<PAGE> 1
As filed with the Securities and Exchange Commission on August 12, 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. 4 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 7 [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
William Tomko
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 _______, 1998 pursuant to Rule 485(b)
X 75 days after filing pursuant to Rule 485(a)
____ on _______, 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 and the LifePath Funds. In that regard,
this Post-Effective Amendment includes the signature page 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. A
signature page executed by Master Investment Portfolio, the registrant of the
LifePath Master Portfolios, will be filed by amendment.
The prospectus and statement of additional information dated March 2,
1998 relating to the Money Market Fund, the Short-Term Bond Fund, the
Intermediate Bond Fund, the Stock Fund, the International Multi-Manager Stock
Fund and the Kansas Tax-Exempt Bond Fund of the Intrust Funds Trust (the
"Trust"), filed with the Securities and Exchange Commission via EDGAR on
February 27, 1998 as part of post-effective amendment number 3 to the Trust's
Registration Statement on Form N-1A (File No. 333-447) under Rule 485(b) under
the Securities Act of 1933, as amended (the "1933 Act"), and in final form under
Rule 497 (c) under the 1933 Act via EDGAR on March 4, 1998 (File No.811-7505) is
incorporated herein by reference as if set forth in its entirety.
<PAGE> 2
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
LIFEPATH 2000 FUND
LIFEPATH 2010 FUND
LIFEPATH 2020 FUND
LIFEPATH 2030 FUND
LIFEPATH 2040 FUND
N-1A Item No. Location
PART A Prospectus Caption
- ------ ------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Not Applicable
Item 3. Condensed Financial Information Fund Expenses; Fee Table
Item 4. General Description of Registrant Investment Objectives and
Policies; Risk Consideration;
Investment Policies and
Practice
Item 5. Management of Fund Management of the Funds
Item 5A. Management Discussion of Fund Not Applicable
Performance
Item 6. Capital Stock and Other Securities Dividends, Distributions and
Federal Income Tax; Other
Information; Performance
Information
Item 7. Redemption or Repurchase Redemption of Fund Shares
Item 8. Purchase of Securities Being Fund Share Valuation;
Offered Purchase of Fund Shares;
Exchange of Fund Shares
Item 9. Legal Proceedings Not Applicable
<PAGE> 3
5
<TABLE>
<CAPTION>
Statement of Additional
PART B Information Caption
- ------ -------------------
<S> <C> <C>
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Not Applicable
Item 13. Investment Objective and Policies Investment Objectives and
Management Policies;
Additional Permitted
Investment Activities
Item 14. Management of the Registrant Management; Trustees and
Officer of the Trust;
Trustees and Officers of the
Master Investment Portfolio
Item 15. Control Persons and Principal Management
Holders of Securities
Item 16. Investment Advisory and Other Management; Investment
Services Advisor to the Master
Portfolios; Investment
Advisor to the Funds;
Distribution; Administration
and Fund Accounting
Systems
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Securities Other Information;
Capitalization; Voting
Item 19. Purchase; Redemption and Pricing Purchase of Funds Shares
of Fund Shares (Part A); Redemption of
Fund Shares (Part A)
Item 20. Tax Status Taxation
Item 21. Underwriters Management
</TABLE>
<PAGE> 4
6
<TABLE>
<CAPTION>
Statement of Additional
PART B Information Caption
- ------ -------------------
<S> <C> <C>
Item 22. Calculation of Fund Performance Yield and Performance
Information; Custodian,
Transfer Agent and Dividend
Disbursing Agent;
Independent Auditors
</TABLE>
<PAGE> 5
3
INTRUST FUNDS TRUST
LIFEPATH 2000 FUND
LIFEPATH 2010 FUND
LIFEPATH 2020 FUND
LIFEPATH 2030 FUND
LIFEPATH 2040 FUND
MONEY MARKET FUND
INTRUST Funds Trust (the "Trust") is an open-end management investment
company. This Prospectus contains information about six of the Trust's funds --
the five LifePath Funds (the "LifePath Funds") and the Money Market Fund (each a
"Fund").
- The LIFEPATH FUNDS have different asset allocation strategies for
investing toward future goals of shareholders such as retirement. The numbers in
the LifePath Funds' names are target dates; the nearer its target date the more
conservatively each LifePath Fund invests. Over time, each LifePath Fund
generally will reduce its investment in stocks and increase its investment in
bonds and money market instruments.
- The MONEY MARKET FUND seeks 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
are determined by the Adviser to present minimal credit risks.
This prospectus describes two classes of shares of each Fund, the
Institutional Premium Class and the Institutional Service Class shares. See
"Other Information Capitalization Structure."
Each of the LifePath Funds invests all of its assets in a separate
series (each a "Master Portfolio") of the Master Investment Portfolio ("MIP"),
each an open-end, management investment company. Each LifePath Fund, unlike
other mutual funds which directly acquire and manage their own portfolios of
securities, seeks to achieve its investment objective by investing all of its
investable assets in another mutual fund whose objective and policies are
substantially identical. This two-tiered investment approach is commonly
referred to as a master-feeder fund structure.
Please read this Prospectus before investing and retain it for future
reference. It sets forth concisely the information about the Funds that an
investor should know before investing. A Statement of Additional Information
("SAI") dated August ___, 1998, containing additional and more detailed
information about the Funds has been filed with the Securities and Exchange
Commission ("SEC") and is available, along with other materials, on the SEC
Internet Web Site (htpp://www.sec.gov). The SAI is incorporated by reference
into this Prospectus. The SAI is available without charge by calling the Trust
at (888) 266-8787 or by writing the Trust at the address printed on the back of
the Prospectus.
<PAGE> 6
- --------------------------------------------------------------------------------
INVESTMENT ADVISER FOR INVESTMENT MANAGER FOR LIFEPATH
INTRUST FUNDS TRUST MASTER PORTFOLIOS
INTRUST BANK, N.A. BARCLAYS GLOBAL FUND ADVISORS
("INTRUST" OR "ADVISER") ("BGFA")
- --------------------------------------------------------------------------------
SUBADVISER FOR INTRUST
MONEY MARKET FUND
AMR INVESTMENT SERVICES, INC.
("AMR")
- --------------------------------------------------------------------------------
THE TRUST'S FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY INTRUST OR BGFA OR ANY OF THEIR AFFILIATES. THE
TRUST'S SHARES ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET FUND WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. AN INVESTMENT IN A
FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE
SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS
AUGUST ___, 1998
2
<PAGE> 7
TABLE OF CONTENTS
Page
FUND EXPENSES...............................................................4
INVESTMENT OBJECTIVES AND POLICIES..........................................5
RISK CONSIDERATIONS........................................................14
INVESTMENT POLICIES AND PRACTICES .........................................17
MANAGEMENT OF THE FUNDS....................................................36
FUND SHARE VALUATION.......................................................42
PURCHASE OF FUND SHARES....................................................43
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX............................49
OTHER INFORMATION..........................................................52
3
<PAGE> 8
FUND EXPENSES
The following expense table illustrates all expenses and fees that an
investor in the Institutional Service Class of Shares of the LifePath Funds and
the Money Market Fund will incur. The Lifepath Funds' expenses are based on
estimated expenses for the Funds' first full year of operations. The Money
Market Fund's expenses are based on the actual expenses incurred by the Fund in
the fiscal year ended October 31, 1997.
FEE TABLE
INSTITUTIONAL SERVICE CLASS
<TABLE>
<CAPTION>
LIFEPATH LIFEPATH LIFEPATH LIFEPATH LIFEPATH MONEY
2000 2010 2020 2030 2040 MARKET
FUND FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES: None None None None None None
- ---------------------------------------------------------------------------------------------------------
Maximum Sales Load
Imposed on
Purchases (as a
percentage of
offering price) None None None None None None
- ---------------------------------------------------------------------------------------------------------
Maximum Sales Load
Imposed on
Reinvested
Dividends (as a
percentage of
offering price) None None None None None None
- ---------------------------------------------------------------------------------------------------------
Deferred Sales Load (as
a percentage of
redemption of
proceeds) None None None None None None
- ---------------------------------------------------------------------------------------------------------
Redemption Fees(1) None None None None None None
- ---------------------------------------------------------------------------------------------------------
Exchange Fees None None None None None None
- ---------------------------------------------------------------------------------------------------------
ANNUAL FUND
OPERATING
EXPENSES (as a
percentage of average
daily net assets):
- ---------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 9
<TABLE>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (after
waivers and
reimbursements)(2) 0.70%(5) 0.70%(5) 0.70%(5) 0.70%(5) 0.70%(5) 0.15%
- ---------------------------------------------------------------------------------------------------------
12b-1 Fees (after
waivers)(3) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- ---------------------------------------------------------------------------------------------------------
Other Expenses (after
waivers and
reimbursements)(4) 0.80% 0.80% 0.80% 0.80% 0.80% 0.54%
- ---------------------------------------------------------------------------------------------------------
TOTAL FUND
OPERATING
EXPENSES (after
waivers and
reimbursements)(2) 1.50% 1.50% 1.50% 1.50% 1.50% 0.69%
- ---------------------------------------------------------------------------------------------------------
<FN>
(1) Shareholders may be charged a wire redemption fee by their bank for
receiving a wire payment on their behalf.
(2) Absent waivers and reimbursements, Management Fees, 12b-1 Fees, Other Expenses and
Total Fund Operating Expenses as long as the Funds remain invested in the MIP or
another investment company would be .70%, .25%, 2.95% and 3.90% for the LifePath
2000 Fund; .70%, .25%, 2.95% and 3.90% for the LifePath 2010 Fund; .70%, .25%,
2.95% and 3.90% for the LifePath 2020 Fund; .70%, .25%, 2.95% and 3.90% for
the LifePath 2030 Fund; .70%, .25%, 2.95% and 3.90% for the LifePath 2040 Fund;
and 0.25%, 0.25%, 0.71% and 1.21% for the Money Market Fund, respectively.
(3) The fee under each Fund's Distribution Plan and Agreement is calculated on
the basis of the average net assets of each Fund at an annual rate not to
exceed 0.25%.
(4) Includes a fee of 0.25% for shareholder servicing.
(5) The LifePath Funds each pay BISYS a 0.20% administrative fee (0.20% without waivers)
and each Master Portfolio pays advisory and administrative fees, of which each LifePath
Fund bears its pro rata portion. The Trust's Board of Trustees believes that the
aggregate per share expenses of each LifePath Fund and the respective Master Portfolio
will be approximately equal to the expenses such Fund would incur if its assets were
invested directly in securities of its own portfolio. Management Fees are 0.55% at the
Master Portfolio level and 0.15% at the Fund level (0.15% at the Fund level without
waivers).
</TABLE>
EXAMPLE OF EXPENSES
An investor would pay the following expenses on a $1,000 investment in
a Fund, assuming (1) 5% gross annual return and (2) redemption at the end of
each time period PARENTHETICAL (parenthetical amounts represent expenses without
waivers or reimbursements):
1 YEAR 3 YEARS 5 YEARS 10 YEARS
5
<PAGE> 10
LifePath 2000 Fund $15 ($39) $47 ($119) N/A N/A
LifePath 2010 Fund $15 ($39) $47 ($119) N/A N/A
LifePath 2020 Fund $15 ($39) $47 ($119) N/A N/A
LifePath 2030 Fund $15 ($39) $47 ($119) N/A N/A
LifePath 2040 Fund $15 ($39) $47 ($119) N/A N/A
Money Market Fund $7 ($12) $22 ($38) $38 ($66) $86 ($147)
THE AMOUNTS LISTED IN THE EXAMPLE REPRESENT A HYPOTHETICAL ILLUSTRATION
OF THE EXPENSES ASSOCIATED WITH A $1,000 INVESTMENT OVER STATED PERIODS, BASED
ON THE EXPENSES IN THE ABOVE TABLE AND AN ASSUMED ANNUAL RATE OF RETURN OF 5%.
THIS ANNUAL RATE OF RETURN SHOULD NOT BE CONSIDERED AN INDICATION OF ACTUAL OR
EXPECTED PERFORMANCE OF A FUND NOR A REPRESENTATION OF PAST OR FUTURE EXPENSES;
ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS THAN THOSE SHOWN.
6
<PAGE> 11
The following expense table illustrates all expenses and fees that an
investor in the Institutional Premium Class of shares of the LifePath Funds and
the Money Market Fund will incur. The Lifepath Funds' expenses are based on
estimated expenses for the Funds first full year of operations. The Money Market
Fund's expenses are based on the actual expenses incurred by Fund in the fiscal
year ended October 31, 1997.
<TABLE>
<CAPTION>
FEE TABLE
INSTITUTIONAL PREMIUM CLASS
LIFEPATH LIFEPATH LIFEPATH LIFEPATH LIFEPATH MONEY
2000 2010 2020 2030 2040 MARKET
FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------
SHAREHOLDER
TRANSACTION
EXPENSES:
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load
Imposed on
Purchases (as a
percentage of
offering price) None None None None None None
- ------------------------------------------------------------------------------------------------------------
Maximum Sales Load
Imposed on
Reinvested
Dividends (as a
percentage of
offering price) None None None None None None
- ------------------------------------------------------------------------------------------------------------
Deferred Sales Load (as
a percentage of
redemption of
proceeds) None None None None None None
- ------------------------------------------------------------------------------------------------------------
Redemption Fees(1) None None None None None None
- ------------------------------------------------------------------------------------------------------------
Exchange Fees None None None None None None
- ------------------------------------------------------------------------------------------------------------
ANNUAL FUND
OPERATING
EXPENSES (as a
percentage of average
daily net assets):
- ------------------------------------------------------------------------------------------------------------
Management Fees (after
waivers and
reimbursements)(2) 0.70%(5) 0.70%(5) 0.70%(5) 0.70%(5) 0.70%(5) 0.15%
- ------------------------------------------------------------------------------------------------------------
12b-1 Fees (after
waivers)(3) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- ------------------------------------------------------------------------------------------------------------
Other Expenses (after
waivers and
reimbursements)(4) 0.80% 0.80% 0.80% 0.80% 0.80% 0.54%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 12
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL FUND
OPERATING
EXPENSES (after
waivers and
reimbursements)(2) 1.50% 1.50% 1.50% 1.50% 1.50% 0.69%
- -------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Shareholders may be charged a wire redemption fee by their bank for
receiving a wire payment on their behalf.
(2) Absent waivers and reimbursements, Management Fees, 12b-1 Fees, Other Expenses and
Total Fund Operating Expenses as long as the Funds remain invested in the MIP or another
investment company would be .70%, .75%, 2.95% and 4.40% for the LifePath 2000 Fund;
.70%, .75%, 2.95% and 4.40% for the LifePath 2010 Fund; .70%, .75%, 2.95% and 4.40%
for the LifePath 2020 Fund; .70%, .75%, 2.95% and 4.40% for the LifePath 2030 Fund;
.70%, .75%, 2.95% and 4.40% for the LifePath 2040 Fund; and 0.25%, 0.75%, 0.71% and
1.71% for the Money Market Fund, respectively.
(3) The fee under each Fund's Distribution Plan and Agreement is calculated on
the basis of the average net assets of each Fund at an annual rate not to
exceed 0.75%.
(4) Includes a fee of 0.25% for shareholder servicing.
(5) The LifePath Funds each pay BISYS a 0.20% administrative fee (0.20% without waivers)
and each Master Portfolio pays advisory and administrative fees, of which each LifePath
Fund bears its pro rata portion. The Trust's Board of Trustees believes that the aggregate
per share expenses of each LifePath Fund and the respective Master Portfolio will be
approximately equal to the expenses such Fund would incur if its assets were invested
directly in securities of its own portfolio. Management Fees are 0.55% at the Master
Portfolio level and 0.15% at the Fund level (0.15% at the Fund level without waivers).
</TABLE>
EXAMPLE OF EXPENSES
An investor would pay the following expenses on a $1,000 investment in
a Fund, assuming (1) 5% annual return and (2) redemption at the end of each time
period (parenthetical amounts represent expenses without waivers or
reimbursements):
1 YEAR 3 YEARS 5 YEARS 10 YEARS
LifePath 2000 Fund $15 ($44) $47 ($133) N/A N/A
LifePath 2010 Fund $15 ($44) $47 ($133) N/A N/A
LifePath 2020 Fund $15 ($44) $47 ($133) N/A N/A
LifePath 2030 Fund $15 ($44) $47 ($133) N/A N/A
LifePath 2040 Fund $15 ($44) $47 ($133) N/A N/A
Money Market Fund $7 ($17) $22 ($54) $38 ($93) $86 ($202)
THE AMOUNTS LISTED IN THE EXAMPLE REPRESENT A HYPOTHETICAL
ILLUSTRATION OF THE EXPENSES ASSOCIATED WITH A $1,000 INVESTMENT OVER
STATED PERIODS, BASED ON THE EXPENSES IN THE ABOVE TABLE AND AN
8
<PAGE> 13
ASSUMED ANNUAL RATE OF RETURN OF 5%. THIS ANNUAL RATE OF RETURN SHOULD NOT BE
CONSIDERED AN INDICATION OF ACTUAL OR EXPECTED PERFORMANCE OF A FUND NOR A
REPRESENTATION OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES AND RETURNS MAY BE
GREATER OR LESS THAN THOSE SHOWN.
9
<PAGE> 14
INVESTMENT OBJECTIVES AND POLICIES
Each LifePath Fund has a fundamental policy that allows it to invest
all of its assets in a separate series ("Master Portfolio") of the Master
Investment Portfolio ("MIP"). All other investment policies of the LifePath
Funds are identical to those of the corresponding Master Portfolio. Each
Lifepath Fund's investment experience corresponds directly with the relevant
Master Portfolio's investment experience. This type of arrangement between the
LifePath Funds and the Master Portfolios is known as a "master-feeder"
arrangement. The Trust's Board of Trustees believes that the Funds will achieve
certain efficiencies and economies of scale through the master-feeder structure,
and that the aggregate expenses of the Funds will be less than if the Funds
invested directly in the securities held by the Portfolio. For simplicity,
references to the investments and investment policies and risks of the Lifepath
Funds, unless otherwise indicated, should be understood as references to the
investments and investment policies and risks of the Master Portfolios.
The LifePath Funds may withdraw their investment from the Master
Portfolios at any time if the Board of Trustees determines that it is in the
best interest of the Fund and its shareholders to do so. In such event, the
Board would consider alternative arrangements such as investing all of the
Portfolio's assets in another investment company with the same investment
objective as the Fund. No assurance exists that satisfactory alternative
arrangements would be available.
THE LIFEPATH FUNDS
Each LifePath Fund seeks to provide long-term investors with an asset
allocation strategy designed to maximize assets for retirement or for other
purposes consistent with the quantitatively measured risk that investors, on
average, may be willing to accept given their investment time horizons.
Specifically:
- LIFEPATH 2000 FUND is managed for investors planning to retire
(or begin to withdraw substantial portions of their
investment) approximately in the year 2000.
- LIFEPATH 2010 FUND is managed for investors planning to retire
(or begin to withdraw substantial portions of their
investment) approximately in the year 2010.
- LIFEPATH 2020 FUND is managed for investors planning to retire
(or begin to withdraw substantial portions of their
investment) approximately in the year 2020.
- LIFEPATH 2030 FUND is managed for investors planning to retire
(or begin to withdraw substantial portions of their
investment) approximately in the year 2030.
- LIFEPATH 2040 FUND is managed for investors planning to retire
(or begin to withdraw substantial portions of their
investment) approximately in the year 2040.
10
<PAGE> 15
The differences in objectives and policies among the Master Portfolios
determine the types of portfolio securities in which each Master Portfolio
invests and can be expected to affect the degree of risk to which each Master
Portfolio and, therefore, the corresponding Fund, is subject and the performance
of each Master Portfolio and corresponding Fund.
Shares of each Lifepath Fund are sold to investors without a sales
charge. Investors can invest, reinvest or redeem Lifepath Fund Shares at any
time without charge or penalty imposed by the Lifepath Fund.
Investors are encouraged to invest in a particular LifePath Fund based
on the decade of anticipated retirement or when such investors anticipate
beginning to withdraw substantial portions of their account. For example, the
LifePath 2000 Fund is designed for investors in their 50s and 60s who plan to
retire (or begin to withdraw substantial portions of their investment) in
approximately 2000; the LifePath 2010 Fund is designed for investors in their
40s and 50s who plan to retire (or begin to withdraw as described above) in
approximately 2010; and so on. In addition, when making an investment decision,
investors should evaluate their individual risk profile, recognizing, for
example, that the LifePath 2040 Fund is designed for investors with a high
tolerance for risk while the LifePath 2000 Fund is designed for investors with a
low tolerance for risk. The LifePath Master Portfolios were the first mutual
funds of their kind to offer a flexible investment strategy designed to change
over specific time horizons.
The LifePath Funds follow an asset allocation strategy among three
broad investment classes: equity securities and debt instruments of issuers
located throughout the world and cash in the form of money market instruments.
Each LifePath Fund invests varying percentages of its portfolio in equity
securities, debt instruments and money market instruments. The later-dated Funds
tend to be more heavily invested in equity securities and generally bear more
risk than the earlier-dated Funds. The later-dated Funds generally have an
expectation of greater total return. The investment class weightings of the
LifePath 2040 Fund at a given time might be 100%, 0% and 0% among equity
securities, debt securities and cash, respectively, while the weightings of the
LifePath 2000 Fund might be 25%, 50% and 25%, respectively. These weightings
will change periodically. The difference in the investment class weightings is
based on the statistically determined risk that investors, on average, may be
willing to accept given their investment time horizons in an effort to maximize
assets in anticipation of retirement or for other purposes. As each LifePath
Fund approaches its designated time horizon, it generally is managed more
conservatively, on the premise that individuals investing for retirement desire
to reduce investment risk in their retirement accounts as they age. When a Fund
reaches its target date, it will enter its "retirement phase" during which it
will seek to maximize assets consistent with the risk that an average investor
in retirement may be willing to accept.
As of June 1, 1998, asset allocations in the LifePath Master Portfolios
were approximately as follows [TO BE UPDATED]:
<TABLE>
<CAPTION>
LIFEPATH LIFEPATH LIFEPATH LIFEPATH LIFEPATH
2000 2010 2020 2030 2040
<S> <C> <C> <C> <C> <C>
Equity Securities
Domestic 16.84% 36.74% 54.05% 65.13% 79.53%
</TABLE>
11
<PAGE> 16
<TABLE>
<S> <C> <C> <C> <C> <C>
International 5.26% 9.92% 14.45% 19.00% 19.76%
Debt Securities 54.73% 44.51% 26.84% 13.36% 0.00%
Cash 23.17% 8.83% 4.66% 2.51% 0.71%
</TABLE>
The LifePath Master Portfolios may invest in a wide range of U.S. and
foreign investments and market sectors and may shift their allocations among
investments and sectors from time to time. To manage the Master Portfolios, BGFA
employs a proprietary investment model (the "Model") that analyzes extensive
financial and economic data, including risk correlation and expected return
statistics. The Model selects indices representing segments of the global equity
and debt markets and the Master Portfolios invest to create market exposure by
purchasing representative samples of the indices in an attempt to replicate
their performance.
The relative weightings for each LifePath Master Portfolio of the
various investment classes are expected to change over time, with the LifePath
2040 Master Portfolio adopting in the 2020-2030s characteristics similar to the
LifePath 2000 Master Portfolio today. BGFA may in the future refine the Model,
or the financial and economic data analyzed by the Model, in ways that could
result in changes to recommended allocations.
The LifePath Master Portfolios contain both "strategic" and "tactical"
components, with the strategic component weighted more heavily than the tactical
component. The strategic component of the Master Portfolios evaluates the risk
that investors, on average, may be willing to accept given their investment time
horizons. The strategic component thus determines the changing investment risk
level of each LifePath Master Portfolio as time passes. The tactical component
addresses short-term market conditions. The tactical component thus adjusts the
amount of investment risk taken by each LifePath Master Portfolio without regard
to time horizon, but rather in consideration of the relative risk-adjusted
short-term attractiveness of various asset classes.
The Model has broad latitude to allocate the Master Portfolios'
investments among equity securities, debt securities and money market
instruments. The Master Portfolios are not managed as balanced portfolios and
are not required to maintain a portion of their investments in each of the
permitted investment categories at all times. Until a LifePath Master Portfolio
attains an asset level of approximately $100 to $150 million, the Model will
allocate assets across fewer of the investment categories identified below than
it otherwise would. As a Master Portfolio approaches this minimum asset level,
the Model will add investment categories from among those identified below,
thereby approaching the desired investment mix over time. The portfolio of
investments of each Master Portfolio is compared from time to time to the
Model's recommended allocation. Recommended reallocations are implemented
subject to BGFA's assessment of current economic conditions and investment
opportunities. BGFA may change from time to time the criteria and methods it
uses to implement the recommendations of the Model. Recommended reallocations
are implemented in accordance with trading policies designed to take advantage
of market opportunities and reduce transaction costs. The asset allocation mix
selected by the Model is a primary determinant in the respective Master
Portfolio's investment performance.
BGFA manages other portfolios which also invest in accordance with the
Model. The performance of each of those other portfolios is likely to vary from
the performance of Master Portfolios. Such variation in performance is primarily
due to different equilibrium asset-mix
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assumptions used for the various portfolios, timing differences in the
implementation of the Model's recommendations and differences in expenses and
liquidity requirements. The overall management of each Master Portfolio is based
on the recommendation of the Model, and no person is primarily responsible for
recommending the mix of asset classes in each Master Portfolio or the mix of
securities within the asset classes. Decisions relating to the Model are made by
BGFA's investment committee.
EQUITY SECURITIES -- The Master Portfolios seek U.S. equity market
exposure through investment in securities representative of the following
indices of common stocks:
- The S&P/BARRA Value Stock Index (consisting of primarily
large-capitalization U.S. stocks with lower-than-average
price/book ratios).
- The S&P/BARRA Growth Stock Index (consisting of primarily
large-capitalization U.S. stocks with higher-than-average
price/book ratios).
- The Intermediate Capitalization Value Stock Index (consisting
of primarily medium-capitalization U.S. stocks with
lower-than-average price/book ratios).
- The Intermediate Capitalization Growth Stock Index (consisting
of primarily medium-capitalization U.S. stocks with
higher-than-average price/book ratios).
- The Intermediate Capitalization Utility Stock Index
(consisting of primarily medium-capitalization U.S. utility
stocks).
- The Micro Capitalization Market Index (consisting of primarily
small-capitalization U.S. stocks).
- The Small Capitalization Value Stock Index (consisting of
primarily small-capitalization U.S. stocks with
lower-than-average price/book ratios).
- The Small Capitalization Growth Stock Index (consisting of
primarily small-capitalization U.S. stocks with
higher-than-average price/book ratios).
The Master Portfolios seek foreign equity market exposure through
investment in foreign equity securities, American Depositary Receipts or
European Depositary Receipts of issuers whose securities are representative of
the following indices of foreign equity securities:
- The Morgan Stanley Capital International (MSCI) Japan Index
(consisting of primarily large-capitalization Japanese
stocks).
- The Morgan Stanley Capital International Europe, Australia,
Far East Index (MSCI EAFE) Ex-Japan Index (consisting of
primarily large-capitalization foreign stocks, excluding
Japanese stocks).
The Master Portfolios also may seek U.S. and foreign equity market
exposure through investment in equity securities of U.S. and foreign issuers
that are not included in the indices listed above.
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DEBT SECURITIES -- The Master Portfolios seek U.S. debt market exposure
through investment in securities representative of the following indices of U.S.
debt securities:
- The Lehman Brothers Long-Term Government Bond Index
(consisting of all U.S. Government bonds with maturities of at
least ten years).
- The Lehman Brothers Intermediate-Term Government Bond Index
(consisting of all U.S. Government bonds with maturities of
less than ten years and greater than one year).
- The Lehman Brothers Long-Term Corporate Bond Index (consisting
of all U.S. investment-grade corporate bonds with maturities
of at least ten years).
- The Lehman Brothers Intermediate-Term Corporate Bond Index
(consisting of all U.S. investment-grade corporate bonds with
maturities of less than ten years and greater than one year).
- The Lehman Brothers Mortgage-Backed Securities Index
(consisting of all fixed-coupon mortgage pass-throughs issued
by the Federal National Mortgage Association, Government
National Mortgage Association and Federal Home Loan Mortgage
Corporation with maturities greater than one year).
The Master Portfolios seek foreign debt market exposure through
investment in securities representative of the following index of foreign debt
securities:
- The Salomon Brothers Non-U.S. World Government Bond Index
(consisting of foreign government bonds with maturities of
greater than one year).
Each U.S. and foreign debt security is expected to be part of an
issuance with a minimum outstanding amount at the time of purchase of
approximately $50 million and $100 million, respectively. Each security in which
a LifePath Master Portfolio invests must be rated at least "Baa" by Moody's
Investors Service, Inc. ("Moody's"), or "BBB" by Standard & Poor's Corporation
("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps, Inc. ("Duff")
or, if unrated, deemed to be of comparable quality by BGFA in accordance with
procedures approved by MIP's Board of Trustees. See "Risk Considerations" below.
MONEY MARKET INSTRUMENTS -- The money market instrument portion of the
portfolio of each Master Portfolio generally is invested in high-quality money
market instruments, including U.S. Government obligations, obligations of
domestic and foreign banks, short-term corporate debt instruments and repurchase
agreements. See "Other Investment Policies and Practices" below for a more
complete description of the money market instruments in which each Master
Portfolio may invest.
THE MONEY MARKET 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
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<PAGE> 19
in high quality, U.S. dollar-denominated short-term obligations which are
determined by the Adviser to present minimal credit risks.
The Money Market Fund may invest in obligations permitted to be
purchased under Rule 2a-7 of the Investment Company Act of 1940 (the "1940 Act")
including, but not limited to, (1) obligations of the U.S. Government or its
agencies or instrumentalities; (2) commercial paper, loan participation
interests, medium-term notes, asset-backed securities and other promissory
notes, including floating or variable rate obligations; and (3) domestic,
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 Money
Market Fund will invest only in issuers or instruments that at the time of
purchase (1) have received the highest short-term rating by at least two
Nationally Recognized Statistical Rating Organizations ("NRSROs") such as "A-1"
by S&P 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 SubAdviser pursuant to guidelines approved
by the Trust's Board and subject to ratification by the Trust's Board. The Money
Market Fund may also purchase securities on a "when-issued" basis and purchase
or sell them on a "forward commitment" basis.
The Money Market Fund will concentrate its investments in obligations
issued by the banking industry. Concentration in this context means the
investment of more than 25% of the Money Market Fund's assets in such 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 Money Market Fund will not maintain this
concentration. The Money Market Fund's policy of concentration in the banking
industry increases the Fund's exposure to market conditions prevailing in that
industry.
The Money Market Fund may also invest in variable rate master demand
obligations which are unsecured demand notes that permit the indebtedness
thereunder to vary, and provide for periodic adjustments in the interest rate.
Because master demand obligations are direct lending arrangements between the
Money Market Fund and the issuer, they are not normally traded. There is no
secondary market for the notes; however, the period of time remaining until
payment of principal and accrued interest can be recovered under a variable rate
master demand obligation generally will not exceed seven days. To the extent
this period is exceeded, the obligation in question would be considered
illiquid. Issuers of variable rate master demand obligations must satisfy the
same criteria as set forth for other promissory notes (e.g., commercial paper).
The Money Market Fund will invest in variable rate master demand obligations
only when such obligations are determined by the Adviser, pursuant to guidelines
established by the Board of Trustees, to be of comparable quality to rated
issuers or instruments eligible for investment by the Money Market Fund. In
determining dollar-weighted average portfolio maturity, a variable rate master
demand obligation, the principal amount of which must unconditionally be paid in
397 calendar days, will be deemed to have a maturity equal to the earlier of the
period of time remaining until the next readjustment of the interest rate or the
period of time remaining until the principal amount can be recovered from the
issuer on demand. A variable rate master demand obligation, the principal amount
of which is scheduled to be paid in more than 397 calendar days, that is subject
to a demand feature, shall be deemed to have a
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maturity equal to the longer of the period remaining until the next readjustment
of the interest rate or the period remaining until the principal mount can be
recovered through demand.
Amortized Cost Method of Valuation for the Money Market Fund
------------------------------------------------------------
Portfolio investments of the Money Market Fund are valued based on the
amortized cost valuation technique pursuant to Rule 2a-7 under the 1940 Act.
Obligations in which the Money Market Fund invests generally have remaining
maturities of 397 days or less, although upon satisfying certain conditions of
Rule 2a-7, the Fund may, to the extent otherwise permissible, invest in
instruments subject to repurchase agreements and certain variable and floating
rate obligations that bear longer final maturities. The dollar-weighted average
portfolio maturity of the Money Market Fund will not exceed 90 days. See the SAI
for an explanation of the amortized cost valuation method.
RISK CONSIDERATIONS
THE LIFEPATH FUNDS
GENERAL
Since the investment characteristics and, therefore, investment risks
directly associated with such characteristics of each LifePath Fund correspond
to those of the Master Portfolio in which such LifePath Fund invests, the
following is a discussion of the risks associated with the investments of the
Master Portfolios. Once again, unless otherwise specified, references to the
investment policies and risks of a LifePath Fund also should be understood as
references to the investment policies and risks of the corresponding Master
Portfolio.
The net asset value per share of each class of a LifePath Fund is
neither insured nor guaranteed, is not fixed and should be expected to
fluctuate.
EQUITY SECURITIES
The stock investments of the LifePath Funds are subject to equity
market risk. Equity market risk is the possibility that common stock prices will
fluctuate or decline over short or even extended periods. The U.S. stock market
tends to be cyclical, with periods when stock prices generally rise and periods
when prices generally decline. Throughout the first six months of 1998, the
stock market, as measured by the S&P 500 Index and other commonly used indices,
was trading at or close to record levels. There can be no guarantee that these
performance levels will continue.
DEBT SECURITIES
The debt instruments in which the LifePath Funds invest are subject to
credit and interest rate risk. Credit risk is the risk that issuers of the debt
instruments in which the Funds invest may default on the payment of principal
and/or interest. Interest-rate risk is the risk that increases in market
interest rates may adversely affect the value of the debt instruments in which
the Funds invest. The value of the debt instruments generally changes inversely
to market interest rates. Debt securities with longer maturities, which tend to
produce higher yields, are
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<PAGE> 21
subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security may also affect the
value of these investments.
Although some of the LifePath Funds' securities are guaranteed by the
U.S. Government, its agencies or instrumentalities, such securities are subject
to interest rate risk and the market value of these securities, upon which the
Funds' daily net asset value is based, will fluctuate. No assurance can be given
that the U.S. Government would provide financial support to its agencies or
instrumentalities where it is not obligated to do so.
FOREIGN SECURITIES
The LifePath Funds may invest in securities of foreign issuers.
Investing in the securities of issuers in any foreign country, including through
American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and
similar securities, 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, social and monetary
or diplomatic developments that could affect U.S. investments in foreign
countries. Additionally, dispositions of foreign securities and dividends and
interest payable on those securities may be subject to foreign taxes, including
withholding taxes. 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. A LifePath Fund's performance 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.
OTHER INVESTMENT CONSIDERATIONS
Because the Master Portfolios may shift investment allocations
significantly from time to time, their performance may differ from funds which
invest in one asset class or from funds with a stable mix of assets. Further,
shifts among asset classes may result in relatively high turnover and
transaction (i.e., brokerage commission) costs. Portfolio turnover also can
generate short-term capital gains tax consequences. During those periods in
which a higher percentage of certain LifePath Funds' assets are invested in
long-term bonds, those LifePath Funds' exposure to interest-rate risk will be
greater because the longer maturity of such securities means they are generally
more sensitive to changes in market interest rates than short-term securities.
Each LifePath Fund also may lend its portfolio securities and enter
into futures transactions, each of which involves risk. The futures contracts
and options on futures contracts that each LifePath Fund may purchase may be
considered derivatives. Derivatives are financial instruments whose values are
derived, at least in part, from the prices of other securities or specified
assets, indices or rates. Certain of the floating and variable-rate instruments
that each
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<PAGE> 22
LifePath Fund may purchase may also be considered derivatives. Each LifePath
Fund may use some derivatives as part of its short-term liquidity holdings
and/or as substitutes for comparable market positions in the underlying
securities. Some derivatives may be more sensitive than direct securities to
changes in interest rates or sudden market moves. Some derivatives also may be
susceptible to fluctuations in yield or value due to their structure or contract
terms. A LifePath Fund may not use derivatives to create leverage without
establishing adequate "cover" in compliance with SEC leverage rules.
Asset allocation and modeling strategies are employed by BGFA for other
investment companies and accounts advised or sub-advised by BGFA. If these
strategies indicate particular securities should be purchased or sold, at the
same time, by a LifePath Fund and one or more of these investment companies or
accounts, available investments or opportunities for sales will be allocated
equitably to each by BGFA. In some cases, this procedure may adversely affect
the size of the position obtained for or disposed of by a LifePath Fund or the
price paid or received by such Portfolio.
THE MONEY MARKET FUND
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.
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.
YEAR 2000
Like other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Funds or their service providers and counterparties
do not properly process and calculate date-related information and data from and
after January 1, 2000. The Funds are in the process of assessing and formulating
responses to these potential problems with the Adviser and all other major
service providers and counter parties. There can be no assurance that the Funds'
actions will be sufficient to avoid any adverse impact.
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INVESTMENT POLICIES AND PRACTICES
THE LIFEPATH FUNDS
To the extent set forth in this Prospectus, each LifePath Fund through
its investment in the corresponding Master Portfolio may invest in the
securities described below. To avoid the need to refer to both the LifePath
Funds and the Master Portfolios in every instance, the following sections
generally refer to the Funds only. References to the investments and investment
policies and risks of the LifePath Funds, unless otherwise indicated, should be
understood as references to the investments and investment policies and risks of
the corresponding master portfolios.
U.S. GOVERNMENT OBLIGATIONS -- The LifePath Funds may invest in various
types of U.S. Government obligations. U.S. Government obligations include
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities. Payment of principal and interest
on U.S. Government obligations (i) may be backed by the full faith and credit of
the United States (as with U.S. Treasury obligations and GNMA certificates) or
(ii) may be backed solely by the issuing or guaranteeing agency or
instrumentality itself (as with FNMA notes). In the latter case, the investor
must look principally to the agency or instrumentality issuing or guaranteeing
the obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government would
provide financial support to its agencies or instrumentalities where it is not
obligated to do so. As a general matter, the value of debt instruments,
including U.S. Government obligations, declines when market interest rates
increase and rises when market interest rates decrease. Certain types of U.S.
Government obligations are subject to fluctuations in yield or value due to
their structure or contract terms.
SECURITIES OF NON-U.S. ISSUERS -- The LifePath Funds may invest in
certain securities of non-U.S. issuers as discussed below.
OBLIGATIONS OF FOREIGN GOVERNMENTS, SUPRANATIONAL ENTITIES AND BANKS --
Each LifePath Fund may invest in U.S. dollar-denominated short-term obligations
issued or guaranteed by one or more foreign governments or any of their
political subdivisions, agencies or instrumentalities that are determined by
BGFA to be of comparable quality to the other obligations in which such Fund may
invest. The LifePath Funds may also invest in debt obligations of supranational
entities. Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank. The percentage of each
Fund's assets invested in obligations of foreign governments and supranational
entities will vary depending on the relative yields of such securities, the
economic and financial markets of the countries in which the investments are
made and the interest rate climate of such countries.
Each LifePath Fund may invest a portion of its total assets in
high-quality, short-term (one year or less) debt obligations of foreign branches
of U.S. banks or U.S. branches of foreign banks that are denominated in and pay
interest in U.S. dollars.
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FOREIGN EQUITY SECURITIES AND DEPOSITARY RECEIPTS -- Each LifePath
Fund's assets may be invested in equity securities of foreign issuers and
American Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs")
of such issuers.
ADRs and EDRs may not necessarily be denominated in the same currency
as the securities into which they may be converted. ADRs are receipts typically
issued by a United States bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs, which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in
Europe typically by nonUnited States banks and trust companies that evidence
ownership of either foreign or domestic securities. Generally, ADRs in
registered form are designed for use in the United States securities markets and
EDRs and CDRs in bearer form are designed for use in Europe. Each LifePath Fund
may invest in ADRs, EDRs and CDRs through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
underlying security and a depositary, whereas a depositary may establish an
unsponsored facility without participation by the issuer of the deposited
security. Holders of unsponsored depositary receipts generally bear all the
costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
FLOATING AND VARIABLE RATE OBLIGATIONS -- Each LifePath Fund may
purchase debt instruments with interest rates that are periodically adjusted at
specified intervals or whenever a benchmark rate or index changes. These
adjustments generally limit the increase or decrease in the amount of interest
received on the debt instruments. Floating and variable rate instruments are
subject to interest-rate risk and credit risk.
MORTGAGE RELATED SECURITIES Each LifePath Fund may invest in
mortgage-related securities ("MBSs"), which are securities representing
interests in a pool of loans secured by mortgages. The resulting cash flow from
these mortgages is used to pay principal and interest on the securities. MBSs
are assembled for sale to investors by various government-sponsored enterprises
such as the Federal National Mortgage Association ("FNMA") and the Federal Home
Loan Mortgage Corporation ("FHLMC") or are guaranteed by such governmental
agencies as the Government National Mortgage Association ("GNMA"). Regardless of
the type of guarantee, all MBSs are subject to interest rate risk (i.e.,
exposure to loss due to changes in interest rates).
GNMA MBSs include GNMA Mortgage Pass-through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the full and timely payment of
principal and interest by GNMA and such guarantee is backed by the authority of
GNMA to borrow funds from the U.S. Treasury to make payments under its
guarantee. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development and, as such, Ginnie Maes are backed
by the full faith and credit of the federal government. In contrast, MBSs issued
by FNMA include FNMA Guaranteed Mortgage Pass-through Certificates ("Fannie
Maes") which are solely the obligations of FNMA and are neither backed by nor
entitled to the full faith and credit of the federal government). FNMA is a
government-sponsored enterprise which is also a private corporation whose stock
trades on the NYSE. Fannie Maes are guaranteed as to timely payment of principal
and interest by FNMA. MBSs issued by FHLMC include FHLMC Mortgage Participation
Certificates ("Freddie Macs" or "PCs"). FHLMC is a government
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<PAGE> 25
sponsored enterprise whose MBSs are solely obligations of FHLMC. Therefore,
Freddie Macs are not guaranteed by the United States or by any Federal Home Loan
Bank and do not constitute a debt or obligation of the United States or of any
Federal Home Loan Bank. FHLMC guarantees timely payment of interest, but only
ultimate payment of principal due under the obligations it issues. FHLMC may,
under certain circumstances, remit the guaranteed payment of principal at any
time after default on an underlying mortgage, but in no event later than one
year after the guarantee becomes payable.
FUTURES CONTRACTS AND OPTIONS TRANSACTIONS -- Each LifePath Fund may
use futures as a substitute for a comparable market position in the underlying
securities.
A futures contract is an agreement between two parties, a buyer and a
seller, to exchange a particular commodity or financial statement at a specific
price on a specific date in the future. An option transaction generally involves
a right, which may or may not be exercised, to buy or sell a commodity or
financial instrument at a particular price on a specified future date. Futures
contracts and options are standardized and traded on exchanges, where the
exchange serves as the ultimate counterpart for all contracts. Consequently, the
primary credit risk on futures contracts is the creditworthiness of the
exchange. Futures contracts are subject to market risk (i.e., exposure to
adverse price changes).
Although each of the LifePath Funds intends to purchase or sell futures
contracts only if there is an active market for such contracts, no assurance can
be given that a liquid market will exist for any particular contract at any
particular time. Many futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could move to
the limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and potentially
subjecting a LifePath Fund to substantial losses. If it is not possible, or if a
LifePath Fund determines not to close a futures position in anticipation of
adverse price movements, the Fund will be required to make daily cash margin
payments.
STOCK INDEX FUTURES AND OPTIONS ON STOCK INDEX FUTURES -- Each LifePath
Fund may invest in stock index futures and options on stock index futures as a
substitute for a comparable market position in the underlying securities. A
stock index future obligates the seller to deliver (and the purchaser to take),
effectively, 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. No
physical delivery of the underlying stocks in the index is made. With respect to
stock indices that are permitted investments, each LifePath Fund intends to
purchase and sell futures contracts on the stock index for which it can obtain
the best price with consideration also given to liquidity. There can be no
assurance that a liquid market will exist at the time when a LifePath Fund seeks
to close out a futures contract or a futures option position. Lack of a liquid
market may prevent liquidation of an unfavorable position.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST-RATE FUTURES
CONTRACTS -- Each LifePath Fund may invest in interest-rate futures contracts
and options on interest-rate futures contracts as a substitute for a comparable
market position in the underlying securities. The
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<PAGE> 26
LifePath Funds may also sell options on interest-rate futures contracts as part
of closing purchase transactions to terminate their options positions. No
assurance can be given that such closing transactions can be effected or the
degree of correlation between price movements in the options on interest rate
futures and price movements in the LifePath Funds' portfolio securities which
are the subject of the transaction.
INTEREST RATE AND INDEX SWAPS -- Each LifePath Fund may enter into
interest rate and index swaps in pursuit of their investment objectives.
Interest-rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (for example, an exchange of
floating rate payments on fixed-rate payments). Index swaps involve the exchange
by a Fund with another party of cash flows based upon the performance of an
index of securities or a portion of an index of securities that usually include
dividends or income. In each case, the exchange commitments can involve payments
to be made in the same currency or in different currencies. A LifePath Fund will
usually enter into swaps on a net basis. In so doing, the two payment streams
are netted out, with a Fund receiving or paying, as the case may be, only the
net amount of the two payments. If a LifePath Fund enters into a swap, it will
maintain a segregated account on a gross basis, unless the contract provides for
a segregated account on a net basis. If there is a default by the other party to
such a transaction, a Fund will have contractual remedies pursuant to the
agreements related to the transaction.
The use of interest-rate and index swaps is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. There is no limit,
except as provided below, on the amount of swap transactions that may be entered
into by a LifePath Fund. These transactions generally do not involve the
delivery of securities or other underlying assets or principal. Accordingly, the
risk of loss with respect to swaps generally is limited to the net amount of
payments that a Fund is contractually obligated to make. There is also a risk of
a default by the other party to a swap, in which case a Fund may not receive net
amount of payments that a Fund contractually is entitled to receive.
FOREIGN CURRENCY AND FUTURES TRANSACTIONS -- Foreign currency
transactions may occur on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market or on a forward basis. A forward currency exchange
contract involves an obligation to purchase or sell a specific currency at a set
price on a future date which must be more than two days from the date of the
contract. The forward foreign currency market offers less protection against
default than is available when trading currencies on an exchange, since a
forward currency contract is not guaranteed by an exchange or clearinghouse.
Therefore, a default on a forward currency contract would deprive a LifePath
Fund of unrealized profits or force such Fund to cover its commitments for
purchase or resale, if any, at the current market price.
Each LifePath Fund may combine forward currency exchange contracts with
in vestments in securities denominated in other currencies.
Each LifePath Fund also may maintain short positions in forward
currency exchange transactions, which would involve the Fund agreeing to
exchange an amount of a currency it did not currently own for another currency
at a future date in anticipation of a decline in the value of the currency sold
relative to the currency such Fund contracted to receive in the exchange.
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<PAGE> 27
Unlike trading on domestic futures exchanges, trading on foreign
futures exchanges is not regulated by the Commodity Futures Trading Commission
(the "CFTC") and generally is subject to greater risks than trading on domestic
exchanges. For example, some foreign exchanges are principal markets so that no
common clearing facility exists and an investor may look only to the broker for
performance of the contract. BGFA, however, considers on an ongoing basis the
creditworthiness of such counterparties. In addition, any profits that a
LifePath Fund might realize in trading could be eliminated by adverse changes in
the exchange rate; adverse exchange rate changes also could cause a Fund to
incur losses. Transactions on foreign exchanges may include both futures
contracts which are traded on domestic exchanges and those which are not. Such
transactions may also be subject to withholding and other taxes imposed by
foreign governments.
INVESTMENT COMPANY SECURITIES -- Each LifePath Fund may invest in
securities issued by other investment companies which principally invest in
securities of the type in which the LifePath Fund invests. Under the 1940 Act, a
LifePath Fund's investment in such securities currently is limited to, subject
to certain exceptions, (i) 3% of the total voting stock of any one investment
company, (ii) 5% of the LifePath Fund's net assets with respect to any one
investment company and (iii) 10% of the LifePath Fund's net assets in the
aggregate. Investments in the securities of other investment companies generally
will involve duplication of advisory fees and certain other expenses. The
LifePath Fund may also purchase shares of exchange listed closed-end funds.
ILLIQUID SECURITIES -- Each LifePath Fund may invest up to 15% of the
value of its net assets in securities as to which a liquid trading market does
not exist, provided such investments are consistent with its investment
objective. Such securities may include securities that are not readily
marketable, such as privately issued securities and other securities that are
subject to legal or contractual restrictions on resale, floating and
variable-rate demand obligations as to which the LifePath Fund cannot exercise a
demand feature on not more than seven days' notice and as to which there is no
secondary market and repurchase agreements providing for settlement more than
seven days after notice.
SHORT-TERM INSTRUMENTS AND TEMPORARY INVESTMENTS -- Each
LifePath Fund may invest in the following high-quality money market instruments
on an ongoing basis to provide liquidity, for temporary purposes when there is
an unexpected level of shareholder purchases or redemptions or when "defensive"
strategies are appropriate: (i) short-term obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities (including
government-sponsored enterprises); (ii) negotiable certificates of deposit
("CDs"), bankers' acceptances, fixed time deposits and other obligations of
domestic banks (including foreign branches) that have more than $1 billion in
total assets at the time of investment and that are members of the Federal
Reserve System or are examined by the Comptroller of the Currency or whose
deposits are insured by the FDIC; (iii) commercial paper rated at the date of
purchase "Prime1" by Moody's or "A1+" or "A1" by S&P, or, if unrated, of
comparable quality as determined by BGFA or Wells Fargo Bank; (iv)
nonconvertible corporate debt securities (e.g., bonds and debentures) with
remaining maturities at the date of purchase of not more than one year that are
rated at least "Aa" by Moody's or "AA" by S&P; (v) repurchase agreements; and
(vi) short-term, U.S. dollar denominated obligations of foreign banks (including
U.S. branches) that, at the time of investment have more than $10 billion, or
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the equivalent in other currencies, in total assets and in the opinion of BGFA
are of comparable quality to obligations of U.S. banks which may be purchased by
the Fund.
BANK OBLIGATIONS -- Each LifePath Fund may invest in bank obligations,
including certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations of domestic banks, foreign subsidiaries of domestic
banks, foreign branches of domestic banks, and domestic and foreign branches of
foreign banks, domestic savings and loan associations and other banking
institutions.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are nonnegotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a LifePath Fund will not benefit from insurance
from the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating or variable-interest
rates.
COMMERCIAL PAPER AND SHORT-TERM CORPORATE DEBT INSTRUMENTS -- Each
LifePath Fund may invest in commercial paper (including variable amount master
demand notes), which consists of short-term, unsecured promissory notes issued
by corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes. The
investment adviser and/or subadviser to each LifePath Fund monitors on an
ongoing basis the ability of an issuer of a demand instrument to pay principal
and interest on demand.
Each LifePath Fund also may invest in nonconvertible corporate debt
securities (e.g., bonds and debentures) with not more than one year remaining to
maturity at the date of settlement. A Fund will invest only in such corporate
bonds and debentures that are rated at the time of purchase at least "Aa" by
Moody's or "AA" by S&P. Subsequent to its purchase by the Fund, an issue of
securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Fund. The investment adviser and/or
subadviser to each Fund will consider such an event in determining whether the
Fund should continue to hold the obligation. To the extent the Fund continues to
hold such obligations, it may be subject to additional risk of default.
Repurchase Agreements -- Each LifePath Fund may enter into repurchase
agreements wherein the seller of a security to a Fund agrees to repurchase that
security from the Fund at a mutually agreed upon time and price. The period of
maturity is usually quite short, often
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overnight or a few days, although it may extend over a number of months. A Fund
may enter into repurchase agreements only with respect to securities that could
otherwise be purchased by the Fund, and all repurchase transactions must be
collateralized. A Fund may incur a loss on a repurchase transaction if the
seller defaults and the value of the underlying collateral declines or is
otherwise limited or if receipt of the security or collateral is delayed. The
Funds may participate in pooled repurchase agreement transactions with other
funds advised by BGFA.
FORWARD COMMITMENTS, WHEN ISSUED PURCHASES AND DELAYED DELIVERY
TRANSACTIONS -- Each LifePath Fund may purchase or sell securities on a
when-issued or delayed delivery basis and make contracts to purchase or sell
securities for a fixed price at a future date beyond customary settlement time.
Securities purchased or sold on a when-issued, delayed-delivery or forward
commitment basis involve a risk of loss if the value of the security to be
purchased declines, or the value of the security to be sold increases, before
the settlement date. Although a Fund will generally purchase securities with the
intention of acquiring them, a Fund may dispose of securities purchased on a
when-issued, delayed-delivery or a forward commitment basis before settlement
when deemed appropriate by the adviser.
BORROWING MONEY -- As a fundamental policy, each LifePath Fund is
permitted to borrow to the extent permitted under the 1940 Act. However, each
LifePath Fund currently intends to borrow money only for temporary or emergency
(not leveraging) purposes, and may borrow up to one-third of the value of its
total assets (including the amount borrowed) valued at the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made. While borrowings exceed 5% of a Fund's total assets, the Fund
will not make any new investments.
LOANS OF PORTFOLIO SECURITIES -- Each LifePath Fund may lend securities
from their portfolios to brokers, dealers and financial institutions (but not
individuals) in order to increase the return on such Fund's portfolio. The value
of the loaned securities may not exceed one-third of a Fund's total assets and
loans of portfolio securities are fully collateralized based on values that are
marked-to-market daily. The Funds will not enter into any portfolio security
lending arrangement having a duration of longer than one year. The principal
risk of portfolio lending is potential default or insolvency of the borrower. In
either of these cases, a Fund could experience delays in recovering securities
or collateral or could lose all or part of the value of the loaned securities.
The Funds may pay reasonable administrative and custodial fees in connection
with loans of portfolio securities and may pay a portion of the interest or fee
earned thereon the borrower or a placing broker.
CONVERTIBLE SECURITIES -- Each LifePath Fund may purchase fixed-income
convertible securities, such as bonds or preferred stock, which may be converted
at a stated price within a specified period of time into a specified number of
shares of common stock of the same or a different issuer. Convertible securities
are senior to common stock in a corporation's capital structure, but usually are
subordinated to nonconvertible debt securities. While providing a fixed-income
stream (generally higher in yield than the income from a common stock but lower
than that afforded by a nonconvertible debt security), a convertible security
also affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of the common stock into which it is
convertible.
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In general, the market value of a convertible security is the higher of
its "investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e., the value of the underlying shares of common stock if
the security is converted). As a fixed-income security, the market value of a
convertible security generally increases when interest rates decline and
generally decreases when interest rates rise. However, the price of a
convertible security also is influenced by the market value of the security's
underlying common stock. Thus, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
RATINGS -- The ratings of Moody's, S&P, Fitch and Duff represent their
opinions as to the quality of the obligations which they undertake to rate. It
should be emphasized, however, that ratings are relative and subjective and,
although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risk of such
obligations. Therefore, although these ratings may be an initial criterion for
selection of portfolio investments, BGFA also evaluates such obligations and the
ability of their issuers to pay interest and principal. Each Fund relies on
BGFA's judgment, analysis and experience in evaluating the creditworthiness of
an issuer. In this evaluation, BGFA takes into consideration, among other
things, the issuer's financial resources, its sensitivity to economic conditions
and trends, the quality of the issuer's management and regulatory matters. It
also is possible that a rating agency might not timely change the rating on a
particular issue to reflect subsequent events.
CERTAIN FUNDAMENTAL POLICIES OF THE LIFEPATH FUNDS
Each LifePath Fund and Master Portfolio may (i) borrow money to the
extent permitted under the 1940 Act; (ii) invest up to 5% of its total assets in
the obligations of any single issuer, except that up to 25% of the value of the
total assets of such Fund or Master Portfolio may be invested and obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
may be purchased, without regard to any such limitation; and (iii) invest up to
25% of the value of its total assets in the securities of issuers in a
particular industry or group of closely related industries, provided there is no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. This paragraph describes
fundamental policies that cannot be changed as to a Fund or Master Portfolio
without approval by the holders of a majority (as defined in the 1940 Act) of
the outstanding voting securities of such Fund or Master Portfolio, as the case
may be. See "Investment Objectives and Management Policies" in the SAI.
CERTAIN NONFUNDAMENTAL POLICIES OF THE LIFEPATH FUNDS
Each LifePath Fund and Master Portfolio may (i) purchase securities of
any company having less than three years' continuous operation (including
operations of any predecessors) if such purchase does not cause the value of its
investments in all such companies to exceed 5% of the value of its total assets;
(ii) pledge, hypothecate, mortgage or otherwise encumber its assets, but only to
secure permitted borrowings; and (iii) invest up to 15% of the value of its net
assets in repurchase agreements providing for settlement in more than seven days
after notice and in other illiquid securities. See "Investment Objectives and
Management Policies" in the SAI.
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THE MONEY MARKET FUND
Set forth below is a discussion of the various investments and
investment policies of the Money Market Fund. Additional information about the
investment policies of the Money Market Fund appears in the SAI.
The Money Market Fund, in pursuing its investment objective, will
comply with Rule 2a-7 under the 1940 Act ("Rule 2a-7). Thus, descriptions of
investment techniques and portfolio instruments are qualified by the provisions
and limitations of Rule 2a-7.
The Money Market Fund will attempt to achieve its investment objective
by investing in the following money market instruments:
U.S. TREASURY OBLIGATIONS -- The Fund 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 -- U.S. Government securities are
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. U.S. Government securities include debt securities issued or
guaranteed by U.S. Government-sponsored enterprises and federal agencies and
instrumentalities. Some types of U.S. Government securities are supported by the
full faith and credit of the United States Government or U.S. Treasury
guarantees, such as mortgage-backed certificates guaranteed by the Government
National Mortgage Association ("GNMA"). Other types of U.S. Government
securities, such as obligations of the Student Loan Marketing Association,
provide recourse only to the credit of the agency or instrumentality issuing the
obligation. In the case of obligations not backed by the full faith and credit
of the United States Government, the investor must look to the agency issuing or
guaranteeing the obligation for ultimate repayment.
COMMERCIAL PAPER -- 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 Fund is 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 -- The Fund may purchase corporate debt
securities, subject to the rating and quality requirements. The Fund 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
Fund 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
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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 -- The Fund is permitted to invest in
mortgage-related securities subject to the rating and quality requirements
specified with respect to each such Fund. Mortgage pass-through securities are
securities representing interests in "pools" of mortgages in which payments of
both interest and principal on the securities are made monthly, in effect,
"passing through" monthly payments made by the individual borrowers on the
mortgage loans which underlie the securities (net of fees paid to the issuer or
guarantor of the securities). Early repayment of principal on mortgage
pass-through securities (arising from prepayments of principal due to sale of
the underlying property, refinancing, or foreclosure, net of fees and costs
which may be incurred) may expose the 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 Fund 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
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pronounced with respect to investments by the Fund in mortgage-related
securities, the value of which may be more sensitive to interest rate changes.
ASSET-BACKED SECURITIES -- The Fund is permitted to invest in
asset-backed securities. 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 Fund's investment objectives, policies and quality
standards, the 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.
DOMESTIC AND FOREIGN BANK OBLIGATIONS -- 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
Fund will not invest in any obligations of their affiliates, as defined under
the 1940 Act.
The Fund limits its investment in United States bank obligations to
obligations of United States banks (including foreign branches). The 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 Fund's 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 10% of the value of the net
assets of the 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
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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 -- The 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 accordance with Rule 2A-7, the Fund's investments in
STRIPS are limited to those with maturity components not exceeding thirteen
months. The Fund will not actively trade in STRIPS.
The Fund 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 -- Variable rate demand obligations
have a maturity of 397 days or less 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
Fund, as lender, and the borrower. Because the obligations are direct lending
arrangements between the Fund 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
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the Adviser or Portfolio Advisers, as applicable, they are of an investment
quality comparable to other debt obligations in which the Fund 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 -- The Fund may invest in shares of other open-end,
management investment companies, subject to the limitations of the 1940 Act and
subject to such investments being consistent with the overall objective and
policies of the Fund making such investment, provided that any such purchases
will be limited to short-term investments in shares of unaffiliated investment
companies. The purchase of securities of other mutual funds results in
duplication of expenses such that investors indirectly bear a proportionate
share of the expenses of such mutual funds including operating costs, and
investment advisory and administrative fees.
INTEREST RATE FUTURES CONTRACTS -- The Fund may, to a limited extent,
enter into interest rate futures contracts--i.e., contracts for the future
delivery of securities or index-based futures contracts--that are, in the
opinion of the Adviser, sufficiently correlated with the Fund's portfolio. These
investments will be made primarily in an attempt to protect a Fund against the
effects of adverse changes in interest rates (i.e., "hedging"). When interest
rates are increasing and portfolio values are falling, the sale of futures
contracts can offset a decline in the value of a Fund's current portfolio
securities. The Fund will engage in such transactions primarily for bona fide
hedging purposes.
OPTIONS ON INTEREST RATE FUTURES CONTRACTS -- The Fund may purchase
put and call options on interest rate futures contracts, which give the 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. The Fund may
also write (sell) put and call options on such futures contracts. For options on
interest rate futures that the Fund writes, the 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 the 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, the 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 the 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 the
Fund's income) but, as long as its obligation as a writer continues, the 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, the Fund has no control over
the time when it may be required to fulfill
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its obligation as a writer of the option. Once the 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 Fund's 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 Fund's portfolios diverge from the composition of the relevant index. Such
imperfect correlation may prevent the Fund from achieving the intended hedge or
may expose the Fund to risk of loss. In addition, if the Fund purchases futures
to hedge against market advances before they can invest in common stock in an
advantageous manner and the market declines, the Fund might create a loss on the
futures contract. Particularly in the case of options on stock index futures and
on stock indices, the Fund's 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
Fund's portfolio securities. The Fund believes that the Adviser possesses the
skills necessary for the successful utilization of such transactions.
The Fund is 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 the Fund's liquidating value after taking
into account unrealized profits and unrealized losses, and excluding any
in-the-money option premiums paid. The Fund will not market, and are not
marketing, themselves as commodity pools or otherwise as vehicles for trading in
futures and related options. The Fund 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 -- The
Fund 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 the 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 the
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 the 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.
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<PAGE> 37
LOANS OF PORTFOLIO SECURITIES -- To increase current income, the Fund
may lend its portfolio securities in an amount up to 33 1/3% of its 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 marked-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 Fund and are subject to the same risks as repurchase
agreements. For further information, see the SAI.
REPURCHASE AGREEMENTS -- The Fund 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 the 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, the 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 Fund may not invest more than 10% of its 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" in the SAI.
REVERSE REPURCHASE AGREEMENTS -- The Fund may also enter into reverse
repurchase agreements to avoid selling securities during unfavorable market
conditions to meet redemptions. Pursuant to a reverse repurchase agreement, the
Fund will sell portfolio securities and agree to repurchase them from the buyer
at a particular date and price. Whenever the 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.
RISKS OF TECHNIQUES INVOLVING LEVERAGE. Use of leveraging involves
special risks and may involve speculative investment techniques. The Fund 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. 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 Fund uses these investment
techniques only when the Adviser believes 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
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<PAGE> 38
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.
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<PAGE> 39
CERTAIN FUNDAMENTAL POLICIES OF THE MONEY MARKET FUND
The following describes fundamental policies of the Money Market Fund
that can be changed only when permitted by law and approved by a majority of the
Fund's outstanding voting securities. 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. See "Other
Information--Voting."
(1) The Fund may not borrow money or pledge or mortgage its
assets, except that the Fund may enter into reverse repurchase
agreements or borrow from banks up to 33-1/3% of the current
value of its total net assets for temporary or emergency
purposes or to meet redemptions. The 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 the Fund's total
net assets (but investments may not be purchased by the Fund
while any such borrowings exist).
(2) The Fund may not make loans, except loans of portfolio
securities and except that the Fund may enter into repurchase
agreements with respect to its portfolio securities and may
purchase the types of debt instruments described in this
Prospectus.
(3) The Fund may not invest more than 25% of its total assets in
the securities of any one industry, except that the Fund may
invest more than 25% of its total assets in instruments issued
by the banking industry. For this purpose, U.S. Government
securities (and repurchase agreements related thereto) are not
considered securities of a single industry. 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.
(4) The Fund will not, with respect to 100% of its total assets,
invest more than 5% of its total assets in the securities of
any one issuer (except for U.S. Government securities), or
purchase more than 10% of the outstanding voting securities of
any such issuer.
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 this Prospectus for
certain securities subject to guarantees or demand features. The Fund will be
deemed to satisfy the maturity requirements described in this 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
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<PAGE> 40
rules or interpretations of the SEC currently in existence or promulgated in the
future or changes to such laws.
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.
CERTAIN ADDITIONAL NONFUNDAMENTAL POLICIES
The Fund may not invest more than 10% of the aggregate value of its net
assets in investments which are illiquid, or not readily marketable (including
repurchase agreements having maturities of more than seven calendar days, time
deposits having maturities of more than seven calendar days, and securities of
foreign issuers that are not listed on a recognized domestic or foreign
securities exchange). This is a non-fundamental policy of the Fund and can be
changed by approval of a majority of the Board of Trustees.
If a percentage restriction on investment policies or the investment or
use of assets set forth in this Prospectus are adhered to at the time a
transaction is effected, later changes in percentage resulting from changing
asset values will not be considered a violation.
MANAGEMENT OF THE FUNDS
The business and affairs of each Fund are managed under the direction
of the Board of Trustees. Information about the Trustees, as well as the Trust's
executive officers, may be found in the SAI under the heading
"Management--Trustees and Officers."
THE ADVISER: INTRUST BANK, N.A.
INTRUST Bank, N.A. in Wichita, formerly First National Bank in Wichita,
serves as the Funds' investment adviser under an advisory agreement with the
Trust (the "Advisory Agreement"). Under the Advisory Agreement, the Adviser
invests the assets of the portfolio, and continuously reviews, supervises and
administers the Master Portfolios' investment program. The Adviser discharges
its responsibilities subject to the supervision of, and policies set by, the
Trustees of the Trust.
The Adviser is a majority-owned subsidiary of INTRUST Financial
Corporation (formerly First Bancorp of Kansas), a bank holding company. The
Adviser 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.
For the advisory services it provides to the Money Market Fund, the
Adviser receives fees based on average daily net assets up to an annualized rate
of 0.25%.
INTRUST may receive advisory fees up to ___% of the average daily net
assets of each LifePath Fund when the Fund invests all of its investable assets
in a Master Portfolio or another
36
<PAGE> 41
investment company. INTRUST has agreed not to charge its advisory fee to the
LifePath Funds in an amount in excess of _______% of the Funds' average daily
net assets. Such voluntary waiver may be discontinued at any time upon notice.
While the LifePath Funds invest all of their investable assets in the MIP or
another investment company, the Adviser will select such company, monitor the
performance of such company, coordinate the Funds' relationship with such
company and communicate with the Funds' Board of Trustees and shareholders
regarding the performance of such company and the Funds' two-tier structure. In
addition, if the Adviser is not satisfied with the performance of the MIP, the
Adviser may recommend to the Board of Trustees other investment companies for
the Fund to invest in, or recommend that the Adviser manage the Funds
themselves. The Adviser may receive advisory fees up to 1.25% of the average
daily net assets of the Funds should the Adviser decide not to invest all of the
Funds' investable assets in the MIP or another investment company. John S.
Maurer, Jr., Senior Vice President and Chief Investment Officer at INTRUST, is
responsible for the day-to-day management of the LifePath Funds. 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.
Like other mutual funds, financial and business organizations and
individuals around the world, the Trust could be adversely affected if the
computer systems used by the Trust or its service providers and counterparties
do not properly process and calculate date-related information and data from and
after January 1, 2000. The Trust is in the process of assessing and formulating
responses to these potential problems with the Adviser and all other major
service providers and counter parties. There can be no assurance that the
Trust's actions will be sufficient to avoid any adverse impact.
THE SUB-ADVISER TO THE LIFEPATH FUNDS
BGFA serves as investment adviser to each LifePath Master Portfolio.
BGFA provides investment guidance and policy direction in connection with the
management of each Master Portfolio's assets. BGFA is an indirect subsidiary of
Barclays Bank PLC ("Barclays") and is located at 45 Fremont Street, San
Francisco, California 94105. As of April 30, 1998, BGFA and its affiliates
provided investment advisory services for approximately $575 billion of assets.
MIP has agreed to pay to BGFA a monthly fee at the annual rate of 0.55% of each
LifePath Master Portfolio's average daily net assets as compensation for its
advisory services.
BGFA, Barclays and their affiliates deal, trade and invest for their
own account in the types of securities in which a Master Portfolio may invest
and may have deposit, loan and commercial banking relationships with the issuers
of securities purchased by a Master Portfolio. BGFA has informed MIP that in
making investment decisions the Adviser does not obtain or use material inside
information in its possession.
Counsel to the MIP and special counsel to BGFA has advised the MIP and
BGFA that BGFA and its affiliates may perform the services contemplated by the
Investment Advisory Contracts and this prospectus without violation of the
Glass-Steagall Act. Such counsel has pointed out, however, that there are no
controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions related to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries and affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If any such entity were prohibited from performing any such
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<PAGE> 42
services, it is expected that new agreements would be proposed or entered into
with another entity or entities qualified to perform such services.
Based upon the advice of counsel to INTRUST, INTRUST believes that the
performance of investment advisory services for the Funds will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent INTRUST from continuing to perform such services for
the Funds. If INTRUST were prohibited from acting as investment adviser to the
Funds, it is expected that the Board of Trustees would recommend to shareholders
approval of a new investment advisory agreement with another qualified
investment adviser selected by the Board or that the Board would recommend other
appropriate action.
THE SUBADVISER TO THE MONEY MARKET FUND
AMR, located at 4333 Amon Carter Boulevard, MD5645, 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, 1997, AMR provides investment advice with respect to approximately
$18.4 billion in assets, including approximately $14.2 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 Money Market Fund is substantially identical to other pooled
accounts, including investment companies, advised by AMR. Set forth below are
certain performance data for such pooled accounts. The Money Market Composite
consists of the American AAdvantage Money Market Fund (from September 1987 to
present), the American Performance Cash Management Fund (from October 1990 to
present), the FUNDS IV Cash Reserve Fund (from September 1994 through September
1996), the American AAdvantage Money Market Mileage Fund (from November 1995 to
present), the AMR Investment Services Strategic Cash Business Trust (from July
1996 to present) and the INTRUST Money Market Fund (from February 1997 to
present). Expenses of the portfolios in the Money Market Composite range from
approximately 0.11% for the AMR Investment Services Strategic Cash Business
Trust to approximately 0.85% for the American Performance Cash Management Fund.
The Strategic Cash Business Trust is an unregistered pooled account and as such
is not subject to certain requirements that apply to mutual funds under the
applicable securities, tax and other laws that, if applicable, may have
adversely affected performance. The data shown below reflects total return for
the periods shown, reduced by the actual expense ratio for such funds. To the
extent such funds had expense waivers or reimbursements in effect during the
periods indicated below, such funds' actual performance would have been lower
had such expense waivers or reimbursements not been in effect. INTRUST Fund fees
and expenses may be higher than such expenses and if applied would have reduced
the performance below. This performance information is deemed relevant since the
AMR accounts have been managed using the same investment objectives, policies
and restrictions and portfolio managers as those used by INTRUST Money Market
Fund. However, this performance data is not necessarily indicative of the past
or future performance of any of the INTRUST Funds. The AMR pooled accounts and
the INTRUST Money
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<PAGE> 43
Market Fund are separate funds. This performance does not represent the past
performance of the INTRUST Money Market Fund. See "Performance Information"
herein for performance information for the INTRUST Money Market Fund.
<TABLE>
<CAPTION>
AMR INVESTMENT SERVICES, INC.--MONEY MARKET COMPOSITE
ANNUALIZED TOTAL RETURN FOR THE
PERIODS ENDED DECEMBER 31, 1997
Lipper Institutional Money
Market Index
<S> <C> <C>
1 Year.................................... 5.46% 5.33%
3 Years................................... 5.58% 5.41%
5 Years................................... 4.82% 4.64%
10 Years.................................. 6.02% 5.78%
Since Inception (9/1/87).................. 6.06% 5.80%
</TABLE>
THE SPONSOR AND DISTRIBUTOR
BISYS, the Funds' Sponsor and Distributor (the "Distributor"), has its
principal office at 3435 Stelzer Road, Columbus, Ohio 43219. The Distributor
will receive orders for, sell, and distribute shares of the Fund. BISYS also
serves as administrator and distributor of other mutual funds.
The Distributor may from time to time pay a bonus or other incentive to
dealers that employ registered representatives who sell a minimum dollar amount
of shares of the Funds. Such bonus or other incentive may take the form of
payment for travel expenses, including lodging, incurred in connection with
trips taken by qualifying registered representatives and members of their
families to places within or without the United States, or other bonuses, such
as gift certificates or the cash equivalent of such bonuses.
The Funds have adopted a Rule 12b-1 Distribution Plan and Agreement
(the "Plan") pursuant to which the Funds may reimburse the Distributor, or
others, on a monthly basis for costs and expenses incurred by the Distributor in
connection with the distribution and marketing of shares of the Funds. These
costs and expenses, which are subject to a maximum limit of 0.25% of the average
daily net assets of the shares of the Funds per annum for the Institutional
Service class shares and a maximum limit of 0.75% of the average daily net
assets of the shares of the Funds per annum for the Institutional Premium class
shares, include: (i) advertising by radio, television, newspapers, magazines,
brochures, sales literature, direct mail or any other form of advertising; (ii)
expenses of employees or agents of the Distributor, including salary,
commissions, travel and related expenses; (iii) payments to broker-dealers and
financial institutions for services in connection with the distribution of
shares, including promotional incentives and fees calculated with reference to
the average daily net asset value of shares held by shareholders who have a
brokerage or other service relationship with the broker-dealer or other
institution receiving such fees; (iv) costs of printing prospectuses, statements
of additional information and other materials to be given or sent to prospective
investors; (v) such other similar services as the Trustees determine to be
reasonably
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<PAGE> 44
calculated to result in sales of shares of the Funds; (vi) costs of shareholder
servicing incurred by broker-dealers, banks or other financial institutions; and
(vii) other direct and indirect distribution-related expenses, including the
provision of services with respect to maintaining the assets of the Funds. The
Funds will pay all costs and expenses in connection with the preparation,
printing and distribution of its Prospectus to current shareholders and the
operation of its Plan, including related legal and accounting fees. No Fund will
be liable for distribution expenditures made by the Distributor in any given
year in excess of the maximum amount payable under the Plan for that Fund year.
ADMINISTRATOR, TRANSFER AGENT AND FUND ACCOUNTANT
The Funds have also entered into an Administration Agreement with BISYS
(the "Administrator") pursuant to which BISYS provides certain management and
administrative services necessary for the Funds' operations, including: (i)
general supervision of the operation of the Funds, including coordination of the
services performed by the Funds' Adviser, transfer agent, custodian, independent
accountants and legal counsel, regulatory compliance, including the compilation
of information for documents such as reports to, and filings with, the SEC and
state securities commissions, and preparation of proxy statements and
shareholder reports for the Funds; (ii) general supervision relative to the
compilation of data required for the preparation of periodic reports distributed
to the Funds' officers and Board of Trustees; and (iii) furnishing office space
and certain facilities required for conducting the business of the Funds. For
these services, BISYS receives from the Money Market Fund a fee, payable
monthly, at the annual rate of _____% of the Fund's average daily net assets. As
long as the LifePath Funds invest all of their investable assets in the MIP or
another investment company, BISYS is paid _____% of the Funds' average daily net
assets for administrative services. In the event the Funds do not so invest in
the MIP or another investment company, BISYS will be paid at the annual rate of
_____% of the Funds average daily net assets. Pursuant to a Transfer Agency
Agreement between the Trust and the BISYS Fund Services, Inc. (the "Transfer
Agent"), the Transfer Agent assists the Trust with certain transfer and dividend
disbursing agent functions and receives a fee of $_____ per account per year
plus out-of-pocket expenses. Pursuant to a Fund Accounting Agreement between the
Trust and Investors Bank & Trust ("IBT"), IBT assists the Trust in calculating
net asset values and provides certain other accounting services for each
LifePath Fund for an annual fee of $__________per Fund plus out-of-pocket
expenses. Pursuant to a Fund Accounting Agreement between the Trust and BISYS
Fund Services, Inc. ("BISYS Fund Services"), BISYS Fund Services assists the
Trust in calculating net asset values and provides certain other accounting
services for the Money Market Fund for an annual fee of $30,000 per Fund plus
out-of-pocket expenses. BISYS and BISYS Fund Services, Inc. are each wholly
owned subsidiaries of The BISYS Group, Inc.
SERVICE ORGANIZATIONS
Various banks, trust companies, broker-dealers (other than the Sponsor)
or other financial organizations (collectively, "Service Organizations") also
may provide administrative services for the Funds, such as maintaining
shareholder accounts and records. The Funds may pay fees to Service
Organizations (which vary depending upon the services provided) in amounts up to
an annual rate of 0.25% of the daily net asset value of the Funds' shares owned
by shareholders with whom the Service Organization has a servicing relationship.
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<PAGE> 45
Some Service Organizations may impose additional or different
conditions on their clients, such as requiring their clients to invest more than
a Fund's minimum initial or subsequent investments or charging a direct fee for
servicing. If imposed, these fees would be in addition to any amounts which
might be paid to the Service Organization by the Funds. Each Service
Organization has agreed to transmit to its clients a schedule of any such fees.
Shareholders using Service Organizations are urged to consult with them
regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws provide that, among
other things, banks may not engage in the business of underwriting, selling or
distributing securities. There is currently no precedent prohibiting banks from
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or interpretations
of such laws, as well as changes in either Federal or state regulations relating
to the permissible activities of banks and their subsidiaries or affiliates,
could prevent a bank Service Organization from continuing to perform all or a
part of its servicing activities. If a bank were prohibited from so acting, its
shareholder clients would be permitted to remain shareholders of the Funds and
alternative means for continuing the servicing of such shareholders would be
sought. It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences.
OTHER EXPENSES
Each Fund bears all costs of its operations, other than expenses
specifically assumed by the Distributor and the Adviser. The costs borne by the
Funds include legal and accounting expenses, Trustees' fees and expenses,
insurance premiums, custodian and transfer agent fees and expenses, expenses
incurred in acquiring or disposing of the Funds' portfolio securities, expenses
of registering and qualifying the Funds' shares for sale with the SEC and with
various state securities commissions, expenses of obtaining quotations on the
Funds' portfolio securities and pricing of the Funds' shares, expenses of
maintaining the Funds' legal existence and of shareholders' meetings, and
expenses of preparing and distributing to existing shareholders reports, proxies
and prospectuses.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX
GENERAL
The Funds intend to each qualify and elect to be treated as regulated
investment companies pursuant to the provisions of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). The Funds intends to continue to
so qualify annually. By so qualifying and electing, the Funds generally will not
be subject to Federal income tax to the extent that each distributes investment
company taxable income and net capital gains in the manner required under the
Code.
The Funds intend to distribute to its shareholders substantially all of
each investment company's taxable income (which includes, among other items,
dividends and interest and the excess, if any, of net short-term capital gains
(generally including any net option premium income) over net long-term capital
losses).
Investors who redeem all or a portion of Fund shares prior to a
dividend payment date will be entitled on the next dividend payment date to all
dividends declared but unpaid on those shares at the time of their redemption.
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<PAGE> 46
If you elect to receive distribution in cash and checks (1) are
returned and marked as "undeliverable" or (2) remain uncashed for six months,
your cash election will be changed automatically and your future dividend and
capital gains distributions will be reinvested in the Fund at the per share net
asset value determined as of the date of payment of the distribution. In
addition, any undeliverable checks or checks that remain uncashed for six months
will be canceled and will be reinvested in the Fund at the per share net asset
value determined as of the date of cancellation.
DIVIDENDS AND DISTRIBUTIONS--THE LIFEPATH FUNDS
The Funds intend to declare and pay quarterly dividends of
substantially all of their net investment income. The Funds distribute any net
realized capital gains at least annually, in all events in a manner consistent
with the provisions of the 1940 Act and the Internal Revenue Code. No Fund will
make distributions from net realized securities gains unless capital loss
carryovers, if any, have been utilized or have expired. All dividends and
distributions are automatically reinvested at net asset value in shares of the
Fund paying such dividend or distribution, unless payment in cash is requested
and your arrangement with a Shareholder Servicing Agent permits the processing
of cash payments.
Dividends and capital gain distributions have the effect of reducing
the NAV per share by the amount distributed on the payment date. Although a
dividend or distribution paid to an investor on newly issued shares shortly
after purchase would represent, in substance, a return of capital, the dividend
or distribution may consist of net investment income or net realized capital
gain and, accordingly, would be taxable to the investor.
DIVIDENDS AND DISTRIBUTIONS--THE MONEY MARKET FUND
The Fund will declare distributions of such income daily and pay those
dividends monthly. The Fund intends to distribute at least annually,
substantially all net capital gains (the excess of net long-term capital gains
over net short-term capital losses). In determining amounts of capital gains to
be distributed, any capital loss carryovers from prior years will be applied
against capital gains.
Distributions will be paid in additional Fund shares based on the net
asset value at the close of business on the payment date of the distribution,
unless the shareholder elects in writing, not less than five full business days
prior to the record date, to receive such distributions in cash. Dividends
declared in, and attributable to, the preceding month will be paid within five
business days after the end of each month.
Shares purchased will begin earning dividends on the day the purchase
order is executed and shares redeemed will earn dividends through the previous
day. Net investment income for a Saturday, Sunday or a holiday will be declared
as a dividend on the previous business day.
TAXES
GENERAL
Distributions of investment company taxable income (regardless of
whether derived from dividends, interest or short-term capital gains) will
generally be taxable to shareholders as ordinary income. Distributions of net
long-term capital gains properly designated by a Fund as capital gain dividends
will be taxable as long-term capital gains, regardless of how long a shareholder
has held
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<PAGE> 47
his Fund shares. Distributions are taxable in the same manner whether received
in additional shares or in cash.
Earnings of the Funds not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To prevent imposition of this tax, each Fund intends to comply with
this distribution requirement.
A distribution will be treated as paid on December 31 of the calendar
year if it is declared by a Fund during October, November, or December of that
year to shareholders of record in such a month and paid by a Fund during January
of the following calendar year. Such distributions will be treated as received
by shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.
The Fund's distributions with respect to a given taxable year may
exceed the current and accumulated earnings and profits of the Fund available
for distribution. In that event, distributions in excess of such earnings and
profits would be characterized as a return of capital to shareholders for
Federal income tax purposes, thus reducing each shareholder's cost basis in his
Fund shares. Such distributions in excess of a shareholder's cost basis in his
shares would be treated as a gain realized from a sale of such shares.
Your redemptions (including redemptions in-kind) and exchanges of Fund
shares will ordinarily result in a taxable capital gain or loss, depending on
the amount you receive for your shares (or are deemed to receive in the case of
exchanges) and the cost of your shares. See "Federal Income Taxes Disposition of
Fund Shares" in the SAI.
Foreign shareholders may be subject to different tax treatment,
including withholding taxes. See "Federal Income Taxes Foreign Shareholders" in
the SAIs. In certain circumstances, U.S. residents may also be subject to with
holding taxes. See "Federal Income Taxes Backup Withholding" in the SAI.
BENEFIT PLAN INVESTORS
As a general matter, benefit plans, their sponsors and their
participants are not subject to federal income taxes at the time of receipt of
net investment income and capital gain distributions.
However, such tax-exempt investors may be subject to tax on certain
unrelated taxable income which could arise, for example, when such investors
acquire shares in the Fund through the use of leverage. Tax-exempt investors
should consult their tax advisors regarding the Unrelated Business Taxable
Income Rules.
The foregoing discussion regarding taxes is based on tax laws which
were in effect as of the date of this Prospectus and summarizes only some of the
important federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Further federal tax
considerations are discussed in the SAI.
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<PAGE> 48
FUND SHARE VALUATION
SHARE VALUE--THE LIFEPATH FUNDS
Shares of the Funds are sold on a continuous basis at the applicable
offering price (net asset value per share) next determined after an order in
proper form is received by the Transfer Agent. Net asset value ("NAV") per share
is determined as of the close of regular trading on the NYSE (currently 4:00
p.m., New York time) each Business Day.
The NAV of a share of each Fund is the value of total net assets
attributable to such Fund divided by the number of outstanding shares of that
Fund. The value of the net assets is determined daily by adjusting the net
assets at the beginning of the day by the value of shareholder activity, net
investment income and net realized and unrealized gains or losses for that day.
Net investment income is calculated each day as daily income less expenses. The
NAV of each Fund is expected to fluctuate daily and is expected to differ. Each
Fund's investment in the corresponding Master Portfolio is valued at the NAV of
such Master Portfolio's shares. Each Master Portfolio calculates the NAV of its
shares on the same days and at the same time as the corresponding Fund. Except
for debt obligations with remaining maturities of 60 days or less, which are
valued at amortized cost, each Master Portfolio's assets are valued at current
market prices, or if such prices are not readily available, at fair value as
determined in good faith in accordance with guidelines approved by MIP's Board
of Trustees. Prices used for such valuations may be provided by independent
pricing services. For further information regarding the methods employed in
valuing each Master Portfolio's investments, see "Determination of Net Asset
Value" in the SAI.
SHARE VALUE--MONEY MARKET FUND
The net asset value per share of the Money Market Fund is calculated at
12:00 noon (Eastern time), Monday through Friday, on each day the New York Stock
Exchange is open for trading (a "Business Day"), which excludes the following
business holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
Christmas Day, Columbus Day and Veterans Day. The net asset value per share of
each share class is computed by dividing the value of the net assets
attributable to each class (i.e., the value of the assets less the liabilities)
by the total number of such class's outstanding shares. All expenses, including
fees paid to the Adviser, the Administrator and the Distributor, are accrued
daily and taken into account for the purpose of determining the net asset value.
Expenses directly attributable to the Fund are charged to the Fund; other
expenses are allocated proportionately among each Fund within the Trust in
relation to the net assets of each Fund, or on another reasonable basis. Each
share class within the Fund is charged with the direct expenses of that class
and with a proportion of the general expenses of the Fund. These general
expenses (e.g., investment advisory fees) are allocated among the classes of
shares based on the relative value of their outstanding shares.
The Fund uses the amortized cost method to value its portfolio
securities and seek to maintain a constant net asset value of $1.00 per share,
although there may be circumstances under which this goal cannot be achieved.
The amortized cost method involves valuing a security at its cost and amortizing
any discount or premium over the period until maturity, regardless of the impact
of fluctuating interest rates on the market value of the security. See the SAI
for a more complete description of the amortized cost method.
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<PAGE> 49
PURCHASE OF FUND SHARES
Orders for the purchase of shares will be executed at the net asset
value per share next determined after an order has been received.
The following purchase procedures do not apply to certain fund or trust
accounts that are managed by INTRUST. The customer should consult his or her
trust administrator for proper instructions.
All funds received are invested in full and fractional shares of the
appropriate Fund. Certificates for shares are not issued. The Transfer Agent
maintains records of each shareholder's holdings of Fund shares, and each
shareholder receives a statement of transactions, holdings and dividends. The
Funds reserve the right to reject any purchase. The Funds do not accept
third-party checks or foreign checks.
An investment may be made using any of the following methods:
THROUGH AN AUTHORIZED BROKER, INVESTMENT ADVISER OR SERVICE
ORGANIZATION. Shares are available to new and existing shareholders through
authorized brokers, investment advisers and Service Organizations. To make an
investment using this method, simply complete a Purchase Application and contact
your broker, investment adviser or Service Organization with instructions as to
the amount you wish to invest. Your broker will then contact the Distributor to
place the order on your behalf on that day.
Orders received by your broker or Service Organization for the
Non-Money Market Funds in proper order prior to the determination of net asset
value and transmitted to the Distributor prior to the close of its business day
(which is currently 4:00 p.m., Eastern time), will become effective that day.
Orders for the Money Market Fund received prior to 12:00 noon will become
effective that day. Brokers who receive orders are obligated to transmit them
promptly. You should receive written confirmation of your order within a few
days of receipt of instructions from your broker.
BY MAIL. Mail completed application and check made payable to the
appropriate fund or to "The INTRUST Funds Trust" to:
INTRUST Funds Trust
P.O. Box 182498
Columbus, OH 43218-2498
BY WIRE. Investments may be made directly through the use of wire
transfers of Federal funds. Contact your bank and request it to wire Federal
funds to the applicable Fund. In most cases, your bank will either be a member
of the Federal Reserve Banking System or have a relationship with a bank that
is. Your bank may charge a fee for handling the transaction. To purchase shares
by a Federal funds wire, please first contact BISYS at (888) 266-8787.
Application must be overnighted to:
INTRUST Funds Trust
c/o BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219-8021
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<PAGE> 50
OTHER PURCHASE INFORMATION. Requests in "good order" must include the
following documentation: (a) a letter of instruction, if required, signed by all
registered owners of the shares in the names in which they are registered; (b)
any required signatures guaranteed; and (c) other supporting legal documents, if
required, in the case of estates, trusts, guardianships, custodianships,
corporations, pension and profit sharing plans and other organizations.
INSTITUTIONAL ACCOUNTS. Bank trust departments and other institutional
accounts may place orders directly with the Distributor by telephone at (888)
266-8787.
MINIMUM PURCHASE REQUIREMENTS
The minimum initial investment in the Funds is $1,000 unless the
investor is a purchaser who at the time of purchase, has a balance of $1,000 or
more in any of the INTRUST Funds, is a purchaser through a trust investment
manager or account manager or is administered by INTRUST, is an employee or an
ex-employee of INTRUST Financial Corporation or is an employee of any of its
affiliates, BISYS, or any other service provider, or is an employee of any trust
customer of INTRUST Financial Corporation or any of its affiliates. Note that
the minimum is $250 for an IRA, other than an IRA for which INTRUST Financial
Corporation or any of its affiliates acts as trustee or custodian. Any
subsequent investments, including an IRA investment, must be at least $50. All
initial investments should be accompanied by a completed Purchase Application. A
Purchase Application accompanies this Prospectus. Different minimums apply, and
a separate application is required for IRA investments. The Funds reserve the
right to reject purchase orders.
INDIVIDUAL RETIREMENT ACCOUNTS
Shares may also be purchased for IRAs established with INTRUST
Financial Corporation or any of its affiliates or other authorized custodians.
Completion of a special application is required in order to create such an
account, and the minimum initial investment for an IRA is $250. Contributions to
IRAs are subject to prevailing amount limits set by the Internal Revenue
Service. For more information concerning investments by IRAs, call the Funds at
(888) 266-8787.
EXCHANGE OF FUND SHARES
The Funds offer two convenient ways to exchange shares in one Fund for
shares in another Fund in the Trust. Before engaging in an exchange transaction,
a shareholder should read carefully the Prospectus describing the Fund into
which the exchange will occur, which is available without charge and can be
obtained by writing to the Fund at 3435 Stelzer Road, Columbus, Ohio 43219, or
by calling (888) 266-8787. The minimum amount for an initial exchange is $500.
No minimum is required in subsequent exchanges. The Trust may terminate or amend
the terms of the exchange privilege at any time.
A new account opened by exchange must be established with the same
name(s), address and social security number as the existing account. All
exchanges will be made based on the net asset value next determined following
receipt of the request by a Fund in good order, plus any applicable sales
charge. An exchange is taxable as a sale of a security on which a gain or loss
may be recognized. Shareholders should receive written confirmation of the
exchange within a few days of the completion of the transaction. Shareholders
will receive at least 60 days prior written notice of any modification or
termination of the exchange privilege.
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<PAGE> 51
EXCHANGE BY MAIL. To exchange Fund shares by mail, simply send a letter
of instruction to the Funds. The letter of instruction must include: (i) your
account number; (ii) the Fund from and the Fund into which you wish to exchange
your investment; (iii) the dollar or share amount you wish to exchange; and (iv)
the signatures of all registered owners or authorized parties.
EXCHANGE BY TELEPHONE. To exchange Fund shares by telephone or if you
have any questions simply call the Funds at (888) 266-8787. You should be
prepared to give the telephone representative the following information: (i)
your account number, social security or tax identification number and account
registration; (ii) the name of the Fund from and the Fund into which you wish to
transfer your investment; and (iii) the dollar or share amount you wish to
exchange. The conversation may be recorded to protect you and the Funds.
Telephone exchanges are available only if the shareholder so indicates by
checking the "yes" box on the Purchase Application. See "Redemption of Fund
Shares--By Telephone" for a discussion of telephone transactions generally. This
option will be suspended for a period of 10 days following a telephonic address
change.
AUTOMATIC INVESTMENT PROGRAM. An eligible shareholder may also
participate in the Automatic Investment Program, an investment plan that
automatically debits money from the shareholder's bank account and invests it in
one or more of the Funds in the Trust through the use of electronic funds
transfers or automatic bank drafts. Shareholders may elect to make subsequent
investments by transfers of a minimum of $50 on either the fifth or twentieth
day of each month into their established Fund account. Contact the Funds for
more information about the Automatic Investment Program.
REDEMPTION OF FUND SHARES
Shareholders may redeem their shares, in whole or in part, on any
Business Day. Shares will be redeemed at the net asset value next determined
after a redemption request in good order has been received by the applicable
Fund. See "Determination of Net Asset Value" in the SAI. A redemption may be a
taxable transaction on which gain or loss may be recognized. Generally, however,
gain or loss is not expected to be realized on a redemption of shares of the
Money Market Fund which seeks to maintain a net asset value of $1.00 per share.
Redemption of shares purchased by check will be effected immediately
and the proceeds will be made available upon clearance of the purchase check
which may take up to 15 days after those shares have been credited to the
shareholder account. Shareholders may avoid this delay by investing through wire
transfers of Federal funds. During the period prior to the time the shares are
redeemed, dividends on the shares will continue to accrue and be payable and the
shareholder will be entitled to exercise all other beneficial rights of
ownership.
Once the shares are redeemed, a Fund will ordinarily send the proceeds
by check to the shareholder at the address of record on the next Business Day.
The Funds may, however, take up to seven days to make payment. Also, if the New
York Stock Exchange is closed (or when trading is restricted) for any reason
other than the customary weekend or holiday closing or if an emergency condition
as determined by the SEC merits such action, the Funds may suspend redemptions
or postpone payment dates.
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<PAGE> 52
REDEMPTION METHODS. To ensure acceptance of your redemption request, it
is important to follow the procedures described below. Although the Funds have
no present intention to do so, the Funds reserve the right to refuse or to limit
the frequency of any telephone or wire redemptions. Of course, it may be
difficult to place orders by telephone during periods of severe market or
economic change, and a shareholder should consider alternative methods of
communications, such as couriers. The Funds' services may be modified or
terminated at any time by the Funds. If the Funds terminate any particular
service, they will do so only after giving written notice to shareholders.
Redemption by mail will always be available to shareholders.
You may redeem your shares using any of the following methods:
THROUGH AN AUTHORIZED BROKER, INVESTMENT ADVISER OR SERVICE
ORGANIZATION. You may redeem your shares by contacting your broker, investment
adviser or Service Organization representative, and instructing him or her to
redeem your shares. He or she will then contact the Distributor and place a
redemption trade on your behalf. You may be charged a fee for this service.
BY MAIL. You may redeem your shares by sending a letter directly to the
Funds. To be accepted, a letter requesting redemption must include: (i) the Fund
name and account registration from which you are redeeming shares; (ii) your
account number; (iii) the amount to be redeemed; (iv) the signatures of all
registered owners; and (v) a signature guarantee by any eligible guarantor
institution including a member of a national securities exchange or a commercial
bank or trust company, broker-dealers, credit unions and savings associations.
Corporations, partnerships, trusts or other legal entities will be required to
submit additional documentation (only required if proceeds are to be sent to an
address other than the registered address on record).
BY TELEPHONE. You may redeem your shares by calling the Funds toll free
at (888) 266-8787. You should be prepared to give the telephone representative
the following information: (i) your account number, social security number and
account registration; (ii) the Fund name from which you are redeeming shares;
and (iii) the amount to be redeemed. The conversation may be recorded to protect
you and the Funds. Telephone redemptions are available only if the shareholder
so indicates by checking the "yes" box on the Purchase Application or on the
Optional Services Form. The Funds employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. If the Funds fail to employ
such reasonable procedures, they may be liable for any loss, damage or expense
arising out of any telephone transactions purporting to be on a shareholder's
behalf. In order to assure the accuracy of instructions received by telephone,
the Funds require some form of personal identification prior to acting upon
instructions received by telephone, record telephone instructions and provide
written confirmation to investors of such transactions. Redemption requests
transmitted via facsimile will not be accepted. This option will be suspended
for a period of 10 days following a telephonic address change.
BY WIRE. You may redeem your shares by contacting the Funds by mail or
telephone and instructing them to send a wire transmission to your personal
bank. Proceeds of wire redemption for the Money Market Fund generally will be
transferred to the designated account on the day the request is received,
provided that it is received by 12:00 noon (Eastern time).
Your instructions should include: (i) your account number, social
security or tax identification number and account registration; (ii) the Fund
name from which you are redeeming shares; and (iii) the amount to be redeemed.
Wire redemptions can be made only if the "yes" box has been checked on your
Purchase Application, and attach a copy of a void check of account where
48
<PAGE> 53
proceeds are to be wired. Your bank may charge you a fee for receiving a wire
payment on your behalf.
CHECK WRITING. A check redemption ($500 minimum, no maximum) feature is
available with respect to the Money Market Fund. Checks are free and may be
obtained from the Funds. It is not possible to use a check to close out your
account since additional shares accrue daily.
The above-mentioned services "By Telephone," "By Wire" and "Check
Writing" are not available for IRAs and trust relationships of the Adviser and
its affiliates.
SYSTEMATIC WITHDRAWAL PLAN. An owner of $10,000 or more of shares of a
Fund may elect to have periodic redemptions from his or her account to be paid
on a monthly, quarterly, semi-annual or annual basis. The minimum periodic
payment is $100. A sufficient number of shares to make the scheduled redemption
will normally be redeemed on the date selected by the shareholder. Depending on
the size of the payment requested and fluctuation in the net asset value, if
any, of the shares redeemed, redemptions for the purpose of making such payments
may reduce or even exhaust the account. A shareholder may request that these
payments be sent to a predesignated bank or other designated party. Capital
gains and dividend distributions paid to the account will automatically be
reinvested at net asset value on the distribution payment date.
REDEMPTION OF SMALL ACCOUNTS. Due to the disproportionately higher cost
of servicing small accounts, each Fund reserves the right to redeem, on not less
than 30 days' notice, an account in a Fund that has been reduced by a
shareholder to $500 or less. However, if during the 30-day notice period the
shareholder purchases sufficient shares to bring the value of the account above
$500, this restriction will not apply.
REDEMPTION IN KIND. All redemptions of shares of the Funds shall be
made in cash, except that the commitment to redeem shares in cash extends only
to redemption requests made by each shareholder of a Fund during any 90-day
period of up to the lesser of $250,000 or 1% of the net asset value of that Fund
at the beginning of such period. This commitment is irrevocable without the
prior approval of the SEC and is a fundamental policy of the Funds that may not
be changed without shareholder approval. In the case of redemption requests by
shareholders in excess of such amounts, the Board of Trustees reserves the right
to have the Funds make payment, in whole or in part, in securities or other
assets, in case of an emergency or any time a cash distribution would impair the
liquidity of a Fund to the detriment of the existing shareholders. In this
event, the securities would be valued in the same manner as the securities of
that Fund are valued. If the recipient were to sell such securities, he or she
could receive less than the redemption value of the securities and could incur
certain transaction costs.
OTHER INFORMATION
CAPITALIZATION STRUCTURE
INTRUST Funds Trust was organized as a Delaware business trust on
January 26, 1996, and currently consists of eleven separately managed
portfolios. The Board of Trustees may establish additional portfolios in the
future. The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. When issued,
shares of the Funds are fully paid, non-assessable and freely transferable.
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<PAGE> 54
Each LifePath Fund and the Money Market Fund offer two classes of
shares -- the Institutional Premium Class and the Institutional Service Class.
The Institutional Premium Class shares may bear a 12b-1 fee of up to 0.75% of
the Fund's average daily net assets. The Institutional Service Class shares are
offered only to certain institutional investors, or other investors who at the
time of purchase have a balance of $1,000 or more invested in any of the INTRUST
Funds, are purchased through a trust investment manager or account manager or
administered by INTRUST, are employees or ex-employees of INTRUST Financial
Corporation or any of its affiliates, employees of BISYS, or any other service
provider, or employees of any trust customer of INTRUST Financial Corporation or
any of its affiliates. Shareholders in the Institutional Premium Class of shares
of the LifePath Funds or the Money Market Fund may be subject to an additional
shareholder servicing charge of up to 0.50% of average net assets which
shareholders of the Institutional Service Class are not subject. Call (888)
266-8787 or contact your sales representative, broker-dealer or bank to obtain
more information about the Funds' classes of shares.
SPECIAL INFORMATION CONCERNING
MASTER-FEEDER FUND STRUCTURE
Unlike other open-end management investment companies (mutual funds)
which directly acquire and manage their own portfolio securities, the LifePath
Funds seek to achieve their investment objectives by investing all of their
assets in a corresponding portfolio of the MIP, a separate registered investment
company with the same investment objective as the LifePath Funds. Therefore, an
investor's interest in the MIP's securities is indirect. In addition to selling
a beneficial interest to the LifePath Funds, the MIP may sell beneficial
interests to other mutual funds or institutional investors. Such investors will
invest in the MIP on the same terms and conditions and will pay a proportionate
share of the MIP's expenses. However, the other investors investing in the MIP
are not required to sell their shares at the same public offering price as the
LifePath Funds or subject to comparable variations in sales loads and other
operating expenses. Therefore, investors in the LifePath Funds should be aware
that these differences may result in differences in returns experienced by
investors in the different funds that may invest in the MIP. Such differences in
returns are also present in other mutual fund structures. Information concerning
other holders of interests in the MIP is available from __________________ by
phoning _________.
The Board of Trustees believes that the LifePath Funds will achieve
certain efficiencies and economies of scale through the master-feeder structure,
and that the aggregate expenses of the LifePath Funds will be less than if the
LifePath Funds invested directly in the securities held by the MIP.
Smaller funds investing in the MIP may be materially affected by the
actions of larger funds investing in the MIP. For example, if a large fund
withdraws from the MIP, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns (however, this possibility
exists as well for traditionally structured funds which have large institutional
investors). Additionally, the MIP may become less diverse, resulting in
increased portfolio concentration and potential risk. Also, funds with a greater
pro rata ownership in the MIP could have effective voting control of the
operations of the MIP. Except as permitted by the Commission, whenever the
Trust's Funds are requested to vote on matters pertaining to the MIP, the
Trust's Funds will hold a meeting of shareholders of the LifePath Funds and will
cast all of its votes in the same proportion as the votes of the LifePath Funds'
shareholders. LifePath
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<PAGE> 55
Funds' shareholders who do not vote will not affect the Funds votes at the MIP
meeting. The percentage of the Trust's votes representing LifePath Funds'
shareholders not voting will be voted by the Trustees or officers of the Trust
in the same proportion as the LifePath Funds' shareholders who do, in fact,
vote.
Certain changes in the MIP's investment objective, policies or
restrictions may require the LifePath Funds to withdraw their interest in the
MIP. Such withdrawal could result in a distribution "in kind" of portfolio
securities (as opposed to a cash distribution from the MIP). If securities are
distributed, the LifePath Funds could incur brokerage, tax or other charges in
converting the securities to cash. In addition, the distribution in kind may
result in a less diversified portfolio of investments or adversely affect the
liquidity of the LifePath Funds. Notwithstanding the above, there are other
means for meeting redemption requests, such as borrowing.
The LifePath Funds may withdraw their investment from the MIP at any
time, if the Board of Trustees of INTRUST determines that it is in the best
interests of the shareholders of the LifePath Funds to do so. Upon any such
withdrawal, the Board of Trustees of the Trust would consider what action might
be taken, including the investment of all the assets of the LifePath Funds in
another pooled investment entity having the same investment objective as the
LifePath Funds or the retaining of an investment adviser to manage the LifePath
Funds assets in accordance with the investment policies described above with
respect to the MIP.
BGFA has granted the Trust a nonexclusive license to use the name
"LifePath." If the license agreement is terminated, the Trust, at BGFA's
request, will cease using the "LifePath" name.
PERFORMANCE INFORMATION
A Fund may, from time to time, include its yield and total return in
advertisements or reports to shareholders or prospective investors. The methods
used to calculate the yield and total return of the Funds are mandated by the
SEC. Quotations of "yield" for the LifePath Funds will be based on the
investment income per share during a particular 30-day (or one month) period
(including dividends and interest), less expenses accrued during the period
("net investment income"), and will be computed by dividing net investment
income by the maximum public offering price per share on the last day of the
period. Quotations of "yield" for the Money Market Fund will be based on the
income received by a hypothetical investment (less a pro-rata share of Fund
expenses)over a particular seven-day period, which is then "annualized" (i.e.,
assuming that the seven-day yield would be received for 52 weeks, stated in
terms of an annual percentage return on the investment). "Effective yield" for
the Money Market Fund is calculated in a manner similar to that used to
calculate yield, but includes the compounding effect of earnings on reinvested
dividends. The yield and effective yield for the Money Market Fund at December
31,1997 were 5.16% and 5.29%; these figures represents unannualized returns
since its inception date of January 23, 1997.
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000 payment
made at the beginning of the period (assuming the reinvestment of dividends and
distributions), dividing by the amount of the initial investment, taking the
"n"th root of the quotient (where "n" is the number of years in the period) and
subtracting 1 from the result. Total return is calculated by subtracting the
amount of the net asset value per share at the beginning of a stated period from
the net asset value per share at the end of the period (after giving effect to
the reinvestment of dividendsand distributions during the period), and dividing
the result by the net asset value per share at the beginning of the period.
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<PAGE> 56
The LifePath Funds invest all of their investable assets in the
corresponding LifePath Master Portfolios. Performance shown is the performance
information of the corresponding Master Portfolio, adjusted to reflect the fees
which will apply to the INTRUST LifePath Funds. The one year total returns
represent performance of the LifePath Master Portfolios from January 1, 1997
through January 1, 1998. The three year returns represent performance of the
LifePath Master Portfolios from January 1, 1995 through January 1, 1998. The
five year returns represent performance of the LifePath Master Portfolios from
January 1, 1993 through January 1, 1998. The return since inception represents
the performance of the LifePath Master Portfolios from _______ through January
1, 1998.
Performance information for a Fund may be compared to various unmanaged
indices, such as those indices prepared by Lipper Analytical Services, Standard&
Poor's 500 Stock Index, the Dow Jones Industrial Average and other entities or
organizations which track the performance of investment companies. Any
performance information should be considered in light of the Fund's investment
objectives and policies, characteristics and quality of the Funds and the market
conditions during the time period indicated, and should not be considered to be
representative of what may be achieved in the future. For a description of the
methods used to determine yield and total return for the Funds, see the SAI.
<TABLE>
<CAPTION>
LIFEPATH 2000 FUND
ANNUALIZED RATES OF RETURN FOR
PERIODS ENDING ___________ INDEX
-----
<S> <C> <C>
1 Year...................................................... _____% _____%
3 Years..................................................... _____% _____%
5 Years..................................................... _____% _____%
Since Inception ............................................ _____% _____%
<CAPTION>
LIFEPATH 2010 FUND
ANNUALIZED RATES OF RETURN FOR
PERIODS ENDING___________ INDEX
-----
<S> <C> <C>
1 Year...................................................... _____% _____%
3 Years..................................................... _____% _____%
5 Years..................................................... _____% _____%
Since Inception ............................................ _____% _____%
</TABLE>
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<PAGE> 57
<TABLE>
<CAPTION>
LIFEPATH 2020 FUND
ANNUALIZED RATES OF RETURN FOR
PERIODS ENDING _____________ INDEX
-----
<S> <C> <C>
1 Year...................................................... _____% _____%
3 Years..................................................... _____% _____%
5 Years..................................................... _____% _____%
Since Inception ....................................... _____% _____%
<CAPTION>
LIFEPATH 2030 FUND
ANNUALIZED RATES OF RETURN FOR
PERIODS ENDING ___________ INDEX
-----
<S> <C> <C>
1 Year...................................................... _____% _____%
3 Years..................................................... _____% _____%
5 Years..................................................... _____% _____%
Since Inception ....................................... _____% _____%
<CAPTION>
LIFEPATH 2040 FUND
ANNUALIZED RATES OF RETURN FOR
PERIODS ENDING ___________ INDEX
-----
<S> <C> <C>
1 Year...................................................... _____% _____%
3 Years..................................................... _____% _____%
5 Years..................................................... _____% _____%
Since Inception ....................................... _____% _____%
</TABLE>
VOTING
Shareholders have the right to vote in the election of Trustees and on
any and all matters on which, by law or under the provisions of the Declaration
of Trust, they may be entitled to vote. The Trust is not required to hold
regular annual meetings of the Funds' shareholders and does not intend to do so.
The Trustees are required to call a meeting for the purpose of considering the
removal of a person serving as Trustee if requested in writing to do so by the
holders of not less than 10% of the outstanding shares of the Trust and in
connection with such meeting to comply with the shareholders' communications
provisions of Section 16(c) of the Act. See "Other Information--Voting Rights"
in the SAI.
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). As used in this Prospectus, the phrase "vote of a
majority of the outstanding shares" of a Fund (or the Trust) means the vote of
the lesser of: (1) 67% of the shares of a Fund (or the Trust) present at a
meeting if the holders of more than 50% of the outstanding shares are present in
person or by proxy; or (2) more than 50% of the outstanding shares of a Fund (or
the Trust).
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ACCOUNT SERVICES
All transactions in shares of the Funds will be reflected in a
statement for each shareholder. In those cases where a Service Organization or
its nominee is shareholder of record of shares purchased for its customer, the
Funds have been advised that the statement may be transmitted to the customer at
the discretion of the Service Organization.
BISYS Fund Services, Inc. acts as the Funds' transfer agent. The Trust
compensates BISYS Fund Services, Inc. pursuant to a Transfer Agency Agreement
described in "Management of the Fund--Administrator, Transfer Agent and Fund
Accountant" of this Prospectus, for providing personnel and facilities to
perform dividend disbursing and transfer agency-related services for the Trust.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Funds at 3435
Stelzer Road, Columbus, Ohio 43219.
General and Account Information: (888) 266-8787.
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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
LifePath 2000 Fund
LifePath 2010 Fund
LifePath 2020 Fund
LifePath 2030 Fund
LifePath 2040 Fund
This Statement of Additional Information (the "SAI") describes five
LifePath Funds (each a "Fund", collectively the "Funds") offered by INTRUST
Funds Trust (the "Trust"). The Trust is a registered investment company that
currently offers eleven series, including the Funds.
Each Fund invests all of its assets in a separate portfolio (each a
"Master Portfolio") of the Master Investment Portfolio ("MIP") having the same
investment objective as the Funds. Therefore, the investment experience of each
Fund will correspond directly with the relevant Master Portfolio's investment
experience. The MIP is an open-end, series investment company consisting of nine
series including the LifePath Master Portfolios. Barclays Global Fund Advisors
("BGFA") serves as investment adviser to the corresponding Master Portfolio of
each Fund. References to the investments, investment policies and risks of the
Funds unless otherwise indicated, should be understood as references to the
investments, investment policies and risks of the corresponding Master
Portfolios. INTRUST Bank, N.A. serves as investment adviser (the "Adviser") to
the Funds.
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 Distributor to the Funds, as an investment vehicle for individuals,
institutions, corporations and fiduciaries, including customers of INTRUST or
its affiliates.
This SAI is not a prospectus and is only authorized for distribution
when preceded or accompanied by a prospectus for the Funds dated August ___,
1998 (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.
August ___, 1998
<PAGE> 60
TABLE OF CONTENTS
Page
----
INVESTMENT OBJECTIVES AND POLICIES.......................................4
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES...............................7
MANAGEMENT..............................................................14
ADMINISTRATION AND FUND ACCOUNTING......................................20
EXPENSES ...............................................................21
DETERMINATION OF NET ASSET VALUE........................................22
PORTFOLIO TRANSACTIONS..................................................23
TAXATION ...............................................................25
OTHER INFORMATION.......................................................31
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INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
Each Fund invests all of its assets in the corresponding Master
Portfolio of the MIP (as shown below), which has the same investment objective
as the related Fund.
FUND CORRESPONDING MASTER PORTFOLIO
---- ------------------------------
LifePath 2000 Fund LifePath 2000 Master Portfolio
LifePath 2010 Fund LifePath 2010 Master Portfolio
LifePath 2020 Fund LifePath 2020 Master Portfolio
LifePath 2030 Fund LifePath 2030 Master Portfolio
LifePath 2040 Fund LifePath 2040 Master Portfolio
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES. The LifePath Master Portfolios consist of five
asset allocation funds, each of which is a diversified fund offered by MIP.
Organizations and other entities such as the Funds that hold shares of
beneficial interest of a Master Portfolio may be referred to herein as "feeder
funds."
The LifePath Master Portfolios seek to provide long-term investors in a
feeder fund with an asset allocation strategy designed to maximize assets
consistent with the quantitatively measured risk such investors, on average, may
be willing to accept given their investment time horizons. The LifePath Master
Portfolios invest in a wide range of U.S. and foreign equity and debt securities
and money market instruments. Each LifePath Master Portfolio is managed for
investors in a feeder fund planning to retire (or begin to withdraw substantial
portions of their investment) approximately in the year stated in the title of
the Fund in which they invest (e.g., investors in the LifePath 2000 Fund plan to
retire in the year 2000).
As with all mutual funds, there can be no assurance that the investment
objective of each Master Portfolio will be achieved. Each Master Portfolio's
investment objective cannot be changed without approval by the holders of a
majority (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of such Master Portfolio's outstanding voting shares.
Each Fund and Master Portfolio has adopted investment policies which
may be fundamental or non-fundamental. Fundamental policies cannot be changed
without approval by the holders of a majority (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of the outstanding voting
securities of such Fund or Master Portfolio, as the case may be. Non-fundamental
policies may be changed without shareholder approval by vote of a majority of
the Trustees of the Trusts, as the case may be, at any time.
THE MASTER PORTFOLIOS
FUNDAMENTAL INVESTMENT RESTRICTIONS. Each of the Master Portfolios are
subject to the following investment restrictions, all of which are fundamental
policies.
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The Master Portfolios may not:
(1) invest more than 5% of its assets in the obligations of any single
issuer, except that up to 25% of the value of its total assets may be invested,
and securities issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities may be purchased, without regard to any such limitation.
(2) hold more than 10% of the outstanding voting securities of any
single issuer. This Investment Restriction applies only with respect to 75% of
its total assets.
(3) invest in commodities, except that each Master Portfolio may
purchase and sell (i.e., write) options, forward contracts, futures contracts,
including those relating to indexes, and options on futures contracts or
indexes.
(4) purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs, but each Master Portfolio may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate.
(5) borrow money. For purposes of this investment restriction, a Master
Portfolio's entry into options, forward contracts, futures contracts, including
those relating to indexes, and options on futures contracts or indexes shall not
constitute borrowing to the extent certain segregated accounts are established
and maintained by such Master Portfolio.
(6) make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, each Master
Portfolio may lend its portfolio securities in an amount not to exceed one-third
of the value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the SEC and the Trust's Board of
Trustees.
(7) act as an underwriter of securities of other issuers, except to the
extent that the Master Portfolios may be deemed an underwriter under the
Securities Act of 1933, as amended, by virtue of disposing of portfolio
securities.
(8) invest 25% or more of its total assets in the securities of issuers
in any particular industry or group of closely related industries except that,
in the case of each Master Portfolio, there shall be no limitation with respect
to investments in obligations of the U.S. Government, its agencies or
instrumentalities.
(9) issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act), except to the extent the activities permitted in the Master
Portfolios' fundamental policies (3) and (5) and non-fundamental policies (2)
and (3), may be deemed to give rise to a senior security.
(10) purchase securities on margin, but each Master Portfolio may make
margin deposits in connection with transactions in options, forward contracts,
futures contracts, including those related to indexes, and options on futures
contracts or indexes.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The Master Portfolios are
subject to the following non-fundamental policies.
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The Master Portfolios may not:
(1) invest in the securities of a company for the purpose of exercising
management or control, but each Master Portfolio will vote the securities it
owns in its portfolio as a shareholder in accordance with its views.
(2) pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with respect
to options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
(3) purchase, sell or write puts, calls or combinations thereof, except
as may be described in the Master Portfolios' offering documents.
(4) purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) unless the
securities are fully guaranteed or insured by the U.S. Government, a state,
commonwealth, possession, territory, the District of Columbia or by an entity in
existence at least three years, or the securities are backed by the assets and
revenues of any of the foregoing if such purchase would cause the value of its
investments in all such companies to exceed 5% of the value of its total assets.
(5) enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if, in
the aggregate, more than 15% of the value of a Master Portfolio's net assets
would be so invested. Although each Fund and Master Portfolio reserves the right
to invest up to 15% of the value of its net assets in repurchase agreements
providing for settlement in more than seven days after notice and in other
illiquid securities, as long as such Fund's shares are registered for sale in a
state that imposes a lower limit on the percentage of a Fund's assets that may
be so invested, such Fund and Master Portfolio will comply with the lower limit.
Each Fund and Master Portfolio currently is limited to investing up to 10% of
the value of its net assets in such securities due to limits applicable in
several states.
(6) purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.
(7) purchase, hold or deal in real estate limited partnerships.
(8) purchase warrants that exceed 2% of the value of the Fund's or the
Master Portfolio's net assets, if those warrants are not listed on the New York
or American Stock Exchanges.
(9) purchase or retain securities of any issuer if the officers or
Trustees of the Trust or the investment adviser owning beneficially more than
one-half of one percent (0.5%) of the securities of the issuer together owned
beneficially more than 5% of such securities.
(10) engage in any short sales other than short sales against the box.
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As a matter of general operating policy, each Fund and Master Portfolio
may invest up to 20% of the value of its total assets in foreign securities that
are not publicly traded in the United States.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will not
constitute a violation of such restriction.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
THE FUNDS AND THEIR CORRESPONDING MASTER PORTFOLIOS MAY PARTICIPATE IN
THE FOLLOWING ADDITIONAL PERMITTED INVESTMENT ACTIVITIES AS INDICATED:
BANK OBLIGATIONS. Each Master Portfolio may invest in bank obligations,
including certificates of deposit, time deposits and other short term
obligations of domestic banks, obligations of foreign branches of domestic banks
and obligations of domestic and foreign branches of foreign banks. Domestic
commercial banks organized under federal law are supervised and examined by the
Comptroller of the Currency and are required to be members of the Federal
Reserve System and to have their deposits insured by the Federal Deposit
Insurance Corporation (the "FDIC"). Domestic banks organized under state law are
supervised and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. In addition, state banks
whose certificates of deposit ("CDs") may be purchased by each Master Portfolio
are insured by the FDIC (although such insurance may not be of material benefit
to the Master Portfolio, depending on the principal amount of the CDs of each
bank held by the Master Portfolio) and are subject to federal examination and to
a substantial body of federal law and regulation. As a result of federal or
state laws and regulations, domestic branches of domestic banks whose CDs may be
purchased by each Master Portfolio generally are required, among other things,
to maintain specified levels of reserves, are limited in the amounts which they
can loan to a single borrower and are subject to other regulations designed to
promote financial soundness. However, not all of such laws and regulations apply
to the foreign branches of domestic banks.
Obligations of foreign branches of domestic banks, foreign subsidiaries
of domestic banks and domestic and foreign branches of foreign banks, such as
CDs and time deposits ("TDs"), may be general obligations of the parent banks in
addition to the issuing branch, or may be limited by the terms of a specific
obligation and/or governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial record keeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank or about a foreign
bank than about a domestic bank.
Obligations of U.S. branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation or by federal or state regulation
as well as governmental action in the country in
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which the foreign bank has its head office. A domestic branch of a foreign bank
with assets in excess of $1 billion may be subject to reserve requirements
imposed by the Federal Reserve System or by the state in which the branch is
located if the branch is licensed in that state.
In addition, federal branches licensed by the Comptroller of the
Currency and branches licensed by certain states ("State Branches") may be
required to: (1) pledge to the appropriate regulatory authority, by depositing
assets with a designated bank within the relevant state, a certain percentage of
their assets as fixed from time to time by such regulatory authority; and (2)
maintain assets within the relevant state in an amount equal to a specified
percentage of the aggregate amount of liabilities of the foreign bank payable at
or through all of its agencies or branches within the state. The deposits of
federal and State Branches generally must be insured by the FDIC if such
branches take deposits of less than $100,000.
In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, BGFA carefully evaluates such investments on a case-by-case
basis.
Each LifePath Master Portfolio may purchase CDs issued by banks,
savings and loan associations and similar thrift institutions with less than $1
billion in assets, provided that such institutions are members of the FDIC, and
further provided such Master Portfolio purchases any such CD in a principal
amount of not more than $100,000, which amount would be fully insured by the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the FDIC. Interest payments on such a CD are not insured by the FDIC. No Master
Portfolio will own more than one such CD per such issuer.
FUTURES CONTRACTS. The Master Portfolios may use futures contracts as a
hedge against the effects of interest rate changes or changes in the market
value of the stocks comprising the index in which such Master Portfolio invests.
In managing their cash flows, these Master Portfolios also may use futures
contracts as a substitute for holding the designated securities underlying the
futures contract. A futures contract is an agreement between two parties, a
buyer and a seller, to exchange a particular commodity at a specific price on a
specific date in the future. At the time it enters into a futures transaction, a
Master Portfolio is required to make a performance deposit (initial margin) of
cash or liquid securities in a segregated account in the name of the futures
broker. Subsequent payments of "variation margin" are then made on a daily
basis, depending on the value of the futures position which is continually
"marked to market."
A Master Portfolio may engage only in futures contract transactions
involving (i) the sale of a futures contract (i.e., short positions) to hedge
the value of securities held by such Master Portfolio; (ii) the purchase of a
futures contract when such Master Portfolio hold a short position having the
same delivery month (i.e., a long position offsetting a short position); or
(iii) the purchase of a futures contract to permit the Master Portfolio to, in
effect, participate in the market for the designated securities underlying the
futures contract without actually owning such designated securities. When a
Master Portfolio purchases a futures contracts, it will create a segregated
account consisting of each or other liquid assets in an amount equal to the
total market value of such futures contract, less the amount of initial margin
for the contract.
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If a Master Portfolio enters into a short position in a futures
contract as a hedge against anticipated adverse market movements and the market
then rises, the increase in the value of the hedged securities will be offset,
in whole or in part, by a loss on the futures contract. If instead a Master
Portfolio purchases a futures contract as a substitute for investing in the
designated underlying securities, a Master Portfolio experiences gains or losses
that correspond generally to gains or losses in the underlying securities. The
latter type of futures contract transactions permits a Master Portfolio to
experience the results of being fully invested in a particular asset class,
while maintaining the liquidity needed to manage cash flows into or out of the
Master Portfolio (e.g., from purchases and redemptions of Master Portfolio
shares). Under normal market conditions, futures contract positions may be
closed out on a daily basis. The LifePath Master Portfolios expect to apply a
portion of their cash or cash equivalents maintained for liquidity needs to such
activities.
Transactions by a Master Portfolio in futures contracts involve certain
risks. One risk in employing futures contracts as a hedge against cash market
price volatility is the possibility that futures prices will correlate
imperfectly with the behavior of the prices of the securities in the Master
Portfolio's investment portfolio. Similarly, in employing futures contracts as a
substitute for purchasing the designated underlying securities, there is a risk
that the performance of the futures contract may correlate imperfectly with the
performance of the direct investments for which the futures contract is a
substitute. In addition, commodity exchanges generally limit the amount of
fluctuation permitted in futures contract prices during a single trading day,
and the existence of such limits may prevent the prompt liquidation of futures
positions in certain cases. Limits on price fluctuations are designed to
stabilize prices for the benefit of market participants; however, there could be
cases where the Master Portfolio could incur a larger loss due to the delay in
trading than it would have if no limit rules had been in effect.
In order to comply with undertakings made by the Master Portfolio
pursuant to Commodity Futures Trading Commission ("CFTC") Regulation 4.5, the
Master Portfolios will use futures and option contracts solely for bona fide
hedging purposes within the meaning and intent of CFTC Reg. 1.3(z); provided,
however, that in addition, with respect to positions in commodity futures or
commodity option contracts which do not come within the meaning and intent of
CFTC Reg. 1.3(z), the aggregate initial margin and premiums required to
establish such positions will not exceed five percent of the liquidation value
of the Master Portfolio's portfolio, after taking into account unrealized
profits and unrealized losses on any such contract it has entered into; and
provided further, that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount as defined in CFTC Reg.
190.01(x) may be excluded in computing such five percent.
FOREIGN CURRENCY TRANSACTIONS. Currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by the
forces of supply and demand in the foreign exchange markets and the relative
merits of investments in different countries, actual or perceived changes in
interest rates and other complex factors, as seen from an international
perspective. Currency exchange rates also can be affected unpredictably by the
intervention of U.S. or foreign governments or central banks, or by the failure
to intervene, or by currency controls or political developments in the United
States or abroad. The Master Portfolios intend to engage in foreign currency
transactions to maintain the same foreign currency exposure as the relevant
foreign securities index through which the Funds seek foreign equity market
exposure, but not as part of a defensive strategy to protect against
fluctuations in exchange rates. If a Master Portfolio enters into a foreign
currency transaction
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or forward contract, such Master Portfolio deposits, if required by applicable
regulations, with the MIP's custodian cash or high-grade debt securities in a
segregated account of the Master Portfolio in an amount at least equal to the
value of the Master Portfolio's total assets committed to the consummation of
the forward contract. If the value of the securities placed in the segregated
account declines, additional cash or securities is placed in the account so that
the value of the account equals the amount of the Master Portfolio's commitment
with respect to the contract.
At or before the maturity of a forward contract, a Master Portfolio may
either sell a portfolio security and make delivery of the currency, or may
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which such Master Portfolio
obtains, on the same maturity date, the same amount of the currency which it is
obligated to deliver. If the Master Portfolio retains the portfolio security and
engages in an offsetting transaction, such Master Portfolio, at the time of
execution of the offsetting transaction, incurs a gain or a loss to the extent
that movement has occurred in forward contract prices. Should forward prices
decline during the period between the Master Portfolio's entering into a forward
contract for the sale of a currency and the date it enters into an offsetting
contract for the purchase of the currency, the Master Portfolio realizes a gain
to the extent the price of the currency it has agreed to sell exceeds the price
of the currency it has agreed to purchase. Should forward prices increase, the
Master Portfolio suffers a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
The cost to a Master Portfolio of engaging in currency transactions
varies with factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because transactions in
currency exchange usually are conducted on a principal basis, no fees or
commissions are involved. BGFA considers on an ongoing basis the
creditworthiness of the institutions with which a Master Portfolio enters into
foreign currency transactions. The use of forward currency exchange contracts
does not eliminate fluctuations in the underlying prices of the securities, but
it does establish a rate of exchange that can be achieved in the future. If a
devaluation generally is anticipated, the Master Portfolio may not be able to
contract to sell the currency at a price above the devaluation level it
anticipates.
The purchase of options on currency futures allows a Master Portfolio,
for the price of the premium it must pay for the option, to decide whether or
not to buy (in the case of a call option) or to sell (in the case of a put
option) a futures contract at a specified price at any time during the period
before the option expires.
FUTURE DEVELOPMENTS. Each Master Portfolio may take advantage of
opportunities in the areas of options and futures contracts and options on
futures contracts and any other derivative investments which are not presently
contemplated for use by such Master Portfolio or which are not currently
available but which may be developed, to the extent such opportunities are both
consistent with a Master Portfolio's investment objective and legally
permissible for the Master Portfolio. Before entering into such transactions or
making any such investment, a Master Portfolio would provide appropriate
disclosure in its prospectus or this SAI.
LENDING PORTFOLIO SECURITIES. To a limited extent, each Master
Portfolio may lend its portfolio securities to brokers, dealers and other
financial institutions (but not individuals),
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provided it receives cash collateral which is maintained at all times in an
amount equal to at least 100% of the current market value of the securities
loaned. By lending its portfolio securities, a Master Portfolio can increase its
income through the investment of the cash collateral or by receipt of a loan
premium from the borrower. For purposes of this policy, each Master Portfolio
considers collateral consisting of U.S. Government obligations or irrevocable
letters of credit issued by banks whose securities meet the standards for
investment by such Master Portfolio to be the equivalent of cash. From time to
time, a Master Portfolio may return to the borrower, or to a third party
unaffiliated with MIP which is acting as a "placing broker," a part of the
interest earned from the investment of collateral received in exchange for
securities loaned.
The SEC currently requires that the following conditions must be met
whenever portfolio securities are loaned: (1) the Master Portfolio must receive
at least 100% cash collateral from the borrower; (2) the borrower must increase
such collateral whenever the market value of the securities loaned rises above
the level of such collateral; (3) the Master Portfolio must be able to terminate
the loan at any time; (4) the Master Portfolio must receive reasonable interest
on the loan, as well as any dividends, interest or other distributions payable
on the loaned securities, and any increase in market value; (5) the Master
Portfolio may pay only reasonable custodian fees in connection with the loan;
and (6) while voting rights on the loaned securities may pass to the borrower,
the MIP's Board of Trustees must terminate the loan and regain the right to vote
the securities if a material event adversely affecting the investment occurs.
These conditions may be subject to future modification.
WARRANTS. Each Master Portfolio may invest generally up to 5% of its
net assets at the time of purchase in warrants, except that this limitation does
not apply to warrants acquired in units or attached to securities. A warrant is
an instrument issued by a corporation which gives the holder the right to
subscribe to a specified amount of the corporation's capital stock at a set
price for a specified period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities.
FIXED INCOME OBLIGATIONS. Investors should be aware that even though
interest-bearing obligations are investments which promise a stable stream of
income, the prices of such securities are inversely affected by changes in
interest rates and, therefore, are subject to the risk of market price
fluctuations. Long-term obligations are affected to a greater extent by interest
rates than shorter term obligations. The values of fixed-income obligations also
may be affected by changes in the credit rating or financial condition of the
issuing entities. Once the rating of a portfolio security has been changed to a
rating below investment grade, the particular LifePath Master Portfolio
considers all circumstances deemed relevant in determining whether to continue
to hold the security. Certain obligations that may be purchased by the LifePath
Master Portfolio, such as those rated "Baa" by Moody's and "BBB" by S&P, Fitch
and Duff, may be subject to such risk with respect to the issuing entity and to
greater market fluctuations than certain lower yielding, higher rated fixed
income securities. Securities which are rated "Baa" by Moody's are considered
medium-grade obligations; they are neither highly protected nor poorly secured,
and are considered by Moody's to have speculative characteristics. Obligations
rated "BBB" by S&P are regarded as having adequate capacity to pay interest and
repay principal, and, while such debt securities ordinarily exhibit 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 securities in this category than in higher rated categories. Obligations
rated "BBB" by Fitch are considered investment grade and of satisfactory credit
quality; however,
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adverse changes in economic conditions and circumstances are more likely to have
an adverse impact on these obligations and, therefore, impair timely payment.
Obligations rated "BBB" by Duff have below average protection factors but
nonetheless are considered sufficient for prudent investment. If a security held
by a LifePath Master Portfolio is downgraded to a rating below investment grade,
such Master Portfolio may continue to hold the obligation until such time as
BGFA determines it to be advantageous for the LifePath Master Portfolio to sell
the obligation. If such a policy would cause a LifePath Master Portfolio to have
5% or more of its net assets invested in obligations that have been downgraded
below investment grade, the Master Portfolio promptly would seek to dispose of
such obligations in an orderly manner.
REPURCHASE AGREEMENTS. Each Master Portfolio may engage in a repurchase
agreement with respect to any security in which it is authorized to invest,
although the underlying security may mature in more than thirteen months. The
Master Portfolio may enter into repurchase agreements wherein the seller of a
security to the Master Portfolio agrees to repurchase that security from the
Master Portfolio at a mutually agreed-upon time and price that involves the
acquisition by the Master Portfolio of an underlying debt instrument, subject to
the seller's obligation to repurchase, and the Master Portfolio's obligation to
resell, the instrument at a fixed price usually not more than one week after its
purchase. The Master Portfolio's custodian has custody of, and holds in a
segregated account, securities acquired as collateral by the Master Portfolio
under a repurchase agreement. The Master Portfolio may enter into repurchase
agreements only with respect to securities of the type in which it may invest,
including government securities and mortgage-related securities, regardless of
their remaining maturities, and requires that additional securities be deposited
with the custodian if the value of the securities purchased should decrease
below resale price. Certain costs may be incurred by the Master Portfolio in
connection with the sale of the underlying securities if the seller does not
repurchase them in accordance with the repurchase agreement. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the
securities, disposition of the securities by the Master Portfolio may be delayed
or limited. While it does not presently appear possible to eliminate all risks
from these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delay and costs to the Master
Portfolio in connection with insolvency proceedings), it is the policy of the
Master Portfolio to limit repurchase agreements to selected creditworthy
securities dealers or domestic banks or other recognized financial institutions.
The Master Portfolio considers on an ongoing basis the creditworthiness of the
institutions with which it enters into repurchase agreements. Repurchase
agreements are considered to be loans by a Master Portfolio under the Investment
Company Act of 1940 (the "1940 Act").
FLOATING- AND VARIABLE-RATE OBLIGATIONS. Each Master Portfolio may
purchase floating- and variable-rate demand notes and bonds, which are
obligations ordinarily having stated maturities in excess of 13 months, but
which permit the holder to demand payment of principal at any time or at
specified intervals not exceeding 13 months. Variable-rate demand notes include
master demand notes which are obligations that permit a Master Portfolio to
invest fluctuating amounts, which may change daily without penalty, pursuant to
direct arrangements between the Master Portfolio, as lender, and the borrower.
The interest rates on these notes fluctuate from time to time. The issuer of
such obligations ordinarily has a corresponding right, after a given period, to
prepare in its discretion the outstanding principal amount of the obligations
plus accrued interest upon a specified number of days' notice to the holders of
such obligations. The interest rate on a floating-rate demand obligation is
based on a known lending rate, such as a bank's prime rate, and is adjusted
automatically at specified
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intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded. There generally is
no established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, the Master
Portfolio's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and each Master Portfolio may invest in obligations which
are not so rated only if the Adviser determines that at the time of investment
the obligations are of comparable quality to the other obligations in which such
Master Portfolio may invest. The Adviser, on behalf of each Master Portfolio,
considers on an ongoing basis the creditworthiness of the issuers of the
floating- and variable-rate demand obligations in such Master Portfolio's
portfolio. No Master Portfolio invests more than 15% of the value of its net
assets in illiquid securities including floating- or variable-rate demand
obligations whose demand feature is not exercisable within seven days. Such
obligations may be treated as liquid, provided that an active secondary market
exists.
MANAGEMENT
TRUSTEES AND OFFICERS OF THE TRUST
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: 49, Trustee. Vice President, Finance and
Administration, of Williams Energy Services Company; Treasurer of The Williams
Companies (1992-1995).
Terry L. Carter, Age: 49, Trustee. Senior Vice President of QuikTrip
Corporation.
Thomas F. Kice, Age: 48, Trustee. President of Kice Industries Inc.
George Mileusnic, Age: 43, Trustee. Executive Vice President of
Operations of North American Division of The Coleman Co., Inc.
John J. Pileggi, Age: 39, 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).
David Bunstine, Age 32, President. Director, BISYS Fund Services, Inc.,
since 1987.
Ellen Stoutamire, Age: 49, 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.
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COMPENSATION TABLE
11/1/96 THROUGH 10/31/97
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS ESTIMATED TOTAL
AGGREGATE ACCRUED ANNUAL COMPENSATION
COMPENSATION AS PART OF BENEFITS FROM
FROM 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
</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 August 6, 1998, Officers and Trustees of the Trust, as a group,
own less than 1% of the outstanding shares of the Funds.
MASTER/FEEDER STRUCTURE. Each Fund seeks to achieve its investment
objective by investing all of its assets into the corresponding Master Portfolio
of the MIP. The Funds and other entities investing in a Master Portfolio are
each liable for all obligations of such Master Portfolio. However, the risk of a
Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the MIP itself is
unable to meet its obligations. Accordingly, the Trust's Board of Trustees
believes that neither a Fund nor its shareholders will be adversely affected by
investing Fund assets in a Master Portfolio. However, if a mutual fund or other
investor withdraws its investment from such Master Portfolio, the economic
efficiencies (e.g., spreading fixed expenses among a larger asset base) that the
Trust's Board believes may be available through investment in the Master
Portfolio may not be fully achieved. In addition, given the relative novelty of
the master/feeder structure, accounting or operational difficulties, although
unlikely, could arise. See "Management of the Funds" in the Prospectus for
additional description of the Funds' and Master Portfolios' expenses and
management.
A Fund may withdraw its investment in a Master Portfolio only if the
Trust's Board of Trustees determines that such action is in the best interests
of such Fund and its shareholders. Upon any such withdrawal, the Trust's Board
would consider alternative investments, including investing all of the Fund's
assets in another investment company with the same investment objective as the
Fund or hiring an investment adviser to manage the Fund's assets in accordance
with the investment policies described below with respect to the Master
Portfolio.
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The investment objective and other fundamental policies of a Master
Portfolio cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of the Master Portfolio's outstanding interests. See
"Investment Objectives and Policies" in the Prospectus. Whenever a Fund, as an
interestholder of the corresponding Master Portfolio, is requested to vote on
any matter submitted to interestholders of the Master Portfolio, the Fund will
hold a meeting of its shareholders to consider such matters. The Fund will cast
its votes in proportion to the votes received from its shareholders. Shares for
which the Fund receives no voting instructions will be voted in the same
proportion as the votes received from the other Fund shareholders.
Certain policies of the Master Portfolio which are nonfundamental may
be changed by vote of a majority of the MIP's Trustees without interestholder
approval. If the Master Portfolio's investment objective or fundamental or
nonfundamental policies are changed, the Fund may elect to change its objective
or policies to correspond to those of the Master Portfolio. A Fund may also
elect to redeem its interests in the corresponding Master Portfolio and either
seek a new investment Trust with a matching objective in which to invest or
retain its own investment adviser to manage the Fund's portfolio in accordance
with its objective. In the latter case, the Fund's inability to find a
substitute investment Trust in which to invest or equivalent management services
could adversely affect shareholders' investments in the Fund. The Funds will
provide shareholders with 30 days' written notice prior to the implementation of
any change in the investment objective of the Fund or the Master Portfolio, to
the extent possible. See "Investment Objectives and Policies" in the Prospectus
for additional information regarding the Fund's and the Master Portfolio's
investment objectives and policies.
INVESTMENT ADVISER TO THE MASTER PORTFOLIOS
BGFA provides investment advisory services to each Master Portfolio
pursuant to separate Investment Advisory Contracts (each, a "BGFA Advisory
Contract") with MIP. Pursuant to the Advisory Contracts, BGFA furnishes to the
Trust's Board of Trustees periodic reports on the investment strategy and
performance of each Master Portfolio. BGFA has agreed to provide to the Master
Portfolios, among other things, money market security and fixed income research,
analysis and statistical and economic data and information concerning interest
rate and security market trends, portfolio composition, credit conditions and
average maturities of each Master Portfolio's investment portfolio.
BGFA is entitled to receive monthly fees at the annual rate of 0.55% of
each Master Portfolio's average daily net assets as compensation for its
advisory services to such Master Portfolio.
As to each Master Portfolio, the applicable BGFA Advisory Contract is
subject to annual approval by (i) MIP's Board of Trustees or (ii) vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
such Master Portfolio, provided that in either event the continuance also is
approved by a majority of MIP's Board of Trustees who are not "interested
persons" (as defined in the 1940 Act) of MIP or BGFA, by vote cast in person at
a meeting called for the purpose of voting on such approval. As to each Master
Portfolio, the applicable BGFA Advisory Contract is terminable without penalty,
on 60 days' written notice by MIP's Board of Trustees or by vote of the holders
of a majority of such Master Portfolio's shares, or, on not less than 60 days'
written notice, by BGFA. The applicable BGFA
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<PAGE> 73
Advisory Contract terminates automatically, as to the relevant Master Portfolio,
in the event of its assignment (as defined in the 1940 Act).
INVESTMENT ADVISER TO THE FUNDS
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, 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.
Under the terms of an Investment Advisory Agreement for the Funds
between the Trust and the Adviser ("Agreement"), the investment advisory
services of the Adviser to the Funds are not exclusive. The Adviser is free to,
and does, render investment advisory services to others.
The Agreement will continue in effect with respect to each Fund for a
period more than two years from the date of its execution, only as long as such
continuance is approved at least annually (i) by vote of the holders of a
majority of the outstanding voting securities of each Fund or by the Board of
Trustees and (ii) by a majority of the Trustees who are not parties to the
Agreement or "interested persons" (as defined in the 1940 Act) of any such
party. The Agreement was approved by the Board of Trustees, including a majority
of the Trustees who are not parties to the Agreement or interested persons of
any such parties, at a meeting called for the purpose of voting on the
Agreement, held on _______________, and by the sole shareholder of the Funds on
________________.
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 Trust have voted to adopt on behalf of each Fund 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
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<PAGE> 74
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 a 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% for the Institutional
Service Class and not to exceed 0.75% for the Institutional Premium Class. The
Distributor will use all amounts received under the Plan for payments to
broker-dealers or financial institutions (but not including banks) for their
assistance in distributing shares of the Fund and otherwise promoting the sale
of Fund shares, including payments in amounts based on the average daily value
of Fund shares owned by shareholders in respect of which the broker-dealer or
financial institution has a distributing relationship. The Distributor may also
use all or any portion of such fees to pay Fund expenses such as the printing
and distribution of prospectuses sent to prospective investors; the preparation,
printing and distribution of sales literature and expenses associated with media
advertisements.
The Plan provides for the Distributor to prepare and submit to the
Board of Trustees on a quarterly basis written reports of all amounts expended
pursuant to the Plan and the purpose for which such expenditures were made. The
Plan provides that it may not be amended to increase materially the costs which
the Fund may bear pursuant to the Plan without shareholder approval and that
other material amendments of the Plan must be approved by the Board of Trustees,
and by the Trustees who neither are "interested persons" (as defined in the 1940
Act) of the Trust nor have any direct or indirect financial interest in the
operation of the Plan or in any related agreement, by vote cast in person at a
meeting called for the purpose of considering 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 Administration Agreement 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 Administration Agreement voted
to approve the Plan at a meeting held on _________. The Plan was submitted to
the shareholders of the Fund and approved at a special meeting held on
__________. 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.
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
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<PAGE> 75
of 0.____% of each Fund's average daily net assets so long as the Funds are
invested in the MIP. In the event the Funds do not so invest in the MIP or
another investment company, BISYS will be paid at an annual rate of ___% of the
Funds' average daily net assets.
The Administration Agreement is for a ____ year term. The
Administration Agreement will terminate automatically in the event of its
assignment.
Investors Bank & Trust serves as the Fund Accounting Agent to the Funds
pursuant to a Fund Accounting Agreement.
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 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 shareholders may also provide record keeping, communication with and
education of shareholders, fiduciary services (exclusive of investment
management) and asset allocation services.
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.
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<PAGE> 76
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
The securities of the Master Portfolios, including covered call options
written by a Master Portfolio, are valued at the last sale price on the
securities exchange or national securities market on which such securities
primarily are traded. Securities not listed on an exchange or national
securities market, or securities in which there were no transactions, are valued
at the most recent bid prices. Portfolio securities which are traded primarily
on foreign securities exchanges generally are valued at the preceding closing
values of such securities on their respective exchanges, except that when an
occurrence subsequent to the time a value was so established is likely to have
changed such value, then the fair value of those securities is determined by
consideration of other factors by or under the direction of the MIP's Board of
Trustees or its delegates. Short-term investments are carried at amortized cost,
which approximates market value. Any securities or other assets for which recent
market quotations are not readily available are valued at fair value as
determined in good faith by the MIP's Board of Trustees.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by the MIP's Board of Trustees, are valued at fair value as
determined in good faith by or under the direction of the MIP's Board of
Trustees or its delegates. The MIP's Board of Trustees reviews the method of
valuation on a current basis. In making a good-faith valuation of restricted
securities, the following are generally considered: restricted securities that
are, or are convertible into, securities of the same class of securities for
which a public market exists usually are valued at market value less the same
percentage discount at which such securities were purchased. This discount may
be revised periodically if the Adviser believes that the discount no longer
reflects the value of the restricted securities. Restricted securities not of
the same class as securities for which a public market exists usually are valued
initially at cost. Any subsequent adjustment from cost is based upon
considerations deemed relevant by or under the direction of the MIP's Board of
Trustees or its delegates.
Any assets or liabilities initially expressed in terms of foreign
currency are translated into dollars using information provided by pricing
entities, such as Morgan Stanley Capital International or Gelderman Data
Service, or at a quoted market exchange rate as may be determined to be
appropriate by the Adviser. Forward currency contracts are valued at the current
cost of offsetting the contract. Because of the need to obtain prices as of the
close of trading on various exchanges throughout the world, the calculation of
net asset value does not take place contemporaneously with the determination of
prices of the foreign securities held
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<PAGE> 77
by the LifePath Master Portfolios. In addition, foreign securities held by a
LifePath Master Portfolio may be traded actively in securities markets which are
open for trading on days when the Master Portfolio does not determine its net
asset value. Accordingly, there may be occasions when a LifePath Master
Portfolio does not calculate its net asset value but when the value of such
Master Portfolio's portfolio securities is affected by such trading activity.
Fixed income securities are valued each business day using available
market quotations or at fair value as determined by one or more independent
pricing services (collectively, the "Service") approved by the MIP's Board of
Trustees. The Service may use available market quotations and employ electronic
data processing techniques and/or a matrix system to determine valuations. The
Service's procedures are reviewed by the MIP's officers under the general
supervision of the MIP's Board of Trustees.
Expenses and fees, including advisory fees, are accrued daily and are
taken into account for the purpose of determining the net asset value of each
Master Portfolio's shares.
PORTFOLIO TRANSACTIONS
Since each Fund invests all of its assets in a corresponding Master
Portfolio of MIP, set forth below is a description of the Master Portfolios'
policies governing portfolio securities transactions.
Purchases and sales of equity securities on a securities exchange
usually are effected through brokers who charge a negotiated commission for
their services. Commission rates are established pursuant to negotiations with
the broker based on the quality and quantity of execution services provided by
the broker in light of generally prevailing rates. Orders may be directed to any
broker including, to the extent and in the manner permitted by applicable law,
INTRUST or Barclays Global Investors Services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
Purchases of debt securities generally are principal transactions. Debt
securities normally are purchased or sold from or to dealers serving as market
makers for the securities at a net price. Debt securities may also be purchased
in underwritten offerings or directly from an issuer. Generally debt obligations
are traded on a net basis and do not involve brokerage commissions. The cost of
executing transactions in debt securities consists primarily of dealer spreads
and underwriting commissions. Under the 1940 Act, persons affiliated with MIP
are prohibited from dealing with MIP as a principal in the purchase and sale of
portfolio securities unless an exemptive order allowing such transactions is
obtained from the Commission or an exemption is otherwise available. The Master
Portfolios may purchase securities from underwriting syndicates of which INTRUST
or BGFA is a member under certain conditions in accordance with the provisions
of a rule adopted under the 1940 Act and in compliance with procedures adopted
by MIP's Board of Trustees.
MIP has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policies
established by MIP's Board of Trustees, BGFA, as adviser, is responsible for the
Master Portfolio's investment decisions and the
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<PAGE> 78
placing of portfolio transactions. In placing orders, it is MIP's policy to
obtain the best overall terms taking into account the 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 involved. BGFA generally
seeks reasonably competitive spreads or commissions.
In assessing the best overall terms available for any transaction, BGFA
considers factors deemed relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. As a result, a
Master Portfolio may pay a broker/dealer which furnishes brokerage services a
higher commission than that which might be charged by another broker/dealer for
effecting the same transaction, provided that such commission is determined to
be reasonable in relation to the value of the brokerage services provided by
such broker/dealer. Certain of the broker/dealers with whom the Master
Portfolios may transact business may offer commission rebates to the Master
Portfolios. BGFA considers such rebates in assessing the best overall terms
available for any transaction. MIP's Board of Trustees will periodically review
the commissions paid by the Master Portfolios to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Master Portfolios.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to a Master Portfolio in any transaction may be less favorable than
that available from another broker/dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
PORTFOLIO TURNOVER
Changes may be made in the portfolio consistent with the investment
objectives and policies of the Funds whenever such changes are believed to be in
the best interests of the Funds and their shareholders. It is anticipated that
the annual portfolio turnover rate normally will not exceed the amounts stated
in the Funds' Prospectuses and financial statements. The portfolio turnover rate
is calculated by dividing the lesser of purchases or sales of portfolio
securities by the average monthly value of the Fund's portfolio securities. For
purposes of this calculation, portfolio securities exclude all securities having
a maturity when purchased of one year or less.
TAXATION
The Funds intend to qualify and elect annually to be treated as
regulated investment companies under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). To qualify as a regulated investment company,
a Fund must (a) distribute to shareholders at least 90% of its investment
company taxable income (which includes, among
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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; and (c)
diversify its holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the market value of the Fund's assets is represented by cash
and cash items (including receivables), U.S. Government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and not greater than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any one issuer (other than U.S. Government securities or
the securities of other regulated investment companies). In addition, a Fund
earning tax-exempt interest must, in each year, distribute at least 90% of its
net tax-exempt income. By meeting these requirements, the Funds generally will
not be subject to Federal income tax on their investment company taxable income
and net capital gains which are distributed to shareholders. If the Funds do not
meet all of these Code requirements, they will be taxed as ordinary corporations
and their distributions will be taxed to shareholders as ordinary income.
Amounts, other than tax-exempt interest, not distributed on a timely
basis in accordance with a calendar year distribution requirement are subject to
a nondeductible 4% excise tax. To prevent imposition of the excise tax, each
Fund must distribute for each calendar year an amount equal to the sum of (1) at
least 98% of its ordinary income (excluding any capital 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 MIP 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. 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 MIP 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 MIP 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
21
<PAGE> 80
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 MIP'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 MIP 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 MIP 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 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
22
<PAGE> 81
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 MIP 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 MIP. In
addition, losses realized by a Fund or the MIP 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 MIP of
hedging transactions are not entirely clear. Hedging transactions may increase
the amount of short-term capital gain realized by a Fund or MIP which is taxed
as ordinary income when distributed to stockholders.
A Fund or the MIP may make one or more of the elections available under
the Code which are applicable to straddles. If a Fund or the MIP 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
23
<PAGE> 82
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 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 MIP accrues interest,
dividends or other receivables, or accrues expenses or other liabilities
denominated in a foreign currency, and the time the Fund or the MIP 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 MIP 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 MIP. 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 MIP 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
24
<PAGE> 83
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. The foreign tax credit may offset only
90% of the alternative minimum tax imposed on corporations and individuals, and
foreign taxes generally may not be deducted in computing alternative minimum
taxable income.
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).
OTHER INFORMATION
CAPITALIZATION
The Trust is a Delaware business trust established under a Declaration
of Trust dated January 26, 1996 and currently consists of eleven separately
managed portfolios. 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.
25
<PAGE> 84
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.
As of August 5, 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:
Money Market Fund
Institutional Service Class Shares Owned % Owned
- --------------------------- ------------ -------
Transco & Company 45,960,178.340 100.00%
Cash Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
Short-Term Bond Fund
Institutional Service Class Shares Owned % Owned
- --------------------------- ------------ -------
Transco & Company 1,774,393.565 29.70%
Reinvest Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
Transco & Company 4,199,841.311 70.30%
Cash Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
Intermediate Bond Fund
Institutional Service Class Shares Owned % Owned
- --------------------------- ------------ -------
Transco & Company 1,274,950.387 25.46%
Reinvest Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
Transco & Company 3,731,706.278 74.53%
Cash Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
Stock Fund
Institutional Service Class Shares Owned % Owned
- --------------------------- ------------ -------
Transco & Company 4,227,712.314 51.30%
Reinvest Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
Transco & Company 3,905,370.367 47.39%
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 % Owned
- --------------------------- ------------ -------
Transco & Company 3,182,843.300 58.64%
Reinvest Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
Transco & Company 2,186,708.882 40.29%
Cash Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
Kansas Tax-Exempt Bond Fund
Institutional Service Class Shares Owned % Owned
- --------------------------- ------------ -------
Transco & Company 1,343,144.735 11.14%
Reinvest Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
Transco & Company 10,599,931.039 87.94%
Cash Account
c/o INTRUST Bank/Trust Division
105 N. Main
Wichita, KS 67201
The Funds do not know the extent to which other holders of record were
beneficial owners of shares indicated.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
INTRUST acts as custodian of the Trust's assets. BYSIS Fund Services,
Inc. ("BFSI") acts as transfer agent for the Funds. The Trust compensates BFSI
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 Funds pay no custodian fees at the Fund level as long as all
of their assets are invested in another mutual fund, but they incur their
pro-rata portion of the custody fees of Investors Bank & Trust Company as the
Master Portfolios' Custodian. Investors Bank & Trust, as the Master Portfolios'
Custodian, 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.
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000 payment
made at the beginning of the period (assuming the reinvestment of dividends and
distributions), dividing by the amount of
26
<PAGE> 85
the initial investment, taking the "n"th root of the quotient (where "n" is the
number of years in the period) and subtracting 1 from the result.
Total return is calculated by subtracting the amount of the net asset
value per share at the beginning of a stated period from the net asset value per
share at the end of the period (after giving effect to the reinvestment of
dividends and distributions during the period), and dividing the result by the
net asset value per share at the beginning of the period.
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
Master Portfolios for the period ended _______ are incorporated herein by
reference to the MIP'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. 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.
27
<PAGE> 86
PART C. OTHER INFORMATION
- -------
Item 23. Financial Statements and Exhibits
(a) (1) Financial Statements included in Part A of this
Registration Statement: to be filed by Post-effective
Amendment
(2) Financial Statements incorporated by reference in
Part B: to be filed by Post-effective 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
LifePath Funds. (5)
(5)(c) Form of Sub-Advisory Agreements between
Adviser and Sub-Advisers.(1)
<PAGE> 87
7
(5)(d) Form of Master Administration Agreement
and Supplements between Registrants and
Administrator.(1)
(6) Form of Master Distribution Contract and
Supplements between Registrant and
Distributor.(1)
(7) None.
(8) Form of Custodian Contract between
Registrant and Custodian.(1)
(9)(a) Form of Transfer Agency and Service
Agreement between Registrant and Transfer
Agent.(1)
(9)(b) Form of Service Organization
Agreement.(1)
(10) Consent of Paul, Weiss, Rifkind, Wharton
& Garrison, counsel to Registrant.(5)
(11)(a) Consent to KPMG Peat Marwick LLP -- filed
herewith.
(11)(b) Consent of Arthur Andersen LLP.(5)
(11)(c) Consent of Ernst & Young LLP(5)
(12) None.
(13) Subscription Agreement.(1)
(14) None.
(15) Form of Rule 12b-1 Distribution Plan and
Agreement between Registrant and
Distributor.(5)
(16) Schedule of Computation of Performance
Calculation.(2)
Schedule of Computation of Performance
Calculation for Kansas Tax Exempt Bond
Fund.(3)
Schedule of Computation of Performance
Calculations for all Funds.(4)
(17) Financial Data Schedules for Money
Market Fund--filed herewith
<PAGE> 88
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) To be filed by amendment.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities at July 31, 1998.
Money Market Fund 2
Short-term Bond Fund 3
Intermediate Bond Fund 3
Stock Fund 10
International Multi-Manager Stock Fund 7
Kansas Tax-Exempt Bond Fund 1
LifePath 2000 Fund None
LifePath 2010 Fund None
LifePath 2020 Fund None
LifePath 2030 Fund None
LifePath 2040 Fund None
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> 89
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> 90
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> 91
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)
Item 29. Principal Underwriter
(a) BISYS acts as Distributor/Underwriter for other
registered investment companies.
(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
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 located at 3435 Stelzer Road,
Columbus, Ohio 43219 and INTRUST 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.
Item 31. Management Services.
<PAGE> 92
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> 93
13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, Registrant 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 August 11, 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 August 11, 1998
- ---------------------------
Terry L. Carter
/s/ Thomas F. Kice* Trustee August 11, 1998
- ---------------------------
Thomas F. Kice
/s/ George Mileusnic* Trustee August 11, 1998
- ---------------------------
George Mileusnic
/s/ John J. Pileggi* Trustee August 11, 1998
- ---------------------------
John J. Pileggi
/s/ G.L. Best* Trustee August 11, 1998
- ---------------------------
G.L. Best
/s/ David Bunstine* Trustee August 11, 1998
- ---------------------------
David Bunstine
</TABLE>
<PAGE> 94
14
<TABLE>
<S> <C> <C>
/s/ Paul Kane* President August 11, 1998
- ---------------------------
Paul Kane
*By: /s/ David Bunstine Treasurer August 11, 1998
- --------------------------- (Principal Financial
David Bunstine and Accounting
Attorney-in-Fact Officer)
</TABLE>
<PAGE> 95
17
SIGNATURES
AMR Fund Investment Services Trust has duly caused this
Post-Effective Amendment No. 4 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 August 11, 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. 4 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 August 11, 1998
--------------------------
William F. Quinn
By: /s/ Alan D. Feld* Trustee August 11, 1998
--------------------------
Alan D. Feld
By: /s/ Ben J. Fortson* Trustee August 11, 1998
--------------------------
Ben J. Fortson
</TABLE>
<PAGE> 96
18
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
By: /s/ John S. Justin* Trustee August 11, 1998
--------------------------
John S. Justin
By: /s/ Stephen D. O'Sullivan* Trustee August 11, 1998
--------------------------
Stephen D. O'Sullivan
By: /s/ Roger T. Staubach* Trustee August 11, 1998
--------------------------
Roger T. Staubach
By: /s/ Kneeland Youngblood* Trustee August 11, 1998
--------------------------
Kneeland Youngblood
By: /s/ William F. Quinn August 11, 1998
--------------------------
William F. Quinn
Attorney-in-Fact
</TABLE>
<PAGE> 1
Exhibit 11(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees of
INTRUST Funds Trust:
We consent to use of our report dated April 3, 1998 for the Master Investment
Portfolio as incorporated herein by reference and to the reference to our firm
under the headings "Independent Auditors" and "Financial Statements" in the
Statement of Additional Information included herein. We also consent to the use
of our report for the INTRUST Funds Trust dated December 19, 1997 as
incorporated by reference in the INTRUST Funds Trust -- Statement of Additional
Information dated March 2, 1998 as previously filed with the Securities and
Exchange Commission and to the reference to our firm under the heading
"Independent Auditors" and "Financial Statements" in that Statement of
Additional Information which has been incorporated by reference in its entirety
herein.
/s/ KPMG Peat Marwick LLP
Columbus, Ohio
August 10, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001006242
<NAME> INTRUST FUNDS TRUST
<SERIES>
<NUMBER> 01
<NAME> MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> JAN-21-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 55,319,083
<INVESTMENTS-AT-VALUE> 55,319,083
<RECEIVABLES> 406,186
<ASSETS-OTHER> 94,895
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 55,820,164
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 254,375
<TOTAL-LIABILITIES> 254,375
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 55,553,169
<SHARES-COMMON-STOCK> 55,565,433
<SHARES-COMMON-PRIOR> 71,374,767
<ACCUMULATED-NII-CURRENT> 12,264
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 356
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 55,565,789
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,721,575
<OTHER-INCOME> 0
<EXPENSES-NET> 342,932
<NET-INVESTMENT-INCOME> 2,378,643
<REALIZED-GAINS-CURRENT> 356
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,378,999
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,378,643
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 288,738,958
<NUMBER-OF-SHARES-REDEEMED> 233,176,962
<SHARES-REINVESTED> 3,437
<NET-CHANGE-IN-ASSETS> 55,565,789
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 97
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 120,772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 415,393
<AVERAGE-NET-ASSETS> 62,526,445
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.038
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.038
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
