As filed with the Securities and Exchange Commission on February 20, 1998
Securities Act Registration No. 333-9355
Investment Company Act Registration No. 811-7743
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. 2 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [X]
Amendment No. 3 [X]
THE ROCKLAND FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
100 South Rockland Falls Road
Rockland, Delaware 19732
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (302) 429-9799
Mr. Charles S. Cruice
The Rockland Funds Trust
100 South Rockland Falls Road
Rockland, Delaware 19732
(Name and Address of Agent for Service)
Copies to:
Carol A. Gehl
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
It is proposed that this filing will become
effective (check appropriate box):
[x] immediately upon filing pursuant to paragraph (b) of Rule 485.
[ ] on (date) pursuant to paragraph (b) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485.
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485.
[ ] on (date) pursuant to paragraph(a)(2) of Rule 485.
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the
Prospectus and the Statement of Additional Information
of the responses to the Items of Parts A and B of Form
N-1A)
Caption or Subheading in
Prospectus or Statement
Item No. on Form N-1A of Additional Information
PART A - INFORMATION REQUIRED IN PROSPECTUS -
INSTITUTIONAL CLASS
1. Cover Page Cover Page
2. Synopsis Summary; Summary of Fund
Expenses
3. Condensed Financial Financial Highlights
Information
4. General Description of Fund Organization; Investment
Registrant Objective and Policies;
Investment Techniques and
Risks
5. Management of the Fund Management; Fund Expenses
5A. Management's Discussion of *
Fund Performance
6. Capital Stock and Other Income Dividends, Capital
Securities Gains Distributions and Tax
Treatment; Fund Organization
7. Purchase of Securities How to Purchase Fund Shares;
Being Offered Determination of Net Asset
Value
8. Redemption or Repurchase How to Redeem Shares;
Determination of Net Asset
Value
9. Pending Legal Proceedings *
Caption or Subheading in
Prospectus or Statement
Item No. on Form N-1A of Additional Information
PART A - INFORMATION REQUIRED IN PROSPECTUS - RETAIL
CLASS
1. Cover Page Cover Page
2. Synopsis Summary; Summary of Fund
Expenses
3. Condensed Financial Financial Highlights
Information
4. General Description of Fund Organization; Investment
Registrant Objective and Policies;
Investment Techniques and
Risks
5. Management of the Fund Management; Fund Expenses
5A. Management's Discussion of *
Fund Performance
6. Capital Stock and Other Income Dividends, Capital
Securities Gains Distributions and Tax
Treatment; Fund Organization
7. Purchase of Securities How to Purchase Fund Shares;
Being Offered Determination of Net Asset
Value; Distribution Plan
8. Redemption or Repurchase How to Redeem Shares;
Determination of Net Asset
Value
9. Pending Legal Proceedings *
<PAGE>
PART B - INFORMATION REQUIRED IN STATEMENT OF
ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Included in Prospectuses under
History the heading Fund Organization
13. Investment Objectives and Investment Restrictions;
Policies Investment Policies and
Techniques
14. Management of the Fund Trustees and Officers of the
Trust
15. Control Persons and Principal Shareholders;
Principal Holders of Trustees and Officers of the
Securities Trust; Investment Advisor
16. Investment Advisory and Investment Advisor;
Other Services Distribution Plan; Management
(in Prospectuses); Custodian;
Transfer Agent and Dividend-
Disbursing Agent; Independent
Accountants
17. Brokerage Allocation and Portfolio Transactions and
Other Practices Brokerage
18. Capital Stock and Other Included in Prospectuses under
Securities the heading Fund Organization
19. Purchase, Redemption and Included in Prospectuses under
Pricing of Securities the headings How to Purchase
Being Offered Fund Shares; Determination of
Net Asset Value; How to Redeem
Shares; and in the Statement
of Additional Information
under the heading Investment
Advisor
20. Tax Status Included in Prospectuses under
the heading Income Dividends,
Capital Gains Distributions
and Tax Treatment; Taxes
21. Underwriters Underwriter
22. Calculations of Performance Information
Performance Data
23. Financial Statements Financial Statements
____________________________
*Answer negative or inapplicable
<PAGE>
PROSPECTUS
February 20, 1998
Greenville Capital Management, Inc.
Presents
The Rockland Growth Fund
a Series of
The Rockland Funds Trust
P. O. Box 701
Milwaukee, Wisconsin 53201-0701
1-800-497-3933
The Rockland Growth Fund (the "Fund") is a series of
The Rockland Funds Trust (the "Trust"), an open-end,
diversified, management investment company commonly
referred to as a mutual fund. The investment objective
of the Fund is to seek capital appreciation. The Fund
will seek, under normal market conditions, to achieve
its investment objective by investing its assets
primarily in equity securities of domestic companies.
The Fund is structured for flexibility and risk
reduction, but centered around investment in high
quality growth stocks with an emphasis on those
companies whose growth potential, in the opinion of the
Fund's investment adviser, Greenville Capital
Management, Inc., has been overlooked by Wall Street
analysts.
This Prospectus sets forth concisely the information
that you should be aware of prior to investing in the
Fund's Institutional shares. Two classes of shares of
the Fund are currently offered to the public:
Institutional shares and Retail shares. This
prospectus relates only to the Institutional shares.
Information about the Retail shares may be obtained by
calling 1-800-497-3933. Please read this Prospectus
carefully and retain it for future reference.
Additional information regarding the Fund is included
in the Statement of Additional Information dated
February 20, 1998, which has been filed with the
Securities and Exchange Commission and is incorporated
in this Prospectus by reference. A copy of the Fund's
Statement of Additional Information is available
without charge by writing to the Fund at the address
listed above or by calling 1-800-497-3933.
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.
<PAGE>
TABLE OF CONTENTS
Page No.
SUMMARY 4
SUMMARY OF FUND EXPENSES 5
FINANCIAL HIGHLIGHTS 6
INVESTMENT OBJECTIVE AND POLICIES 6
INVESTMENT TECHNIQUES AND RISKS 7
IN GENERAL 7
SHORT-TERM FIXED INCOME SECURITIES 7
ILLIQUID SECURITIES 7
ADRS 7
OPTIONS AND FUTURES TRANSACTIONS 8
SHORT SALES 8
REPURCHASE AGREEMENTS 8
CONVERTIBLE SECURITIES 9
PORTFOLIO TURNOVER 9
MANAGEMENT 9
HOW TO PURCHASE FUND SHARES 10
INITIAL INVESTMENT - MINIMUM $100,000 10
WIRE PURCHASES 10
TELEPHONE PURCHASES 10
AUTOMATIC INVESTMENT PLAN 11
SUBSEQUENT INVESTMENTS - MINIMUM $1,000 11
DETERMINATION OF NET ASSET VALUE 11
HOW TO REDEEM SHARES 12
IN GENERAL 12
WRITTEN REDEMPTION 12
TELEPHONE REDEMPTION 12
SIGNATURE GUARANTEES 13
SHAREHOLDER REPORTS 13
INDIVIDUAL RETIREMENT ACCOUNTS 13
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX
TREATMENT 15
FUND ORGANIZATION 15
ADMINISTRATOR 16
CUSTODIAN, TRANSFER AGENT, AND FUND ACCOUNTANT 16
<PAGE>
DISTRIBUTOR 16
COMPARISON OF INVESTMENT RESULTS 16
No person has been authorized to give any information
or to make any representations other than those
contained in this Prospectus and the Statement of
Additional Information, and if given or made, such
information or representations may not be relied upon
as having been authorized by the Fund. This prospectus
does not constitute an offer to sell securities in any
state to any person to whom it is unlawful to make such
offer in such state.
<PAGE>
SUMMARY
Investment Objective
The investment objective of the Fund is to seek
capital appreciation. The Fund will seek to achieve
its investment objective by investing its assets
primarily in equity securities of domestic companies
that, in the opinion of Greenville Capital Management
("GCM"), have been overlooked by Wall Street analysts.
The Fund's investments are subject to market risk and
the value of its shares will fluctuate with changing
market valuations of its portfolio holdings. See
"INVESTMENT OBJECTIVE AND POLICIES" and "INVESTMENT
TECHNIQUES AND RISKS."
Investment Advisor
GCM is the investment advisor to the Fund. GCM
was organized in 1989 and acts as the investment
advisor to individual and institutional clients with
investment portfolios of approximately $450 million.
See "MANAGEMENT."
Purchase and Redemptions
Institutional shares of the Fund are sold and
redeemed at net asset value, without the imposition of
any sales or redemption charges. The minimum initial
investment required by the Fund is $100,000. The
minimum subsequent investment is $1,000. These
minimums may be changed or waived at any time at the
discretion of the Fund. Once the initial investment is
made, investors may use the Automatic Investment Plan
to make regular investments in the Fund from a bank
checking or NOW account in amounts of $250 or more.
See "HOW TO PURCHASE FUND SHARES" and "HOW TO REDEEM
SHARES."
Shareholder Services
Questions regarding the Institutional shares or
the Retail shares may be directed to the Fund at the
address and telephone number on the front page of this
Prospectus.
<PAGE>
SUMMARY OF FUND EXPENSES
Institutional Class
Shareholder Transaction Expenses
Sales Load Imposed on Purchases NONE
Sales Load Imposed on Reinvested Dividends NONE
Deferred Sales Load Imposed on Redemptions NONE
Redemption Fees NONE*
Annual Fund Operating Expenses (after waivers or
reimbursements) (as a percentage of average net
assets)
Management Fee 1.00%
12b-1 Fees NONE
Other Expenses (net of reimbursement) 0.75%(1)
TOTAL FUND OPERATING EXPENSES 1.75%(1)
(after waivers or reimbursements)
_________________________
(1) For the period ended September 30, 1997, GCM
voluntarily agreed to waive its management fee
and/or reimburse the Fund's operating expenses to
the extent necessary to ensure that the
Institutional Class' Total Operating Expenses did
not exceed 1.75% of the Fund's average daily net
assets. Absent these waivers/reimbursements,
Other Expenses and Total Fund Operating Expenses
would have been 2.98% and 3.98%, respectively.
GCM has voluntarily agreed to continue this
waiver/reimbursement policy for the year ending
September 30, 1998, and for an indefinite amount
of time beyond that date. The Fund's management
fee is higher than that paid by other similar
investment companies. For additional information
concerning management fees and operating expenses,
see "MANAGEMENT."
*There are certain charges associated with certain
services offered by the Fund, such as a service fee of
$12.00 for redemptions effected via wire transfer.
Example
You would pay the following expenses on a $1,000
investment, assuming (i) 5% annual return, and (ii)
redemption at the end of each time period.
1 Year 3 Years 5 Years 10 Years
$18 $55 $95 $206
The Example is based on the Total Fund Operating
Expenses specified in the table above. The amounts in
the Example may increase absent the waivers or
reimbursements. Please remember that the Example
should not be considered representative of past or
future expenses and that actual expenses may be greater
or lesser than those shown. The assumption in the
Example of a 5% annual rate of return is required by
regulations of the Securities and Exchange Commission
("SEC") applicable to all mutual funds. This return is
hypothetical and should not be considered
representative of past or future performance of the
Institutional shares.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information relating to the
Institutional shares of the Fund during the period from
December 2, 1996 (commencement of operations) to
September 30, 1997 included in this table has been
derived from the financial records of the Fund which
have been audited by KPMG Peat Marwick LLP, the Fund's
independent accountants. The table should be read in
conjunction with the financial statements, related
notes and auditor's report included in the Fund's
Annual Report to Shareholders, which is available
without charge by writing to the Fund at P.O. Box 701,
Milwaukee, Wisconsin, 53201-0701, or by calling, toll-
free, 1-800-497-3933.
Per Share Data:
Net asset value, beginning of period $ 10.00
Income from investment operations:
Net investment loss (1) (0.11)
Net realized and unrealized gains on investments 4.56
Total from investment operations 4.45
Less distributions:
Dividends in excess of net investment income (0.02)
Net asset value, end of period $ 14.43
Total return (2) 44.53%
Supplemental data and ratios:
Net assets, end of period $10,858,957
Ratio of operating expenses to average net
assets (3)(4) 1.75%
Ratio of net investment loss to average net
assets (3)(4) (1.11)%
Portfolio turnover rate (5) 204.05%
Average commission rate paid (5) $0.0509
____________________
(1)Net investment loss per share represents net
investment loss divided by the monthly average
shares of beneficial interest outstanding
throughout the period December 2, 1996 through
September 30, 1997.
(2)Not annualized for the period December 2, 1996
through September 30, 1997.
(3)Annualized for the period December 2, 1996
through September 30, 1997.
(4)Without expense reimbursements of $120,419 for
the period December 2, 1996 through September
30, 1997, the ratio of operating expenses to
average net assets would have been 3.98%, and
the ratio of net investment loss to average net
assets would have been (3.35)%.
(5)Portfolio turnover and average commission rate
paid are calculated on the basis of the Fund as
a whole without distinguishing between the
classes of shares issued.
INVESTMENT OBJECTIVE AND POLICIES
The Fund is the first and presently, the only
series of the Trust, an open-end, diversified
management company. The Fund's investment objective is
to seek capital appreciation. The generation of
investment income is not an investment objective and,
therefore, any income earned by the Fund will be
incidental to the Fund's objective. The Fund will seek,
under normal market conditions, to achieve its
investment objective by investing its assets primarily
in equity securities of domestic companies, which
include but are not limited to common stocks; preferred
stocks; warrants to purchase common stocks or preferred
stocks; and securities convertible into common or
preferred stocks, such as convertible bonds and
debentures. The Fund may, when GCM deems a more
conservative approach is warranted, or pending
investment or reinvestment, invest up to 35% of its
total assets in short-term, fixed income securities.
For temporary, defensive purposes the Fund may invest
up to 100% of its total assets in such securities.
Since the Fund's assets will, under normal market
conditions, consist primarily of equity securities, the
net asset value of the Institutional shares may be
subject to greater principal fluctuation than a
portfolio containing a substantial amount of fixed
income securities.
The Fund is designed to take advantage of
investment and trading opportunities that investors
might not otherwise have the time, expertise or
inclination to exploit themselves. The Fund is
structured for flexibility and risk
<PAGE>
reduction, but
centered around investment in high quality growth
stocks with an emphasis on those companies whose growth
potential, in GCM's opinion, has been overlooked by
Wall Street analysts. In addition, the Fund may sell
short up to 25% of its portfolio. The Fund only
intends to use short positions for brief periods of
time in smaller position sizes to reduce the Fund's
overall risk and to increase the Fund's pool of
potential investment ideas. (See "INVESTMENT
TECHNIQUES AND RISKS - Short Sales").
When making investment decisions, GCM utilizes
information and analyses from numerous sources
regarding a company's sales and earnings growth;
earnings power, trends and predictability; industry,
economic and political trends; relative valuation; and
liquidity, to determine whether the security has the
growth potential suitable for the Fund. The Fund will
generally invest in companies with market
capitalizations ranging from $100 million to $2
billion. The Fund is only intended to be an investment
vehicle for that part of an investor's capital which
can appropriately be exposed to above average risk in
anticipation of greater rewards. The Fund is not
designed to offer a balanced investment program
suitable for all investors.
Except for the Fund's investment objective and the
investment restrictions contained in the Statement of
Additional Information, the Fund's policies may be
changed without a vote of the Institutional class'
shareholders.
INVESTMENT TECHNIQUES AND RISKS
In General
The Fund will not invest more than 5% of its net
assets in any one of the following types of
investments: preferred stocks; warrants; and
securities purchased on a when-issued or delayed
delivery basis. For a more extensive discussion of
certain of these investments and techniques and the
risks associated therewith, see the Fund's Statement of
Additional Information.
Short-Term Fixed Income Securities
When GCM believes that adverse economic or market
conditions justify such action, up to 100% of the
Fund's assets may be held temporarily in short-term
fixed-income securities, including without limitation:
U.S. government securities, including bills, notes and
bonds, differing as to maturity and rate of interest,
which are either issued or guaranteed by the U.S.
Treasury or by U.S. governmental agencies or
instrumentalities; certificates of deposit issued
against funds deposited in a U.S. bank or savings and
loan association; bank time deposits, which are monies
kept on deposit with U.S. banks or savings and loan
associations for a stated period of time at a fixed
rate of interest; bankers' acceptances which are short-
term credit instruments used to finance commercial
transactions; repurchase agreements entered into only
with respect to obligations of the U.S. government, its
agencies or instrumentalities; or commercial paper and
commercial paper master notes (which are demand
instruments without a fixed maturity bearing interest
at rates which are fixed to known lending rates and
automatically adjusted when such lending rates change)
rated A-1 or better by S&P, Prime-1 or better by
Moody's, Duff 2 or higher by D&P, or Fitch 2 or higher
by Fitch.
Illiquid Securities
The Fund may invest up to 10% of the value of its
net assets in illiquid securities, which include, but
are not limited to, restricted securities (securities
the disposition of which is restricted under the
federal securities laws); securities which may only be
resold pursuant to Rule 144A under the Securities Act
of 1933; and repurchase agreements with maturities in
excess of seven days. Risks associated with restricted
securities include the potential obligation to pay all
or part of the registration expenses in order to sell
restricted securities. A considerable period of time
may elapse between the time of the decision to sell a
restricted security and the time the Fund may be
permitted to sell under an effective registration
statement or otherwise. If, during such a period,
adverse conditions were to develop, the Fund might
obtain a less favorable price than that which prevailed
when it decided to sell. The Board of Trustees of the
Trust, or its delegate, has the ultimate authority to
determine, to the extent permissible under the federal
securities laws, which securities are liquid or
illiquid. The Board of Trustees has adopted guidelines
and delegated this determination to GCM.
ADRs
The Fund may invest up to 25% of the value of its
net assets in ADRs or other instruments denominated in
U.S. dollars. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the
underlying foreign security and denominated in U.S.
dollars. Some institutions issuing ADRs may not be
sponsored by
<PAGE>
the issuer. A non-sponsored depository
may not provide the same shareholder information that a
sponsored depository is required to provide under its
contractual arrangements with the issuer, including
reliable financial statements.
Investments in securities of foreign issuers
involve risks which are in addition to the usual risks
inherent in domestic investment. In many countries
there is less publicly available information about
issuers than is available in the reports and ratings
published about companies in the U.S. Additionally,
foreign companies are not subject to uniform
accounting, auditing and financial reporting standards.
Other risks inherent in foreign investment include
expropriation; confiscatory taxation; withholding taxes
on dividends and interest; less extensive regulation of
foreign brokers, securities markets and issuers; costs
incurred in conversions between currencies; the
possibility of delays in settlement in foreign
securities markets; limitations on the use or transfer
of assets (including suspension of the ability to
transfer currency from a given country); the difficulty
of enforcing obligations in other countries; diplomatic
developments; and political or social instability.
Foreign economies may differ favorably or unfavorably
from the U.S. economy in various respects, and many
foreign securities are less liquid and their prices are
more volatile than comparable U.S. securities. From
time to time, foreign securities may be difficult to
liquidate rapidly without adverse price effects.
Certain costs attributable to foreign investing, such
as custody charges and brokerage costs, are higher than
those attributable to domestic investing.
Options and Futures Transactions
The Fund may engage in options and futures
transactions which are sometimes referred to as
derivative transactions. The Fund's options and
futures transactions may include instruments such as
stock index options and futures contracts. Such
transactions may be used for several reasons, including
hedging unrealized portfolio gains. The Fund will only
engage in futures and options transactions which must,
pursuant to regulations promulgated by the Commodity
Futures Trading Commission (the "CFTC"), constitute
bona fide hedging or other permissible risk management
transactions and will not enter into such transactions
if the sum of the initial margin deposits and premiums
paid for unexpired options exceeds 5% of the Fund's net
assets. In addition, the Fund will not enter into
options and futures transactions if more than 50% of
the Fund's net assets would be committed to such
instruments. The Fund may hold a futures or options
position until its expiration, or it may close out such
a position before then at current value if a liquid
secondary market is available. If the Fund cannot
close out a position, it may suffer a loss apart from
any loss or gain experienced at the time the Fund
decided to close the position. When required by
guidelines of the SEC or the CFTC, the Fund will set
aside permissible liquid assets in a segregated account
to secure its potential obligations under its futures
or options positions. Such liquid assets may include
cash, U.S. government securities and high-grade liquid
debt securities. The ability of the Fund to
effectively use options and futures is largely
dependent upon GCM's ability to correctly use such
instruments which may involve different skills than are
associated with securities generally. For a further
discussion of options and futures transactions, please
see the Statement of Additional Information.
Short Sales
The Fund may engage in short sale transactions in
securities listed on one or more national securities
exchanges, or in unlisted securities. Short selling
involves the sale of borrowed securities. At the time
a short sale is effected, the Fund incurs an obligation
to replace the borrowed security at whatever its price
may be at the time the Fund purchases it for delivery
to the lender. When a short sale transaction is closed
out, any gain or loss on the transaction is taxable as
a short term capital gain or loss. All short sales
will be fully collateralized, and no short sale will be
effected which would cause the aggregate market value
of all securities sold short to exceed 25% of the value
of the Fund's net assets. The Fund limits short sales
of any one issuer's securities to 2% of the Fund's
total assets and to 2% of any one class of the issuer's
securities.
Repurchase Agreements
The Fund may invest up to 25% of its net assets in
repurchase agreements entered into with Federal Reserve
Bank member banks and certain non-bank dealers. In a
repurchase agreement, the Fund buys a security at one
price, and at the time of sale, the seller agrees to
repurchase the obligation at a mutually agreed upon
time and price (usually seven days). The repurchase
agreement determines the yield during the purchaser's
holding period, while the seller's obligation to
repurchase is secured by the value of the underlying
security. GCM will monitor, on an ongoing basis, the
value of the underlying securities to ensure that the
value always equals or exceeds the repurchase price
plus accrued interest. Repurchase agreements could
involve certain risks in the event of a default or
insolvency of the other party to the agreement
including possible delays or restrictions upon the
Fund's ability to dispose of the underlying securities.
Although no definitive criteria are used, GCM reviews
the creditworthiness of the banks and non-bank dealers
with which the Fund enters into repurchase agreements
to evaluate those risks.
<PAGE>
Convertible Securities
The Fund may invest up to 25% of its net assets in
securities convertible into common stocks. A
convertible security entitles the holder to receive
interest normally paid or accrued on the debt or the
dividend paid on preferred stock until the convertible
security matures or is redeemed, converted, or
exchanged. Convertible securities have unique
investment characteristics in that they generally have
higher yields than common stocks, but lower yields than
comparable non-convertible securities, are less subject
to fluctuation in value than the underlying stock, and
provide the potential for capital appreciation if the
market price of the underlying common stock increases.
A convertible security might be subject to redemption
at the option of the issuer at a price established in
the security's governing instrument. If a convertible
security held by the Fund is called for redemption, the
Fund will be required to permit the issuer to redeem
the security, convert it into the underlying common
stock or sell it to a third party.
Portfolio Turnover
The portfolio turnover rate indicates changes in
the Fund's investments. The turnover rate may vary
from year to year, as well as within a year. Under
normal market conditions, the Fund anticipates that its
portfolio turnover rate is not expected to exceed 110%
and is expected to range between 70 and 110%. The
Fund's portfolio turnover rate for the period from
December 2, 1996 to September 30, 1997 was 204.05% due
to compliance with the short-short test which has since
been repealed. A turnover rate of 100% would occur,
for example, if all of the securities held by the Fund
were replaced within one year. It may be affected by
sales of portfolio securities necessary to meet cash
requirements for redemption of shares. In the event
the Fund were to have a turnover rate of 100% or more
in any year, it would result in the payment by the Fund
of above average transaction costs and could result in
the payment by shareholders of above average amounts of
taxes on realized investment gains. The Fund's
portfolio turnover rate is included under "FINANCIAL
HIGHLIGHTS."
MANAGEMENT
Under the laws of the State of Delaware, the Board
of Trustees of the Trust is responsible for managing
its business and affairs. The Trust, on behalf of the
Fund, has entered into an investment advisory agreement
with GCM pursuant to which GCM manages the Fund's
investments and business affairs, subject to the
supervision of the Trust's Board of Trustees (the
"Investment Advisory Agreement"). The Board of
Trustees also oversees duties required by applicable
state and federal law.
GCM, a growth equity capital management firm, is
the investment advisor to the Fund. GCM was founded in
1989 and is located at 100 South Rockland Falls Road,
Rockland, Delaware 19732. Under the Investment
Advisory Agreement, the Trust, on behalf of the Fund,
compensates GCM for its investment advisory services at
the annual rate of 1.00% of the Fund's average daily
net assets. For the fiscal year ended September 30,
1998 and an indefinite amount of time thereafter, GCM
has voluntarily agreed to waive its management fee
and/or reimburse the operating expenses to the extent
necessary to ensure that the Institutional class' total
operating expenses do not exceed 1.75% of the Fund's
average daily net assets. Any such waiver or
reimbursement will have the effect of lowering the
overall expense ratio for the Institutional class and
increasing the Institutional class' overall return to
investors at the time any such amounts were waived
and/or reimbursed.
The Fund is currently co-managed by Charles S.
Cruice and Richard H. Gould. Mr. Cruice has been the
President of GCM since 1989. Mr. Cruice began his
career at Dean Witter Reynolds, Inc. in 1974 and joined
Friess Associates Inc., an investment management
company, in 1978. Mr. Cruice holds a BA from the
University of Denver. Mr. Gould has been a Vice
President of GCM since 1994. Prior to joining GCM, Mr.
Gould was an equity analyst with PNC Investment
Management and co-managed the PNC Small Cap Growth
Fund, currently called the Compass Small Cap Growth
Fund. Mr. Gould is a Chartered Financial Analyst and a
Chartered Market Technician. Mr. Gould received his BS
in 1982 and his MBA in Finance in 1985 from The
Pennsylvania State University.
GCM provides continuous advice and recommendations
concerning the Fund's investments, and is responsible
for selecting the broker-dealers who execute the
portfolio transactions for the Fund. GCM provides
office space for the Trust and pays the salaries, fees
and expenses of all the Trust's officers and Trustees
who are interested persons of GCM. In addition to
providing investment advice to the Fund, GCM serves as
investment advisor to pension and profit-sharing plans,
and other institutional and private investors. As of
February 15, 1998, GCM had approximately $450 million
under management. Mr. Charles S. Cruice owns shares
representing more than 51% of the voting rights of GCM.
<PAGE>
HOW TO PURCHASE FUND SHARES
The minimum initial investment in the Fund's
Institutional class is $100,000. Subsequent
investments in the amount of at least $1,000 may be
made by mail or by wire. For individual retirement
accounts ("IRAs"), the minimum initial investment is
$2,000. Applications will not be accepted unless they
are accompanied by payment in U.S. funds. Payment
should be made by check or money order drawn on a U.S.
bank, savings and loan, or credit union. Minimum
investments are waived for employee benefit plans
qualified under Sections 401, 403(b)(7) or 457 of the
Internal Revenue Code. These minimums can be changed
or waived by the Fund at any time. Shareholders will
be given at least 30 days' notice of any increase in
the minimum dollar amount of subsequent investments.
Initial Investment - Minimum $100,000
You may purchase Institutional class shares by
completing the enclosed application and mailing it
along with a check or money order payable to "The
Rockland Growth Fund Institutional Class," to your
securities dealer, the Distributor or the Transfer
Agent, as the case may be. If mailing to the Transfer
Agent, please use the following address: Firstar Trust
Company, Mutual Fund Services, P. O. Box 701,
Milwaukee, Wisconsin 53201-0701. In addition,
overnight mail should be sent to the following address:
The Rockland Growth Fund, Firstar Trust Company, Mutual
Fund Services, Third Floor, 615 East Michigan Street,
Milwaukee, Wisconsin 53202. The Fund does not consider
the U.S. Postal Service or other independent delivery
services to be its agents. Therefore, deposit in the
mail or with such services, or receipt at the Transfer
Agent's post office box, of purchase applications does
not constitute receipt by the Transfer Agent or the
Fund. Do not mail letters by overnight courier to the
post office box.
If your check does not clear, you will be charged
a $20.00 service fee. You will also be responsible for
any losses suffered by the Institutional class as a
result. Neither cash nor third-party checks will be
accepted. All applications to purchase Institutional
class shares are subject to acceptance by the Fund and
are not binding until so accepted. The Fund reserves
the right to decline or accept a purchase order
application in whole or in part.
Wire Purchases
You may purchase Institutional class shares by
wire. The following instructions should be followed
when wiring funds to the Transfer Agent for the
purchase of Fund shares:
Wire to: Firstar Bank
ABA Number 075000022
Credit: Firstar Trust Company
Account 112-952-137
Further Credit: The Rockland Growth Fund,
Institutional class
(shareholder account number)
(shareholder name/account registration)
Please call 1-800-497-3933 prior to wiring any funds to
notify the Transfer Agent that the wire is coming and
to verify the proper wire instructions so that the wire
is properly applied when received. The Fund is not
responsible for the consequences of delays resulting
from the banking or Federal Reserve wire system.
Telephone Purchases
You may purchase Institutional class shares by
moving money from your bank account to your Fund
account. Only bank accounts held at domestic financial
institutions that are Automated Clearing House (ACH)
members can be used for telephone transactions. To
have your Institutional class shares purchased at the
net asset value determined as of the close of regular
trading on a given date, the Transfer Agent must
receive both the purchase order and payment by
Electronic Funds Transfer through the ACH System before
the close of regular trading on such date. Most
transfers are completed within 3 business days.
Telephone transactions may not be used for initial
purchases of Institutional class shares.
<PAGE>
Automatic Investment Plan
Once you have made an initial investment in the
Institutional class, the Automatic Investment Plan
("AIP") allows you to make regular, systematic
investments in the Fund from your bank checking or NOW
account. To establish the AIP, complete the Fund's AIP
application. Under the AIP, you may choose to make
investments on the day of your choosing (or the next
business day thereafter) from your financial
institution in amounts of $250 or more. You can set up
the AIP with any financial institution that is a member
of the Automated Clearing House. There is no service
fee for participating in the AIP. However, a service
fee of $20 will be deducted from your Fund account for
any AIP purchase that does not clear due to
insufficient funds or, if prior to notifying the Fund
in writing or by telephone to terminate the plan, you
close your bank account or in any manner prevent
withdrawal of funds from the designated checking or NOW
account.
The AIP is a method of using dollar cost averaging
which is an investment strategy that involves investing
a fixed amount of money at a regular time interval.
However, a program of regular investment cannot ensure
a profit or protect against a loss from declining
markets. By always investing the same amount, you will
be purchasing more shares when the price is low and
fewer shares when the price is high. Since such a
program involves continuous investment regardless of
fluctuating share values, you should consider your
financial ability to continue the program through
periods of low share price levels.
Under certain circumstances (such as
discontinuation of the AIP before the Institutional
class minimum initial investment is reached, or, after
reaching the minimum initial investment, the account
balance is reduced to less than $10,000), the Fund
reserves the right to close the investor's account.
Prior to closing any account for failure to reach the
minimum initial investment, the Fund will give the
investor written notice and 60 days in which to
reinstate the AIP or otherwise reach the minimum
initial investment. You should consider your financial
ability to continue in the AIP until the minimum
initial investment amount is met because the Fund has
the right to close an investor's account for failure to
reach the minimum initial investment. Such closing may
occur in periods of declining share prices.
Subsequent Investments - Minimum $1,000
Additions to your account may be made by mail or
by wire. When making an additional purchase by mail,
enclose a check payable to "The Rockland Growth Fund
Institutional Class" along with the Additional
Investment Form provided on the lower portion of your
account statement. To make an additional purchase by
wire, please call 1-800-497-3933.
DETERMINATION OF NET ASSET VALUE
The net asset value per share for the
Institutional class is determined as of the close of
trading (currently 4:00 p.m. Eastern Time) on each day
the New York Stock Exchange ("NYSE") is open for
business. Purchase orders received or shares tendered
for redemption on a day the NYSE is open for trading,
prior to the close of trading on that day, will be
valued as of the close of trading on that day.
Applications for purchase of Institutional shares and
requests for redemption of Institutional shares
received after the close of trading on the NYSE will be
valued as of the close of trading on the next day the
NYSE is open. Net asset value is calculated by taking
the fair value of the Institutional class' total
assets, including interest or dividends accrued, but
not yet collected, less all liabilities, and dividing
by the total number of shares outstanding. The result,
rounded to the nearest cent, is the net asset value per
share. In determining net asset value, expenses are
accrued and applied daily and securities and other
assets for which market quotations are available are
valued at market value. Common stocks, other equity-
type securities, and securities sold short are valued
at the last sales price on the national securities
exchange or NASDAQ on which such securities are
primarily traded; provided, however, securities traded
on an exchange or NASDAQ for which there were no
transactions on a given day, any security sold short
for which there were no transactions on a given day and
securities not listed on an exchange or NASDAQ, are
valued at the most recent mean between the bid and
asked price. Options purchased or written by the Fund
are valued at the average of the current bid and asked
prices. Any securities or other assets for which
market quotations are not readily available are valued
at fair value as determined in good faith by the Board
of Trustees. Debt securities having remaining
maturities of 60 days or less when purchased are valued
by the amortized cost method when the Board of Trustees
determines that the fair market value of such
securities is their amortized cost. Under this method
of valuation, a security is initially valued at its
acquisition cost, and thereafter, amortization of any
discount or premium is assumed each day, regardless of
the impact of fluctuating interest rates on the market
value of the security.
<PAGE>
HOW TO REDEEM SHARES
In General
Investors may request redemption of part or all of
their Institutional class shares at any time at the
next determined net asset value. See "DETERMINATION OF
NET ASSET VALUE." No redemption request will become
effective until all documents have been received in
proper form by Firstar Trust Company. An investor
should contact Firstar Trust Company for further
information concerning documentation required for a
redemption of Institutional class shares. The Fund
normally will mail your redemption proceeds the next
business day and, in any event, no later than seven
business days after receipt of a redemption request in
good order. However, when a purchase has been made by
check, the Fund may hold payment on redemption proceeds
until it is reasonably satisfied that the check has
cleared; this may take up to twelve days.
Redemptions may also be made through brokers or
dealers. Such redemptions will be effected at the net
asset value next determined after receipt by the
Institutional class of the broker or dealer's
instruction to redeem shares. In addition, some
brokers or dealers may charge a fee in connection with
such redemptions.
Investors who have an Individual Retirement
Account ("IRA") must indicate on their redemption
request whether federal income tax should be withheld.
Redemption requests failing to indicate an election
will be subject to withholding.
Written Redemption
For most redemption requests, an investor need
only furnish a written, unconditional request to redeem
his or her Institutional class shares at net asset
value to the Fund's Transfer Agent: Firstar Trust
Company, Mutual Fund Services, P. O. Box 701,
Milwaukee, Wisconsin 53201-0701. Overnight mail should
be sent to The Rockland Growth Fund, Firstar Trust
Company, Mutual Fund Services, Third Floor, 615 East
Michigan Street, Milwaukee, Wisconsin 53202. Requests
for redemption must be signed exactly as the
Institutional class shares are registered, including
the signature of each joint owner. You must also
specify the number of shares or dollar amount to be
redeemed. Redemption proceeds made by written
redemption request may also be wired to a commercial
bank that you have authorized on your account
application. The Transfer Agent charges a $12.00
service fee for wire transactions. Additional
documentation may be requested from corporations,
executors, administrators, trustees, guardians, agents,
or attorneys-in-fact. The Fund does not consider the
U.S. Postal Service or other independent delivery
services to be its agents. Therefore, deposit in the
mail or with such services, or receipt at the Transfer
Agent's post office box, of redemption requests does
not constitute receipt by the Transfer Agent or the
Fund. Do not mail letters by overnight courier to the
post office box. Any written redemption requests
received within 15 days after an address change must be
accompanied by a signature guarantee.
Telephone Redemption
Institutional class shares may also be redeemed by
calling the Transfer Agent at 1-800-497-3933. In order
to utilize this procedure, a shareholder must have
previously elected this option in writing, which
election will be reflected in the records of the
Transfer Agent, and the redemption proceeds must be
mailed directly to the shareholder or transmitted to
the shareholder's predesignated account. To change the
designated account, send a written request with
signature(s) guaranteed to the Transfer Agent. To
change the address, call the Transfer Agent or send a
written request with signature(s) guaranteed to the
Transfer Agent. Additional documentation may be
requested from corporations, executors, administrators,
trustees, guardians, agents or attorneys-in-fact. No
telephone redemptions will be allowed within 15 days of
any address change. The Fund reserves the right to
limit the number of telephone redemptions by an
investor. Once made, telephone redemption requests may
not be modified or canceled.
The Transfer Agent will employ reasonable
procedures to confirm that instructions communicated by
telephone are genuine. Such procedures may include
requiring some form of personal identification prior to
acting upon telephone instructions, providing written
confirmations of all such transactions, and/or tape
recording all telephone instructions. Assuming
procedures such as the above have been followed,
neither the Fund nor the Transfer Agent will be liable
for any loss, cost or expense for acting upon an
investor's telephone instructions or for any
unauthorized telephone redemption. The Fund reserves
the right to refuse a telephone redemption request if
so advised.
<PAGE>
Signature Guarantees
Signature guarantees are required for: (i)
redemption requests to be mailed or wired to a person
other than the registered owner(s) of the shares; (ii)
redemption requests to be mailed or wired to other than
the address of record and (iii) any redemption request
if a change of address request has been received by the
Fund or Transfer Agent within the preceding 15 days. A
signature guarantee may be obtained from any eligible
guarantor institution, as defined by the SEC. These
institutions include banks, savings associations,
credit unions, brokerage firms and others.
Your account may be terminated by the Fund on not
less than 30 days' written notice if, at the time of
any redemption of shares in your account, the value of
the remaining shares in the account falls below
$10,000. Upon any such termination, a check for the
redemption proceeds will be sent to the account of
record within seven days of the redemption.
SHAREHOLDER REPORTS
You will be provided at least semi-annually with a
report showing the Fund's holdings and annually after
the close of the Trust's fiscal year, which ends
September 30, with an annual report containing audited
financial statements. An individual account statement
will be sent to you by the Transfer Agent after each
purchase or redemption of Institutional class shares as
well as on a quarterly basis. You will also receive an
annual statement after the end of the calendar year
listing all of your transactions in Institutional class
shares during such year.
If you have questions about your account, you
should call the Transfer Agent at 1-800-497-3933.
Investors who have general questions about the Fund or
the Trust or desire additional information should write
to The Rockland Funds Trust, P.O. Box 701, Milwaukee,
WI 53201-0701.
INDIVIDUAL RETIREMENT ACCOUNTS
Individuals may establish their own tax-sheltered
IRAs. The Fund offers three types of IRAs, including
the Traditional IRA, that can be adopted by executing
the appropriate Internal Revenue Service ("IRS") Form.
Traditional IRA
In a Traditional IRA, amounts contributed to the
IRA may be tax deductible at the time of contribution
depending on whether the investor is an "active
participant" in an employer-sponsored retirement plan
and the investor's income. Distributions from a
Traditional IRA will be taxed at distribution except to
the extent that the distribution represents a return of
the investor's own contributions for which the investor
did not claim (or was not eligible to claim) a
deduction. Distributions prior to age 59-1/2 may be
subject to an additional 10% tax applicable to certain
premature distributions. Distributions must commence
by April 1 following the calendar year in which the
investor attains age 70-1/2. Failure to begin
distributions by this date (or distributions that do
not equal certain minimum thresholds) may result in
adverse tax consequences.
Roth IRA
In a Roth IRA (sometimes known as the American
Dream IRA), amounts contributed to the IRA are taxed at
the time of contribution, but distributions from the
IRA are not subject to tax if the investor has held the
IRA for certain minimum periods of time (generally,
until age 59-1/2). Investors whose income exceeds
certain limits are ineligible to contribute to a Roth
IRA. Distributions that do not satisfy the
requirements for tax-free withdrawal are subject to
income taxes (and possibly penalty taxes) to the extent
that the distribution exceeds the investor's
contributions to the IRA. The minimum distribution
rules applicable to Traditional IRAs do not apply
during the lifetime of the investor. Following the
death of the investor, certain minimum distribution
rules apply.
For Traditional and Roth IRAs, the maximum annual
contribution generally is equal to the lesser of $2,000
or 100% of the investor's compensation (earned income).
An individual may also contribute to a Traditional IRA
or Roth IRA on behalf of his or her spouse provided
that the individual has sufficient compensation (earned
income).
<PAGE>
Contributions to a Traditional IRA reduce the
allowable contributions under a Roth IRA, and
contributions to a Roth IRA reduce the allowable
contribution to a Traditional IRA.
Education IRA
In an Education IRA, contributions are made to an
IRA maintained on behalf of a beneficiary under age 18.
The maximum annual contribution is $500 per
beneficiary. The contributions are not tax deductible
when made. However, if amounts are used for certain
educational purposes, neither the contributor nor the
beneficiary of the IRA are taxed upon distribution.
The beneficiary is subject to income (and possibly
penalty taxes) on amounts withdrawn from an Education
IRA that are not used for qualified educational
purposes. Investors whose income exceeds certain
limits are ineligible to contribute to an Education
IRA.
Under current IRS regulations, IRA applicants must
be furnished a disclosure statement containing
information specified by the IRS. Applicants generally
have the right to revoke their account within seven
days after receiving the disclosure statement and
obtain a full refund of their contributions. The
custodian may, in its discretion, hold the initial
contribution uninvested until the expiration of the
seven-day revocation period. The custodian does not
anticipate that it will exercise its discretion but
reserves the right to do so.
Simplified Employee Pension Plan
A Traditional IRA may also be used in conjunction
with a Simplified Employee Pension Plan ("SEP-IRA"). A
SEP-IRA is established through execution of Form 5305-
SEP together with a Traditional IRA established for
each eligible employee. Generally, a SEP-IRA allows an
employer (including a self-employed individual) to
purchase shares with tax deductible contributions not
exceeding annually for any one participant 15% of
compensation (disregarding for this purpose
compensation in excess of $160,000 per year). The
$160,000 compensation limit applies for 1998 and is
adjusted periodically for cost of living increases. A
number of special rules apply to SEP Plans, including a
requirement that contributions generally be made on
behalf of all employees of the employer (including for
this purpose a sole proprietorship or partnership) who
satisfy certain minimum participation requirements.
SIMPLE IRA
An IRA may also be used in connection with a
SIMPLE Plan established by the investor's employer (or
by a self-employed individual). When this is done, the
IRA is known as a SIMPLE IRA, although it is similar to
a Traditional IRA with the exceptions described below.
Under a SIMPLE Plan, the investor may elect to have his
or her employer make salary reduction contributions of
up to $6,000 per year to the SIMPLE IRA. The $6,000
limit is adjusted periodically for cost of living
increases. In addition, the employer will contribute
certain amounts to the investor's SIMPLE IRA, either as
a matching contribution to those participants who make
salary reduction contributions or as a non-elective
contribution to all eligible participants whether or
not making salary reduction contributions. A number of
special rules apply to SIMPLE Plans, including (1) a
SIMPLE Plan generally is available only to employers
with fewer than 100 employees; (2) contributions must
be made on behalf of all employees of the employer
(other than bargaining unit employees) who satisfy
certain minimum participation requirements; (3)
contributions are made to a special SIMPLE IRA that is
separate and apart from the other IRAs of employees;
(4) the distribution excise tax (if otherwise
applicable) is increased to 25% on withdrawals during
the first two years of participation in a SIMPLE IRA;
and (5) amounts withdrawn during the first two years of
participation may be rolled over tax-free only into
another SIMPLE IRA (and not to a Traditional IRA or to
a Roth IRA). A SIMPLE IRA is established by executing
Form 5304-SIMPLE together with an IRA established for
each eligible employee.
<PAGE>
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX
TREATMENT
The Trust intends to qualify for treatment as a
"Regulated Investment Company" under Subchapter M of
the Internal Revenue Code, and, if so qualified, will
not be liable for federal income taxes to the extent
earnings are distributed on a timely basis.
For federal income tax purposes, all dividends
paid by the Trust, on behalf of the Fund's
Institutional class, and net realized short-term
capital gains are taxable to you as ordinary income
whether reinvested or received in cash unless you are
exempt from taxation or entitled to a tax deferral.
Dividends and other distributions on both classes of
Fund shares are calculated at the same time and in the
same manner. Dividends on Institutional class shares
are expected to be higher than those on the Retail
class because of the higher expenses resulting from the
distribution and sales charges borne by the Retail
class shares. Distributions paid by the Trust, on
behalf of the Fund's Institutional class, from net
realized long-term capital gains, whether received in
cash or reinvested in additional shares, are taxable as
such. The capital gain holding period is determined by
the length of time the Institutional class has held the
security and not the length of time you have held
shares in the Institutional class. Investors are
informed annually as to the amount and nature of all
dividends and capital gains paid during the prior year.
Such gains and dividends may also be subject to state
or local taxes. If you are not required to pay taxes
on your income, you will not be required to pay federal
income taxes on the amounts distributed to you.
Dividends are usually paid, and capital gains, if
any, are usually distributed annually in December.
When a dividend or capital gain is distributed, the
Institutional class' net asset value will decrease by
the amount of the payment. A dividend paid shortly
after the purchase of Institutional shares will reduce
the net asset value of the shares purchased by the
amount of the dividend. All dividends or capital gains
distributions paid on the Institutional class shares
will automatically be reinvested in additional shares
of the Institutional class at the then prevailing net
asset value unless an investor specifically requests
that either dividends or capital gains or both be paid
in cash. The election to receive dividends or reinvest
them may be changed by writing to the Fund at P. O. Box
701, Milwaukee, Wisconsin 53201-0701. Such notice must
be received at least 10 days prior to the record date
of any dividend or capital gain distribution.
If you do not furnish the Fund with your correct
social security number or taxpayer identification
number, the Fund is required by federal law to withhold
federal income tax at a rate of 31% from your
distributions and redemption proceeds. If you do not
have a social security number, you should indicate on
the purchase application that an application to obtain
a number is pending. The Fund will withhold taxes if a
number is not delivered to the Fund within 7 days.
This section is not intended to be a full
discussion of federal income tax laws and the effect of
such laws on you. There may be other federal, state,
or local tax considerations applicable to a particular
investor. You are urged to consult your own tax
advisor.
FUND ORGANIZATION
The Trust was organized as a Delaware business
trust under Delaware law by Certificate of Trust on
July 31, 1996. The Board of Trustees is authorized to
issue an unlimited number of shares of beneficial
interest in separate series, par value $0.001 per
share, and to create classes of shares within each
series. Currently the Fund is the only series of the
Trust. Shares of the Retail class are offered to
investors through the Fund's underwriter, subject to a
$10,000 minimum initial investment and certain sales
charges. Each class of shares represent interests in
the assets of the Fund and have identical voting,
dividend, liquidation and other rights on the same
terms and conditions, except that the distribution fees
related to the Retail class shares are borne solely by
that class. If the Trust issues additional series, the
assets belonging to each series of shares will be held
separately by the Custodian, and in effect each series
will be a separate fund.
Each share, irrespective of series or class, is
entitled to one vote on all questions, except that
certain matters must be voted on separately by the
series or class of shares affected, and matters
affecting only one series or class are voted upon only
by that series or class. All shares have non-
cumulative voting rights, which means that the holders
of more than 50% of the shares voting for the election
of Trustees can elect all of the Trustees if they
choose to do so, and in such event, the holders of the
remaining shares will not be able to elect any person
or persons to the Board of Trustees.
<PAGE>
The Trust will not hold annual shareholders'
meetings except when required by the Investment Company
Act. There will normally be no meetings of
shareholders for the purpose of electing Trustees
unless and until such time as less than a majority of
the Trustees holding office have been elected by the
shareholders, at which time the Trustees then in office
will call a shareholders' meeting for the election of
Trustees. The Trust has adopted procedures in its
Bylaws for the removal of Trustees by the shareholders.
As of January 30, 1998, Mr. Cruice owned a controlling
interest in the Fund.
ADMINISTRATOR
Pursuant to the Fund Administration Servicing
Agreement, Firstar Trust Company (the "Administrator"),
Mutual Fund Services, Third Floor, 615 East Michigan
Street, Milwaukee, Wisconsin 53202, prepares and files
all federal and state tax returns, oversees the Fund's
insurance relationships, participates in the
preparation of the registration statement, proxy
statements and reports, prepares compliance filings
relating to the registration of the securities of the
Institutional class pursuant to state securities laws,
compiles data for and prepares notices to the SEC,
prepares the financial statements for the annual and
semi-annual reports to the SEC and current investors,
monitors the Institutional class' expense accruals and
performs securities valuations, monitors the Trust's
status as a registered investment company under
Subchapter M of the Internal Revenue Code and monitors
compliance with the Fund's investment policies and
restrictions, from time to time, and generally assists
in the Fund's administrative operations. The
Administrator, at its own expense and without
reimbursement from the Fund, furnishes office space and
all necessary office facilities, equipment, supplies
and clerical and executive personnel for performing the
services required to be performed by it under the Fund
Administration Servicing Agreement. For the foregoing
services, the Administrator receives from the Fund a
fee, computed daily and payable monthly based on the
Fund's average net assets at the annual rate of .06 of
1% on the Fund's average net assets, subject to an
annual minimum of $50,000, plus out-of-pocket expenses.
CUSTODIAN, TRANSFER AGENT, AND FUND ACCOUNTANT
Firstar Trust Company, Mutual Fund Services, Third
Floor, 615 East Michigan Street, Milwaukee, Wisconsin
53202, acts as custodian of the Fund's assets and as
dividend-disbursing, transfer agent and fund accountant
for the Fund.
DISTRIBUTOR
AmeriPrime Financial Securities, Inc. (the
"Distributor"), 1793 Kingswood Drive, Suite 200,
Southlake, Texas 76092, serves as the principal
underwriter to distribute the Fund's shares. Pursuant
to an Underwriting Agreement with the Fund, the
Distributor will be paid an annual fee of $18,000.
COMPARISON OF INVESTMENT RESULTS
The Institutional class may from time to time
compare its investment results to various passive
indices or other mutual funds and cite such comparisons
in reports to shareholders, sales literature, and
advertisements. The results may be calculated on the
basis of average annual total return, total return, or
cumulative total return.
Average annual total return and total return
figures assume the reinvestment of all dividends and
measure the net investment income generated by, and the
effect of, any realized and unrealized appreciation or
depreciation of the underlying investments in the
Institutional class over a specified period of time.
Average annual total return figures are annualized and
therefore represent the average annual percentage
change over the specified period. Total return figures
are not annualized and represent the aggregate
percentage or dollar value change over the period.
Cumulative total return simply reflects the
Institutional class' performance over a stated period
of time.
Average annual total return, total return and
cumulative total return are based upon the historical
results of the Institutional class and are not
necessarily representative of the future performance of
the Institutional class. Additional information
concerning the Institutional class' performance appears
in the Statement of Additional Information.
<PAGE>
The Fund reserves the right to change any of
its policies, practices and procedures
described in this Prospectus, including the
Statement of Additional Information, without
shareholder approval except in those
instances where shareholder approval is
expressly required.
<PAGE>
TRUSTEES
Mr. Charles Cruice
Mr. Richard Gould
Dr. Peter Utsinger
Mr. Robert Harrison
Mr. Richard Vague
OFFICERS
Mr. Charles Cruice, President
Mr. Richard Gould, Treasurer
Mr. Jeffrey Rugen, Secretary
INVESTMENT ADVISOR
Greenville Capital Management, Inc.
100 South Rockland Falls Road
Rockland, DE 19732
CUSTODIAN, ADMINISTRATOR, TRANSFER AGENT
AND DIVIDEND-DISBURSING AGENT
Firstar Trust Company
Mutual Fund Services
Third Floor
615 East Michigan Street
Milwaukee, WI 53202
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP
777 E. Wisconsin Avenue
Milwaukee, WI 53202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 N. Water Street
Milwaukee, WI 53202
<PAGE>
PROSPECTUS
February 20, 1998
Greenville Capital Management, Inc.
Presents
The Rockland Growth Fund
a Series of
The Rockland Funds Trust
P. O. Box 701
Milwaukee, Wisconsin 53201-0701
1-800-497-3933
The Rockland Growth Fund (the "Fund") is a series of
The Rockland Funds Trust (the "Trust"), an open-end,
diversified, management investment company commonly
referred to as a mutual fund. The investment objective
of the Fund is to seek capital appreciation. The Fund
will seek, under normal market conditions, to achieve
its investment objective by investing its assets
primarily in equity securities of domestic companies.
The Fund is structured for flexibility and risk
reduction, but centered around investment in high
quality growth stocks with an emphasis on those
companies whose growth potential, in the opinion of the
Fund's investment adviser, Greenville Capital
Management, Inc., has been overlooked by Wall Street
analysts.
This Prospectus sets forth concisely the information
that you should be aware of prior to investing in the
Fund's Retail shares. Two classes of shares of the
Fund are currently offered to the public:
Institutional shares and Retail shares. This
prospectus relates only to the Retail shares.
Information about the Institutional shares may be
obtained by calling 1-800-497-3933. Please read this
Prospectus carefully and retain it for future
reference. Additional information regarding the Fund
is included in the Statement of Additional Information
dated February 20, 1998, which has been filed with the
Securities and Exchange Commission and is incorporated
in this Prospectus by reference. A copy of the Fund's
Statement of Additional Information is available
without charge by writing to the Fund at the address
listed above or by calling 1-800-497-3933.
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.
<PAGE>
TABLE OF CONTENTS
Page No.
SUMMARY 6
SUMMARY OF FUND EXPENSES 7
FINANCIAL HIGHLIGHTS 8
INVESTMENT OBJECTIVE AND POLICIES 9
INVESTMENT TECHNIQUES AND RISKS 9
IN GENERAL 9
SHORT-TERM FIXED INCOME SECURITIES 10
ILLIQUID SECURITIES 10
ADRS 10
OPTIONS AND FUTURES TRANSACTIONS 10
SHORT SALES 11
REPURCHASE AGREEMENTS 11
CONVERTIBLE SECURITIES 11
PORTFOLIO TURNOVER 11
MANAGEMENT 12
HOW TO PURCHASE FUND SHARES 12
OFFERING PRICE 13
PURCHASES AT NET ASSET VALUE 13
QUANTITY DISCOUNT IN THE SALES CHARGE 14
INITIAL INVESTMENT - MINIMUM $10,000 14
WIRE PURCHASES 15
TELEPHONE PURCHASES 15
AUTOMATIC INVESTMENT PLAN - MINIMUM $100 15
SUBSEQUENT INVESTMENTS - MINIMUM $100 16
DETERMINATION OF NET ASSET VALUE 16
HOW TO REDEEM SHARES 16
IN GENERAL 16
WRITTEN REDEMPTION 17
TELEPHONE REDEMPTION 17
SIGNATURE GUARANTEES 17
DISTRIBUTION PLAN 18
SHAREHOLDER REPORTS 18
INDIVIDUAL RETIREMENT ACCOUNTS 18
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX
TREATMENT 20
FUND ORGANIZATION 21
ADMINISTRATOR 21
CUSTODIAN, TRANSFER AGENT, AND FUND ACCOUNTANT 22
<PAGE>
DISTRIBUTOR 22
COMPARISON OF INVESTMENT RESULTS 22
No person has been authorized to give any
information or to make any representations other than
those contained in this Prospectus and the Statement of
Additional Information, and if given or made, such
information or representations may not be relied upon
as having been authorized by the Fund. This prospectus
does not constitute an offer to sell securities in any
state to any person to whom it is unlawful to make such
offer in such state.
<PAGE>
SUMMARY
Investment Objective
The investment objective of the Fund is to seek
capital appreciation. The Fund will seek to achieve
its investment objective by investing its assets
primarily in equity securities of domestic companies
that, in the opinion of Greenville Capital Management,
Inc. ("GCM"), have been overlooked by Wall Street
analysts. The Fund's investments are subject to market
risk and the value of its shares will fluctuate with
changing market valuations of its portfolio holdings.
See "INVESTMENT OBJECTIVE AND POLICIES" and "INVESTMENT
TECHNIQUES AND RISKS."
Investment Advisor
GCM is the investment advisor to the Fund. GCM
was organized in 1989 and acts as the investment
advisor to individual and institutional clients with
investment portfolios of approximately $450 million.
See "MANAGEMENT."
Purchase and Redemptions
Retail class shares of the Fund are offered at net
asset value per share plus a maximum initial sales
charge of 3.00% of the offering price. See "HOW TO
PURCHASE FUND SHARES." In addition, the Retail class
adopted a distribution plan under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the
"Investment Company Act"), which authorizes the Retail
class to pay a distribution fee of up to 0.25% per
annum of the Retail class' average daily net assets.
See "DISTRIBUTION PLAN." The minimum initial
investment required by the Retail class is $10,000.
The minimum subsequent investment is $100. The minimum
initial investment for individual retirement accounts
is $2,000, and for investors using the Automatic
Investment Plan, the minimum initial investment is
$100. These minimums may be changed or waived at any
time at the discretion of the Fund. Retail class
shares may be redeemed using either written or
telephone redemption procedures at net asset value
without the imposition of any redemption charges. See
"HOW TO REDEEM SHARES."
Shareholder Services
Questions regarding the Retail shares or the
Institutional shares may be directed to the Fund at the
address and telephone number on the front page of this
Prospectus.
<PAGE>
SUMMARY OF FUND EXPENSES
The purpose of the following table is to assist
you in understanding the various costs and expenses
that an investor in the Retail class will bear directly
(shareholder transaction expenses) and indirectly
(annual fund operating expenses).
Fee Table
Retail Class
Shareholder Transaction Expenses
Sales Load Imposed on Purchases 3.00%(1),(2)
Sales Load Imposed on Reinvested Dividends NONE
Deferred Sales Load Imposed on Redemptions NONE
Redemption Fees NONE*
Annual Fund Operating Expenses (after waivers or
reimbursements) (as a percentage of average net
assets)
Management Fee 1.00%
12b-1 Fees 0.25%(2),(3)
Other Expenses (net of reimbursement) 0.75%(4)
TOTAL FUND OPERATING EXPENSES 2.00%(4)
(after waivers or reimbursements)
_________________________
(1)Certain investors may be exempt from paying some or
all of this load. See "HOW TO PURCHASE FUND
SHARES."
(2)Consistent with the National Association of
Securities Dealers, Inc.'s rules, it is possible
that the combination of the front-end sales load
and Rule 12b-1 fees could cause long-term investors
of the Retail class to pay more than the economic
equivalent of the maximum front-end sales charges
permitted under those rules.
(3)See "DISTRIBUTION PLAN" for more details.
(4)For the period ended September 30, 1997, GCM
voluntarily agreed to waive its management fee
and/or reimburse the Fund's operating expenses to
the extent necessary to ensure that the Retail
Class' Total Operating Expenses did not exceed
2.00% of the Fund's average daily net assets.
Absent these reimbursements, Other Expenses and
Total Fund Operating Expenses would have been 2.98%
and 4.23%, respectively. GCM has voluntarily
agreed to continue this waiver/reimbursement policy
for the year ending September 30, 1998, and for an
indefinite amount of time beyond that date. The
Fund's management fee is higher than that paid by
other similar investment companies. For additional
information concerning management fees and
operating expenses, see "MANAGEMENT."
* There are certain charges associated with certain
services offered by the Fund, such as a service fee
of $12.00 for redemptions effected via wire
transfer.
Example
You would pay the following expenses on a $1,000
investment, assuming (i) 5% annual return, and (ii)
redemption at the end of each time period.
1 Year 3 Years 5 Years 10 Years
$50 $91 $135 $256
<PAGE>
The Example is based on the Total Fund Operating
Expenses specified in the table above. The amounts in
the Example may increase absent the waivers or
reimbursements. Please remember that the Example
should not be considered representative of past or
future expenses and that actual expenses may be greater
or lesser than those shown. The assumption in the
Example of a 5% annual rate of return is required by
regulations of the Securities and Exchange Commission
("SEC") applicable to all mutual funds. This return is
hypothetical and should not be considered
representative of past or future performance of the
Retail shares.
FINANCIAL HIGHLIGHTS
The financial information relating to the Retail
shares of the Fund during the period from December 2,
1996 (commencement of operations) to September 30, 1997
included in this table has been derived from the
financial records of the Fund which have been audited
by KPMG Peat Marwick LLP, the Fund's independent
accountants. The table should be read in conjunction
with the financial statements, related notes and
auditor's report included in the Fund's Annual Report
to Shareholders, which is available without charge by
writing to the Fund at P.O. Box 701, Milwaukee,
Wisconsin 53201-0701, or by calling, toll-free,
1-800-497-3933.
Per Share Data:
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment loss (1) (0.15)
Net realized and unrealized gains on investments 4.57
Total from investment operations 4.42
Net asset value, end of period $14.42
Total return (2) (3) 44.20%
Supplemental data and ratios:
Net assets, end of period $921,991
Ratio of operating expenses to average
net assets(4) (5) 2.00%
Ratio of net investment loss to average
net assets(4) (5) (1.36%)
Portfolio turnover rate (6) 204.05%
Average commission rate paid (6) $0.0509
__________
(1)Net investment loss per share represents net
investment loss divided by the monthly average
shares of beneficial interest outstanding
throughout the period December 2, 1996 through
September 30, 1997.
(2)Not annualized for the period December 2, 1996
through September 30, 1997.
(3)The total return does not reflect the 3.00% front-
end sales charge.
(4)Annualized for the period December 2, 1996 through
September 30, 1997.
(5)Without expense reimbursements of $120,419 for the
period December 2, 1996 through September 30, 1997,
the ratio of operating expenses to average net
assets would have been 4.23%, and the ratio of net
investment loss to average net assets would have
been (3.60%).
(6)Portfolio turnover and average commission rate paid
are calculated on the basis of the Fund as a whole
without distinguishing between the classes of
shares issued.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund is the first and presently, the only
series of the Trust, an open-end, diversified
management company. The Fund's investment objective is
to seek capital appreciation. The generation of
investment income is not an investment objective and,
therefore, any income earned by the Fund will be
incidental to the Fund's objective. The Fund will
seek, under normal market conditions, to achieve its
investment objective by investing its assets primarily
in equity securities of domestic companies, which
include but are not limited to common stocks; preferred
stocks; warrants to purchase common stocks or preferred
stocks; and securities convertible into common or
preferred stocks, such as convertible bonds and
debentures. The Fund may, when GCM deems a more
conservative approach is warranted, or pending
investment or reinvestment, invest up to 35% of its
total assets in short-term, fixed income securities.
For temporary, defensive purposes the Fund may invest
up to 100% of its total assets in such securities.
Since the Fund's assets will, under normal market
conditions, consist primarily of equity securities, the
net asset value of the Retail shares may be subject to
greater principal fluctuation than a portfolio
containing a substantial amount of fixed income
securities.
The Fund is designed to take advantage of
investment and trading opportunities that investors
might not otherwise have the time, expertise or
inclination to exploit themselves. The Fund is
structured for flexibility and risk reduction, but
centered around investment in high quality growth
stocks with an emphasis on those companies whose growth
potential, in GCM's opinion, has been overlooked by
Wall Street analysts. In addition, the Fund may sell
short up to 25% of its portfolio. The Fund only
intends to use short positions for brief periods of
time in smaller position sizes to reduce the Fund's
overall risk and to increase the Fund's pool of
potential investment ideas. (See "INVESTMENT
TECHNIQUES AND RISKS - Short Sales").
When making investment decisions, GCM utilizes
information and analyses from numerous sources
regarding a company's sales and earnings growth;
earnings power, trends and predictability; industry,
economic and political trends; relative valuation; and
liquidity, to determine whether the security has the
growth potential suitable for the Fund. The Fund will
generally invest in companies with market
capitalizations ranging from $100 million to $2
billion. The Fund is only intended to be an investment
vehicle for that part of an investor's capital which
can appropriately be exposed to above average risk in
anticipation of greater rewards. The Fund is not
designed to offer a balanced investment program
suitable for all investors.
Except for the Fund's investment objective and the
investment restrictions contained in the Statement of
Additional Information, the Fund's policies may be
changed without a vote of the Retail class'
shareholders.
INVESTMENT TECHNIQUES AND RISKS
In General
The Fund will not invest more than 5% of its net
assets in any one of the following types of
investments: preferred stocks; warrants; and
securities purchased on a when-issued or delayed
delivery basis. For a more extensive discussion of
certain of these investments and techniques and risks
associated therewith, see the Fund's Statement of
Additional Information.
Short-Term Fixed Income Securities
When GCM believes that adverse economic or market
conditions justify such action, up to 100% of the
Fund's assets may be held temporarily in short-term
fixed-income securities, including without limitation:
U.S. government securities, including bills, notes and
bonds, differing as to maturity and rate of interest,
which are either issued or guaranteed by the U.S.
Treasury or by U.S. governmental agencies or
instrumentalities; certificates of deposit issued
against funds deposited in a U.S. bank or savings and
loan association; bank time deposits, which are monies
kept on deposit with U.S. banks or savings and loan
associations for a stated period of time at a fixed
rate of interest; bankers' acceptances which are short-
term credit instruments used to finance commercial
transactions; repurchase agreements entered into only
with respect to obligations of the U.S. government, its
agencies or instrumentalities; or commercial paper and
commercial paper master notes (which are demand
instruments without a fixed maturity bearing interest
at rates which are fixed to known lending rates and
automatically adjusted when such lending rates change)
rated A-1 or better by S&P, Prime-1 or better by
Moody's, Duff 2 or higher by D&P, or Fitch 2 or higher
by Fitch.
<PAGE>
Illiquid Securities
The Fund may invest up to 10% of the value of its
net assets in illiquid securities, which include, but
are not limited to, restricted securities (securities
the disposition of which is restricted under the
federal securities laws); securities which may only be
resold pursuant to Rule 144A under the Securities Act
of 1933; and repurchase agreements with maturities in
excess of seven days. Risks associated with restricted
securities include the potential obligation to pay all
or part of the registration expenses in order to sell
restricted securities. A considerable period of time
may elapse between the time of the decision to sell a
restricted security and the time the Fund may be
permitted to sell under an effective registration
statement or otherwise. If, during such a period,
adverse conditions were to develop, the Fund might
obtain a less favorable price than that which prevailed
when it decided to sell. The Board of Trustees of the
Trust, or its delegate, has the ultimate authority to
determine, to the extent permissible under the federal
securities laws, which securities are liquid or
illiquid. The Board of Trustees has adopted guidelines
and delegated this determination to GCM.
ADRs
The Fund may invest up to 25% of the value of its
net assets in ADRs or other instruments denominated in
U.S. dollars. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the
underlying foreign security and denominated in U.S.
dollars. Some institutions issuing ADRs may not be
sponsored by the issuer. A non-sponsored depository
may not provide the same shareholder information that a
sponsored depository is required to provide under its
contractual arrangements with the issuer, including
reliable financial statements.
Investments in securities of foreign issuers
involve risks which are in addition to the usual risks
inherent in domestic investment. In many countries
there is less publicly available information about
issuers than is available in the reports and ratings
published about companies in the U.S. Additionally,
foreign companies are not subject to uniform
accounting, auditing and financial reporting standards.
Other risks inherent in foreign investment include
expropriation; confiscatory taxation; withholding taxes
on dividends and interest; less extensive regulation of
foreign brokers, securities markets and issuers; costs
incurred in conversions between currencies; the
possibility of delays in settlement in foreign
securities markets; limitations on the use or transfer
of assets (including suspension of the ability to
transfer currency from a given country); the difficulty
of enforcing obligations in other countries; diplomatic
developments; and political or social instability.
Foreign economies may differ favorably or unfavorably
from the U.S. economy in various respects, and many
foreign securities are less liquid and their prices are
more volatile than comparable U.S. securities. From
time to time, foreign securities may be difficult to
liquidate rapidly without adverse price effects.
Certain costs attributable to foreign investing, such
as custody charges and brokerage costs, are higher than
those attributable to domestic investing.
Options and Futures Transactions
The Fund may engage in options and futures
transactions which are sometimes referred to as
derivative transactions. The Fund's options and
futures transactions may include instruments such as
stock index options and futures contracts. Such
transactions may be used for several reasons, including
hedging unrealized portfolio gains. The Fund will only
engage in futures and options transactions which must,
pursuant to regulations promulgated by the Commodity
Futures Trading Commission (the "CFTC"), constitute
bona fide hedging or other permissible risk management
transactions and will not enter into such transactions
if the sum of the initial margin deposits and premiums
paid for unexpired options exceeds 5% of the Fund's net
assets. In addition, the Fund will not enter into
options and futures transactions if more than 50% of
the Fund's net assets would be committed to such
instruments. The Fund may hold a futures or options
position until its expiration, or it can close out such
a position before then at current value if a liquid
secondary market is available. If the Fund cannot
close out a position, it may suffer a loss apart from
any loss or gain experienced at the time the Fund
decided to close the position. When required by
guidelines of the SEC or the CFTC, the Fund will set
aside permissible liquid assets in a segregated account
to secure its potential obligations under its futures
or options positions. Such liquid assets may include
cash, U.S. government securities and high-grade liquid
debt securities. The ability of the Fund to
effectively use options and futures is largely
dependent upon GCM's ability to correctly use such
instruments which may involve different skills than are
associated with securities generally. For a further
discussion of options and futures transactions, please
see the Statement of Additional Information.
<PAGE>
Short Sales
The Fund may engage in short sale transactions in
securities listed on one or more national securities
exchanges, or in unlisted securities. Short selling
involves the sale of borrowed securities. At the time
a short sale is effected, the Fund incurs an obligation
to replace the borrowed security at whatever its price
may be at the time the Fund purchases it for delivery
to the lender. When a short sale transaction is closed
out, any gain or loss on the transaction is taxable as
a short term capital gain or loss. All short sales
will be fully collateralized, and no short sale will be
effected which would cause the aggregate market value
of all securities sold short to exceed 25% of the value
of the Fund's net assets. The Fund limits short sales
of any one issuer's securities to 2% of the Fund's
total assets and to 2% of any one class of the issuer's
securities.
Repurchase Agreements
The Fund may invest up to 25% of its net assets in
repurchase agreements entered into with Federal Reserve
Bank member banks and certain non-bank dealers. In a
repurchase agreement, the Fund buys a security at one
price, and at the time of sale, the seller agrees to
repurchase the obligation at a mutually agreed upon
time and price (usually seven days). The repurchase
agreement determines the yield during the purchaser's
holding period, while the seller's obligation to
repurchase is secured by the value of the underlying
security. GCM will monitor, on an ongoing basis, the
value of the underlying securities to ensure that the
value always equals or exceeds the repurchase price
plus accrued interest. Repurchase agreements could
involve certain risks in the event of a default or
insolvency of the other party to the agreement
including possible delays or restrictions upon the
Fund's ability to dispose of the underlying securities.
Although no definitive criteria are used, GCM reviews
the creditworthiness of the banks and non-bank dealers
with which the Fund enters into repurchase agreements
to evaluate those risks.
Convertible Securities
The Fund may invest up to 25% of its net assets in
securities convertible into common stocks. A
convertible security entitles the holder to receive
interest normally paid or accrued on the debt or the
dividend paid on preferred stock until the convertible
security matures or is redeemed, converted, or
exchanged. Convertible securities have unique
investment characteristics in that they generally have
higher yields than common stocks, but lower yields than
comparable non-convertible securities, are less subject
to fluctuation in value than the underlying stock, and
provide the potential for capital appreciation if the
market price of the underlying common stock increases.
A convertible security might be subject to redemption
at the option of the issuer at a price established in
the security's governing instrument. If a convertible
security held by the Fund is called for redemption, the
Fund will be required to permit the issuer to redeem
the security, convert it into the underlying common
stock or sell it to a third party.
Portfolio Turnover
The portfolio turnover rate indicates changes in
the Fund's investments. The turnover rate may vary
from year to year, as well as within a year. Under
normal market conditions, the Fund anticipates that its
portfolio turnover rate is not expected to exceed 110%
and is expected to range between 70 and 110%. The
Fund's portfolio turnover rate for the period from
December 1, 1996 to September 30, 1997 was 204.05% due
to compliance with the short-short test which has since
been repealed. A turnover rate of 100% would occur,
for example, if all of the securities held by the Fund
were replaced within one year. It may be affected by
sales of portfolio securities necessary to meet cash
requirements for redemption of shares. In the event
the Fund were to have a turnover rate of 100% or more
in any year, it would result in the payment by the Fund
of above average transaction costs and could result in
the payment by Retail shareholders of above average
amounts of taxes on realized investment gains. The
Fund's portfolio turnover rate is included under
"FINANCIAL HIGHLIGHTS."
MANAGEMENT
Under the laws of the State of Delaware, the Board
of Trustees of the Trust is responsible for managing
its business and affairs. The Trust, on behalf of the
Fund, has entered into an investment advisory agreement
with GCM pursuant to which GCM manages the Fund's
investments and business affairs, subject to the
supervision of the Trust's Board of Trustees (the
"Investment Advisory Agreement"). The Board of
Trustees also oversees duties required by applicable
state and federal law.
<PAGE>
GCM, a growth equity capital management firm, is
the investment advisor to the Fund. GCM was founded in
1989 and is located at 100 South Rockland Falls Road,
Rockland, Delaware 19732. Under the Investment
Advisory Agreement, the Trust, on behalf of the Fund,
compensates GCM for its investment advisory services at
the annual rate of 1.00% of the Fund's average daily
net assets. For fiscal year ended September 30, 1998
and an indefinite amount of time thereafter, GCM has
voluntarily agreed to waive its management fee and/or
reimburse the operating expenses to the extent
necessary to ensure that the Retail class' total
operating expenses do not exceed 2.00% of the Fund's
average daily net assets. Any such waiver or
reimbursement will have the effect of lowering the
overall expense ratio for the Retail class and
increasing the Retail class' overall return to
investors at the time any such amounts were waived
and/or reimbursed.
The Fund is currently co-managed by Charles S.
Cruice and Richard H. Gould. Mr. Cruice has been the
President of GCM since 1989. Mr. Cruice began his
career at Dean Witter Reynolds, Inc. in 1974 and joined
Friess Associates Inc., an investment management
company, in 1978. Mr. Cruice holds a BA from the
University of Denver. Mr. Gould has been a Vice
President of GCM since 1994. Prior to joining GCM, Mr.
Gould was an equity analyst with PNC Investment
Management and co-managed the PNC Small Cap Growth
Fund, currently called the Compass Small Cap Growth
Fund. Mr. Gould is a Chartered Financial Analyst and a
Chartered Market Technician. Mr. Gould received his BS
in 1982 and his MBA in Finance in 1985 from The
Pennsylvania State University.
GCM provides continuous advice and recommendations
concerning the Fund's investments, and is responsible
for selecting the broker-dealers who execute the
portfolio transactions for the Fund. GCM provides
office space for the Trust and pays the salaries, fees
and expenses of all the Trust's officers and Trustees
who are interested persons of GCM. In addition to
providing investment advice to the Fund, GCM serves as
investment advisor to pension and profit-sharing plans,
and other institutional and private investors. As of
February 15, 1998, GCM had approximately $450 million
under management. Mr. Charles S. Cruice owns shares
representing more than 51% of the voting rights of GCM.
HOW TO PURCHASE FUND SHARES
Retail class shares of the Fund may be purchased
at the Offering Price (as defined below) through any
dealer which has entered into a sales agreement with
AmeriPrime Financial Securities, Inc., in its capacity
as principal underwriter of the Fund's shares (the
"Distributor"), or through the Distributor directly.
Firstar Trust Company, the Fund's transfer agent (the
"Transfer Agent"), may also accept purchase
applications.
The minimum initial investment in the Fund's
Retail class is $10,000. Subsequent investments in the
amount of at least $100 may be made by mail or by wire.
For individual retirement accounts, the minimum initial
investment is $2,000. For investors using the
Automatic Investment Plan, the minimum investment is
$100. Applications will not be accepted unless they
are accompanied by payment in U.S. funds. Payment
should be made by check or money order drawn on a U.S.
bank, savings and loan, or credit union. Minimum
investments are waived for employee benefit plans
qualified under Sections 401, 403(b)(7) or 457 of the
Internal Revenue Code. These minimums can be changed
or waived by the Fund at any time. Shareholders will
be given at least 30 days' notice of any increase in
the minimum dollar amount of subsequent investments.
Offering Price
Retail class shares are sold on a continual basis
at the next Offering Price, which is the sum of the net
asset value per share (next computed following (i)
receipt of an order in proper form by a dealer, the
Distributor or the Transfer Agent, as the case may be,
and (ii) acceptance of such order by the Fund) and the
sales charge as set forth below. Net asset value per
share is calculated once daily as of the close of
trading (currently 4:00 p.m., Eastern Time) on each day
the New York Stock Exchange is open. See
"DETERMINATION OF NET ASSET VALUE." The sales charge
imposed on purchases of Fund shares is as follows:
<PAGE>
Total Sales Charge
<TABLE>
<CAPTION>
As a Percentage of As a Percentage of Portion of Total Offering
Amount of Sale at Offering Price of Net Asset Value of Price Retained by
Offering Price the Shares Purchased the Shares Purchased Dealers*
<S> <C> <C> <C>
Less than $100,000 3.00% 3.09% .00%
$100,000 but less than $250,000 2.00% 2.04% 2.00%
$250,000 but less than $500,000 1.00% 1.01% 1.00%
$500,000 and above No sales charge No sales charge No sales charge
______________________________
</TABLE>
* At the discretion of the Distributor, all sales
charges may at times be paid to the securities
dealer, if any, involved in the trade. A
securities dealer which is paid all or
substantially all of the sales charges may be
deemed an "underwriter" under the Securities Act of
1933, as amended.
Investors described under "Purchases at Net Asset
Value," below, may purchase shares of the Retail class
without the imposition of a sales charge. In addition,
no sales charge is imposed on the reinvestment of
dividends or capital gains. A confirmation indicating
the details of each purchase transaction will be sent
to you promptly following each transaction. If a
purchase order is placed through a dealer, the dealer
must promptly forward the order, together with payment,
to the Transfer Agent. In addition, investors
described under "Quantity Discounts in the Sales
Charge," below, may purchase shares of the Retail class
with reduced or waived sales charges.
Purchases at Net Asset Value
Retail class shares may be purchased at net asset
value without the imposition of a sales charge, upon
the written assurance that the purchase is made for
investment purposes and that the shares will not be
transferred or resold except through redemption or
repurchase by or on behalf of the Fund, by any of the
following: (i) employee benefit plans qualified under
Section 401(k) of the Internal Revenue Code of 1986, as
amended, subject to minimum requirements with respect
to the number of employees or amount of purchase, which
may be established by the Fund (currently, those
criteria require that the employer establishing the
plan have 1,000 or more eligible employees); (ii)
trustees, officers, and full-time employees of the
Trust, the Fund, GCM and the Distributor, and to
employees and principals of related organizations and
their families and certain parties related thereto,
including clients and related accounts of GCM; (iii)
registered securities brokers and dealers which have
entered into a sales agreement with the Distributor,
and their affiliates, for their investment account
only; (iv) registered personnel and employees of such
securities brokers and dealers referred to in (iii)
above, and their spouses and family members, in
accordance with the internal policies and procedures of
the employing securities dealer; (v) investment
advisers, financial planners and their clients who are
charged a management, consulting or other fee for their
services and clients of such investment advisers or
financial planners who place trades for their own
accounts if the accounts are linked to the master
account of such investment adviser or financial planner
on the books and records of the broker or agent; and
(vi) in connection with acquisition of the assets of or
merger or consolidation with a personal holding company
or a public or private investment company. Please call
1-800-497-3933 for more information on purchases at net
asset value.
Quantity Discount in the Sales Charge
Right of Accumulation
The Fund permits sales charges on Retail class
shares to be reduced through rights of accumulation.
The reduced sales charges will be applicable once the
accumulated value of the account has reached $100,000.
For this purpose, the dollar amount of the qualifying
concurrent or subsequent purchase is added to the net
asset value of any other Retail class shares owned at
the time. The sales charge imposed on the Retail class
shares being purchased will then be at the rate
applicable to the aggregate of Retail class shares
purchased. For example, if the investor held Retail
class shares valued at $99,999 and purchased an
additional $20,000 of shares, the sales charge for the
$20,000 purchase would be at the next lower sales
charge on the schedule. There can be no assurance that
an investor will receive the cumulative discounts to
which the investor may be entitled unless the investor
or the investor's dealer makes a written request for
the discount at the time of placing the purchase order.
The right of accumulation may be amended or terminated
at any time. This particular privilege does not
entitle an investor to
<PAGE>
any adjustment in the sales
charge paid previously on purchases or shares of the
Fund. If the investor knows that additional purchases
will be made in the future, the investor may wish to
consider executing a Letter of Intent.
Letter of Intent
Reduced sales charges are also available to Retail
class investors who enter into a written Letter of
Intent providing for the purchase of Retail class
shares within a 13 month period. Retail class shares
purchased within a 90 day period prior to the date of
receipt of the Letter of Intent by the Fund which are
still owned by the investor may also be included in
determining the applicable reduction in sales charge,
provided the investor or the investor's dealer notifies
the Fund of the prior purchases. However, the sales
charges on the shares purchased before your Letter of
Intent will not be recalculated.
A Letter of Intent permits a Retail class investor
to establish an aggregate investment goal over a 13
month period. Each investment made during the period
will receive the reduced sales charge applicable to the
amount represented by the goal as a single investment.
A number of shares equaling 5% of the dollar amount of
the goal stated in the Letter of Intent will be held in
escrow by the Fund in the name of the investor. The
initial purchase under a Letter of Intent must be equal
to at least 5% of the investment goal.
The Letter of Intent does not obligate the
investor to purchase, or the Fund to sell, the
indicated amount of the investment goal. In the event
the Letter of Intent goal is not achieved within the 13
month period, the investor is required to pay the
difference between the sales charge otherwise
applicable to the purchases made during the period and
sales charges actually paid. The Fund is authorized by
the investor to liquidate a sufficient number of
escrowed shares to obtain such difference. If the goal
is exceeded and purchases pass the next sales charge
level, the sales charge on the entire amount of the
purchase that results in passing that level and on
subsequent purchases will be subject to further reduced
sales charges in the same manner as set forth under
"Right of Accumulation," but there will be no
retroactive reduction of sales charges on previous
purchases. At any time while a Letter of Intent is in
effect, an investor may increase the amount of the goal
by written notice to the Fund. In that event, shares
purchased during the previous 90 day period and still
owned by the investor will be included in determining
the applicable sales charge reduction. The 5% escrow
and minimum purchase requirements will be applicable to
the new stated goal. Investors electing to purchase
Retail class shares pursuant to a Letter of Intent
should carefully read the application for Letter of
Intent which is available from the Fund.
Initial Investment - Minimum $10,000
You may purchase Retail class shares by completing
the enclosed application and mailing it along with a
check or money order payable to "The Rockland Growth
Fund Retail Class," to your securities dealer, the
Distributor or the Transfer Agent, as the case may be.
If mailing to the Transfer Agent, please use the
following address: Firstar Trust Company, Mutual Fund
Services, P. O. Box 701, Milwaukee, Wisconsin 53201-
0701. In addition, overnight mail should be sent to
the following address: The Rockland Growth Fund,
Firstar Trust Company, Mutual Fund Services, Third
Floor, 615 East Michigan Street, Milwaukee, Wisconsin
53202. The Fund does not consider the U.S. Postal
service or other independent delivery services to be
its agents. Therefore, deposit in the mail or with
such services, or receipt at the Transfer Agent's post
office box, of purchase applications does not
constitute receipt by the Transfer Agent or the Fund.
Do not mail letters by overnight courier to the post
office box.
If the securities dealer you have chosen to
purchase Retail class shares through has not entered
into a sales agreement with the Distributor, such
dealer may, nevertheless, offer to place your order for
the purchase of Fund shares. Purchases made through
such dealers will be affected at the Offering Price.
Such dealers may also charge a transaction fee, as
determined by the dealer. That fee will be in addition
to the sales charge payable by you upon purchase, and
may be avoided if shares are purchased through a dealer
who has entered into a sales agreement with the
Distributor or through the Transfer Agent.
If your check does not clear, you will be charged
a $20.00 service fee. You will also be responsible for
any losses suffered by the Retail class as a result.
Neither cash nor third-party checks will be accepted.
All applications
<PAGE>
to purchase Retail class shares are
subject to acceptance by the Fund and are not binding
until so accepted. The Fund reserves the right to
decline or accept a purchase order application in whole
or in part.
Wire Purchases
You may purchase Retail class shares by wire. The
following instructions should be followed when wiring
funds to the Transfer Agent for the purchase of Retail
class shares:
Wire to: Firstar Bank
ABA Number 075000022
Credit: Firstar Trust Company
Account 112-952-137
Further Credit: The Rockland Growth Fund,
Retail Class
(shareholder account number)
(shareholder name/account registration)
Please call 1-800-497-3933 prior to wiring any
funds to notify the Transfer Agent that the wire is
coming and to verify the proper wire instructions so
that the wire is properly applied when received. The
Fund is not responsible for the consequences of delays
resulting from the banking or Federal Reserve wire
system.
Telephone Purchases
You may purchase Retail class shares by moving
money from your bank account to your Fund account.
Only bank accounts held at domestic financial
institutions that are Automated Clearing House (ACH)
members can be used for telephone transactions. To
have your Retail class shares purchased at the net
asset value determined as of the close of regular
trading on a given date, the Transfer Agent must
receive both the purchase order and payment by
Electronic Funds Transfer through the ACH System before
the close of regular trading on such date. Most
transfers are completed within 3 business days.
Telephone transactions may not be used for initial
purchases of Retail class shares.
Automatic Investment Plan - Minimum $100
The Automatic Investment Plan ("AIP") allows you
to make regular, systematic investments in the Fund
from your bank checking or NOW account. The Fund will
reduce the minimum initial investment to $100 for
investors using the AIP. To establish the AIP,
complete the appropriate section in the Fund's
application. Under certain circumstances (such as
discontinuation of the AIP before the Retail class
minimum initial investment is reached, or, after
reaching the minimum initial investment, the account
balance is reduced to less than $500), the Fund
reserves the right to close the investor's account.
Prior to closing any account for failure to reach the
minimum initial investment, the Fund will give the
investor written notice and 60 days in which to
reinstate the AIP or otherwise reach the minimum
initial investment. You should consider your financial
ability to continue in the AIP until the minimum
initial investment amount is met because the Fund has
the right to close an investor's account for failure to
reach the minimum initial investment. Such closing may
occur in periods of declining share prices.
Under the AIP, you may choose to make investments
on the day of your choosing (or the next business day
thereafter) from your financial institution in amounts
of $100 or more. There is no service fee for
participating in the AIP. However, a service fee of
$20 will be deducted from your Fund account for any AIP
purchase that does not clear due to insufficient funds
or, if prior to notifying the Fund in writing or by
telephone to terminate the plan, you close your bank
account or in any manner prevent withdrawal of funds
from the designated checking or NOW account. You can
set up the AIP with any financial institution that is a
member of the Automated Clearing House.
The AIP is a method of using dollar cost averaging
which is an investment strategy that involves investing
a fixed amount of money at a regular time interval.
However, a program of regular investment cannot ensure
a profit or protect against a loss from declining
markets. By always investing the same amount, you will
be purchasing more shares when the price is low and
fewer shares when the price is high. Since such a
program involves continuous investment regardless of
fluctuating share values, you should consider your
financial ability to continue the program through
periods of low share price levels.
<PAGE>
Subsequent Investments - Minimum $100
Additions to your account may be made by mail or
by wire. When making an additional purchase by mail,
enclose a check payable to "The Rockland Growth Fund
Retail Class" along with the Additional Investment Form
provided on the lower portion of your account
statement. To make an additional purchase by wire,
please call 1-800-497-3933 for complete wiring
instructions.
DETERMINATION OF NET ASSET VALUE
The net asset value per share for the Retail class
is determined as of the close of trading (currently
4:00 p.m. Eastern Time) on each day the New York Stock
Exchange ("NYSE") is open for business. Purchase
orders received or shares tendered for redemption on a
day the NYSE is open for trading, prior to the close of
trading on that day, will be valued as of the close of
trading on that day. Applications for purchase of
Retail shares and requests for redemption of Retail
shares received after the close of trading on the NYSE
will be valued as of the close of trading on the next
day the NYSE is open. Net asset value is calculated by
taking the fair value of the Retail class' total
assets, including interest or dividends accrued, but
not yet collected, less all liabilities, and dividing
by the total number of shares outstanding. The result,
rounded to the nearest cent, is the net asset value per
share. In determining net asset value, expenses are
accrued and applied daily and securities and other
assets for which market quotations are available are
valued at market value. Common stocks, other equity-
type securities, and securities sold short are valued
at the last sales price on the national securities
exchange or NASDAQ on which such securities are
primarily traded; provided, however, securities traded
on an exchange or NASDAQ for which there were no
transactions on a given day, any security sold short
for which there were no transactions on a given day and
securities not listed on an exchange or NASDAQ, are
valued at the most recent mean between the bid and
asked price. Options purchased or written by the Fund
are valued at the average of the current bid and asked
prices. Any securities or other assets for which
market quotations are not readily available are valued
at fair value as determined in good faith by the Board
of Trustees. Debt securities having remaining
maturities of 60 days or less when purchased are valued
by the amortized cost method when the Board of Trustees
determines that the fair market value of such
securities is their amortized cost. Under this method
of valuation, a security is initially valued at its
acquisition cost, and thereafter, amortization of any
discount or premium is assumed each day, regardless of
the impact of fluctuating interest rates on the market
value of the security.
HOW TO REDEEM SHARES
In General
Investors may request redemption of part or all of
their Retail class shares at any time at the next
determined net asset value. See "DETERMINATION OF NET
ASSET VALUE." No redemption request will become
effective until all documents have been received in
proper form by Firstar Trust Company. An investor
should contact Firstar Trust Company for further
information concerning documentation required for a
redemption of Retail class shares. The Fund normally
will mail your redemption proceeds the next business
day and, in any event, no later than seven business
days after receipt of a redemption request in good
order. However, when a purchase has been made by
check, the Fund may hold payment on redemption proceeds
until it is reasonably satisfied that the check has
cleared; this may take up to twelve days.
Redemptions may also be made through brokers or
dealers. Such redemptions will be effected at the net
asset value next determined after receipt by the Retail
class of the broker or dealer's instruction to redeem
shares. In addition, some brokers or dealers may charge
a fee in connection with such redemptions.
Investors who have an Individual Retirement
Account ("IRA") must indicate on their redemption
requests whether federal income tax should be withheld.
Redemption requests failing to make an election will be
subject to withholding.
Written Redemption
For most redemption requests, an investor need
only furnish a written, unconditional request to redeem
his or her Retail class shares at net asset value to
the Fund's Transfer Agent: Firstar Trust Company,
Mutual Fund Services, P. O. Box 701, Milwaukee,
Wisconsin 53201-0701. Overnight mail should be sent to
The Rockland Growth Fund, Firstar Trust Company, Mutual
Fund Services, Third Floor, 615 East Michigan Street,
Milwaukee,
<PAGE>
Wisconsin 53202. Requests for redemption
must be signed exactly as the Retail class shares are
registered, including the signature of each joint
owner. You must also specify the number of shares or
dollar amount to be redeemed. Redemption proceeds made
by written redemption request may also be wired to a
commercial bank that you have authorized on your
account application. The Transfer Agent charges a
$12.00 service fee for wire transactions. Additional
documentation may be requested from corporations,
executors, administrators, trustees, guardians, agents,
or attorneys-in-fact. The Fund does not consider the
U.S. Postal Service or other independent delivery
services to be its agents. Therefore, deposit in the
mail or with such services, or receipt at the Transfer
Agent's post office box, of redemption requests does
not constitute receipt by the Transfer Agent or the
Fund. Do not mail letters by overnight courier to the
post office box. Any written redemption requests
received within 15 days after an address change must be
accompanied by a signature guarantee.
Telephone Redemption
Retail class shares may also be redeemed by
calling the Transfer Agent at 1-800-497-3933. In order
to utilize this procedure, a shareholder must have
previously elected this option in writing, which
election will be reflected in the records of the
Transfer Agent, and the redemption proceeds must be
mailed directly to the shareholder or transmitted to
the shareholder's predesignated account. To change the
designated account, send a written request with
signature(s) guaranteed to the Transfer Agent. To
change the address, call the Transfer Agent or send a
written request with signature(s) guaranteed to the
Transfer Agent. Additional documentation may be
requested from corporations, executors, administrators,
trustees, guardians, agents or attorneys-in-fact. No
telephone redemptions will be allowed within 15 days of
such a change. The Fund reserves the right to limit
the number of telephone redemptions by an investor.
Once made, telephone redemption requests may not be
modified or canceled.
The Transfer Agent will employ reasonable
procedures to confirm that instructions communicated by
telephone are genuine. Such procedures may include
requiring some form of personal identification prior to
acting upon telephone instructions, providing written
confirmations of all such transactions, and/or tape
recording all telephone instructions. Assuming
procedures such as the above have been followed,
neither the Fund nor the Transfer Agent will be liable
for any loss, cost, or expense for acting upon an
investor's telephone instructions or for any
unauthorized telephone redemption. The Fund reserves
the right to refuse a telephone redemption request if
so advised.
Signature Guarantees
Signature guarantees are required for: (i)
redemption requests to be mailed or wired to a person
other than the registered owner(s) of the shares; (ii)
redemption requests to be mailed or wired to other than
the address of record and (iii) any redemption request
if a change of address request has been received by the
Fund or Transfer Agent within the last 15 days. A
signature guarantee may be obtained from any eligible
guarantor institution, as defined by the SEC. These
institutions include banks, savings associations,
credit unions, brokerage firms and others.
Your account may be terminated by the Fund on not
less than 30 days' notice if, at the time of any
redemption of shares in your account, the value of the
remaining shares in the account falls below $10,000.
Upon any such termination, a check for the redemption
proceeds will be sent to the account of record within
seven days of the redemption.
DISTRIBUTION PLAN
The Fund has adopted a plan pursuant to Rule 12b-1
under the Investment Company Act (the "Plan"), which
requires the Retail class to pay the Distributor a
distribution fee of up to 0.25% of its average daily
net assets computed on an annual basis. Under the
terms of the Plan, the Distributor is authorized to, in
turn, pay all or a portion of this fee to any
securities dealer, financial institution or any other
person (the "Recipient") who renders assistance in
distributing or promoting the sale of Retail class
shares pursuant to a written agreement (the "Related
Agreement"). To the extent such fee is not paid to
such persons, the Distributor may use the fee for its
own distribution expenses incurred in connection with
the sale of the shares, although it is the
Distributor's current intention to pay out all or most
of the fee. A form of the Related Agreement referred
to above has been approved by a majority of the Board
of Trustees of the Trust, and of the members of the
Board who are not "interested persons" of the Trust as
defined in the Investment Company Act and who have no
direct or indirect financial interest in the operation
of the Plan or any related agreements (the
"Disinterested Trustees") voting separately.
Accordingly,
<PAGE>
the Distributor may enter into Related
Agreements with securities dealers, financial
institutions or other persons without further Board
approval.
Payment of the distribution fee is to be made
quarterly, within 30 days after the close of the
quarter for which the fee is payable, upon the
Distributor forwarding to the Board of Trustees a
written report of all amounts expended pursuant to the
Plan; provided, however, that the aggregate payments by
the Retail class under the Plan in any month to the
Distributor and all Recipients may not exceed 0.25% of
the Retail class' average net assets for that quarter;
and provided further that no fee may be paid in excess
of the distribution expenses as set forth in the
quarterly written report. Thus, the Plan does not
provide for the payment of distribution fees in
subsequent periods that relate to expenses incurred in
prior periods.
The Plan, and any Related Agreement which is
entered into, will continue in effect for a period of
more than one year only so long as its continuance is
specifically approved at least annually by a vote of a
majority of the Trust's Board of Trustees, and of the
Disinterested Trustees, cast in person at a meeting
called for the purpose of voting on the Plan, or the
Related Agreement, as applicable. In addition, the
Plan, and any Related Agreement, may be terminated at
any time, without penalty, by vote of a majority of the
outstanding voting securities of the Retail class, or
by vote of a majority of the Disinterested Trustees, on
not more than sixty (60) days' written notice.
SHAREHOLDER REPORTS
You will be provided at least semi-annually with a
report showing the Fund's holdings and annually after
the close of the Trust's fiscal year, which ends
September 30, with an annual report containing audited
financial statements. An individual account statement
will be sent to you by the Transfer Agent after each
purchase or redemption of Retail class shares as well
as on a quarterly basis. You will also receive an
annual statement after the end of the calendar year
listing all of your transactions in Retail class shares
during such year.
If you have questions about your account, you
should call the Transfer Agent at 1-800-497-3933.
Investors who have general questions about the Fund or
the Trust or desire additional information should write
to The Rockland Funds Trust, P.O. Box 701, Milwaukee,
WI 53201-0701.
INDIVIDUAL RETIREMENT ACCOUNTS
Individuals may establish their own tax-sheltered
IRAs. The Fund offers three types of IRAs, including
the Traditional IRA, that can be adopted by executing
the appropriate Internal Revenue Service ("IRS") Form.
Traditional IRA
In a Traditional IRA, amounts contributed to the
IRA may be tax deductible at the time of contribution
depending on whether the investor is an "active
participant" in an employer-sponsored retirement plan
and the investor's income. Distributions from a
Traditional IRA will be taxed at distribution except to
the extent that the distribution represents a return of
the investor's own contributions for which the investor
did not claim (or was not eligible to claim) a
deduction. Distributions prior to age 59-1/2 may be
subject to an additional 10% tax applicable to certain
premature distributions. Distributions must commence
by April 1 following the calendar year in which the
investor attains age 70-1/2. Failure to begin
distributions by this date (or distributions that do
not equal certain minimum thresholds) may result in
adverse tax consequences.
Roth IRA
In a Roth IRA (sometimes known as the American
Dream IRA), amounts contributed to the IRA are taxed at
the time of contribution, but distributions from the
IRA are not subject to tax if the investor has held the
IRA for certain minimum periods of time (generally,
until age 59-1/2). Investors whose income exceeds
certain limits are ineligible to contribute to a Roth
IRA. Distributions that do not satisfy the
requirements for tax-free withdrawal are subject to
income taxes (and possibly penalty taxes) to the extent
that the distribution exceeds the investor's
contributions to the IRA. The minimum distribution
rules applicable to Traditional IRAs do not apply
during the lifetime of the investor. Following the
death of the investor, certain minimum distribution
rules apply.
<PAGE>
For Traditional and Roth IRAs, the maximum annual
contribution generally is equal to the lesser of $2,000
or 100% of the investor's compensation (earned income).
An individual may also contribute to a Traditional IRA
or Roth IRA on behalf of his or her spouse provided
that the individual has sufficient compensation (earned
income). Contributions to a Traditional IRA reduce the
allowable contributions under a Roth IRA, and
contributions to a Roth IRA reduce the allowable
contribution to a Traditional IRA.
Education IRA
In an Education IRA, contributions are made to an
IRA maintained on behalf of a beneficiary under age 18.
The maximum annual contribution is $500 per
beneficiary. The contributions are not tax deductible
when made. However, if amounts are used for certain
educational purposes, neither the contributor nor the
beneficiary of the IRA are taxed upon distribution.
The beneficiary is subject to income (and possibly
penalty taxes) on amounts withdrawn from an Education
IRA that are not used for qualified educational
purposes. Investors whose income exceeds certain
limits are ineligible to contribute to an Education
IRA.
Under current IRS regulations, IRA applicants must
be furnished a disclosure statement containing
information specified by the IRS. Applicants generally
have the right to revoke their account within seven
days after receiving the disclosure statement and
obtain a full refund of their contributions. The
custodian may, in its discretion, hold the initial
contribution uninvested until the expiration of the
seven-day revocation period. The custodian does not
anticipate that it will exercise its discretion but
reserves the right to do so.
Simplified Employee Pension Plan
A Traditional IRA may also be used in conjunction
with a Simplified Employee Pension Plan ("SEP-IRA"). A
SEP-IRA is established through execution of Form 5305-
SEP together with a Traditional IRA established for
each eligible employee. Generally, a SEP-IRA allows an
employer (including a self-employed individual) to
purchase shares with tax deductible contributions not
exceeding annually for any one participant 15% of
compensation (disregarding for this purpose
compensation in excess of $160,000 per year). The
$160,000 compensation limit applies for 1998 and is
adjusted periodically for cost of living increases. A
number of special rules apply to SEP Plans, including a
requirement that contributions generally be made on
behalf of all employees of the employer (including for
this purpose a sole proprietorship or partnership) who
satisfy certain minimum participation requirements.
SIMPLE IRA
An IRA may also be used in connection with a
SIMPLE Plan established by the investor's employer (or
by a self-employed individual). When this is done, the
IRA is known as a SIMPLE IRA, although it is similar to
a Traditional IRA with the exceptions described below.
Under a SIMPLE Plan, the investor may elect to have his
or her employer make salary reduction contributions of
up to $6,000 per year to the SIMPLE IRA. The $6,000
limit is adjusted periodically for cost of living
increases. In addition, the employer will contribute
certain amounts to the investor's SIMPLE IRA, either as
a matching contribution to those participants who make
salary reduction contributions or as a non-elective
contribution to all eligible participants whether or
not making salary reduction contributions. A number of
special rules apply to SIMPLE Plans, including (1) a
SIMPLE Plan generally is available only to employers
with fewer than 100 employees; (2) contributions must
be made on behalf of all employees of the employer
(other than bargaining unit employees) who satisfy
certain minimum participation requirements; (3)
contributions are made to a special SIMPLE IRA that is
separate and apart from the other IRAs of employees;
(4) the distribution excise tax (if otherwise
applicable) is increased to 25% on withdrawals during
the first two years of participation in a SIMPLE IRA;
and (5) amounts withdrawn during the first two years of
participation may be rolled over tax-free only into
another SIMPLE IRA (and not to a Traditional IRA or to
a Roth IRA). A SIMPLE IRA is established by executing
Form 5304-SIMPLE together with an IRA established for
each eligible employee.
<PAGE>
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX
TREATMENT
The Trust intends to qualify for treatment as a
"Regulated Investment Company" under Subchapter M of
the Internal Revenue Code, and, if so qualified, will
not be liable for federal income taxes to the extent
earnings are distributed on a timely basis.
For federal income tax purposes, all dividends
paid by the Trust, on behalf of the Fund's Retail
class, and net realized short-term capital gains are
taxable to you as ordinary income whether reinvested or
received in cash unless you are exempt from taxation or
entitled to a tax deferral. Dividends and other
distributions on both classes of Fund shares are
calculated at the same time and in the same manner.
Dividends on Institutional class shares are expected to
be higher than those on the Retail class because of the
higher expenses resulting from the distribution and
sales charges borne by the Retail class shares.
Distributions paid by the Trust, on behalf of the
Fund's Retail class, from net realized long-term
capital gains, whether received in cash or reinvested
in additional shares, are taxable as such. The capital
gain holding period is determined by the length of time
the Fund has held the security and not the length of
time you have held shares in the Retail class.
Investors are informed annually as to the amount and
nature of all dividends and capital gains paid during
the prior year. Such gains and dividends may also be
subject to state or local taxes. If you are not
required to pay taxes on your income, you will not be
required to pay federal income taxes on the amounts
distributed to you.
Dividends are usually paid, and capital gains, if
any, are usually distributed annually in December.
When a dividend or capital gain is distributed, the
Retail class' net asset value will decrease by the
amount of the payment. A dividend paid shortly after
the purchase of Retail shares will reduce the net asset
value of the shares purchased by the amount of the
dividend. All dividends or capital gains distributions
paid on the Retail class shares will automatically be
reinvested in additional shares of the Retail class at
the then prevailing net asset value unless an investor
specifically requests that either dividends or capital
gains or both be paid in cash. The election to receive
dividends or reinvest them may be changed by writing to
the Fund at P.O. Box 701, Milwaukee, Wisconsin 53201-
0701. Such notice must be received at least 10 days
prior to the record date of any dividend or capital
gain distribution.
If you do not furnish the Fund with your correct
social security number or taxpayer identification
number, the Fund is required by federal law to withhold
federal income tax at a rate of 31% from your
distributions and redemption proceeds. If you do not
have a social security number, you should indicate on
the purchase application that an application to obtain
a number is pending. The Fund will withhold taxes if a
number is not delivered to the Fund within 7 days.
This section is not intended to be a full
discussion of federal income tax laws and the effect of
such laws on you. There may be other federal, state,
or local tax considerations applicable to a particular
investor. You are urged to consult your own tax
advisor.
FUND ORGANIZATION
The Trust was organized as a Delaware business
trust under Delaware law by Certificate of Trust on
July 31, 1996. The Board of Trustees is authorized to
issue an unlimited number of shares of beneficial
interest in separate series, par value $0.001 per
share, and to create classes of shares within each
series. Currently the Fund is the only series of the
Trust. Shares of the Institutional class are offered
to investors subject to a $100,000 minimum initial
investment. Each class of shares represent interests
in the assets of the Fund and have identical voting,
dividend, liquidation and other rights on the same
terms and conditions, except that the distribution fees
related to the Retail class shares are borne solely by
that class. If the Trust issues additional series, the
assets belonging to each series of shares will be held
separately by the Custodian, and in effect each series
will be a separate fund.
Each share, irrespective of series or class, is
entitled to one vote on all questions, except that
certain matters must be voted on separately by the
series or class of shares affected, and matters
affecting only one series or class are voted upon only
by that series or class. All shares have non-
cumulative voting rights, which means that the holders
of more than 50% of the shares voting for the election
of Trustees can elect all of the Trustees if they
choose to do so, and in such event, the holders of the
remaining shares will not be able to elect any person
or persons to the Board of Trustees.
<PAGE>
The Trust will not hold annual shareholders'
meetings except when required by the Investment Company
Act of 1940. There will normally be no meetings of
shareholders for the purpose of electing Trustees
unless and until such time as less than a majority of
the Trustees holding office have been elected by the
shareholders, at which time the Trustees then in office
will call a shareholders' meeting for the election of
Trustees. The Trust has adopted procedures in its
Bylaws for the removal of Trustees by the shareholders.
As of January 30, 1998, Mr. Cruice owned a controlling
interest in the Fund.
ADMINISTRATOR
Pursuant to the Fund Administration Servicing
Agreement, Firstar Trust Company (the "Administrator"),
Mutual Fund Services, Third Floor, 615 East Michigan
Street, Milwaukee, Wisconsin 53202, prepares and files
all federal and state tax returns, oversees the Fund's
insurance relationships, participates in the
preparation of the registration statement, proxy
statements and reports, prepares compliance filings
relating to the registration of the securities of the
Retail class pursuant to state securities laws,
compiles data for and prepares notices to the SEC,
prepares the financial statements for the annual and
semi-annual reports to the SEC and current investors,
monitors the Retail class' expense accruals and
performs securities valuations, monitors the Trust's
status as a registered investment company under
Subchapter M of the Internal Revenue Code and monitors
compliance with the Fund's investment policies and
restrictions, from time to time, and generally assists
in the Fund's administrative operations. The
Administrator, at its own expense and without
reimbursement from the Fund, furnishes office space and
all necessary office facilities, equipment, supplies
and clerical and executive personnel for performing the
services required to be performed by it under the Fund
Administration Servicing Agreement. For the foregoing
services, the Administrator receives from the Fund a
fee, computed daily and payable monthly based on the
Fund's average net assets at the annual rate of .06 of
1% on the Fund's average net assets, subject to an
annual minimum of $50,000, plus out-of-pocket expenses.
CUSTODIAN, TRANSFER AGENT, AND FUND ACCOUNTANT
Firstar Trust Company, Mutual Fund Services, Third
Floor, 615 East Michigan Street, Milwaukee, Wisconsin
53202, acts as custodian of the Fund's assets and as
dividend-disbursing, transfer agent, and fund
accountant for the Fund.
DISTRIBUTOR
AmeriPrime Financial Securities, Inc. (the
"Distributor"), 1793 Kingswood Drive, Suite 200,
Southlake, Texas 76092, serves as the principal
underwriter to distribute the Fund's shares. Pursuant
to an Underwriting Agreement with the Fund, the
Distributor will be paid an annual fee of $18,000.
Pursuant to the Distribution Plan adopted by the Retail
class pursuant to Rule 12b-1 (the "Plan"), certain
distribution and shareholder servicing fees may be paid
to the Distributor. Under the Plan, the Retail class
may be required to pay the Distributor distribution and
shareholder servicing fees for the promotion and
distribution of shares and for personal services
provided to shareholders of up to 0.25% annually of the
Retail class' average daily net assets. The
Distributor is authorized to, in turn, pay all or a
portion of these fees to any registered securities
dealer, financial institution or other person
("Recipient") who renders assistance in distributing or
promoting the sale of Retail class shares, or who
provides certain shareholder services to Fund
shareholders, pursuant to a written agreement (the
"Related Agreement"). To the extent such fee is not
paid to such persons, the Distributor may use the fee
for its own distribution expenses incurred in
connection with the sale of Fund shares, or for any of
its shareholder servicing expenses.
Payment of the distribution and servicing fees is
to be made quarterly, within 30 days after the close of
the quarter for which the fee is payable, after the
Distributor forwards to the Board of Trustees a written
report of all amounts expensed pursuant to the Plan;
provided, however, that the aggregate payments by the
Retail class under the Plan to the Distributor and all
Recipients currently may not exceed 0.25% of the Retail
class' average net assets for the quarter; and provided
further that no fee may be paid in excess of the
distribution expenses as set forth in the quarterly
written report. Thus, the Plan does not provide for
the payment of distribution fees in subsequent periods
that relate to expenses incurred in prior periods.
The Plan, including a form of the Related
Agreement, has been approved by a majority of the Board
of Trustees, and of the Disinterested Trustees voting
separately.
<PAGE>
The Plan, and any Related Agreement which is
entered into, will continue in effect for a period of
more than one year only so long as its continuance is
specifically approved at least annually by a vote of a
majority of the Fund's Board of Trustees, and of the
Disinterested Trustees, cast in person at a meeting
called for the purpose of voting on the Plan, or the
Related Agreement, as applicable. In addition, the
Plan, and any Related Agreement, may be terminated at
any time, without penalty, by vote of a majority of the
outstanding securities of the Retail class, or by vote
of a majority of Disinterested Trustees, on not more
than sixty (60) days' written notice.
COMPARISON OF INVESTMENT RESULTS
The Retail class may from time to time compare its
investment results to various passive indices or other
mutual funds and cite such comparisons in reports to
shareholders, sales literature, and advertisements.
The results may be calculated on the basis of average
annual total return, total return, or cumulative total
return.
Average annual total return and total return
figures assume the reinvestment of all dividends and
measure the net investment income generated by, and the
effect of, any realized and unrealized appreciation or
depreciation of the underlying investments in the
Retail class over a specified period of time. Average
annual total return figures are annualized and
therefore represent the average annual percentage
change over the specified period. Total return figures
are not annualized and represent the aggregate
percentage or dollar value change over the period.
Cumulative total return simply reflects the Retail
class' performance over a stated period of time.
Average annual total return, total return and
cumulative total return are based upon the historical
results of the Retail class and are not necessarily
representative of the future performance of the Retail
class. Additional information concerning the Retail
class' performance appears in the Statement of
Additional Information.
The Fund reserves the right to change any of
its policies, practices and procedures
described in this Prospectus, including the
Statement of Additional Information, without
shareholder approval except in those
instances where shareholder approval is
expressly required.
<PAGE>
TRUSTEES
Mr. Charles Cruice
Mr. Richard Gould
Dr. Peter Utsinger
Mr. Richard Vague
Mr. Robert Harrison
OFFICERS
Mr. Charles Cruice, President
Mr. Richard Gould, Treasurer
Mr. Jeffrey Rugen, Secretary
INVESTMENT ADVISOR
Greenville Capital Management, Inc.
100 South Rockland Falls Road
Rockland, DE 19732
CUSTODIAN, ADMINISTRATOR, TRANSFER AGENT
AND DIVIDEND-DISBURSING AGENT
Firstar Trust Company
Mutual Fund Services
Third Floor
615 East Michigan Street
Milwaukee, WI 53202
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP
777 E. Wisconsin Avenue
Milwaukee, WI 53202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 N. Water Street
Milwaukee, WI 53202
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
The Rockland Growth Fund
a series of
The Rockland Funds Trust
sponsored by
Greenville Capital Management, Inc.
P. O. Box 701
Milwaukee, Wisconsin 53201-0701
1-800-497-3933
This Statement of Additional Information is not a
prospectus and should be read in conjunction with a
Retail or Institutional class Prospectus of The
Rockland Growth Fund (the "Fund"), a series of The
Rockland Funds Trust (the "Trust") dated February 20,
1998. Requests for copies of either Prospectus should
be made by writing to the Fund at the address listed
above or by calling 1-800-497-3933.
This Statement of Additional Information is dated
February 20, 1998.
<PAGE>
THE ROCKLAND GROWTH FUND
TABLE OF CONTENTS
Page No.
INVESTMENT RESTRICTIONS 4
INVESTMENT POLICIES AND TECHNIQUES 5
ILLIQUID SECURITIES 5
SHORT-TERM FIXED INCOME SECURITIES 6
HEDGING STRATEGIES 7
GENERAL DESCRIPTION OF HEDGING STRATEGIES 7
GENERAL LIMITATIONS ON FUTURES AND OPTION 7
TRANSACTIONS 7
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS 8
PURCHASING PUT AND CALL OPTIONS 8
STOCK INDEX OPTIONS 10
SHORT SALES AND WRITING COVERED CALL AND PUT
OPTIONS 11
CERTAIN CONSIDERATIONS REGARDING OPTIONS 12
FEDERAL TAX TREATMENT OF OPTIONS 12
FUTURES CONTRACTS 12
OPTIONS ON FUTURES 14
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS 15
WARRANTS 16
WHEN-ISSUED SECURITIES 16
REPURCHASE OBLIGATIONS 16
TRUSTEES AND OFFICERS OF THE TRUST 17
PRINCIPAL SHAREHOLDERS 18
INVESTMENT ADVISOR 18
UNDERWRITER 19
DISTRIBUTION PLAN 19
DESCRIPTION OF PLAN 19
ANTICIPATED BENEFITS TO THE RETAIL CLASS 20
PORTFOLIO TRANSACTIONS AND BROKERAGE 20
CUSTODIAN 21
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT 22
TAXES 22
DETERMINATION OF NET ASSET VALUE 22
SHAREHOLDER MEETINGS 22
<PAGE>
PERFORMANCE INFORMATION 23
INDEPENDENT ACCOUNTANTS 25
FINANCIAL STATEMENTS 25
APPENDIX A-1
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS STATEMENT OF ADDITIONAL
INFORMATION AND EACH PROSPECTUS DATED FEBRUARY 20,
1998, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND.
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT
CONSTITUTE AN OFFER TO SELL SECURITIES.
<PAGE>
INVESTMENT RESTRICTIONS
THE INVESTMENT OBJECTIVE OF THE ROCKLAND GROWTH
FUND (THE "FUND") IS TO SEEK CAPITAL APPRECIATION. THE
FUND'S INVESTMENT OBJECTIVE AND POLICIES ARE DESCRIBED
IN DETAIL IN THE PROSPECTUSES FOR ITS TWO CLASSES OF
SHARES UNDER THE CAPTION "INVESTMENT OBJECTIVE AND
POLICIES." THE FOLLOWING IS A COMPLETE LIST OF THE
FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS WHICH CANNOT
BE CHANGED WITHOUT SHAREHOLDER APPROVAL.
THE FUND MAY NOT:
1. WITH RESPECT TO 75% OF ITS TOTAL ASSETS,
PURCHASE SECURITIES OF ANY ISSUER (EXCEPT
SECURITIES OF THE U.S. GOVERNMENT OR ANY AGENCY OR
INSTRUMENTALITY THEREOF) IF, AS A RESULT, (I) MORE
THAN 5% OF THE FUND'S TOTAL ASSETS WOULD BE
INVESTED IN THE SECURITIES OF THAT ISSUER, OR (II)
THE FUND WOULD HOLD MORE THAN 10% OF THE
OUTSTANDING VOTING SECURITIES OF THAT ISSUER.
2. BORROW MONEY, EXCEPT THAT THE FUND MAY
(I) BORROW MONEY FROM BANKS FOR TEMPORARY OR
EMERGENCY PURPOSES (BUT NOT FOR LEVERAGE OR THE
PURCHASE OF INVESTMENTS) AND (II) MAKE OTHER
INVESTMENTS OR ENGAGE IN OTHER TRANSACTIONS
PERMISSIBLE UNDER THE INVESTMENT COMPANY ACT OF
1940 WHICH MAY INVOLVE A BORROWING, PROVIDED THAT
THE COMBINATION OF (I) AND (II) SHALL NOT EXCEED
33 1/3% OF THE VALUE OF THE FUND'S TOTAL ASSETS
(INCLUDING THE AMOUNT BORROWED), LESS THE FUND'S
LIABILITIES (OTHER THAN BORROWINGS).
3. ACT AS AN UNDERWRITER OF ANOTHER ISSUER'S
SECURITIES, EXCEPT TO THE EXTENT THAT THE FUND MAY
BE DEEMED TO BE AN UNDERWRITER WITHIN THE MEANING
OF THE SECURITIES ACT OF 1933 IN CONNECTION WITH
THE PURCHASE AND SALE OF PORTFOLIO SECURITIES.
4. MAKE LOANS TO OTHER PERSONS, EXCEPT
THROUGH (I) THE PURCHASE OF INVESTMENTS
PERMISSIBLE UNDER THE FUND'S INVESTMENT POLICIES,
(II) REPURCHASE AGREEMENTS, OR (III) THE LENDING
OF PORTFOLIO SECURITIES, PROVIDED THAT NO SUCH
LOAN OF PORTFOLIO SECURITIES MAY BE MADE BY THE
FUND IF, AS A RESULT, THE AGGREGATE OF SUCH LOANS
WOULD EXCEED 33 1/3% OF THE VALUE OF THE FUND'S
TOTAL ASSETS.
5. PURCHASE OR SELL PHYSICAL COMMODITIES
UNLESS ACQUIRED AS A RESULT OF OWNERSHIP OF
SECURITIES OR OTHER INSTRUMENTS (BUT THIS SHALL
NOT PREVENT THE FUND FROM PURCHASING OR SELLING
OPTIONS, FUTURES CONTRACTS, OR OTHER DERIVATIVE
INSTRUMENTS, OR FROM INVESTING IN SECURITIES OR
OTHER INSTRUMENTS BACKED BY PHYSICAL COMMODITIES).
6. PURCHASE OR SELL REAL ESTATE UNLESS
ACQUIRED AS A RESULT OF OWNERSHIP OF SECURITIES OR
OTHER INSTRUMENTS (BUT THIS SHALL NOT PROHIBIT THE
FUND FROM PURCHASING OR SELLING SECURITIES OR
OTHER INSTRUMENTS BACKED BY REAL ESTATE OR OF
ISSUERS ENGAGED IN REAL ESTATE ACTIVITIES).
7. ISSUE SENIOR SECURITIES, EXCEPT AS
PERMITTED UNDER THE INVESTMENT COMPANY ACT OF
1940.
8. PURCHASE THE SECURITIES OF ANY ISSUER IF,
AS A RESULT, MORE THAN 25% OF THE FUND'S TOTAL
ASSETS WOULD BE INVESTED IN THE SECURITIES OF
ISSUERS WHOSE PRINCIPAL BUSINESS ACTIVITIES ARE IN
THE SAME INDUSTRY.
WITH THE EXCEPTION OF THE INVESTMENT RESTRICTION
SET OUT IN ITEM 2 ABOVE, IF A PERCENTAGE RESTRICTION IS
ADHERED TO AT THE TIME OF INVESTMENT, A LATER INCREASE
IN PERCENTAGE RESULTING FROM A CHANGE IN MARKET VALUE
OF THE INVESTMENT OR THE TOTAL ASSETS WILL NOT
CONSTITUTE A VIOLATION OF THAT RESTRICTION.
THE FOLLOWING INVESTMENT LIMITATIONS MAY BE
CHANGED BY THE TRUST'S BOARD OF TRUSTEES WITHOUT
SHAREHOLDER APPROVAL.
THE FUND MAY NOT:
1. SELL MORE THAN 25% OF THE FUND'S ASSETS
SHORT, UNLESS THE FUND OWNS OR HAS THE RIGHT TO
OBTAIN SECURITIES EQUIVALENT IN KIND AND AMOUNT TO
THE SECURITIES SOLD SHORT, AND PROVIDED THAT
TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS,
OPTIONS ON FUTURES CONTRACTS, OR OTHER DERIVATIVE
INSTRUMENTS ARE NOT DEEMED TO CONSTITUTE SELLING
SECURITIES SHORT.
2. PURCHASE SECURITIES ON MARGIN, EXCEPT
THAT THE FUND MAY OBTAIN SUCH SHORT-TERM CREDITS
AS ARE NECESSARY FOR THE CLEARANCE OF
TRANSACTIONS; AND PROVIDED THAT MARGIN DEPOSITS IN
CONNECTION WITH FUTURES
<PAGE>
CONTRACTS, OPTIONS ON
FUTURES CONTRACTS, OR OTHER DERIVATIVE INSTRUMENTS
SHALL NOT CONSTITUTE PURCHASING SECURITIES ON
MARGIN.
3. PLEDGE, MORTGAGE OR HYPOTHECATE ANY
ASSETS OWNED BY THE FUND EXCEPT AS MAY BE
NECESSARY IN CONNECTION WITH PERMISSIBLE
BORROWINGS OR INVESTMENTS AND THEN SUCH PLEDGING,
MORTGAGING, OR HYPOTHECATING MAY NOT EXCEED 33
1/3% OF THE FUND'S TOTAL ASSETS AT THE TIME OF THE
BORROWING OR INVESTMENT.
4. INVEST IN ILLIQUID SECURITIES IF, AS A
RESULT OF SUCH INVESTMENT, MORE THAN 10% OF THE
FUND'S NET ASSETS WOULD BE INVESTED IN ILLIQUID
SECURITIES.
5. PURCHASE SECURITIES OF OPEN-END OR CLOSED-
END INVESTMENT COMPANIES EXCEPT IN COMPLIANCE WITH
THE INVESTMENT COMPANY ACT OF 1940 AND APPLICABLE
STATE LAW.
6. ENTER INTO FUTURES CONTRACTS OR RELATED
OPTIONS IF MORE THAN 50% OF THE FUND'S NET ASSETS
WOULD BE REPRESENTED BY FUTURES CONTRACTS OR MORE
THAN 5% OF THE FUND'S NET ASSETS WOULD BE
COMMITTED TO INITIAL MARGIN DEPOSITS AND PREMIUMS
ON FUTURES CONTRACTS AND RELATED OPTIONS.
7. INVEST IN DIRECT INTERESTS IN OIL, GAS OR
OTHER MINERAL EXPLORATION PROGRAMS OR LEASES;
HOWEVER, THE FUND MAY INVEST IN THE SECURITIES OF
ISSUERS THAT ENGAGE IN THESE ACTIVITIES.
8. PURCHASE SECURITIES WHEN BORROWINGS
EXCEED 5% OF ITS TOTAL ASSETS.
INVESTMENT POLICIES AND TECHNIQUES
THE FOLLOWING INFORMATION SUPPLEMENTS THE
DISCUSSION OF THE FUND'S INVESTMENT OBJECTIVE,
POLICIES, AND TECHNIQUES THAT ARE DESCRIBED IN THE
PROSPECTUSES UNDER THE CAPTIONS "INVESTMENT OBJECTIVE
AND POLICIES" AND "INVESTMENT TECHNIQUES AND RISKS."
ILLIQUID SECURITIES
THE FUND MAY INVEST UP TO 10% OF ITS NET ASSETS IN
ILLIQUID SECURITIES (I.E., SECURITIES THAT ARE NOT
READILY MARKETABLE). FOR PURPOSES OF THIS RESTRICTION,
ILLIQUID SECURITIES INCLUDE RESTRICTED SECURITIES
(SECURITIES THE DISPOSITION OF WHICH IS RESTRICTED
UNDER THE FEDERAL SECURITIES LAWS). THE BOARD OF
TRUSTEES OR ITS DELEGATE HAS THE ULTIMATE AUTHORITY TO
DETERMINE, TO THE EXTENT PERMISSIBLE UNDER THE FEDERAL
SECURITIES LAWS, WHICH SECURITIES ARE LIQUID OR
ILLIQUID FOR PURPOSES OF THIS 10% LIMITATION. CERTAIN
SECURITIES EXEMPT FROM REGISTRATION OR ISSUED IN
TRANSACTIONS EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), INCLUDING SECURITIES THAT MAY BE RESOLD PURSUANT
TO RULE 144A UNDER THE SECURITIES ACT, MAY BE
CONSIDERED LIQUID. THE BOARD OF TRUSTEES OF THE TRUST
HAS DELEGATED TO GREENVILLE CAPITAL MANAGEMENT, INC.
("GCM") THE DAY-TO-DAY DETERMINATION OF THE LIQUIDITY
OF ANY RULE 144A SECURITY, ALTHOUGH IT HAS RETAINED
OVERSIGHT AND ULTIMATE RESPONSIBILITY FOR SUCH
DETERMINATIONS. ALTHOUGH NO DEFINITIVE LIQUIDITY
CRITERIA ARE USED, THE BOARD OF TRUSTEES HAS DIRECTED
GCM TO LOOK TO SUCH FACTORS AS (I) THE NATURE OF THE
MARKET FOR A SECURITY (INCLUDING THE INSTITUTIONAL
PRIVATE RESALE MARKET), (II) THE TERMS OF CERTAIN
SECURITIES OR OTHER INSTRUMENTS ALLOWING FOR THE
DISPOSITION TO A THIRD PARTY OR THE ISSUER THEREOF
(E.G., CERTAIN REPURCHASE OBLIGATIONS AND DEMAND
INSTRUMENTS), (III) THE AVAILABILITY OF MARKET
QUOTATIONS (E.G., FOR SECURITIES QUOTED IN THE PORTAL
SYSTEM), AND (IV) OTHER PERMISSIBLE RELEVANT FACTORS.
RESTRICTED SECURITIES MAY BE SOLD ONLY IN
PRIVATELY NEGOTIATED TRANSACTIONS OR IN A PUBLIC
OFFERING WITH RESPECT TO WHICH A REGISTRATION STATEMENT
IS IN EFFECT UNDER THE SECURITIES ACT. WHERE
REGISTRATION IS REQUIRED, THE FUND MAY BE OBLIGATED TO
PAY ALL OR PART OF THE REGISTRATION EXPENSES AND A
CONSIDERABLE PERIOD MAY ELAPSE BETWEEN THE TIME OF THE
DECISION TO SELL AND THE TIME THE FUND MAY BE PERMITTED
TO SELL A SECURITY UNDER AN EFFECTIVE REGISTRATION
STATEMENT. IF, DURING SUCH A PERIOD, ADVERSE MARKET
CONDITIONS WERE TO DEVELOP, THE FUND MIGHT OBTAIN A
LESS FAVORABLE PRICE THAN PREVAILED WHEN IT DECIDED TO
SELL. RESTRICTED SECURITIES WILL BE PRICED AT FAIR
VALUE AS DETERMINED IN GOOD FAITH BY THE BOARD OF
TRUSTEES OF THE TRUST. IF THROUGH THE APPRECIATION OF
RESTRICTED SECURITIES OR THE DEPRECIATION OF
UNRESTRICTED SECURITIES, THE FUND SHOULD BE IN A
POSITION WHERE MORE THAN 10% OF THE VALUE OF ITS NET
ASSETS ARE INVESTED IN ILLIQUID SECURITIES, INCLUDING
RESTRICTED SECURITIES WHICH ARE NOT READILY MARKETABLE,
THE FUND WILL TAKE SUCH STEPS AS IS DEEMED ADVISABLE,
IF ANY, TO PROTECT LIQUIDITY.
<PAGE>
SHORT-TERM FIXED INCOME SECURITIES
THE FUND MAY INVEST UP TO 100% OF ITS ASSETS IN
SHORT-TERM FIXED INCOME SECURITIES, INCLUDING WITHOUT
LIMITATION, THE FOLLOWING:
1. U.S. GOVERNMENT SECURITIES, INCLUDING
BILLS, NOTES AND BONDS DIFFERING AS TO MATURITY
AND RATES OF INTEREST, WHICH ARE EITHER ISSUED OR
GUARANTEED BY THE U.S. TREASURY OR BY U.S.
GOVERNMENT AGENCIES OR INSTRUMENTALITIES. U.S.
GOVERNMENT AGENCY SECURITIES INCLUDE SECURITIES
ISSUED BY (A) THE FEDERAL HOUSING ADMINISTRATION,
FARMERS HOME ADMINISTRATION, EXPORT-IMPORT BANK OF
THE UNITED STATES, SMALL BUSINESS ADMINISTRATION,
AND THE GOVERNMENT NATIONAL MORTGAGE ASSOCIATION,
WHOSE SECURITIES ARE SUPPORTED BY THE FULL FAITH
AND CREDIT OF THE UNITED STATES; (B) THE FEDERAL
HOME LOAN BANKS, FEDERAL INTERMEDIATE CREDIT
BANKS, AND THE TENNESSEE VALLEY AUTHORITY, WHOSE
SECURITIES ARE SUPPORTED BY THE RIGHT OF THE
AGENCY TO BORROW FROM THE U.S. TREASURY; (C) THE
FEDERAL NATIONAL MORTGAGE ASSOCIATION, WHOSE
SECURITIES ARE SUPPORTED BY THE DISCRETIONARY
AUTHORITY OF THE U.S. GOVERNMENT TO PURCHASE
CERTAIN OBLIGATIONS OF THE AGENCY OR
INSTRUMENTALITY; AND (D) THE STUDENT LOAN
MARKETING ASSOCIATION, THE INTER-AMERICAN
DEVELOPMENT BANK, AND THE INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT, WHOSE SECURITIES
ARE SUPPORTED ONLY BY THE CREDIT OF SUCH AGENCIES.
WHILE THE U.S. GOVERNMENT PROVIDES FINANCIAL
SUPPORT TO SUCH U.S. GOVERNMENT-SPONSORED AGENCIES
OR INSTRUMENTALITIES, NO ASSURANCE CAN BE GIVEN
THAT IT ALWAYS WILL DO SO SINCE IT IS NOT SO
OBLIGATED BY LAW. THE U.S. GOVERNMENT, ITS
AGENCIES, AND INSTRUMENTALITIES DO NOT GUARANTEE
THE MARKET VALUE OF THEIR SECURITIES, AND
CONSEQUENTLY, THE VALUE OF SUCH SECURITIES MAY
FLUCTUATE.
2. CERTIFICATES OF DEPOSIT ISSUED AGAINST
FUNDS DEPOSITED IN A BANK OR SAVINGS AND LOAN
ASSOCIATION. SUCH CERTIFICATES ARE FOR A DEFINITE
PERIOD OF TIME, EARN A SPECIFIED RATE OF RETURN,
AND ARE NORMALLY NEGOTIABLE. IF SUCH CERTIFICATES
OF DEPOSIT ARE NON-NEGOTIABLE, THEY WILL BE
CONSIDERED ILLIQUID SECURITIES AND BE SUBJECT TO
THE FUND'S 10% RESTRICTION ON INVESTMENTS IN
ILLIQUID SECURITIES. PURSUANT TO THE CERTIFICATE
OF DEPOSIT, THE ISSUER AGREES TO PAY THE AMOUNT
DEPOSITED PLUS INTEREST TO THE BEARER OF THE
CERTIFICATE ON THE DATE SPECIFIED THEREON. UNDER
CURRENT FDIC REGULATIONS, THE MAXIMUM INSURANCE
PAYABLE AS TO ANY ONE CERTIFICATE OF DEPOSIT IS
$100,000; THEREFORE, CERTIFICATES OF DEPOSIT
PURCHASED BY THE FUND WILL NOT GENERALLY BE FULLY
INSURED.
3. BANKERS' ACCEPTANCES WHICH ARE SHORT-TERM
CREDIT INSTRUMENTS USED TO FINANCE COMMERCIAL
TRANSACTIONS. GENERALLY, AN ACCEPTANCE IS A TIME
DRAFT DRAWN ON A BANK BY AN EXPORTER OR AN
IMPORTER TO OBTAIN A STATED AMOUNT OF FUNDS TO PAY
FOR SPECIFIC MERCHANDISE. THE DRAFT IS THEN
"ACCEPTED" BY A BANK THAT, IN EFFECT,
UNCONDITIONALLY GUARANTEES TO PAY THE FACE VALUE
OF THE INSTRUMENT ON ITS MATURITY DATE. THE
ACCEPTANCE MAY THEN BE HELD BY THE ACCEPTING BANK
AS AN ASSET OR IT MAY BE SOLD IN THE SECONDARY
MARKET AT THE GOING RATE OF INTEREST FOR A
SPECIFIC MATURITY.
4. REPURCHASE AGREEMENTS WHICH INVOLVE
PURCHASES OF DEBT SECURITIES. IN SUCH A
TRANSACTION, AT THE TIME THE FUND PURCHASES THE
SECURITY, IT SIMULTANEOUSLY AGREES TO RESELL AND
REDELIVER THE SECURITY TO THE SELLER, WHO ALSO
SIMULTANEOUSLY AGREES TO BUY BACK THE SECURITY AT
A FIXED PRICE AND TIME. THIS ASSURES A
PREDETERMINED YIELD FOR THE FUND DURING ITS
HOLDING PERIOD SINCE THE RESALE PRICE IS ALWAYS
GREATER THAN THE PURCHASE PRICE AND REFLECTS AN
AGREED-UPON MARKET RATE. SUCH TRANSACTIONS AFFORD
AN OPPORTUNITY FOR THE FUND TO INVEST TEMPORARILY
AVAILABLE CASH. THE FUND MAY ENTER INTO
REPURCHASE AGREEMENTS ONLY WITH RESPECT TO
OBLIGATIONS OF THE U.S. GOVERNMENT, ITS AGENCIES
OR INSTRUMENTALITIES; CERTIFICATES OF DEPOSIT; OR
BANKERS ACCEPTANCES IN WHICH THE FUND MAY INVEST.
REPURCHASE AGREEMENTS MAY BE CONSIDERED LOANS TO
THE SELLER, COLLATERALIZED BY THE UNDERLYING
SECURITIES. THE RISK TO THE FUND IS LIMITED TO
THE ABILITY OF THE SELLER TO PAY THE AGREED-UPON
SUM ON THE REPURCHASE DATE; IN THE EVENT OF
DEFAULT, THE REPURCHASE AGREEMENT PROVIDES THAT
THE FUND IS ENTITLED TO SELL THE UNDERLYING
COLLATERAL. IF THE VALUE OF THE COLLATERAL
DECLINES AFTER THE AGREEMENT IS ENTERED INTO,
HOWEVER, AND IF THE SELLER DEFAULTS UNDER A
REPURCHASE AGREEMENT WHEN THE VALUE OF THE
UNDERLYING COLLATERAL IS LESS THAN THE REPURCHASE
PRICE, THE FUND COULD INCUR A LOSS OF BOTH
PRINCIPAL AND INTEREST. GCM MONITORS THE VALUE OF
THE COLLATERAL AT THE TIME THE TRANSACTION IS
ENTERED INTO AND AT ALL TIMES DURING THE TERM OF
THE REPURCHASE AGREEMENT. GCM DOES SO IN AN
EFFORT TO DETERMINE THAT THE VALUE OF THE
COLLATERAL ALWAYS EQUALS OR EXCEEDS THE AGREED-
UPON REPURCHASE PRICE TO BE PAID TO THE FUND. IF
THE SELLER WERE TO BE SUBJECT TO A FEDERAL
BANKRUPTCY PROCEEDING, THE ABILITY OF THE FUND TO
LIQUIDATE THE COLLATERAL COULD BE DELAYED OR
IMPAIRED BECAUSE OF CERTAIN PROVISIONS OF THE
BANKRUPTCY LAWS.
5. BANK TIME DEPOSITS, WHICH ARE MONIES KEPT
ON DEPOSIT WITH BANKS OR SAVINGS AND LOAN
ASSOCIATIONS FOR A STATED PERIOD OF TIME AT A
FIXED RATE OF INTEREST. THERE MAY BE PENALTIES
FOR THE EARLY WITHDRAWAL OF SUCH TIME DEPOSITS, IN
WHICH CASE THE YIELDS OF THESE INVESTMENTS WILL BE
REDUCED.
<PAGE>
6. COMMERCIAL PAPER, WHICH ARE SHORT-TERM
UNSECURED PROMISSORY NOTES, INCLUDING VARIABLE
RATE MASTER DEMAND NOTES ISSUED BY CORPORATIONS TO
FINANCE THEIR CURRENT OPERATIONS. MASTER DEMAND
NOTES ARE DIRECT LENDING ARRANGEMENTS BETWEEN THE
FUND AND THE CORPORATION. THERE IS NO SECONDARY
MARKET FOR THE NOTES. HOWEVER, THEY ARE
REDEEMABLE BY THE FUND AT ANY TIME. GCM WILL
CONSIDER THE FINANCIAL CONDITION OF THE
CORPORATION (E.G., EARNING POWER, CASH FLOW, AND
OTHER LIQUIDITY RATIOS) AND WILL CONTINUOUSLY
MONITOR THE CORPORATION'S ABILITY TO MEET ALL OF
ITS FINANCIAL OBLIGATIONS, BECAUSE THE FUND'S
LIQUIDITY MIGHT BE IMPAIRED IF THE CORPORATION
WERE UNABLE TO PAY PRINCIPAL AND INTEREST ON
DEMAND. INVESTMENTS IN COMMERCIAL PAPER WILL BE
LIMITED TO COMMERCIAL PAPER RATED IN THE TWO
HIGHEST CATEGORIES BY A MAJOR RATING AGENCY OR
UNRATED COMMERCIAL PAPER WHICH IS, IN THE OPINION
OF GCM, OF COMPARABLE QUALITY.
HEDGING STRATEGIES
GENERAL DESCRIPTION OF HEDGING STRATEGIES
THE FUND MAY ENGAGE IN HEDGING ACTIVITIES IN THE
FUTURE WITHOUT OBTAINING SHAREHOLDER APPROVAL. GCM MAY
CAUSE THE FUND TO UTILIZE A VARIETY OF FINANCIAL
INSTRUMENTS, INCLUDING OPTIONS, FUTURES CONTRACTS
(SOMETIMES REFERRED TO AS "FUTURES") AND OPTIONS ON
FUTURES CONTRACTS TO ATTEMPT TO HEDGE THE FUND'S
PORTFOLIO.
HEDGING INSTRUMENTS ON SECURITIES GENERALLY ARE
USED TO HEDGE AGAINST PRICE MOVEMENTS IN ONE OR MORE
PARTICULAR SECURITIES POSITIONS THAT THE FUND OWNS OR
INTENDS TO ACQUIRE. HEDGING INSTRUMENTS ON STOCK
INDICES, IN CONTRAST, GENERALLY ARE USED TO HEDGE
AGAINST PRICE MOVEMENTS IN BROAD EQUITY MARKET SECTORS
IN WHICH THE FUND HAS INVESTED OR EXPECTS TO INVEST.
THE USE OF HEDGING INSTRUMENTS IS SUBJECT TO APPLICABLE
REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION
(THE "SEC"), THE SEVERAL OPTIONS AND FUTURES EXCHANGES
UPON WHICH THEY ARE TRADED, THE COMMODITY FUTURES
TRADING COMMISSION (THE "CFTC") AND VARIOUS STATE
REGULATORY AUTHORITIES. IN ADDITION, THE FUND'S
ABILITY TO USE HEDGING INSTRUMENTS WILL BE LIMITED BY
TAX CONSIDERATIONS.
GENERAL LIMITATIONS ON FUTURES AND OPTIONS
TRANSACTIONS
THE FUND HAS FILED A NOTICE OF ELIGIBILITY FOR
EXCLUSION FROM THE DEFINITION OF THE TERM "COMMODITY
POOL OPERATOR" WITH THE CFTC AND THE NATIONAL FUTURES
ASSOCIATION, WHICH REGULATE TRADING IN THE FUTURES
MARKETS. PURSUANT TO SECTION 4.5 OF THE REGULATIONS
UNDER THE COMMODITIES EXCHANGE ACT (THE "CEA"), THE
NOTICE OF ELIGIBILITY FOR THE FUND INCLUDES THE
FOLLOWING REPRESENTATION THAT THE FUND WILL USE FUTURES
CONTRACTS AND RELATED OPTIONS SOLELY FOR BONA FIDE
HEDGING PURPOSES WITHIN THE MEANING OF CFTC
REGULATIONS, PROVIDED THAT THE FUND MAY HOLD OTHER
POSITIONS IN FUTURES CONTRACTS AND RELATED OPTIONS THAT
DO NOT FALL WITHIN THE DEFINITION OF BONA FIDE HEDGING
TRANSACTIONS IF AGGREGATE INITIAL MARGINS AND PREMIUMS
PAID DO NOT EXCEED 5% OF THE NET ASSET VALUE OF THE
FUND. IN ADDITION, THE FUND WILL NOT ENTER INTO
FUTURES CONTRACTS AND FUTURES OPTIONS TRANSACTIONS IF
MORE THAN 50% OF ITS NET ASSETS WOULD BE COMMITTED TO
SUCH INSTRUMENTS THE FUND WILL NOT PURCHASE OR WRITE
OVER-THE-COUNTER OPTIONS.
THE FOREGOING LIMITATIONS ARE NOT FUNDAMENTAL
POLICIES OF THE FUND AND MAY BE CHANGED WITHOUT
SHAREHOLDER APPROVAL AS REGULATORY AGENCIES PERMIT.
VARIOUS EXCHANGES AND REGULATORY AUTHORITIES HAVE
UNDERTAKEN REVIEWS OF OPTIONS AND FUTURES TRADING IN
LIGHT OF MARKET VOLATILITY. AMONG THE POSSIBLE
TRANSACTIONS THAT HAVE BEEN PRESENTED ARE PROPOSALS TO
ADOPT NEW OR MORE STRINGENT DAILY PRICE FLUCTUATION
LIMITS FOR FUTURES AND OPTIONS TRANSACTIONS AND
PROPOSALS TO INCREASE THE MARGIN REQUIREMENTS FOR
VARIOUS TYPES OF FUTURES TRANSACTIONS.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS
THE FUND WILL COMPLY WITH REGULATORY REQUIREMENTS
OF THE SEC AND THE CFTC WITH RESPECT TO COVERAGE OF
OPTIONS AND FUTURES POSITIONS BY REGISTERED INVESTMENT
COMPANIES AND, IF THE GUIDELINES SO REQUIRE, WILL SET
ASIDE CASH AND/OR LIQUID ASSETS PERMITTED BY THE SEC
AND CFTC IN A SEGREGATED CUSTODIAL ACCOUNT IN THE
AMOUNT PRESCRIBED. SECURITIES HELD IN A SEGREGATED
ACCOUNT CANNOT BE SOLD WHILE THE FUTURES OR OPTIONS
POSITION IS OUTSTANDING, UNLESS REPLACED WITH OTHER
PERMISSIBLE ASSETS AND WILL BE MARKED-TO-MARKET DAILY.
<PAGE>
PURCHASING PUT AND CALL OPTIONS
PUT OPTIONS. THE FUND MAY PURCHASE PUT OPTIONS.
AS THE HOLDER OF A PUT OPTION, THE FUND WOULD HAVE THE
RIGHT TO SELL THE UNDERLYING SECURITY AT THE EXERCISE
PRICE AT ANY TIME DURING THE OPTION PERIOD. THE FUND
MAY ENTER INTO CLOSING SALE TRANSACTIONS WITH RESPECT
TO SUCH OPTIONS, EXERCISE THEM OR PERMIT THEM TO
EXPIRE. THE FUND MAY PURCHASE PUT OPTIONS FOR
DEFENSIVE PURPOSES IN ORDER TO PROTECT AGAINST AN
ANTICIPATED DECLINE IN THE VALUE OF ITS SECURITIES OR
TO PROFIT FROM A DECLINE IN THE VALUE OF SECURITIES IT
DOES NOT OWN. THIS PROTECTION IS PROVIDED ONLY DURING
THE EXERCISE PERIOD. FOR EXAMPLE, THE FUND MAY
PURCHASE A PUT OPTION TO PROTECT UNREALIZED
APPRECIATION OF A SECURITY WHERE GCM DEEMS IT DESIRABLE
TO CONTINUE TO HOLD THE SECURITY BECAUSE OF TAX
CONSIDERATIONS. THE PREMIUM PAID FOR THE PUT OPTION
AND ANY TRANSACTION COSTS WOULD REDUCE ANY CAPITAL GAIN
OTHERWISE AVAILABLE FOR DISTRIBUTION WHEN THE SECURITY
IS EVENTUALLY SOLD.
THE FUND MAY ALSO PURCHASE PUT OPTIONS AT A TIME
WHEN THE FUND DOES NOT OWN THE UNDERLYING SECURITY. BY
PURCHASING PUT OPTIONS ON A SECURITY IT DOES NOT OWN,
THE FUND SEEKS TO BENEFIT FROM A DECLINE IN THE MARKET
PRICE OF THE UNDERLYING SECURITY. IF THE PUT OPTION IS
NOT SOLD WHEN IT HAS REMAINING VALUE, AND IF THE MARKET
PRICE OF THE UNDERLYING SECURITY REMAINS EQUAL TO OR
GREATER THAN THE EXERCISE PRICE DURING THE LIFE OF THE
PUT OPTION, THE FUND WILL LOSE ITS ENTIRE INVESTMENT IN
THE PUT OPTION. IN ORDER FOR THE PURCHASE OF A PUT
OPTION TO BE PROFITABLE, THE MARKET PRICE OF THE
UNDERLYING SECURITY MUST DECLINE SUFFICIENTLY BELOW THE
EXERCISE PRICE TO COVER THE PREMIUM AND TRANSACTION
COSTS, UNLESS THE PUT OPTION IS SOLD IN A CLOSING SALE
TRANSACTION.
THE PREMIUM PAID BY THE FUND WHEN PURCHASING A PUT
OPTION WILL BE RECORDED AS AN ASSET OF THE FUND AND
WILL BE ADJUSTED DAILY TO THE OPTION'S CURRENT MARKET
VALUE, WHICH WILL BE THE LATEST SALE PRICE AT THE TIME
AT WHICH THE NET ASSET VALUE PER SHARE OF THE FUND IS
COMPUTED (CLOSE OF THE NEW YORK STOCK EXCHANGE), OR, IN
THE ABSENCE OF SUCH SALE, THE LATEST BID PRICE. THIS
ASSET WILL BE TERMINATED UPON EXERCISE, THE SELLING
(WRITING) OF AN IDENTICAL OPTION IN A CLOSING ACTION,
OR THE DELIVERY OF THE UNDERLYING SECURITY UPON THE
EXERCISE OF THE OPTION.
CALL OPTIONS. THE FUND MAY PURCHASE CALL OPTIONS.
AS THE HOLDER OF A CALL OPTION, THE FUND WOULD HAVE THE
RIGHT TO PURCHASE THE UNDERLYING SECURITY AT THE
EXERCISE PRICE AT ANY TIME DURING THE EXERCISE PERIOD.
THE FUND MAY ENTER INTO CLOSING SALE TRANSACTIONS WITH
RESPECT TO SUCH OPTIONS, EXERCISE THEM OR PERMIT THEM
TO EXPIRE. THE FUND MAY PURCHASE CALL OPTIONS FOR THE
PURPOSE OF HEDGING AGAINST A POSSIBLE INCREASE IN THE
PRICE OF SECURITIES AT A TIME WHEN THE FUND HAS A
SIGNIFICANT CASH POSITION. THE FUND MAY ALSO PURCHASE
CALL OPTIONS IN ORDER TO ACQUIRE THE UNDERLYING
SECURITIES.
THE FUND MAY PURCHASE CALL OPTIONS ON UNDERLYING
SECURITIES OWNED BY IT. A CALL OPTION MAY BE PURCHASED
WHEN TAX CONSIDERATIONS MAKE IT INADVISABLE TO REALIZE
GAINS THROUGH A CLOSING PURCHASE TRANSACTION. CALL
OPTIONS MAY ALSO BE PURCHASED AT TIMES TO AVOID
REALIZING LOSSES THAT WOULD RESULT IN A REDUCTION OF
THE FUND'S CURRENT RETURN. FOR EXAMPLE, WHERE THE FUND
HAS WRITTEN A CALL OPTION ON AN UNDERLYING SECURITY
HAVING A CURRENT MARKET VALUE BELOW THE PRICE AT WHICH
SUCH SECURITY WAS PURCHASED BY THE FUND, AN INCREASE IN
THE MARKET PRICE WOULD RESULT IN THE EXERCISE OF THE
CALL OPTION WRITTEN BY THE FUND AND THE REALIZATION OF
A LOSS ON THE UNDERLYING SECURITY WITH THE SAME
EXERCISE PRICE AND EXPIRATION DATE AS THE OPTION
PREVIOUSLY WRITTEN.
CALL OPTIONS MAY ALSO BE PURCHASED BY THE FUND FOR
THE PURPOSE OF ACQUIRING THE UNDERLYING SECURITIES FOR
ITS PORTFOLIO. UTILIZED IN THIS FASHION, THE PURCHASE
OF CALL OPTIONS ENABLES THE FUND TO ACQUIRE THE
SECURITIES AT THE EXERCISE PRICE OF THE CALL OPTION
PLUS THE PREMIUM PAID. AT TIMES THE NET COST OF
ACQUIRING SECURITIES IN THIS MANNER MAY BE LESS THAN
THE COST OF ACQUIRING SECURITIES DIRECTLY; THE NET COST
MAY ALSO EXCEED THE COST OF ACQUIRING SECURITIES
DIRECTLY. THIS TECHNIQUE MAY ALSO BE USEFUL TO THE
FUND IN PURCHASING A LARGE BLOCK OF SECURITIES THAT
WOULD BE MORE DIFFICULT TO ACQUIRE BY DIRECT MARKET
PURCHASES. SO LONG AS THE FUND HOLDS SUCH A CALL
OPTION RATHER THAN THE UNDERLYING SECURITY ITSELF THE
FUND IS PARTIALLY PROTECTED FROM ANY UNEXPECTED DECLINE
IN THE MARKET PRICE OF THE UNDERLYING SECURITY AND IN
SUCH EVENT COULD ALLOW THE CALL OPTION TO EXPIRE,
INCURRING A LOSS ONLY TO THE EXTENT OF THE PREMIUM PAID
FOR THE OPTION.
STOCK INDEX OPTIONS
THE FUND MAY (I) PURCHASE STOCK INDEX OPTIONS FOR
ANY PURPOSE, (II) SELL STOCK INDEX OPTIONS IN ORDER TO
CLOSE OUT EXISTING POSITIONS, AND/OR (III) WRITE
COVERED OPTIONS ON STOCK INDEXES FOR HEDGING PURPOSES.
STOCK INDEX OPTIONS ARE PUT OPTIONS AND CALL OPTIONS ON
VARIOUS STOCK INDEXES. IN MOST RESPECTS, THEY ARE
IDENTICAL TO LISTED OPTIONS ON COMMON STOCKS. THE
PRIMARY DIFFERENCE BETWEEN STOCK OPTIONS AND INDEX
OPTIONS OCCURS WHEN INDEX OPTIONS ARE EXERCISED. IN
THE CASE OF STOCK OPTIONS, THE UNDERLYING SECURITY,
COMMON STOCK, IS DELIVERED. HOWEVER, UPON THE EXERCISE
OF AN INDEX OPTION, SETTLEMENT DOES NOT OCCUR BY
DELIVERY OF THE SECURITIES COMPRISING THE INDEX. THE
OPTION HOLDER WHO EXERCISES THE INDEX OPTION RECEIVES
AN AMOUNT OF CASH IF THE CLOSING LEVEL OF THE STOCK
INDEX UPON WHICH THE OPTION IS BASED IS
<PAGE>
GREATER THAN,
IN THE CASE OF A CALL, OR LESS THAN, IN THE CASE OF A
PUT, THE EXERCISE PRICE OF THE OPTION. THIS AMOUNT OF
CASH IS EQUAL TO THE DIFFERENCE BETWEEN THE CLOSING
PRICE OF THE STOCK INDEX AND THE EXERCISE PRICE OF THE
OPTION EXPRESSED IN DOLLARS TIMES A SPECIFIED MULTIPLE.
A STOCK INDEX FLUCTUATES WITH CHANGES IN THE
MARKET VALUES OF THE STOCKS INCLUDED IN THE INDEX. FOR
EXAMPLE, SOME STOCK INDEX OPTIONS ARE BASED ON A BROAD
MARKET INDEX, SUCH AS THE STANDARD & POOR'S 500 OR THE
VALUE LINE COMPOSITE INDEX OR A NARROWER MARKET INDEX,
SUCH AS THE STANDARD & POOR'S 100. INDEXES MAY ALSO BE
BASED ON AN INDUSTRY OR MARKET SEGMENT, SUCH AS THE
AMEX OIL AND GAS INDEX OR THE COMPUTER AND BUSINESS
EQUIPMENT INDEX. OPTIONS ON STOCK INDEXES ARE
CURRENTLY TRADED ON THE FOLLOWING EXCHANGES: THE
CHICAGO BOARD OPTIONS EXCHANGE, THE NEW YORK STOCK
EXCHANGE, THE AMERICAN STOCK EXCHANGE, THE PACIFIC
STOCK EXCHANGE, AND THE PHILADELPHIA STOCK EXCHANGE.
THE FUND WILL SELL (WRITE) STOCK INDEX OPTIONS FOR
HEDGING PURPOSES OR IN ORDER TO CLOSE OUT POSITIONS IN
STOCK INDEX OPTIONS WHICH THE FUND HAS PURCHASED. THE
FUND MAY ONLY WRITE COVERED OPTIONS. THE FUND MAY
COVER A CALL OPTION ON A STOCK INDEX IT WRITES BY, FOR
EXAMPLE, HAVING A PORTFOLIO OF SECURITIES WHICH
APPROXIMATELY CORRELATES WITH THE STOCK INDEX.
PUT OPTIONS MAY BE PURCHASED IN ORDER TO HEDGE
AGAINST AN ANTICIPATED DECLINE IN STOCK MARKET PRICES
THAT MIGHT ADVERSELY AFFECT THE VALUE OF THE FUND'S
PORTFOLIO SECURITIES OR IN AN ATTEMPT TO CAPITALIZE ON
AN ANTICIPATED DECLINE IN STOCK MARKET PRICES. IF THE
FUND PURCHASES A PUT OPTION ON A STOCK INDEX, THE
AMOUNT OF THE PAYMENT IT RECEIVES UPON EXERCISING THE
OPTION DEPENDS ON THE EXTENT OF ANY DECLINE IN THE
LEVEL OF THE STOCK INDEX BELOW THE EXERCISE PRICE.
SUCH PAYMENTS WOULD TEND TO OFFSET A DECLINE IN THE
VALUE OF THE FUND'S PORTFOLIO SECURITIES. IF, HOWEVER,
THE LEVEL OF THE STOCK INDEX INCREASES AND REMAINS
ABOVE THE EXERCISE PRICE WHILE THE PUT OPTION IS
OUTSTANDING, THE FUND WILL NOT BE ABLE TO PROFITABLY
EXERCISE THE OPTION AND WILL LOSE THE AMOUNT OF THE
PREMIUM AND ANY TRANSACTION COSTS. SUCH LOSS MAY BE
OFFSET BY AN INCREASE IN THE VALUE OF THE FUND'S
PORTFOLIO SECURITIES.
CALL OPTIONS ON STOCK INDEXES MAY BE PURCHASED IN
ORDER TO PARTICIPATE IN AN ANTICIPATED INCREASE IN
STOCK MARKET PRICES OR TO HEDGE AGAINST HIGHER PRICES
FOR SECURITIES THAT THE FUND INTENDS TO BUY IN THE
FUTURE. IF THE FUND PURCHASES A CALL OPTION ON A STOCK
INDEX, THE AMOUNT OF THE PAYMENT IT RECEIVES UPON
EXERCISING THE OPTION DEPENDS ON THE EXTENT OF ANY
INCREASE IN THE LEVEL OF THE STOCK INDEX ABOVE THE
EXERCISE PRICE. SUCH PAYMENTS WOULD IN EFFECT ALLOW
THE FUND TO BENEFIT FROM STOCK MARKET APPRECIATION EVEN
THOUGH IT MAY NOT HAVE HAD SUFFICIENT CASH TO PURCHASE
THE UNDERLYING STOCKS. SUCH PAYMENTS MAY ALSO OFFSET
INCREASES IN THE PRICE OF STOCKS THAT THE FUND INTENDS
TO PURCHASE. IF, HOWEVER, THE LEVEL OF THE STOCK INDEX
DECLINES AND REMAINS BELOW THE EXERCISE PRICE WHILE THE
CALL OPTION IS OUTSTANDING, THE FUND WILL NOT BE ABLE
TO EXERCISE THE OPTION PROFITABLY AND WILL LOSE THE
AMOUNT OF THE PREMIUM AND TRANSACTION COSTS. SUCH LOSS
MAY BE OFFSET BY A REDUCTION IN THE PRICE THE FUND PAYS
TO BUY ADDITIONAL SECURITIES FOR ITS PORTFOLIO.
THE FUND'S USE OF STOCK INDEX OPTIONS IS SUBJECT
TO CERTAIN RISKS. SUCCESSFUL USE BY THE FUND OF
OPTIONS ON STOCK INDEXES WILL BE SUBJECT TO THE ABILITY
OF THE FUND'S INVESTMENT ADVISOR TO CORRECTLY PREDICT
MOVEMENTS IN THE DIRECTIONS OF THE STOCK MARKET. THIS
REQUIRES DIFFERENT SKILLS AND TECHNIQUES THAN
PREDICTING CHANGES IN THE PRICES OF INDIVIDUAL
SECURITIES. IN ADDITION, THE FUND'S ABILITY TO
EFFECTIVELY HEDGE ALL OR A PORTION OF THE SECURITIES IN
ITS PORTFOLIO, IN ANTICIPATION OF OR DURING A MARKET
DECLINE THROUGH TRANSACTIONS IN PUT OPTIONS ON STOCK
INDEXES, DEPENDS ON THE DEGREE TO WHICH PRICE MOVEMENTS
IN THE UNDERLYING INDEX CORRELATE WITH THE PRICE
MOVEMENTS IN THE FUND'S PORTFOLIO SECURITIES. INASMUCH
AS THE FUND'S PORTFOLIO SECURITIES WILL NOT DUPLICATE
THE COMPONENTS OF AN INDEX, THE CORRELATION WILL NOT BE
PERFECT. CONSEQUENTLY, THE FUND WILL BEAR THE RISK
THAT THE PRICES OF ITS PORTFOLIO SECURITIES BEING
HEDGED WILL NOT MOVE IN THE SAME AMOUNT AS THE PRICES
OF THE FUND'S PUT OPTIONS ON THE STOCK INDEXES. IT IS
ALSO POSSIBLE THAT THERE MAY BE A NEGATIVE CORRELATION
BETWEEN THE INDEX AND THE FUND'S PORTFOLIO SECURITIES
WHICH WOULD RESULT IN A LOSS ON BOTH SUCH PORTFOLIO
SECURITIES AND THE OPTIONS ON STOCK INDEXES ACQUIRED BY
THE FUND.
THE HOURS OF TRADING FOR OPTIONS MAY NOT CONFORM
TO THE HOURS DURING WHICH THE UNDERLYING SECURITIES ARE
TRADED. TO THE EXTENT THAT THE OPTIONS MARKETS CLOSE
BEFORE THE MARKETS FOR THE UNDERLYING SECURITIES,
SIGNIFICANT PRICE AND RATE MOVEMENTS CAN TAKE PLACE IN
THE UNDERLYING MARKETS THAT CANNOT BE REFLECTED IN THE
OPTIONS MARKETS. THE PURCHASE OF OPTIONS IS A HIGHLY
SPECIALIZED ACTIVITY WHICH INVOLVES INVESTMENT
TECHNIQUES AND RISKS DIFFERENT FROM THOSE ASSOCIATED
WITH ORDINARY PORTFOLIO SECURITIES TRANSACTIONS. THE
PURCHASE OF STOCK INDEX OPTIONS INVOLVES THE RISK THAT
THE PREMIUM AND TRANSACTION COSTS PAID BY THE FUND IN
PURCHASING AN OPTION WILL BE LOST AS A RESULT OF
UNANTICIPATED MOVEMENTS IN PRICES OF THE SECURITIES
COMPRISING THE STOCK INDEX ON WHICH THE OPTION IS
BASED.
<PAGE>
SHORT SALES AND WRITING COVERED CALL AND PUT
OPTIONS
SHORT SALES. THE FUND MAY SEEK TO REALIZE GAINS
THROUGH SHORT SALE TRANSACTIONS IN SECURITIES LISTED ON
ONE OR MORE NATIONAL SECURITIES EXCHANGES OR ON NASDAQ.
SHORT SELLING INVOLVES THE SALE OF BORROWED SECURITIES.
AT THE TIME A SHORT SALE IS EFFECTED THE FUND INCURS AN
OBLIGATION TO REPLACE THE SECURITY BORROWED AT WHATEVER
ITS PRICE MAY BE AT THE TIME THAT THE FUND PURCHASES IT
FOR DELIVERY TO THE LENDER. WHEN A SHORT SALE
TRANSACTION IS CLOSED OUT BY DELIVERY OF THE
SECURITIES, ANY GAIN OR LOSS ON THE TRANSACTION IS
TAXABLE AS A SHORT TERM CAPITAL GAIN OR LOSS. SINCE
SHORT SELLING CAN RESULT IN PROFITS WHEN STOCK PRICES
GENERALLY DECLINE, THE FUND IN THIS MANNER, CAN, TO A
CERTAIN EXTENT, HEDGE THE MARKET RISK TO THE VALUE OF
ITS OTHER INVESTMENTS AND PROTECT ITS EQUITY IN A
DECLINING MARKET. HOWEVER, THE FUND COULD, AT ANY
GIVEN TIME, SUFFER BOTH A LOSS ON THE PURCHASE OR
RETENTION OF ONE SECURITY, IF THAT SECURITY SHOULD
DECLINE IN VALUE, AND A LOSS ON A SHORT SALE OF ANOTHER
SECURITY, IF THE SECURITY SOLD SHORT SHOULD INCREASE IN
VALUE. MOREOVER, TO THE EXTENT THAT IN A GENERALLY
RISING MARKET THE FUND MAINTAINS SHORT POSITIONS IN
SECURITIES RISING WITH THE MARKET, THE NET ASSET VALUE
OF THE FUND WOULD BE EXPECTED TO INCREASE TO A LESSER
EXTENT THAN THE NET ASSET VALUE OF AN INVESTMENT
COMPANY THAT DOES NOT ENGAGE IN SHORT SALES.
COVERED CALL OPTIONS. THE FUND MAY WRITE (SELL)
COVERED CALL OPTIONS AND PURCHASE OPTIONS TO CLOSE OUT
OPTIONS PREVIOUSLY WRITTEN BY THE FUND. THE PURPOSE OF
WRITING COVERED CALL OPTIONS IS TO REDUCE THE EFFECT OF
PRICE FLUCTUATIONS OF THE SECURITIES OWNED BY THE FUND
(AND INVOLVED IN THE OPTIONS) ON THE FUND'S NET ASSET
VALUE PER SHARE. ALTHOUGH PREMIUMS MAY BE GENERATED
THROUGH THE USE OF COVERED CALL OPTIONS, GCM DOES NOT
CONSIDER THE PREMIUMS WHICH MAY BE GENERATED AS THE
PRIMARY REASON FOR WRITING COVERED CALL OPTIONS.
A CALL OPTION GIVES THE HOLDER (BUYER) THE RIGHT
TO PURCHASE A SECURITY AT A SPECIFIED PRICE (THE
EXERCISE PRICE) AT ANY TIME UNTIL A CERTAIN DATE (THE
EXPIRATION DATE). SO LONG AS THE OBLIGATION OF THE
WRITER OF A CALL OPTION CONTINUES, SUCH WRITER MAY BE
ASSIGNED AN EXERCISE NOTICE BY THE BROKER-DEALER
THROUGH WHOM SUCH OPTION WAS SOLD, REQUIRING THE WRITER
TO DELIVER THE UNDERLYING SECURITY AGAINST PAYMENT OF
THE EXERCISE PRICE. THIS OBLIGATION TERMINATES UPON
THE EXPIRATION OF THE CALL OPTION, OR SUCH EARLIER TIME
AT WHICH THE WRITER EFFECTS A CLOSING PURCHASE
TRANSACTION BY REPURCHASING THE OPTION THE WRITER
PREVIOUSLY SOLD. TO SECURE THE WRITER'S OBLIGATION TO
DELIVER THE UNDERLYING SECURITY IN THE CASE OF A CALL
OPTION, THE WRITER IS REQUIRED TO DEPOSIT IN ESCROW THE
UNDERLYING SECURITY OR OTHER ASSETS IN ACCORDANCE WITH
THE RULES OF THE CLEARING CORPORATIONS AND OF THE
EXCHANGES.
COVERED CALL OPTIONS MAY ALSO BE USED TO HEDGE AN
UNREALIZED GAIN. FOR EXAMPLE, IF THE FUND WROTE AN
OPTION AT $50 ON THE SAME 100 SHARES OF ABC BOUGHT AT
$40 PER SHARE AND NOW SELLING FOR $50 PER SHARE, IT
MIGHT RECEIVE A PREMIUM OF APPROXIMATELY $600. IF THE
MARKET PRICE OF THE UNDERLYING SECURITY DECLINED TO
$45, THE OPTION WOULD NOT BE EXERCISED AND THE FUND
COULD OFFSET THE UNREALIZED LOSS OF $500 BY THE $600
PREMIUM. ON THE OTHER HAND, IF THE MARKET PRICE OF THE
UNDERLYING SECURITY INCREASED TO $55, THE OPTION WOULD
BE EXERCISED AND THE FUND WILL HAVE FOREGONE THE
UNREALIZED $1,500 GAIN FOR A $1,000 GAIN PLUS THE $600
PREMIUM. THE FUND CAN ALSO CLOSE OUT ITS POSITION IN
THE CALL OPTION BY REPURCHASING THE OPTION CONTRACT
SEPARATELY AND INDEPENDENT OF ANY TRANSACTION IN THE
UNDERLYING SECURITY AND, THEREFORE, REALIZE CAPITAL
GAIN OR LOSS. IF THE FUND COULD NOT ENTER INTO SUCH A
CLOSING PURCHASE TRANSACTION, IT MAY BE REQUIRED TO
HOLD A SECURITY THAT IT MAY OTHERWISE HAVE SOLD TO
PROTECT AGAINST DEPRECIATION.
PORTFOLIO SECURITIES ON WHICH CALL OPTIONS MAY BE
WRITTEN WILL BE PURCHASED SOLELY ON THE BASIS OF
INVESTMENT CONSIDERATIONS CONSISTENT WITH THE FUND'S
INVESTMENT OBJECTIVE. THE WRITING OF COVERED CALL
OPTIONS IS A CONSERVATIVE INVESTMENT TECHNIQUE BELIEVED
TO INVOLVE RELATIVELY LITTLE RISK (IN CONTRAST TO THE
WRITING OF NAKED OR UNCOVERED OPTIONS, WHICH THE FUND
WILL NOT DO), BUT CAPABLE OF ENHANCING THE FUND'S TOTAL
RETURN. THE SECURITIES OR OTHER LIQUID ASSETS COVERING
THE CALL OPTION WILL BE MAINTAINED IN A SEGREGATED
ACCOUNT OF THE FUND'S CUSTODIAN. THE FUND DOES NOT
CONSIDER A SECURITY COVERED BY A CALL OPTION TO BE
"PLEDGED" AS THAT TERM IS USED IN THE FUND'S POLICY
WHICH LIMITS THE PLEDGING OR MORTGAGING OF ITS ASSETS.
THE PREMIUM RECEIVED IS THE MARKET VALUE OF AN
OPTION. THE PREMIUM THE FUND WILL RECEIVE FROM WRITING
A CALL OPTION, WILL REFLECT, AMONG OTHER THINGS, THE
CURRENT MARKET PRICE OF THE UNDERLYING SECURITY, THE
RELATIONSHIP OF THE EXERCISE PRICE TO SUCH MARKET
PRICE, THE HISTORICAL PRICE VOLATILITY OF THE
UNDERLYING SECURITY, THE LENGTH OF THE OPTION PERIOD,
THE GENERAL SUPPLY OF AND DEMAND FOR CREDIT, AND THE
GENERAL INTEREST RATE ENVIRONMENT. THE PREMIUM
RECEIVED BY THE FUND FOR WRITING COVERED CALL OPTIONS
WILL BE RECORDED AS A LIABILITY IN THE FUND'S STATEMENT
OF ASSETS AND LIABILITIES. THIS LIABILITY WILL BE
ADJUSTED DAILY TO THE OPTION'S CURRENT MARKET VALUE,
WHICH WILL BE THE LATEST SALE PRICE AT THE TIME AT
WHICH THE NET ASSET VALUE PER SHARE OF THE FUND IS
COMPUTED (CLOSE OF THE NEW YORK STOCK EXCHANGE), OR, IN
THE ABSENCE OF SUCH SALE, THE LATEST ASKED PRICE. THE
LIABILITY WILL BE EXTINGUISHED UPON EXPIRATION OF THE
OPTION, THE PURCHASE OF AN IDENTICAL OPTION IN A
CLOSING TRANSACTION, OR DELIVERY OF THE UNDERLYING
SECURITY UPON THE EXERCISE OF THE OPTION.
<PAGE>
A CLOSING TRANSACTION WILL BE EFFECTED IN ORDER TO
REALIZE A PROFIT OR MINIMIZE A LOSS ON AN OUTSTANDING
CALL OPTION, TO PREVENT AN UNDERLYING SECURITY FROM
BEING CALLED OR PUT, OR TO PERMIT THE SALE OF THE
UNDERLYING SECURITY. FURTHERMORE, EFFECTING A CLOSING
TRANSACTION WILL PERMIT THE FUND TO WRITE ANOTHER CALL
OPTION ON THE UNDERLYING SECURITY WITH EITHER A
DIFFERENT EXERCISE PRICE OR EXPIRATION DATE OR BOTH.
IF THE FUND DESIRES TO SELL A PARTICULAR SECURITY FROM
ITS PORTFOLIO ON WHICH IT HAS WRITTEN A CALL OPTION, OR
PURCHASED A PUT OPTION, IT WILL SEEK TO EFFECT A
CLOSING TRANSACTION PRIOR TO, OR CONCURRENTLY WITH, THE
SALE OF THE SECURITY. THERE IS, OF COURSE, NO
ASSURANCE THAT THE FUND WILL BE ABLE TO EFFECT SUCH
CLOSING ACTIONS AT A FAVORABLE PRICE. IF THE FUND
CANNOT ENTER INTO SUCH A TRANSACTION, IT MAY BE
REQUIRED TO HOLD A SECURITY THAT IT MIGHT OTHERWISE
HAVE SOLD, IN WHICH CASE IT WOULD CONTINUE TO BE AT
MARKET RISK ON THE SECURITY. THIS COULD RESULT IN
HIGHER TRANSACTION COSTS, INCLUDING BROKERAGE
COMMISSIONS. THE FUND WILL PAY BROKERAGE COMMISSIONS
IN CONNECTION WITH THE WRITING OR PURCHASE OF OPTIONS
TO CLOSE OUT PREVIOUSLY WRITTEN OPTIONS. SUCH
BROKERAGE COMMISSIONS ARE NORMALLY HIGHER THAN THE
TRANSACTION COSTS APPLICABLE TO PURCHASES AND SALES OF
PORTFOLIO SECURITIES.
CALL OPTIONS WRITTEN BY THE FUND WILL NORMALLY
HAVE EXPIRATION DATES BETWEEN THREE AND NINE MONTHS
FROM THE DATE WRITTEN. THE EXERCISE PRICE OF THE
OPTIONS MAY BE BELOW, EQUAL TO, OR ABOVE THE CURRENT
MARKET VALUES OF THE UNDERLYING SECURITIES AT THE TIME
THE OPTIONS ARE WRITTEN. FROM TIME TO TIME, THE FUND
MAY PURCHASE AN UNDERLYING SECURITY FOR DELIVERY IN
ACCORDANCE WITH AN EXERCISE NOTICE OF A CALL OPTION
ASSIGNED TO IT, RATHER THAN DELIVERING SUCH SECURITY
FROM ITS PORTFOLIO. IN SUCH CASES ADDITIONAL
TRANSACTION COSTS WILL BE INCURRED.
COVERED PUT OPTIONS. THE FUND MAY ALSO WRITE
(SELL) COVERED PUT OPTIONS AND PURCHASE OPTIONS TO
CLOSE OUT OPTIONS PREVIOUSLY WRITTEN BY THE FUND. THE
FUND MAY WRITE COVERED PUT OPTIONS IN CIRCUMSTANCES
WHERE IT WOULD LIKE TO ACQUIRE THE UNDERLYING SECURITY
AT A PRICE LOWER THAN THE THEN PREVAILING MARKET PRICE
OF THE SECURITY. ALTHOUGH PREMIUMS MAY BE GENERATED
THROUGH THE USE OF COVERED PUT OPTIONS, GCM DOES NOT
CONSIDER THE PREMIUMS WHICH MAY BE GENERATED AS THE
PRIMARY REASON FOR WRITING COVERED PUT OPTIONS.
A PUT OPTION GIVES THE PURCHASER OF THE OPTION THE
RIGHT TO SELL, AND THE WRITER (SELLER) HAS THE
OBLIGATION TO BUY, THE UNDERLYING SECURITY AT THE
EXERCISE PRICE AT ANY TIME UNTIL THE EXPIRATION DATE.
SO LONG AS THE OBLIGATION OF THE WRITER CONTINUES, THE
WRITER MAY BE ASSIGNED AN EXERCISE NOTICE BY THE BROKER-
DEALER THROUGH WHOM SUCH OPTION WAS SOLD REQUIRING THE
WRITER TO MAKE PAYMENT OF THE EXERCISE PRICE AGAINST
DELIVERY OF THE UNDERLYING SECURITY. THE OPERATIONS OF
PUT OPTIONS IN OTHER RESPECTS, INCLUDING RELATED RISKS
AND REWARDS, ARE SUBSTANTIALLY IDENTICAL TO THAT OF
CALL OPTIONS.
THE FUND WILL WRITE PUT OPTIONS ONLY ON A SECURED
BASIS, WHICH MEANS THAT THE FUND WOULD MAINTAIN A
SEGREGATED ACCOUNT CONSISTING OF CASH OR OTHER
PERMISSIBLE LIQUID ASSETS IN AN AMOUNT NOT LESS THAN
THE EXERCISE PRICE OF THE OPTION OR THE FUND WILL OWN
AN OPTION TO SELL THE UNDERLYING SECURITY SUBJECT TO
THE OPTION HAVING AN EXERCISE PRICE EQUAL TO OR GREATER
THAN THE EXERCISE PRICE OF THE COVERED OPTION AT ALL
TIMES WHILE THE PUT OPTION IS OUTSTANDING. THE FUND
WILL GENERALLY WRITE COVERED PUT OPTIONS WHERE IT
WISHES TO PURCHASE A SECURITY FOR THE FUND'S PORTFOLIO
AT A PRICE LESS THAN THE CURRENT MARKET PRICE. IN THIS
EVENT, THE FUND WOULD WRITE A PUT OPTION AT AN EXERCISE
PRICE WHICH, REDUCED BY THE PREMIUM RECEIVED ON THE
OPTIONS, REFLECTS THE LOWER PRICE IT IS WILLING TO PAY.
SINCE THE FUND MAY ALSO RECEIVE INTEREST ON THE DEBT
SECURITIES MAINTAINED TO COVER THE EXERCISE PRICE OF
THE OPTION, THIS TECHNIQUE COULD BE USED TO ENHANCE
CURRENT RETURNS DURING PERIODS OF MARKET UNCERTAINTY.
THE RISK IN SUCH A TRANSACTION WOULD BE THAT THE MARKET
PRICE OF THE UNDERLYING SECURITY WOULD DECLINE BELOW
THE EXERCISE PRICE LESS THE PREMIUMS RECEIVED. SUCH A
DECLINE COULD BE SUBSTANTIAL AND RESULT IN A
SIGNIFICANT LOSS TO THE FUND. IN ADDITION, THE FUND,
BECAUSE IT DOES NOT OWN THE SPECIFIC SECURITIES WHICH
IT MAY BE REQUIRED TO PURCHASE IN THE EXERCISE OF THE
PUT, CANNOT BENEFIT FROM APPRECIATION, IF ANY, WITH
RESPECT TO SUCH SPECIFIC SECURITIES.
CERTAIN CONSIDERATIONS REGARDING OPTIONS
THERE IS NO ASSURANCE THAT A LIQUID SECONDARY
MARKET ON AN OPTIONS EXCHANGE WILL EXIST FOR ANY
PARTICULAR OPTION, OR AT ANY PARTICULAR TIME, AND FOR
SOME OPTIONS NO SECONDARY MARKET ON AN EXCHANGE OR
ELSEWHERE MAY EXIST. IF THE FUND IS UNABLE TO CLOSE
OUT A CALL OPTION ON SECURITIES THAT IT HAS WRITTEN
BEFORE THE OPTION IS EXERCISED, THE FUND MAY BE
REQUIRED TO PURCHASE THE OPTIONED SECURITIES IN ORDER
TO SATISFY ITS OBLIGATION UNDER THE OPTION TO DELIVER
SUCH SECURITIES. IF THE FUND IS UNABLE TO EFFECT A
CLOSING SALE TRANSACTION WITH RESPECT TO OPTIONS ON
SECURITIES THAT IT HAS PURCHASED, IT WOULD HAVE TO
EXERCISE THE OPTION IN ORDER TO REALIZE ANY PROFIT AND
WOULD INCUR TRANSACTION COSTS UPON THE PURCHASE AND
SALE OF THE UNDERLYING SECURITIES.
THE WRITING AND PURCHASING OF OPTIONS IS A HIGHLY
SPECIALIZED ACTIVITY WHICH INVOLVES INVESTMENT
TECHNIQUES AND RISKS DIFFERENT FROM THOSE ASSOCIATED
WITH ORDINARY PORTFOLIO SECURITIES TRANSACTIONS.
IMPERFECT CORRELATION BETWEEN THE OPTIONS AND
SECURITIES MARKETS MAY DETRACT FROM THE EFFECTIVENESS
OF ATTEMPTED HEDGING. OPTIONS TRANSACTIONS MAY RESULT
IN SIGNIFICANTLY HIGHER TRANSACTION COSTS AND PORTFOLIO
TURNOVER FOR THE FUND.
<PAGE>
FEDERAL TAX TREATMENT OF OPTIONS
CERTAIN OPTION TRANSACTIONS HAVE SPECIAL TAX
RESULTS FOR THE FUND. EXPIRATION OF A CALL OPTION
WRITTEN BY THE FUND WILL RESULT IN SHORT-TERM CAPITAL
GAIN. IF THE CALL OPTION IS EXERCISED, THE FUND WILL
REALIZE A GAIN OR LOSS FROM THE SALE OF THE SECURITY
COVERING THE CALL OPTION, AND IN DETERMINING SUCH GAIN
OR LOSS THE OPTION PREMIUM WILL BE INCLUDED IN THE
PROCEEDS OF THE SALE.
IF THE FUND WRITES OPTIONS OTHER THAN "QUALIFIED
COVERED CALL OPTIONS," AS DEFINED IN SECTION 1092 OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), OR PURCHASES PUTS, ANY LOSSES ON SUCH OPTIONS
TRANSACTIONS, TO THE EXTENT THEY DO NOT EXCEED THE
UNREALIZED GAINS ON THE SECURITIES COVERING THE
OPTIONS, MAY BE SUBJECT TO DEFERRAL UNTIL THE
SECURITIES COVERING THE OPTIONS HAVE BEEN SOLD.
IN THE CASE OF TRANSACTIONS INVOLVING "NONEQUITY
OPTIONS," AS DEFINED IN CODE SECTION 1256, THE FUND
WILL TREAT ANY GAIN OR LOSS ARISING FROM THE LAPSE,
CLOSING OUT OR EXERCISE OF SUCH POSITIONS AS 60% LONG-
TERM AND 40% SHORT-TERM CAPITAL GAIN OR LOSS AS
REQUIRED BY SECTION 1256 OF THE CODE. IN ADDITION,
SUCH POSITIONS MUST BE MARKED-TO-MARKET AS OF THE LAST
BUSINESS DAY OF THE YEAR, AND GAIN OR LOSS MUST BE
RECOGNIZED FOR FEDERAL INCOME TAX PURPOSES IN
ACCORDANCE WITH THE 60%/40% RULE DISCUSSED ABOVE EVEN
THOUGH THE POSITION HAS NOT BEEN TERMINATED. A
"NONEQUITY OPTION" INCLUDES AN OPTION WITH RESPECT TO
ANY GROUP OF STOCKS OR A STOCK INDEX IF THERE IS IN
EFFECT A DESIGNATION BY THE CFTC OR THE IRS OF A
CONTRACT MARKET FOR A CONTRACT BASED ON SUCH GROUP OF
STOCKS OR INDEXES. FOR EXAMPLE, OPTIONS INVOLVING
STOCK INDEXES SUCH AS THE STANDARD & POOR'S 500 AND 100
INDEXES ARE "NONEQUITY OPTIONS" WITHIN THE MEANING OF
CODE SECTION 1256.
FUTURES CONTRACTS
THE FUND MAY ENTER INTO FUTURES CONTRACTS
(HEREINAFTER REFERRED TO AS "FUTURES" OR "FUTURES
CONTRACTS"), INCLUDING INTEREST RATE AND INDEX FUTURES
AS A HEDGE AGAINST MOVEMENTS IN THE EQUITY MARKETS AND
CHANGES IN PREVAILING LEVELS OF INTEREST RATES, IN
ORDER TO ESTABLISH MORE DEFINITIVELY THE EFFECTIVE
RETURN ON SECURITIES HELD OR INTENDED TO BE ACQUIRED BY
THE FUND OR FOR OTHER PURPOSES PERMISSIBLE UNDER THE
CEA. THE FUND'S HEDGING MAY INCLUDE SALES OF FUTURES
AS AN OFFSET AGAINST THE EFFECT OF EXPECTED DECLINES IN
STOCK PRICES OR INCREASES IN INTEREST RATES AND
PURCHASES OF FUTURES AS AN OFFSET AGAINST THE EFFECT OF
EXPECTED INCREASES IN STOCK PRICES AND DECLINES IN
INTEREST RATES.
THE FUND WILL NOT ENTER INTO FUTURES CONTRACTS
WHICH ARE PROHIBITED UNDER THE CEA AND WILL, TO THE
EXTENT REQUIRED BY REGULATORY AUTHORITIES, ENTER ONLY
INTO FUTURES CONTRACTS THAT ARE TRADED ON NATIONAL
FUTURES EXCHANGES AND ARE STANDARDIZED AS TO MATURITY
DATE AND UNDERLYING FINANCIAL INSTRUMENT. THE
PRINCIPAL INTEREST RATE FUTURES EXCHANGES IN THE UNITED
STATES ARE THE BOARD OF TRADE OF THE CITY OF CHICAGO
AND THE CHICAGO MERCANTILE EXCHANGE. FUTURES EXCHANGES
AND TRADING ARE REGULATED UNDER THE CEA BY THE CFTC.
ALTHOUGH TECHNIQUES OTHER THAN SALES AND PURCHASES OF
FUTURES CONTRACTS COULD BE USED TO REDUCE THE FUND'S
EXPOSURE TO INTEREST RATE OR PORTFOLIO MARKET PRICE
FLUCTUATIONS, THE FUND MAY BE ABLE TO HEDGE ITS
EXPOSURE MORE EFFECTIVELY AND PERHAPS AT A LOWER COST
THROUGH USING FUTURES CONTRACTS, SINCE FUTURES
CONTRACTS INVOLVE LOWER TRANSACTION COSTS (I.E.,
BROKERAGE COSTS ONLY) THAN OPTIONS ON SECURITIES AND
STOCK INDEX OPTIONS, WHICH REQUIRE THE PAYMENT OF
BROKERAGE COSTS AND PREMIUMS.
AN INDEX FUTURES CONTRACT IS AN AGREEMENT PURSUANT
TO WHICH THE PARTIES AGREE TO TAKE OR MAKE DELIVERY OF
AN AMOUNT OF CASH EQUAL TO THE DIFFERENCE BETWEEN THE
VALUE OF THE INDEX AT THE CLOSE OF THE LAST TRADING DAY
OF THE CONTRACT AND THE PRICE AT WHICH THE INDEX
FUTURES CONTRACT WAS ORIGINALLY WRITTEN. AN INTEREST
RATE FUTURES CONTRACT PROVIDES FOR THE FUTURE SALE BY
ONE PARTY AND PURCHASE BY ANOTHER PARTY OF A SPECIFIED
AMOUNT OF A SPECIFIC FINANCIAL INSTRUMENT FOR A
SPECIFIED PRICE AT A DESIGNATED DATE, TIME, AND PLACE.
TRANSACTIONS COSTS ARE INCURRED WHEN A FUTURES CONTRACT
IS BOUGHT OR SOLD AND MARGIN DEPOSITS MUST BE
MAINTAINED. A FUTURES CONTRACT MAY BE SATISFIED BY
DELIVERY OR PURCHASE, AS THE CASE MAY BE, OF THE
INSTRUMENT OR BY PAYMENT OF THE CHANGE IN THE CASH
VALUE OF THE INDEX. MORE COMMONLY, FUTURES CONTRACTS
ARE CLOSED OUT PRIOR TO DELIVERY BY ENTERING INTO AN
OFFSETTING TRANSACTION IN A MATCHING FUTURES CONTRACT.
ALTHOUGH THE VALUE OF AN INDEX MIGHT BE A FUNCTION OF
THE VALUE OF CERTAIN SPECIFIED SECURITIES, NO PHYSICAL
DELIVERY OF THOSE SECURITIES IS MADE. IF THE
OFFSETTING PURCHASE PRICE IS LESS THAN THE ORIGINAL
SALE PRICE, THE FUND REALIZES A GAIN; IF IT IS MORE,
THE FUND REALIZES A LOSS. CONVERSELY, IF THE
OFFSETTING SALE PRICE IS MORE THAN THE ORIGINAL
PURCHASE PRICE, THE FUND REALIZES A GAIN; IF IT IS
LESS, THE FUND REALIZES A LOSS. THE TRANSACTION COSTS
MUST ALSO BE INCLUDED IN THESE CALCULATIONS. THERE CAN
BE NO ASSURANCE, HOWEVER, THAT THE FUND WILL BE ABLE TO
ENTER INTO AN OFFSETTING TRANSACTION WITH RESPECT TO A
PARTICULAR FUTURES CONTRACT AT A PARTICULAR TIME. IF
THE FUND IS NOT ABLE TO ENTER INTO AN OFFSETTING
TRANSACTION, THE FUND WILL CONTINUE TO BE REQUIRED TO
MAINTAIN THE MARGIN DEPOSITS ON THE FUTURES CONTRACT.
AS AN EXAMPLE OF AN OFFSETTING TRANSACTION IN
WHICH THE UNDERLYING FINANCIAL INSTRUMENT IS NOT
DELIVERED PURSUANT TO AN INTEREST RATE FUTURES
CONTRACT, THE CONTRACTUAL OBLIGATIONS ARISING FROM THE
SALE OF ONE FUTURES CONTRACT OF
<PAGE>
SEPTEMBER TREASURY
BILLS ON AN EXCHANGE MAY BE FULFILLED AT ANY TIME
BEFORE DELIVERY IS REQUIRED (I.E., ON A SPECIFIED DATE
IN SEPTEMBER, THE "DELIVERY MONTH") BY THE PURCHASE OF
ONE FUTURES CONTRACT OF SEPTEMBER TREASURY BILLS ON THE
SAME EXCHANGE. IN SUCH INSTANCE, THE DIFFERENCE
BETWEEN THE PRICE AT WHICH THE FUTURES CONTRACT WAS
SOLD AND THE PRICE PAID FOR THE OFFSETTING PURCHASE,
AFTER ALLOWANCE FOR TRANSACTION COSTS, REPRESENTS THE
PROFIT OR LOSS TO THE FUND.
PERSONS WHO TRADE IN FUTURES CONTRACTS MAY BE
BROADLY CLASSIFIED AS "HEDGERS" AND "SPECULATORS."
HEDGERS, SUCH AS THE FUND, WHOSE BUSINESS ACTIVITY
INVOLVES INVESTMENT OR OTHER COMMITMENTS IN SECURITIES
OR OTHER OBLIGATIONS, USE THE FUTURES MARKETS TO OFFSET
UNFAVORABLE CHANGES IN VALUE THAT MAY OCCUR BECAUSE OF
FLUCTUATIONS IN THE VALUE OF THE SECURITIES OR
OBLIGATIONS HELD OR EXPECTED TO BE ACQUIRED BY THEM.
DEBTORS AND OTHER OBLIGORS MAY ALSO HEDGE THE INTEREST
COST OF THEIR OBLIGATIONS. THE SPECULATOR, LIKE THE
HEDGER, GENERALLY EXPECTS NEITHER TO DELIVER NOR TO
RECEIVE THE FINANCIAL INSTRUMENT UNDERLYING THE FUTURES
CONTRACT; BUT, UNLIKE THE HEDGER, HOPES TO PROFIT FROM
FLUCTUATIONS IN PREVAILING PRICES.
A PUBLIC MARKET EXISTS IN FUTURES CONTRACTS
COVERING A NUMBER OF INDEXES, INCLUDING, BUT NOT
LIMITED TO, THE STANDARD & POOR'S 500 INDEX, THE
STANDARD & POOR'S 100 INDEX, THE NASDAQ 100 INDEX, THE
VALUE LINE COMPOSITE INDEX AND THE NEW YORK STOCK
EXCHANGE COMPOSITE INDEX. A PUBLIC MARKET EXISTS IN
INTEREST RATE FUTURES CONTRACTS PRIMARILY COVERING THE
FOLLOWING FINANCIAL INSTRUMENTS: U.S. TREASURY BONDS;
U.S. TREASURY NOTES; GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION ("GNMA") MODIFIED PASS-THROUGH MORTGAGE-
BACKED SECURITIES; THREE-MONTH U.S. TREASURY BILLS;
90-DAY COMMERCIAL PAPER; BANK CERTIFICATES OF DEPOSIT;
AND EURODOLLAR CERTIFICATES OF DEPOSIT. THE STANDARD
CONTRACT SIZE IS GENERALLY $100,000 FOR FUTURES
CONTRACTS IN U.S. TREASURY BONDS, U.S. TREASURY NOTES,
AND GNMA PASS-THROUGH SECURITIES AND $1,000,000 FOR THE
OTHER DESIGNATED CONTRACTS.
THE FUND'S FUTURES TRANSACTIONS WILL BE ENTERED
INTO FOR HEDGING PURPOSES PERMISSIBLE UNDER THE CEA.
FOR HEDGING PURPOSES, FUTURES CONTRACTS MAY BE SOLD TO
PROTECT AGAINST A DECLINE IN THE PRICE OF SECURITIES
THAT THE FUND OWNS, OR FUTURES CONTRACTS MAY BE
PURCHASED TO PROTECT THE FUND AGAINST AN INCREASE IN
THE PRICE OF SECURITIES IT INTENDS TO PURCHASE. AS
EVIDENCE OF THIS HEDGING INTENT, THE FUND EXPECTS THAT
APPROXIMATELY 75% OF SUCH FUTURES CONTRACT PURCHASES
WILL BE "COMPLETED"; THAT IS, UPON THE SALE OF THESE
LONG FUTURES CONTRACTS, EQUIVALENT AMOUNTS OF RELATED
SECURITIES WILL HAVE BEEN OR ARE THEN BEING PURCHASED
BY THE FUND IN THE CASH MARKET. ALTERNATIVELY, THE
FUND'S PURCHASES OF LONG FUTURES CONTRACTS WILL NOT
EXCEED 5% OF THE FUND'S NET ASSET VALUE.
MARGIN IS THE AMOUNT OF FUNDS THAT MUST BE
DEPOSITED BY THE FUND WITH ITS CUSTODIAN IN A
SEGREGATED ACCOUNT IN THE NAME OF THE FUTURES
COMMISSION MERCHANT IN ORDER TO INITIATE FUTURES
TRADING AND TO MAINTAIN THE FUND'S OPEN POSITIONS IN
FUTURES CONTRACTS. A MARGIN DEPOSIT IS INTENDED TO
ENSURE THE FUND'S PERFORMANCE OF THE FUTURES CONTRACT.
THE MARGIN REQUIRED FOR A PARTICULAR FUTURES CONTRACT
IS SET BY THE EXCHANGE ON WHICH THE FUTURES CONTRACT IS
TRADED AND MAY BE SIGNIFICANTLY MODIFIED FROM TIME TO
TIME BY THE EXCHANGE DURING THE TERM OF THE FUTURES
CONTRACT. FUTURES CONTRACTS ARE CUSTOMARILY PURCHASED
AND SOLD ON MARGINS THAT MAY RANGE UPWARD FROM LESS
THAN 5% OF THE VALUE OF THE FUTURES CONTRACT BEING
TRADED.
IF THE PRICE OF AN OPEN FUTURES CONTRACT CHANGES
(BY INCREASE IN THE CASE OF A SALE OR BY DECREASE IN
THE CASE OF A PURCHASE) SO THAT THE LOSS ON THE FUTURES
CONTRACT REACHES A POINT AT WHICH THE MARGIN ON DEPOSIT
DOES NOT SATISFY MARGIN REQUIREMENTS, THE BROKER WILL
REQUIRE AN INCREASE IN THE MARGIN. HOWEVER, IF THE
VALUE OF A POSITION INCREASES BECAUSE OF FAVORABLE
PRICE CHANGES IN THE FUTURES CONTRACT SO THAT THE
MARGIN DEPOSIT EXCEEDS THE REQUIRED MARGIN, THE BROKER
WILL PAY THE EXCESS TO THE FUND. IN COMPUTING DAILY
NET ASSET VALUE, THE FUND WILL MARK TO MARKET THE
CURRENT VALUE OF ITS OPEN FUTURES CONTRACTS. THE FUND
EXPECTS TO EARN INTEREST INCOME ON ITS MARGIN DEPOSITS.
THE PRICES OF FUTURES CONTRACTS ARE VOLATILE AND
ARE INFLUENCED, AMONG OTHER THINGS, BY ACTUAL AND
ANTICIPATED CHANGES IN INTEREST RATES, WHICH IN TURN
ARE AFFECTED BY FISCAL AND MONETARY POLICIES AND
NATIONAL AND INTERNATIONAL POLITICAL AND ECONOMIC
EVENTS.
AT BEST, THE CORRELATION BETWEEN CHANGES IN PRICES
OF FUTURES CONTRACTS AND OF THE SECURITIES BEING HEDGED
CAN BE ONLY APPROXIMATE. THE DEGREE OF IMPERFECTION OF
CORRELATION DEPENDS UPON CIRCUMSTANCES SUCH AS:
VARIATIONS IN SPECULATIVE MARKET DEMAND FOR FUTURES AND
DEBT SECURITIES, INCLUDING TECHNICAL INFLUENCES IN
FUTURES TRADING; DIFFERENCES BETWEEN THE FINANCIAL
INSTRUMENTS BEING HEDGED AND THE INSTRUMENTS UNDERLYING
THE STANDARD FUTURES CONTRACTS AVAILABLE FOR TRADING;
AND WITH RESPECT TO INTEREST RATE FUTURES, MATURITIES
AND CREDITWORTHINESS OF ISSUERS AND, IN THE CASE OF
INDEX FUTURES CONTRACTS, THE COMPOSITION OF THE INDEX,
INCLUDING THE ISSUERS AND THE WEIGHTING OF EACH ISSUE,
MAY DIFFER FROM THE COMPOSITION OF THE FUND'S
PORTFOLIO. A DECISION OF WHETHER, WHEN, AND HOW TO
HEDGE INVOLVES SKILL AND JUDGMENT, AND EVEN A WELL-
RECEIVED HEDGE MAY BE UNSUCCESSFUL TO SOME DEGREE
BECAUSE OF UNEXPECTED MARKET BEHAVIOR OR INTEREST RATE
TRENDS.
<PAGE>
BECAUSE OF THE LOW MARGIN DEPOSITS REQUIRED,
FUTURES TRADING INVOLVES AN EXTREMELY HIGH DEGREE OF
LEVERAGE. AS A RESULT, A RELATIVELY SMALL PRICE
MOVEMENT IN A FUTURES CONTRACT MAY RESULT IN IMMEDIATE
AND SUBSTANTIAL LOSS, AS WELL AS GAIN, TO THE INVESTOR.
FOR EXAMPLE, IF AT THE TIME OF PURCHASE, 10% OF THE
VALUE OF THE FUTURES CONTRACT IS DEPOSITED AS MARGIN, A
SUBSEQUENT 10% DECREASE IN THE VALUE OF THE FUTURES
CONTRACT WOULD RESULT IN A TOTAL LOSS OF THE MARGIN
DEPOSIT, BEFORE ANY DEDUCTION FOR THE TRANSACTION
COSTS, IF THE ACCOUNT WERE THEN CLOSED OUT. A 15%
DECREASE WOULD RESULT IN A LOSS EQUAL TO 150% OF THE
ORIGINAL MARGIN DEPOSIT, IF THE FUTURES CONTRACT WERE
CLOSED OUT. THUS, A PURCHASE OR SALE OF A FUTURES
CONTRACT MAY RESULT IN LOSSES IN EXCESS OF THE AMOUNT
INITIALLY INVESTED IN THE FUTURES CONTRACT. HOWEVER,
THE FUND WOULD PRESUMABLY HAVE SUSTAINED COMPARABLE
LOSSES IF, INSTEAD OF THE FUTURES CONTRACT, IT HAD
INVESTED IN THE UNDERLYING FINANCIAL INSTRUMENT AND
SOLD IT AFTER THE DECLINE.
MOST UNITED STATES FUTURES EXCHANGES LIMIT THE
AMOUNT OF FLUCTUATION PERMITTED IN FUTURES CONTRACT
PRICES DURING A SINGLE TRADING DAY. THE DAILY LIMIT
ESTABLISHES THE MAXIMUM AMOUNT THAT THE PRICE OF A
FUTURES CONTRACT MAY VARY EITHER UP OR DOWN FROM THE
PREVIOUS DAY'S SETTLEMENT PRICE AT THE END OF A TRADING
SESSION. ONCE THE DAILY LIMIT HAS BEEN REACHED IN A
PARTICULAR TYPE OF FUTURES CONTRACT, NO TRADES MAY BE
MADE ON THAT DAY AT A PRICE BEYOND THAT LIMIT. THE
DAILY LIMIT GOVERNS ONLY PRICE MOVEMENT DURING A
PARTICULAR TRADING DAY AND THEREFORE DOES NOT LIMIT
POTENTIAL LOSSES, BECAUSE THE LIMIT MAY PREVENT THE
LIQUIDATION OF UNFAVORABLE POSITIONS. FUTURES CONTRACT
PRICES HAVE OCCASIONALLY MOVED TO THE DAILY LIMIT FOR
SEVERAL CONSECUTIVE TRADING DAYS WITH LITTLE OR NO
TRADING, THEREBY PREVENTING PROMPT LIQUIDATION OF
FUTURES POSITIONS AND SUBJECTING SOME FUTURES TRADERS
TO SUBSTANTIAL LOSSES.
THERE CAN BE NO ASSURANCE THAT A LIQUID MARKET
WILL EXIST AT A TIME WHEN THE FUND SEEKS TO CLOSE OUT A
FUTURES OR FUTURES OPTION POSITION. THE FUND WOULD
CONTINUE TO BE REQUIRED TO MEET MARGIN REQUIREMENTS
UNTIL THE POSITION IS CLOSED, POSSIBLY RESULTING IN A
DECLINE IN THE FUND'S NET ASSET VALUE. IN ADDITION,
MANY OF THE CONTRACTS DISCUSSED ABOVE ARE RELATIVELY
NEW INSTRUMENTS WITHOUT A SIGNIFICANT TRADING HISTORY.
AS A RESULT, THERE CAN BE NO ASSURANCE THAT AN ACTIVE
SECONDARY MARKET WILL DEVELOP OR CONTINUE TO EXIST.
OPTIONS ON FUTURES
THE FUND MAY ALSO PURCHASE OR WRITE PUT AND CALL
OPTIONS ON FUTURES CONTRACTS AND ENTER INTO CLOSING
TRANSACTIONS WITH RESPECT TO SUCH OPTIONS TO TERMINATE
AN EXISTING POSITION. A FUTURES OPTION GIVES THE
HOLDER THE RIGHT, IN RETURN FOR THE PREMIUM PAID, TO
ASSUME A LONG POSITION (CALL) OR SHORT POSITION (PUT)
IN A FUTURES CONTRACT AT A SPECIFIED EXERCISE PRICE
PRIOR TO THE EXPIRATION OF THE OPTION. UPON EXERCISE
OF A CALL OPTION, THE HOLDER ACQUIRES A LONG POSITION
IN THE FUTURES CONTRACT AND THE WRITER IS ASSIGNED THE
OPPOSITE SHORT POSITION. IN THE CASE OF A PUT OPTION,
THE OPPOSITE IS TRUE. PRIOR TO EXERCISE OR EXPIRATION,
A FUTURES OPTION MAY BE CLOSED OUT BY AN OFFSETTING
PURCHASE OR SALE OF A FUTURES OPTION OF THE SAME
SERIES.
THE FUND MAY USE ITS OPTIONS ON FUTURES CONTRACTS
IN CONNECTION WITH HEDGING STRATEGIES. GENERALLY,
THESE STRATEGIES WOULD BE EMPLOYED UNDER THE SAME
MARKET AND MARKET SECTOR CONDITIONS IN WHICH THE FUND
USES PUT AND CALL OPTIONS ON SECURITIES OR INDEXES.
THE PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS IS
ANALOGOUS TO THE PURCHASE OF PUTS ON SECURITIES OR
INDEXES SO AS TO HEDGE THE FUND'S PORTFOLIO OF
SECURITIES AGAINST THE RISK OF DECLINING MARKET PRICES.
THE WRITING OF A CALL OPTION OR THE PURCHASING OF A PUT
OPTION ON A FUTURES CONTRACT CONSTITUTES A PARTIAL
HEDGE AGAINST DECLINING PRICES OF THE SECURITIES WHICH
ARE DELIVERABLE UPON EXERCISE OF THE FUTURES CONTRACT.
IF THE FUTURES PRICE AT EXPIRATION OF A WRITTEN CALL
OPTION IS BELOW THE EXERCISE PRICE, THE FUND WILL
RETAIN THE FULL AMOUNT OF THE OPTION PREMIUM WHICH
PROVIDES A PARTIAL HEDGE AGAINST ANY DECLINE THAT MAY
HAVE OCCURRED IN THE FUND'S HOLDINGS OF SECURITIES. IF
THE FUTURES PRICE WHEN THE OPTION IS EXERCISED IS ABOVE
THE EXERCISE PRICE, HOWEVER, THE FUND WILL INCUR A
LOSS, WHICH MAY BE OFFSET, IN WHOLE OR IN PART, BY THE
INCREASE IN THE VALUE OF THE SECURITIES IN THE FUND'S
PORTFOLIO THAT WERE BEING HEDGED. WRITING A PUT OPTION
OR PURCHASING A CALL OPTION ON A FUTURES CONTRACT
SERVES AS A PARTIAL HEDGE AGAINST AN INCREASE IN THE
VALUE OF THE SECURITIES THE FUND INTENDS TO ACQUIRE.
IF THE FUTURES CONTRACT PRICE AT EXPIRATION OF A PUT
OPTION THE FUND HAS WRITTEN IS ABOVE THE EXERCISE
PRICE, THE FUND WILL RETAIN THE FULL AMOUNT OF THE
OPTION PREMIUM WHICH PROVIDES A PARTIAL HEDGE AGAINST
ANY INCREASE THAT MAY HAVE OCCURRED IN THE PRICE OF THE
SECURITIES THE FUND INTENDS TO ACQUIRE. IF THE FUTURES
CONTRACT PRICE AT EXPIRATION OF A PUT OPTION THE FUND
HAS WRITTEN IS BELOW THE EXERCISE PRICE, HOWEVER, THE
FUND WILL INCUR A LOSS, WHICH MAY BE OFFSET, IN WHOLE
OR IN PART, BY THE DECREASE IN THE PRICE OF THE
SECURITIES THE FUND INTENDS TO ACQUIRE.
AS WITH INVESTMENTS IN FUTURES CONTRACTS, THE FUND
IS ALSO REQUIRED TO DEPOSIT AND MAINTAIN MARGIN WITH
RESPECT TO PUT AND CALL OPTIONS ON FUTURES CONTRACTS
WRITTEN BY IT. SUCH MARGIN DEPOSITS WILL VARY
DEPENDING ON THE NATURE OF THE UNDERLYING FUTURES
CONTRACT (AND THE RELATED INITIAL MARGIN REQUIREMENTS),
THE CURRENT MARKET VALUE OF THE OPTION, AND OTHER
FUTURES POSITIONS HELD BY THE FUND. THE FUND WILL SET
ASIDE IN A SEGREGATED ACCOUNT AT THE FUND'S CUSTODIAN
LIQUID ASSETS, SUCH AS CASH, U.S. GOVERNMENT SECURITIES
OR OTHER HIGH GRADE DEBT OBLIGATIONS EQUAL IN VALUE TO
THE AMOUNT DUE ON THE UNDERLYING OBLIGATION. SUCH
SEGREGATED ASSETS WILL BE MARKED TO MARKET DAILY, AND
ADDITIONAL
<PAGE>
ASSETS WILL BE PLACED IN THE SEGREGATED
ACCOUNT WHENEVER THE TOTAL VALUE OF THE SEGREGATED
ACCOUNT FALLS BELOW THE AMOUNT DUE ON THE UNDERLYING
OBLIGATION.
THE RISKS ASSOCIATED WITH THE USE OF OPTIONS ON
FUTURES CONTRACTS INCLUDE THE RISK THAT THE FUND MAY
CLOSE OUT ITS POSITION AS A WRITER OF AN OPTION ONLY IF
A LIQUID SECONDARY MARKET EXISTS FOR SUCH OPTIONS,
WHICH CANNOT BE ASSURED. THE FUND'S SUCCESSFUL USE OF
OPTIONS ON FUTURES CONTRACTS DEPENDS ON GCM'S ABILITY
TO CORRECTLY PREDICT THE MOVEMENT IN PRICES OF FUTURES
CONTRACTS AND THE UNDERLYING INSTRUMENTS, WHICH MAY
PROVE TO BE INCORRECT. IN ADDITION, THERE MAY BE
IMPERFECT CORRELATION BETWEEN THE INSTRUMENTS BEING
HEDGED AND THE FUTURES CONTRACT SUBJECT TO THE OPTION.
(FOR ADDITIONAL INFORMATION, SEE "FUTURES CONTRACTS.")
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS
FOR FEDERAL INCOME TAX PURPOSES, THE FUND IS
REQUIRED TO RECOGNIZE AS INCOME FOR EACH TAXABLE YEAR
ITS NET UNREALIZED GAINS AND LOSSES ON FUTURES
CONTRACTS AS OF THE END OF THE YEAR, AS WELL AS GAINS
AND LOSSES ACTUALLY REALIZED DURING THE YEAR. EXCEPT
FOR TRANSACTIONS IN FUTURES CONTRACTS THAT ARE
CLASSIFIED AS PART OF A "MIXED STRADDLE" UNDER CODE
SECTION 1256, ANY GAIN OR LOSS RECOGNIZED WITH RESPECT
TO A FUTURES CONTRACT IS CONSIDERED TO BE 60% LONG-TERM
CAPITAL GAIN OR LOSS AND 40% SHORT-TERM CAPITAL GAIN OR
LOSS, WITHOUT REGARD TO THE HOLDING PERIOD OF THE
FUTURES CONTRACT. IN THE CASE OF A FUTURES TRANSACTION
NOT CLASSIFIED AS A "MIXED STRADDLE," THE RECOGNITION
OF LOSSES MAY BE DEFERRED TO A LATER TAXABLE YEAR.
SALES OF FUTURES CONTRACTS THAT ARE INTENDED TO
HEDGE AGAINST A CHANGE IN THE VALUE OF SECURITIES HELD
BY THE FUND MAY AFFECT THE HOLDING PERIOD OF SUCH
SECURITIES AND, CONSEQUENTLY, THE NATURE OF THE GAIN OR
LOSS ON SUCH SECURITIES UPON DISPOSITION.
THE FUND INTENDS TO OPERATE AS A "REGULATED
INVESTMENT COMPANY" UNDER SUBCHAPTER M OF THE CODE, AND
THEREFORE WILL NOT BE LIABLE FOR FEDERAL INCOME TAXES
TO THE EXTENT EARNINGS ARE DISTRIBUTED ON A TIMELY
BASIS. IN ADDITION, AS A RESULT OF BEING A REGULATED
INVESTMENT COMPANY, NET CAPITAL GAINS THAT THE FUND
DISTRIBUTES TO SHAREHOLDERS WILL RETAIN THEIR ORIGINAL
CAPITAL GAIN CHARACTER IN THE SHAREHOLDERS' INDIVIDUAL
TAX RETURNS.
IN ORDER FOR THE FUND TO QUALIFY FOR FEDERAL
INCOME TAX TREATMENT AS A REGULATED INVESTMENT COMPANY,
AT LEAST 90% OF ITS GROSS INCOME FOR A TAXABLE YEAR
MUST BE DERIVED FROM QUALIFYING INCOME; I.E.,
DIVIDENDS, INTEREST, INCOME DERIVED FROM LOANS OF
SECURITIES AND GAINS FROM THE SALE OF SECURITIES, AND
OTHER INCOME (INCLUDING GAINS ON OPTIONS AND FUTURES
CONTRACTS) DERIVED WITH RESPECT TO THE FUND'S BUSINESS
OF INVESTING IN STOCK OR SECURITIES. IT IS ANTICIPATED
THAT ANY NET GAIN REALIZED FROM THE CLOSING OUT OF
FUTURES CONTRACTS WILL BE CONSIDERED GAIN FROM THE SALE
OF SECURITIES AND THEREFORE WILL BE QUALIFYING INCOME
FOR PURPOSES OF THE 90% REQUIREMENT. ANY INCREASE IN
VALUE ON A POSITION THAT IS PART OF A DESIGNATED HEDGE
WILL BE OFFSET BY ANY DECREASE IN VALUE (WHETHER OR NOT
REALIZED) ON ANY OTHER POSITION THAT IS PART OF SUCH
HEDGE.
THE FUND WILL DISTRIBUTE TO SHAREHOLDERS ANNUALLY
ANY NET CAPITAL GAINS WHICH HAVE BEEN RECOGNIZED FOR
FEDERAL INCOME TAX PURPOSES (INCLUDING UNREALIZED GAINS
AT THE END OF THE FUND'S FISCAL YEAR) ON FUTURES
TRANSACTIONS. SUCH DISTRIBUTIONS WILL BE COMBINED WITH
DISTRIBUTIONS OF CAPITAL GAINS REALIZED ON THE FUND'S
OTHER INVESTMENTS AND SHAREHOLDERS WILL BE ADVISED OF
THE NATURE OF THE PAYMENTS.
WARRANTS
THE FUND MAY INVEST IN WARRANTS IF AFTER GIVING
EFFECT THERETO, NOT MORE THAN 5% OF ITS NET ASSETS WILL
BE INVESTED IN WARRANTS OTHER THAN WARRANTS ACQUIRED IN
UNITS OR ATTACHED TO OTHER SECURITIES. INVESTMENTS IN
WARRANTS IS PURE SPECULATION IN THAT THEY HAVE NO
VOTING RIGHTS, PAY NO DIVIDENDS, AND HAVE NO RIGHTS
WITH RESPECT TO THE ASSETS OF THE CORPORATION ISSUING
THEM. WARRANTS BASICALLY ARE OPTIONS TO PURCHASE
EQUITY SECURITIES AT A SPECIFIC PRICE FOR A SPECIFIC
PERIOD OF TIME. THEY DO NOT REPRESENT OWNERSHIP OF THE
SECURITIES BUT ONLY THE RIGHT TO BUY THEM. WARRANTS
DIFFER FROM CALL OPTIONS IN THAT WARRANTS ARE ISSUED BY
THE ISSUER OF THE SECURITY WHICH MAY BE PURCHASED ON
THEIR EXERCISE, WHEREAS CALL OPTIONS MAY BE WRITTEN OR
ISSUED BY ANYONE. (SEE "PURCHASING PUT AND CALL
OPTIONS" ABOVE.) THE PRICES OF WARRANTS DO NOT
NECESSARILY MOVE PARALLEL TO THE PRICES OF THE
UNDERLYING SECURITIES.
<PAGE>
WHEN-ISSUED SECURITIES
THE FUND MAY FROM TIME TO TIME INVEST UP TO 5% OF
ITS NET ASSETS IN SECURITIES PURCHASED ON A "WHEN-
ISSUED" BASIS. THE PRICE OF SECURITIES PURCHASED ON A
WHEN-ISSUED BASIS IS FIXED AT THE TIME THE COMMITMENT
TO PURCHASE IS MADE, BUT DELIVERY AND PAYMENT FOR THE
SECURITIES TAKE PLACE AT A LATER DATE. NORMALLY, THE
SETTLEMENT DATE OCCURS WITHIN 45 DAYS OF THE PURCHASE.
DURING THE PERIOD BETWEEN THE PURCHASE AND SETTLEMENT,
NO PAYMENT IS MADE BY THE FUND TO THE ISSUER, NO
INTEREST IS ACCRUED ON DEBT SECURITIES, AND NO DIVIDEND
INCOME IS EARNED ON EQUITY SECURITIES. FORWARD
COMMITMENTS INVOLVE A RISK OF LOSS IF THE VALUE OF THE
SECURITY TO BE PURCHASED DECLINES PRIOR TO THE
SETTLEMENT DATE, WHICH RISK IS IN ADDITION TO THE RISK
OF DECLINE IN VALUE OF THE FUND'S OTHER ASSETS. WHILE
WHEN-ISSUED SECURITIES MAY BE SOLD PRIOR TO THE
SETTLEMENT DATE, THE FUND INTENDS TO PURCHASE SUCH
SECURITIES WITH THE PURPOSE OF ACTUALLY ACQUIRING THEM.
AT THE TIME THE FUND MAKES THE COMMITMENT TO PURCHASE A
SECURITY ON A WHEN-ISSUED BASIS, IT WILL RECORD THE
TRANSACTION AND REFLECT THE VALUE OF THE SECURITY IN
DETERMINING ITS NET ASSET VALUE. THE FUND DOES NOT
BELIEVE THAT ITS NET ASSET VALUE WILL BE ADVERSELY
AFFECTED BY ITS PURCHASES OF SECURITIES ON A WHEN-
ISSUED BASIS.
THE FUND WILL MAINTAIN CASH AND MARKETABLE
SECURITIES EQUAL IN VALUE TO COMMITMENTS FOR WHEN-
ISSUED SECURITIES. SUCH SEGREGATED SECURITIES EITHER
WILL MATURE OR, IF NECESSARY, BE SOLD ON OR BEFORE THE
SETTLEMENT DATE. WHEN THE TIME COMES TO PAY FOR WHEN-
ISSUED SECURITIES, THE FUND WILL MEET ITS OBLIGATIONS
FROM THEN AVAILABLE CASH FLOW, SALE OF THE SECURITIES
HELD IN THE SEPARATE ACCOUNT, DESCRIBED ABOVE, SALE OF
OTHER SECURITIES OR, ALTHOUGH IT WOULD NOT NORMALLY
EXPECT TO DO SO, FROM THE SALE OF THE WHEN-ISSUED
SECURITIES THEMSELVES (WHICH MAY HAVE A MARKET VALUE
GREATER OR LESS THAN THE FUND'S PAYMENT OBLIGATION).
REPURCHASE OBLIGATIONS
THE FUND MAY ENTER INTO REPURCHASE AGREEMENTS WITH
RESPECT TO NO MORE THAN 25% OF ITS NET ASSETS WITH
MEMBER BANKS OF THE FEDERAL RESERVE SYSTEM AND CERTAIN
NON-BANK DEALERS. IN A REPURCHASE AGREEMENT, THE FUND
BUYS A SECURITY AT ONE PRICE AND, AT THE TIME OF THE
SALE, THE SELLER AGREES TO REPURCHASE THE OBLIGATION AT
A MUTUALLY AGREED UPON TIME AND PRICE (USUALLY WITHIN
SEVEN DAYS). THE REPURCHASE AGREEMENT THEREBY
DETERMINES THE YIELD DURING THE PURCHASER'S HOLDING
PERIOD, WHILE THE SELLER'S OBLIGATION TO REPURCHASE IS
SECURED BY THE VALUE OF THE UNDERLYING SECURITY. GCM
WILL MONITOR, ON AN ONGOING BASIS, THE VALUE OF THE
UNDERLYING SECURITIES TO ENSURE THAT THE VALUE ALWAYS
EQUALS OR EXCEEDS THE REPURCHASE PRICE PLUS ACCRUED
INTEREST. REPURCHASE AGREEMENTS COULD INVOLVE CERTAIN
RISKS IN THE EVENT OF A DEFAULT OR INSOLVENCY OF THE
OTHER PARTY TO THE AGREEMENT, INCLUDING POSSIBLE DELAYS
OR RESTRICTIONS UPON THE FUND'S ABILITY TO DISPOSE OF
THE UNDERLYING SECURITIES.
TRUSTEES AND OFFICERS OF THE TRUST
TRUSTEES AND OFFICERS OF THE TRUST, TOGETHER WITH
INFORMATION AS TO THEIR PRINCIPAL BUSINESS OCCUPATIONS
DURING THE LAST FIVE YEARS, AND OTHER INFORMATION, ARE
SHOWN BELOW. EACH TRUSTEE WHO IS DEEMED AN "INTERESTED
PERSON," AS DEFINED IN THE INVESTMENT COMPANY ACT OF
1940 ("INVESTMENT COMPANY ACT"), IS INDICATED BY AN
ASTERISK.
*CHARLES S. CRUICE, PRESIDENT AND A TRUSTEE OF THE
TRUST, AGE 47.
MR. CRUICE HAS BEEN THE PRESIDENT OF GCM SINCE ITS
FOUNDING IN 1989. FROM 1978 UNTIL 1989, MR.
CRUICE WAS ASSOCIATED WITH FRIESS ASSOCIATES INC.,
A WILMINGTON, DELAWARE INVESTMENT MANAGEMENT
COMPANY. MR. CRUICE ALSO WAS A DIRECTOR OF THE
BRANDYWINE FUND, AN OPEN-END MUTUAL FUND. MR.
CRUICE HOLDS A B.A. FROM THE UNIVERSITY OF DENVER.
*RICHARD H. GOULD, TREASURER AND A TRUSTEE OF THE
TRUST, AGE 37.
MR. GOULD HAS BEEN A VICE PRESIDENT OF GCM SINCE
1994. FROM 1987 UNTIL 1994, MR. GOULD WAS
ASSOCIATED WITH PNC INVESTMENT MANAGEMENT, FIRST
AS AN EQUITY ANALYST AND LATER AS THE CO-MANAGER
OF THE PNC SMALL CAP GROWTH FUND. MR. GOULD
RECEIVED HIS CHARTERED FINANCIAL ANALYST
DESIGNATION IN 1989; BECAME A CHARTERED MARKET
TECHNICIAN IN 1995; AND RECEIVED HIS B.S. IN 1983
AND HIS M.B.A. IN FINANCE IN 1985, BOTH FROM THE
PENNSYLVANIA STATE UNIVERSITY.
<PAGE>
DR. PETER UTSINGER, A TRUSTEE OF THE TRUST, AGE 52.
DR. UTSINGER HAS BEEN A PRACTICING PHYSICIAN IN
ARTHRITIS AND RHEUMATIC DISEASES SINCE 1970 WHEN
HE RECEIVED HIS M.D. FROM GEORGETOWN UNIVERSITY.
DR. UTSINGER WAS DIRECTOR OF THE ARTHRITIS
CLINICAL AND RESEARCH UNIT AT THE UNIVERSITY OF
NORTH CAROLINA AND HAS WRITTEN OVER 100
PUBLICATIONS IN HIS AREA OF SPECIALTY.
RICHARD W. VAGUE, A TRUSTEE OF THE TRUST, AGE 42.
MR. VAGUE HAS BEEN THE PRESIDENT AND A DIRECTOR OF
FIRST USA, INC. SINCE 1991, THE CHAIRMAN AND CEO
OF FIRST USA BANK SINCE 1995, THE CHAIRMAN OF
FIRST USA, FSB SINCE 1996 AND A DIRECTOR OF FIRST
USA PAYMENTECH AND PHYSICIAN SUPPORT SYSTEMS, INC.
SINCE 1996. FROM 1987 UNTIL 1995, MR. VAGUE WAS
PRESIDENT AND CEO OF FIRST USA BANK.
ROBERT D. HARRISON, A TRUSTEE OF THE TRUST, AGE 74.
MR. HARRISON WAS A DIRECTOR OF FIDELITY MUTUAL
LIFE INSURANCE COMPANY FROM 1969 TO 1992, OF
MERITOR SAVINGS BANK FROM 1978 TO 1992 AND OF PECO
ENERGY CO. FROM 1970 TO 1994. MR. HARRISON ALSO
SERVED AS A TRUSTEE OF MUTUAL ASSURANCE COMPANY
FROM 1974 TO 1993.
JEFFREY RUGEN, SECRETARY OF THE TRUST, AGE 38.
MR. RUGEN HAS BEEN A TRADER WITH GCM SINCE 1994.
FROM 1992-1994 MR. RUGEN WAS A TRADER WITH PNC BANK AND
FROM 1986-1992 WAS A TRADER WITH PENN GROUP.
THE ADDRESS FOR MESSRS. CRUICE, GOULD AND RUGEN IS
GREENVILLE CAPITAL MANAGEMENT, INC., 100 SOUTH ROCKLAND
FALLS ROAD, ROCKLAND, DELAWARE, 19732. THE ADDRESS FOR
DR. UTSINGER IS 8909 CREFIELD STREET, PHILADELPHIA,
PENNSYLVANIA, 19118. THE ADDRESS FOR MR. VAGUE IS 201
N. WALNUT, 15TH FLOOR, WILMINGTON, DELAWARE, 19801.
THE ADDRESS FOR MR. HARRISON IS 74 PARKRIDGE DRIVE,
BRYN MAWR, PENNSYLVANIA, 19010.
AS OF FEBRUARY 1, 1998, OFFICERS AND TRUSTEES OF
THE TRUST BENEFICIALLY OWNED 439,832 SHARES OF
BENEFICIAL INTEREST IN THE FUND, WHICH WAS 47.1% OF THE
FUND'S THEN OUTSTANDING SHARES. TRUSTEES AND OFFICERS
OF THE TRUST WHO ARE OFFICERS, DIRECTORS, EMPLOYEES OR
SHAREHOLDERS OF GCM DO NOT RECEIVE ANY REMUNERATION
FROM THE TRUST OR THE FUND FOR SERVING AS TRUSTEES OR
OFFICERS.
EACH TRUSTEE WHO IS NOT DEEMED AN "INTERESTED
PERSON," AS DEFINED IN THE INVESTMENT COMPANY ACT,
RECEIVES $ 1,000 PER YEAR PAYABLE IN FUND SHARES ON
SEPTEMBER 30TH. THE BOARD ANTICIPATES HOLDING FOUR
MEETINGS DURING 1998.
PRINCIPAL SHAREHOLDERS
AS OF FEBRUARY 1, 1998 THE FOLLOWING PERSONS OWNED
OF RECORD OR ARE KNOWN BY THE COMPANY TO OWN OF RECORD
OR BENEFICIALLY 5% OR MORE OF THE OUTSTANDING SHARES OF
THE FUND:
NAME AND ADDRESS NO. SHARES PERCENTAGE
CHARLES S. CRUICE 432,978 45.3%
GREENVILLE CAPITAL MANAGEMENT, INC.
100 SOUTH ROCKLAND FALLS ROAD
ROCKLAND, DELAWARE, 19732
THEODORE M. REGAN, JR. 55,496 5.8%
28 RIDGEWOOD ROAD
RADNOR, PENNSYLVANIA, 19087
AS OF JANUARY 30, 1998, MR. CRUICE OWNED A
CONTROLLING INTEREST IN THE FUND. SHAREHOLDERS WITH A
CONTROLLING INTEREST COULD AFFECT THE OUTCOME OF PROXY
VOTING OR THE DIRECTION OF MANAGEMENT OF THE FUND.
<PAGE>
INVESTMENT ADVISOR
GCM IS THE INVESTMENT ADVISOR TO THE FUND. MR.
CHARLES S. CRUICE CONTROLS GCM AND IS THE PRESIDENT AND
A DIRECTOR OF GCM. MS. KATHRYN S. CRUICE IS THE
SECRETARY AND A DIRECTOR OF GCM. MR. CHARLES S. CRUICE
OWNS A VOTING MAJORITY INTEREST IN GCM. MR. RICHARD H.
GOULD IS A VICE PRESIDENT AND OFFICER OF GCM. A BRIEF
DESCRIPTION OF THE FUND'S INVESTMENT ADVISORY AGREEMENT
IS SET FORTH IN EACH PROSPECTUS UNDER "MANAGEMENT."
THE FUND'S INVESTMENT ADVISORY AGREEMENT IS DATED
NOVEMBER 18, 1996 (THE "ADVISORY AGREEMENT"). THE
ADVISORY AGREEMENT HAS AN INITIAL TERM OF TWO YEARS AND
THEREAFTER IS REQUIRED TO BE APPROVED ANNUALLY BY THE
BOARD OF TRUSTEES OF THE TRUST OR BY VOTE OF A MAJORITY
OF THE FUND'S OUTSTANDING VOTING SECURITIES (AS DEFINED
IN THE INVESTMENT COMPANY ACT). EACH ANNUAL RENEWAL
MUST ALSO BE APPROVED BY THE VOTE OF A MAJORITY OF THE
TRUSTEES WHO ARE NOT PARTIES TO THE ADVISORY AGREEMENT
OR INTERESTED PERSONS OF ANY SUCH PARTY, CAST IN PERSON
AT A MEETING CALLED FOR THE PURPOSE OF VOTING ON SUCH
APPROVAL. THE ADVISORY AGREEMENT WAS APPROVED BY THE
VOTE OF A MAJORITY OF THE TRUST'S TRUSTEES WHO ARE NOT
PARTIES TO THE ADVISORY AGREEMENT OR INTERESTED PERSONS
OF ANY SUCH PARTY ON OCTOBER 22,1996 AND BY THE INITIAL
SHAREHOLDERS OF THE FUND ON OCTOBER 22, 1996. THE
ADVISORY AGREEMENT IS TERMINABLE WITHOUT PENALTY, ON 60
DAYS' WRITTEN NOTICE BY THE BOARD OF TRUSTEES OF THE
TRUST BY VOTE OF A MAJORITY OF THE TRUST'S OUTSTANDING
VOTING SECURITIES, OR BY GCM, AND WILL TERMINATE
AUTOMATICALLY IN THE EVENT OF ITS ASSIGNMENT.
UNDER THE TERMS OF THE ADVISORY AGREEMENT, GCM
MANAGES THE FUND'S INVESTMENTS SUBJECT TO THE
SUPERVISION OF THE TRUST'S BOARD OF TRUSTEES. GCM IS
RESPONSIBLE FOR INVESTMENT DECISIONS AND SUPPLIES
INVESTMENT RESEARCH AND PORTFOLIO MANAGEMENT. AT ITS
EXPENSE, GCM PROVIDES OFFICE SPACE AND ALL NECESSARY
OFFICE FACILITIES, EQUIPMENT AND PERSONNEL FOR
SERVICING THE INVESTMENTS OF THE FUND.
AS COMPENSATION FOR ITS SERVICES, THE TRUST, ON
BEHALF OF THE FUND, PAYS TO GCM A MONTHLY ADVISORY FEE
AT THE ANNUAL RATE OF 1.00% OF THE AVERAGE DAILY NET
ASSET VALUE OF THE FUND. SEE "DETERMINATION OF NET
ASSET VALUE" IN THE PROSPECTUSES. FROM TIME TO TIME,
GCM MAY VOLUNTARILY WAIVE ALL OR A PORTION OF ITS
MANAGEMENT FEE FOR THE FUND. THE ORGANIZATIONAL
EXPENSES OF THE FUND WERE ADVANCED BY GCM AND HAVE BEEN
REIMBURSED BY THE FUND. THE ORGANIZATIONAL EXPENSES
FOR THE FUND WERE APPROXIMATELY $ 34,100. DURING THE
YEAR ENDED SEPTEMBER 30, 1997, GCM RECEIVED NO
COMPENSATION FROM THE FUND FOR ITS SERVICES UNDER THE
ADVISORY AGREEMENT. THE AMOUNT RECEIVED BY GCM FOR
SUCH SERVICES WOULD HAVE BEEN $53,871 HAD GCM NOT
WAIVED ITS FEES DURING THE YEAR ENDED SEPTEMBER 30,
1997.
UNDERWRITER
UNDER A DISTRIBUTION AGREEMENT DATED NOVEMBER 18,
1996 (THE "DISTRIBUTION AGREEMENT"), AMERIPRIME
FINANCIAL SECURITIES, INC. (THE "DISTRIBUTOR") ACTS AS
UNDERWRITER OF THE FUND'S SHARES. THE DISTRIBUTION
AGREEMENT PROVIDES THAT THE DISTRIBUTOR WILL USE ITS
BEST EFFORTS TO DISTRIBUTE THE FUND'S SHARES. THE
RETAIL SHARES ARE OFFERED FOR SALE BY THE FUND
CONTINUOUSLY AT NET ASSET VALUE PER SHARE PLUS A
MAXIMUM INITIAL SALES CHARGE OF 3.00% OF THE OFFERING
PRICE. NO SALES CHARGE IS IMPOSED ON THE REINVESTMENT
OF DIVIDENDS OR CAPITAL GAINS. CERTAIN OTHER
EXCEPTIONS TO THE IMPOSITION OF THIS SALES CHARGE
APPLY, AS DISCUSSED MORE FULLY IN THE RETAIL CLASS
PROSPECTUSES UNDER THE CAPTION "HOW TO PURCHASE FUND
SHARES -- PURCHASES AT NET ASSET VALUE." THESE
EXCEPTIONS ARE MADE AVAILABLE BECAUSE MINIMAL OR NO
SALES EFFORT IS REQUIRED WITH RESPECT TO THE CATEGORIES
OF INVESTORS SO EXCEPTED. PURSUANT TO THE TERMS OF THE
DISTRIBUTION AGREEMENT, EITHER THE DISTRIBUTOR OR GCM
BEARS THE COSTS OF PRINTING PROSPECTUSES AND
SHAREHOLDER REPORTS WHICH ARE USED FOR SELLING
PURPOSES, AS WELL AS ADVERTISING AND ANY OTHER COSTS
ATTRIBUTABLE TO THE DISTRIBUTION OF FUND SHARES. THE
DISTRIBUTION AGREEMENT IS SUBJECT TO THE SAME
TERMINATION AND RENEWAL PROVISIONS AS ARE DESCRIBED
ABOVE WITH RESPECT TO THE ADVISORY AGREEMENT, EXCEPT
THAT THE DISTRIBUTION AGREEMENT NEED NOT BE APPROVED BY
THE FUND'S SHAREHOLDERS.
DISTRIBUTION PLAN
DESCRIPTION OF PLAN
THE FUND HAS ADOPTED A PLAN PURSUANT TO RULE 12B-1
UNDER THE INVESTMENT COMPANY ACT (THE "PLAN"), WHICH
REQUIRES THE RETAIL CLASS TO PAY THE DISTRIBUTOR, IN
ITS CAPACITY AS THE PRINCIPAL UNDERWRITER OF FUND
SHARES, A DISTRIBUTION FEE OF UP TO 0.25% PER ANNUM OF
THE RETAIL CLASS' AVERAGE DAILY NET ASSETS. UNDER THE
TERMS OF THE PLAN, THE DISTRIBUTOR IS AUTHORIZED TO, IN
TURN, PAY ALL OR A PORTION OF THIS FEE TO ANY
SECURITIES DEALER, FINANCIAL INSTITUTION OR ANY OTHER
PERSON (THE "RECIPIENT") WHO RENDERS ASSISTANCE IN
DISTRIBUTING OR PROMOTING THE SALE OF RETAIL CLASS
SHARES PURSUANT TO A WRITTEN AGREEMENT (THE "RELATED
AGREEMENT"). TO THE EXTENT SUCH FEE IS NOT PAID TO
SUCH PERSONS, THE DISTRIBUTOR MAY USE THE FEE FOR ITS
OWN DISTRIBUTION EXPENSES INCURRED IN CONNECTION WITH
THE SALE OF THE RETAIL CLASS' SHARES, ALTHOUGH IT IS
THE
<PAGE>
DISTRIBUTOR'S CURRENT INTENTION TO PAY OUT ALL OR
MOST OF THE FEE. A FORM OF THE RELATED AGREEMENT
REFERRED TO ABOVE HAS BEEN APPROVED BY A MAJORITY OF
THE BOARD OF TRUSTEES, AND OF THE DISINTERESTED
TRUSTEES VOTING SEPARATELY. ACCORDINGLY, GCM MAY ENTER
INTO RELATED AGREEMENTS WITH SECURITIES DEALERS,
FINANCIAL INSTITUTIONS OR OTHER PERSONS WITHOUT FURTHER
BOARD APPROVAL. DURING THE YEAR ENDED SEPTEMBER 30,
1997, $449 WAS SPENT UNDER THE PLAN.
PURSUANT TO THE TERMS OF THE PLAN, PAYMENT OF THE
DISTRIBUTION FEE IS TO BE MADE QUARTERLY, WITHIN 30
DAYS AFTER THE CLOSE OF THE QUARTER FOR WHICH THE FEE
IS PAYABLE, UPON THE DISTRIBUTOR FORWARDING TO THE
BOARD OF TRUSTEES A WRITTEN REPORT OF ALL AMOUNTS
EXPENDED PURSUANT TO THE PLAN; PROVIDED, HOWEVER, THAT
THE AGGREGATE PAYMENTS BY THE RETAIL CLASS UNDER THE
PLAN IN ANY MONTH TO THE DISTRIBUTOR AND ALL RECIPIENTS
MAY NOT EXCEED 0.25% OF THE RETAIL CLASS' AVERAGE NET
ASSETS FOR THAT QUARTER; AND PROVIDED FURTHER THAT NO
FEE MAY BE PAID IN EXCESS OF THE DISTRIBUTION EXPENSES
AS SET FORTH IN THE QUARTERLY WRITTEN REPORT. THUS,
THE PLAN DOES NOT PROVIDE FOR THE PAYMENT OF
DISTRIBUTION FEES IN SUBSEQUENT PERIODS THAT RELATE TO
EXPENSES INCURRED IN PRIOR PERIODS.
THE PLAN, AND ANY RELATED AGREEMENT WHICH IS
ENTERED INTO, WILL CONTINUE IN EFFECT FOR A PERIOD OF
MORE THAN ONE YEAR ONLY SO LONG AS ITS CONTINUANCE IS
SPECIFICALLY APPROVED AT LEAST ANNUALLY BY A VOTE OF A
MAJORITY OF THE FUND'S BOARD OF TRUSTEES, AND OF THE
DISINTERESTED TRUSTEES, CAST IN PERSON AT A MEETING
CALLED FOR THE PURPOSE OF VOTING ON THE PLAN, OR THE
RELATED AGREEMENT, AS APPLICABLE. IN ADDITION, THE
PLAN, AND ANY RELATED AGREEMENT, MAY BE TERMINATED AT
ANY TIME, WITHOUT PENALTY, BY VOTE OF A MAJORITY OF THE
OUTSTANDING VOTING SECURITIES OF THE RETAIL CLASS, OR
BY VOTE OF A MAJORITY OF DISINTERESTED TRUSTEES, ON NOT
MORE THAN SIXTY (60) DAYS' WRITTEN NOTICE.
ANTICIPATED BENEFITS TO THE RETAIL CLASS
PRIOR TO APPROVING THE PLAN, THE BOARD OF TRUSTEES
WAS FURNISHED WITH A COPY OF THE PLAN AND RELATED
MATERIALS, INCLUDING INFORMATION RELATING TO THE
ADVANTAGES AND DISADVANTAGES OF 12B-1 PLANS CURRENTLY
BEING USED IN THE MUTUAL FUND INDUSTRY. LEGAL COUNSEL
FOR THE FUND PROVIDED ADDITIONAL INFORMATION,
SUMMARIZED THE PROVISIONS OF THE PROPOSED PLAN AND
DISCUSSED THE LEGAL AND REGULATORY CONSIDERATIONS IN
ADOPTING SUCH PLAN.
THE BOARD CONSIDERED VARIOUS FACTORS IN CONNECTION
WITH ITS DECISION TO APPROVE THE PLAN, INCLUDING: (A)
THE NATURE AND CAUSES OF THE CIRCUMSTANCES WHICH MADE
IMPLEMENTATION OF THE PLAN NECESSARY AND APPROPRIATE;
(B) THE WAY IN WHICH THE PLAN WOULD ADDRESS THOSE
CIRCUMSTANCES, INCLUDING THE NATURE AND POTENTIAL
AMOUNT OF EXPENDITURES; (C) THE NATURE OF THE
ANTICIPATED BENEFITS; (D) THE MERITS OF POSSIBLE
ALTERNATIVE PLANS OR PRICING STRUCTURES; (E) THE
RELATIONSHIP OF THE PLAN TO OTHER DISTRIBUTION EFFORTS
OF THE RETAIL CLASS, INCLUDING THE IMPOSITION OF THE
3.00% FRONT-END SALES LOAD, SUBJECT TO CERTAIN
EXCEPTIONS; AND (F) THE POSSIBLE BENEFITS OF THE PLAN
TO ANY OTHER PERSON RELATIVE TO THOSE OF THE RETAIL
CLASS.
BASED UPON ITS REVIEW OF THE FOREGOING FACTORS AND
THE MATERIAL PRESENTED TO IT, AND IN LIGHT OF ITS
FIDUCIARY DUTIES UNDER RELEVANT STATE LAW AND THE
INVESTMENT COMPANY ACT, THE BOARD DETERMINED, IN THE
EXERCISE OF ITS BUSINESS JUDGMENT, THAT THE PLAN WAS
REASONABLY LIKELY TO BENEFIT THE RETAIL CLASS AND ITS
SHAREHOLDERS IN AT LEAST ONE OR SEVERAL POTENTIAL WAYS.
SPECIFICALLY, THE BOARD CONCLUDED THAT THE DISTRIBUTOR
AND ANY RECIPIENTS OPERATING UNDER RELATED AGREEMENTS
WOULD HAVE LITTLE OR NO INCENTIVE TO INCUR PROMOTIONAL
EXPENSES ON BEHALF OF THE RETAIL CLASS IF A RULE 12B-1
PLAN WERE NOT IN PLACE TO REIMBURSE THEM, THUS MAKING
THE ADOPTION OF SUCH PLAN IMPORTANT TO THE RETAIL
CLASS. IN ADDITION, THE BOARD DETERMINED THAT THE
PAYMENT OF DISTRIBUTION FEES TO THESE PERSONS SHOULD
MOTIVATE THEM TO MAINTAIN AND ENHANCE THE LEVEL OF
SERVICE PROVIDED TO THE RETAIL CLASS SHAREHOLDERS,
WHICH WOULD, OF COURSE, BENEFIT SUCH SHAREHOLDERS.
FINALLY, THE ADOPTION OF THE PLAN WOULD LIKELY LEAD TO
AN INCREASE IN NET ASSETS UNDER MANAGEMENT, GIVEN THE
ENHANCED MARKETING EFFORTS ON THE PART OF THE
DISTRIBUTOR AND RECIPIENTS TO SELL FUND SHARES.
WHILE THERE IS NO ASSURANCE THAT THE EXPENDITURE
OF RETAIL CLASS ASSETS TO FINANCE DISTRIBUTION OF
RETAIL CLASS SHARES WILL HAVE THE ANTICIPATED RESULTS,
THE BOARD OF TRUSTEES BELIEVES THERE IS A REASONABLE
LIKELIHOOD THAT ONE OR MORE OF SUCH BENEFITS WILL
RESULT, AND SINCE THE BOARD WILL BE IN A POSITION TO
MONITOR THE DISTRIBUTION EXPENSES OF THE RETAIL CLASS,
IT WILL BE ABLE TO EVALUATE THE BENEFIT OF SUCH
EXPENDITURES IN DECIDING WHETHER TO CONTINUE THE PLAN.
PORTFOLIO TRANSACTIONS AND BROKERAGE
AS INVESTMENT ADVISOR TO THE FUND, GCM IS
RESPONSIBLE FOR DECISIONS TO BUY AND SELL SECURITIES
FOR THE FUND AND FOR THE PLACEMENT OF THE FUND'S
PORTFOLIO BUSINESS, THE NEGOTIATION OF THE COMMISSIONS
TO BE PAID ON SUCH TRANSACTIONS AND THE ALLOCATION OF
PORTFOLIO BROKERAGE AND PRINCIPAL BUSINESS. IT IS THE
POLICY OF GCM TO SEEK THE BEST EXECUTION AT THE BEST
SECURITY PRICE AVAILABLE WITH RESPECT TO EACH
TRANSACTION, IN LIGHT OF THE OVERALL QUALITY OF
BROKERAGE AND RESEARCH SERVICES PROVIDED TO GCM OR THE
FUND. THE BEST PRICE TO THE FUND MEANS THE BEST NET
PRICE WITHOUT REGARD TO THE MIX BETWEEN PURCHASE OR
SALE PRICE AND COMMISSION, IF ANY. PURCHASES MAY BE
MADE FROM UNDERWRITERS, DEALERS,
<PAGE>
AND, ON OCCASION, THE
ISSUERS. COMMISSIONS WILL BE PAID ON THE FUND'S
FUTURES AND OPTIONS TRANSACTIONS, IF ANY. THE PURCHASE
PRICE OF PORTFOLIO SECURITIES PURCHASED FROM AN
UNDERWRITER OR DEALER MAY INCLUDE UNDERWRITING
COMMISSIONS AND DEALER SPREADS. THE FUND MAY PAY
MARK-UPS ON PRINCIPAL TRANSACTIONS. IN SELECTING
BROKER-DEALERS AND IN NEGOTIATING COMMISSIONS, GCM
CONSIDERS THE FIRM'S RELIABILITY, THE QUALITY OF ITS
EXECUTION SERVICES ON A CONTINUING BASIS AND ITS
FINANCIAL CONDITION. BROKERAGE WILL NOT BE ALLOCATED
BASED ON THE SALE OF THE FUND'S SHARES.
THE AGGREGATE AMOUNT OF BROKERAGE COMMISSIONS PAID
BY THE FUND FOR THE YEAR ENDED SEPTEMBER 30, 1997 WAS
$8,784.
SECTION 28(E) OF THE SECURITIES EXCHANGE ACT OF
1934 ("SECTION 28(E)") PERMITS AN INVESTMENT ADVISOR,
UNDER CERTAIN CIRCUMSTANCES, TO CAUSE AN ACCOUNT TO PAY
A BROKER OR DEALER WHO SUPPLIES BROKERAGE AND RESEARCH
SERVICES A COMMISSION FOR EFFECTING A TRANSACTION IN
EXCESS OF THE AMOUNT OF COMMISSION ANOTHER BROKER OR
DEALER WOULD HAVE CHARGED FOR EFFECTING THE
TRANSACTION. BROKERAGE AND RESEARCH SERVICES INCLUDE
(A) FURNISHING ADVICE AS TO THE VALUE OF SECURITIES,
THE ADVISABILITY OF INVESTING, PURCHASING OR SELLING
SECURITIES, AND THE AVAILABILITY OF SECURITIES OR
PURCHASERS OR SELLERS OF SECURITIES; (B) FURNISHING
ANALYSES AND REPORTS CONCERNING ISSUERS, INDUSTRIES,
SECURITIES, ECONOMIC FACTORS AND TRENDS, PORTFOLIO
STRATEGY, AND THE PERFORMANCE OF ACCOUNTS; AND (C)
EFFECTING SECURITIES TRANSACTIONS AND PERFORMING
FUNCTIONS INCIDENTAL THERETO (SUCH AS CLEARANCE,
SETTLEMENT, AND CUSTODY).
GCM IS RESPONSIBLE FOR SELECTING BROKERS IN
CONNECTION WITH SECURITIES TRANSACTIONS. IN SELECTING
SUCH BROKERS, GCM CONSIDERS INVESTMENT AND MARKET
INFORMATION AND OTHER RESEARCH, SUCH AS ECONOMIC,
SECURITIES AND PERFORMANCE MEASUREMENT RESEARCH,
PROVIDED BY SUCH BROKERS, AND THE QUALITY AND
RELIABILITY OF BROKERAGE SERVICES, INCLUDING EXECUTION
CAPABILITY, PERFORMANCE, AND FINANCIAL RESPONSIBILITY.
ACCORDINGLY, THE COMMISSIONS CHARGED BY ANY SUCH BROKER
MAY BE GREATER THAN THE AMOUNT ANOTHER FIRM MIGHT
CHARGE IF GCM DETERMINES IN GOOD FAITH THAT THE AMOUNT
OF SUCH COMMISSIONS IS REASONABLE IN RELATION TO THE
VALUE OF THE RESEARCH INFORMATION AND BROKERAGE
SERVICES PROVIDED BY SUCH BROKER TO THE FUND. GCM
BELIEVES THAT THE RESEARCH INFORMATION RECEIVED IN THIS
MANNER PROVIDES THE FUND WITH BENEFITS BY SUPPLEMENTING
THE RESEARCH OTHERWISE AVAILABLE TO THE FUND. THE
ADVISORY AGREEMENT PROVIDES THAT SUCH HIGHER
COMMISSIONS WILL NOT BE PAID BY THE FUND UNLESS (A) GCM
DETERMINES IN GOOD FAITH THAT THE AMOUNT IS REASONABLE
IN RELATION TO THE SERVICES IN TERMS OF THE PARTICULAR
TRANSACTION OR IN TERMS OF GCM'S OVERALL
RESPONSIBILITIES; AND (B) SUCH PAYMENT IS MADE IN
COMPLIANCE WITH THE PROVISIONS OF SECTION 28(E) AND
OTHER APPLICABLE STATE AND FEDERAL LAWS. THE
INVESTMENT ADVISORY FEES PAID BY THE FUND UNDER THE
ADVISORY AGREEMENT ARE NOT REDUCED AS A RESULT OF GCM'S
RECEIPT OF RESEARCH SERVICES.
GCM PLACES PORTFOLIO TRANSACTIONS FOR OTHER
ADVISORY ACCOUNTS MANAGED BY GCM. RESEARCH SERVICES
FURNISHED BY FIRMS THROUGH WHICH THE FUND EFFECTS ITS
SECURITIES TRANSACTIONS MAY BE USED BY GCM IN SERVICING
ALL OF ITS ACCOUNTS; NOT ALL OF SUCH SERVICES MAY BE
USED BY GCM IN CONNECTION WITH THE FUND. GCM BELIEVES
IT IS NOT POSSIBLE TO MEASURE SEPARATELY THE BENEFITS
FROM RESEARCH SERVICES TO EACH OF THE ACCOUNTS
(INCLUDING THE FUND) MANAGED BY IT. BECAUSE THE VOLUME
AND NATURE OF THE TRADING ACTIVITIES OF THE ACCOUNTS
ARE NOT UNIFORM, THE AMOUNT OF COMMISSIONS IN EXCESS OF
THOSE CHARGED BY ANOTHER BROKER PAID BY EACH ACCOUNT
FOR BROKERAGE AND RESEARCH SERVICES WILL VARY.
HOWEVER, GCM BELIEVES SUCH COSTS TO THE FUND WILL NOT
BE DISPROPORTIONATE TO THE BENEFITS RECEIVED BY THE
FUND ON A CONTINUING BASIS. GCM SEEKS TO ALLOCATE
PORTFOLIO TRANSACTIONS EQUITABLY WHENEVER CONCURRENT
DECISIONS ARE MADE TO PURCHASE OR SELL SECURITIES BY
THE FUND AND ANOTHER ADVISORY ACCOUNT. IN SOME CASES,
THIS PROCEDURE COULD HAVE AN ADVERSE EFFECT ON THE
PRICE OR THE AMOUNT OF SECURITIES AVAILABLE TO THE
FUND. IN MAKING SUCH ALLOCATIONS BETWEEN THE FUND AND
OTHER ADVISORY ACCOUNTS, THE MAIN FACTORS CONSIDERED BY
GCM ARE THE RESPECTIVE INVESTMENT OBJECTIVES, THE
RELATIVE SIZE OF PORTFOLIO HOLDINGS OF THE SAME OR
COMPARABLE SECURITIES, THE AVAILABILITY OF CASH FOR
INVESTMENT AND THE SIZE OF INVESTMENT COMMITMENTS
GENERALLY HELD.
THE FUND ANTICIPATES THAT ITS PORTFOLIO TURNOVER
RATE MAY EXCEED 70%, ALTHOUGH SUCH RATE IS NOT EXPECTED
TO EXCEED 110%. THE FUND'S PORTFOLIO TURNOVER RATE FOR
THE PERIOD DECEMBER 1, 1996 TO SEPTEMBER 30, 1997 WAS
204.05% DUE TO COMPLIANCE WITH THE SHORT-SHORT TEST
WHICH HAS SINCE BEEN REPEALED. THE ANNUAL PORTFOLIO
TURNOVER RATE INDICATES CHANGES IN THE FUND'S
PORTFOLIO; FOR INSTANCE, A RATE OF 100% WOULD RESULT IF
ALL THE SECURITIES IN THE PORTFOLIO (EXCLUDING
SECURITIES WHOSE MATURITIES AT ACQUISITION WERE ONE
YEAR OR LESS) AT THE BEGINNING OF AN ANNUAL PERIOD HAD
BEEN REPLACED BY THE END OF THE PERIOD. THE TURNOVER
RATE MAY VARY FROM YEAR TO YEAR, AS WELL AS WITHIN A
YEAR, AND MAY BE AFFECTED BY PORTFOLIO SALES NECESSARY
TO MEET CASH REQUIREMENTS FOR REDEMPTIONS OF THE FUND'S
SHARES.
CUSTODIAN
AS CUSTODIAN OF THE FUND'S ASSETS, FIRSTAR TRUST
COMPANY ("FIRSTAR") MUTUAL FUND SERVICES, THIRD FLOOR,
615 EAST MICHIGAN STREET, MILWAUKEE, WISCONSIN 53202,
HAS CUSTODY OF ALL SECURITIES AND CASH OF THE FUND,
DELIVERS AND RECEIVES PAYMENT FOR SECURITIES SOLD,
RECEIVES AND PAYS FOR SECURITIES PURCHASED, COLLECTS
INCOME FROM INVESTMENTS AND
<PAGE>
PERFORMS OTHER DUTIES, ALL
AS DIRECTED BY THE OFFICERS OF THE TRUST. THE
CUSTODIAN IS IN NO WAY RESPONSIBLE FOR ANY OF THE
INVESTMENT POLICIES OR DECISIONS OF THE FUND.
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
FIRSTAR ALSO ACTS AS TRANSFER AGENT AND DIVIDEND-
DISBURSING AGENT FOR THE FUND. FIRSTAR IS COMPENSATED
BASED ON AN ANNUAL FEE PER OPEN ACCOUNT OF $14, PLUS
OUT-OF-POCKET EXPENSES SUCH AS POSTAGE AND PRINTING
EXPENSES IN CONNECTION WITH SHAREHOLDER COMMUNICATIONS.
FIRSTAR ALSO RECEIVES AN ANNUAL FEE PER CLOSED ACCOUNT
OF $14.
TAXES
AS INDICATED UNDER "INCOME DIVIDENDS, CAPITAL
GAINS DISTRIBUTIONS, AND TAX TREATMENT" IN THE
PROSPECTUSES, IT IS THE TRUST'S INTENT, ON BEHALF OF
THE FUND, TO QUALIFY ANNUALLY AS A "REGULATED
INVESTMENT COMPANY" UNDER THE CODE. THIS QUALIFICATION
DOES NOT INVOLVE GOVERNMENT SUPERVISION OF THE FUND'S
MANAGEMENT PRACTICES OR POLICIES.
A DIVIDEND OR CAPITAL GAINS DISTRIBUTION RECEIVED
SHORTLY AFTER THE PURCHASE OF SHARES REDUCES THE NET
ASSET VALUE OF SHARES BY THE AMOUNT OF THE DIVIDEND OR
DISTRIBUTION AND, ALTHOUGH IN EFFECT A RETURN OF
CAPITAL, WILL BE SUBJECT TO INCOME TAXES. NET GAIN ON
THE SALE OF SECURITIES WHEN REALIZED AND DISTRIBUTED IS
TAXABLE AS CAPITAL GAIN. IF THE NET ASSET VALUE OF
SHARES WERE REDUCED BELOW A SHAREHOLDER'S COST BY
DISTRIBUTION OF GAINS REALIZED ON SALES OF SECURITIES,
SUCH DISTRIBUTION WOULD BE A RETURN OF INVESTMENT
ALTHOUGH TAXABLE AS STATED ABOVE.
DETERMINATION OF NET ASSET VALUE
AS SET FORTH IN THE PROSPECTUSES UNDER THE SAME
CAPTION, THE NET ASSET VALUE OF EACH CLASS WILL BE
DETERMINED AS OF THE CLOSE OF TRADING ON EACH DAY THE
NEW YORK STOCK EXCHANGE IS OPEN FOR TRADING. THE FUND
IS NOT REQUIRED TO DETERMINE NET ASSET VALUE ON DAYS
THE NEW YORK STOCK EXCHANGE IS CLOSED AND AT OTHER
TIMES DESCRIBED IN THE PROSPECTUS. THE NEW YORK STOCK
EXCHANGE IS CLOSED ON NEW YEAR'S DAY, MARTIN LUTHER
KING, JR. DAY, PRESIDENT'S DAY, GOOD FRIDAY, MEMORIAL
DAY, INDEPENDENCE DAY, LABOR DAY, THANKSGIVING DAY, AND
CHRISTMAS DAY. ADDITIONALLY, IF ANY OF THE
AFOREMENTIONED HOLIDAYS FALLS ON A SATURDAY, THE NEW
YORK STOCK EXCHANGE WILL NOT BE OPEN FOR TRADING ON THE
PRECEDING FRIDAY AND WHEN SUCH HOLIDAY FALLS ON A
SUNDAY, THE NEW YORK STOCK EXCHANGE WILL NOT BE OPEN
FOR TRADING ON THE SUCCEEDING MONDAY, UNLESS UNUSUAL
BUSINESS CONDITIONS EXIST, SUCH AS THE ENDING OF A
MONTHLY OR THE YEARLY ACCOUNTING PERIOD.
SHAREHOLDER MEETINGS
DELAWARE LAW PERMITS REGISTERED INVESTMENT
COMPANIES, SUCH AS THE TRUST, TO OPERATE WITHOUT AN
ANNUAL MEETING OF SHAREHOLDERS UNDER SPECIFIED
CIRCUMSTANCES IF AN ANNUAL MEETING IS NOT REQUIRED BY
THE INVESTMENT COMPANY ACT. THE TRUST HAS ADOPTED THE
APPROPRIATE PROVISIONS IN ITS BYLAWS AND MAY, AT ITS
DISCRETION, NOT HOLD AN ANNUAL MEETING IN ANY YEAR IN
WHICH THE ELECTION OF TRUSTEES IS NOT REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY
ACT.
THE TRUST'S BYLAWS ALSO CONTAIN PROCEDURES FOR THE
REMOVAL OF TRUSTEES BY SHAREHOLDERS. AT ANY MEETING OF
SHAREHOLDERS, DULY CALLED AND AT WHICH A QUORUM IS
PRESENT, THE SHAREHOLDERS MAY, BY THE AFFIRMATIVE VOTE
OF THE HOLDERS OF A MAJORITY OF THE VOTES ENTITLED TO
BE CAST THEREON, REMOVE ANY TRUSTEES FROM OFFICE AND
MAY ELECT A SUCCESSOR OR SUCCESSORS TO FILL ANY
RESULTING VACANCIES FOR THE UNEXPIRED TERMS OF REMOVED
TRUSTEES.
UPON THE WRITTEN REQUEST OF THE HOLDERS OF SHARES
ENTITLED TO NOT LESS THAN TEN PERCENT (10%) OF ALL THE
VOTES ENTITLED TO BE CAST AT SUCH MEETING, THE
SECRETARY OF THE TRUST SHALL PROMPTLY CALL A SPECIAL
MEETING OF SHAREHOLDERS FOR THE PURPOSE OF VOTING UPON
THE QUESTION OF REMOVAL OF ANY TRUSTEE. WHENEVER TEN
OR MORE SHAREHOLDERS OF RECORD WHO HAVE BEEN SUCH FOR
AT LEAST SIX MONTHS PRECEDING THE DATE OF APPLICATION,
AND WHO HOLD IN THE AGGREGATE EITHER SHARES HAVING A
NET ASSET VALUE OF AT LEAST $25,000 OR AT LEAST ONE
PERCENT (1%) OF THE TOTAL OUTSTANDING SHARES, WHICHEVER
IS LESS, SHALL APPLY TO THE TRUST'S SECRETARY IN
WRITING, STATING THAT THEY WISH TO COMMUNICATE WITH
OTHER SHAREHOLDERS WITH A VIEW TO OBTAINING SIGNATURES
TO A REQUEST FOR A MEETING AS DESCRIBED ABOVE AND
ACCOMPANIED BY A FORM OF COMMUNICATION AND REQUEST
WHICH THEY WISH TO TRANSMIT, THE SECRETARY SHALL WITHIN
FIVE BUSINESS DAYS AFTER SUCH APPLICATION EITHER: (1)
AFFORD TO SUCH APPLICANTS ACCESS TO A LIST OF THE NAMES
AND ADDRESSES OF ALL SHAREHOLDERS AS
<PAGE>
RECORDED ON THE
BOOKS OF THE TRUST; OR (2) INFORM SUCH APPLICANTS AS TO
THE APPROXIMATE NUMBER OF SHAREHOLDERS OF RECORD AND
THE APPROXIMATE COST OF MAILING TO THEM THE PROPOSED
COMMUNICATION AND FORM OF REQUEST.
IF THE SECRETARY ELECTS TO FOLLOW THE COURSE
SPECIFIED IN CLAUSE (2) OF THE LAST SENTENCE OF THE
PRECEDING PARAGRAPH, THE SECRETARY, UPON THE WRITTEN
REQUEST OF SUCH APPLICANTS, ACCOMPANIED BY A TENDER OF
THE MATERIAL TO BE MAILED AND OF THE REASONABLE
EXPENSES OF MAILING, SHALL, WITH REASONABLE PROMPTNESS,
MAIL SUCH MATERIAL TO ALL SHAREHOLDERS OF RECORD AT
THEIR ADDRESSES AS RECORDED ON THE BOOKS UNLESS WITHIN
FIVE BUSINESS DAYS AFTER SUCH TENDER THE SECRETARY
SHALL MAIL TO SUCH APPLICANTS AND FILE WITH THE SEC,
TOGETHER WITH A COPY OF THE MATERIAL TO BE MAILED, A
WRITTEN STATEMENT SIGNED BY AT LEAST A MAJORITY OF THE
BOARD OF TRUSTEES TO THE EFFECT THAT IN THEIR OPINION
EITHER SUCH MATERIAL CONTAINS UNTRUE STATEMENTS OF FACT
OR OMITS TO STATE FACTS NECESSARY TO MAKE THE
STATEMENTS CONTAINED THEREIN NOT MISLEADING, OR WOULD
BE IN VIOLATION OF APPLICABLE LAW, AND SPECIFYING THE
BASIS OF SUCH OPINION.
AFTER OPPORTUNITY FOR HEARING UPON THE OBJECTIONS
SPECIFIED IN THE WRITTEN STATEMENT SO FILED, THE SEC
MAY, AND IF DEMANDED BY THE BOARD OF TRUSTEES OR BY
SUCH APPLICANTS SHALL, ENTER AN ORDER EITHER SUSTAINING
ONE OR MORE OF SUCH OBJECTIONS OR REFUSING TO SUSTAIN
ANY OF THEM. IF THE SEC SHALL ENTER AN ORDER REFUSING
TO SUSTAIN ANY OF SUCH OBJECTIONS, OR IF, AFTER THE
ENTRY OF AN ORDER SUSTAINING ONE OR MORE OF SUCH
OBJECTIONS, THE SEC SHALL FIND, AFTER NOTICE AND
OPPORTUNITY FOR HEARING, THAT ALL OBJECTIONS SO
SUSTAINED HAVE BEEN MET, AND SHALL ENTER AN ORDER SO
DECLARING, THE SECRETARY SHALL MAIL COPIES OF SUCH
MATERIAL TO ALL SHAREHOLDERS WITH REASONABLE PROMPTNESS
AFTER THE ENTRY OF SUCH ORDER AND THE RENEWAL OF SUCH
TENDER.
PERFORMANCE INFORMATION
AS DESCRIBED IN THE "COMPARISON OF INVESTMENT
RESULTS" SECTION OF EACH CLASS' RESPECTIVE PROSPECTUS,
EACH CLASS' HISTORICAL PERFORMANCE OR RETURN MAY BE
SHOWN IN THE FORM OF VARIOUS PERFORMANCE FIGURES. THE
FUND MAY OCCASIONALLY CITE STATISTICS TO REFLECT ITS
VOLATILITY OR RISK. EACH CLASS' PERFORMANCE FIGURES
ARE BASED UPON HISTORICAL RESULTS AND ARE NOT
NECESSARILY REPRESENTATIVE OF FUTURE PERFORMANCE.
FACTORS AFFECTING EACH CLASS' PERFORMANCE INCLUDE
GENERAL MARKET CONDITIONS, OPERATING EXPENSES, THE
IMPOSITION OF SALES CHARGES AND INVESTMENT MANAGEMENT.
ANY ADDITIONAL FEES CHARGED BY A DEALER OR OTHER
FINANCIAL SERVICES FIRM WOULD REDUCE THE RETURNS
DESCRIBED IN THIS SECTION.
TOTAL RETURN
THE AVERAGE ANNUAL TOTAL RETURN OF EACH CLASS IS
COMPUTED BY FINDING THE AVERAGE ANNUAL COMPOUNDED RATES
OF RETURN OVER THE PERIODS THAT WOULD EQUATE THE
INITIAL AMOUNT INVESTED TO THE ENDING REDEEMABLE VALUE,
ACCORDING TO THE FOLLOWING FORMULA:
P(1+T)N = ERV
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
T = AVERAGE ANNUAL TOTAL RETURN.
N = NUMBER OF YEARS.
ERV = ENDING REDEEMABLE VALUE OF A
HYPOTHETICAL $1,000 PAYMENT MADE AT
THE BEGINNING OF THE STATED PERIODS
AT THE END OF THE STATED PERIODS.
CALCULATION OF EACH CLASS' TOTAL RETURN IS NOT
SUBJECT TO A STANDARDIZED FORMULA. TOTAL RETURN
PERFORMANCE FOR A SPECIFIC PERIOD IS CALCULATED BY
FIRST TAKING AN INVESTMENT (ASSUMED TO BE $1,000)
("INITIAL INVESTMENT") IN EACH CLASS' RESPECTIVE SHARES
ON THE FIRST DAY OF THE PERIOD AND COMPUTING THE
"ENDING VALUE" OF THAT INVESTMENT AT THE END OF THE
PERIOD. THE TOTAL RETURN PERCENTAGE IS THEN DETERMINED
BY SUBTRACTING THE INITIAL INVESTMENT FROM THE ENDING
VALUE AND DIVIDING THE REMAINDER BY THE INITIAL
INVESTMENT AND EXPRESSING THE RESULT AS A PERCENTAGE.
WITH RESPECT TO THE RETAIL CLASS, THE CALCULATION
REFLECTS THE DEDUCTION OF THE MAXIMUM INITIAL SALES
CHARGE AND ASSUMES THAT ALL INCOME AND CAPITAL GAINS
DIVIDENDS PAID BY THE RETAIL CLASS HAVE BEEN REINVESTED
AT THE NET ASSET VALUE OF THE RETAIL CLASS ON THE
REINVESTMENT DATES DURING THE PERIOD. TOTAL RETURN MAY
ALSO BE SHOWN AS THE INCREASED DOLLAR VALUE OF THE
HYPOTHETICAL INVESTMENT OVER THE PERIOD.
CUMULATIVE TOTAL RETURN REPRESENTS THE SIMPLE
CHANGE IN VALUE OF AN INVESTMENT OVER A STATED PERIOD
AND MAY BE QUOTED AS A PERCENTAGE OR AS A DOLLAR
AMOUNT. TOTAL RETURNS MAY BE BROKEN DOWN INTO THEIR
COMPONENTS OF INCOME AND CAPITAL (INCLUDING CAPITAL
GAINS AND CHANGES IN SHARE PRICE) IN ORDER TO
ILLUSTRATE THE RELATIONSHIP BETWEEN THESE FACTORS AND
THEIR CONTRIBUTIONS TO TOTAL RETURN.
<PAGE>
VOLATILITY
OCCASIONALLY STATISTICS MAY BE USED TO SPECIFY
FUND VOLATILITY OR RISK. MEASURES OF VOLATILITY OR
RISK ARE GENERALLY USED TO COMPARE NET ASSET VALUE OR
PERFORMANCE RELATIVE TO A MARKET INDEX. ONE MEASURE OF
VOLATILITY IS BETA. BETA IS THE VOLATILITY OF A FUND
RELATIVE TO THE TOTAL MARKET AS REPRESENTED BY THE
STANDARD & POOR'S 500 STOCK INDEX. A BETA OF MORE THAN
1.00 INDICATES VOLATILITY GREATER THAN THE MARKET, AND
A BETA OF LESS THAN 1.00 INDICATES VOLATILITY LESS THAN
THE MARKET. ANOTHER MEASURE OF VOLATILITY OR RISK IS
STANDARD DEVIATION. STANDARD DEVIATION IS USED TO
MEASURE VARIABILITY OF NET ASSET VALUE OR TOTAL RETURN
AROUND AN AVERAGE, OVER A SPECIFIED PERIOD OF TIME.
THE PREMISE IS THAT GREATER VOLATILITY CONNOTES GREATER
RISK UNDERTAKEN IN ACHIEVING PERFORMANCE.
COMPARISONS
EACH CLASS MAY COMPARE ITS PERFORMANCE TO THAT OF
UNITED STATES TREASURY BILLS, NOTES OR BONDS. TREASURY
OBLIGATIONS ARE ISSUED IN SELECTED DENOMINATIONS.
RATES OF TREASURY OBLIGATIONS ARE FIXED AT THE TIME OF
ISSUANCE AND PAYMENT OF PRINCIPAL AND INTEREST IS
BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED
STATES TREASURY. THE MARKET VALUE OF SUCH INSTRUMENTS
WILL GENERALLY FLUCTUATE INVERSELY WITH INTEREST RATES
PRIOR TO MATURITY AND WILL EQUAL PAR VALUE AT MATURITY.
GENERALLY, THE VALUES OF OBLIGATIONS WITH SHORTER
MATURITIES WILL FLUCTUATE LESS THAN THOSE WITH LONGER
MATURITIES.
FROM TIME TO TIME, IN MARKETING AND OTHER FUND
LITERATURE, EACH CLASS' PERFORMANCE MAY BE COMPARED TO
THE PERFORMANCE OF OTHER MUTUAL FUNDS IN GENERAL OR TO
THE PERFORMANCE OF PARTICULAR TYPES OF MUTUAL FUNDS
WITH SIMILAR INVESTMENT GOALS, AS TRACKED BY
INDEPENDENT ORGANIZATIONS. AMONG THESE ORGANIZATIONS,
LIPPER ANALYTICAL SERVICES, INC. ("LIPPER"), A WIDELY
USED INDEPENDENT RESEARCH FIRM WHICH RANKS MUTUAL FUNDS
BY OVERALL PERFORMANCE, INVESTMENT OBJECTIVES, AND
ASSETS, MAY BE CITED. LIPPER PERFORMANCE FIGURES ARE
BASED ON CHANGES IN NET ASSET VALUE, WITH ALL INCOME
AND CAPITAL GAINS DIVIDENDS REINVESTED. SUCH
CALCULATIONS DO NOT INCLUDE THE EFFECT OF ANY SALES
CHARGES. THE FUND WILL BE COMPARED TO LIPPER'S
APPROPRIATE FUND CATEGORY, THAT IS, BY FUND OBJECTIVE
AND PORTFOLIO HOLDINGS.
EACH CLASS' PERFORMANCE MAY ALSO BE COMPARED TO
THE PERFORMANCE OF OTHER MUTUAL FUNDS BY MORNINGSTAR,
INC. ("MORNINGSTAR"), WHICH RATES FUNDS ON THE BASIS OF
HISTORICAL RISK AND TOTAL RETURN. MORNINGSTAR'S
RATINGS RANGE FROM FIVE STARS (HIGHEST) TO ONE STAR
(LOWEST) AND REPRESENT MORNINGSTAR'S ASSESSMENT OF THE
HISTORICAL RISK LEVEL AND TOTAL RETURN OF A FUND AS A
WEIGHTED AVERAGE FOR 3, 5, AND 10 YEAR PERIODS.
RATINGS ARE NOT ABSOLUTE OR NECESSARILY PREDICTIVE OF
FUTURE PERFORMANCE.
EVALUATIONS OF EACH CLASS' PERFORMANCE MADE BY
INDEPENDENT SOURCES MAY ALSO BE USED IN ADVERTISEMENTS
CONCERNING A CLASS, INCLUDING REPRINTS OF OR SELECTIONS
FROM, EDITORIALS OR ARTICLES ABOUT A CLASS. SOURCES
FOR PERFORMANCE AND ARTICLES ABOUT THE FUND MAY INCLUDE
PUBLICATIONS SUCH AS MONEY, FORBES, KIPLINGER'S,
FINANCIAL WORLD, BUSINESS WEEK, U.S. NEWS AND WORLD
REPORT, THE WALL STREET JOURNAL, BARRON'S AND A VARIETY
OF INVESTMENT NEWSLETTERS.
EACH CLASS MAY COMPARE ITS PERFORMANCE TO A WIDE
VARIETY OF INDICES AND MEASURES OF INFLATION INCLUDING
THE STANDARD & POOR'S INDEX OF 500 STOCKS AND THE
NASDAQ OVER-THE-COUNTER COMPOSITE INDEX. THERE ARE
DIFFERENCES AND SIMILARITIES BETWEEN THE INVESTMENTS
THAT THE FUND MAY PURCHASE FOR ITS PORTFOLIO AND THE
INVESTMENTS MEASURED BY THESE INDICES.
INVESTORS MAY WANT TO COMPARE A CLASS' PERFORMANCE
TO THAT OF CERTIFICATES OF DEPOSIT OFFERED BY BANKS AND
OTHER DEPOSITORY INSTITUTIONS. CERTIFICATES OF DEPOSIT
MAY OFFER FIXED OR VARIABLE INTEREST RATES AND
PRINCIPAL IS GUARANTEED AND MAY BE INSURED. WITHDRAWAL
OF THE DEPOSITS PRIOR TO MATURITY NORMALLY WILL BE
SUBJECT TO A PENALTY. RATES OFFERED BY BANKS AND OTHER
DEPOSITORY INSTITUTIONS ARE SUBJECT TO CHANGE AT ANY
TIME SPECIFIED BY THE ISSUING INSTITUTION.
INVESTORS MAY ALSO WANT TO COMPARE PERFORMANCE OF
A CLASS TO THAT OF MONEY MARKET FUNDS. MONEY MARKET
FUND YIELDS WILL FLUCTUATE AND SHARES ARE NOT INSURED,
BUT SHARE VALUES USUALLY REMAIN STABLE.
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP, 777 EAST WISCONSIN AVENUE,
MILWAUKEE, WISCONSIN 53202, THE FUND'S INDEPENDENT
ACCOUNTANTS, AUDIT AND REPORT ON THE FUND'S ANNUAL
FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL STATEMENTS
THE FOLLOWING AUDITED FINANCIAL STATEMENTS OF THE
FUND ARE INCORPORATED HEREIN BY REFERENCE TO THE FUND'S
ANNUAL REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 1997
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
DECEMBER 3, 1997:
(A) SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 1997.
(B) STATEMENT OF ASSETS AND LIABILITIES AS OF
SEPTEMBER 30, 1997.
(C) STATEMENT OF OPERATIONS FOR THE PERIOD ENDED
SEPTEMBER 30, 1997.
(D) STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD
ENDED SEPTEMBER 30, 1997.
(E) FINANCIAL HIGHLIGHTS FOR THE PERIOD ENDED
SEPTEMBER 30, 1997.
(F) NOTES TO FINANCIAL STATEMENTS.
(G) REPORT OF INDEPENDENT AUDITORS DATED OCTOBER 15,
1997.
<PAGE>
APPENDIX
SHORT-TERM RATINGS
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a
current assessment of the likelihood of timely payment
of debt considered short-term in the relevant market.
Ratings graded into several categories, ranging
from `A-1' for the highest quality obligations to `D'
for the lowest. These categories are as follows:
A-1 This highest category indicates that the
degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with
this designation is satisfactory. However, the
relative degree of safety is not as high as for issues
designated `A-1'.
A-3 Issues carrying this designation have adequate
capacity for timely payment. They are, however, more
vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher
designations.
B Issues rated `B' are regarded as having only
speculative capacity for timely payment.
C This rating is assigned to short-term debt
obligations with doubtful capacity for payment.
D 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 has not expired, unless
S&P believes that such payments will be made during
such grace period.
Standard & Poor's Note Ratings
A Standard & Poor's note rating reflects the
liquidity concerns and market access risks unique to
notes. Notes due in three years or less normally
receive a note rating. Notes maturing beyond three
years normally receive a bond rating, although the
following criteria are used in making such an
assessment: (i) the amortization schedule (the larger
the final maturity relative to the other maturities,
the more likely the issue will be rated as a note), and
(ii) the source of payment (the more dependent the
issue is on the market for its refinancing, the more
likely it will be rated as a note).
SP-1 notes have very strong or strong
capacity to pay principal and interest. Those
issues determined to possess overwhelming safety
characteristics are designated as SP-1+.
SP-2 notes have satisfactory
capacity to pay principal and interest.
SP-3 notes have speculative
capacity to pay principal and interest.
Moody's Commercial Paper Ratings
The term "commercial paper" as used by Moody's
means promissory obligations not having an original
maturity in excess of nine months. Moody's makes no
representation as to whether such commercial paper is
by any other definition "commercial paper" or is exempt
from registration under the Securities Act of 1933, as
amended.
Moody's commercial paper ratings are opinions on
the ability of issuers to repay punctually promissory
obligations not having an original maturity in excess
of nine months. Moody's makes no representation that
such obligations are exempt from registration under the
Securities Act of 1933, nor does it represent that any
specific note is a valid obligation of a rated issuer
or issued in conformity with any applicable law.
Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
<PAGE>
Issuers rated Prime-1 (or related supporting
institutions) have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following
characteristics: (i) leading market positions in well
established industries, (ii) high rates of return on
funds employed, (iii) conservative capitalization
structures with moderate reliance on debt and ample
asset protection, (iv) broad margins in earnings
coverage of fixed financial charges and high internal
cash generation, and (v) well established access to a
range of financial markets and assured sources of
alternate liquidity.
Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of
short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting
institutions) have an acceptable capacity for repayment
of short-term promissory obligations. The effect of
industry characteristics and market composition may be
more pronounced. Variability in earnings and
profitability may result in changes in the level of
debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate
liquidity is maintained.
Issuers rated Not Prime do not fall within any of
the Prime rating categories.
Moody's Note Ratings
MIG-1 notes are the best quality. There is
present strong protection by established cash flows,
superior liquidity support or demonstrated broad-based
access to the market for refinancing.
MIG-2 notes are high quality. Margins of
protection are ample although not so large as in the
preceding group.
MIG-3 notes are favorable quality. All security
elements are accounted for but there is lacking the
undeniable strength of the preceding grades. Liquidity
and cash flow protection may be narrow and market
access for refinancing is likely to be less well
established.
MIG-4 notes are adequate quality. Protection
commonly regarded as required of an investment security
is present and although not distinctly or predominantly
speculative, there is specific risk.
S.G. notes are speculative quality. Debt
instruments in this category lack margins of
protection.
Fitch Investors Service, Inc. Commercial Paper and Note
Ratings
Fitch's short-term ratings apply to debt
obligations that are payable on demand or have original
maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and
municipal and investment notes. Although the credit
analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis on the
existence of liquidity necessary to meet the issuer's
obligations in a timely manner. Fitch's short-term
ratings are as follows:
Fitch-1+ (Exceptionally Strong Credit
Quality) Issues assigned this
rating are regarded as having the
strongest degree of assurance for
timely payment.
Fitch-2 (Very Strong Credit Quality)
Issues assigned this rating
reflect an assurance of timely
payment only slightly less in
degree than issues rated Fitch-1+.
Fitch-2 (Good Credit Quality) Issues
carrying this rating have a
satisfactory degree of assurance
for timely payment but the margin
of safety is not as great as the
two higher categories.
Fitch-3 (Fair Credit Quality) Issues
carrying this rating have
characteristics suggesting that
the degree of assurance for timely
payment is adequate, however, near-
term
<PAGE>
adverse change is likely to
cause these securities to be rated
below investment grade.
Fitch-S (Weak Credit Quality) Issues
carrying this rating have
characteristics suggesting a
minimal degree of assurance for
timely payment and are vulnerable
to near term adverse changes in
financial and economic conditions.
D (Default) Issues carrying this
rating are in actual or imminent
payment default.
Duff & Phelps, Inc. Short-Term Ratings
Duff & Phelps' short-term ratings are consistent
with the rating criteria used by money market
participants. The ratings apply to all obligations
with maturities of under one year, including commercial
paper, the uninsured portion of certificates of
deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit, and current
maturities of long-term debt. Asset-backed commercial
paper is also rated according to this scale.
Emphasis is placed on liquidity which is defined
as not only cash from operations, but also access to
alternative sources of funds including trade credit,
bank lines, and the capital markets. An important
consideration is the level of an obligor's reliance on
short-term funds on an ongoing basis.
The distinguishing feature of Duff & Phelps short-
term ratings is the refinement of the traditional `1'
category. The majority of short-term debt issuers
carry the highest rating, yet quality differences exist
within that tier. As a consequence, Duff & Phelps
Credit Rating has incorporated gradations of `1+' (one
plus) and `1-` (one minus) to assist investors in
recognizing those differences.
From time to time, Duff & Phelps places issuers or
security classes on Rating Watch. The Rating Watch
status results from a need to notify investors and the
issuer that there are conditions present leading us to
re-evaluate the current rating(s). A listing on Rating
Watch, however, does not mean a rating change is
inevitable.
The Rating Watch status can either be resolved
quickly or over a longer period of time, depending on
the reasons surrounding the placement on Rating Watch.
The "up" designation means a rating may be upgraded:
the "down" designation means a rating may be
downgraded, and the "uncertain" designation means a
rating may be raised or lowered.
Rating Scale: Definition
High Grade
D-1+ Highest certainty of timely payment. Short-
term liquidity, including internal operating
factors and/or access to alternative sources
of funds, is outstanding, and safety is just
below risk-free U.S. Treasury short-term
obligations.
D-1 Very high certainty of timely payment.
Liquidity factors are excellent and supported
by good fundamental protection factors. Risk
factors are minor.
D-1- High certainty of timely payment. Liquidity
factors are strong and supported by good
fundamental protection factors. Risk factors
are very small.
Good Grade
D-2 Good certainty of timely payment. Liquidity
factors and company fundamentals are sound.
Although ongoing funding needs may enlarge
total financing requirements, access to
capital markets is good. Risk factors are
small.
<PAGE>
Satisfactory Grade
D-3 Satisfactory liquidity and other protection
factors qualify issue as to investment grade.
Risk factors are larger and subject to more
variation. Nevertheless, timely payment is
expected.
Non-investment Grade
D-4 Speculative investment characteristics.
Liquidity is not sufficient to insure against
disruption in debt service. Operating
factors and market access may be subject to a
high degree of variation.
Default
D-5 Issuer failed to meet scheduled principal
and/or interest payments.
BOND RATINGS
Standard & Poor's Bond Ratings
A Standard & Poor's corporate rating is a current
assessment of the creditworthiness of an obligor with
respect to a specific obligation. This assessment may
take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to
purchase, sell, or hold a security, inasmuch as it does
not comment as to market price or suitability for a
particular investor.
The ratings are based on current information
furnished by the issuer or obtained by Standard &
Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in
connection with any rating and may, on occasion, rely
on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes
in, or unavailability of, such information, or for
other circumstances.
The ratings are based, in varying degrees, on the
following considerations:
1. Likelihood of default -- capacity and
willingness of the obligor as to the timely
payment of interest and repayment of principal in
accordance with the terms of the obligation.
2. Nature of and provisions of the
obligation.
3. Protection afforded by, and relative
position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws
affecting creditors' rights.
AAA Bonds have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Bonds have a very strong capacity to pay
interest and repay principal and differs from the
highest rated issues only in small degree.
A Bonds have 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.
BBB Bonds are regarded as having an adequate
capacity to pay interest and repay principal. Whereas
they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category
than in higher rated categories.
BB, B, CCC, CC and C Bonds are regarded, on
balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB
indicates the least degree of
<PAGE>
speculation and C the
highest degree of speculation. While such debt will
likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions. A C rating is typically applied to debt
subordinated to senior debt which is assigned an actual
or implied CCC rating. It may also be used to cover a
situation where a bankruptcy petition has been filed,
but debt service payments are continued.
Moody's Bond Ratings
Aaa Bonds are judged to be of the best quality.
They carry the smallest degree of investment risk and
are generally referred to as "gilt edged". 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.
Aa Bonds 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.
A Bonds 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 some time in the future.
Baa Bonds 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.
Ba Bonds are judged to have speculative elements;
their future cannot be considered as well-assured.
Often the protection of interest and principal payments
may be very moderate, and thereby not well safeguarded
during both good and bad times over the future.
Uncertainty of position characterizes Bonds in this
class.
B Bonds generally lack characteristics of the
desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa Bonds are of poor standing. Such issues may
be in default or there may be present elements of
danger with respect to principal or interest.
Ca Bonds represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C Bonds 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.
Fitch Investors Service, Inc. Bond Ratings
Fitch investment grade bond and preferred stock
ratings provide a guide to investors in determining the
credit risk associated with a particular security. The
ratings represent Fitch's assessment of the issuer's
ability to meet the obligations of a specific debt or
preferred issue in a timely manner.
The rating takes into consideration special
features of the issue, its relationship to other
obligations of the issuer, the current and prospective
financial condition and operating performance of the
issuer and any guarantor, as well as the economic and
political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit
enhancement that may be provided by insurance policies
or financial guaranties unless otherwise indicated.
<PAGE>
Bonds and preferred stock carrying the same rating
are of similar but not necessarily identical credit
quality since the rating categories do not fully
reflect small differences in the degrees of credit
risk.
Fitch ratings are not recommendations to buy,
sell, or hold any security. Ratings do not comment on
the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt
nature or taxability of payments made in respect of any
security.
Fitch ratings are based on information obtained
from issuers, other obligors, underwriters, their
experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or
accuracy of such information. Ratings may be changed,
suspended, or withdrawn as a result of changes in, or
the unavailability of, information or for other
reasons.
AAA Bonds and preferred stock considered to be
investment grade and of the highest credit
quality. The obligor has an exceptionally
strong ability to pay interest and/or
dividends and repay principal, which is
unlikely to be affected by reasonably
foreseeable events.
AA Bonds and preferred stock considered to be
investment grade and of very high credit
quality. The obligor's ability to pay
interest and/or dividends and repay principal
is very strong, although not quite as strong
as bonds rated `AAA'. Because bonds rated in
the `AAA' and `AA' categories are not
significantly vulnerable to foreseeable
future developments, short-term debt of the
issuers is generally rated `F-1+'.
A Bonds and preferred stock considered to be
investment grade and of high credit quality.
The obligor's ability to pay interest and/or
dividends and repay principal is considered
to be strong, but may be more vulnerable to
adverse changes in economic conditions and
circumstances than debt or preferred
securities with higher ratings.
BBB Bonds and preferred stock considered to be
investment grade and of satisfactory credit
quality. The obligor's ability to pay
interest or dividends and repay principal is
considered to be adequate. Adverse changes
in economic conditions and circumstances,
however, are more likely to have adverse
impact on these securities and, therefore,
impair timely payment. The likelihood that
the ratings of these bonds or preferred stock
will fall below investment grade is higher
than for securities with higher ratings.
Fitch speculative grade bond or preferred stock
ratings provide a guide to investors in determining the
credit risk associated with a particular security. The
ratings (`BB' to `C') represent Fitch's assessment of
the likelihood of timely payment of principal and
interest in accordance with the terms of obligation for
issues not in default. For defaulted bonds or
preferred stock, the rating (`DDD' to `D') is an
assessment of the ultimate recovery value through
reorganization or liquidation.
The rating takes into consideration special
features of the issue, its relationship to other
obligations of the issuer or possible recovery value in
bankruptcy, the current and prospective financial
condition and operating performance of the issuer and
any guarantor, as well as the economic and political
environment that might affect the issuer's future
financial strength.
Bonds or preferred stock that have the same rating
are of similar but not necessarily identical credit
quality since the rating categories cannot fully
reflect the differences in the degrees of credit risk.
BB Bonds or preferred stock are considered
speculative. The obligor's ability to pay
interest or dividends and repay principal may
be affected over time by adverse economic
changes. However, business and financial
alternatives can be identified which could
assist the obligor in satisfying its debt
service requirements.
B Bonds or preferred stock are considered
highly speculative. While bonds in this
class are currently meeting debt service
requirements or paying dividends, the
probability of continued timely payment
<PAGE>
of
principal and interest reflects the obligor's
limited margin of safety and the need for
reasonable business and economic activity
throughout the life of the issue.
CCC Bonds or preferred stock have certain
identifiable characteristics which, if not
remedied, may lead to default. The ability
to meet obligations requires an advantageous
business and economic environment.
CC Bonds or preferred stock are minimally
protected. Default in payment of interest
and/or principal seems probable over time.
C Bonds or preferred stock are in imminent
default in payment of interest or principal
or suspension of preferred stock dividends is
imminent.
DDD,
DD
and D Bonds are in default on interest and/or
principal payments or preferred stock
dividends are suspended. Such securities are
extremely speculative and should be valued on
the basis of their ultimate recovery value in
liquidation or reorganization of the obligor.
`DDD' represents the highest potential for
recovery of these securities, and `D'
represents the lowest potential for recovery.
Duff & Phelps, Inc. Long-Term Ratings
These ratings represent a summary opinion of the
issuer's long-term fundamental quality. Rating
determination is based on qualitative and quantitative
factors which may vary according to the basic economic
and financial characteristics of each industry and each
issuer. Important considerations are vulnerability to
economic cycles as well as risks related to such
factors as competition, government action, regulation,
technological obsolescence, demand shifts, cost
structure, and management depth and expertise. The
projected viability of the obligor at the trough of the
cycle is a critical determination.
Each rating also takes into account the legal form
of the security, (e.g., first mortgage bonds,
subordinated debt, preferred stock, etc.). The extent
of rating dispersion among the various classes of
securities is determined by several factors including
relative weightings of the different security classes
in the capital structure, the overall credit strength
of the issuer, and the nature of covenant protection.
Review of indenture restrictions is important to the
analysis of a company's operating and financial
constraints. From time to time, Duff & Phelps Credit
Rating Co. places issuers or security classes on Rating
Watch. The Rating Watch Status results form a need to
notify investors and the issuer that there are
conditions present leading us to reevaluate the current
rating(s). A listing on Rating Watch, however, does
not mean a rating change is inevitable. The Rating
Watch Status can either be resolved quickly or over a
longer period of time, depending on the reasons
surrounding the placement on Rating Watch. The "up"
designation means a rating may be upgraded; the "down"
designation means a rating may be downgraded, and the
uncertain designation means a rating may be raised or
lowered.
The Credit Rating Committee formally reviews all
ratings once per quarter (more frequently, if
necessary). Ratings of `BBB-' and higher fall within
the definition of investment grade securities, as
defined by bank and insurance supervisory authorities.
Structured finance issues, including real estate, asset-
backed and mortgage-backed financings, use this same
rating scale with minor modification in the
definitions. Thus, an investor can compare the credit
quality of investment alternatives across industries
and structural types. A "Cash Flow Rating" (as noted
for specific ratings) addresses the likelihood that
aggregate principal and interest will equal or exceed
the rated amount under appropriate stress conditions.
Rating Scale Definition
AAA Highest credit quality. The risk factors are
negligible, being only slightly more than for risk-
free U.S. Treasury debt.
<PAGE>
AA+ High credit quality. Protection factors are strong.
AA Risk is modest, but may vary slightly from time to
AA- time because of economic conditions.
A+ Protection factors are average but adequate.
A However, risk factors are more variable and greater
A- in periods of economic stress.
BBB+ Below average protection factors but still considered
BBB sufficient for prudent investment. Considerable
BBB- variability in risk during economic cycles.
BB+ Below investment grade but deemed likely to meet
BB obligations when due. Present or prospective
BB- financial protection factors fluctuate according to
industry conditions or company fortunes. Overall
quality may move up or down frequently within this
category.
B+ Below investment grade and possessing risk that
B obligations will not be met when due. Financial
B- protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in
the rating within this category or into a higher or
lower rating grade.
CCC Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal,
interest or preferred dividends. Protection factors
are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with
unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet
DP scheduled principal and/or interest payments.
Preferred stock with dividend arrearages.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements (included in Parts A and
B, or incorporated by reference therein)
(b) Exhibits
(1.1) Certificate of Trust dated July 31, 1996(1)
(1.2) Trust Instrument(1)
(2) Registrant's By-Laws(2)
(3) None
(4) None
(5) Investment Advisory Agreement(2)
(6.1) Distribution Agreement(2)
(6.2) Dealer Agreement(2)
(7) None
(8) Custodian Agreement with Firstar Trust
Company(2)
(9.1) Transfer Agent Agreement with
Firstar Trust Company(2)
(9.2) Fund Administration Servicing
Agreement with Firstar Trust Company(2)
(9.3) Fund Accounting Servicing Agreement
with Firstar Trust Company(2)
(10) Opinion and Consent of Godfrey & Kahn,
S.C.(2)
(11) Consent of KPMG Peat Marwick LLP
(12) None
(13.1) Subscription Agreement with Charles
S. Cruice(2)
(13.2) Subscription Agreement with Richard
H. Gould(2)
(13.3) Subscription Agreement with Jeffrey
Rugen(2)
(13.4) Subscription Agreement with Molly
Lewis(2)
(14) Individual Retirement Trust Account
Disclosure Statement and Custodial
Account(2)
(15) Rule 12b-1 Distribution Plan with
respect to the Retail Class(2)
(16) Schedule for Computation of Performance
Quotations
(17) Financial Data Schedule(3)
<PAGE>
(18) Rule 18f-3 Plan(2)
(19) Powers of Attorney for Trustees and
Officers (see signature page)
___________________
(1) Incorporated by reference to Registrant's Form N-
1A as filed with the Commission on August 1, 1996.
(2) Incorporated by reference to Registrant's Form N-
1A as filed with the Commission on October 25, 1996.
(3) Incorporated by reference to Registrant's Form N-
SAR as filed with the Commission on November 28, 1997.
Item 25. Persons Controlled by or under Common Control
with Registrant
Registrant neither controls any person nor is
under common control with any other person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Securities as of February 1, 1998
Shares of beneficial interest
Retail Class Shares 80
Institutional Class Shares 152
Item 27. Indemnification
Section 9.2 of The Rockland Funds Trust governing
instrument provides:
9.2 Indemnification.
(a) Subject to the exceptions and
limitations contained in subsections (b) and
(c) below:
(i)every person who is, or has been, a
Trustee or an officer, employee or agent
of the Trust ("Covered Person") shall be
indemnified by the Trust or the
appropriate Series to the fullest extent
permitted by law against liability and
against all expenses reasonably incurred
or paid by him or her in connection with
any claim, action, suit or proceeding in
which he or she becomes involved as a
party or otherwise by virtue of his or
her being or having been a Covered Person
and against amounts paid or incurred by
him or her in the settlement thereof;
(ii) as used herein, the words "claim,"
"action," "suit," or "proceeding" shall
apply to all claims, actions, suits or
proceedings (civil, criminal or other,
including appeals), actual or threatened,
and the words "liability" and "expenses"
shall include, without limitation,
attorneys fees, costs, judgments, amounts
paid in settlement, fines, penalties and
other liabilities.
(b) No indemnification shall be provided
hereunder to a Covered Person:
(i)who shall have been adjudicated by a
court or body before which the proceeding
was brought (A) to be liable to the Trust
or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence
or reckless disregard of the duties
involved in the conduct of his or her
office, or (B) not to have acted in good
faith in the reasonable belief that his
or her action was in the best interest of
the Trust; or
<PAGE>
(ii) in the event of a settlement, unless
there has been a determination that such
Covered Person did not engage in willful
misfeasance, bad faith, gross negligence
or reckless disregard of the duties
involved in the conduct of his or her
office; (A) by the court or other body
approving the settlement; (B) by the vote
of at least a majority of those Trustees
who are neither Interested Persons of the
Trust nor are parties to the proceeding
based upon a review of readily available
facts (as opposed to a full trial-type
inquiry); or (C) by written opinion of
independent legal counsel based upon a
review of readily available facts (as
opposed to a full trial-type inquiry).
(c) The rights of indemnification herein
provided may be insured against by policies
maintained by the Trust, shall be severable,
shall not be exclusive of or affect any other
rights to which any Covered Person may now or
hereafter be entitled, and shall inure to the
benefit of the heirs, executors and
administrators of a Covered Person.
(d) To the maximum extent permitted by
applicable law, expenses in connection with
the preparation and presentation of a defense
to any claim, action, suit or proceeding of
the character described in subsection (a) of
this Section may be paid by the Trust or
applicable Series from time to time prior to
final disposition thereof upon receipt of an
undertaking by or on behalf of such Covered
Person that such amount will be paid over by
him or her to the Trust or applicable Series
if it is ultimately determined that he or she
is not entitled to indemnification under this
Section; provided, however, that either (i)
such Covered Person shall have provided
appropriate security for such undertaking,
(ii) the Trust is insured against losses
arising out of any such advance payments or
(iii) either a majority of the Trustees who
are neither Interested Persons of the Trust
nor parties to the proceeding, or independent
legal counsel in a written opinion, shall
have determined, based upon a review of
readily available facts (as opposed to a full
trial-type inquiry) that there is reason to
believe that such Covered Person will not be
disqualified from indemnification under this
Section.
(e) Any repeal or modification of this
Article IX by the Shareholders of the Trust,
or adoption or modification of any other
provision of the Trust Instrument or By-Laws
inconsistent with this Article, shall be
prospective only, to the extent that such
repeal or modification would, if applied
retrospectively, adversely affect any
limitation on the liability of any Covered
Person or indemnification available to any
Covered Person with respect to any act or
omission which occurred prior to such repeal,
modification or adoption.
Item 28. Business and Other Connections of Investment
Adviser
None.
Item 29. Principal Underwriters
(a) None
(b) Incorporated by reference to the information
contained under "DISTRIBUTOR" in the
Prospectuses and "UNDERWRITER" in the
Statement of Additional Information, all
pursuant to Rule 411 under the Securities Act
of 1933.
(c) None
Item 30. Location of Accounts and Records
All accounts, books or other documents required to
be maintained by section 31(a) of the Investment
Company Act of 1940 and the rules promulgated
thereunder are in the possession of GCM, Registrant's
investment adviser, at Registrant's corporate offices,
except records held and maintained by Firstar Trust
Company, Mutual Fund
<PAGE>
Services, Third Floor, 615 East
Michigan Street, Milwaukee, Wisconsin 53202, relating
to its function as custodian, transfer agent, fund
accountant and administrator.
Item 31. Management Services
All management-related service contracts entered
into by Registrant are discussed in Parts A and B of
this Registration Statement.
Item 32. Undertakings.
(a) Registrant undertakes to call a meeting of
shareholders, if requested to do so by the holders of
at least 10% of the Registrant's outstanding shares,
for the purpose of voting upon the question of removal
of a trustee or trustees. The Registrant also
undertakes to assist in communications with other
shareholders as required by Section 16(c) of the
Investment Company Act of 1940.
(b) Registrant undertakes to furnish each person
to whom a prospectus or statement of additional
information is delivered with a copy of the
Registrant's latest annual report to shareholders,
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act
of 1933 and the Investment Company Act of 1940, the
Registrant has duly caused this Post-Effective
Amendment No. 2 to Registrant's Registration Statement
on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of
Rockland and State of Delaware on the 20th day of
February, 1998.
THE ROCKLAND FUNDS TRUST
(Registrant)
By:/s/ Charles S. Cruice
--------------------------
Charles S. Cruice
President
Each person whose signature appears below
constitutes and appoints Charles S. Cruice and Richard
Gould and each of them, his true and lawful attorney-in-
fact and agent with full power of substitution and
resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all
post-effective amendments to this Registration
Statement and to file the same, with all exhibits
thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission
and any other regulatory body, granting unto said
attorney-in-fact and agent, full power and authority to
do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and
purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact
and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act
of 1933, this Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A has
been signed below by the following persons in the
capacities and on the date(s) indicated.
Name Title Date
/s/ Charles S. Cruice President and a Trustee February 20, 1998
- -------------------------
Charles S. Cruice
/s/ Richard H. Gould Treasurer and a Trustee February 20, 1998
- -------------------------
Richard H. Gould
/s/ Dr. Peter Utsinger Trustee February 7, 1998
- -------------------------
Dr. Peter Utsinger
/s/ Robert Harrison Trustee February 7, 1998
- -------------------------
Robert Harrison
/s/ Richard Vague Trustee February 6, 1998
- --------------------------
Richard Vague
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EXHIBIT INDEX
Exhibit No. Exhibit
(1.1) Certificate of Trust dated July 31, 1996
(previously filed as Exhibit 1.1 to the
Registration Statement on Form N-1A, Reg.
Nos. 811-7743 and 333-9355)
(1.2) Trust Instrument (previously filed as
Exhibit 1.2 to the Registration Statement
on Form N-1A, Reg. Nos. 811-7743 and 333-
9355)
(2) Registrant's By-Laws (previously filed
as Exhibit 2 to the Registration
Statement on Form N-1A, Reg. Nos. 811-
7743 and 333-9355)
(3) None
(4) None
(5) Investment Advisory Agreement (previously
filed as Exhibit 5 to the Registration
Statement on Form N-1A, Reg. Nos. 811-7743
and 333-9355)
(6.1) Distribution Agreement (previously filed
as Exhibit 6.1 to the Registration
Statement on Form N-1A, Reg. Nos. 811-7743
and 333-9355)
(6.2) Dealer Agreement (previously filed as
Exhibit 6.2 to the Registration Statement
on Form N-1A, Reg. Nos. 811-7743 and 333-
9355)
(7) None
(8) Custodian Agreement with Firstar Trust
Company (previously filed as Exhibit 8 to
the Registration Statement on Form N-1A,
Reg. Nos. 811-7743 and 333-9355)
(9.1) Transfer Agent Agreement with Firstar
Trust Company (previously filed as Exhibit
9.1 to the Registration Statement on Form
N-1A, Reg. Nos. 811-7743 and 333-9355)
(9.2) Fund Administration Servicing Agreement
with Firstar Trust Company (previously
filed as Exhibit 9.2 to the Registration
Statement on Form N-1A, Reg. Nos. 811-7743
and 333-9355)
(9.3) Fund Accounting Servicing Agreement with
Firstar Trust Company (previously filed as
Exhibit 9.3 to the Registration Statement
on Form N-1A, Reg. Nos. 811-7743 and 333-
9355)
(10) Opinion and Consent of Godfrey & Kahn,
S.C. (previously filed as Exhibit 10 to
the Registration Statement on Form N-1A,
Reg. Nos. 811-7743 and 333-9355)
(11) Consent of KPMG Peat Marwick LLP
(12) None
(13.1) Subscription Agreement with Charles S.
Cruice (previously filed as Exhibit 13.1
to the Registration Statement on Form N-
1A, Reg. Nos. 811-7743 and 333-9355)
(13.2) Subscription Agreement with Richard H.
Gould (previously filed as Exhibit 13.2 to
the Registration Statement on Form N-1A,
Reg. Nos. 811-7743 and 333-9355)
(13.3) Subscription Agreement with Jeffrey Rugen
(previously filed as Exhibit 13.3 to the
Registration Statement on Form N-1A, Reg.
Nos. 811-7743 and 333-9355)
<PAGE>
(13.4) Subscription Agreement with Molly Lewis
(previously filed as Exhibit 13.4 to the
Registration Statement on Form N-1A, Reg.
Nos. 811-7743 and 333-9355)
(14) Individual Retirement Trust Account
Disclosure Statement and Custodial Account
(previously filed as Exhibit 14 to the
Registration Statement on Form N-1A, Reg.
Nos. 811-7743 and 333-9355)
(15) Rule 12b-1 Distribution Plan with respect
to the Retail Class (previously filed as
Exhibit 15 to the Registration Statement
on Form N-1A, Reg. Nos. 811-7743 and 333-
9355)
(16) Schedule for Computation of Performance
Quotations
(17) Financial Data Schedule (previously filed
as an Exhibit to the Registrant's N-SAR as
filed with the Commission on November 28,
1997)
(18) Rule 18f-3 Plan (previously filed as
Exhibit 18 to the Registration Statement
on Form N-1A, Reg. Nos. 811-7743 and 333-
9355)
(19) Powers of Attorney for Trustees and
Officers (see signature page)
EXHIBIT 11
CONSENT OF INDEPENDENT AUDITORS
The Shareholders and Board of Trustees
The Rockland Funds Trust:
We consent to the use of our report incorporated herein
by reference and to the reference to our Firm under the
headings "Financial Highlights" in the Prospectus and
"Independent Accountants" in the Statement of
Additional Information.
Milwaukee, Wisconsin
February 13, 1998
EXHIBIT 16
Schedule for Computation of Performance Quotation
ROCKLAND GROWTH FUND - RETAIL
1. Initial (December 2, 1996) Net Asset Value = 10.00
2. Number of hypothetical shares purchased = $1,000
divided by $10.00 = 100 shares
3. Amount of dividends = 0
4. Fees charges to shareholder accounts = 0
5. Ending (September 30, 1997) Net Asset Value = $14.42
6. Ending Redeemable value of hypothetical investment =
100 x $14.42 = $1,442.00
7. Total Return = ($1,442.00 - $1,000) divided by $1,000 = +44.20%
<PAGE>
Schedule for Computation of Performance Quotation
ROCKLAND GROWTH FUND - INSTITUTIONAL
1. Initial (December 2, 1996) Net Asset Value = 10.00
2. Number of hypothetical shares purchased = $1,000
divided by $10.00 = 100 shares
3. Amount of dividends =12/31/96 - $0.01640000 per
share 100 = $1.64/$10.22 = 0.1605 shares
4. Fees charges to shareholder accounts = 0
5. Ending (September 30, 1997) Net Asset Value = $14.43
6. Ending Redeemable value of hypothetical investment=
100 + 0.1605 = 100.1605 x $14.43 = $1,445.32
7. Total Return = ($1,445.32 - $1,000) divided by $1,000 = +44.53%