As filed with the Securities and Exchange Commission on November 27, 1998
Securities Act File No. 333-7085
Investment Company Act File No. 811-7681
================================================================================
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. 5 X
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 6 X
First Choice Funds Trust
(Exact Name of Registrant as Specified in Charter)
4400 Computer Drive
Westborough, Massachusetts 01581
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 573-1224
Name and Address of Agent for Service: Copies to:
Coleen Downs Dinneen, Esq. Steven R. Howard, Esq.
First Data Investor Services Group, Inc. Paul, Weiss, Rifkind,
One Exchange Place Wharton & Garrison
Boston, Massachusetts 02109 1285 Avenue of the Americas
New York, NY 10019
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of the Registration Statement.
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b), or
X on December 15, 1998 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1), or
on pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2) on__________
pursuant to paragraph (a)(2) of Rule 485
<PAGE>
FIRST CHOICE FUNDS TRUST
FORM N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
U.S. TREASURY RESERVE FUND
CASH RESERVE FUND
Part A.
Item No. Prospectus Caption
Item 1. Cover Page.................................. Cover Page
Item 2. Synopsis.................................... Fund Expenses
Item 3. Condensed Financial Information............. Financial Highlights
Item 4. General Description of Registrant........... Highlights; Investment
Policies and Practices
of the Funds;
Investment Restrictions;
Risks of Investing in
the Funds
Item 5. Management of the Fund...................... Management of the Funds;
Exchange of Fund Shares;
Redemption of Fund Shares
Item 5A. Management's Discussion of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities.......... Dividends, Distributions
and Federal Income Tax;
Other Information
Item 7. Purchase of Securities Being Offered........ Fund Share Valuation;
Pricing and Purchase
of Fund Shares
Item 8. Redemption or Repurchase.................... Redemption of Fund Shares
Item 9. Pending Legal Proceedings................... Not Applicable
<PAGE>
FIRST CHOICE FUNDS TRUST
FORM N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
EQUITY FUND
Part A.
Item No. Prospectus Caption
Item 1. Cover Page.................................. Cover Page
Item 2. Synopsis.................................... Fund Expenses
Item 3. Condensed Financial Information............. Financial Highlights
Item 4. General Description of Registrant........... Highlights; Investment
Objective and Policies;
Investment Practices;
Investment Restrictions;
Risks of Investing in the Fund
Item 5. Management of the Fund...................... Management of the Fund;
Exchange of Fund Shares;
Redemption of Fund Shares
Item 5A. Management's Discussion of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities.......... Dividends, Distributions
and Federal Income Tax;
Other Information
Item 7. Purchase of Securities Being Offered........ Fund Share Valuation;
Pricing and Purchase of
Fund Shares
Item 8. Redemption or Repurchase.................... Redemption of Fund Shares
Item 9. Pending Legal Proceedings................... Not Applicable
<PAGE>
5
N-1A Statement of Additional
Item No. Information Caption
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 Objectives and Policies........ Investment Policies;
Investment Restrictions
Item 14. Management of the Fund..................... Management
Item 15. Control Persons and Principal Holders of Securities Management;
Other Information
Item 16. Investment Advisory and Other Services..... Management;
Other Information
Item 17. Brokerage Allocation and Other Practices...Portfolio Transactions
Item 18. Capital Stock and Other Securities......... Other Information;
Capitalization;
Voting Rights
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered............................. Determination of Net
Asset Value
Item 20. Tax Status................................. Taxation
Item 21. Underwriters............................... Management
Item 22. Calculation of Performance Data............ Performance Information
Item 23. Financial Statements....................... Financial Statements
Part C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
FIRST CHOICE U.S. TREASURY RESERVE FUND
FIRST CHOICE CASH RESERVE FUND
each a series of
FIRST CHOICE FUNDS TRUST
c/o First Data Investor Services Group, Inc.
4400 Computer Drive
P.O. Box 5176
Westborough, MA 01581-5176
www.firstchoicefunds.com
General and Account Information:
1-888-FIRST16
FIRST AMERICAN CAPITAL MANAGEMENT, INC.
Investment Adviser
FIRST DATA INVESTOR SERVICES GROUP, INC.
Administrator and Transfer Agent
FIRST DATA DISTRIBUTORS, INC.
Distributor
<PAGE>
FIRST CHOICE U.S. TREASURY RESERVE FUND
FIRST CHOICE CASH RESERVE FUND
PROSPECTUS
This Prospectus describes two money market funds ("U.S.
Treasury Reserve Fund" and "Cash Reserve Fund") (each a "Fund,"
collectively, the "Funds"), both of which are managed by First American
Capital Management, Inc. The Funds and their investment objectives are:
o The U.S. Treasury Reserve Fund seeks to provide investors with as high a
level of current income as is consistent with liquidity, maximum safety of
principal and the maintenance of a stable $1.00 net asset value per share
by investing in U.S. Treasury securities.
o The Cash Reserve Fund seeks to provide investors with current income,
liquidity and the maintenance of a stable $1.00 net asset value per share
by investing in high quality, short-term obligations.
The Funds' investment adviser is First American Capital Management,
Inc., ("First American" or the "Adviser"), an affiliate of The First American
Financial Corporation, a leading provider of real estate related financial and
information services to real property buyers and mortgage lenders and trust
services through its affiliate companies. See "Management of the Funds" in this
Prospectus.
The Funds offer, and this Prospectus relates to, three classes of
shares - the Investment Class, Service Class and Institutional Class. The
Investment Class shares are available through authorized financial services
companies which provide to investors various administrative services including
shareholder servicing, sub-accounting and sub-transfer agency services. The
Service Class shares are available to customers who require shareholder
servicing. The Institutional Class shares are available to institutional
investors (i.e. banks, trust companies, insurance companies, corporations, high
net worth investors and other institutional investors). The Investment Class
shares impose shareholder servicing, administrative and Rule 12b-1 fees. The
Service Class shares impose shareholder servicing and Rule 12b-1 fees. The
Institutional Class shares are subject to a minimum investment of $50,000 and do
not impose any shareholder servicing, administrative or Rule 12b-1 fees.
The Funds are separate investment portfolios of First Choice Funds
Trust (the "Trust"), a Delaware business trust and open-end investment
management company. The Trust also offers an equity fund ("First Choice Equity
Fund") under a separate Prospectus.
An investment in shares of the Trust is neither insured nor guaranteed
by the U.S. Government. There can be no assurance that the Funds will be able to
maintain a stable net asset value of $1.00 per share. Shares of the Trust are
not deposits or obligations of, or guaranteed or endorsed by The First American
Financial Corporation or its affiliates, and are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board or any other
government agency and may involve investment risk, including the possible loss
of principal.
This Prospectus sets forth concisely the information a prospective
investor should know before investing in either of the Funds and should be read
and retained for information about each Fund.
A Statement of Additional Information dated December 15, 1998 (the
"SAI"), 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 (http://www.sec.gov).
The SAI is incorporated by reference into this Prospectus. It is available
without charge and can be obtained by writing or calling the Funds at the
address or telephone number printed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Date of this Prospectus is December 15, 1998.
TABLE OF CONTENTS
Page
FUND EXPENSES............................................................. 3
FINANCIAL HIGHLIGHTS...................................................... 5
HIGHLIGHTS................................................................ 6
INVESTMENT POLICIES AND PRACTICES OF THE FUNDS............................ 8
INVESTMENT RESTRICTIONS................................................... 11
RISKS OF INVESTING IN THE FUNDS........................................... 12
MANAGEMENT OF THE FUNDS................................................... 13
FUND SHARE VALUATION...................................................... 15
PRICING AND PURCHASE OF FUND SHARES....................................... 16
MINIMUM PURCHASE REQUIREMENTS............................................. 17
INDIVIDUAL RETIREMENT ACCOUNTS............................................ 17
EXCHANGE OF FUND SHARES................................................... 17
REDEMPTION OF FUND SHARES................................................. 18
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX........................... 20
OTHER INFORMATION......................................................... 21
<PAGE>
FUND EXPENSES
......... The following expense table lists the costs and expenses that an
investor will incur either directly or indirectly as a shareholder of each
Fund. The information provided is based upon expenses for the
Institutional and Service Classes of the Funds and expected expenses for the
Investment Class of the Funds for the fiscal year ended September 30, 1998.
For the year ended September 30, 1998, First American Trust Company
held 69% of the U.S. Treasury Fund and 99% of the Cash Reserve Fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Reserve Fund Cash Reserve Fund
Investment Institutional Service Investment Institutional Service
Class Class Class Class Class Class
Shareholder Transaction Expenses
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 None None None None None None
fee)
Redemption Fees1................................ None None None None None None
Exchange Fees................................... None None None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (after waiver)2................. 0.05% 0.05% 0.05% 0.10% 0.10% 0.10%
12b-1 Fees (after waiver)....................... 0.25% None 0.25% 0.25% None 0.25%
Other Expenses
Shareholder Servicing Expenses ............ 0.75%4 None 0.25%3 0.75%4 None 0.25%3
Other Operating Expenses
(after waiver and/or reimbursement)5 ...... 0.40% 0.40% 0.40% 0.35% 0.35% 0.35%
----- ----- ----- ----- ----- -----
Total Fund Operating Expenses
(after waiver and/or reimbursement)5............ 1.45% 0.45% 0.95% 1.45% 0.45% 0.95%
===== ===== ===== ===== ===== =====
</TABLE>
1 Shareholders may be charged a wire redemption fee by their bank for receiving
a wire payment on their behalf. Individual Retirement Accounts are subject to
an establishment fee ($7.50), annual maintenance and custody fee ($15) and
termination fee ($12).
2 Absent waivers, which may be discontinued at any time, Management Fees would
have been 0.30% for each Fund.
3 The Service Class of the Funds imposes a fee of up to 0.25% for servicing,
recordkeeping, sub-accounting, subtransfer agency, communication with
shareholders, fiduciary services (excluding investment management) and asset
allocation services.
4 The Investment Class of the Funds imposes a fee of up to 0.75% for servicing,
recordkeeping, sub-accounting, subtransfer agency, communication with
shareholders, fiduciary services (excluding investment management) and asset
allocation services.
<PAGE>
5 Absent waivers and/or reimbursements, which may be discontinued at any time,
Other Operating Expenses and Total Fund Operating Expenses would be as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. Treasury Reserve Fund Cash Reserve Fund
------------------------------------ ---------------------------------
Other Total Fund Other Total Fund
Operating Operating Operating Operating
Expenses Expenses Expenses Expenses
Investment Class 0.53% 1.83% 0.41% 1.71%
Institutional Class 0.53% 0.83% 0.41% 0.71%
Service Class 0.53% 1.33% 0.41% 1.21%
</TABLE>
Example:*
You would pay the following expenses on a $1,000 investment, assuming
5% gross annual return, reinvestment of all dividends and distributions, that
the percentage amounts listed as "Total Fund Operating Expenses" remain the same
each year and redemption at the end of each time period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Reserve Fund Cash Reserve Fund
------------------------------------ ------------- ----------------------------------------------
Investment Institutional Service Investment Institutional Service
Class Class Class Class Class Class
1 year........ $ 15 $ 5 $ 10 $ 15 $ 5 $ 10
3 years...... $ 46 $14 $30 $ 46 $14 $30
5 years...... $ 79 $25 $53 $ 79 $25 $53
10 years..... $174 $57 $117 $174 $57 $117
</TABLE>
The purpose of this table is to assist a shareholder in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly. For a more detailed discussion of other matters, investors should
refer to the appropriate sections of the Prospectus.
* This example should not be considered a representation of past or
future expenses or return. The example assumes a 5% annual return,
however actual Fund expenses and return will vary from year-to-year and
may be higher or lower than those shown.
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial information has been derived from the
financial statements of the Trust. The Investment Class was seeded on April 20,
1998. As of September 30, 1998, no investment activity had occurred. The
financial statements for the most recent fiscal period ended September 30, 1998
are incorporated by reference into the SAI and have been audited by
PricewaterhouseCoopers whose report thereon is also incorporated by reference
into the SAI. You may obtain the Annual Report, without charge, by calling the
Trust at 1-888-FIRST16.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Reserve Fund+ Cash Reserve Fund+
Year Ended Year Ended Year Ended Period Ended
September 30, 1998 September 30, 1997 (a) September 30, 1998 September 30, 1997 (b)
------------------ ---------------------- ------------------ --------------------
Service InstitutionalService Institutional Service Institutional Service Institutional
Class Class Class Class Class Class Class Class
Net Asset Value, beginning of period $ $ $ $ $ $ $ $
------ ---------- ------- -------- ------- ------- --------- -
1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000
----- ----- ----- ----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income 0.048 0.049 0.049 0.050 0.051 0.052 0.037 0.038
Net realized and unrealized
gain (loss) on investments...... -----(c) -----(c) -----(c) -----(c) -----(c) -----(c) -----(c) -----(c)
-------- ---------- --------- --------- ------- ------- -------- ---------
Total from Investment 0.048 0.049 0.049 0.050 0.051 0.052 0.037 0.038
Operations..........................
Less Distributions:
Dividends from net investment
income.............................. (0.048) (0.049) (0.049) (0.050) (0.051) (0.052) (0.037) (0.038)
------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, end of period...... $ $ $ $ $ $ $ $
======= =========== ======= ========= ======= ======== ======= =
1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000
===== ===== ===== ===== ===== ===== ===== =====
Total Return:....................... 4.88% 4.97% 5.04% 5.08% 5.19% 5.29% 3.78%(e) 3.82%(e)
Ratios/Supplemental Data:
Net Assets, end of period (000s).... $11,196 $45,750 $73,581 $1,995 $487 $145,634 $57,947 $61
Ratios to average net assets:
Net investment income*........... 4.87% 4.91% 4.93%(d) 4.93%(d) 5.15% 5.20% 5.23%(d) 5.23%(d)
Operating expenses*.............. 0.47% 0.43% 0.35%(d) 0.35%(d) 0.49% 0.44% 0.35%(d) 0.35%(d)
Operating expenses excluding
reimbursement, waiver and
custody earnings credits....... 0.82% 0.78% 1.36%(d) 0.86%(d) 0.78% 0.73% 1.43%(d) 0.93%(d)
Net investment income excluding
reimbursements, waiver and
custody earnings credits....... 4.52% 4.56% 3.92%(d) 4.42%(d) 4.86% 4.91% 4.15%(d) 4.65%(d)
.........
</TABLE>
- ---------------------------
* During the period certain expenses were reduced for credits earned at
Custodian bank. If such credits had not occurred, the ratios would have
been as indicated. Impact of Custody earnings credits was less than
0.01% and $0.001 per share at September 30, 1998.
+ The Investment Class was seeded on April 20, 1998. As of September
30, 1998, no investment activity had occurred.
(a) The Fund commenced operations on October 1, 1996.
(b) The Fund commenced operations on January 13, 1997.
(c) Amounts were less than $0.001 per share.
(d) Annualized
(e) Not annualized
<PAGE>
26
g:\shared\clients\1stameri\peas\peano._\prospect\equity2.doc
HIGHLIGHTS
Investment Objectives and Policies of the Funds
This Prospectus describes two money market funds, both of which are
managed by First American. Each Fund has distinct investment objectives
and policies.
U.S. Treasury Reserve Fund. The investment objective of the U.S.
Treasury Reserve Fund is to provide investors with as high a level of current
income as is consistent with liquidity, maximum safety of principal, and the
maintenance of a stable $1.00 net asset value per share by investing in U.S.
Treasury securities. The Fund invests exclusively in direct short-term
obligations of the United States Treasury, which are backed by the full faith
and credit of the United States Government. The U.S. Treasury Reserve Fund may
also purchase securities on a "when-issued" basis and purchase or sell them on a
"forward commitment" basis.
Cash Reserve Fund. The investment objective of the Cash Reserve Fund is
to provide investors with current income, liquidity and the maintenance of a
stable $1.00 net asset value per share by investing in high quality, U.S.
dollar-denominated short-term obligations which are determined by the Adviser to
present minimal credit risks.
The Cash Reserve Fund will 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, and other promissory notes, including floating or
variable rate obligations; and (3) the following domestic, Yankeedollar and
Eurodollar obligations: certificates of deposit, time deposits, bankers'
acceptances, commercial paper, bearer deposit notes and other promissory notes,
including floating or variable rate obligations issued by U.S. or foreign bank
holding companies and their bank subsidiaries, branches and agencies. The Cash
Reserve Fund will invest only in issuers or instruments that at the time of
purchase (1) have received the highest short-term rating by at least two
nationally recognized statistical rating organizations ("NRSROs"), such as "A-1"
by Standard & Poor's Corporation ("S&P") and "P-1" by Moody's Investors Service,
Inc. ("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 pursuant to guidelines approved by the Fund's Board of
Trustees. The Cash Reserve Fund may also purchase securities on a "when-issued"
basis and purchase or sell them on a "forward commitment" basis.
The Cash Reserve 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 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 Fund will not maintain this concentration.
The Cash Reserve 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
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 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 Fund. In determining dollar-weighted average portfolio
maturity, a variable rate master demand obligation will be deemed to have a
maturity equal to the shorter of the period of time remaining until the next
readjustment of the interest rate or the period of time remaining until the
principal amount can be recovered from the issuer on demand.
Amortized Cost Method of Valuation for the Funds
Portfolio investments of each Fund are valued based on the amortized
cost valuation method pursuant to Rule 2a-7 under the 1940 Act. Obligations in
which the Funds invest generally have remaining maturities of 397 days or less,
although upon satisfying certain conditions of Rule 2a-7, the Funds 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 each Fund
will not exceed 90 days. See the SAI for an explanation of the amortized cost
valuation method.
Risks of Investing in the Funds
The Funds attempt to maintain the net asset value of their shares at a
constant $1.00 per share, although there can be no assurance that the Funds will
always be able to do so. The Funds may not achieve as high a level of current
income as other funds that do not limit their investments to the high quality
securities in which the Funds invest.
The Cash Reserve Fund's policy of concentrating in the banking industry
increases the Fund's exposure to market conditions prevailing in that industry.
See "Risks of Investing in the Funds" herein.
Management of the Funds
First American acts as investment adviser to the Funds. For its
services, First American receives a fee from each Fund based upon each Fund's
average daily net assets. See "Management of the Funds" in this Prospectus.
First Data Investor Services Group, Inc. ("Investor Services Group")
acts as administrator and transfer agent to the Funds and is sometimes referred
to herein as "Administrator" or "Transfer Agent." First Data Distributors, Inc.
acts as distributor to the Funds and is sometimes referred to herein as
"Distributor." For its services, the Administrator receives a fee from the Funds
based on each Fund's average daily net assets. See "Management of the Funds" in
this Prospectus. The Distributor distributes the Funds' shares and may be
reimbursed for certain of its distribution-related expenses.
Guide to investing in the First Choice Family of Funds
Purchase orders for the Funds received by 12:00 noon Eastern time for
the U.S. Treasury Reserve Fund or 3:00 p.m. Eastern time for the Cash Reserve
Fund, subject to the following limitations:
<TABLE>
<CAPTION>
<S> <C> <C>
Investment and Institutional
Service Class Class
o Minimum Initial Investment....................... $1,000 $50,000
o Minimum Initial Investment for IRAs.............. $250 Not Applicable
o Minimum Subsequent Investment................... $50 $1,000
The Funds' shares are purchased at net asset value.
Shareholders may exchange shares between the First Choice Funds by
telephone or mail. Exchanges may not be effected by facsimile.
Investment and Institutional
Service Class Class
o Minimum Initial Exchange......................... $1,000 $50,000
(no minimum for subsequent exchanges)
</TABLE>
Shareholders may redeem shares by telephone, mail or by writing a
check. Shares may not be redeemed by facsimile.
o Redemption requests made by telephone may designate the proceeds to
be wired to a previously designated bank
account or mailed to the address of record.
o If a redemption request is received by 12:00 noon Eastern time for the
U.S. Treasury Reserve Fund or 3:00 p.m. Eastern time for the Cash
Reserve Fund, proceeds from the Funds will be transferred to a
designated account on that day.
o Minimum check amount when using the check writing service is $500 for
the Investment Class and Service Class and $5,000 for the Institutional
Class.
o The Funds reserve the right to involuntarily redeem upon not less than
30 days notice all shares in an account which have an aggregate value
less than the required minimum.
(Redemption by telephone and check writing is not available for IRAs
and trust relationships.)
All distributions will be automatically paid in additional shares at
net asset value of the applicable Fund unless cash payment is requested.
o Distributions from the Funds are paid monthly.
INVESTMENT POLICIES AND PRACTICES OF THE FUNDS
Each Fund is a separate investment portfolio, commonly known as a
mutual fund. The Funds are portfolios of a business trust, First Choice Funds
Trust, organized under the laws of Delaware as an open-end management investment
company. The Trust's Board of Trustees oversees the overall management of the
Funds and elects the officers of the Trust.
o The investment objective of the U.S. Treasury Reserve Fund is to
provide investors with as high a level of current income as is
consistent with liquidity, maximum safety of principal, and the
maintenance of a stable $1.00 net asset value per share by investing in
U.S. Treasury securities.
o The investment objective of the Cash Reserve Fund is to provide
investors with current income, liquidity and the maintenance of a
stable $1.00 net asset value per share by investing in high quality,
short-term obligations.
Each Fund follows its own investment objectives and policies, including
certain investment restrictions. The SAI contains specific investment
restrictions which govern the Funds' investments. The Funds' investment
objectives are fundamental policies, which means that they may not be changed
without a majority vote of shareholders of the affected Fund. Except for the
objectives and those restrictions specifically identified as fundamental, all
other investment policies and practices described in this Prospectus and in the
SAI are not fundamental and may be changed solely through the approval of the
Board of Trustees.
The Adviser selects investments and makes investment decisions based on
the investment objective and policies of each Fund. The following is a
description of investment practices of the Funds and the securities in which
they may invest:
U.S. Treasury Obligations (Both Funds). Each Fund may invest, and the
U.S. Treasury Reserve Fund invests exclusively, in U.S. Treasury obligations,
whose principal and interest are backed by the full faith and credit of the
United States Government. 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 two years 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 (Cash Reserve Fund Only). 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 (Cash Reserve Fund Only). 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, at the time of investment (1) given the highest short-term rating by at
least two NRSROs, such as "A-1" by S&P and "P-1" by Moody's; (2) single rated
and given the highest short-term rating by a NRSRO; or (3) unrated, but
determined to be of comparable quality by the Adviser pursuant to guidelines
approved by the Fund's Board of Trustees.
Corporate Debt Securities (Cash Reserve Fund Only). The Fund may
purchase corporate debt securities, subject to the rating and quality
requirements specified above. 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 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.
Domestic and Foreign Bank Obligations (Cash Reserve Fund Only). These
obligations include but are not restricted to certificates of deposit,
commercial paper, Yankeedollar 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 its
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 Fund. 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 from two days through seven days may not exceed 10% of the value of the
total 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 controls, may be adopted which might adversely
affect the payment of principal and interest on those obligations, 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 Yankeedollar obligations involve
additional risks. Most notably, there generally is less publicly available
information about foreign companies; there may be less governmental regulation
and supervision; they may use different accounting and financial standards; and
the adoption of foreign governmental restrictions may adversely affect the
payment of principal and interest on foreign investments. In addition, not all
foreign branches of United States banks are supervised or examined by regulatory
authorities as are United States banks, and such branches may not be subject to
reserve requirements.
STRIPS and Zero Coupon Securities (Both Funds). Each Fund may invest in
separately traded principal and interest components of securities backed by the
full faith and credit of the United States Treasury. The principal and interest
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 Funds'
investments in STRIPS are limited to those with maturity components not
exceeding 13 months (397 days).
Each 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 (Cash Reserve Fund Only). 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 the 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, the Fund may, under its minimum rating standards, invest in
them only if, in the opinion of the Adviser, 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 Fund's
Board of Trustees. See the SAI for further details on variable rate demand
obligations and variable rate master demand obligations.
Other Mutual Funds (Cash Reserve Fund Only). 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, provided that any such
purchases will be limited to short-term investments in shares of unaffiliated
investment companies, and will not, in the aggregate, exceed 10% of the Fund's
net assets. 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.
"When-Issued" and "Forward Commitment" Transactions (Both Funds).
Each 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 a Fund
with payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time of
entering into the transaction. A forward commitment transaction is an agreement
by a Fund to purchase or sell securities at a specified future date. When a Fund
engages in these transactions, the Fund relies on the buyer or seller, as the
case may be, to consummate the sale. Failure to do so may result in the Fund
missing the opportunity to obtain a price or yield considered to be
advantageous. When-issued and delayed-delivery transactions and forward
commitment transactions may be expected to occur a month or more before delivery
is due. However, no payment or delivery is made by a Fund until it receives
payment or delivery from the other party to the transaction. A separate account
containing only liquid assets equal to the value of purchase commitments will be
maintained until payment is made. Such transactions have the effect of leverage
on the Funds and may contribute to volatility of a Fund's net asset value. For
further information, see the SAI.
Loans of Portfolio Securities (Both Funds). To increase current income,
each Fund may lend its portfolio securities in an amount up to 33% of each such
Fund's total assets to brokers, dealers and financial institutions, provided
certain conditions are met, including the condition that each loan is secured
continuously by collateral maintained on a daily mark-to-market basis in an
amount at least equal to the current market value of the securities loaned.
These transactions involve a loan by the applicable Fund and are subject to the
same risks as repurchase agreements. For further information, see the SAI.
Repurchase Agreements (Cash Reserve Fund Only). The Fund may enter into
repurchase agreements with any bank or broker-dealer which, in the opinion of
the Board of 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 such securities. The Fund may invest up to
100% of its net assets in repurchase agreements maturing in seven days or less;
however, the Fund may not invest more than 10% of its net assets in repurchase
agreements maturing in more than seven calendar 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 (Both Funds). Each 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, a Fund will sell portfolio securities and agree to
repurchase them from the buyer at a particular date and price. Whenever a Fund
enters into a reverse repurchase agreement, it will establish a segregated
account in which it will maintain liquid assets in an amount at least equal to
the repurchase price marked-to-market daily (including accrued interest), and
will subsequently monitor the account to ensure that such equivalent value is
maintained. The Funds pay interest on amounts obtained pursuant to reverse
repurchase agreements. Reverse repurchase agreements are considered to be
borrowings by a Fund under the 1940 Act.
INVESTMENT RESTRICTIONS
(Both Funds, except as indicated)
The Funds also operate under certain investment restrictions. Certain
of the Funds' investment restrictions are set forth below. For a complete list
of the Funds' investment restrictions, see the section in the Funds' SAI
entitled "Investment Restrictions." The following investment restrictions are
fundamental policies of the Funds, which can be changed only when permitted by
law and approved by a majority of the Funds' outstanding voting securities. 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) No Fund may borrow money or pledge or mortgage its assets, except that
a Fund may enter into reverse repurchase agreements or borrow from
banks up to 10% of the current value of its net assets for temporary or
emergency purposes and those borrowings may be secured by the pledge of
not more than 15% of the current value of that Fund's total net assets
(but investments may not be purchased by a Fund while any such
borrowings exist);
(2) No Fund may make loans, except loans of portfolio securities and except
that a Fund may enter into repurchase agreements with respect to its
portfolio securities and may purchase the types of debt instruments
described in this Prospectus;
(3) No Fund will purchase a security if, as a result, more than 25% of the
value of its total assets would be invested in securities of one or
more issuers conducting their principal business activities in the same
industry (except for the Cash Reserve Fund, which will concentrate its
investments in obligations issued by the banking industry), provided
that this limitation shall not apply to obligations issued or
guaranteed by the U.S. Government or its agencies and
instrumentalities; and
(4) No Fund will purchase a security if, as a result, (1) more than 5% of
its total assets would be invested in any one issuer other than the
U.S. Government or its agencies and instrumentalities (except that the
Cash Reserve Fund may invest up to 25% of its total assets in the first
tier securities of a single issuer for up to three business days), or
(2) the Fund would own more than 10% of the outstanding voting
securities of such issuer.
As a matter of nonfundamental policy of the Funds, which can be changed
by approval of a majority of the Board of Trustees, no Fund may 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).
Fund 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 the
Funds satisfy 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) the Funds will take advantage of the
flexibility provided by rules or interpretations of the SEC currently in
existence or promulgated in the future or changes to such laws.
If a percentage restriction on investment policies or the investment or
use of assets set forth in this Prospectus is adhered to at the time a
transaction is effected, later changes in percentage resulting from changing
asset values will not be considered a violation except that any borrowing by the
Fund that exceeds the fundamental investment limitations stated above must be
reduced to meet such limitations within the period required by the 1940 Act
(currently three days). Otherwise, the Fund may continue to hold a security even
though it causes the Fund to exceed a percentage limitation because of
fluctuation in the value of the Fund's assets.
RISKS OF INVESTING IN THE FUNDS
Certain Risk Considerations
The Funds attempt to maintain a constant net asset value of $1.00 per
share, although there can be no assurance that they will always be able to do
so. The Funds may not achieve as high a level of current income as other funds
that do not limit their investment to the high quality securities in which the
Funds invest.
The Cash Reserve 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 the Fund's investment in any single issuer.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds 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
First American has agreed to provide investment advisory services to
the Funds pursuant to an advisory agreement with the Trust (the "Advisory
Agreement"). Subject to such policies as the Trust's Board of Trustees may
determine, First American makes investment decisions for the Funds. For the
advisory services it provides to the Funds, First American receives fees based
on average daily net assets up to the following annualized rates:
U.S. Treasury Reserve Fund, 0.30%;
Cash Reserve Fund, 0.30%.
For the fiscal year ended September 30, 1998, First American earned
$225,778 from the U.S. Treasury Reserve Fund and $269,075 from the Cash Reserve
Fund, of those amounts $188,149 and $207,365 were waived.
First American has agreed voluntarily to waive or reimburse all or a
portion of its advisory fee and/or to assume voluntarily certain expenses of the
Funds to the extent necessary to maintain the total expense ratio of each Class
of each Fund as set forth in the table of "Fund Expenses" herein. The Adviser
may discontinue voluntarily waiving or reimbursing its fee and assuming expenses
of the Fund at any time.
First American is a wholly-owned subsidiary of The First American
Financial Corporation. First American was established on December 1, 1995. The
principal business address of First American is 567 San Nicolas Drive, Suite
101, Newport Beach, California 92660. Prior to becoming an adviser to the First
Choice Funds Trust, the staff at First American managed assets for personal
trusts, employee benefit plans and corporate accounts through the Investment
Section of its affiliate company, First American Trust Company.
Based upon the advice of counsel, First American 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 First American from continuing to perform such
services for the Funds. If First American 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.
Distributor
First Data Distributors, Inc. has its principal office at 4400
Computer Drive, Westborough, MA 01581. The
Distributor will receive orders for, sell, and distribute shares of the
Fund. The Distributor also serves as 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 Investment Class shares and the Service Class shares of the Funds
each have adopted a Rule 12b-1 Distribution Plan and Agreement (the "Plan")
pursuant to which the Investment Class shares and the Service Class shares of
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% per annum of the average daily net assets of the
Investment Class shares and the Service Class shares of the Funds, include: (i)
advertising by radio, television, newspapers, magazines, brochures, sales
literature, direct mail or any other form of advertising; (ii) expenses of
employees or agents of the Distributor, including salary, commissions, travel
and related expenses; (iii) payments to broker-dealers and financial
institutions for services in connection with the distribution of shares,
including promotional incentives and fees calculated with reference to the
average daily net asset value of shares held by shareholders who have a
brokerage or other service relationship with the broker-dealer or other
institution receiving such fees; (iv) costs of printing prospectuses, statements
of additional information and other materials to be given or sent to prospective
investors; (v) such other similar services as the Trustees determine to be
reasonably calculated to result in 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 Investment Class shares and the Service Class shares of each Fund
will each pay its proportionate costs and expenses in connection with the
preparation, printing and distribution of the Prospectus to current shareholders
and the operation of its Plan, including related legal and accounting fees.
Neither Fund will be liable for distribution expenditures made by the
Distributor in any given year in excess of the maximum amount payable under the
Plan for that Fund year.
Administrative Services
The Funds have entered into an Administrative Services Contract with
Investor Services Group pursuant to which the Administrator provides certain
management and administrative services necessary for the Funds' operations,
including: (i) 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, the Administrator
receives from each Fund a fee, payable monthly, at the annual rate of 0.15% of
each Fund's average daily net assets. Investor Services Group receives a
separate fee for providing fund accounting services to the Funds pursuant to the
Administration Agreement.
Pursuant to a Transfer Agency Agreement between the Trust and Investor
Services Group, Investor Services Group serves as the Trust's transfer agent and
dividend disbursing agent.
Service Organizations
The Service Class 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 Fund's shares owned by shareholders with
whom the Service Organization has a servicing relationship. The Investment Class
shares may pay fees in amounts up to an annual rate of 0.75% of the daily net
asset value of the Fund's shares owned by shareholders with whom the Service
Organization has a servicing relationship for servicing, recordkeeping,
sub-accounting, sub-transfer agency, communicating with and education of
shareholders, fiduciary services (excluding 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
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 Investor Services Group and First American. 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. Each Fund bears its own expenses associated with its
establishment as a series of the Trust; these expenses are amortized over a
five-year period from the commencement of a Fund's operations. See "Management"
in the SAI. Trust expenses directly attributable to a Fund are charged to that
Fund; other expenses are allocated proportionately among all of the funds in the
Trust in relation to the net assets of each Fund, or on another reasonable
basis.
Year 2000 Compliance
The Funds' operations depend on the seamless functioning of
computer systems in the financial services industry, including those of the
Adviser, the Custodian and the Administrator and Transfer Agent. The failure of
computer systems to properly process date-related information after December 31,
1999 because of the method by which dates are encoded could adversely affect the
handling of securities trades, pricing and account servicing for the Funds. The
Adviser is taking steps that it believes are reasonably designed to address Year
2000 issues with respect to its computer systems. The Adviser also has been
informed that comparable steps are being taken by the Funds' other major service
providers. The Adviser does not currently anticipate that the Year 2000 issues
will have a material impact on its ability to fulfill its duties as investment
adviser to the Funds. However, no assurance can be given that these issues will
not result in significant operational disruptions.
FUND SHARE VALUATION
The net asset value per share of the Funds is calculated at 12:00 noon
(Eastern time) for the U.S. Treasury Reserve Fund and 3:00 p.m. (Eastern time)
for the Cash Reserve Fund. Monday through Friday, on each day the New York Stock
Exchange and the New York Federal Reserve Bank are open for business (a
"Business Day"), which excludes the following business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas Day. The net asset value per share of each class is computed by
dividing the value of the net assets of each class (i.e., the value of the
assets less the liabilities) by the total number of outstanding shares of each
class. 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 a Fund are
charged to the Fund; other expenses are allocated proportionately among each
Fund within the Trust in relation to the net assets of each Fund, or on another
reasonable basis. These general expenses (e.g., liability insurance premiums)
are allocated among the Funds based on each Fund's relative net asset value.
Within each class, the expenses are allocated proportionately based on the net
assets of each class, except class specific expenses which are allocated
directly to the respective class.
The Funds use the amortized cost method to value their portfolio
securities and seek to maintain a constant net asset value of $1.00 per share,
although there may be circumstances under which this goal cannot be achieved.
The amortized cost method involves valuing a security at its cost and amortizing
any discount or premium over the period until maturity, regardless of the impact
of fluctuating interest rates on the market value of the security. There can be
no assurances that at all times the Funds' price per share can be maintained.
However, the Board of Trustees has established procedures designed to stabilize,
to the extent reasonably possible, the $1.00 per share price of each Fund. See
the SAI for a more complete description of the amortized cost method.
PRICING AND PURCHASE OF FUND SHARES
Orders for the purchase of shares will be executed at the net asset
value per share next determined after an order in proper form has been received.
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 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, investment adviser or Service
Organization will then contact the Distributor to place the order on your behalf
on that day. Orders for the Funds received prior to 12:00 noon Eastern time for
the U.S. Treasury Reserve Fund and 3:00 p.m. Eastern time for the Cash Reserve
Fund 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.
Automatic Investment Program. An eligible shareholder may also
participate in the Automatic Investment Program, an investment plan that
automatically deducts money from the shareholder's bank account and invests it
in one 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 each month into their established Fund account.
Contact the Funds for more information about the Automatic Investment Program.
By Wire. Subject to acceptance by the Trust, shares of each Fund
may be purchased by wiring Federal Funds to
the Funds. (see instructions below).
Initial Investments by Wire
Subject to acceptance by the Trust, shares of each Fund may be
purchased by wiring Federal Funds (see "Minimum Purchase Requirements" below). A
completed Purchase Application must be sent by overnight delivery to the Fund at
the address noted below in advance of the wire. For each Fund, notification must
be given to the Funds at 1-888-FIRST16 prior to the wire date. (Prior
notification must also be received from investors with existing accounts.)
First Choice Funds
c/o First Data Investor Services Group, Inc.
P.O. Box 5176
Westborough, MA 01581-5176
Federal Funds purchases will be accepted only on a day on which the
relevant Fund and the custodian bank are open for business.
<PAGE>
Initial Investments by Mail
Subject to acceptance by the Trust, an account may also be opened by
completing and signing a Purchase Application, and mailing it to the Fund at the
address noted below, together with a check (see "Minimum Purchase Requirements"
below) payable to the:
First Choice Funds
c/o First Data Investor Services Group, Inc.
P.O. Box 5176
Westborough, MA 01581-5176
The Fund(s) to be purchased should be designated on the Purchase
Application. Subject to acceptance by the Funds, payment for the purchase of
shares received by mail will be credited to your account at the net asset value
per share of the Fund next determined after receipt. Such payment need not be
converted into Federal Funds (monies credited to the Funds' custodian bank by a
Federal Reserve Bank) before acceptance by the Funds. Please note that in the
case of a redemption where purchases were made by check in any Portfolio,
redemption proceeds will not be made available until clearance of the purchase
check, which may take up to 15 days after purchase.
Institutional Accounts. Bank trust departments and other
institutional accounts may place orders directly with the Funds by telephone
at 1-888-FIRST16.
MINIMUM PURCHASE REQUIREMENTS
The minimum initial investment for the Institutional Class shares is
$50,000. The minimum initial investment for the Investment Class and the Service
Class is $1,000 unless the investor is a purchaser who, at the time of purchase,
has a balance of $1,000 or more in the Trust, is a purchaser through a trust
investment manager or account manager or is administered by the Adviser, is an
employee or an ex-employee of First American or any of its affiliates, the
Administrator, or any other service provider, or is an employee of any trust
customer of The First American Financial Corporation or any of its affiliates.
Note that the minimum is $250 for an IRA, other than an IRA for which The First
American Financial Corporation or any of its affiliates acts as trustee or
custodian. Any subsequent investments, including an IRA investment, must be at
least $50 ($1,000 for the Institutional Class). All initial investments should
be accompanied by a completed Purchase Application. A Purchase Application
accompanies this Prospectus, and a separate application is required for IRA
investments. The Funds reserve the right to reject purchase orders.
INDIVIDUAL RETIREMENT ACCOUNTS
The Funds may be used as a funding medium for IRAs. Shares may also be
purchased for IRAs established with First American 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 and there are various types of IRAs available,
including Individual, Spousal, Rollover, Roth-Contributory and Roth-Conversion.
A $7.50 establishment fee and an annual $15 maintenance and custody fee is
payable with respect to each IRA, and there will be a $12 termination fee when
the account is closed. For more information concerning investments by IRAs, call
the Funds at 1-888-FIRST16.
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 c/o First Data Investor Services Group, Inc.,
P.O. Box 5176, Westborough, MA 01581-5176, or by calling 1-888-FIRST16. The
Trust may terminate or amend the terms of the exchange privilege at any time.
Shareholders will receive at least 60 days' prior written notice of any
modification or termination of the exchange privilege.
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 but such gains are not expected to occur since the Funds seek
to maintain a stable net asset value of $1.00 per share. Shareholders should
receive written confirmation of the exchange within a few days of the completion
of the transaction. Shareholders will receive at least 60 days prior written
notice of any modification or termination of the exchange privilege.
Exchange by Mail. To exchange Fund shares by mail, simply send a letter
of instruction to 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 1-888-FIRST16. 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 telephone exchange privilege will be suspended for a period of ten
days following an address change made by telephone. 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.
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 Funds, both of which seek to maintain a net asset
value of $1.00 per share.
Where the shares to be redeemed have been purchased by check, the Funds
will make redemption proceeds available upon clearance of the purchase check,
which may take up to 15 days. Shareholders may avoid this delay by investing
through wire transfers of Federal funds. During the period prior to the time the
shares are redeemed, dividends on the shares will continue to accrue and be
payable and the shareholder will be entitled to exercise all other beneficial
rights of ownership.
Once the shares are redeemed, a Fund will ordinarily send the proceeds
by check to the shareholder at the address of record on the next business day.
The Funds may, however, take up to seven days to make payment. This will not be
the customary practice. Also, if the New York Stock Exchange is closed (or when
trading is restricted) for any reason other than the customary weekend or
holiday closing, or if an emergency condition as determined by the SEC merits
such action, the Funds may suspend redemptions or postpone payment dates.
Redemption Methods
To ensure acceptance of your redemption request, it is important to
follow the procedures described below. Although the Funds have no present
intention to do so, the Funds reserve the right to refuse or to limit the
frequency of any telephone or wire redemptions. Because it may be difficult to
place orders by telephone during periods of severe market or economic change, a
shareholder should consider alternative methods of communications, such as mail
or couriers. The Funds' services and their provisions may be modified or
terminated at any time by the Funds. If the Funds terminate any particular
service, they will do so only after giving written notice to shareholders.
Redemption by mail will always be available to shareholders.
You may redeem your shares using any of the following methods:
Through an Authorized Broker, Investment Adviser or Service
Organization. You may redeem your shares by contacting your broker, 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. He or she may charge you 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; and (iv) the signatures of all
registered owners. To protect shareholder accounts, the Funds and its Transfer
Agent from fraud, signature guarantees are required when redemption proceeds are
to be sent to an address other than the registered address or if the redemption
proceeds exceed $50,000.
Shareholders may contact the Funds at 1-888-FIRST16 for further details.
By Telephone. Provided the Telephone Redemption Option has been
authorized by an investor in a purchase application, a redemption of shares may
be requested by calling the Funds at 1-888-FIRST16 and requesting that the
redemption proceeds be mailed to the primary registration address or wired per
the authorized instructions. Redemptions in excess of $50,000 may not be made by
telephone. The telephone redemption privilege will be suspended for a period of
ten days following an address change made by telephone. If the Telephone
Redemption Option or the Telephone Exchange Option (as described above) is
authorized, the Transfer Agent may act on telephone instructions from any person
representing himself or herself to be a shareholder and believed by the Transfer
Agent to be genuine. The Transfer Agent's records of such instructions are
binding and the shareholder, and not the Trust or the Transfer Agent, bears the
risk of loss in the event of unauthorized instructions reasonably believed by
the Transfer Agent to be genuine. The Transfer Agent will employ reasonable
procedures to confirm that instructions communicated are genuine and, if it does
not, it may be liable for any losses due to unauthorized or fraudulent
instructions. The procedures employed by the Transfer Agent in connection with
transactions initiated by telephone include tape recording of telephone
instructions and requiring some form of personal identification prior to acting
upon instructions received by telephone.
Check Writing. A check redemption ($500 minimum for the
Investment Class and Service Class and $5,000 for Institutional Class)
feature is available with respect to the Funds. Checks are free and may be
obtained from the Funds. It is not possible to use a check to close out your
account since additional shares accrue daily.
The above-mentioned redemption services "By Telephone" 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 made 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 less than the amount of the applicable minimum initial investment
requirement. However, if during the 30-day notice period the shareholder
purchases sufficient shares to bring the value of the account above the minimum,
this restriction will not apply.
Redemption in Kind. All redemptions of shares of the Funds shall be
made in cash, except that the commitment to redeem shares in cash extends only
to redemption requests made by each shareholder of a Fund during any 90-day
period of up to the lesser of $250,000 or 1% of the net asset value of that Fund
at the beginning of such period. This commitment is irrevocable without the
prior approval of the SEC and is a fundamental policy of the Funds that may not
be changed without shareholder approval. In the case of redemption requests by
shareholders in excess of such amounts, the Board of Trustees reserves the right
to have the Funds make payment, in whole or in part, in securities or other
assets, in case of an emergency or any time a cash distribution would impair the
liquidity of a Fund to the detriment of the existing shareholders. In this
event, the securities would be valued in the same manner as the securities of
that Fund are valued. If the recipient were to sell such securities, he or she
could receive less than the redemption value of the securities and could incur
certain transaction costs.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX
Each Fund has qualified for its most recent fiscal year and intends to
continue to qualify annually, and to continue to elect to be treated, as a
regulated investment company pursuant to the provisions of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). By so qualifying and
electing, each Fund generally will not be subject to Federal income tax to the
extent that it distributes investment company taxable income and net capital
gain in the manner required under the Code.
Each Fund intends to distribute to its shareholders substantially all
of its investment company taxable income (which includes, among other items,
dividends and interest and the excess, if any, of net short-term capital gains
over net long-term capital losses). The Funds will declare distributions of such
income daily and pay dividends monthly. Each Fund intends to distribute, at
least annually, substantially all net capital gain (the excess of net long-term
capital gains over net short-term capital losses). In determining amounts of
capital gains to be distributed, any capital loss carryovers from prior years
will be applied against capital gains.
Distributions will be paid in additional Fund shares based on the net
asset value at the close of business on the payment date of the distribution,
unless the shareholder elects in writing, not less than five 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 such 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.
Investors who redeem all or a portion of Fund shares prior to a
dividend payment date will be entitled on the next dividend payment date to all
dividends declared but unpaid on those shares at the time of their redemption.
Distributions of investment company taxable income (regardless of
whether derived from dividends, interest or short-term capital gains) generally
will be taxable to shareholders as ordinary income. Distributions of net
long-term capital gains properly designated by a Fund as capital gain dividends
will be taxable as long-term capital gains, regardless of how long a shareholder
has held his Fund shares. The Funds do not anticipate realizing a substantial
amount of net long-term capital gains. 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.
A Fund's distributions with respect to a given taxable year may exceed
the current and accumulated earnings and profits of that Fund available for
distribution. In that event, distributions in excess of such earnings and
profits would be characterized as a return of capital to shareholders for
Federal income tax purposes, thus reducing each shareholder's cost basis in his
Fund shares. Such distributions in excess of a shareholder's cost basis in his
shares would be treated as a gain realized from a sale of such shares.
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of a Fund, or upon receipt of a distribution in complete
liquidation of a Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. A loss realized by a shareholder on a redemption, sale,
or exchange of shares of a Fund held six months or less with respect to which
capital gain dividends have been paid will be characterized as a long-term
capital loss to the extent of such capital gain dividends.
The Funds may be required to withhold for Federal income tax ("backup
withholding") 31% of the distributions and the proceeds of redemptions payable
to shareholders who fail to provide a correct taxpayer identification number or
to make required certifications, or where a Fund or shareholder has been
notified by the Internal Revenue Service that the shareholder is subject to
backup withholding. Most corporate shareholders and certain other shareholders
specified in the Code and regulations are exempt from backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's U.S. Federal income tax liability.
The Cash Reserve Fund, when investing in securities of foreign issuers,
may be subject to withholding and other similar income taxes imposed by the
foreign country. The Fund intends to elect, if it is eligible to do so under the
Code, to "pass-through" to its shareholders the amount of such foreign taxes
paid. If such an election is made by the Fund, each shareholder of the Fund will
be required to include in gross income the taxable dividends received and the
amount of pro rata share of those foreign taxes paid by the Fund. Each
shareholder would be entitled either to deduct (as an itemized deduction) their
pro rata share of the foreign taxes in computing their taxable income or to use
it (subject to limitations) as a foreign tax credit against their U.S. Federal
income tax liability. No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions. Each shareholder will be notified
within 60 days after the close of a Fund's taxable year whether the foreign
taxes paid by the Fund will "pass-through" for that year.
Shareholders will be notified annually by the Trust as to the Federal
tax status of distributions made by the Fund(s) in which they invest. Depending
on the residence of the shareholder for tax purposes, distributions also may be
subject to state and local taxes, including withholding taxes. Foreign
shareholders may, for example, be subject to special withholding requirements.
Special tax treatment, including a penalty on certain pre-retirement
distributions, is accorded to accounts maintained as IRAs. Shareholders should
consult their own tax advisers as to the Federal, state and local tax
consequences of ownership of shares of the Funds in their particular
circumstances.
OTHER INFORMATION
Capitalization Structure
First Choice Funds Trust was organized as a Delaware business trust on
June 5, 1996, and currently consists of three separately managed portfolios. The
Trust's Board of Trustees has authorized the issuance of multiple series
representing shares in corresponding investment portfolios of the Trust. 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. All shares of the Trust
have equal voting rights and will be voted in the aggregate, and not by class,
except where voting by class is required by law or where the particular matter
affects only one class. The Funds offer, and this Prospectus relates to, three
classes of shares-the Investment Class, the Service Class and the Institutional
Class. The Investment Class shares are available through authorized financial
services companies which provide to investors various administrative services
including shareholder servicing, sub-accounting and sub-transfer agency
services. The Service Class shares are available to customers who require
shareholder servicing. The Institutional Class shares are available to
institutional investors. The Investment Class shares impose shareholder
servicing fees, administrative fees and Rule 12b-1 fees. The Service Class
shares impose shareholder servicing fees and Rule 12b-1 fees. The Institutional
Class shares are subject to a minimum investment of $50,000 and do not impose
any administrative, shareholder servicing or Rule 12b-1 fees. All shares of the
Funds issued and outstanding are fully paid and nonassessable. Each Fund will be
treated as a separate entity for Federal income tax purposes. Call 1-888-FIRST16
or contact your sales representative, broker-dealer or bank to obtain more
information about the Funds' classes of shares.
Under Delaware law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for indemnification
out of Trust property for all loss and expense of any shareholder held
personally liable for the obligations of the Trust. The risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations
and should be considered remote.
Voting
Shareholders have the right to vote in the election of Trustees and on
any and all matters on which, by law or under the provisions of the Declaration
of Trust, they may be entitled to vote. The Trust is not required to hold
regular annual meetings of the Funds' shareholders and does not intend to do so.
The Trustees are required to call a meeting for the purpose of considering the
removal of a person serving as Trustee if requested in writing to do so by the
holders of not less than 10% of the outstanding shares of the Trust and in
connection with such meeting to comply with the shareholders' communications
provisions of Section 16(c) of the 1940 Act. See "Other Information-Voting
Rights" in the SAI.
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). As used in this Prospectus, the phrase "vote of a
majority of the outstanding shares" of a Fund (or the Trust) means the vote of
the lesser of: (1) 67% of the shares of a Fund (or the Trust) present at a
meeting if the holders of more than 50% of the outstanding shares are present in
person or by proxy; or (2) more than 50% of the outstanding shares of a Fund (or
the Trust).
Performance Information
A Fund may, from time to time, include its average annual total return
in advertisements or reports to shareholders or prospective investors. The
average annual total return for each class is computed in accordance with the
SEC's standardized formula. The calculation for each class assumes the
reinvestment of all dividends and distributions at net asset value and does not
reflect the impact of federal or state income taxes. The periods illustrated
would normally include one, five and ten years (or since the commencement of the
public offering of shares of a class, if shorter) through the most recent
calendar quarter.
A Fund also may, from time to time, include its yield in advertisements
or reports to shareholders or prospective investors. The methods used to
calculate the yield of the Funds are mandated by the SEC. Quotations of "yield"
for the Funds will be based on the income received by a hypothetical investment
(less a pro-rata share of Fund expenses) over a particular seven-day period,
which is then "annualized" (i.e., assuming that the seven-day yield would be
received for 52 weeks, stated in terms of an annual percentage return on the
investment). "Effective yield" for the Funds is calculated in a manner similar
to that used to calculate yield, but includes the compounding effect of earnings
on reinvested dividends. Quotations of yield and effective yield reflect only a
Fund's performance during the particular period on which the calculations are
based. Yield and effective yield for a Fund will vary based on changes in market
conditions, the level of interest rates and the level of that Fund's expenses,
and no reported performance figure should be considered an indication of
performance which may be expected in the future.
Shareholders of the Investment Class and the Service Class of shares of
the Funds will experience a lower net return on their investment than
shareholders of the Institutional Class of shares because of the additional
administrative, shareholder servicing and Rule 12b-1 fees to which such
Investment Class and Service Class shares are subject.
Performance information for a Fund may be compared to various unmanaged
indices, such as those prepared by Lipper Analytical Services 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 the future. For a more detailed description of the
methods used to determine the yield for the Funds, see the SAI.
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 the shareholder of record for its customer, the Funds have been
advised that the statement may be transmitted to the customer at the discretion
of the Service Organization.
Investor Services Group acts as the Funds' transfer agent. The Trust
compensates Investor Services Group, the Trust's administrator, pursuant to a
Services Agreement described in the section entitled "Management of the
Fund-Administrative Services" in this Prospectus, for providing personnel and
facilities that perform dividend disbursing and transfer agency-related services
for the Trust.
Shareholder Inquiries
All shareholder inquiries should be directed to the Funds at P.O.
Box 5176, Westborough, MA 01581-5176. General and Account Information:
1-888- FIRST16.
<PAGE>
Investment Adviser
First American Capital Management, Inc.
567 San Nicolas Drive
Suite 101
Newport Beach, California 92660
Administrator
First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, MA 01581-5176
Custodian
Investors Fiduciary Trust Company
801 Pennsylvania Avenue
Kansas City, Missouri 64105-1716
Counsel
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Independent Accountants
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110
FST-0002
U.S. TREASURY RESERVE FUND
CASH RESERVE FUND
INSERT LOGO
PROSPECTUS
December 15, 1998
Investment Adviser:
First American Capital Management, Inc.
an affiliate of The First American Financial Corporation
<PAGE>
FIRST CHOICE EQUITY FUND
a series of
FIRST CHOICE FUNDS TRUST
c/o First Data Investor Services Group, Inc.
4400 Computer Drive
P.O. Box 5176
Westborough, Massachusetts 01581-5176
www.firstchoicefunds.com
General and Account Information:
1-888-FIRST16
FIRST AMERICAN CAPITAL MANAGEMENT, INC.
Investment Adviser
FIRST DATA INVESTOR SERVICES GROUP, INC.
Administrator and Transfer Agent
FIRST DATA DISTRIBUTORS, INC.
Distributor
<PAGE>
113
FIRST CHOICE EQUITY FUND
PROSPECTUS
This Prospectus describes the First Choice Equity Fund (the "Fund")
which is a diversified portfolio of First Choice Funds Trust. The Fund's
investment objective is to provide long-term capital growth and income by
investing primarily in common stocks.
The Fund is managed by First American Capital Management, Inc. ("First
American" or the "Adviser). First American is an affiliate of The First American
Financial Corporation, a leading provider of real estate related financial and
information services to real property buyers and mortgage lenders and trust
services through its affiliate companies. See "Management of the Fund" in this
Prospectus.
The Fund offers, and the Prospectus relates to, two classes of shares -
the Institutional Class and the Retail Class. The Retail Class shares are
available to customers through authorized banks, trust companies, broker-dealers
or other financial organizations at a sales charge of 4.5% (4.71% of the amount
invested). The Institutional Class shares are subject to a minimum investment of
$50,000 and are available to institutional investors (i.e. banks, trust
companies, insurance companies, corporations, high net worth investors and other
institutional investors) without a sales charge. The Retail Class shares and
Institutional Class shares are identical in all other respects, with the
exception that the Institutional Class shares do not impose any shareholder
servicing or Rule 12b-1 fees.
The Fund is a separate investment portfolio of First Choice Funds Trust
(the "Trust"), a Delaware business trust and open-end investment management
company. The Trust also offers two money market funds ("U.S. Treasury Reserve
Fund" and "Cash Reserve Fund") under a separate Prospectus.
Shares of the Trust are not deposits or obligations of, or guaranteed
or endorsed by The First American Financial Corporation or its affiliates, and
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other government agency and may involve investment
risk, including the possible loss of principal.
This Prospectus sets forth concisely the information a prospective
investor should know before investing in the Fund and should be read and
retained for information about the Fund.
A Statement of Additional Information dated December 15, 1998 (the
"SAI"), containing additional and more detailed information about the Fund has
been filed with the Securities and Exchange Commission ("SEC") and is available,
along with other materials, on the SEC Internet web site (http://www.sec.gov).
The SAI is incorporated by reference into this Prospectus. It is available
without charge and can be obtained by writing or calling the Fund at the address
or telephone number printed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Date of this Prospectus is December 15, 1998.
<PAGE>
TABLE OF CONTENTS
Page
FUND EXPENSES............................................................. 3
FINANCIAL HIGHLIGHTS...................................................... 4
HIGHLIGHTS................................................................ 5
INVESTMENT OBJECTIVE AND POLICIES......................................... 6
INVESTMENT PRACTICES...................................................... 7
INVESTMENT RESTRICTIONS................................................... 9
RISKS OF INVESTING IN THE FUND............................................. 10
MANAGEMENT OF THE FUND.................................................... 11
FUND SHARE VALUATION...................................................... 13
PRICING AND PURCHASE OF FUND SHARES....................................... 14
MINIMUM PURCHASE REQUIREMENTS............................................. 15
INDIVIDUAL RETIREMENT ACCOUNTS............................................. 15
EXCHANGE OF FUND SHARES.................................................... 16
REDEMPTION OF FUND SHARES................................................. 16
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX........................... 18
OTHER INFORMATION......................................................... 19
<PAGE>
FUND EXPENSES
......... The following expense table lists the costs and expenses that
an investor will incur either directly or indirectly as a shareholder of the
Fund. The information is based upon expenses for the Fund for the fiscal year
ended September 30, 1998, adjusted to reflect anticipated expense levels
and current waivers. For the period ended September 30, 1998, First
American Trust Company held 99% of the outstanding Shares of the Equity Fund.
<TABLE>
<CAPTION>
<S> <C> <C>
Institutional Retail
Class Class
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................................... None 4.5%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................... None None
Deferred Sales Load (as a percentage of redemption proceeds)........... None None
Redemption Fees1....................................................... None None
Exchange Fees.......................................................... None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (after waiver)2........................................ 0.00% 0.00%
12b-1 Fees............................................................. None 0.25%
Other Expenses
Shareholder Servicing Expenses ................................... None 0.25%3
Other Operating Expenses (after waiver and/or reimbursement)4..... 1.25% 1.25%
Total Fund Operating Expenses (after waiver and/or reimbursement)4..... 1.25% 1.75%
</TABLE>
As a result of the payment of sales charges and Rule 12b-1 expenses, long term
shareholders of the Retail Class may pay more than the economic equivalent of
the maximum front-end sales charge permitted by the National Association
of Securities Dealers, Inc. ("NASD").
1 Shareholders may be charged a wire redemption fee by their bank for
receiving a wire payment on their behalf. Individual Retirement
Accounts are subject to an establishment fee ($7.50), annual
maintenance and custody fee ($15) and termination fee ($12).
2 Absent waivers, which may be discontinued at any time, management fees would
be 1.00%.
3 The Retail Class of the Fund imposes a fee of up to 0.25% for
servicing, recordkeeping, sub-accounting, subtransfer agency,
communication with shareholders, fiduciary services (excluding
investment management) and asset allocation services.
4 Absent waivers and/or reimbursements, which may be discontinued at any
time, "Other Operating Expenses" and "Total Fund Operating Expenses"
would be 1.44% and 1.44% for the Institutional Class and 2.44% and
2.94% for the Retail Class of the Fund, respectively.
Example:*
You would pay the following expenses on a $1,000 investment, assuming
5% gross annual return, reinvestment of all dividends and distributions, that
the percentage amounts listed as "Total Fund Operating Expenses" remain the same
each year and redemption at the end of each time period:
<PAGE>
<PAGE>
Institutional Retail
Class Class
1 year............................................ $13 $62
3 years................................................ $40 $98
5 years............................................... $69 $136
10 years............................................... $151 $242
The purpose of this table is to assist a shareholder in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. For a more detailed discussion of other matters, investors should
refer to the appropriate sections of the Prospectus.
* This example should not be considered a representation of past or
future expenses or return. The example assumes a 5% annual return;
however actual Fund expenses and return will vary from year-to-year and
may be higher or lower than those shown.
FINANCIAL HIGHLIGHTS
The following financial information has been derived from the
financial statements of the Trust. The financial statements for the most recent
fiscal period ended September 30, 1998 are incorporated by reference into the
SAI and have been audited by PricewaterhouseCoopers LLP whose report thereon is
also incorporated by reference into the SAI. You may obtain the Annual Report,
without charge, by calling the Trust at 1-888-FIRST16.
<TABLE>
<CAPTION>
<S> <C> <C>
Equity Fund
Period Ended
September 30, 1998 (a)
Retail Institutional
------------------------------- ------------------------------
Class Class
Net Asset Value, beginning of period............. $ 10.00 $
------------------------------- -
10.00
Income from Investment Operations:
Net investment income........................ 0.00 0.01
Net realized and unrealized gain (loss) on
investments...............................
(0.54) (0.54)
------ ------
Total from Investment Operations.........
(0.54) (0.53)
------ ------
Less Distributions:
--- ---
Dividends from net investment income......... ________________ ________________
Net Asset Value, end of period................... $ 9.46 $ 9.47
============================== ==============================
Total Return..................................... (5.40)%(c) (5.30)%(c)
Ratios/Supplemental Data:
Net Assets, end of period (000s)................. $ 126 $ 14,226
Ratios to average net assets:
Net investment income*....................... 0.05%(b) 0.30%(b)
Operating expenses*.......................... 1.50%(b) 1.25%(b)
Operating expenses excluding
reimbursement, waiver and custody
earnings credits.......................... 2.69%(b) 2.44%(b)
Net investment income excluding
.................reimbursements, waivers and
custody (1.13)%(b) (0.88)%(b)
.........................................earnings
credits..........................................
Portfolio Turnover Rate.......................... 47%(c) 47%(c)
</TABLE>
* During the period certain expenses were reduced for credits earned at
Custodian bank. If such credits had not occurred, the ratios would have
been as indicated. Impact of custody earnings credits was less than
0.01% and $0.001 per share at September 30, 1998.
(a) The Fund commenced operations on June 2, 1998.
(b) Annualized
(c) Not annualized
HIGHLIGHTS
Investment Objective and Policies of the Fund
The Fund seeks long-term capital growth and income by investing
primarily in common stocks. The Adviser uses a combination of qualitative and
quantitative research techniques to identify companies that it believes have
above average quality and growth characteristics and that are attractively
valued. The Fund's investments represent numerous industry sectors and are
evaluated for optimal fit within the total portfolio.
From time to time, for temporary defensive or emergency purposes, the
Fund may invest a portion of its assets in cash, cash equivalents and debt
securities when the Adviser deems such a position advisable in light of economic
or market conditions. The Fund also may invest a portion of its assets in
foreign securities and in equity securities of smaller companies, engage in
short selling, invest in futures and options and invest in convertible debt or
preferred securities. In addition, the Fund may invest to a limited extent in
illiquid or restricted securities. See "Investment Objective and Policies."
Risks of Investing in the Fund
The Fund is subject to market risk - the possibility that its net asset
value will decline with changes in the market value of the Fund's portfolio
securities. The Fund's investments represent proportionate interests in the
issuing companies. Therefore, the Fund participates in the success or failure of
any company in which it holds stock. The market value of common stock can
fluctuate significantly, reflecting the business performance of the issuing
company, investor perception and general economic or financial market movements.
The Fund's investments in smaller companies and foreign securities also involve
greater risk of volatility of the Fund's net asset value than that associated
with larger, more established domestic companies. While smaller companies may
offer better growth potential than larger companies, they also may be more
sensitive to changing market conditions. The Fund's use of hedging techniques
and derivatives also entails potential risks. See "Risks of Investing in the
Fund."
Management of the Fund
First American acts as investment adviser to the Fund. For such
services, First American receives fees from the Fund based upon the Fund's
average daily net assets. See "Management of the Fund" in this Prospectus.
First Data Investor Services Group, Inc. ("Investor Services Group")
acts as administrator and transfer agent to the Fund and is sometimes referred
to herein as "Administrator" or "Transfer Agent." First Data Distributors, Inc.
acts as distributor to the Fund and is sometimes referred to herein as
"Distributor." For its services, the Administrator receives a fee from the Fund
based on the Fund's average daily net assets. See "Management of the Fund" in
this Prospectus. The Distributor distributes the Fund's shares and may be
reimbursed for certain of its distribution-related expenses.
Guide to investing in the First Choice Family of Funds
Purchase orders for the Fund received by 4:00 p.m. Eastern time, are
subject to the following limitations:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Institutional Retail
Class Class
o Minimum Initial Investment.................................... $50,000 $1,000
o Minimum Initial Investment for IRAs........................... Not Applicable $250
o Minimum Subsequent Investment................................. $1,000 $50
The Fund's Institutional Class shares are purchased at net asset value. The Retail Class shares are subject to
a 4.5% sales charge at the time of purchase.
Shareholders may exchange shares between the First Choice Funds by
telephone or mail. Exchanges may not be effected by facsimile.
Institutional Retail
Class Class
o Minimum initial exchange...................................... $50,000 $1,000
</TABLE>
(no minimum for subsequent exchanges)
Shareholders may redeem shares by telephone or mail. Shares may not be
redeemed by facsimile.
o Redemption requests made by telephone may designate the proceeds to be
wired to a previously designated bank account or mailed to the address
of record.
o The Fund reserves the right to involuntarily redeem upon not less than
30 days notice all shares in an account which have an aggregate value
less than the required minimum.
(Redemption by telephone is not available for IRAs and trust
relationships.)
All distributions will be automatically paid in additional shares at
net asset value of the Fund unless cash payment is requested.
o Distributions from the Fund are paid quarterly.
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a separate investment portfolio, commonly known as a mutual
fund. The Fund is a diversified portfolio of a business trust, First Choice
Funds Trust, organized under the laws of Delaware as an open-end investment
management company. The Trust's Board of Trustees oversees the overall
management of the Fund and elects the officers of the Trust.
The investment objective of the Fund is to seek long-term capital
growth and income by investing primarily in common stocks. The Fund's investment
objective is a fundamental policy and, as such, may not be changed without a
vote of a majority of the outstanding voting securities of the Fund. There is no
assurance that the Fund's investment objective will be achieved.
Under normal circumstances, the Fund invests at least 80% of its net
assets in a diversified portfolio of equity securities issued by companies in a
variety of different industries. The Fund's equity investments consist of common
stocks, preferred stocks and securities convertible into common stocks. The Fund
intends to achieve its investment objective through capital appreciation of its
portfolio holdings over time and, to a lesser extent, dividend income. Although
current income is a secondary consideration, many of the Fund's investments
should provide regular dividends which are expected to grow over time. The Fund
allocates its investments among different industries and companies and adjusts
its portfolio securities for investment considerations and not for short-term
trading purposes.
The Fund may invest in the common stock of smaller companies (market
capitalization less than $1 billion at the time of purchase), debt or preferred
equity securities convertible into or exchangeable for equity securities,
foreign securities, stock index futures and options, illiquid and restricted
securities and Rule 144A private placements. See "Investment Practices" and
"Risks of Investing in the Fund."
The Fund's investments will be selected from a large universe of
companies. In selecting equity investments for the Fund, the Adviser will
utilize a combination of quantitative and qualitative analysis to identify those
issuers that, in the Adviser's opinion, exhibit above-average quality and growth
characteristics and are attractively valued. Numerous factors are considered in
the selection process, including but not limited to, corporate profitability,
earnings growth prospects, dividend yield and market valuation. The selection
process includes evaluation of both growth and value characteristics of a
stock's relative attractiveness. Each investment is also evaluated for its fit
within the overall portfolio. An optimization process helps to determine the
desired mix of stock holdings. The optimization process takes into account, but
is not limited to, industry exposure, position size, liquidity and economic
sector allocation.
There may be periods during which, in the opinion of the Adviser,
market conditions warrant an increase in the Fund's investments in cash and cash
equivalents or investment in debt securities for temporary defensive or
emergency purposes. In such circumstances, the Fund may hold less than 80% of
its assets in equity securities.
The Fund follows its own investment objectives and policies, including
certain investment restrictions. The SAI describes specific investment
restrictions which govern the Fund's investments. Except for the Fund's
investment objective and those restrictions specifically identified as
fundamental, all other investment policies and practices described in this
Prospectus and in the SAI are not fundamental and may be changed solely with the
approval of the Board of Trustees.
INVESTMENT PRACTICES
The Adviser selects investments and makes investment decisions based on
the investment objective and policies of the Fund. The following is a
description of certain investment practices of the Fund:
Common Stocks. Under normal circumstances, the Fund invests primarily
in common stocks. Common stock is issued by companies to raise cash for business
purposes and represents proportionate ownership in the issuing company. As an
owner, the Fund participates in the success or failure of its portfolio
companies. The market value of the Fund's holdings can fluctuate significantly,
reflecting the business performance of the issuer, investor perception and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors. Despite the risk of price volatility, however,
common stocks also offer the greatest potential for gain on investment, compared
to other classes of financial assets such as bonds or cash equivalents.
Convertible Securities. The Fund may invest in bonds, notes, debentures
and preferred stocks which may be converted or exchanged at a stated or
determinable exchange ratio into shares of common stock. Prior to their
conversion, convertible securities may have characteristics similar to
nonconvertible securities of the same type.
Foreign Securities and American Depository Receipts ("ADRs"). The Fund
may invest up to 20% of its total assets in foreign securities, including ADRs,
which meet its investment objective. ADRs are dollar-denominated receipts issued
by U.S. banks or trust companies with respect to securities of foreign issuers
held on deposit and traded in the U.S. securities markets. The Fund may invest
in both sponsored and unsponsored ADR programs. There are certain risks
associated with investments in unsponsored ADR programs. Because the non-U.S.
company does not actively participate in the creation of the ADR program, the
underlying agreement for service and payment will be between the depository and
the shareholder. The issuer of the stock underlying the ADRs pays nothing to
establish the unsponsored facility, as fees for ADR issuance and cancellation
are paid by brokers. Investors directly bear the expenses associated with
certificate transfer, custody and dividend payment.
<PAGE>
Derivatives and Hedging Transactions
The Fund may, but is not required to, utilize strategies to attempt to
manage risks associated with broad market or specific security price movements
or to enhance potential gain. These strategies may be executed through the use
of derivative contracts. Such strategies are accepted generally as a part of
modern portfolio management and are utilized regularly by many mutual funds and
other institutional investors. Techniques and instruments may change over time
as new instruments and strategies are developed or regulatory changes occur. In
the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities
indices and may purchase and sell financial futures contracts and options
thereon (collectively "Strategic Transactions"). An option on a securities index
gives the purchaser of the option, in return for the premium paid, the right to
receive cash from the seller equal to the difference between the closing price
of the index and the exercise price of the option. Closing transactions
essentially let the Fund offset put options or call options prior to exercise or
expiration. If the Fund cannot effect a closing transaction, it may have to hold
a security it would otherwise sell or deliver a security it might want to hold.
The Fund may enter into financial futures contracts or purchase or sell
put and call options on such futures as a hedge against anticipated market
changes and for risk management purposes. The sale of a futures contract creates
a firm obligation by the Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to index futures and Eurodollar
instruments, the net cash amount). Options on futures contracts give the
purchaser the right in return for the premium paid to assume a position in a
futures contract and obligates the seller to deliver such position.
Strategic Transactions may be used to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio, to protect the Fund's unrealized gains in the value of
its portfolio securities, or to establish a position in the derivative markets
as a temporary substitute for purchasing or selling. The Fund will not enter
into Strategic Transactions for non-hedging purposes. Any or all of these
investment techniques may be used at any time and in any combination and no
single strategy dictates the use of one technique over another as use of any
Strategic Transaction is a function of numerous variables including market
conditions. The ability of the Fund to employ Strategic Transactions
successfully depends on the ability of the Adviser to predict pertinent market
movements, which cannot be assured. The Fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments. See "Risks of Investing in the Fund."
"When-Issued", "Delayed-Delivery" 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 the 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
complete the transaction. 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 transactions have the effect of leverage
on the Fund and may contribute to volatility of the Fund's net asset value. For
further information, refer to the SAI.
Loans of Portfolio Securities. To increase current income, the Fund may
lend its portfolio securities in an amount up to 33% of the Fund's total assets
to brokers, dealers and financial institutions, provided certain conditions are
met, including the condition that each loan is secured continuously by
collateral maintained on a daily mark-to-market basis in an amount at least
equal to the current market value of the securities loaned. These transactions
involve a loan by the Fund and are subject to the same risks as repurchase
agreements. For further information, refer to the SAI.
Repurchase Agreements. The Fund may enter into repurchase agreements
with any bank or broker-dealer which, in the opinion of the Board of 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 such securities. The Fund may invest up to 100% of its net assets
in repurchase agreements maturing in seven days or less should market conditions
warrant; however, the Fund may not invest more than 15% of its net assets in
repurchase agreements maturing in more than seven calendar days (taking into
consideration certain guarantees and demand features) or in securities for which
market quotations are not readily available. For further information, refer to
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 the Fund under
the Investment Company Act of 1940 (the "1940 Act").
Portfolio Turnover. The Fund will buy and sell securities to take
advantage of investment opportunities and enhance overall investment return
consistent with the Fund's investment objective. In general, the Adviser will
not consider the portfolio turnover rate to be a limiting factor in determining
when or whether to purchase or sell securities in pursuit of the Fund's
objective. Portfolio transactions involve costs in the form of brokerage
commissions and may result in the realization of net capital gains which would
be taxable to shareholders when distributed. The Fund's portfolio turnover rate
for the period ended September 30, 1998 was 47%.
INVESTMENT RESTRICTIONS
The Fund also operates under certain investment restrictions. Certain
of the Fund's investment restrictions are set forth below. For a complete list
of the Fund's investment restrictions, see "Investment Restrictions" in the SAI.
The following investment restrictions are fundamental policies of the Fund,
which 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 the "Other
Information -Voting" section in the Prospectus.
(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% of the current value of its net assets for
temporary or emergency purposes and those borrowings may be secured by
the pledge of the Fund's 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 will not purchase a security if, as a result, more than 25% of
the value of its total assets would be invested in securities of one or
more issuers conducting their principal business activities in the same
industry provided that this limitation shall not apply to obligations
issued or guaranteed by the U.S.
Government or its agencies and instrumentalities.
(4) The Fund will not purchase a security if, as a result, with respect to
75% of its total assets (a) more than 5% of its total assets would be
invested in any one issuer other than the U.S. Government or its
agencies and instrumentalities, or (b) the Fund would own more than 10%
of the outstanding voting securities of such issuer.
(5) The Fund will invest at least 65% of its total assets in equity
securities.
As a matter of non-fundamental policy of the Fund, which can be changed
by approval of a majority of the Board of Trustees, the Fund may not invest more
than 15% 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).
If a percentage restriction on investment policies or the investment or
use of assets set forth in this Prospectus is adhered to at the time a
transaction is effected, later changes in percentage resulting from changing
asset values will not be considered a violation except that any borrowing by the
Fund that exceeds the fundamental investment limitations stated above must be
reduced to meet such limitations within the period required by the 1940 Act
(currently three days). Otherwise, the Fund may continue to hold a security even
though it causes the Fund to exceed a percentage limitation because of
fluctuation in the value of the Fund's assets.
RISKS OF INVESTING IN THE FUND
The net asset value ("NAV") of the Fund's shares will fluctuate with
changes in the market value of the Fund's portfolio securities. The stock market
tends to be cyclical with periods of generally rising stock prices and periods
of generally declining prices. In addition, the market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market or political factors which cannot be predicted.
The Adviser will attempt to minimize the risks described herein by
broad diversification of the Fund's portfolio. However, there can be no
assurance that such diversification will prevent loss in value of certain
portfolio securities or in the Fund's net asset value. Accordingly, an
investment in the Fund may not be suitable for all investors.
Stocks of Smaller Companies. Smaller company stocks historically entail
greater volatility in price than the stock market as a whole and at times
fluctuate in value independently of the broad stock market. Often smaller
companies are less established, and may have less experienced management,
limited product lines, markets or financial resources. The liquidity and
marketability of such companies may be limited, and consequently may produce
more abrupt or erratic price movements than securities of larger, more
established companies or market averages in general.
Convertible Securities. While convertible securities generally
offer lower yields than nonconvertible debt securities of similar quality,
their prices may reflect changes in the value of the underlying common stock.
Convertible securities entail less credit risk than an issuer's common stock.
Foreign Securities and ADRs. Investments in foreign securities and ADRs
involve certain risks not typically involved in purely domestic investments,
including future foreign political and economic developments, and the possible
imposition of foreign governmental laws or restrictions applicable to such
investments. Securities of foreign issuers, including through ADRs, are subject
to different economic, financial, political and social factors. Individual
foreign economies may differ favorably or unfavorably from the U.S. economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments position. With
respect to certain countries, there is the possibility of expropriation of
assets, developments which could adversely affect the value of the particular
security or ADR. There may be less publicly available information about a
foreign company and foreign companies may not be subject to accounting, auditing
and financial reporting standards and requirements comparable to those of U.S.
companies. In an unsponsored ADR program, there also may be several depositories
with no defined legal obligations to the foreign company. The duplicate
depositories may lead to marketplace confusion because there would be no central
source of information to buyers, sellers and intermediaries. The efficiency of
centralization gained in a sponsored program can greatly reduce the delays in
delivery of dividends and annual reports. In addition, with respect to all ADRs
there is always the risk of loss due to currency fluctuations.
Illiquid or Restricted Securities. The absence of a trading market can
make it difficult to ascertain a market value for illiquid or restricted
investments. Disposing of illiquid or restricted securities often takes more
time than for more liquid securities, may result in higher selling expenses and
may not be able to be made at desirable prices or at the prices at which the
securities have been valued by the Fund.
Strategic Transactions. The risks associated with Strategic
Transactions include possible default by the other party to the transaction,
illiquidity, and to the extent the Adviser's view as to certain market movements
is incorrect, the risk that the use of Strategic Transactions could result in
losses greater than if they had not been used. In addition, the variable degree
of correlation between price movements in the related portfolio position creates
the possibility that losses on the hedging instrument may be greater than gains
in the value of the Fund's position. Futures and options markets may not be
liquid in all circumstances and certain over-the-counter options may have no
markets. As a result, in certain markets, the Fund may be unable to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures contracts and options transactions for hedging should tend to minimize
the risk of loss due to a decline in the value of the hedged position, at the
same time they tend to limit any potential gain which might result from an
increase in value of such position. Finally, the daily variation margin
requirements for futures contracts creates a greater ongoing potential financial
risk than exists with purchases of options, where the exposure is limited to the
cost of the initial premium.
MANAGEMENT OF THE FUND
The business and affairs of the 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 under "Management - Trustees and Officers" in
the SAI.
The Adviser and Sub-Adviser
First American has agreed to provide investment advisory services
to the Fund pursuant to an advisory agreement with the Trust ("Advisory
Agreement"). Subject to such policies as the Trust's Board of Trustees may
determine, the Adviser makes investment decisions for the Fund. For the advisory
services it provides to the Fund, First American receives fees of 1.00% of the
Fund's average daily net assets on an annual basis. As part of the investment
process, the Adviser utilizes a quantitative model developed by Haugen Custom
Financial Systems, a registered investment adviser with offices at 4199 Campus
Drive, Suite 350, Irvine, CA 92612. Under the 1940 Act, Haugen Custom Financial
Systems may be deemed to be a sub-adviser to the Fund. The Adviser has entered
into an agreement with Haugen Custom Financial Systems for the use of its model.
The Adviser pays Haugen Custom Financial Systems a monthly fee at the annual
rate of .065% of the Fund's average daily net assets on the first $100 million;
.125% of the Fund's average daily net assets on the next $100 million and .03%
of the Fund's average daily net assets exceeding $200 million.
For the period June 2, 1998 through September 30, 1998, due to waivers
and reimbursements, First American received no advisory fees. For the period
June 2, 1998 through September 30, 1998, Haugen Custom Financial Systems
received fees of $6,666.67.
First American has agreed voluntarily to waive or reimburse all or a
portion of the advisory fee and/or to voluntarily assume certain expenses of the
Fund to the extent necessary to maintain the total expense ratio of each Class
of the Fund as set forth in the table of "Fund Expenses" herein. The Adviser may
discontinue voluntarily waiving or reimbursing its fees and assuming expenses of
the Fund at any time.
First American is a wholly-owned subsidiary of The First American
Financial Corporation. First American was established on December 1, 1995. The
principal business address of First American is 567 San Nicolas Drive, Suite
101, Newport Beach, California 92660. Prior to becoming an adviser to the First
Choice Funds Trust, the staff at First American managed assets for personal
trusts, employee benefit plans and corporate accounts through the Investment
Section of its affiliate company, First American Trust Company.
Based upon the advice of counsel, First American believes that the
performance of investment advisory services for the Fund 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 First American from continuing to perform such
services for the Fund. If First American were prohibited from acting as
investment adviser to the Fund, 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 Fund utilizes an Investment Committee to perform the day-to-day
management of the Fund's portfolio.
Distributor
First Data Distributors, Inc. has its principal office at 4400
Computer Drive, Westborough, Massachusetts 01581. The Distributor will
receive orders for, sell, and distribute shares of the Fund. The Distributor
also serves as distributor of other mutual funds.
The Distributor or the Adviser 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 Fund. 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 Retail Class shares of the Fund have adopted a Rule 12b-1
Distribution Plan and Agreement (the "Plan") pursuant to which the Retail Class
shares of the Fund 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 Fund. These costs and expenses,
which are subject to a maximum limit of 0.25% per annum of the average daily net
assets of the Retail Class shares of the Funds, 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 NAV 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, SAIs and other materials to be given or sent to prospective
investors; (v) such other similar services as the Trustees determine to be
reasonably calculated to result in sales of shares of the Fund; (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 Fund. The Retail Class shares of the Fund will pay its proportionate costs
and expenses in connection with the preparation, printing and distribution of
the Prospectus to current shareholders and the operation of its Plan, including
related legal and accounting fees. The Fund will not be liable for distribution
expenditures made by the Distributor in any given year in excess of the maximum
amount payable under the Plan for that Fund year.
Administrative Services
The Fund has entered into an Administrative Services Contract with
Investor Services Group pursuant to which the Administrator provides certain
management and administrative services necessary for the Fund's operations
("Administration Agreement"), including: (i) 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 Fund; (ii) general supervision
relative to the compilation of data required for the preparation of periodic
reports distributed to the Fund's officers and Board of Trustees; and (iii)
furnishing office space and certain facilities required for conducting the
business of the Fund. For these services, the Administrator receives from the
Fund a fee, payable monthly, at the annual rate of 0.15% of the Fund's average
daily net assets. Investor Services Group receives a separate fee for providing
fund accounting services to the Fund pursuant to the Administration Agreement.
Pursuant to a Transfer Agency Agreement between the Trust and Investor
Services Group, Investor Services Group serves as the Trust's transfer agent and
dividend disbursing agent.
Service Organizations
Various banks, trust companies, broker-dealers or other financial
organizations (collectively, "Service Organizations") also may provide
administrative services for the Retail Class shares of the Fund, such as
maintaining shareholder accounts and records. The Retail Class shares of the
Fund may pay fees to Service Organizations in amounts up to an annual rate of
0.25% of the daily NAV of the shares owned by shareholders with whom the Service
Organization has a servicing relationship.
Some Service Organizations may impose additional or different
conditions on their clients, such as requiring their clients to invest more than
the 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 Fund. 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 Fund 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
The Fund bears all costs of its operations, other than expenses
specifically assumed by Investor Services Group and First American. The costs
borne by the Fund includes 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 Fund's portfolio securities,
expenses of registering and qualifying the Fund's shares for sale with the SEC
and with various state securities commissions, expenses of obtaining quotations
on the Fund's portfolio securities and pricing of the Fund's shares, expenses of
maintaining the Fund's legal existence and of shareholders' meetings, and
expenses of preparing and distributing to existing shareholders reports, proxies
and prospectuses. The Fund bears its own expenses associated with its
establishment as a series of the Trust; these expenses are amortized over a
five-year period from the commencement of the Fund's operations. See the
"Management" section in the SAI. Trust expenses directly attributable to the
Fund are charged to the Fund; other expenses are allocated proportionately among
all of the funds in the Trust in relation to the net assets of each fund, or on
another reasonable basis.
Year 2000 Compliance
The Fund's operations depend on the seamless functioning of
computer systems in the financial services industry, including those of the
Adviser, the Custodian and the Administrator and Transfer Agent. The failure of
computer systems to properly process date-related information after December 31,
1999 because of the method by which dates are encoded could adversely affect the
handling of securities trades, pricing and account servicing for the Fund. The
Adviser is taking steps that it believes are reasonably designed to address Year
2000 issues with respect to its computer systems. The Adviser also has been
informed that comparable steps are being taken by the Fund's other major service
providers. Brokers and other intermediaries that hold shareholder accounts may
still experience incompatibility problems. It is also important to keep in mind
that year 2000 issues may negatively impact the companies in which the Fund
invests and, by extension, the value of those companies' shares held by the
Fund. The Adviser does not currently anticipate that the Year 2000 issues will
have a material impact on its ability to fulfill its duties as investment
adviser to the Fund. However, no assurance can be given that these issues will
not result in significant operational disruptions.
FUND SHARE VALUATION
The NAV per share of the Fund is normally calculated at 4:00 p.m.
(Eastern time) Monday through Friday, on each day the New York Stock Exchange
("NYSE") is open for business ("Business Day"), which excludes the following
business holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The NAV per share of each class is computed by dividing the value
of the net assets of each class (i.e., the value of the assets less the
liabilities) by the total number of outstanding shares of each class. 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 Fund's NAV. 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. These general expenses (e.g., liability insurance premiums)
are allocated among the funds based on each fund's relative average net assets.
Within each class, the expenses are allocated proportionately based on the
average net assets of each class, except class specific expenses which are
allocated directly to the respective class.
PRICING AND PURCHASE OF FUND SHARES
Orders for the purchase of shares will be executed at the NAV per share
next determined after an order in proper form has been received. Purchase of
shares is subject to applicable sales charges and minimum purchase requirements
as described below. All initial investments should be accompanied by a completed
Purchase Application.
The Fund reserves the right to reject purchase orders.
All funds received are invested in full and fractional shares of the
Fund after deduction of any applicable sales charge. 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 Fund reserves the right to reject any purchase. The
Fund does not accept third party or foreign checks.
Sales Charge. The Retail Class shares will be sold at the net asset
value next determined subject to a sales charge as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Reallowance to
Sales Charge as a Sales Charge as a Broker - Dealers
% of the Offering Price % of the Amount Invested (% of the Offering Price)
----------------------- ------------------------ -------------------------
4.5% 4.71% 4.5%
</TABLE>
The Retail Class shares are available without a sales charge to (i) trust,
investment management and other fiduciary accounts managed or administered by
the Adviser or its affiliates pursuant to a written agreement; (ii) Trustees of
the Trust (and family members) and employees (and family members) of the
Adviser, the Administrator or their affiliates; (iii) correspondents pursuant to
a written agreement; and (iv) persons who make an initial investment of $1
million or more or have a balance of $1 million or more in the Fund.
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, investment adviser or Service
Organization will then contact the Distributor to place the order on your behalf
on that day. Orders for the Fund received prior to 4:00 p.m. Eastern time will
become effective that day. Brokers who receive orders are obligated to transmit
them promptly. You should receive written confirmation of your order within a
few days of receipt of instructions from your broker.
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
the Fund through the use of electronic funds transfers or automatic bank drafts.
Shareholders may elect to make subsequent investments by transfers each month
into their established Fund account. Contact the Fund for more information about
the Automatic Investment Program.
By Wire. Subject to acceptance by the Trust, shares of the Fund may
be purchased by wiring Federal Funds to the Fund (see the instructions below).
<PAGE>
Initial Investments by Wire
Subject to acceptance by the Trust, shares of the Fund may be purchased
by wiring Federal Funds. A completed Purchase Application must be sent by
overnight delivery to the Fund at the address noted below in advance of the
wire. For the Fund, notification must be given to the Fund at 1-888-FIRST16
prior to the wire date. (Prior notification must also be received from investors
with existing accounts.)
First Choice Funds
c/o First Data Investor Services Group, Inc.
P.O. Box 5176
Westborough, Massachusetts 01581-5176
Federal Funds purchases will be accepted only on a day on which the
Fund and the custodian bank are open for business.
Initial Investments by Mail
Subject to acceptance by the Trust, an account may also be opened by
completing and signing a Purchase Application, and mailing it to the Fund at the
address noted below, together with a check (see "Minimum Purchase Requirements"
below) payable to the:
First Choice Funds
c/o First Data Investor Services Group, Inc.
P.O. Box 5176
Westborough, Massachusetts 01581-5176
The Fund to be purchased should be designated on the Purchase
Application. Subject to acceptance by the Fund, payment for the purchase of
shares received by mail will be credited to your account at the NAV per share of
the Fund next determined following receipt after deduction of any applicable
sales charge. Such payment need not be converted into Federal Funds (monies
credited to the Fund's custodian bank by a Federal Reserve Bank) before
acceptance by the Fund. Please note that in the case of a redemption where a
purchase was made by check, redemption proceeds will not be made available until
clearance of the purchase check, which may take up to 15 days after purchase.
Institutional Accounts. Bank trust departments and other
institutional accounts may place orders directly with the Fund by telephone at
1-888-FIRST16.
MINIMUM PURCHASE REQUIREMENTS
The minimum initial investment for the Institutional Class shares is
$50,000. The minimum initial investment for the Retail Class shares is $1,000,
unless the investor is a purchaser who, at the time of purchase, has a balance
of $1,000 or more in the Trust, is a purchaser through a trust investment
manager or account manager or is administered by the Adviser, is an employee of
First American or any of its affiliates, the Administrator, or any other service
provider. Note that the minimum is $250 for an IRA, other than an IRA for which
First American Financial or any of its affiliates acts as trustee or custodian.
The minimum amount for an initial exchange is $500. Any subsequent investments,
including an IRA investment, must be at least $50 ($1,000 for the Institutional
Class). All initial investments should be accompanied by a completed Purchase
Application. A Purchase Application accompanies this Prospectus and a separate
application is required for IRA investments. The Fund reserves the right to
reject purchase orders.
INDIVIDUAL RETIREMENT ACCOUNTS
The Fund may be used as a funding medium for IRAs. Shares may also be
purchased for IRAs established with First American 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 and there are various types of IRAs available,
including Individual, Spousal, Rollover, Roth-Contributory and Roth-Conversion.
A $7.50 establishment fee and an annual $15 maintenance and custody fee is
payable with respect to each IRA, and there will be a $12 termination fee when
the account is closed. For more information concerning investments by IRAs, call
the Fund at 1-888-FIRST16.
EXCHANGE OF FUND SHARES
The Fund offers 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 c/o First Data Investor Services Group, Inc.,
P.O. Box 5176, Westborough, Massachusetts 01581-5176, or by calling
1-888-FIRST16. The Trust may terminate or amend the terms of the exchange
privilege at any time. Shareholders will receive at least 60 days' prior written
notice of any modification or termination of the exchange privilege.
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 NAV next determined following receipt of the
request by the 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.
Exchange by Mail. To exchange Fund shares by mail, simply send a letter
of instruction to the Fund. 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 Fund at 1-888-FIRST16. 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 telephone exchange privilege will be suspended for a period of ten
days following an address change made by telephone. The conversation may be
recorded to protect you and the Fund. Telephone exchanges are available only if
the shareholder so indicates by checking the "yes" box on the Purchase
Application. See the "Redemption of Fund Shares By Telephone" below for a
discussion of telephone transactions generally.
REDEMPTION OF FUND SHARES
Shareholders may redeem their shares, in whole or in part, on any
Business Day. Shares will be redeemed at the NAV next determined after a
redemption request in good order has been received by the Fund. A redemption is
a taxable transaction on which gains or losses may be recognized.
Where the shares to be redeemed have been purchased by check, the Fund
will make redemption proceeds available upon clearance of the purchase check,
which may take up to 15 calendar days. Shareholders may avoid this delay by
investing through wire transfers of Federal Funds. During the period prior to
the time the shares are redeemed, the shareholder will be entitled to exercise
all beneficial rights of ownership.
Once the shares are redeemed, the Fund will ordinarily send the
proceeds by check to the shareholder at the address of record on the next
business day. The Fund may, however, take up to seven days to make payment. This
will not be the customary practice. Also, if the NYSE 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 Fund may suspend redemptions or postpone payment dates.
Redemption Methods
To ensure acceptance of your redemption request, it is important to
follow the procedures described below. Although the Fund has no present
intention to do so, the Fund reserves the right to refuse or to limit the
frequency of any telephone or wire redemptions. Because it may be difficult to
place orders by telephone during periods of severe market or economic change, a
shareholder should consider alternative methods of communications, such as mail
or couriers. The Fund's services and their provisions may be modified or
terminated at any time by the Fund. If the Fund terminates any particular
service, it 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. He or she may charge you a fee for this
service.
By Mail. You may redeem your shares by sending a letter directly to the
Fund. 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; and (iv) the signatures of all
registered owners. To protect shareholder accounts, the Fund and the Transfer
Agent from fraud, signature guarantees are required when redemption proceeds are
to be sent to an address other than the registered address or if the redemption
proceeds exceed $50,000.
Shareholders may contact the Fund at 1-888-FIRST16 for further details.
By Telephone. Provided the Telephone Redemption Option has been
authorized by an investor in a purchase application, a redemption of shares may
be requested by calling the Fund at 1-888-FIRST16 and requesting that the
redemption proceeds be mailed to the primary registration address or wired per
the authorized instructions. Redemptions in excess of $50,000 may not be made by
telephone. The telephone redemption privilege will be suspended for a period of
ten days following an address change made by telephone. If the Telephone
Redemption Option or the Telephone Exchange Option (as described above) is
authorized, the Transfer Agent may act on telephone instructions from any person
representing himself or herself to be a shareholder and believed by the Transfer
Agent to be genuine. The Transfer Agent's records of such instructions are
binding and the shareholder, and not the Trust or the Transfer Agent, bears the
risk of loss in the event of unauthorized instructions reasonably believed by
the Transfer Agent to be genuine. The Transfer Agent will employ reasonable
procedures to confirm that instructions communicated are genuine and, if it does
not, it may be liable for any losses due to unauthorized or fraudulent
instructions. The procedures employed by the Transfer Agent in connection with
transactions initiated by telephone include tape recording of telephone
instructions and requiring some form of personal identification prior to acting
upon instructions received by telephone. Telephone redemption services are not
available for IRAs and trust relationships of First American and its affiliates.
Systematic Withdrawal Plan. An owner of $10,000 or more of shares of
the Fund may elect to have periodic redemptions made 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 NAV, 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 the NAV determined on the distribution payment date.
Redemption of Small Accounts. Due to the disproportionately higher cost
of servicing small accounts, the Fund reserves the right to redeem, on not less
than 30 days' notice, an account in the Fund that has been reduced by a
shareholder to less than the amount of the applicable minimum initial investment
requirement. However, if during the 30-day notice period the shareholder
purchases sufficient shares to bring the value of the account above the minimum,
this restriction will not apply.
Redemption in Kind. All redemptions of shares of the Fund shall be made
in cash, except that the commitment to redeem shares in cash extends only to
redemption requests made by each shareholder of the Fund during any 90-day
period of up to the lesser of $250,000 or 1% of the NAV of the 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 Fund 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 Fund 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 the Fund to the detriment of the existing shareholders. In this
event, the securities would be valued in the same manner as the securities of
the Fund are valued. If the recipient were to sell such securities, he or she
could receive less than the redemption value of the securities and could incur
certain transaction costs.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX
The Fund intends to qualify annually, and to elect to be treated, as a
regulated investment company pursuant to the provisions of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). By so qualifying and
electing, the Fund generally will not be subject to Federal income tax to the
extent that it distributes investment company taxable income and net capital
gains in the manner required under the Code.
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.
Income dividends and distributions from net short-term capital gains, if any,
are paid to shareholders quarterly.
Distributions will be paid in additional Fund shares based on the NAV
at the close of business on the payment date of the distribution, unless the
shareholder elects in writing, not less than five business days prior to the
record date, to receive such distributions in cash.
Distributions of investment company taxable income (regardless of
whether derived from dividends, interest or short-term capital gains) generally
will be taxable to shareholders as ordinary income. Distributions of net
long-term capital gains properly designated by the Fund as capital gains
dividends will be taxable as long-term capital gains, regardless of how long a
shareholder has held his/her Fund shares. Distributions are taxable in the same
manner whether received in additional shares or in cash.
Earnings of the Fund 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, the 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 the Fund during October, November, or December of that
year to shareholders of record in such a month and paid by the 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/her Fund shares. Such distributions in excess of a shareholder's cost basis
in his/her shares would be treated as a gain realized from a sale of such
shares.
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of the Fund, or upon receipt of a distribution in complete
liquidation of the Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. A loss realized by a shareholder on a redemption, sale,
or exchange of shares of the Fund held six months or less with respect to which
capital gain dividends have been paid will be characterized as a long-term
capital loss to the extent of such capital gain dividends.
The Fund may be required to withhold for Federal income tax ("backup
withholding") 31% of the distributions and the proceeds of redemptions payable
to shareholders who fail to provide a correct taxpayer identification number or
to make required certifications, or where the Fund or shareholder has been
notified by the IRS that the shareholder is subject to backup withholding. Most
corporate shareholders and certain other shareholders specified in the Code and
regulations are exempt from backup withholding. Backup withholding is not an
additional tax. Any amounts withheld may be credited against the shareholder's
U.S. Federal income tax liability.
Distributions by the Fund of the dividend income it receives from U.S.
domestic corporations, if any, may qualify for the dividends received deduction
for corporate shareholders, subject to holding period requirements and debt
financing restrictions under the Code.
The Fund, when investing in securities of foreign issuers, may be
subject to withholding and other similar income taxes imposed by the foreign
country. The Fund intends to elect, if it is eligible to do so under the Code,
to "pass-through" to its shareholders the amount of such foreign taxes paid. If
such an election is made by the Fund, each shareholder of the Fund will be
required to include in gross income the taxable dividends received and the
amount of pro rata share of those foreign taxes paid by the Fund. Each
shareholder would be entitled either to deduct (as an itemized deduction) their
pro rata share of the foreign taxes in computing their taxable income or to use
it (subject to limitations) as a foreign tax credit against their U.S. Federal
income tax liability. No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions. Each shareholder will be notified
within 60 days after the close of the Fund's taxable year whether the foreign
taxes paid by the Fund will "pass-through" for that year.
Shareholders will be notified annually by the Trust as to the Federal
tax status of distributions made by the Fund. Depending on the residence of the
shareholder for tax purposes, distributions also may be subject to state and
local taxes, including withholding taxes. Foreign shareholders may, for example,
be subject to special withholding requirements. Special tax treatment, including
a penalty on certain pre-retirement distributions, is accorded to accounts
maintained as IRAs. Shareholders should consult their own tax advisers as to the
Federal, state and local tax consequences of ownership of shares of the Fund in
their particular circumstances.
OTHER INFORMATION
Capitalization Structure
First Choice Funds Trust was organized as a Delaware business trust on
June 5, 1996, and currently consists of three separately managed portfolios. The
Trust's Board of Trustees has authorized the issuance of multiple series
representing shares in corresponding investment portfolios of the Trust. 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. All shares of the Trust
have equal voting rights and will be voted in the aggregate, and not by class,
except where voting by class is required by law or where the particular matter
affects only one class. This Prospectus relates to each of the Fund's classes of
shares - the Retail Class and the Institutional Class. The Retail Class shares
are available to customers through authorized broker-dealers at a sales charge
of 4.5% (4.71% of the amount invested). The Institutional Class shares are
subject to a minimum investment of $50,000 and are available to institutional
investors without a sales charge. The Institutional Class shares and Retail
Class shares are identical in all other respects, with the exception that
Institutional Class shares do not impose any shareholder servicing or Rule 12b-1
fees. All shares of the Fund issued and outstanding are fully paid and
non-assessable. The Fund will be treated as a separate entity for Federal income
tax purposes. Call 1-888-FIRST16 or contact your sales representative,
broker-dealer or bank to obtain more information about the Fund's classes of
shares.
Under Delaware law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for indemnification
out of Trust property for all loss and expense of any shareholder held
personally liable for the obligations of the Trust. The risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations
and should be considered remote.
Voting
Shareholders have the right to vote in the election of Trustees and on
any and all matters on which, by law or under the provisions of the Declaration
of Trust, they may be entitled to vote. The Trust is not required to hold
regular annual meetings of the Fund's 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 1940 Act. Refer to the "Other Information
Voting Rights" section 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 the Fund (or the Trust) means the vote of
the lesser of: (1) 67% of the shares of the 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 the Fund
(or the Trust).
Performance Information
The Fund may, from time to time, include its average annual total
return in advertisements or reports to shareholders or prospective investors.
The average annual total return for each class is computed in accordance with
the SEC's standardized formula and may be calculated with or without the effect
of the sales load with respect to the Retail Class. The calculation for each
class assumes the reinvestment of all dividends and distributions at net asset
value and does not reflect the impact of federal or state income taxes. The
periods illustrated would normally include one, five and ten years (or since the
commencement of the public offering of shares of a class, if shorter) through
the most recent calendar quarter. Shareholders of the Retail Class of shares
will experience a lower net return on their investment than shareholders of the
Institutional Class of shares because of the sales charge, additional
shareholder servicing and Rule 12b-1 fees to which the Retail Class shares are
subject.
Performance information for the Fund may be compared to various
unmanaged indices, such as those prepared by Lipper Analytical Services 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
Fund, and the market conditions during the time period indicated, and should not
be considered to be representative of the future. For a more detailed
description of the methods used to determine the total return for the Fund,
refer to the SAI.
Account Services
All transactions in shares of the Fund will be reflected in a statement
for each shareholder. In those cases where a Service Organization or its nominee
is the shareholder of record for its customer, the Fund has been advised that
the statement may be transmitted to the customer at the discretion of the
Service Organization.
Investor Services Group acts as the Fund's transfer agent. The Trust
compensates Investor Services Group, the Trust's administrator, pursuant to a
Services Agreement for providing personnel and facilities that perform dividend
disbursing and transfer agency-related services for the Trust. See "Management
of the Fund -Administrative Services".
Shareholder Inquiries
All shareholder inquiries should be directed to the Fund at
P.O. Box 5176, Westborough, Massachusetts 01581-5176. General and Account
Information should be directed to the Fund at: 1-888- FIRST16.
<PAGE>
Investment Adviser
First American Capital Management, Inc.
567 San Nicolas Drive
Suite 101
Newport Beach, California 92660
Administrator
First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, Massachusetts 01581-5176
Custodian
Investors Fiduciary Trust Company
801 Pennsylvania Avenue
Kansas City, Missouri 64105-1716
Counsel
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Independent Accountants
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts 02110
VEST-0002
First Choice Equity Fund
Prospectus
December 15, 1998
<PAGE>
FIRST CHOICE FUNDS TRUST
4400 COMPUTER DRIVE, WESTBOROUGH, MA 01581
GENERAL AND ACCOUNT INFORMATION: 1-888-FIRST16
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") describes the
three existing series of First Choice Funds Trust (each a "Fund," collectively,
the "Funds"). The Funds are:
o First Choice U.S. Treasury Reserve Fund
o First Choice Cash Reserve Fund
o First Choice Equity Fund
Each Fund constitutes a separate investment portfolio of First Choice
Funds Trust (the "Trust"), a Delaware business trust and open-end, investment
management company. Each portfolio has distinct investment objectives and
policies.
First Choice U.S. Treasury Reserve Fund and First Choice Cash Reserve
Fund (collectively, the "Money Market Funds") are money market funds managed by
First American Capital Management Inc. ("First American" or the "Adviser"). Each
of the Money Market Funds offers three classes of shares -- the Investment
Class, the Institutional Class and the Service Class. Investment Class shares
are available through authorized financial services companies which provide to
investors various administrative services including shareholder servicing,
sub-accounting and sub-transfer agency services. The Service Class shares are
available to customers who require shareholder servicing. The Institutional
Class shares are available to institutional investors. The Investment Class
shares impose shareholder servicing, administrative and Rule 12b-1 fees. The
Service Class shares impose shareholder servicing and Rule 12b-1 fees. The
Institutional Class shares are subject to a minimum investment of $50,000 and do
not impose any administrative, shareholder servicing or Rule 12b-1 fees.
First Choice Equity Fund (the "Equity Fund") is an equity fund managed
by First American. The Equity Fund offers two classes of shares -- the
Institutional Class and the Retail Class. The Retail Class shares are available
to customers through authorized banks, trust companies, broker-dealers or other
financial organizations at a sales charge of 4.5% (4.71% of the amount
invested). The Institutional Class shares are subject to a minimum investment of
$50,000 and are available to institutional investors without a sales charge. The
Retail Class shares and the Institutional Class shares are identical in all
other respects, with the exception that the Institutional Class shares do not
impose any shareholder servicing or Rule 12b-1 fees. See "Other Information --
Capitalization" herein.
This SAI is not a prospectus and is only authorized for distribution
when preceded or accompanied by the respective prospectuses for the Funds each
dated December 15, 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 or information number
printed above.
December 15, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
INVESTMENT POLICIES........................................................... 3
INVESTMENT RESTRICTIONS....................................................... 9
MANAGEMENT....................................................................11
Trustees and Officers.........................................................11
Investment Adviser............................................................12
Distribution of Fund Shares...................................................13
Distribution Plan.............................................................13
Administrative Services.......................................................14
Service Organizations.........................................................14
DETERMINATION OF NET ASSET VALUE..............................................15
PORTFOLIO TRANSACTIONS........................................................17
TAXATION......................................................................18
OTHER INFORMATION.............................................................20
Capitalization................................................................20
Voting Rights.................................................................21
Custodian, Transfer Agent and Dividend Disbursing Agent.......................22
Experts.......................................................................22
Counsel to the Trust..........................................................22
Performance Information.......................................................22
FINANCIAL STATEMENTS..........................................................25
APPENDIX A - RATINGS OF DEBT SECURITIES......................................A-1
<PAGE>
INVESTMENT POLICIES
.........The Prospectus discusses the investment objectives of the Funds
and the policies to be employed to achieve those objectives. This section
contains supplemental information concerning certain types of securities
and other instruments in which the Funds may invest, the investment policies
and portfolio strategies that the Funds may utilize, and certain risks
attendant to such investments, policies and strategies.
.........U.S. Treasury Obligations (All Funds). Each Fund may invest, and
the U.S. Treasury Reserve Fund invests exclusively (except due to emergency
causing disruption of business at the Adviser in which case, in accordance with
the procedures adopted by the Board of Trustees, the Fund may temporarily
invest in repurchase agreements), in direct obligations of the United States
Treasury that have remaining maturities not exceeding thirteen months
(397 days). The United States Treasury issues various types of marketable
securities consisting of bills, notes and bonds. They are direct obligations
of the United States Government and differ primarily in the length of their
maturity. Treasury bills, the most frequently issued marketable United
States Government security, have a maturity of up to one year and are
issued on a discount basis.
.........U.S. Government Agency Obligations (Cash Reserve Fund and Equity
Fund Only). Each Fund may invest in obligations of agencies of the
United States Government. Such agencies include, among others, Farmers
Home Administration, Federal Farm Credit System, Federal Housing
Administration, Government National Mortgage Association, Maritime
Administration, Small Business Administration, and The Tennessee Valley
Authority. Each Fund may purchase securities issued or guaranteed by the
Government National Mortgage Association, which represent participations
in Veterans Administration and Federal Housing Administration backed mortgage
pools. Obligations of instrumentalities of the United States Government
include securities issued by, among others, Federal Home Loan Banks, Federal
Home Loan Mortgage Corporation, Federal Land Banks, Federal National
Mortgage Association and the United States Postal Service. Some of these
securities are supported by the full faith and credit of the United States
Treasury (e.g., Government National Mortgage Association). Guarantees of
principal by agencies or instrumentalities of the U.S. Government may be a
guarantee of payment at the maturity of the obligation; therefore, in the
event of a default prior to maturity, there might not be a market and thus no
means of realizing the value of the obligation prior to maturity.
.........Commercial Paper (Cash Reserve Fund and Equity Fund Only).
Commercial paper includes short-term unsecured promissory notes, variable
rate demand notes and variable rate master demand notes issued by domestic and
foreign bank holding companies, corporations and financial institutions and
similar taxable instruments issued by government agencies and
instrumentalities. All commercial paper purchased by a Fund is, at the time
of investment: (i) rated within the highest rating category of at least two of
the nationally recognized statistical rating organizations ("NRSROs") that
have rated the security; (ii) if rated by only one such rating organization,
rated within the highest rating category of that rating organization; or (iii)
if unrated, determined by the Adviser to be of an investment quality
comparable to the rated securities in which the Fund may invest pursuant to
guidelines established by the Board of Trustees.
.........Convertible Securities (Equity Fund Only). Convertible securities
are bonds, notes, debentures, preferred stocks and other securities which
may be converted or exchanged at a stated or determinable exchange ratio into
shares of common stock. Convertible securities rank senior to common
stock in an issuer's capital structure and are consequently of higher
quality and entail less risk than the issuer's common stock. As with all debt
securities, the market value of convertible securities tend to increase when
interest rates decline and conversely, tend to decline when interest rates
increase. In addition, the prices of convertible securities often reflect
changes in the value of the underlying common stock.
.........Debt Securities (Cash Reserve Fund and Equity Fund Only). Each
Fund's investments in these securities are limited to corporate debt
securities (corporate bonds, debentures, notes and similar corporate debt
instruments) which meet the rating criteria established for the Fund. The
Cash Reserve Fund may invest only in high quality debt securities as
described in the Prospectus. The Equity Fund may invest in investment grade
debt securities rated Baa or better by Moody's Investors Services, Inc.
("Moody's") or BBB or better by Standard & Poor's Ratings Group ("S&P", a
division of McGray Hill Companies, Inc.) or, if unrated, judged by the
Adviser to be of comparable quality. If the rating of a security falls below
investment grade, management will consider appropriate action consistent
with the Fund's investment objective and policies. See Appendix A to the SAI
for a discussion of rating categories. Investment in debt securities by the
Equity Fund is limited to periods when, in the opinion of the Adviser, a
temporary defensive position is consistent with the best interest of
shareholders. After purchase by a Fund, a security may cease to be
rated or its rating may be reduced below the minimum required for purchase by
such Fund. Neither event will require a sale of such security by a Fund.
However, the Fund's Adviser will consider such event in its determination
of whether the Fund should continue to hold the security. To the extent the
ratings given by a NRSRO may change as a result of changes in such
organizations or their rating systems, the Fund will attempt to use comparable
ratings as standards for investments in accordance with the investment policies
contained in the Prospectus and in this SAI.
.........Bank Obligations (Cash Reserve Fund and Equity Fund Only). These
obligations include, but are not limited to the following domestic,
Eurodollar and Yankeedollar obligations: certificates of deposits, time
deposits, bankers' acceptances, commercial paper, bank deposit notes and
other promissory notes, including floating or variable rate obligations
issued by U.S. or foreign bank holding companies and their bank
subsidiaries, branches and agencies. Certificates of deposit are issued
against funds deposited in an eligible bank (including its domestic and
foreign branches, subsidiaries and agencies), are for a definite period of
time, earn a specified rate of return and are normally negotiable.
A bankers' acceptance is a short-term draft drawn on a commercial bank by a
borrower, usually in connection with a commercial transaction. The borrower
is liable for payment, as is the bank, which unconditionally guarantees to
pay the draft at its face amount on the maturity date. Eurodollar obligations
are U.S. Dollar obligations issued outside the United States by domestic or
foreign entities. Yankeedollar obligations are U.S. dollar obligations
issued inside the United States by foreign entities. Bearer deposit notes are
obligations of a bank, rather than a bank holding company. Similar to
certificates of deposit, deposit notes represent bank level investments and,
therefore, are senior to all holding company corporate debt, except
certificates of deposit.
.........Variable and Floating Rate Demand and Master Demand Obligations (Cash
Reserve Fund and Equity Fund Only). Each Fund may, consistent with its
permitted investment policies, buy variable rate demand obligations
issued by corporations, bank holding companies and financial institutions,
and similar taxable and tax-exempt instruments issued by government agencies
and instrumentalities. These securities will typically have a maturity of 397
days or less, but carry with them the right of the holder to put the securities
to a remarketing agent or other entity on short notice, typically seven days
or less. The obligation of the issuer of the put to repurchase the
securities may or may not be backed by a letter of credit or other obligation
issued by a financial institution. The purchase price is ordinarily par
plus accrued and unpaid interest.
.........Each Fund may also buy variable rate master demand obligations.
The terms of these obligations permit the investment of fluctuating amounts
by a Fund at varying rates of interest pursuant to direct arrangements
between the Fund, as lender, and the borrower. They permit weekly, and in some
instances daily, changes in the amounts borrowed. A Fund has the right to
increase the amount under the obligation at any time up to the full amount
provided by the note agreement, or to decrease the amount, and the borrower
may prepay up to the full amount of the obligation without penalty. The
obligations may or may not be backed by bank letters of credit. Because the
obligations are direct lending arrangements between the lender and the
borrower, it is not generally contemplated that they will be traded,
and there is no secondary market for them, although they are redeemable
(and thus, immediately repayable by the borrower) at principal amount, plus
accrued interest, upon demand. Each Fund has no limitations on the types of
issuers from whom such obligations may be purchased. The Funds will invest in
unrated variable rate master demand obligations only when such obligations
are determined by the Adviser or, pursuant to guidelines established by the
Board of Trustees, to be of comparable quality to rated issuers or instruments
eligible for investment by a Fund.
.........When-Issued and Delayed-Delivery Securities (All Funds). The Funds
may purchase securities on a when-issued or delayed-delivery basis. For
example, delivery of and payment for these securities can take place a month
or more after the date of the transaction. The securities so purchased are
subject to market fluctuation during this period and no income accrues to the
Fund until settlement takes place. To facilitate such acquisitions, the
Funds will maintain with the custodian a separate account with a segregated
portfolio of securities in an amount at least equal to the value of
such commitments. On the delivery dates for such transactions, each Fund will
meet obligations from maturities or sales of the securities held in the
separate account and/or from cash flow. While the Funds normally enter
into these transactions with the intention of actually receiving or
delivering the securities, they may sell these securities
before the settlement date or enter into new commitments to extend the
delivery date into the future, if the Adviser considers such action advisable
as a matter of investment strategy. Such transactions have the effect of
leverage on the Funds and may increase the volatility of a Fund's net asset
value.
.........Investment in Other Mutual Funds (Cash Reserve Fund and Equity Fund
Only). Each Fund may invest in shares of other open-end management investment
companies, subject to the limitations of the Investment Company Act of 1940,
as amended (the "1940 Act") and subject to such investments being consistent
with the overall objective and policies of such Fund, provided that any such
purchases will be limited to short-term investments in shares of investment
companies, and will not, in the aggregate, exceed 10% of a Fund's net assets.
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.
.........Loans of Portfolio Securities (All Funds). The Funds may lend
their portfolio securities to brokers, dealers and financial institutions,
provided: (1) the loan is secured continuously by collateral consisting of U.S.
Government securities or cash or approved bank letters of credit maintained on a
daily mark-to-market basis in an amount at least equal to the current market
value of the securities loaned; (2) the Funds may at any time call the loan and
obtain the return of the securities loaned within five business days; (3) the
Funds will receive any interest or dividends paid on the loaned securities; and
(4) the aggregate market value of securities loaned will not at any time exceed
33 1/3% of the total assets of a particular Fund. The Funds will earn income for
lending their securities because cash collateral pursuant to these loans will be
invested in short-term money market instruments. A portion of the proceeds from
investing cash collateral may be rebated to the borrower. In connection with
lending securities, the Funds may pay reasonable finders, administrative and
custodial fees. Loans of securities involve a risk that the borrower may fail to
return the securities or may fail to provide additional collateral.
.........Repurchase Agreements (Cash Reserve Fund and Equity Fund Only).
The Cash Reserve Fund may invest up to 100% of its net assets in repurchase
agreements maturing in seven days or less, however, the Fund may not invest more
than 10% of its net assets in repurchase agreements maturing in more than seven
business days and in securities for which market quotations are not readily
available. The Equity Fund may invest in repurchase agreements for cash reserves
or for temporary defensive or emergency purposes. The Equity Fund may not invest
more than 15% of its net assets in repurchase agreements maturing in more than
seven business days and in securities for which market quotations are not
readily available. The Funds may enter into agreements with any bank or
registered broker-dealer who, in the opinion of the Trustees, present a minimal
risk of bankruptcy. Such agreements may be considered to be loans by a Fund for
purposes of the 1940, Act. A repurchase agreement is a transaction in which the
seller of a security commits itself at the time of the sale to repurchase that
security from the buyer at a mutually agreed-upon time and price. The repurchase
price exceeds the sale price, reflecting an agreed-upon interest rate effective
for the period the buyer owns the security subject to repurchase. The
agreed-upon rate is unrelated to the interest rate on that security. The Adviser
will monitor the value of the underlying security at the time the transaction is
entered into and at all times during the term of the repurchase agreement to
insure that the value of the security always equals or exceeds the repurchase
price. In the event of default by the seller under the repurchase agreement, the
Fund may have problems in exercising its rights to the underlying securities and
may incur costs and experience time delays in connection with the disposition of
such securities.
.........Reverse Repurchase Agreements (All Funds). The Funds may enter
into reverse repurchase agreements to avoid selling securities during
unfavorable market conditions to meet redemptions. Pursuant to a reverse
repurchase agreement, a Fund will sell portfolio securities and agree to
repurchase them from the buyer at a particular date and price. Whenever a Fund
enters into a reverse repurchase agreement, it will establish a segregated
account in which it will maintain liquid assets in an amount at least equal to
the repurchase price marked to market daily (including accrued interest), and
will subsequently monitor the account to ensure that such equivalent value is
maintained. The Funds pay interest on amounts obtained pursuant to reverse
repurchase agreements. Reverse repurchase agreements are considered to be
borrowings by a Fund under the 1940 Act.
.........Illiquid Securities (All Funds). Each Fund has adopted a
nonfundamental policy with respect to investments in illiquid securities.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended ("Securities Act"),
securities that are otherwise not readily marketable and repurchase agreements
having a maturity longer than seven days. Securities that have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
.........In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act, including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on either an efficient institutional market in which the unregistered
security can be readily resold or on the issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.
.........Each Fund may invest in restricted securities issued under Section 4(2)
of the Securities Act, which exempts from registration "transactions by an
issuer not involving any public offering." Section 4(2) instruments are
restricted in the sense that they can only be resold through the issuing dealer
and only to institutional investors; they cannot be resold to the general public
without registration. Restricted securities issued under Section 4(2) of the
Securities Act will be treated as illiquid and subject to the Funds' investment
restriction on illiquid securities.
.........The Securities and Exchange Commission (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restrictions on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act applicable to resales of certain securities to qualified institutional
buyers. It is the intent of the Funds to invest, pursuant to procedures
established by the Board of Trustees and subject to applicable investment
restrictions, in securities eligible for resale under Rule 144A which are
determined to be liquid based upon the trading markets for such securities.
.........Pursuant to guidelines established by, and under the supervision
of, the Board of Trustees, the Adviser will monitor the liquidity of restricted
securities in a Fund's portfolio. In reaching liquidity decisions, the Adviser
will consider, among other things, the following factors: (1) the frequency of
trades and quotes for the security over the course of six months or as
determined in the discretion of the Adviser; (2) the number of dealers wishing
to purchase or sell the security and the number of other potential purchasers
over the course of six months or as determined in the discretion of the Adviser;
(3) dealer undertakings to make a market in the security; (4) the nature of the
security and the marketplace in which it trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer); and (5) other factors, if any, which the Adviser deems relevant.
The Adviser will also monitor the purchase of Rule 144A securities to assure
that the total of all Rule 144A securities held by a Fund does not exceed 10% of
the Fund's average daily net assets (except that the Equity Fund may not exceed
15% of its average daily net assets). Rule 144A securities which are determined
to be liquid based upon their trading markets will not, however, be required to
be included among the securities considered to be illiquid for purposes of
nonfundamental Investment Restriction No. 1 set forth below. Investments in Rule
144A securities could have the effect of increasing Fund illiquidity.
.........Options on Securities Indices (Equity Fund only). The Fund may
purchase and sell call and put options on securities indices and in so doing can
achieve many of the same objectives it would achieve through the sale or
purchase of options on individual securities or other instruments. Options on
securities indices settle by cash settlement, i.e., an option on an index gives
the holder the right to receive, upon exercise of the option, an amount of cash
if the closing level of the index upon which the option is based exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of the
option (except if, in the case of an OTC option, physical delivery is
specified). This amount of cash is equal to the excess of the closing price of
the index over the exercise price of the option, which also may be multiplied by
a formula value. The seller of the option is obligated, in return for the
premium received, to make delivery of this amount. The gain or loss on an option
on an index depends on price movements in the instruments making up the market,
market segment, industry or other composite on which the underlying index is
based, rather than price movements in individual securities, as is the case with
respect to options on securities.
.........A European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto while an American style put or
call option may be exercised at any time during the option period. The Fund is
authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below regarding exchange listed options uses the OCC as a paradigm,
but is also applicable to other financial intermediaries.
.........The Fund's ability to close out its position as a purchaser or
seller of an OCC or exchange listed put or call option is dependent, in part,
upon the liquidity of the option market. Among the possible reasons for the
absence of a liquid option market on an exchange are: (i) insufficient trading
interest in certain options; (ii) restrictions on transactions imposed by an
exchange; (iii) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities
including reaching daily price limits; (iv) interruption of the normal
operations of the OCC or an exchange; (v) inadequacy of the facilities of an
exchange or OCC to handle current trading volume; or (vi) a decision by one or
more exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the relevant market for that option on that
exchange would cease to exist, although outstanding options on that exchange
would generally continue to be exercisable in accordance with their terms.
.........The hours of trading for listed options may not coincide with the
hours during which the underlying financial instruments are traded. To the
extent that the option markets close before the markets for the underlying
financial instruments, significant price and rate movements can take place in
the underlying markets that cannot be reflected in the option markets.
.........OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties.
.........Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund may
lose any premium it paid for the option as well as any anticipated benefit of
the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with United States government securities dealers recognized by the Federal
Reserve Bank of New York as "primary dealers," or broker dealers, domestic or
foreign banks or other financial institutions which have received (or the
guarantors of the obligation of which have received) a short-term credit rating
of A-1 from S&P or P-1 from Moody's or an equivalent rating from any other
NRSRO.
.........If the Fund sells (i.e., issues) a call option, the premium that
it receives may serve as a partial hedge, to the extent of the option premium,
against a decrease in the value of the underlying securities or instruments in
its portfolio, or will increase the Fund's income. The sale of put options can
also provide income.
.........All calls sold by the Fund must be "covered" (i.e., the Fund must own
the futures contract subject to the calls) or must meet the asset segregation
requirements described below as long as the call is outstanding. Even though the
Fund will receive the option premium to help protect it against loss, a call
sold by the Fund exposes it during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying or
instrument and may require the Fund to hold a security or instrument which it
might otherwise have sold.
.........General Characteristics of Futures (Equity Fund only). The Fund
may enter into financial futures contracts or purchase or sell put and call
options on such futures as a hedge against anticipated market changes and for
risk management purposes. Futures are generally bought and sold on the
commodities exchanges where they are listed with payment of initial and
variation margin as described below. The sale of a futures contract creates a
firm obligation by the Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to index futures and Eurodollar
instruments, the net cash amount). Options on futures contracts give the
purchaser the right in return for the premium paid to assume a position in a
futures contract and obligates the seller to deliver such position.
.........The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the CFTC and will be entered into only for bona
fide hedging, risk management or other portfolio management purposes. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any further obligation on the part
of the purchaser. If the Fund exercises an option on a futures contract, it will
be obligated to post initial margin (and potential subsequent variation margin)
for the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur.
.........The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of that Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
.........Short Sales Against the Box (Equity Fund only). The Fund may sell
securities "short against the box." While a short sale is the sale of a security
that the Fund does not own, it is "against the box" if at all times when the
short position is open the Fund owns an equal amount of securities or securities
convertible into, or exchangeable without further consideration for, securities
of the same issuer as the securities sold short.
.........To secure its obligations to deliver the securities sold short, the
Fund will deposit in escrow in a separate account with the Fund's custodian an
amount at least equal to the securities sold short or securities convertible
into, or exchangeable for, the securities sold short. The Fund may close out a
short position by purchasing and delivering an equal amount of securities sold
short, rather than by delivering securities already held by the Fund, because
the Fund may want to continue to receive interest and dividend payments on
securities in its portfolio that are convertible into the securities sold short.
Use of Segregated and Other Special Accounts (Equity Fund only). Many
Strategic Transactions, in addition to other requirements, require that the Fund
segregate liquid assets with its custodian to the extent the Fund's obligations
are not otherwise "covered" through ownership of the underlying security or
financial instrument. Liquid assets include equity and debt securities so long
as they are readily marketable. The Adviser, subject to oversight by the Board
of Trustees, is responsible for determining and monitoring the liquidity of
securities in segregated accounts on a daily basis. In general, either the full
amount of any obligation by the Fund to pay or deliver securities or assets must
be covered at all times by the securities, instruments or currency required to
be delivered, or, subject to any regulatory restrictions, an amount of cash or
liquid securities at least equal to the current amount of the obligation must be
segregated with the custodian. The segregated account may consist of notations
on the books of the custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. For example, a call option sold by the Fund
on an index will require the Fund to own portfolio securities which correlate
with the index or to segregate liquid assets equal to the excess of the index
value over the exercise price on a current basis. A put option written by a Fund
requires the Fund to segregate liquid assets equal to the exercise price.
OTC options entered into by the Fund and OCC issued and exchange listed
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments, the Fund will only segregate an amount of assets equal
to its accrued net obligations, as there is no requirement for payment or
delivery of amounts in excess of the net amount. When the Fund sells a call
option on an index at a time when the in-the-money amount exceeds the exercise
price, the Fund will segregate, until the option expires or is closed out, cash
or cash equivalents equal in value to such excess. OCC issued and exchange
listed options sold by the Fund other than those above generally settle with
physical delivery, and the Seller will segregate an amount of assets equal to
the full value of the option. OTC options settling with physical delivery, or
with an election of either physical delivery or cash settlement will be treated
the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. In the case of portfolio securities which
are loaned, collateral values of the loaned securities will be continuously
maintained at not less than 100% by "marking to market" daily. The Fund may also
enter into offsetting transactions so that its combined position, coupled with
any segregated assets, equals its net outstanding obligation in related options
and Strategic Transactions. For example, the Fund could purchase a put option if
the strike price of that option is the same or higher than the strike price of a
put option sold by the Fund. Moreover, instead of segregating assets if the Fund
held a futures contract, it could purchase a put option on the same futures
contract with a strike price as high or higher than the price of the contract
held. Other Strategic Transactions may also be offset in combinations. If the
offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
The Fund's activities involving Strategic Transactions may be limited
by the requirements of Subchapter M of the Internal Revenue Code for
qualification as a regulated investment company (see "TAXATION").
INVESTMENT RESTRICTIONS
The following restrictions restate or are in addition to those
described under "Investment Restrictions" in the Prospectus. The following
Investment Restrictions are fundamental policies of the Funds, which can be
changed only when permitted by law and approved by a majority of the Funds'
outstanding voting securities. 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.
The Equity Fund will invest at least 65% of its total assets in equity
securities.
Each Fund, except as indicated, may not:
(1) Borrow money or pledge, mortgage or hypothecate its assets, except
that a Fund may enter into reverse repurchase agreements or borrow from banks up
to 10% (33% with respect to the Equity Fund) of the current value of its net
assets for temporary or emergency purposes, and such borrowings may be secured
by the pledge the Fund's assets (limited with respect to the Money Market Funds
to not more than 15% of the current value of total net assets) (but investments
may not be purchased by the Fund while any such borrowings exist);
(2) Issue senior securities, except insofar as a Fund may be deemed to
have issued a senior security in connection with any reverse repurchase
agreement or any permitted borrowing;
(3) Make loans, except loans of portfolio securities and except that a
Fund may enter into repurchase agreements with respect to its portfolio
securities and may purchase the types of debt instruments described in its
Prospectus or the SAI;
(4) Invest in real property (including limited partnership interests,
but excluding real estate investment trusts and master limited partnerships),
commodities, commodity contracts, or oil, gas and other mineral resource,
exploration, development, lease or arbitrage transactions (except with respect
to the Equity Fund to the extent permitted with regard to its nonfundamental
policy #7 below);
(5) Engage in the business of underwriting securities of other issuers,
except to the extent that the disposal of an investment position may technically
cause it to be considered an underwriter as that term is defined under the
Securities Act;
(6) Purchase a security if, as a result, more than 25% of the value of
its total assets would be invested in securities of one or more issuers
conducting their principal business activities in the same industry (except for
the Cash Reserve Fund, which will concentrate its investments in obligations
issued by the banking industry, both domestic and foreign), provided that this
limitation shall not apply to obligations issued or guaranteed by the U.S.
Government or its agencies and instrumentalities;
(7) Purchase a security if, as a result, (1) more than 5% of its total
assets would be invested in any one issuer other than the U.S. Government or its
agencies or instrumentalities (except that the Cash Reserve Fund may invest up
to 25% of its total assets in the first tier securities of a single issuer for
up to three business days), or (2) the Fund would own more than 10% of the
outstanding voting securities of such issuer (except that with respect to the
Equity Fund, this restriction shall apply only with respect to 75% of its total
assets); or
(8) Invest more than 5% of its net assets in warrants which are
unattached to securities, nor more than 2% of the value of the Fund's net assets
in warrants which are not listed on the New York or American Stock Exchanges.
The following investment restrictions are nonfundamental policies which
may be changed by approval of a majority of the Board of Trustees:
Each Fund, except as indicated, may not:
(1) Invest more than 10% (15% with respect to the Equity Fund) of the
value of its net assets in investments which are illiquid (including repurchase
agreements having maturities of more than seven calendar days, and variable and
floating rate demand and master demand notes not requiring receipt of the
principal note amount within seven days notice);
(2) Invest in companies for the purpose of exercising control or
management;
(3) Invest more than 10% of its net assets in shares of other
investment companies;
(4) Sell securities short, except to the extent that a Fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short;
(5) Purchase securities on margin, except that a Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities;
(6) Purchase or retain the securities of any issuer, if those
individual officers and Trustees of the Trust, the Adviser or the Distributor,
each owning beneficially more than 1/2 of 1% of the securities of such issuer,
together own more than 5% of the securities of such Issuer; or
(7) Write, purchase or sell puts, calls or combinations thereof except
the Equity Fund may purchase or sell financial futures contracts, options on
financial futures contracts and options on securities indices, as permitted by
applicable law.
<PAGE>
MANAGEMENT
TRUSTEES AND OFFICERS
The names, ages and the principal occupations for the past five years
of the Trustees and executive officers of the Trust, are listed below. All of
the Trustees are deemed to be "non-interested persons" of the Trust for purposes
of the 1940 Act.
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Occupation
Name and Address, Age Position Held with the Trust (during past 5 years)
- --------------------- ---------------------------- ---------------------
JOHN J. PILEGGI Chairman of President and Chief Executive Officer
ING Mutual Funds Management Co. LLC the Board of Trustees of ING Mutual Funds Management Co.
18 Campus Boulevard, Suite 200 LLC (since August 1998); Director,
Newtown Square, PA 19073 Furman Selz LLC (since 1994); Senior
Age 39 Managing Director, Furman Selz LLC
(1992-1994).
DENNIS W. DRAPER Trustee Associate Professor of Finance at
University of Southern California University of Southern California
School of Business, since 1978; Director of Data
Hoffman, 701F Analysis, Inc. (financial services);
Los Angeles, CA 90089 and Editorial Board of Chicago Board
Age 48 of Trade.
JOSEPH N. HANKIN Trustee President, Westchester Community
75 Grasslands Road College since 1971; Adjunct Professor
Valhalla, NY 10595 of Columbia University Teachers
Age 58 College since 1976.
RICHARD WEDEMEYER Trustee Vice President, The Channel
5 High Ridge Park Corporation since July 1996; Vice
Stamford, CT 06878 President of Performance Advantage,
Age 62 Inc. 1992 to July 1996; Vice
President
of
Jim
Henson
Productions
from
1979
to
1992;
Author
of
In
Transition
(Harper
Collins);
co-founder
and
co-conductor
of
Harvard
Business
School
Club
of
New
York
Career
Seminar;
Trustee
of
Jim
Henson
Legacy
trust.
JYLANNE DUNNE President of the Trust Vice President of Client Services of
First Data Investor Services Group, Inc. First Data Investor Services Group,
4400 Computer Drive Inc. since 1994.
Westborough, MA 01581
Age 38
<PAGE>
Principal Occupation
Name and Address, Age Position Held with the Trust (during past 5 years)
- --------------------- ---------------------------- ---------------------
DIANA TARNOW Treasurer of the Trust Vice President, Fund Administration,
First Data Investor Services Group, Inc. First Data Investor Services Group,
4400 Computer Drive Inc. since 1997; Vice President of
Westborough, MA 01581 Financial Reporting and Tax
Age 36 (1994-1997); Assistant Vice President
of Financial Reporting, The Boston
Company, Inc. (1989-1994).
COLEEN DOWNS DINNEEN, ESQ. Secretary of the Trust Counsel, Mutual Fund Legal Division,
First Data Investor Services Group, Inc. First Data Investor Services Group,
One Exchange Place Inc. since 1997. Vice President,
Boston, MA 02109 Scudder, Stevens & Clark, Inc.
Age 37 (1989-1996).
</TABLE>
The following table sets forth certain information regarding the
compensation paid to the Trustees for the fiscal year ended September 30, 1998.
No officer of the Trust receives compensation from the Funds. No Trustee
receives pension or retirement benefits from the Funds.
<TABLE>
<CAPTION>
<S> <C> <C>
AGGREGATE TOTAL COMPENSATION FROM THE FUND
COMPENSATION FROM THE COMPLEX
TRUST
John J. Pileggi, Trustee $7,000 $7,000
Dennis W. Draper, Trustee $8,000 $8,000
Joseph N. Hankin, Trustee $8,000 $8,000
Richard Wedemeyer, Trustee $8,000 $8,000
</TABLE>
Trustees of the Trust receive from the Trust an annual retainer of
$1,000 and a fee of $1,000 for each Board of Trustees meeting attended 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.
Officers and Trustees of the Trust, as a group, own less than 1% of the
outstanding shares of the Funds.
INVESTMENT ADVISER
First American 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, First American makes investment decisions for the Funds. The
Advisory Agreement provides that, as compensation for its services thereunder,
First American is entitled to receive from each Fund 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. For the fiscal year ended September 30,
1998, First American earned $225,778 from the U. S. Treasury Reserve Fund,
$269,075 from the Cash Reserve Fund and for the period June 2, 1998 through
September 30, 1998 First American received $49,754 from the Equity Fund, of
those amounts $188,149, $207,365 and $49,754 were waived. In addition, First
American Capital Management, Inc. reimbursed the Equity Fund $4,172. For the
fiscal year ended September 30, 1997, First American received $168,045 from the
U.S. Treasury Reserve Fund and $113,162 from the Cash Reserve Fund, of those
amounts $146,252 and $100,521 were waived and $72,732 and $74,316 were
reimbursed.
With respect to the Equity Fund, the Adviser utilizes, as part of
the investment process, a quantitative model developed by Haugen Custom
Financial Systems, a registered investment adviser with offices at 4199 Campus
Drive, Suite 350, Irvine, CA 92612. Under the 1940 Act, Haugen Custom Financial
Systems may be deemed to be a sub-adviser to the Equity Fund. The Adviser has
entered into an agreement with Haugen Custom Financial Systems for the use of
its model. The Adviser pays Haugen Custom Financial Systems a monthly fee at the
annual rate of .065% of the Equity Fund's average daily net assets on the first
$100 million; .125% of the Equity Fund's average daily net assets on the next
$100 million and .03% of the Equity Fund's average daily net assets exceeding
$200 million. For the period June 2, 1998 through September 30, 1998, Haugen
Custom Financial Systems received fees of $6,666.67.
First American has agreed voluntarily to waive or reimburse all or a
portion of the advisory fee and/or to assume voluntarily certain expenses of the
Funds to the extent necessary to maintain the total expense ratio of each Fund
at no more than as set forth in the table of Fund Expenses in the Prospectus.
First American is located at 567 San Nicolas Drive, Suite 101, Newport
Beach, California 92660 and is a wholly-owned subsidiary of The First American
Financial Corporation. First American was organized on December 1, 1995, to
provide business management, advisory, administrative and asset management
consulting services and is a registered investment adviser.
The Advisory Agreements for the Funds will continue in effect for a
period beyond two years from the date of their execution only as long as such
continuance is approved annually (i) by the holders of a majority of the
outstanding voting securities of the Funds or by the Board of Trustees and (ii)
by a majority of the Trustees who are not parties to such agreement or
"interested persons" (as defined in the 1940 Act) of any such party. The
Advisory Agreements may be terminated without penalty by vote of the Trustees or
the shareholders of the Funds, or by the Adviser, on 60 days written notice by
either party to the Contract and will terminate automatically if assigned.
DISTRIBUTION OF FUND SHARES
The Trust retains First Data Distributors Inc. to serve as principal
underwriter for the shares of the Funds pursuant to a Distribution Agreement.
The Distribution Agreement provides that the Distributor will use efforts it
deems appropriate to solicit orders for the sale of shares and may enter into
sales or servicing agreements with securities dealers, financial institutions
and other industry professionals 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 a Master Distribution
Plan (the "Plan") pursuant to Rule 12b-1 of the 1940 Act for the Investment
Class and the Service Class shares of the Money Market Funds and the Retail
Class shares of the Equity Fund after having concluded that there is a
reasonable likelihood that the Plan will benefit the Investment Class, Service
Class and Retail Class shares of the respective Funds and their shareholders.
The Plan provides for a monthly payment by the Investment Class, Service Class
and Retail Class shares of the respective Funds to the Distributor in such
amounts that the Distributor may request, or for direct payment by the Fund, for
certain costs incurred under the Plan, subject to periodic Board approval,
provided that each such payment is based on the average daily value of the net
assets of the Investment Class, Service Class and the Retail Class shares during
the preceding month and is calculated at an annual rate not to exceed 0.25%. The
Distributor will use all amounts received under the Plan for payments to
broker-dealers or financial institutions (not including banks) for their
assistance in distributing shares of the Investment Class, Service Class and the
Retail Class and otherwise promoting the sale of Investment Class, Service Class
and Retail Class shares, including payments in amounts based on the average
daily value of Investment Class, Service Class and Retail Class 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 or 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 has been
approved, and is 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, 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 voted to approve the Plan at a
meeting held on August 28, 1997. The Plan was submitted to the shareholders of
the Investment Class, the Service Class and the Retail Class and approved at a
special meeting of shareholders held on August 23, 1996 with respect to the
Service Class shares and a consent of sole shareholder dated April 20, 1998 with
respect to the Investment Class shares and the Retail Class shares. The Plan is
terminable with respect to each Class 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
Administration Agreement or by vote of the holders of a majority of the shares
of the Funds.
For the fiscal year ended September 30, 1998, no 12b-1 fees were paid
to the Distributor pursuant to the 12b-1 plan.
ADMINISTRATIVE SERVICES
On September 22, 1997, First Data Investor Services Group, Inc.
(the "Administrator") replaced BISYS Fund Services ("BISYS") as administrator of
the Trust. The Administrator provides management and administrative services
necessary for the operation of the Funds, including, among other things: (i)
preparation of shareholder reports and communications; (ii) regulatory
compliance, such as reports to and filings with the SEC and state securities
commissions; and (iii) general supervision of the operation of the Funds. In
addition, the Administrator furnishes office space and facilities required for
conducting the business of the Funds and pays the compensation of the Funds'
officers, employees and Trustees affiliated with the Administrator. For these
services, the Administrator receives from each Fund a fee, payable monthly, at
the annual rate of 0.15% of each Fund's average daily net assets. The
Administrator receives a separate fee for providing fund accounting services
pursuant to the Administration Agreement.
The Administration Agreement is for a three-year term and renewal
thereof is subject to approval by a majority of the Trustees who are not
"interested persons" of the Trust and who have no direct or indirect financial
interest in the operation of the Administration Agreement. The Administration
Agreement may be terminated in the event the Administrator has failed to meet
the performance standards set forth therein or pursuant to a breach of
performance under the Transfer Agency and Service Agreement.
For the period October 1, 1996 through September 21, 1997, BISYS
earned $81,351 and $54,419 for the U.S. Treasury Reserve Fund and Cash Reserve
Fund of which $70,042 and $42,564 were waived. For the period September 22, 1997
through September 30, 1997, the Administrator earned $890 and $721 for the U.S.
Treasury Reserve Fund and Cash Reserve Fund. For the fiscal year ended September
30, 1998, the Administrator earned $112,889 and $134,538 for the U.S. Treasury
Reserve Fund and Cash Reserve Fund and for the period June 2, 1998 through
September 30, 1998, the Administrator earned $7,463 for the Equity Fund, of
those amounts $68,757, $52,753 and $4,975 were waived.
SERVICE ORGANIZATIONS
The Trust also contracts with banks, trust companies, broker-dealers or
other financial organizations ("Service Organizations") to provide certain
services for the Investment Class, the Service Class and the Retail Class.
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 Investment Class, the Service Class or the Retail Class
to the respective shareholders; and providing such other services as the
Investment Class, the Service Class or the Retail Class or a shareholder
reasonably may request, to the extent permitted by applicable statute, rule or
regulation. In addition, with respect to the Investment Class and Service Class
shares, a Service Organization may provide recordkeeping, sub-accounting,
sub-transfer agency, communicating with and education of shareholders, fiduciary
services (excluding investment management) and asset allocation services.
Neither the Administrator nor the Distributor will be a Service Organization or
receive additional fees for administration or servicing.
Some Service Organizations may impose additional or different
conditions on their clients, such as requiring their clients to invest more than
the minimum initial or subsequent investments specified by the Funds or charging
a direct fee for servicing. If imposed, these fees would be in addition to any
amounts which might be paid to the Service Organization by the Funds. Each
Service Organization has agreed to transmit to its clients a schedule of any
such fees. Shareholders using Service Organizations are urged to consult them
regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws, among other things,
prohibit banks from engaging in the business of underwriting, selling or
distributing securities. There currently is no precedent prohibiting banks from
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or interpretations
of such laws, as well as changes in either Federal or state statutes or
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, could prevent a bank from continuing to perform all
or a part of its servicing activities. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed herein
and banks and financial institutions may be required to register as dealers
pursuant to state law.
If a bank were prohibited from so acting, its shareholder clients would
be permitted to remain shareholders of the Trust and alternative means for
continuing the servicing of such shareholders would be sought. In that event,
changes in the operation of the Trust might occur and a shareholder serviced by
such a bank might no longer be able to avail itself of any services then being
provided by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these occurrences.
DETERMINATION OF NET ASSET VALUE
Money Market Funds
The Money Market Funds will use the amortized cost method to determine
the value of their portfolio securities pursuant to Rule 2a-7 under the 1940
Act. The amortized cost method involves valuing a security at its cost and
amortizing any discount or premium over the period until maturity regardless of
the impact of fluctuating interest rates on the market value of the security.
While this method provides certainty in valuation, it may result in periods
during which the value, as determined by amortized cost, is higher or lower than
the price which the Funds would receive if the security were sold. During these
periods, the yield to a shareholder may differ somewhat from that which could be
obtained from a similar fund which utilizes a method of valuation based upon
market prices. Thus, during periods of declining interest rates, if the use of
the amortized cost method resulted in lower value of a Fund's portfolio on a
particular day, a prospective investor in the Fund would be able to obtain a
somewhat higher yield than would result from an investment in a fund utilizing
solely market values and existing Fund shareholders would receive
correspondingly less income. The converse would apply during periods of rising
interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, each Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase securities having remaining
maturities of 397 days or less and invest only in U.S. dollar denominated
eligible securities determined by the Trust's Board of Trustees to be of minimal
credit risks and which: (1) have received one of the two highest short-term
ratings by at least two NRSROs, such as "A-l" 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
pursuant to guidelines approved by the Board.
In addition, a Fund will not invest more than 5% of its total assets in
the securities (including the securities collateralizing a repurchase agreement)
of a single issuer, except that a Fund may invest in U.S. Government securities
or repurchase agreements that are collateralized by U.S. Government securities
without any such limitation and except that the Cash Reserve Fund may invest up
to 25% of its total assets in the first tier securities of a single issuer for
up to three business days pursuant to the safe harbor available in Rule 2a-7.
Furthermore, the limitation does not apply with respect to conditional and
unconditional puts issued by a single issuer, provided that no more than 10% of
a Fund's total assets are invested in securities issued or guaranteed by the
issuer of the put. Investments in rated securities not rated in the highest
category by at least two rating organizations (or one rating organization if the
instrument was rated by only one such organization), and unrated securities not
determined by the Board of Trustees to be comparable to those rated in the
highest rating category, will be limited to 5% of a Fund's total assets, with
investment in any one such issuer being limited to no more than the greater of
1% of a Fund's total assets or $ 1,000,000.
Pursuant to Rule 2a-7, the Board of Trustees is also required to
establish procedures designed to stabilize, to the extent reasonably possible,
the price per share of the Funds, as computed for the purpose of sales and
redemptions, at $ 1.00. Such procedures include review of the Fund's portfolio
holdings by the Board of Trustees, at such intervals as it may deem appropriate,
to determine whether the net asset value of the Funds calculated by using
available market quotations deviates from $1.00 per share based on amortized
cost. The extent of any deviation will be examined by the Board of Trustees. If
such deviation exceeds 1/2 of 1%, the Board of Trustees will promptly consider
what action, if any, will be initiated. In the event the Board of Trustees
determines that a deviation exists that may result in material dilution or other
unfair results to investors or existing shareholders, the Board of Trustees will
take such corrective action as it regards as necessary and appropriate, which
may include selling portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity, withholding dividends
or establishing a net asset value per share by using available market
quotations.
Equity Fund
In valuing the Equity Fund's assets, a security listed on an exchange
or through any system providing for daily publication of actual prices (and not
subject to restrictions against sale by the Fund on such exchange or system)
will be valued at its last sale price prior to the close of regular trading.
Lacking any sales, the security will be valued at the mean between the last
asked price and the last bid price prior to the close of regular trading.
Securities for which daily publication of actual prices is not
available and for which bid and asked quotations are readily available will be
valued at the mean between the current bid and asked prices for such securities
in the over-the-counter market. Other securities will be valued at their fair
value as determined in good faith by or under the direction of the Trustees.
Open futures contracts are valued at the most recent settlement price, unless
such price does not reflect the fair value of the contract, in which case such
positions will be valued by or under the direction of the Trustees.
The value of a security which is not readily marketable and which
accordingly is valued by or under the direction of the Trustees is valued
periodically on the basis of all relevant factors which may include the cost of
such security to the Fund, the market price of unrestricted securities of the
same class at the time of purchase and subsequent changes in such market price,
potential expiration or release of the restrictions affecting such security, the
existence of any registration rights, the fact that the Fund may have to bear
part or all of the expense of registering such security, any potential sale of
such security by or to another investor as well as traditional methods of
private security analysis.
Following the calculation of security values in terms of the currency
in which the market quotation used is expressed ("local currency"), the valuing
agent will calculate these values in terms of United States dollars on the basis
of the conversion of the local currencies (if other than U.S.) into U.S. dollars
at the rates of exchange prevailing at the value time as determined by the
valuing agent.
Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the close of
business on each business day in New York (i.e., a day on which the Exchange is
open). In addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in Japanese markets on certain Saturdays
and in various foreign markets on days which are not business days in New York
and on which the Equity Fund's net asset value is not calculated. The Equity
Fund generally calculates net asset value per share, and therefore effects
sales, redemptions and repurchases of its shares, as of the regular close of the
Exchange on each day on which the Exchange is open. Such calculation does not
take place contemporaneously with the determination of the prices of some of the
portfolio securities used in such calculation. If events materially affecting
the value of such securities occur between the time when their price is
determined and the time when the Equity Fund's net asset value is calculated,
such securities will be valued at fair value as determined in good faith by or
under the direction of the Board of Trustees.
PORTFOLIO TRANSACTIONS
Investment decisions for the Funds and for the other investment
advisory clients of the Adviser are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved.
Thus, a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling the security. In some instances, one client may sell
a particular security to another client. It also sometimes happens that two or
more clients simultaneously purchase or sell the same security, in which event
each day's transactions in such security are, insofar as possible, averaged as
to price and allocated between such clients in a manner which in the Adviser's
opinion is equitable to each and in accordance with the amount being purchased
or sold by each. There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on other clients.
The Funds have no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Funds' Boards of Trustees, the Adviser is primarily
responsible for portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Funds to obtain the best results
taking into account the broker-dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities. While the Adviser generally seeks
reasonably competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available. The reasonableness of such
spreads or brokerage commissions will be evaluated by comparing spreads or
commissions among brokers or dealers in consideration of the factors listed
immediately above and research services described below.
Money Market Funds
Purchases and sales of securities will usually be principal
transactions. Portfolio securities normally will be purchased or sold from or to
issuers directly or to dealers serving as market makers for the securities at a
net price. Generally, money market securities are traded on a net basis and do
not involve brokerage commissions. The cost of executing portfolio securities
transactions for the Funds primarily consists of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Trust or First
American are prohibited from dealing with the Trust as a principal in the
purchase and sale of securities unless a permissive order allowing such
transactions is obtained from the SEC. The policy of each Money Market Fund of
investing in securities with short maturities may result in high portfolio
turnover. For the fiscal year ended September 30, 1998, the Money Market Funds
did not pay any brokerage commissions.
First American may, in circumstances in which two or more dealers are
in a position to offer comparable results, give preference to a dealer which has
provided statistical or other research services to First American. By allocating
transactions in this manner, First American is able to supplement its research
and analysis with the views and information of securities firms.
Equity Fund
First American conducts all of the trading operations for the Equity
Fund. First American places portfolio transactions with or through issuers,
underwriters and other brokers and dealers. Through its broker-dealer affiliate,
Pacific American Securities LLC, the Adviser reserves the right to receive a
ticket charge from the Fund for such service although it currently does not
engage in this practice.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Equity Fund's portfolio is to obtain the most
favorable net results, taking into account such factors as price, commission,
where applicable, (which is negotiable in the case of U.S. national securities
exchange transactions but which is generally fixed in the case of foreign
exchange transactions), size of order, difficulty of execution and skill
required of the executing broker/dealer. The Adviser reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.
The Adviser may, in circumstances in which two or more
broker-dealers are in a position to offer comparable results, give preference to
a dealer which has provided statistical or other research services to the
Adviser. By allocating transactions in this manner, the Adviser is able to
supplement its research and analysis with the views and information of
securities firms. These items, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities and recommendations as
to the purchase and sale of securities. Some of these services are of value to
the Adviser in advising various of its clients (including the Funds), although
not all of these services are necessarily useful and of value in managing the
Funds. The management fee paid by the Funds is not reduced because the
Sub-Adviser and its affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934
(the "Act"), the Sub-Adviser may cause the Funds to pay a broker-dealer which
provides "brokerage and research services" (as defined in the Act) to the
Sub-Adviser an amount of disclosed commission for effecting a securities
transaction for the Funds in excess of the commission which another
broker-dealer would have charged for effecting that transaction.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Trustees may determine, the
Sub-Adviser may consider sales of shares of the Funds as a factor in the
selection of broker-dealers to execute portfolio transactions for the Funds. For
the period June 2, 1998 through September 30, 1998, the Equity Fund paid $19,840
for brokerage commissions.
Annual portfolio turnover rate is the ratio of the lesser of sales or
purchases to the monthly average value of the portfolio securities owned during
the year, excluding from both the numerator and the denominator all securities
with maturities at the time of acquisition of one year or less. The Equity
Fund's portfolio turnover rate for the period ended September 30, 1998 was 47%.
TAXATION
Each Money Market Fund has qualified and elected to be treated for its
most recent fiscal year and the Equity Fund intends to so qualify and elect and
each Fund intends to continue to qualify and elect 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, an electing
Fund must: (a) 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; (b) 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, except that such other securities of any one issuer must
be 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), or of two or more issuers which the taxpayer controls and which are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses.
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 provided that they distribute to their shareholders at least 90% of
their net investment income and tax-exempt income earned in each year. 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.
Distributions of investment company taxable income generally are
taxable to shareholders as ordinary income. 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.
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 shareholder's hands. Such gain or loss
will be long-term or short-term, generally depending upon whether the
shareholder's holding period for the shares is more than one year. However, a
loss realized by a shareholder on the disposition of Fund shares with respect to
which capital gain dividends have been paid will, to the extent of such capital
gain dividends, be treated as long-term capital loss if such shares have been
held by the shareholder for six months or less. A loss realized on the
redemption, sale or exchange of Fund shares will be disallowed to the extent an
exempt-interest dividend was received with respect to those shares if the shares
have been held by the shareholder for six months or less. Further, a loss
realized on a disposition will be disallowed to the extent the shares disposed
of are replaced (whether by reinvestment of distributions or otherwise) within a
period beginning 30 days before and ending 30 days after the disposal of the
shares. 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 Funds are required to report to the Internal Revenue Service
("IRS") all distributions except in the case of certain exempt shareholders. All
such distributions generally are subject to withholding of Federal income tax at
a rate of 31% ("backup withholding") in the case of nonexempt 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 shareholder's U.S. Federal income tax
liability. Investors may wish to consult their tax advisers 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 advisers 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 June 5, 1996 and currently consists of three 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.
Each of the Money Market Funds offers three classes of shares - the
Investment, the Institutional and the Service classes of shares. The Investment
Class shares are available through authorized financial services companies which
provide to investors various administrative services including shareholder
servicing, sub-accounting and sub-transfer agency services. The Service Class
shares are available to customers who require shareholder servicing. The
Institutional Class shares are subject to a minimum investment of $50,000 and do
not impose any administrative, servicing or Rule 12b-1 fees. The Investment
Class shares are subject to administrative fees and the Investment Class shares
and the Service Class shares are subject to Rule 12b-1 fees and shareholder
service fees.
The Equity Fund offers two classes of shares -- the Institutional Class
and the Retail Class. The Retail Class shares are available to customers through
authorized banks, trust companies, broker-dealers or other financial
organizations at a sales charge of 4.5% (4.71% of the amount invested). The
Institutional Class shares are subject to a minimum investment of $50,000 and
are available to investors without a sales charge. The Retail Class shares and
the Institutional Class shares are identical in all other respects, except that
the Institutional Class shares do not impose any shareholder servicing or Rule
12b-1 fees.
Expenses incurred in connection with each Fund's organization and the
public offering of its shares have been deferred and are being amortized on a
straight-line basis over a period of not more than five years.
As of November 20, 1998, the following shareholders owned 5% or
more of the Funds:
<TABLE>
<CAPTION>
<S> <C> <C>
U.S. Treasury Reserve Fund - TrustMark National Bank 57.36%
Service Class Trust Dept., Room 1030
P.O. Box 291
Jackson, MS 39205
TrustMark National Bank 39.72%
248 E. Capitol Street, Room 1030
Jackson, MS 39205
U.S. Treasury Reserve Fund First American Trust Company 92.8%
-Institutional Class 421 North Main Street
Santa Ana, CA 92701
U.S. Treasury Reserve Fund First Data Distributors Inc. 100%
-Investment Class 4400 Computer Drive
Westborough, MA 01581
Cash Reserve Fund - First American Title Insurance Company 72%
Service Class 114 E. 5th Street
Santa Ana, CA 92701
Maxine S. Haun 16.25%
1630 S. Pomona Avenue, C26
Fullerton, CA 92832
Furman Selz Mutual Funds 11%
3435 Stelzer Road
Columbus, OH 43219
Cash Reserve Fund - First American Trust Company 99.1%
Institutional Class 421 North Main Street
Santa Ana, CA 92701
Cash Reserve Fund - First Data Distributors Inc. 100%
Investment Class 4400 Computer Drive
Westborough, MA 01581
Equity Fund - Retail Class Michael Cardullo 57.32%
402 Madison Avenue
Cresskill, NJ 07626
Josephine Castellani 18%
2070 Arbor Circle
Brea, CA 92821
Semper Trust 9.23%
5315 Brockwood Street
Long Beach, CA 90808
Deborah A. Castellani 7.2%
2070 Arbor Circle
Brea, CA 92821
Equity Fund - Institutional Class First American Trust Company 99.67%
421 North Main Street
Santa Ana, CA 92701
</TABLE>
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. It is not anticipated that the Trust will hold shareholder meetings
unless required by law or the Declaration of Trust. In this regard, the Trust
will be required to hold a meeting to elect Trustees to fill any existing
vacancies on the Board if, at any time, fewer than a majority of the Trustees
have been elected by the shareholders of the Trust. In addition, the Declaration
of Trust provides that the holders of not less than two-thirds of the
outstanding shares of the Trust may remove persons serving as Trustee either by
declaration in writing or at a meeting called for such purpose. The Trustees are
required to call a meeting for the purpose of considering the removal of persons
serving as Trustee if requested in writing to do so by the holders of not less
than 10% of the outstanding shares of the Trust. To the extent required by
applicable law, the Trustees shall assist shareholders who seek to remove any
person serving as Trustee.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Investors Fiduciary Trust Company acts as custodian of the Trust's
assets. First Data Investor Services Group, Inc. acts as transfer agent and
dividend disbursing agent for the Funds.
EXPERTS
PricewaterhouseCoopers LLP has been selected as the independent
accountants for the Trust. PricewaterhouseCoopers LLP provides audit and tax
services and assistance in connection with certain SEC filings.
PricewaterhouseCoopers LLP is located at 160 Federal Street, Boston, MA 02110.
COUNSEL TO THE TRUST
Paul, Weiss, Rifkind, Wharton & Garrison serves as counsel to the Trust
and from time to time provides advice to the Adviser.
PERFORMANCE INFORMATION
From time to time each Fund may calculate its performance for inclusion
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures are calculated by the Funds as described
below.
Yield
The Money Market Funds may, from time to time, include their yield and
effective yield in advertisements or reports to shareholders or prospective
investors.
Current yield for the Money Market Funds will be based on the change in
the value of a hypothetical investment (exclusive of capital changes such as
gains or losses from the sale of securities and unrealized appreciation and
depreciation) over a particular seven-day period, less a pro-rata share of each
such Fund's expenses accrued over that period (the "base period"), and stated as
a percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by 365/7,
with the resulting yield figure carried to at least the nearest hundredth of one
percent. "Effective yield" for the Money Market Funds assumes that all dividends
received during the base period have been reinvested. Calculation of "effective
yield" begins with the same "base period return" used in the calculation of
yield, which is then annualized to reflect weekly compounding pursuant to the
following formula:
Effective Yield = [(Base Period Return + 1)365/7]-1.
Quotations of yield will reflect only the performance of a hypothetical
investment in the Money Market Funds during the particular time period shown.
Yield for the Money Market Funds will vary based on changes in market conditions
and the level of the Fund's expenses, and no reported performance figure should
be considered an indication of performance which may be expected in the future.
For the period ended October 28, 1998, the seven-day yield for U.S.
Treasury Reserve Fund Institutional Class and Service Class were 4.41% and
4.16%, respectively. For the same seven-day period, the effective yield for the
Institutional Class and Service Class were 4.51% and 4.25%, respectively. For
the period ended October 28, 1998, the Investment Class had no investment
activity.
For the period ended October 28, 1998, the seven-day yield for the Cash
Reserve Fund Institutional Class and Service Class were 4.98% and 4.72%,
respectively. For the same seven-day period, the effective yield for the
Institutional Class and Service Class were 5.10% and 4.83%, respectively. For
the period ended October 28, 1998, the Investment Class had no investment
activity.
In connection with communicating its yields to current or prospective
shareholders, the Money Market Funds also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indices, which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of
return for the periods of one year and the life of the Equity Fund, each ended
on the last day of a recent calendar quarter. Average annual total return
quotations reflect changes in the price of the Equity Fund's shares and assume
that all dividends and capital gains distributions during the respective periods
were reinvested in the Equity Fund's shares. Average annual total return is
calculated by computing the average annual compound rates of return of a
hypothetical investment over such periods, according to the following formula
(average annual total return is then expressed as a percentage):
T = (ERV/P)1/n - 1
Where:
P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at the
beginning of the applicable period.
Cumulative Total Return
Cumulative Total Return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of the Equity Fund's shares
and assume that all dividends and capital gains distributions during the period
were reinvested in the Equity Fund's shares. Cumulative total return is
calculated by computing the cumulative rates of return of a hypothetical
investment over such periods, according to the following formula (cumulative
total return is then expressed as a percentage):
C = (ERV/P) - 1
Where:
C = cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at the
beginning of the applicable period.
Total Return
Total Return is the rate of return on an investment for a specified
period of time calculated in the same manner as cumulative total return. The
total return for the year ended September 30, 1998 for the U.S. Treasury Reserve
Fund Institutional Class and Service Class was 4.97% and 4.88%, respectively.
The total return for the year ended September 30, 1998 for the Cash Reserve Fund
Institutional Class and Service Class was 5.29% and 5.19%, respectively. The
annualized total return for the year ended September 30, 1998 for the Equity
Fund Institutional Class and Retail Class was (5.30) and (5.40), respectively.
Capital Change
Capital Change measures the return from invested capital including
reinvested capital gains distributions. Capital change does not include the
reinvestment of income dividends.
Quotations of the Equity Fund's performance are historical, show the
performance of a hypothetical investment, and are not intended to indicate
future performance. An investor's shares when redeemed may be worth more or less
than their original cost. Performance of the Equity Fund will vary based on
changes in market conditions and the level of the Equity Fund's expenses.
Comparison of Portfolio Performance
Comparison of the quoted non-standardized performance of various
investments is valid only if performance is calculated in the same manner or the
differences are understood. Investors should consider the methods used to
calculate performance when comparing the performance of a Fund with the
performance of other investment companies or other types of investments.
In connection with communicating performance to current or prospective
shareholders, the Funds also may compare these figures (a) to unmanaged indices
which may assume reinvestment of dividends or interest but generally do not
reflect deductions for operational, administrative and management costs or (b)
to the Consumer Price Index (measure for inflation) to assess the real rate of
return from an investment of dividends but this Index generally does not reflect
deductions for administrative and management costs and expenses.
From time to time, in advertising and marketing literature, a Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations. When
these organizations' tracking results are used, a Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk.
Since the assets in funds are always changing, a Fund may be ranked
within one asset-size class at one time and in another asset-size class at some
other time. In addition, the independent organization chosen to rank a Fund in
fund literature may change from time to time depending upon the basis of the
independent organization's categorizations of mutual funds, changes in a Fund's
investment policies and investments, the Fund's asset size and other factors
deemed relevant. Footnotes in advertisements and other marketing literature will
include the organization issuing the ranking, time period and asset-size class,
as applicable, for the ranking in question.
Evaluations of a Fund's performance made by independent sources may
also be used in advertisements concerning that Fund, including reprints of, or
selections from, editorials or articles about the Fund.
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 or 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.
<PAGE>
FINANCIAL STATEMENTS
The financial statements for the Trust including the notes thereto,
dated September 30, 1998 have been audited by PricewaterhouseCoopers LLP and are
incorporated by reference in their entirety into this Statement of Additional
Information from the Annual Report of the Trust dated September 30, 1998.
<PAGE>
APPENDIX A
The following is a description of the ratings given by Moody's and S&P
to corporate and municipal bonds.
Ratings of Municipal and Corporate Bonds
S&P:
Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong. Debt rated AA
has a very strong capacity to pay interest and repay principal and differs from
the highest rated issues only in small degree. Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. Debt rated BBB is regarded as
having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned and actual or
implied B or B- rating. The rating CC typically is applied to debt subordinated
to senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
A-1
<PAGE>
Moody's:
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class. Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or maintenance of other terms of the contract over any long period of
time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which are speculative
to a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
A-2
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Report for the fiscal year
ended September 30, 1998 and the Report of
Independent Auditors dated October 30, 1998, are
incorporated by reference to the Definitive 30b-2
filed (EDGAR Form N-30D) on November 25, 1998 as
Accession #0000927405-97-000345.
(b) Exhibits (the number of each exhibit relates to the exhibit
designation in Form N-1A):
Exhibit
Number Description
(1) Trust Instrument1
(2) ByLaws of Registrant1
(3) None
(4) None
(5)(a) Form of Master Investment Advisory Agreement and Supplements between
Registrant (on behalf of U.S. Treasury Reserve Fund and Cash Reserve Fund) and
Adviser2
(5)(b) Investment Advisory Contract Supplement with respect to the
Equity Fund is filed herein.
(5)(c) Consultant Agreement with respect to the Equity Fund is filed
herein.
(6)(a)(i) Distribution Agreement between Registrant and First Data
Distributors, Inc.4
(6)(a)(ii) Amendment to Distribution Agreement between Registrant and
First Data Distributors, Inc. is filed herein.
(6)(a)(iii) Amendment to Distribution Agreement between Registrant and
First Data Distributors, Inc. is filed herein.
(7) None
(8) Form of Custodian Contract between Registrant and Custodian2
(9)(a)(i) Transfer Agency and Service Agreement between Registrant and
First Data Investor Services Group, Inc.4
(9)(a)(ii) Amendment to Transfer Agency and Registrar Agreement between
Registrant and First Data Investor Services Group, Inc. is filed herein.
(9)(b)(i) Administration Agreement between Registrant and First Data
Investor Services Group, Inc.4
(9)(b)(ii) Amendment to Administration Agreement between Registrant and
First Data Investor Services Group, Inc. is filed herein.
(10) Consent of Baker & McKenzie, initial counsel to Registrant3
(11)(a) Consent of Independent Accountants is filed herein.
(11)(b) Powers of Attorney are filed herein.
(12) None
(13) Subscription Agreement2
(14) None
(15)(a) Form of Rule 12b-1 Distribution Plan and Agreement between
Registrant and Distributor2
(15)(b) Rule 12b-1 Distribution Plan and Agreement between Registrant and
First Data Distributors, Inc.4
(15)(c) Form of Rule 12b-1 Distribution Plan and Agreement Supplement is
filed herein.
(16) Schedule of Computation of Performance Calculation3
(17) Financial Data Schedules are filed herein.
(18) Rule 18f-3 Plan, as amended is filed herein.
<PAGE>
1. Previously filed with the initial registration statement on June 26,
1996 and incorporated by reference herein.
2. Previously filed with Pre-Effective Amendment No. l on September 12,
1996 and incorporated by reference herein.
3. Previously filed with Post-Effective Amendment No. 1 on April 30, 1997
and incorporated by reference herein.
4. Previously filed with Post-Effective Amendment No. 2 on December 15,
1997 and incorporated by reference herein.
Item 25. Persons Controlled by or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities at November 20, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Service Institutional Investment
Class Class Class
U.S. Treasury Reserve Fund 6 7 1
Cash Reserve Fund 8 3 1
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Retail Institutional
Class Class
Equity Fund 8 3
</TABLE>
Item 27. Indemnification
As permitted by Section 17(h) and (i) of the Investment Company Act of
1940, as amended (the "1940 Act") and pursuant to Article X of the Registrant's
Trust Instrument, Section 4 of the Master Investment Advisory Agreement between
Registrant and the Adviser, Section 9 of the Master Investment Advisory
Agreement between Registrant and the Adviser and Section 3 of the Distribution
Agreement between Registrant and First Data Distributors, Inc. ("FDDI"),
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 opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The Registrant will purchase an insurance policy insuring its officers
and trustees against liabilities, and certain costs of defending claims against
such officers and trustees, to the extent such officers and trustees are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers under certain circumstances.
Section 4 of the Master Investment Advisory Agreement between
Registrant and the Adviser Section 9 of the Master Investment Advisory Agreement
between Registrant and the Adviser and Section 3 of the Distribution Agreement
between Registrant and FDDI, limit the liability of the Adviser and FDDI 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, Master Investment Advisory
Agreement and Distribution Agreement in a manner consistent with Release No.
11330 of the Securities and Exchange Commission under the 1940 Act so long as
the interpretations of Section 17(h) and 17(i) of such Act remain in effect and
are consistently applied.
Item 28. Business and Other Connections of the Investment Adviser
First American Capital Management, Inc. ("First American"), is a subsidiary of
The First American Financial Corporation, which is headquartered in Santa Ana,
California, and is a provider of real estate related financial and information
services to real property buyers and mortgage lenders and trust services through
its subsidiary First American Trust Company.
The executive officers of First American and such executive officers' positions
during the past two fiscal years are as follows:
Name Position and Offices
William C. Conrad Director, President - Chief Executive Officer of the
Adviser since December 1995; Chief Investment Officer of First American Trust
Company, 2161 San Joaquin Hills Road, Newport Beach, California, from August
1994 to December 1997; Chairman, First Interstate Securities, San Diego
California, from January 1994 to July 1994; President, Chief Executive Officer
of San Diego Capital Management, Inc., San Diego, California, from January 1990
to January 1994.
Mark R Arnesen Director, Secretary & Corporate
Counsel of the Adviser since December 1995;
vice-president, Secretary & Corporate
Counsel of The First American Financial
Corporation, 114 East Fifth Street, Santa
Ana, California, since April 1992; Vice
President, Secretary & Corporate Counsel of
First American Title Insurance Company, 114
East Fifth Street, Santa Ana, California,
since April 1992.
Thomas A. Klemens Director, Chief Financial Officer
of the Adviser since December 1995,
Executive Vice President & Chief Financial
Officer of The First American Financial
Corporation, 114 East Fifth Street, Santa
Ana, California, since February 1996; Vice
President, Chief Financial Officer of said
Company from 1993 to 1996; Vice President &
Chief Financial Officer of First American
Title Insurance Company since September
1993.
Deborah A. Castellani Chief Operating Officer of the Adviser since
December 1995; Vice President of First American Trust Company, 2161 San Joaquin
Hills Road, Newport Beach, California, from April 1989 to December 1997.
Randall L. Zaharia Senior Portfolio Manager of the Adviser since
December 1995; Vice President of First American Trust Company, 2161 San Joaquin
Hills Road, Newport Beach, California, from March 1995 to December 1997.
Investment Analyst, Los Angeles County M.T.A., Los Angeles, California, from
November 1988 to March 1995.
Steven Neal Huntsinger Senior Portfolio Manager of
the Adviser since December 1995; Vice
President of First American Trust Company,
2161 San Joaquin Hills Road, Newport Beach,
California, from September 1995 to December
1997; Portfolio Manager, Analytical
Investment Management, 2222 Martin St.,
Suite 230, Irvine, California, from November
1983 to July 1995.
Daniel Ast Senior Portfolio Manager of the Adviser since November 1996;
Senior Portfolio Manager of Wells Fargo Bank, 707 Wilshire Boulevard, Los
Angeles; California, from April 1996 to May 1996; Senior Portfolio Manager of
First Interstate Capital Management, Inc., 707 Wilshire Boulevard, Los Angeles,
California, from July 1995 to April 1996; Senior Investment Analyst of Auto Club
of Southern California, 2601 S. Figueroa Street, Los Angeles, California, from
August 1989 to July 1995.
John A. Flom Senior Portfolio Manager of the Adviser since May 1997; Senior
Portfolio Manager of Analytic - TSA Global Asset Management, 700 S. Flower,
Suite 240, Los Angeles, California, from September 1987 to December 1996.
Minnie L. Giles Portfolio Manager of the Adviser
since August 1998; Portfolio Administrator
of the Adviser from April 1996 to August
1998; Investment Officer of First Interstate
Bank of California, 4365 Executive Drive,
Suite 1800, San Diego, California, from May
1987 to April 1996.
Steven D. Hollenbeck Senior Securities Trader of
the Adviser since October 1997; Senior
Trader of Fixed Income Securities Inc., 7220
Trade Street, #315, San Diego, California,
from January 1996 to October 1997; Trading
Manager of First Interstate Securities Inc.,
San Diego, California, 92121 from April 1994
to August 1995.
Jerald P. Lewis Director, President - Chief
Executive Officer of the First American
Trust Company, 421 North Main Street, Santa
Ana, California since March 1994; Senior
Vice President of San Diego Trust & Savings
Company, 540 Broadway, San Diego,
California, from November 1959 to March
1994.
Item 29. Principal Underwriters
(a) In addition to First Choice Funds Trust, First Data Distributors, Inc.
(the "Distributor") currently acts as distributor for BT Insurance Funds Trust,
The Galaxy Fund, The Galaxy VIP Fund, Galaxy Fund II, Panorama Trust, CT&T
Funds, Wilshire Target Funds, Inc., Potomac Funds, Undiscovered Managers Funds,
LKCM Funds, Rembrandt Funds, IBJ Funds Trust, ICM Series Trust, Forward Funds,
Inc., Light Index Funds, Inc., WorldWide Index Funds, Weiss, Peck & Greer Funds
Trust, Weiss, Peck & Greer International Fund, WPG Growth Fund, WPG Growth and
Income Fund, WPG Tudor Fund, RWB/WPG U.S. Large Stock Fund and Tomorrow Funds
Retirement Trust. The Distributor is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National Association of
Securities Dealers. The Distributor is a wholly-owned subsidiary of First Data
Corporation and is located at 4400 Computer Drive, Westborough, MA 01581.
(b) The information required by this Item 29 (b) with respect to each
director, officer, or partner of First Data Distributors, Inc. is incorporated
by reference to Schedule A of Form BD filed by First Data Distributors, Inc.
with the Securities and Exchange Commission pursuant to the Securities Act of
1934 (File No. 8-45467).
(c) Not Applicable.
Item 30. Location of Accounts and Records
All accounts books and other documents required to be maintained by
Registrant by Section 31(a) of the 1940 Act and the Rules thereunder will be
maintained at the offices of:
(1) First American Capital Management, Inc.
567 San Nicolas Drive
Suite 101
Newport Beach, California 92660
(2) First Data Distributors, Inc.
4400 Computer Drive
Westborough, MA 01581
<PAGE>
(3) Investors Fiduciary Trust Company
801 Pennsylvania Avenue
Kansas City, Missouri 64105-1716
(4) First Data Investor Services Group, Inc.
One Exchange Place
Boston, MA 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant will 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.
(d) Registrant hereby undertakes to call a meeting of its shareholders
for the purpose of voting upon the question of removal of a trustee or trustees
of Registrant when requested in writing to do so by the holders of at least 10%
of Registrant's outstanding shares. Registrant undertakes further, in connection
with the meeting, to comply with the provisions of Section 16(c) of the 1940
Act, as amended, relating to communications with the shareholders of certain
common-law trusts.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that this Post-Effective Amendment No. 5 to the Registration Statement meets the
requirements for effectiveness pursuant to Rule 485(b) of the Securities Act of
1933, as amended, and the Registrant has duly caused this Post-Effective
Amendment No. 5 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and the Commonwealth of Massachusetts on this
27th day of November, 1998.
FIRST CHOICE FUNDS TRUST
By: *
Jylanne Dunne, President
* By:
/s/ Coleen Downs Dinneen
Coleen Downs Dinneen
as Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
* President November 27, 1998
- --------------------------------------------
Jylanne Dunne
* Treasurer November 27, 1998
Diana Tarnow
* Trustee November 27, 1998
John J. Pileggi
* Trustee November 27, 1998
Dennis W. Draper
* Trustee November 27, 1998
Joseph N. Hankin
Trustee November 27, 1998
*
Richard Wedemeyer
</TABLE>
* By:
/s/ Coleen Downs Dinneen
Coleen Downs Dinneen
as Attorney-in-Fact
The Powers of Attorney are filed herein.
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
(5)(b) Investment Advisory Contract Supplement with respect to the Equity
Fund
(5)(c) Consultant Agreement with respect to the Equity Fund
(6)(a)(ii) Amendment to Distribution Agreement between Registrant and First
Data Distributors, Inc.
(6)(a)(iii) Amendment to Distribution Agreement between Registrant and
First Data Distributors, Inc.
(9)(a)(ii) Amendment to Transfer Agency and Registrar Agreement between
Registrant and First Data Investor Services Group, Inc.
(9)(b)(ii) Amendment to Administration Agreement between Registrant and
First Data Investor Services Group, Inc.
(11)(a) Consent of Independent Accountants
(11)(b) Powers of Attorney
(15)(c) Form of Rule 12b-1 Distribution Plan and Agreement Supplement
(17) Financial Data Schedules
(18) Rule 18f-3 Plan, as amended
<PAGE>
EQUITY FUND
First Choice Funds Trust
3435 Stelzer Road
Columbus, Ohio 43219
February 19, 1998
First American Capital Management, Inc.
567 San Nicholas Drive, Suite 101
Newport Beach, CA 92660
Investment Advisory Contract Supplement
Dear Sirs or Madams:
This will confirm the agreement between First Choice Funds Trust (the
"Trust") and First American Capital Management, Inc. (the "Adviser") as follows:
The Equity Fund (the "Fund") is a portfolio of the Trust
which has been organized as a business trust under the laws of the State
of Delaware and is an open-end management investment company. The Trust
and the Adviser have entered into a Master Investment Advisory Contract,
dated August 23,1996 (as from time to time amended and supplemented, the
"Master Advisory Contract"), pursuant to which the Adviser has undertaken
to provide or make provision for the Trust for certain investment advisory
and management services identified therein and to provide certain other
services, as more fully set forth therein. Certain capitalized terms used
without definition in this Investment Advisory Contract Supplement have
the meaning specified in the Master Advisory Contract.
The Trust agrees with the Adviser as follows:
1. Adoption of Master Advisory Contract. The Master
Advisory Contract is hereby adopted for the Fund. The Fund shall be one of
the "Funds" referred to in the Master Advisory Contract.
2. Payment of Fees. For all services to be rendered,
facilities furnished and expenses paid or assumed by the Adviser as
provided in the Master Advisory Contract and herein, the Fund shall pay a
monthly fee on the first business day of each month, based upon the
average daily value (as determined on each business day at the time set
forth in the Prospectus for determining net asset value per share) of the
net assets of the Fund during the preceding month, at the annual rate of
1.00%.
If the foregoing correctly sets forth the agreement
between the Trust and the Adviser, please so indicate by signing and
returning to the Trust the enclosed copy hereof.
Very truly yours,
EQUITY FUND,
First Choice Funds Trust
By: /s/Coleen Downs Dinneeen
Title: Secretary
The foregoing Contract is hereby agreed to as of the date hereof:
FIRST AMERICAN CAPITAL MANAGEMENT, INC.
By: /s/William C. Conarad
Title: President and CEO
CONSULTANT AGREEMENT
May 25, 1998
Haugen Custom Financial Systems, Inc.
4199 Campus Drive, Suite 350
Irvine, California 92612
To Whom It May Concern:
The First Choice Equity Fund (the "Fund") is one of the
investment portfolios of First Choice Funds Trust (the "Trust"), an open-end
management investment company, which was organized as a business trust under
Delaware laws. The Trust's shares of beneficial interest may be classified into
series in which each series represents the entire undivided interests of a
separate portfolio of assets. This Consultant Agreement regards certain
technology and services to be provided in connection with the operations of the
Fund, on whose behalf First American Capital Management Inc. ("the Adviser")
enters into this Contract.
The Trustees of the Trust have selected the Adviser to provide
the investment advice and management for the Fund and to provide certain other
services, under the terms and conditions provided in the Master Advisory
Contract between the Trust and the Adviser (the "Advisory Contract"). The
Adviser and the Trustees have selected Haugen Custom Financial Systems, Inc (the
"Consultant") to provide the Adviser and the Fund with certain technology and
services as described below and the Consultant is willing to provide the Adviser
and the Fund with such technology and services under the terms and conditions
hereinafter set forth. Accordingly, the Adviser agrees with the Consultant as
follows:
1. REPRESENTATIONS. The Consultant is registered with the
Securities and Exchange Commission (the "SEC") as an investment adviser pursuant
to Section 203 of the Investment Advisers Act of 1940, as amended (the "Advisers
Act"), and agrees to maintain such registration during the term of this
agreement.
2. CONSULTING SERVICES.
(i) The Consultant shall assist the Adviser by providing such technology
and services as mutually agreed by the parties.
<PAGE>
(ii) No provision of this Contract may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment, transfer, assignment, sale, hypothecation or pledge of
this Contract shall be effective until approved by (a) the Trustees of the
Trust, including a majority of the Trustees who are not interested persons of
the Adviser, of the Consultant or of the Trust (other than as Trustees), cast in
person at a meeting called for the purpose of voting on such approval, and (b) a
majority of the outstanding voting securities of the Fund; provided, however,
that the approval required in subsection (a) above, shall be evidenced by a
resolution of the entire Board of Trustees and of the Trustees who are not
interested persons of the Adviser, of the Consultant or of the Trust (other than
as Trustees); and provided further that such resolutions shall be sent to the
Consultant by facsimile and confirmed in writing by letter.
(iii) The Consultant has the right under this
Contract to act for more than one client
collectively (including the Adviser) without prior reference to the Adviser.
3. THE CONSULTANT
(i) the Adviser authorizes the Consultant to disclose any information which
it may be required to disclose under this Contract, the Applicable Law, the
rules and regulations of the SEC.
(ii) Nothing herein contained shall prevent the Consultant or any of its
affiliated persons or associates from engaging in any other business or from
acting for any other person or entity, whether or not having investment policies
similar to the Fund.
(iii) The Consultant will pay the cost of maintaining the staff and
personnel necessary for it to perform its obligations under this Contract.
(iv) The Consultant will not be required to pay any expenses which this
Contract does not expressly state shall be payable by it.
4. FURTHER PROVISIONS.
(i) The Consultant enters into this Contract for itself. The Adviser
includes the Adviser's successors in title or personal representatives as the
case may be.
(ii) This Contract shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Contract with the Fund, and
the Adviser shall immediately notify the Consultant of such termination. No
assignment of this Contract shall be made by the Consultant without the consent
of the Adviser.
(iii) If any provision of this Contract is or becomes invalid or
contravenes any applicable law, the remaining provisions shall remain in full
force and effect.
5. FEES AND EXPENSES. In consideration for the use of the
technology provided and services to be rendered, facilities furnished and
expenses paid or assumed by the Consultant under this Contract, the Adviser
shall pay the Consultant an amount as is mutually agreed by the parties.
<PAGE>
6. NO PARTNERSHIP OR JOINT VENTURE. The Trust, the Adviser and
the Consultant are not partners of or joint venturers with each other and
nothing herein shall be construed so as to make them such partners or joint
ventures or impose any liability as such on any of them.
7. TERMINATION.
(i) This Contract shall become effective upon the above date, and shall
thereafter continue in effect; provided that this Contract shall continue in
effect for a period of more than two years only as so long as the continuance is
specifically approved at least annually by (a) a majority of the Trustees of the
Trust who are not interested persons of the Adviser, the Consultant or the Trust
(other than as Trustees), cast in person at meeting called for the purpose of
voting on such approval, and (b) either (i) the Trustees of the Trust, or (ii) a
majority of the outstanding voting securities of the Fund. This Contract may, on
60 days' written notice, be terminated at any time, without the payment of any
penalty, by the Trustees of the Trust, by vote of a majority of the outstanding
voting securities of the Trust, by the Adviser or by the Consultant. Termination
shall not affect any action taken by the Consultant permitted under this
Contract prior to the date of termination or any warranty or indemnity given by
the Adviser under this Contract or implied by law.
(ii) On termination by either party the Consultant shall be entitled to
receive from the Adviser all fees, costs, charges and expenses accrued or
incurred under this Contract up to the date of termination including any
additional expenses or losses necessarily incurred in settling outstanding
obligations or terminating this Contract, whether they occur before or after the
date of termination.
(iii) If the Adviser terminates this Contract, it shall be subject to a
proportion of the annual fee corresponding to the proportion of the year that
has expired when this Contract is terminated.
8. CAPTIONS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Contract may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE>
9. RESERVATION OF NAMES. The names "First Choice Fund Trust"
and "First Choice Equity Fund" are the designation of the Trustees under the
Declaration of Trust. The Consultant may not use the name "First Choice" or
"First Choice Equity Fund" without prior written authorization by the Trustees
and officers of the Trust. The Trust and the Adviser may use the name of the
Consultant or any name derived from or similar to that name in reports, filings,
shareholder communications, registration statements, advertising materials of
like nature, only for so long as this Contract or any extension, renewal of
amendment hereof remains in effect and only upon the prior written consent of
the Consultant. At such time as this Contract shall no longer be in effect, the
Trust and the Adviser will (to the extent they lawfully can) cease to use the
name of the Consultant or any other name indicating that the Fund or the Adviser
is advised by or otherwise connected with the Consultant.
10. GOVERNING LAW. This Contract shall be construed in
accordance with laws of the State of New York and the applicable provisions of
the Investment Company Act of 1940, as amend (the "1940 Act") and the Advisers
Act. As used herein the Terms "affiliated person", "assignment", "interested
person", and "vote of majority of the outstanding voting securities" shall have
the meaning set forth in the 1940 Act.
11. PERSONAL LIABILITY. The Trust's Declaration of Trust is on
file with the Secretary of State of the Commonwealth of Massachusetts. The
obligations of the Trust are not personally binding upon, nor shall resort be
had to the private property of, and of the Trustees, shareholders, officers,
employee or agents of the Trust, but only the Trust's property shall be bound.
Yours very truly,
First American Capital Management Inc.
By: /s/William C. Conrad
Title: President and CEO
The foregoing Contract is hereby agreed to as of the date hereof
Haugen Custom Financial Systems, Inc.
By: /s/Robert A. Haugen
Title: Chairman
AMENDMENT TO
DISTRIBUTION AGREEMENT
This Amendment dated as of April 16, 1998, is entered into by FIRST
CHOICE FUNDS TRUST (the "Company") and FIRST DATA DISTRIBUTORS, INC. (the
"Distributor").
WHEREAS, the Company and the Distributor have entered into a
Distribution Agreement dated as of September 20, 1997 (the "Agreement"); and
WHEREAS, the Company and the Distributor wish to amend the Agreement to
add a new investment portfolio of the Company to Schedule A of the Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, hereby agree as follows:
I. Schedule A to the Agreement is hereby deleted in full and replaced with
the attached Schedule A.
II. Except to the extent amended hereby, the Agreement shall remain
unchanged and in full force and effect and is hereby ratified and confirmed in
all respects as amended hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date and year first written above.
FIRST CHOICE FUNDS TRUST
By: /s/William C. Conrad
FIRST DATA DISTRIBUTORS, INC.
By: /s/Scott M. Hacker
<PAGE>
SCHEDULE A
Name of Funds
U.S. Treasury Reserve Fund
Cash Reserve Fund
First Choice Equity Fund
AMENDMENT TO
DISTRIBUTION AGREEMENT
This Amendment dated as of April 16, 1998, is entered into by FIRST
CHOICE FUNDS TRUST (the "Company") and FIRST DATA DISTRIBUTORS, INC. (the
"Distributor").
WHEREAS, the Company and the Distributor have entered into a
Distribution Agreement dated as of September 20, 1997, and amended on April 16,
1998 (the "Agreement");
WHEREAS, a front-end sales charge may be imposed in connection with the
sale of certain Shares of one or more of the Funds ("Load Shares"); and
WHEREAS, the Company and the Distributor wish to amend the Agreement to add
certain provisions related to the Load Shares;
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, hereby agree as follows:
I. The following paragraphs are hereby added to Section 1 of the Agreement:
1.17 All Load Shares offered for sale by the Distributor shall be
offered for sale to the public at a price per share (the
"Offering Price") equal to (a) their net asset value
(determined in the manner set forth in the Company's
Declaration of Trust and the then current Prospectus) plus,
except with respect to certain classes of persons and
transactions set forth in the then current Prospectus, plus
(b) a sales charge which shall be the percentage of the
Offering Price of such Load Shares as set forth in the then
current Prospectus. The Offering Price, if not an exact
multiple of one cent, shall be adjusted to the nearest cent.
Concessions by the Distributor to dealers and other
institutions shall be set forth in either the selling
agreements between the Distributor and such dealers and
institutions as from time to time amended, or if such
concessions are described in the then current Prospectus,
shall be as so set forth. No dealer or other institution that
enters into a selling agreement with the Distributor shall be
authorized to act as agent for the Company in connection with
the offer or sale of the Load Shares to the public or
otherwise.
1.18 If any Load Shares sold by the Company are redeemed or
repurchased by the Company or by the Distributor as disclosed
agent or are tendered for redemption within seven business
days after the date of confirmation of the original purchase
of such Load Shares, the Distributor shall forfeit the sales
charge received by the Distributor in respect of such Load
Shares, provided that the portion, if any, of such amount
re-allowed by the Distributor to dealers or other institutions
shall be repayable to the Company only to the extent recovered
by the Distributor from the dealer or other institution
involved. The Distributor shall include in each selling
agreement with such dealers and other institutions a
corresponding provision for the forfeiture by them of their
concession with respect to the Load Shares sold by them or
their principals and redeemed or repurchased by the Company or
the Distributor as disclosed agent (or tendered for
redemption) within seven business days after the date of
confirmation of such initial purchases.
II. Except to the extent amended hereby, the Agreement shall remain
unchanged and in full force and effect and is hereby ratified and confirmed in
all respects as amended hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date and year first written above.
FIRST CHOICE FUNDS TRUST
By: /s/Jylanne Dunne
FIRST DATA DISTRIBUTORS, INC.
By: /s/Christine P. Ritch
AMENDMENT TO
TRANSFER AGENCY AND SERVICES AGREEMENT
This Amendment dated as of April 16, 1998, is entered into by FIRST
CHOICE FUNDS TRUST (the "Fund") and FIRST DATA INVESTOR SERVICES GROUP, INC.
("Investor Services Group").
WHEREAS, the Fund and Investor Services Group have entered into a
Transfer Agency and Services Agreement dated as of September 20, 1997 (the
"Agreement"); and
WHEREAS, the Fund and Investor Services Group wish to amend the
Agreement to add a new investment portfolio of the Fund to Exhibit 1 of the
Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, hereby agree as follows:
I. Exhibit 1 to the Agreement is hereby deleted in full and replaced with
the attached Exhibit 1.
II. Except to the extent amended hereby, the Agreement shall remain
unchanged and in full force and effect and is hereby ratified and confirmed in
all respects as amended hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date and year first written above.
FIRST CHOICE FUNDS TRUST
By: /s/William C. Conrad
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By: /s/Neil Forrest
<PAGE>
Exhibit 1
LIST OF PORTFOLIOS
U.S. Treasury Reserve Fund
Cash Reserve Fund
First Choice Equity Fund
AMENDMENT TO
ADMINISTRATION AGREEMENT
This Amendment dated as of April 16, 1998, is entered into by FIRST
CHOICE FUNDS TRUST (the "Company") and FIRST DATA INVESTOR SERVICES GROUP, INC.
("Investor Services Group").
WHEREAS, the Company and Investor Services Group have entered into an
Administration Agreement dated as of September 20, 1997 (the "Agreement"); and
WHEREAS, the Company and Investor Services Group wish to amend the
Agreement to add a new investment portfolio of the Company to Schedule A of the
Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, hereby agree as follows:
I. Schedule A to the Agreement is hereby deleted in full and replaced with
the attached Schedule A.
II. Except to the extent amended hereby, the Agreement shall remain
unchanged and in full force and effect and is hereby ratified and confirmed in
all respects as amended hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date and year first written above.
FIRST CHOICE FUNDS TRUST
By: /s/William C. Conrad
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By: /s/Neil Forrest
<PAGE>
SCHEDULE A
U.S. Treasury Reserve Fund
Cash Reserve Fund
First Choice Equity Fund
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 5 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated October 30, 1998, relating to the financial
statements and financial highlights appearing in the September 30, 1998 Annual
Report to Shareholders of First Choice Funds Trust, which is also incorporated
by reference into the Registration Statement. We also consent to the references
to us under the headings "Financial Highlights" in the Prospectuses and under
the headings "Experts" and "Financial Statements" in the Statement of Additional
Information.
/s/PricewaterhousCoopers LLP
PricewaterhousCoopers LLP
Boston, Massachusetts
November 23, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a Trustee
of First Choice Funds Trust, a Delaware business trust (the "Trust"), does
hereby make, constitute and appoint Jylanne Dunne and Coleen Downs Dinneen, and
each of them, attorneys-in-fact and agents of the undersigned with full power
and authority of substitution and resubstitution, in any and all capacities, to
execute for and on behalf of the undersigned any and all amendments to the
Registration Statement on Form N-1A relating to the shares of the Trust and any
other documents and instruments incidental thereto, and to deliver and file the
same, with all exhibits thereto, and all documents and instruments in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in- fact and agents, and each of them, full power and authority to do
and perform each and every act and thing that said attorneys-in-fact and agents,
and each of them, deem advisable or necessary to enable the Trust to effectuate
the intents and purposes hereof, and the undersigned hereby fully ratifies and
confirms all that said attorneys-in-fact and agents, of any of them, or their or
his or her substitute or substitutes, shall do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has subscribed his name this 21st
day of August, 1998.
/s/ Dennis W. Draper
Dennis W. Draper
/s/ Joseph N. Hankin
Joseph N. Hankin
/s/ John J. Pileggi
John J. Pileggi
/s/ Richard A. Wedemeyer
Richard A. Wedemeyer
RULE 12b-1 DISTRIBUTION PLAN AND AGREEMENT
FIRST CHOICE FUNDS TRUST
February ___, 1998
First Data Distributors, Inc.
4400 Computer Drive
Westborough, MA 01581
Dear Sirs or Madams:
This will confirm the agreement between First Choice Funds Trust (the
"Trust") and First Data Distributors, Inc. (the "Distributor") as follows:
1. Definitions. (a) The Trust is an open-end management investment
company organized under the laws of the State of Delaware. The Trust is
registered under the Investment Company Act of 1940, as amended (the "Act"). The
Trust's shares of beneficial interest may be classified into series in which
each series represents the entire undivided interests of a separate portfolio of
assets. Each series may be divided into multiple classes. For all purposes of
this Agreement and Plan, a "Fund" shall mean a separate portfolio of assets of
the Trust which has entered into a Rule 12b-1 Distribution Plan and Agreement
Supplement, and a "Series" shall mean the series of shares of beneficial
interest representing undivided interests in a Fund. All references herein to
this Agreement and Plan shall be deemed to be references to this Agreement and
Plan as it may from time to time be supplemented by Rule 12b- 1 Distribution
Plan and Agreement Supplements.
(b) As permitted by Rule 12b-1 (the "Rule") under the Act, the
Trust has adopted a Distribution Plan and Agreement (the "Plan") for each Fund
pursuant to which the Trust may make certain payments to the Distributor for
direct and indirect expenses incurred in connection with the distribution of
shares of the Funds. The Trust's Board of Trustees has determined that there is
a reasonable likelihood that the Plan, if implemented, will benefit each Fund
and its shareholders.
2. Adoption of Plan. The Trust hereby adopts this Plan, and the parties
hereto enter into this Plan, on the terms and conditions specified herein.
3. Distribution-Related Fee. (a) For Service Class Shares and Retail
Class Shares the trust shall pay the Distributor on the first business day of
each month in such an amount as the Distributor may have requested for
distribution activities, provided that each such payment shall not exceed an
annual rate of 0.25% of the average daily value of a Fund's net assets (as
determined on each business day at the time set forth in the Trust's currently
effective prospectus for determining net asset value per share) during the
preceding month in which the Plan is implemented.
(b) For purposes of calculating the maximum monthly fee, the
value of a Fund's net assets shall be computed in the manner specified in the
Trust's Declaration of Trust, dated June 5,1996 and in the Trust's Prospectus or
Prospectuses. All expenses incurred by the Trust hereunder shall be charged
against such Fund's assets. For purposes of this Plan, a "business day" is any
day the New York Stock Exchange is open for trading.
4. Purposes of Payments. (a) For Service Class Shares and Retail Class
Shares the Distributor must use all amounts received under the Plan for (i)
advertising by radio, television, newspapers, magazines, brochures, sales
literature, direct mail or any other form of advertising, (ii) expenses of sales
employees or agents of the Distributor, including salary, commissions, travel
and related expenses, (iii) payments to broker-dealers and financial
institutions in connection with the distribution of 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 institution has a distributing
relationship, (iv) costs of printing prospectuses, statements of additional
information and other materials to be given or sent to prospective investors,
(v) such other similar services as the Trustees determine to be reasonably
calculated to result in the sale of shares of the Funds, (vi) costs of
shareholder servicing which may be incurred by broker-dealers, banks or other
financial institutions, and (vii) other direct and indirect distribution-related
activities, including the provision of services with respect to maintaining the
assets of the Funds.
(b) The services rendered by the Distributor hereunder are in
addition to the distribution and administrative services reasonably necessary
for the operation of the Trust and the Fund pursuant to the Master
Administrative Services Contract between the Trust and First Data Distributors,
Inc. and the Master Distribution Contract between the Trust and the Distributor,
other than those services which are to be provided by the investment adviser
pursuant to the Master Investment Advisory Agreement between the Trust and First
American Capital Management, Inc.
5. Related Agreements. All other agreements relating to the
implementation of this Plan (the "related agreements") shall be in writing, and
such related agreements shall be subject to termination, without penalty, on not
more than sixty days' written notice to any other party to the agreement, in
accordance with the provisions of clauses (a) and (b) of paragraph 9 hereof.
6. Approvals by Trustees and Shareholders. This Plan shall become
effective upon approval by (a) a majority of the Board of Trustees of the Trust
for each Fund, including a majority of the Trustees who are not "interested
persons" (as defined in the Act) of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or in any related agreements
(the "Plan Trustees"), pursuant to a vote cast in person at a meeting called for
the purpose of voting on the Plan, and (b) the holders of a majority of the
outstanding securities of a Fund (as defined in the Act). Related agreements
shall be subject to approval by the Trustees in the manner provided in clause
(a) of the preceding sentence.
<PAGE>
7. Duration and Annual Approval by Trustees. This Plan and any related
agreements shall continue in effect for a period of more than one year from the
date of their adoption or execution, provided such continuances are approved
annually by a majority of the Board of Trustees, including a majority of the
Plan Trustees, pursuant to a vote east in person at a meeting called for the
purpose of voting on the continuance of this Plan or any related agreement.
8. Amendments. This Plan may be amended at any time with the approval
of a majority of the Board of Trustees, provided that (a) any material amendment
of this Plan must be approved by the Trustees in accordance with procedures set
forth in paragraph 7 hereof, and (b) any amendment to increase materially the
amount to be expended by the Fund pursuant to this Plan must also be approved by
the vote of the holders of a majority of the outstanding voting securities of
the Fund (as defined in the Act), provided that no approval shall be required in
respect of a Rule 12b-1 Distribution Plan and Agreement Supplement entered into
to add a Fund to those covered by this Plan (or to amend or terminate such
supplement) by the holders of the outstanding voting securities of any Series
other than that of such Fund.
9. Termination. This Plan may be terminated at any time, without the
payment of any penalty, by (a) the vote of a majority of the Plan Trustees or
(b) the vote of the holders of a majority of the outstanding voting securities
of a Fund (as defined in the Act). If this Plan is terminated with respect to
any Fund, it shall nonetheless remain in effect with respect to any remaining
Funds.
10. Selection and Nomination of Trustees. While this Plan is in effect,
the selection and nomination of the Trustees who are not "interested persons" of
the Trust (as defined in the Act) shall be committed to the discretion of the
Trustees then in office who are not "interested persons" of the Trust.
11. Effect of Assignment. To the extent that this Plan constitutes a
plan of distribution adopted pursuant to the Rule, it shall remain in effect as
such so as to authorize the use of the Fund's assets in the amounts and for the
purposes set forth herein, notwithstanding the occurrence of an assignment (as
defined in the Act). To the extent this Plan concurrently constitutes an
agreement relating to implementation of the plan of distribution, it shall
terminate automatically in the event of its assignment, and the Trust may
continue to make payments pursuant to this Plan only (a) upon the approval of
the Board of Trustees in accordance with the procedures set forth in paragraph 7
hereof, and (b) if the obligations of the Distributor under this Plan are to be
performed by any organization other than the Distributor, upon such
organization's adoption and assumption in writing of all provisions of this Plan
as party hereto.
12. Quarterly Reports to Trustees. The Distributor shall prepare and
furnish to the Board of Trustees, at least quarterly, a written report setting
forth all amounts expended pursuant to this Plan and any related agreements and
the purposes for which such expenditures were made. The written report shall
include a detailed description of the continuing services provided by
broker-dealers and other financial intermediaries pursuant to paragraph 4 of
this Plan.
13. Preservation of Records. The Trust shall preserve copies of this
Plan, any related agreements and any reports made pursuant to this Plan for a
period of not less than six years from the date of this Plan or any such related
agreement or report. For the first two years, copies of such documents shall be
preserved in an easily accessible place.
14. Limitations on Liability of Distributor. The Distributor shall give
the Trust the benefit of the Sponsor's best judgment and efforts in rendering
services under this Plan. As an inducement to the Distributor's undertaking to
render these services, the Trust agrees that the Distributor shall not be liable
under this Plan for any mistake in judgment or in any other event whatsoever
except for lack of good faith, provided that nothing in this Plan shall be
deemed to protect or purport to protect the Distributor against any liability to
the Trust or its shareholders to which the Distributor would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of the Distributor's duties under this Plan or by reason of the
Distributor's reckless disregard of its obligations and duties hereunder.
15. Other Distribution-Related Expenditures. Nothing in this Plan shall
operate or be construed to limit the extent to which the Distributor or any
other person other than the Trust may incur costs and pay expenses associated
with the distribution of Fund shares.
16. Miscellaneous. The Trust's Certificate of Trust, dated as of June
5, 1996, as amended, is on file with the Secretary of State of the State of
Delaware. The obligations of the Trust are not personally binding upon, nor
shall resort be had to the private property of, any of the Trustees,
shareholders, officers, employees or agents of the Trust, but only the Trust's
property shall be bound.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and on its behalf by its duly authorized representative
as of the date first above written.
Very truly yours,
FIRST CHOICE FUNDS TRUST
By:
Title:
FIRST DATA DISTRIBUTORS, INC.
By:
Title:
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<NUMBER-OF-SHARES-SOLD> 181,368,693
<NUMBER-OF-SHARES-REDEEMED> (238,833,768)
<SHARES-REINVESTED> 6,104
<NET-CHANGE-IN-ASSETS> 88,113,486
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (390)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 269,075
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 676,658
<AVERAGE-NET-ASSETS> 46,509,766
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001017176
<NAME> FIRST CHOICE FUNDS TRUST
<SERIES>
<NUMBER> 032
<NAME> EQUITY - INSTITUTIONAL CLASS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 15,087,073
<INVESTMENTS-AT-VALUE> 14,348,281
<RECEIVABLES> 26,189
<ASSETS-OTHER> 23,562
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,398,122
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46,323
<TOTAL-LIABILITIES> 46,323
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,157,929
<SHARES-COMMON-STOCK> 1,502,536
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 14,854
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (82,192)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (738,792)
<NET-ASSETS> 14,351,799
<DIVIDEND-INCOME> 74,996
<INTEREST-INCOME> 2,185
<OTHER-INCOME> 0
<EXPENSES-NET> (62,237)
<NET-INVESTMENT-INCOME> 14,854
<REALIZED-GAINS-CURRENT> (82,192)
<APPREC-INCREASE-CURRENT> (738,792)
<NET-CHANGE-FROM-OPS> (806,130)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,502,536
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 14,351,799
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 49,754
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 121,257
<AVERAGE-NET-ASSETS> 14,945,769
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> (0.54)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.47
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001017176
<NAME> FIRST CHOICE FUNDS TRUST
<SERIES>
<NUMBER> 031
<NAME> EQUITY - RETAIL CLASS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 15,087,073
<INVESTMENTS-AT-VALUE> 14,348,281
<RECEIVABLES> 26,189
<ASSETS-OTHER> 23,562
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,398,122
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46,323
<TOTAL-LIABILITIES> 46,323
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,157,929
<SHARES-COMMON-STOCK> 13,323
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 14,854
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (82,192)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (738,792)
<NET-ASSETS> 14,351,799
<DIVIDEND-INCOME> 74,996
<INTEREST-INCOME> 2,185
<OTHER-INCOME> 0
<EXPENSES-NET> (62,237)
<NET-INVESTMENT-INCOME> 14,854
<REALIZED-GAINS-CURRENT> (82,192)
<APPREC-INCREASE-CURRENT> (738,792)
<NET-CHANGE-FROM-OPS> (806,130)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,323
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 14,351,799
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 49,754
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 121,257
<AVERAGE-NET-ASSETS> 62,757
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> (0.54)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.46
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
FIRST CHOICE FUNDS TRUST
Rule 18f-3 Plan
Rule 18f-3
Pursuant to Rule 18f-3 ("Rule 18f-3") of the Investment Company Act of
1940, as amended (the "Act"), an open-end management investment company whose
shares are registered on Form N-1A may issue more than one class of voting stock
(hereinafter referred to as "shares"), provided that these multiple classes
differ either in the manner of distribution, or in services they provide to
shareholders, or both. The First Choice Funds Trust (the "Trust"), a registered
open-end investment company whose shares are registered on Form N-1A, consisting
of the U.S. Treasury Reserve Fund, the Cash Reserve Fund and the First Choice
Equity Fund and any future fund or series created by the Trust (collectively,
the "Funds"), may offer to shareholders multiple classes of shares in the Funds
in accordance with a Rule 18f-3 Plan as described herein.
Authorized Classes
Each Fund may issue one or more classes of shares, in the same or
separate prospectuses which may include the Service Class, the Institutional
Class, the Administrative Class and the Retail Class (collectively, the
"Classes" and individually, each a "Class"). The Service Class, Administrative
Class and Retail Class shares are available (as defined in the respective Fund
prospectus) to investors who require shareholder services and are subject to a
minimum initial investment which may vary from Fund to Fund. There is no minimum
initial investment for certain accounts and/or classes of individuals as
specified in the Fund's Prospectus. Service Class, Administrative Class and
Retail Class shares may be offered and sold with a sales load, the amount of
which may vary from Fund to Fund, as may be approved by the Board of Trustees of
the Trust from time to time. The sales load for the Service Class,
Administrative Class, and Retail Class shares may vary or be eliminated for
certain classes of offerees as described in the Funds' prospectus. Service
Class, Administrative Class and Retail Class shares may also be offered with
fees for distribution, servicing and marketing of such shares ("12b-1 Fees"), as
well as fees for shareholder servicing ("Service Organization Fees" and
"Shareholder Servicing Fees") of such shares pursuant to a Servicing Agreement
and Shareholder Servicing Agreement, respectively.
Administrative Class shares are available to investors who invest in
the Funds through a participating organization which will provide shareholder
servicing, and sub-transfer agency, sub-accounting and administrative services.
Administrative Class shares may be offered with fees for servicing, sub-transfer
agency, sub-accounting and administrative services ("Administrative Services
Fees") provided pursuant to an Administrative Services Agreement.
Institutional Class shares are available to investors who do not desire
shareholder servicing, administration or record-keeping. Institutional Shares
are subject to a minimum initial investment which may vary from Fund to Fund.
Institutional Class shares are offered and sold without a sales load, and do not
impose 12b-1 Fees, Service Organization Fees, Shareholder Servicing Fees or
Administrative Services Fees.
The Classes of shares issued by any Fund will be identical in all
respects except for Class designation, allocation of certain expenses directly
related to the distribution, service, sub-transfer agency, sub-accounting, or
administrative arrangement, or any of them, for a Class, and voting rights -
each Class votes separately with respect to issues affecting only that Class.
Shares of all Classes will represent interests in the same investment fund;
therefore each Class is subject to the same investment objectives, policies and
limitations.
Class Expenses
Each Class of shares shall bear expenses, not including advisory or
custodial fees or other expenses related to the management of a Fund's assets,
that are directly attributable to the kind or degree of services rendered to
that Class ("Class Expenses"). Class Expenses, including the management fee or
the fee of other service providers, may be waived or reimbursed by the Funds'
investment adviser, underwriter or any other provider of services to the Funds
with respect to each Class of a Fund on a Class-by-Class basis.
Exchanges and Conversion Privileges
For a nominal charge, shareholders who have held all or part of their
shares in a Fund for at least seven days may exchange shares of one Fund for
shares of any of the other portfolios of the Trust which are available for sale
in their state. A shareholder who has paid a sales load in connection with the
purchase of shares of any of the Funds will be subject only to that portion of
the sales load of the Fund into which the shareholder is exchanging which
exceeds the sales load originally paid by the shareholder.
Adopted: August 23, 1996
Amended: February 19, 1998
