DEAN
family of funds
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PROSPECTUS
July 15, 1998
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PROSPECTUS
July 15, 1998
DEAN FAMILY OF FUNDS
2480 Kettering Tower
Dayton, Ohio 45423
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The Dean Family of Funds currently offers four separate series of shares to
investors: the Large Cap Value Fund, the Small Cap Value Fund, the Balanced Fund
and the International Value Fund (individually a "Fund" and collectively the
"Funds").
The LARGE CAP VALUE FUND seeks to provide capital appreciation and dividend
income over the long-term by investing primarily in the common stocks of large
companies.
The SMALL CAP VALUE FUND seeks to provide capital appreciation by investing
primarily in the common stocks of small companies.
The BALANCED FUND seeks to preserve capital while producing a high total return
by allocating its assets among equity securities, fixed-income securities and
money market instruments.
The INTERNATIONAL VALUE FUND seeks to provide long-term capital growth by
investing primarily in the common stocks of foreign companies.
Each Fund offers two classes of shares: Class A shares (sold subject to a
maximum 5.25% front-end sales load and a 12b-1 fee of up to .25% of average
daily net assets) and Class C shares (sold subject to a 1% contingent deferred
sales load for a one-year period and a 12b-1 fee of up to 1% of average daily
net assets).
C.H. Dean & Associates, Inc., dba Dean Investment Associates, 2480 Kettering
Tower, Dayton, Ohio 45423 ("Dean Investment Associates"), serves as investment
adviser to the Funds. Dean Investment Associates is an independent investment
counsel firm which has been advising individual, institutional and corporate
clients since 1972. The firm manages approximately $4.2 billion for clients
worldwide. Currently, Dean Investment Associates has 110 employees which include
9 Chartered Financial Analysts (CFA), 8 Certified Public Accountants (CPA), 3
Certified Financial Planners (CFP) and 3 PhDs. Dean Investment Associates is
Dayton, Ohio's largest independent investment manager.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. SHARES ARE
SUBJECT TO INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTED.
This Prospectus sets forth concisely the information about the Funds that
potential investors should know before investing. Please retain this Prospectus
for future reference. A Statement of Additional Information dated July 15, 1998
has been filed with the Securities and Exchange Commission and is hereby
incorporated by reference in its entirety. A copy of the Statement of Additional
Information can be obtained at no charge by calling the number listed below.
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For Information or Assistance in Opening An Account, Please Call:
Nationwide (Toll-Free)........................................... 888-899-8343
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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1
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EXPENSE INFORMATION
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CLASS A CLASS C
SHAREHOLDER TRANSACTION EXPENSES SHARES SHARES
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Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ................. 5.25% None
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase price) ........ None* 1.00%
Sales Load Imposed on Reinvested Dividends ............. None None
Exchange Fee ........................................... None None
Redemption Fee ......................................... None** None**
* Purchases at net asset value of amounts totaling $500,000 or more and
purchases by qualified retirement plans with greater than 100 participants
may be subject to a contingent deferred sales load of up to 1.00% if a
redemption occurred within 12 months of purchase and a commission was paid by
the Underwriter to a participating unaffiliated dealer. See "How to Redeem
Shares."
** A wire transfer fee is charged in the case of redemptions made by wire. See
"How to Redeem Shares."
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
OPERATING
MANAGEMENT FEES OTHER EXPENSES
(AFTER WAIVERS)(A) 12B-1 FEES(B) EXPENSES (AFTER WAIVERS)(C)
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LARGE CAP VALUE FUND
<S> <C> <C> <C> <C>
Class A Shares .12% .00% 1.72% 1.84%
Class C Shares .12% .00% 2.47% 2.59%
SMALL CAP VALUE FUND
Class A Shares .86% .04% .94% 1.84%
Class C Shares .86% .00% 1.73% 2.59%
BALANCED FUND
Class A Shares .24% .00% 1.60% 1.84%
Class C Shares .24% .00% 2.35% 2.59%
INTERNATIONAL VALUE FUND
Class A Shares .75% .25% 1.10% 2.10%
Class C Shares .75% 1.00% 1.10% 2.85%
</TABLE>
(A) Absent waivers, management fees would be 1.00% for the Large Cap Value Fund,
the Small Cap Value Fund and the Balanced Fund and 1.25% for the
International Value Fund.
(B) Class A shares may incur 12b-1 fees in an amount up to .25% of average net
assets and Class C shares may incur 12b-1 fees in an amount up to 1.00% of
average net assets. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the National
Association of Securities Dealers.
(C) Absent waivers of management fees and/or expense reimbursements by Dean
Investment Associates, total Fund operating expenses would be 2.72% for
Class A shares and 52.73% for Class C shares of the Large Cap Value Fund,
1.98% for Class A shares and 6.41% for Class C shares of the Small Cap Value
Fund, 2.60% for Class A shares and 7.39% for Class C shares of the Balanced
Fund, and 2.60% for Class A shares and 3.35% for Class C shares of the
International Value Fund.
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The purpose of these tables is to assist the investor in understanding the
various costs and expenses that an investor in the Funds will bear directly or
indirectly. The percentages expressing "Other Expenses" are based on amounts
incurred during the most recent fiscal year, except for the percentages
pertaining to the International Value Fund which are based on estimated amounts
for the current fiscal year. THE EXAMPLE BELOW SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
LARGE CAP VALUE FUND
SMALL CAP VALUE FUND INTERNATIONAL
BALANCED FUND VALUE FUND
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CLASS A CLASS C CLASS A CLASS C
SHARES SHARES SHARES SHARES
------ ------ ------ ------
1 Year $ 71 $ 36 $ 74 $ 39
3 Years 110 81 119 88
5 Years 152 137
10 Years 268 292
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FINANCIAL HIGHLIGHTS
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The following information, which has been audited by Ernst & Young, LLP, is an
integral part of the Funds' financial statements and should be read in
conjunction with the financial statements. The financial statements as of March
31, 1998 appear in the Statement of Additional Information of the Funds, which
can be obtained at no charge by calling Countrywide Fund Services, Inc.
(Nationwide call toll-free 888-899-8343) or by writing to the Funds at the
address on the front of this Prospectus.
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
FROM INITIAL PUBLIC OFFERING OF SHARES(A) THROUGH MARCH 31, 1998
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<TABLE>
<CAPTION>
LARGE CAP VALUE FUND SMALL CAP VALUE FUND
CLASS A CLASS C CLASS A CLASS C
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<S> <C> <C> <C> <C>
Net asset value at beginning of period .... $ 10.00 $ 10.76 $ 10.00 $ 10.95
----------- ----------- ----------- -----------
Income from investment operations:
Net investment income (loss) ........... 0.03 (0.01) 0.03 (0.02)
Net realized and unrealized gains
on investments ...................... 2.36 1.56 3.30 2.33
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Total from investment operations .......... 2.39 1.55 3.33 2.31
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Less distributions:
From net investment income ............. (0.03) (0.00) (0.02) (0.00)
From net realized gains ................ (0.15) (0.15) (0.47) (0.47)
----------- ----------- ----------- -----------
Total distributions ....................... (0.18) (0.15) (0.49) (0.47)
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Net asset value at end of period .......... $ 12.21 $ 12.16 $ 12.84 $ 12.79
=========== =========== =========== ===========
Total return(B) ........................... 24.11% 14.63% 33.86% 21.63%
=========== =========== =========== ===========
Net assets at end of period ............... $ 7,669,807 $ 136,237 $19,437,554 $ 1,392,036
=========== =========== =========== ===========
Ratio of expenses to average net assets:(C)
Before waiver of fees by Adviser ....... 2.72% 52.73% 1.98% 6.41%
After waiver of fees by Adviser ........ 1.84% 2.59% 1.84% 2.59%
Ratio of net investment income (loss)
to average net assets(C) ............... 0.30% (0.55%) 0.35% (0.42%)
Portfolio turnover rate(C) ................ 54% 54% 62% 62%
Average commission rate per share ......... $ 0.0600 $ 0.0600 $ 0.0589 $ 0.0589
(A) Initial public offering date .......... 5-28-97 8-19-97 5-28-97 8-1-97
</TABLE>
(B) Total returns shown exclude the effect of applicable sales loads and are not
annualized.
(C) Annualized.
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PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
FROM INITIAL PUBLIC OFFERING OF SHARES(A) THROUGH MARCH 31, 1998
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<TABLE>
<CAPTION>
BALANCED FUND INTERNATIONAL VALUE FUND
CLASS A CLASS C CLASS A CLASS C
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<S> <C> <C> <C> <C>
Net asset value at beginning of period .... $ 10.00 $ 10.71 $ 10.00 $ 9.89
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Income from investment operations:
Net investment income (loss) ........... 0.17 0.07 (0.05) (0.04)
Net realized and unrealized gains
on investments and foreign currency . 1.62 0.92 1.81 1.87
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Total from investment operations .......... 1.79 0.99 1.76 1.83
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Less distributions:
From net investment income ............. (0.16) (0.10) -- --
From net realized gains ................ (0.08) (0.08) -- --
----------- ----------- ----------- -----------
Total distributions ....................... (0.24) (0.18) -- --
----------- ----------- ----------- -----------
Net asset value at end of period .......... $ 11.55 $ 11.52 $ 11.76 $ 11.72
=========== =========== =========== ===========
Total return(B) ........................... 18.07% 9.37% 17.60% 18.50%
=========== =========== =========== ===========
Net assets at end of period ............... $ 7,262,670 $ 1,083,890 $ 1,295,896 $ 87,249
=========== =========== =========== ===========
Ratio of expenses to average net assets:(C)
Before waiver of fees by Adviser ....... 2.60% 7.39% 16.66% 58.89%
After waiver of fees by Adviser ........ 1.84% 2.59% 2.04% 2.82%
Ratio of net investment income (loss)
to average net assets(C) ............... 1.85% 0.99% (1.30%) (1.94%)
Portfolio turnover rate(C) ................ 64% 64% 109% 109%
Average commission rate per share ......... $ 0.0600 $ 0.0600 $ 0.0368 $ 0.0368
(A) Initial public offering date .......... 5-28-97 8-1-97 10-13-97 11-6-97
</TABLE>
(B) Total returns shown exclude the effect of applicable sales loads and are not
annualized.
(C) Annualized.
5
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INVESTMENT OBJECTIVES, INVESTMENT POLICIES AND RISK CONSIDERATIONS
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The Dean Family of Funds (the "Trust") is comprised of four Funds, each with its
own portfolio and investment objective. None of the Funds is intended to be a
complete investment program, and there is no assurance that the investment
objective of any Fund can be achieved. Each Fund's investment objective may be
changed by the Board of Trustees without shareholder approval, but only after
notification has been given to shareholders and after this Prospectus has been
revised accordingly. If there is a change in a Fund's investment objective,
shareholders should consider whether such Fund remains an appropriate investment
in light of their then current financial position and needs. Unless otherwise
indicated, all investment practices and limitations of the Funds are
nonfundamental policies which may be changed by the Board of Trustees without
shareholder approval.
Known primarily for its balanced approach to managing money, Dean Investment
Associates strives to generate superior risk-adjusted returns over full market
cycles. Dean Investment Associates also has 25 years experience in managing
equities via the "value" approach. The "value" approach is a disciplined,
prudent approach to equity management that attempts to provide superior capital
appreciation on a risk-adjusted basis by investing in equities which are
out-of-favor, neglected or misunderstood. The goal is to choose those equities
that appear to have the greatest margin of safety.
LARGE CAP VALUE FUND
The Large Cap Value Fund seeks to provide capital appreciation and dividend
income over the long-term by investing primarily in the common stocks of large
companies. A "large company" is one which has a market capitalization of greater
than $750 million at the time of investment. Under normal circumstances, at
least 65% of the Fund's total assets will be invested in common stocks of large
companies or securities convertible into common stocks of large companies (such
as convertible bonds, convertible preferred stocks and warrants). The Fund may
invest in preferred stocks and bonds provided they are rated at the time of
purchase in the four highest grades assigned by Moody's Investors Service, Inc.
(Aaa, Aa, A or Baa) or Standard & Poor's Ratings Group (AAA, AA, A or BBB) or,
if unrated, are determined by Dean Investment Associates to be of comparable
quality. Preferred stocks and bonds rated Baa or BBB have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to pay principal and interest or to
pay the preferred stock obligations than is the case with higher grade
securities. Subsequent to its purchase by the Fund, a security may cease to be
rated or its rating may be reduced below Baa or BBB. Dean Investment Associates
will consider such an event to be relevant in its determination of whether the
Fund should continue to hold such security. See the Statement of Additional
Information for a description of ratings.
The stock selection approach of the Fund can best be described in the vernacular
of the investment business as a "value" orientation. That is, great emphasis is
placed on purchasing stocks that have lower than market multiples of price to
earnings, book value, cash flow and revenues and/or high dividend yield. As
indicated above, companies in whose securities the Fund may invest will
predominantly have large capitalizations in terms of total market value.
Usually, but not always, the stocks of such companies are traded on major stock
exchanges. Such stocks are usually very liquid, but there may be periods when a
particular stock or stocks in general become substantially less liquid. Such
periods are usually, but not always, brief and care will be taken by Dean
Investment Associates to minimize the overall liquidity risk of the Fund's
portfolio.
Investments in equity securities are subject to inherent market risks and
fluctuations in value due to earnings, economic conditions, quality ratings and
other factors beyond the control of Dean Investment Associates. As a result, the
return and net asset value of the Fund will fluctuate.
6
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The Fund may invest in foreign companies through the purchase of sponsored
American Depository Receipts (certificates of ownership issued by an American
bank or trust company as a convenience to investors in lieu of the underlying
shares which it holds in custody) or other securities of foreign issuers that
are publicly traded in the United States. When selecting foreign investments,
Dean Investment Associates will seek to invest in securities that have
investment characteristics and qualities comparable to the kinds of domestic
securities in which the Fund invests. Investment in securities of foreign
issuers involves somewhat different investment risks from those affecting
securities of domestic issuers. In addition to credit and market risk,
investments in foreign securities involve sovereign risk, which includes local
political and economic developments, potential nationalization, withholding
taxes on dividend or interest payments and currency blockage. Foreign companies
may have less public or less reliable information available about them and may
be subject to less governmental regulation than U.S. companies. Securities of
foreign companies may be less liquid or more volatile than securities of U.S.
companies.
The Trust has approved the use of certain options and futures strategies for the
Fund, including the purchase and sale of options on equity securities, stock
indices and futures contracts and the purchase and sale of stock index futures
contracts. For a discussion of these transactions, see "Additional Investment
Information."
When Dean Investment Associates believes substantial price risks exist for
common stocks and securities convertible into common stocks because of
uncertainties in the investment outlook or when in the judgment of Dean
Investment Associates it is otherwise warranted in selling to manage the Fund's
portfolio, the Fund may temporarily hold for defensive purposes all or a portion
of its assets in short-term obligations such as bank debt instruments
(certificates of deposit, bankers' acceptances and time deposits), commercial
paper, U.S. Government obligations having a maturity of less than one year,
shares of money market investment companies or repurchase agreements
collateralized by U.S. Government obligations. The Fund is also permitted to
lend its securities and to borrow money and pledge its assets in connection
therewith. See "Additional Investment Information" for a discussion of these
transactions. The Fund will not invest more than 10% of its total assets in
shares of money market investment companies. Investments by the Fund in shares
of money market investment companies may result in duplication of advisory,
administrative and distribution fees.
SMALL CAP VALUE FUND
The Small Cap Value Fund seeks to provide capital appreciation by investing
primarily in the common stocks of small companies. A "small company" is one
which has a market capitalization of $750 million or less at the time of
investment. Under normal circumstances, the Fund will invest at least 65% of its
total assets in the common stocks of small companies or securities convertible
into common stocks of small companies (such as convertible bonds, convertible
preferred stocks and warrants). However, the Fund may invest a portion of its
assets in common stocks of larger companies. The Fund may invest in preferred
stocks and bonds provided they are rated at the time of purchase in the four
highest grades assigned by Moody's Investors Service, Inc. (Aaa, Aa, A or Baa)
or Standard & Poor's Ratings Group (AAA, AA, A or BBB) or, if unrated, are
determined by Dean Investment Associates to be of comparable quality. Preferred
stocks and bonds rated Baa or BBB have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to pay principal and interest or to pay the preferred stock
obligations than is the case with higher grade securities. Subsequent to its
purchase by the Fund, a security may cease to be rated or its rating may be
reduced below Baa or BBB. Dean Investment Associates will consider such an event
to be relevant in its determination of whether the Fund should continue to hold
such security. See the Statement of Additional Information for a description of
ratings.
Investments in equity securities are subject to inherent market risks and
fluctuations in value due to earnings, economic conditions and other factors
beyond the control of Dean Investment Associates. As a result, the return and
net asset value of the Fund will fluctuate.
7
<PAGE>
The stock selection approach of the Fund can best be described in the vernacular
of the investment business as a "value" orientation. That is, great emphasis is
placed on purchasing stocks that have lower than market multiples of price to
earnings, book value, cash flow and revenues and/or high dividend yield. The
Fund may invest a significant portion of its assets in small, unseasoned
companies. While smaller companies generally have potential for rapid growth,
they often involve higher risks because they lack the management experience,
financial resources, product diversification and competitive strengths of larger
corporations. In addition, in many instances, the securities of smaller
companies are traded only over-the-counter or on a regional securities exchange
and the frequency and volume of their trading is substantially less than is
typical of larger companies. Therefore, the securities of smaller companies may
be subject to wider price fluctuations. When making large sales, the Fund may
have to sell portfolio holdings at discounts from quoted prices or may have to
make a series of small sales over an extended period of time.
The Fund may invest in foreign companies through the purchase of sponsored
American Depository Receipts (certificates of ownership issued by an American
bank or trust company as a convenience to investors in lieu of the underlying
shares which it holds in custody) or other securities of foreign issuers that
are publicly traded in the United States. When selecting foreign investments,
Dean Investment Associates will seek to invest in securities that have
investment characteristics and qualities comparable to the kinds of domestic
securities in which the Fund invests. Investment in securities of foreign
issuers involves somewhat different investment risks from those affecting
securities of domestic issuers. In addition to credit and market risk,
investments in foreign securities involve sovereign risk, which includes local
political and economic developments, potential nationalization, withholding
taxes on dividend or interest payments and currency blockage. Foreign companies
may have less public or less reliable information available about them and may
be subject to less governmental regulation than U.S. companies. Securities of
foreign companies may be less liquid or more volatile than securities of U.S.
companies.
The Trust has approved the use of certain options and futures strategies for the
Fund, including the purchase and sale of options on equity securities, stock
indices and futures contracts and the purchase and sale of stock index futures
contracts. For a discussion of these transactions, see "Additional Investment
Information".
When Dean Investment Associates believes substantial price risks exist for
common stocks and securities convertible into common stocks because of
uncertainties in the investment outlook or when in the judgment of Dean
Investment Associates it is otherwise warranted in selling to manage the Fund's
portfolio, the Fund may temporarily hold for defensive purposes all or a portion
of its assets in short-term obligations such as bank debt instruments
(certificates of deposit, bankers' acceptances and time deposits), commercial
paper, U.S. Government obligations having a maturity of less than one year,
shares of money market investment companies or repurchase agreements
collateralized by U.S. Government obligations. The Fund is also permitted to
lend its securities and to borrow money and pledge its assets in connection
therewith. See "Additional Investment Information" for a discussion of these
transactions. The Fund will not invest more than 10% of its total assets in
shares of money market investment companies. Investments by the Fund in shares
of money market investment companies may result in duplication of advisory,
administrative and distribution fees.
BALANCED FUND
The Balanced Fund seeks to preserve capital while producing a high total return
by allocating its assets among equity securities, fixed-income securities and
money market instruments. Under normal circumstances, the asset mix of the Fund
will normally range between 40-75 percent in common stocks and securities
convertible into common stocks, 25-60 percent in preferred stocks and bonds, and
0-25 percent in money market instruments. Moderate shifts between asset classes
are made in an attempt to maximize returns or reduce risk.
Because the Fund intends to allocate its assets among equity securities,
fixed-income securities and money market instruments, it may not be able to
achieve, at times, a total return as high as that of a portfolio with complete
freedom
8
<PAGE>
to invest its assets entirely in any one type of security. Likewise, since a
portion of the Fund's portfolio will normally consist of fixed-income securities
and/or money market instruments, the Fund may not achieve the degree of capital
appreciation that a portfolio investing solely in equity securities might
achieve. It should be noted that, although the Fund intends to invest in
fixed-income securities to reduce the price volatility of the Fund's shares,
intermediate and long-term fixed-income securities do fluctuate in value more
than money market instruments.
The Fund attempts to achieve growth of capital through its investments in equity
securities. The equity securities that the Fund may purchase consist of common
stocks or securities having characteristics of common stocks (such as
convertible preferred stocks, convertible debt securities or warrants) of
domestic issuers. The equity selection approach of the Fund can best be
described in the vernacular of the investment business as a "value" orientation.
That is, great emphasis is placed on purchasing stocks that have lower than
market multiples of price to earnings, book value, cash flow and revenues and/or
high dividend yield.
The Fund attempts to earn current income and at the same time achieve moderate
growth of capital and/or reduce fluctuation in the net asset value of its shares
by investing a portion of its assets in fixed-income securities. The
fixed-income securities that the Fund may purchase include U.S. Government
obligations and corporate debt securities (such as bonds and debentures)
maturing in more than one year from the date of purchase and preferred stocks of
domestic issuers rated at the time of purchase in the four highest grades
assigned by Moody's Investors Service, Inc. (Aaa, Aa, A or Baa) or Standard &
Poor's Ratings Group (AAA, AA, A or BBB) or, if unrated, which are determined by
Dean Investment Associates to be of comparable quality. Preferred stocks and
fixed-income securities rated Baa or BBB have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to pay principal and interest or to pay the preferred stock
obligations than is the case with higher grade securities. Subsequent to its
purchase by the Fund, a security may cease to be rated or its rating may be
reduced below Baa or BBB. Dean Investment Associates will consider such an event
to be relevant in its determination of whether the Fund should continue to hold
such security. See the Statement of Additional Information for a description of
ratings.
Investments in fixed-income and equity securities are subject to inherent market
risks and fluctuations in value due to changes in earnings, economic conditions,
quality ratings and other factors beyond the control of Dean Investment
Associates. Fixed-income securities are also subject to price fluctuations based
upon changes in the level of interest rates, which will generally result in all
those securities changing in price in the same way, i.e., all those securities
experiencing appreciation when interest rates decline and depreciation when
interest rates rise. As a result, the return and net asset value of the Fund
will fluctuate.
The Fund also attempts to earn current income and reduce fluctuation in the net
asset value of its shares by investing a portion of its assets in money market
instruments. The money market instruments that the Fund may purchase consist of
short-term (i.e., maturing in one year or less from the date of purchase)
dollar-denominated debt obligations which (i) are U.S. Government obligations,
(ii) are issued by domestic banks, or (iii) are issued by domestic corporations,
if such corporate debt obligations have been rated at least Prime-2 by Moody's
Investors Service, Inc. ("Moody's") or A-2 by Standard & Poor's Ratings Group
("S&P"), or have an outstanding issue of debt securities rated at least A by
Moody's or S&P, or are of comparable quality in the opinion of Dean Investment
Associates. Money market instruments also include repurchase agreements
collateralized by U.S. Government obligations and shares of money market
investment companies. The Fund will not invest more than 10% of its total assets
in shares of money market investment companies. Investments by the Fund in
shares of money market investment companies may result in duplication of
advisory, administrative and distribution fees. When Dean Investment Associates
believes substantial price risks exist for equity securities and/or fixed-income
securities because of uncertainties in the investment outlook or when in the
judgment of Dean Investment Associates it is otherwise warranted in selling to
manage the Fund's portfolio, the Fund may temporarily hold greater than 25% of
its assets in money market instruments for defensive purposes.
9
<PAGE>
Investors should be aware that the investment results of the Fund depend upon
the ability of Dean Investment Associates to correctly anticipate the relative
performance and risk of equity securities, fixed-income securities and money
market instruments. Historical evidence indicates that correctly timing
portfolio allocations among these asset classes has been an extremely difficult
investment strategy to implement successfully. There can be no assurance that
Dean Investment Associates will correctly anticipate relative asset class
performance in the future on a consistent basis. Investment results would
suffer, for example, if only a small portion of the Fund's assets were invested
in stocks during a significant stock market advance or if a major portion were
invested in stocks during a major decline.
The Fund may invest in foreign companies through the purchase of sponsored
American Depository Receipts (certificates of ownership issued by an American
bank or trust company as a convenience to investors in lieu of the underlying
shares which it holds in custody) or other securities of foreign issuers that
are publicly traded in the United States. When selecting foreign investments,
Dean Investment Associates will seek to invest in securities that have
investment characteristics and qualities comparable to the kinds of domestic
securities in which the Fund invests. Investment in securities of foreign
issuers involves somewhat different investment risks from those affecting
securities of domestic issuers. In addition to credit and market risks,
investments in foreign securities involve sovereign risk, which includes local
political and economic developments, potential nationalization, withholding
taxes on dividend or interest payments and currency blockage. Foreign companies
may have less public or less reliable information available about them and may
be subject to less governmental regulation than U.S. companies. Securities of
foreign companies may be less liquid or more volatile than securities of U.S.
companies.
The Trust has approved the use of certain options and futures strategies for the
Fund, including the purchase and sale of options on equity securities, stock
indices and futures contracts and the purchase and sale of stock index futures
contracts. The Fund is also permitted to lend its securities and to borrow money
and pledge its assets in connection therewith. For a discussion of these
transactions, see "Additional Investment Information."
INTERNATIONAL VALUE FUND
The International Value Fund seeks to provide long-term capital growth by
investing primarily in the common stocks of foreign companies. Generally, the
stocks purchased by the Fund are issued by companies located in the United
Kingdom, Continental Europe and the Pacific Basin, including Japan, Singapore,
Malaysia, Hong Kong and Australia. Under normal market conditions, investments
will be made in a minimum of three countries other than the United States.
Dean Investment Associates has retained Newton Capital Management Ltd. ("Newton
Capital") to manage the investments of the International Value Fund. Individual
stock selection decisions are based upon Newton Capital's assessment of value
based on fundamental research. Fundamental research includes a review of
capitalization and valuation measures. Stocks are chosen that Newton Capital
believes sell at a discount to the company's true economic value. The stock
selection process includes a review of enterprise value to sales, price/earnings
relative to the local market, dividend coverage, dividend yield relative to the
local market, and price to free cash flow. Preference is given to companies with
strong balance sheets and histories of consistent profitability. This strategic
framework guides the managers towards the sectors and company characteristics
that they believe will lead to future out-performance of the Europe, Australia
and Far East Index compiled by Morgan Stanley Capital International.
Over the longer term, stocks are selected which will be able to deliver superior
earnings and dividend growth. This will often reflect the company's market
position and pricing power. Newton Capital looks for either a dominant position
in a competitive market or a well protected niche. The goal is to be able to
invest in these companies at valuation levels which do not reflect their future
prospects so a wider view is used when analyzing a company's potential. Response
to different phases of the market and economic cycle will be made, for instance,
through varying the Fund's exposure to more cyclical companies ahead of an
expected economic recovery. Other, more specific criteria will also generate
some stock selection decisions.
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Under normal circumstances, at least 65% of the Fund's total assets will be
invested in the common stocks of foreign companies and securities convertible
into the common stocks of foreign companies (such as convertible bonds,
convertible preferred stocks and warrants). The Fund may invest in preferred
stocks and bonds provided they are rated at the time of purchase in the four
highest grades assigned by Moody's (Aaa, Aa, A or Baa) or S&P (AAA, AA, A or
BBB) or, if unrated, are determined by Newton Capital to be of comparable
quality. Preferred stocks and bonds rated Baa or BBB have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to pay principal and interest or to
pay the preferred stock obligations than is the case with higher grade
securities. Subsequent to its purchase by the Fund, a security may cease to be
rated or its rating may be reduced below Baa or BBB. Newton Capital will
consider such an event to be relevant in its determination of whether the Fund
should continue to hold such security. See the Statement of Additional
Information for a description of ratings.
Investments in equity securities are subject to inherent market risks and
fluctuations in value due to earnings, economic conditions, quality ratings and
other factors beyond the control of Newton Capital. As a result, the return and
net asset value of the Fund will fluctuate.
Investment in securities of foreign issuers involves somewhat different
investment risks from those affecting securities of domestic issuers. In
addition to credit and market risk, investments in foreign securities involve
sovereign risk, which includes fluctuations in foreign exchange rates, future
political and economic developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. In addition, with
respect to certain countries, there is the possibility of expropriation of
assets, confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and accounting, auditing and financial reporting standards
and requirements may not be comparable. Securities of many foreign companies are
less liquid and their prices more volatile than securities of comparable U.S.
companies. Transaction costs of investing in foreign securities markets are
generally higher than in the U.S. and there is generally less governmental
supervision and regulation of exchanges, brokers and issuers than there is in
the U.S. The Fund might have greater difficulty taking appropriate legal action
in foreign courts. Depository receipts that are not sponsored by the issuer may
be less liquid. Dividend and interest income from foreign securities will
generally be subject to withholding taxes by the country in which the issuer is
located and may not be recoverable by the Fund or the investor.
The Fund's investments that are denominated in a currency other than the U.S.
dollar are subject to the risk that the value of a particular currency will
change in relation to one or more other currencies including the U.S. dollar.
Among the factors that may affect currency values are trade balances, the level
of short-term interest rates, differences in relative values of similar assets
in different currencies, long-term opportunities for investment and capital
appreciation and political developments. The Fund may try to hedge these risks
by investing in foreign currencies, currency futures contracts and options
thereon, forward currency exchange contracts, or any combination thereof, but
there can be no assurance that such strategies will be effective.
The risks of foreign investing are of greater concern in the case of investments
in emerging markets, which may exhibit greater price volatility and have less
liquidity. Furthermore, the economies of emerging market countries generally are
heavily dependent upon international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers, managed adjustments in
relative currency values, and other protectionist measures applied internally or
imposed by the countries with which they trade. These emerging market economies
also have been and may continue to be adversely affected by economic conditions
in the countries with which they trade. The Fund presently intends to limit its
investments in emerging market countries to no more than 10% of its net assets.
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<PAGE>
The Trust has approved the use of certain options and futures strategies for the
Fund, including the purchase and sale of options on equity securities, stock
indices and futures contracts and the purchase and sale of stock index futures
contracts and forward currency exchange contracts. For a discussion of these
transactions, see "Additional Investment Information."
When Newton Capital believes substantial price risks exist for common stocks and
securities convertible into common stocks because of uncertainties in the
investment outlook or when in the judgment of Newton Capital it is otherwise
warranted in selling to manage the Fund's portfolio, the Fund may temporarily
hold for defensive purposes all or a portion of its assets in short-term
obligations such as bank debt instruments (certificates of deposit, bankers'
acceptances and time deposits), commercial paper, U.S. Government obligations
having a maturity of less than one year, shares of money market investment
companies or repurchase agreements collateralized by U.S. Government
obligations. The Fund is also permitted to lend its securities and to borrow
money and pledge its assets in connection therewith. See "Additional Investment
Information" for a discussion of these transactions. The Fund will not invest
more than 10% of its total assets in shares of money market investment
companies. Investments by the Fund in shares of money market investment
companies may result in duplication of advisory, administrative and distribution
fees.
ADDITIONAL INVESTMENT INFORMATION
OPTIONS AND FUTURES. Each Fund may write covered call and covered put options on
equity securities that the particular Fund is eligible to purchase. Call options
written by a Fund give the holder the right to buy the underlying securities
from the Fund at a stated exercise price; put options give the holder the right
to sell the underlying security to the Fund. These options are covered by the
Fund because, in the case of call options, it will own the underlying securities
as long as the option is outstanding or because, in the case of put options, it
will maintain a segregated account of cash or portfolio securities which can be
liquidated promptly to satisfy any obligation of the Fund to purchase the
underlying securities. The Funds may also write straddles (combinations of puts
and calls on the same underlying security). A Fund will receive a premium from
writing a put or call option, which increases the Fund's return in the event the
option expires unexercised or is closed out at a profit. The amount of the
premium will reflect, among other things, the relationship of the market price
of the underlying security to the exercise price of the option and the remaining
term of the option. By writing a call option, the Fund limits its opportunity to
profit from any increase in the market value of the underlying security above
the exercise price of the option. By writing a put option, the Fund assumes the
risk that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security subsequently appreciates in value.
Each Fund may purchase put options to hedge against a decline in the value of
its portfolio. By using put options in this manner, a Fund will reduce any
profit it might otherwise have realized in the underlying security by the amount
of the premium paid for the put option and by transaction costs. A Fund may
purchase call options on securities or on relevant stock indices to hedge
against an increase in the value of securities that the Fund wants to buy
sometime in the future. The premium paid for the call option and any transaction
costs will increase the cost of securities acquired upon exercise of the option,
and, unless the price of the underlying security rises sufficiently, the option
may expire worthless.
The purchaser of an option risks a total loss of the premium paid for the option
if the price of the underlying security does not increase or decrease
sufficiently to justify exercise. The seller of an option, on the other hand,
will recognize the premium as income if the option expires unrecognized but
forgoes any capital appreciation in excess of the exercise price in the case of
a call option and may be required to pay a price in excess of current market
value in the case of a put option.
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<PAGE>
The Funds may purchase either exchange-traded or over-the-counter options on
securities. A Fund's ability to terminate options positions established in the
over-the-counter market may be more limited than in the case of exchange-traded
options and may also involve the risk that securities dealers participating in
such transactions would fail to meet their obligations to the Fund.
The Funds may purchase and sell futures contracts to hedge against changes in
prices. The Funds will not engage in futures transactions for speculative
purposes. A Fund may also write call options and purchase put options on futures
contracts as a hedge to attempt to protect securities in its portfolio against
decreases in value. When a Fund writes a call option on a futures contract, it
is undertaking the obligation of selling a futures contract at a fixed price at
any time during a specified period if the option is exercised. Conversely, as
purchaser of a put option on a futures contract, a Fund is entitled (but not
obligated) to sell a futures contract at the fixed price during the life of the
option.
A Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on a Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of a Fund's total assets. When a Fund purchases futures
contracts, an amount of cash and cash equivalents equal to the underlying
commodity value of the futures contracts (less any related margin deposits) will
be deposited in a segregated account with the Fund's custodian (or the broker,
if legally permitted) to collateralize the position and thereby insure that the
use of such futures contract is unleveraged. When a Fund sells futures
contracts, it will either own or have the right to receive the underlying future
or security, or will make deposits to collateralize the position as discussed
above. When a Fund uses futures and options on futures as hedging devices, there
is a risk that the prices of the securities subject to the futures contracts may
not correlate perfectly with the prices of the securities in a Fund's portfolio.
This may cause the futures contract and any related options to react differently
than the portfolio securities to market changes. In addition, the investment
adviser could be incorrect in its expectations about the direction or extent of
market factors such as stock price movements. In these events, the Fund may lose
money on the futures contract or option. It is not certain that a secondary
market for positions in futures contracts or for options will exist at all
times. Although the investment adviser will consider liquidity before entering
into these transactions, there is no assurance that a liquid secondary market on
an exchange or otherwise will exist for any particular futures contract or
option at any particular time. A Fund's ability to establish and close out
futures and options positions depends on this secondary market.
REAL ESTATE SECURITIES. The Funds may not invest in real estate (including
limited partnership interests), but may invest in readily marketable securities
secured by real estate or interests therein or issued by companies that invest
in real estate or interests therein. The Funds may also invest in readily
marketable interests in real estate investment trusts ("REITs"). REITs are
generally publicly traded on the national stock exchanges and in the
over-the-counter market and have varying degrees of liquidity.
FORWARD CURRENCY EXCHANGE CONTRACTS. The International Value Fund may enter into
forward currency exchange contracts. When Newton Capital believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, it may attempt to hedge some portion or all of this
anticipated risk by entering into a forward contract to sell an amount of
foreign currency approximating the value of some or all of the International
Value Fund's portfolio obligations denominated in such foreign currency. It may
also enter into such contracts to protect against loss between trade and
settlement dates resulting from changes in foreign currency exchange rates. Such
contracts will also have the effect of limiting any gains to the International
Value Fund between trade and settlement dates resulting from changes in such
rates.
U.S. GOVERNMENT OBLIGATIONS. "U.S. Government obligations" include securities
which are issued or guaranteed by the United States Treasury, by various
agencies of the United States Government, and by various instrumentalities which
have been established or sponsored by the United States Government. U.S.
Treasury obligations are backed by the "full faith and credit" of the United
States Government. U.S. Treasury obligations include Treasury bills, Treasury
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<PAGE>
notes, and Treasury bonds. U.S. Treasury obligations also include the separate
principal and interest components of U.S. Treasury obligations which are traded
under the Separate Trading of Registered Interest and Principal of Securities
("STRIPS") program. Agencies or instrumentalities established by the United
States Government include the Federal Home Loan Banks, the Federal Land Bank,
the Government National Mortgage Association, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, the Student Loan
Marketing Association, the Small Business Administration, the Bank for
Cooperatives, the Federal Intermediate Credit Bank, the Federal Financing Bank,
the Federal Farm Credit Banks, the Federal Agricultural Mortgage Corporation,
the Resolution Funding Corporation, the Financing Corporation of America and the
Tennessee Valley Authority. Some of these securities are supported by the full
faith and credit of the United States Government while others are supported only
by the credit of the agency or instrumentality, which may include the right of
the issuer to borrow from the United States Treasury. In the case of securities
not backed by the full faith and credit of the United States, the investor must
look principally to the agency issuing or guaranteeing the obligation for
ultimate repayment, and may not be able to assert a claim against the United
States in the event the agency or instrumentality does not meet its commitments.
Shares of the Funds are not guaranteed or backed by the United States
Government.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which a Fund
purchases a security and simultaneously commits to resell that security to the
seller at an agreed upon time and price, thereby determining the yield during
the term of the agreement. In the event of a bankruptcy or other default of the
seller of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
each Fund intends to enter into repurchase agreements only with its Custodian,
banks having assets in excess of $10 billion and the largest and, in the
judgment of the investment adviser, most creditworthy primary U.S. Government
securities dealers. Each Fund will only enter into repurchase agreements which
are collateralized by U.S. Government obligations. Collateral for repurchase
agreements is held in safekeeping in the customer-only account of the Fund's
Custodian at the Federal Reserve Bank. At the time a Fund enters into a
repurchase agreement, the value of the collateral, including accrued interest,
will equal or exceed the value of the repurchase agreement and, in the case of a
repurchase agreement exceeding one day, the seller agrees to maintain sufficient
collateral so the value of the underlying collateral, including accrued
interest, will at all times equal or exceed the value of the repurchase
agreement. A Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 15% of the value of the net
assets of the Fund would be invested in such securities and other illiquid
securities.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from one to
two hundred seventy days) unsecured promissory notes issued by corporations in
order to finance their current operations. The Funds will only invest in
commercial paper within the two top ratings of either Moody's (Prime-1 or
Prime-2) or S&P (A-1 or A-2), or which, in the opinion of the investment adviser
is of equivalent investment quality. Certain notes may have floating or variable
rates. Variable and floating rate notes with a demand notice period exceeding
seven days will be subject to each Fund's restriction on illiquid investments
unless, in the judgment of the investment adviser, such note is liquid.
WHEN-ISSUED SECURITIES. Obligations issued on a when-issued or to-be-announced
basis are settled by delivery and payment after the date of the transaction,
usually within 15 to 45 days. In a to-be-announced transaction, a Fund has
committed to purchasing or selling securities for which all specific information
is not yet known at the time of the trade, particularly the face amount in
transactions involving mortgage-related securities. The Funds will only make
commitments to purchase obligations on a when-issued or to-be-announced basis
with the intention of actually acquiring the obligations, but a Fund may sell
these securities before the settlement date if it is deemed advisable as a
matter of investment strategy or in order to meet its obligations, although it
would not normally expect to do so. The Funds will purchase securities on a
when-issued basis or to-be-announced basis only if delivery and payment for the
securities takes place within 120 days after the date of the transaction.
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<PAGE>
Purchases of securities on a when-issued or to-be-announced basis are subject to
market fluctuations and their current value is determined in the same manner as
other portfolio securities. When effecting such purchases for a Fund, a
segregated account of cash or liquid securities of the Fund in an amount
sufficient to make payment for the portfolio securities to be purchased will be
maintained with the Fund's Custodian at the trade date and valued daily at
market for the purpose of determining the adequacy of the securities in the
account. If the market value of segregated securities declines, additional cash
or securities will be segregated on a daily basis so that the market value of
the Fund's segregated assets will equal the amount of the Fund's commitments to
purchase when-issued obligations and securities on a to-be-announced basis. A
Fund's purchase of securities on a when-issued or to-be-announced basis may
increase its overall investment exposure and involves a risk of loss if the
value of the securities declines prior to the settlement date or if the
broker-dealer selling the securities fails to deliver after the value of the
securities has risen.
BORROWING AND PLEDGING. Each Fund may borrow money from banks, provided that,
immediately after any such borrowings, there is asset coverage of 300% for all
borrowings of the Fund. A Fund will not make any borrowing which would cause its
outstanding borrowings to exceed one-third of the value of its total assets.
Each Fund may pledge assets in connection with borrowings but will not pledge
more than one-third of its total assets. Borrowing magnifies the potential for
gain or loss on the portfolio securities of the Funds and, therefore, if
employed, increases the possibility of fluctuation in a Fund's net asset value.
This is the speculative factor known as leverage. Each Fund's policies on
borrowing and pledging are fundamental policies which may not be changed without
the affirmative vote of a majority of its outstanding shares. It is the Funds'
present intention, which may be changed by the Board of Trustees without
shareholder approval, to borrow only for emergency or extraordinary purposes and
not for leverage.
LENDING PORTFOLIO SECURITIES. Each Fund may, from time to time, lend securities
on a short-term basis (i.e., for up to seven days) to banks, brokers and dealers
and receive as collateral cash, U.S. Government obligations or irrevocable bank
letters of credit (or any combination thereof), which collateral will be
required to be maintained at all times in an amount equal to at least 100% of
the current value of the loaned securities plus accrued interest. It is the
present intention of the Trust, which may be changed without shareholder
approval, that loans of portfolio securities will not be made with respect to a
Fund if as a result the aggregate of all outstanding loans exceeds one-third of
the value of the Fund's total assets. Securities lending will afford a Fund the
opportunity to earn additional income because the Fund will continue to be
entitled to the interest payable on the loaned securities and also will either
receive as income all or a portion of the interest on the investment of any cash
loan collateral or, in the case of collateral other than cash, a fee negotiated
with the borrower. Such loans will be terminable at any time. Loans of
securities involve risks of delay in receiving additional collateral or in
recovering the securities lent or even loss of rights in the collateral in the
event of the insolvency of the borrower of the securities. A Fund will have the
right to regain record ownership of loaned securities in order to exercise
beneficial rights. A Fund may pay reasonable fees in connection with arranging
such loans.
PORTFOLIO TURNOVER. The Funds do not intend to use short-term trading as a
primary means of achieving their investment objectives. However, each Fund's
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when portfolio changes are deemed necessary or
appropriate by the investment adviser. Although the annual portfolio turnover
rate of each of the Funds cannot be accurately predicted, it is not expected to
exceed 100% with respect to any of the Funds, but may be either higher or lower.
A 100% turnover rate would occur, for example, if all the securities of a Fund
were replaced once in a one-year period. High turnover involves correspondingly
greater commission expenses and transaction costs and may result in a Fund
recognizing greater amounts of income and capital gains, which would increase
the amount of income and capital gains which the Fund must distribute to
shareholders in order to maintain its status as a regulated investment company
and to avoid the imposition of federal income or excise taxes (see "Taxes").
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HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
The initial investment in a Fund ordinarily must be at least $1,000 ($250 for
tax-deferred retirement plans). The Funds may, in Dean Investment Associates'
sole discretion, accept certain accounts with less than the stated minimum
initial investment. Investors may open an account and make an initial investment
through securities dealers having a sales agreement with the Trust's principal
underwriter, 2480 Securities LLC (the "Underwriter"). Investors may also make an
initial investment directly by sending a check and a completed account
application to Countrywide Fund Services, Inc., P.O. Box 5354, Cincinnati, Ohio
45201-5354 (the "Transfer Agent"). Checks should be made payable to the
applicable Fund. An account application is included in this Prospectus.
Additional shares may be purchased through the Open Account Program described
below.
The Trust mails investors a confirmation of all purchases or redemptions of Fund
shares. Certificates representing shares are not issued. The Trust and the
Underwriter reserve the right to limit the amount of investments and to refuse
to sell to any person.
Investors should be aware that the Funds' account application contains
provisions in favor of the Trust, the Underwriter, the Transfer Agent and
certain of their affiliates, excluding such entities from certain liabilities
(including, among others, losses resulting from unauthorized shareholder
transactions) relating to the various services (for example, telephone
exchanges) made available to investors.
Should an order to purchase shares be canceled because the check does not clear,
the investor will be responsible for any resulting losses or fees incurred by
the Trust or the Transfer Agent in the transaction.
OPEN ACCOUNT PROGRAM. Please direct inquiries concerning the services described
in this section to the Transfer Agent at the address or numbers listed below.
After an initial investment, all investors are considered participants in the
Open Account Program. The Open Account Program helps investors make purchases of
shares of the Funds over a period of years and permits the automatic
reinvestment of dividends and distributions of the Funds in additional shares
without a sales load.
Under the Open Account Program, the investor may purchase and add shares to his
or her account at any time either through a securities dealer or by sending a
check to Countrywide Fund Services, Inc., P.O. Box 5354, Cincinnati, Ohio
45201-5354. The check should be made payable to the applicable Fund.
Under the Open Account Program, investors may also purchase shares of the Funds
by bank wire. Please telephone the Transfer Agent (Nationwide call toll-free
888-899-8343) for instructions. The bank may impose a charge for sending a wire.
There is presently no fee for receipt of wired funds, but the Transfer Agent
reserves the right to charge shareholders for this service upon thirty days'
prior notice to shareholders.
Each additional purchase request must contain the name of the account and the
account number to permit proper crediting to the account. While there is no
minimum amount required for subsequent investments, the Trust reserves the right
to impose such a requirement. All purchases under the Open Account Program are
made at the public offering price next determined after receipt of a purchase
order by the Trust. If a broker-dealer received concessions for selling shares
of the Funds to a current shareholder, such broker-dealer will receive the
concessions described above with respect to additional investments by the
shareholder.
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SALES LOAD ALTERNATIVES
Each Fund offers two classes of shares which may be purchased at the election of
the purchaser. The two classes of shares each represent interests in the same
portfolio of investments of a Fund, have the same rights and are identical in
all material respects except that (i) Class C shares bear the expenses of higher
distribution fees; (ii) certain other class specific expenses will be borne
solely by the class to which such expenses are attributable, including transfer
agent fees attributable to a specific class of shares, printing and postage
expenses related to preparing and distributing materials to current shareholders
of a specific class, registration fees incurred by a specific class of shares,
the expenses of administrative personnel and services required to support the
shareholders of a specific class, litigation or other legal expenses relating to
a specific class of shares, Trustees' fees or expenses incurred as a result of
issues relating to a specific class of shares and accounting fees and expenses
relating to a specific class of shares; and (iii) each class has exclusive
voting rights with respect to matters relating to its own distribution
arrangements. The net income attributable to Class C shares and the dividends
payable on Class C shares will be reduced by the amount of the incremental
expenses associated with the distribution fee (see "Distribution Plans").
The Funds' alternative sales arrangements permit investors to choose the method
of purchasing shares that is most beneficial given the amount of the purchase,
the length of time the investor expects to hold his or her shares and other
relevant circumstances. Investors should determine whether under their
particular circumstances it is more advantageous to incur a front-end sales load
and be subject to lower ongoing charges, as discussed below, or to have all of
the initial purchase price invested in the Funds with the investment thereafter
being subject to higher ongoing charges. A salesperson or any other person
entitled to receive any portion of a distribution fee may receive different
compensation for selling Class A or Class C shares.
As an illustration, investors who qualify for significantly reduced sales loads,
as described below, might elect the Class A sales load alternative because
similar sales load reductions are not available for purchases under the Class C
sales load alternative. Moreover, shares acquired under the Class A sales load
alternative would be subject to lower ongoing distribution fees as described
below. Investors not qualifying for reduced initial sales loads who expect to
maintain their investment for an extended period of time might also elect the
Class A sales load alternative because over time the accumulated continuing
distribution fees on Class C shares may exceed the difference in initial sales
loads between Class A and Class C shares. Again, however, such investors must
weigh this consideration against the fact that less of their funds will be
invested initially under the Class A sales load alternative. Furthermore, the
higher ongoing distribution fees will be offset to the extent any return is
realized on the additional funds initially invested under the Class C sales load
alternative.
Some investors might determine that it would be more advantageous to utilize the
Class C sales load alternative to have more of their funds invested initially,
despite being subject to higher ongoing distribution fees and, for a one-year
period, being subject to a contingent deferred sales load. For example, based on
estimated fees and expenses, an investor subject to the maximum 5.25% initial
sales load on Class A shares who elects to reinvest dividends in additional
shares would have to hold the investment in Class A shares approximately 6 years
before the accumulated ongoing distribution fees on the alternative Class C
shares would exceed the initial sales load plus the accumulated ongoing
distribution fees on Class A shares. In this example and assuming the investment
was maintained for more than 6 years, the investor might consider purchasing
Class A shares. This example does not take into account the time value of money
which reduces the impact of the higher ongoing Class C distribution fees,
fluctuations in net asset value or the effect of different performance
assumptions.
In addition to the compensation otherwise paid to securities dealers, the
Underwriter may from time to time pay from its own resources additional cash
bonuses or other incentives to selected dealers in connection with the sale of
shares of the Funds. On some occasions, such bonuses or incentives may be
conditioned upon the sale of a specified minimum dollar amount of the shares of
the Funds during a specific period of time. Such bonuses or incentives may
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales campaigns and other dealer-sponsored programs or events.
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CLASS A SHARES
Class A shares are sold on a continuous basis at the public offering price next
determined after receipt of a purchase order by the Trust. Purchase orders
received by dealers prior to 4:00 p.m., Eastern time, on any business day and
transmitted to the Transfer Agent by 5:00 p.m., Eastern time, that day are
confirmed at the public offering price determined as of the close of the regular
session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Transfer Agent by 5:00 p.m., Eastern time. Dealers may
charge a fee for effecting purchase orders. Direct purchase orders received by
the Transfer Agent by 4:00 p.m., Eastern time, are confirmed at that day's
public offering price. Direct investments received by the Transfer Agent after
4:00 p.m., Eastern time, and orders received from dealers after 5:00 p.m.,
Eastern time, are confirmed at the public offering price next determined on the
following business day.
The public offering price of Class A shares is the next determined net asset
value per share plus a sales load as shown in the following table.
Sales Load as % of:
---------------------- Dealer
Public Net Reallowance
Offering Amount as % of Public
Amount of Investment Price Invested Offering Price
- ------------------------------- -------- -------- --------------
Less than $25,000 5.25% 5.54% 4.75%
$25,000 but less than $50,000 4.50 4.71 4.00
$50,000 but less than $100,000 3.75 3.90 3.25
$100,000 but less than $250,000 3.00 3.09 2.50
$250,000 but less than $500,000 2.25 2.30 2.00
$500,000 or more None* None*
* There is no front-end sales load on purchases of $500,000 or more but a
contingent deferred sales load of up to 1.00% may apply with respect to Class
A shares if a commission was paid by the Underwriter to a participating
unaffiliated dealer and the shares are redeemed within twelve months from the
date of purchase.
Under certain circumstances, the Underwriter may increase or decrease the
reallowance to dealers. Dealers engaged in the sale of shares of the Funds may
be deemed to be underwriters under the Securities Act of 1933. The Underwriter
retains the entire sales load on all direct initial investments in the Funds and
on all investments in accounts with no designated dealer of record.
For purchases of Class A shares of the Funds by qualified retirement plans with
greater than 100 participants, a dealer's commission of 1.00% of such purchases
may be paid by the Underwriter to participating unaffiliated dealers through
whom such purchases are effected. For initial purchases of Class A shares of the
Funds of $500,000 or more and subsequent purchases further increasing the size
of the account, a dealer's commission of 1.00% of such purchases from $500,000
to $3 million, .75% of such purchases from $3 million to $5 million and .50% of
such purchases in excess of $5 million of the purchase amount may be paid by the
Underwriter to participating unaffiliated dealers through whom such purchases
are effected. In determining a dealer's eligibility for such commission,
purchases of Class A shares of the Funds and shares of any other fund which has
made appropriate arrangements with the Underwriter may be aggregated. Dealers
should contact the Underwriter concerning the applicability and calculation of
the dealer's commission in the case of combined purchases. An exchange from
other funds will not qualify for payment of the dealer's commission, unless such
exchange is from a fund with assets as to which a dealer's commission or similar
payment has not been previously paid. Redemptions of Class A shares may result
in the imposition of a contingent deferred sales load if the dealer's commission
described in this paragraph was paid in connection with the purchase of such
shares. See "Contingent Deferred Sales Load for Certain Purchases of Class A
Shares" below.
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REDUCED SALES LOAD. A "purchaser" (defined below) may use the Right of
Accumulation to combine the cost or current net asset value (whichever is
higher) of his existing Class A shares of any Fund in the Dean Family of Funds
with the amount of his current purchases in order to take advantage of the
reduced sales loads set forth in the table above. Purchases made of shares of
any Fund in the Dean Family of Funds pursuant to a Letter of Intent may also be
eligible for the reduced sales loads. The minimum initial investment under a
Letter of Intent is $10,000. Shareholders should contact the Transfer Agent for
information about the Right of Accumulation and Letter of Intent.
PURCHASES AT NET ASSET VALUE. Banks, bank trust departments and savings and loan
associations, and employees of such institutions, in their fiduciary capacity or
for their own accounts, may purchase Class A shares of the Funds at net asset
value. To the extent permitted by regulatory authorities, a bank trust
department may charge fees to clients for whose account it purchases shares at
net asset value. Federal and state credit unions may also purchase Class A
shares at net asset value.
In addition, Class A shares of the Funds may be purchased at net asset value by
broker-dealers who have a sales agreement with the Underwriter and their
registered personnel and employees, including members of the immediate families
of such registered personnel and employees. Clients of investment advisers and
financial planners may also purchase Class A shares of the Funds at net asset
value if their investment adviser or financial planner has made arrangements to
permit them to do so with the Trust and the Underwriter. The investment adviser
or financial planner must notify the Transfer Agent that an investment qualifies
as a purchase at net asset value.
Class A shares may also be purchased at net asset value by organizations which
qualify under section 501(c)(3) of the Internal Revenue Code as exempt from
Federal income taxes, their employees, alumni and benefactors, and family
members of such individuals, and by qualified retirement plans with greater than
100 participants whose broker of record is not affiliated with the Adviser or
the Underwriter and has made appropriate arrangements with the Funds.
Trustees, directors, officers and employees of the Trust, Dean Investment
Associates, the Underwriter or the Transfer Agent, including members of the
immediate families of such individuals and employee benefit plans established by
such entities, may also purchase Class A shares of the Funds at net asset value.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF CLASS A SHARES. A
contingent deferred sales load is imposed upon certain redemptions of Class A
shares (or shares into which such Class A shares were exchanged) purchased at
net asset value in amounts totaling $500,000 or more or by qualified retirement
plans with greater than 100 participants, if the dealer's commission described
above was paid by the Underwriter and the shares are redeemed within twelve
months from the date of purchase. The contingent deferred sales load will be
paid to the Underwriter and will be equal to the commission percentage paid at
the time of purchase (either 1.00%, .75% or .50% depending on the amount of
purchase) as applied to the lesser of (1) the net asset value at the time of
purchase of the Class A shares being redeemed or (2) the net asset value of such
Class A shares at the time of redemption. In determining whether the contingent
deferred sales load is payable, it is assumed that shares not subject to the
contingent deferred sales load are the first redeemed followed by other shares
held for the longest period of time. The contingent deferred sales load will not
be imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. If a purchase of
Class A shares is subject to the contingent deferred sales load, the investor
will be so notified on the confirmation for such purchase.
Redemptions of such Class A shares of the Funds held for at least 12 months will
not be subject to the contingent deferred sales load and an exchange of such
Class A shares into another fund is not treated as a redemption and will not
trigger the imposition of the contingent deferred sales load at the time of such
exchange. A fund will "tack" the period for which such Class A shares being
exchanged were held onto the holding period of the acquired shares for purposes
of determining if a contingent deferred sales load is applicable in the event
that the acquired shares are redeemed following the exchange; however, the
period of time that the redemption proceeds of such Class A shares
19
<PAGE>
are held in a money market fund will not count toward the holding period for
determining whether a contingent deferred sales load is applicable. See
"Exchange Privilege".
The contingent deferred sales load is currently waived for any partial or
complete redemption following death or disability (as defined in the Internal
Revenue Code) of a shareholder (including one who owns the shares with his or
her spouse as a joint tenant with rights of survivorship) from an account in
which the deceased or disabled is named. The Underwriter may require
documentation prior to waiver of the charge, including death certificates,
physicians' certificates, etc. The contingent deferred sales load is also waived
for any partial or complete redemption of shares purchased by qualified
retirement plans whose broker of record has made appropriate arrangements with
the Funds.
ADDITIONAL INFORMATION. For purposes of determining the applicable sales load
and for purposes of the Letter of Intent and Right of Accumulation privileges, a
purchaser includes an individual, his or her spouse and their children under the
age of 21 purchasing shares for his, her or their own account; or a trustee or
other fiduciary purchasing shares for a single fiduciary account although more
than one beneficiary is involved; or employees of a common employer, provided
that economies of scale are realized through remittances from a single source
and quarterly confirmation of such purchases; or an organized group, provided
that the purchases are made through a central administration or a single dealer,
or by other means which result in economy of sales effort or expense. Contact
the Transfer Agent for additional information concerning purchases at net asset
value or at reduced sales loads.
CLASS C SHARES
Class C shares are sold on a continuous basis at the net asset value next
determined after receipt of a purchase order by the Trust. Purchase orders
received by dealers prior to 4:00 p.m., Eastern time, on any business day and
transmitted to the Transfer Agent by 5:00 p.m., Eastern time, that day are
confirmed at the net asset value determined as of the close of the regular
session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Transfer Agent by 5:00 p.m., Eastern time. Dealers may
charge a fee for effecting purchase orders. Direct purchase orders received by
the Transfer Agent by 4:00 p.m., Eastern time, are confirmed at that day's net
asset value. Direct investments received by the Transfer Agent after 4:00 p.m.,
Eastern time, and orders received from dealers after 5:00 p.m., Eastern time,
are confirmed at the net asset value next determined on the following business
day. A contingent deferred sales load is imposed on Class C shares if an
investor redeems an amount which causes the current value of the investor's
account to fall below the total dollar amount of purchase payments subject to
the deferred sales load, except that no such charge is imposed upon shares
representing reinvested dividends or capital gains distributions, or upon
amounts representing share appreciation.
Whether a contingent deferred sales load is imposed will depend on the amount of
time since the investor made a purchase payment from which an amount is being
redeemed. Purchases are subject to the contingent deferred sales load according
to the following schedule:
Year Since Purchase Contingent Deferred
Payment was Made Sales Load
---------------- -------------------
First Year 1%
Thereafter None
In determining whether a contingent deferred sales load is payable, it is
assumed that the purchase payment from which the redemption is made is the
earliest purchase payment (from which a redemption or exchange has not already
been effected). If the earliest purchase from which a redemption has not yet
been effected was made within one year before the redemption, then a deferred
sales load at the rate of 1% will be imposed.
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<PAGE>
The following example will illustrate the operation of the contingent deferred
sales load. Assume that an individual opens an account and purchases 1,000
shares at $10 per share and that six months later the net asset value per share
is $12 and, during such time, the investor has acquired 50 additional shares
through reinvestment of distributions. If at such time the investor should
redeem 450 shares (proceeds of $5,400), 50 shares will not be subject to the
load because of dividend reinvestment. With respect to the remaining 400 shares,
the load is applied only to the original cost of $10 per share and not to the
increase in net asset value of $2 per share. Therefore, $4,000 of the $5,400
redemption proceeds will be charged the load. At the rate of 1%, the contingent
deferred sales load would be $40. In determining whether an amount is available
for redemption without incurring a deferred sales load, the purchase payments
made for all Class C shares in the shareholder's account are aggregated, and the
current value of all such shares is aggregated.
All sales loads imposed on redemptions are paid to the Underwriter. The
Underwriter intends to pay a commission of 1% of the purchase amount to
participating brokers at the time the investor purchases Class C shares.
The contingent deferred sales load is currently waived for any partial or
complete redemption following death or disability (as defined in the Internal
Revenue Code) of a shareholder (including one who owns the shares with his or
her spouse as a joint tenant with rights of survivorship) from an account in
which the deceased or disabled is named. The Underwriter may require
documentation prior to waiver of the charge, including death certificates,
physicians' certificates, etc. The contingent deferred sales load is also waived
for any partial or complete redemption of shares purchased by qualified
retirement plans where the broker of record and the Underwriter have agreed to
such waiver.
SHAREHOLDER SERVICES
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Contact the Transfer Agent (Nationwide call toll-free 888-899-8343) for
additional information about the shareholder services described below.
AUTOMATIC WITHDRAWAL PLAN
If the shares in an account have a value of at least $5,000, the shareholder may
elect to receive, or may designate another person to receive, monthly or
quarterly payments in a specified amount of not less than $50 each. There is no
charge for this service. Purchases of additional Class A shares while the plan
is in effect are generally undesirable because a sales load is incurred whenever
purchases are made.
TAX-DEFERRED RETIREMENT PLANS
Shares of the Funds are available for purchase in connection with the following
tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for individuals and their
non-employed spouses, including Roth IRAs and Education IRAs
-- Qualified pension and profit-sharing plans for employees, including
those profit-sharing plans with a 401(k) provision
-- 403(b)(7) custodial accounts for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Internal Revenue Code
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<PAGE>
DIRECT DEPOSIT PLANS
Shares of the Funds may be purchased through direct deposit plans offered by
certain employers and government agencies. These plans enable a shareholder to
have all or a portion of his or her payroll or social security checks
transferred automatically to purchase shares of the Funds.
AUTOMATIC INVESTMENT PLAN
Shareholders may make automatic monthly investments in a Fund from their bank,
savings and loan or other depository institution account on the 15th and/or last
business day of the month. The minimum initial and subsequent investments must
be $50 under the plan. The Transfer Agent pays the costs associated with these
transfers, but reserves the right, upon thirty days' written notice, to make
reasonable charges for this service. A shareholder's depository institution may
impose its own charge for debiting an account which would reduce the return from
an investment in the Funds.
REINVESTMENT PRIVILEGE
If a shareholder has redeemed shares of a Fund, he or she may reinvest all or
part of the proceeds without any additional sales load. This reinvestment must
occur within ninety days of the redemption and the privilege may only be
exercised once per year.
HOW TO REDEEM SHARES
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Shareholders may redeem shares of a Fund on each day that the Trust is open for
business by sending a written request to the Transfer Agent. The request must
state the number of shares or the dollar amount to be redeemed and the account
number. The request must be signed exactly as the shareholder's name appears on
the Trust's account records. If the shares to be redeemed have a value of
$25,000 or more, the shareholder's signature must be guaranteed by any eligible
guarantor institution, including banks, brokers and dealers, municipal
securities brokers and dealers, government securities brokers and dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations.
Shareholders may also redeem shares by placing a wire redemption request through
a securities broker or dealer. Unaffiliated broker-dealers may impose a fee on
the shareholder for this service. Shareholders will receive the net asset value
per share next determined after receipt by the Transfer Agent of the wire
redemption request. It is the responsibility of broker-dealers to properly
transmit wire redemption orders.
If the instructions request a redemption by wire, the shareholder will be
charged a processing fee. The Trust reserves the right, upon thirty days'
written notice, to change the processing fee. All charges will be deducted from
the shareholder's account by redemption of shares in the account. The
shareholder's bank or brokerage firm may also impose a charge for processing the
wire. In the event that wire transfer of funds is impossible or impractical, the
redemption proceeds will be sent by mail to the designated account.
Redemption requests may direct that the proceeds be deposited directly in the
shareholder's account with a commercial bank or other depository institution via
an Automated Clearing House (ACH) transaction. There is currently no charge for
ACH transactions. Contact the Transfer Agent for more information about ACH
transactions.
A contingent deferred sales load may apply to a redemption of Class C shares or
to a redemption of certain Class A shares purchased at net asset value. See "How
to Purchase Shares."
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<PAGE>
Shares are redeemed at their net asset value per share next determined after
receipt by the Transfer Agent of a proper redemption request in the form
described above, less any applicable contingent deferred sales load. Payment is
normally made within three business days after tender in such form, provided
that payment in redemption of shares purchased by check will be effected only
after the check has been collected, which may take up to fifteen days from the
purchase date. To eliminate this delay, shareholders may purchase shares of the
Funds by certified check or wire.
The Trust and the Transfer Agent will consider all written and verbal
instructions as authentic and will not be responsible for the processing of
exchange instructions received by telephone which are reasonably believed to be
genuine or the delivery or transmittal of the redemption proceeds by wire. The
affected shareholders will bear the risk of any such loss. The privilege of
exchanging shares by telephone is automatically available to all shareholders.
The Trust or the Transfer Agent, or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or the
Transfer Agent do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
At the discretion of the Trust or the Transfer Agent, corporate investors and
other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Trust reserves the
right to require shareholders to close an account if at any time the value of
the shares in the account is less than $1,000 (based on actual amounts invested
including any sales load paid, unaffected by market fluctuations), or $250 in
the case of tax-deferred retirement plans, or such other minimum amount as the
Trust may determine from time to time. After notification of the Trust's
intention to close an account, the shareholder will be given thirty days to
increase the value of the account to the minimum amount.
The Trust reserves the right to suspend the right of redemption or to postpone
the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of the Funds may be exchanged for each other or for shares of other funds
which have made appropriate arrangements with the Underwriter.
Class A shares of a Fund which are not subject to a contingent deferred sales
load may be exchanged for Class A shares of any other Fund or for shares of a
money market fund which has made the appropriate arrangements with the
Underwriter. Class A shares of a Fund which are not subject to a contingent
deferred sales load may also be exchanged for Class A shares of any other fund
which has made the appropriate arrangements with the Underwriter (provided such
shares are not subject to a contingent deferred sales load).
Class C shares of a Fund, as well as Class A shares of a Fund subject to a
contingent deferred sales load, may be exchanged, on the basis of relative net
asset value per share, for shares of any other Fund subject to a contingent
deferred sales load. Class C shares of a Fund, as well as Class A shares of a
Fund subject to a contingent deferred sales load, may also be exchanged, on the
basis of relative net asset value per share, for shares subject to a contingent
deferred sales load of any other fund which has made appropriate arrangements
with the Underwriter. A fund will "tack" the period for which the shares being
exchanged were held onto the holding period of the acquired shares for purposes
of determining if a contingent deferred sales load is applicable in the event
that the acquired shares are redeemed following the exchange. The period of time
that shares are held in a money market fund will not count toward the holding
period for determining whether a contingent deferred sales load is applicable.
Class C shares of a Fund, purchased by a qualified retirement plan whose broker
of record is not affiliated with the Adviser or the
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<PAGE>
Underwriter and which has made appropriate arrangements with the Fund, may be
exchanged for Class A shares of a Fund on the earlier of the date that the value
of such plan's assets first equals or exceeds $5 million or that is ten years
after the date of the initial purchase of the shares to be exchanged.
Shareholders may request an exchange by sending a written request to the
Transfer Agent. The request must be signed exactly as the shareholder's name
appears on the Trust's account records. Exchanges may also be requested by
telephone. If a shareholder is unable to execute a transaction by telephone (for
example during times of unusual market activity) the shareholder should consider
requesting the exchange by mail or by visiting the Trust's offices at 2480
Kettering Tower, Dayton, Ohio 45423. An exchange will be effected at the next
determined net asset value after receipt of a request by the Transfer Agent.
Exchanges may only be made for shares of funds then offered for sale in the
shareholder's state of residence and are subject to the applicable minimum
initial investment requirements. The exchange privilege may be modified or
terminated by the Board of Trustees upon 60 days' prior notice to shareholders.
An exchange results in a sale of fund shares, which may cause the shareholder to
recognize a capital gain or loss. Before making an exchange, contact the
Transfer Agent to obtain more information about exchanges.
DIVIDENDS AND DISTRIBUTIONS
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The Large Cap Value Fund, the Balanced Fund and the International Value Fund
each expects to distribute substantially all of its net investment income, if
any, on a quarterly basis. The Small Cap Value Fund expects to distribute
substantially all of its net investment income, if any, on an annual basis. Each
Fund expects to distribute any net realized long-term capital gains at least
once each year. Management will determine the timing and frequency of the
distributions of any net realized short-term capital gains.
Distributions are paid according to one of the following options:
Share Option -- income distributions and capital gains distributions
reinvested in additional shares.
Income Option -- income distributions and short-term capital gains
distributions paid in cash; long-term capital gains
distributions reinvested in additional shares.
Cash Option -- income distributions and capital gains distributions
paid in cash.
The choice of option should be indicated on the application. If no option is
specified, distributions will automatically be reinvested in additional shares.
All distributions will be based on the net asset value in effect on the payable
date.
If the Income Option or the Cash Option is selected and the U.S. Postal Service
cannot deliver the checks or if the checks remain uncashed for six months,
dividends may be reinvested in the account at the then-current net asset value
and the account will be converted to the Share Option. No interest will accrue
on amounts represented by uncashed distribution checks.
An investor who has received in cash any dividend or capital gains distribution
from any Fund may return the distribution within thirty days of the distribution
date to the Transfer Agent for reinvestment at the net asset value next
determined after its return. The investor or his dealer must notify the Transfer
Agent that a distribution is being reinvested pursuant to this provision.
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<PAGE>
TAXES
- --------------------------------------------------------------------------------
Each Fund has qualified and intends to continue to qualify for the special tax
treatment afforded a "regulated investment company" under Subchapter M of the
Internal Revenue Code so that it does not pay federal taxes on income and
capital gains distributed to shareholders. Each Fund intends to distribute
substantially all of its net investment income and any net realized capital
gains to its shareholders. Distributions of net investment income and from net
realized short-term capital gains, if any, are taxable as ordinary income.
Dividends distributed by the Funds from net investment income may be eligible,
in whole or in part, for the dividends received deduction available to
corporations. Distributions resulting from the sale of foreign currencies and
foreign obligations, to the extent of foreign exchange gains, are taxed as
ordinary income or loss. If these transactions result in reducing a Fund's net
income, a portion of the income may be classified as a return of capital (which
will lower a shareholder's tax basis). If a Fund pays nonrefundable taxes to
foreign governments during the year, the taxes will reduce the Fund's net
investment income but still may be included in a shareholder's taxable income.
However, a shareholder may be able to claim an offsetting tax credit or itemized
deduction on his return for his portion of foreign taxes paid by the Fund.
Distributions of net capital gains (i.e., the excess of net long-term capital
gains over net short-term capital losses) by a Fund to its shareholders are
taxable to the recipient shareholders as capital gains, without regard to the
length of time a shareholder has held Fund shares. The maximum capital gains
rate for individuals is 28% with respect to assets held for more than 12 months,
but not more than 18 months, and 20% with respect to assets held more than 18
months. The maximum capital gains rate for corporate shareholders is the same as
the maximum tax rate for ordinary income. Redemptions of shares of the Funds are
taxable events on which a shareholder may realize a gain or loss.
The Funds' use of hedging techniques, such as foreign currency forwards, futures
and options, involves greater risk of unfavorable tax consequences than funds
not engaging in such techniques. Hedging may also result in the application of
the mark-to-market and straddle provisions of the Internal Revenue Code. These
provisions could result in an increase (or decrease) in the amount of taxable
dividends paid by the Funds as well as affect whether dividends paid by the
Funds are classified as capital gains or ordinary income.
The Funds will mail to each of their shareholders a statement indicating the
amount and federal income tax status of all distributions made during the year.
In addition to federal taxes, shareholders of the Funds may be subject to state
and local taxes on distributions. Shareholders should consult their tax advisors
about the tax effect of distributions and withdrawals from the Funds and the use
of the Automatic Withdrawal Plan and the Exchange Privilege. The tax
consequences described in this section apply whether distributions are taken in
cash or reinvested in additional shares.
OPERATION OF THE FUNDS
- --------------------------------------------------------------------------------
The Funds are diversified series of the Dean Family of Funds, an open-end
management investment company organized as an Ohio business trust on December
18, 1996. The Board of Trustees supervises the business activities of the Trust.
Like other mutual funds, the Trust retains various organizations to perform
specialized services for the Funds.
The Trust retains Dean Investment Associates, 2480 Kettering Tower, Dayton, Ohio
45423, to manage the Funds' investments. Dean Investment Associates is an
independent investment counsel firm which has been advising individual,
institutional and corporate clients since 1972. Dean Investment Associates
currently provides investment advisory services to three registered investment
companies which serve as underlying vehicles for variable annuity insurance
products. The firm manages approximately $4.2 billion for clients worldwide.
Currently, Dean Investment Associates has 110 employees which include 9
Chartered Financial Analysts (CFA), 8 Certified Public Accountants (CPA), 3
Certified Financial Planners (CFP) and 3 PhDs. Dean Investment Associates is
Dayton, Ohio's largest independent investment manager. The controlling
shareholder of Dean Investment Associates is Chauncey H. Dean.
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<PAGE>
The Large Cap Value Fund, the Small Cap Value Fund and the Balanced Fund each
pays Dean Investment Associates a fee for its services equal to the annual rate
of 1.00% of the average value of its daily net assets. The International Value
Fund pays Dean Investment Associates a fee for its services equal to the annual
rate of 1.25% of the average value of its daily net assets. As of the date of
this Prospectus, Chauncey H. Dean may be deemed to control the Trust by virtue
of his ownership of more than 25% of each Fund's shares.
Dirk H. Van Dijk and Arvind K. Sachdeva are primarily responsible for managing
the portfolio of the Large Cap Value Fund. Mr. Van Dijk is currently Senior
Equity Analyst and has been employed by Dean Investment Associates since 1994.
He previously was an Equity Analyst with Bartlett & Co., an investment adviser.
Mr. Sachdeva is currently Director of Research and has been employed by Dean
Investment Associates in various capacities since 1993. He previously was a
portfolio manager for Carillon Advisers, an investment management firm.
Dirk H. Van Dijk and Amit Dugar are the persons primarily responsible for
managing the portfolio of the Small Cap Value Fund. Mr. Dugar has been employed
by Dean Investment Associates as an Equity Analyst since 1994. He formerly was a
Quantitative Analyst with Renaissance Investment Management, an investment
adviser.
Arvind K. Sachdeva, James C. Hunter and David S. Oda are primarily responsible
for managing the portfolio of the Balanced Fund. Mr. Hunter has been employed as
an Equity Analyst by Dean Investment Associates since 1993. He previously was a
Security Analyst for Star Bank, N.A. Mr. Oda, Senior Fixed Income Analyst, has
been employed by Dean Investment Associates since 1990.
Newton Capital Management Ltd., 71 Queen Victoria Street, London, England EC4V
4DR ("Newton Capital"), has been retained by Dean Investment Associates to
manage the investments of the International Value Fund. Newton Capital is a
United Kingdom investment advisory firm registered with the Securities and
Exchange Commission. Newton Capital is affiliated with Newton Investment
Management Ltd., an English investment advisory firm which has been managing
assets for institutional investors, mutual funds and individuals since 1977.
Dean Investment Associates (not the Fund) pays Newton Capital a fee for its
services equal to the rate of .50% of the average value of the International
Value Fund's daily net assets.
Paul Butler is International Equities Director for Newton Capital Management and
is primarily responsible for managing the portfolio of the International Value
Fund. Mr. Butler graduated from Cambridge University in 1986 with a degree in
Natural Sciences and joined Newton Capital in 1987. Mr. Butler worked as an
International Equities analyst for five years before becoming a Portfolio
Manager in 1992. In 1993, Mr. Butler was appointed as a director of Newton
Capital and promoted to his current position as Director of International
Equities.
The Funds are responsible for the payment of all operating expenses, including
fees and expenses in connection with membership in investment company
organizations, brokerage fees and commissions, legal, auditing and accounting
expenses, expenses of registering shares under federal and state securities
laws, expenses related to the distribution of the Funds' shares (see
"Distribution Plans"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Funds, fees and expenses of members of the Board of Trustees who are not
interested persons of the Trust, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders, expenses
of shareholders' meetings and proxy solicitations, and such extraordinary or
non-recurring expenses as may arise, including litigation to which the Funds may
be a party and indemnification of the Trust's officers and Trustees with respect
thereto.
2480 Securities LLC, 2480 Kettering Tower, Dayton, Ohio 45423 (the
"Underwriter"), an affiliate of Dean Investment Associates, serves as principal
underwriter for the Funds and, as such, is the exclusive agent for the
distribution of shares of the Funds.
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<PAGE>
The Trust retains Countrywide Fund Services, Inc., P.O. Box 5354, Cincinnati,
Ohio 45201-5354 (the "Transfer Agent"), to serve as the Funds' transfer agent,
dividend paying agent and shareholder servicing agent. The Transfer Agent is a
wholly-owned indirect subsidiary of Countrywide Credit Industries, Inc., a New
York Stock Exchange listed company principally engaged in residential mortgage
lending.
The Transfer Agent also provides accounting and pricing services to the Funds.
The Transfer Agent receives a monthly fee from each Fund for calculating daily
net asset value per share and maintaining such books and records as are
necessary to enable it to perform its duties.
In addition, the Transfer Agent has been retained to provide administrative
services to the Funds. In this capacity, the Transfer Agent supplies executive,
administrative and regulatory services, supervises the preparation of tax
returns, and coordinates the preparation of reports to shareholders and reports
to and filings with the Securities and Exchange Commission and state securities
authorities. Each Fund pays the Transfer Agent a fee for these administrative
services at the annual rate of .10% of the average value of its daily net assets
up to $100,000,000, .075% of such assets from $100,000,000 to $200,000,000 and
.05% of such assets in excess of $200,000,000; provided, however, that the
minimum fee is $1,000 per month with respect to each Fund.
DRPS, Inc., an affiliate of Dean Investment Associates and the Underwriter,
provides certain sub-accounting and recordkeeping services to the Funds. In
return for these services, DRPS, Inc. receives a fee at the annual rate of .10%
of the average balance of accounts in each Fund for which DRPS, Inc. provides
these services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to its objective of seeking best execution
of portfolio transactions, Dean Investment Associates, and with respect to the
International Value Fund, Newton Capital, may give consideration to sales of
shares of the Funds as a factor in the selection of brokers and dealers to
execute portfolio transactions of the Funds. Subject to the requirements of the
Investment Company Act of 1940 (the "1940 Act") and procedures adopted by the
Board of Trustees, the Funds may execute portfolio transactions through any
broker or dealer and pay brokerage commissions to a broker (i) which is an
affiliated person of the Trust, or (ii) which is an affiliated person of such
person, or (iii) an affiliated person of which is an affiliated person of the
Trust, Dean Investment Associates, Newton Capital or the Underwriter.
Shares of each Fund have equal voting rights and liquidation rights, and are
voted in the aggregate and not by Fund except in matters where a separate vote
is required by the 1940 Act or when the matter affects only the interests of a
particular Fund. Each class of shares of a Fund shall vote separately on matters
relating to its plan of distribution pursuant to Rule 12b-1 (see "Distribution
Plans"). When matters are submitted to shareholders for a vote, each shareholder
is entitled to one vote for each full share owned and fractional votes for
fractional shares owned. The Trust does not normally hold annual meetings of
shareholders. The Trustees shall promptly call and give notice of a meeting of
shareholders for the purpose of voting upon the removal of any Trustee when
requested to do so in writing by shareholders holding 10% or more of the Trust's
outstanding shares. The Trust will comply with the provisions of Section 16(c)
of the 1940 Act in order to facilitate communications among shareholders.
Management has reviewed the impact of the year 2000 issue on the Funds. The
Funds rely on several external service providers for administrative, accounting,
pricing and custodial services. Our external service providers have completed an
analysis of their own year 2000 issues, and have reported to us, or are in the
process of completing the necessary analysis and presenting a report.
Management expects the Funds to be able to operate satisfactorily on and after
January 1, 2000. As of the date of this Prospectus, each service provider has
reported to Management that it anticipates that its systems will be year 2000
compliant by January 1, 2000. We will be closely monitoring our external service
providers. While there can be no assurance all our current external agents will
be ready for year 2000, we fully expect to have the Funds prepared to operate in
the year 2000 environment.
27
<PAGE>
DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
CLASS A SHARES. Pursuant to Rule 12b-1 under the 1940 Act, the Funds have
adopted a plan of distribution (the "Class A Plan") under which the Funds' Class
A shares may directly incur or reimburse the Underwriter for certain
distribution-related expenses, including payments to securities dealers and
others who are engaged in the sale of shares of the Funds and who may be
advising investors regarding the purchase, sale or retention of Fund shares;
expenses of maintaining personnel who engage in or support distribution of
shares or who render shareholder support services not otherwise provided by the
Transfer Agent; expenses of formulating and implementing marketing and
promotional activities, including direct mail promotions and mass media
advertising; expenses of preparing, printing and distributing sales literature
and prospectuses and statements of additional information and reports for
recipients other than existing shareholders of the Funds; expenses of obtaining
such information, analyses and reports with respect to marketing and promotional
activities as the Trust may, from time to time, deem advisable; and any other
expenses related to the distribution of the Funds' Class A shares.
Pursuant to the Class A Plan, the Funds may make payments to dealers and other
persons, including the Underwriter and its affiliates, who may be advising
investors regarding the purchase, sale or retention of Class A shares. The
annual limitation for payment of expenses pursuant to the Class A Plan is .25%
of each Fund's average daily net assets allocable to Class A shares.
Unreimbursed expenditures will not be carried over from year to year. In the
event the Class A Plan is terminated by a Fund in accordance with its terms, the
Fund will not be required to make any payments for expenses incurred after the
date the Class A Plan terminates.
CLASS C SHARES. Pursuant to Rule 12b-1 under the 1940 Act, the Funds have
adopted a plan of distribution (the "Class C Plan") which provides for two
categories of payments. First, the Class C Plan provides for the payment to the
Underwriter of an account maintenance fee, in an amount equal to an annual rate
of .25% of a Fund's average daily net assets allocable to Class C shares, which
may be paid to other dealers based on the average value of Fund shares owned by
clients of such dealers. In addition, the Class C shares may directly incur or
reimburse the Underwriter in an amount not to exceed .75% per annum of a Fund's
average daily net assets allocable to Class C shares for certain
distribution-related expenses incurred in the distribution and promotion of the
Fund's Class C shares, including payments to securities dealers and others who
are engaged in the sale of shares of the Funds and who may be advising investors
regarding the purchase, sale or retention of such shares; expenses of
maintaining personnel who engage in or support distribution of shares or who
render shareholder support services not otherwise provided by the Transfer
Agent; expenses of formulating and implementing marketing and promotional
activities, including direct mail promotions and mass media advertising;
expenses of preparing, printing and distributing sales literature and
prospectuses and statements of additional information and reports for recipients
other than existing shareholders of the Funds; expenses of obtaining such
information, analyses and reports with respect to marketing and promotional
activities as the Trust may, from time to time, deem advisable; and any other
expenses related to the distribution of the Funds' Class C shares.
Pursuant to the Class C Plan, the Funds may make payments to dealers and other
persons, including the Underwriter and its affiliates, who may be advising
investors regarding the purchase, sale or retention of Class C shares.
Unreimbursed expenditures will not be carried over from year to year. In the
event the Class C Plan is terminated by a Fund in accordance with its terms, the
Fund will not be required to make any payments for expenses incurred after the
date the Class C Plan terminates. The Underwriter may make payments to dealers
and other persons in an amount up to .75% per annum of the average value of
Class C shares owned by their clients, in addition to the .25% account
maintenance fee described above.
28
<PAGE>
GENERAL. Pursuant to the Plans, the Funds may also make payments to banks or
other financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the
Trust believes that the Glass-Steagall Act should not preclude a bank from
providing such services. However, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Trust believes that there would be no material impact on the
Funds or their shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by applicable regulatory authorities, and
the overall return to those shareholders availing themselves of the bank
services will be lower than to those shareholders who do not. The Funds may from
time to time purchase securities issued by banks which provide such services;
however, in selecting investments for the Funds, no preference will be shown for
such securities.
The National Association of Securities Dealers, in its Rules of Fair Practice,
places certain limitations on asset-based sales charges of mutual funds. These
Rules require fund-level accounting in which all sales charges--front-end load,
12b-1 fees or contingent deferred load--terminate when a percentage of gross
sales is reached.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
- --------------------------------------------------------------------------------
On each day that the Trust is open for business, the share price (net asset
value) of Class C shares and the public offering price (net asset value plus
applicable sales load) of Class A shares is determined as of the close of the
regular session of trading on the New York Stock Exchange, currently 4:00 p.m.,
Eastern time. The Trust is open for business on each day the New York Stock
Exchange is open for business and on any other day when there is sufficient
trading in a Fund's investments that its net asset value might be materially
affected. Securities held by a Fund may be primarily listed on foreign exchanges
or traded in foreign markets which are open on days (such as Saturdays and U.S.
holidays) when the New York Stock Exchange is not open for business. As a
result, the net asset value per share of such Fund may be significantly affected
by trading on days when the Trust is not open for business. The net asset value
per share of each Fund is calculated by dividing the sum of the value of the
securities held by the Fund plus cash or other assets minus all liabilities
(including estimated accrued expenses) by the total number of shares outstanding
of the Fund, rounded to the nearest cent.
U.S. Government obligations are valued at their most recent bid prices as
obtained from one or more of the major market makers for such securities. Other
portfolio securities are valued as follows: (i) securities which are traded on
stock exchanges or are quoted by NASDAQ are valued at the last reported sale
price as of the close of the regular session of trading on the New York Stock
Exchange on the day the securities are being valued, or, if not traded on a
particular day, at the closing bid price, (ii) securities traded in the
over-the-counter market, and which are not quoted by NASDAQ, are valued at the
last sale price (or, if the last sale price is not readily available, at the
last bid price as quoted by brokers that make markets in the securities) as of
the close of the regular session of trading on the New York Stock Exchange on
the day the securities are being valued, (iii) securities which are traded both
in the over-the-counter market and on a stock exchange are valued according to
the broadest and most representative market, and (iv) securities (and other
assets) for which market quotations are not readily available are valued at
their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees. The net asset value per share of each Fund will fluctuate with the
value of the securities it holds.
29
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, each Fund may advertise its "average annual total return."
Each Fund may also advertise "yield." Both yield and average annual total return
figures are based on historical earnings and are not intended to indicate future
performance.
The "average annual total return" of a Fund refers to the average annual
compounded rates of return over the most recent 1, 5 and 10 year periods or,
where the Fund has not been in operation for such period, over the life of the
Fund (which periods will be stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment. The calculation of "average annual total
return" assumes the reinvestment of all dividends and distributions and the
deduction of the current maximum sales load from the initial investment. A Fund
may also advertise total return (a "nonstandardized quotation") which is
calculated differently from "average annual total return." A nonstandardized
quotation of total return may be a cumulative return which measures the
percentage change in the value of an account between the beginning and end of a
period, assuming no activity in the account other than reinvestment of dividends
and capital gains distributions. A nonstandardized quotation of total return may
also indicate average annual compounded rates of return over periods other than
those specified for "average annual total return." These nonstandardized returns
do not include the effect of the applicable sales load which, if included, would
reduce total return. A nonstandardized quotation of total return will always be
accompanied by a Fund's "average annual total return" as described above.
The "yield" of a Fund is computed by dividing the net investment income per
share earned during a thirty-day (or one month) period stated in the
advertisement by the maximum public offering price per share on the last day of
the period (using the average number of shares entitled to receive dividends).
The yield formula assumes that net investment income is earned and reinvested at
a constant rate and annualized at the end of a six-month period.
From time to time, the Funds may advertise their performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc. ("Lipper"), or by publications of general
interest such as Forbes, Money, The Wall Street Journal, Business Week,
Barron's, Fortune or Morningstar Mutual Fund Values. The Funds may also compare
their performance to that of other selected mutual funds, averages of the other
mutual funds within their categories as determined by Lipper, or recognized
indicators such as the Dow Jones Industrial Average and the Standard & Poor's
500 Stock Index. In connection with a ranking, the Funds may provide additional
information, such as the particular category of funds to which the ranking
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of fee waivers and/or expense reimbursements,
if any. The Funds may also present their performance and other investment
characteristics, such as volatility or a temporary defensive posture, in light
of the investment adviser's view of current or past market conditions or
historical trends. Further information about the Funds' performance is contained
in the Trust's annual report which can be obtained by shareholders at no charge
by calling the Transfer Agent (Nationwide call toll-free 888-899-8343) or by
writing to the Funds at the address on the front of this prospectus.
PRIOR PERFORMANCE OF THE ADVISER. Since 1972, the Adviser has managed separate
accounts. Since 1985, the Adviser has managed separate accounts with investment
objectives, policies and strategies substantially similar to those employed by
the Adviser in managing the Balanced Fund. The Adviser believes that it has
produced outstanding, risk-adjusted investment results over time for these
separate accounts. The investment performance illustrated below, represents, for
one, three, five and ten year periods ended March 31, 1998, the composite
performance of all of the Adviser's separate accounts which were managed by the
Adviser with investment objectives, policies and strategies substantially
similar to those employed by the Adviser in managing the Balanced Fund (the
"Separate Accounts"). As a point of comparison, the charts below also reflect
the average historical performance of balanced mutual funds as reported by
Morningstar Mutual Fund Values.
30
<PAGE>
While the Adviser employs for the Balanced Fund investment objectives, policies
and strategies that are substantially similar to those that were employed by the
Adviser in managing the separate accounts, the Adviser, in managing the Balanced
Fund, may be subject to certain restrictions imposed by the 1940 Act and the
Internal Revenue Code on its investment activities to which, as investment
adviser to the Separate Accounts, it was not previously subject. Examples
include limits on the percentage of assets invested in securities of issuers in
a single industry and requirements on distributing income to shareholders.
Operating expenses are incurred by the Balanced Fund which were not incurred by
the Separate Accounts. Excluding the impact of applicable sales loads, the total
return of the Balanced Fund since inception through March 31, 1998 is as
follows:
Class A Shares Class C Shares
(Inception May 28, 1997) (Inception August 1, 1997)
------------------------ --------------------------
18.07% 9.37%
The performance data below represents the prior composite performance of the
Separate Accounts and not the prior performance of the Balanced Fund and should
not be relied upon by investors as an indication of future performance of the
Balanced Fund. The performance of the Separate Accounts has been computed in
accordance with the standards formulated by the Association for Investment
Management and Research ("AIMR") since January 1, 1993. In accordance with those
standards, the gross performance of each Separate Account is computed monthly
using the Modified Dietz Method. The value at the start of the month plus
time-weighted deposits minus time-weighted withdrawals provides the average
assets available during the month. Funds invested are computed by adding the
deposits to the value at the start of the month and subtracting withdrawals.
Appreciation is the difference between the end of period value and the funds
invested. Each Separate Account's performance is the appreciation divided by the
average assets available during the month. To develop the composite, the total
beginning value of all discretionary Separate Accounts is first determined. Each
Separate Account's performance is then weighted by its percentage of the total
beginning value. The composite is the total of all these weighted values. The
net composite is computed similarly except that the Separate Account's
management fee is subtracted from the appreciation of the Separate Account as if
it had been removed on the first of the month.
Prior to January 1, 1993, the methodology used to compute the performance of the
Separate Accounts was in substantial conformity with AIMR standards; however,
the Separate Accounts included in the composite were weighted based on
end-of-period asset values rather than start-of-period asset values, as required
by AIMR. In order to comply with AIMR, start-of-period values were used in
performance calculations beginning January 1, 1993, as discussed above. All
performance data presented is net of expenses.
AVERAGE ANNUAL RETURNS FOR 1, 3, 5 AND 10 YEAR PERIODS ENDED MARCH 31, 1998
Average Performance of
Balanced Mutual Funds as
Separate reported by Morningstar
Accounts Mutual Fund Values
-------- ------------------------
1 Year 27.45% 26.96%
3 Years 20.31% 19.00%
5 Years 13.81% 13.28%
10 Years 13.92% 12.57%
The average performance of balanced mutual funds as presented represents an
average of the annual returns of 405 balanced mutual funds tracked by
Morningstar Mutual Fund Values. Mutual funds are subject to certain restrictions
on their investment activities to which the Separate Accounts were not subject.
Examples include limits on the percentage of assets invested in securities of
issuers in a single industry and requirements on distributing income to
shareholders. Operating expenses are incurred by the mutual funds which were not
incurred by the Separate Accounts.
31
<PAGE>
DEAN FAMILY OF FUNDS
2480 Kettering Tower
Dayton, Ohio 45423
BOARD OF TRUSTEES
Victor S. Curtis
Chauncey H. Dean
Robert D. Dean
Frank J. Perez
Dr. David H. Ponitz
Frank H. Scott
Gilbert P. Williamson
INVESTMENT ADVISER
C.H. DEAN & ASSOCIATES, INC.
2480 Kettering Tower
Dayton, Ohio 45423
UNDERWRITER
2480 SECURITIES LLC
2480 Kettering Tower
Dayton, Ohio 45423
TRANSFER AGENT
COUNTRYWIDE FUND SERVICES, INC.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
SHAREHOLDER SERVICE
Nationwide: (Toll-Free) 888-899-8343
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Expense Information ...................................................... 2
Financial Highlights ..................................................... 4
Investment Objectives, Investment Policies and Risk Considerations ...... 6
How To Purchase Shares ................................................... 16
Shareholder Services ..................................................... 21
How To Redeem Shares ..................................................... 22
Exchange Privilege ....................................................... 23
Dividends and Distributions .............................................. 24
Taxes .................................................................... 25
Operation of the Funds ................................................... 25
Distribution Plans ....................................................... 28
Calculation of Share Price and Public Offering Price ..................... 29
Performance Information .................................................. 30
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Trust. This Prospectus does not constitute an offer by the Trust to sell
shares in any State to any person to whom it is unlawful for the Trust to make
such offer in such State.
<PAGE>
DEAN FAMILY OF FUNDS
ACCOUNT APPLICATION (Check appropriate Fund)
o Large Cap Value Fund Class A Shares (D0) $___________
o Large Cap Value Fund Class C Shares (D1)
o Small Cap Value Fund Class A Shares (D2) $___________
o Small Cap Value Fund Class C Shares (D3)
o Balanced Fund Class A Shares (D4) $___________
o Balanced Fund Class C Shares (D5)
o International Value Fund Class A Shares (D6) $___________
o International Value Fund Class C Shares (D7)
Please mail account application to:
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
ACCOUNT NO. D___ - _________________________
(For Fund Use Only)
- --------------------------------------------
FOR BROKER/DEALER USE ONLY
Firm Name:__________________________________
Home Office Address:________________________
Branch Address:_____________________________
Rep Name & No.:_____________________________
Rep Signature:______________________________
Principal Signature:________________________
- --------------------------------------------
================================================================================
o Check or draft enclosed payable to the Fund(s) designated above ($1,000
minimum).
o Bank Wire From: ____________________________________________________________
o Exchange From: ____________________________________________________________
(Fund Name) (Fund Account Number)
ACCOUNT NAME S.S. #/TAX I.D.#
_________________________________________________________ _____________________
Name of Individual, Corporation, Date of Birth (In case of custodial
Organization, or Minor, etc. account please list
minor's S.S.#)
_________________________________________________________ Citizenship: o U.S.
Name of Joint Tenant, Date of Birth o Other
Partner, Custodian _______
ADDRESS PHONE
_________________________________________________________ ( )________________
Street or P.O. Box Business Phone
_________________________________________________________ ( )________________
City State Zip Home Phone
Check Appropriate Box: o Individual o Corporation
o Joint Tenant o Trust
(Right of Survivorship o Custodial
Presumed) o Non-Profit
o Partnership o Other
Occupation and Employer Name/Address____________________________________________
Are you an associated person of an NASD member? o Yes o No
================================================================================
TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I certify that the
Taxpayer Identification Number listed above is my correct number. Check box if
appropriate:
o I am exempt from backup withholding under the provisions of section
3406(a)(1)(c) of the Internal Revenue Code; or I am not subject to backup
withholding because I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends; or
the Internal Revenue Service has notified me that I am no longer subject to
backup withholding.
o I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me and I have mailed or delivered an application to
receive a Taxpayer Identification Number to the Internal Revenue Service
Center or Social Security Administration Office. I understand that if I do
not provide a Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.
================================================================================
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
o Share Option -- Income distributions and capital gains distributions
automatically reinvested in additional shares.
o Income Option -- Income distributions and short term capital gains
distributions paid in cash, long term capital gains
distributions reinvested in additional shares.
o Cash Option -- Income distributions and capital gains distributions paid in
cash.
o By Check o By ACH to my bank checking or savings account.
PLEASE ATTACH A VOIDED CHECK.
================================================================================
REDUCED SALES CHARGES (CLASS A SHARES ONLY)
RIGHT OF ACCUMULATION: I apply for Right of Accumulation subject to the Agent's
confirmation of the following holdings of the Dean Family of Funds.
ACCOUNT NUMBER/NAME ACCOUNT NUMBER/NAME
_____________________________________ _______________________________________
_____________________________________ _______________________________________
LETTER OF INTENT: (Complete the Right of Accumulation section if related
accounts are being applied to your Letter of Intent.)
o l agree to the Letter of Intent in the current Prospectus of the Dean Family
of Funds. Although I am not obligated to purchase, and the Dean Family of
Funds is not obligated to sell, I intend to invest over a 13 month period
beginning ______________________ 19 _______ (purchase date of not more than
90 days prior to this Letter) an aggregate amount in the Dean Family of Funds
at least equal to (check appropriate box):
o $25,000 o $50,000 o $100,000 o $250,000 o $500,000
================================================================================
SIGNATURES
By signature below each investor certifies that he has received a copy of the
Funds' current Prospectus, that he is of legal age, and that he has full
authority and legal capacity for himself or the organization named below, to
make this investment and to use the options selected above. The investor
appoints Countrywide Fund Services, Inc. as his agent to enter orders for shares
whether by direct purchase or exchange, to receive dividends and distributions
for automatic reinvestment in additional shares of the Funds for credit to the
investor's account and to surrender for redemption shares held in the investor's
account in accordance with any of the procedures elected above or for payment of
service charges incurred by the investor. The investor further agrees that
Countrywide Fund Services, Inc. can cease to act as such agent upon ten days'
notice in writing to the investor at the address contained in this Application.
The investor hereby ratifies any instructions given pursuant to this Application
and for himself and his successors and assigns does hereby release Countrywide
Fund Services, Inc., Dean Family of Funds, C.H. Dean & Associates, Inc., 2480
Securities LLC, and their respective officers, employees, agents and affiliates
from any and all liability in the performance of the acts instructed herein
provided that such entities have exercised due care to determine that the
instructions are genuine. Neither the Trust, Countrywide Fund Services, Inc.,
nor their respective affiliates will be liable for complying with telephone
instructions they reasonably believe to be genuine or for any loss, damage, cost
or expense in acting on such telephone instructions. The investor(s) will bear
the risk of any such loss. The Trust or Countrywide Fund Services, Inc., or
both, will employ reasonable procedures to determine that telephone instructions
are genuine. If the Trust and/or Countrywide Fund Services, Inc. do not employ
such procedures, they may be liable for losses due to unauthorized or fraudulent
instructions. These procedures may include, among others, requiring forms of
personal identification prior to acting upon telephone instructions, providing
written confirmation of the transactions and/or tape recording telephone
instructions. The Internal Revenue Service does not require your consent to any
provision of this document other than the certifications required to avoid
backup withholding.
____________________________________ _____________________________________
Signature of Individual Owner, Signature of Joint Owner, if Any
Corporate Officer, Trustee, etc.
____________________________________ _____________________________________
Title of Corporate Officer, Date
Trustee, etc.
NOTE: CORPORATIONS, TRUSTS AND OTHER ORGANIZATIONS MUST COMPLETE THE RESOLUTION
FORM ON THE REVERSE SIDE. UNLESS OTHERWISE SPECIFIED, EACH JOINT OWNER SHALL
HAVE FULL AUTHORITY TO ACT ON BEHALF OF THE ACCOUNT.
<PAGE>
AUTOMATIC INVESTMENT PLAN (COMPLETE FOR INVESTMENTS INTO THE FUND(S)) The
Automatic Investment Plan is available for all established accounts of the Dean
Family of Funds. There is no charge for this service, and it offers the
convenience of automatic investing on a regular basis. The minimum investment is
$50.00 per month. For an account that is opened by using this Plan, the minimum
initial and subsequent investments must be $50.00. Though a continuous program
of 12 monthly investments is recommended, the Plan may be discontinued by the
shareholder at any time.
Please invest $ _________________ ABA Routing Number ____________________
per month in the
(check the appropriate Fund.) FI Account Number _____________________
o Large Cap Value Fund o Checking Account o Savings Account
o Small Cap Value Fund
o Balanced Fund Please make my automatic investment on:
o International Value Fund
o the last business day of each month
__________________________________ o the 15th day of each month
Name of Financial Institution (FI) o both the 15th and last business day
__________________________________
City State
X_________________________________ X______________________________________
(Signature of Depositor EXACTLY (Signature of Joint Tenant - if any)
as it appears on FI Records)
(Joint Signatures are required when bank account is in joint names. Please
sign exactly as signature appears on your FI's records.)
PLEASE ATTACH A VOIDED CHECK FOR THE AUTOMATIC INVESTMENT PLAN.
INDEMNIFICATION TO DEPOSITOR'S BANK
In consideration of your participation in a plan which Countrywide Fund
Services, Inc. (CFS) has put into effect, by which amounts, determined by your
depositor, payable to the applicable Fund designated above, for purchase of
shares of said Fund, are collected by CFS, CFS hereby agrees:
CFS will indemnify and hold you harmless from any liability to any person or
persons whatsoever arising out of the payment by you of any amount drawn by the
Funds to their own order on the account of your depositor or from any liability
to any person whatsoever arising out of the dishonor by you whether with or
without cause or intentionally or inadvertently, of any such amount. CFS will
defend, at its own cost and expense, any action which might be brought against
you by any person or persons whatsoever because of your actions taken pursuant
to the foregoing request or in any manner arising by reason of your
participation in this arrangement. CFS will refund to you any amount erroneously
paid by you to the Funds if the claim for the amount of such erroneous payment
is made by you within six (6) months from the date of such erroneous payment;
your participation in this arrangement and that of the Funds may be terminated
by thirty (30) days' written notice from either party to the other.
================================================================================
AUTOMATIC WITHDRAWAL PLAN (Complete for Withdrawals from the Fund(s))
This is an authorization for you to withdraw $_________ from my mutual fund
account beginning the last business day of the month of __________.
Please Indicate Withdrawal Schedule (Check One):
o MONTHLY -- Withdrawals will be made on the last business day of each month.
o QUARTERLY -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
o ANNUALLY -- Please make withdrawals on the last business day of the month of:
______________.
Please indicate which Fund:
o Large Cap Value Fund
o Small Cap Value Fund
o Balanced Fund
o International Value Fund
Please Select Payment Method (Check One):
o EXCHANGE: Please exchange the withdrawal proceeds into another account
number: ____ ____ -- ____ ____ ____ ____ ____ ____ -- ____
o CHECK: Please mail a check for my withdrawal proceeds to the mailing address
on this account.
o ACH TRANSFER: Please send my withdrawal proceeds via ACH transfer to my bank
checking or savings account as indicated below. I understand that the
transfer will be completed in two to three business days and that there is no
charge.
o BANK WIRE: Please send my withdrawal proceeds via bank wire, to the account
indicated below. I understand that the wire will be completed in one business
day and that there is an $8.00 fee.
PLEASE ATTACH A VOIDED _____________________________________________________
CHECK FOR ACH OR BANK WIRE Bank Name Bank Address
_____________________________________________________
Bank ABA# Account # Account Name
o Send to special payee (other than applicant): Please mail a check for my
withdrawal proceeds to the mailing address below:
Name of payee __________________________________________________________________
Please send to: ________________________________________________________________
Street address City State Zip
================================================================================
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of the Dean
Family of Funds (the Trust) and that
____________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf of
the corporation or organization and to take any action for it as may be
necessary or appropriate with respect to its shareholder account with the Trust,
and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to sign
any documents necessary or appropriate to appoint Countrywide Fund Services,
Inc. as redemption agent of the corporation or organization for shares of the
applicable series of the Trust, to establish or acknowledge terms and conditions
governing the redemption of said shares and to otherwise implement the
privileges elected on the Application.
CERTIFICATE
I hereby certify that the foregoing resolutions are in conformity with the
Charter and Bylaws or other empowering documents of the
________________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of _______________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on at which a quorum was
present and acting throughout, and that the same are now in full force and
effect. I further certify that the following is (are) duly elected officer(s) of
the corporation or organization, authorized to act in accordance with the
foregoing resolutions.
NAME TITLE
_____________________________________ _______________________________________
_____________________________________ _______________________________________
_____________________________________ _______________________________________
Witness my hand and seal of the corporation or organization this _______________
day of ________________, 19___
_____________________________________ _______________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
<PAGE>
DEAN FAMILY OF FUNDS
--------------------
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
July 15, 1998
Large Cap Value Fund
Small Cap Value Fund
Balanced Fund
International Value Fund
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus of the Dean Family of Funds dated July
15, 1998. A copy of the Funds' Prospectus can be obtained by writing the Trust
at 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202, or by calling the
Trust nationwide toll-free 888-899-8343.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
Dean Family of Funds
2480 Kettering Tower
Dayton, Ohio 45423
TABLE OF CONTENTS
THE TRUST.................................................................... 3
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS................................ 4
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS...................... 15
INVESTMENT LIMITATIONS....................................................... 17
TRUSTEES AND OFFICERS........................................................ 19
THE INVESTMENT ADVISER....................................................... 22
THE SUB-ADVISER.............................................................. 24
THE UNDERWRITER.............................................................. 24
DISTRIBUTION PLANS........................................................... 25
SECURITIES TRANSACTIONS...................................................... 27
PORTFOLIO TURNOVER........................................................... 28
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE......................... 29
OTHER PURCHASE INFORMATION................................................... 29
TAXES .................................................................... 31
REDEMPTION IN KIND........................................................... 33
HISTORICAL PERFORMANCE INFORMATION........................................... 33
CUSTODIAN.................................................................... 36
AUDITORS .................................................................... 36
PRINCIPAL SECURITY HOLDERS................................................... 36
COUNTRYWIDE FUND SERVICES, INC............................................... 38
ANNUAL REPORT................................................................ 38
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THE TRUST
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The Dean Family of Funds (the "Trust") was organized as an Ohio business
trust on December 18, 1996. The Trust currently offers four series of shares to
investors: the Large Cap Value Fund, the Small Cap Value Fund, the Balanced Fund
and the International Value Fund (referred to individually as a "Fund" and
collectively as the "Funds"). Each Fund has its own investment objective(s) and
policies.
Each share of a Fund represents an equal proportionate interest in the
assets and liabilities belonging to that Fund with each other share of that Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interest in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging to
a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. Generally, the
Trustees allocate such expenses on the basis of relative net assets or number of
shareholders. No shareholder is liable to further calls or to assessment by the
Trust without his express consent.
Both Class A shares and Class C shares of a Fund represent an interest in
the same assets of such Fund, have the same rights and are identical in all
material respects except that (i) Class C shares bear the expenses of higher
distribution fees; (ii) certain other class specific expenses will be borne
solely by the class to which such expenses are attributable, including transfer
agent fees attributable to a specific class of shares, printing and postage
expenses related to preparing and distributing materials to current shareholders
of a specific class, registration fees incurred by a specific class of shares,
the expenses of administrative personnel and services required to support the
shareholders of a specific class, litigation or other legal expenses relating to
a class of shares, Trustees' fees or expenses incurred as a result of issues
relating to a specific class of shares and accounting fees and expenses relating
to a specific class of shares; and (iii) each class has exclusive voting rights
with respect to matters relating to its own distribution arrangements. The Board
of Trustees may classify and reclassify the shares of a Fund into additional
classes of shares at a future date.
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<PAGE>
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
- ---------------------------------------------
A more detailed discussion of some of the terms used and investment
policies described in the Prospectus (see "Investment Objectives and Policies")
appears below:
MAJORITY. As used in the Prospectus and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Trust (or of
any Fund) means the lesser of (1) 67% or more of the outstanding shares of the
Trust (or the applicable Fund) present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust (or the applicable Fund) are present
or represented at such meeting or (2) more than 50% of the outstanding shares of
the Trust (or the applicable Fund).
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from one
to two hundred seventy days) unsecured promissory notes issued by corporations
in order to finance their current operations. The Funds will only invest in
commercial paper rated A-1 or A-2 by Standard & Poor's Ratings Group ("S&P") or
Prime-1 or Prime-2 by Moody's Investors Service, Inc. ("Moody's") or which, in
the opinion of the investment adviser, is of equivalent investment quality.
Certain notes may have floating or variable rates. Variable and floating rate
notes with a demand notice period exceeding seven days will be subject to each
Fund's restrictions on illiquid investments (see "Investment Limitations")
unless, in the judgment of the investment adviser, subject to the direction of
the Board of Trustees, such note is liquid.
The rating of Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: evaluation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
strength of the parent company and the relationships which exist with the
issuer; and recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to meet such
obligations. These factors are all considered in determining whether the
commercial paper is rated Prime-1 or Prime-2. Commercial paper rated A-1
(highest quality) by S&P has the following characteristics: liquidity ratios are
adequate to meet cash requirements; long-term senior debt is rated "A" or
better, although in some cases "BBB" credits may be allowed; the issuer has
access to at least two additional channels of borrowing; basic earnings and cash
flow have an upward trend with allowance made for unusual
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<PAGE>
circumstances; typically, the issuer's industry is well established and the
issuer has a strong position within the industry; and the reliability and
quality of management are unquestioned. The relative strength or weakness of the
above factors determines whether the issuer's commercial paper is rated A-1 or
A-2.
BANK DEBT INSTRUMENTS. Bank debt instruments in which the Funds may invest
consist of certificates of deposit, bankers' acceptances and time deposits
issued by national banks and state banks, trust companies and mutual savings
banks, or banks or institutions the accounts of which are insured by the Federal
Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation. Certificates of deposit are negotiable certificates evidencing the
indebtedness of a commercial bank to repay funds deposited with it for a
definite period of time (usually from fourteen days to one year) at a stated or
variable interest rate. Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft which has been drawn on it by a
customer, which instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. Investments in time deposits maturing
in more than seven days will be subject to each Fund's restrictions on illiquid
investments (see "Investment Limitations").
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which a
Fund purchases a security and simultaneously commits to resell that security to
the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
of the seller of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
each Fund intends to enter into repurchase agreements only with its Custodian,
with banks having assets in excess of $10 billion and with broker-dealers who
are recognized as primary dealers in U.S. Government obligations by the Federal
Reserve Bank of New York. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' Custodian at the Federal
Reserve Bank. A Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 15% of the value of its net
assets would be invested in such securities and other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after a Fund's acquisition of the securities and normally would be
within a
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<PAGE>
shorter period of time. The resale price will be in excess of the purchase
price, reflecting an agreed upon market rate effective for the period of time
the Fund's money will be invested in the securities, and will not be related to
the coupon rate of the purchased security. At the time a Fund enters into a
repurchase agreement, the value of the underlying security, including accrued
interest, will equal or exceed the value of the repurchase agreement, and in the
case of a repurchase agreement exceeding one day, the seller will agree that the
value of the underlying security, including accrued interest, will at all times
equal or exceed the value of the repurchase agreement. The collateral securing
the seller's obligation must be of a credit quality at least equal to the Fund's
investment criteria for portfolio securities and will be held by the Custodian
or in the Federal Reserve Book Entry System.
For purposes of the Investment Company Act of 1940, a repurchase agreement
is deemed to be a loan from a Fund to the seller subject to the repurchase
agreement and is therefore subject to that Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
securities purchased by a Fund subject to a repurchase agreement as being owned
by that Fund or as being collateral for a loan by the Fund to the seller. In the
event of the commencement of bankruptcy or insolvency proceedings with respect
to the seller of the securities before repurchase of the security under a
repurchase agreement, a Fund may encounter delay and incur costs before being
able to sell the security. Delays may involve loss of interest or decline in
price of the security. If a court characterized the transaction as a loan and a
Fund has not perfected a security interest in the security, that 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, a 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 obligation purchased for a Fund, the
investment adviser seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case, the
seller. Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security, in which case
a Fund may incur a loss if the proceeds to that Fund of the sale of the security
to a third party are less than the repurchase price. However, if the market
value of the securities subject to the repurchase agreement becomes less than
the repurchase price (including interest), the Fund involved will direct the
seller of the security to deliver additional securities so that the market value
of all securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that a Fund will be unsuccessful in seeking to
enforce the seller's contractual obligation to deliver additional securities.
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<PAGE>
LOANS OF PORTFOLIO SECURITIES. Each Fund may lend its portfolio securities
subject to the restrictions stated in the Prospectus. Under applicable
regulatory requirements (which are subject to change), the loan collateral must,
on each business day, at least equal the value of the loaned securities. To be
acceptable as collateral, letters of credit must obligate a bank to pay amounts
demanded by a Fund if the demand meets the terms of the letter. Such terms and
the issuing bank must be satisfactory to the Fund. The Funds receive amounts
equal to the dividends or interest on loaned securities and also receive one or
more of (a) negotiated loan fees, (b) interest on securities used as collateral,
or (c) interest on short-term debt securities purchased with such collateral;
either type of interest may be shared with the borrower. The Funds may also pay
fees to placing brokers as well as custodian and administrative fees in
connection with loans. Fees may only be paid to a placing broker provided that
the Trustees determine that the fee paid to the placing broker is reasonable and
based solely upon services rendered, that the Trustees separately consider the
propriety of any fee shared by the placing broker with the borrower, and that
the fees are not used to compensate the investment adviser or any affiliated
person of the Trust or an affiliated person of the investment adviser or other
affiliated person. The terms of the Funds' loans must meet applicable tests
under the Internal Revenue Code and permit the Funds to reacquire loaned
securities on five days' notice or in time to vote on any important matter.
WHEN-ISSUED SECURITIES AND SECURITIES PURCHASED ON A TO-BE-ANNOUNCED BASIS.
Each Fund will only make commitments to purchase securities on a when-issued or
to-be-announced ("TBA") basis with the intention of actually acquiring the
securities. In addition, each Fund may purchase securities on a when-issued or
TBA basis only if delivery and payment for the securities takes place within 120
days after the date of the transaction. In connection with these investments,
each Fund will direct the Custodian to place cash or liquid portfolio securities
in a segregated account in an amount sufficient to make payment for the
securities to be purchased. When a segregated account is maintained because a
Fund purchases securities on a when-issued or TBA basis, the assets deposited in
the segregated account will be valued daily at market for the purpose of
determining the adequacy of the securities in the account. If the market value
of such securities declines, additional cash or securities will be placed in the
account on a daily basis so that the market value of the account will equal the
amount of a Fund's commitments to purchase securities on a when-issued or TBA
basis. To the extent funds are in a segregated account, they will not be
available for new investment or to meet redemptions. Securities purchased on a
when-issued or TBA basis and the securities held in a Fund's portfolio are
subject to changes in market value based upon changes in the level of interest
rates (which will
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<PAGE>
generally result in all of those securities changing in value in the same way,
i.e., all those securities experiencing appreciation when interest rates decline
and depreciation when interest rates rise). Therefore, if in order to achieve
higher returns, a Fund remains substantially fully invested at the same time
that it has purchased securities on a when-issued or TBA basis, there will be a
possibility that the market value of the Fund's assets will have greater
fluctuation. The purchase of securities on a when-issued or TBA basis may
involve a risk of loss if the broker-dealer selling the securities fails to
deliver after the value of the securities has risen.
When the time comes for a Fund to make payment for securities purchased on
a when-issued or TBA basis, the Fund will do so by using then available cash
flow, by sale of the securities held in the segregated account, by sale of other
securities or, although it would not normally expect to do so, by directing the
sale of the securities purchased on a when-issued or TBA basis themselves (which
may have a market value greater or less than the Fund's payment obligation).
Although a Fund will only make commitments to purchase securities on a
when-issued or TBA basis with the intention of actually acquiring the
securities, the Fund may sell these securities before the settlement date if it
is deemed advisable by the investment adviser as a matter of investment
strategy.
WARRANTS AND RIGHTS. Warrants are options to purchase equity securities at
a specified price and are valid for a specific time period. Rights are similar
to warrants, but normally have a short duration and are distributed by the
issuer to its shareholders. Each Fund may purchase warrants and rights, provided
that the Fund does not invest more than 5% of its net assets at the time of
purchase in warrants and rights other than those that have been acquired in
units or attached to other securities. Of such 5%, no more than 2% of a Fund's
assets at the time of purchase may be invested in warrants which are not listed
on either the New York Stock Exchange or the American Stock Exchange.
STRIPS. STRIPS are U.S. Treasury bills, notes and bonds that have been
issued without interest coupons or stripped of their unmatured interest coupons,
interest coupons that have been stripped from such U.S. Treasury securities, and
receipts or certificates representing interests in such stripped U.S. Treasury
securities and coupons. A STRIPS security pays no interest in cash to its holder
during its life although interest is accrued for federal income tax purposes.
Its value to an investor consists of the difference between its face value at
the time of maturity and the price for which it was acquired, which is generally
an amount significantly less than its face value. Investing in STRIPS may help
to preserve capital during periods of declining interest rates.
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<PAGE>
STRIPS do not entitle the holder to any periodic payments of interest prior
to maturity. Accordingly, such securities usually trade at a deep discount from
their face or par value and will be subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities which make periodic distributions of interest. On the other hand,
because there are no periodic interest payments to be reinvested prior to
maturity, STRIPS eliminate the reinvestment risk and lock in a rate of return to
maturity. Current federal tax law requires that a holder of a STRIPS security
accrue a portion of the discount at which the security was purchased as income
each year even though the Fund received no interest payment in cash on the
security during the year.
FOREIGN SECURITIES. Subject to the Fund's investment policies and quality
and maturity standards, a Fund may invest in the securities (payable in U.S.
dollars) of foreign issuers. Because the Funds may invest in foreign securities,
an investment in the Funds involves risks that are different in some respects
from an investment in a fund which invests only in securities of U.S. domestic
issuers. Foreign investments may be affected favorably or unfavorably by changes
in currency rates and exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those applicable to U.S.
companies. There may be less governmental supervision of securities markets,
brokers and issuers of securities. Securities of some foreign companies are less
liquid or more volatile than securities of U.S. companies, and foreign brokerage
commissions and custodian fees are generally higher than in the United States.
Settlement practices may include delays and may differ from those customary in
United States markets. Investments in foreign securities may also be subject to
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the United States.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The value of the International
Value Fund's portfolio securities which are invested in non-U.S. dollar
denominated instruments as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and the Fund may incur costs in connection with conversions between
various currencies. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign
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<PAGE>
currency exchange market, or through forward contracts to purchase or sell
foreign currencies. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
directly between currency traders (usually large commercial banks) and their
customers. The Fund will not, however, hold foreign currency except in
connection with purchase and sale of foreign portfolio securities.
The International Value Fund will enter into forward foreign currency
exchange contracts as described hereafter. When the Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency, it may
desire to establish the cost or proceeds relative to another currency. The
forward contract may be denominated in U.S. dollars or may be a "cross-currency"
contract where the forward contract is denominated in a currency other than U.S.
dollars. However, this tends to limit potential gains which might result from a
positive change in such currency relationships.
The forecasting of a short-term currency market movement is extremely
difficult and the successful execution of a short-term hedging strategy is
highly uncertain. The International Value Fund may enter into such forward
contracts if, as a result, not more than 50% of the value of its total assets
would be committed to such contracts. Under normal circumstances, consideration
of the prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, the Trustees believe that it is important to have the flexibility to
enter into forward contracts when the Sub-Adviser determines it to be in the
best interests of the Fund. The Custodian will segregate cash or liquid
portfolio securities in an amount not less than the value of the Fund's total
assets committed to foreign currency exchange contracts entered into under this
type of transaction. If the value of the segregated securities declines,
additional cash or securities will be added on a daily basis, i.e., "marked to
market," so that the segregated amount will not be less than the amount of the
Fund's commitments with respect to such contracts.
Generally, the International Value Fund will not enter into a forward
foreign currency exchange contract with a term of greater than 90 days. At the
maturity of the contract, the Fund may either sell the portfolio security and
make delivery of the foreign currency, or may retain the security and terminate
the obligation to deliver the foreign currency by purchasing an "offsetting"
forward contract with the same currency trader obligating the Fund to purchase,
on the same maturity date, the same amount of the foreign currency.
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<PAGE>
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the contract. Accordingly, it may be
necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the Fund is obligated to
deliver.
If the International Value Fund retains the portfolio security and engages
in an offsetting transaction, the Fund will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices. If
the Fund engages in an offsetting transaction, it may subsequently enter into a
new forward contract to sell the foreign currency. Should forward prices decline
during the period between entering into a forward contract for the sale of a
foreign currency and the date the Fund enters into an offsetting contract for
the purchase of the foreign currency, the Fund will realize a gain to the extent
the price of the currency the Fund has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the Fund
will suffer a loss to the extent the price of the currency the Fund has agreed
to purchase exceeds the price of the currency the Fund has agreed to sell.
The International Value Fund's dealings in forward foreign currency
exchange contracts will be limited to the transactions described above. The Fund
is not required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
the Sub-Adviser. It should also be realized that this method of protecting the
value of the Fund's portfolio securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities held by the Fund. It simply establishes a rate of exchange which one
can achieve at some future point in time. Additionally, although such contracts
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result should the value of such currency increase.
WRITING COVERED CALL OPTIONS. Each Fund may write covered call options on
equity securities or futures contracts to earn premium income, to assure a
definite price for a security it has considered selling, or to close out options
previously purchased. A call option gives the holder (buyer) the right to
purchase a security or futures contract at a specified price (the exercise
price) at any time until a certain date (the expiration date). A call option is
"covered" if a Fund owns the underlying security subject to the call option at
all times during the option period.
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<PAGE>
A covered call writer is required to deposit in escrow the underlying security
in accordance with the rules of the exchanges on which the option is traded and
the appropriate clearing agency.
The writing of covered call options is a conservative investment technique
which the investment adviser believes involves relatively little risk. However,
there is no assurance that a closing transaction can be effected at a favorable
price. During the option period, the covered call writer has, in return for the
premium received, given up the opportunity for capital appreciation above the
exercise price should the market price of the underlying security increase, but
has retained the risk of loss should the price of the underlying security
decline.
A Fund may write covered call options if, immediately thereafter, not more
than 30% of its net assets would be committed to such transactions. As long as
the Securities and Exchange Commission continues to take the position that
unlisted options are illiquid securities, a Fund will not commit more than 15%
of its net assets to unlisted covered call transactions and other illiquid
securities.
WRITING COVERED PUT OPTIONS. Each Fund may write covered put options on
equity securities and futures contracts to assure a definite price for a
security if it is considering acquiring the security at a lower price than the
current market price or to close out options previously purchased. A put option
gives the holder of the option the right to sell, and the writer has the
obligation to buy, the underlying security at the exercise price at any time
during the option period. The operation of put options in other respects is
substantially identical to that of call options. When a Fund writes a covered
put option, it maintains in a segregated account with its Custodian cash or
liquid portfolio securities in an amount not less than the exercise price at all
times while the put option is outstanding.
The risks involved in writing put options include the risk that a closing
transaction cannot be effected at a favorable price and the possibility that the
price of the underlying security may fall below the exercise price, in which
case a Fund may be required to purchase the underlying security at a higher
price than the market price of the security at the time the option is exercised.
A Fund may not write a put option if, immediately thereafter, more than 25% of
its net assets would be committed to such transactions.
PURCHASING PUT OPTIONS. Each Fund may purchase put options. As the holder
of a put option, a Fund has the right to sell the underlying security at the
exercise price at any time during the option period. Each Fund may enter into
closing sale transactions with respect to such options, exercise them or
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<PAGE>
permit them to expire. Each Fund may purchase put options for defensive purposes
in order to protect against an anticipated decline in the value of its
securities. An example of such use of put options is provided below.
Each Fund may purchase a put option on an underlying security (a
"protective put") owned as a defensive technique in order to protect against an
anticipated decline in the value of the security. Such hedge protection is
provided only during the life of the put option when the Fund, as the holder of
the put option, is able to sell the underlying security at the put exercise
price regardless of any decline in the underlying security's market price. For
example, a put option may be purchased in order to protect unrealized
appreciation of a security where the Adviser deems it desirable to continue to
hold the security because of tax considerations. The premium paid for the put
option and any transaction costs would reduce any capital gain otherwise
available for distribution when the security is eventually sold.
Each Fund may also purchase put options at a time when it does not own the
underlying security. By purchasing put options on a security it does not own, a
Fund seeks to benefit from a decline in the market price of the underlying
security. If the put option is not sold when it has remaining value, and if the
market price of the underlying security remains equal to or greater than the
exercise price during the life of the put option, a Fund will lose its entire
investment in the put option. In order for the purchase of a put option to be
profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction
costs, unless the put option is sold in a closing sale transaction.
Each Fund will commit no more than 5% of its assets to premiums when
purchasing put options. The premium paid by a Fund when purchasing a put option
will be recorded as an asset in the Fund's statement of assets and liabilities.
This asset will be adjusted daily to the option's current market value, which
will be the latest sale price at the time at which the Fund's net asset value
per share is computed (close of trading on the New York Stock Exchange), or, in
the absence of such sale, the latest bid price. The asset will be extinguished
upon expiration of the option, the selling (writing) of an identical option in a
closing transaction, or the delivery of the underlying security upon the
exercise of the option.
PURCHASING CALL OPTIONS. Each Fund may purchase call options. As the holder
of a call option, a Fund has the right to purchase the underlying security at
the exercise price at any time during the option period. Each Fund may enter
into closing sale transactions with respect to such options, exercise them or
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<PAGE>
permit them to expire. Each Fund may purchase call options for the purpose of
increasing its current return or avoiding tax consequences which could reduce
its current return. Each Fund may also purchase call options in order to acquire
the underlying securities. Examples of such uses of call options are provided
below.
Call options may be purchased by a Fund for the purpose of acquiring the
underlying securities for its portfolio. Utilized in this fashion, the purchase
of call options enables a Fund to acquire the securities at the exercise price
of the call option plus the premium paid. At times the net cost of acquiring
securities in this manner may be less than the cost of acquiring the securities
directly. This technique may also be useful to a Fund in purchasing a large
block of securities that would be more difficult to acquire by direct market
purchases. So long as it holds such a call option rather than the underlying
security itself, a Fund is partially protected from any unexpected decline in
the market price of the underlying security and in such event could allow the
call option to expire, incurring a loss only to the extent of the premium paid
for the option.
Each Fund will commit no more than 5% of its assets to premiums when
purchasing call options. Each Fund may also purchase call options on underlying
securities it owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for this purpose
where tax considerations make it inadvisable to realize such gains through a
closing purchase transaction. Call options may also be purchased at times to
avoid realizing losses that would result in a reduction of a Fund's current
return. For example, where a Fund has written a call option on an underlying
security having a current market value below the price at which such security
was purchased by the Fund, an increase in the market price could result in the
exercise of the call option written by the Fund and the realization of a loss on
the underlying security with the same exercise price and expiration date as the
option previously written.
OPTIONS TRANSACTIONS GENERALLY. Option transactions in which the Funds may
engage involve the specific risks described above as well as the following
risks: the writer of an option may be assigned an exercise at any time during
the option period; disruptions in the markets for underlying instruments could
result in losses for options investors; imperfect or no correlation between the
option and the securities being hedged; the insolvency of a broker could present
risks for the broker's customers; and market imposed restrictions may prohibit
the exercise of certain options. In addition, the option activities of a Fund
may affect its portfolio turnover rate and the amount of brokerage commissions
paid by a Fund. The success of a Fund in using the option strategies described
above depends, among
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<PAGE>
other things, on the investment adviser's ability to predict the direction and
volatility of price movements in the options, futures contracts and securities
markets and the investment adviser's ability to select the proper time, type and
duration of the options.
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS
- -------------------------------------------------------
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for corporate bonds in which the Funds may invest are as follows:
Moody's Investors Service, Inc.
-------------------------------
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
- 15 -
<PAGE>
Standard & Poor's Ratings Group
-------------------------------
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for preferred stocks in which the Funds may invest are as follows:
Moody's Investors Service, Inc.
-------------------------------
aaa - An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a - An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa - An issue which is rated baa is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
- 16 -
<PAGE>
Standard & Poor's Ratings Group
-------------------------------
AAA - This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
INVESTMENT LIMITATIONS
- ----------------------
The Trust has adopted certain fundamental investment limitations designed
to reduce the risk of an investment in each Fund. These limitations may not be
changed with respect to any Fund without the affirmative vote of a majority of
the outstanding shares of that Fund.
1. BORROWING MONEY. The Fund will not borrow money, except from a bank,
provided that immediately after such borrowing there is asset coverage of 300%
for all borrowings of the Fund. The Fund will not make any borrowing which would
cause its outstanding borrowings to exceed one-third of the value of its total
assets. This limitation is not applicable to when-issued purchases.
2. PLEDGING. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
3. MARGIN PURCHASES. The Fund will not purchase any securities or
evidences of interest thereon on "margin" (except such short-term credits as are
necessary for the clearance of transactions or to the extent necessary to engage
in transactions described in the Prospectus and Statement of Additional
Information which involve margin purchases).
- 17 -
<PAGE>
4. OPTIONS. The Fund will not purchase or sell puts, calls, options,
futures, straddles, commodities or commodities futures contracts except as
described in the Prospectus and Statement of Additional Information.
5. REAL ESTATE. The Fund will not purchase, hold or deal in real estate
or real estate mortgage loans, except that the Fund may purchase (a) securities
of companies (other than limited partnerships) which deal in real estate or (b)
securities which are secured by interests in real estate.
6. AMOUNT INVESTED IN ONE ISSUER. The Fund will not invest more than 5%
of its total assets in the securities of any issuer; provided, however, that
there is no limitation with respect to investments and obligations issued or
guaranteed by the United States Government or its agencies or instrumentalities
or repurchase agreements with respect thereto.
7. SHORT SALES. The Fund will not make short sales of securities, or
maintain a short position, other than short sales "against the box."
8. MINERAL LEASES. The Fund will not purchase oil, gas or other mineral
leases or exploration or development programs.
9. UNDERWRITING. The Fund will not act as underwriter of securities
issued by other persons, either directly or through a majority owned subsidiary.
This limitation is not applicable to the extent that, in connection with the
disposition of its portfolio securities (including restricted securities), the
Fund may be deemed an underwriter under certain federal securities laws.
10. ILLIQUID INVESTMENTS. The Fund will not purchase securities which
cannot be readily resold to the public because of legal or contractual
restrictions on resale or for which no readily available market exists or engage
in a repurchase agreement maturing in more than seven days if, as a result
thereof, more than 15% of the value of the Fund's net assets would be invested
in such securities.
11. CONCENTRATION. The Fund will not invest 25% or more of its total
assets in the securities of issuers in any particular industry; provided,
however, that there is no limitation with respect to investments in obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities or repurchase agreements with respect thereto.
12. INVESTING FOR CONTROL. The Fund will not invest in companies for the
purpose of exercising control.
- 18 -
<PAGE>
13. OTHER INVESTMENT COMPANIES. The Fund will not invest more than 10% of
its total assets in securities of other investment companies. The Fund will not
invest more than 5% of its total assets in the securities of any single
investment company.
14. SENIOR SECURITIES. The Fund will not issue or sell any senior
security. This limitation is not applicable to short-term credit obtained by the
Fund for the clearance of purchases and sales or redemptions of securities, or
to arrangements with respect to transactions involving options, futures
contracts, short sales and other similar permitted investments and techniques.
15. LOANS. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, or (b) by engaging in repurchase agreements. For
purposes of this limitation, the term "loans" shall not include the purchase of
bonds, debentures, commercial paper or corporate notes, and similar marketable
evidences of indebtedness.
With respect to the percentages adopted by the Trust as maximum limitations
on each Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money and the holding of illiquid securities) will not be a violation of the
policy or restriction unless the excess results immediately and directly from
the acquisition of any security or the action taken.
TRUSTEES AND OFFICERS
- ---------------------
The following is a list of the Trustees and executive officers of the Trust
and their compensation from the Trust for the fiscal year ended March 31, 1998.
Each Trustee who is an "interested person" of the Trust, as defined by the
Investment Company Act of 1940, is indicated by an asterisk.
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<PAGE>
Compensation
Name Age Position Held From the Trust
- ---- --- ------------- --------------
*Frank H. Scott 53 President/Trustee $ 0
*Chauncey H. Dean 73 Trustee 0
*Robert D. Dean 64 Trustee 0
*Victor S. Curtis 36 Trustee 0
+Frank J. Perez 54 Trustee 7,000(1)
+David H. Ponitz 67 Trustee 6,000(1)
+Gilbert P. Williamson 61 Trustee 7,000(1)
Robert G. Dorsey 41 Vice President 0
Mark J. Seger 36 Treasurer 0
Tina D. Hosking 29 Secretary 0
John F. Splain 41 Asst. Secretary 0
* Mr. Scott, Mr. Chauncey Dean, Mr. Robert Dean and Mr. Curtis, as affiliated
persons of C.H. Dean & Associates, Inc., the Trust's investment adviser,
and 2480 Securities LLC, the Trust's principal underwriter, are "interested
persons" of the Trust within the meaning of Section 2(a)(19) of the
Investment Company Act of 1940.
+ Member of Audit Committee.
(1) Messrs. Perez, Ponitz and Williamson have elected to defer their
compensation by participating in the Dean Family of Funds Directors
Deferred Compensation Plan (the "Plan"). The Plan is a non-qualified
deferred compensation plan in which the Trustees will accrue their benefits
on a tax-free basis until such time as they begin receiving distributions.
The tax obligations of the Plan will be paid by C.H. Dean & Associates,
Inc. Messrs. Perez, Ponitz and Williamson will not be entitled to receive a
distribution from the Plan until they have attained the age of 72.
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
FRANK H. SCOTT, 2480 Kettering Tower, Dayton, Ohio 45423, is Senior Vice
President of C.H. Dean & Associates, Inc. (the investment adviser to the Trust)
and President of 2480 Securities LLC (the Trust's principal underwriter).
CHAUNCEY H. DEAN, 2480 Kettering Tower, Dayton, Ohio 45423, is Chairman &
Chief Executive Officer and the controlling shareholder of C.H. Dean &
Associates, Inc. He is also the controlling shareholder of 2480 Securities LLC.
ROBERT D. DEAN, 2480 Kettering Tower, Dayton, Ohio 45423, is President and
Chief Investment Officer of C.H. Dean & Associates, Inc. He previously was
Professor of Economics at the University of Memphis.
- 20 -
<PAGE>
VICTOR S. CURTIS, 2480 Kettering Tower, Dayton, Ohio 45423, is a Portfolio
Manager of C.H. Dean & Associates, Inc. He previously was Assistant Vice
President of Corporate Banking for PNC Bank.
FRANK J. PEREZ, 3535 Southern Blvd., Kettering, Ohio 45429 is President and
Chief Executive Officer of Kettering Medical Center.
DAVID H. PONITZ, 444 W. Third Street, Dayton, Ohio 45402, is President of
Sinclair Community College.
GILBERT P. WILLIAMSON, 2320 Kettering Tower, Dayton, Ohio 45423, is a
Director of S.C.O., Inc. (a software company), Retix, Inc. (a communications
company), Roberds, Inc. (a retail company) and Citizens Federal Bank.
ROBERT G. DORSEY, 312 Walnut Street, Cincinnati, Ohio 45202, is President
and Treasurer of Countrywide Fund Services, Inc. (a registered transfer agent)
and CW Fund Distributors, Inc. (a registered broker-dealer) and Treasurer of
Countrywide Investments, Inc. (a registered broker-dealer and investment
adviser) and Countrywide Financial Services, Inc. (a financial services company
and parent of Countrywide Fund Services, Inc., CW Fund Distributors, Inc. and
Countrywide Investments, Inc.) He is also Vice President of Brundage, Story and
Rose Investment Trust, Markman MultiFund Trust, The New York State Opportunity
Funds, Maplewood Investment Trust, Lake Shore Family of Funds, Wells Family of
Real Estate Funds, UC Investment Trust, Boyar Value Fund, Inc., Atalanta/Sosnoff
Investment Trust, Bowes Investment Trust and Profit Funds Investment Trust and
Assistant Vice President of Firsthand Funds, Schwartz Investment Trust, The
Tuscarora Investment Trust, Williamsburg Investment Trust, The James Advantage
Funds, The Gannett Welsh & Kotler Funds, Albemarle Investment Trust and The
Westport Funds (all of which are registered investment companies).
MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio 45202, is Vice
President of Countrywide Financial Services, Inc., Countrywide Fund Services,
Inc. and CW Fund Distributors, Inc. He is also Treasurer of Countrywide
Investment Trust, Countrywide Tax-Free Trust, Countrywide Strategic Trust,
Brundage, Story and Rose Investment Trust, Markman MultiFund Trust, Williamsburg
Investment Trust, Albemarle Investment Trust, The New York State Opportunity
Funds, Lake Shore Family of Funds, Maplewood Investment Trust, Bowes Investment
Trust, Wells Family of Real Estate Funds, UC Investment Trust, Profit Funds
Investment Trust, and Atalanta/Sosnoff Investment Trust and Assistant Treasurer
of Firsthand Funds, The James Advantage Funds, Schwartz Investment Trust, The
Tuscarora Investment Trust, The Gannett Welsh & Kotler Funds, The Westport Funds
and Boyar Value Fund, Inc.
- 21 -
<PAGE>
TINA D. HOSKING, 312 Walnut Street, Cincinnati, Ohio 45202, is Assistant
Vice President and Associate General Counsel of Countrywide Fund Services, Inc.
and CW Fund Distributors, Inc. She is also Secretary of The New York State
Opportunity Funds and the Atalanta/Sosnoff Investment Trust and Assistant
Secretary of Boyar Value Fund, Inc., Albemarle Investment Trust, The Gannett
Welsh & Kotler Funds, The Westport Funds, Wells Family of Real Estate Funds, UC
Investment Trust, The James Advantage Funds and Lake Shore Family of Funds.
JOHN F. SPLAIN, 312 Walnut Street, Cincinnati, Ohio 45202, is Secretary and
General Counsel of Countrywide Fund Services, Inc., CW Fund Distributors, Inc.,
Countrywide Investments, Inc. and Countrywide Financial Services, Inc. He is
also Secretary of Countrywide Investment Trust, Countrywide Tax-Free Trust,
Countrywide Strategic Trust, Brundage, Story and Rose Investment Trust, Markman
MultiFund Trust, The Tuscarora Investment Trust, Williamsburg Investment Trust,
Boyar Value Fund, Inc., Lake Shore Family of Funds, Maplewood Investment Trust,
Profit Funds Investment Trust and Wells Family of Real Estate Funds and
Assistant Secretary of Firsthand Funds, Schwartz Investment Trust, The New York
State Opportunity Funds, The Gannett Welsh & Kotler Funds, Bowes Investment
Trust, Albemarle Investment Trust, Atalanta/Sosnoff Investment Trust, UC
Investment Trust, The James Advantage Funds and The Westport Funds.
Each non-interested Trustee will receive an annual retainer of $2,000 and a
$1,000 fee for each Board meeting attended and will be reimbursed for travel and
other expenses incurred in the performance of their duties.
THE INVESTMENT ADVISER
- ----------------------
C.H. Dean & Associates, Inc. ("Dean Investment Associates") is the Funds'
investment manager. Chauncey H. Dean is the controlling shareholder of Dean
Investment Associates. Mr. Dean, by reason of such affiliation, may directly or
indirectly receive benefits from the advisory fees paid to Dean Investment
Associates.
Under the terms of the advisory agreements between the Trust and Dean
Investment Associates, Dean Investment Associates manages the Funds'
investments. The Large Cap Value Fund, the Small Cap Value Fund and the Balanced
Fund each pay Dean Investment Associates a fee computed and accrued daily and
paid monthly at an annual rate of 1.00% of its average daily net assets. The
International Value Fund pays Dean Investment Associates a fee computed and
accrued daily and paid monthly at an annual rate of 1.25% of its average daily
net assets.
- 22 -
<PAGE>
For the fiscal period ended March 31, 1998, the Large Cap Value Fund
accrued advisory fees of $52,709, the Small Cap Value Fund accrued advisory fees
of $127,902, the Balanced Fund accrued advisory fees of $57,457, and the
International Value Fund accrued advisory fees of $4,452; however, in order to
reduce the operating expenses of the Fund, the Adviser voluntarily waived
$46,607 of its fees and reimbursed $20,468 of Class C expenses with respect to
the Large Cap Value Fund, voluntarily waived $17,445 of its fees and reimbursed
$16,684 of Class C expenses with respect to the Small Cap Value Fund,
voluntarily waived $44,231 of its fees and reimbursed $16,291 of Class C
expenses with respect to the Balanced Fund, and voluntarily waived its entire
advisory fee and reimbursed $49,049 of common expenses and $5,663 of Class C
expenses with respect to the International Value Fund.
The Funds are responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Funds, including such extraordinary or non-recurring expenses as may arise, such
as litigation to which the Trust may be a party. The Funds may have an
obligation to indemnify the Trust's officers and Trustees with respect to such
litigation, except in instances of willful misfeasance, bad faith, gross
negligence or reckless disregard by such officers and Trustees in the
performance of their duties. The compensation and expenses of any officer,
Trustee or employee of the Trust who is an officer, director, employee or
stockholder of Dean Investment Associates are paid by Dean Investment
Associates.
By its terms, the advisory agreement on behalf of each Fund will remain in
force until April 1, 1999 and from year to year thereafter, subject to annual
approval by (a) the Board of Trustees or (b) a vote of the majority of the
Fund's outstanding voting securities; provided that in either event continuance
is also approved by a majority of the Trustees who are not interested persons of
the Trust, by a vote cast in person at a meeting called for the purpose of
voting such approval. Each Fund's advisory agreement may be terminated at any
time, on sixty days' written notice, without the payment of any penalty, by the
Board of Trustees, by a vote of the majority of the Fund's outstanding voting
securities, or by Dean Investment Associates. Each of the advisory agreements
automatically terminates in the event of its assignment, as defined by the
Investment Company Act of 1940 and the rules thereunder.
Dean Investment Associates may use the name "Dean" or any derivation
thereof in connection with any registered investment company or other business
enterprise with which it is or may become associated.
- 23 -
<PAGE>
THE SUB-ADVISER
- ---------------
Newton Capital Management Ltd. (the "Sub-Adviser") has been retained by
Dean Investment Associates to manage the investments of the International Value
Fund. The Sub-Adviser is a United Kingdom investment advisory firm registered
with the Securities and Exchange Commission. The Sub-Adviser is affiliated with
Newton Investment Management Ltd., an English investment advisory firm which has
been managing assets for institutional investors, mutual funds and individuals
since 1977. Dean Investment Associates (not the Fund) pays the Sub-Adviser a fee
computed and accrued daily and paid monthly at an annual rate of .50% of the
average value of the International Value Fund's daily net assets. For the fiscal
period ended March 31, 1998, Dean Investment Associates paid the Sub-Adviser
fees of $1,780.
By its terms, the Sub-Advisory Agreement will remain in force until April
1, 1999 and from year to year thereafter, subject to annual approval by (a) the
Board of Trustees or (b) a vote of the majority of the International Value
Fund's outstanding voting securities; provided that in either event continuance
is also approved by a majority of the Trustees who are not interested persons of
the Trust, by a vote cast in person at a meeting called for the purpose of
voting on such approval. The Sub-Advisory Agreement may be terminated at any
time, on sixty days' written notice, without the payment of any penalty, by the
Board of Trustees, by a vote of the majority of the International Value Fund's
outstanding voting securities, or by Dean Investment Associates or Sub-Adviser.
The Sub-Advisory Agreement automatically terminates in the event of its
assignment, as defined by the Investment Company Act of 1940 and the rules
thereunder.
THE UNDERWRITER
- ---------------
2480 Securities LLC (the "Underwriter") is the principal underwriter of the
Funds and, as such, is the exclusive agent for distribution of shares of the
Funds. The Underwriter is obligated to sell the shares on a best efforts basis
only against purchase orders for the shares. Shares of each Fund are offered to
the public on a continuous basis. The Underwriter is a subsidiary of Dean
Investment Associates.
The Underwriter currently allows concessions to dealers who sell shares of
the Funds. The Underwriter receives that portion of the sales load which is not
reallowed to the dealers who sell shares of the Funds. The Underwriter retains
the entire sales load on all direct initial investments in the Funds and on all
investments in accounts with no designated dealer of record. The Underwriter
bears promotional expenses in connection with the distribution of the Funds'
shares to the extent that such expenses are not assumed by the Funds under their
plans of distribution.
- 24 -
<PAGE>
For the fiscal period ended March 31, 1998, the aggregate commissions
collected on sales of Class A shares of the Trust were $326,654, of which the
Underwriter paid $311,410 to unaffiliated broker-dealers in the selling network
and earned $15,244 from underwriting and broker commissions.
The Funds may compensate dealers, including the Underwriter and its
affiliates, based on the average balance of all accounts in the Funds for which
the dealer is designated as the party responsible for the account. See
"Distribution Plans" below.
DISTRIBUTION PLANS
- ------------------
CLASS A SHARES -- As stated in the Prospectus, the Funds have adopted a
plan of distribution with respect to the Class A shares of the Funds (the "Class
A Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 which
permits each Fund to pay for expenses incurred in the distribution and promotion
of that Fund's Class A shares, including but not limited to, the printing of
prospectuses, statements of additional information and reports used for sales
purposes, advertisements, expenses of preparation and printing of sales
literature, promotion, marketing and sales expenses, and other
distribution-related expenses, including any distribution fees paid to
securities dealers or other firms who have executed a distribution or service
agreement with the Underwriter. The Class A Plan expressly limits payment of the
distribution expenses listed above in any fiscal year to a maximum of .25% of
the average daily net assets of a Fund allocable to its Class A shares.
Unreimbursed expenses will not be carried over from year to year. For the fiscal
period ended March 31, 1998, the Class A shares of the Small Cap Value Fund
incurred $5,533 in distribution expenses for payments to broker-dealers and
others for the sale or retention of Fund shares.
CLASS C SHARES -- The Funds have also adopted a plan of distribution (the
"Class C Plan") with respect to the Class C shares of the Funds. The Class C
Plan provides for two categories of payments. First, the Class C Plan provides
for the payment to the Underwriter of an account maintenance fee, in an amount
equal to an annual rate of .25% of the average daily net assets of a Fund
allocable to its Class C shares, which may be paid to other dealers based on the
average value of the Fund's Class C shares owned by clients of such dealers. In
addition, a Fund may pay up to an additional .75% per annum of that Fund's daily
net assets allocable to its Class C shares for expenses incurred in the
distribution and promotion of the shares, including but not limited to,
prospectus costs for prospective shareholders, costs of responding to
prospective shareholder inquiries, payments to brokers and dealers for selling
and assisting in the distribution of Class C shares, costs of advertising and
promotion and any other expenses related to the distribution of the Class C
shares. Unreimbursed expenditures
- 25 -
<PAGE>
will not be carried over from year to year. The Funds may make payments to
dealers and other persons in an amount up to .75% per annum of the average value
of Class C shares owned by their clients, in addition to the .25% account
maintenance fee described above.
GENERAL INFORMATION -- Agreements implementing the Plans (the
"Implementation Agreements"), including agreements with dealers wherein such
dealers agree for a fee to act as agents for the sale of the Funds' shares, are
in writing and have been approved by the Board of Trustees. All payments made
pursuant to the Plans are made in accordance with written agreements.
The continuance of the Plans must be specifically approved at least
annually by a vote of the Trust's Board of Trustees and by a vote of the
Trustees who are not interested persons of the Trust and have no direct or
indirect financial interest in the Plans (the "Independent Trustees") at a
meeting called for the purpose of voting on such continuance. A Plan may be
terminated at any time by a vote of a majority of the Independent Trustees or by
a vote of the holders of a majority of the outstanding shares of the applicable
class of a Fund. In the event a Plan is terminated in accordance with its terms,
the affected Fund (or class) will not be required to make any payments for
expenses incurred after the termination date. The Plans may not be amended to
increase materially the amount to be spent for distribution without shareholder
approval. All material amendments to the Plans must be approved by a vote of the
Trust's Board of Trustees and by a vote of the Independent Trustees.
In approving the Plans, the Trustees determined, in the exercise of their
business judgment and in light of their fiduciary duties as Trustees, that there
is a reasonable likelihood that the Plans will benefit the Funds and their
shareholders. The Board of Trustees believes that expenditure of the Funds'
assets for distribution expenses under the Plans should assist in the growth of
the Funds which will benefit the Funds and their shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The Plans will be renewed only if the Trustees make a similar determination for
each subsequent year of the Plans. There can be no assurance that the benefits
anticipated from the expenditure of the Funds' assets for distribution will be
realized. While the Plans are in effect, all amounts spent by the Funds pursuant
to the Plans and the purposes for which such expenditures were made must be
reported quarterly to the Board of Trustees for its review. Distribution
expenses attributable to the sale of more than one class of shares of a Fund
will be allocated at least annually to each class of shares based upon the ratio
in which the sales of each
- 26 -
<PAGE>
class of shares bears to the sales of all the shares of such Fund. In addition,
the selection and nomination of those Trustees who are not interested persons of
the Trust are committed to the discretion of the Independent Trustees during
such period.
By reason of his controlling interest in Dean Investment Associates,
Chauncey H. Dean may be deemed to have a financial interest in the operation of
the Plans.
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Funds and the placing of the
Funds' securities transactions and negotiation of commission rates where
applicable are made by Dean Investment Associates and are subject to review by
the Board of Trustees of the Trust. In the purchase and sale of portfolio
securities, Dean Investment Associates seeks best execution for the Funds,
taking into account such factors as price (including the applicable brokerage
commission or dealer spread), the execution capability, financial responsibility
and responsiveness of the broker or dealer and the brokerage and research
services provided by the broker or dealer. Dean Investment Associates generally
seeks favorable prices and commission rates that are reasonable in relation to
the benefits received. For the fiscal year ended March 31, 1998, the Large Cap
Value Fund paid brokerage commissions of $16,707, the Small Cap Value Fund paid
brokerage commissions of $92,954, the Balanced Fund paid brokerage commissions
of $12,687, and the International Value Fund paid brokerage commissions of
$3,616.
The Funds may attempt to deal directly with the dealers who make a market
in the securities involved unless better prices and execution are available
elsewhere. Such dealers usually act as principals for their own account. On
occasion, portfolio securities for the Funds may be purchased directly from the
issuer.
Dean Investment Associates is specifically authorized to select brokers who
also provide brokerage and research services to the Funds and/or other accounts
over which Dean Investment Associates exercises investment discretion and to pay
such brokers a commission in excess of the commission another broker would
charge if Dean Investment Associates determines in good faith that the
commission is reasonable in relation to the value of the brokerage and research
services provided. The determination may be viewed in terms of a particular
transaction or Dean Investment Associates' overall responsibilities with respect
to the Funds and to accounts over which it exercises investment discretion.
- 27 -
<PAGE>
Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
possible investment securities for the Funds and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to the Funds and Dean
Investment Associates, it is not possible to place a dollar value on it.
Research services furnished by brokers through whom the Funds effect securities
transactions may be used by Dean Investment Associates in servicing all of its
accounts and not all such services may be used by Dean Investment Associates in
connection with the Funds.
The Funds have no obligation to deal with any broker or dealer in the
execution of securities transactions. However, the Underwriter and other
affiliates of the Trust or Dean Investment Associates may effect securities
transactions which are executed on a national securities exchange or
transactions in the over-the-counter market conducted on an agency basis. No
Fund will effect any brokerage transactions in its portfolio securities with
Dean Investment Associates if such transactions would be unfair or unreasonable
to its shareholders. Over-the-counter transactions will be placed either
directly with principal market makers or with broker-dealers. Although the Funds
do not anticipate any ongoing arrangements with other brokerage firms, brokerage
business may be transacted from time to time with other firms. Neither the
Underwriter nor other affiliates of the Trust or Dean Investment Associates will
receive reciprocal brokerage business as a result of the brokerage business
transacted by the Funds with other brokers.
CODE OF ETHICS. The Trust, Dean Investment Associates and the Sub-Adviser
have each adopted a Code of Ethics under Rule 17j-1 of the Investment Company
Act of 1940. The Code significantly restricts the personal investing activities
of all employees of the Trust, Dean Investment Associates and the Sub-Adviser.
No employee may purchase or sell any security which at the time is being
purchased or sold (as the case may be), or to the knowledge of the employee, is
being considered for purchase or sale by any Fund.
PORTFOLIO TURNOVER
- ------------------
A Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Funds. Dean Investment Associates anticipates
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<PAGE>
that each Fund's portfolio turnover rate normally will not exceed 100%. A 100%
turnover rate would occur if all of a Fund's portfolio securities were replaced
once within a one year period.
Generally, each Fund intends to invest for long-term purposes. However, the
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when the investment adviser believes that
portfolio changes are appropriate. For the fiscal period ended March 31, 1998,
the annualized portfolio turnover rate was 54% for the Large Cap Value Fund, 62%
for the Small Cap Value Fund, 64% for the Balanced Fund, and 109% for the
International Value Fund.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
- ----------------------------------------------------
The share price (net asset value) and the public offering price (net asset
value plus applicable sales load) of the shares of each Fund are determined as
of the close of the regular session of trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time), on each day the Trust is open for business.
The Trust is open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. The Trust may also be open for business on other days in
which there is sufficient trading in a Fund's portfolio securities that its net
asset value might be materially affected. For a description of the methods used
to determine the share price and the public offering price, see "Calculation of
Share Price and Public Offering Price" in the Prospectus.
The value of non-dollar denominated portfolio instruments held by the
International Value Fund will be determined by converting all assets and
liabilities initially expressed in foreign currency values into U.S. dollar
values at the mean between the bid and offered quotations of such currencies
against U.S. dollars as last quoted by any recognized dealer. If such quotations
are not available, the rate of exchange will be determined in accordance with
policies established in good faith by the Board of Trustees. Gains or losses
between trade and settlement dates resulting from changes in exchange rates
between the U.S. dollar and a foreign currency are borne by the International
Value Fund. To protect against such losses, the Fund may enter into forward
foreign currency exchange contracts, which will also have the effect of limiting
any such gains.
OTHER PURCHASE INFORMATION
- --------------------------
The Prospectus describes generally how to purchase shares of the Funds.
Additional information with respect to certain types of purchases of shares of
the Class A shares of the Funds is set forth below.
- 29 -
<PAGE>
RIGHT OF ACCUMULATION. A "purchaser" (as defined in the Prospectus) of
shares of a Fund has the right to combine the cost or current net asset value
(whichever is higher) of his existing Class A shares of any Fund in the Dean
Family of Funds with the amount of his current purchases in order to take
advantage of the reduced sales loads set forth in the tables in the Prospectus.
The purchaser or his dealer must notify Countrywide Fund Services, Inc.
("Countrywide") that an investment qualifies for a reduced sales load. The
reduced load will be granted upon confirmation of the purchaser's holdings by
Countrywide.
LETTER OF INTENT. The reduced sales loads set forth in the tables in the
Prospectus may also be available to any "purchaser" (as defined in the
Prospectus) of shares of a Fund who submits a Letter of Intent to Countrywide.
The Letter must state an intention to invest within a thirteen month period in
any Fund in the Dean Family of Funds a specified amount which, if made at one
time, would qualify for a reduced sales load. A Letter of Intent may be
submitted with a purchase at the beginning of the thirteen month period or
within ninety days of the first purchase under the Letter of Intent. Upon
acceptance of this Letter, the purchaser becomes eligible for the reduced sales
load applicable to the level of investment covered by such Letter of Intent as
if the entire amount were invested in a single transaction.
The Letter of Intent is not a binding obligation on the purchaser to
purchase, or the Trust to sell, the full amount indicated. During the term of a
Letter of Intent, shares representing 5% of the intended purchase will be held
in escrow. These shares will be released upon the completion of the intended
investment. If the Letter of Intent is not completed during the thirteen month
period, the applicable sales load will be adjusted by the redemption of
sufficient shares held in escrow, depending upon the amount actually purchased
during the period. The minimum initial investment under a Letter of Intent is
$10,000.
A ninety-day backdating period can be used to include earlier purchases at
the purchaser's cost (without a retroactive downward adjustment of the sales
charge). The thirteen month period would then begin on the date of the first
purchase during the ninety-day period. No retroactive adjustment will be made if
purchases exceed the amount indicated in the Letter of Intent. The purchaser or
his dealer must notify Countrywide that an investment is being made pursuant to
an executed Letter of Intent.
OTHER INFORMATION. The Trust either does not impose a front-end sales load
or imposes a reduced sales load in connection with purchases of shares of a Fund
made under the reinvestment privilege or the purchases described in the "Reduced
Sales Load," "Purchases at Net Asset Value" or "Exchange Privilege" sections in
the Prospectus because such purchases
- 30 -
<PAGE>
require minimal sales effort by Dean Investment Associates. Purchases described
in the "Purchases at Net Asset Value" section may be made for investment only,
and the shares may not be resold except through redemption by or on behalf of
the Trust.
TAXES
- -----
The Prospectus describes generally the tax treatment of distributions by
the Funds. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
Each Fund has qualified and intends to continue to qualify for the special
tax treatment afforded a "regulated investment company" under Subchapter M of
the Internal Revenue Code so that it does not pay federal taxes on income and
capital gains distributed to shareholders. To so qualify a Fund must, among
other things, (i) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currency, or
certain other income (including but not limited to gains from options, futures
and forward contracts) derived with respect to its business of investing in
stock, securities or currencies and (ii) diversify its holdings so that at the
end of each quarter of its taxable year the following two conditions are met:
(a) at least 50% of the value of the Fund's total assets is represented by cash,
U.S. Government securities, securities of other regulated investment companies
and other securities (for this purpose such other securities will qualify only
if the Fund's investment is limited in respect to any issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer) and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies).
A Fund's net realized capital gains from securities transactions will be
distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.
A federal excise tax at the rate of 4% will be imposed on the excess, if
any, of a Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of a Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Funds intend to make
distributions sufficient to avoid imposition of the excise tax.
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<PAGE>
The Trust is required to withhold and remit to the U.S. Treasury a portion
(31%) of dividend income on any account unless the shareholder provides a
taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
Investments by the Funds in certain options, futures contracts and options
on futures contracts are "section 1256 contracts." Any gains or losses on
section 1256 contracts are generally considered 60% long-term and 40% short-term
capital gains or losses ("60/40"). Section 1256 contracts held by the Funds at
the end of each taxable year are treated for federal income tax purposes as
being sold on such date for their fair market value. The resultant paper gains
or losses are also treated as 60/40 gains or losses. When the section 1256
contract is subsequently disposed of, the actual gain or loss will be adjusted
by the amount of any preceding year-end gain or loss. The use of section 1256
contracts may force the Funds to distribute to shareholders paper gains that
have not yet been realized in order to avoid federal income tax liability.
Foreign currency gains or losses on non-U.S. dollar denominated bonds and
other similar debt instruments and on any non-U.S. dollar denominated futures
contracts, options and forward contracts that are not section 1256 contracts
generally will be treated as ordinary income or loss.
Certain hedging transactions undertaken by the Funds may result in
"straddles" for federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Funds. In addition, losses
realized by the Funds on positions that are part of a straddle may be deferred,
rather than being taken into account in calculating taxable income for the
taxable year in which such losses are realized. Because only a few regulations
implementing the straddle rules have been promulgated, the tax consequences of
hedging transactions to the Funds are not entirely clear. The hedging
transactions may increase the amount of short-term capital gain realized by the
Funds which is taxed as ordinary income when distributed to shareholders. The
Funds may make one or more of the elections available under the Internal Revenue
Code of 1986, as amended, which are applicable to straddles. If the Funds make
any of the elections, the amount, character and timing of the recognition of
gains or losses from the affected straddle positions will be determined under
rules that vary according to the elections made. The rules applicable under
certain of the elections operate to accelerate the recognition of gains or
losses from the affected straddle positions. Because application of the straddle
rules may affect the character of gains or losses, defer losses and/or
accelerate the recognition of gains or losses from the affected straddle
positions, the amount which must be distributed to
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<PAGE>
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain in any year, may be increased or decreased substantially
as compared to a fund that did not engage in such hedging transactions.
The diversification requirements applicable to the Funds may limit the
extent to which the Funds will be able to engage in transactions in options,
futures contracts or options on futures contracts.
REDEMPTION IN KIND
- ------------------
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of a Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be made, each Fund intends
to make an election pursuant to Rule 18f-1 under the Investment Company Act of
1940. This election will require the Funds to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of each Fund during any 90
day period for any one shareholder. Should payment be made in securities, the
redeeming shareholder will generally incur brokerage costs in converting such
securities to cash. Portfolio securities which are issued in an in-kind
redemption will be readily marketable.
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
From time to time, each Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods at the end of the 1, 5 or 10
year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of
all dividends and distributions and the deduction of the current maximum sales
load from the initial $1,000 payment. If a Fund has been in existence less than
one, five or ten years, the time period since the date of the initial public
offering of shares will be substituted for the periods stated.
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<PAGE>
Each Fund may also advertise total return (a "nonstandardized quotation")
which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. This computation does not include
the effect of the applicable sales load which, if included, would reduce total
return. A nonstandardized quotation may also indicate average annual compounded
rates of return without including the effect of the applicable sales load or
over periods other than those specified for average annual total return. A
nonstandardized quotation of total return will always be accompanied by the
Fund's average annual total return as described above. The total return
(excluding the effect of applicable sales loads) of each of the Funds since
inception through March 31, 1998 is as follows:
Class A Shares* Class C Shares*
--------------- ---------------
Large Cap Value Fund 24.11% 14.63%
Small Cap Value Fund 33.86% 21.63%
Balanced Fund 18.07% 9.37%
International Value Fund 17.60% 18.50%
* The initial public offering of the Class A shares of the Large Cap Value Fund,
the Small Cap Value Fund and the Balanced Fund was May 28, 1997. The initial
public offering of the Class A shares of the International Value Fund was
October 13, 1997. The initial public offering of the Class C shares was August
19, 1997 for the Large Cap Value Fund, August 1, 1997 for the Small Cap Value
Fund and the Balanced Fund and November 6, 1997 for the International Value
Fund.
From time to time, each of the Funds may advertise its yield. A yield
quotation is based on a 30-day (or one month) period and is computed by dividing
the net investment income per share earned during the period by the maximum
offering price per share on the last day of the period, according to the
following formula:
6
Yield = 2[(a-b/cd +1) -1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that a Fund
owns the security. Generally, interest earned (for the purpose of "a" above) on
debt
- 34 -
<PAGE>
obligations is computed by reference to the yield to maturity of each obligation
held based on the market value of the obligation (including actual accrued
interest) at the close of business on the last business day prior to the start
of the 30-day (or one month) period for which yield is being calculated, or,
with respect to obligations purchased during the month, the purchase price (plus
actual accrued interest). With respect to the treatment of discount and premium
on mortgage or other receivables-backed obligations which are expected to be
subject to monthly paydowns of principal and interest, gain or loss attributable
to actual monthly paydowns is accounted for as an increase or decrease to
interest income during the period and discount or premium on the remaining
security is not amortized.
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements regarding each Fund may discuss
various measures of Fund performance, including current performance ratings
and/or rankings appearing in financial magazines, newspapers and publications
which track mutual fund performance. Advertisements may also compare performance
(using the calculation methods set forth in the Prospectus) to performance as
reported by other investments, indices and averages. When advertising current
ratings or rankings, the Funds may use the following publications or indices to
discuss or compare Fund performance:
Lipper Mutual Fund Performance Analysis measures total return for the
mutual fund industry and ranks individual mutual fund performance over specified
time periods assuming reinvestment of all distributions, exclusive of sales
loads. In addition, the Funds may use comparative performance information
appearing in relevant indices, including the S&P 500 Index, the Dow Jones
Industrial Average, and the Russell 2000 Index. The S&P 500 Index is an
unmanaged index of 500 stocks, the purpose of which is to portray the pattern of
common stock price movement. The Dow Jones Industrial Average is a measurement
of general market price movement for 30 widely held stocks listed on the New
York Stock Exchange. The Russell 2000 Index is an unmanaged index comprised of
the 2,000 smallest U.S. domiciled publicly-traded common stocks in the Russell
3000 Index (an unmanaged index of the 3,000 largest U.S. domiciled
publicly-traded common stocks by market capitalization). The International Value
Fund may compare its performance to the Europe, Australia and Far East Index,
which is generally considered to be representative of the performance of
unmanaged common stocks that are publicly traded in the securities markets
located outside the United States.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Funds' portfolios, that the averages are
generally unmanaged and that
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<PAGE>
the items included in the calculations of such averages may not be identical to
the formula used by the Funds to calculate their performance. In addition, there
can be no assurance that the Funds will continue this performance as compared to
such other averages.
CUSTODIAN
- ---------
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio, has been retained to
act as Custodian for the investments of the Large Cap Value Fund, the Small Cap
Value Fund and the Balanced Fund. Star Bank, N.A. acts as each Fund's
depository, safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds as instructed and maintains
records in connection with its duties.
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio, has been
retained to act as Custodian for the investments of the International Value
Fund. The Fifth Third Bank acts as the Fund's depository, safekeeps its
portfolio securities, collects all income and other payments with respect
thereto, disburses funds as instructed and maintains records in connection with
its duties.
AUDITORS
- --------
The firm of Ernst & Young LLP has been selected as independent auditors for
the Trust for the current fiscal year. Ernst & Young LLP, 1300 Chiquita Center,
Cincinnati, Ohio, performs an annual audit of the Trust's financial statements
and advises the Trust as to certain accounting matters.
PRINCIPAL SECURITY HOLDERS
- --------------------------
As of July 2, 1998, Merrill Lynch, Pierce, Fenner & Smith For the Sole
Benefit of its Customers, Attn: Mutual Fund Administration, 4800 Deer Lake Drive
East, 3rd Floor, Jacksonville, Florida, owned of record 16.5% of the outstanding
Class A shares and 68.6% of the outstanding Class C shares of the Large Cap
Value Fund, 23.4% of the outstanding Class A shares and 79.6% of the outstanding
Class C shares of the Small Cap Value Fund, 13.1% of the outstanding Class A
shares and 82.1% of the outstanding Class C shares of the Balanced Fund, and
11.5% of the outstanding Class A shares and 7.85% of the outstanding Class C
shares of the International Value Fund. Merrill Lynch, Pierce, Fenner & Smith
may be deemed to control the Large Cap Value Fund, the Small Cap Value Fund and
the Balanced Fund by virtue of the fact that it owns of record more than 25% of
each Fund's shares. As of July 2, 1998, Chauncey H. Dean and Zada G. Dean, 7777
Taylorsville Road, Huber Heights, Ohio, owned of record 47.4% of
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<PAGE>
the outstanding Class A shares of the Large Cap Value Fund, 44.5% of the
outstanding Class A shares of the Small Cap Value Fund, 51.9% of the outstanding
Class A shares of the Balanced Fund and 75.1% of the outstanding Class A shares
of the International Value Fund. Chauncey H. Dean and Zada G. Dean may be deemed
to control each Fund by virtue of the fact that they own of record more than 25%
of their shares. For purposes of voting on matters submitted to shareholders,
any person who owns more than 50% of the outstanding shares of a Fund generally
would be able to cast the deciding vote.
As of July 2, 1998, McDonald & Co. Securities, Inc., C/FBO Pamela H. Leimer
IRA, 910 Michigan Avenue, Evanston, Illinois, owned of record 8.9% of the
outstanding Class C shares of the Large Cap Value Fund; C.H. Dean & Associates,
Inc. 2480 Kettering Tower, Dayton, Ohio, owned of record 24.9% of the
outstanding Class A shares of the Large Cap Value Fund; and Donaldson Lufkin &
Janrette Securities Corporation, Inv. P.O. Box 2052 Jersey City, New Jersey
owned of record 13.6% of the outstanding Class C shares of the Large Cap Value
Fund and McDonald & Co., C/FBO Stanley E. Leimer IRA, 910 Michigan Avenue,
Evanston, Illinois, owned of record 6.9% of the outstanding Class C shares of
the Large Cap Value Fund; C.H. Dean & Associates, Inc., 2480 Kettering Tower,
Dayton, Ohio, owned of record 18.5% of the outstanding Class A shares of the
Balanced Fund; Donaldson Lufkin & Jenrette Securities Corporation, Inc., P.O.
Box 2052, Jersey City, New Jersey, owned of record 18.2% of the outstanding
Class C shares of the International Value Fund; NFSC FEBO, Blake Schwartz, Fmt
Co. Ttee NFRP PS, 1487 Pathfinder, Westlake Village, California owned of record
7.5% of the outstanding Class C shares of the International Value Fund; NFSC
FEBO, Richard Bryce Goodman, Fmt Co. Ttee NFRP PS, 10241 Chrysanthemum Lane, Los
Angeles, California owned of record 14.4% of the outstanding Class C shares of
the International Value Fund; National Financial Services, 312 Walnut Street,
21st Floor, Cincinnati, Ohio, owned of record 5.3% of the outstanding Class C
shares of the International Value Fund; and, NFSC FEBO, Family Trust Andrew
James Summers, Ttee c/o Dittany Lang, 15200 Sunset Boulevard, Suite 209, Pacific
Palisades, California, owned of record 16.2% of the outstanding Class C shares
of the International Value Fund.
As of July 2, 1998, the Trustees and officers of the Trust as a group owned
of record and beneficially 47.4% of the outstanding Class A shares of the Large
Cap Value Fund, 44.5% of the outstanding Class A shares of the Small Cap Value
Fund, 51.9% of the outstanding Class A shares of the Balanced Fund, 75.1% of the
outstanding Class A shares of the International Value Fund and less than 1% of
the outstanding Class C shares of each of the Funds.
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<PAGE>
COUNTRYWIDE FUND SERVICES, INC.
- -------------------------------
The Trust's transfer agent, Countrywide Fund Services, Inc.
("Countrywide"), maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Funds' shares, acts as dividend and distribution disbursing
agent and performs other shareholder service functions. Countrywide receives for
its services as transfer agent a fee payable monthly at an annual rate of $20
per account from each of the Funds; provided, however, that the minimum fee is
$1,200 per month for each class of shares of each Fund. In addition, the Funds
pay out-of-pocket expenses, including but not limited to, postage, envelopes,
checks, drafts, forms, reports, record storage and communication lines.
Countrywide also provides accounting and pricing services to the Funds. For
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable Countrywide to perform its duties, each Fund
will pay Countrywide a fee in accordance with the following schedule:
Average Monthly Net Assets Monthly Fee
-------------------------- -----------
$ 0 - $ 50,000,000 $3,000
50,000,000 - 100,000,000 3,500
100,000,000 - 200,000,000 4,000
200,000,000 - 300,000,000 5,000
Over 300,000,000 6,000 + .001%
of average monthly
net assets.
In addition, each Fund pays all costs of external pricing services.
Countrywide also provides administrative services to the Funds. In this
capacity, Countrywide supplies non-investment related statistical and research
data, internal regulatory compliance services and executive and administrative
services. Countrywide supervises the preparation of tax returns, reports to
shareholders of the Funds, reports to and filings with the Securities and
Exchange Commission and state securities commissions, and materials for meetings
of the Board of Trustees. For the performance of these administrative services,
each Fund pays Countrywide a fee at the annual rate of .10% of the average value
of its daily net assets up to $100,000,000, .075% of such assets from
$100,000,000 to $200,000,000 and .05% of such assets in excess of $200,000,000;
provided, however, that the minimum fee is $1,000 per month for each Fund.
ANNUAL REPORT
- -------------
The Funds' financial statements as of March 31, 1998, which have been
audited by Ernst & Young LLP, are attached to this Statement of Additional
Information.
- 38 -
<PAGE>
Dean
family of funds
[LOGO]
Large Cap Value Fund
Small Cap Value Fund
Balanced Fund
International Value Fund
[LOGO]
Annual Report
March 31, 1998
<PAGE>
CHAIRMAN AND PRESIDENT'S LETTER
- --------------------------------------------------------------------------------
To Investors in the Dean Family of Funds:
By almost any standard, the performance of the Dean Family of Funds during its
first 10 months represents a strong beginning. Three Dean Funds -- the Small Cap
Value, Large Cap Value and Balanced -- were launched on May 28, 1997. Our
International Value Fund began operation on October 13, 1997. By March 31, 1998,
each had achieved solid, double-digit returns.
Despite the special demands the startup of a mutual fund imposes, the Small Cap
and International Value Funds outperformed their benchmarks. Returns of the
Large Cap Value Fund and the Balanced Fund, though short of their benchmarks
during the 10-month period, still represented a very respectable startup.
It was certainly an exciting 10 months. While the market soared to new heights,
it was a sometimes bumpy ride. The Asian financial crisis in the fall of 1997
brought our first market correction (an 11% decline in the Dow) in seven years.
Then, reassured by generally good earnings reports and continued prospects for
low inflation and low interest rates, investors promptly resumed their bullish
ways. Meanwhile, overseas equity markets were highly volatile. Though
challenging, these conditions created rewarding opportunities for our new
International Value Fund, especially in Europe.
While we continue to find value opportunities for each of the Funds, we are
still concerned about the high valuations so common in the stock market today.
In the U.S., stock prices are selling at roughly 24 times anticipated earnings
on average. That ratio suggests to us that continued corporate earnings growth
is essential; any series of earnings disappointments could alter investor
confidence in a hurry.
Factors which could erode earnings growth include the wage pressures which are
building in the U.S. and the possible reverberations here from troubled Asian
economies. For U.S. producers, Japan and other Asian nations represent both
important export markets and potentially damaging price competition here. The
relative strength of the U.S. dollar works against American exports by making
them more expensive, while favoring imports by making them less expensive.
Still, there are formidable forces driving the stock market ahead. The
fundamentals for continued economic growth and low inflation are still very much
in place. Interest rates should remain low for the foreseeable future, a
prospect enhanced by balanced federal budgets. Productivity increases have made
the U.S. companies much stronger global competitors. And money is pouring into
the market as participation in mutual funds and 401(k) plans grows rapidly.
If this recitation of plusses and minuses is a bit perplexing, it represents the
real world of investing. It is, also, the very kind of mix which creates
opportunities for investors who emphasize the value approach. The Dean Family of
Funds combines the value approach with intensive research and rigorous
investment decision-making disciplines. Ten months is not a long time. Yet, our
results suggest, at least, that your Funds should perform well relative to the
market, whatever its long-term course.
Your participation and confidence are deeply appreciated. Please know that an
exceptional group of professionals here is dedicated to rewarding the trust you
have placed in us.
Sincerely,
/s/ Chauncey H. Dean
Chauncey H. Dean
Chairman of the Board and Chief Executive Officer
C.H. Dean & Associates, Inc.
/s/ Robert D. Dean
Robert D. Dean
President and Chief Investment Officer
C.H. Dean & Associates, Inc.
1
<PAGE>
The Dean Approach to Value Investing
What does value investing mean to the Dean Family of Funds? Simply said, we try
to buy companies which are selling below their intrinsic value. To be more
specific, we believe that to make good money in the market it is imperative to
buy that which is not loved.
Stocks become loved when everything is going right for them -- when earnings
growth has been great and the company is sitting on top of the world. The market
then projects that success far into the future. Such projections can create a
lot of risk, and risk is one of the most important considerations in investing.
Some people argue that safety (reduced risk) is related to size, that a large
cap stock is less risky than a small cap stock. While large companies tend to
have more diversified client bases and larger product portfolios, this view of
risk implies that a stock becomes less risky as it is bid up in price. In other
words, it says the same company is safer valued at $10 billion by the market
than at $2 billion. This seems a dubious proposition. While a large business's
wider array of clients and products can lead to a more stable stream of
earnings, an investor can duplicate this by buying a portfolio of different
stocks.
As long as two stocks do not move in absolute lock step with each other, a
portfolio of two stocks will be less volatile than either of the individual
stocks. How much less volatile depends on how likely the two stocks are to move
together. A portfolio of two computer chip companies is more risky than a
portfolio of one computer chip and one potato chip company. The skills needed to
run the two companies are very different. We would rather hold two smaller
companies, each focusing on what they do best, than one large company which is a
collection of different businesses.
As a general proposition, the more diversified you are, the less risky you are.
But, more often than not, diversification is better achieved at the portfolio
level than at the corporate level.
While we can't express risk as a specific formula which fits all industries, we
believe it is a function of the following, in roughly this order: VALUATION,
BALANCE SHEET STRENGTH, STABILITY OF EARNINGS AND CASH FLOWS, MARKET POSITION
AND DIVERSITY, AND EARNINGS GROWTH POTENTIAL. Note that all of these, with the
exception of valuation, are attributes of the underlying company, not the stock.
If a company can grow at a high rate for a long time, it should be worth a
pretty penny. For example, if you could know with absolute certainty that a
company would grow its earnings at 15% per year, every year, for the next 30
years, what would it be worth? At 15%, $15,000 becomes $1,000,000 million in 30
years. Obviously, the market would be willing to pay a very high multiple of
current earnings for such a mythical company.
But, relatively small changes in growth rates or duration can make a huge
difference. For example, if the growth were 10% for 30 years, $15,000 would grow
to less than $260,000. Furthermore, if a company disappoints with earnings which
are below the analysts' forecasts, or if there is a major uncertainty over its
near-term operations, the market often sells it off violently. If the company
above revealed that it was not going to grow at 15% for 30 years but, rather,
thought it might grow at 12% for five years, the market would despise it. The
multiple of current earnings paid for the stock would plummet, even though it
was still growing earnings at a respectable pace.
It is also very important to note that this process works in reverse. If a
company which is expected to show consistent earnings growth of 5% puts together
a few years of 8% earnings growth, its stock price will start to soar, as long
as the new pace is seen as sustainable.
Thus, it is the market's collective perception of future earnings that causes
stock prices to go up and down. "Collective perception" is another way of
describing crowd behavior. Psychologists tell us that in a crowd, intelligent
people will often do stupid things. The crowd tends to extrapolate the past into
the future, both positive and negative. However, trends don't last forever. At
Dean, we prefer to focus on companies where the expectations are low. If
everyone expects bad things to happen, and they do, then the downside in stock
price is limited. If something good (or even not so bad) happens, good things
happen to the stock price.
At Dean we are interested first and foremost in the preservation and enhancement
of capital. While this does not mean that our stocks never go down, it does mean
that we tend to do best on a relative basis in difficult market environments.
What are our strategies for preserving capital while also enhancing it? Each of
the Funds takes a somewhat different path but the common denominator is our
value philosophy. You will see its application on the pages describing the
activities of each fund.
2
<PAGE>
SMALL CAP VALUE FUND
- --------------------------------------------------------------------------------
Diversity: a Virtue and a Necessity
The Small Cap Value Fund attempts to stay as fully invested as possible in
stocks at all times. Small cap stocks can be volatile on a day-to-day basis,
because of their low liquidity. However, we do not view them as risky per se.
Diversification is a virtue and a necessity in small cap funds. It reduces the
day-to-day, or even month-to-month volatility. Even though the portfolio is
invested in small and little-known companies, its diversity reduces risk, and
our investments will still adhere to the Dean discipline of capital
preservation.
Continuing to Climb with Small Cap Stocks
The Dean Small Cap Value Fund continues to chalk up impressive returns with
Class A shares up 11.65%1 in the first three months of 1998, up 33.86%1 since
its inception May 28, 1997 (assuming reinvestment of dividends). These returns
exceed those of its benchmark, the Russell 2000, which was up 10.06% and 27.44%,
respectively. While we do not believe such returns can be sustained
indefinitely, by either the Fund or the index, we are confident that our
disciplined value style can continue to outperform on a relative basis.
"Small" does not equate to "risky" in the Dean Small Cap Value Fund. A
significant portion of the Fund is invested in such areas as electric utilities
and REITs (real estate investment trusts). These help provide the Fund with a
dividend yield which exceeds that of the much larger cap S&P 500.
Other stocks in the Fund have been purchased at prices so low that there is very
little risk. For example, Jan Bell Marketing sells jewelry through leased space
in Sam's Clubs. It was purchased at less than 10x earnings, at an average cost
of $2.69 per share. Total market value was $70 million, though its net current
assets (cash plus inventories plus receivables minus all liabilities) were $95
million at the time. The company has since posted better-than-expected earnings
and is now selling for $4.75, up 77% from our average cost.
1 The total returns shown do not include the effect of applicable sales loads.
Comparison of the Change in Value since May 28, 1997 of a $10,000
Investment in the Dean Small Cap Value Fund and the Russell 2000 Index
March 31, 1998
--------------
Dean Small Cap Value Fund $12,683
Russell 2000 Index $12,900
Dean Small Cap Value Fund
Total Returns Since Inception*
Class A 26.83%
Class C 20.63%
Past performance is not predictive of future performance.
* The chart above represents performance of Class A shares only, which will vary
from the performance of Class C shares based on the difference in loads and fees
paid by shareholders in the different classes. The intial public offering of
Class A shares commenced on May 28, 1997, and the initial public offering of
Class C shares commenced on August 1, 1997.
3
<PAGE>
LARGE CAP VALUE FUND
- --------------------------------------------------------------------------------
Low Prices: a Built-in Safety Factor
While the Large Cap Value Fund reflects the strength and stability of the
largest corporations, it does not have the benefit of a bond position. Thus, it
will tend to be more volatile than the Balanced Fund. Because of that
volatility, deeply discounted valuations are relied on to provide a sizable
margin of safety. Such stocks do not have grand expectations priced into them.
Since it is hard to disappoint when no one expects something exciting or good,
downside risk is reduced.
Solid Returns and a Careful Search for Value
The Fund continues to post strong absolute returns, with Class A shares up
24.11%1 between its inception on May 28, 1997, and March 31, 1998. Though solid,
these returns fall short of the 32.24% gain posted by the benchmark Russell 1000
Index during this period. While absolute returns of this magnitude are not
likely to continue indefinitely, either for the Fund or the Russell 1000, we
believe our relative performance should improve over time. On traditional value
measures, such as Price-to-Earnings and Price-to-Book Value, the Fund remains
far less expensive than the overall market.
Our search for value in large cap stocks has been rewarded in the utilities and
financial sectors. Valuations, especially in the financial services area, are
often well below average, despite steady earnings growth and strong balance
sheets. For example, Ambac Financial Group, a firm which specializes in insuring
municipal bonds, has gained more than 50% since being purchased for the Dean
Large Cap Value Fund. Even at that, it has been selling recently for 17x
earnings and only 2.3x an understated book value.
1 The total returns shown do not include the effect of applicable sales loads.
Comparison of the Change in Value since May 28, 1997 of a $10,000
Investment in the Dean Large Cap Value Fund and the Russell 1000 Index
March 31, 1998
--------------
Dean Large Cap Value Fund $11,760
Russell 1000 Index $13,214
Dean Large Cap Value Fund
Total Returns Since Inception*
Class A 17.60%
Class C 13.63%
Past performance is not predictive of future performance.
* The chart above represents performance of Class A shares only, which will vary
from the performance of Class C shares based on the difference in loads and fees
paid by shareholders in the different classes. The intial public offering of
Class A shares commenced on May 28, 1997, and the initial public offering of
Class C shares commenced on August 19, 1997.
4
<PAGE>
BALANCED FUND
- --------------------------------------------------------------------------------
Building Value by Limiting Risk
The Balanced Fund diversifies between stocks and bonds. Bonds are of high
quality and of medium length. Thus there is almost no risk of default and very
limited risk due to fluctuations in interest rates. Depending on overall market
risk, we vary the proportion in stocks and bonds slightly. The stocks are solid
companies which are currently out of favor. They have generally good, if not
spectacular, growth prospects but sell at a discount to the overall market. This
discount provides appreciation potential and lower risk.
Strength Followed Fourth Quarter Volatility
After a wild and volatile fourth quarter of 1997, market participants put the
Asian financial crisis in perspective. The first quarter of 1998 saw U.S.
markets respond positively to still-healthy corporate earnings and robust
economic performance. Individual investors continued to pour money into mutual
funds, providing further support to the bullish trend in stocks.
The Balanced Fund's Class A shares gained 18.07%1 since its inception on May 28,
1997, compared to 22.00% for our 60/40 2 benchmark over that same period. Given
the Balanced Fund's relatively cautious investment posture during the period,
its performance represents a solid absolute return. The portfolio holds
important positions in relatively low-risk areas such as electric utilities and
REITs. Its diverse holdings also include attractive and reasonably valued stocks
in dynamic industries, such as technology. It holds stocks in the automotive and
retail sectors, which benefit from steady economic growth. Financial services
companies comprise a significant portion of the holdings, because they are
reasonably valued and benefit from the low-interest environment.
During the quarter we added important positions in several stocks that clearly
fit our value criteria. As the price of oil declined steadily in recent months,
stocks of virtually all the oil service companies declined sharply. In view of
the long-term growth in demand for oil, this presented a very attractive
long-term investment opportunity.
Adhering to the Dean Balanced Fund's primary objective of preservation of
capital and competitive returns, we view the current market as being relatively
overvalued and prone to sharp volatility. We will maintain a modestly
conservative position in our investments but be alert to new value
opportunities.
1 The total returns shown do not include the effect of applicable sales loads.
2 The 60/40 benchmark consists of 60% Russell 1000 Index and 40% Lehman Brothers
Intermediate Government/Corporate Bond Index.
Comparison of the Change in Value since May 28, 1997 of a $10,000
Investment in the Dean Balanced Fund, the Russell 1000 Index and the Lehman
Brothers Intermediate Government/Corporate Bond Index
March 31, 1998
--------------
Dean Balanced Fund $11,187
Russell 1000 Index $13,214
Lehman Brothers Intermediate
Government/Corporate Bond Index $10,799
Dean Balanced Fund
Total Returns Since Inception*
Class A 11.87%
Class C 8.37%
Past performance is not predictive of future performance.
* The chart above represents performance of Class A shares only, which will vary
from the performance of Class C shares based on the difference in loads and fees
paid by shareholders in the different classes. The intial public offering of
Class A shares commenced on May 28, 1997, and the initial public offering of
Class C shares commenced on August 19, 1997.
5
<PAGE>
INTERNATIONAL VALUE FUND
- --------------------------------------------------------------------------------
Selecting Value from a World of Stocks
The Dean International Value Fund seeks capital appreciation by investing
primarily in the common stocks of companies located in the United Kingdom,
Continental Europe and the Pacific Basin. Stocks favored are those of companies
with strong management and solid earnings potential, but which are trading at
relatively low valuations. Particular emphasis is given to growth rates and such
valuation measures as price-to-book value and price-to-cash flow. The Fund is
managed under a disciplined, bottom-up, value approach. Strict parameters as to
capitalization and valuation are followed with respect to both buying and
selling these investments.
Off to a Great Beginning
Launched on October 13, 1997, as the Asian financial crisis sent waves of
volatility through international equity markets, the Dean International Value
Fund, nevertheless, got off to an excellent start. It's 17.60%1 total return for
Class A shares through March 31, 1998, nearly tripled the 5.87% return of the
benchmark EAFE Index.
The Fund's heavy cash position in October was used aggressively to buy depressed
European and Canadian equities during the correction. The realization that
growth in Asia was declining depressed bond yields in the West, which served to
boost the markets for European and North American equities. Initially, the Fund
minimized its exposure to companies in troubled Japan and other Asian and Latin
American economies. Early in 1998, however, value opportunities began to emerge,
leading to increased investments in these economies.
During the first quarter of 1998, strong rallies occurred in international
equity markets, with Europe leading the way. The Fund's early focus on European
markets was well rewarded.
1 The total returns shown do not include the effect of applicable sales loads.
Comparison of the Change in Value since October 13, 1997 of a $10,000
Investment in the Dean International Value Fund and the Europe, Australia
and Far East Index (EAFE Index)
March 31, 1998
--------------
Dean International Value Fund $11,143
Europe, Australia and Far East Index $10,620
Dean International Value Fund
Total Returns Since Inception*
Class A 11.43%
Class C 17.50%
Past performance is not predictive of future performance.
* The chart above represents performance of Class A shares only, which will vary
from the performance of Class C shares based on the difference in loads and fees
paid by shareholders in the different classes. The intial public offering of
Class A shares commenced on October 13, 1997, and the initial public offering of
Class C shares commenced on November 6, 1997.
6
<PAGE>
FUND FACTS
- --------------------------------------------------------------------------------
SMALL CAP VALUE FUND
- --------------------------------------------------------------------------------
Top Holdings
Jan Bell Marketing, Inc. Audiovox Corp. - Class A
M.D.C. Holdings, Inc. Castle Energy Corp.
Imperial Credit Commercial Mortgage Lennar Corp.
Advanced Marketing Services, Inc. LandAmerica Financial Group
Haverty Furniture Co., Inc. M/I Schottenstein Homes, Inc.
Number of Positions .......................................... 156
Median Price/Earnings Ratio .................................. 12.6
Portfolio Turnover (5/28/97 - 3/31/98) ....................... 62%
LARGE CAP VALUE FUND
- --------------------------------------------------------------------------------
Top Holdings
Bear Stearns Cos., Inc. Edwards (AG), Inc.
Clayton Homes, Inc. Food Lion, Inc. - Class A
Chase Manhattan Corp. Transatlantic Holdings, Inc.
Green Tree Financial Corp. Chrysler Corp.
Ambac Financial Group, Inc. Norfolk Southern Corp.
Number of Positions ........................................... 59
Median Price/Earnings Ratio ................................... 15.5
Portfolio Turnover (5/28/97 - 3/31/98) ........................ 54%
BALANCED FUND
- --------------------------------------------------------------------------------
Top Equity Holdings
Ambac Financial Group, Inc. ECI Telecommunications Ltd.
News Corp. Ltd. Pfd. ADR Diamond Offshore Drilling
Tricon Global Restaurants Countrywide Credit Ind.
Chrysler Corp. NCR Corp.
Applied Materials Tidewater, Inc.
Number of Positions ........................................... 47
Median Price/Earnings Ratio ................................... 17.4
Portfolio Turnover (5/28/97 - 3/31/98) ........................ 64%
7
<PAGE>
FUND FACTS
- --------------------------------------------------------------------------------
INTERNATIONAL VALUE FUND
- --------------------------------------------------------------------------------
Top Countries
United Kingdom Germany
France Switzerland
Sweden Netherlands
Japan Italy
Canada Hong Kong
Top Holdings
BCE, Inc. Telefonica De Espana
Scudder Latin America INV TR Sanofi SA
Fuji Photo Film Bure Investment Aktiebola
Telecom Italia SPA Carrefour Supermarche
Novartis AG Telecomunicacoes Brazileiras SA
Number of Positions .......................................... 83
Median Price/Earnings Ratio .................................. 26.4
Portfolio Turnover (10/1/97 - 3/31/98) ....................... 109%
8
<PAGE>
LARGE CAP VALUE FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
Shares COMMON STOCKS -- 99.9% Value
- --------------------------------------------------------------------------------
Aerospace -- 1.5%
2,000 Rockwell International Corp. ...................... $ 114,750
-----------
Automotive -- 6.2%
4,500 Chrysler Corp. .................................... 187,031
1,500 Ford Motor Co. .................................... 97,219
1,300 General Motors Corp. .............................. 87,669
1,900 PACCAR Inc. ....................................... 113,168
-----------
485,087
-----------
Automotive Parts -- 1.0%
2,000 Genuine Parts Co. ................................. 76,250
-----------
Banking -- 2.1%
1,300 Republic New York Corp. ........................... 173,388
-----------
Building Products -- 3.2%
1,000 Armstrong World Industries, Inc. .................. 86,563
1,500 Vulcan Materials Co. .............................. 164,250
-----------
250,813
-----------
Capital Goods -- 5.6%
6,000 AGCO Corp. ........................................ 178,125
3,000 Caterpiller Inc. .................................. 165,188
2,000 York International Corp. .......................... 90,000
-----------
433,313
-----------
Chemicals -- 7.0%
1,000 Dow Chemical Co., (The) ........................... 97,250
3,000 Great Lakes Chemical Corp. ........................ 162,000
2,000 Potash Corp. of Saskatchewan Inc. ................. 181,750
1,000 Rohm & Haas Co. ................................... 103,313
-----------
544,313
-----------
Electronics -- 2.7%
1,000 Avnet, Inc. ....................................... 57,563
63 Raytheon Co. - Class A ............................ 3,583
2,500 Raytheon Co. - Class B ............................ 145,938
-----------
207,084
-----------
Energy -- 6.7%
1,500 Atlantic Richfield Co. ............................ 117,938
3,000 Phillips Petroleum Co. ............................ 149,812
4,000 Tidewater, Inc. ................................... 175,250
3,500 Union Texas Petroleum Holdings .................... 77,438
-----------
520,438
-----------
9
<PAGE>
LARGE CAP VALUE FUND (continued)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS -- 99.9% Value
- --------------------------------------------------------------------------------
Financial Services -- 12.8%
3,400 Ambac Financial Group, Inc. ....................... $ 198,687
4,000 Bear Stearns Cos., Inc. ........................... 205,500
1,500 Chase Manhattan Corp. ............................. 202,312
4,500 Edwards (A.G.), Inc. .............................. 196,875
7,000 Green Tree Financial Corp. ........................ 199,062
-----------
1,002,436
-----------
Health Care -- 1.0%
2,000 Mallinckrodt, Inc. ................................ 79,000
-----------
Housing -- 2.6%
10,000 Clayton Homes, Inc. ............................... 202,500
-----------
Insurance -- 13.0%
2,000 AFLAC, Inc. ....................................... 126,500
1,500 American National Insurance Co. ................... 146,437
800 General Re Corp. .................................. 176,500
2,000 Jefferson-Pilot Corp. ............................. 177,875
500 SAFECO Corp. ...................................... 27,328
1,500 Transamerica Corp. ................................ 174,750
2,500 Transatlantic Holdings, Inc. ...................... 189,062
-----------
1,018,452
-----------
Media -- 0.6%
2,000 News Corporation Ltd. (The) (ADR) ................. 46,000
-----------
Metals -- 4.2%
2,800 Phelps Dodge Corp. ................................ 180,775
2,000 USX-U.S. Steel Group, Inc. ........................ 75,500
4,000 Worthington Industries, Inc. ...................... 72,500
-----------
328,775
-----------
Mortgage Services -- 4.1%
2,500 Countrywide Credit Industries, Inc. ............... 132,969
2,400 MBIA, Inc. ........................................ 186,000
-----------
318,969
-----------
Retail -- 5.1%
3,500 Dillard's, Inc. ................................... 129,281
18,000 Food Lion, Inc. - Class A ......................... 192,375
2,500 Toys "R" Us, Inc.(a) .............................. 75,156
-----------
396,812
-----------
Technology -- 1.1%
2,500 NCR Corp.(a) ...................................... 82,656
-----------
Telecommunications -- 1.6%
3,000 Alltel Corp. ...................................... 131,063
-----------
10
<PAGE>
LARGE CAP VALUE FUND (continued)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS -- 99.9% Value
- --------------------------------------------------------------------------------
Tobacco -- 3.2%
1,700 Loews Corp. ....................................... $ 177,225
1,000 Philip Morris Cos., Inc. .......................... 41,688
1,000 UST, Inc. ......................................... 32,250
-----------
251,163
-----------
Transportation -- 4.7%
3,000 CSX Corp. ......................................... 178,500
5,000 Norfolk Southern Corp. ............................ 186,875
-----------
365,375
-----------
Utilities -- 9.9%
2,000 Consolidated Edison Co. of New York, Inc. ......... 93,500
6,000 DPL Inc. .......................................... 117,000
4,000 Houston Industries, Inc. .......................... 115,000
5,000 Illinova Corp. .................................... 150,937
6,000 NIPSCO Industries, Inc. ........................... 168,000
4,500 Southern Co. ...................................... 124,594
-----------
769,031
-----------
Total Common Stocks (Cost $6,718,817) ............. $ 7,797,668
-----------
- --------------------------------------------------------------------------------
Face Value MONEY MARKET -- 0.5% Value
- --------------------------------------------------------------------------------
$ 39,056 Star Treasury Fund (Cost $39,056) ................. $ 39,056
-----------
Total Investments at Value -- 100.4%
(Cost $6,757,873) ................................. $ 7,836,724
Liabilities in Excess of Other Assets -- (0.4)% ... (30,680)
-----------
Net Assets -- 100.0% .............................. $ 7,806,044
===========
(a) Non-income producing security.
ADR -- American Depository Receipt
See accompanying notes to financial statements.
11
<PAGE>
SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
Shares COMMON STOCKS -- 97.7% Value
- --------------------------------------------------------------------------------
Automotive -- 2.5%
8,000 Excel Industries, Inc. ............................ $ 165,000
7,000 Global Motorsport Group, Inc.(a) .................. 126,875
7,000 Oshkosh Truck Corp. ............................... 133,000
2,000 Republic Automotive Parts, Inc.(a) ................ 36,250
5,000 TBC Corp.(a) ...................................... 50,000
-----------
511,125
-----------
Automotive Parts -- 0.9%
2,000 Arvin Industries, Inc. ............................ 81,875
10,000 R & B, Inc.(a) .................................... 103,750
-----------
185,625
-----------
Building Products -- 4.3%
5,000 American Residential Services, Inc.(a) ............ 49,688
2,000 Ameron International Corp. ........................ 116,875
8,000 Building Materials Holding Corp.(a) ............... 109,000
9,000 Cameron Ashley Building Products(a) ............... 164,810
28,000 Martin Industries, Inc. ........................... 152,250
13,000 Patrick Industries, Inc. .......................... 202,310
5,000 Ryerson Tull, Inc.(a) ............................. 96,250
-----------
891,183
-----------
Building Supplies -- 0.8%
13,000 Wolohan Lumber Co. ................................ 169,000
-----------
Capital Goods -- 4.7%
5,000 Amcast Industrial Corp. ........................... 108,125
5,000 Baldwin Technology Co., Inc. - Class A(a) ......... 27,500
11,000 Bridgeport Machines, Inc.(a) ...................... 129,250
4,000 Central Sprinkler Corp.(a) ........................ 56,000
15,000 Defiance, Inc. .................................... 123,750
10,000 Global Industrial Technologies, Inc.(a) ........... 165,000
3,000 Hardinge, Inc. .................................... 102,375
12,000 Perini Corp.(a) ................................... 108,000
8,000 Tractor Supply Co.(a) ............................. 165,000
-----------
985,000
-----------
Chemicals -- 0.7%
7,000 Mississippi Chemical Corp. ........................ 140,438
-----------
12
<PAGE>
SMALL CAP VALUE FUND (continued)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS -- 97.7% Value
- --------------------------------------------------------------------------------
Electronics -- 4.5%
13,760 Bell Industries, Inc.(a) .......................... $ 194,360
8,000 Cherry Corp. - Class A(a) ......................... 144,000
3,000 Cherry Corp. - Class B(a) ......................... 52,500
3,500 ESCO Electronics Corp.(a) ......................... 57,750
10,000 IEC Electronics Corp.(a) .......................... 91,250
2,000 Marshall Industries(a) ............................ 66,750
11,000 MicroAge, Inc.(a) ................................. 138,875
5,000 Petroleum Development Corp.(a) .................... 29,687
4,000 Providence Energy Corp. ........................... 83,750
6,000 SED International Holdings, Inc.(a) ............... 68,250
-----------
927,172
-----------
Energy -- 4.2%
7,300 BP Prudhoe Bay Royalty Trust ...................... 107,219
3,000 CMS Energy Corp. - Class G ........................ 75,938
16,000 Castle Energy Corp.(a) ............................ 280,000
6,000 Crown Central Petroleum Corp.(a) .................. 111,750
3,000 Giant Industries, Inc. ............................ 61,500
30,000 High Plains Corp.(a) .............................. 80,625
5,000 NUI Corp. ......................................... 136,875
3,000 Torch Energy Royalty Trust ........................ 21,938
-----------
875,845
-----------
Financial Services -- 1.2%
17,000 EZCORP, Inc. - Class A(a) ......................... 201,875
3,000 United Cos. Financial Corp. ....................... 53,438
-----------
255,313
-----------
Food -- 2.6%
9,000 Fleming Cos., Inc. ................................ 178,313
15,000 M&F Worldwide Corp.(a) ............................ 135,938
10,000 Mauna Loa Macadamia Partners, L.P. - Class A ...... 38,125
10,000 Nash-Finch Co. .................................... 198,750
-----------
551,126
-----------
Furniture -- 1.0%
12,000 Flexsteel Industries, Inc. ........................ 166,500
2,000 Pulaski Furniture Corp. ........................... 45,750
-----------
212,250
-----------
Gaming -- 0.9%
5,000 Ameristar Casinos(a) .............................. 28,750
9,000 Grand Casinos, Inc.(a) ............................ 153,563
-----------
182,313
-----------
Health Care -- 1.6%
16,000 Ramsay Health Care, Inc.(a) ....................... 50,000
10,000 Safeguard Health Enterprises, Inc.(a) ............. 87,500
85,000 Staff Builders, Inc. - Class A(a) ................. 191,250
-----------
328,750
-----------
13
<PAGE>
SMALL CAP VALUE FUND (continued)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS -- 97.7% Value
- --------------------------------------------------------------------------------
Housing -- 10.4%
10,000 Beazer Homes USA, Inc.(a) ......................... $ 256,875
10,000 Cavalier Homes, Inc. .............................. 114,375
8,000 Del Webb Corp. .................................... 244,000
12,000 Engle Homes, Inc. ................................. 201,000
24,000 Hovnanian Enterprises Inc. - Class A(a) ........... 253,500
7,966 Lennar Corp. ...................................... 274,329
17,000 M.D.C. Holdings, Inc. ............................. 301,750
12,200 M/I Schottenstein Homes, Inc.(a) .................. 266,875
1,100 Pulte Corp. ....................................... 51,150
20,000 Zaring National Corp.(a) .......................... 205,000
-----------
2,168,854
-----------
Insurance -- 8.6%
6,000 ALLIED Life Financial Corp. ....................... 129,000
2,500 Chartwell Re Corp. ................................ 84,688
1,300 Citizens Corp. .................................... 40,463
1,733 Donegal Group, Inc. ............................... 40,509
12,000 EMC Insurance Group, Inc. ......................... 160,500
3,000 FBL Financial Group, Inc. - Class A ............... 151,875
1,300 Farm Family Holdings, Inc.(a) ..................... 50,375
4,200 Harleysville Group, Inc. .......................... 109,200
6,000 LandAmerica Financial Group, Inc. ................. 271,500
600 Navigators Group, Inc. (The)(a) ................... 11,250
4,000 PXRE Corp. ........................................ 124,000
5,000 SCPIE Holdings Inc. ............................... 155,000
600 Selective Insurance Group, Inc. ................... 16,125
8,000 Stewart Information Services Corp. ................ 246,000
3,000 Terra Nova (Bermuda) Holdings Ltd. - Class A ...... 91,500
3,000 Trenwick Group Inc. ............................... 112,500
-----------
1,794,485
-----------
Metals -- 7.1%
6,000 Ampco-Pittsburgh Corp. ............................ 111,000
9,000 Atchison Casting Corp.(a) ......................... 140,625
15,000 Bayou Steel Corp.(a) .............................. 102,188
3,500 Cleveland-Cliffs Inc. ............................. 188,125
4,000 Commercial Metals Co. ............................. 140,000
14,000 National Steel Corp. - Class B(a) ................. 239,750
3,000 Pitt-Des Moines, Inc. ............................. 144,000
7,050 Roanoke Electric Steel Co. ........................ 145,406
10,000 Rouge Industries, Inc. - Class A .................. 155,625
11,000 Steel of West Virginia, Inc.(a) ................... 112,750
-----------
1,479,469
-----------
Miscellaneous -- 0.9%
8,000 Arctic Cat, Inc. .................................. 74,500
4,000 CTG Resources, Inc. ............................... 102,750
-----------
177,250
-----------
Mortgage Services -- 0.7%
6,000 MMI Cos., Inc. .................................... 144,375
-----------
14
<PAGE>
SMALL CAP VALUE FUND (continued)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS -- 97.7% Value
- --------------------------------------------------------------------------------
Paper and Containers -- 0.8%
17,000 Mercer International, Inc. ........................ $ 166,813
-----------
Real Estate -- 7.4%
9,000 Commercial Net Lease Realty ....................... 158,625
5,000 Criimi Mae, Inc. .................................. 77,188
13,000 Dynex Capital, Inc. ............................... 156,000
5,000 Health Care REIT, Inc. ............................ 137,500
10,000 Horizon Group, Inc. ............................... 123,125
19,000 Imperial Credit Commercial Mortgage Investment Corp. 285,000
3,000 PMC Commerical Trust .............................. 58,875
7,000 RFS Hotel Investors, Inc. ......................... 127,750
4,000 Ramco-Gershenson Properties Trust ................. 81,500
3,000 Redwood Trust, Inc. ............................... 70,500
9,000 Thornburg Mortgage Asset Corp. .................... 142,875
10,000 Winston Hotels, Inc. .............................. 132,500
-----------
1,551,438
-----------
Restaurants -- 2.6%
1,000 Bertucci's, Inc.(a) ............................... 7,687
14,000 Cooker Restaurant Corp. ........................... 140,875
11,000 Rare Hospitality International, Inc.(a) ........... 130,625
25,000 Ryan's Family Steak Houses, Inc.(a) ............... 226,563
4,000 Uno Restaurant Corp.(a) ........................... 28,500
-----------
534,250
-----------
Retail -- 16.1%
15,000 Advanced Marketing Services, Inc.(a) .............. 281,250
6,800 Blair Corp. ....................................... 155,550
5,000 Burlington Industries, Inc.(a) .................... 87,812
15,000 Dixie Group, Inc. (The) ........................... 173,438
15,000 Duckwall-ALCO Stores, Inc.(a) ..................... 228,750
15,000 Dyersburg Corp. ................................... 117,187
10,000 Farah Inc.(a) ..................................... 63,125
9,000 Friedman's Inc. - Class A(a) ...................... 182,813
25,000 GT Bicycles, Inc.(a) .............................. 154,688
15,000 Haverty Furniture Co., Inc. ....................... 281,250
13,000 Ingles Markets, Inc. - Class A .................... 175,500
62,900 Jan Bell Marketing, Inc.(a) ....................... 310,568
6,800 Lifetime Hoan Corp. ............................... 78,200
6,000 Marsh Supermarkets, Inc. - Class B ................ 93,750
11,000 Mikasa, Inc. ...................................... 148,500
13,000 Movie Gallery, Inc.(a) ............................ 99,125
12,000 REX Stores Corp.(a) ............................... 177,000
10,000 Rival Co. (The) ................................... 172,500
5,000 Sportman's Guide, Inc. (The)(a) ................... 30,000
3,000 Superior Surgical Manufacturing Co., Inc. ......... 52,500
3,000 Supreme International Corp.(a) .................... 37,500
8,000 Syms Corp.(a) ..................................... 113,000
15,000 Tultex Corp.(a) ................................... 57,187
15,000 Worldtex, Inc.(a) ................................. 113,438
-----------
3,384,631
-----------
15
<PAGE>
SMALL CAP VALUE FUND (continued)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS -- 97.7% Value
- --------------------------------------------------------------------------------
Semiconductor -- 2.1%
8,000 Kulicke & Soffa Industries, Inc.(a) ............... $ 174,000
10,000 Newcor, Inc. ...................................... 92,500
11,000 Tower Semiconductor Ltd.(a) ....................... 100,375
27,000 Xicor, Inc.(a) .................................... 70,875
-----------
437,750
-----------
Technology -- 1.7%
20,000 Kentek Information Systems, Inc. .................. 158,750
11,000 Nam Tai Electronics, Inc. ......................... 187,688
-----------
346,438
-----------
Telecommunications -- 2.2%
8,400 Atlantic Tele-Network, Inc.(a) .................... 92,400
42,000 Audiovox Corp. - Class A(a) ....................... 280,875
11,000 Emerging Communications, Inc.(a) .................. 77,000
-----------
450,275
-----------
Tobacco -- 0.7%
9,000 Standard Commercial Corp. ......................... 143,438
-----------
Transportation -- 0.5%
5,000 Pittson Burlington Group .......................... 78,125
500 Sea Containers, LTD. - Class A .................... 19,280
-----------
97,405
-----------
Utility -- 6.0%
5,000 Central Hudson Gas & Electric ..................... 218,125
10,000 Central Vermont Public Service .................... 148,750
4,000 Commonwealth Energy System ........................ 159,500
7,000 Eastern Utilities Associates ...................... 190,750
6,000 Rochester Gas & Electric Corp. .................... 195,000
7,000 TNP Enterprises, Inc. ............................. 231,438
2,500 United Illuminating Co. ........................... 120,937
-----------
1,264,500
-----------
Total Common Stocks (Cost $17,670,094) ............ $20,356,511
-----------
- --------------------------------------------------------------------------------
Face Value MONEY MARKET -- 0.4% Value
- --------------------------------------------------------------------------------
$ 71,682 Star Treasury Fund (Cost $71,682) ................. $ 71,682
-----------
Total Investments at Value -- 98.1%
(Cost $17,741,776) ................................ $20,428,193
Other Assets in Excess of Liabilities -- 1.9% ..... 401,397
-----------
Net Assets -- 100.0% .............................. $20,829,590
===========
(a) Non-income producing security.
See accompanying notes to financial statements.
16
<PAGE>
BALANCED FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
Shares COMMON STOCKS -- 60.2% Value
- --------------------------------------------------------------------------------
Airlines -- 0.8%
2,500 Comair Holdings, Inc. ............................. $ 66,250
-----------
Automotive -- 3.3%
3,500 Chrysler Corp. .................................... 145,469
2,000 Ford Motor Co. .................................... 129,625
-----------
275,094
-----------
Capital Goods -- 3.5%
3,000 AGCO Corp. ........................................ 89,063
2,100 Briggs & Stratton Corp. ........................... 96,206
2,000 Trinity Industries, Inc. .......................... 109,750
-----------
295,019
-----------
Chemicals -- 1.4%
1,250 Potash Corp. of Saskatchewan Inc. ................. 113,594
-----------
Data Storage -- 1.3%
4,150 Seagate Technology, Inc.(a) ....................... 104,787
-----------
Electronics -- 2.1%
1,000 Avnet, Inc. ....................................... 57,563
2,050 Raytheon Co. - Class B ............................ 119,669
-----------
177,232
-----------
Energy -- 3.2%
3,000 Diamond Offshore Drilling, Inc. ................... 136,125
3,000 Tidewater, Inc. ................................... 131,438
-----------
267,563
-----------
Financial Services -- 4.0%
3,000 Ambac Financial Group, Inc. ....................... 175,313
500 Chase Manhattan Corp. (The) ....................... 67,437
3,100 Green Tree Financial Corp. ........................ 88,156
-----------
330,906
-----------
Government Sponsored Enterprises -- 1.1%
1,500 Federal National Mortgage Association ............. 94,875
-----------
Health Care -- 1.2%
3,000 Columbia/HCA Healthcare Corp. ..................... 96,750
-----------
Housing -- 1.5%
6,200 Clayton Homes, Inc. ............................... 125,550
-----------
Insurance -- 2.8%
2,000 AFLAC, Inc. ....................................... 126,500
4,000 Frontier Insurance Group, Inc. .................... 110,500
-----------
237,000
-----------
17
<PAGE>
BALANCED FUND (continued)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS -- 60.2% Value
- --------------------------------------------------------------------------------
Media -- 3.8%
2,000 Comcast Corp. ..................................... $ 70,625
2,000 Cox Communications, Inc. - Class A(a) ............. 84,000
7,000 News Corporation Ltd. (The) (ADR) ................. 161,000
-----------
315,625
-----------
Mortgage Services -- 3.1%
2,500 Countrywide Credit Industries, Inc. ............... 132,969
1,600 PMI Group, Inc. (The) ............................. 129,200
-----------
262,169
-----------
Restaurants -- 2.9%
10,000 Ryan's Family Steak Houses, Inc.(a) ............... 90,625
5,000 Tricon Global Restaurants, Inc.(a) ................ 150,313
-----------
240,938
-----------
Retail -- 2.0%
1,000 Payless ShoeSource, Inc.(a) ....................... 75,250
3,000 Toys "R" Us, Inc.(a) .............................. 90,187
-----------
165,437
-----------
Real Estate -- 4.4%
2,500 Health Care Property Investors, Inc. .............. 92,343
4,000 Merry Land & Investment Co., Inc. ................. 89,500
3,000 Simon DeBartolo Group, Inc. ....................... 102,750
6,000 United Dominion Realty Trust, Inc. ................ 87,000
-----------
371,593
-----------
Semiconductor -- 3.1%
4,000 Applied Materials, Inc.(a) ........................ 141,250
1,500 Intel Corp. ....................................... 117,093
-----------
258,343
-----------
Technology -- 4.3%
4,500 ECI Telecommunications Ltd. ....................... 138,375
4,000 NCR Corp.(a) ...................................... 132,250
6,000 Wall Data, Inc.(a) ................................ 90,000
-----------
360,625
-----------
Telecommunications -- 2.3%
4,000 360 Communications Co.(a) ......................... 125,000
900 Sprint Corp. ...................................... 60,918
-----------
185,918
-----------
Tobacco -- 1.3%
2,650 Phillip Morris Cos., Inc. ......................... 110,472
-----------
Transportation -- 2.0%
1,500 CSX Corp. ......................................... 89,250
2,000 Norfolk Southern Corp. ............................ 74,750
-----------
164,000
-----------
18
<PAGE>
BALANCED FUND (continued)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS -- 60.2% Value
- --------------------------------------------------------------------------------
Utilities -- 4.8%
4,000 Houston Industries, Inc. .......................... $ 115,000
4,000 Illinova Corp. .................................... 120,750
3,000 NIPSCO Industries, Inc. ........................... 84,000
3,000 Southern Co. ...................................... 83,063
-----------
402,813
-----------
Total Common Stocks (Cost $4,341,672) ............. $ 5,022,553
-----------
- --------------------------------------------------------------------------------
Shares Fixed Income -- 33.8% Value
- --------------------------------------------------------------------------------
300,000 U.S. Treasury Note, 6.375%, 7/15/99 ............... $ 302,813
300,000 U.S. Treasury Note, 5.875%, 11/15/99 .............. 301,219
250,000 Federal National Mortgage Association,
5.620%, 3/15/01 ................................. 249,759
250,000 U.S. Treasury Note, 6.125%, 12/31/01 .............. 253,594
300,000 EI Dupont De Nemours, 6.500%, 9/01/02 ............. 304,857
300,000 Countrywide Credit Industries, Inc.,
6.280%, 1/15/03 ................................. 297,644
300,000 Federal National Mortgage Association,
5.250%, 1/15/03 ................................. 292,850
250,000 Hilton Hotels Corp., 7.000%, 7/15/04 .............. 248,222
300,000 U.S. Treasury Note, 6.500%, 10/15/06 .............. 314,625
250,000 Federal National Mortgage Association,
7.500%, 2/02/07 ................................. 255,377
-----------
Total Fixed Income (Cost $2,815,529) .............. $ 2,820,960
-----------
- --------------------------------------------------------------------------------
Face Value MONEY MARKET AND EQUIVALENTS -- 5.2% Value
- --------------------------------------------------------------------------------
402,000 KZH ING PP, CP 4/02/98 ............................ $ 401,937
32,347 Star Treasury Fund ................................ 32,347
-----------
Total Money Market and Equivalents (Cost $434,284) $ 434,284
-----------
Total Investments at Value -- 99.2%
(Cost $7,591,485) ............................... $ 8,277,797
Other Assets in Excess of Liabilities -- 0.8% ..... 68,763
-----------
Net Assets -- 100.0% .............................. $ 8,346,560
===========
(a) Non-income producing security.
ADR -- American Depository Receipt
See accompanying notes to financial statements.
19
<PAGE>
INTERNATIONAL VALUE FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
Shares COMMON STOCKS -- 99.2% Value
- --------------------------------------------------------------------------------
Argentina -- 0.6%
1,240 Perez Compac SA ................................... $ 8,395
-----------
Australia -- 3.4%
750 Brambles Industries Limited ....................... 15,642
1,280 Commonwealth Bank of Australia .................... 15,247
14,500 Pasminco Limited .................................. 15,866
-----------
46,755
-----------
Belgium -- 1.9%
48 Kredietbank NV .................................... 25,793
-----------
Brazil -- 3.3%
350,000 Telecomunicacoes Brazileiras SA ................... 45,434
-----------
Canada -- 7.0%
1,560 BCE, Inc. ......................................... 65,268
420 BCE Mobile Communications Inc.(a) ................. 12,537
1,010 National Bank of Canada ........................... 18,891
-----------
96,696
-----------
Denmark -- 1.0%
300 ISS International Service System A/S(a) ........... 14,341
-----------
Finland -- 0.8%
245 Pohjola Insurance Group ........................... 11,350
-----------
France -- 11.4%
370 AGF (Assurances Generales de France) .............. 20,824
116 Axa-UAP ........................................... 11,945
45 Carrefour SA ...................................... 26,510
140 Elf Aquitaine SA .................................. 18,348
40 L'OREAL ........................................... 18,593
120 Leon de Bruxelles(a) .............................. 12,493
244 Sanofi SA ......................................... 28,001
390 Transiciel SA(a) .................................. 21,087
-----------
157,801
-----------
Germany -- 6.8%
130 Axa Colonia Konzern AG ............................ 15,851
170 Deutsche Bank AG .................................. 12,745
160 Dis Deutscher Industrie Service AG(a) ............. 9,647
25 Karstadt AG ....................................... 9,733
26 Mannesmann AG ..................................... 19,036
50 Philipp Holzmann AG(a) ............................ 11,626
280 RWE AG ............................................ 15,103
-----------
93,741
-----------
Greece -- 1.0%
610 Goody's SA ........................................ 14,498
-----------
20
<PAGE>
INTERNATIONAL VALUE FUND (continued)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS -- 99.2% Value
- --------------------------------------------------------------------------------
Hong Kong -- 3.4%
1,000 Cheung Kong (Holdings) Ltd. ....................... $ 7,098
5,000 Cheung Kong Infrastructure Holdings ............... 14,907
2,000 Hutchison Whampoa Ltd. ............................ 14,068
2,000 Shanghai Industrial Holdings Ltd. ................. 8,183
10,000 Zhehuang Expressway Co. Ltd.(a) ................... 2,530
-----------
46,786
-----------
Italy -- 3.7%
1,290 Istituto Bancario San Paolo di Torino ............. 18,081
4,260 Telecom Italia SPA ................................ 33,571
-----------
51,652
-----------
Japan -- 8.3%
300 Acom Company, Ltd. ................................ 14,961
600 Aiwa Co., Ltd. .................................... 16,828
2,000 Dai-Ichi Kangyo Bank Ltd. ......................... 14,548
1,000 Fuji Photo Film ................................... 37,195
4,000 Sakura Bank Ltd. .................................. 14,188
200 Sony Corporation .................................. 16,948
-----------
114,668
-----------
Netherlands -- 3.9%
620 ABN AMRO Holding NV ............................... 14,305
2,700 AND International Publishers Plc(a) ............... 14,376
478 Koninklijke PTT Nederland NV ...................... 24,764
-----------
53,445
-----------
Norway -- 1.1%
3,600 Christiania Bank Og Kreditkasse ................... 15,299
-----------
Portugual -- 0.9%
250 Portugal Telecom SA ............................... 13,004
-----------
Singapore -- 1.2%
3,000 Oversea-Chinese Banking Corporation Ltd. .......... 16,905
-----------
Spain -- 3.0%
60 Grupo Acciona SA .................................. 12,076
655 Telefonica de Espana .............................. 28,868
-----------
40,944
-----------
Sweden -- 9.8%
950 Astra AB - Class A ................................ 19,608
1,770 Investment AB Bure ................................ 26,790
1,800 Nordbanken Holding AB ............................. 11,934
330 Pharmacia & Upjohn, Inc. .......................... 14,241
210 Skandia Forsakrings AB ............................ 13,686
286 Svenska Handelsbanken ............................. 13,237
490 Telefonaktiebolaget LM Ericsson ................... 23,292
380 Volvo AB .......................................... 12,097
-----------
134,885
-----------
21
<PAGE>
INTERNATIONAL VALUE FUND (continued)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS -- 99.2% Value
- --------------------------------------------------------------------------------
Switzerland -- 4.0%
17 Novartis .......................................... $ 30,086
9 Swiss Life ........................................ 7,610
11 UBS - Union Bank of Switzerland ................... 17,967
-----------
55,663
-----------
United Kingdom -- 20.6%
2,340 B.A.T. Industries Plc ............................. 23,511
600 Bank of Scotland .................................. 7,013
400 Barclays Plc ...................................... 11,970
470 British Aerospace Plc ............................. 15,466
870 British Energy Plc ................................ 7,645
1,800 British Telecommunications Plc .................... 19,563
540 Commercial Union Plc .............................. 10,517
850 Compass Group Plc ................................. 14,476
1,420 Energis Plc(a) .................................... 13,376
260 Glaxo Wellcome Plc ................................ 6,905
1,500 Imperial Tobacco Group Plc ........................ 11,040
300 National Westminster Bank Plc ..................... 5,491
580 Railtrack Group Plc ............................... 9,538
960 Reed International Plc ............................ 9,710
600 Royal & Sun Alliance Insurance Group Plc .......... 7,601
1,080 Royal Bank of Scotland Group Plc .................. 16,738
1,320 ScottishPower Plc ................................. 12,390
20,910 Scudder Latin America Investment Trust Plc ........ 37,905
800 SmithKline Beecham Plc ............................ 10,021
525 Smiths Industries Plc ............................. 7,649
1,640 Unilever Plc ...................................... 15,421
1,115 Vodafone Group Plc(a) ............................. 11,623
-----------
285,569
-----------
Closed-end Foreign Funds -- 2.1%
84 Societe Generale Baltic Republics Fund(a) ......... 18,582
120 Ukraine Fund Ltd.(a) .............................. 10,020
-----------
28,602
-----------
Total Investments at Value -- 99.2%
(Cost $1,226,254) ............................... $ 1,372,226
-----------
Other Assets in Excess of Liabilities -- 0.8% ..... 10,919
-----------
Net Assets -- 100.0% .............................. $ 1,383,145
===========
(a) Non-income producing security.
See accompanying notes to financial statements.
22
<PAGE>
DEAN FAMILY OF FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Large Cap Small Cap Balanced International
Value Fund Value Fund Fund Value Fund
----------- ----------- ----------- -----------
ASSETS
Investments in securities:
<S> <C> <C> <C> <C>
At acquisition cost $ 6,757,873 $17,741,776 $ 7,591,485 $ 1,226,254
=========== =========== =========== ===========
At value (Note 2) $ 7,836,724 $20,428,193 $ 8,277,797 $ 1,372,226
Cash -- -- -- 101,067
Cash denominated in foreign currencies (at cost $42,783) -- -- -- 42,400
Net unrealized appreciation on forward foreign currency
exchange contracts (Note 6) -- -- -- 5,347
Dividends and interest receivable 8,098 29,479 45,452 1,654
Receivable for securities sold -- 431,581 -- 21,572
Receivable for capital shares sold 9,475 52,079 21,384 1,983
Receivable from Adviser (Note 4) 3,136 -- 1,946 3,317
Organization expenses, net (Note 2) 12,880 12,880 12,880 --
Other assets 8,166 16,428 8,335 15,756
----------- ----------- ----------- -----------
TOTAL ASSETS 7,878,479 20,970,640 8,367,794 1,565,322
----------- ----------- ----------- -----------
LIABILITIES
Dividends payable 298 -- 2,681 --
Payable for securities purchased -- -- -- 157,467
Payable for capital shares redeemed 59,962 111,187 1,975 --
Payable to affiliates (Note 4) 6,400 19,518 6,400 6,400
Other liabilities 5,775 10,345 10,178 18,310
----------- ----------- ----------- -----------
TOTAL LIABILITIES 72,435 141,050 21,234 182,177
----------- ----------- ----------- -----------
NET ASSETS $ 7,806,044 $20,829,590 $ 8,346,560 $ 1,383,145
=========== =========== =========== ===========
Net assets consist of:
Paid-in capital $ 6,621,536 $17,338,540 $ 7,452,425 $ 1,215,110
Undistributed net investment income -- 13,908 -- --
Accumulated net realized gains from security
transactions 105,657 790,725 207,823 15,487
Net unrealized appreciation on investments 1,078,851 2,686,417 686,312 145,972
Net unrealized appreciation on translation of assets and
liabilities in foreign currencies -- -- -- 6,576
----------- ----------- ----------- -----------
Net assets $ 7,806,044 $20,829,590 $ 8,346,560 $ 1,383,145
=========== =========== =========== ===========
</TABLE>
23
<PAGE>
DEAN FAMILY OF FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1998 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Large Cap Small Cap Balanced International
Value Fund Value Fund Fund Value Fund
----------- ----------- ----------- -----------
PRICING OF CLASS A SHARES
<S> <C> <C> <C> <C>
Net assets applicable to Class A shares $ 7,669,807 $19,437,554 $ 7,262,670 $ 1,295,896
=========== =========== =========== ===========
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 628,288 1,514,344 629,043 110,223
=========== =========== =========== ===========
Net asset value and redemption price per share (Note 2) $ 12.21 $ 12.84 $ 11.55 $ 11.76
=========== =========== =========== ===========
Maximum offering price per share (Note 2) $ 12.89 $ 13.55 $ 12.19 $ 12.41
=========== =========== =========== ===========
PRICING OF CLASS C SHARES
Net assets applicable to Class C shares $ 136,237 $ 1,392,036 $ 1,083,890 $ 87,249
=========== =========== =========== ===========
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 11,205 108,873 94,079 7,443
=========== =========== =========== ===========
Net asset value, offering price and redemption price
per share (Note 2) $ 12.16 $ 12.79 $ 11.52 $ 11.72
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
DEAN FAMILY OF FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended March 31, 1998(A)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Large Cap Small Cap Balanced International
Value Fund Value Fund Fund Value Fund
----------- ----------- ----------- -----------
INVESTMENT INCOME
<S> <C> <C> <C> <C>
Dividends (net of foreign withholding taxes of $628
for the International Value Fund) $ 102,964 $ 257,025 $ 57,385 $ 2,729
Interest 10,462 24,945 155,346 --
----------- ----------- ----------- -----------
TOTAL INVESTMENT INCOME 113,426 281,970 212,731 2,729
----------- ----------- ----------- -----------
EXPENSES
Investment advisory fees (Note 4) 52,709 127,902 57,457 4,452
Registration fees - Common 6,730 9,443 6,944 12,782
Registration fees - Class A 11,063 11,960 11,098 6
Registration fees - Class C 11,113 11,113 11,096 6
Accounting services fees (Note 4) 27,000 27,000 27,000 15,000
Shareholder services and transfer agent fees -
Class A (Note 4) 10,800 10,800 10,800 6,000
Class C (Note 4) 9,600 9,600 9,600 6,000
Distribution expenses - Class A (Note 4) -- 5,533 -- --
Administration fees (Note 4) 9,000 12,639 9,000 5,000
Custodian fees 4,373 12,424 4,548 9,800
Postage and supplies 5,983 14,442 5,432 1,028
Trustees' fees and expenses 5,763 5,763 5,763 2,752
Insurance expense 3,758 3,758 3,758 --
Reports to shareholders 1,900 4,497 1,863 --
Amortization of organization expenses (Note 2) 2,892 2,892 2,892 --
Other expenses 2,151 4,325 2,544 3,916
----------- ----------- ----------- -----------
TOTAL EXPENSES 164,835 274,091 169,795 66,742
Fees waived and common expenses
reimbursed by Adviser (Note 4) (46,607) (17,445) (44,231) (53,501)
Class C expenses reimbursed by Adviser (Note 4) (20,468) (16,684) (16,291) (5,663)
----------- ----------- ----------- -----------
NET EXPENSES 97,760 239,962 109,273 7,578
----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) 15,666 42,008 103,458 (4,849)
----------- ----------- ----------- -----------
REALIZEDAND UNREALIZED GAINS (LOSSES)
Net realized gains (losses) from: (Note 5)
Security transactions 199,457 1,496,720 263,495 21,655
Foreign currency transactions -- -- -- (1,319)
Net change in unrealized appreciation on: (Note 5)
Investments 1,078,851 2,686,417 686,312 145,972
Translation of assets and liabilities in foreign currencies -- -- -- 6,576
----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAINS ON
INVESTMENTS AND FOREIGN CURRENCIES 1,278,308 4,183,137 949,807 172,884
----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 1,293,974 $ 4,225,145 $ 1,053,265 $ 168,035
=========== =========== =========== ===========
</TABLE>
(A) Except for the International Value Fund which represents the period from
October 13, 1997 to March 31, 1998.
See accompanying notes to financial statements.
25
<PAGE>
DEAN FAMILY OF FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended March 31, 1998(A)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Large Cap Small Cap Balanced International
Value Fund Value Fund Fund Value Fund
------------ ------------ ------------ ------------
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) $ 15,666 $ 42,008 $ 103,458 $ (4,849)
Net realized gains from security transactions 199,457 1,496,720 263,495 21,655
Net realized losses from foreign currency transactions -- -- -- (1,319)
Net change in unrealized appreciation on investments 1,078,851 2,686,417 686,312 145,972
Net change in unrealized appreciation on translation
of assets and liabilities in foreign currencies -- -- -- 6,576
------------ ------------ ------------ ------------
Net increase in net assets from operations 1,293,974 4,225,145 1,053,265 168,035
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income, Class A (15,639) (27,790) (96,636) --
From net investment income, Class C (27) (310) (6,822) --
From net realized gains, Class A (93,134) (679,224) (50,850) --
From net realized gains, Class C (666) (26,771) (4,822) --
------------ ------------ ------------ ------------
Decrease in net assets from distributions
to shareholders (109,466) (734,095) (159,130) --
------------ ------------ ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Class A
Proceeds from shares sold 7,408,080 16,889,610 7,467,827 1,135,513
Net asset value of shares issued in
reinvestment of distributions to shareholders 100,180 609,751 142,246 --
Payments for shares redeemed (1,043,356) (1,485,185) (1,219,159) (308)
------------ ------------ ------------ ------------
Net increase in net assets from Class A
share transactions 6,464,904 16,014,176 6,390,914 1,135,205
------------ ------------ ------------ ------------
Class C
Proceeds from shares sold 125,961 1,324,235 1,017,191 79,905
Net asset value of shares issued in
reinvestment of distributions to shareholders 690 26,186 11,331 --
Payments for shares redeemed (4,019) (59,057) (11) --
------------ ------------ ------------ ------------
Net increase in net assets from Class C
share transactions 122,632 1,291,364 1,028,511 79,905
------------ ------------ ------------ ------------
Net increase in net assets from capital share transactions 6,587,536 17,305,540 7,419,425 1,215,110
------------ ------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS 7,772,044 20,796,590 8,313,560 1,383,145
NET ASSETS:
Beginning of year (Note 1) 34,000 33,000 33,000 --
------------ ------------ ------------ ------------
End of year $ 7,806,044 $ 20,829,590 $ 8,346,560 $ 1,383,145
============ ============ ============ ============
UNDISTRIBUTED NET INVESTMENT INCOME $ -- $ 13,908 $ -- $ --
============ ============ ============ ============
</TABLE>
(A) Except for the International Value Fund which represents the period from
October 13, 1997 to March 31, 1998.
26
<PAGE>
DEAN FAMILY OF FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended March 31, 1998 (continued)(A)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Large Cap Small Cap Balanced International
Value Fund Value Fund Fund Value Fund
---------- ---------- ---------- ----------
CAPITAL SHARE ACTIVITY:
Class A
<S> <C> <C> <C> <C>
Shares sold 711,149 1,585,565 725,255 110,251
Shares issued in reinvestment of distributions
to shareholders 9,315 53,022 13,140 --
Shares redeemed (95,576) (127,543) (112,652) (28)
---------- ---------- ---------- ----------
Net increase in shares outstanding 624,888 1,511,044 625,743 110,223
Shares outstanding, beginning of year 3,400 3,300 3,300 --
---------- ---------- ---------- ----------
Shares outstanding, end of year 628,288 1,514,344 629,043 110,223
========== ========== ========== ==========
Class C
Shares sold 11,518 111,598 93,039 7,443
Shares issued in reinvestment of distributions
to shareholders 64 2,283 1,041 --
Shares redeemed (377) (5,008) (1) --
---------- ---------- ---------- ----------
Net increase in shares outstanding 11,205 108,873 94,079 7,443
Shares outstanding, beginning of year -- -- -- --
---------- ---------- ---------- ----------
Shares outstanding, end of year 11,205 108,873 94,079 7,443
========== ========== ========== ==========
</TABLE>
(A) Except for the International Value Fund which represents the period from
October 13, 1997 to March 31, 1998.
See accompanying notes to financial statements.
27
<PAGE>
DEAN FAMILY OF FUNDS
FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding Throughout the Period
From Initial Public Offering of Shares(A) through March 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Large Cap Value Fund Small Cap Value Fund
---------------------------- ----------------------------
Class A Class C Class A Class C
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 10.00 $ 10.76 $ 10.00 $ 10.95
----------- ----------- ----------- -----------
Income from investment operations:
Net investment income (loss) 0.03 (0.01) 0.03 (0.02)
Net realized and unrealized gains
on investments 2.36 1.56 3.30 2.33
----------- ----------- ----------- -----------
Total from investment operations 2.39 1.55 3.33 2.31
----------- ----------- ----------- -----------
Less distributions:
From net investment income (0.03) (0.00) (0.02) (0.00)
From net realized gains (0.15) (0.15) (0.47) (0.47)
----------- ----------- ----------- -----------
Total distributions (0.18) (0.15) (0.49) (0.47)
----------- ----------- ----------- -----------
Net asset value at end of period $ 12.21 $ 12.16 $ 12.84 $ 12.79
=========== =========== =========== ===========
Total return(B) 24.11% 14.63% 33.86% 21.63%
=========== =========== =========== ===========
Net assets at end of period $ 7,669,807 $ 136,237 $19,437,554 $ 1,392,036
=========== =========== =========== ===========
Ratio of expenses to average net assets:(C)
Before waiver of fees by Adviser 2.72% 52.73% 1.98% 6.41%
After waiver of fees by Adviser 1.84% 2.59% 1.84% 2.59%
Ratio of net investment income (loss)
to average net assets(C) 0.30% (0.55%) 0.35% (0.42%)
Portfolio turnover rate(C) 54% 54% 62% 62%
Average commission rate per share $ 0.0600 $ 0.0600 $ 0.0589 $ 0.0589
(A) Initial public offering date 5-28-97 8-19-97 5-28-97 8-1-97
</TABLE>
(B) Total returns shown exclude the effect of applicable sales loads and are not
annualized.
(C) Annualized.
See accompanying notes to financial statements.
28
<PAGE>
DEAN FAMILY OF FUNDS
FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding Throughout the Period
From Initial Public Offering of Shares(A) through March 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balanced Fund International Value Fund
---------------------------- ----------------------------
Class A Class C Class A Class C
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 10.00 $ 10.71 $ 10.00 $ 9.89
----------- ----------- ----------- -----------
Income from investment operations:
Net investment income (loss) 0.17 0.07 (0.05) (0.04)
Net realized and unrealized gains
on investments and foreign currency 1.62 0.92 1.81 1.87
----------- ----------- ----------- -----------
Total from investment operations 1.79 0.99 1.76 1.83
----------- ----------- ----------- -----------
Less distributions:
From net investment income (0.16) (0.10) -- --
From net realized gains (0.08) (0.08) -- --
----------- ----------- ----------- -----------
Total distributions (0.24) (0.18) -- --
----------- ----------- ----------- -----------
Net asset value at end of period $ 11.55 $ 11.52 $ 11.76 $ 11.72
=========== =========== =========== ===========
Total return(B) 18.07% 9.37% 17.60% 18.50%
=========== =========== =========== ===========
Net assets at end of period $ 7,262,670 $ 1,083,890 $ 1,295,896 $ 87,249
=========== =========== =========== ===========
Ratio of expenses to average net assets:(C)
Before waiver of fees by Adviser 2.60% 7.39% 16.66% 58.89%
After waiver of fees by Adviser 1.84% 2.59% 2.04% 2.82%
Ratio of net investment income (loss)
to average net assets(C) 1.85% 0.99% (1.30%) (1.94%)
Portfolio turnover rate(C) 64% 64% 109% 109%
Average commission rate per share $ 0.0600 $ 0.0600 $ 0.0368 $ 0.0368
(A) Initial public offering date 5-28-97 8-1-97 10-13-97 11-6-97
</TABLE>
(B) Total returns shown exclude the effect of applicable sales loads and are not
annualized.
(C) Annualized.
See accompanying notes to financial statements.
29
<PAGE>
DEAN FAMILY OF FUNDS
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
- --------------------------------------------------------------------------------
1. Organization
The Dean Family of Funds (the Trust) is registered under the Investment Company
Act of 1940, as amended (the 1940 Act), as an open-end management investment
company. The Trust was organized as an Ohio business trust under a Declaration
of Trust dated December 18, 1996. The Trust has established four fund series,
the Large Cap Value Fund, the Small Cap Value Fund, the Balanced Fund, and the
International Value Fund (the Funds). The Trust was capitalized on March 17,
1997, when the initial shares of each Fund (except for the International Value
Fund) were purchased at $10.00 per share. The initial public offering of shares
of the International Value Fund commenced on October 13, 1997. The Trust had no
operations prior to the public offering of shares except for the initial
issuance of shares.
The Large Cap Value Fund seeks to provide growth of capital over the long-term
by investing primarily in the common stocks of large companies.
The Small Cap Value Fund seeks to provide capital appreciation by investing
primarily in the common stocks of small companies.
The Balanced Fund seeks to preserve capital while producing a high total return
by allocating its assets among equity securities, fixed-income securities and
money market instruments.
The International Value Fund seeks to provide long-term capital growth by
investing primarily in the common stocks of foreign companies.
The Funds each offer two classes of shares: Class A shares (sold subject to a
maximum front-end sales load of 5.25% and a distribution fee of up to 0.25% of
the average daily net assets) and Class C shares (sold subject to a maximum
contingent deferred sales load of 1% if redeemed within a one-year period from
purchase and a distribution fee of up to 1% of average daily net assets). Each
Class A and Class C share of a Fund represents identical interests in the Fund's
investment portfolio and has the same rights, except that (i) Class C shares
bear the expenses of higher distribution fees, which is expected to cause Class
C shares to have a higher expense ratio and to pay lower dividends than Class A
shares; (ii) certain other class specific expenses will be borne solely by the
class to which such expenses are attributable; and (iii) each class has
exclusive voting rights with respect to matters relating to its own distribution
arrangements.
2. Significant Accounting Policies
The following is a summary of the Trust's significant accounting policies:
Security valuation -- The Funds' portfolio securities are valued as of the close
of business of the regular session of trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time). Securities traded on a national stock
exchange or quoted by NASDAQ are valued based upon the closing price on the
principal exchange where the security is traded, or, if not traded on a
particular day, at the closing bid price. U.S. Government obligations are valued
at their most recent bid prices as obtained from one or more of the major market
makers for such securities. With respect to the International Value Fund, the
U.S. dollar value of foreign securities and forward foreign currency exchange
contracts is determined using spot and forward currency exchange rates,
respectively, supplied by a quotation service.
Share valuation -- The net asset value per share of each class of shares of each
Fund is calculated daily by dividing the total value of a Fund's assets
attributable to that class, less liabilities attributable to that class, by the
number of shares of that class outstanding. The maximum offering price of Class
A shares of each Fund is equal to the net asset value per share plus a sales
load equal to 5.54% of the net asset value (or 5.25% of the offering price). The
offering price of Class C shares of each Fund is equal to the net asset value
per share.
The redemption price per share of Class A shares and Class C shares of each Fund
is equal to net asset value per share. However, Class C shares of each Fund are
subject to a contingent deferred sales load of 1% of the original purchase price
if redeemed within a one-year period from the date of purchase.
30
<PAGE>
Investment income -- Dividend income is recorded on the ex-dividend date.
Interest income is accrued as earned. Discounts and premiums on securities
purchased are amortized in accordance with income tax regulations which
approximate generally accepted accounting principles.
Distributions to shareholders -- The Large Cap Value Fund, the Balanced Fund and
the International Value Fund each expects to distribute substantially all of its
net investment income, if any, on a quarterly basis. The Small Cap Value Fund
expects to distribute substantially all of its net investment income, if any, on
an annual basis. Each Fund expects to distribute any net realized long-term
capital gains at least once each year. Management will determine the timing and
frequency of the distributions of any net realized short-term capital gains.
Organization expenses -- Expenses of organization have been capitalized and are
being amortized on a straight-line basis over five years. In the event any of
the initial shares of a Fund are redeemed during the amortization period, the
redemption proceeds will be reduced by a pro rata portion of any unamortized
organization expenses in the same proportion as the number of initial shares
being redeemed bears to the number of initial shares of the Fund outstanding at
the time of the redemption.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are valued on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code available to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
The following information is based upon the federal income tax cost of portfolio
investments as of March 31, 1998:
<TABLE>
<CAPTION>
Large Cap Small Cap Balanced International
Value Fund Value Fund Fund Equity Fund
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross unrealized appreciation ..... $ 1,193,332 $ 3,215,867 $ 829,199 $ 161,973
Gross unrealized depreciation ..... (114,481) (529,450) (142,887) (16,001)
----------- ----------- ----------- -----------
Net unrealized appreciation ....... $ 1,078,851 $ 2,686,417 $ 686,312 $ 145,972
=========== =========== =========== ===========
</TABLE>
The Federal income tax cost of portfolio investments is equal to book cost as
shown on the statement of assets and liabilities.
3. Investment Transactions
For the period ended March 31, 1998, purchases and proceeds from sales of
portfolio securities, other than short-term investments, amounted to $9,392,502
and $2,873,183, respectively, for the Large Cap Value Fund, $24,425,156 and
$8,251,829, respectively, for the Small Cap Value Fund, $10,371,359 and
$3,477,375, respectively, for the Balanced Fund and $1,607,781 and $403,182 for
the International Value Fund.
4. Transactions with Affiliates
Certain trustees and officers of the Trust are also officers of C.H. Dean &
Associates, Inc. (the Adviser) or of Countrywide Fund Services, Inc. (CFS), the
administrative services agent, shareholder servicing and transfer agent, and
accounting services agent for the Trust.
31
<PAGE>
INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENT
The Funds' investments are managed by the Adviser pursuant to the terms of an
Advisory Agreement. Each Fund pays the Adviser an investment management fee,
computed and accrued daily and paid monthly, at an annual rate of 1.00% of its
average daily net assets for the Large Cap Value Fund, Small Cap Value Fund and
Balanced Fund and 1.25% of its average daily net assets for the International
Value Fund.
Newton Capital Management Ltd. (Newton Capital) has been retained by the Adviser
to manage the investments of the International Value Fund. The Adviser (not the
Fund) pays Newton Capital a fee for its services equal to the rate of 0.50% of
its average value of the Fund's daily net assets.
In order to voluntarily reduce operating expenses during the year ended March
31, 1998, the Adviser waived $46,607 of its advisory fees and reimbursed $20,468
of Class C expenses for the Large Cap Value Fund; waived $17,445 of its advisory
fees and reimbursed $16,684 of Class C expenses for the Small Cap Value Fund;
waived $44,231 of its advisory fees and reimbursed $16,291 of Class C expenses
for the Balanced Fund; and waived its entire advisory fee of $4,452 and
reimbursed $49,049 of common expenses and $5,663 of Class C expenses for the
International Value Fund.
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement, CFS supplies non-investment
related administrative and compliance services for the Funds. CFS supervises the
preparation of tax returns, reports to shareholders, reports to and filings with
the Securities and Exchange Commission and state securities commissions, and
materials for meetings of the Board of Trustees. For these services, CFS
receives a monthly fee from each Fund at an annual rate of 0.10% on its average
daily net assets up to $100 million; 0.075% on the next $100 million of such net
assets; and 0.05% on such net assets in excess of $200 million, subject to a
$1,000 minimum monthly fee.
TRANSFER AGENT AND SHAREHOLDER SERVICING AGREEMENT
Under the terms of a Transfer, Dividend, Shareholder Service and Plan Agency
Agreement, CFS maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Funds shares, acts as dividend and distribution disbursing
agent and performs other shareholder service functions. For these services, CFS
receives a monthly fee based on the number of shareholder accounts in each class
of each Fund, subject to a $1,200 minimum monthly fee for each class of shares
of a Fund. In addition, each Fund pays out-of-pocket expenses, including but not
limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of an Accounting Services Agreement, CFS calculates the daily
net asset value per share and maintains the financial books and records of the
Funds. For these services, CFS receives a monthly fee of $3,000 from each Fund.
In addition, each Fund pays certain out-of-pocket expenses incurred by CFS in
obtaining valuations of such Fund's portfolio securities.
UNDERWRITING AGREEMENT
2480 Securities LLC (Underwriter), an affiliate of the Adviser, serves as
principal underwriter for the Funds and, as such, is the exclusive agent for the
distribution of shares of the Funds. Under the terms of the Underwriting
Agreement between the Trust and the Underwriter, the Underwriter earned $1,840,
$10,480, $2,068 and $856 from underwriting and broker commissions on the sale of
shares of the Large Cap Value Fund, Small Cap Value Fund, Balanced Fund, and
International Value Fund, respectively, during the period ended March 31, 1998.
PLANS OF DISTRIBUTION
The Trust has a Plan of Distribution (Class A Plan) under which Class A shares
may directly incur or reimburse the Adviser for expenses related to the
distribution and promotion of shares. The annual limitation for payment of such
expenses under the Class A Plan is 0.25% of average daily net assets
attributable to such shares.
The Trust also has a Plan of Distribution (Class C Plan) which provides for two
categories of payments. First, the Class C Plan provides for the payment to the
Underwriter of an account maintenance fee, in an amount equal to an annual rate
of 0.25% of a Fund's average daily net assets allocable to Class C shares. In
addition, the Class C shares may directly incur or reimburse the Underwriter in
an amount not to exceed 0.75% per annum of a Fund's average daily net assets
allocable to Class C shares for certain distribution-related expenses incurred
in the distribution and promotion of the Fund's Class C shares.
32
<PAGE>
5. Foreign Currency Translation
With respect to the International Value Fund, amounts denominated in or expected
to settle in foreign currencies are translated into U.S. dollars based on
exchange rates on the following basis:
A. The market values of investment securities and other assets and
liabilities are translated at the closing rate of exchange each day.
B. Purchases and sales of investment securities and income and expenses
are translated at the rate of exchange prevailing on the respective
dates of such transactions.
C. The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from
those resulting from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gains
or losses from investments. Reported net realized foreign exchange
gains or losses arise from 1) sales of foreign currencies, 2) currency
gains or losses realized between the trade and settlement dates on
securities transactions, and 3) the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the
Fund's books, and the U.S. dollar equivalent of the amounts actually
received or paid. Reported net unrealized foreign exchange gains or
losses arise from changes in the value of assets and liabilities,
other than investments, resulting from changes in exchange rates.
6. Forward Foreign Currency Exchange Contracts
The International Value Fund enters into foreign currency exchange contracts as
a way of managing foreign exchange rate risk. The Fund may enter into these
contracts for the purchase or sale of a specific foreign currency at a fixed
price on a future date as a hedge or cross-hedge against either specific
transactions or portfolio positions. The objective of the Fund's foreign
currency hedging transactions is to reduce the risk that the U.S. dollar value
of the Fund's securities denominated in foreign currency will decline in value
due to changes in foreign currency exchange rates. All foreign currency exchange
contracts are "marked-to-market" daily at the applicable translation rates
resulting in unrealized gains or losses. Realized and unrealized gains or losses
are included in the Fund's Statement of Assets and Liabilities and Statement of
Operations. Risks may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
As of March 31, 1998, the International Value Fund had forward foreign currency
exchange contracts outstanding as follows:
<TABLE>
<CAPTION>
Net Unrealized
Settlement To Receive Initial Market Appreciation
Date (To Deliver) Value Value (Depreciation)
- ------------------------- --------------- ---------- ---------- ------------
Contracts To Sell
<S> <C> <C> <C> <C>
04/02/98 ............ (82,026) DKK $ (11,651) $ (11,635) $ 16
04/15/98 ............ (23,000) AUD (15,507) (15,237) 270
05/15/98 ............ (292,000) FRF (48,402) (47,298) 1,104
05/15/98 ............ (25,800) GBP (41,979) (43,176) (1,197)
05/15/98 ............ (32,500) NLG (15,873) (15,646) 227
06/15/98 ............ (12,409,000) JPY (99,842) (94,285) 5,557
07/15/98 ............ (60,300) CHF (42,791) (40,088) 2,703
08/14/98 ............ (121,400) CAD (84,784) (85,515) (731)
08/14/98 ............ (152,700) HKD (19,420) (17,998) 1,422
09/15/98 ............ (57,400) DEM (31,707) (31,364) 343
10/15/98 ............ (22,000) AUD (14,643) (14,610) 33
03/15/99 ............ (185,300) HKD (23,329) (23,207) 122
--------- --------- ---------
Total sell contracts .... (449,928) (440,059) 9,869
--------- --------- ---------
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Net Unrealized
Settlement To Receive Initial Market Appreciation
Date (To Deliver) Value Value (Depreciation)
- ------------------------- ------------- --------- --------- ------------
Contracts To Buy
<S> <C> <C> <C> <C>
04/01/98 ............ 7,294 CHF $ 4,797 $ 4,784 $ (13)
04/01/98 ............ 16,370 DEM 8,882 8,852 (30)
04/01/98 ............ 1,347,871 JPY 10,223 10,108 (115)
04/01/98 ............ 92,136 SEK 11,575 11,525 (50)
04/02/98 ............ 5,521 AUD 3,666 3,661 (5)
04/02/98 ............ 14,787 GBP 24,898 24,762 (136)
05/15/98 ............ 292,000 FRF 48,926 47,299 (1,627)
07/15/98 ............ 60,300 CHF 42,687 40,088 (2,599)
08/14/98 ............ 34,300 CAD 24,189 24,161 (28)
08/14/98 ............ 2,414 GBP 3,941 4,022 81
--------- --------- ---------
Total buy contracts 183,784 179,262 (4,522)
--------- --------- ---------
NET CONTRACTS $(266,144) $(260,797) $ 5,347
========= ========= =========
</TABLE>
AUD -- Australian Dollar GBP -- British Pound Sterling
CAD -- Canadian Dollar HKD -- Hong Kong Dollar
CHF -- Swiss Franc JPY -- Japanese Yen
DEM -- German Mark NLG -- Netherland Guilder
DKK -- Danish Krone SEK -- Swedish Krona
FRF -- French Franc
34
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Trustees of
Dean Family of Funds
- --------------------------------------------------------------------------------
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Dean Family of Funds (comprising,
respectively, Large Cap Value Fund, Small Cap Value Fund, Balanced Fund, and
International Value Fund) (the Funds) as of March 31, 1998, and the related
statements of operations, statements of changes in net assets, and the financial
highlights presented herein for the periods ended March 31, 1998. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of March 31, 1998, by correspondence with the custodian and
others. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting Dean Family of Funds as of March
31, 1998, and the results of their operations, the changes in their net assets,
and their financial highlights presented herein for the periods ended March 31,
1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
May 19, 1998
35
<PAGE>
DEAN FAMILY OF FUNDS
2480 Kettering Tower
Dayton, Ohio 45423
BOARD OF TRUSTEES
Victor S. Curtis
Chauncey H. Dean
Dr. Robert D. Dean
Frank J. Perez
Dr. David H. Ponitz
Frank H. Scott
Gilbert P. Williamson
INVESTMENT ADVISER
C.H. DEAN & ASSOCIATES, INC.
2480 Kettering Tower
Dayton, Ohio 45423
UNDERWRITER
2480 SECURITIES LLC
2480 Kettering Tower
Dayton, Ohio 45423
TRANSFER AGENT
COUNTRYWIDE FUND SERVICES, INC.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
SHAREHOLDER SERVICE
Nationwide: (Toll-Free) 888-899-8343
Cincinnati: 513-629-2285
TABLE OF CONTENTS
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Chairman and President's Letter .......................................... 1
Discussions of Performance:
Small Cap Value Fund .................................................. 3
Large Cap Value Fund .................................................. 4
Balanced Fund ......................................................... 5
International Value Fund .............................................. 6
Fund Facts ............................................................... 7
Portfolios of Investments:
Large Cap Value Fund .................................................. 9
Small Cap Value Fund .................................................. 12
Balanced Fund ......................................................... 17
International Value Fund .............................................. 20
Financial Statements ..................................................... 23
Notes to Financial Statements ............................................ 30
Auditor's Report ......................................................... 35
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