<PAGE> 1
As filed with the Securities and Exchange Commission on December 23, 1998
Registration Nos. 333-447
811-7505
- --------------------------------------------------------------------------------
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. 8 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 11 [X]
(Check appropriate box or boxes)
INTRUST FUNDS TRUST
(Exact name of Registrant as specified in charter)
3435 Stelzer Road
Columbus, Ohio 43219
Address of Principal Executive Offices Zip Code)
Registrant's Telephone Number, including Area Code: (888) 266-8787
Ellen F. Stoutamire, Esq.
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
(Name and Address of Agent for Service)
Copy to:
Steven R. Howard, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to Rule 485(b)
____ on pursuant to Rule 485(b)
____ 75 days after filing pursuant to Rule 485(a)
_XX_ on February 20, 1998 pursuant to Rule 485(a)
Title of Securities being registered: Shares of Beneficial Interest, par value
$0.001.
Registrant has adopted a master-feeder operating structure for the
International Multi-Manager Stock Fund. In that regard, this Post-Effective
Amendment includes the signature pages for the AMR Investment Services Trust
with respect to the International Equity Portfolio, of which the International
Multi-Manager Stock Fund invests all of its investable assets.
<PAGE> 2
INTRUST FUNDS TRUST
REGISTRATION STATEMENT ON FORM N-1A
Cross Reference Sheet
Pursuant to Rule 485(a)
Under the Securities Act of 1933
MONEY-MARKET FUND
SHORT-TERM BOND FUND
INTERMEDIATE BOND FUND
STOCK FUND
INTERNATIONAL MULTI-MANAGER STOCK FUND
KANSAS TAX-EXEMPT BOND FUND
<TABLE>
<CAPTION>
N-1A ITEM NO.--PART A LOCATION--PROSPECTUS CAPTION
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Item 1 Cover Page; Back Cover Page Cover Page; Back Cover Page
Item 2 Risk/Return Summary Risk/Return Summary
Item 3 Risk/Return Summary: Fee Table Risk/Return Summary: Fee Table
Item 4 Investment Objectives, Principal Investment Objective, Strategies
Investment Strategies and Related and Risks
Risks
Item 5 Management's Discussion of Fund Risk/Return Summary and Fund
Performance Expenses
Item 6 Management, Organization and Fund Management
Capital Structure
Item 7 Shareholder Information Shareholder Information
Item 8 Distribution Arrangements Distribution Arrangements/ Sales
Charges
Item 9 Financial Highlights Information Financial Highlights
</TABLE>
<PAGE> 3
INTRUST FUNDS
===============================================================================
----------
PROSPECTUS
----------
MARCH 3, 1999
STOCK FUND
INTERNATIONAL MULTI-MANAGER STOCK FUND
SHORT-TERM BOND FUND
INTERMEDIATE BOND FUND
KANSAS TAX-EXEMPT BOND FUND
MONEY MARKET FUND
- ------------------------------------
QUESTIONS?
CALL (888) 266-8787
OR YOUR INVESTMENT REPRESENTATIVE.
- ------------------------------------
INTRUST FUNDS ARE MANAGED BY
INTRUST BANK, N.A.
THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT APPROVED THE
SHARES DESCRIBED IN THIS PROSPECTUS
OR DETERMINED WHETHER THIS
PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
===============================================================================
<PAGE> 4
TABLE OF CONTENTS
===============================================================================
CAREFULLY REVIEW THIS RISK/RETURN SUMMARY AND FUND EXPENSES
IMPORTANT SECTION, WHICH
SUMMARIZES EACH 3-20
PORTFOLIO'S INVESTMENTS,
RISKS, PAST PERFORMANCE,
AND FEES.
===============================================================================
REVIEW THIS SECTION FOR INVESTMENT OBJECTIVES, POLICIES AND RISKS
INFORMATION ON INVESTMENT
STRATEGIES AND THEIR RISKS. 21-26
===============================================================================
REVIEW THIS SECTION FOR PORTFOLIO MANAGEMENT
DETAILS ON THE PEOPLE AND
ORGANIZATIONS WHO OVERSEE THE 27 THE INVESTMENT ADVISER
PORTFOLIOS. 27 PORTFOLIO MANAGERS
27 THE DISTRIBUTOR
===============================================================================
REVIEW THIS SECTION FOR SHAREHOLDER INFORMATION
DETAILS ON HOW SHARES ARE
VALUED, HOW TO PURCHASE, 28 PRICING OF FUND SHARES
SELL AND EXCHANGE SHARES, 29 PURCHASING AND ADDING TO YOUR SHARES
RELATED CHARGES AND 32 SELLING YOUR SHARES
PAYMENTS OF DIVIDENDS 33 GENERAL POLICIES ON SELLING SHARES
AND DISTRIBUTIONS. 34 DISTRIBUTION ARRANGEMENTS
34 DISTRIBUTION AND SERVICES (12B-1) FEES
35 DIVIDENDS, DISTRIBUTIONS AND TAXES
35 EXCHANGING YOUR SHARES
===============================================================================
FINANCIAL HIGHLIGHTS
36
===============================================================================
BACK COVER
37 WHERE TO LEARN MORE ABOUT THIS FUND
2
<PAGE> 5
RISK/RETURN SUMMARY AND FUND EXPENSES
===============================================================================
RISK/RETURN SUMMARY OF THE STOCK FUND
INVESTMENT OBJECTIVES The Fund's goal is to provide investors with
long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in U.S. equity
securities issued by companies with large
market capitalizations (over $5 billion).
The equity securities in which the Fund may
invest include common stock, securities
convertible into common stock, preferred
stock, American Depositary Receipts
("ADRs"), and warrants. The Fund's adviser
uses a value oriented approach to selecting
stocks by identifying stocks that it
considers undervalued (i.e. priced less than
its real worth). The Fund's adviser also
considers the company's soundness and
earnings prospects. If the Fund's adviser
determines a company may no longer benefit
from the current market and economic
environment and shows declining
fundamentals, it will eliminate the Fund's
holding of the company's stock.
PRINCIPAL INVESTMENT RISKS The value of the Fund's investments, and the
value of your investments in the Fund, will
fluctuate with market conditions. You may
lose money on your investment in the Fund,
or the Fund could underperform other
investments. Some of the Fund's holdings may
underperform its other holdings. Other risks
include:
INVESTMENT STYLE RISK Investment style risk is the chance that
returns from large-capitalization growth
stocks will trail returns from other asset
classes or the overall stock market.
MANAGER RISK Manager risk is the chance that poor
security selection will cause the Fund to
under perform other funds with similar
investment objectives.
MARKET RISK Market risk is the chance that the value of
the Fund's investments in stocks will
decline due to drops in the stock market.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
[ ] SEEKING A LONG-TERM GOAL SUCH AS
RETIREMENT
[ ] LOOKING TO ADD A GROWTH COMPONENT TO
YOUR PORTFOLIO
[ ] WILLING TO ACCEPT HIGHER RISKS OF
INVESTING IN THE STOCK MARKET IN
EXCHANGE FOR POTENTIALLY HIGHER LONG
TERM RETURNS
1
<PAGE> 6
This Fund will not be appropriate for anyone:
[ ] SEEKING MONTHLY INCOME
[ ] PURSUING A SHORT-TERM GOAL OR
INVESTING EMERGENCY RESERVES
[ ] SEEKING SAFETY OF PRINCIPAL
An investment in the Fund is not a bank
deposit and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or
any other government agency.
RISK/RETURN SUMMARY OF THE STOCK FUND
The chart on this page shows how the Stock Fund has performed during its first
full calendar year. The table below it compares the Fund's performance over time
to that of the S&P 500(R) Index, a widely recognized, unmanaged index of common
stocks. This table gives some indication of the risks of an investment in the
Fund by comparing the Fund's performance with a broad measure of market
performance.
Both charts assume reinvestment of dividends and distributions.
The returns for the Premium Class will differ from the Service Class returns
shown in the bar chart because of differences in expenses of each class. Of
course, past performance does not indicate how the Fund will perform in the
future.
<TABLE>
<CAPTION>
PERFORMANCE BAR CHART AND TABLE
-------------------------------
TOTAL RETURN AS OF 12/31/98 FOR SERVICE CLASS SHARES
[GRAPH]
1998
<S> <C>
Percentage 0.00%
</TABLE>
- --------------------------------------------------------------------------------
Best quarter: %
---------------- ------------------
Worst quarter: %
--------------- ------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)
Fund or Class Past Year Since Inception
Inception
---------------------------------------------
<S> <C> <C> <C>
Service Class 1/21/97 ____% _____%
---------------------------------------------
Premium Class 1/21/97 ____% _____%
- -------------------------------------------------------------------------------
S&P 500(R) INDEX _____% _____%
- -------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 7
FEES AND EXPENSES
- -----------------
As an investor in the Stock Fund, you will pay the following fees and expenses.
Shareholder transaction fees are paid from your account. Annual Fund operating
expenses are paid out of Fund assets, and are reflected in the share price.
<TABLE>
<CAPTION>
Shareholder Transaction
Expenses (fees paid by you PREMIUM SERVICE
directly) SHARES SHARES
<S> <C> <C>
None None
-----------------------------------------------------------
Annual Fund Operating
Expenses (fees paid from PREMIUM SERVICE
Fund assets) SHARES SHARES
-----------------------------------------------------------
Management fee(1) 1.00% 1.00%
-----------------------------------------------------------
Distribution (12b-1) fee(2) 0.75% 0.25%
-----------------------------------------------------------
Other expenses(3) 0.95% 0.45%
-----------------------------------------------------------
Total Fund
Operating expenses(3) 2.70% 1.70%
-----------------------------------------------------------
Fee Waiver (1),(2),(3) 0.88% 0.38%
-----------------------------------------------------------
Net Expenses 1.82% 1.32%
-----------------------------------------------------------
</TABLE>
1 INTRUST Bank is currently contractually limiting its advisory fees paid by
the Fund on an annual basis to 0.87%.
2 No fees are currently being paid by either class under the Distribution
Plan.
3 INTRUST Bank may revise or cancel these voluntary expense limitations
at any time and will notify you of any material change.
EXPENSE EXAMPLE
Use the table at right to compare fees and expenses with those of other Funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
STOCK FUND 1 3 5 10
Year Years Years Years
<S> <C> <C> <C> <C>
SERVICE SHARES $134 $418 $723 $1,590
---------------------------------------------------------------------
PREMIUM SHARES $185 $573 $985 $2,137
---------------------------------------------------------------------
</TABLE>
3
<PAGE> 8
RISK/RETURN SUMMARY AND FUND EXPENSES
===============================================================================
RISK/RETURN SUMMARY OF THE INTERNATIONAL MULTI-MANAGER STOCK FUND
The Fund operates under a master-feeder structure. This means that the Fund
seeks its investment objective by investing all of its investable assets in
another investment company. The Fund invests all of its assets in the
International Equity Portfolio (the "Portfolio"), a series of the AMR Investment
Services Trust ("AMR Trust"). The Portfolio is managed by AMR Investment
Services, Inc. (the "Manager"). The Portfolio investment objective is identical
to the Fund's investment objective. The Fund may withdraw its assets from the
Portfolio and invest its assets in another investment company or, alternatively,
it may hire an investment adviser to manage the Fund's assets directly if the
Fund's Board of Trustees determines that this action would be in the
shareholders' best interests. Statements regarding investments by the Fund refer
to investments made by the Portfolio. For easier reading, the term "Fund" is
used throughout the Prospectus to refer to either the Fund or its Portfolio.
INVESTMENT OBJECTIVES The Fund's goal is to provide investors with
long-term capital appreciation. The Fund
seeks its objective by investing in equity
securities of issuers based outside of the
United States.
PRINCIPAL INVESTMENT STRATEGIES In attempting to achieve its investment
objective, the Fund invests, under ordinary
circumstances, at least 65% of its total
assets in common stocks and securities
convertible into common stocks of issuers in
at least three different countries located
outside the United States. However the Fund
generally invests in excess of 80% of its
net assets in such securities.
The Manager select securities based upon a
country's economic outlook, market valuation
and potential changes in currency exchange
rates. When purchasing equity securities,
primary emphasis will be placed on
undervalued securities with above average
growth expectations.
PRINCIPAL INVESTMENT RISKS The value of the Fund's investments, and the
value of your investments in the Fund will
fluctuate with market conditions. You may
lose money on your investment in the Fund,
or the Fund could underperform other
investments. Some of the Fund's holdings may
underperform its other holdings. Other risks
include:
MARKET RISK Market risk is the chance that the value of
the Fund's investments in stocks will
decline due to drops in the stock market.
FOREIGN INVESTING Overseas investing carries potential risks,
including currency, political and foreign
issuer risks, not associated with domestic
investments
4
<PAGE> 9
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
[ ] SEEKING A LONG-TERM GOAL SUCH AS
RETIREMENT
[ ] LOOKING TO ADD A GROWTH COMPONENT TO
YOUR PORTFOLIO
[ ] WILLING TO ACCEPT HIGHER RISKS OF
INVESTING IN THE INTERNATIONAL STOCK
MARKET IN EXCHANGE FOR POTENTIALLY
HIGHER LONG TERM RETURNS
This Fund will not be appropriate for
anyone:
[ ] SEEKING MONTHLY INCOME
[ ] PURSUING A SHORT-TERM GOAL OR
INVESTING EMERGENCY RESERVES
[ ] SEEKING SAFETY OF PRINCIPAL
An investment in the Fund is not a bank
deposit and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or
any other government agency.
The chart and table on this page show how the International Multi-Manager Stock
Fund and its predecessor have performed from year to year. The bar chart shows
changes in the Fund's yearly performance over seven years to demonstrate that
the Fund's value varied at differing times. The table below it compares the
Fund's performance over time to that of the Morgan Stanley Europe, Asia and Far
East (EAFE) Index, a widely recognized, unmanaged representative of the
aggregate performance of international stock markets.
The Fund's predecessor, The American AAdvantage International Equity Fund, has
been in existence since August 7, 1991. The performance presented here is based
in part on the American AAdvantage International Equity Fund-Institutional
Class, which also invests in the Portfolio.
Both charts assume reinvestment of dividends and distributions. Of course, past
performance does not indicate how the Fund will perform in the future.
PERFORMANCE BAR CHART AND TABLE
-------------------------------
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR SERVICE CLASS SHARES
[GRAPH]
<TABLE>
<CAPTION>
1992* 1993* 1994* 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
The Fund's fees are higher than the expenses used in calculating the performance
of the Fund's predecessor, The American AAdvantage International Equity
Fund-Institutional Class. This performance would have been lower, taking into
account the current fees of the Fund.
5
<PAGE> 10
The returns for the Premium Class will differ from the Service Class returns
shown in the bar chart because of differences in expenses of each class.
- -------------------------------------------------------------------------------
Best quarter: %
---------------- ------------------
Worst quarter: %
--------------- ------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)
Fund or Class Past Year Past 5 Years Since Inception
Inception
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Service Class 1/20/97 ____% ____% _____%
---------------------------------------------------------------
Premium Class 1/20/97 ____% ____% _____%
---------------------------------------------------------------
EAFE INDEX _____% _____% _____%
- ----------------------------------------------------------------------------------------
</TABLE>
FEES AND EXPENSES
- -----------------
As an investor in the International Multi-Manager Stock Fund, you will pay the
following fees and expenses. Shareholder transaction fees are paid from your
account. Annual Fund operating expenses are paid out of Fund assets, and are
reflected in the share price.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses PREMIUM SERVICE
(fees paid by you directly) SHARES SHARES
<S> <C> <C>
None None
- ---------------------------------------------------------------------------
Annual Fund Operating
Expenses (fees paid from PREMIUM SERVICE
Fund assets) SHARES SHARES
- ---------------------------------------------------------------------------
Management fee(1) 0.88% 0.88%
- ---------------------------------------------------------------------------
Distribution (12b-1) fee(2) 0.75% 0.25%
- ---------------------------------------------------------------------------
Other expenses 1.26% 0.76%
- ---------------------------------------------------------------------------
Total Fund
Operating expenses 2.89% 1.89%
- ---------------------------------------------------------------------------
Fee Waiver(1), (2), (3) 0.83% 0.33%
- ---------------------------------------------------------------------------
</TABLE>
6
<PAGE> 11
<TABLE>
- --------------------------------------------------------------------------
<S> <C> <C>
Net Expenses 2.06% 1.56%
- --------------------------------------------------------------------------
</TABLE>
1 INTRUST Bank is entitled to receive 0.40% in advisory fees from the
Fund. INTRUST Bank is currently contractually limiting its advisory
fees paid by the Fund on an annual basis to 0.35%. Because the Fund
invests all of its assets in the Portfolio, the Fund must pay its
proportionate share of advisory fees (0.48%) to the Portfolio. In the
event the Fund does not invest all of its assets in the Portfolio or in
any other investment company, INTRUST Bank may receive up to 1.25% in
advisory fees from the Fund. INTRUST Bank may revise or cancel these
voluntary expense limitations at any time and will notify you of any
material change.
2 No fees are currently being paid by either class under the Distribution
Plan.
3 In addition to administration fees paid by the Fund to BISYS (0.12%
after waivers and 0.15% before waivers), the Fund must pay its
proportionate share of administration fees to the Manager. INTRUST's
Board of Trustees believes that the aggregate per share expenses of the
Fund and the Portfolio will be approximately equal to the expenses that
the Fund would incur if its assets were invested directly in foreign
securities.
EXPENSE EXAMPLE
Use the table at right to compare fees and expenses with those of other Funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
INTERNATIONAL 1 3 5 10
MULTI-MANAGER STOCK FUND Year Years Years Years
SERVICE SHARES $159 $493 $ 850 $1,856
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
PREMIUM SHARES $209 $646 $1,108 $2,390
---------------------------------------------------------------------
</TABLE>
7
<PAGE> 12
RISK/RETURN SUMMARY AND FUND EXPENSES
===============================================================================
RISK/RETURN SUMMARY OF THE SHORT-TERM BOND FUND
INVESTMENT OBJECTIVES The Fund's goal is to provide investors with
as high a level of current income as is
consistent with liquidity and safety of
principal.
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in investment
grade short-term debt obligations such as
U.S. Government Securities, corporate bonds
and asset backed securities (including
mortgage backed securities).
The bonds maturities (i.e. the date when a
bond issuer agrees to return the bond's
principal, or face value, to the bond's
buyer) will range from short-term (including
overnight) to 12 years. Under normal
conditions, the Fund intends to maintain an
average maturity of between 1 and 3 years,
when weighted according to the Fund's
holdings. The Fund focuses on maximizing
income from bonds having strong credit
qualities. The Fund's managers may sell a
security if its fundamental qualities
deteriorate or to take advantage of more
attractive yield opportunities.
PRINCIPAL INVESTMENT RISKS The value of the Fund's investments, and the
value of your investments in the Fund will
fluctuate with market conditions. You may
lose money on your investment in the Fund,
or the Fund could underperform other
investments. Some of the Fund's holdings may
underperform its other holdings. Other risks
include:
INTEREST RATE RISK Interest rate risk is the chance that the
value of the bonds the Fund holds will
decline due to rising interest rates.
CREDIT RISK Credit risk is the chance that a bond issuer
will fail to repay interest and principal in
a timely manner, reducing the Fund's return.
PREPAYMENT RISK The Fund's investments in mortgage-related
securities are subject to the risk that the
principal amount of the underlying mortgage
may be repaid prior to the bond's maturity
date. Prepayment exposes the Fund to the
risk of lower return upon subsequent
reinvestment of the principal.
INCOME RISK Income risk is the chance that falling
interest rates will
8
<PAGE> 13
cause the Fund's income to decline.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
[ ] LOOKING TO ADD A MONTHLY INCOME
COMPONENT TO YOUR PORTFOLIO
[ ] SEEKING HIGHER POTENTIAL RETURNS
THAN PROVIDED BY MONEY MARKET FUNDS
[ ] WILLING TO ACCEPT THE RISKS OF
PRICE AND DIVIDEND FLUCTUATIONS
This Fund will not be appropriate for
anyone:
[ ] INVESTING EMERGENCY RESERVES
[ ] SEEKING THE HIGHEST ASSURANCE OF
SAFETY OF PRINCIPAL
An investment in the Fund is not a bank
deposit and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or
any other government agency.
The chart on this page shows how the Short-Term Bond Fund has performed during
its first full calendar year. The table below it compares the Fund's performance
over time to that of the Lehman Brothers 1-3 Year Government Index, a widely
recognized, unmanaged index generally representative of short-term government
bonds. This table gives some indication of the risks of an investment in the
Fund by comparing the Fund's performance with a broad measure of market
performance.
Both charts assume reinvestment of dividends and distributions.
The returns for the Premium Class will differ from the Service Class returns
shown in the bar chart because of differences in expenses of each class. Of
course, past performance does not indicate how the Fund will perform in the
future.
PERFORMANCE BAR CHART AND TABLE
-------------------------------
TOTAL RETURN AS OF 12/31/98 FOR SERVICE CLASS SHARES
[GRAPH]
<TABLE>
<CAPTION>
1998
<S> <C>
Percentage 0.00%
</TABLE>
- -------------------------------------------------------------------------------
Best quarter: %
---------------- ------------------
Worst quarter: %
--------------- ------------------
- -------------------------------------------------------------------------------
9
<PAGE> 14
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)
Fund or Class Past Year Since Inception
Inception
---------------------------------------------
<S> <C> <C> <C>
Service Class 1/21/97 ____% _____%
---------------------------------------------
Premium Class 1/21/97 ____% _____%
- -------------------------------------------------------------------------------
LEHMAN BROTHERS 1-3 YEAR
GOVERNMENT INDEX ____% _____%
- -------------------------------------------------------------------------------
Lipper Short Investment Grade ____% _____%
Index
- -------------------------------------------------------------------------------
</TABLE>
For current performance information, including the Fund's 30-day yield, call
1-888-266-8787.
FEES AND EXPENSES
- -----------------
As an investor in the Short-Term Bond Fund, you will pay the following fees and
expenses. Shareholder transaction fees are paid from your account. Annual Fund
operating expenses are paid out of Fund assets, and are reflected in the share
price.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
(fees Paid by you directly) PREMIUM SERVICE
SHARES SHARES
<S> <C> <C>
None None
- -------------------------------------------------------------------------
Annual Fund Operating
Expenses (fees paid from PREMIUM SERVICE
Fund assets) SHARES SHARES
- -------------------------------------------------------------------------
Management fee(1) 0.40% 0.40%
- -------------------------------------------------------------------------
Distribution (12b-1) fee(2) 0.75% 0.25%
- -------------------------------------------------------------------------
Other expenses 0.98% 0.48%
- -------------------------------------------------------------------------
Total Fund
Operating expenses 2.13% 1.13%
- -------------------------------------------------------------------------
Fee Waivers (1), (2), (3) 0.96% 0.46%
- -------------------------------------------------------------------------
Net expenses 1.17% 0.67%
- -------------------------------------------------------------------------
</TABLE>
(1) INTRUST Bank is currently contractually limiting its advisory fees paid
by the Fund on an annual basis to 0.19%.
10
<PAGE> 15
2 No fees are currently being paid by either class under the Distribution
Plan.
3 INTRUST Bank may revise or cancel these voluntary expense limitations
at any time and will notify you of any material change.
EXPENSE EXAMPLE
Use the table at right to compare fees and expenses with those of other Funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
SHORT-TERM 1 3 5 10
BOND FUND Year Years Years Years
SERVICE SHARES $ 68 $214 $373 $ 835
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
PREMIUM SHARES $119 $372 $644 $1,420
----------------------------------------------------------------------
</TABLE>
11
<PAGE> 16
RISK/RETURN SUMMARY AND FUND EXPENSES
==============================================================================
RISK/RETURN SUMMARY OF THE INTERMEDIATE BOND FUND
INVESTMENT OBJECTIVES The Fund's goal 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.
PRINCIPAL INVESTMENT STRATEGIES 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).
Under normal conditions, the Fund intends to
hold securities with an average maturity of
between 3 and 5 years, when weighted
according to the Fund's holdings. The
maturity is the date when a bond issuer
agrees to return the bond's principal, or
face value, to the bond's buyer. The Fund
focuses on maximizing income from bonds
having strong credit qualities. The Fund's
managers may sell a security if its
fundamental qualities deteriorate or to take
advantage of more attractive yield
opportunities.
PRINCIPAL INVESTMENT RISKS The value of the Fund's investments, and the
value of your investments in the Fund will
fluctuate with market conditions. You may
lose money on your investment in the Fund,
or the Fund could underperform other
investments. Some of the Fund's holdings may
underperform its other holdings. Other risks
include:
INTEREST RATE RISK Interest rate risk is the chance that the
market value of the bonds that the Fund
holds will decline due to rising interest
rates.
PREPAYMENT RISK The Fund's investments in mortgage-related
securities are subject to the risk that the
principal amount of the underlying mortgage
may be repaid prior to the bond's maturity
date. Prepayment exposes the Fund to the
risk of lower return upon subsequent
reinvestment of the principal.
CREDIT RISK Credit risk is the chance that a bond issuer
will fail to repay interest and principal in
a timely manner, reducing the Fund's return.
INCOME RISK Income risk is the chance that falling
interest rates will cause the Fund's income
to decline.
12
<PAGE> 17
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
[ ] LOOKING TO ADD A MONTHLY INCOME
COMPONENT TO YOUR PORTFOLIO
[ ] SEEKING HIGHER POTENTIAL RETURNS THAN
PROVIDED BY MONEY MARKET FUNDS OR SHORT
TERM BOND FUNDS
[ ] WILLING TO ACCEPT THE RISKS OF PRICE
AND DIVIDEND FLUCTUATIONS
This Fund will not be
appropriate for anyone:
[ ] INVESTING EMERGENCY RESERVES
[ ] SEEKING THE HIGHEST ASSURANCE OF SAFETY
OF PRINCIPAL
An investment in the Fund is not a bank
deposit and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or
any other government agency.
RISK/RETURN SUMMARY OF THE INTERMEDIATE BOND FUND
The chart on this page shows how the Intermediate Bond Fund has performed during
its first full calendar year. The table below it compares the Fund's performance
over time to that of the Lehman Brothers Intermediate Government/Corporate
Index, a widely recognized, unmanaged index generally representative of
intermediate government and corporate bonds. This table gives some indication of
the risks of an investment in the Fund by comparing the Fund's performance with
a broad measure of market performance.
Both charts assume reinvestment of dividends and distributions.
The returns for the Premium Class will differ from the Service Class returns
shown in the bar chart because of differences in expenses of each class. Of
course, past performance does not indicate how the Fund will perform in the
future.
PERFORMANCE BAR CHART AND TABLE
-------------------------------
TOTAL RETURN AS OF 12/31/98 FOR SERVICE CLASS SHARES
[GRAPH]
<TABLE>
<CAPTION>
1998
<S> <C>
Percentage 0.00%
</TABLE>
- -------------------------------------------------------------------------------
Best quarter: %
---------------- ------------------
Worst quarter: %
--------------- ------------------
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)
<TABLE>
<CAPTION>
Fund or Class Past Year Since Inception
Inception
----------------------------------------------
<S> <C> <C> <C>
Service Class 1/21/97 ____% _____%
----------------------------------------------
</TABLE>
13
<PAGE> 18
<TABLE>
<CAPTION>
---------------------------------------------
<S> <C> <C> <C>
Premium Class 1/21/97 ____% _____%
- -------------------------------------------------------------------------------
LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE INDEX ____% ____%
- -------------------------------------------------------------------------------
Lipper Intermediate Investment
Grade Index ____% ____%
- -------------------------------------------------------------------------------
</TABLE>
For current performance information, including the Fund's 30-day yield, call
1-888-266-8787.
FEES AND EXPENSES
- -----------------
As an investor in the Intermediate Bond Fund, you will pay the following fees
and expenses. Shareholder transaction fees are paid from your account. Annual
Fund operating expenses are paid out of Fund assets, and are reflected in the
share price.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses PREMIUM SERVICE
(fees Paid by you directly) SHARES SHARES
<S> <C> <C>
None None
- -------------------------------------------------------------------------
Annual Fund Operating
Expenses (fees paid from PREMIUM SERVICE
Fund assets) SHARES SHARES
- -------------------------------------------------------------------------
Management fee(1) 0.40% 0.40%
- ------------------------------------------------------------------------
Distribution (12b-1) fee(2) 0.75% 0.25%
- -------------------------------------------------------------------------
Other expenses 0.99% 0.49%
- -------------------------------------------------------------------------
Total Fund
Operating expenses 2.14% 1.14%
- -------------------------------------------------------------------------
Fee Waivers(1), (2), (3) 0.86 0.36%
- -------------------------------------------------------------------------
Net Expenses 1.28% 0.78%
- -------------------------------------------------------------------------
</TABLE>
1 INTRUST Bank is currently contractually limiting its advisory fees paid
by the Fund on an annual basis to 0.29%.
2 No fees are currently being paid by either class under the Distribution
Plan.
3 INTRUST Bank may revise or cancel these voluntary expense limitations
at any time and will notify you of material change.
14
<PAGE> 19
EXPENSE EXAMPLE
Use the table at right to compare fees and expenses with those of other Funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
INTERMEDIATE 1 3 5 10
BOND FUND Year Years Years Years
SERVICE SHARES $ 80 $249 $433 $ 966
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
PREMIUM SHARES $130 $406 $702 $1,545
---------------------------------------------------------------------
</TABLE>
15
<PAGE> 20
RISK/RETURN SUMMARY AND FUND EXPENSES
===============================================================================
RISK/RETURN SUMMARY OF THE KANSAS TAX-EXEMPT BOND FUND
INVESTMENT OBJECTIVES The Kansas Tax-Exempt Bond Fund's goal is to
preserve capital while producing current
income for the investor that is exempt from
both federal and Kansas state income taxes.
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in municipal
obligations. Under normal conditions, the
Fund will invest at least 80% of its net
assets in municipal obligations which
produce interest that is, in the opinion of
bond counsel, exempt from federal income tax
and at least 65% of its total assets in
municipal obligations which are exempt from
Kansas state income taxes. Under normal
conditions, the Fund will invest at least
80% of its net assets in securities the
income from which is not subject to the
alternative minimum tax. The Fund is managed
to provide an attractive yield from
municipal bonds that have strong credit
qualities. Municipalities with these strong
credit qualities are more likely to offer a
reliable stream of payments. The Fund's
adviser may sell a security if its
fundamental qualti4es deteriorate or to take
advantage of more attractive yield
opportunities.
PRINCIPAL INVESTMENT RISKS The value of the Fund's investments, and the
value of your investments in the Fund will
fluctuate with market conditions. You may
lose money on your investment in the Fund,
or the Fund could underperform other
investments. Some of the Fund's holdings may
underperform its other holdings. The Fund is
subject to several risks, any of which could
cause investors to lose money. These
include:
STATE SPECIFIC RISK State specific risk is the chance that the
Fund, because it invests primarily in
securities issued by Kansas and its
municipalities, is more vulnerable to
unfavorable developments in Kansas than
funds that invest in municipal bonds of many
different states.
INTEREST RATE RISK Interest rate risk is the chance that bond
prices overall will decline over short or
even long periods due to rising interest
rates.
INCOME RISK Income risk is the chance that falling
interest rates will cause the Fund's income
to decline.
16
<PAGE> 21
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
[ ] SEEKING A LONG-TERM GOAL SUCH AS RETIREMENT
[ ] LOOKING TO REDUCE FEDERAL AND KANSAS TAXES
ON INVESTMENT INCOME
[ ] SEEKING REGULAR MONTHLY TAX FREE DIVIDENDS
This Fund will not be appropriate for anyone:
[ ] INVESTING THROUGH A TAX-EXEMPT RETIREMENT
PLAN
[ ] PURSUING AN AGGRESSIVE HIGH GROWTH INVESTMENT
STRATEGY
[ ] SEEKING A STABLE SHARE PRICE
An investment in the Fund is not a bank deposit
and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other
government agency.
The chart and table on this page show how the Kansas Tax-Exempt Bond Fund and
its predecessor have performed and how its performance has varied from year to
year. The bar chart shows changes in the Fund's yearly performance over eight
years to demonstrate that the Fund's value varied at differing times. The table
below it compares the Fund's performance over time to that of the Lehman
Brothers 7-Year General Obligation Index, a widely recognized, unmanaged index
generally representative of intermediate-term municipal bonds.
The Fund has been in existence since December 10, 1990, but until September 1,
1997 the Fund was organized as the Kansas Tax Free Income Portfolio of the SEI
Tax Exempt Trust.
Both charts assume reinvestment of dividends and distributions.
The returns for the Premium Class will differ from the Service Class returns
shown in the bar chart because of differences in expenses of each class. Of
course, past performance does not indicate how the Fund will perform in the
future.
PERFORMANCE BAR CHART AND TABLE
-------------------------------
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR SERVICE CLASS SHARES
[GRAPH]
<TABLE>
<CAPTION>
1991 1992* 1993* 1994* 1995* 1996* 1997* 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage 8.92% 9.04% 10.00% -2.27% 12.40% 3.96% 7.60% 0.00%
</TABLE>
*Reflects total return reduced by the actual expense ratio for the Kansas Tax
Free Income Portfolio. Actual returns would have been lower had these expense
waivers or reimbursements not been in effect. The Kansas Tax Free Income
Portfolio's performance reflects fees and expenses that may be lower than fees
for the Kansas Tax-Exempt Bond Fund. This performance would have been lower if
higher fees and expenses were in effect.
- --------------------------------------------------------------------------------
Best quarter: %
---------------- ------------------
Worst quarter: %
--------------- ------------------
- --------------------------------------------------------------------------------
17
<PAGE> 22
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)
Fund or Class Past Year Past 5 Years Since Inception
Inception
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Service Class 9/1/97 ____% ____% _____%
---------------------------------------------------------------
Premium Class 9/1/97 ____% ____% _____%
- -------------------------------------------------------------------------------------------------
LEHMAN BROTHERS 7-YEAR GENERAL ____% ____% _____%
OBLIGATION INDEX
- -------------------------------------------------------------------------------------------------
</TABLE>
For current performance information, including the Fund's 30-day yield, call
1-888-266-8787.
FEES AND EXPENSES
- -----------------
As an investor in the Kansas Tax-Exempt Bond Fund, you will pay the following
fees and expenses. Shareholder transaction fees are paid from your account.
Annual Fund operating expenses are paid out of Fund assets, and are reflected in
the share price.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
(fees Paid by you directly) PREMIUM SERVICE
SHARES SHARES
<S> <C> <C>
None None
- -------------------------------------------------------------------------------
Annual Fund Operating
Expenses (fees paid from PREMIUM SERVICE
Fund assets) SHARES SHARES
- -------------------------------------------------------------------------------
Management fee(1) 0.30% 0.30%
- -------------------------------------------------------------------------------
Distribution (12b-1) fee(2) 0.75% 0.25%
- -------------------------------------------------------------------------------
Other expenses(3) 0.95% 0.45%
- -------------------------------------------------------------------------------
Total Fund
Operating expenses 2.00% 1.00%
- -------------------------------------------------------------------------------
Fee Waivers and
Reimbursements (1), (2), (3) 0.90% 0.40%
- -------------------------------------------------------------------------------
Net Expenses 1.10% 0.60%
- -------------------------------------------------------------------------------
</TABLE>
1 INTRUST Bank is currently contractually waiving its advisory
fees due from the Fund and reimbursing other expenses such that total
expenses after fee waivers and expense limitations are limited to 1.10% for
Premium Shares and 0.60% for Service Shares.
2 No fees are currently being paid by either class under the Distribution
Plan.
3 INTRUST Bank may revise or cancel these voluntary expense limitations
at any time and will notify you of any material change.
18
<PAGE> 23
EXPENSE EXAMPLE
Use the table at right to compare fees and expenses with those of other Funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
KANSAS TAX-EXEMPT 1 3 5 10
BOND FUND Year Years Years Years
SERVICE SHARES $ 61 $192 $335 $ 750
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
PREMIUM SHARES $112 $350 $606 $1,340
---------------------------------------------------------------------
</TABLE>
19
<PAGE> 24
RISK/RETURN SUMMARY AND FUND EXPENSES
===============================================================================
RISK/RETURN SUMMARY OF THE MONEY MARKET FUND
INVESTMENT OBJECTIVES The Fund's objective is to provide investors
current income, liquidity and the
maintenance of a stable net asset value of
$1.00 per share.
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in high quality,
U.S. dollar-denominated short-term
obligations which present minimal credit
risks.
The Fund invests in commercial paper,
asset-backed securities, obligations of
financial institutions and other
high-quality money market instruments that
mature in thirteen months or less. The Fund
will invest more than 25% of the Fund's
total assets in the banking industry.
PRINCIPAL INVESTMENT RISKS Although investments in mutual funds involve
risk, investing in money market portfolios
like the Fund is generally less risky than
investing in other types of funds. This is
because the Fund invests only in
high-quality securities, limits the average
maturity of the portfolio to 90 days or
less, and limits the maturity of any
security to no more than thirteen months.
The Fund 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 Fund invests.
Investors in the Fund should also be aware
of the following risks:
CREDIT RISK The securities in which the Fund invests are
subject generally to the credit risk that
the issuer of a security may be unable to
make principal and interest payments when
they are due.
CONCENTRATION RISK The Fund will invest more than 25% of its
assets in obligations issued by the banking
industry. This practice of concentrating its
assets increases the Fund's exposure to
market conditions prevailing in the banking
industry.
ADDITIONAL RISKS An investment in the Fund is not a deposit
of INTRUST Bank or any other bank and is not
insured or guaranteed by the Federal Deposit
Insurance Corporation or any other
government agency. Although the Fund seeks
to preserve the value of your investment at
$1.00 per share, it is possible to lose
money by investing in the Fund
20
<PAGE> 25
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
[ ] ARE SEEKING PRESERVATION OF CAPITAL
[ ] HAVE A LOW RISK TOLERANCE
[ ] ARE WILLING TO ACCEPT LOWER POTENTIAL
RETURNS IN EXCHANGE FOR A HIGH DEGREE
OF SAFETY
[ ] ARE INVESTING SHORT-TERM RESERVES
This Fund will not be appropriate for anyone:
[ ] SEEKING HIGH TOTAL RETURNS
[ ] PURSUING A LONG-TERM GOAL OR INVESTING FOR
RETIREMENT
The chart and table on this page show how the Money Market Fund has performed
during its first full calendar year and gives some indication of the risks of an
investment in the Fund by comparing the Fund's performance with a broad measure
of market performance.
PERFORMANCE BAR CHART AND TABLE
-------------------------------
TOTAL RETURN AS OF 12/31/98 FOR SERVICE CLASS SHARES
[GRAPH]
<TABLE>
<CAPTION>
1998
<S> <C>
Percentage 0.00%
</TABLE>
The returns for the Premium Class will differ from the Service Class returns
shown in the bar chart because of differences in expenses of each class. Of
course, past performance does not indicate how the Fund will perform in the
future.
- --------------------------------------------------------------------------------
Best quarter: %
---------------- ------------------
Worst quarter: %
--------------- ------------------
- --------------------------------------------------------------------------------
21
<PAGE> 26
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)
Fund or Class Past Year Since Inception
Inception
-----------------------------------------------
<S> <C> <C> <C>
Service Class 1/21/97 ____% _____%
-----------------------------------------------
Premium Class 1/21/97 ____% _____%
- ---------------------------------------------------------------------------------
SALOMON BROTHERS 3-MONTH
TREASURY BILL INDEX ____% _____%
- ---------------------------------------------------------------------------------
</TABLE>
For current yield information on the Fund, call 1-888-266-8787. The Money Market
Fund's yield appears in the Wall Street Journal each Thursday.
FEES AND EXPENSES
- -----------------
As an investor in the Money Market Fund, you will pay the following fees and
expenses. Shareholder transaction fees are paid from your account. Annual Fund
operating expenses are paid out of Fund assets, and are reflected in the share
price.
<TABLE>
<CAPTION>
Shareholder Transaction PREMIUM SERVICE
Expenses (fees Paid by you SHARES SHARES
directly)
None None
<S> <C> <C>
- -----------------------------------------------------------
Annual Fund Operating
Expenses (fees paid from PREMIUM SERVICE
Fund assets) SHARES SHARES
- -----------------------------------------------------------
Management fee(1) 0.25% 0.25%
- -----------------------------------------------------------
Distribution (12b-1) fee(2) 0.75% 0.25%
- -----------------------------------------------------------
Other expenses 1.03% 0.53%
- -----------------------------------------------------------
Total Fund
Operating expenses 2.03% 1.03%
- -----------------------------------------------------------
Fee Waivers(1),(3) 0.86% 0.36%
- -----------------------------------------------------------
Net Expenses 1.17% 0.67%
- -----------------------------------------------------------
</TABLE>
1 INTRUST Bank is currently contractually limiting its advisory fees paid
by the Fund on an annual basis to 0.15%.
2 No fees are currently being paid by either class under the Distribution
Plan.
3 INTRUST Bank may revise or cancel these voluntary expense limitations
at any time and will notify you of any material change.
22
<PAGE> 27
EXPENSE EXAMPLE
Use the table at right to compare fees and expenses with those of other Funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
MONEY MARKET FUND 1 3 5 10
Year Years Years Years
<S> <C> <C> <C> <C>
SERVICE SHARES $ 68 $214 $373 $ 835
---------------------------------------------------------------------
---------------------------------------------------------------------
PREMIUM SHARES $119 $372 $644 $1,420
---------------------------------------------------------------------
</TABLE>
23
<PAGE> 28
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
===============================================================================
INTRUST BANK IS THE ADVISER TO INTRUST FUNDS.
STOCK FUND
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
- -------------------------------------------
The Fund's goal is to provide investors with long-term capital appreciation. To
achieve this objective, the Fund invests primarily in U.S. equity securities.
Under ordinary market conditions the Fund will invest at least 80% of its assets
in equity securities. The equity securities in which the Fund may invest include
common stock, convertible securities, preferred stock, American Depositary
Receipts ("ADRs"), and warrants.
The Fund invests at least 65% of its assets in either common or preferred stocks
issued by companies with large market capitalizations. A company with a market
capitalization of over $5 billion is considered to have large market
capitalization. The market capitalization of a company is equal to the number of
outstanding shares of that company multiplied by the price of each share.
The Adviser's investment goal is to participate in up markets while cushioning
the portfolio during a downturn. The Adviser will invest the Fund's assets in
securities it believes sell at reasonable prices relative to their projected
earnings. Although the Fund primarily invests in companies with market
capitalizations exceeding $5 billion, it may also invest to a limited degree in
companies that have a market capitalization between $1 billion and $5 billion.
The Fund may also invest in high-quality debt securities. The Adviser adheres to
a strict sell discipline, selling a stock when its price has risen to a price
target or fallen to a review point.
In response to unfavorable market conditions, the Fund may make temporary
investments of up to 100% of its assets in cash or cash equivalents, including
investment grade short-term obligations. To the extent that the Fund invokes
this strategy, its ability to achieve its investment objective may be adversely
affected.
COMMON STOCKS represent 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 are
stocks of an issuer which take a preference over common stocks if the issuer
faces liquidation. This preference generally exists for dividends paid by the
issuer as well. 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.
AMERICAN DEPOSITORY RECEIPTS are U.S. dollar-denominated receipts generally
issued by U.S. 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. CONVERTIBLE SECURITIES are securities which may be converted
either at a stated price or stated rate into common or preferred stock.
24
<PAGE> 29
OTHER INVESTMENTS
The Fund may also invest in FOREIGN SECURITIES. The Fund may invest in
securities of foreign governmental and private issuers that are generally
denominated in and pay interest in U.S. dollars. The Fund may purchase put and
call OPTIONS and write covered put and call options on securities in which the
Fund may invest directly. If the Fund writes a call option, it has the
obligation to deliver the underlying security against payment of the exercise
price during the option period. If the Fund writes a put option, it has the
obligation to buy the underlying security at the exercise price during the
option price.
The 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 these transactions the 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.
ADDITIONAL STRATEGIES
The Fund may use a number of investment strategies to try to improve the Fund's
returns or protect its assets.
The Fund may use REPURCHASE AGREEMENTS, where a party agrees to sell a security
to the Fund and then repurchase it at an agreed-upon price and time, which
creates a fixed return for the Fund. The Fund will only enter into these
repurchase agreements with parties whom the Fund believes can honor their
obligations in the transactions.
The Fund may use REVERSE REPURCHASE AGREEMENTS where the Fund borrows money on a
temporary basis by selling a security with an obligation to repurchase it at an
agreed-upon price and time.
The Fund may purchase VARIABLE RATE securities. These securities pay interest at
rates that change periodically to reflect changes in market interest rates.
Because these securities adjust the interest they pay, they may be beneficial
when interest rates are rising because of the additional return the Fund will
receive, and they may be detrimental when interest rates are falling because of
the reduction in interest payments to the Fund.
The Fund also follows certain policies when it: BORROWS MONEY (the Fund may
borrow up to 33 1/3% of the current value of its total net assets for temporary
or emergency purposes or to meet redemptions); LENDS ITS SECURITIES to others;
and holds ILLIQUID SECURITIES (the Fund may hold up to 15% of its net assets in
securities, including restricted securities, those without a readily available
market and repurchase agreements with maturities longer than seven days). The
Fund is subject to certain investment restrictions that are fundamental
policies, which means they cannot be changed without shareholder approval. For
more information about these restrictions, see the SAI.
RISK FACTORS
- ------------
INVESTMENT STYLE RISK
Investment style risk is the chance that returns from large-capitalization
growth stocks will trail returns from other asset classes or the overall
stock market.
25
<PAGE> 30
CONCENTRATION RISK
Concentration risk is the chance that the Fund's performance may be hurt
disproportionately by the poor performance of relatively few stocks.
MANAGER RISK
Manager risk is the chance that poor security selection will cause the Fund
to under perform other funds with similar investment objectives.
MARKET RISK
Market risk is the chance that the value of the Fund's investments in
stocks will decline due to drops in the stock market. In general, the value
of the Fund will move in the same direction as the overall stock market,
which will vary from day to day in response to the activities of individual
companies and general market and economic conditions.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. The value of an investment in the Fund will fluctuate up
and down, which means an investor could lose money.
INTERNATIONAL MULTI-MANAGER STOCK FUND
===============================================================================
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
- -------------------------------------------
As mentioned in the "Risk/Return Summary", the Fund operates under a
master-feeder structure and . seeks its investment objective by investing all of
its investable assets in the corresponding AMR Trust Portfolio. The Portfolio's
Manager is AMR Investment Services, Inc. Statements regarding investments by the
Fund refer to investments made by its corresponding Portfolio. For easier
reading, the term "Fund" is used throughout the Prospectus to refer to either
the Fund or its Portfolio.
Under ordinary circumstances, at least 80% of the Fund's total assets are
invested in common stocks and securities convertible into common stocks
(collectively, "stocks") of issuers based in at least three different countries
located outside the United States.
The current countries in which the Fund may invest are:
<TABLE>
<S> <C> <C> <C> <C>
- Australia - Finland - Italy - Norway - Sweden
- Austria - France - Japan - Portugal - Switzerland
- Belgium - Germany - Mexico - Singapore - United Kingdom
- Canada - Hong Kong - Netherlands - South Korea
- Denmark - Ireland - New Zealand - Spain
</TABLE>
The investment advisers select stocks which, in their opinion, have most or all
of the following characteristics:
- - above-average earnings growth potential,
- - selling at prices below their perceived economic value,
- - low price to earnings ratio,
- - low price to book value ratio, and
- - generate above-average dividend yields.
26
<PAGE> 31
The investment advisers will also consider potential changes in currency
exchange rates when choosing stocks. Each of the investment advisers determines
the growth prospects of companies based upon a combination of internal and
external research using fundamental analysis and considering changing economic
trends. The decision to sell a stock is typically based on the belief that the
company is no longer considered undervalued or shows deteriorating fundamentals,
or that better investment opportunities exist in other stocks. The Manager
believes that this strategy will help the Fund outperform other investment
styles over the longer term while minimizing volatility and downside risk. The
Fund may trade forward foreign currency contracts to hedge currency fluctuations
of underlying stock positions when it is believed that a foreign currency may
suffer a decline against the U.S. dollar.
In response to unfavorable market conditions, the Fund may make temporary
investments of more than 20%, in fact, up to 100% of its assets in cash or cash
equivalents, including investment grade short-term obligations.
INVESTMENT ADVISERS
AMR Investment Services, Inc. provides investment management services to the
Portfolio. The Manager allocates the assets of the Fund among the following
investment advisers:
Hotchkis and Wiley
Morgan Stanley Asset Management Inc.
Templeton Investment Counsel, Inc.
RISK FACTORS
- ------------
The International Multi-Manager Stock 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.
MARKET RISK
Market risk is the chance that the value of the Fund's investments in
stocks will decline due to drops in the stock market. In general, the value
of the Fund will move in the same direction as the overall stock market,
which will vary from day to day in response to the activities of individual
companies and general market and economic conditions.
FOREIGN INVESTING
Overseas investing carries potential risks not associated with domestic
investments. Such risks include, but are not limited to: (1) currency
exchange rate fluctuations, (2) political and financial instability, (3)
less liquidity and greater volatility of foreign investments, (4) lack of
uniform accounting, auditing and financial reporting standards, (5) less
government regulation and supervision of foreign stock exchanges, brokers
and listed companies, (6) increased price volatility, and (7) delays in
transaction settlement in some foreign markets.
ADDITIONAL RISKS
Investors should be aware that the Fund, unlike mutual funds that directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing all of its investable assets in the Portfolio,
which is a separate investment company. Since the Fund will invest only in the
Portfolio, the Fund's shareholders will acquire only an indirect interest in the
investments of the Portfolio. Other large investors also invest in the Portfolio
and may affect the Fund if they, for example, choose to leave the Portfolio or
to vote to change the investment objective of the Portfolio.
27
<PAGE> 32
SHORT-TERM BOND FUND
===============================================================================
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
- -------------------------------------------
The Fund's goal is to provide investors with as high a level of current income
as is consistent with liquidity and safety of principal. In attempting to
achieve its investment objective, the Fund invests primarily in investment grade
short-term debt obligations such as U.S. Government Securities, corporate bonds
and asset backed securities (including mortgage backed securities). Under normal
conditions, at least 65% of its total assets will be invested in bonds that are
rated, at the time of purchase, within the three highest long-term or two
highest short-term rating categories by a nationally recognized statistical
rating organization such as Moody's Investor Services, Inc. or Standard & Poors
Corporation, or if unrated will be of comparable quality.
The bonds maturities (i.e. the date when a bond issuer agrees to return the
bond's principal, or face value, to the bond's buyer) will range from short-term
(including overnight) to 12 years. Under normal conditions, the Fund intends to
maintain an average maturity of between 1 and 3 years, when weighted according
to the Fund's holdings. The Fund practices fundamental security analysis to find
the most attractively priced, short-term securities available. The Fund invests
across all sectors of the fixed-income market.
In response to unfavorable market conditions, the Fund may make temporary
investments of up to 100% of its assets in cash or cash equivalents, including
investment grade short-term obligations. To the extent that the Fund invokes
this strategy, its ability to achieve its investment objective may be adversely
affected.
DEBT OBLIGATIONS in general, including those listed above and any others that
the Fund may purchase, are basically written promises to repay a debt. Among the
various types of debt securities the Fund may purchase, the terms of repayment
may vary, as may the commitment of other parties to honor the obligations of the
issuer of the security.
COMMERCIAL PAPER is short-term debt obligations of banks, corporations and other
borrowers. The obligations are usually issued by financially strong businesses
and often include a line of credit to protect purchasers of the obligations. An
ASSET-BACKED SECURITY is a loan or note that pays interest based upon the cash
flow of a pool of assets, such as mortgages, loans and credit card receivables.
The Fund may purchase securities that include DEMAND FEATURES, which allow us to
demand repayment of a debt obligation before the obligation is due or "matures".
This means that the Fund can purchase longer-term securities because of the
expectation that the Fund can demand repayment of the obligation at an
agreed-upon price within a relatively short period of time. This procedure
follows the rules applicable to money market funds. The Fund will not purchase
an instrument that allow us to resell a security, known as a "put", separately
from the longer term security to which it relates.
The securities that the Fund may purchase may change over time as new types of
money market instruments are developed. The Fund will purchase these new
instruments, however, only if their characteristics and features follow the
rules governing the operation of money market mutual funds.
28
<PAGE> 33
OTHER INVESTMENTS
The Fund may also invest in DEBT OBLIGATIONS ISSUED BY THE U.S. TREASURY.
Treasury securities have varying interest rates and maturities, but they are all
backed by the full faith and credit of the U.S. Government.
Brokerage firms sometimes "strip" Treasury debt obligations into their component
parts: the Treasury's obligation to make periodic interest payments and its
obligation to repay the amount borrowed. These STRIPPED SECURITIES are sold to
investors separately. Stripped securities do not make periodic interest
payments. They are usually sold at a discount and then redeemed for their face
value on their maturity dates. These securities increase in value when interest
rates fall and lose value when interest rates rise. However, the value of
stripped securities generally fluctuates more in response to interest rate
movements than the value of traditional bonds. The Fund may try to earn money by
buying stripped securities at a discount and either selling them after they
increase in value or holding them until they mature.
The Fund may also invest in other DEBT OBLIGATIONS ISSUED OR GUARANTEED BY THE
U.S. GOVERNMENT and government-related entities. Some of these debt securities
are backed by the full faith and credit of the U.S. Government, like obligations
of the Government National Mortgage Association (GNMA or "Ginnie Mae"). Debt
securities issued by other government entities, like obligations of the Federal
National Mortgage Association (FNMA or "Fannie Mae") and the Student Loan
Marketing Association (SLMA or "Sallie Mae"), are not backed by the full faith
and credit of the U.S. Government. However, these issuers have the right to
borrow from the U.S. Treasury to meet their obligations. In contrast, the debt
securities of other issuers, like the Farm Credit System, depend entirely upon
their own resources to repay their debt.
ADDITIONAL STRATEGIES
The Fund may use a number of investment strategies to try to improve the Fund's
returns or protect its assets.
The Fund may use REPURCHASE AGREEMENTS, where a party agrees to sell a security
to the Fund and then repurchase it at an agreed-upon price and time, which
creates a fixed return for the Fund. The Fund will only enter into these
repurchase agreements with parties whom the Fund believes can honor their
obligations in the transactions.
The Fund may use REVERSE REPURCHASE AGREEMENTS where the Fund borrows money on a
temporary basis by selling a security with an obligation to repurchase it at an
agreed-upon price and time.
The Fund may purchase VARIABLE RATE securities. These securities pay interest at
rates that change periodically to reflect changes in market interest rates.
Because these securities adjust the interest they pay, they may be beneficial
when interest rates are rising because of the additional return the Fund will
receive, and they may be detrimental when interest rates are falling because of
the reduction in interest payments to the Fund.
The Fund also follows certain policies when it: BORROWS MONEY (the Fund may
borrow up to 33 1/3% of the current value of its total net assets for temporary
or emergency purposes or to meet redemptions); LENDS ITS SECURITIES to others;
and holds ILLIQUID SECURITIES (the Fund may hold up to 15% of its net assets in
securities, including restricted securities, those without a readily available
market and repurchase agreements with maturities longer than seven days). The
Fund is subject
29
<PAGE> 34
to certain investment restrictions that are fundamental policies, which means
they cannot be changed without shareholder approval. For more information about
these restrictions, see the SAI.
RISK FACTORS
- ------------
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. The Fund faces the following general risks:
INTEREST RATE RISK
Interest rate risk is the chance that the value of the bonds the Fund holds
will decline due to rising interest rates. When interest rates rise, the
price of most bonds goes down. When interest rates go down, bond prices go
up. The price of a bond is also affected by its maturity. Bonds with longer
maturities generally have greater sensitivity to changes in interest rates.
CREDIT RISK
Credit risk is the chance that a bond issuer will fail to repay interest
and principal in a timely manner, reducing the Fund's return. Credit risk
is somewhat minimized by the Fund's policy of investing primarily in bonds
rated within the three highest long-term or two highest short-term rating
categories or comparable quality unrated securities and through adequate
diversification among different issuers and industries.
PREPAYMENT RISK
The Fund's investments in mortgage-related securities are subject to the
risk that the principal amount of the underlying mortgage may be repaid
prior to the bond's maturity date. Such repayments are common when interest
rates decline. When such a repayment occurs, no additional interest will be
paid on the investment. Prepayment exposes the Fund to lower return upon
subsequent reinvestment of the principal.
INCOME RISK
Income risk, which is the chance that falling interest rates will cause the
Portfolio's income to decline. Income risk is generally higher for
short-term bonds.
Additionally, there can be no assurance that the Short-Term Bond 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:
- - 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.
- - Investment in the securities of issuers in any foreign country
involves special risks and considerations not typically associated with
investing in U.S. issuers.
30
<PAGE> 35
INTERMEDIATE BOND FUND
===============================================================================
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
- -------------------------------------------
The Intermediate Bond Fund's goal 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 Adviser intends to hold securities in the Fund
with an average maturity of between three and five years, when weighted
according to the Fund's holdings. The maturity is the date when a bond issuer
agrees to return the bond's principal, or face value, to the bond's buyer. The
Fund practices fundamental security analysis to find the most attractively
priced securities available, and invests across all sectors of the fixed-income
market.
Under ordinary market conditions, the Fund will invest:
- - 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 in securities rated "A" or
better by a primary credit rating agency. 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 Adviser 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 dollar-weighted average maturity of the Intermediate Bond
Fund will generally range between three and five years.
In response to unfavorable market conditions, the Fund may make temporary
investments of up to 100% of its assets in cash or cash equivalents, including
investment grade short-term obligations. To the extent that the Fund invokes
this strategy, its ability to achieve its investment objective may be adversely
affected.
DEBT OBLIGATIONS in general, including those listed above and any others that
the Fund may purchase, are basically written promises to repay a debt. Among the
various types of debt securities the Fund may purchase, the terms of repayment
may vary, as may the commitment of other parties to honor the obligations of the
issuer of the security. Fund may purchase securities that include DEMAND
FEATURES, which allow us to demand repayment of a debt obligation before the
obligation is due or "matures". This means that the Fund can purchase
longer-term securities because of the expectation that the Fund can demand
repayment of the obligation at an agreed-upon price within a relatively short
period of time. This procedure follows the rules applicable to money market
funds. The Fund will not purchase an instrument that allow us to resell a
security, known as a "put", separately from the longer term security to which it
relates.
31
<PAGE> 36
OTHER INVESTMENTS
The Fund may also invest in DEBT OBLIGATIONS ISSUED BY THE U.S. TREASURY.
Treasury securities have varying interest rates and maturities, but they are all
backed by the full faith and credit of the U.S. Government.
Brokerage firms sometimes "strip" Treasury debt; obligations into their
component parts: the Treasury's obligation to make periodic interest payments
and its obligation to repay the amount borrowed. These STRIPPED SECURITIES are
sold to investors separately. Stripped securities do not make periodic interest
payments. They are usually sold at a discount and then redeemed for their face
value on their maturity dates. These securities increase in value when interest
rates fall and lose value when interest rates rise. However, the value of
stripped securities generally fluctuates more in response to interest rate
movements than the value of traditional bonds. The Fund may try to earn money by
buying stripped securities at a discount and either selling them after they
increase in value or holding them until they mature.
The Fund may also invest in other DEBT OBLIGATIONS ISSUED OR GUARANTEED BY THE
U.S. GOVERNMENT and government-related entities. Some of these debt securities
are backed by the full faith and credit of the U.S. Government, like obligations
of the Government National Mortgage Association (GNMA or "Ginnie Mae"). Debt
securities issued by other government entities, like obligations of the Federal
National Mortgage Association (FNMA or "Fannie Mae") and the Student Loan
Marketing Association (SLMA or "Sallie Mae"), are not backed by the full faith
and credit of the U.S. Government. However, these issuers have the right to
borrow from the U.S. Treasury to meet their obligations. In contrast, the debt
securities of other issuers, like the Farm Credit System, depend entirely upon
their own resources to repay their debt.
An ASSET-BACKED SECURITY is a loan or note that pays interest based upon the
cash flow of a pool of assets, such as mortgages, loans and credit card
receivables.
ADDITIONAL STRATEGIES
The Fund may use a number of investment strategies to try to improve the Fund's
returns or protect its assets.
The Fund may use REPURCHASE AGREEMENTS, where a party agrees to sell a security
to the Fund and then repurchase it at an agreed-upon price and time, which
creates a fixed return for the Fund. The Fund will only enter into these
repurchase agreements with parties whom the Fund believes can honor their
obligations in the transactions.
The Fund may use REVERSE REPURCHASE AGREEMENTS where the Fund borrows money on a
temporary basis by selling a security with an obligation to repurchase it at an
agreed-upon price and time.
The Fund may purchase FLOATING RATE and VARIABLE RATE securities. These
securities pay interest at rates that change periodically to reflect changes in
market interest rates. Because these securities adjust the interest they pay,
they may be beneficial when interest rates are rising because of the additional
return the Fund will receive, and they may be detrimental when interest rates
are falling because of the reduction in interest payments to the Fund.
The Fund also follows certain policies when it: BORROWS MONEY (the Fund may
borrow up to 33 1/3% of the current value of its total net assets for temporary
or emergency purposes or to meet redemptions); LENDS ITS SECURITIES to others;
and holds ILLIQUID SECURITIES (the Fund may
32
<PAGE> 37
hold up to 15% of its net assets in securities, including restricted securities,
those without a readily available market and repurchase agreements with
maturities longer than seven days). The Fund is subject to certain investment
restrictions that are fundamental policies, which means they cannot be changed
without shareholder approval. For more information about these restrictions, see
the SAI.
RISK FACTORS
- ------------
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. The Fund faces the following general risks:
INTEREST RATE RISK
Interest rate risk is the chance that the value of the bonds the Fund holds
will decline due to rising interest rates. When interest rates rise, the
price of most bonds goes down. When interest rates go down, bond prices go
up. The price of a bond is also affected by its maturity. Bonds with longer
maturities generally have greater sensitivity to changes in interest rates.
CREDIT RISK
Credit risk is the chance that a bond issuer will fail to repay interest
and principal in a timely manner, reducing the Fund's return. Credit risk
is somewhat minimized by the Fund's policy of investing primarily in bonds
rated within the three highest long-term or two highest short-term rating
categories or comparable quality unrated securities and through adequate
diversification among issuers and industries.
PREPAYMENT RISK
The Fund's investments in mortgage-related securities are subject to the
risk that the principal amount of the underlying mortgage may be repaid
prior to the bond's maturity date. Such repayments are common when interest
rates decline. When such a repayment occurs, no additional interest will be
paid on the investment. Prepayment exposes the Fund to lower return upon
subsequent reinvestment of the principal.
INCOME RISK
Income risk is the chance that falling interest rates will cause the
Portfolio's income to decline. Income risk is generally higher for
short-term bonds.
Additionally, there can be no assurance that the Intermediate-Term Bond 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:
- - 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.
- - Investment in the securities of issuers in any foreign country
involves special risks and considerations not typically associated with
investing in U.S. issuers.
- - 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).
33
<PAGE> 38
- - 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.
KANSAS TAX-EXEMPT BOND FUND
===============================================================================
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
- --------------------------------------------
The investment objective of the Kansas Tax-Exempt Bond Fund is to preserve
capital while producing current income for the investor that is exempt from both
federal and Kansas state income taxes. The Fund invests primarily in municipal
obligations with maturities generally ranging 1 to 15 years. It is the intent of
the Adviser to maintain an effective average weighted maturity between 7 and 12
years. However, when the Adviser determines that the market conditions so
warrant, the Kansas Tax-Exempt Bond Fund can maintain an average weighted
maturity of less than 7 years.
Under normal conditions, the Fund will invest at least 80% of its net assets in
municipal obligations which produce interest that is, in the opinion of bond
counsel, exempt from federal income tax (collectively "Municipal Obligations").
This investment policy is a fundamental policy of the Fund. At least 65% of the
Fund's total assets will be invested in Municipal Obligations which are exempt
from Kansas state income taxes. The remainder of the Fund maybe invested in
Municipal Obligations of other states.
Under normal conditions, the Fund will also invest at least 80% of its net
assets in securities the income from which is not subject to the alternative
minimum tax. Although it has no present intention of doing so, the Fund may
invest up to 20% of its assets in taxable securities for defensive purposes or
when sufficient tax exempt securities considered appropriate by the Adviser are
not available for purchase. The taxable instruments in which the Kansas
Tax-Exempt Bond Fund may invest consist of U.S. Treasury obligations;
obligations issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities whether or not backed by the full faith and credit of the U.S.
Government; certificates of deposit, bankers acceptances and time deposits of
U.S. commercial banks or savings and loan institutions (not including foreign
branches of U.S. banks or U.S. branches of foreign banks) which are members of
the Federal Reserve System, the Federal Deposit Insurance Corporation or the
Federal Savings and Loan Insurance Corporation and which have total assets of $1
billion or more as shown on their last published financial statements at the
time of investment; and repurchase agreements involving any of the foregoing
obligations.
In response to unfavorable market conditions, the Fund may make temporary
investments of up to 100% of its assets in cash or cash equivalents, including
investment grade short-term obligations. To the extent that the Fund invokes
this strategy, its ability to achieve its investment objective may be adversely
affected.
OTHER INVESTMENTS
DEBT OBLIGATIONS in general, including those listed above and any others that
the Fund may purchase, are basically written promises to repay a debt. Among the
various types of debt securities the Fund may purchase, the terms of repayment
may vary, as may the commitment of other parties to honor the obligations of the
issuer of the security. MUNICIPAL OBLIGATIONS are debt obligations issued and
backed by municipalities.
34
<PAGE> 39
ADDITIONAL STRATEGIES
The Fund may use a number of investment strategies to try to improve the Fund's
returns or protect its assets.
The Fund may use REPURCHASE AGREEMENTS, where a party agrees to sell a security
to the Fund and then repurchase it at an agreed-upon price and time, which
creates a fixed return for the Fund. The Fund will only enter into these
repurchase agreements with parties whom the Fund believes can honor their
obligations in the transactions.
The Fund may use REVERSE REPURCHASE AGREEMENTS where the Fund borrows money on a
temporary basis by selling a security with an obligation to repurchase it at an
agreed-upon price and time.
The Fund may purchase FLOATING RATE and VARIABLE RATE securities. These
securities pay interest at rates that change periodically to reflect changes in
market interest rates. Because these securities adjust the interest they pay,
they may be beneficial when interest rates are rising because of the additional
return the Fund will receive, and they may be detrimental when interest rates
are falling because of the reduction in interest payments to the Fund.
The Fund also follows certain policies when it: BORROWS MONEY (the Fund may
borrow up to 33 1/3% of the current value of its total net assets for temporary
or emergency purposes or to meet redemptions); LENDS ITS SECURITIES to others;
and holds ILLIQUID SECURITIES (the Fund may hold up to 15% of its net assets in
securities, including restricted securities, those without a readily available
market and repurchase agreements with maturities longer than seven days). The
Fund is subject to certain investment restrictions that are fundamental
policies, which means they cannot be changed without shareholder approval. For
more information about these restrictions, see the SAI.
RISK FACTORS
- ------------
The Fund is subject to several risks, any of which could cause investors to lose
money. These include:
STATE SPECIFIC RISK
State specific risk is the chance that the Fund, because it invests
primarily in securities issued by Kansas and its municipalities, is more
vulnerable to unfavorable developments in Kansas than funds that invest in
municipal bonds of many different states.
INTEREST RATE RISK
Interest rate risk is the chance that bond prices overall will decline over
short or even long periods due to rising interest rates. Interest rate risk
is generally high for longer-term bonds.
INCOME RISK
Income risk is the chance that falling interest rates will cause the Fund's
income- and thus its total return - to decline. Income risk is generally
low for longer-term bonds.
CALL RISK
Call risk is the chance that during periods of falling interest rates, a
bond issuer will "call"--or repay--a high-yielding bond before its maturity
date. Forced to reinvest the unanticipated proceeds at lower interest rates
the Fund would experience a decline in income and the potential for taxable
capital gains. Call risk is generally high for longer-term bonds.
35
<PAGE> 40
CREDIT RISK
Credit risk is the chance that bond issuers will fail to repay interest and
principal in a timely manner. Credit risk should be low for the Fund.
MANAGER RISK
Manager risk is the chance that poor security selection will cause the Fund
to underperform other funds with similar investment objectives.
ADDITIONAL RISKS
The price per share of the Kansas Tax-Exempt Bond Fund 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
MONEY MARKET FUND
==============================================================================
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
- -------------------------------------------
The investment objective of the Fund is to provide investors with current
income, liquidity and the maintenance of a stable net asset value of $1.00 per
share by investing in high quality, U.S. dollar-denominated short-term
obligations which present minimal credit risks. The Fund's investment objective
is a fundamental policy that cannot be changed without shareholder approval.
The Fund invests in high quality money market instruments to try to achieve its
investment objective. The Fund will purchase obligations such as, but not
limited to, obligations of the U.S. Government or its agencies or
instrumentalities, commercial paper, loan participation interests, medium-term
notes, asset-backed securities and other promissory notes, including floating or
variable rate obligations and domestic, Yankeedollar 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 Fund invests more than 25% of the Fund's assets in the banking industry.
However, for temporary defensive purposes during periods when the Adviser
believes that maintaining this concentration may be inconsistent with the best
interest of shareholders, the Fund will not maintain this concentration. The
Fund's policy of concentration in the banking industry increases the Fund's
exposure to market conditions prevailing in that industry.
The Fund will invest only in issuers or instruments that at the time of purchase
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 Corporation and "P-1" by Moody's Investors Services, Inc.; are single
rated and have received the highest short-term rating by a NRSRO; or are
unrated, but are determined to be of comparable quality by the Adviser pursuant
to guidelines approved by the Board and subject to ratification by the Board.
The Fund may also purchase securities on a "when-issued" basis and purchase or
sell them on a "forward commitment" basis.
DEBT OBLIGATIONS in general, including those listed above and any others that
the Fund may purchase, are basically written promises to repay a debt. Among the
various types of debt securities the
36
<PAGE> 41
Fund may purchase, the terms of repayment may vary, as may the commitment of
other parties to honor the obligations of the issuer of the security.
COMMERCIAL PAPER is short-term debt obligations of banks, corporations and other
borrowers. The obligations are usually issued by financially strong businesses
and often include a line of credit to protect purchasers of the obligations. An
ASSET-BACKED SECURITY is a loan or note that pays interest based upon the cash
flow of a pool of assets, such as mortgages, loans and credit card receivables.
CERTIFICATES OF DEPOSIT, TIME DEPOSITS and BANKERS' ACCEPTANCES are obligations
issued by or through a bank. These instruments depend upon the strength of the
bank involved in the borrowing to give investors comfort that the borrowing will
be repaid when promised.
The Fund may purchase securities that include DEMAND FEATURES, which allow us to
demand repayment of a debt obligation before the obligation is due or "matures".
This means that the Fund can purchase longer-term securities because of the
expectation that the Fund can demand repayment of the obligation at an
agreed-upon price within a relatively short period of time. This procedure
follows the rules applicable to money market funds. The Fund will not purchase
an instrument that allow us to resell a security, known as a "put", separately
from the longer term security to which it relates.
The securities that the Fund may purchase may change over time as new types of
money market instruments are developed. The Fund will purchase these new
instruments, however, only if their characteristics and features follow the
rules governing the operation of money market mutual funds.
OTHER INVESTMENTS
The Fund may also invest in DEBT OBLIGATIONS ISSUED BY THE U.S. TREASURY.
Treasury securities have varying interest rates and maturities, but they are all
backed by the full faith and credit of the U.S. Government.
Brokerage firms sometimes "strip" Treasury debt obligations into their component
parts: the Treasury's obligation to make periodic interest payments and its
obligation to repay the amount borrowed. These STRIPPED SECURITIES are sold to
investors separately. Stripped securities do not make periodic interest
payments. They are usually sold at a discount and then redeemed for their face
value on their maturity dates. These securities increase in value when interest
rates fall and lose value when interest rates rise. However, the value of
stripped securities generally fluctuates more in response to interest rate
movements than the value of traditional bonds. The Fund may try to earn money by
buying stripped securities at a discount and either selling them after they
increase in value or holding them until they mature.
The Fund may also invest in other DEBT OBLIGATIONS ISSUED OR GUARANTEED BY THE
U.S. GOVERNMENT and government-related entities. Some of these debt securities
are backed by the full faith and credit of the U.S. Government, like obligations
of the Government National Mortgage Association (GNMA or "Ginnie Mae"). Debt
securities issued by other government entities, like obligations of the Federal
National Mortgage Association (FNMA or "Fannie Mae") and the Student Loan
Marketing Association (SLMA or "Sallie Mae"), are not backed by the full faith
and credit of the U.S. Government. However, these issuers have the right to
borrow from the U.S. Treasury to meet their obligations. In contrast, the debt
securities of other issuers, like the Farm Credit System, depend entirely upon
their own resources to repay their debt.
ADDITIONAL STRATEGIES
37
<PAGE> 42
The Fund may use a number of investment strategies to try to improve the Fund's
returns or protect its assets.
The Fund may use REPURCHASE AGREEMENTS, where a party agrees to sell a security
to the Fund and then repurchase it at an agreed-upon price and time, which
creates a fixed return for the Fund. The Fund will only enter into these
repurchase agreements with parties whom the Fund believes can honor their
obligations in the transactions.
The Fund may use REVERSE REPURCHASE AGREEMENTS where the Fund borrows money on a
temporary basis by selling a security with an obligation to repurchase it at an
agreed-upon price and time.
The Fund may also purchase money market obligations under a FIRM COMMITMENT
AGREEMENT. When the Fund makes this type of purchase, the price and interest
rate are fixed at the time of purchase, but delivery and payment for the
obligations take place at a later time. The Fund does not earn interest income
until the date the obligations are delivered.
The Fund may purchase FLOATING RATE and VARIABLE RATE securities. These
securities pay interest at rates that change periodically to reflect changes in
market interest rates. Because these securities adjust the interest they pay,
they may be beneficial when interest rates are rising because of the additional
return the Fund will receive, and they may be detrimental when interest rates
are falling because of the reduction in interest payments to the Fund.
The Fund also follows certain policies when it: BORROWS MONEY (the Fund may
borrow up to 33 1/3% of the current value of its total net assets for temporary
or emergency purposes or to meet redemptions); LENDS ITS SECURITIES to others;
and holds ILLIQUID SECURITIES (the Fund may hold up to 10% of its net assets in
securities, including restricted securities, those without a readily available
market and repurchase agreements with maturities longer than seven days). The
Fund is subject to certain investment restrictions that are fundamental
policies, which means they cannot be changed without shareholder approval. For
more information about these restrictions, see the SAI.
RISK FACTORS
- ------------
The Money Market Fund attempts to maintain the net asset value of its shares at
a constant $1.00 per share, although there can be no assurance that the Money
Market Fund will always be able to do so. The Money Market Fund 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 Fund
invests.
The Money Market Fund's policy of concentrating in the banking industry could
increase the Fund's exposure to economic or regulatory developments relating to
or affecting banks. Banks are subject to extensive governmental regulation which
may limit both the amounts and types of loans and other financial commitments
they can make and the interest rates and fees they can charge. The financial
condition of banks is largely dependent on the availability and cost of capital
funds, and can fluctuate significantly when interest rates change. In addition,
general economic conditions may affect the financial condition of banks.
The Money Market Fund may invest in foreign securities which will involve
certain additional risks. For example, foreign banks and companies generally are
not subject to regulatory requirements comparable to those applicable to U.S.
banks and companies. In addition, political developments and changes in currency
rates may adversely affect the value of the Fund's foreign securities.
38
<PAGE> 43
The Money Market Fund, like all investment funds, is subject to the chance that
poor security selection will cause the Money Market Fund to under perform other
funds with similar investment objectives.
INTEREST RATE RISK
Interest rate risk is the chance that the value of the bonds the Fund holds
will decline due to rising interest rates. When interest rates rise, the
price of most bonds goes down. When interest rates go down, bond prices go
up. The price of a bond is also affected by its maturity. Bonds with longer
maturities generally have greater sensitivity to changes in interest rates.
CREDIT RISK
Credit risk is the chance that a bond issuer will fail to repay interest
and principal in a timely manner, reducing the Fund's return. Credit risk
is somewhat minimized by the Fund's policy of investing primarily in bonds
rated within the three highest long-term or two highest short-term rating
categories or comparable quality unrated securities and through adequate
diversification among issuers and industries.
PREPAYMENT RISK
The Fund's investments in mortgage-related securities are subject to the
risk that the principal amount of the underlying mortgage may be repaid
prior to the bond's maturity date. Such repayments are common when interest
rates decline. When such a repayment occurs, no additional interest will be
paid on the investment. Prepayment exposes the Fund to lower return upon
subsequent reinvestment of the principal.
INCOME RISK
Income risk is the chance that falling interest rates will cause the
Portfolio's income to decline. Income risk is generally higher for
short-term bonds.
39
<PAGE> 44
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
===============================================================================
ADDITIONAL RISKS TO THE FUNDS
YEAR 2000 AND THE INTRUST FUNDS. Like other funds and business organizations
around the world, the Funds could be adversely affected if the computer systems
used by the Adviser and the Funds' other service providers do not properly
process date-related information for the year 2000 and beyond. The Funds
understand that their key service providers are taking steps to address this
issue. In addition, the problem may adversely affect the companies and other
issuers in which the Funds invest. For example, they may incur substantial costs
to correct the problem and may suffer losses caused by data processing errors.
Management of the Funds and the Adviser will continue to monitor developments
relating to this issue.
EURO INTRODUCTION. The European Monetary Union's planned introduction of a
single European currency, the Euro, on January 1, 1999 creates certain
uncertainties, including whether the payment and operational systems of banks
and other financial institutions will be prepared for the change, the legal
treatment of certain outstanding financial contracts that refer to existing
currencies, and the creation of suitable clearing and settlement payment systems
for the new currency. These or other related factors could cause market
disruptions before or after the introduction of the Euro. The Funds understand
that the Advisor and other key service providers are taking steps to address
Euro-related issues.
40
<PAGE> 45
FUND MANAGEMENT
===============================================================================
THE INVESTMENT ADVISER
INTRUST Bank N.A., 105 North Main Street, Box One, Wichita, Kansas 67202 is the
Adviser for the Funds. Through its portfolio management team, INTRUST Bank makes
the day-to-day investment decisions and continuously reviews, supervises and
administers the Funds' investment programs.
For these advisory services, the Funds paid INTRUST Bank as follows during their
fiscal year ended October 31, 1998:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
PERCENTAGE OF AVERAGE
NET ASSETS AS OF 10/31/98
- ------------------------------------------------------------------------------
<S> <C>
The Stock Fund 0.87%
- ------------------------------------------------------------------------------
International Multi-Manager Stock Fund 0.35%
- ------------------------------------------------------------------------------
Short-Term Bond Fund 0.19%
- ------------------------------------------------------------------------------
Intermediate Bond Fund 0.29%
- ------------------------------------------------------------------------------
Kansas Tax-Exempt Bond Fund 0.30%
- ------------------------------------------------------------------------------
The Money Market Fund 0.15%
- ------------------------------------------------------------------------------
</TABLE>
INTRUST Bank waived a portion of its contractual fees with the Funds for the
most recent fiscal year. Contractual fees (without waivers) are: The Stock Fund,
1.00%; International Multi-Manager Stock Fund, 0.40%; Short-Term Bond Fund,
0.40%; Intermediate Bond Fund, 0.40%; Kansas Tax-Exempt Bond Fund, 0.30%; and
the Money Market Fund, 0.25%.
INTRUST PORTFOLIO MANAGERS
John S. Maurer, Jr., Senior Vice President and Chief Investment Officer at
INTRUST Bank, is responsible for the day-to-day management of the International
Multi-Manager Stock Fund. Mr. Maurer has over 22 years of experience in the
investment and trust industry, including the development of equity and fixed
income investment services and individual portfolio and relationship management.
Michael Colgan, Vice President and Trust Investment Officer for the Adviser
since 1985, is responsible for the day-to-day management of the Kansas
Tax-Exempt Bond Fund. Mr. Colgan has managed the Fund since December 1990.
SUBADVISERS:
GALLIARD CAPITAL MANAGEMENT, INC. Galliard, located at 800 LaSalle Avenue, Suite
2060, Minneapolis, Minnesota 55479, is subadviser to the Short-Term Bond Fund
and the Intermediate Bond Fund. Galliard, a wholly-owned subsidiary of Norwest
Bank Minnesota, was formed July 1, 1995 to specialize in the management of
institutional fixed income portfolios. Karl Tourville and Richard Merriam are
co-managers of the Short-Term Bond Fund and the Intermediate Bond Fund. Mr.
Tourville has ten years of investment experience and Mr. Tourville has thirteen
years of investment experience.
41
<PAGE> 46
ARK ASSET MANAGEMENT, INC. ARK, located at One New York Plaza, New York, New
York 10004, serves as subadviser to the Stock Fund. ARK's predecessor was
established in 1929 as the private money management division of Lehman Brothers.
In 1989, the division became an independent company when the employees purchased
the institutional money management business from Lehman Brothers. An advisory
group consisting of five investment professionals with combined experience
totaling over 100 years is responsible for the day-to-day management of the
Short-Term Bond Fund and the Intermediate Bond Fund.
THE MONEY MARKET FUND
AMR INVESTMENT SERVICES, INC. AMR, located at 4333 Amon Carter Boulevard, MD
5645, Fort Worth, Texas 76155, is a wholly-owned subsidiary of AMR Corporation,
the parent company of American Airlines, Inc., and was organized in 1986 to
provide business management, advisory, administrative and asset management
consulting services. American Airlines, Inc. is not responsible for investments
made by AMR.
INTERNATIONAL EQUITY PORTFOLIO
AMR also serves as investment manager and administrator to the Portfolio.
William F. Quinn has served as President of AMR since it was founded in 1986 and
Nancy A. Eckl currently serves as Vice President-Trust Investments of AMR. Ms.
Eckl previously served as Vice President-Finance and Compliance of AMR from
December 1990 to May 1995. In these capacities, Mr. Quinn and Ms. Eckl have
primary responsibility for the day-to-day operations of the Portfolio. The AMR
Trust and AMR also entered into a Management Agreement dated October 1, 1995, as
amended July 25, 1997, that obligates AMR to provide or oversee all
administrative, investment advisory and portfolio management services for the
AMR Trust.
Hotchkis and Wiley, Morgan Stanley Asset Management Inc. and Templeton
Investment Counsel, Inc., currently serve as investment advisers to the
Portfolio. None of these portfolio advisers provide any services to the
Portfolio except for portfolio investment management and related recordkeeping
services.
- - HOTCHKIS AND WILEY, 725 South Figueroa Street, Suite 4000, Los Angeles,
California 90017, is a professional investment counseling firm which was
founded in 1980 by John F. Hotchkis and George Wiley. Hotchkis and Wiley
is a division of Merrill Lynch Asset Mercury Management, L.P., a
wholly-owned indirect subsidiary of Merrill Lynch & Co., Inc.
- - MORGAN STANLEY ASSET MANAGEMENT INC., 25 Cabot Square, London, United
Kingdom E144QA , is a wholly-owned subsidiary of Morgan Stanley Dean
Witter, Discover & Co. MSAM provides portfolio management and named
fiduciary services to taxable and nontaxable institutions, international
organizations and individuals investing in United States and international
equity and debt securities.
- - TEMPLETON INVESTMENT COUNSEL, INC., 500 East Broward Blvd., Suite 2100,
Fort Lauderdale, Florida 33394-3091, is a professional investment
counseling firm which has been providing investment services since 1979.
Templeton is indirectly owned by Franklin Resources, Inc.
The Statement of Additional Information has more detailed information about the
Investment Adviser and other service providers.
42
<PAGE> 47
THE DISTRIBUTOR
BISYS Fund Services is the Funds' Distributor. Its address is 3435 Stelzer Road,
Columbus, Ohio 43219.
43
<PAGE> 48
SHAREHOLDER INFORMATION
===============================================================================
PRICING OF FUND SHARES
- ----------------------
HOW NAV IS CALCULATED
The NAV is calculated by adding the total value of the Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:
NAV =
TOTAL ASSETS - LIABILITIES
--------------------------
Number of Shares
Outstanding
You can find the Funds' NAV daily in The Wall Street Journal and other
newspapers.
MONEY MARKET FUND
The Fund's net asset value, or NAV, is expected to be constant at $1.00 per
share, although this value is not guaranteed. The NAV is determined at 12 noon,
Eastern time on days the New York Stock Exchange is open. The Portfolios value
their securities at their amortized cost. This method involves valuing an
instrument at its cost and thereafter applying a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument.
OTHER FUNDS
Per share net asset value (NAV) for each non-Money Market Fund is determined and
its shares are priced at the close of regular trading on the New York Stock
Exchange, normally at 4:00 p.m. Eastern time on days the Exchange is open.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is accepted by the Fund plus any applicable sales
charge as noted in the section on "Distribution Arrangements/Sales Charges."
This is what is known as the offering price.
A Fund's securities are generally valued at current market prices. If market
quotations are not available, prices will be based on fair value as determined
by the Fund's Trustees.
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 the Fund. Trading in foreign securities in some
countries may not take place on all Fund business days and may take place in
various foreign markets on days on which the International Multi-Manager Stock
Fund's NAV is not calculated. However, unless the Fund's Manager determine that
the value of the already-priced foreign securities would be materially affected
before the Fund's NAV is determined, no adjustment will be made for the
differing times in pricing. Should an adjustment in pricing be deemed necessary,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of AMR Trust's Board of Trustees.
All 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 INTRUST's
Board of Trustees, or in the case of the International Multi-Manager Stock Fund,
the AMR Trust's Board of Trustees.
44
<PAGE> 49
PURCHASING AND ADDING TO YOUR SHARES
- ------------------------------------
You may purchase Funds through the INTRUST Funds' Distributor or through banks,
brokers and other investment representatives, which may charge additional fees
and may require higher minimum investments or impose other limitations on buying
and selling shares. If you purchase shares through an investment
representative, that party is responsible for transmitting orders by close of
business and may have an earlier cut-off time for purchase and sale requests.
Consult your investment representative or institution for specific information.
ACCOUNT TYPE MINIMUM MINIMUM
INITIAL INVESTMENT SUBSEQUENT INVESTMENT
SERVICE CLASS
PREMIUM CLASS
Regular
(non-retirement) $ 1,000 $ 50
Retirement (IRA $ 250 $ 50
Automatic
Investment Plan $ 1,000 $ 50
--------------------------------------------------------------------
All purchases must be in U.S. dollars. A fee will be charged for any checks that
do not clear. Third-party checks are not accepted.
A Fund may waive its minimum purchase requirement and the Distributor may reject
a purchase order if it considers it in the best interest of the Fund and its
shareholders
- -------------------------------------------------------------------------------
Avoid 31% Tax Withholding
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
- -------------------------------------------------------------------------------
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
BY REGULAR MAIL
Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "INTRUST Funds Trust."
3. Mail to: INTRUST Funds Trust, PO Box 182498, Columbus, OH 43219-2498.
Subsequent:
1. Use the investment slip attached to your account statement.
Or, if unavailable,
2. Include the following information on a piece of paper:
- Fund name
- Share class
- Amount invested
- Account name
- Account number
Include your account number on your check.
45
<PAGE> 50
3. Mail to: INTRUST Funds Trust, PO Box 182498, Columbus, OH 43219-2498.
BY OVERNIGHT SERVICE
See instructions 1-2 above for subsequent investments.
3. Send to: INTRUST Funds,
c/o BISYS Funds Services,
ATTN: T.A. Operations, 3435 Stelzer Road, Columbus, OH 43219.
ELECTRONIC PURCHASES
Your bank must participate in the Automated Clearing House (ACH) and must be a
United States Bank. Your bank or broker may charge for this service.
Establish electronic purchase option on your account application or call (888)
266-8787. Your account can generally be set up for electronic purchases within
15 days.
Call (888) 266-8787 to arrange a transfer from your bank account.
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial
institutions to send funds to each
other, almost instantaneously. With
an electronic purchase or sale, the
transaction is made through the
Automated Clearing House (ACH) and
may take up to eight days to clear.
There is generally no fee for ACH
transactions.
----------------------------------------------
BY WIRE TRANSFER
NOTE: YOUR BANK MAY CHARGE A WIRE TRANSFER FEE.
Please phone the Funds at (888) 266-8787 for instructions on opening an account
or purchasing additional shares by wire transfer.
- -------------------------------------------------------------------------------
You can add to your account by using the convenient options described below. The
Fund reserves the right to change or eliminate these privileges at any time with
60 days notice.
- -------------------------------------------------------------------------------
46
<PAGE> 51
PURCHASING AND ADDING TO YOUR SHARES - CONTINUED
- ------------------------------------
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments in the Funds from your bank account.
Automatic investments can be as little as $50, once you've invested the $1,000
minimum required to open the account.
To invest regularly from your bank account:
- Complete the Automatic Investment Plan portion on your Account
Application.
Make sure you note:
[ ] Your bank name, address and account number
[ ] The amount you wish to
invest automatically (minimum $50)
[ ] When you want to invest (on either
the fifth or twentieth day of each month)
- Attach a voided personal check.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
- ---------------------------
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Dividends are higher for Service Class shares than for Premium Class shares,
because Premium Class shares are subject to higher shareholder servicing
expenses. Capital gains are distributed at least annually.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE
OWNED YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION
DATE, SOME OF YOUR INVESTMENT WILL BE
RETURNED TO YOU IN THE FORM OF A DISTRIBUTION.
- --------------------------------------------------------------------------------
47
<PAGE> 52
SELLING YOUR SHARES
You may sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund, its transfer agent, or your
investment representative. Normally you will receive your proceeds within a week
after your request is received. See section on "General Policies on Selling
Shares below."
- -------------------------------------------------------------------------------
WITHDRAWING MONEY FROM YOUR
FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.
INSTRUCTIONS FOR SELLING SHARES
By telephone 1. Call (888) 266-8787 with instructions
(unless you have declined as to how you wish to receive your
telephone sales privileges) funds (mail, wire, and electronic
transfer).
- --------------------------------------------------------------------------------
By mail 1. Call (888) 266-8787 to request
redemption forms or write a letter
of instruction indicating:
- your Fund and account number
- amount you wish to redeem
- address where your check should
be sent
- account owner signature
2. Mail to:
INTRUST Funds
PO Box 182498
Columbus, OH 43219-2498
- -------------------------------------------------------------------------------
By overnight service See instruction 1 above.
2. Send to
The INTRUST Funds
c/o BISYS Fund Services
ATTN: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219
Wire transfer Call (888) 266-8787 to request a wire
You must indicate this option transfer.
on your application. If you call by 4 p.m. Eastern time,
your payment will normally be wired to
your bank on the next business day.
The Fund may charge a wire
transfer fee.
Note: Your financial
institution may also charge a
separate fee.
48
<PAGE> 53
Electronic Redemptions Call (888) 266-8787 to request an
electronic redemption.
Your bank must participate in If you call by 4 p.m. Eastern time,
the Automated Clearing House the NAV of your shares will normally
(ACH) and must be a U.S. bank. be determined on the same day and
the proceeds credited within 8 days.
Your bank may charge for this
service.
SYSTEMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $100. To activate this
feature: o Make sure you've checked the appropriate box on the Account
Application. Or call (888) 266-8787.
- - Include a voided personal check.
- - Your account must have a value of $10,000 or more to start withdrawals.
- - If the value of your account falls below $500, you may be asked to add
sufficient funds to bring the account back to $500, or the Fund may close
your account and mail the proceeds to you.
REDEMPTION BY CHECK WRITING -- THE MONEY MARKET FUND
Each month you may write checks in amounts of $ 500 or more on your account in
the Money Market Fund. To obtain checks, complete the signature card section of
the Account Application or contact the Fund to obtain a signature card.
Dividends and distributions will continue to be paid up to the day the check is
presented for payment. The check writing feature may be modified or terminated
upon 30-days written notice. You must maintain the minimum required account
balance of $500 and you may not close your Money Market Fund account by writing
a check.
GENERAL POLICIES ON SELLING SHARES
- ----------------------------------
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee which include each of
the following.
- Redemptions over $10,000
- Your account registration or the name(s) in your account has
changed within the last 15 days
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another Fund account
with a different registration.
A signature guarantee can be obtained from a financial institution, such as a
bank, broker-dealer, credit union, clearing agency, or savings association.
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders. If appropriate precautions have not been taken, the
Transfer Agent may be liable for losses due to unauthorized transactions.
49
<PAGE> 54
SELLING YOUR SHARES - CONTINUED
- -------------------
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, the proceeds of your
redemption may be held up to 15 business days until the Transfer Agent is
satisfied that the check has cleared. You can avoid this delay by purchasing
shares with a certified check.
GENERAL POLICIES ON SELLING YOUR SHARES
- ---------------------------------------
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
REDEMPTION IN KIND
The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than 1% of the Fund's net assets). If the Fund deems it
advisable for the benefit of all shareholders, redemption in kind will consist
of securities equal in market value to your shares. When you convert these
securities to cash, you will pay brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $500, the Fund may ask you to increase your balance.
If it is still below $500 after 30 days from written notice by the Fund to you,
the Fund may close your account and send you the proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash:
If distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that remain
uncashed for six months will be canceled and the money reinvested in the Fund.
50
<PAGE> 55
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
- ---------------------------------------
This section describes the sales charges and fees you will pay as an investor in
different share classes offered by the Fund and ways to qualify for reduced
sales charges.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SERVICE CLASS PREMIUM CLASS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales Charge (Load) None. None.
- ----------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fee Subject to annual Subject to annual
distribution fees of up to distribution fees of
.25% of the Fund's total up to 0.75% of the Fund's assets.
assets.
- ----------------------------------------------------------------------------------------------------------
Fund Expenses Lower annual expenses then Higher annual expenses than
Premium Class shares. Service Class shares.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTION (12b-1) FEES
- --------------------------
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and distribution
of the Fund's shares and/or for providing shareholder services. 12b-1 fees are
paid from Fund assets on an ongoing basis, and will increase the cost of your
investment.
Premium Class shares pay a 12b-1 fee of up to .75% of the average daily net
assets of a Fund. Service Class shares pay a 12b-1 fee of up to .25% of the
average daily net assets of a Fund.
Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of 12b-1
distribution and service fees.
SERVICE ORGANIZATION FEES
- -------------------------
Service Organization fees compensate various banks, trust companies,
broker-dealers and other financial organizations for administrative services
such as maintaining shareholder accounts and records for those investors
purchasing shares through these channels.
- - Premium and Service Class shareholders pay a service organization fee of
up to 0.08% of the daily net assets of a Fund.
- - Premium Class shareholders may pay a service organization fee of up to
0.50% of the daily net assets of a Fund for services such as record
keeping, communication with and education of shareholders, and asset
allocation services.
51
<PAGE> 56
DIVIDENDS, DISTRIBUTIONS AND TAXES
- ----------------------------------
Any income a Fund receives in the form of dividends is paid out, less expenses,
to its shareholders. Dividends on the Money Market Fund, the Intermediate Term
Bond Fund, the Short-Term Bond Fund and the Kansas Tax-Exempt Bond Fund are paid
monthly. Dividends on the Stock Fund and the International Multi-Manager Stock
Fund are paid annually. Capital gains for all Funds are distributed at least
annually.
Dividends and distributions are treated in the same manner for federal income
tax purposes whether you receive them in cash or in additional shares.
An exchange of shares is considered a sale, and any related gains may subject to
applicable taxes.
Dividends are taxable as ordinary income. Taxation on capital gains will vary
with the length of time the Fund has held the security - not how long the
shareholder has been in the Fund.
Dividends are taxable in the year in which they are paid, even if they appear on
your account statement the following year.
You will be notified in January each year about the federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements. There
is a penalty on certain pre-retirement distributions from retirement accounts.
Consult your tax adviser about the federal, state and local tax consequences in
your particular circumstances.
EXCHANGING YOUR SHARES
- ----------------------
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to INTRUST Funds, PO Box
182498, Columbus OH 43219-2498, or by calling (888) 266-8787. Please provide the
following information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security
number)
- Dollar value or number of shares to be exchanged
- The name of the Fund from which the exchange is to be made
- The name of the Fund into which the exchange is being made.
See "Selling your Shares" for important information about telephone
transactions.
52
<PAGE> 57
FINANCIAL HIGHLIGHTS
===============================================================================
The financial highlights tables are intended to help you understand each of the
Funds' financial performance for the period of each Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the tables represent the rate than an investor would have earned (or
lost) on an investment in the Funds (assuming reinvestment of all dividends and
distributions). This financial information has been audited by KPMG Peat
Marwick, LLP, whose report, along with the Funds' financial statements, are
included in INTRUST's Annual Report.
STOCK FUND FINANCIAL HIGHLIGHTS
INTERNATIONAL MULTI-MANAGER STOCK FUND FINANCIAL HIGHLIGHTS
SHORT-TERM BOND FUND FINANCIAL HIGHLIGHTS
INTERMEDIATE BOND FUND FINANCIAL HIGHLIGHTS
KANSAS TAX-EXEMPT BOND FUND FINANCIAL HIGHLIGHTS
The financial highlights for the Kansas Tax-Exempt Bond Fund include audited
financial information prepared by KPMG Peat Marwick LLP for the fiscal year
ended October 31, 1998 and for the period from September 1, 1997 through October
31, 1997. Also included is audited financial information prepared by Arthur
Andersen LLP for the fiscal years ending on August 31, 1994 through August 31,
1997.
MONEY MARKET FUND FINANCIAL HIGHLIGHTS
53
<PAGE> 58
For more information about the Funds, the following documents are available free
upon request:
ANNUAL/SEMIANNUAL REPORTS:
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds, including its operations and investment policies.
It is incorporated by reference and is legally considered a part of this
prospectus.
- -------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI OR REQUEST OTHER INFORMATION AND
DISCUSS YOUR QUESTIONS ABOUT THE INTRUST FUNDS BY CONTACTING A BROKER OR BANK
THAT SELLS THE FUNDS. OR CONTACT THE FUNDS AT:
INTRUST FUNDS TRUST
3435 STELZER ROAD
COLUMBUS, OHIO 43219
TELEPHONE: (888) 266-8787
- -------------------------------------------------------------------------------
You can review the Fund's reports and SAIs at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies:
- For a fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
- Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-7505.
54
<PAGE> 59
INTRUST FUNDS TRUST
REGISTRATION STATEMENT ON FORM N-1A
Cross Reference Sheet
Pursuant to Rule 485(a)
Under the Securities Act of 1933
MONEY-MARKET FUND
SHORT-TERM BOND FUND
INTERMEDIATE BOND FUND
STOCK FUND
INTERNATIONAL MULTI-MANAGER STOCK FUND
KANSAS TAX-EXEMPT BOND FUND
<TABLE>
<CAPTION>
N-1A ITEM NO.--PART B LOCATION--STATEMENT OF ADDITIONAL
INFORMATION CAPTION
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<S> <C> <C>
Item 10 Cover Page and Table of Contents Cover Page and Table of Contents
Item 11 Fund History Management--Investment Advisers
Item 12 Description of the Fund and Its Investment Objectives and
Investments and Risks Management Policies; Additional
Permitted Investment Activities;
Risks of Investing in the Funds
Item 13 Management of the Fund Management, Trustees and Officer
of the Trust
Item 14 Control Persons and Principal Management
Holders of Securities
Time 15 Investment Advisory and Other Management; Investment Advisor to
Services the Funds; Distribution,
Administration and Fund Accounting
Item 16 Brokerage Allocation and Other Portfolio Transactions
Practices
Item 17 Capital Stock and Other Securities Other Information;
Capitalization; Voting
Item 18 Purchase, Redemption and Pricing Shareholder Information (Part A)
of Shares
Item 19 Taxation of the Fund Taxation
Item 20 Underwriters Management
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INTRUST FUNDS TRUST
3435 STELZER ROAD, COLUMBUS, OHIO 43219
GENERAL AND ACCOUNT INFORMATION: (888) 266-8787
INTRUST BANK, N.A.--INVESTMENT ADVISER
("INTRUST" OR THE "ADVISER")
BISYS FUND SERVICES
ADMINISTRATOR, SPONSOR AND DISTRIBUTOR
("BISYS" OR THE "ADMINISTRATOR" OR THE "DISTRIBUTOR")
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") describes one money
market fund (the "Money Market Fund") and five non-money market funds (the
"Non-Money Market Funds") (collectively, the "Funds"), all of which are managed
by INTRUST Bank, N.A. The Funds are:
MONEY MARKET FUND
-- Money Market Fund
NON MONEY MARKET FUNDS
-- Short-Term Bond Fund
-- Intermediate Bond Fund
-- Stock Fund
-- International Multi-Manager Stock Fund
-- Kansas Tax-Exempt Bond Fund
Each Fund constitutes a separate investment portfolio with distinct
investment objectives and policies. Shares of the Funds are sold to the public
by BISYS as an investment vehicle for individuals, institutions, corporations
and fiduciaries, including customers of INTRUST or its affiliates.
The International Multi-Manager Stock Fund seeks its investment objective
by investing all of its investable assets in the International Equity Portfolio
(the "Portfolio") of the AMR Investment Services Trust ("AMR Trust") that has an
identical investment objective to the International Multi-Manager Stock Fund.
This SAI is not a prospectus and is only authorized for distribution when
preceded or accompanied by a prospectus for the Funds dated March 3, 1999 (the
"Prospectus"). This SAI contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus. The Prospectus may be obtained without charge by writing or calling
the Funds at the address and information number printed above.
March 3, 1999
<PAGE> 61
TABLE OF CONTENTS
PAGE
----
INVESTMENT POLICIES 3
INVESTMENT RESTRICTIONS 10
KANSAS RISK FACTORS 13
MANAGEMENT 17
Trustees and Officers 17
Trustees and Officers of AMR Investment Services Trust 18
Investment Advisers 21
The Portfolio 22
Distribution of Fund Shares 25
Distribution Plan 25
Administration and Fund Accounting Services 26
Service Organizations 27
EXPENSES 28
DETERMINATION OF NET ASSET VALUE 29
PORTFOLIO TRANSACTIONS 30
Portfolio Turnover 31
TAXATION 31
Taxation of the Portfolio 31
Kansas Tax-Exempt Bond Fund 36
OTHER INFORMATION 37
Capitalization 37
Voting Rights 39
Custodian, Transfer Agent and Dividend Disbursing Agent 40
Independent Auditors 40
Yield and Performance Information 40
Financial Statements 42
APPENDIX
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INVESTMENT POLICIES
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 separate portfolios of INTRUST Funds Trust, a
Delaware business 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.
As a matter of fundamental policy, notwithstanding any limitation
otherwise, each Fund is authorized to seek to achieve its investment objective
by investing all of its investable assets in an investment company having
substantially the same investment objective and policies as the Fund.
- -- The investment objective of the Money Market Fund is to provide investors
with current income, liquidity and the maintenance of a stable net asset
value of $1.00 per share by investing in high quality, short-term
obligations.
- -- The investment objective of the Short-Term Bond Fund is to provide
investors with as high a level of current income as is consistent with
liquidity and safety of principal by investing primarily in investment
grade short-term obligations.
- -- The investment objective of the Intermediate Bond 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 Fund is to provide investors with
long-term capital appreciation.
- -- The investment objective of the International Multi-Manager Stock Fund is
to provide investors with long-term capital appreciation.
- -- The investment objective of the Kansas Tax-Exempt Bond Fund is to preserve
capital while producing current income for the investor that is exempt from
both federal and Kansas state income taxes.
Each Fund follows its own investment objectives and policies, including
certain investment restrictions. Several of those restrictions and each of 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 SAI
are not fundamental and may change solely by approval of the Board of Trustees.
References below to "All Funds" include the Portfolio, except where noted
otherwise.
The following is a description of investment practices of the Funds and the
securities in which they may invest:
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). U.S. Government securities are
obligations issued or
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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.
The 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). 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 (top three with respect to
Short-Term Bond Fund) rating categories of at least one NRSRO, or, if not rated
is, in the opinion of the Adviser, of an investment quality comparable to rated
commercial paper in which the Funds may invest, or, with respect to the Money
Market Fund, (i) rated "P-1" by Moody's and "A-1" or better by 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.
CORPORATE DEBT SECURITIES (ALL FUNDS EXCEPT KANSAS TAX-EXEMPT BOND
FUND--SEE "VARIABLE RATE DEMAND OBLIGATIONS"). The 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). The Funds are permitted to invest
in mortgage-related securities subject to the rating and quality requirements
specified with respect to each such Fund. In the case of the Kansas Tax-Exempt
Bond Fund, to the extent the Fund is permitted to invest in U.S. Government
Securities, the Fund may invest in mortgage-related securities only. Mortgage
pass-
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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 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.
Mortgage-related securities, for purposes of the Fund's Prospectus and this
SAI, represent pools of mortgage loans assembled for sale to investors by
various governmental agencies such as the Government National Mortgage
Association and government-related organizations such as the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation, as well as
by nongovernmental issuers such as commercial banks, savings and loan
institutions, mortgage bankers, and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third party or
otherwise similarly secured, the market value of the security, which may
fluctuate, is not so secured. If the Fund purchases a mortgage-related security
at a premium, that portion may be lost if there is a decline in the market value
of the security whether resulting from changes in interest rates or prepayments
in the underlying mortgage collateral. As with other interest-bearing
securities, the prices of such securities are inversely affected by changes in
interest rates. However, though the value of a mortgage-related security may
decline when interest rates rise, the converse is not necessarily true since in
periods of declining interest rates the mortgages underlying the securities are
prone to prepayment. For this and other reasons, a mortgage-related security's
stated maturity may be shortened by unscheduled prepayments on the underlying
mortgages and, therefore, it is not possible to predict accurately the
security's return to the Fund. In addition, regular payments received in respect
of mortgage-related securities include both interest
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and principal. No assurance can be given as to the return a Fund will receive
when these amounts are reinvested.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities created by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest and such guarantee is backed by
the full faith and credit of the United States. GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA certificates also are supported by the authority of GNMA to borrow funds
from the U.S. Government to make payments under its guarantee. Mortgage-related
securities issued by the Federal National Mortgage Association ("FNMA") include
FNMA Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of the FNMA and are not backed by or entitled
to the full faith and credit of the United States. The FNMA is a
government-sponsored organization owned entirely by private stock-holders.
Fannie Maes are guaranteed as to timely payment of the principal and interest by
FNMA. Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also
known as ("Freddie Macs" or "PCs"). The FHLMC is a corporate instrumentality of
the United States, created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan Banks and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by the
FHLMC. The FHLMC currently guarantees timely payment of interest and either
timely payment of principal or eventual payment of principal, depending upon the
date of issue. When the FHLMC does not guarantee timely payment of principal,
FHLMC may remit the amount due on account of its guarantee of ultimate payment
of principal at any time after default on an underlying mortgage, but in no
event later than one year after it becomes payable.
ASSET-BACKED SECURITIES (MONEY MARKET FUND, SHORT-TERM BOND FUND AND
INTERMEDIATE BOND 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 (SHORT-TERM BOND FUND, INTERMEDIATE BOND FUND
AND KANSAS TAX-EXEMPT BOND 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 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.
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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 LEASES. The Kansas Tax-Exempt Bond 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.
MUNICIPAL NOTES (SHORT-TERM BOND FUND, INTERMEDIATE BOND FUND AND KANSAS
TAX-EXEMPT BOND 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 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 (SHORT-TERM BOND FUND, INTERMEDIATE BOND FUND AND KANSAS
TAX EXEMPT-BOND 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. A maximum of 10% of the Kansas Tax-Exempt Bond Fund's
total assets may be invested in municipal bonds rated BBB by S&P or Baa by
Moody's. Bonds rated BBB by S&P have an adequate capacity to pay interest and
repay principal; bonds rated Baa by Moody's are considered to be medium-grade
obligations (i.e., neither highly protected nor poorly secured) and have
speculative characteristics. See the Appendix for a more complete description
of securities ratings.
COMMON STOCKS (STOCK FUND AND INTERNATIONAL MULTI-MANAGER STOCK 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.
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PREFERRED STOCKS (SHORT-TERM BOND FUND, INTERMEDIATE BOND FUND, STOCK FUND,
AND INTERNATIONAL MULTI-MANAGER STOCK 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.
AMERICAN DEPOSITORY RECEIPTS (SHORT-TERM BOND FUND, INTERMEDIATE BOND FUND
AND STOCK 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 there may be less governmental
regulation and supervision of foreign stock exchanges, brokers and listed
companies. In addition, such companies may use different accounting and
financial standards (and certain currencies may become unavailable for transfer
from a foreign currency), resulting in a Fund's possible inability to convert
proceeds realized upon the sale of portfolio securities of the affected foreign
companies immediately into U.S. currency.
INVESTMENT IN FOREIGN SECURITIES (SHORT-TERM BOND FUND, INTERMEDIATE BOND
FUND, STOCK FUND AND INTERNATIONAL MULTI-MANAGER STOCK FUND). These Funds may
each invest in securities of foreign governmental and private issuers that,
except for the International Multi-Manager Stock Fund, 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.
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FOREIGN EXCHANGE CONTRACTS (INTERNATIONAL MULTI-MANAGER STOCK 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 intervention, 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 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 against 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 the Portfolio's Investment Advisers ("Portfolio
Advisers") fail to predict currency values correctly.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS (INTERNATIONAL MULTI-MANAGER
STOCK FUND). The Portfolio may take positions in options on foreign currencies
in order to hedge against the risk of foreign exchange fluctuation on foreign
securities the Portfolio holds in its portfolio or which it intends to purchase.
Options on foreign currencies are affected by the factors discussed in "Foreign
Exchange Contracts" 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, the 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.
CONVERTIBLE AND EXCHANGEABLE SECURITIES (SHORT-TERM BOND FUND, INTERMEDIATE
BOND FUND, STOCK FUND, AND INTERNATIONAL MULTI-MANAGER STOCK 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, 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
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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). These obligations
include but are not restricted to certificates of deposit, commercial paper,
Yankee dollar 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. The Kansas Tax-Exempt Bond Fund's bank
obligations are limited to certificates of deposit bankers' acceptances.
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 the Adviser, 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 meeting 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 in more than seven days may not exceed 15% of the value of the net
assets of the Non-Money Market Funds and 10% of the value of the net assets of
the Money Market Fund.
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 that the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to United States
banks. Foreign banks are not subject to examination by any United States
Government agency or instrumentality.
INVESTMENTS IN EURODOLLAR AND YANKEE DOLLAR 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.
STRIPS AND ZERO COUPON SECURITIES (ALL FUNDS EXCEPT INTERNATIONAL
MULTI-MANAGER STOCK FUND). Each Fund may invest in separately traded principal
and interest components of securities backed by the full faith and credit of the
United States Treasury. The principal and interests components of United States
Treasury bonds with remaining maturities of longer than ten years are eligible
to be traded independently under the Separate Trading of Registered Interest and
Principal of Securities ("STRIPS") program. Under the STRIPS program, the
principal and interest components are separately issued by the United States
Treasury at the request of depository financial institutions, which then trade
the component parts separately. The interest component of STRIPS may be more
volatile than that of United States Treasury bills with comparable maturities.
In
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accordance with Rule 2A-7, the Money Market Fund's investments in STRIPS are
limited to those with maturity components not exceeding thirteen months. The
Funds will not actively trade in STRIPS.
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). Variable rate demand
obligations have a maturity of 397 days or less with respect to the Money Market
Fund 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. 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 the Adviser or
Portfolio Advisers, as applicable, 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 or AMR Board, as applicable. 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 Kansas Tax-Exempt Bond Fund has adopted a
non-fundamental policy to limit its investment in investment companies to shares
of money market funds. 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 MONEY MARKET FUND, INTERNATIONAL
MULTI-MANAGER STOCK FUND AND KANSAS TAX-EXEMPT BOND 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
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other securities held in its portfolio. A put option is covered if a Fund
maintains liquid assets 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 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.
DOLLAR ROLL TRANSACTIONS (SHORT-TERM BOND FUND AND INTERMEDIATE BOND FUND).
The Fund may enter into dollar roll transactions wherein the Fund sells fixed
income securities, typically mortgage-backed securities, and makes a commitment
to purchase similar, but not identical, securities at a later date from the same
party. Like a forward commitment, during the roll period no payment is made for
the securities purchased and no interest or principal payments on the security
accrue to the purchaser, but the Fund assumes the risk of ownership. The Fund is
compensated for entering into dollar roll transactions by the difference between
the current sales price and the forward price for the future purchase, as well
as by the interest earned on the cash proceeds of the initial sale. Like other
when-issued securities or firm commitment agreements, dollar roll transactions
involve the risk that the market value of the securities sold by the Fund may
decline below the price at which a Fund is committed to purchase similar
securities. In the event the buyer of securities under a dollar roll transaction
becomes insolvent, the Fund's use of the proceeds of the transaction may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
The Fund will engage in roll transactions for the purpose of acquiring
securities for its portfolio and not for investment leverage. The Fund will
limit its obligations on dollar roll transactions to 35 percent of the Fund's
net assets.
SWAP AGREEMENTS (SHORT-TERM BOND FUND AND INTERMEDIATE BOND FUND). To
manage its exposure to different types of investments, the Fund may enter into
interest rate, currency and mortgage (or other asset) swap agreements and may
purchase and sell interest rate "caps," "floors" and "collars." In a typical
interest rate swap agreement, one party agrees to make regular payments
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equal to a floating interest rate on a specified amount (the "notional principal
amount") in return for payments to a fixed interest rate on the same amount for
a specified period. If a swap agreement provides for payment in different
currencies, the parties may also agree to exchange the notional principal
amount. Mortgage swap agreements are similar to interest rate swap agreements,
except that the notional principal amount is tied to a reference pool of
mortgages. In a cap or floor, one party agrees, usually in return for a fee, to
make payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed upon level; the purchaser of an interest rate
floor has the right to receive payments to the extent a specified interest rate
falls below an agreed upon level. A collar entitles the purchaser to receive
payments to the extent a specified interest rate falls outside an agreed upon
range.
Swap agreements may involve leverage and may be highly volatile; depending
on how they are used, they may have a considerable impact on the Fund's
performance. Swap agreements involve risks depending upon the counterparties
creditworthiness and ability to perform as well as the Fund's ability to
terminate its swap agreements or reduce its exposure through offsetting
transactions. The Adviser monitors the creditworthiness of counterparties to
these transactions and intends to enter into these transactions only when they
believe the counterparties present minimal credit risks and the income expected
to be earned from the transaction justifies the attendant risks.
FUTURES, RELATED OPTIONS AND OPTIONS ON STOCK INDICES (STOCK FUND). The
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. The Fund may hedge a portion of
its portfolio by purchasing such instruments during a market advance or when the
Adviser anticipates an advance. In attempting to hedge a portfolio, the 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. The 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. The 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."
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During a market decline or when the Adviser anticipates a decline, the 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 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 the Adviser 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 INTERNATIONAL
MULTI-MANAGER STOCK FUND AND KANSAS TAX-EXEMPT BOND 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 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 (ALL FUNDS, EXCEPT INTERNATIONAL
MULTI-MANAGER STOCK FUND AND KANSAS TAX-EXEMPT BOND 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.
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 the Adviser 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
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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 the
Adviser 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 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.
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). The Funds may enter into repurchase
agreements with any bank and broker-dealer which, in the opinion of the
Trustees, presents a minimal 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. The Money Market Fund and Kansas Tax-Exempt Bond Fund
may not each invest more than 10% and the other Non-Money Market Funds may not
invest more than 15% of its respective net assets in repurchase agreements
maturing in more than seven business days or in securities for which market
quotations are not readily available. For more information about repurchase
agreements, see "Investment Policies".
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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.
FOREIGN SECURITIES (ALL FUNDS). Investing in the securities of issuers in
any foreign country, including ADRs and EDRs, 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 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 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.
COMMERCIAL PAPER (ALL FUNDS). 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 (top three with respect
to the Short-Term Bond Fund) rating categories of at least one Nationally
Recognized Statistical Rating Organization ("NRSRO") or, if not rated, are, in
the opinion of the Adviser or the Portfolio Advisers, as applicable, of an
investment quality comparable to rated commercial paper in which the Funds may
invest, or, with respect to the 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
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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 Fund's Board of Trustees or the AMR
Trust's Board of Trustees, as applicable).
CORPORATE DEBT SECURITIES (ALL FUNDS, EXCEPT KANSAS TAX-EXEMPT BOND 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 or Portfolio Advisers, as applicable, 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 FUND, STOCK FUND, AND INTERNATIONAL
MULTI-MANAGER STOCK 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 the Funds may temporarily hold funds in bank
deposits or other money market investments denominated in foreign currencies, a
Fund may be 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). A description of the bank obligations which
the Funds may purchase is set forth in the Prospectus. 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 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
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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 Fund 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 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 Portfolio Advisers, as
applicable or, pursuant to guidelines established by the Board of Trustees or
the AMR Trust Board, as applicable, 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 liquid
assets 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 the Adviser or Portfolio Advisers
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 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-
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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.
Securities loans will be made in accordance with the following conditions:
(1) the Funds or the Portfolio must receive at least 100% collateral in the form
of cash or cash equivalents, securities of the U.S. Government and its agencies
and instrumentalities, and approved bank letters of credit; (2) the borrower
must increase the collateral whenever the market value of the loaned securities
(determined on a daily basis) rises above the level of collateral; (3) the Funds
or the Portfolio must be able to terminate the loan after notice, at any time;
(4) the Funds or the Portfolio must receive reasonable interest on the loan or a
flat fee from the borrower, as well as amounts equivalent to any dividends,
interest or other distributions on the securities loaned, and any increase in
market value of the loaned securities; (5) the Funds or the Portfolio may pay
only reasonable custodian fees in connection with the loan; and (6) voting
rights on the securities loaned may pass to the borrower, provided, however,
that if a material event affecting the investment occurs, the Board of Trustees
or AMR Trust Board, as applicable, must be able to terminate the loan and vote
proxies or enter into an alternative arrangement with the borrower to enable the
Board of Trustees or AMR Trust Board, as applicable, to vote proxies.
REPURCHASE AGREEMENTS (ALL FUNDS). The Funds may invest in securities
subject to repurchase agreements with any bank or registered broker-dealer who,
in the opinion of the Trustees or the AMR Trust Board, as applicable, 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. The Adviser and the Portfolio Advisers
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 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.
GUARANTEED INVESTMENT CONTRACTS (SHORT-TERM BOND FUND). The Fund may invest
in guaranteed investment contracts ("GICs") issued by insurance companies.
Pursuant to such contracts, the Fund makes cash contributions to a deposit fund
of the insurance company's general account. The insurance company then credits
to the deposit fund on a monthly basis guaranteed interest at a rate based on an
index. The GICs provide that this guaranteed interest will not be less than a
certain minimum rate. The insurance company may assess periodic charges against
a GIC for expense and service costs allocable to it, and these charges will be
deducted from the value of the
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deposit fund. The Fund will purchase a GIC only when the Adviser has determined
that the GIC presents minimal credit risks to the Fund and is of comparable
quality to instruments in which the Fund may otherwise invest. Because the Fund
may not receive the principal amount of a GIC from the insurance company on
seven days' notice or less, a GIC may be considered an illiquid investment. The
term of a GIC will be one year or less.
In determining the average weighted portfolio maturity of the Fund, a GIC
will be deemed to have a maturity equal to the period of time remaining until
the next readjustment of the guaranteed interest rate. The interest rate on a
GIC may be tied to a specified market index and is guaranteed not to be less
than a certain minimum rate.
ILLIQUID SECURITIES (ALL FUNDS). Each Fund, except for the International
Multi-Manager Stock Fund, has adopted a fundamental policy with respect to
investments in illiquid securities. The International Multi-Manager Stock Fund
has adopted a non-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 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 or the AMR Trust
Board, as applicable, 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 or the AMR Trust Board, as applicable, the Adviser or the Portfolio
Advisers, will monitor the liquidity of restricted securities in a Fund's
portfolio. In reaching liquidity decisions, the Adviser will consider, among
other things, 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 Adviser or the Portfolio Advisers,
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as applicable; (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 deems relevant. The Adviser
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.
FOREIGN CURRENCY TRANSACTIONS (INTERNATIONAL MULTI-MANAGER STOCK FUND).
Investments by the Portfolio in securities of foreign companies will usually
involve the currencies of foreign countries. In addition, the 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 the Portfolio, as measured in U.S. dollars, may be affected by changes in
foreign currency exchange rates and exchange control regulations. In addition,
the Portfolio may incur costs in connection with conversions between various
currencies. The 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 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 the 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.
The Portfolio may enter into forward contracts under two circumstances.
First, with respect to specific transactions, when the 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, the 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, the Portfolio may enter into forward contracts in connection with
existing portfolio positions. For example, when the Portfolio Advisers of the
Portfolio believes that the currency of a particular foreign country may suffer
a substantial decline against the U.S. dollar, the 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 the 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 the
Portfolio to incur losses on these contracts and transaction costs. The
Portfolio Advisers do not intend to enter into forward contracts on a regular or
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continuous basis.
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 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, the 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.
THE PORTFOLIO ADVISER'S APPROACH TO STOCK SELECTION. The Portfolio Advisers
will select equity securities which, in their opinion, have above average growth
potential and are also selling at a discount to the market. This approach
focuses on the purchase of a diverse group of stocks below their perceived
economic value. Each of the Portfolio Advisers determines the growth prospects
of firms based upon a combination of internal and external research using
fundamental economic cycle analysis and considering changing economic trends.
The determination of value is based upon the analysis of several characteristics
of the issuer and its equity securities including price to earnings ratio, price
to book value ratio, assets carried below market value, financial strength and
dividend yield.
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INVESTMENT RESTRICTIONS
The following restrictions apply to each Fund except the International
Multi-Manager Stock Fund and restate or are in addition to those restrictions
described under "Investment Restrictions" in the Prospectuses. Unless otherwise
indicated, only Investment Restriction Nos. 2, 3, 4, 7, 8, 12 and 16 are
fundamental policies of the Funds, which can be changed only when permitted by
law and approved by a majority of the Funds' outstanding voting securities. The
non-fundamental investment restrictions can be changed by approval of a majority
of the Board of Trustees. A "majority of the outstanding voting securities"
means the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented in person or by proxy or (ii)
more than 50% of the outstanding shares.
Each Fund, except as indicated, may not:
(1) Invest more than 15% (10% with respect to the Money Market Fund and
Kansas Tax-Exempt Bond Fund) 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 33-1/3% (10% for Kansas Tax-Exempt Bond Fund) of the current
value of its net assets for temporary or emergency purposes or to meet
redemptions. Each Fund (except Kansas Tax-Exempt Bond Fund) has adopted a
non-fundamental policy to limit such borrowing to 10% of its net assets 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). With respect to the Kansas
Tax-Exempt Bond Fund, all borrowings in excess of 5% will be repaid before
additional investments are made. The Short-Term Bond Fund has adopted a
non-fundamental policy to limit its borrowings for other than temporary or
defensive purpose or to meet redemptions to an amount not to exceed an
amount equal to 5% of its net assets;
(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. This restriction is a fundamental policy of the Kansas
Tax-Exempt Bond Fund;
(6) Invest more than 10% of its net assets in shares of other
investment companies, except that the Kansas Tax-Exempt Bond Fund may only
purchase money market fund securities and that each Fund may invest all of
its assets in another investment company;
(7) Invest in real property (including limited partnership interests
but excluding real estate investment trusts and master limited
partnerships, debt obligations secured by real estate or interests therein,
and securities issued by other companies that invest in real estate or
interest therein), commodities, commodity contracts, or oil, gas and other
mineral resource, exploration, development, lease or arbitrage
transactions. The Kansas Tax-Exempt Bond Fund's policy with respect to oil,
gas and other mineral resource, exploration, development or leases is a
non-fundamental policy;
(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
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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. The Kansas Tax-Exempt Bond Fund
may not sell securities 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, the Adviser, 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
that this restriction does not apply to the Money Market Fund which will
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 assets, may be warrants which are not listed on
the New York or American Stock Exchanges. The Kansas Tax-Exempt Bond Fund
may not purchase warrants, straddles, or spreads;
(14) Write, purchase or sell puts, calls or combinations thereof,
except that the 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;
(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 (except (i) obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities or
(ii) municipal securities which are rated by at least two NRSRO's or
determined by the Adviser to be of comparable quality) provided each Fund
may invest all or a portion of its assets in another open end management
investment company with substantially the same investment objective,
policies and investment restrictions as the Fund; or
(16) With respect to 75% of its assets, purchase a security if as a
result, (1) more than 5% of its total assets would be invested in any one
issuer other than the U.S. Government or its agencies or instrumentalities,
or (2) the Fund would own more than 10% of the outstanding voting
securities of such issues. The Money Market Fund is subject to the above
restriction with respect to 100% of its assets. The Kansas Tax-Exempt Bond
Fund will not purchase more than 10% of the voting securities of any one
issuer.
The following restrictions apply to the International Multi-Manager Stock
Fund. All fundamental investment policies and non-fundamental policies of the
Fund and the Portfolio are identical. Therefore, although the following
discusses the investment policies of the Portfolio and the AMR Trust Board, it
applies equally to the Fund and the Trust's Board of Trustees.
The following nine restrictions have been adopted by the Portfolio and may
be changed with respect to the Portfolio only by the majority vote of the
Portfolio's outstanding interests, which as used herein means the lesser of (a)
67% of the interests of the Portfolio present at the meeting if the holders of
more than 50%
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of the interests are present and represented at the interest holders' meeting or
(b) more than 50% of the interests of the Portfolio. Whenever the Fund is
requested to vote on a change in the investment restrictions of the Portfolio,
the Fund will hold a meeting of its shareholders and will cast its votes as
instructed by its shareholders.
The Portfolio may not:
(1) With respect to 75% of its total assets purchase a security if as a
result, (1) more than 5% of its total assets would be invested in
securities of any one issuer other than obligations issued by the U.S.
Government, its agencies and instrumentalities, or (2) the Fund would own
more than 10% of the voting securities of any one issuer;
(2) Invest more than 25% of its total assets in the securities of
companies primarily engaged in any one industry other than the U.S.
Government, its agencies and instrumentalities. In addition, finance
companies as a group are not considered a single industry for purposes of
this Policy. Wholly-owned finance companies will be considered to be in the
industries of their parent companies if their activities are primarily
related to financing the activities of their parent companies;
(3) Purchase or sell real estate or real estate limited partnership
interests, provided, however, that the Portfolio may invest in securities
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein when consistent with the other
policies and limitations described in the Prospectus;
(4) Purchase or sell commodities (including direct interests and/or
leases in oil, gas or minerals) or commodities contracts, except with
respect to forward foreign currency exchange contracts, foreign currency
futures contracts and "when-issued" securities when consistent with the
other policies and limitations described in the Prospectus;
(5) Engage in the business of underwriting securities issued by others,
except to the extent that, in connection with the disposition of
securities, the Portfolio may be deemed an underwriter under federal
securities law;
(6) Make loans to any person or firm, provided, however, that the
making of a loan shall not be construed to include (i) the acquisition for
investment of bonds, debentures, notes or other evidences of indebtedness
of any corporation or government which are publicly distributed or (ii) the
entry into repurchase agreements and further provided, however, that the
Portfolio may lend its portfolio securities to broker-dealers or other
institutional investors in accordance with the guidelines stated in the
Prospectus;
(7) Purchase from or sell portfolio securities to its officers,
Trustees or other "interested persons," as defined under the 1940 Act, of
the AMR Trust, including its investment advisers and their affiliates,
except as permitted by the 1940 Act and exemptive rules or orders
thereunder;
(8) Issue senior securities except that the Portfolio may engage in
when-issued securities and forward commitment transactions and may engage
in currency futures and forward currency contracts; or
(9) Borrow money, except from banks or through reverse repurchase
agreements for temporary purposes in an aggregate amount not to exceed 10%
of the value of its total assets at the time of borrowing. In addition,
although not a fundamental policy, the Portfolio intends to repay any money
borrowed before any additional portfolio securities are purchased.
The following non-fundamental investment restrictions apply to the
Portfolio and may be changed with respect to the Portfolio by a majority vote of
the AMR Trust Board. The Portfolio may not:
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(1) Purchase securities on margin, effect short sales (except that the
Portfolio may obtain such short-term credits as may be necessary for the
clearance of purchases or sales of securities) or purchase or sell call
options or engage in the writing of such options; or
(2) Invest more than 15% of its net assets in illiquid securities.
The Portfolio may invest up to 10% of its total assets in the securities of
other investment companies to the extent permitted by law. The Portfolio may
incur duplicate advisory or management fees when investing in another mutual
fund.
As a matter of fundamental policy, notwithstanding any limitation otherwise
noted, each Fund is authorized to seek to achieve its investment objective by
investing all of its investable assets in an investment company having
substantially the same investment objective and policies as the Fund.
If a percentage restriction on investment policies or the investment or use
of assets set forth in the 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.
The Money Market Fund's diversification tests are measured at the time of
initial purchases, and are calculated as specified in Rule 2A-7 of the 1940 Act
which may allow the Fund to exceed limits specified in the Prospectus for
certain securities subject to guarantees or demand features. The Fund will be
deemed to satisfy the maturity requirements described in the Prospectus to the
extent it satisfies Rule 2A-7 maturity requirements.
It is the intention of the Funds, unless otherwise indicated, that with
respect to the Funds' policies that are the result of the application of law
(for example, Rule 2A-7 of the 1940 Act with respect to the Money Market Fund)
the Funds will take advantage of the flexibility provided by rules or
interpretations of the SEC currently in existence or promulgated in the future
or changes to such laws.
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RISKS OF INVESTING IN THE FUNDS
CERTAIN RISK CONSIDERATIONS
The Money Market Fund attempts to maintain a constant net asset value of
$1.00 per share, although there can be no assurance that the Money Market Fund
will always be able to do so. The Money Market Fund 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 Fund invests.
The Money Market Fund's Policy of concentrating in the banking industry
could increase the Fund's exposure to economic or regulatory developments
relating to or affecting banks. Banks are subject to extensive governmental
regulation which may limit both the amounts and types of loans and other
financial commitments they can make and the interest rates and fees they can
charge. The financial condition of banks is largely dependent on the
availability and cost of capital funds, and can fluctuate significantly when
interest rates change. In addition, general economic conditions may affect the
financial condition of banks.
The price per share of each of the Non-Money Market 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, 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, the Adviser monitors 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.
CERTAIN RISKS OF INVESTING IN THE INTERNATIONAL MULTI-MANAGER STOCK FUND
As a matter of fundamental policy, notwithstanding any limitation otherwise
noted, each Fund is authorized to seek to achieve its investment objective by
investing all of its investable assets in an investment company having
substantially the same investment objective as the Fund. References below to
"All Funds" include the International Equity Portfolio of the AMR Investment
Services Trust (the "AMR Trust") (the "Portfolio") except where noted otherwise.
The International Multi-Manager Stock 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 Multi-Manager Stock Fund that redeemed its interest in the
Portfolio, the Portfolio's remaining investors (including the International
Multi-Manager Stock Fund) might, as a result, experience higher pro rata
operating expenses, thereby producing lower returns.
The International Multi-Manager Stock Fund may withdraw its entire
investment from the Portfolio at any time if the Board determines that it is in
the best interest of the International Multi-Manager Stock Fund and its
shareholders to do so. The International Multi-Manager Stock Fund might
withdraw, for example, if there were other investors in the Portfolio with power
to, and who did by a vote of the shareholders of all investors (including the
International Multi-Manager Stock 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
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cash distribution) by the Portfolio. That distribution could result in a less
diversified portfolio of investments for the International Multi-Manager Stock
Fund and could affect adversely the liquidity of the International Multi-Manager
Stock Fund's portfolio. If the International Multi-Manager Stock Fund decided to
convert those securities to cash, it usually would incur brokerage fees or other
transaction costs. If the International Multi-Manager Stock Fund withdrew its
investment from the Portfolio, the Board would consider what action might be
taken, including the management of the International Multi-Manager Stock Fund's
assets in accordance with its investment objective and policies by the Adviser
or the investment of all of the International Multi-Manager Stock Fund's
investable assets in another pooled investment entity having substantially the
same investment objective as the International Multi-Manager Stock Fund. The
inability of the International Multi-Manager Stock Fund to find a suitable
replacement investment, in the event the Board decided not to permit the Adviser
to manage the International Multi-Manager Stock Fund's assets, could have a
significant impact on shareholders of the International Multi-Manager Stock
Fund.
Each investor in the Portfolio, including the International Multi-Manager
Stock Fund, will be liable for all obligations of the Portfolio, but not any
other portfolio of AMR Trust. 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.
Investors should be aware that the International Multi-Manager Stock Fund,
unlike mutual funds that directly acquire and manage their own portfolios of
securities, seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio, which is a separate investment company.
Since the Fund will invest only in the Portfolio, the Fund's shareholders will
acquire only an indirect interest in the investments of the Portfolio.
In addition to selling its interests to the International Multi-Manager
Stock Fund, the Portfolio may sell its interests to other non-affiliated
investment companies and/or other institutional investors. All institutional
investors in the Portfolio will pay a proportionate share of the Portfolio's
expenses and will invest in that Portfolio on the same terms and conditions.
However, if another investment company invests all of its assets in the
Portfolio, it would not be required to sell its shares at the same public
offering price as the International Multi-Manager Stock Fund and would be
allowed to charge different sales commissions. Therefore, investors in the
International Multi-Manager Stock Fund may experience different returns from
investors in another investment company that invests exclusively in the
Portfolio. Shareholders may obtain further information concerning other funds
that invest in the Portfolio by contacting their sales representative or by
calling (800) 967-9009.
RISK OF INVESTING IN KANSAS MUNICIPAL OBLIGATIONS.
Because the Kansas Tax-Exempt Bond 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 Fund.
The following information as to certain Kansas risk factors is only a brief
summary of the factors affecting the financial condition of the State of Kansas,
it does not purport to be a complete description and is based on information
from official statements relating to municipal obligations issued by the State
of Kansas.
Kansas ranks as the 14th largest state in terms of size with an area in
excess of 82,000 square miles. As of 1996, the population is estimated to be
2,572,000, which is up from a population of 2,477,588 in 1990. This represents a
percentage increase of 3.3%. In comparison, the growth in
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population in the U.S. was 4.7%.
Growth in the State's trade, services and manufacturing sectors has
decreased the historical dominance of agriculture on the State economy. Economic
performance in 1996 and into 1997 has been significantly better than 1995, due
largely to gains in aircraft manufacturing and recovery in agriculture. Personal
income grew at 6.2% in 1996 to $23,281. Per capita income stands at about 96% of
the national median. Household income reflects more of the recent strength at
110% of the U.S. average.
The State's unemployment rate dropped to 3.8% in June 1997 from its peak of
5.5% in 1993. Labor force participation is high at 67% versus 62.9% for the U.S.
The Kansas State Treasury does not issue general obligation debt. The state
instead relies on revenue and lease financing through the Department of
Transportation (KDOT) and the Development Finance Authority (KDFA). KDFA
provides financing for various public purpose projects including prison
construction, state offices, energy conservation and university facilities. The
KDOT bonds are rated Aa/AA by Moody's and Standard & Poor's, respectively. KDFA
ratings vary across underlying purpose and when not insured are generally rated
A or better by the major rating agencies.
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 of 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, litigation involving the
taxation of municipal obligations or the rights of municipal obligation holders,
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.
KANSAS RISK FACTORS
The following information is a brief summary of particular Kansas state
factors effecting the Kansas Tax-Exempt Bond Fund and does not purport to be a
complete description of such factors. The financial condition of the state, its
public authorities and local governments could affect the market values and
marketability of, and therefore the net asset value per share and the interest
income of the Fund, or result in the default of existing obligations, including
obligations which may be held by the Fund. Further, the state faces numerous
forms of litigation seeking significant damages which, if awarded, may adversely
affect the financial situation of the state or issuers located in such state. It
should be noted that the creditworthiness of obligations issued by local issues
may be unrelated to the creditworthiness of a state, and there is no obligation
on the part of the state to make payment on such local obligations in the event
of default in the absence of a specific guarantee or pledge provided by a state.
The information contained below is based primarily upon information derived from
state official statements, Certified Annual Financial Reports, state and
industry trade publications, newspaper articles, other public documents relating
to securities offerings of issuers of such states, and other historically
reliable sources. It has not been independently verified by the Fund. The Fund
makes no representation or warranty regarding the completeness or accuracy of
such information. The market value of shares of the Fund may fluctuate due to
factors such as change in interest rates, matters affecting a particular state,
or for other reasons.
GENERAL ECONOMIC CONDITIONS. Kansas is the 14th largest state in terms of
size with an area in excess of 82,000 square miles. It is rectangular in shape
and is 411 miles long from east to west and 208 miles wide. The geographic
center of the 48 contiguous states lies within its borders. Kansas became the
34th state in 1861 and Topeka was chosen to be the capitol later that year. The
population of the State of Kansas has grown from 2,477,588 in 1990 to 2,572,000
in 1996. This represents a percentage increase of 3.1%. In comparison, the
growth in population of the United States was 4.7%.
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The performance of the Kansas economy remained steady in 1997. This
stability was due largely to the continued expansion in aircraft manufacturing
and the recovery of the farm economy. The major economic trends indicate that
nominal personal income in Kansas grew at a 6.5 percent rate during 1997. This
is an increase of 0.5 percent over the 1996 rate of 6.0 percent. Employment by
place of residence grew by 4.4 percent in 1997 compared to 0.4 percent in 1996,
while employment by place of work increased by 2.5 percent in both 1996 and
1997. The state unemployment rate of 3.7 percent for 1997 was down from 4.5
percent in 1996.
BUDGETARY PROCESS. The Governor is statutorily mandated to present spending
recommendations to the Legislature. "The Governor's Budget Report" reflects
expenditures for both the current and upcoming fiscal years and identifies the
sources of financing for those expenditures. The Legislature uses "The
Governor's Budget Report" as a guide as it appropriates the money necessary for
state agencies to operate. Only the Legislature can authorize expenditures by
the State of Kansas. The Governor recommends spending levels, while the
Legislature chooses whether to accept or modify those recommendations. The
Governor may veto legislative appropriations, although the Legislature may
override any veto by two-thirds majority vote.
The state "fiscal year" runs from July 1 to the following June 30 and is
numbered for the calendar year in which it ends. The "current fiscal year" is
the one which ends the coming June. The "actual fiscal year" is the year which
concluded the previous June. The "budget year" refers to the next fiscal year,
which begins the July following the Legislature's adjournment.
In "The FY 1999 Governor's Budget Report," the actual fiscal year is fiscal
year 1997, the current fiscal year is fiscal year 1998, and the budget year is
fiscal year 1999. By law, "The Governor's Budget Report" must reflect actual
year spending, the Governor's revised spending recommendations for the current
fiscal year, state agency spending requests for the budget year, and the
Governor's spending recommendations for the budget year. The budget
recommendations cannot include the expenditure of anticipated income
attributable to proposed legislation.
REVENUES AND EXPENDITURES. The State General Fund is the largest of the
"uncommitted" revenue sources available to the state. It is also the fund to
which most general tax receipts are credited. The Legislature may spend State
General Fund dollars for any purpose. All revenues coming into the state
treasury not specifically authorized by statute or the constitution to be placed
in a separate fund are deposited in the State General Fund.
FISCAL YEAR 1998. For FY 1998, the Governor and the 1997 Legislature had
approved a total budget of $7.99 billion, with $3.84 billion from the State
General Fund. The Governor's revised recommendations for FY 1998 total $8.15
billion from all funding sources, with $3.84 billion from the State General
Fund. The difference between the approved and the revised budgets is
attributable mainly to increased federal funds for the Department of Social and
Rehabilitation Services and Department of Human Resources, federal flood funding
in the Department of Commerce and Housing, and additional expenditures at the
University of Kansas Medical Center. In addition, a number of agencies shifted
expenditures approved for FY 1997 into FY 1998, and it is assumed that those
expenditures, which total $34.7 million, will take place in FY 1998. Overall,
approximately $104.4 million of the increase is available because of additional
federal funds, and $50.0 million in other program and funding changes. The
Governor's recommendations for FY 1998 include 42,348.9 positions, a reduction
of over 100 positions from the approved total.
FISCAL YEAR 1999. For FY 1999, the Governor recommends a budget from all
funding sources of $8.55 billion, with a State General Fund recommendations of
$4.08 billion. The recommendation funds 41,893.5 positions and provides a total
of $148.4 million from the State General Fund to offset property tax cuts. All
funding sources increases also include over $50.0 million from federal funds, a
$34.5 million increase in Kansas Public Employees Retirement System (KPERS)
contributions, and $27.5 million for Department of Transportation funding
Enhancements are provided for elementary and secondary education programs
and for the Regents institutions. The Governor's recommendations fully fund the
second year of welfare reform and provides
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both long-term care and nutrition services for Kansas' elderly citizens.
The one-time $66.6 million corporate income tax payment allows the Governor
to recommend a number of technology enhancements for educational institutions,
including higher education, vocational schools, and elementary and secondary
education. A total of $10.0 million is recommended to improve the quality of
state parks, with the expectation that those improvements will be accomplished
over three years. In addition, several smaller capital improvements are
recommended for state agencies. Finally, $3.0 million is recommended for
construction of a facility for the Dole Institute, which will be located on the
campus of the University of Kansas.
The Governor's recommendations will require state agencies to manage their
resources carefully while acknowledging the commitment to efficient and
effective service delivery that agencies have made and must continue. In
recognition of the additional responsibilities accepted by state employees as
the size of the state work force continues to decline, the Governor recommends
full funding of step movement and longevity for classified employees as well as
a 1.5 percent base salary adjustment. For unclassified employees and Regents
faculty, the Governor recommends a 4.0 percent funding pool to be distributed on
the basis of performance merit.
In FY 1999, the State of Kansas will receive $2,003.4 million in federal
grants, which represents 24.3 percent of total receipts. The FY 1999 estimated
receipts reflect an increase of $178.4 million, or 9.8 percent from FY 1998. The
Department of Social and Rehabilitation Services (SRS) will receive the most
federal funds, 42.4 percent of the total. SRS will receive $86.4 million more in
FY 1999 than FY 1998, including approximately $30.0 million for providing health
insurance to children. The remainder of the increase will help fund the rising
medical caseload and provide increases to various federally supported programs.
The Department on Aging, which will receive 10.2 percent of all federal dollars,
will realize an additional $16.8 million in FY 1999, also to fund long-term care
caseload increases. The Department of Transportation receives the second highest
amount of federal funds at 13.6 percent. Approximately $100.0 million more
federal dollars will flow through this Department in FY 1999 than FY 1998 to
match state efforts for highway construction, maintenance, and other projects.
The Department of Education will receive approximately 11.5 percent of the
total, as will the Regents institutions, and the Department of Health and
environment will receive 4.4 percent. The remaining 6.4 percent is distributed
to 26 other state agencies.
Dedicated sales tax receipts represent revenues from four taxes that are
collected for a specific purpose and are deposited in special revenue funds,
rather than the State General Fund. Taxes on motor fuels and vehicle
registrations as well as a dedicated sales tax of one-quarter of a cent are
credited to the State Highway Fund. A statewide property tax of 1.5 mills is
assessed for construction and maintenance of state buildings at Regents
institutions and state hospitals. This revenue category represents 6.6% of total
receipts for fiscal year 1999.
Other special revenue receipts include license fees, interest earnings on
special revenue funds, non-federal grants, the sale of state property, and
numerous other miscellaneous revenue sources. This revenue category represents
6.2% of total receipts for fiscal year 1999. Non revenue receipts are
collections and reimbursements not considered revenue. Examples include
collections by the Department of Human Resources for the payment of unemployment
benefits and collections by KPERSS for payment of retirement benefits.
Collections made by SRS from absent parents for child support are also included
in this category. This category represents 8.7% of total receipts for fiscal
year 1999. Lottery ticket sales account for the remaining 2.2% of total receipts
for fiscal year 1999 from all funding sources.
DEBT ADMINISTRATION AND LIMITATION. The State of Kansas finances a portion
of its capital expenditures with various debt instruments. Of capital
expenditures that are debt-financed, revenue bonds and loans from the Pooled
Money Investment Board finance most capital improvements for buildings, and
certificates of participation and "third-party" financing pay for most capital
equipment. The Kansas Constitution makes provision for the issuance of general
obligation bonds subject to certain restrictions; however, no bonds have been
issued under this provision for many years. No other provision of the
Constitution or state statute limits the amount of debt that can be issued. As
of June 30, 1999, the state had
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authorized but unissued debt of $155,015,000.
Although the State of Kansas has no general obligation debt rating, some
recent bond issues have been rated. The underlying ratings for the most recently
issued revenue bonds were A1 and AA -- from Moodys and Fitch, respectively. The
ratings for the most recently issued fixed rate bonds issued by the Kansas
Department of Transportation were Aa and AA from Moodys and Standard and Poor's,
respectively.
In October 1997, Standard & Poor's assigned an issue credit rating of AA+
to the State of Kansas. Standard and Poor's credit rating reflects the state's
credit quality in the absence of general obligation debt. Other credit factors
include a very low debt burden with no significant future capital needs, a
broadening and diversified economy that has demonstrated strong performance and
declining unemployment, and conservative fiscal management and sound financial
operations, with ample statutorily mandated cash reserves.
The Kansas Department of Transportation issues debt to finance highway
projects. The Comprehensive Highway Program began during fiscal year 1989. The
20-year bonds will be retired with motor fuel taxes, motor vehicle registration
fees, retail sales and compensating use taxes, and accrued interest. During
fiscal years 1995 and 1996, the state sold bonds totaling approximately $167.1
million and $61.1 million, respectively. Again, the largest use of the bond
proceeds was $140 million of the FY 1995 amount for the Comprehensive Highway
Program.
Other State of Kansas debt is issued by the Kansas Development Finance
Authority (KDFA), an independent instrumentality of the state which was created
in 1987 for this purpose.
CRUMBLING CLASSROOM INITIATIVE. Consistent with the Governor's
recommendation that revenue bonds be issued to address the capital needs of the
universities, the 1996 Legislature approved the Crumbling Classroom initiative.
Based on concerns for the aging buildings on the state's campuses, bonds have
been issued to address a wide variety of rehabilitation and repair projects at
the six universities. With estimated interest earnings on the bonds, projects at
the universities will total approximately $171.9 million, $8.35 million higher
than originally anticipated. Of the additional monies, it is anticipated that
$7.5 million will be allocated to the universities for major remodeling and new
construction projects based on the standard rehabilitation and repair formula.
The additional monies will offset private gifts; the size of the approved
project has not been increased.
Debt service on these bonds will be paid over 15 years, with each year's
payment totaling $15.0 million, except in FY 1997, the first year, which was
$14.0 million from capitalized interest. Revenues from the Educational Building
Fund have been appropriated through FY 2000 to pay debt service. Revenue
projections for the fund indicate a reserve of monies will be available for
emergencies or additional maintenance projects, as needs arise.
In November 1996, the first series of bonds totaling $50.0 million were
issued to provide an initial flow of cash to start the projects. In October
1997, a second series of $110.3 million were issued. Prior to the issuance of
bonds, the cash flow needs of the campuses were evaluated, as was the bond
market.
EL DORADO CORRECTIONAL FACILITY SITE UTILITIES PROJECT. In FY 1998, KDFA
issued $5.6 million in bonds to finance the replacement of site utilities at
this Facility. The original installation of heat insulation around the
steamlines has failed, allowing heat to escape and damage other utilities. The
Office of the Attorney General has filed litigation against the contractor,
manufacturer, and project architect to recover the costs of the replacement. All
cost recoveries will be used to finance the debt service payments. The first
payment begins in FY 1999, and the Governor recommends $78,000 from the State
General Fund for this purpose.
ENERGY CONSERVATION IMPROVEMENT PROGRAM. SB 322, enacted by the 1989
Legislature, authorized KDFA to issue bonds to fund project costs not to exceed
$5.0 million to finance energy conservation projects at state facilities. The
bonds are to be retired by savings realized from the energy conservation
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improvements undertaken, reflected as a reduction in utility costs. Each year by
October 1, KDFA certifies to the Director of the Budget a list of energy
conservation improvement projects financed with energy conservation bond funds,
along with repayment schedules for each project.
RISKS OF TECHNIQUES INVOLVING LEVERAGE. Use of leveraging involves special
risks and may involve speculative investment techniques. Certain Funds may
borrow for other than temporary or emergency purposes, lend their securities,
enter reverse repurchase agreements, and purchase securities on a when issued or
forward commitment basis. In addition, certain Funds may engage in dollar roll
transactions. Each of these transactions involve the use of "leverage" when cash
made available to the Fund through the investment technique is used to make
additional portfolio investments. The Funds use these investment techniques only
when the Adviser or Portfolio Advisers, as applicable, believe that the
leveraging and the returns available to the Fund from investing the cash will
provide shareholders a potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital
base that exceeds the investment the Fund has invested. Leverage creates the
risk of magnified capital losses which occur when losses affect an asset base,
enlarged by borrowings or the creation of liabilities, that exceeds the equity
base of the Fund. Leverage may involve the creation of a liability that requires
the Fund to pay interest (for instance, reverse repurchase agreements) or the
creation of a liability that does not entail any interest costs (for instance,
forward commitment transactions).
The risks of leverage include a higher volatility of the net asset value of
a Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Fund is able to realize a net return on its investment portfolio that
is higher than interest expense incurred, if any, leverage will result in higher
current net investment income being realized by such Fund than if the Fund were
not leveraged. On the other hand, interest rates change from time to time as
does their relationship to each other depending upon such factors as supply and
demand, monetary and tax policies and investor expectations. Changes in such
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on a Fund's investment
portfolio, the benefit of leveraging will be reduced, and, if the interest
expense on borrowings were to exceed the net return to shareholders, such Fund's
use of leverage would result in a lower rate of return than if the Fund were not
leveraged. Similarly, the effect of leverage in a declining market could be a
greater decrease in net asset value per share than if a Fund were not leveraged.
In an extreme case, if a Fund's current investment income were not sufficient to
meet the interest expense of leveraging, it could be necessary for such Fund to
liquidate certain of its investments at an inappropriate time. The use of
leverage may be considered speculative.
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 Bond Fund, 400%; Intermediate Bond Fund, 500%; Stock Fund,
150%; International Multi-Manager Stock Fund, 100%; and Kansas Tax-Exempt Bond
Fund, 150%. 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.
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MANAGEMENT
TRUSTEES AND OFFICERS
The age, address and principal occupations for the past five years of each
Trustee and executive officers of the Trust are listed below. The address of
each, unless otherwise indicated, is 3435 Stelzer Road, Columbus, Ohio 43219.
G.L. Best, Age: 50, Trustee. Vice President, Finance and
Administration, of Williams Energy Services Company; Treasurer of The Williams
Companies (1992-1995).
Terry L. Carter, Age: 50, Trustee. Senior Vice President of QuikTrip
Corporation.
George Mileusnic, Age: 44, Trustee. Executive Vice President of
Operations of North American Division of The Coleman Co., Inc.
John J. Pileggi, Age: 40, Chairman of the Board of Trustees.
Director of Furman Selz LLC since 1994; Senior Managing Director of Furman Selz
LLC (1992-1994); Managing Director of Furman Selz LLC
(1984-1992).
Thomas E. Shea, Age: 49, Trustee. Treasurer of Western Resources, Inc.,
a diversified energy company.
David Bunstine, Age 30, President. Director, BISYS Fund Services, Inc.,
since 1987.
Ellen Stoutamire, Age: 50, Secretary. Vice President of Client Legal
Services, BISYS Fund Services; Associate Counsel, Franklin Templeton, Vice
President (1995-1997) and formerly General Counsel, Pioneer Western
Corporation.
COMPENSATION TABLE
11/1/97 THROUGH 10/31/98
[TO BE UPDATED]
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS ESTIMATED TOTAL
AGGREGATE ACCRUED ANNUAL COMPENSATION
COMPENSATION AS PART BENEFITS FROM
FROM OF FUND UPON THE FUND
THE FUND EXPENSES RETIREMENT COMPLEX
--------- ---------- --------- --------
<S> <C> <C> <C> <C>
G.L. Best, Trustee $1,500 0 N/A $1,500
Terry L. Carter, Trustee $2,500 0 N/A $2,500
Thomas F. Kice, Trustee $2,500 0 N/A $2,500
George Mileusnic, Trustee $2,500 0 N/A $2,500
John J. Pileggi, Trustee $2,500 0 N/A $2,500
Thomas E. Shea, Trustee $2,500 0 N/A $2,500
</TABLE>
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.
As of December 10, 1998, Officers and Trustees of the Trust, as a group,
own less than 1% of the outstanding shares of the Funds.
35
<PAGE> 94
\
TRUSTEES AND OFFICERS OF AMR INVESTMENT SERVICES TRUST ("AMR TRUST")
The following information relates to the principal occupations of each
Trustee and executive officer of the AMR Trust during the past five years.
Unless otherwise indicated, the address of each person listed below is 4333
Amon Carter Boulevard, MD 5645, Fort Worth, Texas 76155.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS AMR TRUST PAST 5 YEARS
- ----------------- ----------- ---------------------
<S> <C> <C>
William F. Quinn* (51) Trustee and President, AMR Investment
President Services, Inc. (1986-Present);
Chairman, American Airlines
Employees Federal Credit Union
(1989-Present); Trustee, American
Performance Funds (September
1990-July 1994); Director, Crescent
Real Estate Equities, Inc. (April
1994- Present); Trustee, American
AAdvantage Funds (1987- Present);
and Trustee, American AAdvantage
Mileage Funds (1995- Present).
Alan D. Feld (61) Trustee Partner, Akin, Gump, Strauss,
1700 Pacific Ave., Hauer & Feld LLP (1960-
Suite 4100 Present)**, Director, Clear
Dallas, TX 75201-4618 Channel Communications (1984-
Present); Director, CenterPoint
Properties, Inc. (1994- Present);
Trustee, American AAdvantage Funds
and American AAdvantage Mileage
Funds (1996- Present).
Ben J. Fortson (66) Trustee President and CEO, Fortson Oil
301 Commerce St., Company (1958-Present);
Suite 3301 Director, Kimbell Art
Fort Worth, TX 76102 Foundation (1964-Present);
Director, Burnett Foundation
(1987-Present); Honorary Trustee,
Texas Christian University
(1986-Present); Trustee, American
AAdvantage Funds and American
AAdvantage Mileage Funds
(1996-Present).
John S. Justin (82) Trustee Chairman and Chief Executive
2821 West Seventh Street Officer, Justin Industries,
Fort Worth, Texas 76107 Inc. (a diversified holding
company) (1969-Present); Executive
Board Member, Blue Cross/Blue Shield
of Texas (1985-Present); Board
Member, Zale Lipshy Hospital (1993-
Present); Trustee, Texas Christian
University (1980- Present); Director
and Executive Board Member,
</TABLE>
36
<PAGE> 95
<TABLE>
<S> <C> <C>
Moncrief Radiation Center
(1985-Present); Director, Texas New
Mexico Enterprises (1984- 1993);
Director, Texas New Mexico Power
Company (1979- 1993); Trustee,
American AAdvantage Funds (1989-
Present); and Trustee, American
AAdvantage Mileage Funds (1995-
Present).
Stephen D. O'Sullivan(63) Trustee Consultant (1994-Present); Vice
President and Controller, American
Airlines, Inc. (1985- 1994),
Trustee, American AAdvantage Funds
(1987- Present); and Trustee,
American AAdvantage Mileage Funds
(1995- Present)
Roger T. Staubach (56) Trustee Chairman of the Board and Chief
6750 LBJ Freeway Executive Officer (1982-
Dallas, Texas 75240 Present) and President (1983-
1991) of The Staubach Company (a
commercial real estate company);
Director, Halliburton Company
(1991-present); Director, Brinker
International (1993- present);
Director, International Home Foods,
Inc. (1997-present); Member of the
Advisory Board, The Salvation Army;
Member of the Advisory Board, Dallas
International Sports Commission;
Member of the Advisory Board,
Hartford Whalers Hockey Club;
Trustee, Institute for Aerobics
Research; Member of Executive
Council, Daytop/Dallas; former
quarterback of the Dallas Cowboys
professional football team; Trustee,
American AAdvantage Funds and
American AAdvantage Mileage Funds
(1995- Present).
Kneeland Youngblood Trustee President, Youngblood
(42) Enterprises, Inc. an
2305 Cedar Springs Road investment and management
Suite 401 firm) (1983-Present); Trustee,
Dallas, Texas 75201 Teachers Retirement System of
Texas (1993-Present); Director,
United States Enrichment Corporation
(1993-Present); Director, Just For
the Kids (1995-Present); Director,
Starwood Financial Trust
(1998-Present) Member, Council on
Foreign Relations (1995- Present);
Trustee,
</TABLE>
37
<PAGE> 96
<TABLE>
<S> <C> <C>
American AAdvantage Funds
and American AAdvantage Mileage
Funds (1996- Present).
Nancy A. Eckl (36) Vice President Vice President, AMR Investment
Services, Inc. (1990-Present).
Michael W. Fields (45) Vice President Vice President, AMR Investment
Services, Inc. (1988-Present).
Barry Y. Greenberg (35) Vice President Vice President (1998-Present);
Director, Legal and Compliance,
AMR Investment Services, Inc.
Secretary (1995-1998); Branch
Chief (1992-June 1995) and Staff
Attorney (1988-1992), Securities
and Exchange Commission.
Rebecca L. Harris (32) Treasurer Director of Finance (1995-
Present), Controller (1991- 1995),
AMR Investment Services, Inc.
John B. Roberson (40) Vice President Vice President, AMR Investment
Services, Inc. (1991-Present).
Robert J. Zutz (46) Secretary Partner, Kirkpatrick & Lockhart
1800 Massachusetts Ave. NW LLP (law firm).
Washington, D.C. 20036
</TABLE>
* Mr. Quinn, by virtue of his current position with the Manager, is deemed to
be an "interested person" of the AMR Trust as defined by the 1940 Act.
** The law firm of Akin, Gump, Strauss, Hauer & Feld LLP ("Akin, Gump")
provides legal services to American Airlines, Inc., an affiliate of AMR
Investment Services, Inc. Mr. Feld has advised the AMR Trust that he has
had no material involvement in the services provided by Akin, Gump to
American Airlines, Inc. and that he has received no material benefit in
connection with these services. Akin, Gump does not provide legal services
to AMR Investment Services, Inc. or AMR Corporation.
All Trustees and officers as a group own less than 1% of the outstanding
shares of the AMR Trust.
As compensation for their service to the AMR Trust, the Independent
Trustees and their spouses receive free air travel from American Airlines, Inc.,
an affiliate of AMR. Trustees are also reimbursed for any expenses incurred in
attending Board meetings. Mr. O'Sullivan, as a retiree of American Airlines,
Inc. already receives flight benefits. The Trust compensates Mr. O'Sullivan
annual up to $10,000 to cover his personal flight service charges and the
charges of his three adult children, as well as any income tax charged on the
value of these flight benefits. The Trust does not pay for these travel
arrangements. However, the Trust compensates each Trustee with payments in an
amount equal to the Trustees' income tax on the value of this free airline
travel. These amounts are reflected in the following table for the fiscal year
ended October 31, 1998. [TABLE TO BE UPDATED]
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS ESTIMATED TOTAL
AGGREGATE ACCRUED ANNUAL COMPENSATION
COMPENSATION AS PART BENEFITS FROM
FROM OF FUND UPON THE FUND
THE FUND EXPENSES RETIREMENT COMPLEX
(30 FUNDS)
--------- ---------- --------- --------
<S> <C> <C> <C> <C>
</TABLE>
38
<PAGE> 97
<TABLE>
<S> <C> <C> <C> <C>
William F. Quinn $0 $0 $0 $0
Alan D. Feld $15,962 $0 $0 $63,850
Ben J. Fortson $6,802 $0 $0 $27,209
John S. Justin $225 $0 $0 $901
Stephen D. O'Sullivan $493 $0 $0 $1,973
Roger T. Staubach $8,269 $0 $0 $33,076
Kneeland Youngblood, M.D. $9,525 $0 $0 $38,099
</TABLE>
INVESTMENT ADVISERS
INTRUST Bank, N.A. ("INTRUST") has provided investment advisory services to
the Funds since inception pursuant to an Advisory Agreement with the Trust (the
"Advisory Agreement"). Subject to such policies as the Trust's Board of Trustees
may determine, INTRUST makes investment decisions for the Funds. The Advisory
Agreement provides that, as compensation for services thereunder, INTRUST 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.
INTRUST is a majority-owned subsidiary of INTRUST Financial Corporation
(formerly First Bancorp of Kansas), a bank holding company. INTRUST is a
national banking association which provides a full range of banking and trust
services to clients. As of December 31, 1998, total assets under management were
approximately $___ billion. The principal place of business address of the
Adviser is 105 North Main Street, Box One, Wichita, Kansas 67201.
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 the Adviser, on 60 days' written notice by
either party to the Contract and will terminate automatically if assigned.
ARK Asset Management Co., Inc. ("ARK") serves as sub-adviser to the Stock
Fund. Located in New York, ARK's predecessor was established in 1929 as the
private money management division of Lehman Brothers. In 1989, the division
became an independent company when the employees purchased the institutional
money management business from Shearson Lehman Brothers. As of December 31,
1998, ARK managed approximately $__________ billion, including $_________
billion in large capitalization value portfolios, for more than _______
institutional and individual clients. The minimum account size for a separately
managed Large Cap Value account is $50 million. . For the subadvisory services
it provides to the Stock Fund, ARK receives, from the Adviser and not the Funds,
monthly fees based upon average daily net assets at the annual rate of up to
0.45%.
The table that follows presents performance data for ARK with respect to
its large cap value products and is not necessarily representative of the past
performance of the above-mentioned portfolio managers acting individually or as
a team. Information presented is based on performance data provided by ARK for
accounts ("Accounts") it manages that have investment objectives, policies,
styles and strategies substantially similar to the ones that will be employed in
the INTRUST Stock Fund. The information does not represent the Stock Fund's
performance. See "Performance Information" herein for performance information of
the Stock Fund. The Accounts include ARK's individual and unregistered accounts
from April 1, 1985, Amway Mutual Fund, Inc. (from May 1, 1995) and Pilgrim
Americas Masters LargeCap Value Fund (from September 1, 1995). Although the
Accounts include some registered mutual funds, the vast majority of the Accounts
are individual and unregistered accounts primarily managed for tax-exempt
investors, and are not subject to diversification and other requirements that
apply to mutual funds under applicable securities, tax and other laws that, if
applicable, may have adversely affected performance. As a result, portfolio
management strategies used on the Accounts and those used on the Stock Fund may
vary in some respects. Also, fees on the Accounts are imposed quarterly rather
than daily for mutual funds, which
39
<PAGE> 98
may inflate performance. The information should not be considered a prediction
of the future performance of the Stock Fund. The actual performance may be
higher or lower than that shown.
The table shows the total returns for various periods ended December 31,
1998, of ARK's Large Cap Value Product as compared to a relevant unmanaged
market index. The performance shown below is calculated in accordance with
AIMR-PPS Standards. The performance shown below is calculated net of expenses of
the Stock Fund's Institutional Service Class shares based on expenses for the
fiscal year ended October 31, 1998, adjusted to reflect anticipated expense
levels and currently effective waivers and reimbursements as set forth in the
Fee Table in the Prospectus. To the extent the fees used reflect expense waivers
or reimbursements, actual performance would have been lower had such expense
waivers or reimbursements not been in effect. See "Performance Information"
herein for performance information for the Stock Fund.
ARK LARGE CAP VALUE PRODUCT COMPOSITE
<TABLE>
<CAPTION>
ANNUALIZED RATES
OF RETURN
FOR PERIODS ENDING
DECEMBER 31, 1998
---------------------------------------
ARK S&P 500 INDEX
-------------- ------------
<S> <C> <C>
1 Year..................................................... % %
3 Years.................................................... % %
5 Years.................................................... % %
10 Years................................................... % %
Since Inception 4/1/85..................................... % %
</TABLE>
Galliard Capital Management ("Galliard") serves as sub-adviser to the
Short-Term Bond Fund and the Intermediate Bond Fund. Galliard, a wholly-owned
subsidiary of Norwest Bank Minnesota, was formed July 1, 1995 to specialize in
the management of institutional fixed income portfolios. As of December 31,
1998, Galliard managed approximately $___________ billion in assets. . For the
subadvisory services it provides to the Short-Term Bond Fund and Intermediate
Bond Fund, Galliard receives from the Adviser and not the Funds, monthly fees
based upon daily net assets at the annual rate of 0.125% and 0.125%,
respectively.
The investment returns below are actual returns of Galliard's Intermediate
Core Composite ("Galliard's Composite's") of separate accounts which are managed
in an investment style substantially the same as the Intermediate Bond Fund.
This information is not intended to be read as a description of Galliard's past
performance with respect to the style utilized for the Short-Term Bond Fund.
40
<PAGE> 99
<TABLE>
<CAPTION>
GALLIARD COMPOSITE RETURNS
DECEMBER 31, 1998
LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT CORPORATE INDEX
--------------------
<S> <C> <C>
1 Year....................................................... % %
2 Years...................................................... % %
9 Quarters (since inception September 1995).................. % %
</TABLE>
Galliard Composites are calculated weighing the market value of each
component. Accounts are placed in a composite at the end of the first full
calendar quarter following their inception or as agreed upon by the client. All
composites are calculated net of expenses for the INTRUST Intermediate Bond
Fund's Institutional Service Class based on the Fund's expenses for the fiscal
year ended October 31, 1998, adjusted to reflected anticipated expense levels
and currently effective waivers and reimbursements as set forth in the Fee Table
in the Prospectus. To the extent the fees used reflect expense waivers or
reimbursements, actual performance would have been lower had such expense
waivers or reimbursements not been in effect. Private accounts are not subject
to certain investment limitations, diversification requirements, and other
restrictions imposed by the 1940 Act and the Internal Revenue Code which, if
applicable, may have adversely affected performance. As a result, portfolio
management strategies used on Galliard's Composites and those for the Fund may
vary. Also, fees on Composites are imposed quarterly rather than daily for
mutual funds, which may inflate performance. This performance does not represent
historical performance of the INTRUST Short-Term Bond Fund or Intermediate Bond
Fund and should not be interpreted as indicative of future performance of any
INTRUST Funds, which may be higher or lower than that shown. Past performance is
no guarantee of future results.
AMR Investment Services, Inc. serves as sub-advisor to the Money Market
Fund. AMR, located at 4333 Amon Carter Boulevard, MD 5645, Fort Worth, Texas
76155, is a wholly-owned subsidiary of AMR Corporation, the parent company of
American Airlines, Inc., and was organized in 1986 to provide business
management, advisory, administrative and asset management consulting services.
American Airlines, Inc. is not responsible for investments made by AMR. As of
December 31, 1998, AMR provides investment advice with respect to approximately
$_____ billion in assets, including approximately $_____ billion of assets on
behalf of AMR Corporation and its primary subsidiary, American Airlines, Inc.
For the subadvisory services it provides to the Money Market Fund, AMR receives
from the Adviser and not the Funds monthly fees based upon average daily net
assets at the annual rate of 0.20%.
THE PORTFOLIO
AMR oversees all administrative, investment advisory and portfolio
management services to the Portfolio. The assets of the Portfolio are allocated
by AMR among one or more investment advisers. AMR also acts as investment
adviser to the Portfolio and is required to furnish at its expense all services,
facilities and personnel necessary in connection with managing and administering
the Portfolio's investments and effecting portfolio transactions for the
Portfolio.
AMR provides the Portfolio with office space, office equipment and
personnel necessary to manage and administer the Portfolio's operations. This
includes complying with reporting requirements; corresponding with shareholders;
maintaining internal bookkeeping, accounting and auditing services and records;
and supervising the provision of services to the Portfolio by third parties. AMR
also develops the investment program for the Portfolio, selects and changes
investment advisers (subject to approval by the AMR Trust Board and appropriate
interest holders), allocates assets among investment advisers, monitors the
investment advisers' investment programs and results, and coordinates the
investment activities of the investment advisers to ensure compliance with
regulatory restrictions.
AMR serves as investment manager and administrator to the Portfolio.
Hotchkis, MSAM and Templeton currently serve as investment advisers to the
Portfolio.
The investment advisory fees payable to AMR by the AMR Trust are 0.10% of
the average daily net assets of the Portfolio plus all fees payable by AMR to
the Portfolio Advisers. With respect to
41
<PAGE> 100
INTRUST's advisory fee, INTRUST has undertaken not to charge advisory fees in
excess of 0.40% of average daily net assets with respect to the International
Multi-Manager Stock Fund as long as the Fund remains completely invested in the
Portfolio or any other investment company. INTRUST has agreed not to charge its
advisory fee to the Fund in an amount in excess of 0.35% of the average daily
net assets of the Fund. Such voluntary waiver may be discontinued upon notice.
The investment advisory agreement for the International Multi-Manager Stock Fund
provides for an investment advisory fee payable to INTRUST by the Fund of 1.25%
of the average annual daily net assets of the Fund, if the Fund does not invest
all of its assets in the Portfolio or another investment company. All investment
advisory fees are accrued daily and paid monthly.
None of the Portfolio Advisers provide any services to the Portfolio except
for portfolio investment management and related recordkeeping services.
AMR receives compensation for administrative and oversight functions
relating to securities lending of the Portfolio. Currently AMR receives 10% of
the net annual interest income from the investment of each collateral or 10% of
the loan fees posted by borrowers.
AMR may enter into new or modified advisory agreements with existing or new
investment advisers without approval of International Multi-Manager Stock Fund
shareholders or Portfolio interest holders, but subject to approval of the Board
and the AMR Trust Board. The SEC issued an exemptive order which eliminates the
need for shareholder/interest holder approval, subject to compliance with
certain conditions. These conditions include the requirement that within 90 days
of hiring a new advisor or implementing a material change with respect to an
advisory contract, the Portfolio send a notice to shareholders containing
information about the change that would be included in a proxy statement.
The Advisory Agreement between the Portfolio and AMR will continue in
effect only if such continuance is specifically approved at least annually by
the Board of Trustees of the AMR Trust or by vote of the holders of beneficial
interest of the Portfolio, and in either case by a majority of the Trustees of
the AMR 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 the Portfolio is terminable without
penalty by the Portfolio on 60 days' written notice when authorized either by
vote of the Portfolio's shareholders or by a vote of a majority of the Board of
Trustees of the AMR Trust, or by AMR 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 the
Portfolio, neither AMR 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 the Portfolio, except for willful misfeasance, bad faith or
gross negligence in the performance of AMR'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 AMR may render services to
others.
The advisory fees are accrued daily and paid monthly. The Adviser, in its
sole discretion, may waive all or any portion of its advisory fee with respect
to the Portfolio.
Following is a description of the Portfolio Advisers, each of which has
been retained by AMR, on behalf of the Portfolio, to provide advisory services
to the Portfolio.
Hotchkis and Wiley, 725 South Figueroa, Suite 4000, Los Angeles, California
90017, is a professional investment counseling firm which was founded in 1980 by
John F. Hotchkis and George Wiley. Hotchkis and Wiley is a division of Merrill
Lynch Mercury Asset Management, L.P., a wholly-owned indirect subsidiary of
Merrill Lynch & Co., Inc. Assets under management as of December 31, 1998 were
approximately $____ billion, which included approximately $1.1 billion of assets
of AMR and its subsidiaries and affiliated entities. Hotchkis and Wiley also
serves as an investment adviser to the Balanced Portfolio and the Growth and
Income Portfolio of the AMR Trust. The advisory contract provides for AMR to pay
Hotchkis and Wiley an annualized fee equal to 0.60% of the first $10 million of
42
<PAGE> 101
assets under its discretionary management, 0.50% of the next $140 million of
assets 0.30% on the next $50 million of assets 0.20% of the next $800 million of
assets and 0.15% of all excess AMR Trust assets managed by Hotchkis and Wiley.
Morgan Stanley Asset Management Inc. ("MSAM"), 25 Cabot Square, London,
United Kingdom E144QA, is a wholly owned subsidiary of Morgan Stanley, Dean
Witter, Discover & Co. MSAM provides portfolio management and named fiduciary
services to taxable and nontaxable institutions, international organizations and
individuals investing in United States and international equity and debt
securities. As of December 31, 1998, MSAM had assets under management totaling
approximately $_____ billion, including approximately $_____ billion under
active management and $_____ billion as named fiduciary or fiduciary adviser. As
of September 30, 1998, MSAM had investment authority over approximately $_____
million of assets of AMR and its subsidiaries and affiliated entities. For its
services, AMR pays MSAM an annual fee equal to 0.80% of the first $25 million in
AMR Trust assets under its discretionary management, 0.60% of the next $25
million in assets, 0.50% of the next $24 million in assets and 0.40% on all
excess assets.
Templeton Investment Counsel, Inc. ("Templeton"), 500 East Broward Blvd.,
Suite 2100, Fort Lauderdale, Florida 33394-3091, is a professional investment
counseling firm which has been providing investment services since 1979.
Templeton is indirectly owned by Franklin Resources, Inc. As of December 31,
1998, Templeton had discretionary investment management authority with respect
to approximately $_____ billion of assets, including approximately $_____
million of assets of AMR and its subsidiaries and affiliated entities. For its
services, AMR pays Templeton an annualized fee equal to 0.50% of the first $100
million in AMR Trust assets under its discretionary management, 0.35% of the
next $50 million in assets, 0.30% of the next $250 million in assets and 0.25%
on assets over $400 million.
The AMR Trust and AMR also entered into a Management Agreement dated
October 1, 1995, as amended July 25, 1997, that obligates AMR to provide or
oversee all administrative, investment advisory and portfolio management
services for the AMR Trust.
Kansas Tax-Exempt Bond Fund
The Kansas Tax-Exempt Bond Fund is the successor to the Kansas Tax Free
Income Portfolio of the SEI Tax Exempt Trust (the "SEI Fund") a registered
investment company for which the Adviser was the investment adviser until the
SEI Fund was reorganized into the Kansas Tax-Exempt Bond Fund. The Kansas
Tax-Exempt Bond Fund has the same investment objectives and policies as the SEI
Fund. Investors in the SEI Fund were invited to invest in the Kansas Tax Exempt
Bond Fund at its inception. Set forth below are certain performance data for the
SEI Fund. The data shown below reflects total return for the periods shown,
reduced by the actual expense ratio for such SEI Fund. To the extent expense
waivers or reimbursements were in effect during the periods indicated below,
actual returns would have been lower had such expense waivers or reimbursements
not been in effect. However, this performance data is not necessarily indicative
of the future performance of the Funds. The SEI Fund performance reflects fees
and expenses that may be lower than fees for the Kansas Tax-Exempt Bond Fund
after its first year of operation. The performance shown would have been lower
if such higher fees and expenses were in effect.
KANSAS TAX-EXEMPT BOND FUND
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN
FOR PERIODS ENDING
DECEMBER 31, 1998
----------------------------------------UP
LEHMAN 7 - YEAR
G.O. INDEX
--------------
<S> <C> <C>
1 Year........................................................ % %
3 Years....................................................... % %
5 Years....................................................... % %
Since Inception (December 10, 1990)........................... % %
</TABLE>
43
<PAGE> 102
The Kansas Tax-Exempt Bond 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 the Fund will be higher than
the yield or the effective yield quotations for the Fund.
The following table shows how to translate the yield of an investment that
is exempt from both Federal and Kansas personal income taxes into a taxable
equivalent yield for the 1998 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 5%,
6%, 7% or 8%. For example, the table shows that a married taxpayer filing a
joint return with taxable income of $50,000 would have to earn a yield of
approximately 10.39% before Federal and Kansas personal income taxes in order to
earn a yield after such taxes of 7%.
1998 TAXABLE YEAR
TAXABLE EQUIVALENT YIELD TABLE--FEDERAL AND KANSAS PERSONAL
INCOME TAXES*
<TABLE>
<CAPTION>
TO EQUAL HYPOTHETICAL TAX-FREE YIELD OF
5%, 6%, 7% OR 8% A TAXABLE INVESTMENT
SINGLE COMBINED WOULD HAVE TO YIELD APPROXIMATELY
TAXABLE INCOME(1) MARGINAL --------------------------------------------------
FROM TO TAX RATE(2)(3) 5.00% 6.00% 7.00% 8.00%
- ---- ---------- ----------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
0 20,000 18.49% 6.13% 7.36% 8.59% 9.81%
20,000 24,650 21.38% 6.36% 7.63% 8.90% 10.17%
24,650 30,000 33.40% 7.51% 9.01% 10.51% 12.01%
30,000 59,750 33.58% 7.53% 9.03% 10.54% 12.04%
59,750 124,650 36.35% 7.86% 9.43% 11.00% 12.57%
124,650 271,050 40.96% 8.47% 10.16% 11.86% 13.55%
over 271,050 44.28% 8.97% 10.77% 12.56% 14.36%
</TABLE>
<TABLE>
<CAPTION>
TO EQUAL HYPOTHETICAL TAX-FREE YIELD OF
MARRIED 5%, 6%, 7% OR 8% A TAXABLE INVESTMENT
FILING JOINTLY COMBINED WOULD HAVE TO YIELD APPROXIMATELY
TAXABLE INCOME(1) MARGINAL ---------------------------------------------
FROM TO TAX RATE(2)(3) 5.00% 6.00% 7.00% 8.00%
- ---- ---------- ----------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
0 30,000 17.98% 6.10% 7.31% 8.53% 9.75%
30,000 41,200 20.31% 6.27% 7.53% 8.78% 10.04%
41,200 60,000 32.50% 7.41% 8.89% 10.37% 11.85%
60,000 99,600 32.64% 7.42% 8.91% 10.39% 11.88%
99,600 151,750 35.45% 7.75% 9.30% 10.84% 12.39%
151,750 271,050 40.13% 8.35% 10.02% 11.69% 13.36%
over 271,050 43.50% 8.85% 10.62% 12.39% 14.16%
</TABLE>
- ----------------
(1) Assuming the Federal alternative minimum tax is not applicable.
(2) The combined marginal rates were calculated using Federal tax rate tables
for the 1998 taxable year and Kansas tax rates for the 1997 taxable year.
The Federal tax rate table is indexed each year to reflect changes in the
Consumer Price Index and the Kansas tax rate table is constant until
changed by statute.
(3) The combined Federal and Kansas personal income tax marginal rates assume
that Kansas income taxes are fully deductible for Federal income tax
purposes as an itemized deduction. However, the ability to deduct itemized
deductions (including state income taxes) for Federal income tax purposes
is limited for those taxpayers whose Federal adjusted gross income for 1997
exceeds $121,200 ($60,600 in the case of a married individual filing a
separate return).
* This chart is prepared for general information purposes only. Tax
equivalent yields are a
44
<PAGE> 103
useful tool in determining the benefits of a tax-exempt investment; however, tax
equivalent yields should not be regarded as determinative of the desirability of
such an investment. In addition, this chart is based on a number of assumptions
which may not apply in each individual case. An investor should therefore
consult a competent tax adviser regarding tax equivalent yields in individual
circumstances.
ADVISORY FEES. For the fiscal years ended OCTOBER 31, 1998 and October 31,
1997, the Advisers and Subadvisers to the separate Funds were entitled to
advisory fees in the following amounts:
<TABLE>
<CAPTION>
ADVISORY FEES ADVISORY FEES
FYE 10/31/98 FYE 10/31/97
EARNED WAIVED EARNED WAIVED
<S> <C> <C> <C> <C>
AMR Investment Services, Inc.
Money Market Fund(a) $120,772 $ 72,463
International Multi-Manager
Stock Fund (c) 87,171 10,897
Galliard Capital Management, Inc.
Short-Term Bond Fund(b) $129,156 $ 67,807
Intermediate Bond Fund(b) 108,244 29,767
Ark Asset Management, Inc.
The Stock Fund(b) $423,540 $ 55,060
INTRUST Bank, N.A
Kansas Tax-Exempt Bond Fund(d) $ 50,811 $ 50,811
</TABLE>
- ----------
(a) Commenced operations on January 23, 1997.
(b) Commenced operations on January 21, 1997.
(c) Commenced operations on January 20, 1997.
(d) For the period from September 1, 1997 through October 31, 1997. Effective
September 1, 1997, the Kansas Tax-Exempt Bond fund changed its fiscal year
end to October 31, 1997.
For the fiscal year ended August 31, 1997, INTRUST Bank, N.A., as Adviser
to the Kansas Tax-Exempt Bond Fund, was entitled to advisory fees in the amount
of $241,317 from the Fund but waived these fees in their entirety. For the
fiscal years ended August 31, 1996 and August 31, 1995, INTRUST Bank, N.A., as
Advisor to the Kansas Tax Free Income Portfolio of SEI Tax-Exempt Trust, the
predecessor to the Fund (the "Predecessor Kansas Fund"), was entitled to
advisory fees in the amount of $202,000 and $188,000 respectively, but waived
these fees in their entirety.
DISTRIBUTION OF FUND SHARES
The Trust retains BISYS 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 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%. 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
45
<PAGE> 104
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 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 December 15, 1997. The Plan was
submitted to the shareholders of the Fund and approved at a special meeting held
on November 25, 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.
DISTRIBUTION FEES. For the periods ended OCTOBER 31, 1998 and October 31,
1997, BISYS, as Distributor to the Funds, was entitled to distribution fees in
the following amounts:
<TABLE>
<CAPTION>
DISTRIBUTION FEES DISTRIBUTION FEES
FYE 10/31/98 FYE 10/31/97
EARNED WAIVED EARNED WAIVED
<S> <C> <C> <C> <C>
Money Market Fund $120,770 $120,770
Short-Term Bond Fund 80,723 80,723
Intermediate Bond Fund 67,653 67,653
Stock Fund 105,886 105,886
International Multi-Manager Stock Fund 54,482 54,482
Kansas Tax-Exempt Bond Fund -- --
</TABLE>
For fiscal years ended August 31, 1996 and August 31, 1995, SEI Financial
Services Company, as Distributor to the Predecessor Fund, retained as
distribution fees $1,614 and $3,468, respectively, in connection with the sales
charges collected on shares of the Predecessor Kansas Fund. For the fiscal year
ended August 31, 1997, inasmuch as the Kansas Tax-Exempt Bond Fund's shares were
no longer subject to a sales charge, no distribution fees were paid to BISYS as
Distributor.
ADMINISTRATION AND FUND ACCOUNTING SERVICES
BISYS 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 SEC and state securities commissions; and (iii)
general supervision of the operation of the Funds, including coordination of the
services performed by the Adviser, the Distributor, transfer agent, custodians,
independent accountants, legal counsel and others. In addition, BISYS 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 BISYS. For these services, BISYS receives from each Fund a fee,
payable monthly, at the annual rate of 0.20% (15% for International
46
<PAGE> 105
Multi-Manager Fund, while invested in the Portfolio) of each Fund's average
daily net assets.
The Administration Agreement is for a one year term and is subject to
annual approval by 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. The Administration Agreement
will terminate automatically in the event of its assignment.
Administration Fees. For the periods ended October 31, 1998 and October 31,
1997, BISYS, as Administrator to the Funds was entitled to administration fees
in the following amounts:
<TABLE>
<CAPTION>
ADMINISTRATION FEES ADMINISTRATION FEES
FYE 10/31/98 FYE 10/31/97
EARNED WAIVED EARNED WAIVED
<S> <C> <C> <C> <C>
Money Market Fund $96,617 $ --
Short-Term Bond Fund 64,579 2,840
Intermediate Bond Fund 54,123 2,945
Stock Fund 84,709 2,942
International Multi-Manager Stock Fund 32,690 7,743
Kansas Tax-Exempt Bond Fund 33,874 33,874
</TABLE>
For the former fiscal years ended August 31, 1996 and 1995, SEI Fund
Management, as administrator/manager to the Predecessor Kansas Fund was entitled
to management/administrative services fees in the amounts of $101,000 and
$94,000, respectively. Of the amount of the fee stated for the fiscal year ended
August 31, 1995, SEI Fund Management waived $3,000.
Additionally, BISYS Fund Services, Inc. ("BFSI"), an affiliate of BISYS,
serves as the Fund Accounting Agent to the Trust pursuant to a Fund Accounting
Agreement. For the fiscal years ended October 31, 1998 and October 31, 1997,
BFSI, as Fund Accountant for the Funds was entitled to fees in the following
amounts:
<TABLE>
<CAPTION>
FUND ACCOUNTING FEES FUND ACCOUNTING FEES
FYE 10/31/97 FYE 10/31/98
EARNED WAIVED EARNED WAIVED
<S> <C> <C> <C> <C>
Money Market Fund $120,770 $120,770
Short-Term Bond Fund 80,723 80,723
Intermediate Bond Fund 67,653 67,653
Stock Fund 105,886 105,886
International Multi-Manager Stock Fund 54,482 54,482
Kansas Tax-Exempt Bond Fund -- --
</TABLE>
SERVICE ORGANIZATIONS
The Trust also contracts with banks (including the Adviser), trust
companies, broker-dealers (other than BISYS) 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
47
<PAGE> 106
shareholder reasonably may request, to the extent permitted by applicable
statute, rule or regulation. Neither BISYS, nor the Distributor will be a
Service Organization or receive fees for servicing. Service Organizations for
Institution Premium Class shareholders may also provide record keeping,
communication with and education of shareholders, fiduciary services (exclusive
of investment management) and asset allocation services. With respect to the
Kansas Tax-Exempt Bond Fund, shareholder service fees for the period September
1, 1997 through October 31, 1997 amounted to $13,550, but such fees were waived
in their entirety. No shareholder service fees were paid with respect to the
other INTRUST Funds.
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 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
Except for the expenses paid by INTRUST and BISYS, 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 Fund uses the amortized cost method to determine the value of its
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 Fund 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, the Money Market Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase securities having remaining
maturities of 397 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
48
<PAGE> 107
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 the Adviser pursuant to guidelines approved by the Board and
subject to the ratification of the Board.
In addition, the 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, the 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 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 the Portfolio and for the other
investment advisory clients of the Adviser and the Portfolio Advisers 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 the Adviser and the Portfolio Advisers, 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 and the Portfolio 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 and the AMR
Trust Board, the Adviser and Portfolio Advisers, as appropriate, are primarily
responsible for portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Funds and the Portfolio 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 the Adviser and
Portfolio Advisers generally seek reasonably competitive spreads or commissions,
the Funds will not necessarily be paying the lowest spread or commission
available.
49
<PAGE> 108
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 Fund 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.
The Adviser and Portfolio Advisers 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 the Adviser or Portfolio Advisers. By allocating transactions in this manner,
the Adviser and the Portfolio Advisers are able to supplement their 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 the Adviser and Portfolio Advisers
in advising various of their clients (including the Funds), although not all of
these services are necessarily useful and of value in managing the Funds. The
management fees paid by the Funds and the Portfolio are not reduced because the
Adviser or Portfolio Advisers or their affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the
"Act"), the Adviser and Portfolio Advisers may cause the Funds to pay a
broker-dealer which provides "brokerage and research services" (as defined in
the Act) to the Adviser and Portfolio Advisers 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, the
Adviser and Portfolio Adviser 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.
For the fiscal year ended October 31, 1998, portfolio turnover rates for
each of the Funds were ____%, ____%, ____% and ____% for the Short-Term Bond
Fund, Intermediate Bond Fund and Stock Fund and Kansas Tax-Exempt Bond Fund,
respectively.
For the fiscal year ended October 31, 1997, portfolio turnover rates for
each of the Funds were 84.41%, 108.73% and 71.76% for the Short-Term Bond Fund,
Intermediate Bond Fund and Stock Fund, respectively. For the period September 1,
1997 through October 31, 1997, the portfolio turnover rate for the Kansas
Tax-Exempt Bond Fund was 5.87%.
50
<PAGE> 109
TAXATION
The Funds have qualified and 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 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.
TAXATION OF THE PORTFOLIO
The Portfolio should be classified as a separate partnership for federal
income tax purposes and is not a "publicly traded partnership." As a result, the
Portfolio is not subject to federal income tax; instead, each investor in the
Portfolio, such as the International Multi-Manager Stock Fund (the "Fund"), is
required to take into account in determining its federal income tax liability
its share of the Portfolio's income, gains, losses, deductions, credits and tax
preference items, without regard to whether it has received any cash
distributions from the Portfolio.
The Fund will be deemed to own a proportionate share of the Portfolio's
assets and income for purposes of determining whether the Fund satisfies the
requirements to qualify as a Regulated Investment Company. Accordingly, the
Portfolio intends to conduct its operations so that its corresponding Fund will
be able to satisfy all those requirements.
Distributions to the Fund from the Portfolio (whether pursuant to a partial
or complete withdrawal or otherwise) will not result in the Fund's recognition
of any gain or loss for federal income tax purposes, except that (1) gain will
be recognized to the extent any cash that is distributed exceeds the Fund's
basis for its interest in the Portfolio before the distribution, (2) income or
gain will be recognized if the distribution is in liquidation of the Fund's
entire interest in the Portfolio and includes a disproportionate share of any
unrealized receivables held by the Portfolio and (3) loss will be recognized if
a liquidation distribution consists solely of cash and/or unrealized
receivables. The Fund's basis for its interest in the Portfolio generally will
equal the amount of cash and the basis of any property the Fund invests in the
Portfolio, increased by the Fund's share of the Portfolio's net income and gains
and decreased by (a) the amount of cash and the basis of any property the
Portfolio distributes to the Fund and (b) the Fund's share of the Portfolio's
losses.
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
51
<PAGE> 110
least 98% of its ordinary income (excluding any capital 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 and the Portfolio 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 or the Portfolio 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 or, in the case of the
International Multi-Manager Stock Fund, the Portfolio's holding period in prior
taxable years (and an interest factor will be added to the tax, as if the tax
had actually been payable in such prior taxable years) and the International
Multi-Manager Stock Fund will be taxed on its proportionate share of the
Portfolio's excess distributions allocated to that holding period 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 or the Portfolio may be able to elect alternative tax treatment with
respect to PFIC stock. Under an election that currently may be available, a Fund
or the Portfolio 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 and the Portfolio's
intention to qualify annually as a regulated 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 or the Portfolio 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.
Investors should consult their own tax advisors in this regard. The Portfolio
does not intend to acquire stock of issuers that are considered PFICs.
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. To the
extent dividends received by a Fund are attributable to foreign corporations, a
corporation that owns shares will not be entitled to the dividends-received
deduction with respect to its pro rata portion of such dividends, since the
dividends-received deduction is generally available only with respect to
dividends paid by domestic corporations. Proposed legislation, if enacted, would
reduce the dividends received deduction from 70 to 50 percent.
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
52
<PAGE> 111
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 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.
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 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 and the Portfolio 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
or the Portfolio 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.
Investors should contact their own tax advisors in this regard.
Generally, the hedging transactions undertaken by a Fund or the Portfolio
may result in "straddles" for Federal income tax purposes. The straddle rules
may affect the character of gains (or losses) realized by a Fund or the
Portfolio. In addition, losses realized by a Fund or the Portfolio 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 or the Portfolio of hedging transactions are not entirely clear. Hedging
transactions may increase the amount of short-term capital gain realized by a
Fund or Portfolio which is taxed as ordinary income when distributed to
stockholders.
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<PAGE> 112
A Fund or the Portfolio may make one or more of the elections available
under the Code which are applicable to straddles. If a Fund or the Portfolio
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. Investors should
contact their own tax advisors in this regard.
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
or, in the case of the International Multi-Manager Stock Fund, the Portfolio
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 or the Portfolio accrues interest,
dividends or other receivables, or accrues expenses or other liabilities
denominated in a foreign currency, and the time the Fund or the Portfolio
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. Investors should contact their own tax advisors
in this regard.
Income received by a Fund or the Portfolio 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 or, in the case of the International Multi-Manager Stock Fund, its
proportionate share of such taxes paid by the Portfolio. 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 (or deemed 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 or the Portfolio 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. 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 as defined for purposes of the foreign tax credit) including
foreign source passive income of a Fund (including, in the case of the
International Multi-Manager Stock Fund, its proportionate share of the
Portfolio's foreign source passive income). The foreign tax credit may offset
only 90% of the alternative minimum tax imposed on
54
<PAGE> 113
corporations and individuals, and foreign taxes generally may not be deducted in
computing alternative minimum taxable income.
The Funds are required to report to the 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 BOND FUND. This Fund intends to manage its portfolio so
that it will be eligible to pay "exempt-interest dividends" to shareholders. The
Fund will so qualify if, at the close of each quarter of its taxable year, at
least 50% of the value of its 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 the 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. The
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 the 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 the 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 this Fund, 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 limitations on deducting interest
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<PAGE> 114
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 this Fund) 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 Fund 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 the 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 the Fund, at a constant yield to maturity which takes into account
the semi-annual compounding of interest.
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 the
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.
The 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 Fund, the Adviser and its affiliates, and the Funds' counsel make
no review of proceedings relating to the issuance of state or municipal
securities on the basis of such opinions.
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<PAGE> 115
Persons who may be "substantial users" (or "related persons" to substantial
users) of facilities financed by private activity bonds should consult their tax
advisers before purchasing shares of this Fund 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 Bond Fund may be
affected. Since the 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 INTRUST Funds.
OTHER INFORMATION
CAPITALIZATION
The Trust is a Delaware business trust established under a Declaration of
Trust dated January 26, 1996 and currently consists of six separately managed
portfolios. Each portfolio is comprised of two classes of shares -- the
"Institutional Service Class" and the "Institutional Premium Class." The two
classes are identical with the exception that the shareholders in the
Institutional Premium Class may pay additional Service Organization fees in an
amount up to 0.50% of the daily net asset value of the Fund's shares owned by
shareholders with whom the Service Organization has a servicing relationship for
record keeping, communications with and education of shareholders, fiduciary
services (excluding investment management) and asset allocation services. 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.
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.
As of December 10, 1998, no person owned of record, or to the knowledge of
management beneficially owned five percent or more of the outstanding shares of
the respective Fund or classes except as set forth below. Please note that as of
December 10, 1998, there were no Institutional Premium Class shareholders of
record for any of the Funds.
<TABLE>
<CAPTION>
MONEY MARKET FUND
INSTITUTIONAL SERVICE CLASS SHARES OWNED PERCENTAGE OWNED
- ---------------------- ------------ ----------------
<S> <C> <C>
Transco & Company 55,822,999.680 99.80%
Cash Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
Short-Term Bond Fund
Institutional Service Class Shares Owned Percentage Owned
- ---------------------- ------------ ----------------
Transco & Company 1,871,961.828 30.80%
Reinvest Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
</TABLE>
57
<PAGE> 116
<TABLE>
<S> <C> <C>
Transco & Company 4,205,008.092 69.20%
Cash Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
INTERMEDIATE BOND FUND
INSTITUTIONAL SERVICE CLASS SHARES OWNED PERCENTAGE OWNED
- ---------------------- ------------ ----------------
Transco & Company 1,509,204.318 29.10%
Reinvest Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
Transco & Company 3,676,199.645 70.90%
Cash Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
STOCK FUND
INSTITUTIONAL SERVICE CLASS SHARES OWNED PERCENTAGE OWNED
- ---------------------- ------------ ----------------
Transco & Company 4,191,189.373 51.09%
Reinvest Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
Transco & Company 3,905,110.857 47.60%
Cash Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
INT'L MULTI-MANAGER STOCK FUND
INSTITUTIONAL SERVICE CLASS SHARES OWNED PERCENTAGE OWNED
- ---------------------- ------------ ----------------
Transco & Company 2,268,608.118 49.56%
Reinvest Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
Transco & Company 2,307,854.306 50.12%
Cash Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
KANSAS TAX-EXEMPT BOND FUND
INSTITUTIONAL SERVICE CLASS SHARES OWNED PERCENTAGE OWNED
- ---------------------- ------------ ----------------
Transco & Company 1,386,353.358 11.04%
Reinvest Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
</TABLE>
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<PAGE> 117
<TABLE>
<S> <C> <C>
Transco & Company 11,053,462.149 88.00
Cash Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
</TABLE>
The Funds do not know the extent to which other holders of record were
beneficial owners of shares indicated.
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
INTRUST acts as custodian of the Trust's assets. BFSI acts as transfer
agent for the Funds. The Trust compensates BISYS 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
Multi-Multi-Manager Stock Fund pays no custodian fees as long as all of its
assets are invested in another mutual fund, but incurs its pro-rata portion of
the custody fees of Chase Manhattan Bank, N.A. as Portfolio Custodian. The AMR
Trust Board has reviewed and approved custodial arrangements for securities held
outside of the United States in accordance with Rule 17f-5 of the 1940 Act.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors for the
Trust. KPMG Peat Marwick LLP provides audit services, tax return preparation and
assistance and consultation in connection with certain SEC filings. KPMG Peat
Marwick LLP is located at Two Nationwide Plaza, Columbus, Ohio, 43215.
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. For the Kansas Tax-Exempt Bond Fund, such
amounts may include returns from its predecessor Fund, the SEI Kansas Tax Free
Income Portfolio.
Current yield for the Money Market Fund 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
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<PAGE> 118
by 365/7, with the resulting yield figure carried to at least the nearest
hundredth of one percent. "Effective yield" for the Money Market Fund 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:
Effective Yield = [(Base Period Return + 1)[RAISED TO THE (365/7) POWER]] -- 1.
For the seven-day period ended October 31, 1998, the seven-day effective
yield for the Money Market Fund was ____%.
Quotations of yield for the Non-Money Market Fund will be based on the
investment income per share earned during a particular 30-day period, less
expenses accrued during a period ("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:
YIELD = 2[(a-b+ 1)-l]{RAISED TO THE 6TH POWER]
------
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.
For the 30-day period ended October 31, 1998, the yield for the Short-Term
Bond Fund and Intermediate Bond Fund were _____% and _____%, respectively.
Quotations of tax-equivalent yield for the Kansas Tax-Exempt Bond Fund will
be calculated according to the following formula:
TAX EQUIVALENT YIELD = ( E )
----
1-p
E = Tax-Exempt yield
p = stated income tax rate
For the 30-day period ended October 31, 1998, the yield for the Kansas
Tax-Exempt Bond Fund was _____% and tax equivalent yield, assuming a 39.6%
federal tax rate, was _____%. Such yield information includes the prior yield of
the SEI Kansas Tax Free Income Portfolio.
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:
P (1 + T)[RAISED TO THE NTH POWER] = 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.
For the fiscal year ended October 31, 1998, the total return for the
International Multi-Manager Stock Fund, Short-Term Bond Fund, Intermediate Bond
Fund and Stock Fund was _____%, _____%, _____% and _____%, respectively.
60
<PAGE> 119
For the one year, three year, five year periods ended October 31, 1998, and
the period from commencement of operations (December 10, 1990) through October
31, 1998, the average annual total returns for the Kansas Tax-Exempt Bond Fund
were _____%, _____%, _____% and _____%, respectively. Such performance includes
the prior performance of the SEI Kansas Tax Free Income Portfolio. Of course,
past performance is no guarantee as to future performance.
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 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.
FINANCIAL STATEMENTS
The Report of Independent Auditors and Financial Statements of the Funds
for period ended October 31, 1998 are incorporated herein by reference to the
Trust's Annual Report, such Financial Statements having been audited by KPMG
Peat Marwick LLP, independent auditors, and is so included and incorporated by
reference in reliance upon the report of said firm, which report is given upon
their authority as experts in auditing and accounting. The Independent Auditors
of the AMR Investment Services International Equity Portfolio is Ernst & Young
LLP. Copies of such Annual Report are available without charge upon request by
writing to INTRUST Funds Trust, 3435 Stelzer Road, Columbus, Ohio 43219-8006 or
telephoning (888) 266-8787.
61
<PAGE> 120
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.
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.
62
<PAGE> 121
PART C. OTHER INFORMATION
- -------
Item 23. Financial Statements and Exhibits
(a) Financial Statements included in Part A and Part B of this
Registration Statement:
To be filed by amendment
(b) Exhibits:
(1) Trust Instrument.(2)
(2) Bylaws of Registrant.(2)
(3) None.
(4) None.
(5)(a) Form of Master Investment Advisory
Agreement and Supplements between
Registrant and Adviser relating to Money
Market Fund, Short-Term Bond Fund,
Intermediate Bond Fund, Stock Fund,
International Multi-Manager Stock Fund
and the Kansas Tax-Exempt Bond Fund.(1)
(5)(b) Form of Master Investment Advisory
Agreement and Supplements between
Registrant and Adviser relating to the
NestEgg Funds.(5)
(5)(c) Form of Sub-Advisory Agreements between
Adviser and Sub-Advisers.(1)
<PAGE> 122
7
(5)(d) Form of Master Administration Agreement
and Supplements between Registrants and
Administrator.(1)
(5)(e) Agreement among AMR Investment Services
Trust, AMR Investment Services, Inc.,
INTRUST Funds Trust and BISYS Fund
Services, dated January 17, 1997.(5)
(5)(f) Investment Advisory Contracts by and
among BZW Barclays Global Fund Advisors
and Master Investment Portfolio, each
dated January 1, 1996, on behalf of each
of the LifePath 2000 Master Portfolio,
LifePath 2010 Master Portfolio, LifePath
2020 Master Portfolio, LifePath 2030
Master Portfolio, and LifePath 2040
Master Portfolio, are incorporated by
reference to Master Investment Portfolio
Amendment No. 3 to Registration Statement
on Form POS-AMI (1940 Act File No.
811-08162) filed with the Commission on
January 5, 1996.
(5)(g) Form of Third Party Feeder Fund Agreement
between Registrant and Master Investment
Portfolio with respect to NestEgg
Funds.(5)
(6) Form of Master Distribution Contract and
Supplements between Registrant and
Distributor.(1)
(7) None.
(8)(a) Form of Custodian Contract between
Registrant and Custodian.(1)
(8)(b) Custody Agreement with Investors Bank &
Trust, N.A. with respect to the Master
Portfolios incorporated by reference to
Master Investment Portfolio Amendment No.
5 to Registration Statement on Form
POS-AMI (1940 Act File No. 811-08162)
filed with the Commission on June 30,
1997.
(9)(a) Form of Transfer Agency and Service
Agreement between Registrant and Transfer
Agent.(1)
(9)(b) Form of Service Organization
Agreement.(1)
(9)(c) Form of Fund Accounting Agreement between
Registrant and Investors Bank & Trust
Company with respect to NestEgg
Funds.(5)
(10) Consent of Paul, Weiss, Rifkind, Wharton
& Garrison, counsel to Registrant. To be
filed by amendment
(11)(a) Consent to KPMG Peat Marwick LLP -- To
be filed by amendment
(11)(b) Consent of Arthur Andersen LLP.) -- To
be filed by amendment
(11)(c) Consent of Ernst & Young LLP -- To be
filed by amendment
(12) None.
(13) Subscription Agreement.(1)
(14) None.
(15) Amended Form of Rule 12b-1 Distribution
Plan and Agreement between Registrant and
Distributor--(5)
(16) N/A
(17) Financial Data Schedules for INTRUST--
To be filed by amendment
<PAGE> 123
8
(18) Rule 18f-3 Plan.(1)
Other Exhibits:
(A) Power of Attorney.(1)
(B) Power of Attorney dated February 9, 1998.(4)
(C) Powers of Attorney dated August 11, 1998 for
Master Investment Portfolio(5)
(1) Previously filed on December 23, 1996 as part of Pre-Effective
Amendment No. 3 and incorporated by reference herein.
(2) Previously filed with Post-Effective Amendment No. 1 on June 27, 1997,
and incorporated by reference herein.
(3) Previously filed with Post-Effective Amendment No. 2 on December 22,
1997, and incorporated by reference herein.
(4) Previously filed with Post-Effective Amendment No. 3 on February 27,
1998, and incorporated by reference herein.
(5) Previously filed with Post-Effective Amendment No. 7 on November 30,
1998, and incorporated by reference herein.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. N/A
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
<PAGE> 124
9
Investment Advisory Contract between Registrant and the Adviser (Exhibit 5(a) to
this Registration Statement), and Section 14 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.
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 option 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 and Section 9 of the Master Distribution Contract
between Registrant and the 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.
<PAGE> 125
10
Item 28. Business and Other Connections of INTRUST Bank, N.A.
INTRUST Bank, N.A. is a majority-owned subsidiary of INTRUST
Financial Corporation (formerly First Bancorp of Kansas), a bank holding
company. INTRUST Bank, N.A. is a national banking association which provides a
full range of banking and trust services to clients. As of December 31, 1997
total assets under management were approximately $2 billion. The principal place
of business address of the Adviser is 105 North Main Street, Box One, Wichita,
Kansas 67201. The executive officers of INTRUST Bank, N..A. and INTRUST
Financial Corporation and such executive officers' positions during the past two
years are as follows:
INTRUST Bank, N.A.
------------------
Name Position and Office
- ---- -------------------
C.Q. Chandler, IV Chairman, President and Chief
Executive Officer (Vice Chairman prior
to February, 1996)
J.V. Lentell Vice Chairman
Ron Baldwin Vice Chairman
(Hired February, 1996; Executive Vice
President Fourth Financial Corporation
prior to February, 1996)
Rick Beach Executive Vice President, (Senior Vice
President, INTRUST Financial
Corporation prior to March, 1996)
INTRUST Financial Corporation
-----------------------------
Name Position and Office
- ---- -------------------
C.Q. Chandler Chairman and Chief Executive Officer
C.Q. Chandler, IV President
J.V. Lentell Vice Chairman - INTRUST Bank, N.A.
<PAGE> 126
11
Ron Baldwin Vice Chairman - INTRUST Bank, N.A.
(Hired February, 1996; Executive Vice
President, Fourth Financial Corporation
prior to February, 1996)
Rick Beach Executive Vice President (Senior Vice
President prior to March, 1996)
Business and Other Connections of BGFA
The LifePath 2000, LifePath 2010, LifePath 2020, LifePath 2030,
LifePath 2040 Master Portfolios are advised by Barclays Global Fund Advisors
("BGFA"), a wholly-owned subsidiary of Barclays Global Investors, N.A.
("BGI", formerly,Wells Fargo Institutional Trust Company).
BGFA's business is that of a registered investment adviser to certain
open-end, management investment companies and various other institutional
investors. Wells Fargo Bank's business is that of a national banking association
with respect to which it conducts a variety of commercial banking and trust
activities, including acting as investment adviser and/or sub-adviser to certain
open-end management investment companies and various other institutional
investors.
The directors and officers of BGFA consist primarily of persons who
during the past two years have been active in the investment management business
of the former sub-adviser to the Registrant, Wells Fargo Nikko Investment
Advisors ("WFNIA") and, in some cases, the service business of BGI. Each of the
directors and executive officers of BGFA will also have substantial
responsibilities as directors and/or officers of BGI. To the knowledge of the
Registrant, except as set forth below, none of the directors or executive
officers of BGFA is or has been at any time during the past two fiscal years
engaged in any other business, profession, vocation or employment of a
substantial nature.
<TABLE>
<CAPTION>
Name and Position Principal Business(es) During at
at BGFA Least the Last Two Fiscal Years
- ----------------- -------------------------------
<S> <C>
Frederick L.A. Grauer Director of BGFA and Co-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Patricia Dunn Director of BGFA and Co-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Lawrence G. Tint Chairman of the Board of Directors of BGFA and Chairman
Chief Executive Officer of BGI and Director; 45 Fremont Street, San Francisco, CA 94105
Geoffrey Fletcher Chief Financial Officer of BGFA and BGI since May 1997 45
Fremont Street, San Francisco, CA 94105 Managing Director and
Principal Accounting Officer at Bankers Trust Company from 1988 -
1997 505 Market Street, San Francisco, CA 94111
</TABLE>
Item 29. Principal Underwriter
(a) BISYS acts as Distributor/Underwriter for other
registered investment companies:
BISYS FUND SERVICES LIMITED PARTNERSHIP
---------------------------------------
Alpine Equity Trust
The ARCH Fund, Inc.
American Performance Funds
AmSouth Mutual Funds
The BB&T Mutual Funds Group
The Coventry Group
ESC Strategic Funds, Inc.
The Eureka Funds
Fifth Third Funds
Hirtle Callaghan Trust
HSBC Funds Trust and HSBC Mutual Funds Trust
INTRUST Funds Trust
The Infinity Mutual Funds, Inc.
The Kent Funds
Magna Funds
Meyers Investment Trust
MMA Praxis Mutual Funds
M.S.D.&T. Funds
Pacific Capital Funds
The Parkstone Advantage Funds
Pegasus Funds
Puget Sound Alternative Investment Series Trust
Republic Advisor Funds Trust
Republic Funds Trust
The Riverfront Funds, Inc.
Sefton Funds Trust
The Sessions Group
Summit Investment Trust
Variable Insurance Funds
The Victory Portfolios
The Victory Variable Insurance Funds
Vintage Mutual Funds, Inc.
(b) Officers and Directors.
<TABLE>
<CAPTION>
Name and Principal Positions and Position
Business Address Offices with Registrant with Underwriter
- ---------------- ----------------------- ----------------
<S> <C> <C>
BISYS Fund Services, Inc. None Sole General Partner
3435 Stelzer Road
Columbus, Ohio 43219
WC Subsidiary Corporation None Sole Limited Partner
150 Clove Road
Little Falls, New Jersey 07424
The BISYS Group, Inc. None Sole Shareholder
150 Clove Road
Little Falls, New Jersey 07424
</TABLE>
(c) Not applicable.
Item 30. Location of Accounts and Records
(a) 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 BISYS (as administrators, transfer
agent, fund accountant and distributor) located at 3435 Stelzer Road, Columbus,
Ohio 43219 and INTRUST (as adviser and custodian) at 105 North Main Street, Box
One, Wichita, Kansas 63201 and AMR Investment Services, Inc., at 4333 Amon
Carter Boulevard, MD, 5645, Fort Worth, Texas 76155.
(b) BGFA maintains all records relating to their services as
adviser for the Master Investment Portfolio at 45 Fremont Street, San Francisco,
California 94105.
(c) Investors Bank & Trust Company maintains all records relating
to its services as fund accountant and custodian to the Master Portfolios at 89
South Street, Boston, Massachusetts 02111.
Item 31. Management Services.
<PAGE> 127
12
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 undertakes to furnish each person to whom
a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders
upon request and without charge.
<PAGE> 128
13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, INTRUST Funds Trust has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Columbus, and State of Ohio, on
December 23, 1998.
INTRUST FUNDS TRUST
By: /s/ David Bunstine
David Bunstine, President
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/ Terry L. Carter* Trustee December 23, 1998
- ---------------------------
Terry L. Carter
/s/ Thomas F. Kice* Trustee December 23, 1998
- ---------------------------
Thomas F. Kice
/s/ George Mileusnic* Trustee December 23, 1998
- ---------------------------
George Mileusnic
/s/ John J. Pileggi* Trustee December 23, 1998
- ---------------------------
John J. Pileggi
/s/ G.L. Best* Trustee December 23, 1998
- ---------------------------
G.L. Best
/s/ David Bunstine* Trustee December 23, 1998
- ---------------------------
David Bunstine
</TABLE>
<PAGE> 129
14
<TABLE>
<S> <C> <C>
/s/ Paul Kane* Treasurer December 23, 1998
- --------------------------- (Principal Financial
Paul Kane and Accounting
Officer)
*By: /s/ David Bunstine President December 23, 1998
- ---------------------------
David Bunstine
Attorney-in-Fact
</TABLE>
<PAGE> 130
17
SIGNATURES
AMR Fund Investment Services Trust has duly caused this
Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A of the
INTRUST Funds Trust to be signed on its behalf by the undersigned only with
respect to disclosures relating to the International Equity Portfolio, a series
of the AMR Investment Services Trust, hereunto duly authorized, in the City of
Fort Worth and the State of Texas on December 23, 1998.
AMR INVESTMENT SERVICES TRUST.
By: /s/ William F. Quinn
William F. Quinn, President
Attest:
By: /s/ Barry Y. Greenberg
Barry Y. Greenberg, Vice President
and Assistant Secretary
This Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A of the INTRUST Funds Trust has been signed below by the
following persons in the capacities and on the dates indicated only with respect
to disclosures relating to the International Equity Portfolio, a series of the
AMR Investment Services Trust.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
By: /s/ William F. Quinn* President and Trustee December 23, 1998
--------------------------
William F. Quinn
By: /s/ Alan D. Feld* Trustee December 23, 1998
--------------------------
Alan D. Feld
By: /s/ Ben J. Fortson* Trustee December 23, 1998
--------------------------
Ben J. Fortson
</TABLE>
<PAGE> 131
18
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
By: /s/ John S. Justin* Trustee December 23, 1998
--------------------------
John S. Justin
By: /s/ Stephen D. O'Sullivan* Trustee December 23, 1998
--------------------------
Stephen D. O'Sullivan
By: /s/ Roger T. Staubach* Trustee December 23, 1998
--------------------------
Roger T. Staubach
By: /s/ Kneeland Youngblood* Trustee December 23, 1998
--------------------------
Kneeland Youngblood
By: /s/ William F. Quinn December 23, 1998
--------------------------
William F. Quinn
Attorney-in-Fact
</TABLE>
