (on
an annual basis), and assume that all dividends and distributions are
reinvested when paid.
A Fund may also advertise its "taxable equivalent yield." Taxable
equivalent yield is the yield that an investment, subject to Federal and Kansas
personal income taxes, would need to earn in order to equal, on an after-tax
basis, the yield on an investment exempt from such taxes (normally calculated
assuming the maximum combined Federal and Kansas marginal tax rate). A taxable
equivalent yield quotation for a Fund will be higher than the yield or the
effective yield quotations for a Fund.
[The following table shows how to translate the yield of an investment
that is exempt from Federal and Kansas personal income taxes into a taxable
equivalent yield for the 1994 taxable year. The last four columns of the table
show approximately how much a taxable investment would have to yield in order
to generate an after-tax (Federal and Kansas personal income taxes) yield of
4%, 5%, 6% and 7%. For example, the table shows __________________]
ACCOUNT SERVICES
All transactions in shares of the Funds will be reflected in a
statement for each shareholder. In those cases where a Service Organization or
its nominee is shareholder of record of shares purchased for its customer, the
Funds have been advised that the statement may be transmitted to the customer
at the discretion of the Service Organization.
[ADMINISTRATOR] acts as the Funds' transfer agent. The Trust
compensates [ADMINISTRATOR], the Trust's administrator, pursuant to a Services
Agreement described on page __ of this Prospectus, for providing personnel and
facilities to perform dividend disbursing and transfer agency-related services
for the Trust.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to [ADMINISTRATOR] Mutual
Funds Department, 237 Park Avenue, New York, New York 10017.
General and Account Information: (800) 557-3768.
-21-
<PAGE> 116
APPENDIX
DESCRIPTION OF MOODY'S BOND RATINGS:
Excerpts from Moody's description of its four highest bond ratings are
listed as follows: Aaa -- judged to be the best quality and they carry the
smallest degree of investment risk; Aa--judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds; A--possess many favorable investment attributes and are to
be considered as "upper medium grade obligations"; Baa--considered to be medium
grade obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time.
Moody's also supplies numerical indicators 1, 2 and 3 to rating
categories. The modifier 1 indicates that the security is in the higher end of
its rating category; the modifier 2 indicates a mid-range ranking; and modifier
3 indicates a ranking toward the lower end of the category.
DESCRIPTION OF S&P'S BOND RATINGS:
Excerpts from S&P's description of its four highest bond ratings are
listed as follows: AAA-- highest grade obligations, in which capacity to pay
interest and repay principal is extremely strong; AA--also qualify as high
grade obligations, having a very strong capacity to pay interest and repay
principal, and differs from AAA issues only in a small degree; A--regarded as
upper medium grade, having a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories; BBB--regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
S&P applies indicators "+, -," no character, and relative standing
within the major rating categories.
DESCRIPTION OF MOODY'S RATINGS OF NOTES AND VARIABLE RATE DEMAND INSTRUMENTS:
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or MIG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable rate demand obligations) are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payments
relying on external liquidity.
MIG 1/VMIG 1: This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This denotes high quality. Margins of protection are ample
although not as large as in the preceding group.
DESCRIPTION OF MOODY'S TAX-EXEMPT COMMERCIAL PAPER RATINGS:
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations which have an original
maturity not exceeding nine months. Moody's makes no representation that such
A-1
<PAGE> 117
obligations are exempt from registration under the Securities Act of 1933, nor
does it represent that any specific note is a valid obligation of a rated
issuer or issued in conformity with any applicable law. The following
designations, all judged to be investment grade, indicate the relative
repayment ability of rated issuers of securities in which the Trust may invest.
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term promissory obligations.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term promissory obligations.
DESCRIPTION OF S&P'S RATINGS FOR MUNICIPAL BONDS:
INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in a small
degree.
A: Debt rated "A" has strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
DESCRIPTION OF S&P'S RATINGS FOR INVESTMENT GRADE MUNICIPAL NOTES AND
SHORT-TERM DEMAND OBLIGATIONS:
SP-1: Issues carrying this designation have a very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics will be given a plus (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity
to pay principal and interest.
DESCRIPTION OF S&P'S RATINGS FOR DEMAND OBLIGATIONS AND TAX-EXEMPT COMMERCIAL
PAPER:
An S&P commercial paper rating is a current assessment of the
likelihood of timely repayment of debt having an original maturity of no more
than 365 days. The two rating categories for securities in which the Trust may
invest are as follows:
A-1: This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics will be denoted with a plus (+)
designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-2
<PAGE> 118
<TABLE>
<S> <C>
[ ] TRUST
A FAMILY OF
Address for MUTUAL FUNDS
Trust Clients of [ADVISOR'S NAME]
- -----------------------------------------
[ADDRESS]
KANSAS INTERMEDIATE TAX EXEMPT FUND SEEKS TO
Investment Adviser PROVIDE CURRENT INCOME FROM FEDERAL AND KANSAS
- ------------------ TAXATION.
[ADVISOR'S NAME]
[ADDRESS] U.S. INTERMEDIATE TAX EXEMPT FUND SEEKS TO PROVIDE
INCOME EXEMPT FROM FEDERAL TAXATION.
Administrator and Sponsor
- -------------------------
[ADMINISTRATOR]
[ADDRESS]
Distributor
- -----------
[DISTRIBUTOR].
[ADDRESS]
Custodian
- ---------
[ADVISOR'S NAME]
[ADDRESS]
Counsel
- -------
Baker & McKenzie
805 Third Avenue
New York, New York 10022
Independent Accountants
- -----------------------
PROSPECTUS
[INDEPENDENT ACCOUNTANTS]
[ADDRESS] JANUARY__, 1996
Investment Adviser
[ADVISOR'S NAME]
</TABLE>
<PAGE> 119
FS FUNDS TRUST
[ADDRESS]
GENERAL AND ACCOUNT INFORMATION:
(800) ________
PREMIUM CLASS PROSPECTUS
[ADVISOR'S NAME]--INVESTMENT ADVISER
("_________" OR THE "ADVISER")
[ADMINISTRATOR]--ADMINISTRATOR AND SPONSOR
("________")
[ ] DISTRIBUTOR INC.--DISTRIBUTOR
("____" OR THE "DISTRIBUTOR")
This Prospectus describes two tax exempt funds (the "Funds") managed by
[ADVISOR'S NAME]. The Funds and their investment objectives are:
- KANSAS INTERMEDIATE TAX EXEMPT FUND SEEKS TO PROVIDE CURRENT
INCOME EXEMPT FROM FEDERAL AND KANSAS TAXATION.
- U.S. INTERMEDIATE TAX EXEMPT FUND SEEKS TO PROVIDE INCOME
EXEMPT FROM FEDERAL TAXATION.
This Prospectus describes only the "Premium Class" of each Fund. Each
Fund also offers a Service Class of shares which only certain institutional
investors are qualified to purchase.. See "Other Information" --
"Capitalization". The Funds are separate investment funds of FS FUNDS Trust
(the "Trust"), a Delaware business trust and registered management investment
company.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION A PROSPECTIVE
INVESTOR SHOULD KNOW BEFORE INVESTING IN ANY OF THE FUNDS AND SHOULD BE READ
AND RETAINED FOR INFORMATION ABOUT EACH FUND.
A Statement of Additional Information (the "SAI"), dated _________
,1996 containing additional and more detailed information about the Funds has
been filed with the Securities and Exchange Commission ("SEC") and is hereby
incorporated by reference into this Prospectus. It is available without charge
and can be obtained by writing or calling the Funds at the address and
information numbers printed above.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, [ADVISOR'S NAME], AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY, AND MAY INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Prospectus is ________, 1996
<PAGE> 120
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
FUND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
FEE TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
THE INVESTMENT POLICIES AND PRACTICES OF THE FUNDS . . . . . . . . . 5
MANAGEMENT OF THE FUNDS . . . . . . . . . . . . . . . . . . . . . . 10
FUND SHARE VALUATION . . . . . . . . . . . . . . . . . . . . . . . 12
PRICING AND PURCHASE OF FUND SHARES . . . . . . . . . . . . . . . . 12
EXCHANGE OF FUND SHARES . . . . . . . . . . . . . . . . . . . . . . 14
REDEMPTION OF FUND SHARES . . . . . . . . . . . . . . . . . . . . . 15
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX . . . . . . . . . . 16
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . 18
RISKS OF INVESTING IN THE FUNDS . . . . . . . . . . . . . . . . . . 18
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 19
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
- i -
<PAGE> 121
HIGHLIGHTS
This Prospectus describes two tax exempt funds (the "Funds") managed by
[ADVISOR'S NAME]. Each Fund has distinct investment objectives and policies.
THE FUNDS' INVESTMENT OBJECTIVES
Kansas Intermediate Tax Exempt Fund. The investment objective of this
Fund is to provide current income exempt from Federal and Kansas taxation. The
Fund invests primarily in investment grade securities with maturities generally
ranging 1 to 15 years. It is the intent of [ADVISOR'S NAME] to maintain an
effective average weighted maturity between 5 and 7 years. As a fundamental
policy, at least 80% of the Fund's net assets will be invested in tax-exempt
securities.
U.S. Intermediate Tax Exempt Fund. The investment objective of this
Fund is to provide income exempt from Federal income tax. The Fund will invest
primarily in investment grade tax-exempt bonds and maintain an effective
average weighted maturity between 5-8 years. As a fundamental policy, at least
80% of the Fund's net assets will be invested in tax-exempt securities.
RISKS OF INVESTING IN THE FUNDS
The price per share of the Funds will fluctuate with changes in value
of the investments held by each Fund. As a non- diversified Fund, the Kansas
Tax-Exempt Fund may concentrate its investments in securities of Kansas
governmental issuers and may therefore be affected by political, economic or
regulatory factors that may impair the ability of Kansas issuers to pay
interest on or to repay the principal of their debt obligations. See "Risks of
Investing in the Funds" and "Kansas Risk Factors" in the SAI. Additionally,
there can be no assurance that a Fund will achieve its investment objective or
be successful in preventing or minimizing the risk of loss that is inherent in
investing in particular types of securities.
MANAGEMENT OF THE FUNDS
[ADVISOR'S NAME] acts as investment adviser to the Funds. For its
services, [ADVISOR'S NAME] receives a fee from the Funds based upon each Fund's
average daily net assets. See "Fee Table" and "Management of the Funds" in
this Prospectus.
[ADMINISTRATOR] acts as administrator and sponsor to the Funds. For
its services, [ADMINISTRATOR] receives a fee from the Funds based on each
Fund's average daily net assets. See "Management of the Funds" in this
Prospectus. [DISTRIBUTOR'S NAME ] distributes the Funds' shares and may be
reimbursed for certain of its distribution-related expenses.
GUIDE TO INVESTING IN THE [ ] FAMILY OF FUNDS
Purchase orders for the Funds received by your broker or Service
Organization in proper form prior to 4:15 p.m., Eastern time, and transmitted
to [DISTRIBUTOR] prior to 5:00 p.m. Eastern time will become effective that
day.
<TABLE>
<S> <C> <C>
- Minimum Initial Investment . . . . . . . . . . . . . . . $1,000
- Minimum Subsequent Investment . . . . . . . . . . . . . $ 50
</TABLE>
<PAGE> 122
The Funds are purchased at net asset value.
Shareholders may exchange shares between Funds in the Trust by
telephone or mail. Shareholders may not exchange shares by facsimile.
<TABLE>
<S> <C> <C>
- Minimum initial exchange . . . . . . . . . . . . . . . . $ 500
(No minimum for subsequent exchanges)
</TABLE>
Shareholders may redeem shares by telephone, mail or wire.
Shareholders may not redeem shares by facsimile.
- The Funds reserve the right to redeem upon not less than 30
days notice all shares in a Fund's account which have an
aggregate value of $500 or less.
All dividends and distributions will be automatically paid in
additional shares at net asset value of the applicable Fund unless cash payment
is requested.
- Distributions for the Funds are paid monthly.
- 2 -
<PAGE> 123
FUND EXPENSES
The following expense table lists the costs and expenses that an
investor in the Premium Class of shares will incur either directly or
indirectly as a shareholder of a Fund. The information is based upon estimated
expenses. Shareholders in the Premium Class of shares may be subject to an
additional shareholder servicing charge of up to 0.50% of average daily net
assets to which Service Class shareholders are not subject.(1)
FEE TABLE
<TABLE>
<CAPTION>
KANSAS INTERMEDIATE TAX EXEMPT U.S. INTERMEDIATE TAX EXEMPT
FUND FUND
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price). . . None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price) . . . . . . . . . . . . . . . . None None
Deferred Sales Load (as a percentage of None None
redemption
proceeds) . . . . . . . . . . . . . .
Redemption Fees . . . . . . . . . . . None None
Exchange Fees . . . . . . . . . . . . None None
ANNUAL FUND OPERATING EXPENSES (as a
percentage of average net assets)
Management Fees . . . . . . . . . . . 0.30% 0.30%
12b-1 Fees . . . . . . . . . . . . . . None None
Other Expenses(2) . . . . . . . . . . . 0.95% 0.95%
----- -----
Total Portfolio Operating Expenses(3) . 1.25% 1.25%
===== =====
</TABLE>
- ------------------------
(1) Service Class shares are offered only to certain institutional investors or
other investors who at the time of purchase have a balance of $1,000 or
more invested in any of the _________ Funds, are purchasers through a trust
investment manager or account manager or administered by the Adviser, are
employees or ex-employees of____________ or any of its affiliates,
employees of ___________, [ADMINISTRATOR], or any other service provider,
or employees of any trust customer of Fourth Financial Corporation or any
of its affiliates.
(2) Other Expenses of the Premium Class are higher than Other Expenses
for the Service Class because of a shareholder servicing charge of up to
0.50% of average daily net assets. The shareholder servicing charge is
imposed for recordkeeping, communication with and education of
shareholders, fiduciary services (excluding investment management) and
asset allocation services. Other expenses for Service Class shares are
0.45%. Compensation to salespersons may vary depending upon whether
Service Class or Premium Class shares are sold.
(3) Shareholders may be charged a wire redemption fee by their bank for
receiving a wire payment on their behalf.
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The purpose of this table is to assist a shareholder in the Premium
Class of shares in understanding the various costs and expenses that an
investor in the Funds will bear.
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
KANSAS INTERMEDIATE TAX EXEMPT U.S. INTERMEDIATE TAX EXEMPT
------------------------------ ----------------------------
<S> <C> <C>
1 year . . . . . . . . . $ 13 $ 13
3 years . . . . . . . . $ 40 $ 40
</TABLE>
- ----------------------------------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return
is hypothetical and should not be considered a representation of past or
future annual return; actual return may be greater or less than the assumed
amount.
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THE INVESTMENT POLICIES AND PRACTICES OF THE FUNDS
Each Fund is a separate investment fund or portfolio, commonly known as
a mutual fund. The Funds are portfolios of a Delaware business trust,
[ ] Trust, organized under the laws of Delaware as an open-end, management
investment company. The Trust's Board of Trustees oversees the overall
management of the Funds and elects the officers of each Fund.
- KANSAS INTERMEDIATE TAX EXEMPT FUND SEEKS TO PROVIDE CURRENT
INCOME EXEMPT FROM FEDERAL AND KANSAS TAXATION.
- U.S. INTERMEDIATE TAX EXEMPT FUND SEEKS TO PROVIDE INCOME
EXEMPT FROM FEDERAL TAXATION AND THE ALTERNATIVE MINIMUM TAX.
Each Fund follows its own investment policies and practices, including
certain investment restrictions. The SAI contains specific investment
restrictions which govern the Funds' investments. Those restrictions and the
Funds' investment objectives are fundamental policies, which means that they
may not be changed without a majority vote of shareholders of the affected
Fund. Except for the objectives and those restrictions specifically identified
as fundamental, all other investment policies and practices described in this
Prospectus and in the SAI are not fundamental, so that the Board of Trustees of
the Trust may change them without shareholder approval.
The Adviser selects investments and makes investment decisions based on
the investment objective and policies of each Fund. The following is a
description of securities and investment practices.
U.S. Treasury Obligations (Both Funds). The Funds may invest in U.S.
Treasury obligations, which are backed by the full faith and credit of the U.S.
Government as to the timely payment of principal and interest. U.S. Treasury
obligations consist of bills, notes, and bonds and separately traded interest
and principal component parts of such obligations known as STRIPS which
generally differ in their interest rates and maturities. U.S. Treasury bills,
which have maturities of up to one year, notes, which have maturities ranging
from one year to 10 years, and bonds, which have maturities of 10 to 30 years,
are direct obligations of the United States Government.
Municipal Commercial Paper (Both Funds). Municipal commercial paper is
a debt obligation with a stated maturity of one year or less which is issued to
finance seasonal working capital needs or as short-term financing in
anticipation of longer-term debt. Investments in municipal commercial paper
are limited to commercial paper which is rated at the date of purchase: (i)
"P-1" by Moody's and "A-1" or "A-1+" by S&P "P-2" (Prime-2) or better by
Moody's and "A-2" or better by S&P or (ii) in a comparable rating category by
any two of the nationally recognized statistical rating organizations that have
rated commercial paper or (iii) in a comparable rating category by only one
such organization if it is the only organization that has rated the commercial
paper or (iv) if not rated, is, in the opinion of the Adviser, of comparable
investment quality and within the credit quality policies and guidelines
established by the Board of Trustees.
Issuers of municipal commercial paper rated "P-1" have a "superior
capacity for repayment of short-term promissory obligations". The "A-1" rating
for commercial paper under the S&P classification indicates that the "degree of
safety regarding timely payment is either overwhelming or very strong."
Commercial paper with "overwhelming safety characteristics" will be rated "A-
1+". Commercial paper receiving a "P-2" rating has a strong capacity for
repayment of short-term promissory obligations. Commercial paper rated "A-2"
has the capacity for timely payment although the relative degree of safety is
not as overwhelming as for issues designated "A-1". See the Appendix for a
more complete description of securities ratings.
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<PAGE> 126
Municipal Notes (Both Funds). Municipal notes are generally sold as
interim financing in anticipation of the collection of taxes, a bond sale or
receipt of other revenue. Municipal notes generally have maturities at the
time of issuance of one year or less. Investments in municipal notes are
limited to notes which are rated at the date of purchase: (i) MIG 1 or MIG 2
by Moody's and in a comparable rating category by at least one other nationally
recognized statistical rating organization that has rated the notes, or (ii) in
a comparable rating category by only one such organization, including Moody's,
if it is the only organization that has rated the notes, or (iii) if not rated,
are, in the opinion of the Adviser, of comparable investment quality and within
the credit quality policies and guidelines established by the Board of
Trustees.
Notes rated "MIG 1" are judged to be of the "best quality" and carry
the smallest amount of investment risk. Notes rated "MIG 2" are judged to be
of "high quality, with margins of protection ample although not as large as in
the preceding group."
Municipal Bonds (Both Funds). Municipal bonds generally have a
maturity at the time of issuance of more than one year. Municipal bonds may be
issued to raise money for various public purposes -- such as constructing
public facilities and making loans to public institutions. There are generally
two types of municipal bonds: general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality and are considered the safest type of municipal bond. Revenue
bonds are backed by the revenues of a project or facility -- tolls from a toll
road, for example. Certain types of municipal bonds are issued to obtain
funding for privately operated facilities. Industrial development revenue
bonds (which are private activity bonds) are a specific type of revenue bond
backed by the credit and security of a private user, and therefore investments
in these bonds have more potential risk.
Municipal Leases (Both Funds). Each Fund may invest in instruments, or
participations in instruments, issued in connection with lease obligations or
installment purchase contract obligations of municipalities. Although
municipal lease obligations do not constitute general obligations of the
issuing municipality, a lease obligation is ordinarily backed by the
municipality's covenant to budget for, appropriate funds for, and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses, which provide that the municipality has no
obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose in the relevant years. Municipal
lease obligations will be treated as liquid only if they satisfy criteria set
forth in guidelines established by the Board of Trustees, and there can be no
assurance that a market will exist or continue to exist for any municipal lease
obligation.
Zero Coupon Securities (Both Funds). The Funds may invest in zero
coupon securities. A zero coupon security pays no interest to its holder
during its life and is sold at a discount to its face value at maturity. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are more
sensitive to changes in interest rates than non-zero coupon securities having
similar maturities and credit qualifies.
Variable Rate Demand Obligations (Both Funds). Variable rate demand
obligations have a maturity in the five to twenty year range but carry with
them the right of the holder to put the securities to a remarketing agent or
other entity on short notice, typically seven days or less. Generally, the
remarketing agent will adjust the interest rate every seven days (or at other
intervals corresponding to the notice period for the put), in order to maintain
the interest rate at the prevailing rate for securities with a seven-day
maturity. The remarketing agent is typically a financial intermediary that has
agreed to perform these services. Variable rate master demand obligations
permit a Fund to invest fluctuating amounts at varying rates of interest
pursuant to direct arrangements between the Funds, as lender, and the borrower.
Because the obligations are direct lending arrangements between the Funds and
the borrower, they will not generally be traded, and there is no secondary
market for them, although they are redeemable (and thus immediately repayable
by the borrower) at principal amount, plus accrued interest, at any time. The
borrower also may prepay up to the full amount of the obligation without
penalty. While master demand obligations, as such, are not typically rated by
credit rating agencies, if not so rated, a Fund may, under its minimum rating
standards, invest in them only if, in the opinion
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of the Adviser, they are of an investment quality comparable to other debt
obligations in which the Funds may invest and are within the credit quality
policies, guidelines and procedures established by the Board of Trustees. See
the SAI for further details on variable rate demand obligations and variable
rate master demand obligations.
Other Mutual Funds (Both Funds). Each of the Funds may invest in
shares of other open-end, management investment companies, subject to the
limitations of the Act and subject to such investments being consistent with
the overall objective and policies of the Fund making such investment, provided
that any such purchases will be limited to short-term investments in shares of
unaffiliated investment companies. The purchase of securities of other mutual
funds results in duplication of expenses such that investors indirectly bear a
proportionate share of the expenses of such mutual funds including operating
costs, and investment advisory and administrative fees.
Options on Securities (Both Funds). The Funds may purchase put and
call options and write covered put and call options on securities in which each
Fund may invest directly and that are traded on registered domestic securities
exchanges or that result from separate, privately negotiated transactions
(i.e., over-the-counter (OTC) options). The writer of a call option, who
receives a premium, has the obligation, upon exercise, to deliver the
underlying security against payment of the exercise price during the option
period. The writer of a put, who receives a premium, has the obligation to buy
the underlying security, upon exercise, at the exercise price during the option
period.
The Funds may write put and call options on securities only if they are
covered, and such options must remain covered as long as the Fund is obligated
as a writer. A call option is covered if a Fund owns the underlying security
covered by the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration if the underlying security is held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A put option is covered if a Fund maintains cash, U.S. Treasury
bills or other high grade short-term obligations with a value equal to the
exercise price in a segregated account with its custodian.
The principal reason for writing put and call options is to attempt to
realize, through the receipt of premiums, a greater current return than would
be realized on the underlying securities alone. In return for the premium
received for a call option, the Funds forego the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
the option remains open, but retain the risk of loss should the price of the
security decline. In return for the premium received for a put option, the
Funds assume the risk that the price of the underlying security will decline
below the exercise price, in which case the put would be exercised and the Fund
would suffer a loss. A Fund may purchase put options in an effort to protect
the value of a security it owns against a possible decline in market value.
Writing of options involves the risk that there will be no market in
which to effect a closing transaction. An exchange-traded option may be closed
out only on an exchange that provides a secondary market for an option of the
same series. OTC options are not generally terminable at the option of the
writer and may be closed out only by negotiation with the holder. There is
also no assurance that a liquid secondary market on an exchange will exist. In
addition, because OTC options are issued in privately negotiated transactions
exempt from registration under the Securities Act of 1933, there is no
assurance that the Funds will succeed in negotiating a closing out of a
particular OTC option at any particular time. If a Fund, as covered call
option writer, is unable to effect a closing purchase transaction in the
secondary market or otherwise, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise.
The staff of the SEC has taken the position that purchased options not
traded on registered domestic securities exchanges and the assets used as cover
for written options not traded on such exchanges are generally illiquid
securities. However, the staff has also opined that, to the extent a mutual
fund sells an OTC option to a primary dealer that it considers creditworthy and
contracts with such primary dealer to establish a formula price at which the
fund would have the absolute right to repurchase the option, the fund would
only be required to treat as illiquid the portion of the assets used to cover
such option equal to the formula price minus the amount by which the option is
in-the-money. Pending resolution of the issue, the Funds will treat such
options and, except to the extent permitted through the procedure
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<PAGE> 128
described in the preceding sentence, assets as subject to each such Fund's
limitation on investments in securities that are not readily marketable.
Interest Rate Futures Contracts (Both Funds). Although neither Fund
presently intends to do so, each Fund may, to a limited extent, enter into
interest rate futures contracts--i.e., contracts for the future delivery of
securities or index-based futures contracts--that are, in the opinion of the
Adviser, sufficiently correlated with the Fund's portfolio. These investments
will be made primarily in an attempt to protect a Fund against the effects of
adverse changes in interest rates (i.e., "hedging"). When interest rates are
increasing and portfolio values are falling, the sale of futures contracts can
offset a decline in the value of a Fund's current portfolio securities. The
Funds will engage in such transactions primarily for bona fide hedging
purposes.
Options on Interest Rate Futures Contracts (Both Funds). The Funds may
purchase put and call options on interest rate futures contracts, which give a
Fund the right to sell or purchase the underlying futures contract for a
specified price upon exercise of the option at any time during the option
period. Each Fund may also write (sell) put and call options on such futures
contracts. For options on interest rate futures that a Fund writes, such Fund
will receive a premium in return for granting to the buyer the right to sell to
the Fund or to buy from the Fund the underlying futures contract for a
specified price at any time during the option period. As with futures
contracts, each Fund will purchase or sell options on interest rate futures
contracts primarily for bona fide hedging purposes.
Risks of Options and Futures Contracts. A risk involved in the
purchase and sale of futures and options is that a Fund may not be able to
effect closing transactions at a time when it wishes to do so. Positions in
futures contracts and options on futures contracts may be closed out only on an
exchange or board of trade that provides an active market for them, and there
can be no assurance that a liquid market will exist for the contract or the
option at any particular time. To mitigate this risk, each Fund will ordinarily
purchase and write options only if a secondary market for the options exists on
a national securities exchange or in the over-the-counter market. Another risk
is that during the option period, if a Fund has written a covered call option,
it will have given up the opportunity to profit from a price increase in the
underlying securities above the exercise price in return for the premium on the
option (although, of course, the premium can be used to offset any losses or
add to a Fund's income) but, as long as its obligation as a writer continues,
such Fund will have retained the risk of loss should the price of the
underlying security decline. In addition, a Fund has no control over the time
when it may be required to fulfill its obligation as a writer of the option;
once a Fund has received an exercise notice, it cannot effect a closing
transaction in order to terminate its obligation under the option and must
deliver the underlying securities at the exercise price.
The Funds are permitted to engage in bona fide hedging transactions (as
defined in the rules and regulations of the Commodity Futures Trading
Commission) without any quantitative limitations. Futures and related option
transactions which are not for bona fide hedging purposes may be used provided
the total amount of the initial margin and any option premiums attributable to
such positions does not exceed 5% of each Fund's liquidating value after taking
into account unrealized profits and unrealized losses, and excluding any
in-the-money option premiums paid. The Funds will not market, and are not
marketing, themselves as commodity pools or otherwise as vehicles for trading
in futures and related options. The Funds will segregate liquid assets such as
cash, U.S. Government securities or other liquid high grade debt obligations to
cover the futures and options.
"When Issued" and "Forward Commitment" Transactions (Both Funds). The
Funds may purchase securities on a when issued and delayed delivery basis and
may purchase or sell securities on a forward commitment basis. When issued or
delayed delivery transactions arise when securities are purchased by a Fund
with payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time of
entering into the transaction. A forward commitment transaction is an
agreement by a Fund to purchase or sell securities at a specified future date.
When a Fund engages in these transactions, the Fund relies on the buyer or
seller, as the case may be, to consummate the sale. Failure to do so may
result in the Fund missing the opportunity to obtain a price or yield
considered to be advantageous. When issued and delayed delivery transactions
and forward commitment transactions may be expected to occur a month or more
before delivery is due. However, no payment or delivery is
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made by a Fund until it receives payment or delivery from the other party to
the transaction. A separate account of liquid assets equal to the value of
purchase commitments will be maintained until payment is made. A separate
account containing only liquid assets such as cash, U.S. Government Securities,
or other liquid high grade debt obligations equal to the value of purchase
commitments will be maintained with the Funds' custodian until payment is made.
Loans of Portfolio Securities (Both Funds). To increase current
income, each Fund may lend its portfolio securities in an amount up to 33 1/3%
of each such Fund's total assets to brokers, dealers and financial
institutions, provided certain conditions are met, including the condition that
each loan is secured continuously by collateral maintained on a daily
mark-to-market basis in an amount at least equal to the current market value of
the securities loaned.
Repurchase Agreements (Both Funds). The Funds may enter into
repurchase agreements with U.S. banks and broker-dealers under which it
acquires securities and obtains a simultaneous commitment from the seller to
repurchase the securities at a specified time and at an agreed upon yield. The
agreements will be fully collateralized and the value of the collateral,
including accrued interest, marked-to-market daily. The agreements may be
considered to be loans made by the purchaser, collateralized by the underlying
securities. If the seller should default on its obligation to repurchase the
securities, a Fund may experience a loss of income from the loaned securities
and a decrease in the value of any collateral maintained, problems in
exercising its rights to the underlying securities and costs and time delays in
connection with the disposition of securities. No Fund may invest more than
15% of its net assets in repurchase agreements maturing in more than seven
business days and in securities for which market quotations are not readily
available. For more information about repurchase agreements, see "Investment
Policies" in the SAI.
Taxable Securities (Both Funds). Each Fund may at times elect to
invest temporarily up to 20% of the current value of its total assets in
taxable securities of the type described below pending the investment in tax
exempt securities of proceeds of sales of Fund shares or proceeds from the sale
of portfolio securities or in anticipation of redemptions. In addition, each
Fund may invest up to 100% of its total assets in such taxable securities to
maintain a temporary "defensive" posture during the existence of abnormal
market or economic conditions, when, in the opinion of [ADVISOR'S NAME], it is
advisable to do so. Each Fund may, under certain circumstances, invest up to
20% of its net assets in securities subject to the alternative minimum tax.
During times when the Funds are maintaining a temporary defensive posture, they
may be unable to achieve fully their investment objective.
The types of taxable securities in which the Funds may invest include
certain mortgage related securities and the following money market instruments
which have remaining maturities not exceeding one year: (i) obligations of the
United States Government, its agencies or instrumentalities; (ii) negotiable
certificates of deposit and bankers' acceptances of United States banks which
have more than $1 billion in total assets at the time of investment and are
members of the Federal Reserve System or are examined by the Comptroller of the
Currency or whose deposits are insured by the Federal Deposit Insurance
Corporation; (iii) domestic commercial paper rated "P-1" by Moody's or "A-1" or
"A-1+" by S&P or comparably rated by another nationally recognized statistical
rating organization; and (iv) repurchase agreements. The Funds also have the
right to hold cash equivalents of up to 100% of their total assets when
[ADVISOR'S NAME] deems it necessary for temporary defensive purposes.
Portfolio Turnover. The Funds generally will not engage in the trading
of securities for the purpose of realizing short-term profits, but each Fund
will adjust its portfolio as it deems advisable in view of prevailing or
anticipated market conditions or fluctuations in interest rates to accomplish
its respective investment objective. For example, each Fund may sell portfolio
securities in anticipation of an adverse market movement. Other than for tax
purposes, frequency of portfolio turnover will not be a limiting factor if a
Fund considers it advantageous to purchase or sell securities. The Funds do
not anticipate that the annual portfolio turnover rate will be in excess of
150% with respect to the Kansas Tax Exempt Fund and 300% with respect to the
U.S. Intermediate Tax Exempt Fund. A high rate of portfolio turnover involves
correspondingly greater transaction expenses than a lower rate, which expenses
must be borne by each Fund and its shareholders. High portfolio turnover rates
may also make it more difficult for the Funds to satisfy the requirement for
qualification as a regulated investment company under the Internal Revenue Code
of 1986,
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<PAGE> 130
as amended (the "Code"), that less than 30% of each Funds' gross income in any
tax year be derived from gains on the sale of securities held for less than
three months.
MANAGEMENT OF THE FUNDS
The business and affairs of each Fund are managed under the direction
of the Board of Trustees. Information about the Trustees, as well as the
Trust's executive officers, may be found in the SAI under the heading
"Management--Trustees and Officers."
THE ADVISER: [ADVISOR'S NAME]
[ADVISOR'S NAME] ("________") provides investment advisory services to
the Funds pursuant to an Advisory Agreement with the Trust (the "Advisory
Agreement"). Subject to such policies as the Trust's Board of Trustees may
determine, [ADVISOR'S NAME] makes investment decisions for the Funds. The
Advisory Agreement provides that as compensation for services thereunder,
[ADVISOR'S NAME] is entitled to receive from each Fund it manages a monthly fee
at an annual rate based upon average daily net assets of each Fund of 0.30%.
While [ADVISOR'S NAME] has no significant experience in managing
registered mutual funds, Ms. , an ___________ of [ADVISOR'S NAME], has
significant experience in managing portfolios similar to the Funds.
Ms.________ has been with [ADVISOR'S NAME] since [ ] and was previously
with [ ] from______ to_______.
[ADVISOR'S NAME], whose predecessor was formed in______, is the
largest___________ in_______and provides_______________________ _____services
to______________. It is a wholly-owned subsidiary of__________________.
[ADVISOR'S NAME] acts as the investment adviser to a wide variety of trusts,
individuals, institutions and corporations. Its investment management
responsibilities, as of ___ _______,199_ included accounts with aggregate
assets of approximately $_____billion. The principal business address of
[ADVISOR'S NAME][ADDRESS]
Based upon the advice of counsel, [ADVISOR'S NAME] believes that the
performance of investment advisory services for the Funds will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent [ADVISOR'S NAME] from continuing to perform such
services for the Funds. If [ADVISOR'S NAME] were prohibited from acting as
investment adviser to the Funds, it is expected that the Board of Trustees
would recommend to shareholders approval of a new investment advisory agreement
with another qualified investment adviser selected by the Board or that the
Board would recommend other appropriate action.
THE SPONSOR AND DISTRIBUTOR
[ADMINISTRATOR],[ADDRESS], acts as Sponsor of the Funds.
[ADMINISTRATOR] is primarily an institutional brokerage firm with membership on
the New York, American, Boston, Midwest, Pacific and Philadelphia Stock
Exchanges.[ADMINISTRATOR] also serves as administrator and distributor of other
mutual funds. [DISTRIBUTOR'S NAME] is a subsidiary of [ADMINISTRATOR] and was
organized specifically to distribute the [ ] Funds.
In addition to sales charges paid to dealers, [DISTRIBUTOR'S NAME] may
from time to time pay a bonus or other incentive to dealers which employ
registered representatives who sell a minimum dollar amount of shares of the
Funds. Such bonus or other incentive may take the form of payment for travel
expenses, including lodging, incurred
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in connection with trips taken by qualifying registered representatives and
members of their families to places within or without the United States, or
other bonuses, such as gift certificates or the cash equivalent of such
bonuses.
ADMINISTRATIVE SERVICES
The Funds have also entered into an Administrative Services Contract
with[ADMINISTRATOR] pursuant to which [ADMINISTRATOR] provides certain
management and administrative services necessary for the Funds' operations
including: (i) general supervision of the operation of the Funds including
coordination of the services performed by the Funds' investment adviser,
transfer agent, custodian, independent accountants and legal counsel,
regulatory compliance, including the compilation of information for documents
such as reports to, and filings with, the SEC and state securities commissions,
and preparation of proxy statements and shareholder reports for the Funds; (ii)
general supervision relative to the compilation of data required for the
preparation of periodic reports distributed to the Funds' Officers and Board of
Trustees; and (iii) furnishing office space and certain facilities required for
conducting the business of the Funds. For these services, [ADMINISTRATOR]
receives from each Fund a fee, payable monthly, at the annual rate of 0.15% of
each Fund's average daily net assets. Pursuant to a Services Agreement between
the Trust and the Administrator, [ADMINISTRATOR] assists the Trust with certain
transfer and dividend disbursing agent functions and receives a fee of $15 per
account per year plus out-of-pocket expenses. Pursuant to a Fund Accounting
Agreement between the Trust and the Administrator, the Administrator assists
the Trust in calculating net asset values and provides certain other accounting
services for each Fund described therein, for an annual fee of $30,000 per Fund
plus out-of-pocket expenses.
SERVICE ORGANIZATIONS
Various banks, trust companies, broker-dealers (other than the Sponsor)
or other financial organizations (collectively, "Service Organizations") also
may provide administrative services for the Funds, such as maintaining
shareholder accounts and records. The Funds may pay fees to Service
Organizations (which vary depending upon the services provided) in amounts up
to an annual rate of 0.05% of the daily net asset value of the Funds' shares
owned by shareholders with whom the Service Organization has a servicing
relationship.
Some Service Organizations may impose additional or different
conditions on their clients, such as requiring their clients to invest more
than a Fund's minimum initial or subsequent investments or charging a direct
fee for servicing. If imposed, these fees would be in addition to any amounts
which might be paid to the Service Organization by the Funds. Each Service
Organization has agreed to transmit to its clients a schedule of any such fees.
Shareholders using Service Organizations are urged to consult with them
regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws provide that, among
other things, banks may not engage in the business of underwriting, selling or
distributing securities. There is currently no precedent prohibiting banks
from performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or
interpretations of such laws, as well as changes in either Federal or state
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, could prevent a bank Service Organization from
continuing to perform all or a part of its servicing activities. If a bank
were prohibited from so acting, its shareholder clients would be permitted to
remain shareholders of the Funds and alternative means for continuing the
servicing of such shareholders would be sought. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences.
OTHER EXPENSES
Each Fund bears all costs of its operations other than expenses
specifically assumed by [ADMINISTRATOR], [DISTRIBUTOR'S NAME] or [ADVISOR'S
NAME]. The costs borne by the Funds include legal and accounting
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<PAGE> 132
expenses; Trustees' fees and expenses; insurance premiums; custodian and
transfer agent fees and expenses; expenses incurred in acquiring or disposing
of the Funds' portfolio securities; expenses of registering and qualifying the
Funds' shares for sale with the SEC and with various state securities
commissions; expenses of obtaining quotations on the Funds' portfolio
securities and pricing of the Funds' shares; expenses of maintaining the Funds'
legal existence and of shareholders' meetings; and expenses of preparation and
distribution to existing shareholders of reports, proxies and prospectuses.
Each Fund bears its own expenses associated with its establishment as a series
of the Trust; these expenses are amortized over a five-year period from the
commencement of a Fund's operations. See "Management" in the SAI. Trust
expenses directly attributable to a Fund are charged to that Fund; other
expenses are allocated proportionately among all of the Funds in the Trust in
relation to the net assets of each Fund.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Contract, the Adviser places orders
for the purchase and sale of portfolio investments for the Funds' accounts with
brokers or dealers selected by it in its discretion.
In effecting purchases and sales of portfolio securities for the
account of the Funds, the Adviser will seek the best available price and most
favorable execution of the Funds' orders. Trading does, however, involve
transaction costs. Purchases of underwritten issues may be made, which will
include an underwriting fee paid to the underwriter. The Adviser may cause a
Fund to pay commissions higher than another broker-dealer would have charged if
the Adviser believes the commission paid is reasonable in relation to the value
of the brokerage and research services received by the Adviser. Broker-dealers
are selected on the basis of a variety of factors such as reputation, capital
strength, size and difficulty of order, sale of Fund shares and research
provided to the Adviser.
FUND SHARE VALUATION
The net asset value per share of the Funds is calculated at 4:15 p.m.
(Eastern time), Monday through Friday, on each day the New York Stock Exchange
is open for trading, which excludes the following business holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The net asset value per share of the Funds
is computed by dividing the value of each Fund's net assets (i.e., the value of
the assets less the liabilities) by the total number of such Fund's outstanding
shares. All expenses, including fees paid to the Adviser, [ADMINISTRATOR] and
[DISTRIBUTOR'S NAME], are accrued daily and taken into account for the purpose
of determining the net asset value.
Securities listed on an exchange are valued on the basis of the last
sale prior to the time the valuation is made. If there has been no sale since
the immediately previous valuation, then the current bid price is used.
Quotations are taken for the exchange where the security is primarily traded.
Over-the-counter securities are valued on the basis of the bid price at the
close of business on each business day. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by or at the direction of the Board of Trustees. Notwithstanding the above,
bonds and other fixed-income securities are valued by using market quotations
and may be valued on the basis of prices provided by a pricing service approved
by the Board of Trustees.
PRICING AND PURCHASE OF FUND SHARES
Orders for the purchase of shares will be executed at the net asset
value per share next determined after an order has been received.
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All funds received by the Funds are invested in full and fractional
shares of the appropriate Fund. Certificates for shares are not issued.
[ADMINISTRATOR] maintains records of each shareholder's holdings of Fund
shares, and each shareholder receives a statement of transactions, holdings and
dividends. The Funds reserve the right to reject any purchase.
An investment may be made using any of the following methods:
Through an Authorized Broker, Investment Adviser or Service
Organization. Shares are available to new and existing shareholders through
authorized brokers, investment advisers and Service Organizations. To make an
investment using this method, simply complete a Purchase Application and
contact your broker, investment adviser or Service Organization with
instructions as to the amount you wish to invest. Your broker will then
contact [DISTRIBUTOR'S NAME] to place the order on your behalf on that day.
Orders received by your broker or Service Organization for a Fund in
proper order prior to the determination of net asset value and transmitted to
[DISTRIBUTOR'S NAME] prior to the close of its business day (which is currently
5:00 p.m., Eastern time), will become effective that day. Brokers who receive
orders are obligated to transmit them promptly. You should receive written
confirmation of your order within a few days of receipt of instructions from
your broker.
By Wire. Investments may be made directly through the use of wire
transfers of Federal funds. Contact your bank and request it to wire Federal
funds to the applicable Fund. In most cases, your bank will either be a member
of the Federal Reserve Banking System or have a relationship with a bank that
is. Your bank will normally charge you a fee for handling the transaction. To
purchase shares by a Federal funds wire, please first contact [ADMINISTRATOR]
Mutual Funds Client Services at (800) 557-3768. They will establish a record
of information for the wire to insure the correct processing of funds. You can
reach the Wire Desk at (800) 557-3768.
Then, have your bank wire funds using the following instructions:
[INSTRUCTIONS]
As long as you have read the Prospectus, you may establish a new
regular account through the Wire Desk; IRAs may not be opened in this way.
When new accounts are established by wire, the distribution options will be set
to reinvest and the social security or tax identification number ("TIN") will
not be certified until a signed application is received. Completed
applications should be forwarded immediately to [DISTRIBUTOR'S NAME]. With the
Purchase Application, the shareholder can specify other distribution options
and add any special features offered by a Fund. Should any dividend
distributions or redemptions be paid before the TIN is certified, they will be
subject to 31% Federal tax withholding.
Institutional Accounts. Bank trust departments and other institutional
accounts, not subject to sales charges, may place orders directly with
[DISTRIBUTOR'S NAME] by telephone at (800) 557-3768.
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EXCHANGE OF FUND SHARES
The Funds offer two convenient ways to exchange shares in one Fund for
shares in another Fund in the Trust. Before engaging in an exchange
transaction, a shareholder should read carefully the Prospectus describing the
Fund into which the exchange will occur, which is available without charge and
can be obtained by writing to [ADMINISTRATOR] Mutual Fund Department, 237 Park
Avenue, New York, New York 10017, or by calling (800) 557-3768. A shareholder
may not exchange shares of one Fund for shares of another Fund if both or
either are not qualified for sale in the state of the shareholder's residence.
The minimum amount for an initial exchange is $500. No minimum is required in
subsequent exchanges. The Trust may terminate or amend the terms of the
exchange privilege at any time.
A new account opened by exchange must be established with the same
name(s), address and social security number as the existing account. All
exchanges will be made based on the net asset value next determined following
receipt of the request by a Fund in good order.
An exchange is taxable as a sale of a security on which a gain or loss
may be recognized. Shareholders should receive written confirmation of the
exchange within a few days of the completion of the transaction. Shareholders
will receive at least 60 days' prior written notice of any modification or
termination of the exchange privilege.
Exchange by Mail. To exchange Fund shares by mail, simply send a
letter of instruction to [ADMINISTRATOR]. The letter of instruction must
include: (i) your account number; (ii) the Fund from and the Fund into which
you wish to exchange your investment; (iii) the dollar or share amount you wish
to exchange; and (iv) the signatures of all registered owners or authorized
parties. All signatures must be guaranteed by an eligible guarantor
institution including a member of a national securities exchange or by a
commercial bank or trust company, broker-dealers, credit unions and savings
associations.
Exchange by Telephone. To exchange Fund shares by telephone or if you
have any questions simply call the Funds at (800) 557- 3768. You should be
prepared to give the telephone representative the following information: (i)
your account number, social security number and account registration; (ii) the
name of the Fund from and the Fund into which you wish to transfer your
investment; and (iii) the dollar or share amount you wish to exchange. The
conversation may be recorded to protect you and the Funds. Telephone exchanges
are available only if the shareholder so indicates by checking the "yes" box on
the Purchase Application. See "Redemption of Fund Shares--By Telephone" for a
discussion of telephone transactions generally.
Automatic Investment Program. An eligible shareholder may also
participate in the Automatic Investment Program, an investment plan that
automatically debits money from the shareholder's bank account and invests it
in one or more of the Funds in the Trust through the use of electronic funds
transfers or automatic bank drafts. Shareholders may elect to make subsequent
investments by transfers of a minimum of $500 on either the fifth or twentieth
day of each month into their established Fund account. Contact the Funds for
more information about the Automatic Investment Program.
REDEMPTION OF FUND SHARES
Shareholders may redeem their shares, in whole or in part, on any
business day. Shares will be redeemed at the net asset value next determined
after a redemption request in good order has been received by the applicable
Fund. See "Determination of Net Asset Value." A redemption may be a taxable
transaction on which gain or loss may be recognized.
Where the shares to be redeemed have been purchased by check, the
redemption request will be returned if the purchasing check has not cleared,
which may take up to 15 days. Shareholders may avoid this delay by investing
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through wire transfers of Federal funds. During the period prior to the time
the shares are redeemed, dividends on the shares will continue to accrue and be
payable and the shareholder will be entitled to exercise all other beneficial
rights of ownership.
Once the shares are redeemed, a Fund will ordinarily send the proceeds
by check to the shareholder at the address of record on the next business day.
The Funds may, however, take up to seven days to make payment. This will not
be the customary practice. Also, if the New York Stock Exchange is closed (or
when trading is restricted) for any reason other than the customary weekend or
holiday closing or if an emergency condition as determined by the SEC merits
such action, the Funds may suspend redemptions or postpone payment dates.
Redemption Methods. To ensure acceptance of your redemption request,
it is important to follow the procedures described below. Although the Funds
have no present intention to do so, the Funds reserve the right to refuse or to
limit the frequency of any telephone or wire redemptions. Of course, it may be
difficult to place orders by telephone during periods of severe market or
economic change, and a shareholder should consider alternative methods of
communications, such as couriers. The Funds' services and their provisions may
be modified or terminated at any time by the Funds. If the Funds terminate any
particular service, they will do so only after giving written notice to
shareholders. Redemption by mail will always be available to shareholders.
You may redeem your shares using any of the following methods:
Through an Authorized Broker, Investment Adviser or Service
Organization. You may redeem your shares by contacting your broker or
investment adviser and instructing him or her to redeem your shares. He or she
will then contact [DISTRIBUTOR'S NAME] and place a redemption trade on your
behalf. He or she may charge you a fee for this service.
By Mail. You may redeem your shares by sending a letter directly to
[DISTRIBUTOR'S NAME]. To be accepted, a letter requesting redemption must
include: (i) the Fund name and account registration from which you are
redeeming shares; (ii) your account number; (iii) the amount to be redeemed,
(iv) the signatures of all registered owners; and (v) a signature guarantee by
any eligible guarantor institution including a member of a national securities
exchange or a commercial bank or trust company, broker-dealers, credit unions
and savings associations. Corporations, partnerships, trusts or other legal
entities will be required to submit additional documentation.
By Telephone. You may redeem your shares by calling the Funds toll
free at (800) 557-3768. You should be prepared to give the telephone
representative the following information: (i) your account number, social
security number and account registration; (ii) the Fund name from which you are
redeeming shares; and (iii) the amount to be redeemed. The conversation may be
recorded to protect you and the Funds. Telephone redemptions are available
only if the shareholder so indicates by checking the "yes" box on the Purchase
Application or on the Optional Services Form. The Funds employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
If the Funds fail to employ such reasonable procedures, they may be liable for
any loss, damage or expense arising out of any telephone transactions
purporting to be on a shareholder's behalf. In order to assure the accuracy of
instructions received by telephone, the Funds require some form of personal
identification prior to acting upon instructions received by telephone, record
telephone instructions and provide written confirmation to investors of such
transactions. Redemption requests transmitted via facsimile will not be
accepted.
By Wire. You may redeem your shares by contacting the Funds by mail or
telephone and instructing them to send a wire transmission to your personal
bank.
Your instructions should include: (i) your account number, social
security or tax identification number and account registration; (ii) the Fund
name from which you are redeeming shares; and (iii) the amount to be redeemed.
Wire redemptions can be made only if the "yes" box has been checked on your
Purchase Application, and attach a copy
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<PAGE> 136
of a void check of account where proceeds are to be wired. Your bank may
charge you a fee for receiving a wire payment on your behalf.
Systematic Withdrawal Plan. An owner of $10,000 or more of shares of a
Fund may elect to have periodic redemptions from his account to be paid on a
monthly, quarterly, semiannual or annual basis. The minimum periodic payment
is $100. A sufficient number of shares to make the scheduled redemption will
normally be redeemed on the date selected by the shareholder. Depending on the
size of the payment requested and fluctuation in the net asset value, if any,
of the shares redeemed, redemptions for the purpose of making such payments may
reduce or even exhaust the account. A shareholder may request that these
payments be sent to a predesignated bank or other designated party. Capital
gains and dividend distributions paid to the account will automatically be
reinvested at net asset value on the distribution payment date.
Redemption of Small Accounts. Due to the disproportionately higher
cost of servicing small accounts, each Fund reserves the right to redeem, on
not less than 30 days' notice, an account in a Fund that has been reduced by a
shareholder to $500 or less. However, if during the 30-day notice period the
shareholder purchases sufficient shares to bring the value of the account above
$500, this restriction will not apply.
Redemption in Kind. All redemptions of shares of the Funds shall be
made in cash, except that the commitment to redeem shares in cash extends only
to redemption requests made by each shareholder of a Fund during any 90-day
period of up to the less of $250,000 or 1% of the net asset value of that Fund
at the beginning of such period. This commitment is irrevocable without the
prior approval of the SEC and is a fundamental policy of the Funds that may not
be changed without shareholder approval. In the case of redemption requests by
shareholders in excess of such amounts, the Board of Trustees reserves the
right to have the Funds make payment, in whole or in part, in securities or
other assets, in case of an emergency or any time a cash distribution would
impair the liquidity of a Fund to the detriment of the existing shareholders.
In this event, the securities would be valued in the same manner as the
securities of that Fund are valued. If the recipient were to sell such
securities, he or she could receive less than the redemption value of the
securities and could incur certain transaction costs.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX
The Funds intend to distribute to their shareholders substantially all
of their net tax-exempt interest income and their investment company taxable
income (which includes, among other items, dividends and taxable interest in
excess of expenses and, if any, net short-term capital gains over net long-term
capital losses). The Funds will declare distributions of such income daily and
pay those dividends monthly. The Funds intend to distribute, at least
annually, substantially all net capital gain (the excess of net long-term
capital gains over net short-term capital losses). In determining amounts of
capital gains to be distributed, any capital loss carryovers from prior years
will be applied against capital gains.
Distributions will be paid in additional Fund shares based on the net
asset value at the close of business on the payment date of the distribution,
unless the shareholder elects in writing, not less than five full business days
prior to the record date, to receive such distributions in cash. Dividends
declared in, and attributable to, the preceding month will be paid within five
business days after the end of each month. Shares purchased will begin earning
dividends on the day after the purchase order is executed, and shares redeemed
will earn dividends through the day the redemption is executed. Investors who
redeem all or a portion of Fund shares prior to a dividend payment date will be
entitled on the next dividend payment date to all dividends declared but unpaid
on those shares at the time of their redemption.
Each Fund intends to be treated as a regulated investment company under
the Federal tax law. As such, the Funds generally will not pay Federal income
tax on the income and gains a Fund pays as dividends to its shareholders. In
order to avoid a 4% Federal excise tax, the Funds intend to distribute each
year all of their income and gains.
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<PAGE> 137
To the extent that a Fund's dividends distributed to shareholders are
derived from interest income exempt from Federal income tax and are designated
as exempt-interest dividends by the Fund, they will be excludable from a
shareholder's gross income for regular Federal income tax purposes. A Fund
will be qualified to pay exempt-interest dividends if, at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of securities on which interest payments are exempt from Federal
income tax under section 103 of the Internal Revenue Code of 1986, as amended
(the "Code"). The Funds will inform shareholders annually as to the portion of
the distribution paid which constitutes exempt-interest dividends. The Funds
are authorized to make investments which will give rise to taxable rather that
tax-exempt income. To the extent that a Fund's dividends are derived from
income from its taxable investments and from gain recognized by it, they will
be taxable to shareholders in the manner described above.
Tax-exempt interest on private activity bonds and exempt-interest
dividends attributable to private activity bonds generally are treated as tax
preference items for purposes of the Federal alternative minimum tax. The
Funds may purchase private activity bonds, such as industrial development bonds
that may be subject to the alternative minimum tax.
The entire amount of exempt-interest dividends received from a Fund
will be part of an adjustment in computing Federal alternative minimum taxable
income for purposes of the Alternative Minimum Tax and the Environmental Tax
under Code Section 59A.
Up to 85% of an individual's social security benefits and certain
railroad retirement benefits may be subject to Federal income tax. Along with
other factors, total tax-exempt income, including exempt-interest dividends, is
used to calculate the portion of such benefits that are taxed.
There could be retroactive revocation of the tax-exempt status of
certain municipal obligations after their issuance. It is not possible to
predict the precise impact of these provisions, but they may affect the value
of the securities in a Fund's portfolio.
Shareholders should be aware that redeeming shares of a Fund after
tax-exempt interest income has been accrued by the Fund but before that income
has been declared as a dividend may be disadvantageous. This is because the
gain, if any, on the redemption will be taxable, even though such gain may be
attributable in part to the accrued tax-exempt interest which, if distributed
to the shareholder as a dividend rather that as redemption proceeds, might have
qualified as an exempt interest dividend. All or a portion of interest on
indebtedness incurred or continued (or deemed under tax rules to be incurred or
continued) by shareholders to purchase or carry shares of the Funds may not be
deductible for Federal income tax purposes.
The treatment for state, local and municipal tax purposes of
distributions of exempt-interest dividends and dividends derived from interest
on certain Federal obligations will vary according to the laws of state and
local taxing authorities. Exempt-interest dividends and other dividends may be
subject to state and local taxation. Investors should consult with their tax
advisers as to the availability of any exemptions from such taxes. Persons who
may be "substantial users" (or "related persons" of substantial users) of
facilities financed by private activity bonds may suffer adverse tax
consequences from investing in a Fund and, therefore, should consult their tax
advisers before purchasing a Fund's shares. In some instances, a state or city
may exempt from tax the portion of the distribution from a Fund that represents
interest received on obligations of that state or its political subdivisions
and on certain Federal obligations. Under the laws of certain other states and
cities, the entire amount of any such distribution may be taxable.
The preceding discussion primarily relates to Federal income taxes; the
consequences under other tax laws may differ. For additional information
relating to taxation, see the SAI.
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<PAGE> 138
INVESTMENT RESTRICTIONS
(1) The Funds may not borrow money or pledge or mortgage their assets,
except that a Fund may borrow from banks up to 10% of the current value of its
total net assets for temporary or emergency purposes and those borrowings may
be secured by the pledge of not more than 15% of the current value of the
Fund's total net assets (but investments may not be purchased by a Fund while
any such borrowings exist).
(2) The Funds may not make loans, except that the Funds may enter into
repurchase agreements with respect to portfolio securities and may purchase the
types of debt instruments described in this Prospectus.
The foregoing investment restrictions and those described in the SAI as
fundamental are policies of the Fund which may be changed only when permitted
by law and approved by the holders of a majority of a Fund's outstanding voting
securities as described under "Other Information Voting."
Each Fund will invest less than 25% of its total assets in the
securities of any one industry. For this purpose, U.S. Government securities
(and repurchase agreements related thereto) and Kansas Municipal Obligations
are not considered securities of a single industry.
If a percentage restriction on investment policies or the investment or
use of assets set forth in this Prospectus are adhered to at the time a
transaction is effected, later changes in percentage resulting from changing
values will not be considered a violation.
RISKS OF INVESTING IN THE FUNDS
CERTAIN RISK CONSIDERATIONS
The price per share of the Funds will fluctuate with changes in value
of the investments held by the Funds. For example, the value of shares of the
Funds will generally fluctuate inversely with the movements in interest rates.
There is, of course, no assurance that a Fund will achieve its
investment objective or be successful in preventing or minimizing the risk of
loss that is inherent in investing in particular types of investment products.
In order to attempt to minimize that risk, the Adviser monitors developments in
the economy, the securities markets, and with each particular issuer.
Because the Kansas Tax-Free Fund will concentrate its investment in
Kansas Municipal Obligations, it may be affected by political, economic or
regulatory factors that may impair the ability of Kansas issuers to pay
interest on or to repay the principal of their debt obligations. Kansas
Municipal Obligations may be subject to greater price volatility than municipal
obligations in general as a result of the effect of supply and demand for these
securities which, in turn, could cause greater volatility in the value of the
shares of the Kansas Tax-Free Fund.
[Kansas ranks as the thirty-second largest state in terms of
population. As of July, 1993 population is estimated to be 2,531,000 which is
up 0.6% from July, 1992. Population increased 4.8% over the 10 year period
1980 through 1990 as compared with the national growth rate of 9.8%. Its
economy is based primarily on agriculture. Based on March 1994 employment
statistics from the U.S. Bureau of Labor Statistics, services is the largest
employment sector with 24.0% of non-farm employment followed by trade at
23.87%, government at 20.72%, manufacturing at 15.80%, transportation and
public utilities at 5.89%, financial insurance and real estate at 5.07%, and
construction at 3.91% and mining less than 1%. Unemployment is at 5.8%,
compared to a national rate of 6.5%. The 1993 state per capita
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personal income was $20,139, which was 97% of the national average of $20,817.
Little long-term effects are effected from earlier floods.]
[The State's 1993 general fund showed total revenues of 2.93 billion
against total expenditures of 2.69 billion. The primary revenue source of the
state are taxes which contributed 57% of total revenue in fiscal 1990. The
general fund currently has a balance of $385 million. Currently, the State has
no long-term debt, therefore there are no debt ratings to report.]
To provide somewhat greater investment flexibility, The Kansas Tax-Free
Fund is a "nondiversified" fund under the Investment Company Act of 1940 and,
as such, is not required to meet any diversification requirements under that
Act. However, the Fund must, nevertheless, meet certain diversification tests
to qualify as a regulated investment company under the Code. The Fund may use
its ability as a non-diversified fund to concentrate its assets in the
securities of a smaller number of issuers which the Adviser deems to be
attractive investments, rather than invest in a larger number of securities
merely to satisfy non-tax diversification requirements. While the Adviser
believes that this ability to concentrate the investments of the Fund in
particular issuers is an advantage when investing in Kansas Municipal
Obligations, such concentration also involves a risk of loss to the Fund should
the issuer be unable to make interest or principal payments thereon or should
the market value of such securities decline. Investment in a non-diversified
Fund could, therefore, entail greater risks than investment in a "diversified"
Fund, including a risk of greater fluctuations in yield and share price.
Obligations of issuers of Kansas Municipal Obligations are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of creditors, such as the Federal Bank Reform Act of 1978. In
addition, the obligations of such issuers may become subject to the laws
enacted in the future by Congress or the Kansas legislatures or by referenda
extending the time for payment or principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. There is also the possibility that, as a result of legislation or other
conditions, the power or ability of any issuer to pay, when due, the principal
of and interest on its Kansas Municipal Obligations may be materially affected.
Additional considerations relating to the risks of investing in Kansas
Municipal Obligations are presented in the SAI.
OTHER INFORMATION
CAPITALIZATION
[ ] Trust was organized as a Delaware business trust on
________,1996 and currently consists of nine separately managed portfolios,
three of which are described in this Prospectus. The Board of Trustees may
establish additional portfolios in the future. The capitalization of the Trust
consists solely of an unlimited number of shares of beneficial interest with a
par value of $0.001 each. When issued, shares of the Funds are fully paid,
non-assessable and freely transferable.
Each Fund also offers a Service Class of shares. Service Class shares
are offered at net asset value without a sales load only to certain
institutional investors, or other investors who at the time of purchase have a
balance of $1,000 or more invested in any of the [ ] Funds, are
purchasers through a trust investment manager or account manager or
administered by the Adviser, are employees or ex-employees of
[ ]Corporation or any of its affiliates, employees of [ ],
[ADMINISTRATOR], or any other service provider, or employees of any trust
customer of [ ]Corporation or any of its affiliates.
Shareholders in the Premium Class of shares are subject to an additional
shareholder servicing charge of up to 0.50% of average net assets to which
Service Class shareholders are not subject.
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<PAGE> 140
Under Delaware law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for
indemnification out of Trust property for all loss and expense of any
shareholder held personally liable for the obligations of the Trust. The risk
of a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the Trust itself would be unable to meet
its obligations and should be considered remote.
VOTING
Shareholders have the right to vote in the election of Trustees and on
any and all matters on which, by law or under the provisions of the Declaration
of Trust, they may be entitled to vote. The Trust is not required to hold
regular annual meetings of the Funds' shareholders and does not intend to do
so. The Trustees are required to call a meeting for the purpose of considering
the removal of a person serving as Trustee if requested in writing to do so by
the holders of not less than 10% of the outstanding shares of the Trust and in
connection with such meeting to comply with the shareholders' communications
provisions of Section 16(c) of the Act. See "Other Information--Voting Rights"
in the SAI.
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). As used in this Prospectus, the phrase "vote of
a majority of the outstanding shares" of a Fund (or the Trust) means the vote
of the lesser of: (1) 67% of the shares of a Fund (or the Trust) present at a
meeting if the holders of more than 50% of the outstanding shares are present
in person or by proxy; or (2) more than 50% of the outstanding shares of a Fund
(or the Trust).
PERFORMANCE INFORMATION
The Funds may, from time to time, include yield and total return
information in advertisements or reports to shareholders or prospective
investors. Shareholders of the Premium Class of shares will experience a lower
net return on their investment than shareholders of the Service Class of shares
because of the additional shareholder servicing charge to which Premium Class
shareholders are subject. The methods used to calculate the yield and total
return of the Funds are mandated by the SEC.
Quotations of "yield" will be based on the investment income per share
during a particular 30-day (or one month) period (including dividends and
interest), less expenses accrued during the period ("net investment income"),
and will be computed by dividing net investment income by the maximum public
offering price per share on the last day of the period.
Quotations of yield and effective yield reflect only a Fund's
performance during the particular period on which the calculations are based.
Yield and effective yield for a Fund will vary based on changes in market
conditions, the level of interest rates and the level of that Fund's expenses,
and no reported performance figure should be considered an indication of
performance which may be expected in the future.
Quotations of average annual total return for a Fund will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in that Fund over periods of 1, 5 and 10 years (up to the life of
that Fund), reflect the deduction of a proportional share of Fund expenses (on
an annual basis), and assume that all dividends and distributions are
reinvested when paid.
A Fund may also advertise its "taxable equivalent yield." Taxable
equivalent yield is the yield that an investment, subject to Federal and Kansas
personal income taxes, would need to earn in order to equal, on an after-tax
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<PAGE> 141
basis, the yield on an investment exempt from such taxes (normally calculated
assuming the maximum combined Federal and Kansas marginal tax rate). A taxable
equivalent yield quotation for a Fund will be higher than the yield or the
effective yield quotations for a Fund.
[The following table shows how to translate the yield of an investment
that is exempt from Federal and Kansas personal income taxes into a taxable
equivalent yield for the 1994 taxable year. The last four columns of the table
show approximately how much a taxable investment would have to yield in order
to generate an after-tax (Federal and Kansas personal income taxes) yield of
4%, 5%, 6% and 7%. For example, the table shows __________________]
ACCOUNT SERVICES
All transactions in shares of the Funds will be reflected in a
statement for each shareholder. In those cases where a Service Organization or
its nominee is shareholder of record of shares purchased for its customer, the
Funds have been advised that the statement may be transmitted to the customer
at the discretion of the Service Organization.
[ADMINISTRATOR] acts as the Funds' transfer agent. The Trust
compensates [ADMINISTRATOR], the Trust's administrator, pursuant to a Services
Agreement described on page __ of this Prospectus, for providing personnel and
facilities to perform dividend disbursing and transfer agency-related services
for the Trust.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to [ADMINISTRATOR] Mutual
Funds Department, 237 Park Avenue, New York, New York 10017.
General and Account Information: (800) 557-3768.
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<PAGE> 142
APPENDIX
DESCRIPTION OF MOODY'S BOND RATINGS:
Excerpts from Moody's description of its four highest bond ratings are
listed as follows: Aaa -- judged to be the best quality and they carry the
smallest degree of investment risk; Aa--judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds; A--possess many favorable investment attributes and are to
be considered as "upper medium grade obligations"; Baa--considered to be medium
grade obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time.
Moody's also supplies numerical indicators 1, 2 and 3 to rating
categories. The modifier 1 indicates that the security is in the higher end of
its rating category; the modifier 2 indicates a mid-range ranking; and modifier
3 indicates a ranking toward the lower end of the category.
DESCRIPTION OF S&P'S BOND RATINGS:
Excerpts from S&P's description of its four highest bond ratings are
listed as follows: AAA-- highest grade obligations, in which capacity to pay
interest and repay principal is extremely strong; AA--also qualify as high
grade obligations, having a very strong capacity to pay interest and repay
principal, and differs from AAA issues only in a small degree; A--regarded as
upper medium grade, having a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories; BBB--regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
S&P applies indicators "+, -," no character, and relative standing
within the major rating categories.
DESCRIPTION OF MOODY'S RATINGS OF NOTES AND VARIABLE RATE DEMAND INSTRUMENTS:
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or MIG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable rate demand obligations) are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payments
relying on external liquidity.
MIG 1/VMIG 1: This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This denotes high quality. Margins of protection are ample
although not as large as in the preceding group.
DESCRIPTION OF MOODY'S TAX-EXEMPT COMMERCIAL PAPER RATINGS:
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations which have an original maturity not
exceeding nine months. Moody's makes no representation that such
A-1
<PAGE> 143
obligations are exempt from registration under the Securities Act of 1933, nor
does it represent that any specific note is a valid obligation of a rated
issuer or issued in conformity with any applicable law. The following
designations, all judged to be investment grade, indicate the relative
repayment ability of rated issuers of securities in which the Trust may invest.
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term promissory obligations.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term promissory obligations.
DESCRIPTION OF S&P'S RATINGS FOR MUNICIPAL BONDS:
INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in a small
degree.
A: Debt rated "A" has strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
DESCRIPTION OF S&P'S RATINGS FOR INVESTMENT GRADE MUNICIPAL NOTES AND
SHORT-TERM DEMAND OBLIGATIONS:
SP-1: Issues carrying this designation have a very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics will be given a plus (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to
pay principal and interest.
DESCRIPTION OF S&P'S RATINGS FOR DEMAND OBLIGATIONS AND TAX-EXEMPT COMMERCIAL
PAPER:
An S&P commercial paper rating is a current assessment of the
likelihood of timely repayment of debt having an original maturity of no more
than 365 days. The two rating categories for securities in which the Trust may
invest are as follows:
A-1: This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics will be denoted with a plus (+)
designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-2
<PAGE> 144
<TABLE>
<S> <C>
[ ] TRUST
A FAMILY OF
Address for MUTUAL FUNDS
Trust Clients of [ADVISOR'S NAME]
-----------------------------------------
[ADDRESS]
KANSAS INTERMEDIATE TAX EXEMPT FUND SEEKS TO
Investment Adviser PROVIDE CURRENT INCOME FROM FEDERAL AND KANSAS
------------------ TAXATION.
[ADVISOR'S NAME]
[ADDRESS] U.S. INTERMEDIATE TAX EXEMPT FUND SEEKS TO PROVIDE
INCOME EXEMPT FROM FEDERAL TAXATION.
Administrator and Sponsor
-------------------------
[ADMINISTRATOR]
[ADDRESS]
Distributor
-----------
[DISTRIBUTOR].
[ADDRESS]
Custodian
---------
[ADVISOR'S NAME]
[ADDRESS]
Counsel
-------
Baker & McKenzie
805 Third Avenue
New York, New York 10022
Independent Accountants PROSPECTUS
-----------------------
[INDEPENDENT ACCOUNTANTS] July __, 1994
[ADDRESS]
Investment Adviser
[ADVISOR'S NAME]
</TABLE>
<PAGE> 145
FS FUNDS TRUST
[ADDRESS]
General and Account Information: (800)_______
- --------------------------------------------------------------------------------
[ADVISER'S NAME] --Investment Adviser
("_______")
[ADVISER'S NAME]--Investment Adviser
for the Cash Reserve Money Market Fund ("___")
[ADMINISTRATOR] -
Administrator and Sponsor
("______" or the "Sponsor")
[Distributor's Name] -
Distributor
("_______" or the "Distributor")
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") describes two
money market funds (the "Money Market Funds") and nine non-money market funds
(the "Non-Money Market Funds") (collectively, the "Funds"), all of which are
managed by [Adviser's Name], except the Cash Reserve Money Market Fund, which
is managed by [Adviser's Name]. The Funds are:
MONEY MARKET FUNDS
- U.S. Treasury Reserve Money Market Fund
- Cash Reserve Money Market Fund
NON MONEY MARKET FUNDS
- Short-Term Treasury Income Fund
- Intermediate Bond Income Fund
- Bond Income Fund
- Stock Appreciation Fund
- Aggressive Stock Appreciation Fund
- Value Stock Appreciation Fund
- International Equity Fund
- U.S. Intermediate Tax Exempt Fund
- Kansas Intermediate Tax Exempt Fund
Each Fund constitutes a separate investment portfolio with distinct
investment objectives and policies. Shares of the Funds are sold to the public
by [Distributor] as an investment vehicle for individuals, institutions,
corporations and fiduciaries, including customers of [Adviser's Name] or its
affiliates.
This SAI is not a prospectus and is only authorized for distribution
when preceded or accompanied by a prospectus for the applicable Fund dated
___________, 1996 (the "Prospectus"). This SAI contains additional and more
detailed information than that set forth in each Prospectus and should be read
in conjunction with the applicable Prospectus. The Prospectuses may be
obtained without charge by writing or calling the Funds at the address and
information numbers printed above.
January __, 1996
<PAGE> 146
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 13
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . 16
Trustees and Officers of [_______] . . . . . . . . . . . . . . . . . . 18
Investment Advisers . . . . . . . . . . . . . . . . . . . . . . . . . 20
International Portfolio . . . . . . . . . . . . . . . . . . . . . . . 21
Distribution of Fund Shares . . . . . . . . . . . . . . . . . . . . . 22
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Administrative Services . . . . . . . . . . . . . . . . . . . . . . . 24
Service Organizations . . . . . . . . . . . . . . . . . . . . . . . . 25
EXPENSES AND EXPENSE LIMITS . . . . . . . . . . . . . . . . . . . . . . . . 26
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . 27
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . 31
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Kansas Tax Exempt Fund and U.S. Intermediate
Tax Exempt Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Custodian Transfer Agent and Dividend
Disbursing Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Yield and Performance Information . . . . . . . . . . . . . . . . . . 45
</TABLE>
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<PAGE> 147
INVESTMENT POLICIES
The Prospectuses discuss the investment objectives of the Funds and
the policies to be employed to achieve those objectives. This section contains
supplemental information concerning certain types of securities and other
instruments in which the Funds may invest, the investment policies and
portfolio strategies that the Funds may utilize, and certain risks attendant to
such investments, policies and strategies.
U.S. Government Agency Obligations (All Funds, except U.S. Treasury
Reserve Money Market Fund and Short-Term Treasury Income Fund). These Funds
may invest in obligations of agencies of the United States Government. Such
agencies include, among others, Farmers Home Administration, Federal Farm
Credit System, Federal Housing Administration, Government National Mortgage
Association, Maritime Administration, Small Business Administration, and The
Tennessee Valley Authority. The Funds may purchase securities issued or
guaranteed by the Government National Mortgage Association which represent
participations in Veterans Administration and Federal Housing Administration
backed mortgage pools. Obligations of instrumentalities of the United States
Government include securities issued by, among others, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Federal Land Banks, Federal National
Mortgage Association and the United States Postal Service. Some of these
securities are supported by the full faith and credit of the United States
Treasury (e.g., Government National Mortgage Association). Guarantees of
principal by agencies or instrumentalities of the U.S. Government may be a
guarantee of payment at the maturity of the obligation so that in the event of
a default prior to maturity there might not be a market and thus no means of
realizing the value of the obligation prior to maturity.
Commercial Paper (All Funds, except Treasury Reserve Money Market
Fund and Short-Term Treasury Income Fund). Commercial paper includes
short-term unsecured promissory notes, variable rate demand notes and variable
rate master demand notes issued by domestic and foreign bank holding companies,
corporations and financial institutions and similar taxable instruments issued
by government agencies and instrumentalities. All commercial paper purchased
by the Funds is, at the time of investment, rated in one of the top two rating
categories of at
<PAGE> 148
least one Nationally Recognized Statistical Rating Organization ("NRSRO") or,
if not rated, are, in the opinion of [ADVISER'S NAME], of an investment quality
comparable to rated commercial paper in which the Funds may invest, or, with
respect to the Cash Reserve Money Market Fund, (i) rated "P-1" by Moody's
Investors Service, Inc. ("Moody's") and "A-1" or better by Standard & Poor's
Corporation ("S&P") or in a comparable rating category by any two NRSROs that
have rated the commercial paper or (ii) rated in a comparable category by only
one such organization if it is the only organization that has rated the
commercial paper (and provided the purchase is approved or ratified by the
Board of Trustees).
Corporate Debt Securities (All Funds, except Kansas Tax Exempt Fund
and U.S. Intermediate Tax Exempt Fund). Fund investments in these securities
are limited to corporate debt securities (corporate bonds, debentures, notes
and similar corporate debt instruments) which meet the rating criteria
established for each Fund.
After purchase by a Fund, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require a sale of such security by the Fund. However, the
Fund's Adviser will consider such event in its determination of whether the
Fund should continue to hold the security. To the extent the ratings given by
a NRSRO may change as a result of changes in such organizations or their rating
systems, the Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in the
Prospectus and in this SAI.
Foreign Securities (Intermediate Bond Income Fund, Bond Income Fund,
Stock Appreciation Fund, Aggressive Stock Appreciation Fund, Value Stock
Appreciation Fund, and International Equity Fund). Changes in foreign exchange
rates will affect the value of securities denominated or quoted in currencies
other than the U.S. dollar.
Since the Funds may invest in securities denominated in currencies
other than the U.S. dollar, and since those Funds may temporarily hold funds in
bank deposits or other money market investments denominated in foreign
currencies, a Fund may be
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<PAGE> 149
affected favorably or unfavorably by exchange control regulations or changes in
the exchange rate between such currencies and the dollar. Changes in foreign
currency exchange rates will influence values within the Fund from the
perspective of U.S. investors. Changes in foreign currency exchange rates may
also affect the value of dividends and interest earned, gains and losses
realized on the sale of securities, and net investment income and gains, if
any, to be distributed to shareholders by the Fund. The rate of exchange
between the U.S. dollar and other currencies is determined by the forces of
supply and demand in the foreign exchange markets. These forces are affected
by the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors.
Those Funds that purchase foreign currency-denominated securities may
enter into foreign currency exchange contracts in order to protect against
uncertainty in the level of future foreign exchange rates. A forward foreign
currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are entered into in the interbank market
conducted between currency traders (usually large commercial banks) and their
customers. Forward foreign currency exchange contracts may be bought or sold to
protect a Fund against a possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S. dollar, or between foreign
currencies. Although such contracts are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time, they
tend to limit any potential gain which might result should the value of such
currency increase.
Bank Obligations. (All Funds, except Treasury Reserve Money Market
Fund, Short-Term Treasury Income Fund, Kansas Tax Exempt Fund and U.S.
Intermediate Tax Exempt Fund). A description of the bank obligations which the
Funds may purchase is set forth in the Prospectuses. These obligations
include, but are not limited to, domestic, Eurodollar and Yankeedollar
certificates of deposits, time deposits, bankers' acceptances, commercial
paper, bank deposit notes and other promissory notes including floating or
variable rate obligations issued by U.S. or
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<PAGE> 150
foreign bank holding companies and their bank subsidiaries, branches and
agencies. Certificates of deposit are issued against funds deposited in an
eligible bank (including its domestic and foreign branches, subsidiaries and
agencies), are for a definite period of time, earn a specified rate of return
and are normally negotiable. A bankers' acceptance is a short-term draft drawn
on a commercial bank by a borrower, usually in connection with a commercial
transaction. The borrower is liable for payment as is the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Eurodollar obligations are U.S. Dollar obligations issued outside the
United States by domestic or foreign entities. Yankeedollar obligations are
U.S. dollar obligations issued inside the United States by foreign entities.
Bearer deposit notes are obligations of a bank, rather than a bank holding
company. Similar to certificates of deposit, deposit notes represent bank
level investments and, therefore, are senior to all holding company corporate
debt.
Variable and Floating Rate Demand and Master Demand Obligations (All
Funds). The Funds may, from time to time, buy variable rate demand obligations
issued by corporations, bank holding companies and financial institutions and
similar taxable and tax-exempt instruments issued by government agencies and
instrumentalities. These securities will typically have a maturity of 397 days
or less with respect to the Money Market Funds or five to twenty years with
respect to the Non-Money Market Funds, but carry with them the right of the
holder to put the securities to a remarketing agent or other entity on short
notice, typically seven days or less. The obligation of the issuer of the put
to repurchase the securities may or may not be backed by a letter of credit or
other obligation issued by a financial institution. The purchase price is
ordinarily par plus accrued and unpaid interest.
The Funds may also buy variable rate master demand obligations. The
terms of these obligations permit the investment of fluctuating amounts by the
Funds at varying rates of interest pursuant to direct arrangements between a
Fund, as lender, and the borrower. They permit weekly, and in some instances,
daily, changes in the amounts borrowed. The Funds have the right to increase
the amount under the obligation at any time up to the full
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<PAGE> 151
amount provided by the note agreement, or to decrease the amount, and the
borrower may prepay up to the full amount of the obligation without penalty.
The obligations may or may not be backed by bank letters of credit. Because
the obligations are direct lending arrangements between the lender and the
borrower, it is not generally contemplated that they will be traded, and there
is no secondary market for them, although they are redeemable (and thus,
immediately repayable by the borrower) at principal amount, plus accrued
interest, upon demand. The Funds have no limitations on the type of issuer
from whom the obligations will be purchased. The Funds will invest in variable
rate master demand obligations only when such obligations are determined by the
Adviser or _______, pursuant to guidelines established by the Board of
Trustees, to be of comparable quality to rated issuers or instruments eligible
for investment by the Funds.
When-Issued and Delayed-Delivery Securities (All Funds). The Funds
may purchase securities on a when-issued or delayed-delivery basis. For
example, delivery of and payment for these securities can take place a month or
more after the date of the transaction. The securities so purchased are
subject to market fluctuation during this period and no income accrues to the
Fund until settlement takes place. To facilitate such acquisitions, the Funds
will maintain with the custodian a separate account with a segregated portfolio
of securities in an amount at least equal to the value of such commitments. On
the delivery dates for such transactions, each Fund will meet obligations from
maturities or sales of the securities held in the separate account and/or from
cash flow. While the Funds normally enter into these transactions with the
intention of actually receiving or delivering the securities, they may sell
these securities before the settlement date or enter into new commitments to
extend the delivery date into the future, if [Adviser's Name] or [Adviser's
Name] consider such action advisable as a matter of investment strategy. Such
securities have the effect of leverage on the Funds and may contribute to
volatility of a Fund's net asset value.
Loans of Portfolio Securities (All Funds). The Funds may lend their
portfolio securities to brokers, dealers and financial institutions, provided:
(1) the loan is secured continuously by collateral consisting of U.S.
Government securities or cash or approved bank letters of credit maintained on
a daily mark-to-market basis in an amount at least equal to
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<PAGE> 152
the current market value of the securities loaned; (2) the Funds may at any
time call the loan and obtain the return of the securities loaned within five
business days; (3) the Funds will receive any interest or dividends paid on the
loaned securities; and (4) the aggregate market value of securities loaned will
not at any time exceed 33 1/3% of the total assets of a particular Fund.
The Funds will earn income for lending their securities because cash
collateral pursuant to these loans will be invested in short-term money market
instruments. In connection with lending securities, the Funds may pay
reasonable finders, administrative and custodial fees. Loans of securities
involve a risk that the borrower may fail to return the securities or may fail
to provide additional collateral.
Repurchase Agreements (All Funds, except the Short-Term Treasury
Income Fund.) The Funds may invest in securities subject to repurchase
agreements with any bank or registered broker-dealer who, in the opinion of the
Trustees, present a minimum risk of bankruptcy. Such agreements may be
considered to be loans by the Funds for purposes of the Investment Company Act
of 1940, as amended (the "1940 Act"). A repurchase agreement is a transaction
in which the seller of a security commits itself at the time of the sale to
repurchase that security from the buyer at a mutually agreed-upon time and
price. The repurchase price exceeds the sale price, reflecting an agreed-upon
interest rate effective for the period the buyer owns the security subject to
repurchase. The agreed-upon rate is unrelated to the interest rate on that
security. [Adviser's Name] and [Adviser's Name] will monitor the value of the
underlying security at the time the transaction is entered into and at all
times during the term of the repurchase agreement to insure that the value of
the security always equals or exceeds the repurchase price. In the event of
default by the seller under the repurchase agreement, the Funds may have
problems in exercising their rights to the underlying securities and may incur
costs and experience time delays in connection with the disposition of such
securities.
Reverse Repurchase Agreements (All Funds). The Funds may also enter
into reverse repurchase agreements to avoid selling securities during
unfavorable market conditions to meet redemptions. Pursuant to a reverse
repurchase agreement, a Fund
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<PAGE> 153
will sell portfolio securities and agree to repurchase them from the buyer at a
particular date and price. Whenever a Fund enters into a reverse repurchase
agreement, it will establish a segregated account in which it will maintain
liquid assets in an amount at least equal to the repurchase price marked to
market daily (including accrued interest), and will subsequently monitor the
account to ensure that such equivalent value is maintained. The Fund pays
interest on amounts obtained pursuant to reverse repurchase agreements.
Reverse repurchase agreements are considered to be borrowings by a Fund under
the 1940 Act.
Illiquid Securities (All Funds). Each Fund has adopted a fundamental
policy with respect to investments in illiquid securities. Historically,
illiquid securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended ("Securities Act"), securities that are
otherwise not readily marketable and repurchase agreements having a maturity of
longer than seven days. Securities that have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on either an efficient institutional market in which the unregistered
security can be readily resold or on the issuer's ability to honor a demand for
repayment. The fact that there are
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<PAGE> 154
contractual or legal restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such investments.
Each Fund may also invest in restricted securities issued under
Section 4(2) of the Securities Act, which exempts from registration
"transactions by an issuer not involving any public offering." Section 4(2)
instruments are restricted in the sense that they can only be resold through
the issuing dealer and only to institutional investors; they cannot be resold
to the general public without registration. Restricted securities issued under
Section 4(2) of the Securities Act will be treated as illiquid and subject to
the Fund's investment restriction on illiquid securities.
The Commission has adopted Rule 144A, which allows a broader
institutional trading market for securities otherwise subject to restrictions
on resale to the general public. Rule 144A establishes a "safe harbor" from
the registration requirements of the Securities Act applicable to resales of
certain securities to qualified institutional buyers. It is the intent of the
Funds to invest, pursuant to procedures established by the Board of Trustees
and subject to applicable investment restrictions, in securities eligible for
resale under Rule 144A which are determined to be liquid based upon the trading
markets for the securities.
Pursuant to guidelines set forth by and under the supervision of the
Board of Trustees, the Adviser and _______ will monitor the liquidity of
restricted securities in a Fund's portfolio. In reaching liquidity decisions,
the Adviser and _______ will consider, inter alia, the following factors: (1)
the frequency of trades and quotes for the security over the course of six
months or as determined in the discretion of the Investment Adviser; (2) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers over the course of six months or as determined in
the discretion of the Investment Adviser; (3) dealer undertakings to make a
market in the security; (4) the nature of the security and the marketplace in
which it trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer); and (5) other factors,
if any, which the Adviser and [ADVISER'S NAME] deem relevant. The Adviser and
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<PAGE> 155
_______ will also monitor the purchase of Rule 144A securities to assure that
the total of all Rule 144A securities held by a Fund does not exceed 10% of the
Fund's average daily net assets. Rule 144A securities which are determined to
be liquid based upon their trading markets will not, however, be required to be
included among the securities considered to be illiquid for purposes of
Investment Restriction No. 1. Investments in Rule 144A securities could have
the effect of increasing Fund illiquidity.
[KANSAS RISK FACTORS]
[TO BE PROVIDED]
Warrants (International Equity Fund). International Portfolio may
invest in warrants, which are options to purchase an equity security at a
specified price (usually representing a premium over the applicable market
value of the underlying equity security at the time of the warrant's issuance)
and usually during a specified period of time. Unlike convertible securities
and preferred stocks, warrants do not pay a fixed dividend. Investments in
warrants involve certain risks, including the possible lack of a liquid market
for the resale of the warrants, potential price fluctuations as a result of
speculation or other factors and failure of the price of the underlying
security to reach a level at which the warrant can be prudently exercised (in
which case the warrant may expire without being exercised, resulting in the
loss of International Portfolio's entire investment therein).
Foreign Currency Transactions (International Equity Fund).
Investments by International Portfolio in securities of foreign companies will
usually involve the currencies of foreign countries. In addition,
International Portfolio may temporarily hold funds in bank deposits in foreign
currencies pending the completion of certain investment programs. Accordingly,
the value of the assets of International Portfolio, as measured in U.S.
dollars, may be affected by changes in foreign currency exchange rates and
exchange control regulations. In addition, International Portfolio may incur
costs in connection with conversions between various currencies. International
Portfolio may conduct foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market or by entering into foreign currency forward basis at the spot rate
prevailing in the
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foreign currency exchange market or by entering into foreign currency forward
contracts ("forward contracts") to purchase or sell foreign currencies. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days (usually less than one
year) from the date of the contract agreed upon by the parties, at a price at
the time of the contract. Forward contracts in the principal foreign
currencies are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers and
involve the risk that the other party to the contract may fail to deliver
currency when due, which could result in losses to International Portfolio. A
forward contract generally has no requirement, and no commissions are charged
at any stage for trades. Foreign exchange dealers realize a profit based on
the difference between the price at which they buy and sell various currencies.
International Portfolio may enter into forward contracts under two
circumstances. First, with respect to specific transactions, when
International Portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the U.S.
dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying security transactions, International
Portfolio may be able to protect itself against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date the security is purchased
or sold and the date on which payment is made or received.
Second, International Portfolio may enter into forward contracts in
connection with existing portfolio positions. For example, when the investment
adviser of International Portfolio believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar,
International Portfolio may enter into a forward contract to sell, for a fixed
amount of dollars, the amount of foreign currency approximating the value of
some or all of International
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Portfolio's investment securities denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible since the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain. Forward contracts
involve the risk of inaccurate predictions of currency price movements, which
may cause International Portfolio to incur losses on these contracts and
transaction costs. [Subadviser's Name] does not intend to enter into forward
contracts on a regular or continuous basis and will not do so if, as a result,
International Portfolio will have more than 25 percent of the value of its
total assets committed to such contracts or the contracts would obligate
International Portfolio to deliver an amount of foreign currency in excess of
the value of International Portfolio's investment securities or other assets
denominated in that currency.
At or before a settlement of a forward currency contract,
International Portfolio may either make delivery of the foreign currency or
terminate its contractual obligation to deliver the foreign currency by
purchasing an offsetting contract. If International Portfolio chooses to make
delivery of the foreign currency, it may be required to obtain the currency
through the conversion of assets of International Portfolio into the currency.
International Portfolio may close out a forward contract obligating it to
purchase a foreign currency by selling an offsetting contract. If
International Portfolio engages in an offsetting transaction, it will realize a
gain or a loss to the extent that there has been a change in forward contract
prices. Additionally, although forward contracts may tend to minimize the risk
of loss due to a decline in the value of the hedged currency, at the same time
they tend to limit any potential gain which might result should the value of
such currency increase.
There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealers or other
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market sources be firm or revised on a timely basis. Quotation information
available is generally representative of very large transactions in the
interbank market. The interbank market is foreign currencies in a global
around-the-clock market.
When required by applicable regulatory guidelines, International
Portfolio will set aside cash, U.S. Government Securities or other liquid,
high-grade debt securities in a segregated account with its custodian in the
prescribed amount.
Foreign Currency Options and Related Risks (International Equity
Fund). International Portfolio may take positions in options on foreign
currencies in order to hedge against the risk of foreign exchange fluctuation
on foreign securities International Portfolio holds in its portfolio or which
it intends to purchase. Options on foreign currencies are affected by the
factors discussed in "Options Strategies" and "Foreign Currency Transactions"
above which influence foreign exchange sales and investments generally.
The value of foreign currency options is dependent upon the value of
the foreign currency relative to the U.S. dollar and has no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options,
International Portfolio may be disadvantaged by having to deal in an odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
To the extent that the U.S. options markets are closed while the
market for the underlying currencies remains open, significant price and rate
movements may take place in the underlying markets that cannot be reflected in
the options markets.
INVESTMENT RESTRICTIONS
The following restrictions restate or are in addition to those
described under "Investment Restrictions" in the Prospectuses.
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Each Fund, except as indicated, may not:
(1) Invest more than 15% (10% with respect to the Money Market
Funds) of the value of its net assets in investments which are illiquid
(including repurchase agreements having maturities of more than seven
calendar days, variable and floating rate demand and master demand notes
not requiring receipt of principal note amount within seven days notice
and securities of foreign issuers which are not listed on a recognized
domestic or foreign securities exchange);
(2) Borrow money or pledge, mortgage or hypothecate its assets,
except that a Fund may enter into reverse repurchase agreements or borrow
from banks up to 10% of the current value of its net assets (33-1/3% for
the International Equity Fund) for temporary or emergency purposes and
those borrowings may be secured by the pledge of not more than 15% of the
current value of its total net assets (but investments may not be
purchased by the Fund while any such borrowings exist);
(3) Issue senior securities, except insofar as a Fund may be deemed
to have issued a senior security in connection with any repurchase
agreement or any permitted borrowing;
(4) Make loans, except loans of portfolio securities and except that
a Fund may enter into repurchase agreements with respect to its portfolio
securities and may purchase the types of debt instruments described in its
Prospectus or the SAI;
(5) Invest in companies for the purpose of exercising control or
management;
(6) Invest more than 10% of its net assets in shares of other
investment companies, except that the International Equity Fund may invest
100% of its assets in the Portfolio;
(7) Invest in real property (including limited partnership interests
but excluding real estate investment trusts and master limited
partnerships), commodities,
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commodity contracts, or oil, gas and other mineral resource, exploration,
development, lease or arbitrage transactions;
(8) Engage in the business of underwriting securities of other
issuers, except to the extent that the disposal of an investment position
may technically cause it to be considered an underwriter as that term is
defined under the Securities Act of 1933;
(9) Sell securities short, except to the extent that a Fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short;
(10) Purchase securities on margin, except that a Fund may obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities;
(11) Purchase or retain the securities of any issuer, if those
individual officers and Trustees of the Trust, [Adviser's Name] or
[Adviser's Name], the Sponsor, or the Distributor, each owning
beneficially more than 1/2 of 1% of the securities of such issuer,
together own more than 5% of the securities of such issuer;
(12) Purchase a security if, as a result, more than 25% of the value
of its total assets would be invested in securities of one or more issuers
conducting their principal business activities in the same industry
(except with respect to the Cash Reserve Money Market Fund which may
concentrate its investments in obligations issued by the banking
industry), provided that (a) this limitation shall not apply to
obligations issued or guaranteed by the U.S. Government or its agencies
and instrumentalities; (b) wholly owned finance companies will be
considered to be in the industries of their parents; and (c) utilities
will be divided according to their services. For example, gas, gas
transmission, electric and gas, electric, and telephone will each be
considered a separate industry;
(13) Invest more than 5% of its net assets in warrants which are
unattached to securities, included within that amount, no more than 2% of
the value of the Fund's net
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<PAGE> 161
assets, may be warrants which are not listed on the New York or American
Stock Exchanges;
(14) Write, purchase or sell puts, calls or combinations thereof,
except that the equity and fixed income funds may purchase or sell puts
and calls as otherwise described in the Prospectus or SAI; however, no
Fund will invest more than 5% of its total assets in these classes of
securities for purposes other than bona fide hedging; or
(15) Invest more than 5% of the current value of its total assets in
the securities of companies which, including predecessors, have a record
of less than three years' continuous operation.
MANAGEMENT
Trustees and Officers
The principal occupations of the Trustees and executive officers of
the Trust for the past five years are listed below. The address of each, unless
otherwise indicated, is 237 Park Avenue, New York, New York 10017. Trustees
deemed to be "interested persons" of the Trust for purposes of the 1940 Act are
indicated by an asterisk.
John J. Pileggi, Chairman of the Board of Trustees*,___________________________
_______________________________________________________________________________
_______________________________________
, Trustee -
- --------------- -----------------------------------------------------
- -------------------------------------------------------------------------------
, Trustee -
- --------------- -----------------------------------------------------
- -------------------------------------------------------------------------------
, Trustee -
- --------------- -----------------------------------------------------
- -------------------------------------------------------------------------------
, Principal Financial and Accounting Officer-
- --------------- -------------------
- -------------------------------------------------------------------------------
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, Secretary -
- --------------- --------------------------------------------------
- -------------------------------------------------------------------------------
, Assistant Secretary -
- --------------- ----------------------------------------
- -------------------------------------------------------------------------------
, Assistant Secretary -
- --------------- ----------------------------------------
- -------------------------------------------------------------------------------
, Assistant Secretary -
- --------------- ----------------------------------------
- -------------------------------------------------------------------------------
Trustees of the Trust not affiliated with the Sponsor receive from the
Trust an annual retainer of $1,000 and a fee of $1,000 for each Board of
Trustees meeting and $1,000 for each Board committee meeting of the Trust
attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Trustees who are affiliated with the Sponsor do
not receive compensation from the Trust.
Officers and Trustees of the Trust, as a group, own less than 1% of
the outstanding shares of the Funds.
[Trustees and Officers of [ ] [International Portfolio Trust]
The following information relates to the principal occupations of
each Trustee and executive officer of the[_______] Trust during the past five
years and shows the nature of any affiliation with ______. Each of these
individuals currently serves in the same capacity for [ADVISER'S NAME] Capital
Funds (Delaware), an investment company with a series that invests all of its
assets in the Portfolio.
- a Trustee of the Trust -
- ----------------------------------------------------
- -------------------------------------------------------------------------------
- a Trustee of the Trust -
- ----------------------------------------------------
- -------------------------------------------------------------------------------
- a Trustee of the Trust -
- ----------------------------------------------------
- -------------------------------------------------------------------------------
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- a Trustee of the Trust -
- --------------------------------------
- -------------------------------------------------------------------------------
- President and a Trustee of the Trust
- --------------------------------------
- -------------------------------------------------------------------------------
- Chairman and a Trustee of the Trust -
- --------------------------------------
- -------------------------------------------------------------------------------
- a Vice President of the Trust -
- --------------------------------------
- -------------------------------------------------------------------------------
- a Vice President of the Trust -
- --------------------------------------
- -------------------------------------------------------------------------------
- a Vice President of the Trust -
- --------------------------------------
- -------------------------------------------------------------------------------
- a Vice President of the Trust -
- --------------------------------------
- -------------------------------------------------------------------------------
- a Vice President of the Trust -
- --------------------------------------
- -------------------------------------------------------------------------------
- a Vice President of the Trust -
- --------------------------------------
- -------------------------------------------------------------------------------
- a Vice President of the Trust -
- --------------------------------------
- -------------------------------------------------------------------------------
- a Vice President of the Trust -
- --------------------------------------
- -------------------------------------------------------------------------------
- Treasurer of the Trust -
- --------------------------------------
- -------------------------------------------------------------------------------
- Secretary of the Trust -
- --------------------------------------
- -------------------------------------------------------------------------------
- Assistant Treasurer and
- --------------------------------------
Assistant Secretary of the Trust -
--------------------------------------------
- -------------------------------------------------------------------------------
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- Assistant Treasurer and Assistant
- --------------------------------------
Secretary of the Trust -
------------------------------------------------------
- -------------------------------------------------------------------------------
- Assistant Secretary of the Trust
- --------------------------------------
- -------------------------------------------------------------------------------
(a) Interested Trustee of the Trust within the meaning of the 1940 Act.
Officers and Trustees who are interested persons of the Trust receive
no salary, fees or compensation from the Portfolio. Independent Trustees of
the Portfolio receive an annual fee of $_______ and a fee of $_______ for each
meeting of the Board attended by them. The Portfolio has no bonus, profit
sharing, pension or retirement plans.
The following table provides estimated fees to be paid to each Trustee of the
Trust for the fiscal year ended __________ ,199_.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
BENEFITS ESTIMATED COMPENSATION
ACCRUED AS ANNUAL FROM TRUST
AGGREGATE PART OF BENEFITS AND PORTFOLIO
COMPENSATION PORTFOLIO UPON COMPLEX PAID
NAME OF TRUSTEE FROM TRUST EXPENSES RETIREMENT TO TRUSTEES*
--------------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
$__,000 $ $ $__,000
---------------
__,000 __,000
---------------
__,000 __,000
---------------
0 0
---------------
__,000 __,000
---------------
__,000 __,000
---------------
0 0
---------------------------------
</TABLE>
* IN ADDITION TO THE [ ] TRUST, "FUND COMPLEX" INCLUDES [ADVISER'S
NAME] CAPITAL FUNDS (DELAWARE), AN OPEN-END INVESTMENT COMPANY FOR WHICH
[_________ ] SERVES AS INVESTMENT ADVISER, AND [ADVISER'S
NAME]___________FUND, INC., A CLOSED-END INVESTMENT COMPANY FOR WHICH
[_______ ] SERVES AS INVESTMENT ADVISER.
Officers and Trustees of the __________ Trust owned, in the
aggregate, less than 1% of the Portfolio's outstanding shares.
[While the __________ Trust is a Delaware business trust, certain of
its Trustees or officers are residents of the
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United Kingdom and substantially all of their assets may be located outside of
the U.S. As a result it may be difficult for U.S. investors to effect service
upon such persons within the U.S., or to realize judgments of courts of the
U.S. predicated upon civil liberties of such person under the Federal
securities laws of the U.S. The __________ Trust has been advised that there
is substantial doubt as to the enforceability in the United Kingdom of such
civil remedies and criminal penalties as are afforded by the Federal Securities
laws of the U.S. Also, it is unclear if extradition treaties now in effect
between the U.S. and the United Kingdom would subject such persons to effective
enforcement of the criminal penalties of such acts.]
Investment Advisers
[INVESTMENT ADVISER]
[Investment Adviser] has provided investment advisory services to the
Funds since inception (except the Cash Reserve Money Market Fund) pursuant to
an Advisory Agreement with the Trust (the "Advisory Agreement"). Subject to
such policies as the Trust's Board of Trustees may determine, [Investment
Adviser] makes investment decisions for the Funds (except the Cash Reserve
Money Market Fund). The Advisory Agreement provides that, as compensation for
services thereunder, [Investment Adviser] is entitled to receive from each Fund
it manages a monthly fee at an annual rate based upon average daily net assets
of the Fund as set forth in the table of Fund Expenses in the Prospectus.
[Investment Adviser], whose predecessor was formed in _____, is the
__ largest ________ in __________ and provides ______________ services to
individuals and institutions. It is a wholly-owned subsidiary of
__________________________. [Investment Adviser] acts as the investment
adviser to a wide variety of trusts, individuals, institutions and corporation.
Its investment management responsibilities, as of _____________, 1995, included
accounts with aggregate assets of approximately $____ billion. The principal
business address of [Investment Adviser] is [Address].
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<PAGE> 166
[Investment Adviser]
[Investment Adviser] ("______") provides investment advisory services
to the Cash Reserve Money Market Fund pursuant to an Investment Advisory
Agreement with the Trust (the "______ Agreement"). Subject to such policies as
the Trust's Board of Trustees may determine, ______ makes investment decisions
for the Cash Reserve Money Market Fund. The ______ Agreement provides that, as
compensation for services thereunder, ______ is entitled to receive from the
Cash Reserve Money Market a monthly fee (less waivers) at an annual rate based
upon average daily net assets of the Fund as set forth in the table of Fund
Expenses in the Prospectus.
[Investment Adviser] ("______"), located at [Address], is a
wholly-owned subsidiary of ______ Corporation, the parent company of
__________________, and was organized in ______ to provide business management,
advisory, administrative and asset management consulting services.
As of ____________, 1995, ______ provided investment advice with
respect to over $____ billion in assets including approximately $____ billion
of assets on behalf of [ADVISER'S NAME] Corporation and its primary subsidiary,
__________________.
The Investment Advisory Contracts for the Funds will continue in
effect for a period beyond two years from the date of their execution only as
long as such continuance is approved annually (i) by the holders of a majority
of the outstanding voting securities of the Funds or by the Board of Trustees
and (ii) by a majority of the Trustees who are not parties to such Contract or
"interested persons" (as defined in the 1940 Act) of any such party. The
Contracts may be terminated without penalty by vote of the Trustees or the
shareholders of the Funds, or by [ADVISER'S NAME] or [ADVISER'S NAME], on 60
days' written notice by either party to the Contract and will terminate
automatically if assigned.
International Portfolio
[ADVISER'S NAME] acts as investment adviser to International
Portfolio and is required to furnish at its expense all services, facilities
and personnel necessary in connection
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with managing International Portfolio's investments and effecting portfolio
transactions for International Portfolio. The Advisory Agreement between
International Portfolio and [ADVISER'S NAME] will continue in effect only if
such continuance is specifically approved at least annually by the Board of
Trustees of ______ Trust or by vote of the holders of beneficial interest of
International Portfolio, and in either case by a majority of the Trustees of
______ Trust who are not parties to the Advisory Agreement or interested
persons of any such party, at a meeting called for the purpose of voting on the
Advisory Agreement.
The Advisory Agreement with respect to International Portfolio is
terminable without penalty by International Portfolio on 60 days' written
notice when authorized either by vote of International Portfolio's shareholders
or by a vote of a majority of the Board of Trustees of ______ Trust, or by
[Adviser's Name] on not more than 60 days' nor less than 30 days' written
notice, and will automatically terminate in the event of its assignment. The
Advisory Agreement also provides that, with respect to International Portfolio,
neither [Adviser's Name] nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the performance if its
or their duties to International Portfolio, except for willful misfeasance, bad
faith or gross negligence in the performance of [ADVISER'S NAME]'s or their
duties or by reason of reckless disregard of its or their obligations and
duties under the Advisory Agreement. The Advisory Agreement provides that
[ADVISER'S NAME] may render service to others.
The advisory fees are accrued daily and paid monthly. [ADVISER'S
NAME], in its sole discretion, may waive all or any portion of its advisory fee
with respect to International Portfolio.
Distribution of Fund Shares
The Trust retains [Distributor'a Name], an affiliate of
[ADMINISTRATOR], to serve as principal underwriter for the shares of the Funds
pursuant to a Distribution Contract. The Distribution Contract provides that
the Distributor will use its best efforts to maintain a broad distribution of
the Funds' shares among bona fide investors and may enter into selling group
agreements with responsible dealers and dealer managers as well as sell the
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<PAGE> 168
Funds' shares to individual investors. The Distributor is not obligated to
sell any specific amount of shares.
Distribution Plan
The Trustees of the Fund have voted to adopt a Master Distribution
Plan (the "Plan") pursuant to Rule l2b-1 of the Investment Company Act of 1940
(the "1940 Act") after having concluded that there is a reasonable likelihood
that the Plan will benefit the Fund and its shareholders. The Plan provides
for a monthly payment by the Fund to the Distributor in such amounts that the
Distributor may request or for direct payment by the Fund, for certain costs
incurred under the Plan, subject to periodic Board approval, provided that each
such payment is based on the average daily value of the Fund's net assets
during the preceding month and is calculated at an annual rate not to exceed
0.25%. (Certain expenses of the Fund may be reduced in accordance with
applicable state expense limitations. See "Fees and Expenses"). The
Distributor will use all amounts received under the Plan for payments to
broker-dealers or financial institutions (but not including banks) for their
assistance in distributing shares of the Fund and otherwise promoting the sale
of Fund shares, including payments in amounts based on the average daily value
of Fund shares owned by shareholders in respect of which the broker-dealer or
financial institution has a distributing relationship. The Distributor may
also use all or any portion of such fees to pay Fund expenses such as the
printing and distribution of prospectuses sent to prospective investors; the
preparation, printing and distribution of sales literature and expenses
associated with media advertisements.
The Plan provides for the Distributor to prepare and submit to the
Board of Trustees on a quarterly basis written reports of all amounts expended
pursuant to the Plan and the purpose for which such expenditures were made.
The Plan provides that it may not be amended to increase materially the costs
which the Fund may bear pursuant to the Plan without shareholder approval and
that other material amendments of the Plan must be approved by the Board of
Trustees, and by the Trustees who neither are "interested persons" (as defined
in the 1940 Act) of the Trust nor have any direct or indirect financial
interest in the operation of the Plan or in any related agreement, by vote cast
in person at a meeting called for the purpose of considering
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<PAGE> 169
such amendments. The selection and nomination of the Trustees of the Trust has
been committed to the discretion of the Trustees who are not "interested
persons" of the Trust. The Plan and the related Administrative Services
Contract between the Trust and the Sponsor have been approved, and are subject
to annual approval, by the Board of Trustees and by the Trustees who neither
are "interested persons" nor have any direct or indirect financial interest in
the operation of the Plan or in the Administrative Services Contract, by vote
cast in person at a meeting called for the purpose of voting on the Plan. The
Board of Trustees and the Trustees who are not "interested persons" and who
have no direct or indirect financial interest in the operation of the Plan or
in the Administrative Services Contract voted to approve the Plan at a meeting
held on [___________, 1996]. The Plan was submitted to the shareholders of the
Fund and approved at a special meeting held on [___________, 1996]. The Plan
is terminable with respect to the Fund at any time by a vote of a majority of
the Trustees who are not "interested persons" of the Trust and who have no
direct or indirect financial interest in the operation of the Plan or in the
Administrative Services Contract or by vote of the holders of a majority of the
shares of the Fund.
Administrative Services
[ADMINISTRATOR] provides management and administrative services
necessary for the operation of the Funds, including among other things, (i)
preparation of shareholder reports and communications, (ii) regulatory
compliance, such as reports to and filings with the Securities and Exchange
Commission ("SEC") and state securities commissions and (iii) general
supervision of the operation of the Funds, including coordination of the
services performed by [Adviser's Name] and [Adviser's Name], the Distributor,
transfer agent, custodians, independent accountants, legal counsel and others.
In addition, [ADMINISTRATOR] furnishes office space and facilities required for
conducting the business of the Funds and pays the compensation of the Funds'
officers, employees and Trustees affiliated with [ADMINISTRATOR]. For these
services, [ADMINISTRATOR] receives from each Fund a fee, payable monthly, at
the annual rate of 0.15% of each Fund's average daily net assets.
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<PAGE> 170
The Administrative Services Contract is terminable with respect to
the Funds without penalty, at any time, by vote of a majority of the Trustees
who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Administrative Services
Contract upon not more than 60 days written notice to the Administrator or by
vote of the holders of a majority of the shares of the Funds, or, upon 60 days
notice, by the Administrator. The Administrative Services Contract will
terminate automatically in the event of its assignment.
Service Organizations
The Trust also contracts with banks (including [Adviser's Name]),
trust companies, broker-dealers (other than [ADMINISTRATOR]) or other financial
organizations ("Service Organizations") to provide certain administrative
services for the Funds. Services provided by Service Organizations may include
among other things: providing necessary personnel and facilities to establish
and maintain certain shareholder accounts and records; assisting in processing
purchase and redemption transactions; arranging for the wiring of funds;
transmitting and receiving funds in connection with shareholders orders to
purchase or redeem shares; verifying and guaranteeing client signatures in
connection with redemption orders, transfers among and changes in shareholders
designating accounts; providing periodic statements showing a shareholder's
account balance and, to the extent practicable, integrating such information
with other client transactions; furnishing periodic and annual statements and
confirmations of all purchases and redemptions of shares in a shareholder's
account; transmitting proxy statements, annual reports, and updating
prospectuses and other communications from the Funds to shareholders; and
providing such other services as the Funds or a shareholder reasonably may
request, to the extent permitted by applicable statute, rule or regulation.
Neither [ADMINISTRATOR], nor the Distributor will be a Service Organization or
receive fees for servicing.
Some Service Organizations may impose additional or different
conditions on their clients, such as requiring their clients to invest more
than the minimum initial or subsequent investments specified by the Funds or
charging a direct fee for servicing. If imposed, these fees would be in
addition to any
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<PAGE> 171
amounts which might be paid to the Service Organization by the Funds. Each
Service Organization has agreed to transmit to its clients a schedule of any
such fees. Shareholders using Service Organizations are urged to consult them
regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws, among other things,
prohibit banks from engaging in the business of underwriting, selling or
distributing securities. There currently is no precedent prohibiting banks
from performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or
interpretations of such laws, as well as changes in either Federal or state
statutes or regulations relating to the permissible activities of banks and
their subsidiaries or affiliates, could prevent a bank from continuing to
perform all or a part of its servicing activities. In addition, state
securities laws on this issue may differ from the interpretations of federal
law expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.
If a bank were prohibited from so acting, its shareholder clients
would be permitted to remain shareholders of the Trust and alternative means
for continuing the servicing of such shareholders would be sought. In that
event, changes in the operation of the Trust might occur and a shareholder
serviced by such a bank might no longer be able to avail itself of any services
then being provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these
occurrences.
EXPENSES AND EXPENSE LIMITS
[Currently, California is the only state imposing limitations on the
expenses of the Funds. Those expense limitations are 2-1/2 percent of the
first $30 million of a Fund's average net assets, 2 percent of the next $70
million and 1-1/2 percent of a Fund's remaining average net assets. If in any
fiscal year expenses of the Funds (excluding taxes, interest, expenses under
the Plan, brokerage commissions and other portfolio transaction expenses, other
expenditures which are
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<PAGE> 172
capitalized in accordance with generally accepted accounting principles and
extraordinary expenses, but including the advisory and administrative fees)
exceed the expense limitations applicable to the Funds imposed by the
securities regulations of any state, [ADMINISTRATOR] and [Adviser's Name] or
[Adviser's Name] (with respect to the Cash Reserve Money Market Fund only) will
reimburse the Funds for a portion of the excess with [Adviser's Name] or
[Adviser's Name] paying 60% and [ADMINISTRATOR] the remaining 40% of the
excess.]
Except for the expenses paid by the [Adviser's Name] or [Adviser's
Name] and [ADMINISTRATOR], the Funds bear all costs of their operations.
DETERMINATION OF NET ASSET VALUE
As indicated under "Fund Share Valuation" in the applicable
Prospectus, the Money Market Funds use the amortized cost method to determine
the value of their portfolio securities pursuant to Rule 2a-7 under the 1940
Act. The amortized cost method involves valuing a security at its cost and
amortizing any discount or premium over the period until maturity regardless of
the impact of fluctuating interest rates on the market value of the security.
While this method provides certainty in valuation, it may result in periods
during which the value, as determined by amortized cost, is higher or lower
than the price which the Funds would receive if the security were sold. During
these periods, the yield to a shareholder may differ somewhat from that which
could be obtained from a similar fund which utilizes a method of valuation
based upon market prices. Thus, during periods of declining interest rates, if
the use of the amortized cost method resulted in lower value of a Fund's
portfolio on a particular day, a prospective investor in the Fund would be able
to obtain a somewhat higher yield than would result from an investment in a
fund utilizing solely market values and existing Fund shareholders would
receive correspondingly less income. The converse would apply during periods
of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, each Money Market Fund must maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase securities having
remaining maturities of 397
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days or less and invest only in U.S. dollar denominated eligible securities
determined by the Trust's Board of Trustees to be of minimal credit risks and
which (1) have received the highest short-term rating by at least two
Nationally Recognized Statistical Rating Organizations ("NRSROs"), such as
"A-1" by Standard & Poor's and "P-1" by Moody's; (2) are single rated and have
received the highest short-term rating by a NRSRO; or (3) are unrated, but are
determined to be of comparable quality by the Adviser or [Adviser's Name]
pursuant to guidelines approved by the Board and subject to the ratification of
the Board.
In addition, a Fund will not invest more than 5% of its total assets
in the securities (including the securities collateralizing a repurchase
agreement) of, or subject to puts issued by, a single issuer, except that, a
Fund may invest in U.S. Government securities or repurchase agreements that are
collateralized by U.S. Government securities without any such limitation, and
the limitation with respect to puts does not apply to unconditional puts if no
more than 10% of a Fund's total assets are invested in securities issued or
guaranteed by the issuer of the unconditional put. Investments in rated
securities not rated in the highest category by at least two rating
organizations (or one rating organization if the instrument was rated by only
one such organization), and unrated securities not determined by the Board of
Trustees to be comparable to those rated in the highest rating category, will
be limited to 5% of a Fund's total assets, with investment in any one such
issuer being limited to no more than the greater of 1% of a Fund's total assets
or $1,000,000.
Pursuant to Rule 2a-7, the Board of Trustees is also required to
establish procedures designed to stabilize, to the extent reasonably possible,
the price per share of the Funds, as computed for the purpose of sales and
redemptions, at $1.00. Such procedures include review of the Fund's portfolio
holdings by the Board of Trustees, at such intervals as it may deem
appropriate, to determine whether the net asset value of the Funds calculated
by using available market quotations deviates from $l.00 per share based on
amortized cost. The extent of any deviation will be examined by the Board of
Trustees. If such deviation exceeds 1/2 of 1%, the Board of Trustees will
promptly consider what action, if any, will be initiated. In the event
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the Board of Trustees determines that a deviation exists which may result in
material dilution or other unfair results to investors or existing
shareholders, the Board of Trustees will take such corrective action as it
regards as necessary and appropriate, which may include selling portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, withholding dividends or establishing a net asset
value per share by using available market quotations.
The Non-Money Market Funds value their portfolio securities in
accordance with the procedures described in the Prospectus.
PORTFOLIO TRANSACTIONS
Investment decisions for the Funds and for the other investment
advisory clients of [Adviser's Name] and [Adviser's Name] are made with a view
to achieving their respective investment objectives. Investment decisions are
the product of many factors in addition to basic suitability for the particular
client involved. Thus, a particular security may be bought or sold for certain
clients even though it could have been bought or sold for other clients at the
same time. Likewise, a particular security may be bought for one or more
clients when one or more clients are selling the security. In some instances,
one client may sell a particular security to another client. It also sometimes
happens that two or more clients simultaneously purchase or sell the same
security, in which event each day's transactions in such security are, insofar
as possible, averaged as to price and allocated between such clients in a
manner which in the opinion of [ADVISER'S NAME] or [ADVISER'S NAME] is
equitable to each and in accordance with the amount being purchased or sold by
each. There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on other
clients.
The Funds have no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Trust's Board of Trustees, [Adviser's Name] and
[Adviser's Name] are primarily responsible for portfolio decisions and the
placing of portfolio
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transactions. In placing orders, it is the policy of the Funds to obtain the
best results taking into account the broker-dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the dealer's risk in positioning the securities. While [Adviser's Name] and
[Adviser's Name] generally seek reasonably competitive spreads or commissions,
the Funds will not necessarily be paying the lowest spread or commission
available.
Purchases and sales of securities will often be principal
transactions in the case of debt securities and equity securities traded
otherwise than on an exchange. The purchase or sale of equity securities will
frequently involve the payment of a commission to a broker-dealer who effects
the transaction on behalf of a Fund. Debt securities normally will be
purchased or sold from or to issuers directly or to dealers serving as market
makers for the securities at a net price. Generally, money market securities
are traded on a net basis and do not involve brokerage commissions.
The cost of executing portfolio securities transactions for the Money
Market Funds primarily consists of dealer spreads and underwriting commissions.
Under the 1940 Act, persons affiliated with the Funds or the Sponsor are
prohibited from dealing with the Funds as a principal in the purchase and sale
of securities unless a permissive order allowing such transactions is obtained
from the SEC.
[Adviser's Name] may, in circumstances in which two or more
broker-dealers are in a position to offer comparable results, give preference
to a dealer which has provided statistical or other research services to
[Adviser's Name]. By allocating transactions in this manner, [Adviser's Name]
is able to supplement its research and analysis with the views and information
of securities firms. These items, which in some cases may also be purchased
for cash, include such matters as general economic and securities market
reviews, industry and company reviews, evaluations of securities and
recommendations as to the purchase and sale of securities.
Some of these services are of value to [Adviser's Name] in advising
various of their clients (including the Funds), although not all of these
services are necessarily useful and of
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value in managing the Funds. The management fee paid by the Funds is not
reduced because [ADVISER'S NAME] or its affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934
(the "Act"), [Adviser's Name] may cause the Funds to pay a broker-dealer which
provides "brokerage and research services" (as defined in the Act) to
[Adviser's Name] an amount of disclosed commission for effecting a securities
transaction for the Funds in excess of the commission which another
broker-dealer would have charged for effecting that transaction.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to seeking the most
favorable price and execution available and such other policies as the Trustees
may determine, [Adviser's Name] and [Adviser's Name] may consider sales of
shares of the Funds as a factor in the selection of broker-dealers to execute
portfolio transactions for the Funds.
Portfolio Turnover
Changes may be made in the portfolio consistent with the investment
objectives and policies of the Funds whenever such changes are believed to be
in the best interests of the Funds and their shareholders. It is anticipated
that the annual portfolio turnover rate normally will not exceed the amounts
stated in the Funds' Prospectuses and financial statements. The portfolio
turnover rate is calculated by dividing the lesser of purchases or sales of
portfolio securities by the average monthly value of the Fund's portfolio
securities. For purposes of this calculation, portfolio securities exclude all
securities having a maturity when purchased of one year or less.
TAXATION
The Funds intend to qualify and elect annually to be treated as
regulated investment companies under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). To qualify as a regulated investment
company, a Fund must (a) distribute to shareholders at least 90% of its
investment company
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taxable income (which includes, among other items, dividends, taxable interest
and the excess of net short-term capital gains over net long-term capital
losses); (b) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (c) derive less than 30% of its gross income from the
sale or other disposition of certain assets (namely, (i) stock or securities;
(ii) options, futures, and forward contracts (other than those on foreign
currencies), and (iii) foreign currencies (including options, futures, and
forward contracts on such currencies) not directly related to the Fund's
principal business of investing in stock or securities (or options and futures
with respect to stocks or securities)) held less than 3 months; and (d)
diversify its holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the market value of the Fund's assets is represented by
cash and cash items (including receivables), U.S. Government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and not greater than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any one issuer (other than U.S. Government securities or
the securities of other regulated investment companies). In addition, a Fund
earning tax-exempt interest must, in each year, distribute at least 90% of its
net tax-exempt income. By meeting these requirements, the Funds generally will
not be subject to Federal income tax on their investment company taxable income
and net capital gains which are distributed to shareholders. If the Funds do
not meet all of these Code requirements, they will be taxed as ordinary
corporations and their distributions will be taxed to shareholders as ordinary
income.
Amounts, other than tax-exempt interest, not distributed on a timely
basis in accordance with a calendar year distribution requirement are subject
to a nondeductible 4% excise tax. To prevent imposition of the excise tax,
each Fund must distribute for each calendar year an amount equal to the sum of
(1) at least 98% of its ordinary income (excluding any capital
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gains or losses) for the calendar year, (2) at least 98% of the excess of its
capital gains over capital losses (adjusted for certain ordinary losses) for
the one-year period ending October 31 of such year, and (3) all ordinary income
and capital gains net income (adjusted for certain ordinary losses) for
previous years that were not distributed during such years. A distribution,
including an "exempt-interest dividend," will be treated as paid on December 31
of a calendar year if it is declared by a Fund during October, November or
December of that year to shareholders of record on a date in such a month and
paid by the Fund during January of the following year. Such distributions will
be taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are
received.
Some Funds may invest in stocks of foreign companies that are
classified under the Code as passive foreign investment companies ("PFICs").
In general, a foreign company is classified as a PFIC under the Code if at
least one-half of its assets constitutes investment-type assets or 75% or more
of its gross income is investment-type income. Under the PFIC rules, an
"excess distribution" received with respect to PFIC stock is treated as having
been realized ratably over the period during which the Fund held the PFIC
stock. A Fund itself will be subject to tax on the portion, if any, of the
excess distribution that is allocated to the Fund's holding period in prior
taxable years (and an interest factor will be added to the tax, as if the tax
actually been payable in such prior taxable years) even though the Fund
distributes the corresponding income to shareholders. Excess distributions
include any gain from the sale of PFIC stock as well as certain distributions
from a PFIC. All excess distributions are taxable as ordinary income.
A Fund may be able to elect alternative tax treatment with respect to
PFIC stock. Under an election that currently may be available, a Fund
generally would be required to include in its gross income its share of the
earnings of a PFIC on a current basis, regardless of whether any distributions
are received from the PFIC. If this election is made, the special rules,
discussed above, relating to the taxation of excess distributions, would not
apply. In addition, other elections may become available that would affect the
tax treatment of PFIC stock held by a Fund. Each Fund's intention to qualify
annually as a regulated
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investment company may limit its elections with respect to PFIC stock.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of
the recognition of income with respect to PFIC stock, as well as subject a Fund
itself to tax on certain income from PFIC stock, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not invest in PFIC stock.
Distributions of investment company taxable income generally are
taxable to shareholders as ordinary income. Distributions from certain of the
Funds may be eligible for the dividends-received deduction available to
corporations. Distributions of net long term capital gains, if any, designated
by the Funds as long term capital gain dividends are taxable to shareholders as
long-term capital gain, regardless of the length of time the Funds' shares have
been held by a shareholder. All distributions are taxable to the shareholder
in the same manner whether reinvested in additional shares or received in cash.
Shareholders will be notified annually as to the Federal tax status of
distributions.
Distributions by a Fund reduce the net asset value of the Fund's
shares. Should a distribution reduce the net asset value below a shareholder's
cost basis, such distribution, nevertheless, would be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital.
In particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by the Funds. The price of shares
purchased at that time includes the amount of the forthcoming distribution.
Those purchasing just prior to a distribution will receive a distribution which
will nevertheless generally be taxable to them.
Upon the taxable disposition (including a sale or redemption) of
shares of a Fund, a shareholder may realize a gain or loss depending upon his
basis in his shares. Such gain or loss generally will be treated as capital
gain or loss if the shares are capital assets in the shareholders hands. Such
gain or
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loss will be long-term or short-term, generally depending upon the
shareholder's holding period for the shares. However, a loss realized by a
shareholder on the disposition of Fund shares with respect to which capital
gain dividends have been paid will, to the extent of such capital gain
dividends, be treated as long term capital loss if such shares have been held
by the shareholder for six months or less. A loss realized on the redemption,
sale or exchange of Fund shares will be disallowed to the extent an
exempt-interest dividend was received with respect to those shares if the
shares have been held by the shareholder for six months or less. Further, a
loss realized on a disposition will be disallowed to the extent the shares
disposed of are replaced (whether by reinvestment of distributions or
otherwise) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Shareholders
receiving distributions in the form of additional shares will have a cost basis
for Federal income tax purposes in each share received equal to the net asset
value of a share of the Funds on the reinvestment date.
Under certain circumstances, the sales charge incurred in acquiring
shares of a Fund may not be taken into account in determining the gain or loss
on the disposition of those shares. This rule applies where shares of a Fund
are exchanged within 90 days after the date they were purchased and new shares
of a Fund are acquired without a sales charge or at a reduced sales charge. In
that case, the gain or loss recognized on the exchange will be determined by
excluding from the tax basis of the shares exchanged all or a portion of the
sales charge incurred in acquiring those shares. This exclusion applies to the
extent that the otherwise applicable sales charge with respect to the newly
acquired shares is reduced as a result of having incurred the sales charge
initially. Instead, the portion of the sales charge affected by this rule will
be treated as a sales charge paid for the new shares.
The taxation of equity options is governed by Code section 1234.
Pursuant to Code section 1234, the premium received by a Fund for selling a put
or call option is not included in income at the time of receipt. If the option
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expires, the premium is short-term capital gain to the Fund. If the Fund
enters into a closing transaction, the difference between the amount paid to
close out its position and the premium received is short-term capital gain or
loss. If a call option written by a Fund is exercised, thereby requiring the
Fund to sell the underlying security, the premium will increase the amount
realized upon the sale of such security and any resulting gain or loss will be
a capital gain or loss, and will be long-term or short-term depending upon the
holding period of the security. With respect to a put or call option that is
purchased by a Fund, if the option is sold, any resulting gain or loss will be
a capital gain or loss, and will be long-term or short-term, depending upon the
holding period of the option. If the option expires, the resulting loss is a
capital loss and is long-term or short-term, depending upon the holding period
of the option. If the option is exercised, the cost of the option, in the case
of a call Option, is added to the basis of the purchased security and, in the
case of a put option, reduces the amount realized on the underlying security in
determining gain or loss.
Certain of the options, futures contracts, and forward foreign
currency exchange contracts that several of the Funds may invest in are
so-called "section 1256 contracts." With certain exceptions, gains or losses
on section 1256 contracts generally are considered 60% long-term and 40%
short-term capital gains or losses ("60/40"). Also, section 1256 contracts
held by a Fund at the end of each taxable year (and, generally, for purposes of
the 4% excise tax, on October 31 of each year) are "marked-to-market" with the
result that unrealized gains or losses are treated as though they were realized
and the resulting gain or loss is treated as 60/40 gain or loss.
Generally, the hedging transactions undertaken by a Fund may result
in "straddles" for Federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on a position that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to a Fund of hedging transactions are not
entirely clear. Hedging transactions may increase the amount of short-term
capital gain
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realized by a Fund which is taxed as ordinary income when distributed to
stockholders.
A Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
may operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
Certain requirements that must be met under the Code in order for a
Fund to qualify as a regulated investment company may limit the extent to which
a Fund will be able to engage in transactions in options, futures, and forward
contracts.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues interest, dividends
or other receivables, or accrues expenses or other liabilities denominated in a
foreign currency, and the time the Fund actually collects such receivables, or
pays such liabilities, generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of debt securities denominated in a foreign
currency and on disposition of certain options and forward and futures
contracts, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contract and the
date of disposition also are treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "section 988" gains or losses, may
increase, decrease, or eliminate the amount of a Fund's investment company
taxable income to be distributed to its shareholders as ordinary income.
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Income received by a Fund from sources within foreign countries may
be subject to withholding and other similar income taxes imposed by the foreign
country. If more than 50% of the value of a Fund's total assets at the close
of its taxable year consists of securities of foreign governments and
corporations, the Fund will be eligible and intends to elect to "pass-through"
to its shareholders the amount of such foreign taxes paid by the Fund.
Pursuant to this election, a shareholder would be required to include in gross
income (in addition to taxable dividends actually received) his pro rata share
of the foreign taxes paid by a Fund, and would be entitled either to deduct his
pro rata share of foreign taxes in computing his taxable income or to use it as
a foreign tax credit against his U.S. Federal income tax liability, subject to
limitations. No deduction for foreign taxes may be claimed by a shareholder
who does not itemize deductions, but such a shareholder may be eligible to
claim the foreign tax credit (see below). Each shareholder will be notified
within 60 days after the close of a Fund's taxable year whether the foreign
taxes paid by a Fund will "pass-through" for that year and, if so, such
notification will designate (a) the shareholder's portion of the foreign taxes
paid to each such country and (b) the portion of the dividend which represents
income derived from foreign sources.
Generally, a credit for foreign taxes is subject to the limitation
that it may not exceed the shareholder's U.S. tax attributable to his total
foreign source taxable income. For this purpose, if a Fund makes the election
described in the preceding paragraph, the source of the Fund's income flows
through to its shareholders. With respect to a Fund, gains from the sale of
securities will be treated as derived from U.S. sources and certain currency
fluctuations gains, including fluctuation gains from foreign
currency-denominated debt securities, receivables and payables, will be treated
as ordinary income derived from U.S. sources. The limitation on the foreign
tax credit is applied separately to foreign source passive income has defined
for purposes of the foreign tax credit) including foreign source passive income
of a Fund. The foreign tax credit may offset only 90% of the alternative
minimum tax imposed on corporations and individuals, and foreign taxes
generally may not be deducted in computing alternative minimum taxable income.
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The Funds are required to report to the Internal Revenue Service
("IRS") all distributions except in the case of certain exempt shareholders.
All such distributions generally are subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Funds with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the Funds or a shareholder that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions, whether reinvested in additional shares or taken in cash, will
be reduced by the amounts required to be withheld. Backup withholding is not
an additional tax. Any amount withheld may be credited against the
shareholders U.S. Federal income tax liability. Investors may wish to consult
their tax advisors about the applicability of the backup withholding
provisions.
The foregoing discussion relates only to Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, trusts and estates). Distributions by the Funds
also may be subject to state and local taxes and their treatment under state
and local income tax laws may differ from the Federal income tax treatment.
Distributions of a Fund which are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities may be exempt
from state and local taxes in certain states. Shareholders should consult
their tax advisors with respect to particular questions of Federal, state and
local taxation. Shareholders who are not U.S. persons should consult their tax
advisers regarding U.S. and foreign tax consequences of ownership of shares of
the Funds including the likelihood that distributions to them would be subject
to withholding of U.S. tax at a rate of 30% (or at a lower rate under a tax
treaty).
Kansas Tax Exempt Fund and U.S. Intermediate Tax Exempt Fund. Each
of these Funds intends to manage its portfolio so that it will be eligible to
pay "exempt-interest dividends" to shareholders. Each Fund will so qualify if,
at the close of each quarter of its taxable year, at least 50% of the value of
its
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total assets consists of state, municipal, and certain other securities, the
interest on which is exempt from the regular Federal income tax. To the extent
that a Fund's dividends distributed to shareholders are derived from such
interest income and are designated as exempt-interest dividends by the Fund,
they will be excludable from a shareholder's gross income for Federal income
tax purposes. Exempt-interest dividends, however, must be taken into account
by shareholders in determining whether their total incomes are large enough to
result in taxation of up to 85% of their Social Security benefits and certain
railroad retirement benefits. Each Fund will inform shareholders annually as
to the portion of the distributions from the Fund which constitute
exempt-interest dividends. In addition, for corporate shareholders of each
Fund, exempt interest dividends may comprise part or all of an adjustment to
alternative minimum taxable income. Exempt-interest dividends that are
attributable to certain private activity bonds, while not subject to the
regular Federal income tax, may constitute an item of tax preference for
purposes of the alternative minimum tax.
To the extent that a Fund's dividends are derived from its investment
company taxable income (which includes interest on its temporary taxable
investments and the excess of net short-term capital gain over net long-term
capital loss), they are considered ordinary (taxable) income for Federal income
tax purposes. Such dividends will not qualify for the dividends - received
deduction for corporations. Distributions, if any, of net long-term capital
gains (the excess of net long-term capital gain over net short-term capital
loss) designated by a Fund as long-term capital gain dividends are taxable to
shareholders as long-term capital gain regardless of the length of time the
shareholder has owned shares of the Fund.
Upon redemption, sale or exchange of shares in one of these Funds, a
shareholder will realize a taxable gain or loss, depending on whether the gross
proceeds are more or less than the shareholder's tax basis for the shares. The
discussion above provides additional detail about the income tax consequences
of disposing of Fund shares.
Deductions for interest expense incurred to acquire or carry shares
of the Fund may be subject to limitations that reduce, defer, or eliminate such
deductions. This includes
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limitations on deducting interest on indebtedness properly allocable to
investment property (which may include shares of the Fund). In addition, a
shareholder may not deduct a portion of interest on indebtedness incurred or
continue to purchase or carry shares of an investment company (such as one of
these Funds) paying exempt-interest dividends. Such disallowance would be in
an amount which bears the same ratio to the total of such interest as the
exempt-interest dividends bear to the total dividends, excluding net capital
gain dividends received by the shareholder. Under rules issued by the IRS for
determining when borrowed funds are considered used for the purposes of
purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though the borrowed funds
are not directly traceable to the purchase of shares.
Certain of the debt securities acquired by the Funds may be treated
as debt securities that were originally issued at a discount. Original issue
discount can generally be defined as the difference between the price at which
a security was issued and its stated redemption price at maturity. Although no
cash income is actually received by the Fund, original issue discount on a
taxable debt security earned in a given year generally is treated for Federal
income tax purposes as interest and, therefore, such income would be subject to
the distribution requirements of the Code. Original issue discount on an
obligation, the interest from which is exempt from Federal income tax,
generally will constitute tax-exempt interest income.
Some of the debt securities may be purchased by a Fund at a discount
which exceeds the original issue discount on such securities, if any. This
additional discount represents market discount for Federal income tax purposes.
The gain realized on the disposition of any debt security having market
discount will be treated as ordinary taxable income to the extent it does not
exceed the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by the
Fund at a constant rate over the time remaining to the debt security's maturity
or, at the election of a Fund, at a constant yield to maturity which takes into
account the semi-annual compounding of interest.
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Under Kansas law, a mutual fund which qualifies as a regulated
investment company generally must have at least 50% of its total assets in
Kansas state and local issues at the end of each quarter of its taxable year in
order to be eligible to pay dividends which will be exempt from Kansas personal
income tax. Generally, shareholders who are Kansas residents will not incur
Kansas personal income tax on the amount of exempt-interest dividends received
by them from a Fund and derived from Kansas state and local issues, whether
taken in cash or paid in additional shares. Gain on the sale or redemption of
Fund shares is subject to Kansas personal income tax.
Shareholders will normally be subject to Kansas personal income tax
on dividends paid from income derived from taxable securities and other taxable
investments, and from securities issued by states other than Kansas and on
distribution of capital and other taxable gains.
Each Fund will be required to report to the IRS all distributions of
investment company taxable income and net capital gains and gross proceeds from
the redemption or exchange of the Fund's shares, except in the case of certain
exempt shareholders. All such distributions and proceeds from the redemption
or exchange of the Fund's shares may be subject to withholding of Federal
income tax at the rate of 31% in the case of non-exempt shareholders who fail
to furnish a Fund with their taxpayer identification numbers and with required
certifications regarding their status under Federal income tax laws.
A deductible "environmental tax" of 0.12% is imposed on a
corporation's modified alternative minimum taxable income in excess of $2
million. The environmental tax will be imposed even if the corporation is not
required to pay an alternative minimum tax because the corporation's regular
income tax liability exceeds its minimum tax liability. To the extent that
exempt-interest dividends paid by a Fund are included in alternative minimum
taxable income, corporate shareholders may be subject to the environmental tax.
Opinions relating to the validity of municipal securities and the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the issuers. The Funds, [Adviser's Name] and its affiliates, and
the Funds'
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<PAGE> 188
counsel make no review of proceedings relating to the issuance of state or
municipal securities on the bases of such opinions.
Persons who may be "substantial users" (or "related persons" of
substantial users) of facilities financed by private activity bonds should
consult their tax advisers before purchasing shares of one of these Funds since
the acquisition of shares of the Fund may result in adverse tax consequences to
them. In addition, all shareholders of a Fund should consult their tax
advisers about the tax consequences to them of their investments in the Fund.
Changes in the tax law, including provisions relating to tax-exempt
income, frequently come under consideration. If such changes are enacted, the
tax consequences arising from an investment in Kansas Tax Exempt Fund or the US
Intermediate Tax Exempt Fund may be affected. Since ___________ Trust does not
undertake to furnish tax advice, it is important for shareholders to consult
their tax advisers regularly about the tax consequences to them of investing in
one or more of the ___________ Funds.
OTHER INFORMATION
Capitalization
The Trust is a Delaware business trust established under a
Declaration of Trust dated ___________, 1996 and currently consists of ten
separately managed portfolios. Each portfolio is comprised of two classes of
shares -- the "Service Class" and the "Premium Class". The capitalization of
the Trust consists solely of an unlimited number of shares of beneficial
interest with a par value of $0.001 each. The Board of Trustees may establish
additional Funds (with different investment objectives and fundamental
policies) at any time in the future. Establishment and offering of additional
Funds will not alter the rights of the Trust's shareholders. When issued,
shares are fully paid, non-assessable, redeemable and freely transferable.
Shares do not have preemptive rights or subscription rights. In any
liquidation of a Fund, each shareholder is entitled to receive his pro rata
share of the net assets of that Fund.
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<PAGE> 189
Expenses incurred in connection with each Fund's organization and the
public offering of its shares have been deferred and are being amortized on a
straight-line basis over a period of not more than five years.
Voting Rights
Under the Declaration of Trust, the Trust is not required to hold
annual meetings of each Fund's shareholders to elect Trustees or for other
purposes. When certain matters affect only one class of shares but not
another, the shareholders would vote as a class regarding such matters. It is
not anticipated that the Trust will hold shareholders' meetings unless required
by law or the Declaration of Trust. In this regard, the Trust will be required
to hold a meeting to elect Trustees to fill any existing vacancies on the Board
if, at any time, fewer than a majority of the Trustees have been elected by the
shareholders of the Trust. In addition, the Declaration of Trust provides that
the holders of not less than two-thirds of the outstanding shares of the Trust
may remove persons serving as Trustee either by declaration in writing or at a
meeting called for such purpose. The Trustees are required to call a meeting
for the purpose of considering the removal of persons serving as Trustee if
requested in writing to do so by the holders of not less than 10% of the
outstanding shares of the Trust. To the extent required by applicable law, the
Trustees shall assist shareholders who seek to remove any person serving as
Trustee.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board
of Trustees, in which case the holders of the remaining shares would not be
able to elect any Trustees.
Custodian Transfer Agent and Dividend Disbursing Agent
[Custodian's Name] acts as custodian of the Trust's assets.
[ADMINISTRATOR] acts as transfer agent for the Funds. The Trust compensates
[ADMINISTRATOR] for providing personnel and facilities to perform transfer
agency related services for the Trust at a rate intended to represent the cost
of providing such services. The International Equity Fund pays no custodian
fees as long as all of its assets are invested in another mutual fund,
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<PAGE> 190
but incurs its pro-rata portion of the custody fees of [PORTFOLIO'S
CUSTODIAN'S NAME] as Portfolio Custodian. The Trustees of the Portfolio have
reviewed and approved custodial arrangements for securities held outside of the
United States in accordance with Rule 17f-5 of the 1940 Act.
Experts
[Independent Accountant] has been selected as the independent
accountants for the Trust. [Independent Accountant] provides audit services,
tax return preparation and assistance and consultation in connection with
review of certain SEC filings. [Independent Accountant]'s [address].
Yield and Performance Information
The Funds may, from time to time, include their yield, effective
yield, tax equivalent yield and average annual total return in advertisements
or reports to shareholders or prospective investors.
Current yield for the Money Market Funds will be based on the change
in the value of a hypothetical investment (exclusive of capital changes such as
gains or losses from the sale of securities and unrealized appreciation and
depreciation) over a particular seven-day period, less a pro-rata share of each
Fund's expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by 365/7,
with the resulting yield figure carried to at least the nearest hundredth of
one percent. "Effective yield" for the Money Market Funds assumes that all
dividends received during the base period have been reinvested. Calculation of
"effective yield" begins with the same "base period return" used in the
calculation of yield, which is then annualized to reflect weekly compounding
pursuant to the following formula:
365/7
Effective Yield = [(Base Period Return + 1) ] - 1.
Quotations of yield for the Non-Money Market Funds will be based on
the investment income per share earned during a particular 30-day period, less
expenses accrued during a period
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<PAGE> 191
("net investment income") and will be computed by dividing net investment
income by the maximum offering price per share on the last day of the period,
according to the following formula:
6
YIELD = 2[(a-b + 1) -l]
---
cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of any reimbursements), c = the average daily number of
shares outstanding during the period that were entitled to receive dividends,
and d = the maximum offering price per share on the last day of the period.
Quotations of tax-equivalent yield for Kansas Tax-Exempt Fund and the
U.S. Intermediate Tax-Exempt Fund will be calculated according to the following
formula:
TAX EQUIVALENT YIELD = ( E )
---
1-p
E = tax-exempt yield
p = stated income tax rate
Quotations of average annual total return will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in a Fund over periods of 1, 5 and 10 years and since inception (up
to the life of the Fund), calculated pursuant to the following formula:
n
P (1 + T) = ERV
(where P = a hypothetical initial payment of $l,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures will reflect the deduction of the maximum sales charge and a
proportional share of Fund expenses (net of certain reimbursed expenses) on an
annual basis, and will assume that all dividends and distributions are
reinvested when paid.
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<PAGE> 192
Quotations of yield and total return will reflect only the
performance of a hypothetical investment in the Funds during the particular
time period shown. Yield and total return for the Funds will vary based on
changes in the market conditions and the level of the Fund's expenses, and no
reported performance figure should be considered an indication of performance
which may be expected in the future.
In connection with communicating its yields or total return to
current or prospective unit holders, the Funds also may compare these figures
to the performance of other mutual funds tracked by mutual fund rating services
or to other unmanaged indexed which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow
Jones Industrial Average, or other unmanaged indices so that investors may
compare the Funds' results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities markets in general;
(ii) other groups of mutual funds tracked by Lipper Analytical Services, a
widely used independent research firm which ranks mutual funds by overall
performance, investment objectives, and assets, or tracked by other services,
companies, publications, or persons who rank mutual funds on overall
performance or other criteria; and (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment of dividends
but generally do not reflect deductions for administrative and management costs
and expenses.
Investors who purchase and redeem shares of the Funds through a
customer account maintained at a Service Organization may be charged one or
more of the following types of fees as agreed upon by the Service Organization
and the investor, with respect to the customer services provided by the Service
Organization: account fees (a fixed amount per month or per year); transaction
fees (a fixed amount per transaction processed); compensating balance
requirements (a minimum dollar amount a customer must maintain in order to
obtain the services offered); or account maintenance fees (a periodic charge
based upon a percentage of the assets in the account or of the dividends paid
on those assets). Such fees will have the effect of reducing
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<PAGE> 193
the yield and average annual total return of the Funds for those investors.
Investors who maintain accounts with the Trust as transfer agent will not pay
these fees.
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<PAGE> 194
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) (1) Financial Statements included in Part A of this
Registration Statement: None.
(2) Financial Statements included in Part B of this
Registration Statement: None.
(b) Exhibits
- (1) Trust Instrument.
- (2) Bylaws of Registrant.
(3) None.
(4) None.
- (5)(a) Form of Master Investment Advisory Agreement
and Supplements between Registrant and
Adviser.
- (5)(b) Form of Investment Advisory Agreement between
Registrant and Adviser.
- (5)(c) Form of Master Administration Agreement and
Supplements between Registrant and
Administrator.
- (6) Form of Master Distribution Contract and
Supplements between Registrant and
Distributor.
(7) None.
- (8) Form of Custodian Contract between Registrant
and Custodian.
- (9)(a) Form of Transfer Agency and Service Agreement
between Registrant and Transfer Agent.
- (10)(a) Consent of Baker & McKenzie, counsel to
Registrant.
- (11) Consent of Independent Accountants.
(12) None
<PAGE> 195
- (13) Subscription Agreement.
(14) None.
- (15) Form of Rule 12b-1 Distribution Plan and
Agreement between Registrant and Distributor.
- (16) Schedule of Computation of Performance
Calculation.
- (17) Financial Data Schedule.
- (18) Rule 18f-3 Plan.
Other Exibits
- (A) Power Of Attorney.
- -----------------------
- - To be filed by Amendment.
-2-
<PAGE> 196
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities at , 1996.
U.S. Treasury Reserve Money Market Fund ___
Cash Reserve Money Market Fund ___
Short-Term Treasury Income Fund ___
Intermediate Bond Income Fund ___
Bond Income Fund ___
Stock Appreciation Fund ___
Aggressive Stock Appreciation Fund ___
Value Stock Appreciation Fund ___
International Equity Fund ___
U.S. Intermediate Tax Exempt Fund ___
Kansas Intermediate Tax Exempt Fund ___
Item 27. Indemnification.
As permitted by Section 17(h) and (i) of the Investment
Company Act of 1940 (the "1940 Act") and pursuant to Article X of the
Registrant's Trust Instrument (Exhibit 1 to the Registration Statement),
Section 4 of the Master Investment Advisory Contract between Registrant and
[the Adviser] (Exhibit 5(a) to this Registration Statement), Section 9 of the
Investment Advisory Agreement between Registrant and [the Adviser] (Exhibit
5(b) to this Registration Statement) and Section 9 of the Master Distribution
Contract between Registrant and [the Distributor] (Exhibit 6 to this
Registration Statement), officers, trustees, employees and agents of the
Registrant will not be liable to the Registrant, any shareholder, officer,
trustee, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
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<PAGE> 197
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to trustees,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant understands that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a trustee,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Registrant will purchase an insurance policy insuring its
officers and trustees against liabilities, and certain costs of defending
claims against such officers and trustees, to the extent such officers and
trustees are not found to have committed conduct constituting willful
misfeasance, bad faith, gross negligence or reckless disregard in the
performance of their duties. The insurance policy also insures the Registrant
against the cost of indemnification payments to officers under certain
circumstances.
Section 4 of the Master Investment Advisory Contract between
Registrant and [the Adviser], Section 9 of the Investment Advisory Agreement
between Registrant and [the Adviser] and Section 9 of the Master Distribution
Contract between Registrant and [the Adviser] Distributor limit the liability
of [the Adviser], and the Distributor to liabilities arising from willful
misfeasance, bad faith or gross negligence in the performance of their
respective duties or from reckless disregard by them of their respective
obligations and duties under the agreements.
The Registrant hereby undertakes that it will apply the
indemnification provisions of its Declaration of Trust, By-Laws, Investment
Advisory Contracts and Distribution Contract in a manner consistent with
Release No. 11330 of the Securities and Exchange Commission under the 1940 Act
so long as the interpretations of Section 17(h) and 17(i) of such Act remain in
effect and are consistently applied.
Item 28. Business and Other Connections of [the Adviser].
[To be provided by Amendment]
[The Adviser] is a subsidiary of __________________, a
__________________ headquartered in _____________________.
[The Adviser], whose predecessor was originally organized in
____, is the _____________________ in __________ and, at
_________________, 1996, had approximately ___% of all insured
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<PAGE> 198
deposits in _________. [The Adviser], _____________________,
has ___ offices in ___ communities.
The executive officers of [the Adviser] and
_____________________ and such executive officers' positions
during the past five years are as follows:
<TABLE>
<CAPTION>
Name Position and Offices
---- --------------------
<S> <C> <C>
[To be provided by Amendment]
</TABLE>
Business and Other Connections of [the Adviser].
[To be provided by Amendment]
<TABLE>
<CAPTION>
Principal Occupation
Name and Position During Past Two Years
----------------- ---------------------
<S> <C>
[To be provided by Amendment]
</TABLE>
Item 29. Principal Underwriter
(a) [The Distributor] does not act as
Distributor/Underwriter for other registered
investment companies.
(b) Officers and Directors.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices with
Business Address* Registrant Underwriter
- ------------------------- ------------------------------ --------------------------
<S> <C> <C>
[To be provided by Amendment]
</TABLE>
(c) Not applicable.
- -----------------------
* 237 Park Avenue, Suite 910, New York, New York 10017.
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<PAGE> 199
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder are maintained at the offices of [ADMINISTRATOR].
Item 31. Management Services
Not applicable.
Item 32. Undertakings.
(a) Registrant undertakes to call a meeting of
shareholders for the purpose of voting upon the
removal of a trustee if requested to do so by the
holders of at least 10% of the Registrant's
outstanding shares.
(b) Registrant undertakes to provide the support to
shareholders specified in Section 16(c) of the 1940
Act as though that section applied to the Registrant.
(c) Registrant hereby undertakes to file a post-effective
amendment, using financial statements which need not be
certified, within four to six months from the effective date of
the Registrant's 1933 Act Registration Statement.
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<PAGE> 200
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and State of New York, on January 24,
1996.
FS FUNDS TRUST
By:
--------------------------------
John J. Pileggi, President
and Sole Trustee
<PAGE> 201
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/John J. Pileggi
---------------------------
John J. Pileggi Trustee and Principal Executive January 24, 1996
Officer
/s/Donald Brostrom
--------------------------
Donald Brostrom Vice President and Treasurer January 24, 1996
(Principal Financial and
Accounting Officer)
</TABLE>
<PAGE> 202
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------
EXHIBITS
to
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
AND
THE INVESTMENT COMPANY ACT OF 1940
- --------------------------------------------------------------------------------
FS FUNDS TRUST
<PAGE> 203
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Document
- --------- --------
<S> <C>
NONE NONE
</TABLE>
<PAGE> 204
FORM N-8A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-8A
NOTIFICATION OF REGISTRATION
FILED PURSUANT TO SECTION 8(a) OF THE
INVESTMENT COMPANY ACT OF 1940
The undersigned investment company hereby notifies the Securities and
Exchange Commission that it registers under and pursuant to the provisions of
Section 8(a) of the Investment Company Act of 1940 and in connection with such
notification of registration submits the following information:
- --------------------------------------------------------------------------------
Name: FS FUNDS Trust
Address of Principal Business Office (No. & Street), City, State, Zip Code):
237 Park Avenue, New York, NY 10017
Telephone Number: (including area code): 800-557-3768
Name and address of agent for service of process:
John J. Pileggi
237 Park Avenue, Suite 910
New York, NY 10017
Check Appropriate Box:
Registrant is filing a Registration Statement pursuant to Section 8(b) of the
Investment Company Act of 1940 concurrently with the filing of Form N-8A.
YES X NO
------- -------
- --------------------------------------------------------------------------------
<PAGE> 205
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
registrant has caused this notification of registration to be duly signed
on its behalf in the city of New York and state of New York on the 22nd
day of January, 1996.
<TABLE>
<S> <C>
[SEAL] Signature FS FUNDS Trust
(Name of Registrant)
BY John J. Pileggi
(Name of director, trustee or officer
signing on behalf of Registrant)
Attest:
--------------------------
(Name)
- ---------------------------------
(Title)
</TABLE>
