NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
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PROSPECTUS
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.
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August 28, 2000
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NATIONAL ASSET MANAGEMENT
CORE EQUITY FUND
National Asset Management Core Equity Fund is a core equity fund designed for
individual and institutional investors. The Fund seeks to provide investors with
high total investment return.
TABLE OF CONTENTS
An Overview of the Fund ..................................................... 2
Performance ................................................................. 3
Fees and Expenses ........................................................... 3
Investment Objective, Principal Investment Strategies and Related Risks ..... 4
Investment Advisor .......................................................... 6
Shareholder Information ..................................................... 8
Distributions and Taxes ..................................................... 11
Financial Highlights ........................................................ 12
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.
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National Asset Management Core Equity Fund
AN OVERVIEW OF THE FUND
The goal of the Fund is to earn high total investment return. This consists of
capital appreciation and current income.
The Fund primarily invests in common stocks of large and middle capitalization
U. S. companies (" core" companies). The Advisor stresses a blend of growth and
value securities by utilizing its multiple attribute philosophy and process. The
multiple attribute philosophy and process is investing in different styles of
stocks. The Advisor strives to posture the portfolio to be in sync with equity
trends in various economic environments.
PRINCIPAL RISKS OF INVESTING IN NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
There is the risk that you could lose money on your investment in the National
Asset Management Core Equity Fund. This could happen if any of the following
events happen:
* The stock market goes down
* Interest rates go up which can result in a decline in the equity market
* Large and medium capitalization stocks fall out of favor with the stock
market
* Stocks in the Fund's portfolio do not increase their earnings at the rate
anticipated The Fund may be appropriate for investors who:
* Are pursuing a long-term goal such as retirement
* Want to diversify their investment portfolio by investing in a mutual fund
that emphasizes investments in core companies
* Want to reduce the volatility of a pure growth or value style of investing
* Are willing to accept higher short-term risk along with higher potential
for long-term total return
WHO MAY WANT TO INVEST NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
The Fund may not be appropriate for investors who:
* Are pursuing a short-term goal or investing emergency reserves
* Wish to have the equity portion of their portfolio invested in stocks other
than core U. S. companies
2
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National Asset Management Core Equity Fund
PERFORMANCE
Because the Fund has been in operation for less than a full calendar year,
its total return bar chart and performance table have not been included.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder fees
(fees paid directly from your investment)
Maximum sales charge (load) imposed
on purchases (as a percentage of offering price) .................. None
Maximum deferred sales charge (load)
(as a percentage of the lower of original purchase
price or redemption proceeds) ..................................... None
Annual fund operating expenses*
(expenses that are deducted from Fund assets)
Management Fees .................................................... 0.50%
Distribution and Service (12b-1) Fees ............................. None
Other Expenses ..................................................... 4.97%
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Total Annual Fund Operating Expenses ............................... 5.47%
Fee Reduction and/ or Expense Reimbursement ........................ (4.52)%
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Net Expenses ....................................................... 0.95%
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* The Advisor has contractually agreed to reduce its fees and/ or pay
expenses of the Fund to ensure that Total Annual Fund Operating Expenses
will not exceed 0.95%. This contract's term is indefinite and may be
terminated only by the Board of Trustees. If the Advisor does waive any of
its fees or pay Fund expenses, the Fund may reimburse the Advisor in future
years.
3
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National Asset Management Core Equity Fund
FEES AND EXPENSES, (Continued)
Example
This example is intended to help you compare the costs of investing in the
Fund with the cost of investing in other mutual funds.
The Example assumes 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 Example also assumes that your investment has a 5% return each
year, that dividends and distributions are reinvested and that the Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, under the assumptions, your costs would be:
One Year ................................................. $ 97
Three Years............................................... $ 302
Five Years................................................ $ 524
Ten Years................................................. $1,163
The Fund's investment goal is to provide investors with high total
investment return. The Fund seeks to achieve its investment goal by using a
combination of different equity styles to diversify its portfolio. The Advisor
calls this approach to investing in different types of stocks multiple attribute
diversification. High total investment return consists of capital appreciation
and current income.
Under normal market conditions, the Fund will invest at least 65% of its
assets in the equity securities generally considered to be core holdings. A
company's market capitalization is the total market value of its outstanding
common stock. The Fund considers core holdings to be large and medium size
companies with a market capitalization of over $1 billion.
The Advisor examines both growth and value attributes in the selection of
securities so that the portfolio may benefit from the current economic
environment. To determine which style of investing to focus on, the Advisor
utilizes the following indicators:
* Fundamental indicators, which focus on economic momentum, S& P 500 Index
earnings and interest rates
* Valuation indicators, which include comparisons of value versus growth
stocks, focusing on price-to-sales ratios and price-to-earnings trends
* Technical indicators which include an analysis of the relative strength
between value versus growth and high versus low quality trends
4
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National Asset Management Core Equity Fund
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS,
Continued)
The Fund will normally invest in the following three types of equity
securities:
* GROWTH SECURITIES. Common stocks that meet the Advisor's criteria for five-
year annual earnings-per-share growth rates. These securities must also
exhibit no decline in the normalized annual earnings-per-share rate
during the last five years.
* SECURITIES WITH LOW PRICE-TO-EARNINGS RATIOS. The Advisor defines these
securities as those common stocks with price-to-earnings ratios below
the average of the companies included in the S& P 500 Index.
* SECURITIES THAT PAY HIGH DIVIDENDS. Common stocks that pay dividends at a
rate above the average of the companies included in the S& P 500 Index.
The Advisor utilizes a systematic, disciplined investment process when
selecting individual securities. This includes:
* Screening a database for capitalization and the criteria listed above
* Scoring each issue emphasizing fundamental, valuation and technical
indicators
* Security analysis that further evaluates the company and the stock. This
includes an analysis of company fundamentals such as earnings,
profitability and management; valuation such as price/ earnings, price/
book and yield; and technical analysis emphasizing individual stock price
trends.
The Advisor continuously monitors the securities in the Fund's portfolio
from fundamental, valuation and technical perspectives. Stocks which are viewed
as negative in any one area may be sold in favor of more attractive candidates.
Stocks that are viewed as negative from two perspectives are automatically sold.
Under normal market conditions, the Fund will stay fully invested in
stocks. However, the Fund may temporarily depart from its principal investment
strategies by making short-term investments in cash equivalents in response to
adverse market, economic or political conditions or when the Fund experiences
periods of heavy cash inflows from shareholders purchasing Fund shares. This
may result in the Fund not achieving its investment objective.
In keeping with its investment approach, the Advisor does not anticipate
frequent buying and selling of securities. This means that the Fund should have
a low rate of portfolio turnover and the potential to be a tax efficient
investment. This should result in the realization and distribution to
shareholders of lower capital gains, which would be considered tax efficient.
The anticipated lack of frequent trading also leads to lower transaction costs,
which could help to improve performance.
5
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National Asset Management Core Equity Fund
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS,
Continued
Specific Risks Of Investing In The National Asset Management Core Equity
Fund
The principal risks of investing in the Fund that may adversely affect the
Fund's net asset value or total return are discussed above under "An Overview of
the Fund." Risks which are characteristic of equity investing are MARKET RISK,
the risk that the market value of a security may move up and down, sometimes
rapidly and unpredictably. These fluctuations may cause a security to be worth
less than the price originally paid for it or less than it was worth at an
earlier time. Market risk may affect a single issuer, industry, sector of the
economy or the market as a whole; MANAGEMENT RISK, the risk that a strategy used
by the Advisor may not produce the intended result; and VALUATION RISK, the risk
that the markets may not place the expected value on a particular stock holding.
INVESTMENT ADVISOR
National Asset Management Corporation is the investment advisor to the
Fund. The investment advisor's address is 400 West Market Street, Suite 2500,
Louisville, KY 40202. As of June 30, 2000, the investment advisor manages over
$14.5 billion in assets for institutional investors and other mutual funds. The
investment advisor provides advice on buying and selling securities for the
Fund. The investment advisor also furnishes the Fund with office space and
certain administrative services and provides most of the personnel needed by
the Fund. For its services, the Fund pays the investment advisor a monthly
management fee based upon the average daily net assets of the Fund at the annual
rate of 0.50%.
The Advisors's Investment Management Group, a committee of experienced in-
vestment professionals, each of whom has the Chartered Financial Analyst
designation, are responsible for the day-to-day management of the Fund.
Advisor Investment Returns
Set forth in the table below are certain performance data provided by the
Advisor relating to its individually managed equity accounts. All of these
accounts have substantially the same investment objective as the Fund and were
managed using substantially similar investment strategies and techniques as
those contemplated for use by the Fund. The Investment Management Group for
these accounts also manage the Fund. The results presented are not intended to
predict or suggest the return to be experienced by the Fund or the return an
investor might achieve by investing in the Fund.
Results may differ because of, among other things, differences in brokerage
commissions paid, account expenses, including investment advisory fees (which
expenses and fees may be higher for the Fund than for the accounts), the size
of positions taken in relation to account size, diversification of securities,
timing of purchases and sales, timing of cash additions and withdrawals, the
private character
6
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National Asset Management Core Equity Fund
INVESTMENT ADVISOR, Continued
of the composite accounts compared with the public character of the Fund, and
the tax-exempt status of some of the account holders compared with shareholders
in the Fund. Investors should be aware that the use of different methods of
determining performance might have adversely affected the performance figures
shown below.
Investors should not rely on the following performance data as an indication
of future performance of the Advisor or the Fund. The different methods of
determining performance as described in the prior paragraph could result in
lower returns for the Fund than for the Advisor's individually managed equity
accounts.
Advisor's Equity Composite Average Annual Total Return
for Period Ended 6/30/00 Composite S & P 500
------------------------ --------- ---------
One Year............................... 7.1% 7.2%
Three Years............................ 22.2% 19.7%
Five Years............................. 26.0% 23.8%
Ten Years.............................. 19.2% 17.8%
1. Results account for both income and capital appreciation or depreciation
(total return). Returns are dollar weighted and net of commissions and
management fees. The composite represents all discretionary accounts that do not
have material restrictions. Discretionary accounts with material restrictions
were omitted from the composite because such accounts would not have been
managed using substantially similar investment strategies and techniques as
those used by the Fund. The composite complies with the Association for
Investment Management and Research (AIMR) standards with a Level I and Level II
verification. The verification was performed by Crowe, Chizek and Company LLP,
independent public accountants.
2. Investors should note that the Fund will compute and disclose its
average annual total return using the standard formula required by SEC rules,
which differs from returns calculated under the method noted above. The SEC
total return calculation method requires that the Fund compute and disclose an
average annual compounded rate of return for one, five and ten year periods or
shorter periods from inception. The calculation provides a rate of return from a
hypothetical initial investment of $1,000 to an ending value as if shares were
redeemed at the end of the period. The formula requires that returns to be shown
for the Fund will be net of Fund advisory fees and all other portfolio operating
expenses.
The S & P 500 Composite Stock Price Index is an unmanaged capitalization-
weighted index of 500 stocks designed to represent the broad domestic economy.
Indices do not incur expenses and are not available for investment.
7
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National Asset Management Core Equity Fund
SHAREHOLDER INFORMATION
HOW TO BUY SHARES
There are several ways to purchase shares of the Fund. An Application Form,
which accompanies this Prospectus, is used if you send money directly to the
Fund by mail or by wire. If you have questions about how to invest, or about how
to complete the Application Form, please call National Asset Management at 1-
877-626-3863. You may also buy shares of the Fund through your financial
representative. After your account is open, you may add to it at any time.
You may open a Fund account with $500,000. You may add to your account at
any time with $5,000. The minimum investment requirements may be waived from
time to time by the Fund.
BY MAIL. You may send checks to the Fund by mail. All purchases by check
should be in U. S. dollars. Third party checks and cash will not be accepted. If
you wish to invest by mail, simply complete the Account Application and mail it
with a check (made payable to the National Asset Management Core Equity Fund) to
the Fund at the following address:
National Asset Management Core Equity Fund
P. O. Box 641265
Cincinnati, OH 45264-1265
BY WIRE. If you are making an initial investment in the Fund by wire,
before you wire funds, you should call the Transfer Agent, America Data
Services, Inc. at (800) 385-7003 to advise them that you are making an
investment by wire. The Transfer Agent will provide an account number for you
and will ask for your name and the dollar amount you are investing. You will
then receive your account number and an order confirmation number. You should
then complete the Fund Account Application included with the prospectus.
Include the date and the order confirmation number on the Account Application
and mail the completed Account Application to the address at the top of the
Account Application. Your bank should transmit immediately available funds by
wire in your name to:
Firstar Bank, N. A.
ABA #0420-001-3
DDA# 821-601-689
Attn: National Asset Management Core Equity Fund
Account name (shareholder name)
Shareholder account number
If you are making a subsequent purchase, your bank should wire funds as
indicated above. Before each wire purchase, you should be sure to notify the
Transfer Agent. IT IS ESSENTIAL THAT YOUR BANK INCLUDE COMPLETE INFORMATION
ABOUT YOUR ACCOUNT IN ALL WIRE INSTRUCTIONS. If you have questions about how to
invest by wire, you may call the Transfer Agent. Your bank may charge you a fee
for sending a wire to the Fund.
8
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National Asset Management Core Equity Fund
SHAREHOLDER INFORMATION, Continued
THROUGH FINANCAL ADVISORS. You may buy and sell shares of the Fund through
certain brokers (and their agents, together "brokers") that have made
arrangements with the Fund. An order placed with such a broker is treated as if
it were placed directly with the Fund, and will be executed at the next share
price calculated by the Fund. Your shares will be held in a pooled account in
the broker's name, and the broker will maintain your individual ownership
information. The Advisor may pay the broker for maintaining these records as
well as providing other shareholder services. In addition, the broker may charge
you a fee for handling your order. The broker is responsible for processing your
order correctly and promptly, keeping you advised of the status of your
individual account, confirming your transactions and ensuring that you receive
copies of the Fund's prospectus.
HOW TO SELL SHARES
You may sell (redeem) your Fund shares on any day the New York Stock Ex-
change ("NYSE") is open for business either directly to the Fund or through
your investment representative.
REDEMPTIONS BY MAIL. You may redeem your shares by simply sending a written
request to the Fund. You should give your account number and state whether you
want all or some of your shares redeemed. The letter should be signed by all of
the shareholders whose names appear on the account registration. You should send
your redemption request to the Transfer Agent at the following address:
National Asset Management Core Equity Fund
150 Motor Parkway, Suite 109
Hauppauge, NY 11788
Payment of your redemption proceeds will normally be made promptly, but no
later than seven days after the receipt of a written request that meets the
requirements described above. If you did not purchase your shares with a
certified check, the Fund may delay payment of your redemption proceeds until
your check has cleared, which may take up to 15 days.
REDEMPTION BY TELEPHONE. If you complete the Redemption by Telephone por-
tion of the Fund's Account Application, you may redeem some or all of your
shares by telephone. You may redeem your shares on any day the NYSE is open by
calling the Fund's Shareholder Servicing Agent at (800) 385-7003 before 4: 00
p. m., Eastern time. Redemption proceeds will be mailed on the next business
day. If you request, your redemption proceeds will be wired on the next
business day to the bank account you have designated on the Account Application.
The minimum amount that may be wired is $1,000. Wire charges, if any, will be
deducted from your redemption proceeds. You may not use the telephone
redemption for retirement accounts.
9
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National Asset Management Core Equity Fund
SHAREHOLDER INFORMATION, Continued
When you establish telephone privileges, you are authorizing the Fund and
its Transfer Agent to act upon the telephone instructions of the person or
persons you have designated on your Account Application. Such persons may
request that the shares in your account be redeemed.
Before executing an instruction received by telephone, the Fund and the
Transfer Agent will use reasonable procedures to confirm that the telephone
instructions are genuine. These procedures may include recording the telephone
call and asking the caller for a form of personal identification. If the Fund
and the Transfer Agent follow these reasonable procedures, they will not be
liable for any loss, expense, or cost arising out of any telephone redemption or
exchange request that is reasonably believed to be genuine. This includes any
fraudulent or unauthorized request.
You may have difficulties in making a telephone redemption during periods
of abnormal market activity. If this should occur, you may make your redemption
request in writing.
OTHER REDEMPTION INFORMATION. Certain redemption requests require that the
signature or signatures on the account will have to be guaranteed. Call the
Transfer Agent at 1-800-385-7003 for further details. If you made your
initial investment by wire, payment of your redemption proceeds for those shares
will not be made until one business day after your completed Account Application
is received by the Fund.
If shares were purchased by check and then redeemed shortly after the check
is received, the Fund may delay sending the redemption proceeds until it has
been notified that the check used to purchase the shares has been collected, a
process which may take up to 15 days. The Fund may suspend the right of
redemption under certain extraordinary circumstances in accordance with the
rules of the Securities and Exchange Commission.
The Fund may redeem the shares in your account if the value of your account
is less than $5,000 as a result of redemptions you have made. This does not
apply to retirement plan or Uniform Gifts or Transfers to Minors Act accounts.
You will be notified that the value of your account is less than $5,000 before
the Fund makes an involuntary redemption. You will then have 30 days in which to
make an additional investment to bring the value of your account to at least
$5,000 before the Fund takes any action.
The Fund has the right to pay redemption proceeds in whole or in part by a
distribution of securities from the Fund's portfolio. It is not expected that
the Fund would do so except in unusual circumstances.
10
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National Asset Management Core Equity Fund
SHAREHOLDER INFORMATION, Continued
PRICING OF FUND SHARES
The price of Fund shares is based on the Fund's net asset value. The net
asset value of the Fund's shares is determined by dividing the Fund's assets,
minus its liabilities, by the number of shares outstanding. The Fund's assets
are the market value of securities held in its portfolio, plus any cash and
other assets. The Fund's liabilities are fees and expenses it owes. The number
of Fund shares outstanding is the amount of shares which have been issued to
shareholders. The price you will pay to buy Fund shares or the amount you will
receive when you sell your Fund shares is based on the net asset value next
calculated after your order is received and accepted.
The net asset value of the Fund's shares is determined as of the close of
regular trading on the NYSE. This is normally 4: 00 p. m., Eastern time. Fund
shares will not be priced on days that the NYSE is closed for trading (including
certain U. S. holidays).
DISTRIBUTION AND TAXES
The Fund will make distributions of dividends and capital gains, if any,
annually, usually after the end of the year. Because of its investment
strategies, the Fund expects that its distributions will consist of both
capital gains and dividends.
You can choose from three distribution options: (1) reinvest all
distributions in additional Fund shares; (2) receive distributions from net
investment income in cash while reinvesting capital gain distributions in
additional Fund shares; or (3) receive all distributions in cash. If you wish to
change your distribution option, write the Transfer Agent before the payment of
the distribution. If you do not select an option when you open your account, all
distributions will be reinvested in Fund shares. You will receive a statement
confirming reinvestment of distributions in additional Fund shares promptly
following the quarter in which the reinvestment occurs.
If a check representing a Fund distribution is not cashed within a
specified period, the Transfer Agent will notify you that you have the option
of requesting another check or reinvesting the distribution in the Fund. If
the Transfer Agent does not receive your election, the distribution will be
reinvested in the Fund. Similarly, if the Fund or the Transfer Agent sends you
correspondence returned as "undeliverable," distributions will automatically
be reinvested in the Fund.
TAX CONSEQUENCES
Dividends are taxable to you as ordinary income. The rate you pay on
capital gain distributions will depend on how long the Fund held the securities
that generated the gains, not on how long you owned your Fund shares. You will
be taxed in the same manner whether you receive your dividends and capital gain
distributions in cash or reinvest them in additional Fund shares.
If you sell your Fund shares, it is considered a taxable event for you.
Depending on the purchase price and the sale price of the shares you sell, you
may have a gain or a loss on the transaction. You are responsible for any tax
liabilities generated by your transaction.
11
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National Asset Management Core Equity Fund
This table shows the Fund's performance for the period shown. Certain
information reflects financial results for a single Fund share. "Total return"
shows how much your investment in the Fund would have increased or decreased
during each period, assuming you had reinvested all dividends and distributions.
This information has been audited by PricewaterhouseCoopers, LLP, independent
accountants. Their report and the Fund's financial statements are included in
the Annual Report, which is available upon request.
For a capital share outstanding throughout the period
June 2, 1999*
through
April 30, 2000
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Net asset value, beginning of period $ 10.00
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Income from investment operations:
Net investment income 0.01
Net realized and unrealized gain on investments 1.42
Total from investment operations 1.43
Less distributions:
Dividends from net investment income (0.01)
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Net asset value, end of period $ 11.42
=======
Total return 14.26++
Ratios/ supplemental data:
Net assets, end of period (000) $10,606
Ratio of expenses to average net assets:
Before expense reimbursement 5.47+
After expense reimbursement 0.95+
Ratio of investment income to average net assets:
After expense reimbursement 0.14+
Portfolio turnover rate 20.80%
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* Commencement of operations.
+ Annualized.
++ Not annualized.
12
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NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
A SERIES OF ADVISORS SERIES TRUST (THE "TRUST")
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/ SEMI-ANNUAL REPORTS: Additional
information about the Fund's investments is available in the Fund's annual and
semi-annual reports to shareholders. In the Fund's annual report, you will find
a discussion of market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated into this prospectus. You can get
free copies of the SAI, request other information and discuss your questions
about the Fund by contacting the Fund at:
National Asset Management Core Equity Fund
400 West Market Street, Suite 2500
Louisville, KY 40202
1-877-626-3863
www.nationalasset.com
You can review and copy information including the Fund's reports and SAI at the
Public Reference Room of the Securities and Exchange Commission in Washington,
D. C. You can obtain information on the operation of the Public Reference Room
by calling 1-202-942-8090. Reports and other information about the Fund are
also available:
* Free of charge from the Commission's EDGAR database on the Commission's
Internet website at http:// www. sec. gov., or
* For a fee, by writing to the Public Reference Room of the Commission,
Washington, DC 20549-0102, or
* For a fee, by electronic request at the following e-mail address:
[email protected].
================================================================================
(The Trust's SEC File Number is 811-07959)
<PAGE>
NATIONAL ASSET MANAGEMENT CORE EQUITY FUND,
A SERIES OF ADVISORS SERIES TRUST
400 WEST MARKET ST., SUITE 2500
LOUISVILLE, KY 40202
Statement of Additional Information
Dated August 28, 2000
This Statement of Additional Information ("SAI") is not a prospectus, and it
should be read in conjunction with the Prospectus dated August 28, 2000, as may
be revised, of the National Asset Management Core Equity Fund (the "Fund"), a
series of Advisors Series Trust (the "Trust"). National Asset Management
Corporation (the "Advisor") is the advisor to the Fund. A copy of the Fund's
Prospectus may be obtained by contacting National Asset Management at the
above-listed address; telephone (877) 626-3863.
TABLE OF CONTENTS
The Trust ................................................................ B-2
Investment Objective and Policies ........................................ B-2
Management ............................................................... B-6
Distribution Agreement ................................................... B-9
Portfolio Transactions and Brokerage ..................................... B-9
Portfolio Turnover ....................................................... B-11
Purchase and Redemption of Fund Shares ................................... B-11
Determination of Net Asset Value ......................................... B-13
Taxation ................................................................. B-13
Dividends and Distributions .............................................. B-15
Performance Information .................................................. B-16
General Information ...................................................... B-17
Appendix ................................................................. B-19
B-1
<PAGE>
THE TRUST
Advisors Series Trust is an open-end, non-diversified management investment
company organized as a Delaware business trust under the laws of the State of
Delaware on October 3, 1996. The Trust currently co 17 series of shares of
beneficial interest, par value $0.01 per share. This SAI relates only to the
Fund.
The Trust is registered with the SEC as a management investment company.
Such a registration does not involve supervision of the management or policies
of the Fund. The Prospectus of the Fund and this SAI omit certain of the
information contained in the Registration Statement filed with the SEC. Copies
of such information may be obtained from the SEC upon payment of the prescribed
fee.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek to provide investors with
high total investment return. This consists of capital appreciation and current
income. The Fund is diversified, which under applicable federal law means that
as to 75% of its total assets, no more than 5% may be invested in the securities
of a single issuer and that it may hold no more than 10% of the voting
securities of a single issuer. The following discussion supplements the
discussion of the Fund's investment objective and policies set forth in the
Prospectus. There is no assurance that the Fund will achieve its objective.
EQUITY SECURITIES. The equity securities in which the Fund invests
generally consist of common stock and securities convertible into or
exchangeable for common stock. Under normal market conditions, at least 65% of
the value of the Fund's total assets will be invested in the equity securities
of U.S. companies with market capitalization of over $1billion. The securities
in which the Fund invests are expected to be either listed on an exchange or tin
an over-the-counter market.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities,
which are securities generally offering fixed interest or dividend yields which
may be converted either at a stated price or stated rate for common or preferred
stock. Although to a lesser extent than with fixed-income securities generally,
the market value of convertible securities tends to decline as interest rates
increase, and increase as interest rates decline. Because of the conversion
feature, the market value of convertible securities also tends to vary with
fluctuations in the market value of the underlying common or stock.
FOREIGN SECURITIES. The Fund may invest up to 10% of its total assets in
securities of foreign companies which are traded on a national securities
exchange, including sponsored and unsponsored American Depositary Receipts
("ADRs"). ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities of foreign issuers, and other
forms of depository receipts for securities of foreign issuers. Generally, ADRs,
in registered form, are denominated in U.S. dollars and are designed for use in
the U.S. securities markets. Tthes securities are not denominated in the same
currency as the underlying securities they represent. In addition, the issuers
of the securities underlying unsponsored ADRs are not obligated to disclose
material information in the United States and, therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the ADRs.
Investments in foreign securities involve special risks, costs and
opportunities which are in addition to those inherent in domestic investments.
Political, economic or social instability of the issuer or the country of ithe
possibility of expropriation or confiscatory taxation, limitations on the
removal of assets or diplomatic developments, and the possibility of adverse
changes in investment or exchange control regulations are among the inherent
risks. Securities of some foreign companies are less liquid, more volatile and
more difficult to value than securities of comparable U.S. companies. Foreign
companies are not subject to the regulatory requirements of U.S. companies and,
as such, there may be less publicly available information about such companies.
Moreover, foreign companies are not subject to uniform accounting, auditing and
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financial reporting standards and requirements comparable to those applicable to
U.S. companies. Currency fluctuations will affect the net asset value of the
Fund irrespective of the performance of the underlying investments in foreign
issuers.
ILLIQUID SECURITIES. The Fund may not invest more than 15% of the value of
its net assets in securities that at the time of purchase have legal or
contractual restrictions on resale or are otherwise illiquid. The Advisor will
monitor the amount of illiquid securities in the Fund's portfolio, under the
supervision of the Trust's Board of Trustees, to ensure compliance with the
Fund's investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions oresal because they have not been registered
under the Securities Act of 1933 (the "Securities Act"), securities which are
otherwise not readily marketable and repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placement or restricted securities and
are purchased directly from the issuer or in the secondary market. Mutual funds
do not typically hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the marketability
of portfolio securities and the Fund might be unable to sell restricted or other
illiquid securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemption requests within seven days. The Fund
might also have to register such restricted securities in order to sell them,
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not reflect the actual liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the SEC under the Securities Act,
the Trust's Board of Trustees may determine that such securities are not
illiquid securities despite their legal or contractual restrictions on resale.
In all other cases, hsecuritie subject to restrictions on resale will be deemed
illiquid.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. Under
such agreements, the seller of the security agrees to repurchase it at a
mutually agreed upon time and price. The repurchase price may be higher than the
purchase price, the difference being income to the Fund, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to the
Fund together with the repurchase price on repurchase. In either case, the
income to the Fund is unrelated to the interest rate on the U.S. Government
security itself. Such repurchase agreements will be made only with banks with
assets of $500 million or more that are insured by the Federal Deposit Insurance
Corporation or with Government securities dealers recognized by the Federal
Reserve Board and registered as broker-dealers with the Securities and Exchange
Commission ("SEC") or exempt from such registration. The Fund will generally
enter into repurchase agreements of short durations, from overnight to one week,
although the underlying securities generally have longer maturities. The Fund
may not enter into a repurchase agreement with more than seven days to maturity
if, as a result, more than 15% of the value of its net assets would be invested
in illiquid securities including such repurchase agreements.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from the Fund to the seller of the
U.S. Government security subject to the repurchase agreement. It is not clear
whether a court would consider the U.S. Government security acquired by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
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commencement of bankruptcy or insolvency proceedings with respect to the seller
of the U.S. Government security before its repurchase under a repurchase
agreement, the Fund may encounter delays and incur costs before being able to
sell the security. Delays may involve loss of interest or a decline in price of
the U.S. Government security. If a court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the U.S. Government
security, the Fund may be required to return the security to the seller's estate
and be treated as an unsecured creditor of the seller.
As an unsecured creditor, the Fund would be at the risk of losing some or
all of the principal and income involved in the transaction. As with any
unsecured debt instrument purchased for the Fund, the Advisor seeks to minimize
the risk of loss through repurchase agreements by analyzing the creditworthiness
of the other party, in this case the seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the security. However, the Fund
will always receive as collateral for any repurchase agreement to which it is a
party securities acceptable to it, the market value of which is equal to at
least 100% of the amount invested by the Fund plus accrued interest, and the
Fund will make payment against such securities only upon physical delivery or
evidence of book entry transfer to the account of its Custodian. If the market
value of the U.S. Government security subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the U.S. Government security to deliver additional
securities so that the market value of all ssubjec to the repurchase agreement
will equal or exceed the repurchase price. It is possible that the Fund will be
unsuccessful in seeking to impose on the seller a contractual obligation to
deliver additional securities.
INVESTMENT COMPANY SECURITIES. The Fund may invest in shares of other
investment companies as permitted by the 1940 Act. The Fund may invest in money
market mutual funds in connection with its management of daily cash positions.
In addition to the advisory and operational fees a Fund bears directly in
connection with its own operation, the Fund would also bear its pro rata
portions of each other investment company's advisory and operational expenses.
SHORT-TERM INVESTMENTS
The Fund may invest in any of the following securities and instruments:
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The Fund
may hold certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are negotiable certificates issued afund deposited in a
commercial bank for a definite period of time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning in effect that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Certificates of deposit and bankers'
acceptances acquired by the Fund will be dollar-denominated obligations of
domestic banks, savings and loan associations or financial institutions which,
at the time of purchase, have capital, surplus and undivided profits in excess
of $100 million (including assets of both domestic and foreign branches), based
on latest published reports, or less than $100 million if the principal amount
of such bank obligations are fully insured by the U.S. Government.
In addition to buying certificates of deposit and bankers' acceptances, the
Fund also may make interes time or other interest-bearing deposits in commercial
or savings banks. Time deposits are non-negotiable deposits maintained at a
banking institution for a specified period of time at a specified interest rate.
COMMERCIAL PAPER AND SHORT-TERM NOTES. The Fund may invest a portion of its
assets in commercial paper and short-term notes. Commercial paper consists of
unsecured promissory notes issued by corporations. Commercial paper and
short-term notes will normally have maturities of less than nine months and
fixed rates of return, although such instruments may have maturities of up to
one year.
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Commercial paper and short-term notes will consist of issues rated at the
time of purchase "A-2" or hb Standard & Poor's Ratings Group, "Prime-1" or
"Prime-2" by Moody's Investors Service, Inc., or similarly rated by another
nationally recognized statistical rating organization or, if unrated, will be
determined by the Advisor to be of comparable quality. These rating symbols are
described in the Appendix.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions that may not be
changed without approval by a "majority of the outstanding shares" of the Fund
which, as used in this SAI, means the vote of the lesser of (a) 67% or more of
the shares of the Fund represented at a meeting, if the holders of more than 50%
of the outstanding shares of the Fund are present or represented by proxy, or
(b) more than 50% of the outstanding shares of the Fund.
The Fund may not:
(1) Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objective and policies, or (b) to
the extent the entry into a repurchase agreement is deemed to be a loan.
(2) Borrow money, except for temporary or emergency purposes. Any such
borrowings will be made only if immediately thereafter there is an asset
coverage of at least 400% of all borrowings.
(3) Mortgage, pledge or hypothecate any of its assets except in connection
with any borrowings.
(4) Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities. (Does
not preclude the Fund from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
(5) Purchase real estate, commodities or commodity contracts. (As a matter
of operating policy, the Bo Trustees may authorize the Fund in the future to
engage in certain activities regarding futures contracts for bona fide hedging
purposes; any such authorization will be accompanied by appropriate notification
to shareholders.)
(6) Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges or (b) entering into options, futures
or repurchase transactions.
(7) With respect to 75% of its total assets, invest more than 5% of its
total assets in securities of a single issuer or hold more than 10% of the
voting securities of such issuer, except that this restriction does not apply to
investment in the securities of the U.S. Government, its agencies or
instrumentalities.
(8) Invest 25% or more of the market value of its assets in the securities
of companies engaged in any one industry, except that this restriction does not
apply to investment in the securities of the U.S. Government, its agencies or
instrumentalities.
The Fund observes the following policies, which are not deemed fundamental
and which may be changed without shareholder vote. The Fund may not:
(1) Invest in any issuer for purposes of exercising control or management.
(2) Invest in securities of other investment companies except as permitted
under the 1940 Act.
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(3) Invest, in the aggregate, more than 15% of its net assets in securities
with legal or contractual restrictions on resale, securities which are not
readily marketable and repurchase agreements with more than seven days to
maturity.
If a percentage or rating restriction on investment or use of assets set
forth herein or in the Pis adhered to at the time a transaction is effected,
later changes in percentage resulting from any cause other than actions by the
Fund will not be considered a violation. If the value of the Fund's holdings of
illiquid securities at atim exceeds the percentage limitation applicable at the
time of acquisition due to subsequent fluctuations in value oothe reasons, the
Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity.
MANAGEMENT
The overall management of the business and affairs of the Trust is vested
with its Board of Trustees. The Board approves all significant agreements
between the Trust and persons or companies furnishing services to it, ith
agreements with the Advisor, Administrator, Custodian and Transfer Agent. The
day to day operations of the Trust are delegated to its officers, subject to the
Fund's investment objectives and policies and to general supervision by the
Board of Trustees.
The Trustees and officers of the Trust, their birth dates and positions
with the Trust, their business addresses and principal occupations during the
past five years are:
WALTER E. AUCH, SR. (born 1921) Trustee
6001 N. 62nd Place, Paradise Valley, AZ 85153. Business Consultant and Director,
Nicholas-Applegate Institutional Mutual Funds, Salomon Smith Barney Trak Funds
and Concert Series, Banyan Strategic Realty Trust, Legend Properties and Senele
Group.
ERIC M. BANHAZL* (born 1957) Trustee, President and Treasurer
2020 E. Financial Way, Glendora, CA 91741. Executive Vice President, Investment
Company Administration, LLC; Vice President, First Fund Distributors, Inc.;
Treasurer, Guinness Flight Investment Funds, Inc.
DONALD E. O'CONNOR (born 1936) Trustee
1700 Taylor Avenue, Fort Washington, MD 20744. Retired; formerly Executive Vice
President and Chief Operating Officer of ICI Mutual Insurance Company (until
January, 1997); Vice President, Operations, Investment Company Institute (until
June, 1993); Independent Director, The Parnassus Fund, The Parnassus Income
Fund, and Allegiance Investment Trust.
GEORGE T. WOFFORD III (born 1939) Trustee
305 Glendora Circle, Danville, CA 94526. Senior Vice President, Information
Services, Federal Home Loan Bank of San Francisco.
STEVEN J. PAGGIOLI (born 1950) Vice President
915 Broadway, Suite 1605, New York, NY 10010. Executive Vice President,
Investment Company Administration, LLC; Vice President, First Fund Distributors,
Inc.; President and Trustee, Professionally Managed Portfolios; Trustee,
Managers Funds Trust.
ROBERT H. WADSWORTH (born 1940) Vice President
4455 E. Camelback Rd. Suite 261-E, Phoenix, AZ 85018. President, Robert H.
Wadsworth & Associates, Inc., Investment Company Administration, LLC and First
Fund Distributors, Inc.; Vice President, Professionally Managed Portfolios;
President, Guiness Flight Investment Funds, Inc.; Director, Germany Fund, Inc.,
New Germany Fund, Inc., Central European Equity Fund, Inc. and Deutsche Funds,
Inc.
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THOMAS W. MARSCHEL (born 1970) Vice President
4455 E. Camelback Rd., Suite 261-E, Phoenix, AX 85018. Vice President,
Investment Company Administration, LLC; Assistant Vice President, Investment
Company Administration, LLC from October 1995 to January 2000; Fund Accounting
Supervisor with SEI Fund Resources from January 1994 to October 1995.
CHRIS O. MOSER (born 1949) Secretary
4455 E. Camelback Rd. Suite 261-E, Phoenix, AZ 85018. Employed by Investment
Company Administration, LLC (since July 1996); Formerly employed by Bank One,
N.A. (From August 1995 until July 1996; O'Connor, Cavanagh, Anderson,
Killingsworth and Beshears (law firm) (until August 1995).
----------
* denotes Trustee who is an "interested person" of the Trust under the 1940
Act.
Name and Position Aggregate Compensation From the Trust
----------------- -------------------------------------
Walter E. Auch, Sr., Trustee $12,000
Donald E. O'Connor, Trustee $12,000
George T. Wofford III, Trustee $12,000
Compensation indicated is for the calendar-year ended December 31, 1999.
Currently, each Independent Trustee receives $12,000 per year in fees, plus
$1,500 for each meeting attended and is reimbursed for expenses. This amount is
allocated among the portfolios of the Trust. The Trust has no pension or
retirement plan. No other entity affiliated with the Trust pays any compensation
to the Trustees.
THE ADVISOR
National Asset Management Corporation acts as investment advisor to the
Fund pursuant to an Investment Advisory Agreement (the "Advisory Agreement").
Subject to such policies as the Board of Trustees may determine, the Advisor is
responsible for investment decisions for the Fund. Pursuant to the terms of the
Advisory Agreement, the Advisor provides the Fund with such investment advice
and supervision as it deems necessary for the proper supervision of the Fund's
investments. The Advisor continuously provides investment programs and determine
from time to time what securities shall be purchased, sold or exchanged and what
portion of the Fund's assets shall be held uninvested. The Advisor furnishes, at
its own expense, all services, facilities and personnel necessary in connection
with managing the investments and effecting portfolio transactions for the Fund.
The Advisory Agreement will continue in effect from year to year only if such
continuance is specifically approved at least annually by the Board of Trustees
or by vote of a majority of the Fund's outstanding voting securities and by a
majority of the Trustees who are not parties to the Advisory Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on such Advisory Agreement.
Pursuant to the terms of the Advisory Agreement, the Advisor is permitted
to render services to others. The Advisory Agreement is terminable without
penalty by the Trust on behalf of the Fund on not more than 60 days', nor less
than 30 days', written notice when authorized either by a majority vote of the
Fund's shareholders or by a vote of a majority of the Board of Trustees of the
Trust, or by the Advisor on not more than 60 days', nor less than 30 days',
written notice, and will automatically terminate in the event of its
"assignment" (as defined in the 1940 Act). The Advisory Agreement provides that
the Advisor under such agreement shall not be liable for any error of judgment
or mistake of law or for any loss arising out of any investment or for any act
or omission in the execution of portfolio transactions for the Fund, except for
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties
thereunder.
The Fund is responsible for its own operating expenses. The Advisor has
contractually agreed to reduce fees payable to it by the Fund and to pay Fund
operating expenses to the extent necessary to limit the Fund's aggregate annual
operating expenses (excluding interest and tax expenses) to the limit set forth
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in the Expense Table (the "expens cap"). Any such reductions made by the Advisor
in its fees or payment of expenses which are the Fund's obligation are subject
to reimbursement by the Fund to the Advisor, if so requested by the Advisor, in
subsequent fiscal years if the aggregate amount actually paid by the Fund toward
the operating expenses for such fiscal year (taking into account the
reimbursement) does not exceed the applicable limitation on Fund expenses. The
Advisor is permitted to be reimbursed only for fee reductions and expense
payments made in the previous three fiscal years, but is permitted to look bfiv
years and four years, respectively, during the initial six years and seventh
year of the Fund's operations. Any such reimbursement is also contingent upon
Board of Trustees' subsequent review and ratification of the reimbursed amounts.
Such reimbursement may not be paid prior to the Fund's payment of current
ordinary operating expenses.
In consideration of the services provided by the Advisor pursuant to the
Advisory Agreement, the Advisor is entitled to receive from the Fund an
investment advisory fee computed daily and paid monthly based on a rate equal to
a percentage of the Fund's average daily net assets specified in the Prospectus.
However, the Advisor may voluntarily agree to waive a portion of the fees
payable to it on a month-to-month basis.
For the period June 2, 1999 (commencement of operations) through April 30,
2000, the Fund incurred advisory fees of $12,077, all of which were waived by
the Advisor. During the same period, the Advisor reimbursed the Fund an
additional $98,330 in expenses.
ADMINISTRATOR
Pursuant to an Administration Agreement (the "Administration Agreement"),
Investment Company Administration, LLC is the administrator of the Fund (the
"Administrator"). The Administrator provides certain administrative services to
the Fund, including, among other responsibilities, coordinating the negotiation
of contracts and fees with, and the monitoring of performance and billing of,
the Fund's independent contractors and agents; preparation for signature by an
officer of the Trust of all documents required to be filed for compliance by the
Trust and the Fund with applicable laws and regulations excluding those of the
securities laws of various states; arranging for the computation of performance
data, including net asset value and yield; responding to shareholder inquiries;
and arranging for the maintenance of books and records of the Fund, and
providing, at its own expense, office facilities, equipment and personnel
necessary to carry out its duties. In this capacity, the Administrator does not
have any responsibility or authority for the management of the Fund, the
determination of investment policy, or for any matter pertaining to the
distribution of Fund shares.
Under the Administration Agreement, the Administrator is permitted to
render administrative services to others. The Fund's Administration Agreement
will continue in effect from year to year only if such continuance is
specifically approved at least annually by the Board of Trustees of the Trust or
by vote of a majority of the Fund's outstanding voting securities and, in either
case, by a majority of the Trustees who are not parties to the Administration
Agreement or "interested persons" (as defined in the 1940 Act) of any such
party. The Administration Agreement is terminable without penalty by the Trust
on behalf of the Fund on 60 days' written notice when authorized either by a
majority vote of the Fund's shareholders or by vote of a majority of the Board
of Trustees, including a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust, or by the Advisor on 60
days' written notice, and will automatically terminate in the event of their
"assignment" (as defined in the 1940 Act). The Administration Agreement also
provide that neither the Administrator or its personnel shall be liable for any
eof judgment or mistake of law or for any act or omission in the administration
of the Fund, except for willful misfeasance, bad faith or gross negligence in
the performance of its or their duties or by reason of reckless disregard of its
or their obligations and duties under the Administration Agreement.
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For its services, the Administrator receives a fee monthly at the following
annual rate, subject to a $30,000 minimum:
Fund asset level Fee rate
---------------- --------
First $50 million 0.20% of average daily net assets
Next $50 million 0.15% of average daily net assets
Next $50 million 0.10% of average daily net assets
Next $50 million, and thereafter 0.05% of average daily net assets
For the period June 2, 1999 through April 30, 2000, the Administrator
received fees of $27,369.
DISTRIBUTION AGREEMENT
The Trust has entered into a Distribution Agreement (the "Distribution
Agreement") with First Fund Distributors, Inc. (the "Distributor"), pursuant to
which the Distributor acts as the Fund's exclusive underwriter, provides certain
administration services and promotes and arranges for the sale of the Fund's
shares. The Distributor is an affiliate of the Administrator. The Distribution
Agreement provides that the Distributor will bear the expenses of printing,
distributing and filing prospectuses and statements of additional information
and reports used for sales purposes, and of preparing and printing sales
literature and advertisements not paid for by the Distribution Plan. The Trust
pays for all of the expenses for qualification of the Fund's shares for sale in
connection with the public offering of such shares, and all legal expenses in
connection therewith. In addition, pursuant to the Distribution Agreement, the
Distributor provides certain sub-administration services to the Trust, including
providing officers, clerical sand office space.
The Distribution Agreement will continue in effect with respect to the Fund
only if such continuance is specifically approved at least annually by the Board
of Trustees or by vote of a majority of the Fund's outstanding voting securities
and, in either case, by a majority of the Trustees who are not parties to the
Distribution Agreement or "interested persons" (as defined in the 1940 Act) of
any such party. The Distribution Agreement is terminable without penalty by the
Trust on behalf of the Fund on 60 days' written notice when authorized either by
a majority vote of the Fund's shareholders or by vote of a majority of the Board
of Trustees of the Trust, including a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust, or by the
Distributor on 60 days' written notice, and will automatically terminate in the
event of its "assignment" (as defined in the 1940 Act). The Distribution
Agreement also provides that neither the Distributor nor its personnel shall be
liable for any act or omission in the course of, or connected with, rendering
services under the Distribution Agreement, except for willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations or duties.
The Advisor may compensate persons for referrals to the Fund through the
payment of cash referral fees. All referral or cash solicitation arrangements
are based on a written agreement and fully disclosed to prospective shareholders
in compliance with the Investment Advisors Act of 1940. National Asset
Management currently has such an arrangement with the Kentucky Baptist
Foundation.
CODE OF ETHICS. The Boards of the Trust, the Advisor and the Distributor
have each adopted a Code of Ethics under Rule 17j-1 of the 1940 Act. These Codes
permit, subject to certain conditions, personnel of the Advisor and Distributor
to invest in securities that may be purchased by the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Pursuant to the Investment Advisory Agreement, the Advisor determines which
securities are to be purchased and sold by the Fund and which broker-dealers
will be used to execute the Fund's portfolio transactions. Pan sales of
securities in the over-the-counter market will be executed directly with a
"market-maker" unless, in the opinion of the Advisor, a better price and
execution can otherwise be obtained by using a broker for the transaction.
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Purchases of portfolio securities for the Fund also may be made directly
from issuers or from underwriters. Where possible, purchase and sale
transactions will be made through dealers (including banks) which specialize in
the types of securities which the Fund will be holding, unless better executions
are available elsewhere. Dealers and underwriters usually act as principal for
their own account. Purchases from underwriters will include a cpai by the issuer
to the underwriter and purchases from dealers will include the spread between
the bid and the asked price. If the execution and price offered by more than one
broker, dealer or underwriter are comparable, the order may be allocated to a
broker, dealer or underwriter that has provided research or other services as
discussed below.
In placing portfolio transactions, the Advisor will use its best efforts to
choose a broker-dealer cof providing the services necessary to obtain the most
favorable price and execution available. The full range and quality of services
available will be considered in making these determinations, such as the size of
the order, the difficulty of execution, the operational facilities of the firm
involved, the firm's risk in positioning a block of securities, and other
factors. In those instances where it is reasonably determined that more than one
broker-dealer can offer the most favorable price and execution available,
consideration may be given to those broker-dealers which furnish or supply
research and statistical information to the Advisor that it may lawfully and
appropriately use in its investment advisory capacities, as well as provide
other services in addition to execution services. The Advisor considers such
information, which is in addition to and not in lieu of the services required to
be performed by it under its Agreement with tFund to be useful in varying
degrees, but of indeterminable value. Portfolio transactions may be placed with
broker-who sell shares of the Fund subject to rules adopted by the National
Association of Securities Dealers, Inc.
While it is the Fund's general policy to seek first to obtain the most
favorable price and execution available, in selecting a broker-dealer to execute
portfolio transactions for the Fund, weight is also given to the ability obroke-
dealer to furnish brokerage and research services to the Fund or to the Advisor,
even if the specific services are not directly useful to the Fund and may be
useful to the Advisor in advising other clients. In negotiating cwit a broker or
evaluating the spread to be paid to a dealer, the Fund may therefore pay a
higher commission or spread than would be the case if no weight were given to
the furnishing of these supplemental services, provided that the amount of such
commission or spread has been determined in good faith by the Advisor to be
reasonable in relation to the value of the brokerage and/or research services
provided by such broker-dealer. The standard of reasonableness is to be measured
in light of the Advisor's overall responsibilities to the Fund.
Investment decisions for the Fund are made independently from those of
other client accounts or mutual funds managed or advised by the Advisor.
Nevertheless, it is possible that at times identical securities will be
acceptable for both the Fund and one or more of such client accounts. In such
event, the position of the Fund and such client account(s) in the same issuer
may vary and the length of time that each may choose to hold its investment in
the same issuer may likewise vary. However, to the extent any of these client
accounts seeks to acquire the same security as the Fund at the same time, the
Fund may not be able to acquire as large a portion of such security as it
desires, or ima have to pay a higher price or obtain a lower yield for such
security. Similarly, the Fund may not be able to obtain as high a price for, or
as large an execution of, an order to sell any particular security at the same
time. If one or more of such client accounts simultaneously purchases or sells
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the same security that the Fund is purchasing or selling, each day's
transactions in such security will be allocated between the Fund and all such
client accounts in a manner deemed equitable by the Advisor, taking into account
the respective sizes of the accounts and the amount being purchased or sold. It
is recognized that in some cases this system could have a detrimental effect on
the price or value of tsecurit insofar as the Fund is concerned. In other cases,
however, it is believed that the ability of the Fund to participate in volume
transactions may produce better executions for the Fund.
The Fund does not place securities transactions through brokers solely for
selling shares of the Fund, although the Fund may consider the sale of shares as
a factor in allocating brokerage. However, as stated above, broker-who execute
brokerage transactions may effect purchases of shares of the Fund for their
customers.
For the period June 2, 1999 through April 30, 2000, the Fund paid $74,590
in brokerage commissions, of which $425 was paid to firms for research,
statistical or other services provided to the Advisor.
PORTFOLIO TURNOVER
Although the Fund generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of them
they have been held when, in the opinion of the Advisor, investment
considerations warrant such action. Portfolio turnover rate is calculated by
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% turnover rate would occur if all the
securities in the Fund's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to higher transaction costs and may
result in a greater number of taxable transactions. For the period June 1, 1999
through April 30, 2000, the Fund had a portfolio turnover rate of 20.80%.2
PURCHASE AND REDEMPTION OF FUND SHARES
The information provided below supplements the information contained in the
Fund's Prospectus regarding the purchase and redemption of Fund shares.
HOW TO BUY SHARES
You may purchase shares of the Fund from selected securities brokers,
dealers or financial intermediaries. Investors should contact these agents
directly for appropriate instructions, as well as information pertaining to
accounts and any service or transaction fees that may be charged by those
agents. Purchase orders through securities brokers, dealers and other financial
intermediaries are effected at the next-determined net asset value after receipt
of torde by such agent before the Fund's daily cutoff time. Orders received
after that time will be purchased at the next-determined net asset value.
The public offering price of Fund shares is the net asset value. The Fund
receives the net asset value. Shares are purchased at the public offering price
next determined after the Transfer Agent receives your order in proper form. In
most cases, in order to receive that day's public offering price, the Transfer
Agent must receive your order in proper form before the close of regular trading
on the New York Stock Exchange ("NYSE"). If you buy shares through your
investment representative, the representative must receive your order before the
close of regular trading on the NYSE to receive that day's public offering
price. Orders are in proper form only after funds are converted to U.S. funds.
Orders paid by check and received by 2:00 p.m., Eastern Time, will generally be
available for the purchase of shares the following business day.
If you are considering redeeming or transferring shares to another person
shortly after purchase, you should pay for those shares with a certified check
to avoid any delay in redemption or transfer. Otherwise the Fund may delay
payment until the purchase price of those shares has been collected or, if you
redeem by telephone, until 15 calendar days after the purchase date. To
eliminate the need for safekeeping, the Fund will not issue certificates for
your shares unless you request them.
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The Trust reserves the right in its sole discretion (i) to suspend the
continued offering of the Fund's shares, (ii) to reject purchase orders in whole
or in part when in the judgment of the Advisor or the Distributor such ris in
the best interest of the Fund, and (iii) to reduce or waive the minimum for
initial and subsequent investments for certain fiduciary accounts or under
circumstances where certain economies can be achieved in sales of the Fund's
shares.
HOW TO SELL SHARES
You can sell your Fund shares any day the NYSE is open for regular trading,
either directly to the Fund or through your investment representative. The Fund
will forward redemption proceeds or redeem shares for which it has collected
payment of the purchase price.
Payments to shareholders for shares of the Fund redeemed directly from the
Fund will be made as promptly as possible but no later than seven days after
receipt by the Fund's Transfer Agent of the written request in proper form, with
the appropriate documentation as stated in the Prospectus, except that the Fund
may suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the NYSE is restricted as determined by the SEC or
the NYSE is closed for other than weekends and holidays; (b) an emergency exists
as determined by the SEC making disposal of portfolio securities or valuation of
net assets of the Fund not reasonably practicable; or (c) for such other period
as the SEC may permit for the protection of the Fund's shareholders. At various
times, the Fund may be requested to redeem shares for which it has not yet
received confirmation of good payment; in this cth Fund may delay the redemption
until payment for the purchase of such shares has been collected and confirmed
to the Fund.
Send a signed letter of instruction to the Transfer Agent, along with any
certificates that represent shares you want to sell. The price you will receive
is the next net asset value calculated after the Fund receives your request in
proper form. In order to receive that day's net asset value, the Transfer Agent
must receive your request before the close of regular trading on the NYSE.
Your investment representative must receive your request before the close
of regular trading on the NYSE to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge you for its services. If you
sell shares having a net asset value of $100,000 a signature guarantee is
required.
If you want your redemption proceeds sent to an address other than your
address as it appears on the Transfer Agent's records, a signature guarantee is
required. The Fund may require additional documentation for the sale of shares
by a corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Transfer Agent for details.
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, the Fund or its agent is authorized,
without notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service options
chosen by the shareholder or joint shareholders in his or their latest Account
Aor other written request for services, including purchasing or redeeming shares
of the Fund and depositing and withdrawing monies from the bank account
specified in the Bank Account Registration section of the shareholder's latest
Account Application or as otherwise properly specified to the Fund in writing.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Transfer Agent by telephone. In this event,
you may wish to submit a written redemption request, as described in the
Prospectus, or contact your investment representative. The Telephone Redemption
Privilege is not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be modified or
terminated without notice.
B-12
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Subject to compliance with applicable regulations, the Fund has reserved
the right to pay the redemption price of its shares, either totally or
partially, by a distribution in kind of readily marketable portfolio securities
(instead of cash). The securities so distributed would be valued at the same
amount as that assigned to them in calculating the net asset value for the
shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash. The Trust has filed an election under Rule 18f-1 committing to pay in
cash all redemptions by a shareholder of record up to amounts specified by the
rule (approximately $250,000).
DETERMINATION OF NET ASSET VALUE
As noted in the Prospectus, the net asset value and offering price of
shares of the Fund will be determined once daily as of the close of public
trading on the New York Stock Exchange ("NYSE") (normally 4:00 p.m. Eastern
time) on each day that the NYSE is open for trading. The Fund does not expect to
determine the net asset value of its shares on any day when the NYSE is not open
for trading even if there is sufficient trading in its portfolio securities osuc
days to materially affect the net asset value per share. However, the net asset
value of Fund shares may be determined on days the NYSE is closed or at times
other than 4:00 p.m. if the Board of Trustees decides it is necessary.
The Fund's securities, including ADRs, EDRs and GDRs, which are traded on
securities exchanges are valued at the last sale price on the exchange on which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any reported sales, at the mean between
the last available bid and asked price. Securities that are traded on more than
one exchange are valued on the exchange determined by the Advisor to be the
primary market. Securities primarily traded in the NASDAQ National Market System
for which market quotations are readily available shall be valued at the last
sale price on the day of valuation, or if there has been no sale on such day, at
the mean between the bid and asked prices. Over-the-counter ("OTC") securities
which are not traded in the NASDAQ National Market System shall be valued at the
most recent trade price. Securities and assets for which market quotations are
not readily available (including restricted securities which are subject to
limitations as to their sale) are valued at fair value as determined in good
faith by or under the direction of the Board.
The net asset value per share of the Fund is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets
which includes accrued but undistributed income; the resulting net assets are
divided by the number of shares of the Fund outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
As of the date of this SAI, the NYSE is open for trading every weekday
except for the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
TAXATION
The Fund intends to continue to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, (the "Code"), for each taxable year by complying with all applicable
requirements regarding the source of its income, the diversification of its
assets, and the timing of its distributions. The Fund's policy is to distribute
to its shareholders all of its investment company taxable iand any net realized
capital gains for each fiscal year in a manner that complies with the
distribution requirements oth Code, so that the Fund will not be subject to any
federal income or excise taxes based on net income. However, the Board may elect
to pay such excise taxes if it determines that payment is, under the
circumstances, in the best interests of the Fund.
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In order to qualify as a regulated investment company, the Fund must, among
other things, (a) derive at least 90% of its gross income each year from
dividends, interest, payments with respect to loans of stock and sgain from the
sale or other disposition of stock or securities or foreign currency gains
related to investments in sor securities, or other income (generally including
gains from options, futures or forward contracts) derived with respect to the
business of investing in stock, securities or currency, and (b) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of its assets is represented by cash, cash items, U.S. Government
securities, securities of other regulated investment companies and other
securities limited, for purposes of this calculation, in the case of other
securities of any one issuer to an amount not greater than 5% of the Fund's
assets or 10% of the voting securities of the issuer, and (ii) not more than 25%
of the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities or securities of other regulated
investment companies). As such, and by complying with the applicable provisions
of the Code, the Fund will not be subject to federal income tax on taxable
income (including realized capital gains) that is distributed to shareholders in
accordance with the timing requirements of the Code. If the Fund is unable to
meet certain requirements of the Code, it may be subject to taxation as a
corporation.
Distributions of net investment income and net realized capital gains by
the Fund will be taxable to shareholders whether made in cash or reinvested by
the Fund in shares. In determining amounts of net realized capital gains to be
distributed, any capital loss carry-overs from the eight prior taxable years
will be applied against capital gains. Shareholders receiving a distribution
from the Fund in the form of additional shares will have a cost bfor federal
income tax purposes in each share so received equal to the net asset value of a
share of the Fund on the reinvestment date. Fund distributions also will be
included in individual and corporate shareholders' income on which the
alternative minimum tax may be imposed.
The Fund or the securities dealer effecting a redemption of the Fund's
shares by a shareholder will be required to file information reports with the
Internal Revenue Service ("IRS") with respect to distributions and payments made
to the shareholder. In addition, the Fund will be required to withhold federal
income tax at the rate of 31% on taxable dividends, redemptions and other
payments made to accounts of individual or other non-exempt shareholders who
have not furnished their correct taxpayer identification numbers and certain
required certifications on the New Account application or with respect to which
the Fund or the securities dealer has been notified by the IRS that the number
furnished is incorrect or that the account is otherwise subject to withholding.
The Fund intends to declare and pay dividends and other distributions, as
stated in the prospectuses. In order to avoid the payment of any federal excise
tax based on net income, the Fund must declare on or before December 31 of each
year, and pay on or before January 31 of the following year, distributions at
least equal to 98% of its ordinary income for that calendar year and at least
98% of the excess of any capital gains over any capital losses realized in the
one-year period ending October 31 of that year, together with any undistributed
amounts of ordinary income and capital gains (in excess of capital losses) from
the previous calendar year.
The Fund may receive dividend distributions from U.S. corporations. To the
extent that the Fund receives such dividends and distributes them to its
shareholders, and meets certain other requirements of the Code, corporate
shareholders of the Fund may be entitled to the "dividends received" deduction.
Availability of the deduction is subject to certain holding period and
debt-financing limitations.
The Fund may be subject to foreign withholding taxes on dividends and
interest earned with respect to securities of foreign corporations.
B-14
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Section 475 of the Code requires that a "dealer" in securities must
generally "mark to market" at the end of its taxable year all securities which
it owns. The resulting gain or loss is treated as ordinary (and not cgain or
loss, except to the extent allocable to periods during which the dealer held the
security for investment. The "to market" rules do not apply, however, to a
security held for investment which is clearly identified in the dealer's records
as being held for investment before the end of the day in which the security was
acquired. The IRS has issued guidance under Section 475 that provides that, for
example, a bank that regularly originates and sells loans is a dealer in
securities, and subject to the "mark to market" rules. Shares of the Fund held
by a dealer in securities will be subject to the "mark to market" rules unless
they are held by the dealer for investment and the dealer property identifies
the shares ahel for investment.
Redemptions of shares of the Fund will result in gains or losses for tax
purposes to the extent of the difference between the proceeds and the
shareholder's adjusted tax basis for the shares. Any loss realized upon the
redemption of shares within six months from their date of purchase will be
treated as a long-term capital loss to the extent of distributions of long-term
capital gain dividends during such six-month period. All or a portion of a loss
realized upon the redemption of shares may be disallowed to the extent shares
are purchased (including shares acquired by means of reinvested dividends)
within 30 days before or after such redemption.
Distributions and redemptions may be subject to state and local income
taxes, and the treatment thereof may differ from the federal income tax
treatment. Foreign taxes may apply to non-U.S. investors.
The above discussion and the related discussion in the prospectuses are not
intended to be complete discussions of all applicable federal tax consequences
of an investment in the Fund. The law firm of Paul, Hastings, Janofsky & Walker
LLP has expressed no opinion in respect thereof. Nonresident aliens and foreign
persons are subject to different tax rules, and may be subject to withholding of
up to 30% on certain payments received from the Fund. Shareholders are advised
to consult with their own tax advisers concerning the application of foreign,
federal, state and local taxes to an investment in the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Fund will receive income in the form of dividends and interest earned
on its investments in securities. This income, less the expenses incurred in its
operations, is the Fund's net investment income, substantially all of which will
be declared as dividends to the Fund's shareholders.
The amount of income dividend payments by the Fund is dependent upon the
amount of net investment income received by the Fund from its portfolio
holdings, is not guaranteed and is subject to the discretion of the Board. The
Fund does not pay "interest" or guarantee any fixed rate of return on an
investment in its shares.
The Fund also may derive capital gains or losses in connection with sales
or other dispositions of its portfolio securities. Any net gain the Fund may
realize from transactions involving investments held less than the period
required for long-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from the eight previous taxable years), although a distribution
from capital gains, will be distributed to shareholders with and as a part of
dividends giving rise to ordinary income. If during any year the Fund realizes a
net gain on transactions involving investments held more than the period
required for long-term capital gain or loss recognition or otherwise producing
long-term capital gains and losses, the Fund will have a net long-term capital
gain. After deduction of the amount of any net short-term capital loss, the
balance (to the extent not offset by any capital losses carried over from the
eight previous taxable years) will be distributed and treated as long-term
capital gains in the hands of the shareholders regardless of the length of time
the Fund's shares may have been held by the shareholders. For more information
concerning applicable capital gains tax rates, see your tax advisor.
B-15
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Any dividend or distribution paid by the Fund reduces the Fund's net asset
value per share on the date paid by the amount of the dividend or distribution
per share. Accordingly, a dividend or distribution paid shortly after a purchase
of shares by a shareholder would represent, in substance, a partial return of
capital (to the extent it ipai on the shares so purchased), even though it would
be subject to income taxes.
Dividends and other distributions will be made in the form of additional
shares of the Fund unless the shareholder has otherwise indicated. Investors
have the right to change their elections with respect to the reinvestment of
dividends and distributions by notifying the Transfer Agent in writing, but any
such change will be effective only as to dividends and other distributions for
which the record date is seven or more business days after the TAgen has
received the written request.
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in advertisements
and investor communications. Total return may be stated for any relevant period
as specified in the advertisement or communication. Any statements of total
return will be accompanied by information on the Fund's average annual
compounded rate of return over the most recent four calendar quarters and the
period from the Fund's inception of operations. The Fund may also advertise
aggregate and average total return information over different periods of time.
The Fund's total return may be compared to relevant indices, including
Standard & Poor's 500 Composite Stock Index and indices published by Lipper
Analytical Services, Inc. From time to time, evaluations of the Fund's
performance by independent sources may also be used in advertisements and in
information furnished to present or prospective investors in the Fund.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
period should not be considered as a representation of what an investment may
earn or what an investor's total return may be in any future period.
The Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial purchase order of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at
the end of the period
Aggregate total return is calculated in a similar manner, except that the
results are not annualized.
For the period June 2, 1999 (commencement of operations) through April 30,
2000, the Fund's total return was 14.26%. During this period certain fees and
expenses of the Fund were waived or reimbursed. Accordingly, the Fund's return
figure is higher than it would have been had such fees and expenses not been
reimbursed.
B-16
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GENERAL INFORMATION
The shares of each series or class participate equally in the earnings,
dividends and assets of the particular series or class. Expenses of the Trust
which are not attributable to a specific series or class are allocated amount
all the series in a manner believed by management of the Trust to be fair and
equitable. Shares have no pre-emptive or conversion rights. Shares when issued
are fully paid and non-assessable, except as set forth below. Shareholders are
entitled to one vote for each share held. Shares of each series or class
generally vote together, except when required under federal securities laws to
vote separately on matters that only affect a particular class, such as the
approval of distribution plans for a particular class.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders of a series or class when, in the judgment
of the Trustees, it is necessary or desirable to submit matters for a
shareholder vote. Shareholders have, under certain circumstances, the right to
communicate with other shareholders in connection with requesting a meeting of
shareholders for the purpose of removing one or more Trustees. Shareholders also
have, in certain circumstances, the right to remove one or more Trustees without
a meeting. No material amendment may be made to the Trust's Declaration of Trust
without the affirmative vote of the holders of a majority of the outstanding
shares of each portfolio affected by the amendment. The Trust's Declaration of
Trust provides that, at any meeting of shareholders of the Trust or of any
series or class, a Shareholder Servicing Agent may vote any shares as to which
such Shareholder Servicing Agent is the agent of record and which are not
represented in person or by proxy at the meeting, proportionately in accordance
with the votes cast by holders of all shares of that portfolio otherwise
represented at the meeting in person or by proxy as to which such Shareholder
Servicing Agent is the agent of record. Any shares so voted by a Shareholder
Servicing Agent will be deemed represented at the meeting for purposes of quorum
requirements. Shares have no preemptive or conversion r Shares, when issued, are
fully paid and non-assessable, except as set forth below. Any series or class
may be terminated (i) upon the merger or consolidation with, or the sale or
disposition of all or substantially a assets to, another entity, if approved by
the vote of the holders of two-thirds of its outstanding shares, except that if
the Board of Trustees recommends such merger, consolidation or sale or
disposition of assets, the approval by vote of the holders of a majority of the
series' or class' outstanding shares will be sufficient, or (ii) by tvot of the
holders of a majority of its outstanding shares, or (iii) by the Board of
Trustees by written notice to the series' or class' shareholders. Unless each
series and class is so terminated, the Trust will continue indefinitely.
The Fund intends to pay cash (U.S. dollars) for all shares redeemed, but,
under abnormal conditions that make payment in cash unwise, the Fund may make
payment partly in its portfolio securities with a current amortized cost or
market value, as appropriate, equal to the redemption price. Although the Fund
does not anticipate that it will make any part of a redemption payment in
securities, if such payment were made, an investor may incur brokerage costs in
converting such securities to cash. The Trust has elected to be governed by the
provisions of Rule 18f-1 under the Investment Company Act, which require that
the Fund pay in cash all requests for redemption by any shareholder of record
limited in amount, however, during any 90-day period to the lesser of $250,000
or 1% of the value of the Fund's net assets at the beginning of such period.
B-17
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The Trust's Declaration of Trust also provides that the Trust shall
maintain appropriate insurance (for example, fidelity bonding and errors and
omissions insurance) for the protection of the Trust, its shareholders,
Trustees, officers, employees and agents covering possible tort and other
liabilities. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.
The Fund's principal underwriter is First Fund Distributors, Inc., 4455 E.
Camelback Rd., Suite 261-E, Phoenix, AZ 85018.
The Trust's custodian, Firstar Institutional Custody Services, 425 Walnut
Street, Cincinnati, OH 45020, is responsible for holding the Fund's assets.
American Data Services, Inc., 150 Motor Parkway, Hauppauge, NY 11788 acts as the
Fund's accounting services agent. The Fund's independent accounts,
PricewaterhouseCoopers, LLP, assist in the preparation of certain reports to the
Securities and Exchange Commission and the Fund's tax returns.
The validity of the Fund's shares been passed on by Paul, Hastings,
Janofsky & Walker, LLP, 345 California Street, San Francisco, CA 94104.
Shares of the Fund owned by the Trustees and officers as a group were less
than 1% at August 1, 2000.
On August 1, 2000, the following owned of record or beneficially more than
5% of the Fund's outstanding voting securities:
Charles Schwab & Co., Inc., San Francisco, CA 94104 - 40.35%
First Tennessee Bank N.A., Memphis, TZ 38103 - 11.91%
Walter Dwight Gahm Jr., Louisville, KY 40205 - 7.16%
Arnold E. Caddell IRA, Burlington, KY 41005 - 9.27%
B-18
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APPENDIX
COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
PRIME-1--Issuers (or related supporting institutions) rated "Prime-1" have
a superior ability for repayment of senior short-term debt obligations.
"Prime-1" repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2--Issuers (or related supporting institutions) rated "Prime-2" have
a strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above bto a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative lis maintained.
STANDARD & POOR'S RATINGS GROUP
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
B-19
