As filed with the Securities and Exchange Commission on June 8, 2000
Registration No. 333-9217
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
-----
Post-Effective Amendment No. 9 [X]
-----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 11 [X]
</TABLE>
------
ORCHARD SERIES FUND
(Exact Name of Registrant as Specified in Charter)
8515 E. Orchard Road, Englewood, Colorado 80111
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (303) 737-3000
W.T. McCallum
President and Chief Executive Officer
Great-West Life & Annuity Insurance Company
8515 E. Orchard Road
Englewood, Colorado 80111
(Name and Address of Agent for Service)
Copies of Communications to:
James F. Jorden, Esquire
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
1025 Thomas Jefferson St. N. W., Suite 400 East
Washington, D. C. 20007-0805
Approximate Date of Proposed Public Offering: Upon this Registration Statement
being declared effective.
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485 [ ] on
pursuant to paragraph (b) of Rule 485 [ ] 60 days after filing pursuant
to paragraph (a)(1) of Rule 485 [ ] on pursuant to paragraph (a)(1) of
Rule 485 [X] 75 days after filing pursuant to paragraph (a)(2) of Rule
485 [ ] on pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
EXPLANATORY NOTE
The purpose of this post-effective amendment is to register two additional funds
of the Orchard Series Fund. This post-effective amendment shall not supersede or
effect this Registration Statement as it applies to the Prospectus for the
Orchard Value Fund (Class A Shares) and the Orchard Value Fund (Class B Shares)
as filed in post-effective amendment no. 8 to this Registration Statement on
February 17, 2000.
The Orchard Money Market Fund
The Orchard DJIA SM Index Fund
The Orchard Nasdaq-100 Index(R) Fund
The Orchard S&P 500 Index(R) Fund
The Orchard Index 600 Fund
8515 East Orchard Road
Englewood, CO 80111
(800) 338 - 4015
This Prospectus describes four mutual funds that emphasize long-term growth of
capital, and one (a money market fund) that emphasizes preservation of invested
capital. GW Capital Management, LLC ("GW Capital Management"), a wholly owned
subsidiary of Great-West Life & Annuity Insurance Company, serves as investment
adviser to each of the Funds.
Each Fund is a separate mutual fund of the Orchard Series Fund (the "Trust").
This Prospectus contains important information about each Fund, which you should
consider before investing. Please read it carefully and save it for future
reference.
This Prospectus does not constitute an offer to sell securities in any state or
other jurisdiction to any person to whom it is unlawful to make such an offer in
such state or other jurisdiction.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
The date of this Prospectus is , 2000.
SUBJECT TO COMPLETION
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
CONTENTS
The Funds at a
Glance........................................... ..........3
Performance................................................................
6
Fees and Expenses........................................................
8
The Funds in
Detail.........9..............................................
More Information About the
Funds..........10............................
Management of the Funds..............................................
12
Important Information About Your Investment............ 12
Investing in the Funds....................................................
12
Financial Highlights................................................ 15
THE FUNDS AT A GLANCE
The following information about each Fund is only a summary of important
information you should know. More detailed information about the Funds'
investment strategies and risks is included elsewhere in this Prospectus. Please
read this Prospectus carefully before investing in any of the Funds.
ORCHARD MONEY MARKET FUND.
The investment objective for this Fund is to:
o Seek as high a level of current income as is consistent with the
preservation of capital and liquidity.
The principal investment strategies for this Fund include:
o Investing in high-quality, short-term debt securities.
o Investing in securities that, when purchased, have one of the two highest
ratings for short-term debt by at least one nationally recognized
statistical rating organization such as Moody's Investor Services, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") (or unrated securities
of comparable quality).
o Investing in securities which are only denominated in U.S. dollars.
o Maintaining a dollar weighted average portfolio maturity of 90 days or less.
The principal investment risks for this Fund include:
o Although the Fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Fund.
o The market value of a money market instrument is affected by changes in
interest rates. When interest rates rise, the market value of money market
instruments declines and when interest rates decline, market value rises.
When interest rates rise, money market instruments which were previously
purchased and held by the Fund will have lower yields.
o An investment in the Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
ORCHARD STOCK INDEX FUNDS.
The investment objective for each of the Index Funds is to:
o Seek investment results that track as closely as possible the total return
of the common stocks that comprise its benchmark index.
The principal investment strategies for each Index Fund is to:
o Invest at least 80% of its assets in common stocks that comprise its
specific benchmark index. The applicable benchmark indexes are:
<TABLE>
FUND BENCHMARK INDEX
---- ---------------
<S> <C> <C> <C> <C> <C> <C>
Orchard DJIASM Index Fund Dow Jones Industrial AverageSM
("DJIASM")1
Orchard Nasdaq-100 Index(R)Fund Nasdaq-100 Index(R)2
Orchard Index 600 Fund S&P SmallCap 600 Stock Index3
Orchard S&P 500 Index(R)Fund S&P 500 Composite Stock Price Index3
</TABLE>
o Each Index Fund may use futures contracts on market indexes and options on
the futures contracts as a means of tracking the benchmark index.
The principal investment risks shared by all the Index Funds include:
o Stocks are volatile and can decline in value significantly in response to
adverse issuer, political, regulatory, market or economic developments.
Market risk may affect a single company, industry sector of the economy, or
the market as a whole.
1 The DJIASM is sponsored by Dow Jones & Company, Inc., which is responsible for
determining which stocks are included in the DJIASM. "Dow JonesSM," "Dow Jones
Industrial AverageSM" and "DJIASM" are service marks of Dow Jones & Company,
Inc. and have been licensed for use for certain purposes by Orchard Series Fund.
The Orchard DJIASM Index Fund is based on the Dow Jones Industrial AverageSM.
Orchard Series Fund is not sponsored, endorsed, sold or promoted by Dow Jones &
Company, Inc., and Dow Jones & Company, Inc. makes no representation regarding
the advisability of investing in Orchard Series Fund or the Orchard DJIASM Index
Fund.
2 Nasdaq(R) determines the components of the Nasdaq-100 Index(R), and
calculates, maintains and disseminates the Nasdaq-100 Index(R). The Orchard
Nasdaq-100 Index(R) Fund is not sponsored, endorsed, sold or promoted by The
Nasdaq Stock Market, Inc. (including its affiliates) (Nasdaq, with its
affiliates, are referred to as the "Corporations"). The Corporations have not
passed on the legality or suitability of, or the accuracy or adequacy of
descriptions and disclosures relating to Orchard Series Fund. The Corporations
make no representation or warranty, express or implied, to Orchard Series Fund
or any member of the public regarding the advisability of investing in
securities generally or in the Orchard Nasdaq-100 Index(R) Fund particularly, or
the ability of the Nasdaq-100 Index(R) to track general stock market
performance. The Corporations' only relationship to Orchard Series Fund is in
the licensing of the Nasdaq-100(R), Nasdaq-100 Index(R), and Nasdaq(R)
trademarks or service marks, and certain trade names of the Corporations and the
use of the Nasdaq-100 Index(R), which is determined, composed and calculated by
Nasdaq without regard to Orchard Series Fund or the Orchard Nasdaq-100 Index(R)
Fund . Nasdaq has no obligation to take the needs of Orchard Series Fund or the
Orchard Nasdaq-100 Index(R) Fund into consideration in determining, composing or
calculating the Nasdaq-100 Index(R). The Corporations are not responsible for
and have not participated in the determination of the timing of, prices at, or
quantities of the Orchard Nasdaq-100 Index(R) Fund to be issued or in the
determination or calculation of the equation by which the Orchard Nasdaq-100
Index(R) Fund is to be converted into cash. The Corporations have no liability
in connection with the administration, marketing or trading of the Orchard
Nasdaq-100 Index(R) Fund.
3 Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "S&P 600(R)," "Standard &
Poor's 500", "Standard & Poor's SmallCap 600 Index" and "S&P SmallCap 600 Index"
are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use
by Great-West Life & Annuity Insurance Company and its majority-owned
subsidiaries and affiliates. Orchard Series Fund is not sponsored, endorsed,
sold or promoted by Standard & Poor's and Standard & Poor's makes no
representation regarding the advisability of investing in Orchard Series Fund. 1
Following are Fund Expense Examples After Fee Reimbursement.
o It is possible the benchmark index may perform unfavorably and/or
underperform the market as a whole. Therefore, it is possible that an Index
Fund could have poor investment results even if it is successful in tracking
the return of the benchmark index.
o The value of an individual security or particular type of security can be
more volatile than the market as a whole and can perform differently than
the value of the market as a whole.
o Several factors will affect an Index Fund's ability to track precisely the
performance of its benchmark index. For example, unlike benchmark indexes,
which are merely unmanaged groups of securities, each Index Fund has
operating expenses and those expenses will reduce the Index Fund's total
return. In addition, an Index Fund may own less than all the securities of a
benchmark index, which also may cause a variance between the performance of
the Index Fund and its benchmark index.
o When using futures contracts on market indexes and options on the futures
contracts, there is a risk that the change in value of the securities
included in the index and the price of a futures contract will not match.
There is also a risk that the Fund could be unable to sell the futures
contract when it wishes to due to possible illiquidity of those
instruments. Also, there is the risk that the use of these types of
derivative techniques could cause the Fund to lose more money than if the
Fund had actually purchased the underlying securities. This is because
derivatives magnify gains and losses.
o When you sell your shares of any of the Index Funds, they could be worth
less than what you paid for them.
The Orchard DJIASM Index Fund has the following additional risks:
The Orchard DJIASM Index Fund invests in a narrow segment of the securities
listed on the New York Stock Exchange. The risk that the value of an individual
security or particular type of security can be more volatile than the market as
a whole, or can perform differently than the market as a whole, is magnified if
that particular security falls within the narrower segment in which the Orchard
DJIASM Index Fund invests.
The Orchard DJIASM Index Fund's "non-diversified" status allows it to invest
more than 5% of its assets in the stock of a single company. To the extent the
Fund invests a greater percentage of its assets in a single company, the Fund
has greater exposure to the performance and risks of the stock of the company.
In addition, although the Orchard DJIASM Index Fund does not seek to
"concentrate" (in other words, invest 25% or more of its total assets) in stocks
representing any particular industry, the Fund may so concentrate to the extent
consistent with the relevant industry weightings of the DJIA. To the extent the
Fund invests a greater percentage of its assets in a single company or industry,
the Fund has greater exposure to the performance and risks of that company or
industry.
The Orchard Nasdaq-100 Index(R) Fund has the following additional risks:
The Orchard Nasdaq-100 Index(R) Fund invests in a narrow segment of the
securities listed on The Nasdaq Stock Market. The risk that the value of an
individual security or particular type of security can be more volatile than the
market as a whole, or can perform differently than the market as a whole, is
magnified if that particular security falls within the narrower segment in which
the Orchard Nasdaq-100 Index(R) Fund invests.
The Orchard Index 600 has the following additional risk:
The Orchard Index 600 Fund invests in the stocks of small companies. The stocks
of small companies often involve more risk and volatility than those of larger
companies. Small companies are often dependent on a small number of products and
have limited financial resources. They may be severely affected by economic
changes, business cycles and adverse market conditions. In addition, there is
generally less publicly available information concerning small companies upon
which to base an investment decision.
PERFORMANCE
Total Return
The bar charts and table below provide an indication of the risk of investment
in the Funds. The bar charts show the Funds' performance for each calendar year
since inception. The table that follows the bar charts shows how the Funds'
average annual total returns for the one-year period ending December 31, 1999,
and for the period since inception compare to a broad based stock market index.
The returns shown below are historical and are not an indication of future
performance.
YEAR-BY-YEAR ANNUAL RETURNS
Orchard DJIASM Index Fund and Orchard Nasdaq-100 Index(R)Fund
The inception date for the Orchard DJIASM Index Fund and the Orchard Nasdaq-100
Index(R) Fund was August 25, 2000. As new Funds, there are no year-by-year
annual returns or highest and lowest returns by quarter to show.
Orchard S&P 500 Index(R)
[GRAPHIC OMITTED]
During the periods shown in the chart for the Orchard S&P 500 Index(R) Fund, the
highest return for a quarter was 21.16% (quarter ending December 1998) and the
lowest return for a quarter was -10.08% (quarter ending September 1998). The
total return for the first quarter of 2000 (the quarter ending March 2000) was
2.11%.
Orchard Index 600
[GRAPHIC OMITTED]
1998 1999
During the periods shown in the chart for the Orchard Index 600 Fund, the
highest return for a quarter was 18.07% (quarter ending June 1998) and the
lowest return for a quarter was -20.76% (quarter ending September 1998). The
total return for the first quarter of 2000 (the quarter ending March 2000) was
5.62%.
AVERAGE ANNUAL RETURNS
For the periods ended December 31, 1999, the past 1 year and inception to date:
<TABLE>
Fund & Inception Date of 1999 Inception of the Fund
Fund to December 31, 1999
Benchmark Index
------------------------- ---------------------- -------------- ---------------------------------
<S> <C> <C> <C> <C>
Orchard S&P 500 Index(R)Fund February 3, 1997 20.32% 25.01%
S&P 500 21.04% 25.82%
Index --
Orchard Index 600 11.92% 10.87%
February 3, 1997
S&P 600 12.40% 11.41%
Index --
Orchard DJIASM Index Fund August 25, * *
2000
Dow Jones Industrial AverageSM -- ** **
Orchard Nasdaq-100
Index Fund * *
August 25, 2000
Nasdaq-100 Index(R) ** **
</TABLE>
--
* Because these are new Funds, no return data is available.
** This benchmark index relates to a Fund with an inception date too recent to
include return data.
The Dow Jones Industrial AverageSM is a price-weighted index of thirty stocks
chosen by Dow Jones & Company, Inc. as being representative of the U.S. economy
as a whole. A price-weighted index is computed by adding the price of all the
component stocks together and dividing by a factor that takes into account
changes to the index composition (among other factors) over time. The DJIASM is
generally acknowledged to be the most recognized stock market indicator, quoted
by most major domestic news services as the measure of the performance of the
stock market as a whole. Total returns for the DJIASM assume reinvestment of
dividends, but do not include the effect of taxes, brokerage commissions or
other costs you would pay if you actually invested in these stocks.
The Nasdaq-100 Index(R) is a widely-recognized, unmanaged, modified-market,
value-weighted index representing the largest and most actively traded stock
issues listed on The Nasdaq Stock Market. It is generally acknowledged that the
Nasdaq -100 Index(R) represents the performance of the large-cap technology
sector of the entire stock market.
Total returns for the Nasdaq-100 Index(R) assume reinvestment of dividends, but
do not include the effect of taxes, brokerage commissions or other costs you
would pay if you actually invested in these stocks.
The S&P 500 Composite Stock Price Index (the "S&P 500") is a widely recognized,
unmanaged, market-value weighted index of 500 stock prices. The stocks that make
up the S&P 500 trade on the New York Stock Exchange, the American Stock
Exchange, or The Nasdaq Stock Market. It is generally acknowledged that the S&P
500 broadly represents the performance of publicly traded common stocks in the
United States.
The S&P Small Cap 600 Stock Index (the "S&P 600") is a widely recognized,
unmanaged index of 600 stock prices. The index is market-value weighted, meaning
that each stock's influence on the index's performance is directly proportional
to that stock's "market value" (stock price multiplied by the number of
outstanding shares). The stocks that make up the S&P 600 trade on the New York
Stock Exchange, American Stock Exchange, or The Nasdaq Stock Market. The S&P 600
is designed to monitor the performance of publicly traded common stocks of the
small company sector of the United States equities market.
Both the S&P 600 and the S&P 500 are sponsored by Standard & Poor's, which is
responsible for determining which stocks are represented on the indexes. Total
returns for the S&P 600 and the S&P 500 assume reinvestment of dividends, but do
not include the effect of taxes, brokerage commissions or other costs you would
pay if you actually invested in those stocks.
Money Market Fund Yield
[GRAPHIC OMITTED]
During the periods shown in the chart for the Orchard Money Market Fund, the
highest return for a quarter was 1.35% (quarter ending September 1998) and the
lowest return for a quarter was 1.10% (quarter ending June 1999). The total
return for the first quarter of 2000 (the quarter ending March 2000) was 1.38%.
Yield and effective yield will fluctuate and may not provide a basis for
comparison with bank deposits, other mutual funds or other investments which are
insured or pay a fixed yield for a stated period of time. Yields are based on
past results and are not an indication of future performance. The table below
compares the Orchard Money Market Fund 7-day yield to a broad measure of money
fund performance.
As of December 31, 1999, the yield for the Orchard Money Market Fund, and the
average yield as reported in the Donoghue Money Fund Report, was as follows:
7-Day Yield Effective Yield
Orchard Money Market Fund 5.52% 5.67%
Donoghue Money Fund Report 4.91% N/A
The Donoghue Money Fund Report represents the universe of money funds, and is
broken down into three categories: Government, All Taxable and All Tax-Free. The
funds are broken down even further within the categories into first tier, second
tier, government institutional, first tier institutional, and second tier
institutional. Information is collected by a statistical team on a daily and
weekly basis. The Donoghue Money Fund Report is released on a monthly basis and
is used as a comparative tool for the Orchard Money Market Fund.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
SHAREHOLDER FEES (fees paid directly from your investment)
Sales Load Imposed on
Purchases.................................................................NONE
Sales Load Imposed on Reinvested
Dividends.................................................NONE
Deferred Sales
Load........................................................................NONE
Redemption
Fees...................................................................NONE
Exchange
Fees.....................................................................NONE
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
<TABLE>
Management Distribution Other Total Annual Fund
Fund Fees (12b-1) Fees Expenses Operating Expenses
<S> <C> <C> <C> <C> <C>
Money Market Fund 0.20% 0.00% 1.98% 2.18% 1
Orchard DJIASM Index Fund 0.60% 0.00% 0.00% 0.60%
2
Orchard Nasdaq-100
Index(R)Fund 0.60% 0.00% 0.00% 0.60%
2
Orchard S&P 500 Index(R)Fund 0.60% 0.00% 0.00% 0.60%
Orchard Index 600 Fund 0.60% 0.00% 0.00% 0.60%
</TABLE>
1GW Capital Management has voluntarily agreed to reimburse "Other Expenses" for
the Money Market Fund for an indefinite period of time. Because of this
agreement, the total annual fund operating expenses which were charged for the
Money Market Fund were 0.46% of net assets.
2 "Other Expenses" are based on expenses expected to be incurred in the current
fiscal period.
Fund Expense Examples
These examples are intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds.
The Examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Fund's operating expenses (before any reimbursement) remain the same. Although
your actual costs may be higher or lower, based on these assumptions, your costs
would be:
<TABLE>
Fund 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C> <C>
Orchard Money Market Fund 1 $ 223 $ 704 $1,235 $ 2,811
Orchard DJIASM Index Fund $ 62 $ 194 $ 340 $ 774
Orchard Nasdaq-100 Index(R)Fund $ 62 $ 194 $ 340 $ 774
Orchard S&P 500 Index(R)Fund $ 62 $ 194 $ 340 $ 774
Orchard Index 600 Fund $ 62 $ 194 $ 340 $ 774
</TABLE>
THE FUNDS IN DETAIL
The following questions are designed to help you better understand an investment
in one of the Orchard Funds.
Q: What types of securities does the Orchard Money Market Fund purchase?
A: The Fund may invest in a variety of high-quality, short-term debt securities,
including but not limited to: 1) securities issued or guaranteed as to principal
and interest by the United States or its agencies or instrumentalities ("U.S.
government securities"); 2) certificates of deposit, time deposits and bankers'
acceptances; 3) commercial paper and other short-term corporate debt securities;
4) repurchase agreements; and 5) from time to time, floating rate notes and
Eurodollar certificates of deposit.
Q: How do you know the investments purchased by the Orchard Money Market Fund
are "high-quality?"
A: The Fund generally invests in securities that at the time of their purchase
are: 1) rated in one of the two highest categories by at least one nationally
recognized statistical rating organizations ("NRSRO"), such as Moody's and S&P;
or 2) deemed by GW Capital Management under the guidelines of the Trust's Board
of Trustees (the "Board of Trustees") to be of comparable quality to such rated
securities.
--------
Fund 1 Year 3 Years 5 Years 10 Years
Orchard Money Market Fund $ 47 $ 149 $ 261 $ 593
Q: What do you consider to be "short-term" securities?
A: The Fund invests in securities with remaining maturities not exceeding
thirteen months, and maintains a dollar-weighted average portfolio maturity of
ninety days or less.
Q: How does each of the Orchard Index Funds match the performance of its
Benchmark Index?
A: The Orchard Index Funds are managed to achieve returns similar to their
Benchmark Indexes. The Funds attempt to reproduce the returns of their
respective Benchmark Index by owning the securities contained in each index in
as close as possible a proportion of the portfolio as each stock's weight in the
Benchmark Index. The Funds may acquire this exposure by ownership of all the
stocks in the Benchmark Index and by owning futures contracts, and options on
such futures contracts, on the relevant index.
Q: If there is a decline in any of the markets represented by the Benchmark
Indexes, will my investment decline in value?
A: The Orchard Index Funds are subject to the same market risks inherent in
investing in any stock fund. Therefore, the change in value of each of the Index
Funds will be similar to the change in value of the Fund's respective index,
adjusting for Fund fees and expenses.
For all of the Orchard Funds, you should carefully consider your own investment
goals, time horizon (the amount of time you plan to hold your shares of a Fund)
and risk tolerance before investing in a Fund. There is no guarantee that any
Fund will meet its investment objective.
MORE INFORMATION ABOUT THE FUNDS
The following pages contain more detailed information about the types of
securities in which the Funds may invest, strategies GW Capital Management may
use to achieve the Funds' investment objectives, and a summary of related risks.
A complete listing of the Funds' investment limitations and more detailed
information about their investment practices are contained in the Statement of
Additional Information. All percentage limitations relating to the Funds'
investment strategies are applied at the time a Fund acquires a security.
1. Money Market Instruments and Temporary Investment Strategies
The Money Market Fund invests exclusively in money market instruments as its
investment strategy. Therefore, the value of your investment in the Money Market
Portfolio will be determined exclusively by the risks and rewards relating to
money market instruments.
In addition, the non-money market Funds each may hold cash or cash equivalents
and may invest in short-term, high-quality debt (money market) instruments as
deemed appropriate by GW Capital Management.
2. Equity Securities
For each Fund, except the Orchard Money Market Fund, the principal investment
strategy is to invest directly or indirectly in equity securities, such as
common and preferred stocks, convertible stocks, and warrants. Therefore, as an
investor in these Funds, the return on your investment will be based primarily
on the risks and rewards of equity securities.
Equity prices fluctuate based on changes in a company's financial condition and
overall market and economic conditions. Equity securities of smaller companies
are especially sensitive to these factors. The value of a company's stock may
fall as a result of factors that directly relate to that company, such as lower
demand for the company's products or services or poor management decisions. A
stock's value may also fall because of economic conditions that affect many
companies, such as increases in production costs. The value of a company's stock
may also be affected by changes in financial market conditions that are not
directly related to the company or its industry, such as changes in interest
rates or other economic fundamentals.
Small and Medium Size Companies
Companies that are small or unseasoned (less than 3 years of operating history)
are more likely not to survive or accomplish their goals with the result that
the value of their stock could decline significantly. These companies are less
likely to survive since they are often dependent upon a small number of products
and may have limited financial resources.
Small or unseasoned companies often have a greater degree of change in earnings
and business prospects than larger companies resulting in more volatility in the
price of their securities. As well, the securities of small or unseasoned
companies may not have wide marketability. This fact could cause a Fund to lose
money if it needs to sell the securities when there are few interested buyers.
Small or unseasoned companies also normally have fewer outstanding shares than
larger companies. As a result, it may be more difficult to buy or sell large
amounts of these shares without unfavorably impacting the price of the security.
Finally, there may be less publicly available information about small or
unseasoned companies. As a result, GW Capital Management, when making a decision
to purchase a security for a Fund, may not be aware of some problems associated
with the company issuing the security.
3. Derivatives
Each Fund, other than the Orchard Money Market Fund, can use various techniques
to increase or decrease its exposure to changing security prices or other
factors that affect security values. These techniques are also referred to as
"derivative" transactions. In addition, each Index Fund may use futures
contracts on market indexes and options on the futures contracts as part of its
principal investment strategy of seeking to track the performance of its
Benchmark Index. Therefore, the risks associated with derivatives transactions
are of particular interest to investors considering the Index Funds.
Derivatives are financial instruments designed to achieve a certain economic
result when an underlying security, index, interest rate, commodity, or other
financial instrument moves in price. Derivatives can, however, subject a Fund to
various levels of risk. There are four basic derivative products: forward
contracts, futures contracts, options and swaps.
Forward contracts commit the parties to a transaction at a time in the future at
a price determined when the transaction is initiated. They are the predominant
means of hedging currency or commodity exposures. Futures contracts are similar
to forwards but differ in that (1) they are traded through regulated exchanges,
and (2) are "marked to market" daily.
Options differ from forwards and futures in that the buyer has no obligation to
perform under the contract. The buyer pays a fee, called a premium, to the
seller, who is called a writer. The writer gets to keep the premium in any event
but must deliver (in the context of the type of option) at the buyer's demand.
Caps and floors are specialized options which enable floating-rate borrowers and
lenders to reduce their exposure to interest rate swings for a fee.
A swap is an agreement between two parties to exchange certain financial
instruments or components of financial instruments. Parties may exchange streams
of interest rate payments, principal denominated in two different currencies, or
virtually any payment stream as defined by the parties.
Derivatives involve special risks. If GW Capital Management judges market
conditions incorrectly or employs a strategy that does not correlate well with a
Fund's investments, these techniques could result in a loss. These techniques
may increase the volatility of a Fund and may involve a small investment of cash
relative to the magnitude of the risk assumed. In addition, these techniques
could result in a loss if the counterparty to the transaction does not perform
as promised.
Derivative transactions may not always be available and/or may be infeasible to
use due to the associated costs.
4. Other Risk Factors
As a mutual fund, each Fund is subject to market risk. The value of a Fund's
shares will fluctuate in response to changes in economic conditions, interest
rates, and the market's perception of the securities held by the Fund.
No Fund should be considered to be a complete investment program by itself. You
should consider your own investment objectives and tolerance for risk, as well
as your other investments when deciding whether to purchase shares of any Fund.
MANAGEMENT OF THE FUNDS
GW Capital Management provides investment advisory, accounting and
administrative services to the Funds. GW Capital Management's address is 8515
East Orchard Road, Englewood, Colorado 80111. GW Capital Management provides
investment management services for mutual funds and other investment portfolios
representing assets of over $4.6 billion. GW Capital Management and its
affiliates have been providing investment management services since 1969.
The aggregate fee paid to GW Capital Management for the fiscal year ending
October 31, 1999 is as follows:
Fund Percentage of Average Net Assets
---- --------------------------------
Orchard Money Market 0.20%
Orchard S&P 500 Index(R) 0.60%
Orchard Index 600 0.60%
The Orchard DJIASM Index Fund and the Orchard Nasdaq-100 Index(R) Fund commenced
operations on August 25, 2000, and thus did not pay any fees for the fiscal year
ending October 31, 1999 to GW Capital Management for investment advisory,
accounting or administrative services.
IMPORTANT INFORMATION ABOUT YOUR INVESTMENT
Share Price
The transaction price for buying, selling, or exchanging a Fund's shares is the
net asset value of that Fund. Each Fund's net asset value is generally
calculated as of the close of trading on the New York Stock Exchange every day
the NYSE is open (generally 4:00 p.m. Eastern Time). If the NYSE closes at any
other time, or if an emergency exists, the time at which the net asset value is
calculated may differ. To the extent that a Fund's assets are traded in other
markets on days when the NYSE is closed, the value of the Fund's assets may be
affected on days when the Fund is not open for business. In addition, trading in
some of a Fund's assets may not occur on days when the Fund is open for
business. Your share price will be the net asset value next calculated after we
receive your order in good form.
The net asset value of the Money Market Fund is determined by using the
amortized cost method of valuation. The net asset value of each of the non-money
market funds is based on the market value of the securities in the Fund.
Short-term securities with a maturity of 60 days or less are valued on the basis
of amortized cost. If market prices are not available for a security, or if a
security's value has been materially affected by events occurring after the
close of the exchange or market on which the security is principally traded (for
example, a foreign exchange or market), that security may be valued by another
method that the Board of Trustees believes accurately reflects fair value.
We determine net asset value by dividing net assets of the Fund (the value of
its investments, cash, and other assets minus its liabilities) by the number of
the Fund's outstanding shares.
INVESTING IN THE FUNDS
How to buy shares
To open an account, mail a completed account application to:
Orchard Series Fund
8515 East Orchard Road
Englewood, CO 80111
With the application form, you must either:
(1) include a check or money order made payable to the Fund in the amount that
you wish to invest, or (2) wire (electronically transfer) such amount to an
account designated by the Fund's
Transfer Agent, Financial Administrative Services Corporation.
If you wish to make an initial purchase of shares by wiring your investment, you
must first call 1-800-338-4015 between the hours of 8:00 a.m. and 4:00 p.m.
(Eastern Time) on any day that the NYSE is open for trading to receive an
account number. You will be asked to provide the following information:
o the name in which the account will be established
o the account holder's address
o tax identification number, and
o dividend distribution election
If requested, you will be given the instructions your bank will need to complete
the wire transfer. Your bank may charge a fee for its wire transfer services.
Presently, none of the Funds charge for wire transfer services, but the Funds
reserve the right to charge for these services.
Once you have established an account, you can purchase shares by mailing a check
or money order made payable to the appropriate Fund. Be sure to include
instructions telling us the name and number of your account. You can also
purchase shares by wiring the amount that you wish to invest to your account.
The price to buy one share of a Fund is the Fund's net asset value next
calculated after your order is received in proper form. Because you pay no
commissions or sales charges when you purchase shares, a Fund's share price is
equal to the Fund's net asset value per share.
Short-term or excessive trading into and out of a Fund may harm performance by
disrupting portfolio management strategies and by increasing expenses.
Accordingly, a Fund may reject any purchase orders, including exchanges,
particularly from market timers or investors who, in GW Capital Management's
opinion, have a pattern of short-term or excessive trading or whose trading has
been or may be disruptive to that Fund.
Each Fund may stop offering shares completely or may offer shares only on a
limited basis, for a period of time or permanently.
How to Sell Shares
The price to sell one share of each Fund is the Fund's net asset value next
calculated after your order is received in proper form.
You can sell some or all your shares out of your account at any time. You can
sell your shares only by mail. No sales may be made by telephone.
You can sell shares by sending a "letter of instruction" by regular or express
mail to:
Orchard Series Fund
8515 East Orchard Road
Englewood, CO 80111
The letter should include:
(1) the name of the account
(2) the account number
(3) the name of the Fund
(4) the dollar amount or number of shares to be sold
(5) any special payment instructions, and
(6) the signature(s) of the person(s) authorized to sell shares held in the
account
When you place an order to sell shares, please note the following:
o Normally, your request to sell shares will be processed the next business
day, but the Fund may take up to seven days to process redemptions if making
immediate payment would adversely affect a Fund.
o Redemption proceeds (other than exchanges) may be delayed until investments
credited to your account have been received and collected, which can take up
to seven business days (or longer as permitted by the SEC).
o You will not receive interest on amounts represented by uncashed redemption
checks.
How to Exchange Shares
An exchange involves selling all or a portion of the shares of one Fund and
purchasing shares of another Fund. There are no sales charges or distribution
fees for an exchange. The exchange will occur at the net asset value next
calculated for the two Funds after the exchange request is received in proper
form. Before exchanging into a Fund, read its prospectus.
Please note the following policies governing exchanges:
o The minimum amount to be exchanged is the lesser of $500 or the remaining
value in the Fund to be exchanged.
o You can request an exchange in writing or by telephone.
o Written requests should be submitted to:
Orchard Series Fund
8515 East Orchard Road
Englewood, CO 80111
o The form should be signed by the account owner(s) and include the following
information:
(1) the name of the account
(2) the account number
(3) the name of the Fund from which the shares of which are to be sold (4) the
dollar amount or number of shares to be exchanged (5) the name of the Fund(s) in
which new shares will be purchased, and (6) the signature(s) of the person(s)
authorized to effect exchanges in the account.
o You can request an exchange by telephoning 1-800-338-4015.
o Each Fund may refuse exchange purchases by any person or group if, in GW
Capital Management's judgment, the Fund would be unable to invest the money
effectively in accordance with its investment objective and policies, or
would otherwise potentially be adversely affected.
Other Information
o The policies and procedures to request purchases or exchanges of shares of
the Funds by telephone may be modified, suspended, or terminated by a Fund
at any time.
o If an account has more than one owner of record, the Funds may rely on the
instructions of any one owner.
o Each account owner has telephone transaction privileges unless the Fund
receives cancellation instructions from an account owner.
o The Transfer Agent may record telephone calls and has adopted other
procedures to confirm that telephone instructions are genuine.
o The Funds will not be responsible for losses or expenses arising from
unauthorized telephone transactions, as long as they use reasonable
procedures to verify the identity of the investor.
o During periods of unusual market activity, severe weather, or other unusual,
extreme, or emergency conditions, you may not be able to complete a
telephone transaction and should consider placing your order by mail.
Dividends and Capital Gains Distributions
Each Fund earns dividends, interest and other income from its investments, and
distributes this income (less expenses) to shareholders as dividends. Each Fund
also realizes capital gains from its investments, and distributes these gains
(less any losses) to shareholders as capital gains distributions.
The Orchard Money Market Fund ordinarily declares dividends from net investment
income daily and distributes dividends monthly. The Orchard Index 500, Orchard
Index 600, Orchard DJIASM Index and Orchard Nasdaq-100 Index(R) Funds ordinarily
distribute dividends semi-annually. All of the Funds generally distribute
capital gains, if any, in December.
Distribution Options
You can either receive distributions in cash or reinvest them in additional
shares of the Fund at the net asset value in effect on the reinvestment date.
Unless you elect, by writing to the Trust, to receive your distributions in
cash, they will be automatically reinvested. You can change the manner in which
you receive distributions at any time by writing to:
Orchard Series Fund
8515 East Orchard Road
Englewood, Colorado 80111
Tax Consequences
As with any investment, your investment in a Fund could have tax consequences
for you. If you are not investing through a tax-advantaged retirement account,
you should consider these tax consequences.
Taxes on distributions. Distributions you receive from each Fund, whether
received in cash or reinvested in additional shares of the Fund, are subject to
federal income tax, and may also be subject to state and local taxes. If you
live outside the United States, the country where you reside could also tax your
distributions. Your distributions are taxable when they are paid, whether you
take them in cash or reinvest them in additional shares of the Fund.
Distributions declared in December and paid in January are taxable as if they
were paid on December 31.
For federal income tax purposes, each Fund's dividends and short-term capital
gain distributions are taxable to you as ordinary income. Each Fund's long-term
capital gains distributions are taxable to you generally as capital gains at a
rate based on how long the securities were held by the Fund.
If you buy shares when a fund has realized but not yet distributed income or
capital gains, you will be "buying a dividend" by paying the full price for the
shares and then receiving a portion of the price back in the form of a taxable
distribution.
In January of each year, the Trust will send you and the IRS a statement showing
the taxable distributions paid to you in the previous year.
Taxes on transactions. Your redemptions, including exchanges, may result in a
capital gain or loss for federal tax purposes. A capital gain or loss on your
investment in a Fund is the difference between the basis of your shares and the
price you receive when you sell them.
You will receive a consolidated transaction statement at least quarterly. You
should keep your regular account statements because the information they contain
will be essential in calculating the amount and character of your gains and
losses. It is your and your tax preparer's responsibility to determine whether a
transaction will result in a taxable gain or loss and the amount of the tax to
be paid, if any.
Annual and Semi-Annual Shareholder Reports
The fiscal year of the Funds ends on October 31 of each year. Twice a year,
shareholders of each Fund will receive a report containing a summary of the
Fund's performance and other information.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand each Fund's
financial performance for the period of the Funds' operations. Certain
information reflects financial results for a single Fund share. Total returns in
the table represent the rate that an investor would have earned on an investment
in the Fund (assuming the reinvestment of all dividends and distributions). The
information has been audited by Deloitte & Touche LLP, independent auditors,
whose report, along with the Funds' financial statements, are included in the
Funds' Annual Report. A free copy of the Annual Report is available upon
request.
There are no financial highlights for the Orchard DJIASM Index Fund or the
Orchard Nasdaq-100 Index(R) Fund as these Funds commenced operations on August
25, 2000.
<TABLE>
ORCHARD MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------------------------------------
Selected data for a share of capital stock of the fund for the years ended
October 31, 1999 and 1998, and the period ended October 31, 1997 are as follows:
Period Ended October 31,
----------------------------------------------
1999 1998 1997
------------ ------------
----------------
(A)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.0000 $ 1.0000 $ 1.0000
Income From Investment Operations
Net investment income 0.0458 0.0513 0.0363
------------- ------------ ------------
Total Income From Investment Operations 0.0458 0.0513 0.0363
Less Distributions
From net investment income (0.0458) (0.0513) (0.0363)
------------- ------------ ------------
Total Distributions (0.0458) (0.0513) (0.0363)
------------- ------------ ------------
Net Asset Value, End of Period $ 1.0000 $ 1.0000 $ 1.0000
============= ============ ============
Total Return/Yield 4.68% 5.26% 3.69%
Net Assets, End of Period $ 3,746,859 $ 3,274,248 $ 3,110,727
Ratio of Expenses to Average Net
Assets
- Before Reimbursement 2.18% 3.57% 1.54%*
- After Reimbursement # 0.46% 0.46% 0.46% *
Ratio of Net Investment Income to Average Net Assets
- Before Reimbursement 2.88% 2.03% 3.79%*
- After Reimbursement # 4.60% 5.13% 4.88%*
*Annualized
# Percentages are shown net of expenses reimbursed by GW Capital Management,
LLC.
(A) The Fund commenced operations February 3, 1997.
ORCHARD S&P 500 INDEX(R) FUND (Formerly the Orchard Index 500 Fund) FINANCIAL
HIGHLIGHTS
-----------------------------------------------------------------------------------------------------------
Selected data for a share of capital stock of the fund for the years ended
October 31, 1999 and 1998, and the period ended October 31, 1997 are as follows:
Period Ended October 31,
--------------------------------------------------------
1999 1998 1997
----------------- ---------------- ---------------
(A)
Net Asset Value, Beginning of Period $ 14.0808 $ 11.6936 $ 10.0000
Income From Investment Operations
Net investment income 0.1221 0.1282 0.0388
Net realized and unrealized gain 3.3536 2.3471 1.6936
------------- ------------- ---------------
Total Income From Investment Operations 3.4757 2.4753 1.7324
Less Distributions
From net investment income (0.1243) (0.0881) (0.0388)
From net realized gains (0.1670)
------------- ------------- ---------------
Total Distributions (0.2913) (0.0881) (0.0388)
------------- ------------- ---------------
Net Asset Value, End of Period $ 17.2652 $ 14.0808 $ 11.6936
============= ============= ===============
Total Return 24.92% 21.18% 17.38%
Net Assets, End of Period $ 763,050,362 $ 605,087,390 $ 492,866,332
Ratio of Expenses to Average Net Assets 0.60% 0.60% 0.60% *
Ratio of Net Investment Income to Average Net 0.75% 0.96% 1.67% *
Assets
Portfolio Turnover Rate 17.09% 20.20% 0.45%
Portfolio turnover is calculated using the lesser of long-term purchases
or sales of portfolio securities for a period, divided by the monthly
average of the market value of the securities (excluding short-term
securities) owned during the period. Purchases and sales of investment
securities for the year ended October 31, 1999 were $120,119,351 and
$124,082,232, respectively.
*Annualized
(A) The Fund commenced operations February 3, 1997.
ORCHARD INDEX 600 FUND
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------------------------------------
Selected data for a share of capital stock of the fund for the years ended
October 31, 1999 and 1998, and the period ended October 31, 1997 are as follows:
Period Ended October 31,
--------------------------------------------------------
1999 1998 1997
----------------- ---------------- ---------------
(A)
Net Asset Value, Beginning of Period $ 10.4300 $ 12.1191 $ 10.0000
Income From Investment Operations
Net investment income 0.0235 0.0255 0.0238
Net realized and unrealized gain (loss) 1.1728 (1.3719) 2.1191
------------- ------------- ---------------
Total Income (Loss) From Investment Operations 1.1963 (1.3464) 2.1429
Less Distributions
From net investment income (0.0239) (0.0167) (0.0238)
From net realized gains (0.0335) (0.3260)
------------- ------------- ---------------
Total Distributions (0.0574) (0.3427) (0.0238)
------------- ------------- ---------------
Net Asset Value, End of Period $ 11.5689 $ 10.4300 $ 12.1191
============= ============= ===============
Total Return 11.48% (11.37%) 21.46%
Net Assets, End of Period $ 136,771,933 $ 4,883,597 $ 5,469,919
Ratio of Expenses to Average Net Assets 0.60% 0.60% 0.60% *
Ratio of Net Investment Income to Average Net 0.30% 0.22% 0.30% *
Assets
Portfolio Turnover Rate 40.90% 31.25% 21.58%
</TABLE>
Portfolio turnover is calculated using the lesser of long-term purchases or
sales of portfolio securities for a period, divided by the monthly average of
the market value of the securities (excluding short-term securities) owned
during the period. Purchases and sales of investment securities for the year
ended October 31, 1999 were $160,487,237 and $44,668,032, respectively.
*Annualized
(A) The Fund commenced operations February 3, 1997.
6
ADDITIONAL INFORMATION
The Statement of Additional Information ("SAI") contains more details about the
investment policies and techniques of the Funds. A current SAI is on file with
the SEC and is incorporated into this Prospectus by reference. This means that
the SAI is legally considered a part of this Prospectus even though it is not
physically contained within this Prospectus.
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Funds' performance during its last fiscal year.
For a free copy of the SAI or Annual or Semi-Annual reports, or to request other
information or ask questions about a Fund, call 1-800-338-4015.
The SAI and the annual and semi-annual reports are available on the SEC's
Internet Web site (http://www.sec.gov). You can also obtain copies of this
information, upon paying a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, D.C. 20549-6009, or by electronic request at the
following e-mail address: public [email protected]. You can also review and copy
information about the Funds, including the SAI, at the SEC's Public Reference
Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of
the SEC's Public Reference Room.
INVESTMENT COMPANY ACT OF 1940, FILE NUMBER, 811-07735.
ORCHARD SERIES FUND
(the "Trust")
Orchard Money Market Fund
Orchard DJIASM Index Fund
Orchard Nasdaq-100 Index(R) Fund
Orchard S&P 500 Index(R) Fund
Orchard Index 600 Fund
Orchard Value Fund
(the "Funds")
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
Throughout this SAI, "the Fund" is intended to refer to each Fund listed
above, unless otherwise indicated. This SAI is not a Prospectus and
should be read together with the Prospectuses for the Funds dated
February 29, 2000, and _____________, 2000. Requests for copies of the
Prospectuses should be made by writing to: Secretary, Orchard Series
Fund, at 8515 East Orchard Road, Englewood, Colorado 80111, or by
calling (303) 737-3000. The financial statements appearing in the Annual
Report, which accompanies this SAI, are incorporated into this SAI by
reference.
_____________, 2000
SUBJECT TO COMPLETION
The information in this Statement of Additional Information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
Statement of Additional Information is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted. 2
TABLE OF CONTENTS
Page
INFORMATION ABOUT THE FUNDS
2
INVESTMENT LIMITATIONS
2
INVESTMENT POLICIES AND PRACTICES
3
MANAGEMENT OF THE FUND
13
CODES OF ETHICS
14
INVESTMENT ADVISORY SERVICES
14
DISTRIBUTION SERVICES
15
PORTFOLIO TRANSACTIONS & BROKERAGE
16
PURCHASE, REDEMPTION AND PRICING OF SHARES
18
INVESTMENT PERFORMANCE
19
DIVIDENDS, DISTRIBUTION AND TAXES
21
OTHER INFORMATION
25
FINANCIAL STATEMENTS
26
APPENDIX
27
20
INFORMATION ABOUT THE FUNDS
The Orchard Series Fund is an open-end management investment company organized
as a Delaware business trust (the "Trust") on July 23, 1996. The Trust offers
one non-diversified and five diversified investment portfolios, commonly known
as mutual funds (the "Funds"). The Trust commenced business as an investment
company on February 3, 1997. The Funds are "no-load," meaning you pay no sales
charges or distribution fees (other than with respect to Class B shares of the
Orchard Value Fund). GW Capital Management, LLC ("GW Capital Management"), a
wholly-owned subsidiary of Great-West Life & Annuity Insurance Company
("GWL&A"), serves as the Funds' investment adviser.
Diversified Portfolio of Securities
Each Fund, except the Orchard DJIASM Index Fund, will operate as a diversified
investment portfolio of the Trust. This means that at least 75% of the value of
its total assets will be represented by cash and cash items (including
receivables), U.S. government securities, securities of other investment
companies, and other securities, the value of which with respect to any one
issuer is neither more than 5% of the Fund's total assets nor more than 10% of
the outstanding voting securities of such issuer. These restrictions do not
apply to the Orchard DJIASM Index Fund.
INVESTMENT LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise indicated, whenever an investment policy or
limitation states a maximum percentage of a Fund's assets that may be invested
in any security or other asset, or sets forth a policy regarding quality
standards, the indicated percentage or quality standard limitation will be
determined immediately after and as a result of a Fund's acquisition of the
security or other asset. Accordingly, any subsequent change in values, net
assets, or other circumstances will not be considered when determining whether
the investment complies with a Fund's investment policies and limitations. A
Fund's fundamental investment policies and limitations cannot be changed without
approval by vote of a "majority of the outstanding voting shares (as defined in
the Investment Company Act of 1940 (the "1940 Act")) of the Fund.
Each Fund will not:
(1) Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers primarily engaged
in the same industry; provided that with respect to the Money Market
Fund there shall be no limitation on the purchase of U.S. government
securities or of certificates of deposit and bankers' acceptances;
utilities will be divided according to their services; for example, gas,
gas transmission, electric and telephone each will be considered a
separate industry for purposes of this restriction.
(2) Purchase or sell interests in commodities, commodities contracts, oil,
gas or other mineral exploration or development programs, or real
estate, except that a Fund may purchase securities of issuers which
invest or deal in any of the above; provided, however, that the Funds,
except the Money Market Fund, may invest in futures contracts on
financial indexes, foreign currency transactions and options on
permissible futures contracts.
(3) (a) purchase any securities on margin, (b) make short sales of
securities, or (c) maintain a short position, except that a Fund (i) may
obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities, (ii) other than the Money
Market Fund, may make margin payments in connection with transactions in
futures contracts and currency futures contracts and enter into
permissible options transactions, and (iii) may make short sales against
the box.
(4) Make loans, except as provided in limitation (5) below and except
through the purchase of obligations in private placements (the purchase
of publicly-traded obligations are not being considered the making of a
loan) and through repurchase agreements.
(5) Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value at the time of the loan, provided that such loan
shall be made in accordance with the guidelines set forth under "Lending
of Portfolio Securities" in this Statement of Additional Information.
(6) Borrow, except that a Fund may borrow for temporary or emergency
purposes. The Fund will not borrow unless immediately after any such
borrowing there is an asset coverage of at least 300 percent for all
borrowings of the Fund. If such asset coverage falls below 300 percent,
the Fund will within three days thereafter reduce the amount of its
borrowings to an extent that the asset coverage of such borrowings will
be at least 300 percent. Reverse repurchase agreements and other
investments which are "covered" by a segregated account or an offsetting
position in accordance with applicable SEC requirements ("covered
investments") do not constitute borrowings for purposes of the 300%
asset coverage requirement. The Fund will repay all borrowings in excess
of 5% of its total assets before any additional investments are made.
Covered investments will not be considered borrowings for purposes of
applying the limitation on making additional investments when borrowings
exceed 5% of total assets.
(7) Mortgage, pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned or held by the Fund except as may be
necessary in connection with borrowings mentioned in limitation (6)
above, and then such mortgaging, pledging or hypothecating may not
exceed 10% of the Fund's total assets, taken at market value at the time
thereof. A Fund will not, as a matter of operating policy, mortgage,
pledge or hypothecate its portfolio securities to the extent that at any
time the percentage of the value of pledged securities will exceed 10%
of the value of the Fund's shares. This limitation shall not apply to
segregated accounts.
(8) Underwrite securities of other issuers except insofar as the Fund may be
deemed an underwriter under the Securities Act of 1933 in selling
portfolio securities.
(9) Issue senior securities. The issuance of more than one series or classes
of shares of beneficial interest, obtaining of short-term credits as may
be necessary for the clearance of purchases and sales of portfolio
securities, short sales against the box, the purchase or sale of
permissible options and futures transactions (and the use of initial and
maintenance margin arrangements with respect to futures contracts or
related options transactions), the purchase or sale of securities on a
when issued or delayed delivery basis, permissible borrowings entered
into in accordance with a Fund's investment objectives and policies, and
reverse repurchase agreements are not deemed to be issuances of senior
securities.
INVESTMENT POLICIES AND PRACTICES
Except as described below, and except as otherwise specifically stated in the
Prospectus or this Statement of Additional Information, the Funds' investment
policies set forth in the Prospectus and in this Statement of Additional
Information are not fundamental and may be changed without shareholder approval.
The following pages contain more detailed information about types of securities
in which the Funds may invest, investment practices and techniques that GW
Capital Management or any sub-adviser may employ in pursuit of the Funds'
investment objectives, and a discussion of related risks. GW Capital Management
and/or its sub-advisers may not buy all of these securities or use all of these
techniques to the full extent permitted unless it believes that they are
consistent with the Funds' investment objectives and policies and that doing so
will help the Funds achieve their objectives. Unless otherwise indicated, each
Fund may invest in all these securities or use all of these techniques.
Asset-Backed Securities. Asset-backed securities represent interests in pools of
mortgages, loans, receivables or other assets. Payment of interest and repayment
of principal may be largely dependent upon the cash flows generated by the
assets backing the securities and, in certain cases, supported by letters of
credit, surety bonds, or other credit enhancements. Asset-backed security values
may also be affected by other factors including changes in interest rates, the
availability of information concerning the pool and its structure, the
creditworthiness of the servicing agent for the pool, the originator of the
loans or receivables, or the entities providing the credit enhancement. In
addition, these securities may be subject to prepayment risk.
Bankers' Acceptances. A bankers' acceptance is a time draft drawn on a
commercial bank by a borrower, usually in connection with international
commercial transactions (to finance the import, export, transfer or storage of
goods). The borrower is liable for payment as well as the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity. The Funds generally will not invest in
acceptances with maturities exceeding 7 days where to do so would tend to create
liquidity problems.
Borrowing. The Funds may borrow from banks or through reverse repurchase
agreements. If the fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. If the fund makes additional
investments while borrowings are outstanding, this may be considered a form of
leverage.
Certificates of Deposit. A certificate of deposit generally is a short-term,
interest bearing negotiable certificate issued by a commercial bank or savings
and loan association against funds deposited in the issuing institution.
Commercial Paper. Commercial paper is a
short-term promissory note issued by a
corporation primarily to finance short-term
credit needs.
Common Stock. Common stock represents an equity or ownership interest in an
issuer. In the event an issuer is liquidated or declares bankruptcy, owners of
bonds and preferred stock take precedence over the claims of those who own
common stock.
Convertible Securities. Convertible securities are bonds, debentures, notes,
preferred stocks or other securities that may be converted or exchanged (by the
holder or by the issuer) into shares of the underlying common stock (or cash or
securities of equivalent value) at a stated exchange ratio. A convertible
security may also be called for redemption or conversion by the issuer after a
particular date and under certain circumstances (including a specified price)
established upon issue. If a convertible security held by a fund is called for
redemption or conversion, the fund could be required to tender it for
redemption, convert it into the underlying common stock, or sell it to a third
party. Convertible securities generally have less potential for gain or loss
than common stocks. Convertible securities generally provide yields higher than
the underlying common stocks, but generally lower than comparable
non-convertible securities. Because of this higher yield, convertible securities
generally sell at prices above their "conversion value," which is the current
market value of the stock to be received upon conversion. The difference between
this conversion value and the price of convertible securities will vary over
time depending on changes in the value of the underlying common stocks and
interest rates. When the underlying common stocks decline in value, convertible
securities will tend not to decline to the same extent because of the interest
or dividend payments and the repayment of principal at maturity for certain
types of convertible securities. However, securities that are convertible other
than at the option of the holder generally do not limit the potential for loss
to the same extent as securities convertible at the option of the holder. When
the underlying common stocks rise in value, the value of convertible securities
may also be expected to increase. At the same time, however, the difference
between the market value of convertible securities and their conversion value
will narrow, which means that the value of convertible securities will generally
not increase to the same extent as the value of the underlying common stocks.
Because convertible securities may also be interest-rate sensitive, their value
may increase as interest rates fall and decrease as interest rates rise.
Convertible securities are also subject to credit risk, and are often
lower-quality securities.
Debt Securities. Debt securities are used by issuers to borrow money. The issuer
usually pays a fixed, variable or floating rate of interest, and must repay the
amount borrowed at the maturity of the security. Some debt securities, such as
zero coupon bonds, do not pay interest but are sold at a deep discount from
their face values. Debt securities include corporate bonds, government
securities, and mortgage and other asset-backed securities.
Eurodollar Certificates of Deposit. A
Eurodollar certificate of deposit is a
short-term obligation of a foreign
subsidiary of a U.S. bank payable in U.S.
dollars.
Foreign Currency Transactions. The Funds, other than the Money Market Fund, may
conduct foreign currency transactions on a spot (i.e., cash) basis or by
entering into forward contracts to purchase or sell foreign currencies at a
future date and price. The Funds will convert currency on a spot basis from time
to time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers generally do not charge a fee for conversion,
they do realize a profit based on the difference between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to sell
a foreign currency to a Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer. Forward
contracts are generally traded in an interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. The
parties to a forward contract may agree to offset or terminate the contract
before its maturity, or may hold the contract to maturity and complete the
contemplated currency exchange.
A Fund may use currency forward contracts for any purpose consistent with its
investment objective. The following discussion summarizes the principal currency
management strategies involving forward contracts that could be used by a Fund.
A Funds may also use options and futures contracts relating to foreign
currencies for the same purposes.
When a Fund agrees to buy or sell a security denominated in a foreign currency,
it may desire to "lock in" the U.S. dollar price for the security. By entering
into a forward contract for the purchase or sale, for a fixed amount of U.S.
dollars, of the amount of foreign currency involved in the underlying security
transaction, the Fund will be able to protect itself against an adverse change
in foreign currency values between the date the security is purchased or sold
and the date on which payment is made or received. This technique is sometimes
referred to as a "settlement hedge" or "transaction hedge." The Funds may also
enter into forward contracts to purchase or sell a foreign currency in
anticipation of future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected by GW
Capital Management.
The Funds may also use forward contracts to hedge against a decline in the value
of existing investments denominated in foreign currency. For example, if a Fund
owned securities denominated in pounds sterling, it could enter into a forward
contract to sell pounds sterling in return for U.S. dollars to hedge against
possible declines in the pound's value. Such a hedge, sometimes referred to as a
"position hedge," would tend to offset both positive and negative currency
fluctuations, but would not offset changes in security values caused by other
factors. A Fund could also hedge the position by selling another currency
expected to perform similarly to the pound sterling, for example, by entering
into a forward contract to sell Deutsche marks or European Currency Units in
return for U.S. dollars. This type of hedge, sometimes referred to as a "proxy
hedge," could offer advantages in terms of cost, yield, or efficiency, but
generally would not hedge currency exposure as effectively as a simple hedge
into U.S. dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged securities
are denominated.
Each Fund may enter into forward contracts to shift its investment exposure from
one currency into another. This may include shifting exposure from U.S. dollars
into a foreign currency, or from one foreign currency into another foreign
currency. For example, if a Fund held investments denominated in Deutschemarks,
the Fund could enter into forward contracts to sell Deutschemarks and purchase
Swiss Francs. This type of strategy, sometimes known as a "cross-hedge," will
tend to reduce or eliminate exposure to the currency that is sold, and increase
exposure to the currency that is purchased, much as if the Fund had sold a
security denominated in one currency and purchased an equivalent security
denominated in another. Cross-hedges protect against losses resulting from a
decline in the hedged currency, but will cause the Fund to assume the risk of
fluctuations in the value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover currency
forward contracts. As required by SEC guidelines, the Funds will segregate
assets to cover currency forward contracts, if any, whose purpose is essentially
speculative. The Funds will not segregate assets to cover forward contracts
entered into for hedging purposes, including settlement hedges, position hedges,
and proxy hedges.
Successful use of currency management strategies will depend on GW Capital
Management's skill in analyzing and predicting currency values. Currency
management strategies may substantially change a Fund's investment exposure to
changes in currency exchange rates, and could result in losses to the Fund if
currencies do not perform as GW Capital Management anticipates. For example, if
a currency's value rose at a time when GW Capital Management had hedged a Fund
by selling that currency in exchange for dollars, the Fund would be unable to
participate in the currency's appreciation. If GW Capital Management hedges
currency exposure through proxy hedges, a Fund could realize currency losses
from the hedge and the security position at the same time if the two currencies
do not move in tandem. Similarly, if GW Capital Management increases a Fund's
exposure to a foreign currency, and that currency's value declines, the Fund
will realize a loss. There is no assurance that GW Capital Management's use of
currency management strategies will be advantageous to the Funds or that it will
hedge at an appropriate time.
Foreign Securities. Each Fund, except the
Money Market Fund, may invest in foreign
securities and securities issued by U.S.
entities with substantial foreign
operations in a manner consistent with its
investment objective and policies. Such
foreign investments may involve significant
risks in addition to those risks normally
associated with U.S. equity investments.
There may be less information publicly available about a foreign corporate or
government issuer than about a U.S. issuer, and foreign corporate issuers are
not generally subject to accounting, auditing and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commissions and securities custody
costs are often higher than those in the United States, and judgments against
foreign entities may be more difficult to obtain and enforce. With respect to
certain foreign countries, there is a possibility of governmental expropriation
of assets, confiscatory taxation, political or financial instability and
diplomatic developments that could affect the value of investments in those
countries. The receipt of interest on foreign government securities may depend
on the availability of tax or other revenues to satisfy the issuer's
obligations.
A Fund's investments in foreign securities may include investments in countries
whose economies or securities markets are not yet highly developed. Special
considerations associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or developmental assistance,
currency transfer restrictions, illiquid markets, delays and disruptions in
securities settlement procedures.
Most foreign securities in a Fund will be denominated in foreign currencies or
traded in securities markets in which settlements are made in foreign
currencies. Similarly, any income on such securities is generally paid to a Fund
in foreign currencies. The value of these foreign currencies relative to the
U.S. dollar varies continually, causing changes in the dollar value of a Fund's
investments (even if the price of the investments is unchanged) and changes in
the dollar value of a Fund's income available for distribution to its
shareholders. The effect of changes in the dollar value of a foreign currency on
the dollar value of a Fund's assets and on the net investment income available
for distribution may be favorable or unfavorable.
A Fund may incur costs in connection with conversions between various
currencies. In addition, a Fund may be required to liquidate portfolio assets,
or may incur increased currency conversion costs, to compensate for a decline in
the dollar value of a foreign currency occurring between the time when a Fund
declares and pays a dividend, or between the time when a Fund accrues and pays
an operating expense in U.S. dollars.
American Depository Receipts ("ADRs"), as well as other "hybrid" forms of ADRs
including European depository Receipts and Global Depository Receipts, are
certificates evidencing ownership of shares of a foreign issuer. These
certificate are issued by depository banks and generally trade on an established
market in the United States or elsewhere. The underlying shares are held in
trust by a custodian bank or similar financial institution in the issuer's home
country. The depository bank may not have physical custody of the underlying
security at all times and may charge fees for various services, including
forwarding dividends and interest and corporate actions. ADRs are an alternative
to directly purchasing the underlying foreign securities in their national
markets and currencies. However, ADRs continue to be subject to the risks
associated with investing directly in foreign securities. These risks include
foreign exchange risks as well as the political and economic risks of the
underlying issuer's country.
Futures. See "Futures and Options" below.
Illiquid Securities. Each Fund may invest up to 15% of its net assets in
illiquid securities, except the Money Market Fund which may invest up to 10% of
its net assets in illiquid securities. The term "illiquid securities" means
securities that cannot be sold in the ordinary course of business within seven
days at approximately the price used in determining a Fund's net asset value.
Under the supervision of the Board of Trustees, GW Capital Management determines
the liquidity of portfolio securities and, through reports from GW Capital
Management, the Board of Trustees monitors investments in illiquid securities.
Certain types of securities are considered generally to be illiquid. Included
among these are "restricted securities" which are securities whose public resale
is subject to legal restrictions. However, certain types of restricted
securities (commonly known as "Rule 144A securities") that can be resold to
qualified institutional investors may be treated as liquid if they are
determined to be readily marketable pursuant to policies and guidelines of the
Board of Trustees.
A Fund may be unable to sell illiquid securities when desirable or may be forced
to sell them at a price that is lower than the price at which they are valued or
that could be obtained if the securities were more liquid. In addition, sales of
illiquid securities may require more time and may result in higher dealer
discounts and other selling expenses than do sales of securities that are not
illiquid. Illiquid securities may also be more difficult to value due to the
unavailability of reliable market quotations for such securities.
Lending of Portfolio Securities. Each Fund may from time-to-time lend its
portfolio securities to brokers, dealers and financial institutions. Securities
lending allows a fund to retain ownership of the securities loaned and, at the
same time, to earn additional income.
Because there may be delays in the recovery of loaned securities, or even a loss
of rights in collateral supplied should the borrower fail financially, loans
will be made only to parties deemed by GW Capital Management to be of good
standing. Furthermore, they will only be made if, in GW Capital Management's
judgment, the consideration to be earned from such loans would justify the risk.
GW Capital Management understands that it is the current view of the SEC Staff
that a Fund may engage in loan transactions only under the following conditions:
(1) the fund must receive 100% collateral in the form of cash or cash
equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2) the
borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of the
collateral; (3) after giving notice, the fund must be able to terminate the loan
at any time; (4) the fund must receive reasonable interest on the loan or a flat
fee from the borrower, as well as amounts equivalent to any dividends, interest,
or other distributions on the securities loaned and to any increase in market
value; (5) the fund may pay only reasonable custodian fees in connection with
the loan; and (6) the Board of Trustees must be able to vote proxies on the
securities loaned, either by terminating the loan or by entering into an
alternative arrangement with the borrower.
Cash received through loan transactions may be invested in other eligible
securities. Investing this cash subjects that investment, as well as the
security loaned, to market forces (i.e., capital appreciation or depreciation).
Lower Quality Debt Securities. Lower-quality debt securities have poor
protection with respect to the payment of interest and repayment of principal,
or may be in default. These securities are often considered to be speculative
and involve greater risk of loss or price changes due to changes in the issuer's
capacity to pay. The market prices of lower-quality debt securities may
fluctuate more than those of higher-quality debt securities and may decline
significantly in periods of general economic difficulty, which may follow
periods of rising interest rates.
The market for lower-quality debt securities may be thinner and less active than
that for higher-quality debt securities, which can adversely affect the prices
at which the former are sold. Adverse publicity and changing investor
perceptions may affect the liquidity of lower-quality debt securities and the
ability of outside pricing services to value lower-quality debt securities.
Because the risk of default is higher for lower-quality debt securities,
research and credit analysis are an especially important part of managing
securities of this type. GW Capital Management and its sub-advisers will attempt
to identify those issuers of high-yielding securities whose financial condition
is adequate to meet future obligations, has improved, or is expected to improve
in the future. Analysis will focus on relative values based on such factors as
interest or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.
A Fund may choose, at its expense or in conjunction with others, to pursue
litigation or otherwise to exercise its rights as a security holder to seek to
protect the interests of security holders if it determines this to be in the
best interest of the Fund's shareholders.
Money Market Instruments and Temporary Investment Strategies. In addition to the
Money Market Fund, the other Funds each may hold cash or cash equivalents and
may invest in short-term, high-quality debt instruments (that is in "money
market instruments") as deemed appropriate by GW Capital Management, or may
invest any or all of their assets in money market instruments as deemed
necessary by GW Capital Management for temporary defensive purposes.
The types of money market instruments in
which the Funds may invest include, but are
not limited to: (1) acceptances; (2)
obligations of U.S. and non-U.S.
governments and their agencies and
instrumentalities; (3) short-term corporate
obligations, including commercial paper,
notes, and bonds; (4) obligations of U.S.
banks, non-U.S. branches of such bank
(Eurodollars), U.S. branches and agencies
of non-U.S. banks (Yankee dollars), and
non-U.S. branches of non-U.S. banks; (5)
asset-backed securities; and (6) repurchase
agreements.
Mortgage-Backed Securities. Mortgage backed securities may be issued by
government and non-government entities such as banks, mortgage lenders, or other
financial institutions. A mortgage security is an obligation of the issuer
backed by a mortgage or pool of mortgages or a direct interest in an underlying
pool of mortgages. Some mortgage-backed securities, such as collateralized
mortgage obligations or CMOs, make payments of both principal and interest at a
variety of intervals; others make semi-annual interest payments at a
predetermined rate and repay principal at maturity (like a typical bond).
Mortgage-backed securities are based on different types of mortgages including
those on commercial real estate or residential properties. Other types of
mortgage-backed securities will likely be developed in the future, and the
investment in such securities may be made if deemed consistent with investment
objectives and policies.
The value of mortgage-backed securities may change due to shifts in the market's
perception of issuers. In addition, regulatory or tax changes may adversely
affect the mortgage securities market as a whole. Non-government mortgage-backed
securities may offer higher yields than those issued by government entities, but
also may be subject to greater price changes than government issues.
Mortgage-backed securities are subject to prepayment risk. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
total returns.
Options. See "Futures and Options" below.
Preferred Stock. Preferred stock is a class of equity or ownership in an issuer
that pays dividends at a specified rate and that has precedence over common
stock in the payment of dividends. In the event an issuer is liquidated or
declares bankruptcy, owners of bonds take precedence over the claims of those
who own preferred and common stock.
Repurchase Agreements. Repurchase agreements involve an agreement to purchase a
security and to sell that security back to the original seller at an agreed-upon
price. The resale price reflects the purchase price plus an agreed-upon
incremental amount which is unrelated to the coupon rate or maturity of the
purchased security. As protection against the risk that the original seller will
not fulfill its obligation, the securities are held in a separate account at a
bank, marked-to-market daily, and maintained at a value at least equal to the
sale price plus the accrued incremental amount. The value of the security
purchased may be more or less than the price at which the counterparty has
agreed to purchase the security. In addition, delays or losses could result if
the other party to the agreement defaults or becomes insolvent. A Fund will
engage in repurchase agreement transactions with parties whose creditworthiness
has been reviewed and found satisfactory by GW Capital Management.
Reverse Repurchase Agreements. In a reverse repurchase agreement, a Fund sells a
security to another party, such as a bank or broker-dealer, in return for cash
and agrees to repurchase that security at an agreed-upon price and time. A Fund
will enter into reverse repurchase agreements with parties whose
creditworthiness has been reviewed and found satisfactory by GW Capital
Management. Such transactions may increase fluctuations in the market value of
fund assets and may be viewed as a form of leverage.
Stripped Treasury Securities. Each Fund may invest in zero-coupon bonds. These
securities are U.S. Treasury bonds which have been stripped of their unmatured
interest coupons, the coupons themselves, and receipts or certificates
representing interests in such stripped debt obligations and coupons. Interest
is not paid in cash during the term of these securities, but is accrued and paid
at maturity. Such obligations have greater price volatility than coupon
obligations and other normal interest-paying securities, and the value of zero
coupon securities reacts more quickly to changes in interest rates than do
coupon bonds. Since dividend income is accrued throughout the term of the zero
coupon obligation, but not actually received until maturity, a Fund may have to
sell other securities to pay the accrued dividends prior to maturity of the zero
coupon obligation. Zero coupon securities are purchased at a discount from face
value, the discount reflecting the current value of the deferred interest. The
discount is taxable even though there is no cash return until maturity.
Short Sales "Against the Box." Short sales "against the box" are short sales of
securities that a Fund owns or has the right to obtain (equivalent in kind or
amount to the securities sold short). If a Fund enters into a short sale against
the box, it will be required to set aside securities equivalent in kind and
amount to the securities sold short (or securities convertible or exchangeable
into such securities) and will be required to hold such securities while the
short sale is outstanding. The Fund will incur transaction costs, including
interest expenses, in connection with opening, maintaining, and closing short
sales against the box.
Time Deposits. A time deposit is a deposit in a commercial bank for a specified
period of time at a fixed interest rate for which a negotiable certificate is
not received.
U.S. Government Securities. These are
securities issued or guaranteed as to
principal and interest by the U.S.
government or its agencies or
instrumentalities. U.S. Treasury bills and
notes and certain agency securities, such
as those issued by the Government National
Mortgage Association, are backed by the
full faith and credit of the U.S.
government. Securities of other government
agencies and instrumentalities are not
backed by the full faith and credit of U.S.
government. These securities have
different degrees of government support and
may involve the risk of non-payment of
principal and interest. For example, some
are supported by the agency's right to
borrow from the U.S. Treasury under certain
circumstances, such as those of the Federal
Home Loan Banks. Others are supported by
the discretionary authority of the U.S.
government to purchase certain obligations
of the agency or instrumentality, such as
those of the Federal National Mortgage
Association. Still other are supported
only by the credit of the agency that
issued them, such as those of the Student
Loan Marketing Association. The U.S.
government and its agencies and
instrumentalities do not guarantee the
market value of their securities, and
consequently, the value of such securities
may fluctuate.
Variable Amount Master Demand Notes. A variable amount master demand note is a
note which fixes a minimum and maximum amount of credit and provides for lending
and repayment within those limits at the discretion of the lender. Before
investing in any variable amount master demand notes, the liquidity of the
issuer must be determined through periodic credit analysis based upon publicly
available information.
Variable or Floating Rate Securities. These securities have interest rates that
are adjusted periodically, or which "float" continuously according to formulas
intended to stabilize their market values. Many of them also carry demand
features that permit the Funds to sell them on short notice at par value plus
accrued interest. When determining the maturity of a variable or floating rate
instrument, the Fund may look to the date the demand feature can be exercised,
or to the date the interest rate is readjusted, rather than to the final
maturity of the instrument.
Warrants. Warrants basically are options to purchase equity securities at a
specific price valid for a specific period of time. They do not represent
ownership of the securities, but only the right to buy them. Warrants are
speculative 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
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. The prices of warrants do not necessarily move
parallel to the prices of the underlying securities.
When-Issued and Delayed-Delivery Transactions. When-issued or delayed-delivery
transactions arise when securities are purchased or sold with payment and
delivery taking place in the future in order to secure what is considered to be
an advantageous price and yield at the time of entering into the transaction.
While the Funds generally purchase securities on a when-issued basis with the
intention of acquiring the securities, the Funds may sell the securities before
the settlement date if GW Capital Management deems it advisable. At the time a
Fund makes the commitment to purchase securities on a when-issued basis, the
Fund will record the transaction and thereafter reflect the value, each day, of
such security in determining the net asset value of the Fund. At the time of
delivery of the securities, the value may be more or less than the purchase
price. A Fund will maintain, in a segregated account, liquid assets having a
value equal to or greater than the Fund's purchase commitments; likewise a Fund
will segregate securities sold on a delayed-delivery basis.
Futures and Options
Futures Contracts. When a Fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When a
Fund sells a futures contract, it agrees to sell the underlying instrument at a
specified future date. The price at which the purchase and sale will take place
is fixed when the Fund enters into the contract. Futures can be held until their
delivery dates, or can be closed out before then if a liquid secondary market is
available.
The value of a futures contract tends to increase and decrease in tandem with
the value of its underlying instrument. Therefore, purchasing futures contracts
will tend to increase a Fund's exposure to positive and negative price
fluctuations in the underlying instrument, much as if it had purchased the
underlying instrument directly. When a Fund sells a futures contract, by
contrast, the value of its futures position will tend to move in a direction
contrary to the market.
Futures Margin Payments. The purchaser or seller of a futures contract is not
required to deliver or pay for the underlying instrument unless the contract is
held until the delivery date. However, both the purchaser and seller are
required to deposit "initial margin" with a futures broker, known as a futures
commission merchant ("FCM"), when the contract is entered into. Initial margin
deposits are typically equal to a percentage of the contract's value. If the
value of either party's position declines, that party will be required to make
additional "variation margin" payments to settle the change in value on a daily
basis. The party that has a gain may be entitled to receive all or a portion of
this amount. Initial and variation margin payments do not constitute purchasing
securities on margin for purposes of a Fund's investment limitations. In the
event of a bankruptcy of an FCM that holds margin on behalf of a Fund, the Fund
may be entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to the
Fund.
Index Futures Contracts. An index futures contract obligates the seller to
deliver (and the purchaser to take) an amount of cash equal to a specific dollar
amount times the difference between the value of a specific index at the close
of the last trading day of the contract and the price at which the agreement is
made. No physical delivery of the underlying security in the index is made.
Purchasing Put and Call Options. By purchasing a put option, a Fund obtains the
right (but not the obligation) to sell the option's underlying instrument at a
fixed strike price. In return for this right, the Fund pays the current market
price for the option (known as the option premium). Options have various types
of underlying instruments, including specific securities, indices of securities
prices, and futures contracts. The Fund may terminate its position in a put
option it has purchased by allowing it to expire or by exercising the option. If
the option is allowed to expire, the Fund will lose the entire premium it paid.
If the Fund exercises the option, in completes the sale of the underlying
instrument at the strike price. A Fund may also terminate a put option position
by closing it out in the secondary market (that is by selling it to another
party) at its current price, if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the underlying instrument at the option's strike price. A call buyer
typically attempts to participate in potential price increases of the underlying
instrument with risk limited to the cost of the option if security prices fall.
At the same time, the buyer can expect to suffer a loss if security prices do
not rise sufficiently to offset the cost of the option.
Writing Put and Call Options. When a Fund writes a put option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the Fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party to the option chooses
to exercise it. When writing an option on a futures contract, the Fund will be
required to make margin payments to an FCM as described above for futures
contracts. A Fund may seek to terminate its position in a put option it writes
before exercise by closing out the option in the secondary market at is current
price. If the secondary market is not liquid for a put option the Fund has
written, however, the Fund must continue to be prepared to pay the strike price
while the option is outstanding, regardless of price changes, and must continue
to set aside assets to cover its position.
If security prices rise, a put writer would generally expect to profit, although
its gain would be limited to the amount of the premium it received. If security
prices remain the same over time, it is likely that the writer will also profit,
because it should be able to close out the option at a lower price. If security
prices fall, the put writer would expect to suffer a loss from purchasing the
underlying instrument directly, which can exceed the amount of the premium
received.
Writing a call option obligates a Fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer can mitigate the effect of a price decline. At the same
time, because a call writer gives up some ability to participate in security
price increases.
OTC Options. Unlike exchange-traded options, which are standardized with respect
to the underlying instrument, expiration date, contract size, and strike price,
the terms of over-the-counter ("OTC") options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows the Funds greater flexibility to
tailor an option to its needs, OTC options generally involve greater credit risk
than exchange-traded options, which are guaranteed by the clearing organization
of the exchanges where they are traded.
Options and Futures Relating to Foreign Currencies. Currency futures contracts
are similar to forward currency exchange contracts, except that they are traded
on exchanges (and have margin requirements) and are standardized as to contract
size and delivery date. Most currency futures contracts call for payment or
delivery in U.S. dollars. The underlying instrument of a currency option may be
a foreign currency, which generally is purchased or delivered in exchange for
U.S. dollars, or may be a futures contract. The purchaser of a currency call
option obtains the right to purchase the underlying currency, and the purchaser
of a currency put obtains the right to sell the underlying currency.
The uses and risks of currency options and futures are similar to options and
futures relating to securities or indices, as discussed above. The Funds may
purchase and sell currency futures and may purchase and write currency options
to increase or decrease their exposure to different foreign currencies. A Fund
may also purchase and write currency options in conjunction with each other or
with currency futures or forward contracts. Currency futures and options values
can be expected to correlate with exchange rates, but may not reflect other
factors that affect the value of a Fund's investments. A currency hedge, for
example, should protect a Yen-denominated security from a decline in the Yen,
but will not protect a Fund against a price decline resulting from deterioration
in the issuer's creditworthiness. Because the value of a Fund's
foreign-denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency options
and futures to the value of the Fund's investments exactly over time.
Asset Coverage for Futures and Options Positions. The Funds will comply with
guidelines established by the Securities and Exchange Commission with respect to
coverage of options and futures strategies by mutual funds, and, if the
guidelines so require, will set aside appropriate liquid assets in a segregated
custodial account in the amount prescribed. Securities held in a segregated
account cannot be sold while the futures or option strategy is outstanding,
unless they are replaced with other suitable assets. As a result, there is a
possibility that segregation of a large percentage of a Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
Combined Positions. A Fund may purchase and write options in combination with
each other, or in combination with futures or forward contracts, to adjust the
risk and return characteristics of the overall position. For example, a Fund may
purchase a put option and write a call option on the same underlying instrument,
in order to construct a combined position whose risk and return characteristics
are similar to selling a futures contract. Another possible combined position
would involve writing a call option at one strike price and buying a call option
at a lower price, in order to reduce the risk of the written call option in the
event of a substantial price increase. Because combined options positions
involve multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
Correlation of Price Changes. Options and futures prices can also diverge from
the prices of their underlying instruments, even if the underlying instruments
match a Fund's investments well. Options and futures prices are affected by such
factors as current and anticipated short-term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A Fund may purchase or sell options and
futures contracts with a greater or lesser value than the securities it wishes
to hedge or intends to purchase in order to attempt to compensate differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in a Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
Limitations on Futures and Options Transactions. The Trust has filed a notice of
eligibility for exclusion from the definition of the term "commodity pool
operator" with the Commodity Futures Trading Commission and the National Futures
Association, which regulate trading in the futures markets. The Funds intend to
comply with Rule 4.5 under the Commodity Exchange Act, which limits the extent
to which the Funds can commit assets to initial margin deposits and option
premiums. Accordingly, to the extent that a Fund may invest in futures contracts
and options, a Fund may only enter into futures contract and option positions
for other than bona fide hedging purposes to the extent that the aggregate
initial margin and premiums required to establish such positions will not exceed
5% of the liquidation value of the Fund. This limitation on a Fund's permissible
investments in futures contracts and options is not a fundamental investment
limitation and may be changed as regulatory agencies permit.
Liquidity of Options and Futures Contracts. There is no assurance that a liquid
secondary market will exist for any particular option or futures contract at any
particular time. Options may have relatively low trading volume and liquidity if
their strike prices are not close to the underlying instrument's current price.
In addition, exchanges may establish daily price fluctuation limits for options
and futures contracts, and may halt trading if a contract's price moves upward
or downward more than the limit in a given day. On volatile trading days when
the price fluctuation limit is reached or a trading halt is imposed, it may be
impossible for a Fund to enter into new positions or close out existing
positions. If the secondary market for a contract is not liquid because of price
fluctuation limits or otherwise, it could prevent prompt liquidation of
unfavorable positions, and potentially could require a Fund to continue to hold
a position until delivery or expiration regardless of changes in its value. As a
result, a Fund's access to assets held to cover its options or futures positions
could also be impaired.
MANAGEMENT OF THE FUND
The Fund is governed by the Board of Trustees (the "Trustees"). The Trustees are
responsible for overall management of the Funds' business affairs. The Trustees
meet at least 4 times during the year to, among other things, oversee the Funds'
activities, review contractual arrangements with companies that provide services
to the Funds, and review performance.
Trustees and Officers
The Trustees and executive officers of the Trust, their ages, position(s) with
the Trust, their principal occupations during the past 5 years (or as otherwise
indicated) and their positions with affiliates of Orchard Series Fund or its
principal underwriter are set forth below. The business address of each Trustee
and officer is 8515 East Orchard Road, Englewood, Colorado 80111 (unless
otherwise indicated). Those Trustees and officers who are "interested persons"
(as defined in the Investment Company Act of 1940, as amended) by virtue of
their affiliation with either the Trust or GW Capital Management are indicated
by an asterisk (*).
Rex Jennings (75), Trustee; President Emeritus, Denver Metro Chamber of
Commerce; Director, Maxim Series Fund.
Richard P. Koeppe (68), Trustee; Retired
Superintendent, Denver Public
Schools, Director, Maxim Series
Fund.
*William T. McCallum (57), Trustee, President and Chief Executive Officer of
Great-West Life & Annuity Insurance Company (1990 to present); President and
Chief Executive Officer, United States Operations, The Great-West Life Assurance
Company (1990 to present).
*Mitchell T.G. Graye (44), Trustee, Executive Vice President and Chief Financial
Officer of Great-West Life & Annuity Insurance Company (since June 1996);
Executive Vice President and Chief Financial Officer, United States Operations,
The Great-West Life Assurance Company (since June 1996); Executive Vice
President and Chief Operating Officer, One Corporation since June 1996;
previously Executive Vice President and Chief Operating Officer, Harris
Methodist Health Plan since March 1995.
Sanford Zisman (60), Trustee; Attorney,
Zisman & Ingraham, P.C.; Director,
Maxim Series Fund.
*David G. McLeod (37), Treasurer; Vice President, Investment Operations, (1998
to Present) Assistant Vice President, Investment Administration of GWL&A
(1994 to 1998); Manager, Securities and Equities Administration of GWL&A
(1992-1994); Treasurer, Maxim Series Fund; Manager, GW Capital
Management.
*Bruce Hatcher (36), Assistant Treasurer; Manager, Investment Company
Administration (1998 - present); Associate Manager, Separate Account
Administration of GWL&A (1993-1998); Assistant Treasurer, Maxim Series
Fund.
*BeverlyA. Byrne (44), Secretary; Vice President, Counsel and Assistant
Secretary of GWL&A (2000 - present); Assistant Vice President, Assistant
Counsel and Assistant Secretary of GWL&A (1997-2000); Assistant Counsel
and Assistant Secretary of GWL&A (1993-1997); Chief Legal & Compliance
Counsel of One Orchard Equities, Inc., the principal underwriter of the
Orchard Series Fund; Secretary, Maxim Series Fund, an affiliated fund;
Manager, GW Capital Management.
Compensation
The Trust pays no salaries or compensation to any of its officers or Trustees
affiliated with GW Capital Management or its affiliates. The chart below sets
forth the annual fees paid or expected to be paid to the non-interested
Trustees, as well as certain other information.
R.P. Koeppe R. Jennings S. Zisman
--------------------------------------
Trustee Trustee Trustee
Compensation Received from the Trust
$15,000 $15,000 $15,000
Pension or Retirement
Benefits Accrued as
Fund Expense*
$0 $0 $0
Estimated Annual Benefits
Upon Retirement
$0 $0 $0
Total Compensation
Received from the Trust and All Affiliated
Funds* $15,000 $15,000
$15,000
*As of October 31, 1999 there were 42 funds for which the Trustees served as
Trustees or Directors of which four are Funds of the Trust.
As of May 31, 2000, no person owned of record or beneficially 5% or more of the
shares outstanding of the Trust or any Fund except GW Capital Management and its
affiliates which owned 89.72% of the Funds' outstanding shares as of the date of
this Statement of Additional Information. Therefore, GWL&A would be deemed to
control each Fund as the term "control" is defined in the Investment Company Act
of 1940. As of the date of this Statement of Additional Information, the
trustees and officers of the Trust, as a group, owned of record or beneficially
less than 1% of the outstanding share of each Fund.
CODES OF ETHICS
The Orchard Series Fund, GW Capital Management, One Orchard Equities and CIC
Asset Management have adopted a code of ethics addressing investing by their
personnel. The codes permit personnel to invest in securities, including
securities held by the Orchard Series Fund under certain circumstances.
INVESTMENT ADVISORY SERVICES
Investment Adviser
GW Capital Management, LLC is a Colorado limited liability company, located at
8515 East Orchard Road, Englewood, Colorado 80111, and serves as investment
adviser to the Trust pursuant to an Investment Advisory Agreement dated December
5, 1997. GW Capital Management is a wholly owned subsidiary of GWL&A, which is a
wholly-owned subsidiary of The Great-West Life Assurance Company ("Great-West"),
a Canadian stock life insurance company. Great-West is a 100% owned subsidiary
of Great-West Lifeco Inc., which in turn is an 80.9% owned subsidiary of Power
Financial Corporation, Montreal, Quebec. Power Corporation of Canada, a holding
and management company, has voting control of Power Financial Corporation of
Canada. Mr. Paul Desmarais, and his associates, a group of private holding
companies, have voting control of Power Corporation of Canada.
Investment Advisory Agreement
The Investment Advisory Agreement became effective on December 5, 1997 and, as
amended, effective April 1, 2000. As approved, the Agreement will remain in
effect until April 1, 2001, and will continue in effect from year to year if
approved annually by the Board of Trustees including the vote of a majority of
the Trustees who are not parties to the Agreement or interested persons of any
such party, or by vote of a majority of the outstanding shares of each Fund. Any
amendment to the Agreement becomes effective with respect to a Fund upon
approval by vote of a majority of the voting securities of the Fund. The
agreement is not assignable and may be terminated without penalty with respect
to any Fund either by the Board of Trustees or by vote of a majority of the
outstanding voting securities of such Fund or by GW Capital Management, each on
60 days notice to the other party.
Under the terms of investment advisory agreement with the Trust, GW Capital
Management acts as investment adviser and, subject to the supervision of the
Board of Trustees, directs the investments of the Funds in accordance with its
investment objective, policies and limitations. GW Capital Management also
provides the Funds with all necessary office facilities and personnel for
servicing the Funds' investments, compensates all officers of the Funds and all
Trustees who are "interested persons" of the Trust or of GW Capital Management,
and all personnel of the Funds or GW Capital Management performing services
relating to research, statistical and investment activities.
In addition, GW Capital Management, subject to the supervision of the Board of
Trustees, provides the management and administrative services necessary for the
operation of the Funds. These services include providing facilities for
maintaining the Trust's organization; supervising relations with custodians,
transfer and pricing agents, accountants, underwriters and other persons dealing
with the Funds; preparing all general shareholder communications and conducting
shareholder relations; maintaining the Funds' records and the registration of
the Funds' shares under federal securities laws and making necessary filings
under state securities laws; developing management and shareholder services for
the Funds; and furnishing reports, evaluations and analyses on a variety of
subjects to the Trustees.
Management Fees
Each Fund pays a management fee to GW Capital Management for managing its
investments and business affairs. GW Capital Management is paid monthly at an
annual rate of a Fund's average net assets according to the following schedule.
MANAGEMENT FEE
(as a percentage of average net assets)
-------------------
Orchard Money Market Fund 0.20%
Orchard DJIASM Index Fund 0.60%
Orchard Nasdaq-100 Index(R)Fund 0.60%
Orchard Index 600 Fund 0.60%
Orchard S&P 500 Index(R)Fund 0.60%
Orchard Value Fund 1.00%
For the period November 1, 1998 to October 31, 1999, GW Capital Management was
paid a fee for its services as follows: Money Market $6,903; Index 500
$4,285,520; Index 600 $718,382; and Value (Class A shares) $22,880. For the
period November 1, 1997 to October 31, 1998, GW Capital Management was paid a
fee for its services as follows: Money Market $6,353; Index 500 $3,382,480;
Index 600 $32,959; and Value (Class A shares since inception date of March 2,
1998) $12,940. For the period February 3, 1997 (inception) to October 31, 1997,
GW Capital Management was paid a fee for its services as follows: Money Market
$4,526; Index 500 $53,983; Index 600 $21,804. No fees were paid to GW Capital
Management for the Orchard DJIASM Index Fund or the Orchard Nasdaq-100 Index(R)
Fund for the periods ended October 31, 1999 because the Funds did not commence
operations until August 25, 2000.
Sub-Adviser
CIC Management, Inc. serves as the sub-adviser to the Value Fund pursuant to a
sub-advisory agreement dated March 1, 1998. CIC is a 100% employee owned and
managed firm, registered with the Securities and Exchange Commission as an
investment adviser under the Investment Advisers Act of 1940. It is a California
corporation with its principal business address at 633 West Fifth Street, Suite
1180, Los Angeles, California 90017.
The Sub-Adviser provides investment advisory assistance and portfolio management
advice to the Investment Adviser for the Value Fund. Subject to review and
supervision by the Investment Adviser and the Board of Trustees, the Sub-Adviser
is responsible for the actual management of the Value Fund and for making
decisions to buy, sell or hold any particular securities. The Sub-Adviser bears
all expenses in connection with the performance of its services, such as
compensating and furnishing office space for its employees and officers
connected with the investment and economic research, trading and investment
management for the Value Fund.
Sub-Advisory Fees
GW Capital Management is responsible for compensating CIC, which receives
monthly compensation from the Investment Adviser at the annual rate of .50% of
the average daily net asset value of the Orchard Value Fund up to $25 million,
.40% on the next $75 million and .30% of such value in excess of $100 million.
For the period November 1, 1998 to October 31, 1999, CIC was paid $11,489 for
its services. For the period March 2, 1998 (inception) to October 31, 1998, CIC
was paid $8,024 for its services.
Expenses of the Funds
In addition to the management fees paid to GW Capital Management, the Trust pays
certain other costs including, but not limited to, (a) brokerage commissions;
(b) federal, state and local taxes, including issue and transfer taxes incurred
by or levied on the Funds; (c) interest charges on borrowing; (d) fees and
expenses of registering the shares of the Funds under the applicable federal
securities laws and of qualifying shares of the Funds under applicable state
securities laws including expenses attendant upon renewing and increasing such
registrations and qualifications; (e) expenses of printing and distributing the
Funds' prospectus and other reports to shareholders; (f) costs of proxy
solicitations; (g) transfer agent fees; (h) charges and expenses of the Trust's
custodian; (i) compensation and expenses of the "independent" trustees; and (j)
such nonrecurring items as may arise, including expenses incurred in connection
with litigation, proceedings and claims and the obligations of the Trust to
indemnify its trustees and officers with respect thereto.
Subject to revision, GW Capital Management has voluntarily agreed to reimburse
the Money Market Fund to the extent that total operating expenses, but excluding
interest, taxes, brokerage commissions, and extraordinary expenses, exceed 0.46%
of average net assets.
DISTRIBUTION SERVICES
The Trust has entered into a distribution agreement with One Orchard Equities,
Inc. ("OOE"), an affiliate of the Trust. OOE is a broker-dealer registered under
the Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. ("NASD"). The distribution agreement calls for OOE to
use all reasonable efforts, consistent with its other business, to secure
purchasers for shares of the Funds, which are continuously offered at net asset
value.
The Fund has adopted a separate distribution and service plan (the "Plan") for
Class B shares of the Orchard Value Fund pursuant to appropriate resolutions of
the Board of Trustees in accordance with the requirements of Rule 12b-1 under
the 1940 Act and the requirements of the applicable rule of the NASD regarding
asset based sales charges.
Pursuant to the Plan, the Orchard Value Fund may compensate the distributor, OOE
, for its expenditures in financing any activity primarily intended to result in
the sale of Orchard Value Fund Class B shares and for maintenance and personal
service provided to Class B shareholders. The expenses of the Orchard Value Fund
pursuant to the Plan are accrued on a fiscal year basis and may not exceed with
respect to the Class B shares of the Orchard Value Fund, the annual rate of
0.25% of the Orchard Value Fund's daily net assets attributable to Class B
shares. All or any portion of this fee may be remitted to brokers or other
persons who provide distribution or shareholder account services.
Under the terms of the Class B Plan, OOE provides to the Fund, for review by
Board of Trustees, a quarterly written report of the amounts expended under the
Plan and the purpose for which such expenditures were made.
The Plan was adopted by a majority vote of the Board of Trustees, including at
least a majority of Trustees who are not, and were not at the time they voted,
interested persons of the Trust as defined in the 1940 Act and do not and did
not have any direct or indirect financial interest in the operation of the Plan,
cast in person at a meeting called for the purpose of voting on the Plan. In
approving the Plan, the Trustees identified and considered a number of potential
benefits that the Plan may provide. The Trustees believe that there is a
reasonable likelihood that the Plan will benefit the Orchard Value Fund and its
current and future shareholders. Under its terms, the Plan remains in effect
from year to year provided such continuance is approved annually by vote of the
Trustees in the manner described above. The Plan may not be amended to increase
materially the amount to be spent for distribution without approval of the
shareholders of the Fund affected thereby, and material amendment to the Plan
must also be approved by the Board of Trustees in the manner described above.
The Plan may be terminated at any time, without payment of any penalty, by vote
of a majority of the Trustees who are not interested persons of the Trust and
have no direct or indirect financial interest in the operations of the Plan, or
by vote of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the Fund affected thereby. The Plan will automatically terminate in
the event of its assignment (as defined in the 1940 Act).
For the period November 1, 1998 to October 31, 1999, only Class A shares of the
Value Fund were sold.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the direction of the Board of Trustees, GW Capital Management is
primarily responsible for placement of Funds' portfolio transactions. GW Capital
Management has no obligation to deal with any broker, dealer or group of brokers
or dealers in the execution of transactions in portfolio securities. In placing
orders, it is the policy of the Trust to obtain the most favorable net results,
taking into account various factors, including price, dealer spread or
commissions, if any, size of the transaction and difficulty of execution. While
GW Capital Management generally will seek reasonably competitive spreads or
commissions, the Funds will not necessarily pay the lowest spread or commission
available.
Transactions on U.S. futures and stock exchanges and other agency transactions
involve the payment of negotiated brokerage commissions. Commissions vary among
different brokers and dealers, which may charge different commissions according
to such factors as the difficulty and size of the transaction. Transactions in
foreign securities often involve the payment of fixed brokerage commissions,
which may be higher than those for negotiated transactions in the United States.
Prices for over-the-counter transactions usually include an undisclosed
commission or "mark-up" that is retained by the broker or dealer effecting the
trade. The cost of securities purchased from an underwriter or from a dealer in
connection with an underwritten offering usually includes a fixed commission,
which is paid by the issuer to the underwriter or dealer. Transactions in U.S.
government securities occur usually through issuers and underwriters of and
major dealers in such securities, acting as principals. These transactions are
normally made on a net basis and do not involve payment of brokerage
commissions.
In placing portfolio transactions, GW Capital Management may give consideration
to brokers or dealers which provide supplemental investment research, in
addition to such research obtained for a flat fee, and pay commissions to such
brokers or dealers furnishing such services which are in excess of commissions
which another broker or dealer may charge for the same transaction. Such
supplemental research ordinarily consists of assessments and analyses of the
business or prospects of a company, industry, or economic sector. Supplemental
research obtained through brokers or dealers will be in addition to and not in
lieu of the services required to be performed by GW Capital Management. The
expenses of GW Capital Management will not necessarily be reduced as a result of
the receipt of such supplemental information. GW Capital Management may use any
supplemental investment research obtained for the benefit of the Funds in
providing investment advice to its other investment advisory accounts, and may
use such information in managing its own accounts. Conversely, such supplemental
information obtained by the placement of business for GW Capital Management will
be considered by and may be useful to GW Capital Management in carrying out its
obligations to the Trust.
If in the best interests of both one or more Funds and other client accounts of
GW Capital Management, GW Capital Management may, to the extent permitted by
applicable law, but need not, aggregate the purchases or sales of securities for
these accounts to obtain favorable overall execution. When this occurs, GW
Capital Management will allocate the securities purchased and sold and the
expenses incurred in a manner that it deems equitable to all accounts. In making
this determination, GW Capital Management may consider, among other things, the
investment objectives of the respective client accounts, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally, and the
opinions of persons responsible for managing the Funds and other client
accounts. The use of aggregated transactions may adversely affect the size of
the position obtainable for the Funds, and may itself adversely affect
transaction prices to the extent that it increases the demand for the securities
being purchased or the supply of the securities being sold.
No brokerage commissions have been paid by the Orchard Money Market Fund for the
years ended December 31, 1997, December 31, 1998 and December 31, 1999. For the
years 1997, 1998 and 1999, respectively, the Funds paid commissions as follows:
S&P 500 Index(R) Fund - $4,691, $39,686 and $53,198; Index 600 Fund - $1,662,
$8,060 and $ 69,115; Value Fund (Class A shares since inception, March 2, 1998,
only) - $7,357 and $8,263. No brokerage commissions have been paid by the
Orchard DJIASM Index Fund or the Orchard Nasdaq -100 Index(R) Fund for the
periods ended October 31, 1999.
Portfolio Turnover
The turnover rate for each Fund is calculated by dividing (a) the lesser of
purchases or sales of portfolio securities for the fiscal year by (b) the
monthly average market value of portfolio securities owned by the Fund during
the fiscal year. In computing the portfolio turnover rate, certain U.S.
government securities (long-term for periods before 1986 and short-term for all
periods) and all other securities, the maturities or expiration dates of which
at the time of acquisition are one year or less, are excluded.
There are no fixed limitations regarding the portfolio turnover of the Funds.
Portfolio turnover rates are expected to fluctuate under constantly changing
economic conditions and market circumstances. Securities initially satisfying
the basic policies and objectives of each Fund may be disposed of when
appropriate in GW Capital Management's judgment.
With respect to any Fund, a higher portfolio turnover rate may involve
correspondingly greater brokerage commissions and other expenses which might be
borne by the Fund and, thus, indirectly by its shareholders. Higher portfolio
turnover may also increase a shareholder's current tax liability for capital
gains by increasing the level of capital gains realized by a Fund.
Based upon the formula for calculating the portfolio turnover rate, as stated
above, the portfolio turnover rate for each Fund (other than the Money Market
Fund) for the period November 1, 1998 to October 31, 1999 is as follows:
Fund
Orchard Index 600 Fund
40.90%
Orchard S&P 500 Index(R) Fund
17.09%
Orchard Value Fund
153.77%
PURCHASE, REDEMPTION AND PRICING OF SHARES
Purchase and Redemption of Shares. The Prospectus fully describes how shares of
the Funds may be purchased and redeemed. That disclosure is incorporated by
reference into this SAI. Please read the Prospectus carefully.
Each Fund intends to pay all redemptions of its shares in cash. However, each
Fund may make full or partial payment of any redemption request by the payment
to shareholders of portfolio securities of the applicable Fund (i.e., by
redemption in-kind) at the value of such securities used in determining the
redemption price. Nevertheless, pursuant to Rule 18f-1 under the 1940 Act, each
Fund is committed to pay in cash to any shareholder of record, all such
shareholder's requests for redemption made during any 90-day period, up to the
lesser of $250,000 or 1% of the application Fund's net asset value at the
beginning of such period. The securities to be paid in-kind to any shareholders
will be readily marketable securities selected in such manner as the Trustees of
the Trust deem fair and equitable. If shareholders were to receive redemptions
in-kind, they would incur brokerage costs should they wish to liquidate the
portfolio securities received in such payment of their redemption request. The
Funds do not anticipate making redemptions in-kind.
Pricing of Shares. The net asset value of each Fund is determined in the manner
described in the Prospectus. Securities held by each Fund other than the Money
Market Fund will be valued as follows: portfolio securities which are traded on
stock exchanges are valued at the last sale price on the principal exchange as
of the close of business on the day the securities are being valued, or, lacking
any sales, at the mean between the bid and asked prices. Securities traded in
the over-the-counter market and included in the National Market System are
valued at the mean between the bid and asked prices which may be based on the
valuations furnished by a pricing service or from independent securities
dealers. Otherwise, over-the-counter securities are valued at the mean between
the bid and asked prices or yield equivalent as obtained from one or more
dealers that make markets in the securities. Portfolio securities which are
traded both in the over-the-counter market and on an exchange are valued
according to the broadest and most representative market, and it is expected
that for debt securities this ordinarily will be the over-the-counter market.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under procedures or
guidelines established by the Board of Trustees, including valuations furnished
by pricing services retained by GW Capital Management.
The net asset value per share of the Money Market Fund is determined by using
the amortized cost method of valuing its portfolio instruments. Under the
amortized cost method of valuation, an instrument is valued at cost and the
interest payable at maturity upon the instrument is accrued daily as income over
the remaining life of the instrument. Neither the amount of daily income nor the
net asset value is affected by unrealized appreciation or depreciation of the
Fund's investments assuming the instrument's obligation is paid in full on
maturity. In periods of declining interest rates, the indicated daily yield on
shares of the portfolio computed using amortized cost may tend to be higher than
a similar computation made using a method of valuation based upon market prices
and estimates. In periods of rising interest rates, the indicated daily yield on
shares of the portfolio computed using amortized costs may tend to be lower than
a similar computation made using a method of valuation based upon market prices
and estimates. For all Funds, securities with remaining maturities of not more
than 60 days are valued at amortized cost, which approximates market value.
The amortized cost method of valuation permits the Money Market Fund to maintain
a stable $1.00 net asset value per share. The Board of Trustees periodically
reviews the extent of any deviation from the $1.00 per share value that would
occur if a method of valuation based on market prices and estimates were used.
In the event such a deviation would exceed one-half of one percent, the Board of
Trustees will promptly consider any action that reasonably should be initiated
to eliminate or reduce material dilution or other unfair results to
shareholders. Such action may include selling portfolio securities prior to
maturity, not declaring earned income dividends, valuing portfolio securities on
the basis of current market prices, if available, or if not available, at fair
market value as determined in good faith by the Board of Trustees, and in kind
redemption of portfolio securities (considered highly unlikely by management of
the Trust).
INVESTMENT PERFORMANCE
The Funds may measure investment performance in various ways. All performance
information supplied by the Funds in advertising is historical and is not
intended to indicated future returns.
Money Market Fund
In accordance with regulations prescribed by the SEC, the Trust is required to
compute the Money Market Fund's current annualized yield for a seven-day period
in a manner which does not take into consideration any realized or unrealized
gains or losses on its portfolio securities. This current annualized yield is
computed by determining the net change (exclusive of realized gains and losses
on the sale of securities and unrealized appreciation and depreciation) in the
value of a hypothetical account having a balance of one share of the Money
Market Fund at the beginning of such seven-day period, dividing such net change
in account value by the value of the account at the beginning of the period to
determine the base period return and annualizing this quotient on a 365-day
basis.
The SEC also permits the Trust to disclose the effective yield of the Money
Market Fund for the same seven-day period, determined on a compounded basis. The
effective yield is calculated by compounding the annualized base period return
by adding one to the base period return, raising the sum to a power equal to 365
divided by 7, and subtracting one from the result.
The yield on amounts held in the Money Market Fund normally will fluctuate on a
daily basis. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. The Fund's
actual yield is affected by changes in interest rates on money market
securities, average portfolio maturity of the Fund, the types and quality of
portfolio securities held by the Fund, and its operating expenses.
Other Funds
Standardized Average Annual Total Return Quotations. Average annual total return
quotations for shares of a Fund are computed by finding the average annual
compounded rates of return that would cause a hypothetical investment made on
the first day of a designated period to equal the ending redeemable value of
such hypothetical investment on the last day of the designated period in
accordance with the following formula:
FORMULA: P(1+T)n = ERV
-------
WHERE: P = a hypothetical
-----
initial
payment of
$1,000
T = average annual
total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 initial
payment made at the beginning of the designated period (or
fractional portion thereof)
The computation above assumes that all dividends and distributions made by a
Fund are reinvested at net asset value during the designated period. The average
annual total return quotation is determined to the nearest 1/100 of 1%.
One of the primary methods used to measure performance is "total return." Total
return will normally represent the percentage change in value of a Fund, or of a
hypothetical investment in a Fund, over any period up to the lifetime of the
Fund. Unless otherwise indicated, total return calculations will usually assume
the reinvestment of all dividends and capital gains distributions and will be
expressed as a percentage increase or decrease from an initial value, for the
entire period or for one or more specified periods within the entire period.
Total return percentages for periods longer than one year will usually be
accompanied by total return percentages for each year within the period and/or
by the average annual compounded total return for the period. The income and
capital components of a given return may be separated and portrayed in a variety
of ways in order to illustrate their relative significance. Performance may also
be portrayed in terms of cash or investment values, without percentages. Past
performance cannot guarantee any particular result. In determining the average
annual total return (calculated as provided above), recurring fees, if any, that
are charged to all shareholder accounts are taken into consideration.
Each Fund's average annual total return quotations and yield quotations as they
may appear in the Prospectus, this Statement of Additional Information or in
advertising are calculated by standard methods prescribed by the SEC.
Each Fund may also publish its distribution rate and/or its effective
distribution rate. A Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized, by the current net asset value
per share. A Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio used to annualize the most recent monthly
distribution and reinvesting the resulting amount for a full year on the basis
of such ratio. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed reinvestment.
A Fund's yield is calculated using a standardized formula, the income component
of which is computed from the yields to maturity of all debt obligations held by
the Fund based on prescribed methods (with all purchases and sales of securities
during such period included in the income calculation on a settlement date
basis), whereas the distribution rate is based on a Fund's last monthly
distribution. A Fund's monthly distribution tends to be relatively stable and
may be more or less than the amount of net investment income and short- term
capital gain actually earned by the Fund during the month.
Other data that may be advertised or published about each Fund include the
average portfolio quality, the average portfolio maturity and the average
portfolio duration.
Standardized Yield Quotations. The yield of a Fund is computed by dividing the
Fund's net investment income per share during a base period of 30 days, or one
month, by the maximum offering price per share on the last day of such base
period in accordance with the following formula:
FORMULA: 2[( a - b + 1 )6 - 1 ]
------- -----
(cd)
WHERE: a = net investment income earned
-----
during the period
b = net expenses accrued for the period
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
Net investment income will be determined in accordance with rules established by
the SEC.
Calculation of Total Return. Total return is a measure of the change in value of
an investment in a Fund over the time period covered . In calculating total
return, any dividends or capital gains distributions are assumed to have been
reinvested in the Fund immediately rather than paid to the investor in cash. The
formula for total return includes four steps (1) adding to the total number of
shares purchased by a hypothetical $1,000 investment in the Fund all additional
shares which would have been purchased if all dividends and distributions paid
or distributed during the period had been immediately reinvested; (2)
calculating the value of the hypothetical initial investment of $1,000 as of the
end of the period by multiplying the total number of shares owned at the end of
the period by the net asset value per share on the last trading day of the
period; (3) assuming redemption at the end of the period and deducting any
applicable contingent deferred sales charge; and (4) dividing this account value
for the hypothetical investor by the initial $1,000 investment. Total return
will be calculated for one year, five years and ten years or some other relevant
periods if a Fund has not been in existence for at least ten years.
FORMULA: P(1+T)n = ERV
-------
WHERE: T = Average annual total
-----
return
n = The number of years including portions of years where
applicable for which the performance is being measured
ERV = Ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1-, 5-, or 10-year periods at
the end of the 1-, 5-, or 10-year periods (or fractional
portion)
P = Opening redeemable value of a hypothetical $1,000 payment
made at the inception of the portfolio
The above formula can be restated to solve
for T as follows: T =[(ERV/P)1/n]-1
Performance Comparisons
Performance information contained in reports to shareholders, advertisement, and
other promotional materials may be compared to that of various unmanaged
indexes. These indexes may assume the reinvestment of dividends, but generally
do not reflect deductions for operating expenses.
Advertisements quoting performance rankings of a Fund as measured by financial
publications or by independent organizations such as Lipper Analytical Services,
Inc. and Morningstar, Inc., and advertisements presenting a Fund's the
historical performance, may form time to time be sent to investors or placed in
newspapers and magazines such as The New York Times, The Wall Street Journal,
Barons, Investor's Daily, Money Magazine, Changing Times, Business Week and
Forbes or any other media on behalf of the Funds.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following is only a summary of certain tax considerations generally
affecting the Funds and their shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of any Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning.
Qualification as a Regulated Investment
Company
The Internal Revenue Code of 1986, as amended (the "Code"), provides that each
investment portfolio of a series investment company is to be treated as a
separate corporation. Accordingly, each of the Funds will seek to be taxed as a
regulated investment company under Subchapter M of the Code. As a regulated
investment company, each Fund will not be subject to federal income tax on the
portion of its net investment income (i.e., its taxable interest, dividends and
other taxable ordinary income, net of expenses) and net realized capital gain
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) and at least 90% of its
tax-exempt income (net of expenses allocable thereto) for the taxable year (the
"Distribution Requirement"), and satisfies certain other requirements of the
Code that are described below. Each Fund will be subject to tax at regular
corporate rates on any income or gains that it does not distribute.
Distributions by a Fund made during the taxable year or, under specified
circumstances, within one month after the close of the taxable year, will be
considered distributions of income and gains of the taxable year and can
therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, each Fund must derive at
least 90% of its gross income from dividends, interest, certain payments with
respect to securities loans, gains from the sale or other disposition of stock
or securities or foreign currencies (to the extent such currency gains are
ancillary to the Fund's principal business of investing in stock and securities)
and other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities, currencies (the "Income Requirement").
Certain debt securities purchased by a Fund (such as zero-coupon bonds) may be
treated for federal income tax purposes as having original issue discount.
Original issue discount, generally defined as the excess of the stated
redemption price at maturity over the issue price, is treated as interest for
Federal income tax purposes. Whether or not a Fund actually receives cash, it is
deemed to have earned original issue discount income that is subject to the
distribution requirements of the Code. Generally, the amount of original issue
discount included in the income of a Fund each year is determined on the basis
of a constant yield to maturity that takes into account the compounding of
accrued interest.
In addition, a Fund may purchase debt securities at a discount that exceeds any
original issue discount that remained on the securities at the time the Fund
purchased the securities. This additional discount represents market discount
for income tax purposes. Treatment of market discount varies depending upon the
maturity of the debt security and the date on which it was issued. For a debt
security issued after July 18, 1984 having a fixed maturity date of more than
six months from the date of issue and having market discount, the gain realized
on disposition will be treated as interest to the extent it does not exceed the
accrued market discount on the security (unless a Fund elects for all its debt
securities having a fixed maturity date of more than one year from the date of
issue to include market discount in income in taxable years to which it is
attributable). Generally, market discount accrues on a daily basis. For any debt
security issued on or before July 18, 1984 (unless a Fund makes the election to
include market discount in income currently), or any debt security having a
fixed maturity date of not more than six months from the date of issue, the gain
realized on disposition will be characterized as long-term or short-term capital
gain depending on the period a Fund held the security. A Fund may be required to
capitalize, rather than deduct currently, part of all of any net direct interest
expense on indebtedness incurred or continued to purchase or carry any debt
security having market discount (unless such Fund makes the election to include
market discount in income currently).
At the close of each quarter of its taxable year, at least 50% of the value of a
Fund's assets must consist of cash or cash items, U.S. Government securities,
securities of other regulated investment companies and securities of other
issuers (as to which the Fund has not invested more than 5% of the value of its
total assets in securities of such issuer and the Fund does not hold more than
10% of the outstanding voting securities of such issuer), and no more than 25%
of the value of its total assets may be invested in the securities of any one
issuer (other than U.S. Government securities and securities of other regulated
investment companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses (the "Asset
Diversification Test").
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the current and accumulated earnings and
profits of the Fund. In such event, such distributions generally will be
eligible for the dividends-received deductions in the case of corporate
shareholders.
If a Fund were to fail to qualify as a RIC for one or more taxable years, the
Fund could then qualify (or requalify) as a RIC for subsequent taxable years
only if the Fund had distributed to the Fund's shareholders a taxable dividend
equal to the full amount of any earnings or profits (less the interest charge
mentioned below, if applicable) attributable to such period. The Fund might also
be required to pay to the U.S. Internal Revenue Service interest on 50% of such
accumulated earnings and profits. In addition, pursuant to the Code and an
interpretative notice issued by the IRS, if the Fund should fail to qualify as a
RIC and should thereafter seek to requalify as a RIC, the Fund may be subject to
tax on the excess (if any) of the fair market of the Fund's assets over the
Fund's basis in such assets, as of the day immediately before the first taxable
year for which the Fund seeks to requalify as a RIC.
If a Fund determines that the Fund will not qualify as a RIC under Subchapter M
of the Code, the Fund will establish procedures to reflect the anticipated tax
liability in the Fund's net asset value.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on regulated investment companies that
fail to distribute in each calendar year an amount equal to 98% of ordinary
taxable income for the calendar year and 98% of capital gain net income for the
one-year period ended on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. For the foregoing
purposes, a regulated investment company is treated as having distributed any
amount on which it is subject to income tax for any taxable year ending in such
calendar year.
U.S. Treasury regulations may permit a regulated investment company, in
determining its investment company taxable income and undistributed net capital
for any taxable year, to treat any capital loss incurred after October 31 as if
it had been incurred in the succeeding year. For purposes of the excise tax, a
regulated investment company may: (I) reduce its capital gain net income by the
amount of any net ordinary loss for any calendar year; and (ii) exclude foreign
currency gains and losses incurred after October 31 of any year in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that a Fund may in certain circumstances be required to liquidate portfolio
investments to make sufficient distributions to avoid excise tax liability.
Distributions
Each Fund anticipates distributing substantially all of its investment company
taxable income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income tax
purposes, but they will generally not qualify for the 70% dividends-received
deduction for corporations.
A Fund may either retain or distribute to shareholders the Fund's net capital
gain (i.e., the excess of net long-term capital gain over net short-term capital
loss) for each taxable year. Each Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his or her shares or
whether such gain was recognized by the Fund prior to the date on which the
shareholder acquired his or her shares. Conversely, if a Fund elects to retain
net capital gain, it will be taxed thereon (except to the extent of any
available capital loss carryovers) at the then current applicable corporate tax
rate. If a Fund elects to retain its net capital gain, it is expected the Fund
will also elect to have shareholders treated as having received a distribution
of such gain, with the result that the shareholders will be required to report
their respective shares of such gain on their returns as long-term capital gain,
will receive a refundable tax credit for their allocable share of tax paid by
the Fund on the gain, and will increase the tax basis for their shares by an
amount equal to the deemed distribution less the tax credit.
Investors should be careful to consider the tax implications of purchasing
shares just prior to the next dividend date of any ordinary income dividend or
capital gain dividend. Those purchasing just prior to an ordinary income
dividend or capital gain dividend will be taxed on the entire amount of the
dividend received, even though the net asset value per share on the date of such
purchase reflected the amount of such dividend.
Distributions by a Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital to the extent of
(and will reduce) the shareholder's tax basis in his or her shares; any excess
will be treated as gain from the sale of his or her shares, as discussed below.
Distributions by a Fund will be treated in the manner described above regardless
of whether such distributions are paid in cash or reinvested in additional
shares of the Fund. Shareholders receiving a distribution in the form of
additional shares will be treated as receiving a distribution in an amount equal
to the fair market value of the shares received, determined as of the
reinvestment date. Ordinarily, shareholders are required to take distributions
by a Fund into account in the year in which the distributions are made. However,
distributions declared in October, November or December of any year and payable
to shareholders of record on a specified date in such month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31, of
such calendar year if such distributions are actually made in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
Sale or Redemption of Fund Shares
A shareholder will recognize gain or loss on the sale or redemption of shares in
an amount equal to the difference between the proceeds of the sale or redemption
and the shareholder's adjusted tax basis in the shares. In general, any gain or
loss arising from (or treated as arising from) the sale or redemption of shares
of a Fund will be considered capital gain or loss and will be long-term capital
gain or loss if the shares were held for longer than 12 months. However, any
capital loss arising from the sale or redemption of shares held for six months
or less will be disallowed to the extent of the amount of exempt-interest
dividends received on such shares and (to the extent not disallowed) will be
treated as long-term capital loss to the extent of the amount of capital gain
dividends received on such shares. For this purpose, special holding period
rules provided in Code Section 246(c)(3) and (4) generally will apply in
determining the holding period of shares. For shareholders who are individuals,
long term capital gains (those arising from sales of assets held for more than
12 months) are currently taxed at rates of 8-20%. Each January, the Fund will
provide to each investor and to the IRS a statement showing the tax
characterization of distributions paid during the prior year.
Backup Withholding
Each Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (i) who has provided
either an incorrect tax identification number or no number at all, (ii) who is
subject to backup withholding by the Internal Revenue Service for failure to
report the receipt of interest or dividend income properly, or (iii) who has
failed to certify to the Fund that it is not subject to backup withholding or
that it is a corporation or other "exempt recipient." Each Fund also reserves
the right to close accounts that fail to provide a certified tax identification
number, by redeeming such accounts in full at the current net asset value.
Foreign Shareholders
The U.S. federal income taxation of a shareholder who, as to the United States,
is a nonresident alien individual, foreign trust or estate, foreign corporation,
or foreign partnership ("foreign shareholder") depends on whether the income for
a Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by the foreign shareholder, ordinary income dividends will
be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate, if
applicable) upon the gross amount of the dividend. Such foreign shareholders
generally would be exempt from U.S. federal income tax on gains realized on the
sale of shares of the Fund and on capital gain dividends and amounts retained by
the Fund that are designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or business
carried on by the foreign shareholder, then ordinary income dividends, capital
gain dividends, and any gains realized upon the sale of shares of the Fund will
be subject to U.S. federal income tax at the rates applicable to U.S. citizens
and residents or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be required to
withhold U.S. federal income tax at a rate of 20% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may differ from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Funds, including the
applicability of foreign taxes.
Effect of Future Legislation; Local Tax
Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and capital gain
dividends from regulated investment companies often differ from the rules for
U.S. federal income taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other state and local tax
rules affecting investments in the Funds.
OTHER INFORMATION
Organization of the Trust
The Trust is an open-end management investment company organized as a Delaware
business trust on July 23, 1996. The Trust has authorized capital of an
unlimited number of shares of beneficial interest in the Trust. Shares may be
issued in one or more series of shares, and each series may be issued in one or
more classes of shares. Presently, each Fund represents a separate series of
shares. The Trustees have authorized the issuance of two classes of shares of
the Orchard Value Fund designed as Class A and Class B shares and may establish
additional series or classes in the future.
The assets of the Trust received for the sale of shares of a Fund and all
income, earnings, profits, and proceeds thereof, subject only to the rights of
creditors, are allocated to such Fund, and constitute the underlying assets of
such Fund. The underlying assets of a Fund are accounted for separately on the
books of the Trust, and are to be charged with the liabilities with respect to
such Fund and with a share of the general expenses of the Trust. Expenses with
respect to the Trust are to be allocated between the Funds in a manner deemed to
be fair and equitable by the Board of Trustees. In the event of dissolution or
liquidation of a Fund, the Board of Trustees will distribute the remaining
proceeds or assets of the Fund ratably among its shareholders.
Shareholder and Trustee Liability
Shareholders of a business trust such as the Trust may, under certain
circumstance, be held personally liable for the obligations of the trust. The
Declaration of Trust provides that the Trust shall not have any claim against
shareholders except for the payment of the purchase price of shares and requires
that every note, bond, contract or other undertaking entered into or executed by
the Trust or the trustees shall include a provision limiting the obligations
created thereby to the Trust and its assets. The Declaration of Trust provides
for indemnification out of each Fund's assets of any shareholders held
personally liable for the obligations of the Fund. The Declaration of Trust also
provides that each Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Fund and satisfy
any judgment thereon. In addition, under Delaware law, shareholders of the Funds
are entitled to the same limitation of personal liability extended to
stockholders of Delaware corporations. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations. In view of the
above, the risk of personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees will not be liable
for any neglect or wrongdoing, but nothing in the Declaration of Trust protects
the trustees against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
Voting Rights
The shares of the Funds have no preemptive or conversion rights. Voting and
dividends rights, the right or redemption, and exchange privileges are described
in the Prospectus. Shares are fully paid and nonassessable, except as set forth
under "Shareholder and Trustee Liability" above. Shareholders representing 10%
or more of the Trust or any Fund may, as set forth in the Declaration of Trust,
call meetings of the Trust or a Fund for any purpose related to the Trust or
Fund, as the case may be, including in the case of a meeting of the entire
Trust, the purpose of voting on removal of one or more trustees. The Trust or
any Fund may be terminated upon the sale of its assets to another investment
company (as defined in the Investment Company Act of 1940, as amended), or upon
liquidation and distribution of its assets, if approved by vote of the holders
of a majority of the outstanding shares of the Trust or the Fund. If not so
terminated, the Trust or the Fund will continue indefinitely.
Custodian
The Bank of New York, One Wall Street, New York, New York 10286, is custodian of
the Funds' assets. The custodian is responsible for the safekeeping of a Fund's
assets and the appointment of the subcustodian banks and clearing agencies. The
custodian takes no part in determining the investment policies of a Fund or in
deciding which securities are purchased or sold by a Fund. However, a Fund may
invest in obligations of the custodian and may purchase securities from or sell
securities to the custodian.
Transfer and Dividend Paying Agent
Financial Administrative Services Corporation ("FASCorp"), 8515 East Orchard
Road, Englewood, Colorado 80111 serves as the Funds' transfer agent and dividend
paying agent. ALPS Mutual Fund Services, 303 16th Street, Suite 3100, Denver,
Colorado 80202 serves as the Fund's sub-transfer agent and dividend paying agent
for the Orchard Value Fund Class B Shares.
Independent Auditors
Deloitte & Touche LLP, 555 17th Street, Suite 3600, Denver, Colorado 80202,
serves as the Funds' independent auditors. Deloitte & Touche LLP examines
financial statements for the Funds and provides other audit, tax, and related
services.
FINANCIAL STATEMENTS
Audited financial statements for the Trust and each Fund (other than the Orchard
DJIASM Index Fund and the Orchard Nasdaq-100 Index Fund(R)) as of October 31,
1999 together with the notes thereto and the report of Deloitte & Touche LLP are
incorporated into this Statement of Additional Information by reference to the
Fund's N-30D (annual report) filed with the Securities and Exchange Commission
via EDGAR on December 29, 1999.
APPENDIX
Corporate Bond Ratings by Moody's Investors
Service, Inc.
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba 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 where are rated B 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 which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Corporate Bond Ratings by Standard & Poor's
Corporation
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in a small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity for bonds rated BBB than for bonds in the A category.
BB, B, CCC, and CC - Standard & Poor's describes the BB, B, CCC and CC rated
issues together with issues rated CCC and CC. Debt in these categories is
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 lowest degree of speculation and CC 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.
C - The rating C is reserved for income bonds on which no interest is being
paid.
D - Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Commercial Paper Ratings by Moody's
Investors Service, Inc.
Prime-1 - Commercial Paper issuers rated Prime-1 are judged to be of the best
quality. Their short-term debt obligations carry the smallest degree of
investment risk. Margins of support for current indebtedness are large or stable
with cash flow and asset protection well assured. Current liquidity provides
ample coverage of near-term liabilities and unused alternative financing
arrangements are generally available. While protective elements may change over
the intermediate or longer term, such changes are most unlikely to impair the
fundamentally strong position of short-term obligations.
Prime-2 - Issuers in the Commercial Paper market rated Prime-2 are high quality.
Protection for short-term holders is assured with liquidity and value of current
assets as well as cash generation in sound relationship to current indebtedness.
They are rated lower than the best commercial paper issuers because margins of
protection may not be as large or because fluctuations of protective elements
over the near or immediate term may be of greater amplitude. Temporary increases
in relative short and overall debt load may occur. Alternative means of
financing remain assured.
Prime-3 - Issuers in the Commercial Paper market rated Prime-3 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 earning 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.
Commercial Paper Ratings by Standard &
Poor's Corporation
A - Issuers assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issuers in this category are further refined with
the designation 1, 2 and 3 to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
A-2 - Capacity for timely payment for issuers with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated "A-1".
A-3 - Issuers carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designation.
-C-1 -
PART C
OTHER INFORMATION
Item 22. Financial Statements
The financial statements are incorporated by reference to
Registrant's Annual Report to Stockholders required under CFR ss.
270.30b-1 and filed pursuant to CFR ss. 270.30b2-1via EDGAR on
December 29, 1999.
<TABLE>
<S> <C>
Item 23. Exhibits
Item (a). Declaration of Trust1
Item (b). Current Bylaws1
Item (c). Instruments Defining Rights of Security Holders1
Item (d). Investment Advisory Agreement2
Item (e). Underwriting Agreement2
Item (f). Not Applicable
Item (g). Form of Custodian Agreement2
Item (h). Transfer Agency Agreement1; Sub-Transfer Agency Agreement3
Item (i). Opinion of R.B. Lurie1
Item (j). Consent of Deloitte & Touche LLP, Independent Auditors for the
Trust4
Item (k). Not Applicable
Item (l). Form of Subscription Agreement1
Item (m). Form of Rule 12b-1 Plan for Orchard Value Fund Class B Shares5
Item (n). Form of Rule 18f-3 Plan for Orchard Value Fund5
Item (p). Codes of Ethics adopted by the Board of Trustees
on June 8, 2000 under Rule 17j-1 of the Investment
Company Act of 1940
Item 24. Persons Controlled by or under Common Control with Registrant.
</TABLE>
-------------------------------------------------------------
See the organizational chart on page C-3.
Item 25. Indemnification.
---------------
Article X of the Declaration of Trust sets forth the reasonable and fair
means for determining whether indemnification shall be provided to any past or
present trustee or officer of the Trust. It states that the Registrant shall
indemnify any present or past trustee or officer to the fullest extent permitted
by law against liability and all expenses reasonably incurred by him or her in
connection with any claim, action suit or proceeding in which he or she is
involved by virtue of his or her service as a trustee, an officer, or both.
Additionally, amounts paid or incurred in settlement of such matters are covered
by this indemnification. Indemnification will not be provided in certain
circumstances, however. These include instances of willful misfeasance, bad
faith, gross negligence, and reckless disregard of the duties involved in the
conduct of the particular office involved.
ORGANIZATIONAL CHART
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Power Corporation of Canada
100% - 2795957 Canada Inc.
100% - 171263 Canada Inc.
67.5% - Power Financial Corporation
81.1% - Great-West Lifeco Inc.
100% - The Great-West Life Assurance Company
100% - GWL&A Financial (Nova Scotia) Co.
100% GWL&A Financial, Inc.
100% - Great-West Life & Annuity Insurance Capital I
100% - Great-West Life & Annuity Insurance Company
100% - Alta Health & Life Insurance Company
100% - Alta Agency, Inc.
100% - First Great-West Life & Annuity Insurance Company
100% - GW Capital Management, LLC
100% - Orchard Capital Management, LLC
100% - Greenwood Investments, Inc.
100% - Financial Administrative Services Corporation
100% - One Corporation
100% - One Health Plan of Illinois, Inc.
100% - One Health Plan of Texas, Inc.
100% - One Health Plan of California, Inc.
100% - One Health Plan of Colorado, Inc.
100% - One Health Plan of Georgia, Inc.
100% - One Health Plan of North Carolina, Inc.
100% - One Health Plan of Washington, Inc.
100% - One Health Plan of Ohio, Inc.
100% - One Health Plan of Tennessee, Inc.
100% - One Health Plan of Oregon, Inc.
100% - One Health Plan of Florida, Inc.
100% - One Health Plan of Indiana, Inc.
100% - One Health Plan of Massachusetts, Inc.
100% - One Health Plan of Alaska, Inc.
100% - One Health Plan of Arizona, Inc.
100% - One of Arizona, Inc.
100% - One Health Plan of Maine, Inc.
100% - One Health Plan of Nevada, Inc.
100% - One Health Plan of New Hampshire, Inc.
100% - One Health Plan of New Jersey, Inc.
100% - One Health Plan of South Carolina, Inc.
100% - One Health Plan of Wisconsin, Inc.
100% - One Health Plan of Wyoming, Inc.
100% - One Orchard Equities, Inc.
100% - Great-West Benefit Services, Inc.
100% - Benefits Communication Corporation
100% - BenefitsCorp Equities, Inc.
100% - Benefits Advisors, Inc.
100% - Greenwood Property Corporation
95% - Maxim Series Fund, Inc.*
100% - GWL Properties Inc.
100% - Great-West Realty Investments, Inc.
50% - Westkin Properties Ltd.
92% - Orchard Series Fund**
100% - Orchard Trust Company
100% - National Plan Coordinators of Delaware, Inc.
100% - NPC Securities, Inc.
100% - NPC Administrative Services Corporation
100% - Deferred Comp of Michigan, Inc.
100% - National Plan Coordinators of Washington, Inc.
100% - National Plan Coordinators of Ohio, Inc.
100% - Renco, Inc.
100% - P.C. Enrollment Services & Insurance Brokerage, Inc.
* 5% New England Life Insurance Company
** 8% New England Life Insurance Company
</TABLE>
Item 26. Business and Other Connections of Investment Adviser.
----------------------------------------------------
Registrant's investment adviser, GW Capital Management, LLC ("GW Capital
Management"), is a wholly-owned subsidiary of Great-West Life & Annuity
Insurance Company ("GWL&A"), which is a wholly-owned subsidiary of The
Great-West Life Assurance Company. GW Capital Management provides investment
advisory services to various unregistered separate accounts of GWL&A and to
Great-West Variable Annuity Account A and the Maxim Series Fund, Inc., which are
registered investment companies. The directors/managers and officers of GW
Capital Management have held, during the past two fiscal years, the following
positions of a substantial nature.
Name Position(s)
---- -----------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
John T. Hughes Manager, Chairman of the Board and President, GW Capital
Management; Senior Vice President and Chief Investment Officer,
Great-West GWL&A; Chairman and Director, GWL Properties Inc.;
Director, Great-West Realty Investment, Inc. and Orchard
Capital Management, LLC.
Wayne Hoffmann Manager, GW Capital Management; Vice
President, Investments, Great-West and GWL&A;
Director, Orchard Capital Management, LLC.
S. Mark Corbett Manager, GW Capital Management; Vice President, Investments,
Great-West and GWL&A; Director, Orchard Capital Management, LLC.
J.D. Motz Manager, GW Capital Management; Executive Vice President,
Employee Benefits, Great-West, GWL&A and First Great-West Life
& Annuity Insurance Company; Vice Chairman and Chief Executive
Officer, Alta Health & Life Insurance Company; Director,
President and Chairman, Orchard Series Fund, Maxim Series Fund,
Inc. and Great-West Variable Annuity Account A; Chairman and
President, One Corporation and Great-West Benefit Services,
Inc.; Director and Executive Vice President, Orchard Trust
Company; Director, Financial Administrative Services
Corporation, Orchard Capital Management, LLC, One Health Plan
of Illinois, Inc., One Health Plan of Texas, Inc., One Health
Plan of California, Inc., One Health Plan of Colorado, Inc.,
One Health Plan of North Carolina, Inc., One Health Plan of
Washington, Inc., One Health Plan of Ohio, Inc., One Health
Plan of Tennessee, Inc., One Health Plan of Florida, Inc., One
Health Plan of Indiana, Inc., One Health Plan of Massachusetts,
Inc., One Health Plan, Inc., One Health Plan of Alaska, Inc.,
One Health Plan of Arizona, Inc., One Health Plan of Maine,
Inc., One Health Plan of Nevada, Inc., One Health Plan of New
Hampshire, Inc., One Health Plan of New Jersey, Inc., One
Health Plan of South Carolina, Inc., One Health Plan of
Wisconsin, Inc., One Health Plan of Wyoming, Inc.
D.L. Wooden Manager, GW Capital Management; Executive Vice President,
Financial Services, Great-West, GWL&A and First Great-West Life
& Annuity Insurance Company; Director, Chairman, President and
Chief Executive Officer, Orchard Trust Company; Director,
Orchard Series Fund, Maxim Series Fund, Inc., Great-West
Variable Annuity Account A, Financial Administrative Services
Corporation, Orchard Capital Management, LLC and Orchard Trust
Company.
James M. Desmond Vice President, GW Capital Management; Assistant Vice
President, Investments, Great-West and GWL&A.
David G. McLeod Treasurer, GW Capital Management; Vice President, Investment
Operations, Great-West, GWL&A, First Great-West Life & Annuity
Insurance Company, Orchard Trust Company, National Plan
Coordinators of Delaware, Inc., Renco, Inc., P.C. Enrollment
Services & Insurance & Brokerage, Inc., National Plan
Coordinators of Washington, Inc., National Plan Coordinators of
Ohio, Inc. Deferred Comp of Michigan, Inc., and Financial
Administrative Services Corporation; Treasurer, Maxim Series
Fund, Inc., Orchard Series Fund, Great-West Variable Annuity
Account A and Orchard Capital Management, LLC; Director,
BenefitsCorp Equities, Inc., NPC Securities, Inc. and Greenwood
Investments, Inc.
Beverly A. Byrne Secretary, GW Capital Management; Vice President and Counsel,
Great-West; Assistant Vice President, Associate Counsel and
Assistant Secretary, GWL&A, GWL&A Financial Inc., First
Great-West Life & Annuity Insurance Company and Alta Health &
Life Insurance Company; Assistant Vice President, Associate
Counsel and Secretary, Financial Administrative Services
Corporation; Secretary, One Orchard Equities, Inc., Greenwood
Investments, Inc., BenefitsCorp Equities, Inc., Benefits
Communication Corporation, Orchard Capital Management, LLC,
National Plan Coordinators of Delaware, Inc., NPC Securities,
Inc., NPC Administrative Services Corporation, Renco, Inc.,
Deferred Comp of Michigan, Inc., National Plan Coordinators of
Washington, Inc., National Plan Coordinators of Ohio, Inc.,
P.C. Enrollment Services & Insurance Brokerage, Inc.,
Great-West Benefit Services, Inc., Great-West Variable Annuity
Account A, and Maxim Series Fund, Inc.
Item 27. Principal Underwriter.
---------------------
(a) Not applicable.
(b) The principal business address of the directors and
officers of One Orchard Equities, Inc. named below is
8515 East Orchard Road, Englewood, Colorado 80111.
Positions and Offices Positions and
Offices
Name with Underwriter with
Registrant
------ ---------------------
-------------------
Steve Miller Director and President None
Stan Kenyon Director None
Steve Quenville Director
None
Mark Hackl Director None
Patricia Neal Jensen Director None
Glen R. Derback Treasurer Treasurer
Beverly A. Byrne Secretary Secretary
(c) Not applicable.
</TABLE>
Item 28.Location of Accounts and Records.
All accounts, books, and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder
are maintained in the physical possession of: Orchard Series Fund, 8515 East
Orchard Road, Englewood, Colorado 80111; GW Capital Management, LLC, 8515 East
Orchard Road, Englewood, Colorado 80111; or Financial Administrative Services
Corporation, 8515 East Orchard Road, Englewood, Colorado 80111.
Item 29. Management Services.
-------------------
Not applicable.
Item 30. Undertakings.
------------
Registrant undertakes to furnish each person to whom a prospectus is delivered
with a copy of the Registrant's latest annual report to shareholders upon
request and without charge.
Registrant undertakes to comply with Section 16(c) of the Investment Company Act
of 1940 as it relates to the assistance to be rendered to shareholders with
respect to the calling of a meeting to replace a trustee.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Orchard Series Fund has duly caused this Post-Effective
Amendment No. 9 to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized in the City of Englewood in the State of
Colorado on the 8th day of June, 2000.
ORCHARD SERIES FUND
/s/ W.T. McCallum
W.T. McCallum
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 9 to the Registration Statement has been signed by the following
persons in the capacities and on the date indicated.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Signature Title Date
/s/ W.T. McCallum President June 8, 2000
----------------------------------------
W.T.McCallum and Trustee
/s/ D.G. McLeod Treasurer June 8, 2000
---------------------------------------------------
D.G. McLeod
/s/ R.P. Koeppe Trustee June 8, 2000
---------------------------------------------------
R.P. Koeppe
/s/ R. Jennings Trustee June 8, 2000
---------------------------------------------------
R. Jennings
/s/ M.T.G. Graye Trustee June 8, 2000
---------------------------------------------------
M.T.G. Graye
/s/ S. Zisman Trustee June 8, 2000
--------------------------------------------
S. Zisman
*By: /s/ B.A. Byrne
B.A. Byrne
Attorney-in-fact pursuant to Powers of Attorney filed under Post-Effective
Amendment No. 1 to the Registration Statement
EXHIBIT INDEX
Exhibit Description
23 Powers of Attorney*
23(1) Declaration of Trust**
23(2) Bylaws**
23(c) Instruments Defining Rights of Security Holders**
23(d) Form of Investment Advisory Agreement +
23(e) Form of Principal Underwriting Agreement+
23(g) Form of Custodian Agreement+
23(h) Form of Transfer Agency Agreement+, Sub-Transfer Agency Agreement +*
23(i) Opinion of R.B. Lurie**
23(j) Consent of Deloitte & Touche LLP +
23(l) Form of Subscription Agreement.**
23(m) Form of Rule 12b-1 Plan for Orchard Value Fund ++
23(n) Rule 18f-3 Plan for Orchard Value Fund ++
23(p) Rule 17j-1 Codes of Ethics +
* Filed with Post-Effective Amendment No. 1.
** Filed with Pre-Effective Amendment No. 2.
+ To be filed by amendment.
++ Filed with Post-Effective Amendment No. 5.
+* Filed with Post-Effective Amendment. No. 8.
+ Filed with this Post-Effective Amendment No. 9
</TABLE>
Exhibit 23(p)
Codes of Ethics for Orchard Series Fund, One Orchard Equities, Inc., GW Capital
Management, LLC and CIC Investment Management, Inc.
1
GW Capital Management, LLC
CODE OF ETHICS FOR
SECURITIES TRANSACTIONS OF ACCESS PERSONS
Rule 17j-1 under the Investment Company Act of 1940 ("1940 Act")
requires investment companies, as well as their investment advisers and
principal underwriters, to adopt written codes of ethics containing provisions
reasonably necessary to prevent Access Persons (as defined below) from engaging
in any act, practice, or course of business prohibited under the anti-fraud
provisions of the Rule.
This Code of Ethics is intended to provide guidance to Access Persons of
Orchard Series Fund ("Orchard") and GW Capital Management, LLC ("Capital
Management") in the conduct of their investments in order to reduce the
possibility of securities transactions that place, or appear to place, such
persons in conflict with the interests of Orchard or Orchard's shareholders.
A. RULE 17j-1 -- GENERAL ANTI-FRAUD PROVISIONS.
-------------------------------------------
It is unlawful for affiliated persons of Orchard or Capital Management
in connection with their purchase or sale, directly or indirectly, of a Security
Held or to be Acquired by Orchard, to engage in any of the following acts,
practices or courses of business:
1. employ any device, scheme, or artifice to defraud Orchard;
2. make to Orchard any untrue statement of a material fact or omit to state to
Orchard a material fact necessary in order to make the statements made, in
light of the circumstances under which they are made, not misleading;
3. engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon Orchard; and
4. engage in any manipulative practice with respect to Orchard.
B. DEFINITIONS.
-----------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1. Access Persons. The term "Access Person" means any officer, director,
----------------
trustee, manager or Advisory Employee of Orchard or Capital Management.
2. Advisory Employee. The term "Advisory Employee" means (a) any employee of
------------------
Orchard or Capital Management who, in connection with his regular functions or
duties, makes, participates in, or obtains information regarding the purchase
or sale of a Covered Security by or on behalf of Orchard or (b) any employee
of Orchard or Capital Management whose functions relate to the making of any
recommendations with respect to such purchases or sales. "Advisory Employee"
includes, to the same extent, any individual or employees of any company that
is in a control relationship with Orchard or Capital Management.
3. Beneficial Ownership. "Beneficial Ownership" generally means any direct or
---------------------
indirect pecuniary interest in a security. "Beneficial Ownership" includes
accounts of a spouse, minor children who reside in an Access Person's home and
any other relatives (parents, adult children, brothers, sisters, etc.) whose
investments the Access Person directs or controls, whether the person lives
with him or not, as well as accounts of another person (individual, trustee,
corporation, trust, custodian, or other entity) if, by reason of any contract,
understanding, relationship, agreement or other arrangement, the Access Person
obtains or may obtain therefrom benefits substantially equivalent to those of
ownership. A person does not derive a beneficial interest by serving as a
trustee or executor unless he or a member of his immediate family has a vested
interest in the income or corpus of the trust or estate.
4. Being Considered for Purchase or Sale. A security is "Being
Considered for Purchase or Sale" when a recommendation to
purchase or sell the security has been made and communicated by
an Advisory Employee in the course of his duties.With respect to
the person making the recommendation, a security is "Being
Considered for Purchase or Sale" when the person seriously
considers making such a recommendation.
5. Covered Security. The term "Covered Security" means, in general, any interest or
-----------------
instrument commonly known as a "security," except that it does not include
shares of registered open-end investment companies, direct obligations of the
Government of the United States, bankers' acceptances, bank certificates of
deposit, commercial paper, and high quality short-term debt instruments,
including repurchase agreements. For these purposes, "high quality short-term
debt instruments" means any instrument that has a maturity at issuance of less
than 366 days and that is rated in one of the two highest rating categories by
a nationally recognized statistical rating organization.
6. Designated Supervisory Persons. Richard Schultz and Beverly Byrne are "Designated
----------------------------------------
Supervisory Persons" of Orchard and Capital Management. They have the
authority to grant or deny pre-clearance approval of transactions in
securities by Access Persons, and to monitor the activities of Access Persons
as indicated herein.
7. Independent Trustee. The term "Independent Trustee" means a trustee of Orchard who
----------------------------
is not an "interested person" of Orchard or Capital Management.
8. Investment Personnel. "Investment Personnel" means (i) all
personnel of Orchard or Capital Management, or of any company in
a control relationship to Orchard or Capital Management, who, in
connection with his regular duties, makes or participates in
making recommendations regarding the purchase and sale of
securities by Orchard; or (ii) any natural person who controls
Orchard or Capital Management and who obtains information
concerning recommendations made to Orchard regarding the purchase
or sale of securities by Orchard.
9. Security Held or to be Acquired. "Security Held or to be Acquired" by Orchard
-------------------------------
means:
i. any Covered Security which, within the most recent fifteen (15) calendar days:
a. is or has been held by Orchard; or
b. is being or has been considered by Orchard or Capital Management for purchase by
Orchard; and
ii. any option to purchase or sell, and any security convertible into or exchangeable
for, a Covered Security described in subparagraph i of this paragraph.
C. PROHIBITED TRANSACTIONS AND PRE-CLEARANCE.
-----------------------------------------
1. Prohibited Transactions for Advisory Employees. Advisory Employees may not buy or
---------------------------------------------------------
sell a Covered Security within seven (7) calendar days before or after Orchard
trades in a security of the same issuer.
2. Prohibited Transactions for Investment Personnel. Investment
Personnel may not acquire any direct or indirect beneficial
interest in any security made available in an initial public
offering or limited offering, without obtaining pre-clearance as
described in this Section, unless the transaction is exempt under
Section D of this Code.
3. Pre-Clearance. Pre-clearance must be obtained from a Designated
Supervisory Person before entering into a transaction described
in paragraph 2 of this Section. When requesting pre-clearance,
each person should note that:
a. all requests for pre-clearance must be in writing on the standard Pre-Clearance Form
(see attached sample of the form); and
b. pre-clearance of a securities transaction is effective for three (3) business days
from and including the date clearance is granted.
4. Denial of Pre-Clearance. Pre-clearance will be denied if the
Designated Supervisory Person determines that the security is
being made available in an initial public offering or limited
offering and:
a. is Being Considered for Purchase or Sale by Orchard;
b. has been purchased or sold by Orchard within the prior two business days;
c. is being purchased or sold on behalf of Orchard. In this instance, "sold" includes
an order to sell that has been entered but not executed; or
d. the granting of pre-clearance would be inconsistent with the purposes of this Code.
If a pre-clearance request is denied for this reason, the Designated
Supervisory Person will provide a written explanation.
5. Granting of Pre-Clearance. Pre-clearance will be granted if the Designated
---------------------------
Supervisory Person determines that the transaction:
a. is not potentially harmful to Orchard;
b. would be highly unlikely to affect the market in which Orchard's portfolio securities
are traded; and
c. clearly is not related economically to the securities to
be purchased, sold, or held by Orchard, and the decision
to purchase or sell the security is not the result of
material non-public information obtained in the course of
the person's relationship with Orchard or Capital
Management.
D. EXEMPT TRANSACTIONS.
-------------------
The prohibitions of Section C do not apply to:
1. purchases or sales effected in any account over which the person
has no direct or indirect influence or control, or in any account
of the person which is managed on a discretionary basis by a
person other than that person and, with respect to which the
person does not in fact influence or control purchase or sale
transactions;
2. purchases or sales of securities which are not eligible for purchase or sale
by Orchard;
3. purchases or sales which are non-volitional on the part of the person or
Orchard;
4. purchases which are part of an automatic dividend reinvestment plan;
4. purchases effected upon the exercise of rights issued by the issuer pro rata to all
holders of a class of its securities, to the extent such rights were acquired
from such issuer, and sales of such rights so acquired; and
5. any securities transaction, or series of related securities
transactions, involving five hundred (500) shares or less in the
aggregate, if the issuer has a market capitalization (outstanding
shares multiplied by the current price per share) greater than $1
billion.
E. REPORTING REQUIREMENTS.
----------------------
Every Access Person must obtain a copy of the required form of initial,
quarterly and annual reports from a Designated Supervisory Person.
1. Access Person Reports. Every Access Person must make the following reports to a
-------------------------------
Designated Supervisory Person for Orchard and Capital Management:
a. Initial Holdings Report. No later than ten (10) days after becoming an Access
---------------------------------
Person, an Access Person must report the following information:
i. the title, number of shares and principal amount of each Covered Security in which
the Access Person had any direct or indirect Beneficial
Ownership when the person became an Access Person;
ii. the name of any broker, dealer or bank with whom the Access Person maintained an
account in which any securities were held for the direct or
---
indirect benefit of the Access Person as of the date the person
became an Access Person; and
iii. the date that the report is submitted by the Access Person.
b. Quarterly Transaction Reports. No later than ten (10) days
-------------------------------
after the end of a calendar quarter, an Access Person must report the
following information:
i. With respect to any transaction during the quarter in a Covered Security in which the
Access Person had any direct or indirect Beneficial Ownership:
A. the date of the transaction, the title, the interest rate and maturity date (if
applicable), the number of shares and the principal
amount of each Covered Security involved;
B. the nature of the transaction (i.e., purchase, sale or any other type of acquisition
or disposition);
C. the price of the Covered Security at which the transaction was effected;
D. the name of the broker, dealer, or bank with or through whom the transaction
was effected; and
E. the date that the report is submitted.
iii. With respect to any account established by an
Access Person in which any securities were held
during the quarter for the direct or indirect
benefit of the Access Person:
A. the name of the broker, dealer or bank with whom the Access Person
established the account;
B. the date the account was established; and
C. the date that the report was submitted.
c. Annual Holding Reports. No later than thirty (30) days after the end
------------------------ of every calendar year, an Access Person must report
the following information (which must be current as of December 31 of the
calendar year for which the report is being submitted):
i. the title, number of shares and principal amount of each Covered Security in which
the Access Person has any direct or indirect beneficial
ownership;
ii. the name of any broker, dealer or bank with whom the Access Person maintains an
account in which any securities are held for the direct or
---
indirect benefit of the Access Person; and
iii. the date that the report is being submitted.
2. No Holdings or Transactions to Report. If an Access Person has no
holdings to report on either an Initial Holdings Report or any
Annual Holdings Report, nor transactions to report on any
Quarterly Transaction Report, the Access Person must nevertheless
submit the appropriate Report stating that the Access Person had
no holdings or transactions (as appropriate) to report and the
date the report is submitted.
3. Copies of Confirmations and Period Account Statements. Each
Access Person may direct every broker or dealer through whom the
Access Person effects any securities transactions to deliver to a
Designated Supervisory Person, on a timely basis, duplicate
copies of confirmations of all the Access Person's securities
transactions and copies of periodic statements for all of the
Access Person's securities accounts.
4. Exceptions From Reporting Requirements.
----------------------------------------------
a. A person need not make any of these reports with respect
to transactions for, and Covered Securities held in, any
account over which the person has no direct or indirect
influence or control.
b. An Independent Trustee who would be required to make a report only
because he is a trustee of Orchard need not make:
i. An Initial Holdings Report or an Annual Holdings Report; and
ii. A Quarterly Transaction Report, unless the
Independent Trustee knew or, in the ordinary course
of fulfilling his or her official duties as a
trustee of Orchard, should have known that during
the 15-day period immediately before or after the
Independent Trustee's transaction in a Covered
Security, Orchard purchased or sold the Covered
Security, or Orchard or Capital Management
considered purchasing or selling the Covered
Security.
c. An Access Person need not make a Quarterly Transaction
Report if the confirmations or periodic account statements
delivered to the Designated Supervisory Person under
Section E.3 are received within the time period required
by this Code and provided that all information required by
this Code is contained in such confirmations or account
statements.
d. An Access Person is not required to make a Quarterly
Transaction Report with respect to the "exempt
transactions" described in Section D of this Code.
e. An Access Person need not make a quarterly report to
Capital Management where such report would duplicate
information recorded pursuant to the rules under the
Investment Advisers Act of 1940 requiring the maintenance
of certain books and records, Rules 204-2(a)(12) and
204-2(a)(13).
F. ANNUAL CERTIFICATION OF COMPLIANCE.
----------------------------------
At the time of submission of Annual Holding Reports, all Access Persons
must certify that they have read, understand and are subject to this Code, and
have complied at all times with this Code, including the obtaining of
pre-clearance for securities transactions and the submission of all required
reports. When a person becomes an Access Person, that person will be given a
copy of the Code. Within a reasonable time (as determined by a Designated
Supervisory Person) after being given the Code, that person must certify that he
or she has had an opportunity to ask questions, has read and understands the
Code, and agrees to comply with the Code. All Access Persons will be given a
copy of any amendment to the Code. Within three months after the amendment
becomes effective, all Access Persons must certify that they have received a
copy of the amendment, that they have had an opportunity to ask questions, and
that they understand the Amendment and agree to comply with the amendment.
G. OTHER DUTIES OF AND RESTRICTIONS ON ACCESS PERSONS.
--------------------------------------------------
1. Initial Public Offerings and Limited Offerings. Any Access Person
who has purchased or sold any securities in an initial public
offering or a limited offering is required to disclose that
transaction at the time such Access Person is seeking
pre-clearance of future transactions involving the securities of
that issuer.
3. Gratuities. No Access Person may receive any gift or gratuity, other than one of de
minimis value, from any person who does business with or on behalf of Orchard.
4. Service as a Director or Trustee. No Access Person may serve on
the board of a publicly traded company without prior
authorization. Such authorization must be based on a
determination that such service is consistent with the interests
of Orchard and Orchard's shareholders.
4. Confidentiality. No Access Person may reveal to any other person
(except in --------------- the normal course of his duties on behalf
of Orchard or Capital Management) any information regarding securities
transactions made or being considered by or on behalf of Orchard.
H. CONFIDENTIAL TREATMENT.
----------------------
All reports and other records required to be filed or maintained under
this Code will be treated as confidential.
I. INTERPRETATION OF PROVISIONS.
----------------------------
The Board of Trustees of Orchard (the "Board") and management of Capital
Management may, from time to time, adopt such interpretations of this Code as
such Board and management deem appropriate, provided that the Board approves any
material changes to this Code.
J. AMENDMENTS.
----------
Any amendment to the Code shall be effective thirty (30) calendar days
after written notice of such amendment has been distributed to Access Persons by
a Designated Supervisory Person, unless the Board or management of Capital
Management (as appropriate) expressly determines that such amendment will become
effective on an earlier date or should not be adopted.
* * * * * *
I have read the Code of Ethics for the Orchard Series Fund and GW
Capital Management, LLC and understand it. I have had an opportunity to ask
questions regarding the Code and I agree to comply fully with all of its
provisions.
Date: Signed:
--------------------------
</TABLE>
APPENDIX A
REVIEW OF REPORTS
A Designated Supervisory Person for Orchard and Capital Management must
review all reports submitted pursuant to Section E for the purpose of detecting
and preventing a potential or actual violation of this Code.
1. A Designated Supervisory Person shall review an Initial Holdings
Report within twenty (20) days of the date such Report is
submitted by an Access Person.
2. A Designated Supervisory Person shall review all Quarterly
Transaction Reports and all Annual Holding Reports within thirty
(30) days of the date such a Report is submitted by an Access
Person.
3. A Designated Supervisory Person shall review all reports in order
to determine whether there has been a potential or actual
violation of this Code.
4. The Designated Supervisory Person shall maintain a record of each
report reviewed and the date such review was completed. Such
record shall indicate whether the Designated Supervisory Person's
review detected a potential or actual violation of this Code. If
a Designated Supervisory Person detects a potential or actual
material violation of this Code, a Designated Supervisory Person
shall promptly inform management of Orchard or Capital Management
(as applicable) in writing.
5. A Designated Supervisory Person promptly after furnishing such
written notification of a potential or actual material violation
of this Code, shall take those measures the Designated
Supervisory Person deems necessary and appropriate to remedy such
violation, including, but not limited to, requiring the Access
Person to divest any inappropriate securities holdings and
recommending sanctions to the Board.
6. A Designated Supervisory Person shall take such other actions and
measures as he deems necessary and appropriate to carry out his
duties with respect to the review of reports required under this
Code.
A Designated Supervisory Person for Orchard or Capital Management (as
appropriate) shall identify all Access Persons who are required to make reports
under Section E and shall inform those Access Persons of their reporting
obligation. Once informed of the duty to file reports, an Access Person has a
continuing obligation to file such reports in a timely manner.
No report required to be made under Section E shall be construed as an
admission by the person making such report that he has any direct or indirect
Beneficial Ownership in the security to which the report relates.
APPENDIX B
REPORTS TO THE BOARD
No later than the final regular meeting of the Board for each fiscal
year of Orchard, a Designated Supervisory Person for Orchard and Capital
Management shall furnish to the Board, and the Board shall consider, a written
report that:
1. Describes any issues arising under this Code since the last
report to the Board, including, but not limited to, information
about material violations of this Code and the sanctions, if any,
imposed in response to the material violations; and
2. Certifies that Orchard and Capital Management have adopted
procedures reasonably necessary to prevent Access Persons from
violating the Code.
3. In considering the written report, the Board shall determine whether any
action is required in response to the report.
To the extent that immaterial violations of this Code (such as late
filings of required reports) may collectively indicate material problems with
the implementation and enforcement of this Code, the written report shall
describe any violations that are material in the aggregate.
APPENDIX C
SANCTIONS
A Designated Supervisory Person of Orchard shall furnish to the Board
reports regarding the administration hereof and summarizing any forms or reports
filed hereunder. Upon the finding of a material violation of this Code,
including the filing of false, incomplete, or untimely required reports, or the
failure to obtain required pre-clearance, the Board may impose such sanctions as
it deems appropriate, which may include censure, suspension, or termination of
the employment of the violator. No Trustee may participate in a determination of
whether he has committed a violation of this Code or of the imposition of any
sanction against himself.
Similarly, it shall be the responsibility of Capital Management's
Designated Supervisory Persons to receive and maintain all reports submitted by
Access Persons and to use reasonable diligence and institute procedures
reasonably necessary to monitor the adequacy of such reports and to otherwise
prevent or detect violations of this Code. Upon discovering a material violation
of this Code involving any Access Person, such as those noted in the prior
paragraph, it shall be the responsibility of Capital Management's Designated
Supervisory Persons to report such violation to Capital Management's management.
Capital Management's management may impose such sanctions against the Access
Person determined to have violated this Code as it deems appropriate, including,
but not limited to, a letter of censure or suspension or termination of the
employment, officership, or other position of the violator with Capital
Management. No officer, director or manager of Capital Management may
participate in a determination of whether he has committed a violation of this
Code or of the imposition of any sanction against himself.
APPENDIX D
MATERIAL CHANGES TO THE CODE
The Board, including a majority of the Trustees, must approve any
material change made to this Code no later than the next regularly scheduled
Board meeting after adoption of the material change.
The Board must base its approval of any material change to the Code on a
determination that the Code contains provisions reasonably necessary to prevent
Access Persons from engaging in any conduct described in Section A of this Code.
APPENDIX E
RECORD RETENTION
Orchard and Capital Management must maintain records in the manner and
to the extent set forth below, which records may be maintained on microfilm
under the conditions described in Rule 31a-2(f)(1) under the 1940 Act, and shall
be available for examination by representatives of the Securities and Exchange
Commission:
1. Retention of Code. A copy of this Code and any Code that was in effect at
any time within the past five years must be preserved in an easily
accessible place.
2. Record of Violations. A record of any violation of this Code and
of any action taken as a result of such violation must be
preserved in an easily accessible place for a period of not less
than five years following the end of the fiscal year in which the
violation occurs.
3. Copy of Forms and Reports. A copy of each Pre-Clearance Form and
each Initial Holdings Report, Quarterly Transaction Report, and
Annual Holdings Report prepared and submitted by an Access Person
pursuant to this Code must be preserved by a Designated
Supervisory Person for Orchard or Capital Management, as
appropriate, for a period of not less than five years from the
end of the fiscal year in which such report is made, the first
two years in an easily accessible place.
3. List of Access Persons. A list of all persons who are, or within
the past five years of business have been, required to file
Initial Holdings Reports, Quarterly Transaction Reports, and
Annual Holdings Reports pursuant to this Code and a list of those
persons who are or were responsible for reviewing such Reports
must be maintained in an easily accessible place.
4. Written Reports to the Board. A copy of each written report
furnished to the Board under this Code shall be maintained for at
least five years after the end of the Orchard fiscal year in
which it is made, the first two years in an easily accessible
place.
5. Records Relating to Decisions Involving Initial Public Offerings
and Limited Offerings. Orchard and Capital Management must
maintain a record of any decision, and the reasons supporting the
decision, to approve the acquisition by Investment Personnel of
securities made available in an initial public offering or
limited offering for at least five years after the end of
Orchard's fiscal year in which the approval is granted.
6. Sites of Records to be Kept. All such records and/or documents
required to be maintained pursuant to this Code and/or Rule 17j-1
under the 1940 Act shall be kept at the offices of Orchard at
8515 East Orchard Road, Englewood, Colorado 80111.
6
One Orchard Equities, Inc.
CODE OF ETHICS FOR
SECURITIES TRANSACTIONS OF ACCESS PERSONS
Rule 17j-1 under the Investment Company Act of 1940 ("1940 Act")
requires investment companies, as well as their investment advisers and
principal underwriters, to adopt written codes of ethics containing provisions
reasonably necessary to prevent Access Persons (as defined below) from engaging
in any act, practice, or course of business prohibited under the anti-fraud
provisions of the Rule.
This Code of Ethics is intended to provide guidance to Access Persons of
One Orchard Equities, Inc. ("OOEI") in the conduct of their investments in order
to reduce the possibility of securities transactions that place, or appear to
place, such persons in conflict with the interests of the Orchard Series Fund
("Orchard") or Orchard's shareholders.
A. RULE 17j-1 -- GENERAL ANTI-FRAUD PROVISIONS.
-------------------------------------------
It is unlawful for affiliated persons of Orchard or OOEI in connection
with their purchase or sale, directly or indirectly, of a Security Held or to be
Acquired by Orchard, to engage in any of the following acts, practices or
courses of business:
2. employ any device, scheme, or artifice to defraud Orchard;
2. make to Orchard any untrue statement of a material fact or omit to state to
Orchard a material fact necessary in order to make the statements made, in
light of the circumstances under which they are made, not misleading;
3. engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon Orchard; and
4. engage in any manipulative practice with respect to Orchard.
B. DEFINITIONS.
-----------
1. Access Persons. The term "Access Person" means any officer or
director of OOEI who, in the ordinary course of business, makes,
participates in or obtains information regarding, the purchase or
sale of Covered Securities by Orchard, or whose functions or
duties in the ordinary course of business relate to the making of
any recommendation to Orchard regarding the purchase or sale of
Covered Securities.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
3. Beneficial Ownership. "Beneficial Ownership" generally means any direct or indirect
-----------------------------
pecuniary interest in a security. "Beneficial Ownership" includes accounts of
a spouse, minor children who reside in an Access Person's home and any other
relatives (parents, adult children, brothers, sisters, etc.) whose investments
the Access Person directs or controls, whether the person lives with him or
not, as well as accounts of another person (individual, trustee, corporation,
trust, custodian, or other entity) if, by reason of any contract,
understanding, relationship, agreement or other arrangement, the Access Person
obtains or may obtain therefrom benefits substantially equivalent to those of
ownership. A person does not derive a beneficial interest by serving as a
trustee or executor unless he or a member of his immediate family has a vested
interest in the income or corpus of the trust or estate.
3. Being Considered for Purchase or Sale. A security is "Being
Considered for Purchase or Sale" when a recommendation to
purchase or sell the security has been made and communicated by
an Advisory Employee in the course of his duties. With respect to
the person making the recommendation, a security is "Being
Considered for Purchase or Sale" when the person seriously
considers making such a recommendation.
4. Covered Security. The term "Covered Security" means, in general, any interest
----------------
or instrument commonly known as a "security," except that it does not include
shares of registered open-end investment companies, direct obligations of the
Government of the United States, bankers' acceptances, bank certificates of
deposit, commercial paper, and high quality short-term debt instruments,
including repurchase agreements. For these purposes, "high quality short-term
debt instruments" means any instrument that has a maturity at issuance of less
than 366 days and that is rated in one of the two highest rating categories by
a nationally recognized statistical rating organization.
5. Designated Supervisory Persons. Richard Schultz and Beverly Byrne are
---------------------------------
"Designated Supervisory Persons" of OOEI. They have the authority to monitor
the activities of Access Persons as indicated herein.
6. Security Held or to be Acquired. "Security Held or to be Acquired" by Orchard
-------------------------------
means:
iv. any Covered Security which, within the most recent fifteen (15) calendar days:
a. is or has been held by Orchard; or
c. is being or has been considered by Orchard or GW Capital Management, LLC for purchase
by Orchard; and
v. any option to purchase or sell, and any security convertible into or exchangeable
for, a Covered Security described in subparagraph i of this Section.
C. REPORTING REQUIREMENTS.
------------------------------
Every Access Person must obtain a copy of the required form of initial,
quarterly and annual reports from a Designated Supervisory Person.
5. Access Person Reports. Every Access Person must make the following reports to a
-------------------------------
Designated Supervisory Person for OOEI:
b. Initial Holdings Report. No later than ten (10) days after becoming an Access
---------------------------------
Person, an Access Person must report the following information:
iv. the title, number of shares and principal amount of each Covered Security in which
the Access Person had any direct or indirect Beneficial
Ownership when the person became an Access Person;
v. the name of any broker, dealer or bank with whom the Access Person maintained an
account in which any securities were held for the direct or
---
indirect benefit of the Access Person as of the date the person
became an Access Person; and
vi. the date that the report is submitted by the Access Person.
b. Quarterly Transaction Reports. No later than ten (10) days
-------------------------------
after the end of a calendar quarter, an Access Person must report the
following information:
ii. With respect to any transaction during the quarter in a Covered Security in which the
Access Person had any direct or indirect Beneficial Ownership:
D. the date of the transaction, the title, the interest rate and maturity date (if
applicable), the number of shares and the principal
amount of each Covered Security involved;
E. the nature of the transaction (i.e., purchase, sale or any other type of acquisition
or disposition);
F. the price of the Covered Security at which the transaction was effected;
D. the name of the broker, dealer, or bank
with or through whom the transaction was effected; and
E. the date that the report is submitted.
vi. With respect to any account established by an
Access Person in which any securities were held
during the quarter for the direct or indirect
benefit of the Access Person:
A. the name of the broker, dealer or bank
with whom the Access Person established the account;
C. the date the account was established; and
C. the date that the report was
submitted.
c. Annual Holding Reports. No later than thirty (30) days after the end
------------------------
of every calendar year, an Access Person must report the following
information (which must be current as of December 31 of the calendar
year for which the report is being submitted):
iv. the title, number of shares and principal amount of each Covered Security in which
the Access Person has any direct or indirect beneficial
ownership;
v. the name of any broker, dealer or bank with whom the Access Person maintains an
account in which any securities are held for the direct or
---
indirect benefit of the Access Person; and
vi. the date that the report is being submitted.
6. No Holdings or Transactions to Report. If an Access Person has no
holdings to report on either an Initial Holdings Report or any
Annual Holdings Report, nor transactions to report on any
Quarterly Transaction Report, the Access Person must nevertheless
submit the appropriate Report stating that the Access Person had
no holdings or transactions (as appropriate) to report and the
date the report is submitted.
7. Copies of Confirmations and Period Account Statements. Each
Access Person may direct every broker or dealer through whom the
Access Person effects any securities transactions to deliver to a
Designated Supervisory Person, on a timely basis, duplicate
copies of confirmations of all the Access Person's securities
transactions and copies of periodic statements for all of the
Access Person's securities accounts.
8. Exceptions From Reporting Requirements.
----------------------------------------------
a. A person need not make any of these reports with respect
to transactions for, and Covered Securities held in, any
account over which the person has no direct or indirect
influence or control.
b. An Access Person need not make a Quarterly Transaction
Report if the confirmations or periodic account statements
delivered to the Designated Supervisory Person under
Section C.3 are received within the time period required
by this Code and provided that all information required by
this Code is contained in such confirmations or account
statements.
c. An Access Person is not required to make a Quarterly Transaction Report
with respect to the following:
1. purchases or sales effected in
any account over which the person has no direct or
indirect influence or control, or in any account of
the person which is managed on a discretionary
basis by a person other than that person and, with
respect to which the person does not in fact
influence or control purchase or sale transactions;
2. purchases or sales of securities which are
not eligible for purchase or sale by Orchard;
3. purchases or sales which are
non-volitional on the part of the person or Orchard;
4. purchases which are part of an automatic
dividend reinvestment plan; and
5. purchases effected upon the exercise of
rights issued by the issuer pro rata to all holders
of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of
such rights so acquired.
D. ANNUAL CERTIFICATION OF COMPLIANCE.
----------------------------------
At the time of submission of Annual Holding Reports, all Access Persons
must certify that they have read, understand and are subject to this Code, and
have complied at all times with this Code, including the submission of all
required reports. When a person becomes an Access Person, that person will be
given a copy of the Code. Within a reasonable time (as determined by a
Designated Supervisory Person) after being given the Code, that person must
certify that he or she has had an opportunity to ask questions, has read and
understands the Code, and agrees to comply with the Code. All Access Persons
will be given a copy of any amendment to the Code. Within three months after the
amendment becomes effective, all Access Persons must certify that they have
received a copy of the amendment, that they have had an opportunity to ask
questions, and that they understand the Amendment and agree to comply with the
amendment.
E. OTHER DUTIES OF AND RESTRICTIONS ON ACCESS PERSONS.
--------------------------------------------------
1. Gratuities. No Access Person may receive any gift or gratuity, other than one of de
------------------
minimis value, from any person who does business with or on behalf of Orchard.
2. Service as a Director or Trustee. No Access Person may serve on
the board of a publicly traded company without prior
authorization. Such authorization must be based on a
determination that such service is consistent with the interests
of Orchard and Orchard's shareholders.
3. Confidentiality. No Access Person may reveal to any other person (except in
---------------
the normal course of his duties on behalf of OOEI) any information regarding
securities transactions made or being considered by or on behalf of Orchard.
</TABLE>
F. CONFIDENTIAL TREATMENT.
----------------------
All reports and other records required to be filed or maintained under
this Code will be treated as confidential.
G. INTERPRETATION OF PROVISIONS.
----------------------------
The management of OOEI may, from time to time, adopt such
interpretations of this Code as such management deems appropriate, provided that
the Board of Trustees of Orchard (the "Board") approves any material changes to
this Code.
H. AMENDMENTS.
----------
Any amendment to the Code shall be effective thirty (30) calendar days
after written notice of such amendment has been distributed to Access Persons by
a Designated Supervisory Person, unless the management of OOEI expressly
determines that such amendment will become effective on an earlier date or
should not be adopted.
* * * * * *
I have read the Code of Ethics for One Orchard Equities, Inc. and
understand it. I have had an opportunity to ask questions regarding the Code and
I agree to comply fully with all of its provisions.
Date: Signed:
--------------------------
APPENDIX A
REVIEW OF REPORTS
A Designated Supervisory Person for OOEI must review all reports
submitted pursuant to Section C for the purpose of detecting and preventing a
potential or actual violation of this Code.
7. A Designated Supervisory Person shall review an Initial Holdings
Report within twenty (20) days of the date such Report is
submitted by an Access Person.
8. A Designated Supervisory Person shall review all Quarterly
Transaction Reports and all Annual Holding Reports within thirty
(30) days of the date such a Report is submitted by an Access
Person.
9. A Designated Supervisory Person shall review all reports to
determine whether there has been a potential or actual violation
of this Code.
10. The Designated Supervisory Person shall maintain a record of each
report reviewed and the date such review was completed. Such
record shall indicate whether the Designated Supervisory Person's
review detected a potential or actual violation of this Code. If
a Designated Supervisory Person detects a potential or actual
material violation of this Code, a Designated Supervisory Person
shall promptly inform the management of OOEI in writing.
11. A Designated Supervisory Person promptly after furnishing such
written notification of a potential or actual material violation
of this Code, shall take those measures the Designated
Supervisory Person deems necessary and appropriate to remedy such
violation, including, but not limited to, requiring the Access
Person to divest any inappropriate securities holdings and
recommending sanctions to the Board.
12. A Designated Supervisory Person shall take such other actions and
measures as he deems necessary and appropriate to carry out his
duties with respect to the review of reports required under this
Code.
A Designated Supervisory Person for OOEI shall identify all Access
Persons who are required to make reports under Section C and shall inform those
Access Persons of their reporting obligation. Once informed of the duty to file
reports, an Access Person has a continuing obligation to file such reports in a
timely manner.
No report required to be made under Section C shall be construed as an
admission by the person making such report that he has any direct or indirect
Beneficial Ownership in the security to which the report relates.
APPENDIX B
REPORTS TO THE BOARD
No later than the final regular meeting of the Board for each fiscal
year of Orchard, a Designated Supervisory Person for OOEI shall furnish to the
Board, and the Board shall consider, a written report that:
4. Describes any issues arising under this Code since the last
report to the Board, including, but not limited to, information
about material violations of this Code and the sanctions, if any,
imposed in response to the material violations; and
5. Certifies that OOEI has adopted procedures reasonably necessary to prevent
Access Persons from violating the Code.
In considering the written report, the Board shall determine
whether any action is required in response to the report.
To the extent that immaterial violations of this Code (such as late
filings of required reports) may collectively indicate material problems with
the implementation and enforcement of this Code, the written report shall
describe any violations that are material in the aggregate.
APPENDIX C
SANCTIONS
A Designated Supervisory Person of OOEI shall furnish to the Board
reports regarding the administration hereof and summarizing any forms or reports
filed hereunder.
Upon discovering a material violation of this Code involving any Access
Person, including the filing of false, incomplete, or untimely required reports,
it shall be the responsibility of OOEI's Designated Supervisory Persons to
report such violation to OOEI's management. OOEI's management may impose such
sanctions against the Access Person determined to have violated this Code as it
deems appropriate, including, but not limited to, a letter of censure or
suspension or termination of the employment, officership, or other position of
the violator with Capital Management. No officer, director or manager of OOEI
may participate in a determination of whether he has committed a violation of
this Code or of the imposition of any sanction against himself.
APPENDIX D
MATERIAL CHANGES TO THE CODE
The Board authorizes the Designated Supervisory Persons to make material
changes to this Code as they deem reasonably necessary in order to prevent
Access Persons from violating any provision of this Code.
The Board, including a majority of the Independent Trustees, must
approve any material change made to this Code no later than the next regularly
scheduled Board meeting after adoption of the material change.
The Board must base its approval of any material change to the Code on a
determination that the Code contains provisions reasonably necessary to prevent
Access Persons from engaging in any conduct described in Section A of this Code.
APPENDIX E
RECORD RETENTION
OOEI must maintain records in the manner and to the extent set forth
below, which records may be maintained on microfilm under the conditions
described in Rule 31a-2(f)(1) under the 1940 Act, and shall be available for
examination by representatives of the Securities and Exchange Commission:
7. Retention of Code. A copy of this Code and any Code that was in effect at
any time within the past five years must be preserved in an easily
accessible place.
8. Record of Violations. A record of any violation of this Code and
of any action taken as a result of such violation must be
preserved in an easily accessible place for a period of not less
than five years following the end of the fiscal year in which the
violation occurs.
3. Copy of Forms and Reports. A copy of each Initial Holdings
Report, Quarterly Transaction Report, and Annual Holdings Report
prepared and submitted by an Access Person pursuant to this Code
must be preserved by a Designated Supervisory Person for OOEI,
for a period of not less than five years from the end of the
fiscal year in which such report is made, the first two years in
an easily accessible place.
9. List of Access Persons. A list of all persons who are, or within
the past five years of business have been, required to file
Initial Holdings Reports, Quarterly Transaction Reports, and
Annual Holdings Reports pursuant to this Code and a list of those
persons who are or were responsible for reviewing such Reports
must be maintained in an easily accessible place.
10. Written Reports to the Board. A copy of each written report
furnished to the Board under this Code shall be maintained for at
least five years after the end of the Orchard fiscal year in
which it is made, the first two years in an easily accessible
place.
11. Sites of Records to be Kept. All such records and/or documents
required to be maintained pursuant to this Code and/or Rule 17j-1
under the 1940 Act shall be kept at the offices of OOEI at 8515
East Orchard Road, Englewood, Colorado 80111.
Code of Ethics and Standards of Professional Conduct
CIC Asset Management views our Code as a living document that exists to ensure
that the interests of our clients are continually protected. We review the Code
regularly and update it to keep current with changes in the industry. New
employees are briefed on the Code and are given a copy when hired. Within one
week of joining the company, they must indicate in writing that they have read
the Code and agree to its provisions. After that, we require employees in the
month of December to review the Code and acknowledge in writing by December 31
their general adherence to the Code including that their personal investing has
complied with its requirements.
All members of CIC Asset Management are obligated to conduct their activities in
accordance with the following Code of Ethics. Because of the small size of our
firm, all employees shall be deemed to be Access Persons under Sections 206(4)
and 211(a) of the Investment Advisers Act. Disciplinary sanctions may be imposed
for violations of the Code and Standards.
Members of CIC Asset Management shall:
1. Act with integrity, competence, dignity, and in an ethical manner when
dealing with the public, clients, prospects, employers, employees, and
fellow members.
2. Practice and encourage others to practice in a professional and ethical
manner that will reflect credit on members and their profession.
3. Strive to maintain and improve their competence and the competence of
others in the profession.
4. Use reasonable care and exercise independent professional judgment.
Standard I: Fundamental Responsibilities
Members shall:
A. Maintain knowledge of and comply with all applicable laws, rules, and
regulations (including AIMR's Code of Ethics and Standards of Professional
Conduct) of any government, governmental agency, regulatory organization,
licensing agency, or professional association governing the members'
professional activities.
B. Not knowingly participate in or assist any violation of such laws, rules, or
regulations.
Standard II: Relationships with and Responsibilities to the Profession
A. Use of Professional Designation.
5. Members of CIC Asset Management who are AIMR members may reference their
membership only in a dignified and judicious manner. The use of the
reference may be accompanied by an accurate explanation of the requirements
that have been met to obtain membership in these organizations.
6. Those who have earned the right to use the Chartered Financial Analyst
designation may use the marks "Chartered Financial Analyst" or "CFA" and
are encouraged to do so, but only in a proper, dignified, and judicious
manner. The use of the designation may be accompanied by an accurate
explanation of the requirements that have been met to obtain the right
to use the designation.
7. Candidates in the CFA Program, as defined in the AIMR Bylaws, may
reference their participation in the CFA Program, but the reference must
clearly state that an individual is a candidate in the CFA Program and
cannot imply that the candidate has achieved any type of partial
designation.
B. Professional Misconduct.
1. Members shall not engage in any professional conduct involving
dishonesty, fraud, deceit, or misrepresentation or commit any act that
reflects adversely on their honesty, trustworthiness, or professional
competence.
2. Members and candidates shall not engage in any conduct or commit any act
that compromises the integrity of the CFA designation or the integrity
or validity of the examinations leading to the award of the right to use
the CFA designation.
C. Prohibition against Plagiarism.
Members shall not copy or use, in substantially the same form as the original,
material prepared by another without acknowledging and identifying the name of
the author, publisher, or source of such material. Members may use, without
acknowledgment, factual information published by recognized financial and
statistical reporting services or similar sources.
Standard III: Relationships with and Responsibilities to the Employer
A. Obligation to Inform Employer of Code and Standards. Members shall:
1. Inform their employer in writing, through their direct supervisor, that
they are obligated to comply with the Code and Standards and are subject to
disciplinary sanctions for violations thereof.
2. Deliver a copy of the Code and Standards to their employer if the employer
does not have a copy.
B. Duty to Employer. Members shall not undertake any independent practice that
could result in compensation or other benefit in competition with their employer
unless they obtain written consent from both their employer and the persons or
entities for whom they undertake independent practice.
C. Disclosure of Conflicts to Employer. Members shall:
1. Disclose to their employer all matters, including beneficial ownership
of securities or other investments, that reasonably could be expected to
interfere with their duty to their employer or ability to make unbiased
and objective recommendations.
2. Comply with any prohibitions on activities imposed by their employer if a
conflict of interest exists.
D. Disclosure of Additional Compensation Arrangements. Members shall disclose to
their employer in writing all monetary compensation or other benefits that they
receive for their services that are in addition to compensation or benefits
conferred by a member's employer. E. Responsibilities of Supervisors. Members
with supervisory responsibility, authority, or the ability to influence the
conduct of others shall exercise reasonable supervision over those subject to
their supervision or authority to prevent any violation of applicable statutes,
regulations, or provisions of the Code and Standards. In so doing, members are
entitled to rely on reasonable procedures to detect and prevent such violations.
Standard IV: Relationships with and Responsibilities to Clients and Prospects
A. Investment Process.
A.1 Reasonable Basis and Representations. Members shall:
a. Exercise diligence and thoroughness in making investment recommendations or
in taking investment actions.
b. Have a reasonable and adequate basis, supported by appropriate research and
investigation, for such recommendations or actions.
c. Make reasonable and diligent efforts to avoid any material
misrepresentation in any research report or investment recommendation.
d. Maintain appropriate records to support the reasonableness of such
recommendations or actions.
A.2 Research Reports. Members shall:
a. Use reasonable judgment regarding the inclusion or exclusion of relevant
factors in research reports.
b. Distinguish between facts and opinions in research reports.
c. Indicate the basic characteristics of the investment involved when
preparing for public distribution a research report that is not directly
related to a specific portfolio or client.
A.3 Independence and Objectivity. Members shall use reasonable care and judgment
to achieve and maintain independence and objectivity in making investment
recommendations or taking investment action.
B. Interactions with Clients and Prospects.
B.1 Fiduciary Duties. In relationships with clients, members shall use
particular care in determining applicable fiduciary duty and shall comply with
such duty as to those persons and interests to whom the duty is owed. Members
must act for the benefit of their clients and place their clients' interests
before their own.
B.2 Portfolio Investment Recommendations and Actions. Members shall:
a. Make a reasonable inquiry into a client's financial situation,
investment experience, and investment objectives prior to making any
investment recommendations and shall update this information as
necessary, but no less frequently than annually, to allow the members to
adjust their investment recommendations to reflect changed
circumstances.
b. Consider the appropriateness and suitability of investment
recommendations or actions for each portfolio or client. In determining
appropriateness and suitability, members shall consider applicable
relevant factors, including the needs and circumstances of the portfolio
or client, the basic characteristics of the investment involved, and the
basic characteristics of the total portfolio. Members shall not make a
recommendation unless they reasonably determine that the recommendation
is suitable to the client's financial situation, investment experience,
and investment objectives.
c. Distinguish between facts and opinions in the presentation of investment
recommendations.
d. Disclose to clients and prospects the basic format and general
principles of the investment processes by which securities are selected
and portfolios are constructed and shall promptly disclose to clients
and prospects any changes that might significantly affect those
processes.
B.3 Fair Dealing. Members shall deal fairly and objectively with all clients and
prospects when disseminating investment recommendations, disseminating material
changes in prior investment recommendations, and taking investment action.
B.4 Priority of Transactions. Transactions for clients and employers shall have
priority over transactions in securities or other investments of which a member
is the beneficial owner so that such personal transactions do not operate
adversely to their clients' or employer's interests. If members make a
recommendation regarding the purchase or sale of a security or other investment,
they shall give their clients and employer adequate opportunity to act on their
recommendations before acting on their own behalf. For purposes of the Code and
Standards, a member is a "beneficial owner" if the member has a. a direct or
indirect pecuniary interest in the securities;
b. the power to vote or direct the voting of the shares of the securities or
investments;
c. the power to dispose or direct the disposition of the security or
investment.
To assure the rules governing Priority of Transactions, Fair Dealing and the
other applicable rules of this Code are observed faithfully, CIC has adopted the
following nine terms:
(1). Personal transactions: The Code requires all employees to report their
personal securities transactions to CIC Asset Management, Inc. This includes
activity in any account where an employee has a monetary interest. The
transaction report shall be submitted monthly on the 5th business day of the
month. Transaction reports shall be reviewed quarterly by Jorge G. Castro. The
transaction report shall state the title of the security, number of shares and
principal amount of the security (noting interest rate and maturity date, if
applicable), name of the broker/dealer, nature of the transaction (buy/sell),
price, and date the report was submitted.
(2). Reportable securities: The Code applies to the buying and selling of
virtually all securities, including options and futures on groups of securities
or securities indexes. The SEC has exempted from reporting certain securities:
direct obligations of the Government of the United States; bankers' acceptances,
bank certificates of deposit, commercial paper, and high quality short-term debt
instruments, including repurchase agreement; or shares issued by registered
open-end investment companies; as well as transactions in any account over which
the person has no direct or indirect influence or control.
(3). Brokerage Accounts: Members of CIC Asset Management may maintain brokerage
accounts at securities broker-dealers of their choosing, provided the account
representative is not the same account representative, nor reporting to the same
account representative, covering CIC Asset Management. Members of CIC Asset
Management must report (1) annually on December 31, 1999, all of their existing
accounts and (2) within two business days of opening a new account.
(4). Reporting requirements: All employees must report their personal
transactions to Jorge G. Castro, CFA.
(5) General restrictions: The following restrictions also apply to all of CIC
Asset Management, Inc.'s employees. They may not:
o.......knowingly buy or sell a security just before transactions in the same or
equivalent securities (e.g., convertible preferred stocks or bonds) by CIC Asset
Management; o cause or prevent CIC Asset Management client trade activity for
personal benefit; o use knowledge about CIC Asset Management client transactions
for personal benefit; o sell short any security, unless the employee already
owns the security in his or her
personal account. (Selling short involves borrowing securities from a
brokerage for return at a future date. The investor sells the stock in
the expectation that the security's price will decline by the time he or
she has to buy it back.);
o engage in "excessive" trading in a personal account;
o participate in initial public offerings, hedge funds, investment clubs, or
similar groups;
o use options or futures to take positions in securities which would not be
allowed under the Code;
o accept gifts of a value greater than $100.
(6). Pre-clearance of trades: Under the Code, all members of CIC Asset
Management must get permission from Jorge G. Castro before making a personal
transaction. CIC Asset Management restricts pre-clearance when fund trades are
pending.
(7). Short term trading: Members of CIC Asset Management cannot keep profits
made from transactions in the same or equivalent securities if the transactions
are made within 60 calendar days of each other. If this happens, we give the
profits away to a charitable organization.
(8). Members of CIC Asset Management:
o must get approval from CIC Asset Management to serve on a board of directors o
must get approval from CIC Asset Management to participate in private placement
transactions
o must disclose all securities holdings within seven days of joining the
company on the Initial Holdings Report and annually thereafter on the
Annual Holdings Report on the first business day following the 15th of
January. These Reports shall include the title of the security, number
of shares held, and principal amount of the security. The Initial and
Annual Holdings Reports shall be reviewed by Jorge G. Castro within 5
days of receipt and by January 31, respectively.
Additionally, investment professionals have an affirmative duty to recommend
suitable securities for the benefit of CIC Asset Management's clients.
(9). Trading in securities in client accounts: Members of CIC Asset Management
may not personally buy or sell a security either seven calendar days before6 or
after CIC Asset Management fully buys or sells the same security for any client
or clients.
B.5 Preservation of Confidentiality. Members shall preserve the confidentiality
of information communicated by clients, prospects, or employers concerning
matters within the scope of the client-member, prospect-member, or
employer-member relationship unless a member receives information concerning
illegal activities on the part of the client, prospect, or employer.
B.6 Prohibition against Misrepresentation. Members shall not make any
statements, orally or in writing, that misrepresent
a. the services that they or their firms are capable of performing;
b. their qualifications or the qualifications of their firm;
c. the member's academic or professional credentials.
Members shall not make or imply, orally or in writing, any assurances or
guarantees regarding any investment except to communicate accurate
information regarding the terms of the investment instrument and the
issuer's obligations under the instrument.
B.7 Disclosure of Conflicts to Clients and Prospects. Members shall disclose to
their clients and prospects all matters, including beneficial ownership of
securities or other investments, that reasonably could be expected to impair the
members' ability to make unbiased and objective recommendations.
B.8 Disclosure of Referral Fees. Members shall disclose to clients and prospects
any consideration or benefit received by the member or delivered to others for
the recommendation of any services to the client or prospect.
Standard V: Relationships with and Responsibilities to the Public
A. Prohibition against Use of Material Nonpublic Information. Members who
possess material nonpublic information related to the value of a security shall
not trade or cause others to trade in that security if such trading would breach
a duty or if the information was misappropriated or relates to a tender offer.
If members receive material nonpublic information in confidence, they shall not
breach that confidence by trading or causing others to trade in securities to
which such information relates. Members shall make reasonable efforts to achieve
public dissemination of material nonpublic information disclosed in breach of a
duty.
B. Performance Presentation.
1. Members shall not make any statements, orally or in writing, that
misrepresent the investment performance that they or their firms have
accomplished or can reasonably be expected to achieve.
2. If members communicate individual or firm performance information
directly or indirectly to clients or prospective clients, or in a manner
intended to be received by clients or prospective clients, members shall
make every reasonable effort to assure that such performance information
is a fair, accurate, and complete presentation of such performance.
Standards of Practice Handbook
Experience has shown that the working investment professional can best
understand and apply AIMR's Code of Ethics and Standards of Professional Conduct
if they are accompanied by practical illustrations describing application of
individual standards. The Standards of Practice Handbook was developed with this
type of illustration in mind. The Eighth Edition of the Standards of Practice
Handbook contains detailed analysis of the Standards, as well as three topical
studies on fiduciary duty, insider trading, and personal investing. Please see
the Compliance Officer if you would like to review a copy of the handbook.
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1 Incorporated by reference to Registrant's Pre-Effective Amendment No. 2 to its
Registration Statement dated January 28, 1997.
2 Incorporated by reference to Registrant's Post-Effective Amendment No. 3 to
its Registration Statement dated February 27, 1998.
3 Incorporated by reference to Registrant's Post-Effective Amendment No. 8 to
its Registration Statement Dated February 17, 2000.
4 To be filed by amendment.
5 Incorporated by reference to Registrant's Post-Effective Amendment No. 5 to
its Registration Statement dated July 17, 1998.
6 Whenever it is feasible to so forecast a trade on behalf of clients.
