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EUREKA FUNDS
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3435 Stelzer Road
Columbus, Ohio 43219
Investment Adviser: Sanwa Bank California
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THE EUREKA FUNDS is an open-end management investment company consisting of
five separate investment funds (each a "Fund," and collectively, the "Funds").
Each Fund offers multiple classes of units of beneficial interest ("Shares").
THE EUREKA PRIME MONEY MARKET FUND (the "Prime Money Market Fund") seeks as
high a level of current income as is consistent with maintaining liquidity and
stability of principal.
THE EUREKA U.S. TREASURY OBLIGATIONS FUND (the "U.S. Treasury Obligations
Fund"), seeks current income consistent with liquidity and stability of
principal. The Fund intends to invest exclusively in short-term obligations
issued or guaranteed by the U.S. Treasury and repurchase agreements fully
collateralized by U.S. Treasury securities.
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AN INVESTMENT IN THE PRIME MONEY MARKET FUND OR THE U.S. TREASURY OBLIGATIONS
FUND (TOGETHER, THE "MONEY MARKET FUNDS") IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET FUNDS WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
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THE EUREKA INVESTMENT GRADE BOND FUND (the "Investment Grade Bond Fund")
seeks a high level of income, consistent with preservation of capital.
THE EUREKA GLOBAL ASSET ALLOCATION FUND (the "Global Asset Allocation Fund")
seeks a balance of income and long-term capital appreciation. The Fund intends
to invest in a mix of U.S. and international stocks, bonds, and cash equivalents
using a disciplined asset allocation approach.
THE EUREKA EQUITY FUND (the "Equity Fund") seeks long-term capital growth.
The Fund intends to invest in the common stocks of corporations representing a
broad cross-section of the U.S. economy. The Fund expects to have a level of
risk commensurate with that represented by a broadly diversified portfolio of
U.S. common stocks, such as the Standard & Poor's 500 Index. There can be no
assurance that the Fund's investment performance will meet or exceed that of the
S&P 500 Index.
This Prospectus relates to the Trust Shares of Eureka Funds, which are
offered to Sanwa Bank California and its affiliates and other financial service
providers approved by the Distributor for the investment of funds for which they
act in a fiduciary, advisory, agency, custodial (other than for individual
retirement accounts), or similar capacity. Through a separate prospectus, the
Eureka Funds also offers Class A Shares, which are offered to the general
public. A Statement of Additional Information, dated October 9, 1997 (as may be
amended from time to time), has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The Statement of Additional
Information and the prospectus relating to the Class A Shares are available
without charge by contacting the Eureka Funds at the address shown above.
This Prospectus sets forth concisely the information an investor should know
before investing and should be read carefully and retained for future reference.
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SHARES OF THE EUREKA FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY, SANWA BANK CALIFORNIA, ANY OF ITS AFFILIATES, OR ANY OTHER BANK.
SUCH SHARES ARE NOT FEDERALLY INSURED OR OTHERWISE PROTECTED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY. INVESTMENT IN THE EUREKA FUNDS INVOLVES INVESTMENT RISKS
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE 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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The date of this Prospectus is October 9, 1997.
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PROSPECTUS SUMMARY
THE EUREKA FUNDS The Eureka Funds, a Massachusetts business trust,
is a diversified open-end management investment
company which currently consists of five separately
managed Funds. Each Fund offers to the public two
classes of Shares: Class A and Trust Class. This
prospectus relates to only the Trust Class Shares.
INVESTMENT OBJECTIVE THE PRIME MONEY MARKET FUND seeks as high a level
of current income as is consistent with maintaining
liquidity and stability of principal.
THE U.S. TREASURY OBLIGATIONS FUND seeks current
income consistent with liquidity and stability of
principal.
THE INVESTMENT GRADE BOND FUND seeks a high level
of income, consistent with preservation of capital.
THE GLOBAL ASSET ALLOCATION FUND seeks a balance of
income and long-term capital appreciation.
THE EQUITY FUND seeks long-term capital growth.
INVESTMENT RISKS There can be no assurance that the Money Market
Funds will be able to maintain a stable net asset
value. The other Funds' net asset value and each
Fund's performance may vary daily, reflecting
fluctuations in the market value of its portfolio
holdings, interest rate levels, and market
conditions. The Investment Grade Bond Fund is
primarily subject to the risks of a potential for
decline in the market value of bonds due to
interest rate changes or the ability of an issuer
to meet its obligations. The Global Asset
Allocation Fund and the Equity Fund are primarily
exposed to the risk that stock prices will decline
over short or even extended periods. Foreign
securities, which the Prime Money Market Fund,
Investment Grade Bond Fund, and Global Asset
Allocation Fund may invest in, involve risks not
associated with domestic investing. Foreign
securities markets are not always as efficient as
those in the United States and are often less
liquid and more volatile. See "Investment Practices
and Securities" for a discussion of the Funds'
investments and the risks associated with investing
in the Funds.
OFFERING PRICE The public offering price of the Prime Money Market
Fund and the U.S. Treasury Obligations Fund is
equal to the net asset value per Trust Share, which
each Fund will seek to maintain at $1.00.
The public offering price of the Investment Grade
Bond Fund, the Global Asset Allocation Fund, and
the Equity Fund is equal to that Fund's net asset
value per Trust Share. See "HOW TO PURCHASE AND
REDEEM SHARES--Purchases of Trust Shares."
MINIMUM PURCHASE For Trust Shares there is a $100,000 minimum
initial investment with no minimum investment for
subsequent purchases. Employees of Sanwa Bank
California may purchase Trust Shares with a $500
minimum initial
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investment, or a $50 minimum initial investment if
investing through the Eureka Funds' Automatic
Investment Plan. See "HOW TO PURCHASE AND REDEEM
SHARES--Auto Invest Plan."
INVESTMENT ADVISER Sanwa Bank California ("SBCL"), Los Angeles,
California.
DIVIDENDS The Prime Money Market Fund, the U.S. Treasury
Obligations Fund, and the Investment Grade Bond
Fund declare dividends daily and pay such dividends
monthly. The Global Asset Allocation Fund declares
and pays dividends annually. The Equity Fund
declares and pays dividends monthly.
DISTRIBUTOR BISYS Fund Services, Inc., Columbus, Ohio.
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FEE TABLE
The following tables are intended to assist investors in understanding the
expenses associated with investing in Trust Shares of the Funds.
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U.S. GLOBAL
TREASURY INVESTMENT ASSET
PRIME MONEY OBLIGATIONS GRADE BOND ALLOCATION
MARKET FUND FUND FUND FUND EQUITY FUND
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TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS TRUST CLASS
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SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load on Purchases.................. None None None None None
Maximum Sales Load on Reinvested Dividends....... None None None None None
Maximum Deferred Sales Load...................... None None None None None
Redemption Fees(2)............................... None None None None None
Exchange Fee..................................... None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)(3)
Management Fees (after voluntary fee
reductions).................................... 0.20% 0.10% 0.50% 0.80% 0.65%
12b-1 Fee........................................ 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses(4)................................ 0.35% 0.36% 0.40% 0.64% 0.37%
--- --- --- --- ---
Total Fund Operating Expenses (after voluntary
fee reductions)................................ 0.55% 0.46% 0.90% 1.44% 1.02%
=== === === === ===
EXAMPLE:
You would pay the following expenses on a $1,000
investment in Trust Shares of the Funds, assuming (1)
5% annual return and (2) redemption at the end of
each time period.
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1 YEAR 3 YEARS
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Prime Money Market Fund...................................................................... $ 6 $ 18
U.S. Treasury Obligations Fund............................................................... $ 5 $ 15
Investment Grade Bond Fund................................................................... $ 9 $ 29
Global Asset Allocation Fund................................................................. $ 15 $ 46
Equity Fund.................................................................................. $ 10 $ 32
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(1) A Participating Organization (as defined in this Prospectus) may charge a
Customer's (as defined in the Prospectus) account fees for automatic
investments, exchanges, and other investment management services provided in
connection with investment in Trust Shares of a Fund. See "HOW TO PURCHASE
AND REDEEM SHARES--Purchases of Trust Shares" and "HOW TO PURCHASE AND
REDEEM SHARES--Exchange Privilege."
(2) A wire redemption charge may be deducted from the amount of a wire
redemption payment made at the request of a shareholder. See "HOW TO
PURCHASE AND REDEEM SHARES--Redemption by Telephone."
(3) SBCL has agreed to voluntarily reduce the amount of its investment advisory
fee through the end of the Funds' initial fiscal year. Certain other fees
will also be voluntarily reduced. Absent the voluntary reduction of
investment advisory fees and other expenses, Management Fees, Other Expenses
and Total Operating Expenses as a percentage of average daily net assets for
Trust Shares would be 0.30%, 0.39% and 0.69%, respectively, for the Prime
Money Market Fund; 0.20%, 0.40% and 0.60%, respectively, for the U.S.
Treasury Obligations Fund; 0.60%, 0.40% and 1.00%, respectively, for the
Investment Grade Bond Fund; 0.90%, 0.64% and 1.54%, respectively, for the
Global Asset Allocation Fund; and 0.75%, 0.37% and 1.12%, respectively, for
the Equity Fund. Lower total fund operating expenses will result in higher
yields.
(4) "Other Expenses" are based on estimated amounts for the current fiscal year.
Trust Shares are not subject to a 12b-1 fee and are not sold pursuant to a
sales charge.
These tables are intended to assist investors in understanding the various
costs and expenses associated with investing in the Funds. See "MANAGEMENT OF
EUREKA FUNDS" for a more complete discussion of annual operating expenses of
each Fund. THE EXAMPLE IS NOT CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. THE FUNDS' ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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INVESTMENT OBJECTIVES AND POLICIES
MONEY MARKET FUNDS
Each Money Market Fund will endeavor to achieve its objective by investing in
a portfolio of high-quality money market instruments which complies with the
diversification and other requirements of Rule 2a-7 under the Investment Company
Act of 1940 (the "1940 Act"). All instruments in which the Money Market Funds
invest will be deemed to have maturities of 397 days or less. The average dollar
weighted maturity of each Money Market Fund's portfolio will not exceed 90 days.
See "VALUATION OF SHARES" and the Statement of Additional Information for a
further explanation of the amortized cost valuation method.
All securities acquired by the Money Market Funds will be determined at the
time of purchase, under guidelines established by the Eureka Funds' Board of
Trustees, to present minimal credit risks. Under the guidelines adopted by the
Board of Trustees and in accordance with Rule 2a-7 under the 1940 Act, SBCL may
be required to dispose of an obligation held in a Fund's portfolio if there is
an indication that the instrument's credit quality has diminished, such as where
a nationally recognized statistical ratings organization ("NRSRO") downgrades an
obligation to below the second highest rating category or in the event of a
default relating to the financial condition of the issuer.
PRIME MONEY MARKET FUND
The investment objective of the Prime Money Market Fund is to seek as high a
level of current income as is consistent with maintaining liquidity and
stability of principal. The Fund will invest in certificates of deposit,
bankers' acceptances, commercial paper, repurchase agreements, reverse
repurchase agreements, other money market securities, short-term corporate,
state, and municipal obligations that are rated in the top two tiers by an NRSRO
or, if unrated, are of comparable quality. The Fund also invests in securities
whose interest and principal payments are backed by the full faith and credit of
the U.S. government or by an agency of the U.S. government (certain agency
securities are not backed by the full faith and credit of the U.S. government).
U.S. TREASURY OBLIGATIONS FUND
The investment objective of the U.S. Treasury Obligations Fund is to seek
current income consistent with liquidity and stability of principal. Under
normal market conditions, the Fund will invest exclusively in short-term
obligations issued or guaranteed by the U.S. Treasury and repurchase agreements
fully collateralized by U.S. Treasury securities.
INVESTMENT GRADE BOND FUND
The Investment Grade Bond Fund seeks a high level of income, consistent with
preservation of capital. To achieve this objective, the Fund intends to invest
in a broad range of fixed income securities, including U.S. Treasury securities
(bonds, notes, and bills), U.S. agency securities, mortgage related securities,
corporate securities, preferred stocks, depository institution obligations, and
repurchase agreements. Under normal market conditions, the Fund will invest at
least 80% of its net assets in bonds (i.e., debt securities) which are
investment grade securities, as determined by NRSRO ratings, or if unrated, as
determined by SBCL to be of comparable quality.
The Fund will invest in a varying combination of cash, U.S. Treasury
securities, U.S. agency securities, mortgage related securities, and corporate
securities which are all issued in U.S. dollars. In pursuing its investment
objective, the Fund expects that its portfolio will be characterized by
investment risk that is similar to that of a theoretical broadly diversified
domestic investment grade bond portfolio, such as a portfolio structured to
match the Salomon Broad Investment Grade Index or the Lehman Aggregate Index.
SBCL uses its proprietary, quantitative fixed income security selection
strategy to determine the optimal combination of investments in the portfolio.
SBCL will use a variety of quantitative investment models and risk management
systems to identify the
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optimal interest rate, credit, and convexity exposure at any point in time. SBCL
seeks the fixed income sectors and/or securities with high expected relative
return premiums, adjusted for risk. Fundamental valuation, macroeconomic,
technical and risk measures are all employed to determine the expected relative
return premium for each sector and/or security. Once the attractiveness of the
various investment sector and individual security alternatives is determined,
the portfolio is constructed so as to overweight those sectors and/or securities
with the most-favorable prospects, according to the current quantitative
analysis.
In order to execute its strategy in an efficient manner, SBCL may utilize bond
index futures contracts in representing various yield curve sectors. The Fund
will use futures contracts to provide an efficient means of achieving exposure
to the fixed income markets. Futures contracts may be used to provide liquidity,
gain broad market exposure, and hedge unwanted interest rate exposure. SBCL will
not use futures to leverage the Fund's holdings.
The Fund may invest up to 20% of its net assets in non-investment grade debt
securities, preferred stocks and convertible securities. In the event that a
security held by the Fund is downgraded, the Fund may continue to hold such
security until such time as SBCL deems it to be advantageous to dispose of the
security.
The Fund may hold securities of foreign issuers, provided such securities are
denominated in U.S. dollars. The Fund may also invest in bond (interest rate)
futures and options to a limited extent. See "Investment Objective and
Policies--Specific Investment Policies."
GLOBAL ASSET ALLOCATION FUND
The investment objective of the Global Asset Allocation Fund is to seek a
balance of income and long-term capital appreciation. Through the use of a
disciplined asset allocation approach, the Fund intends to invest in, and assume
a level of risk commensurate with, a globally diversified portfolio of stocks,
bonds, and cash equivalents. By systematically diversifying across countries,
currencies, and asset classes (stocks and bonds), the Fund pursues its capital
appreciation goals while seeking to control portfolio risk. Under normal market
conditions, the Fund will invest at least 25% of its net assets in fixed income
securities.
The Fund will invest in a varying combination of stocks, bonds, and cash
equivalents selected primarily from major markets such as: the United States,
Japan, the U.K., Germany, France, Switzerland, Spain, Canada and Australia. The
Fund may also invest in other markets, including emerging markets.
Under normal circumstances, at least 65% of the Fund's net assets will be
invested in securities representing at least three different countries,
including the United States.
SBCL uses its proprietary, quantitative global tactical asset allocation,
global currency allocation, and global sector rotation strategies to determine
the optimal combination of investments in the portfolio. SBCL will use a variety
of quantitative investment models to identify the country, sector, and asset
classes deemed most attractive. SBCL seeks those sectors, asset classes,
countries, and currencies with a high expected relative return premium, adjusted
for risk. Fundamental valuation, macro-economic, technical, and risk measures
are all employed to determine the expected relative return premium for each
country, currency, asset class, and sector. Once the relative attractiveness of
the various investment class alternatives is determined, the portfolio is
constructed so as to overweight those countries, currencies, sectors, and asset
classes with the most favorable prospects, according to the current quantitative
analysis.
In evaluating equity exposure, SBCL attempts to assess the relative value of
each country's market in the aggregate. SBCL may overweight the Fund's
investments in a few selected countries and/or asset classes. The Fund typically
will not deviate by more than 20% from the market capitalization weights of the
respective individual equity markets. Relative market capitalization of each
equity market is determined by that market's representation in the Salomon
Brothers World Equity Primary Market
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Europe & Pacific Basin Index (PMI EPAC) or the Morgan Stanley Capital
International Europe, Australasia, and the Far East Index (MSCI EAFE). For
example, if the Japanese equity market represents 30% of an index, then the Fund
will typically invest not less than 10% nor more than 50% of its assets in the
Japanese equity market.
Investments will also include direct investments in short-term or long-term
government bonds, and U.S. and foreign cash equivalents. Bonds in the Fund's
portfolio are expected to range in maturity from one to thirty years.
In order to execute its strategy in an efficient manner, SBCL may utilize
equity index, bond index, and currency futures contracts in the various
countries. The Fund will use futures contracts to provide an efficient means of
achieving broad market exposure to the stock, fixed income and currency markets
of a particular country, to provide liquidity, and to facilitate asset
allocation shifts. Currency futures provide an efficient vehicle for hedging
foreign exchange exposure. By investing in a stock index futures contract the
Fund is exposed to an index of stocks without buying each underlying security in
that index. See "Options and Futures" in the Statement of Additional Information
for a more detailed discussion of the risks associated with investment in
futures contracts.
EQUITY FUND
The Equity Fund's investment objective is to seek long-term capital growth.
The Fund intends to invest in the common stocks of corporations from a broad
cross section of the U.S. economy. The Fund expects to assume a level of risk
commensurate with that represented by a broadly diversified portfolio of U.S.
common stocks, such as that measured by the S&P 500 Index. Under normal market
conditions, the Fund will invest at least 65% of its net assets in common
stocks.
Equity investments are chosen based upon SBCL's proprietary,
quantitatively-disciplined stock selection models. A combination of valuation,
growth, technical, and risk measures are used to rank a universe of
approximately 1,000 U.S. equity issues. The issues assigned the most attractive
overall composite ratings are those which are deemed to have greater potential
for price appreciation over a short-to-intermediate term horizon. The portfolio
is then constructed so that the aggregate investment characteristics of the Fund
are similar to those of the S&P 500 Index. These characteristics include such
measures as economic sector diversification, P/E ratio, dividend yield, and
market "beta" (or sensitivity). However, while maintaining aggregate investment
characteristics similar to those of the S&P 500 Index, the Fund seeks to invest
in individual common stocks--including stocks which may not be part of that
Index--which SBCL believes hold a greater potential for price appreciation.
There can be no assurance that the Fund's investment performance will meet or
exceed that of the S&P 500 Index.
Although the Fund normally intends to be fully invested in common stocks, it
may invest temporarily in certain short-term fixed income securities. Such
securities may be used to invest uncommitted cash balances or to maintain
liquidity in order to meet shareholder redemptions.
The Fund may also utilize equity index futures for the dual purpose of
providing an adequate level of liquidity to the Fund and ensuring that cash
balances achieve equity-like returns. This "equitization" of short-term cash
balances will assist the Fund to meet its investment objective. By investing in
a stock index futures contract the Fund is exposed to an index of stocks without
buying each underlying security in that index. Under no circumstances will the
market exposure of futures contracts exceed 30% of the Fund's net assets. SBCL
will not use futures to leverage the Fund's holdings. See "Options and Futures"
in the Statement of Additional Information for a more detailed discussion of the
risks associated with investments in futures contracts.
ALL FUNDS
The investment objective of each Fund is fundamental and may not be changed
without the vote of a majority of the outstanding Shares of the Fund (as defined
below under "GENERAL INFORMA-
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TION--Miscellaneous"). There can be no assurance that a Fund will achieve its
investment objective.
SPECIFIC INVESTMENT POLICIES
The Funds invest in a variety of securities and employ a number of investment
practices. Each security and investment practice involves certain risks. This
table shows the securities and investment practices utilized by the Funds and
the risks inherent in their use. For a more complete discussion of each
instrument and its attendant risks, consult the Funds' Statement of Additional
Information.
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PRIME U.S. INVESTMENT GLOBAL
MONEY TREASURY GRADE ASSET
MARKET OBLIGATIONS BOND ALLOCATION EQUITY
FUND FUND FUND FUND FUND
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INVESTMENT PRACTICES AND SECURITIES
ASSET BACKED SECURITIES. Securities secured by company
receivables, home equity loans, truck and auto loans, leases,
credit card receivables and other securities backed by
receivables or assets. Credit, interest rate, opportunity and
pre-payment risks............................................... X -- X 35 35
BANKERS' ACCEPTANCES. Bills of exchange or time drafts drawn on
and accepted by a commercial bank. Credit risk.................. 25 -- 35+ 35+ 35+
BORROWINGS.(1) The borrowing of money from banks or through
reverse repurchase agreements. Leverage and credit risks........ 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3
CERTIFICATES OF DEPOSIT. Negotiable instruments with a stated
maturity. Credit and liquidity risks............................ X -- 35+ 35+ 35+
COMMERCIAL PAPER AND OTHER SHORT-TERM OBLIGATIONS. Short-term
promissory notes or other obligations issued by corporations and
other entities. Credit risk..................................... X -- 35+ 35+ 35+
COMMON STOCK. Shares of ownership of a company. Market risk.... -- -- -- X X
CONVERTIBLE SECURITIES. Bonds or preferred stock that convert
to common stock. Credit, interest rate and market risks......... -- -- X X X
CORPORATE OR COMMERCIAL BONDS. Debt securities issued by
corporations. Credit and interest rate risks.................... X -- X X 35
DOLLAR ROLLS. A transaction in which a fund sells securities
for delivery in a current month and simultaneously contracts
with the same party to repurchase similar but not identical
securities on a specified future date. Interest rate, management
and market risks................................................ -- -- X X X
EMERGING MARKET SECURITIES. Securities of countries with
emerging economies or securities markets. Currency, information,
liquidity, market and political risks........................... -- -- -- 15 --
FOREIGN SECURITIES.
- - Stocks and bonds of foreign issuers........................... -- -- 35 X 35
- - American depository receipts, European depository receipts,
global depository receipts and other similar global
instruments................................................... X -- -- X 35
Currency, liquidity, information, market, natural event and
political risks.
FORWARD COMMITMENTS. The purchase or sale of a security with
payment and delivery scheduled for a future time. Leverage,
market and opportunity risks.................................... X X X X X
FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Contractual
agreement to purchase or sell one specified currency for another
currency at a specified future date and price. Credit,
correlation, currency, information, leverage, liquidity,
management, market, opportunity and political risks............. -- -- -- 50 --
ILLIQUID SECURITIES.(3) Securities which may be difficult to
sell at an acceptable price. Liquidity, market and valuation
risks........................................................... 10 -- 15 15 15
INVESTMENT COMPANY SECURITIES. Shares of other mutual funds.
SBCL and BISYS Fund Services, Inc. will reduce certain fees when
investing in funds for which it serves as investment adviser or
administrator. (Investments in any one fund will not exceed 5%
of total assets. Investments in all funds will not exceed 10% of
total assets.) Management and Market Risks.
- - Money market mutual funds..................................... 10 10 10 10 10
- - Non-money market mutual funds................................. -- -- -- 10 --
MORTGAGE BACKED SECURITIES.(2) Debt obligations secured by real
estate loans and pools of loans, including such securities as
collateralized mortgage obligations, which are structured pools
of mortgage pass through certificates or mortgage loans, real
estate investment conduits, and stripped mortgage backed
securities. Mortgage backed securities may have greater price
and yield volatility than traditional fixed-income securities
and their prepayment sensitivity may range from relatively low
to relatively high. Credit, interest rate, opportunity and
pre-payment risks............................................... -- -- X 35 35
</TABLE>
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<TABLE>
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PRIME U.S. INVESTMENT GLOBAL
MONEY TREASURY GRADE ASSET
MARKET OBLIGATIONS BOND ALLOCATION EQUITY
FUND FUND FUND FUND FUND
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MUNICIPAL OBLIGATIONS. Securities issued by a state or
political subdivision to obtain funds for various public
purposes. Municipal obligations include participation
certificates in leases, installment purchase contracts and
conditional sales contracts. Credit, liquidity, political and
tax risks....................................................... X -- X -- --
OPTIONS AND FUTURES.(1) Contracts involving the right or
obligation to deliver or receive assets or money depending upon
the performance of one or more assets or an economic index.
Currency, correlation, credit, interest rate, leverage,
liquidity, opportunity and market risks......................... -- -- X X X
PREFERRED STOCK. A class of stock that generally pays a
dividend at a specified rate and has preference over common
stock in the payment of dividends and liquidation. Market
risk............................................................ -- -- 30 X X
REPURCHASE AGREEMENTS.(1) The purchase of a security and the
simultaneous commitment to sell it back at an agreed upon price.
Credit, market and leverage risks............................... X X X X X
REVERSE REPURCHASE AGREEMENTS.(1, 4) The sale of a security and
the simultaneous commitment to buy it back at an agreed upon
price. Credit, leverage and market risks........................ X X X X X
RESTRICTED SECURITIES.(5) Securities not registered under the
Securities Act of 1933. Market and valuation risks.............. 10 -- X X X
RIGHTS AND WARRANTS. A contract issued by a corporation
enabling the owner to subscribe to and purchase a specified
number of shares of the corporation at a specified price during
a specified period of time. Market and valuation risks.......... -- -- X X X
SECURITIES LENDING.(1) The lending of securities to financial
institutions, which provide cash or government securities as
collateral. Credit risk......................................... 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3
SHORT-TERM TRADING. The sale of a security soon after its
purchase. A portfolio engaging in such trading will have higher
turnover and transaction expenses. Market risk.................. -- -- X X X
SWAPS, CAPS AND FLOORS.(5) Swaps involve the exchange of
obligations by two parties. Caps and floors entitle a purchaser
to a principal amount from the seller of the cap or floor to the
extent that a specified index exceeds or falls below a
predetermined interest rate or amount. Correlation, credit,
interest rate, liquidity, management, market and opportunity
risks........................................................... -- -- X X X
TIME DEPOSITS. Non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Liquidity risk............... X -- 35+ 35+ 35+
U.S. GOVERNMENT SECURITIES. Short-term debt instruments issued
or guaranteed by the U.S. Treasury or by an agency or
instrumentalities of the U.S. government. Credit risk........... X X X X 35+
VARIABLE AND FLOATING RATE INSTRUMENTS. Obligations with a
yield that is reset on a periodic basis and loosely correlated
to changes in money market interest rates, including variable
and floating rate notes and bonds. Credit, interest rate and
liquidity risks................................................. X X X X --
WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES. The purchase or
sale of securities for delivery at a future date. Leverage,
market and opportunity risks.................................... X X X X X
</TABLE>
- ---------------
# Percent of total assets under normal market conditions
X No policy limitation on usage
- - Not permitted
+ For temporary defensive purposes may constitute 100 percent of total assets
(1) Each Fund has a fundamental investment policy regarding these practices or
securities, as set forth in the Statement of Additional Information, which
may in some cases be less restrictive than the operating policy set forth
in the chart.
(2) The Money Market Funds may invest in these securities only if consistent
with their objectives and Rule 2a-7.
(3) Each Fund's liquidity limit is calculated as a percentage of its net
assets.
(4) Reverse repurchase agreements would also be subject to a Fund's policy on
borrowings.
(5) Relative to other securities, these securities are more likely to be
deemed illiquid and, therefore, may be subject to the restrictions on
illiquid securities.
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<PAGE> 11
TYPES OF INVESTMENT RISK
CORRELATION RISK. The risk that changes in the value of a hedging instrument
will not match those of the asset being hedged (hedging is the use of one
investment to offset the effects of another investment). Incomplete correlation
can result in unanticipated risks and volatility.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
CURRENCY RISK. The risk that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments and may widen any losses.
INFORMATION RISK. The risk that key information about a security or market is
inaccurate or unavailable.
INTEREST RATE RISK. The risk of market losses attributable to changes in
interest rates. With fixed-rate securities, a rise in interest rates typically
causes a fall in values, while a fall in rates typically causes a rise in
values.
LEVERAGE RISK. Associated with securities or practices (such as borrowing)
that multiply small index or market movements into large changes in value.
- HEDGED. When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains. There can be no assurance that a Fund's hedging
transactions will be effective.
- SPECULATIVE. To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost.
LIQUIDITY RISK. The risk that certain securities may be difficult or
impossible to sell at the time and the price that the seller would like. The
seller may have to lower the price, sell other securities instead or forego an
investment opportunity, any of which could have a negative effect on fund
management or performance.
MANAGEMENT RISK. The risk that a strategy used by a fund's management may
fail to produce the intended result. This risk is common to all mutual funds.
MARKET RISK. The risk that the market value of a security may move up and
down, sometimes rapidly and unpredictably. These fluctuations may cause a
security to be worth less than the price originally paid for it, or less than it
was worth at an earlier time. Market risk may affect a single issuer, industry,
sector of the economy or the market as a whole. Common to all stocks and bonds
and the mutual funds that invest in them.
NATURAL EVENT RISK. The risk of losses attributable to natural disasters,
crop failures and similar events.
OPPORTUNITY RISK. The risk of foregoing an investment opportunity because the
assets necessary to take advantage of it are tied up in less advantageous
investments.
POLITICAL RISK. The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and war.
There are also risks particular to investing in foreign securities, including
higher transaction costs, delayed settlements, currency controls and adverse
economic developments.
PRE-PAYMENT RISK. Early repayment of principal and interest will effect the
rate of return on mortgage-backed securities and may result in greater price and
yield volatility and possible investment losses. When mortgage obligations are
pre-paid, a Fund may have to reinvest in securities with
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<PAGE> 12
a lower yield. During periods of declining interest
rates, prepayment rates can be expected to accelerate. Under certain interest
rate and prepayment rate scenarios, a Fund may fail to recoup any premium paid
on mortgage-related securities notwithstanding a direct or indirect governmental
or agency guarantee.
TAX RISK. The risk that the issuer of tax-exempt securities will fail to
comply with certain requirements of the Internal Revenue Code, which could cause
interest income to be retroactively included in gross income.
VALUATION RISK. The risk that a fund has valued certain of its securities at
a higher price than it can sell them for.
PORTFOLIO TURNOVER
It is presently anticipated that the portfolio turnover rate of the Investment
Grade Bond Fund, the Global Asset Allocation Fund, and the Equity Fund will not
exceed 100%, 200%, and 200%, respectively. High portfolio turnover rates will
generally result in higher transaction costs to a Fund and may result in higher
levels of taxable realized gains to a Fund's shareholders.
INVESTMENT RESTRICTIONS
The Funds are subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding shares of the particular
Fund ("fundamental policies"). These fundamental policies (including those noted
by Footnote 1 in the chart above) are set forth in their entirety in the Funds'
Statement of Additional Information.
VALUATION OF SHARES
The net asset value of each Fund other than the Money Market Funds is
determined and its Shares are priced as of the close of regular trading of the
New York Stock Exchange (generally 4:00 p.m. Eastern time) on each Business Day
("Valuation Times"). The net asset value of each Money Market Fund is determined
and its shares are priced as of 1:00 p.m. (Eastern time) and as of the close of
regular trading of the New York Stock Exchange (generally 4:00 p.m. Eastern
time) on each Business Day ("Valuation Times"). For each Money Market Fund, a
"Business Day" constitutes (i) any day on which the Federal Reserve Bank is open
and the New York Stock Exchange (the "NYSE") is open for trading and (ii) any
other day (other than a day during which no Shares are tendered for redemption
and no orders to purchase Shares are received) during which there is sufficient
trading in a Fund's portfolio instruments that the Fund's net asset value per
share might be materially affected. For each Fund, other than the Money Market
Funds, a Business Day is (i) any day on which the NYSE is open for trading and
(ii) any other day (other than a day during which no Shares are tendered for
redemption and no orders to purchase Shares are received) during which there is
sufficient trading in a Fund's portfolio instruments that the Fund's net asset
value per share might be materially affected. Net asset value per Share for
purposes of pricing sales and redemptions is calculated by determining the value
of the class's proportional interest in the securities and other assets of a
Fund, less (i) such class's proportional share of general liabilities and (ii)
the liabilities allocable only to such class, and dividing such amount by the
number of relevant class Shares outstanding.
The securities in each Fund, other than the Money Market Funds, will be valued
at market value. If market quotations are not available, the securities will be
valued by a method which the Board of Trustees believes accurately reflects fair
value.
The Money Market Funds use the amortized cost method of valuing their
securities. This method values a security at its cost on the date of purchase
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<PAGE> 13
and thereafter assumes a constant amortization to maturity of any discount or
premium, regardless of the impact fluctuating interest rates have on the market
value of the security. If the Board of Trustees determines that the deviation
from a $1.00 price per share may result in material dilution or other unfair
results to Shareholders, it will take appropriate steps to eliminate or reduce
these consequences to the extent reasonably practicable. Such steps may include
selling portfolio securities prior to maturity in order to realize capital gains
or losses or to shorten the average portfolio maturity of a Fund, adjusting or
withholding dividends, or utilizing a net asset value per share determined by
using available market quotations. There can be no assurance that a Money Market
Fund will maintain a stable net asset value of $1.00 per Share.
Most international securities held by the Global Asset Allocation Fund are
priced based on their market value as determined by reported sales prices or the
mean between their bid and asked prices. Portfolio securities which are
primarily traded on foreign securities exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
except when an occurrence subsequent to the time a value was so established is
likely to have changed such value. Securities for which market quotations are
not readily available are valued at fair market value as determined in good
faith by or under the direction of the Board of Trustees. The amortized cost
method of valuation will also be used with respect to debt obligations with
sixty days or less remaining to maturity unless SBCL under the supervision of
the Board of Trustees determines such method does not represent fair value.
For further information about the valuation of investments, see the Statement
of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares are sold on a continuous basis by the Eureka Funds' Distributor, BISYS
Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219. If you are an
employee of SBCL and you wish to purchase shares, contact the Eureka Funds at
888-890-8121. Customers of SBCL or one of its affiliates should contact them
directly for instructions on how to purchase shares.
PURCHASES OF TRUST SHARES
Trust Shares may be purchased through procedures established by the
Distributor in connection with the requirements of fiduciary, advisory, agency,
custodial and other similar accounts maintained by or on behalf of Customers of
SBCL or one of its affiliates (individually a "Bank" and collectively the
"Banks") or other financial service providers approved by the Distributor.
Shares of the Eureka Funds sold to the Banks acting in a fiduciary, advisory,
custodial (other than for individual retirement accounts), or other similar
capacity on behalf of Customers will normally be held of record by the Banks.
With respect to Shares so sold, it is the responsibility of the Banks to
transmit purchase or redemption orders to the Distributor and to deliver Federal
funds for purchase on a timely basis. Beneficial ownership of the Shares will be
recorded by the Banks and reflected in the account statements provided by the
Banks to Customers.
Trust Shares are sold at the net asset value next determined after receipt by
the Distributor of a purchase order in good form. See "VALUATION OF SHARES."
There is no sales charge imposed by the Eureka Funds in connection with the
purchase of Trust Shares.
Employees of SBCL may directly purchase Trust Shares of a Fund by completing
and signing an Account Registration Form and mailing it, together with a check
(or other negotiable bank draft or money order) for at least the minimum initial
purchase amount payable to the Eureka Funds, P.O.
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<PAGE> 14
Box 182792, Columbus, Ohio 43218-2792.
Employees may obtain an Account Registration Form and additional information
regarding the Eureka Funds by calling 888-890-8121. Subsequent purchases of
Trust Shares of a Fund may be made at any time by mailing a check (or other
negotiable bank draft or money order) to the above address.
The minimum initial investment is $100,000, except for purchases by employees
of SBCL, in which case the minimum initial investment is $500, or $50 if part of
the Eureka Funds' automatic investment plan, as described below. There is no
minimum subsequent investment requirement. There is no limit on the amount of
Trust Shares that may be purchased.
ADDITIONAL INFORMATION ABOUT PURCHASING SHARES
Purchases of Trust Shares of the Eureka Funds will be effected only on a
Business Day (as defined in "VALUATION OF SHARES"). An order for a Money Market
Fund received prior to a Valuation Time on any Business Day will be executed at
the net asset value determined as of the next Valuation Time on the date of
receipt. An order for a Money Market Fund received after the last Valuation Time
on any Business Day will be executed at the net asset value determined as of the
next Valuation Time on the next Business Day. An order for any Fund other than a
Money Market Fund received prior to the Valuation Time on any Business Day will
be executed at the net asset value determined as of the Valuation Time on the
date of receipt. An order for any Fund other than a Money Market Fund received
after the Valuation Time on any Business Day will be executed at the net asset
value determined as of the Valuation Time on the next Business Day.
An order to purchase Trust Shares of a Money Market Fund will be deemed to
have been received by the Distributor when federal funds are available to the
Eureka Funds' custodian for investment. Federal funds are monies credited to a
bank's account within a Federal Reserve Bank. Payment for an order to purchase
Shares of a Money Market Fund which is transmitted by federal funds wire will be
available the same day for investment by the Eureka Funds' custodian, if
received prior to the last Valuation Time (see "VALUATION OF SHARES"). It is
strongly recommended that investors of substantial amounts use federal funds to
purchase Shares of a Money Market Fund.
Shares of a Money Market Fund purchased before 1:00 p.m., Eastern time, begin
earning dividends on the same Business Day. All Shares of a Money Market Fund
continue to earn dividends through the day before their redemption.
Depending upon the terms of a particular Customer account, a Participating
Organization or Bank may charge a Customer's account fees for services provided
in connection with investment in the Eureka Funds. Information concerning this
Prospectus should be read in conjunction with any such information received from
the Participating Organizations or Banks.
The Eureka Funds reserve the right to reject any order for the purchase of its
Trust Shares in whole or in part, including purchases made with foreign drafts
or checks. The Eureka Funds will not accept third party checks for investment.
Please contact SBCL or your Participating Organization regarding proper
instructions and information to purchase or redeem Shares by check or wire.
Shareholders may also execute telephone transactions as explained below.
AUTO INVEST PLAN
Eureka Funds' Auto Invest Plan enables those Shareholders who are employees of
SBCL to make regular purchases of Trust Shares through an automatic deduction
from their bank accounts. With Shareholder authorization, BISYS Fund Services,
Inc.(the "Transfer Agent") will deduct the amount specified (subject to the
applicable minimums) from the Shareholder's bank account and will automatically
invest that amount in Trust Shares at the public offering price on the date of
such deduction. The required minimum initial investment when opening an account
using the Auto Invest Plan is $50 per Fund; the minimum amount for subsequent
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<PAGE> 15
investments in a Fund is $50. To participate in the Auto Invest Plan,
Shareholders should complete the appropriate section of the Account Registration
Form or submit a subsequent written request to the Transfer Agent. To change the
frequency or amount of the Auto Invest Plan or to discontinue the feature, a
Shareholder may call the Eureka Funds at 888-890-8121. Changes to the Bank
information must be made in writing, with a signature guarantee (as described
below), to the Eureka Funds, P.O. Box 182792, Columbus, Ohio 43218-2792. The
Auto Invest Plan may be amended or terminated without notice at any time by the
Distributor.
EXCHANGE PRIVILEGE
Trust Shares of each Fund may be exchanged for Trust Shares of the other
Funds, provided that the Shareholder making the exchange is eligible on the date
of the exchange to purchase Trust Shares (with certain exceptions and subject to
the terms and conditions described in this prospectus). Trust Shares of each
Fund may be exchanged for Class A Shares in instances where the Shareholder
ceases to be eligible to purchase Trust Shares.
The Eureka Funds do not impose a fee for processing exchanges of its Trust
Shares. Shareholders may exchange their Trust Shares for Trust Shares of another
Fund on the basis of the relative net asset value of the Shares exchanged.
An exchange is considered a sale of Shares and will result in a capital gain
or loss for federal income tax purposes, which, in general, is calculated by
netting the Shareholder's tax cost (or "basis") in the Shares surrendered and
the value of the Shares received in the exchange.
A Shareholder wishing to exchange Trust Shares purchased through a
Participating Organization or Bank may do so by contacting the Participating
Organization or Bank. If an exchange request in good order is received by the
Distributor or the Transfer Agent by 4:00 p.m. (Eastern time) on any Business
Day, the exchange usually will occur on that day. Any Shareholder who wishes to
make an exchange should obtain and review a prospectus describing the Fund and
class of Shares which he or she wishes to acquire before making the exchange.
The exchange privilege may be exercised only in those states where the class of
Shares of such other Fund may legally be sold. The Eureka Funds reserve the
right to change the terms and conditions of the exchange privilege discussed
herein upon sixty days written notice.
The Funds are not intended to serve as vehicles for frequent trading in
response to short-term fluctuations in the market. Due to the disruptive effect
that excessive trading can have on efficient portfolio management, the Funds
have established a policy of limiting exchange activity to four substantive
exchange redemptions from a Fund during any calendar year. There is a $500
minimum for all exchanges.
AUTO EXCHANGE
Eureka Funds Auto Exchange enables Shareholders, who are employees of Sanwa
Bank California, to make regular, automatic withdrawals from Trust Shares of a
Money Market Fund and use those proceeds to benefit from dollar-cost-averaging
by automatically making purchases of shares of another Eureka Fund. With
shareholder authorization, the Transfer Agent will withdraw the amount specified
(subject to the applicable minimums) from the Shareholder's Money Market Fund
account and will automatically invest that amount in Trust Shares of the Fund
designated by the Shareholder. In order to participate in the Auto Exchange,
Shareholders must have a minimum beginning balance of $10,000 in their Money
Market Fund account.
To participate in the Auto Exchange, Shareholders should complete the
appropriate section of the Account Registration Form, which can be acquired by
calling the Distributor. To change the Auto Exchange instructions or to
discontinue the feature, a Shareholder must send a written request to the Eureka
Funds, P.O. Box 182792, Columbus, Ohio 43218-2792. The Auto Exchange may be
amended or terminated without notice at any time by the Distributor.
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<PAGE> 16
REDEMPTION OF SHARES
Shareholders may redeem their Trust Shares without charge on any day that net
asset value is calculated (see "VALUATION OF SHARES") and Shares may ordinarily
be redeemed by mail or by telephone. However, all or part of a Customer's Shares
may be required to be redeemed in accordance with instructions and limitations
pertaining to his or her account held by a Participating Organization or Bank.
For example, if a Customer has agreed to maintain a minimum balance in his or
her account, and the balance in that account falls below that minimum, the
Customer may be obliged to redeem, or the Participating Organization or Bank may
redeem for and on behalf of the Customer, all or part of the Customer's Shares
to the extent necessary to maintain the required minimum balance. If a
distribution is to be made to a Customer who is not eligible to receive Trust
Shares, for whatever reason, then Class A Shares will be distributed to that
Customer.
Each Fund reserves the right to redeem a shareholder's Trust Shares if the
shareholder does not maintain a balance of $25,000 in the Trust Shares of that
Fund. Employees of SBCL will not be required to maintain a minimum balance in
Trust Shares of the Funds.
REDEMPTION BY MAIL
A written request for redemption must be received by the Eureka Funds in order
to constitute a valid tender for redemption. The signature on the written
request must be guaranteed by a bank, broker, dealer, credit union, securities
exchange, securities association, clearing agency or savings association, as
those terms are defined in Rule 17Ad-15 under the Securities Exchange Act of
1934 if (a) a redemption check is to be payable to anyone other than the
Shareholder(s) of record; or (b) a redemption check is to be mailed to the
Shareholder(s) at an address other than the address of record or other than to a
commercial bank designated on the Account Registration Form of such
Shareholder(s). The Distributor reserves the right to reject any signature
guarantee if (1) it has reason to believe that the signature is not genuine, (2)
it has reason to believe that the transaction would otherwise be improper, or
(3) the guarantor institution is a broker or dealer that is neither a member of
a clearing corporation nor maintains net capital of at least $100,000. A notary
public will not be accepted as a signature guarantee. Proceeds may be mailed to
the address of record or sent electronically or mailed to a previously
designated bank account without a signature guarantee. See "Redemption by
Telephone" for further discussion regarding sending proceeds to your bank
account.
REDEMPTION BY TELEPHONE
Shares may be redeemed by telephone if the Shareholder selected that option on
the Account Registration Form or in a subsequent written request to the Transfer
Agent. A Shareholder may have the proceeds mailed to the address of record or
sent electronically or mailed directly to a domestic commercial bank account
previously designated by the Shareholder on the Account Registration Form. Under
most circumstances, such payments will be transmitted on the next Business Day
following receipt of a valid request for redemption. Such electronic redemption
requests may be made by the Shareholder by telephone to the Transfer Agent. The
Transfer Agent may reduce the amount of a wire redemption payment by its
then-current wire redemption charge. Presently there is no charge. There is no
charge for having payment of redemption requests mailed or sent via the
Automated Clearing House to a designated bank account. For telephone
redemptions, contact SBCL or your Participating Organization.
TELEPHONE PROCEDURES
A change of address may be requested over the telephone or by fax. These
requests will be processed and subject to independent verification at the point
of entry. Telephone and faxed address changes may not be made in conjunction
with a redemption request or a change in Auto Invest/ Auto Withdrawal
instructions. A shareholder that changes their address by phone will have their
account subject to a ten business day escrow hold.
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<PAGE> 17
The Distributor, the Transfer Agent, SBCL and the Eureka Funds will not be
liable for any losses, damages, expenses or costs arising out of any telephone
transaction (including purchases, exchanges, and redemptions) effected in
accordance with the Eureka Funds' telephone transaction procedures, upon
instructions reasonably believed to be genuine. The Eureka Funds will employ
procedures designed to provide reasonable assurance that instructions
communicated by telephone are genuine; if these procedures are followed, the
Eureka Funds will not be liable for any losses due to unauthorized or fraudulent
instructions. These procedures include recording phone conversations, sending
confirmations to Shareholders within 72 hours of the telephone transaction,
verifying the account name and a shareholder's account number or tax
identification number and sending redemption proceeds only to the address of
record or to a previously authorized bank account. If, due to temporary adverse
conditions, investors are unable to effect telephone transactions, Shareholders
may mail redemption requests to the Eureka Funds.
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per Share next
determined after the Shares are properly tendered for redemption, as described
above. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However, to
the greatest extent possible, the Eureka Funds will attempt to honor requests
from Shareholders for next Business Day payments if the request for redemption
is received by the Transfer Agent before the Valuation Time on a Business Day
or, if the request for redemption is received after the Valuation Time, to honor
requests for payment within two Business Days, unless it would be
disadvantageous to the Eureka Funds or the Shareholders of the particular Fund
to sell or liquidate portfolio securities in an amount sufficient to satisfy
requests for payments in that manner. The Money Market Funds will attempt to
honor requests from Shareholders for same day payment upon redemption of Shares
if the request for redemption is received by the Transfer Agent before 1:00 p.m.
Eastern time, on a Business Day or, if the request for redemption is received
after 1:00 p.m. Eastern time, to honor requests for payment on the next Business
Day, unless it would be disadvantageous to the Fund or its Shareholders to sell
or liquidate portfolio securities in an amount sufficient to satisfy requests
for payments in that manner.
In some instances, a Fund may be requested to redeem Shares for which it has
not yet received good payment. Under such circumstances, the Eureka Funds may
delay forwarding the proceeds until payment has been collected for the purchase
of such Shares, which may take up to 15 days or more. To avoid delay in payment
upon redemption, investors should purchase Shares by certified check or by wire
transfer. The Eureka Funds intend to pay cash for all Shares redeemed, but under
abnormal conditions which may make payment in cash unwise, the Eureka Funds may
make payment wholly or partly in portfolio securities at their then current
market value equal to the redemption price. In such cases, an investor may incur
brokerage costs in converting such securities to cash.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of
Additional Information for examples of when the Eureka Funds may suspend the
right of redemption or redeem Shares involuntarily if it appears appropriate to
do so in light of the Eureka Funds' responsibilities under the 1940 Act.
DIVIDENDS AND TAXES
Each Fund will be treated as a separate entity for federal income tax
purposes. Each Fund intends to qualify for treatment as a "regulated investment
company" under the Internal Revenue Code of 1986 (the "Code"). If qualified, a
Fund will not have to pay federal taxes on amounts it distributes to
Shareholders. Regulated investment companies are subject to a federal excise tax
if they do not
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<PAGE> 18
distribute substantially all of their income on a
timely basis. Each Fund intends to avoid paying federal income and excise taxes
by timely distributing substantially all its net investment income and net
realized capital gains.
Dividends received by a Shareholder of a Fund that are derived from such
Fund's investments in U.S. government securities may not be entitled to the
exemption from state and local income taxes that would be available if the
Shareholder had purchased U.S. government securities directly. Shareholders are
advised to consult their tax adviser concerning the application of state and
local taxes to distributions received from
a Fund.
Shareholders will be advised at least annually as to the amount and federal
income tax character of distributions made during the year.
The net investment income of each Money Market Fund is declared daily as a
dividend to Shareholders at the close of business on the day of declaration.
Dividends will generally be paid monthly. The Money Market Funds do not expect
to realize any long-term capital gains and, therefore, do not foresee paying any
"capital gains dividends" as described in the Code. However, any such capital
gains will be distributed no more than twice a year after deduction for any
available capital loss carryforward.
The amount of dividends payable with respect to the Trust Shares will exceed
dividends on Class A Shares due to the Distribution and Shareholder Services
Plan fee and Service Plan fee applicable to Class A Shares.
A dividend on the Shares of the Investment Grade Bond Fund is declared daily
and paid monthly. A dividend on the Shares of the Global Asset Allocation Fund
is declared and paid annually. A dividend on the Shares of the Equity Fund is
declared and paid monthly. Net realized capital gains, if any, are distributed
at least annually to Shareholders of record after deduction for any available
capital loss carry forward.
A Shareholder will automatically receive all income dividends and capital gain
distributions in additional full and fractional Shares at net asset value as of
the date of payment unless the Shareholder elects to receive such dividends or
distributions in cash. Such election, or any revocation thereof, must be made in
writing to the Eureka Funds, P.O. Box 182792, Columbus, Ohio 43218-2792, and
will become effective with respect to dividends and distributions having record
dates after its receipt by the Transfer Agent. Reinvested dividends receive the
same tax treatment as dividends paid in cash. Dividends are paid in cash not
later than seven Business Days after a Shareholder's complete redemption of his
or her Shares. If you elect to receive distributions in cash, and checks (1) are
returned and marked as "undeliverable" or (2) remain uncashed for six months,
your cash election will be changed automatically and your future dividend and
capital gains distributions will be reinvested in the Fund at the per share net
asset value determined as of the date of payment of the distribution. In
addition, any undeliverable checks or checks that remain uncashed for six months
will be cancelled and will be held in a non-interest bearing account pending
further instructions from the Shareholder.
Dividends are generally taxable in the taxable year received. However,
dividends declared in October, November or December to Shareholders of record
during such a month and paid during the following January are treated for tax
purposes as if they were received by each Shareholder on December 31 of the year
in which the dividends were declared.
Dividends will generally be taxable to a Shareholder as ordinary income to the
extent of the Shareholder's ratable share of the earnings and profits of a Fund
as determined for tax purposes. Certain dividends paid by the Investment Grade
Bond Fund, the Global Asset Allocation Fund, and the Equity Fund, and
so-designated by the Funds may qualify for the dividends received deduction for
corporate shareholders. Because all of the net investment income of the
remaining Funds is expected to be interest income, it is anticipated that
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<PAGE> 19
no distributions from such Funds will qualify for the dividends received
deduction. Distributions of net realized capital gains are taxable to
Shareholders as long-term capital gains regardless of how long the Shareholder
has held Shares in the Fund. Shareholders who are not subject to tax on their
income generally will not have to pay federal income tax on amounts distributed
to them.
Dividends that are derived from interest on a Fund's investments in U.S.
government securities may be eligible for exemption from the state and local
taxes of certain jurisdictions, although state and local tax authorities may not
agree with this view. However, distributions of income derived from repurchase
agreements and securities lending transactions generally will not qualify for
exemption from state and local income taxes.
The foregoing is a summary of certain federal, state and local income tax
consequences of investing in a Fund. Shareholders should consult their own tax
advisers concerning the tax consequences of an investment in a Fund.
TAX CONSIDERATIONS RELATING TO THE GLOBAL ASSET ALLOCATION FUND
Dividends and certain interest income earned by the Global Asset Allocation
Fund from foreign securities may be subject to foreign withholding taxes or
other taxes. So long as more than 50% of the value of the Fund's total assets at
the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. It is possible that the
Global Asset Allocation Fund will make this election in certain years. The
remaining Funds do not expect to be eligible to make this election. If a Fund
makes the election, the amount of such foreign taxes paid by a Fund will be
included in its shareholders' income pro rata (in addition to taxable
distributions actually received by them), and each shareholder will be entitled
either (a) to credit a proportionate amount of such taxes against a
shareholder's federal income tax liabilities, or (b) if a shareholder itemizes
deductions, to deduct such proportionate amounts from federal taxable income.
Fund transactions in foreign currencies and hedging activities may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book income and taxable
income. This difference may cause a portion of a Fund's income distributions to
constitute a return of capital for tax purposes or require the Fund to make
distributions exceeding book income to qualify as a regulated investment
company for tax purposes.
MANAGEMENT OF EUREKA FUNDS
TRUSTEES
The Board of Trustees of the Eureka Funds has overall responsibility for the
Funds. The Board of Trustees is elected by the Shareholders. There are currently
five Trustees, two of whom are "interested persons" of the Eureka Funds within
the meaning of that term under the 1940 Act. The Trustees, in turn, elect the
officers of the Eureka Funds to supervise its day-to-day operations.
INVESTMENT ADVISER
SBCL serves as Investment Adviser of each Fund. SBCL is a wholly-owned
subsidiary of The Sanwa Bank Limited, of Japan. Its principal offices are
located at 601 South Figueroa Street, Los Angeles, California 90017.
Established in 1972, SBCL provides a full range of personal and business
banking services through a network of more than 100 branches and offices
statewide. As of September 30, 1997, SBCL had approximately $1.45 billion of
assets under management.
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<PAGE> 20
Subject to the general supervision of the Board of Trustees and in accordance
with the investment objectives and restrictions of a Fund, SBCL manages the
Funds, makes decisions with respect to, and places orders for, all purchases and
sales of its investment securities, and maintains its records relating to such
purchases and sales.
Under an investment advisory agreement between the Eureka Funds and SBCL, the
fee payable to SBCL by each Fund for investment advisory services is the lesser
of: (a) a fee computed daily and paid monthly at the annual rate of thirty one-
hundredths of one percent (0.30%) of the Prime Money Market Fund's average daily
net assets; twenty one-hundredths of one percent (0.20%) of the U.S. Treasury
Obligations Fund's average daily net assets; sixty one-hundredths of one percent
(0.60%) of the Investment Grade Bond Fund's average daily net assets; ninety
one-hundredths of one percent (0.90%) of the Global Asset Allocation Fund's
average daily net assets; and seventy five one-hundredths of one percent (0.75%)
of the Equity Fund's average daily net assets, or (b) such fee as may from time
to time be agreed upon by the Eureka Funds and SBCL. The fee agreed to from time
to time by the Eureka Funds and SBCL may be significantly lower than the fee
calculated at the annual rate and the effect of such agreed upon lower fee would
be to lower a Fund's expenses and increase the net income of the Fund during the
period when such agreed upon lower fee is
in effect.
Hal Nachtrieb and David Lampert, both Vice Presidents of SBCL, co-manage the
Investment Grade Bond Fund. They have been with SBCL since 1995 and 1984,
respectively, where they are responsible for the investment management of
approximately $500 million in personal and institutional fixed income assets,
including approximately $100 million in commingled bond funds.
Prior to joining SBCL, Mr. Nachtrieb developed a managed equity and fixed
income funds for Franklin Resources. He also served as vice president for
Continental Bank, and before that, managed the fixed income trading desk at
Imperial Corporation of America. Mr. Nachtrieb began his career as an investment
manager as a mortgage-backed options trader for Drexel Burnham Lambert. Mr.
Nachtrieb earned a master of business administration in finance from the
University of Southern California and a bachelor of science in economics from
Lewis & Clark College in Portland, Oregon.
Most recently, Mr. Lampert was the Deputy Treasurer of SBCL responsible for
all fixed income activities of the Treasury Department. Over the years, his
responsibilities included trading bonds and bond futures, developing and
implementing derivatives strategies for the bank and customers, and managing a
$1.0 billion money market portfolio and the $600 million bond portfolio. Mr.
Lampert graduated from the University of California at Los Angeles with a
bachelor of arts in Business/Economics.
Richard Weiss, Chief Investment Officer and Senior Vice President of SBCL, and
Brian Garbe, Director of Investment Research & Strategy and Vice-President of
SBCL, co-manage the Equity Fund and Global Asset Allocation Fund. They have been
with SBCL since 1994, where they are responsible for the investment management
of approximately $1.6 billion in personal and institutional assets, including
approximately $250 million in commingled equity and international funds.
Mr. Weiss has over 15 years of experience in the investment management
industry. Prior to joining SBCL, Messrs. Weiss and Garbe both were employed by
Vantage Global Advisors where they acted as manager and trader, respectively,
for global asset allocation portfolios. Before that, they were managing director
and investment officer, respectively, at TSA Capital Management, again
responsible for the management and back-office of global investments. Earlier in
his career, Mr. Weiss was a quantitative investment strategist for Paine Webber
in New York, and director of quantitative analysis and systems for Mellon Bank
in Pittsburgh, Pennsylvania.
Mr. Weiss graduated magna cum laude with a master of business administration
in finance and
20
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econometrics from the University of Chicago. He also graduated magna cum laude
with a bachelor of science in finance and statistics from The Wharton School,
University of Pennsylvania.
Mr. Garbe earned a master of business administration and a bachelor of science
in applied mathematics from the University of California at Los Angeles.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services, Inc. is the administrator for each Fund and also acts as
the Eureka Funds' principal underwriter and distributor (the "Administrator" or
the "Distributor"), under agreements approved by the Eureka Funds' Board of
Trustees. BISYS Fund Services, Inc. is wholly owned by The BISYS Group, Inc.,
150 Clove Road, Little Falls, New Jersey 07424, a publicly owned company engaged
in information processing, loan servicing and 401(k) administration and
recordkeeping services to and through banking and other financial organizations.
The Administrator generally assists in all aspects of a Fund's administration
and operation. Under a management and administration agreement between the
Eureka Funds and the Administrator, the fee payable by a Fund to the
Administrator for management administration services is the lesser of (a) a fee
computed at the annual rate of twenty one-hundredths of one percent (.20%) of a
Fund's average daily net assets or (b) such fee as may from time to time be
agreed upon by the Eureka Funds and the Administrator. A fee agreed to from time
to time by the Eureka Funds and the Administrator may be significantly lower
than the fee calculated at the annual rate and the effect of such agreed upon
lower fee would be to lower a Fund's expenses and increase the net income of the
Fund during the period when such agreed upon lower fee is in effect.
EXPENSES
SBCL and the Administrator each bear all expenses in connection with the
performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for a Fund. Each Fund bears the following
expenses relating to its operations: taxes, interest, any brokerage fees and
commissions, fees and travel expenses of the Trustees, Commission fees, state
securities qualification and renewal fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to current
Shareholders, outside auditing and legal expenses, amortized organizational
expenses, advisory and administration fees, fees and out-of-pocket expenses of
the custodian and the Transfer Agent, fees and out-of-pocket expenses for fund
accounting services, expenses incurred for pricing securities owned by a Fund,
certain insurance premiums, costs of maintenance of a Fund's existence, costs
and expenses of Shareholders' and Trustees' reports and meetings, and any
extraordinary expenses incurred in its operation. As a general matter, expenses
are allocated to the Class A Shares and Trust Shares of a Fund on the basis of
the relative net asset value of each class. At present, the only expenses that
will be borne solely by Class A Shares, other than in accordance with the
relative net asset value of the class, are expenses under the Eureka Funds'
Distribution and Shareholder Services Plan ("Distribution Plan") and a "Services
Plan" which relate only to the Class A Shares.
The organizational expenses of each Fund have been capitalized and are being
amortized in the first five years of each Fund's operations. Such amortization
will reduce the amount of income available for payment as dividends.
DISTRIBUTION PLAN
The Distribution Plan contains a so-called "defensive" provision applicable to
all classes of Shares. Under this defensive provision to the extent that any
payment made to the Administrator, including payment of administration fees,
should be deemed to be indirect financing of any activity primarily intended to
result in the sale of Shares issued by the Eureka Funds within the context of
Rule 12b-1 under the 1940 Act, such payment shall be deemed to be authorized by
the Distribution Plan.
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BANKING LAWS
SBCL believes that it possesses the legal authority to perform the investment
advisory services for the Eureka Funds contemplated by its investment advisory
agreement with the Eureka Funds and described in this Prospectus without
violation of applicable banking laws and regulations, and has so represented to
the Eureka Funds. Future changes in federal or state statutes and regulations
relating to permissible activities of banks or bank holding companies and their
subsidiaries and affiliates as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations
could change the manner in which SBCL could continue to perform such services
for the Eureka Funds. See "MANAGEMENT OF EUREKA FUNDS--Glass Steagall Act" in
the Statement of Additional Information for further discussion of applicable
banking laws and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE EUREKA FUNDS AND ITS SHARES
The Eureka Funds were organized as a Massachusetts business trust on April 7,
1997. There are an unlimited number of authorized Shares of beneficial interest
of the Eureka Funds which may, without Shareholder approval, be divided into an
unlimited number of series of such Shares, and which are presently divided into
five series of Shares, one for each of the following Funds: the Prime Money
Market Fund, the U.S. Treasury Obligations Fund, the Investment Grade Bond Fund,
the Global Asset Allocation Fund, and the Equity Fund. Each Fund offers to the
public two classes of shares: Class A and Trust Shares. Each Share represents an
equal proportionate interest in a Fund with other Shares of the same series and
class, and is entitled to such dividends and distributions out of the income
earned on the assets belonging to that Fund as are declared at the discretion of
the Trustees (see "Miscellaneous" below).
Shareholders are entitled to one vote per Share (with proportional voting for
fractional Shares) on such matters as Shareholders are entitled to vote.
Shareholders vote in the aggregate and not by series or class on all matters
except (i) when required by the 1940 Act, Shares shall be voted by individual
series, (ii) when the Trustees have determined that the matter affects only the
interests of a particular series or class, and (iii) only the holders of Class A
Shares will be entitled to vote on matters submitted to Shareholder vote with
regard to the Distribution Plan applicable to such class.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Eureka Funds or a
particular Fund means the affirmative vote, at a meeting of Shareholders duly
called, of the lesser of (a) 67% or more of the votes of Shareholders of the
Eureka Funds or that particular Fund present at such meeting at which the
holders of more than 50% of the votes attributable to the Shareholders of record
of the Eureka Funds or such Fund are represented in person or by proxy, or (b)
the holders of more than 50% of the outstanding votes of Shareholders of the
Eureka Funds or such Fund.
Overall responsibility for the management of the Eureka Funds is vested in the
Board of Trustees. See "MANAGEMENT OF EUREKA FUNDS-- Trustees of the Eureka
Funds." Individual Trustees are elected by the Shareholders and may be removed
by the Board of Trustees or Shareholders at a meeting held for such purpose in
accordance with the provisions of the Declaration of Trust and the By-laws of
the Eureka Funds and Massachusetts law. See "ADDITIONAL INFORMATION--
Miscellaneous" in the Statement of Additional Information for further
information.
Although the Eureka Funds is not required to hold annual meetings of
Shareholders, Shareholders holding at least 10% of the Eureka Funds' outstanding
Shares have the right to call a meeting to elect or remove one or more of the
Trustees of the Eureka Funds. Shareholder inquiries should be directed to the
Secretary of the Eureka Funds at 3435 Stelzer Road, Columbus, Ohio 43219.
22
<PAGE> 23
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
The Bank of New York, serves as Custodian for the Eureka Funds.
BISYS Fund Services, Inc. serves as transfer agent for and provides fund
accounting services to the Eureka Funds.
OTHER CLASSES OF SHARES
In addition to Trust Shares, the Eureka Funds also offer Class A Shares of
each Fund. Class A Shares are offered to the general public at net asset value
and are subject to a Distribution Plan fee and Service Plan fee.
PERFORMANCE INFORMATION
GENERAL. From time to time, a Money Market Fund's annualized "yield" and
"effective yield" and total return for Trust Shares may be presented in
advertisements, sales literature and shareholder reports. The "yield" of a Money
Market Fund is based upon the income earned by the Fund over a seven-day period
and then annualized, i.e., the income earned in the period is assumed to be
earned every seven days over a 52-week period and is stated as a percentage of
the investment. The "effective yield" of a Money Market Fund is calculated
similarly but when annualized, the income earned by the investment is assumed to
be reinvested in Shares of the Eureka Funds and thus compounded in the course of
a 52-week period. The effective yield will be higher than the yield because of
the compounding effect of the assumed reinvestment.
Total return is calculated for the past year and the period since the
establishment of each Money Market Fund. Average annual total return is measured
by comparing the value of an investment in a Fund at the beginning of the
relevant period to the redemption value of the investment at the end of the
period (assuming immediate reinvestment of any dividends or capital gains
distributions) and annualizing the result. Aggregate total return is calculated
similarly to average annual total return except that the return figure is
aggregated over the relevant period instead of annualized.
From time to time performance information of the Investment Grade Bond Fund,
the Global Asset Allocation Fund, and the Equity Fund, showing its average
annual total return, aggregate total return, and/or yield may be presented in
advertisements, sales literature and shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance. Average annual total return will be calculated for the period since
the establishment of a Fund. Average annual total return is measured by
comparing the value of an investment in a Fund at the beginning of the relevant
period to the redemption value of an investment at the end of the period
(assuming immediate reinvestment of any dividends or capital gains
distributions) and annualizing the result. Aggregate total return is calculated
similarly to average annual total return except that the return figure is
aggregated over the relevant period instead of annualized. Yield will be
computed by dividing the net investment income per Share for the Investment
Grade Bond Fund, the Global Asset Allocation Fund, and the Equity Fund earned
during a recent 30-day period by the Fund's per Share maximum offering price
(reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period and annualizing the results.
The Investment Grade Bond Fund, the Global Asset Allocation Fund, and the
Equity Fund may also calculate a distribution rate. Distribution rates will be
computed by dividing the distribution per Share of a class made by a Fund over a
twelve-month period by the maximum offering price per Share. The distribution
rate includes both income and capital gain dividends and does not reflect
unrealized gains or losses. The calculation of income in the distribution rate
includes both income and capital gain dividends and does not reflect unrealized
gains or losses, although a Fund may also present a distribution rate excluding
the effect of capital gains. The distribution rate differs from the yield,
because it includes capital items which are often non-recurring in nature, and
may include returns of principal, whereas yield does not include such items. The
Funds do not intend to publish
23
<PAGE> 24
distribution rates in Fund advertisements but may publish such rates in
supplemental sales literature. Distribution rates may also be presented
excluding the effect of a sales charge, if any.
Yield, effective yield, total return and distribution rate will be calculated
separately for each Class of Shares. Because Trust Shares are not subject to
Distribution Plan fees or Service Plan fees, the yield and total return for
Trust Shares will be higher than that of the Class A Shares for the same period.
Investors may also judge the performance of a Fund by comparing its
performance to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices and data
such as that provided by Lipper Analytical Services, Inc., IBC/Donoghue's MONEY
FUND REPORT and Ibbotson Associates, Inc. References may also be made to indices
or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal,
The New York Times, Business Week, American Banker, Fortune, Institutional
Investor, Ibbotson Associates, Inc., Morningstar, Inc., CDA/Weisenberger,
Pension and Investments, U.S.A. Today and local newspapers. In addition to
performance information, general information about the Funds that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to Shareholders.
Information about the performance of a Fund is based on a Fund's record up to
a certain date and is not intended to indicate future performance. Yields and
total returns of a Fund will fluctuate. Any fees charged by the Participating
Organizations to their customers in connection with investment in a Fund are not
reflected in the Eureka Funds' performance information.
Further information about the performance of a Fund is contained in that
Fund's annual report to Shareholders, which may be obtained without charge by
contacting the Eureka Funds at the address below.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
investment operations of their Fund(s) and annual financial statements audited
by independent public accountants.
Inquiries regarding the Eureka Funds may be directed in writing to the Eureka
Funds at the following address: The Eureka Funds, P.O. Box 182792, Columbus,
Ohio 43218-2792.
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INVESTMENT ADVISER
SANWA BANK CALIFORNIA
Investment Management Department
601 S. Figueroa Street
Los Angeles, California 90017
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, DC 20005
TRANSFER AGENT
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
AUDITORS
Ernst & Young LLP
10 West Broad Street
Columbus, Ohio 43215
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary........................ 2
Fee Table................................. 4
Investment Objective and Policies......... 5
Valuation of Shares....................... 12
How to Purchase and Redeem Shares......... 13
Dividends and Taxes....................... 17
Management of Eureka Funds................ 19
General Information....................... 22
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE EUREKA
FUNDS OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
EUREKA FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
EUR-0001
EUREKA
FUNDS
Equity Fund
Investment Grade Bond Fund
Global Asset Allocation Fund
Prime Money Market Fund
U.S. Treasury Obligations Fund
Prospectus
October 9, 1997
FOR TRUST SHARES
NOT FDIC INSURED
<PAGE> 29
---------------
EUREKA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
October 9, 1997
---------------
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Prospectuses of the Eureka Prime Money Market
Fund, the Eureka U.S. Treasury Obligations Fund, the Eureka Investment Grade
Bond Fund, the Eureka Global Asset Allocation Fund, and the Eureka Equity Fund
which are dated October 9, 1997. This Statement of Additional Information is
incorporated by reference in its entirety into the Prospectuses. The Eureka
Funds were organized on April 7, 1997 as the Sanwa Fund and changed their name
to the "Eureka Funds" prior to commencing operations. Copies of the
Prospectuses may be obtained by writing the Eureka Funds at P.O. Box 182792,
Columbus, Ohio 43218-2792, or by telephoning toll free (888) 890-8121.
<PAGE> 30
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
EUREKA FUNDS ...................................................................................................B-1
INVESTMENT OBJECTIVE AND POLICIES...............................................................................B-1
Additional Information on Portfolio Instruments.............................................................B-1
Investment Restrictions....................................................................................B-19
Additional Information Regarding Fundamental Investment Restrictions.......................................B-19
Portfolio Turnover.........................................................................................B-21
VALUATION......................................................................................................B-22
Valuation of the Money Market Funds........................................................................B-22
Valuation of the Investment Grade Bond Fund, the Global Asset Allocation Fund and the
Equity Fund.......................................................................................B-23
Valuation of International Securities......................................................................B-24
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................................................................B-24
Matters Affecting Redemption...............................................................................B-25
ADDITIONAL TAX INFORMATION.....................................................................................B-25
General ..................................................................................................B-25
Additional Tax Information Concerning the Global Asset Allocation Fund.....................................B-27
MANAGEMENT OF EUREKA FUNDS.....................................................................................B-29
Trustees and Officers......................................................................................B-29
Investment Adviser.........................................................................................B-29
Portfolio Transactions.....................................................................................B-30
Glass-Steagall Act.........................................................................................B-31
Administrator..............................................................................................B-32
Distributor................................................................................................B-33
Custodian..................................................................................................B-34
Transfer Agent and Fund Accounting Services................................................................B-34
Independent Accountants....................................................................................B-34
Legal Counsel..............................................................................................B-34
PERFORMANCE INFORMATION........................................................................................B-34
Yields of the Money Market Funds...........................................................................B-34
Yields of the Variable NAV Funds...........................................................................B-35
Calculation of Total Return................................................................................B-36
Performance Comparisons....................................................................................B-36
ADDITIONAL INFORMATION.........................................................................................B-37
</TABLE>
-i-
<PAGE> 31
<TABLE>
<S> <C>
Organization and Description of Shares.....................................................................B-37
Shareholder and Trustee Liability..........................................................................B-38
Miscellaneous..............................................................................................B-39
APPENDIX.......................................................................................................B-41
FINANCIAL STATEMENTS...........................................................................................B-48
</TABLE>
-ii-
<PAGE> 32
STATEMENT OF ADDITIONAL INFORMATION
EUREKA FUNDS
Eureka Funds is an open-end management investment company. The
Eureka Funds consist of five series of units of beneficial interest ("Shares")
offered to the public, each representing interests in one of five separate
investment portfolios: the Eureka U.S. Treasury Obligations Fund (the "U.S.
Treasury Obligations Fund"), the Eureka Prime Money Market Fund (the "Prime
Money Market Fund" and together with the U.S. Treasury Obligations Fund, the
"Money Market Funds"), the Eureka Investment Grade Bond Fund (the "Investment
Grade Bond Fund"), the Eureka Global Asset Allocation Fund (the "Global Asset
Allocation Fund"), and the Eureka Equity Fund (the "Equity Fund"). Each Fund
offers to the public two classes of Shares: Class A Shares and Trust Shares.
Most information contained in this Statement of Additional Information expands
on subjects discussed in the Prospectuses. Capitalized terms not defined herein
are defined in the Prospectuses. An investment in Shares of a Fund should not
be made without first reading the applicable Prospectuses.
INVESTMENT OBJECTIVE AND POLICIES
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
The following policies supplement the information pertaining to
portfolio instruments of each Fund as set forth in the Prospectuses.
The Appendix to this Statement of Additional Information identifies
nationally recognized statistical ratings organizations ("NRSROs") that may be
used by Sanwa Bank California, the Eureka Funds' investment adviser ("SBCL"),
with regard to portfolio investments for the Funds and provides a description
of relevant ratings assigned by each such NRSRO. A rating by an NRSRO may be
used only where the NRSRO is neither controlling, controlled by, nor under
common control with the issuer of, or any issuer, guarantor, or provider of
credit support for, the instrument.
ASSET-BACKED SECURITIES. Asset-backed securities are secured by company
receivables, home equity loans, truck or auto loans, leases, credit card
receivables and other securities backed by receivables or assets.
Offerings of Certificates for Automobile Receivables ("CARS") are
structured either as flow-through grantor trusts or as pay-through notes. CARS
structured as flow-through instruments represent ownership interests in a fixed
pool of receivables. CARS structured as pay-through notes are debt instruments
supported by the cash flows from the underlying assets. CARS may also be
structured as securities with fixed payment schedules which are
B-1
<PAGE> 33
generally issued in multiple-classes. Cash-flow from the underlying receivables
is directed first to paying interest and then to retiring principal via paying
down the two respective classes of notes sequentially. Cash-flows on
fixed-payment CARS are certain, while cash-flows on other types of CARS issues
depends on the prepayment rate of the underlying automobile loans. Prepayments
of automobile loans are triggered mainly by automobile sales and tradeins. Many
people buy new cars every two or three years, leading to rising prepayment rates
as a pool becomes more seasoned.
Certificates for Amortizing Revolving Debt ("CARDS") represent
participation in a fixed pool of credit card accounts. CARDS pay "interest only"
for a specified period. The CARDS principal balance remains constant during this
period, while any cardholder repayments or new borrowings flow to the issuer's
participation. Once the principal amortization phase begins, the balance
declines with paydowns on the underlying portfolio. Cash flows on CARDS are
certain during the interest-only period. After this initial interest-only
period, the cash flow will depend on how fast cardholders repay their
borrowings. Historically, monthly cardholder repayment rates have been
relatively fast. As a consequence, CARDS amortize rapidly after the end of the
interest-only period. During this amortization period, the principal payments on
CARDS depend specifically on the method for allocating cardholder repayments to
investors. In many cases, the investor's participation is based on the ratio of
the CARDS' balance to the total credit card portfolio balance. This ratio can be
adjusted monthly or can be based on the balances at the beginning of the
amortization period. In some issues, investors are allocated most of the
repayments, regardless of the CARDS' balance. This method results in especially
fast amortization.
Credit support for asset-backed securities may be based on the
underlying assets or provided by a third party. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees (which are
generally provided by the issuer), senior-subordinated structures and over
collateralization.
BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT. All of the Funds
except the U.S. Treasury Obligations Fund may invest in bankers' acceptances,
certificates of deposit, and demand and time deposits. Bankers' acceptances are
negotiable drafts or bills of exchange typically drawn by an importer or
exporter to pay for specific merchandise, which are "accepted" by a bank,
meaning, in effect, that the bank unconditionally agrees to pay the face value
of the instrument on maturity. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank or a savings
and loan association for a definite period of time and earning a specified
return.
Bankers' acceptances will be those guaranteed by domestic and foreign
banks, if at the time of investment such banks have capital, surplus, and
undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements). Certificates of deposit and demand and
time deposits will be those of domestic and foreign banks and savings and loan
associations, if (a) at the time of investment they have capital,
B-2
<PAGE> 34
surplus, and undivided profits in excess of $100,000,000 (as of the date of
their most recently published financial statements) or (b) the principal amount
of the instrument is insured in full by the Federal Deposit Insurance
Corporation.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage
obligations ("CMOs") are mortgage-related securities which are structured pools
of mortgage pass-through certificates or mortgage loans. CMOs are issued with a
number of classes or series which have different maturities and which may
represent interests in some or all of the interest or principal on the
underlying collateral or a combination thereof. CMOs of different classes are
generally retired in sequence as the underlying mortgage loans in the mortgage
pool are repaid. In the event of sufficient early prepayments on such mortgages,
the class or series of CMOs first to mature generally will be retired prior to
its maturity. Thus, the early retirement of a particular class or series of CMO
held by a Fund would have the same effect as the prepayment of mortgages
underlying a mortgage-backed pass-through security.
Certain debt securities such as, but not limited to, mortgage-backed
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, are expected to be
repaid prior to their stated maturity dates. As a result, the effective maturity
of these securities is expected to be shorter than the stated maturity. For
purposes of calculating a Fund's weighted average portfolio maturity, the
effective maturity of such securities will be used.
CMOs include stripped mortgage securities, which are derivative
multi-class mortgage securities issued by agencies or instrumentalities of the
U.S. government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
mortgage securities are usually structured with two classes that receive
different proportions of the interest and principal distributions on a pool of
mortgage assets. A common type of stripped mortgage security will have one class
receiving all of the interest from the mortgage assets (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on the securities' yield to maturity. Generally,
the market value of the PO class is unusually volatile in response to changes in
interest rates. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities even if the security is rated in the
highest rating category.
Although stripped mortgage securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not fully developed. Stripped mortgage
securities issued or guaranteed by the U.S. government and held by a Fund
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may be considered liquid securities pursuant to guidelines established by the
Board of Trustees.
COMMERCIAL PAPER. Each Fund, except for the U.S. Treasury Obligations
Fund, may invest in commercial paper. Commercial paper consists of unsecured
promissory notes issued by corporations. Commercial paper usually has a maturity
of less than nine months and has a fixed rates of return.
The Prime Money Market Fund, the Investment Grade Bond Fund, and the
Global Asset Allocation Fund may purchase commercial paper designated as
"Section 4(2) paper," a term that includes debt obligations issued in reliance
on the "private placement" exemption from registration afforded by Section 4(2)
of the Securities Act of 1933. Section 4(2) paper is restricted as to
disposition under the Federal securities laws, and is frequently sold (and
resold) to institutional investors through or with the assistance of investment
dealers who make a market in the Section 4(2) paper. Certain transactions in
Section 4(2) paper may qualify for the registration exemption provided in Rule
144A under the Securities Act of 1933.
COMMON AND PREFERRED STOCK. Stocks represent shares of ownership in a
company. Generally, preferred stock has a specified dividend and ranks after
bonds and before common stocks in its claim on income for dividend payments and
on assets should the company be liquidated. After other claims are satisfied,
common stockholders participate in company profits on a pro rata basis; profits
may be paid out in dividends or reinvested in the company to help it grow.
Increases and decreases in earnings are usually reflected in a company's stock
price, so common stocks generally have the greatest appreciation and
depreciation potential of all corporate securities. While most preferred stocks
pay a dividend, the Funds may purchase preferred stock where the issuer has
omitted, or is in danger of omitting, payment of its dividend. Such investments
would be made primarily for their capital appreciation potential.
FOREIGN CURRENCY TRANSACTIONS. The Global Asset Allocation Fund may use
forward foreign currency exchange contracts. Forward foreign currency exchange
contracts involve an obligation to purchase or sell a specified currency at a
future date at a price set at the time of the contract. Forward currency
contracts do not eliminate fluctuations in the values of portfolio securities
but instead allow a Fund to establish a rate of exchange for a future point in
time. The Fund may use forward foreign currency exchange contracts to hedge
against movements in the value of foreign currencies (including the "ECU" used
in the European Community) relative to the U.S. dollar in connection with
specific portfolio transactions or with respect to portfolio positions. The Fund
may enter into forward foreign currency exchange contracts when deemed advisable
by SBCL under two circumstances. First, when entering into a contract for the
purchase or sale of a security, the Fund may enter into a forward foreign
currency exchange contract for the amount of the purchase or sale price to
protect against variations, between the date the security is purchased or sold
and the date on which payment is made or received, in the value of the foreign
currency relative to the U.S. dollar or other foreign currency.
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Second, when SBCL anticipates that a particular foreign currency may
decline relative to the U.S. dollar or other leading currencies, in order to
reduce risk, the Fund may enter into a forward contract to sell, for a fixed
amount, the amount of foreign currency approximating the value of some or all of
the Fund's securities denominated in such foreign currency. With respect to any
forward foreign currency contract, it will not generally be possible to match
precisely the amount covered by the contract and the value of the securities
involved due to the changes in the values of such securities resulting from
market movements between the date the forward contract is entered into and the
date it matures. In addition, while forward contracts may offer protection from
losses resulting from declines in the value of a particular foreign currency,
they also limit potential gains which might result from increases in the value
of such currency. The Fund will also incur costs in connection with forward
foreign currency exchange contracts and conversions of foreign currencies and
U.S. dollars.
A separate account of a Fund consisting of liquid assets equal to the
amount of the Fund's assets that could be required to consummate forward
contracts entered into under the second circumstance, as set forth above, will
be established with the Fund's custodian. For the purpose of determining the
adequacy of the securities in the account, the deposited securities will be
valued at market or fair value. If the market or fair value of such securities
declines, additional cash or securities will be placed in the account daily so
that the value of the account will be equal the amount of such commitments by
the Fund.
FOREIGN INVESTMENT. The Funds, other than the U.S. Treasury Obligations
Fund, may invest in certain obligations or securities of foreign issuers.
Permissible investments include Eurodollar Certificates of Deposit ("ECDs")
which are U.S. dollar denominated certificates of deposit issued by branches of
foreign and domestic banks located outside the United States, Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank, denominated in U.S. dollars and held in the
United States, Eurodollar Time Deposits ("ETD's") which are U.S. dollar
denominated deposits in a foreign branch of a U.S. bank or a foreign bank, and
Canadian Time Deposits ("CTD's") which are U.S. dollar denominated certificates
of deposit issued by Canadian offices of major Canadian banks, Canadian
commercial paper, which is commercial paper issued by a Canadian corporation or
a Canadian counterpart of a U.S. corporation, and European commercial paper,
which is U.S. dollar denominated commercial paper of an issuer located in
Europe. The Funds may invest in foreign commercial paper, including Canadian and
European commercial paper as described above. The Prime Money Market Fund, the
Equity Fund and the Global Asset Allocation Fund may also purchase foreign
equity securities, including ADRs (sponsored and unsponsored), European
Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs").
Investments in securities issued by foreign branches of U.S. banks,
foreign banks, or other foreign issuers, including American Depository Receipts
("ADRs") and securities purchased on foreign securities exchanges, may subject a
Fund to additional investment risks. Such risks include adverse political and
economic developments, possible seizure, currency
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blockage, nationalization or expropriation of foreign investments, less
stringent disclosure requirements, exchange control regulations, non-U.S.
withholding taxes and the adoption of other foreign governmental restrictions.
Additional risks include currency exchange risks, less publicly
available information, the risk that companies may not be subject to the
accounting, auditing and financial reporting standards and requirements of U.S.
companies, the risk that foreign securities markets may have less volume and
therefore may be less liquid and their prices more volatile than U.S.
securities, and the risk that custodian and brokerage costs may be higher.
Foreign issuers of securities or obligations are often subject to accounting
treatment and engage in business practices different from those respecting
domestic issuers of similar securities or obligations. Foreign branches of U.S.
banks and foreign banks may be subject to less stringent reserve requirements
than those applicable to domestic branches of U.S. banks. The Funds will acquire
such securities only when SBCL believes the risks associated with such
investments are minimal.
FUTURES CONTRACTS AND RELATED OPTIONS. The Investment Grade Bond Fund,
the Global Asset Allocation Fund and the Equity Fund (the "Variable NAV Funds")
may invest in futures contracts and options thereon (interest rate futures
contracts or index futures contracts, as applicable). Positions in futures
contracts may be closed out only on an exchange which provides a secondary
market for such futures. However, there can be no assurance that a liquid
secondary market will exist for any particular futures contract at any specific
time. Thus, it may not be possible to close a futures position. In the event of
adverse price movements, a Fund would continue to be required to make daily cash
payments to maintain its required margin. In such situations, if a Fund has
insufficient cash, it may have to sell portfolio securities to meet daily margin
requirements at a time when it may be disadvantageous to do so. In addition, a
Fund may be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on a Fund's ability to effectively hedge.
Successful use of futures by the Funds is also subject to SBCL's
ability to correctly predict the direction the market will move. For example, if
a Fund has hedged against the possibility of a decline in the market adversely
affecting securities held by it and securities prices increase instead, a Fund
will lose part or all of the benefit to the increased value of its securities
which it has hedged because it will have approximately equal offsetting losses
in its futures positions. In addition, in some situations, if a Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. A Fund may have to sell
securities at a time when it may be disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the
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time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit, before any
deduction for the transaction costs, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the contract.
Utilization of futures transactions by a Fund involves the risk of loss
by a Fund of margin deposits in the event of bankruptcy of a broker with whom a
Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement, during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of trading
halts, suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
to impossible to liquidate existing positions or to recover excess variation
margin payments.
GUARANTEED INVESTMENT CONTRACTS. Guaranteed investment contracts
("GICs") are issued by highly rated U.S. insurance companies. Under these
contracts, a Fund makes cash contributions to a deposit fund of the insurance
company's general account. The insurance company then credits interest to the
Fund on a monthly basis, which is based on an index (such as the Solomon
Brothers CD Index), but is guaranteed not to be less than a certain minimum
rate.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined
by SBCL, under the supervision of the Board of Trustees, to be illiquid.
Securities may be deemed illiquid if the Fund cannot reasonably expect within
seven days to sell the securities for approximately the amount at which the Fund
values such securities. The sale of illiquid securities, if they can be sold at
all, generally will require more time and result in higher brokerage charges or
dealer discounts and other selling expenses than will the sale of liquid
securities such as securities eligible for trading on U.S. securities exchanges
or in over-the-
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counter markets. Moreover, restricted securities, which may be
illiquid, often sell, if at all, at a price lower than similar securities that
are not subject to restrictions on resale.
Illiquid securities include those that are subject to restrictions
contained in the securities laws of other countries. However, securities that
are freely marketable in the country where they are principally traded, but
would not be freely marketable in the United States, will not be considered
illiquid. Where registration is required, the Fund may be obligated to pay all
or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Fund may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, including private placements,
repurchase agreements, commercial paper, foreign securities and corporate bonds
and notes. These instruments are often restricted securities because the
securities are sold in transactions not requiring registration. Institutional
investors generally will not seek to sell these instruments to the general
public, but instead will often depend either on an efficient institutional
market in which such unregistered securities can be readily resold or on an
issuer's ability to honor a demand for repayment. Therefore, the fact that there
are contractual or legal restrictions on resale to the general public or certain
institutions is not dispositive of the liquidity of such investments.
INVESTMENT COMPANY SECURITIES. By investing in other investment
companies, a Fund becomes exposed to the risks of that investment company's
portfolio of securities. Securities of other investment companies will be
acquired by the Funds within the limits prescribed by the 1940 Act. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory
fees and other expenses the Fund bear directly in connection with its own
operations.
INVESTMENT GRADE DEBT OBLIGATIONS. The Variable NAV Funds may invest in
"investment grade securities," which are securities rated in the four highest
rating categories of an NRSRO. It should be noted that debt obligations rated in
the lowest of the top four ratings (i.e., "Baa" by Moody's) are considered to
have some speculative characteristics and are more sensitive to economic change
than higher rated securities. Under normal circumstances at least 80% of the
Fund's assets will be invested in investment grade debt securities. The Fund
will only invest in securities that, at the time of initial investment, are
rated equal to or greater than BBB- by Standard & Poor's or Baa3 by Moody's.
The Fund will only invest in unrated debt securities should SBCL determine that
the security is of comparable quality to an investment grade issue. The Fund
will not invest in securities that, at the time of initial investment, do not
meet the above credit guidelines. Securities that are subsequently downgraded
in quality below investment grade by both Standard & Poor's and Moody's may
continue to be held in the portfolio, and will be sold only if SBCL believes it
would be advantageous to do so. Securities rated less than BBB- by Standard &
Poor's and Baa3 by Moody's are classified as non-investment grade securities.
Such securities carry a high degree of risk and are considered speculative by
the major credit ratings agencies. Credit quality in the non-investment grade
bond market can change suddenly and unexpectedly and even recently issued
credit rating may not fully reflect the actual risks posed by a particular
non-investment grade security.
MUNICIPAL OBLIGATIONS. Municipal securities are debt securities issued
by a state, its political subdivisions, agencies, authorities and corporations.
Municipal securities include debt obligations issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass transportation,
public utilities, schools, streets, and water and sewer works. Other
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public purposes for which Municipal securities may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses and
obtaining funds to loan to other public institutions and facilities.
Municipal securities include securities issued to finance various
private activities, including certain types of private activity bonds
("industrial development bonds" under prior law). These securities may be issued
by or on behalf of public authorities to obtain funds to provide certain
privately owned or operated facilities.
Municipal securities are generally classified as "general obligation"
or "revenue." General obligation securities are secured by the issuer's pledge
of its full credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source. Private activity bonds and
industrial development bonds that are municipal securities are in most cases
revenue bonds and generally do not constitute the pledge of the credit of the
issuer of such bonds.
Municipal notes are instruments issued by or on behalf of governments
and political sub-divisions thereof. Examples include: tax anticipation notes
("TANS"), which are short-term debt instruments issued by a municipality or
state to finance working capital needs of the issuer in anticipation of
receiving taxes on a future date; revenue anticipation notes ("RANS"), which are
short-term debt instruments issued by a municipality or state to provide cash
prior to receipt of expected non-tax revenues from a specific source; bond
anticipation notes ("BANS"), which are short-term debt instruments issued by a
municipality or state that will be paid off with the proceeds of an upcoming
bond issue; and tax revenue anticipation notes ("TRANS"), which are short-term
debt instruments issued by a municipality or state to finance working capital
needs in anticipation of receiving taxes or other revenues. Construction loan
notes are instruments insured by the Federal Housing Administration with
permanent financing by "Fannie Mae" (the Federal National Mortgage Association)
or "Ginnie Mae" (the Government National Mortgage Association) at the end of the
project construction period. Tax-free commercial paper is an unsecured
promissory obligation issued or guaranteed by a municipal issuer.
Taxable municipal securities are municipal securities the interest on
which is not exempt from federal income tax. Taxable municipal securities may
include "private activity bonds" that are issued by or on behalf of states or
political subdivisions thereof to finance privately-owned or operated facilities
for business and manufacturing, housing, sports, and pollution control and to
finance facilities for charitable institutions. The payment of the principal and
interest on private activity bonds is not backed by a pledge of tax revenues,
and is dependent solely on the ability of the facility's user to meet its
financial obligations. Taxable municipal securities also may include remarketed
certificates of participation.
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The federal bankruptcy statutes relating to the adjustments of debts of
political subdivisions and authorities of states of the United States provide
that, in certain circumstances, such subdivisions or authorities may be
authorized to initiate bankruptcy proceedings without prior notice to or consent
of creditors, which proceedings could result in material adverse changes in the
rights of holders of obligations issued by such subdivisions or authorities.
Municipal securities also include participation certificates in a
lease, an installment purchase contract, or a conditional sales contract ("lease
obligations") entered into by a state or political subdivision to finance the
acquisition or construction of equipment, land or facilities. Although lease
obligations are not general obligations of the issuer for which the state or
other governmental body's unlimited taxing power is pledged, certain lease
obligations are backed by a covenant to appropriate money to make the lease
obligation payments. However, under certain lease obligations, the state or
governmental body has no obligation to make these payments in future years
unless money is appropriated on a yearly basis. Although "non-appropriation"
lease obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. These securities
represent a relatively new type of financing that is not yet marketable as more
conventional securities. Certain investments in lease obligations may be
illiquid. Under guidelines established by the Board of Trustees, the following
factors will be considered when determining the liquidity of a lease obligation:
(1) the frequency of trades and quotes for the obligation; (2) the number of
dealers willing to purchase or sell the obligation and the number of potential
buyers; (3) the willingness of dealers to undertake to make a market in the
obligation; and (4) the nature of the marketplace trades.
OPTIONS - CALLS AND PUTS.
Calls. The Variable NAV Funds may write (sell) "covered" call options
and purchase options to close out options previously written by it. Such options
must be listed on a National Securities Exchange and issued by the Options
Clearing Corporation. The purpose of writing covered call options is to generate
additional income. This income will serve to enhance each Fund's total return
and will reduce the effect of any price decline of the security involved in the
option. Covered call options will generally be written on securities which, in
SBCL's opinion, are not expected to make any major price moves in the near
future but which, over the long term, are deemed to be attractive investments
for the Funds.
A call option gives the holder (buyer) the "right to purchase" a
security at a specified price (the exercise price) at any time until a certain
date (the expiration date). So long as the obligation of the writer of a call
option continues, the writer may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring the writer to deliver
the underlying security against payment of the exercise price. This obligation
terminates upon the expiration of the call option, or such earlier time at which
the writer effects a closing purchase transaction by repurchasing an option
identical to that previously sold. To secure the writer's obligation to deliver
the underlying security in the case of a call option, a writer is
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required to deposit in escrow the underlying security or other assets in
accordance with the rules of the Options Clearing Corporation. The Funds will
write only covered call options. This means that a Fund will only write a call
option on a security which it already owns. In order to comply with the
requirements of the securities laws in several states, a Fund will not write a
covered call option if, as a result, the aggregate market value of all portfolio
securities covering call options or subject to put options exceeds 25% of the
market value of its net assets.
The Variable NAV Funds will write call options only if they are
"covered" and may buy call options. In the case of a call option on a security,
the option is "covered" if the Fund owns the security underlying the call or has
an absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount as are held in a segregated account by its custodian)
upon conversion or exchange of other securities held by it. For a call option on
an index, the option is covered if the Fund maintains with its custodian cash or
cash equivalents equal to the contract value. A call option is also covered if
the Fund holds a call on the same security or index as the call written where
the exercise price of the call held is (i) equal to or less than the exercise
price of the call written, or (ii) greater than the exercise price of the call
written provided the difference is maintained by the Fund in cash or cash
equivalents in a segregated account with its custodian.
Fund securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with a Fund's
investment objectives. The writing of covered call options is a conservative
investment technique believed to involve relatively little risk (in contrast to
the writing of naked or uncovered options which the Funds will not do), but
capable of enhancing a Fund's total return. When writing a covered call option,
a Fund, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security above the exercise price, but retains
the risk of loss should the price of the security decline. Unlike owning
securities not subject to an option, a Fund does not have any control over the
point at which it may be required to sell the underlying securities, because it
may be assigned an exercise notice at any time prior to the expiration of its
obligation as a writer. If a call option which a Fund has written expires, the
Fund will realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying security during the
option period. If the call option is exercised, a Fund will realize a gain or
loss from the sale of the underlying security. The security covering the call
will be maintained in a segregated account by the Fund's custodian. A Fund does
not consider a security covered by a call to be "pledged" as that term is used
in its policy which limits the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium a
Fund will receive from writing a call option will reflect, among other things,
the current market price of the underlying security, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security, and the length of the option period. Once
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the decision to write a call option has been made, SBCL, in determining whether
a particular call option should be written on a particular security, will
consider the reasonableness of the anticipated premium and the likelihood that a
liquid secondary market will exist for the option. The premium received by a
Fund for writing covered call options will be recorded as a liability in a
Fund's statement of assets and liabilities. This liability will be readjusted
daily to the option's current market value, which will be the latest sale price
at the time at which the net asset value per share of a Fund is computed (close
of the New York Stock Exchange (the "NYSE")), or, in the absence of such sale,
the latest asked price (or, with respect to the Global Asset Allocation Fund,
the mean between the last bid and asked prices). The liability will be
extinguished upon expiration of the option, the purchase of an identical option
in the closing transaction, or delivery of the underlying security upon the
exercise of the option.
Closing transactions will be effected in order to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
or to permit the sale of the underlying security. Furthermore, effecting a
closing transaction will permit a Fund to write another call option on the
underlying security with either a different exercise price or expiration date or
both. If a Fund desires to sell a particular security from its portfolio on
which it has written a call option, it will seek to effect a closing transaction
prior to, or concurrently with, the sale of the security. There is, of course,
no assurance that a Fund will be able to effect such closing transactions at a
favorable price. If a Fund cannot enter into such a transaction, it may be
required to hold a security that it might otherwise have sold, in which case it
would continue to be at market risk on the security. This could result in higher
transaction costs. A Fund will pay transaction costs in connection with the
writing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.
Call options written by a Fund will normally have expiration dates of
less than nine months from the date written. The exercise price of the options
may be below, equal to, or above the current market values of the underlying
securities at the time the options are written. From time to time, a Fund may
purchase an underlying security for delivery in accordance with an exercise
notice of a call option assigned to it, rather than delivering such security
from its portfolio. In such cases, additional costs will be incurred.
A Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by a Fund.
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Puts. A put is a right to sell a specified security (or securities)
within a specified period of time at a specified exercise price. To the extent
consistent with its investment objective, the Variable NAV Funds may buy put
options and write secured put options.
The amount payable to a Fund upon its exercise of a "put" is normally
(i) the Fund's acquisition cost of the securities subject to the put (excluding
any accrued interest which the Fund paid on the acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.
These options may relate to particular securities, financial
instruments, foreign currencies, stock or bond indices or the yield differential
between two securities, and may or may not be listed on a securities exchange
and may or may not be issued by the Options Clearing Corporation. Options
trading is a highly specialized activity that entails greater than ordinary
investment risks. In addition, unlisted options are not subject to the
protections afforded purchasers of listed options issued by the Options Clearing
Corporation, which performs the obligations of its members if they default.
Cross hedging is the use of options or forward contracts in one currency to
hedge against fluctuations in the value of securities denominated in a different
currency based on a belief that there is a pattern of correlation between the
two currencies. The Funds intend to enter into puts only with dealers, banks,
and broker-dealers which, in SBCL's opinion, present minimal credit risks.
Risk Factors Relating to Options. There are several risks associated
with transactions in put and call options. For example, there are significant
differences between the securities and options markets that could result in an
imperfect correlation between these markets, causing a given transaction not to
achieve its objectives. In addition, a liquid secondary market for particular
options, whether traded over-the-counter or on a national securities exchange
("Exchange") may be absent for reasons which include the following: there may be
insufficient trading interest in certain options, restrictions may be imposed by
an Exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an Exchange; the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or one or more Exchanges
could, for economic or other reasons, decide or be compelled at some future date
to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that Exchange (or in that class
or series of options) would cease to exist, although outstanding options that
had been issued by the Options Clearing Corporation as a result of trades on
that Exchange would continue to be exercisable in accordance with their terms.
In addition, the success of a hedging strategy based on options transactions may
depend on the ability of SBCL to predict movements in the prices of individual
securities, fluctuations in markets and movements in interest rates.
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REPURCHASE AGREEMENTS. Securities held by each of the Funds may be
subject to repurchase agreements. Under the terms of a repurchase agreement, a
Fund would acquire securities from member banks of the Federal Deposit Insurance
Corporation with capital, surplus, and undivided profits of not less than
$100,000,000 (as of the date of their most recently published financial
statements) and from registered broker-dealers which SBCL deems creditworthy
under guidelines approved by the Board of Trustees, subject to the seller's
agreement to repurchase such securities at a mutually agreed-upon date and
price. The repurchase price would generally equal the price paid by the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. The seller
under a repurchase agreement will be required to maintain the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest) and SBCL will monitor the collateral's value to
ensure that it equals or exceeds the repurchase price (including accrued
interest). In addition, securities subject to repurchase agreements will be held
in a segregated account.
If the seller were to default on its repurchase obligation or become
insolvent, a Fund holding such obligation would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price under the agreement, or to the extent that the disposition
of such securities held by the Fund were delayed pending court action.
Additionally, if the seller should be involved in bankruptcy or insolvency
proceedings, a Fund may incur delay and costs in selling the underlying security
or may suffer a loss of principal and interest if the Fund is treated as an
unsecured creditor and required to return the underlying security to the
seller's estate. Securities subject to repurchase agreements will be held by the
Eureka Funds' custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the Investment Company Act of 1940 (the "1940 Act").
REVERSE REPURCHASE AGREEMENTS. As discussed in the Prospectuses, each
Fund may borrow funds for temporary purposes by entering into reverse repurchase
agreements in accordance with each Fund's investment restrictions. Pursuant to
such agreements, a Fund would sell portfolio securities to financial
institutions such as banks and broker-dealers, and agree to repurchase the
securities at a mutually agreed-upon date and price. Each Fund intends to enter
into reverse repurchase agreements only to avoid otherwise selling securities
during unfavorable market conditions to meet redemptions. At the time a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account liquid assets consistent with the Fund's investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently monitor the account to ensure that such
equivalent value is maintained. Such assets will include U.S. government
securities or other liquid high quality debt securities or high grade debt
securities. Reverse repurchase agreements involve the risk that the market value
of the securities sold by a Fund may decline below the price at which it is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by a Fund under the 1940 Act.
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RIGHTS OFFERINGS AND WARRANTS TO PURCHASE. The Variable NAV Funds may
participate in rights offerings and may purchase warrants, which are privileges
issued by corporations enabling the owners to subscribe to and purchase a
specified number of shares of the corporation at a specified price during a
specified period of time. Subscription rights normally have a short life span to
expiration. The purchase of rights or warrants involves the risk that the Fund
could lose the purchase value of a right or warrant if the right to subscribe to
additional shares is not exercised prior to the rights' and warrants'
expiration. Also, the purchase of rights and/or warrants involves the risk that
the effective price paid for the right and/or warrant added to the subscription
price of the related security may exceed the value of the subscribed security's
market price such as when there is no movement in the level of the underlying
security. A Fund will not invest more than 5% of its net assets, taken at market
value, in warrants, or more than 2% of its net assets, taken at market value, in
warrants not listed on the New York or American Stock Exchanges. Warrants
acquired by a Fund in units or attached to other securities are not subject to
this restriction.
SECURITIES LENDING. While the lending of securities may subject a Fund
to certain risks, such as delays or the inability to regain the securities in
the event the borrower was to default on its lending agreement or enter into
bankruptcy, the Fund will receive 100% collateral in the form of cash or U.S.
government securities. This collateral will be valued daily by SBCL and should
the market value of the loaned securities increase, the borrower will furnish
additional collateral to the Fund. During the time portfolio securities are on
loan, the borrower will pay the Fund any dividends or interest paid on such
securities. Loans are subject to termination by a Fund or the borrower at any
time. While a Fund will not have the right to vote securities on loan, the Funds
intend to terminate the loan and regain the right to vote if that is considered
important with respect to the investment. The Funds will only enter into loan
arrangements with broker-dealers, banks or other institutions which SBCL has
determined are creditworthy under guidelines established by the Board of
Trustees.
SHORT-TERM TRADING. Short-term trading involves the selling of
securities held for a short time, ranging from several months to less than a
day. The object of such short-term trading is to increase the potential for
capital appreciation and/or income of the Funds in order to take advantage of
what SBCL believes are changes in market, industry or individual company
conditions or outlook. Any such trading would increase the portfolio turnover
rate of the Funds and their transaction costs.
SUPRANATIONAL ORGANIZATIONAL OBLIGATIONS. The Funds, other than the
U.S. Treasury Obligations Fund, may purchase debt securities of supranational
organizations such as the European Coal and Steel Community, the European
Economic Community and the World Bank, which are chartered to promote economic
development.
SWAPS. Swap agreements (a common form of derivatives) are contracts
between parties in which one party agrees to make payments to the other party
based on the change in market value of a specified index or asset. In return,
the other party agrees to make payments to the
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first party based on the return of a different specified index or asset.
Although swap agreements entail the risk that a party will default on its
payment obligations the Funds will minimize this risk by entering into
agreements that mark to market no less frequently than quarterly. Swap
agreements also bear the risk that the Funds will not be able to meet their
obligations to the counterparty. This risk will be mitigated by having the Funds
invest in the specific asset for which they are obligated to pay a return. Swap
agreements may be considered illiquid and therefore subject to a Fund's
limitation on illiquid securities.
U.S. GOVERNMENT OBLIGATIONS. The U.S. Treasury Obligations Fund will
invest exclusively in bills, notes and bonds issued or guaranteed by the U.S.
Treasury or agency obligations which are also supported by the full faith and
credit of the U.S. government. Each of the other Funds may invest in such
obligations and in other obligations issued or guaranteed by the U.S.
government, its agencies and instrumentalities. Such other obligations may
include those which are supported by the full faith and credit of the U.S.
government; others which are supported by the right of the issuer to borrow from
the Treasury; others which are supported by the discretionary authority of the
U.S. government to purchase the agency's obligations; and still others which are
supported only by the credit of the instrumentality. No assurance can be given
that the U.S. government would provide financial support to U.S.
government-sponsored agencies and instrumentalities if it is not obligated to do
so by law. A Fund will invest in the obligations of such agencies and
instrumentalities only when SBCL believes that the credit risk with respect
thereto is minimal.
U.S. GOVERNMENT SECURITIES. U.S. government securities include
obligations issued or guaranteed as to payment of principal and interest by the
full faith and credit of the U.S. government, such as Treasury bills, notes,
bonds and certificates of indebtedness, and obligations issued or guaranteed by
the agencies or instrumentalities of the U.S. government, but not supported by
such full faith and credit. Obligations of certain agencies and
instrumentalities of the U.S. government, such as GNMA and the Export-Import
Bank of the United States, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of FNMA, are supported by the right of the
issuer to borrow from the Treasury; others are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks, or the Federal Home Loan
Mortgage Corporation, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. government would provide financial
support to U.S. government-sponsored agencies or instrumentalities if it is not
obligated to do so by law.
U.S. government securities may include mortgage-backed pass-through
securities. Interest and principal payments (including prepayments) on the
mortgages underlying such securities are passed through to the holders of the
security. Prepayments occur when the borrower under an individual mortgage
repays the remaining principal before the mortgage's scheduled maturity date. As
a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed pass-through securities are often subject to more
rapid prepayments of principal than their stated maturity would indicate.
Because the prepayment
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characteristics of the underlying mortgages vary, it is not possible to predict
accurately the realized yield or average life of a particular issue of
pass-through certificates. Prepayments are important because of their effect on
the yield and price of the securities. During periods of declining interest
rates, such prepayments can be expected to accelerate, and the Funds would be
required to reinvest the proceeds at the lower interest rates then available. In
addition, prepayments of mortgages which underlie securities purchased at a
premium may not have been fully amortized at the time the obligation is repaid.
As a result of these principal prepayment features, mortgage-backed pass-through
securities are generally more volatile investments than other U.S. government
securities.
"Zero coupon" U.S. government securities also tend to be more volatile
than other types of U.S. government securities. Zero coupon securities are debt
instruments that do not pay current interest and are typically sold at prices
greatly discounted from par value. The return on a zero coupon obligation, when
held to maturity, equals the difference between the par value and the original
purchase price.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which the Funds, except for the U.S. Treasury Obligations Fund, may
invest are unsecured demand notes that permit the indebtedness thereunder to
vary and provide for periodic adjustments in the interest rate according to the
terms of the instrument. They are also referred to as variable rate demand
notes. Because these notes are direct lending arrangements between the Fund and
the issuer, they are not normally traded. Although there may be no secondary
market in the notes, the Fund may demand payment of principal and accrued
interest at any time or during specified periods not exceeding one year,
depending upon the instrument involved, and may resell the note at any time to a
third party. The absence of such an active secondary market, however, could make
it difficult for a Fund to dispose of a variable amount master demand note if
the issuer defaulted on its payment obligations or during periods when the Fund
is not entitled to exercise their demand rights, and a Fund could, suffer a loss
to the extent of the default. While the notes are not typically rated by credit
rating agencies, issuers of variable amount master demand notes must satisfy the
criteria for commercial paper. SBCL will consider the earning power, cash flow,
and other liquidity ratios of the issuers of such notes and will continuously
monitor their financial status and ability to meet payment on demand. Where
necessary to ensure that a note is of "high quality," a Fund will require that
the issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend. In
determining dollar-weighted average portfolio maturity, a variable amount master
demand note will be deemed to have a maturity equal to the period of time
remaining until the principal amount can be recovered from the issuer through
demand.
VARIABLE AND FLOATING RATE NOTES. The Funds, other than the U.S.
Treasury Obligations Fund, may acquire variable and floating rate notes, subject
to each Fund's investment objective, policies, and restrictions. A variable rate
note is one whose terms provide for the adjustment of its interest rate on set
dates and which, upon such adjustment,
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can reasonably be expected to have a market value that approximates its par
value. A floating rate note is one whose terms provide for the adjustment of
its interest rate whenever a specified interest rate changes and which, at any
time, can reasonably be expected to have a market value that approximates its
par value. Such notes are frequently not rated by credit rating agencies;
however, unrated variable and floating rate notes purchased by a Fund will be
determined by SBCL under guidelines established by the Board of Trustees to be
of comparable quality at the time of purchase to rated instruments eligible for
purchase under a Fund's investment policies. In making such determinations,
SBCL will consider the earning power, cash flow and other liquidity ratios of
the issuers of such notes (such issuers include financial, merchandising, bank
holding and other companies) and will continuously monitor their financial
condition. Although there may be no active secondary market with respect to a
particular variable or floating rate note purchased by a Fund, it may resell a
note at any time to a third party. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of a variable or
floating rate note in the event the issuer of the note defaulted on its payment
obligations and a Fund could, as a result or for other reasons, suffer a loss
to the extent of the default. Variable or floating rate notes may be secured by
bank letters of credit.
For purposes of the Money Market Funds, the maturities of the variable
and floating rate notes will be determined in accordance with Rule 2a-7 under
the 1940 Act.
WHEN-ISSUED SECURITIES. Each Fund may purchase securities on a
when-issued basis and may purchase and sell securities on a forward commitment
basis (I.E., for delivery beyond the normal settlement date at a stated price
and yield), including "TBA" (to be announced) purchase commitments. When a Fund
agrees to purchase securities on a when-issued or forward commitment basis, the
Fund's custodian will set aside cash or liquid portfolio securities equal to the
amount of the commitment in a separate account. Normally, the custodian will set
aside portfolio securities to satisfy the purchase commitment, and in such a
case, a Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected that any such Fund's
net assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash.
When a Fund engages in when-issued or forward commitment transactions,
it relies on the seller to consummate the trade. Failure of the seller to do so
may result in the Fund incurring a loss or missing the opportunity to obtain a
price considered to be advantageous. In addition, the purchase of securities on
a when-issued or forward commitment basis involves a risk of loss if the value
of the security to be purchased declines prior to the settlement date. Each of
the Funds does not intend to purchase when-issued securities for speculative
purposes but only in furtherance of its investment objective.
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INVESTMENT RESTRICTIONS
For each Fund the following investment restrictions are fundamental and
cannot be changed without approval of the holders of a majority of the
outstanding voting securities (as defined in the 1940 Act) of that Fund.
1. The Fund may lend or borrow money to the extent permitted by the
1940 Act or the rules or regulations thereunder, as such statute, rules
or regulations may be amended from time to time.
2. The Fund may pledge, mortgage or hypothecate any of its assets to
the extent permitted by the 1940 Act or the rules or regulations
thereunder, as such statute, rules or regulations may be amended from
time to time.
3. The Fund may issue senior securities to the extent permitted by the
1940 Act or the rules or regulations thereunder, as such statute, rules
or regulations may be amended from time to time.
4. The Fund may purchase securities of any issuer only when consistent
with the maintenance of its status as a diversified company under the
1940 Act or the rules or regulations thereunder, as such statute, rules
or regulations may be amended from time to time.
5. The Fund may not concentrate investments in a particular industry or
group of industries as concentration is defined under the 1940 Act, or
the rules or regulations thereunder, as such statute, rules or
regulations may be amended from time to time.
6. The Fund may underwrite securities to the extent permitted by the
1940 Act or the rules or regulations thereunder, as such statute, rules
or regulations may be amended from time to time.
7. The Fund may purchase or sell commodities, commodities contracts,
futures contracts, or real estate to the extent permitted by the 1940
Act or the rules or regulations thereunder, as such statute, rules or
regulations may be amended from time to time.
ADDITIONAL INFORMATION REGARDING FUNDAMENTAL INVESTMENT RESTRICTIONS
The fundamental investment restrictions limit a Fund's ability to
engage in certain investment practices and purchase securities to the extent
permitted by, or consistent with, the 1940 Act. Relevant limitations of the 1940
Act are described below. Each Fund may be subject to more restrictive
non-fundamental investment policies. Non-fundamental investment policies may be
changed by the Board of Trustees.
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The following 1940 Act descriptions are to assist the investor in
understanding the fundamental restrictions above, and are not themselves
fundamental.
FUNDAMENTAL INVESTMENT RESTRICTION (1). The 1940 Act presently limits a
Fund's ability to borrow to one-third of the value of its total assets.
Borrowing by a Fund allows it to leverage its portfolio, which exposes it to
certain risks. Leveraging exaggerates the effect of any increase or decrease in
the value of portfolio securities on a Fund's net asset value, and money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances) which may or may not
exceed the interest received from the securities purchased with borrowed funds.
The 1940 Act also restricts the ability of any mutual fund to lend.
Under the 1940 Act, a Fund may only make loans if expressly permitted to do so
by the Fund's investment policies, and a Fund may not make loans to persons who
control or are under common control with the Fund. Thus, the 1940 Act
effectively prohibits a Fund from making loans to certain persons when conflicts
of interest or undue influence are most likely present. The Funds may, however,
make other loans which if made would expose shareholders to certain additional
risks.
FUNDAMENTAL INVESTMENT RESTRICTION (2). The 1940 Act limits a Fund's
ability to pledge, mortgage or hypothecate its assets to one-third of its
assets. To the extent that pledged assets are encumbered for more than seven
days such assets would be considered illiquid and, therefore, each Fund's use of
such techniques would be limited to 15% of its net assets (10% for the Money
Market Funds).
FUNDAMENTAL INVESTMENT RESTRICTION (3). The ability of a mutual fund to
issue senior securities is severely circumscribed by complex regulatory
constraints under the 1940 Act that restrict, for instance, the amount, timing,
and form of senior securities that may be issued. Because portfolio management
techniques involving the issuance of senior securities, such as the purchase of
securities on margin, short sales, or the writing of puts on portfolio
securities, are all techniques that involve the leveraging of a portfolio and
would not be consistent with the current SEC rules governing Money Market Funds.
FUNDAMENTAL INVESTMENT RESTRICTION (4). Under Section 5(b) of the 1940
Act, an investment company is diversified if, as to 75% of its total assets, no
more than 5% of the value of its total assets is invested in the securities of a
single issuer and no more than 10% of the issuer's voting securities is held by
the investment company. However, each of the Funds is subject to the "per
issuer" diversification requirements of the Internal Revenue Code of 1986
("Code") at the Fund's tax quarter-ends. Under the Code, the 5% "per issuer"
limit is applied only to 50% of a Fund's total assets (not 75% of total assets
as under the 1940 Act). However, no single issuer can exceed 25% of a Fund's
total assets under the Code as well.
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FUNDAMENTAL INVESTMENT RESTRICTION (5). "Concentration" is interpreted
under the 1940 Act to mean investment of 25% or more of a Fund's total assets in
a single industry. If a Fund were to "concentrate" its investments in a narrow
industry, investors would be exposed to greater risks because the Fund's
performance would be largely dependent on that segment's performance. None of
the Funds have reserved the right to concentrate in any industry.
FUNDAMENTAL INVESTMENT RESTRICTION (6). The 1940 Act prohibits a
diversified mutual fund from underwriting securities in excess of 25% of its
total assets.
FUNDAMENTAL INVESTMENT RESTRICTION (7). This restriction would permit
investment in commodities, commodities contracts, futures contracts, or real
estate to the extent permitted under the 1940 Act. However, it is unlikely, that
the Funds would make such investments. Each Fund would like the ability to
consider using these investment techniques in the future. Commodities, as
opposed to commodity futures, represent the actual underlying bulk goods, such
as grains, metals and food stuffs. Real estate-related instruments include real
estate investment trusts, commercial and residential mortgage-backed securities,
and real estate financings, and such instruments are generally sensitive to
factors such as changes in real estate values and property taxes, interest
rates, cash flow of underlying real estate assets, overbuilding, and the
management skill and creditworthiness of the issuer. Given the Funds' proposed
investment objective, the Funds do not expect to invest in these types of
investments; however, if a Fund did so invest, it would be exposed to these
types of risks associated with the underlying security.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of a Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The calculation excludes
all securities whose maturities at the time of acquisition were one year or
less. High portfolio turnover rates will generally result in higher transaction
costs to the Funds and may result in higher levels of taxable realized gains to
a Fund's shareholders. The portfolio turnover rate may vary greatly from year to
year as well as within a particular year, and may also be affected by cash
requirements for redemptions of Shares. Portfolio turnover will not be a
limiting factor in making investment decisions.
Because securities with maturities of less than one year are excluded
from the calculation of the portfolio turnover rate, the portfolio turnover rate
for each Money Market Fund is expected to be zero for regulatory and reporting
purposes.
VALUATION
The net asset value of each Fund other than the Money Market Funds is
determined and its Shares are priced as of the close of regular trading of the
NYSE (generally 4:00 p.m. Eastern time) on each Business Day
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("Valuation Times"). The net asset value of each Money Market Fund is
determined and its Shares are priced as of 1:00 p.m. (Eastern time) and as of
the close of regular trading of the NYSE (generally 4:00 p.m. Eastern time) on
each Business Day. For each Money Market Fund, as used herein a "Business Day"
constitutes (i) any day on which the Federal Reserve Bank is open and the NYSE
is open for trading and (ii) any other day (other than a day during which no
Shares are tendered for redemption and no orders to purchase Shares are
received) during which there is sufficient trading in a Fund's portfolio
instruments that the Fund's net asset value per share might be materially
affected. For each other fund, a Business Day is (i) any day on which the NYSE
is open for trading and (ii) any other day (other than a day during which no
Shares are tendered for redemption and no orders to purchase Shares are
received) during which there is sufficient trading in a Fund's portfolio
instruments that the Fund's net asset value per share might be materially
affected. Net asset value per Share for purposes of pricing sales and
redemptions is calculated by determining the value of the class's proportional
interest in the securities and other assets of a Fund, less (i) such class's
proportional share of general liabilities and (ii) the liabilities allocable
only to such class, and dividing such amount by the number of relevant class
Shares outstanding. Currently, the NYSE is closed on the customary national
business holidays of New Year's Day, Martin Luther King, Jr., Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
VALUATION OF THE MONEY MARKET FUNDS
The Money Market Funds use the amortized cost method of valuing their
securities. This involves valuing an instrument at its cost initially and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. This method may result in periods during which value,
as determined by amortized cost, is higher or lower than the price each Money
Market Fund would receive if it sold the instrument. The value of each Money
Market Fund's securities can be expected to vary inversely with changes in
prevailing interest rates.
Pursuant to Rule 2a-7, each Money Market Fund will maintain a
dollar-weighted average portfolio maturity appropriate to its objective of
maintaining a stable net asset value per Share, provided that the Fund will not
purchase any security with a remaining maturity of more than thirteen months
(securities subject to repurchase agreements may bear longer maturities) nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days. The
Board of Trustees has also undertaken to establish procedures reasonably
designed, taking into account current market conditions and each Money Market
Fund's investment objective, to stabilize the net asset value per Share for
purposes of sales and redemptions at $1.00. These procedures include review by
the Trustees, at such intervals as they deem appropriate, to determine the
extent, if any, to which the net asset value per Share deviates from $1.00 per
Share. In the event such deviation exceeds one-half of one percent, Rule 2a-7
requires the Board of Trustees to promptly consider what action, if any, should
be initiated. If the Board of Trustees determines that the deviation from a
$1.00 price per Share may result in material dilution or other unfair results to
Shareholders, it will take the appropriate steps to eliminate or reduce these
consequences to the extent reasonably practicable. These steps may include
selling portfolio instruments prior to maturity in order to
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realize capital gains or losses to shorten the average portfolio maturity,
adjusting or withholding dividends or utilizing a net asset value per Share
determined by using available market quotations.
VALUATION OF THE INVESTMENT GRADE BOND FUND, THE GLOBAL ASSET ALLOCATION FUND
AND THE EQUITY FUND
Portfolio securities for which market quotations are readily available
are valued based upon their current available bid prices in the principal market
(closing sales prices if the principal market is an exchange) in which such
securities are normally traded. Unlisted securities for which market quotations
are readily available will be valued at the current quoted bid prices. Other
securities and assets for which quotations are not readily available, including
restricted securities and securities purchased in private transactions, are
valued at their fair market value in SBCL's best judgment under procedures
established by, and under the supervision of the Board of Trustees. A
Fund will value its investments in mutual funds securities at the redemption
price, which is net asset value.
Among the factors considered in valuing portfolio securities held by
the Funds, are the existence of restrictions upon the sale of the security by
the Fund, the absence of a market for the security, the extent of any discount
in acquiring the security, the estimated time during which the security will not
be freely marketable, the expenses of registering or otherwise qualifying the
security for public sale, underwriting commissions if underwriting would be
required to effect a sale, the current yields on comparable securities for debt
obligations traded independently of any equity equivalent, changes in the
financial condition and prospects of the issuer, and any other factors affecting
fair market value. In making valuations, opinions of counsel may be relied upon
as to whether or not securities are restricted securities and as to the legal
requirements for public sale.
The Eureka Funds may use a pricing service to value certain portfolio
securities where the prices provided are believed to reflect the fair market
value of such securities. A pricing service would normally consider such factors
as yield, risk, quality, maturity, type of issue, trading characteristics,
special circumstances and other factors it deems relevant in determining
valuations of normal institutional trading units of debt securities and would
not rely exclusively on quoted prices. The methods used by the pricing service
and the valuations so established will be reviewed by the Eureka Funds under the
general supervision of the Board of Trustees. Several pricing services
are available, one or more of which may be used by SBCL from time to time.
Investments in debt securities with remaining maturities of 60 days or
less may be valued based upon the amortized cost method.
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VALUATION OF INTERNATIONAL SECURITIES
Valuation of securities of foreign issuers is as follows: to the extent
sale prices are available, securities which are traded on a recognized stock
exchange, whether U.S. or foreign, are valued at the last sale price on that
exchange prior to the time when assets are valued or prior to the close of
regular trading hours on the NYSE. In the event that there are no sales, the
means between the last available bid and asked prices will be used. If a
security is traded on more than one exchange, the last sale price on the
exchange where the stock is primarily traded is used. An option or futures
contract is valued at the last sales price prior to 4:00 p.m. Eastern time, as
quoted on the principal exchange or board of trade on which such option or
contract is traded, or in the absence of a sale, the mean between the last bid
and asked prices prior to 4:00 p.m. Eastern time. In the event that application
of these methods of valuation results in a price for a security which is deemed
not to be representative of the market value of such security, the security will
be valued by, under the direction of or in accordance with a method specified by
the Board of Trustees as reflecting fair value. The amortized cost method of
valuation will be used with respect to debt obligations with sixty days or less
remaining to maturity unless SBCL under the supervision of the Board of Trustees
determines such method does not represent fair value. All other assets and
securities held by the Fund (including restricted securities) are valued at fair
value as determined in good faith by the Board of Trustees or by someone under
its direction. Any assets which are denominated in a foreign currency are
translated into U.S. dollars at the prevailing market rates.
Certain of the securities acquired by the Global Asset Allocation Fund
may be traded on foreign exchanges or over-the-counter markets on days on which
the Fund's net asset value is not calculated. In such cases, the net asset value
of the Fund's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each class of Shares of the Funds are sold on a continuous basis by
BISYS Fund Services, Inc. ("BISYS"). In addition to purchasing Shares directly
from BISYS, Class A or Trust Shares may be purchased through procedures
established by BISYS in connection with the requirements of accounts at SBCL, or
SBCL's affiliated or correspondent banks. Customers purchasing Shares of the
Eureka Funds may include officers, directors, or employees of SBCL or SBCL's
affiliated or correspondent banks.
MATTERS AFFECTING REDEMPTION
The Eureka Funds may suspend the right of redemption or postpone the
date of payment for Shares during any period when (a) trading on the NYSE is
restricted by applicable rules and regulations of the Securities and Exchange
Commission, (b) the NYSE is closed for other than
B-24
<PAGE> 56
customary weekend and holiday closings, (c) the Securities and Exchange
Commission has by order permitted such suspension, or (d) an emergency exists
as a result of which (i) disposal by the Eureka Funds of securities owned by it
is not reasonably practical or (ii) it is not reasonably practical for the
Company to determine the fair market value of its total net assets.
The Eureka Funds may redeem any class of Shares involuntarily if
redemption appears appropriate. See "Valuation of the Money Market Funds"
above.
ADDITIONAL TAX INFORMATION
GENERAL
It is the policy of each of the Funds to qualify for the favorable tax
treatment accorded regulated investment companies (a "RIC") under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). By qualifying as
a RIC, each Funds expects to eliminate or reduce to a nominal amount its federal
income taxes.
In order to qualify as a RIC, a Fund must (a) derive at least 90% of
its gross income from dividends, interest, payments with respect to certain
securities loans, and gains from the sale of stock, securities, and foreign
currencies, or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its business of investing
in such stock, securities, or currencies; (b) derive less than 30% of its gross
income from the sale or other disposition of certain assets (including stocks
and securities) held for less than three months; (c) distribute each year at
least 90% of its dividend, interest (including tax-exempt interest), and certain
other income and the excess, if any, of its net short-term capital gains over
its net long-term capital losses; and (d) diversify its holdings so that, at the
end of each fiscal quarter (i) at least 50% of the market value of its assets is
represented by cash, cash items, U.S. government securities, securities of other
RICs, and other securities, limited in respect of any one issuer to a value not
greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities (other than those of the U.S.
government or other RICs) of any one issuer or of two or more issuers which the
Fund controls and which are engaged in the same, similar, or related trades or
businesses. The 30% of gross income test described above may restrict a Fund's
ability to sell certain assets held (or considered under Code rules to have been
held) for less than three months and to engage in certain hedging transactions
(including hedging transactions in options and futures) that in some
circumstances could cause certain Fund assets to be treated as held for less
than three months.
A non-deductible excise tax is imposed on RICs that do not distribute
in each calendar year (regardless of whether they have a non-calendar taxable
year) an amount equal to 98% of their "ordinary income" (as defined) for the
calendar year plus 98% of their capital gain net
B-25
<PAGE> 57
income for the 1-year period ending on October 31 of such calendar year plus any
undistributed amounts from prior years. For the foregoing purposes, a Fund is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year. If distributions during a
calendar year by a Fund were less than the required amount, the Fund would be
subject to a non-deductible excise tax equal to 4% of the deficiency.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends and other distributions paid to any
Shareholder who has provided either an incorrect taxpayer identification number
or no number at all, who is subject to withholding by the Internal Revenue
Service for failure properly to report payments of interest or dividends, or who
fails to provide a certified statement that he or she is not subject to "backup
withholding."
A Fund's transactions in futures contracts, options, and
foreign-currency-denominated securities, and certain other investment and
hedging activities of the Fund, will be subject to special tax rules (including
"mark-to-market," "straddle," "wash sale," and "short sale" rules), the effect
of which may be to accelerate income to the Fund, defer losses to the Fund,
cause adjustments in the holding periods of the Fund's assets, convert
short-term capital losses into long-term capital losses, and otherwise affect
the character of the Fund's income. These rules could therefore affect the
amount, timing, and character of distributions to Shareholders. Income earned as
a result of these transactions would, in general, not be eligible for the
dividends received deduction or for treatment as exempt-interest dividends when
distributed to Shareholders. The Funds will endeavor to make any available
elections pertaining to these transactions in a manner believed to be in the
best interest of the Funds.
Investment by the Fund in "passive foreign investment companies" could
subject the Fund to federal income tax or other charge on the proceeds from the
sale of its investment in such a company; however, this tax can be avoided by
making an election to mark such investments to market annually or to treat the
passive foreign investment company as a "qualified electing fund."
A "passive foreign investment company" is any foreign corporation: (i)
75 percent or more of the income of which for the taxable year is passive
income, or (ii) the average percentage of the assets of which (generally by
value, but by adjusted tax basis in certain cases) that produce or are held for
the production of passive income is at least 50 percent. Generally, passive
income for this purpose means dividends, interest (including income equivalent
to interest), royalties, rents, annuities, the excess of gains over losses from
certain property transactions and commodities transactions, and foreign currency
gains. Passive income for this purpose does not include rents and royalties
received by the foreign corporation from active business and certain income
received from related persons.
B-26
<PAGE> 58
Although each Fund expects to qualify as a RIC and to be relieved of
all or substantially all Federal income taxes, depending upon the extent of
their activities in states and localities in which their offices are maintained,
in which their agents or independent contractors are located, or in which they
are otherwise deemed to be conducting business, the Funds may be subject to the
tax laws of such states or localities. If for any taxable year a Fund does not
qualify for the special federal tax treatment afforded a RIC, all of its taxable
income will be subject to federal income tax at regular corporate rates at the
Fund level (without any deduction for distributions to its Shareholders). In
addition, distributions to Shareholders will be taxed as ordinary income even if
the distributions are attributable to capital gains or exempt interest earned by
the Fund.
Information set forth in the Prospectuses and this Statement of
Additional Information which relates to federal taxation is only a summary of
some of the important federal tax considerations generally affecting purchasers
of Shares of the Funds. No attempt has been made to present a detailed
explanation of the federal income tax treatment of a Fund or its Shareholders
and this discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of Shares of a Fund are urged to consult their
tax advisers. In addition, the tax discussion in the Prospectuses and this
Statement of Additional Information is based on tax laws and regulations which
are in effect on the date of the Prospectuses and this Statement of Additional
Information; such laws and regulations may be changed by legislative or
administrative action.
ADDITIONAL TAX INFORMATION CONCERNING THE GLOBAL ASSET ALLOCATION FUND
Special rules govern the federal income tax treatment of the portfolio
transactions of the Global Asset Allocation Fund that are denominated in terms
of a currency other than the U.S. dollar or determined by reference to the value
of one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, certain preferred stock); (ii) the
accruing of certain trade receivables and payables; (iii) the entering into or
acquisition of any forward contract or similar financial instruments; and (iv)
the entering into or acquisition of any futures contract, option or similar
financial instrument, if such instrument is not marked-to-market. The
disposition of a currency other than the U.S. dollar by a U.S. taxpayer also is
treated as a transaction subject to the special currency rules. With respect to
such transactions, foreign currency gain or loss is calculated separately from
any gain or loss on the underlying transaction and is normally taxable as
ordinary gain or loss. A taxpayer may elect to treat as capital gain or loss
foreign currency gain or loss arising from certain identified forward contracts
that are capital assets in the hands of the taxpayer and which are not part of a
straddle ("Capital Asset Election"). In accordance with Treasury regulations,
certain transactions with respect to which the taxpayer has not made the Capital
Asset Election and that are part of a "988 hedging transaction" (as defined in
the Code and the Treasury regulations) are integrated and treated as a single
transaction or otherwise treated consistently
B-27
<PAGE> 59
for purposes of the Code. "988 hedging transactions" (as identified by such
Treasury regulations) are not subject to the market-to-market or loss deferral
rules under the Code. Some of the non-U.S. dollar-denominated investments that
the Fund may make (such as non-U.S. dollar-denominated debt securities and
obligations and preferred stock) and some of the foreign currency contracts the
Fund may enter into will be subject to the special currency rules described
above. Gain or loss attributable to the foreign currency component of
transactions engaged in by a Fund which is not subject to the special currency
rules (such as foreign equity investments other than certain preferred stocks)
will be treated as capital gain or loss and will not be segregated from the gain
or loss on the underlying transaction.
In addition, certain forward foreign currency contracts held by the
Fund at the close of the Fund's taxable year will be subject to "mark-to-market"
treatment. If the Fund makes the Capital Asset Election with respect to such
contracts, any gain or loss with respect to the contract shall be treated as
short-term capital gain or loss, to the extent of 40% of such gain or loss, and
long-term capital gain or loss, to the extent of 60% of such gain or loss.
Otherwise, such gain or loss will be ordinary in nature. To receive such federal
income tax treatment, a foreign currency contract must meet the following
conditions: (1) the contract must require delivery of a foreign currency of a
type in which regulated futures contracts are traded or upon which the
settlement value of the contract depends; (2) the contract must be entered into
at arm's length at a price determined by reference to the price in the interbank
market; and (3) the contract must be traded in the interbank market. The
Treasury Department has broad authority to issue regulations under these
provisions respecting foreign currency contracts. Forward foreign currency
contracts entered into by the Fund also may result in the creation of one or
more straddles for federal income tax purposes, in which case certain loss
deferral, short sales, and wash sales rules and requirements to capitalize
interest and carrying charges may apply.
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<PAGE> 60
MANAGEMENT OF THE EUREKA FUNDS
TRUSTEES AND OFFICERS
The Trustees and officers of each Fund, their current addresses, and
principal occupations during the past five years are as follows (if no address
is listed, the address is 3435 Stelzer Road, Columbus, Ohio 43219):
<TABLE>
<CAPTION>
Position with the Principal occupation
Name/Age Eureka Funds
<S> <C> <C>
Larry D. Layne Trustee; Chairman of the Group Executive Vice President/Head
56 Board Relationship Banking Group - Sanwa
Bank California, 1992-Present
Masaki "Mike" Horioka Trustee Senior Vice President, Office of the
42 President - Sanwa Bank California,
1996-Present; General Manager of
Planning and Administration
Department - Sanwa Investment Trust
Management Co., Ltd., 1993-1996
Donal H. Livingston Trustee Professor - Marriott School of
55 Business, 1994-1997; Director -
Center for Entrepreneurship,
1994-1997; Partner - Arthur
Andersen LLP, 1976-1995
Walter F. Beran Trustee Chairman - Pacific Alliance Group,
71 Present; Chairman - Optimatrix Health
Solutions, Inc., Present; Board Member -
ARCO Chemical Company, Present;
Board Member - Compensation
Resource Group, Present; Board
Member - Fleetwood Enterprises, Inc.,
Present; Board Member - Pacific
Scientific Company, Present; Board
Member - Vencor, Inc., Present;
Retired - Ernst & Whinney, 1986
David L. Buell Trustee Principal Organizer - Prime Bank
61 (Expected to open in 1998), Present;
Owner (50%) - Prime, LLC, 1996-
Present; Founder, Chairman & CEO -
Metrobank, 1978-1996
Irimga McKay President Senior Vice President, July 1993 to
37 date, prior thereto First Vice
President of the Administrator and
Distributor, November 1988 to July
1993; Regional Vice President,
Continental Equities, June 1987 to
November 1988; Assistant Wholesaler,
VMS Realty Partners (a real estate
limited partnership), May 1986 to
June 1987
Greg Maddox Vice President Director of BISYS Fund Services,
29 1991-Present
Eileen Walther Vice President Vice President of Accounting Services
44 of BISYS Fund Services, 1996-Present;
Assistant Vice President of Templeton
International, 1984-1995
Thresa Dewar Secretary Vice President/Treasurer of
43 Administration and Regulatory Services
of BISYS Fund Services, 1997-Present;
President, Healthy You Food Market of
Marco, Inc., 1994-1997; Vice President
and Controller, Federated
Administrative Services, 1974-1994
Alaina V. Metz Assistant Secretary Chief Administrative Officer of BISYS
30 Fund Services - Blue Sky Compliance,
1995-Present; Alliance Capital
Management, L.P., 1989-1995
Martin R. Dean Treasurer Vice President of Administration and
34 Regulatory Services of BISYS Fund
Services, 1994-Present; Senior
Manager, KPMG Peat Marwick LLP,
1987-1994
</TABLE>
The officers of the Eureka Funds receive no compensation directly from
the Eureka Funds for performing the duties of their offices. BISYS receives
fees from the Eureka Funds for acting as Administrator and receives fees from
the Eureka Funds for acting as Transfer Agent and for providing fund accounting
services to the Eureka Funds.
COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PENSION OR TOTAL
AGGREGATE RETIREMENT COMPENSATION
COMPENSATION BENEFITS ACCRUED ESTIMATED ANNUAL FROM THE EUREKA
FROM THE EUREKA AS PART OF FUND BENEFITS UPON FUNDS PAID TO
NAME OF PERSON, POSITION FUNDS(1) EXPENSES RETIREMENT DIRECTORS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Walter F. Beran, Trustee $3,000 none none $3,000
- --------------------------------------------------------------------------------------------------------------------------
David L. Buell, Trustee $3,000 none none $3,000
- --------------------------------------------------------------------------------------------------------------------------
Masaki Horioka, Trustee $3,000 none none $3,000
- --------------------------------------------------------------------------------------------------------------------------
Larry Layne, Trustee 0 none none 0
- --------------------------------------------------------------------------------------------------------------------------
Donald H. Livingstone, Trustee 0 none none 0
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT ADVISER
Investment advisory and management services are provided to each Fund
by SBCL pursuant to an Investment Advisory Agreement ("Advisory Agreement")
dated October 31, 1997.
The Advisory Agreement provides that SBCL shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Eureka
Funds in connection with the performance of such Advisory Agreement, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of SBCL in the performance of its
duties, or from reckless disregard by SBCL of its duties and obligations
thereunder.
The Advisory Agreement will continue in effect until October 31,
1999 as to each of the Funds and from year to year if such continuance is
approved at least annually by the Eureka Funds' Board of Trustees or by vote of
the holders of a majority of the outstanding Shares of that Fund (as defined
under "GENERAL INFORMATION - Miscellaneous"). The Advisory Agreement is
terminable as to a particular Fund at any time upon 60 days written notice
without penalty by the Trustees, by vote of the holders of a majority of the
outstanding Shares of that Fund, or by SBCL. The Advisory Agreement also
terminates automatically in the event of any assignment, as defined in the 1940
Act.
B-29
<PAGE> 61
PORTFOLIO TRANSACTIONS
Pursuant to the Advisory Agreement, SBCL determines, subject to the
general supervision of the Board of Trustees and in accordance with each Fund's
investment objective and restrictions, which securities are to be purchased and
sold by a Fund, and which brokers are to be eligible to execute portfolio
transactions. Purchases and sales of portfolio securities with respect to the
Funds usually are principal transactions in which portfolio securities are
purchased directly from the issuer or from an underwriter or market maker
for the securities. Purchases from underwriters of portfolio securities
generally include (but not in the case of mutual fund shares purchased by the
Funds) a commission or concession paid by the issuer to the underwriter and
purchases from dealers serving as market makers may include the spread between
the bid and asked price. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal transactions with dealers. With respect to the
over-the-counter market, the Eureka Funds, where possible, will deal directly
with dealers who make a market in the securities involved unless better price
and execution are available elsewhere. While SBCL generally seeks competitive
spreads or commissions, the Eureka Funds may not necessarily pay the lowest
spread or commission available on each transaction, for reasons discussed
below.
Allocation of transactions, including their frequency, to various
dealers is determined by SBCL in its best judgment and in a manner deemed fair
and reasonable to Shareholders. The major consideration in allocating brokerage
business is the assurance that the best execution is being received on all
transactions. Brokerage will at times be allocated to firms that supply
research, statistical data and similar services when the terms of the
transaction and the capabilities of different broker/dealers are consistent
with the guidelines set forth in Section 28(e) of the Securities Exchange Act
of 1934. Information so received is in addition to, and not in lieu of,
services required to be performed by SBCL and does not reduce the advisory fees
payable to SBCL. Such information may be useful to SBCL in serving both the
Eureka Funds and other clients and, conversely, supplemental information
obtained by the placement of business of other clients may be useful to SBCL
in carrying out its obligations to the Eureka Funds.
Except as otherwise disclosed to the Shareholders of the Funds and as
permitted by applicable rules and regulations, SBCL will not execute portfolio
transactions on behalf of the Funds through, acquire portfolio securities issued
by, make savings deposits in, or enter into repurchase or reverse repurchase
agreements with SBCL, BISYS Fund Services, or their affiliates, and will not
give preference to SBCL's correspondents with respect to such transactions,
securities, savings deposits, repurchase agreements, and reverse repurchase
agreements.
Investment decisions for each Fund are made independently from those
for the other Funds or any other investment company or account managed by SBCL.
Other investment companies or accounts may also invest in the same securities
as the Eureka Funds. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund and
B-30
<PAGE> 62
another Fund of the Eureka Funds, investment company or account, the
transaction will be averaged as to price and available investments will be
allocated as to amount in a manner which SBCL believes to be equitable to the
Fund(s) and such other investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained by a Fund. To the extent permitted by law,
SBCL may aggregate the securities to be sold or purchased for a Fund with those
to be sold or purchased for the other Funds or for other investment companies
or accounts in order to obtain best execution. As provided by the Advisory
Agreement, in making investment recommendations for the Eureka Funds, SBCL will
not inquire or take into consideration whether an issuer of securities proposed
for purchase or sale by the Eureka Funds is a customer of SBCL or their
parents, subsidiaries, or affiliates, and, in dealing with their customers,
SBCL and their parents, subsidiaries, and affiliates will not inquire or take
into consideration whether securities of such customers are held by the Eureka
Funds.
In determining when and to what extent to use Sanwa Securities (USA)
Company LP, Sanwa Futures LLC or any other affiliated broker-dealer as its
broker for executing orders for the Funds on securities exchanges, SBCL will
consider (if relevant) whether the compensation to be paid Sanwa Securities
(USA) Company LP, Sanwa Futures LLC or any other affiliated broker-dealer will
be (i) fair and reasonable, (ii) at least as favorable to the Funds as
commissions that would be charged by other qualified brokers having comparable
execution capabilities and (iii) at least as favorable as commissions
contemporaneously charged by Sanwa Securities (USA) Company LP, Sanwa Futures
LLC or any other affiliated broker-dealer on comparable transactions for its
most favored unaffiliated customers. The Funds do not consider it practicable
or in the best interests of their shareholders to solicit competitive bids for
commission rates on each transaction. However, the Board of Trustees, including
a majority of the Trustees who are not "interested persons" of Sanwa Securities
(USA) Company LP, Sanwa Futures LLC or any other affiliated broker-dealer
within the meaning of the 1940 Act, (i) has prescribed procedures designed to
provide that the Funds do not pay commissions that do not meet the standards
described above, (ii) reviews those procedures annually to determine whether
they remain adequate and (iii) considers quarterly whether or not the
commissions charged by Sanwa Securities (USA) Company LP, Sanwa Futures LLC or
any other affiliated broker-dealer have met the standards.
Brokerage services Sanwa Securities (USA) Company LP or Sanwa Futures
LLC provides to the Funds are also subject to Rule 11a2-2(T) under the
Securities Exchange Act of 1934, as amended. Rule 11a2-2(T) permits the Funds to
use Sanwa Securities (USA) Company LP or Sanwa Futures LLC as a broker provided
certain conditions are met. Among these requirements are that members of the
exchange not associated with Sanwa Securities (USA) Company LP or Sanwa Futures
LLC perform the floor brokerage element of portfolio transactions (that is,
execution on the exchange floor or through use of exchange facilities) that the
orders to such members be transmitted from off the exchange floor and that
neither Sanwa Securities (USA) Company LP, Sanwa Futures LLC nor an associated
person of Sanwa Securities (USA) Company LP or Sanwa Futures LLC participates
in the execution of the transaction after the order has been so transmitted. In
connection with transactions in which Sanwa Securities (USA) Company LP or
Sanwa Futures LLC acts as broker for the Funds, Sanwa Securities (USA) Company
LP or Sanwa Futures LLC, while not permitted to perform floor brokerage (which
is undertaken by members Sanwa Securities (USA) Company LP or Sanwa Futures
LLC selects who are not associated with that firm), still continues to bear
principal responsibility for determining important elements of overall
execution such as timing and order size, and also clears and settles such
transactions. Sanwa Securities (USA) Company LP or Sanwa Futures LLC pays the
fees charged by those persons performing the described floor brokerage
elements. Sanwa Securities (USA) Company LP or Sanwa Futures LLC will not trade
directly with the Funds in any transactions in which Sanwa Securities (USA)
Company LP or Sanwa Futures LLC or an affiliate acts as principal.
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in INVESTMENT COMPANY
INSTITUTE V. CAMP that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a bank from operating a mutual fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM V.
INVESTMENT COMPANY INSTITUTE that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the BOARD
OF GOVERNORS case, the Supreme Court also stated that if a bank complied with
the restrictions imposed by the Board in its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to investment companies, a bank performing investment
advisory services for an investment company would not violate the Glass-Steagall
Act.
SBCL believes that they possess the legal authority to perform the
services for each Fund contemplated by the Advisory Agreement and described in
the Prospectuses and this Statement of Additional Information and has so
represented in the Advisory Agreement. Future changes in either federal or state
statutes and regulations relating to the permissible activities of banks or bank
holding companies and the subsidiaries or affiliates of those entities, as well
as further judicial or administrative decisions or interpretations of present
and future statutes and regulations, could prevent or restrict SBCL from
continuing to perform
B-31
<PAGE> 63
such services for the Eureka Funds. Depending upon the nature of any changes in
the services which could be provided by SBCL, the Board of Trustees would
review the Eureka Funds' relationship with SBCL and consider taking all action
necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of SBCL or their affiliated and
correspondent banks (the "Banks") in connection with Customer's purchases of
Shares of the Eureka Funds, the Banks might be required to alter materially or
discontinue the services offered by them to Customers. It is not anticipated,
however, that any change in the Eureka Funds' method of operations would
affect its net asset value per Share or result in financial losses to any
Customer.
ADMINISTRATOR
BISYS serves as administrator (the "Administrator") to each Fund
pursuant to the Management and Administration Agreement dated as of
October 21, 1997 (the "Administration Agreement"). The Administrator
assists in supervising operations of each Fund (other than those performed by
SBCL under the Advisory Agreement, those performed by The Bank of New York
under its custodial services agreements with the Eureka Funds, and those
performed by BISYS Fund Services, Inc. under its transfer agency and
shareholder service and fund accounting agreements with the Eureka Funds). The
Administrator is a broker-dealer registered with the Securities and Exchange
Commission, and is a member of the National Association of Securities Dealers,
Inc. The Administrator provides financial services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to
monitor the net asset value of the money market funds, to maintain office
facilities for the Eureka Funds, to maintain the Eureka Funds' financial
accounts and records, and to furnish the group statistical and research data
and certain bookkeeping services, and certain other services required by the
Eureka Funds. The Administrator prepares annual and semi-annual reports to the
Securities and Exchange Commission, prepares federal and state tax returns,
prepares filings with state securities commissions, and generally assists in
supervising all aspects of the Eureka Funds' operations (other than those
performed by SBCL under the Advisory Agreement, and those performed by
The Bank of New York, under its custodial services agreements with the Eureka
Funds, and those performed by BISYS under its transfer agency and shareholder
service and fund accounting agreements with the Eureka Funds). Under the
Administration Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.
Under the Administration Agreement, the Administrator receives a fee
from each Fund equal to the lesser of (a) a fee computed at the annual rate of
twenty one-hundredths of one percent (.20%) of such Fund's average daily net
assets or (b) such fee as may from time to time be agreed upon in writing by
the Eureka Funds and the Administrator. A fee agreed to in writing from time to
time by the Eureka Funds and the Administrator may be significantly lower than
the fee calculated at the annual rate and the effect of such lower fee would be
to lower a
B-32
<PAGE> 64
Fund's expenses and increase the net income of the Fund during the period when
such lower fee is in effect.
The Administration Agreement will continue until October 31, 1999.
Thereafter, the Administration Agreement shall be renewed automatically for
successive two year terms, unless written notice not to renew is given by the
non-renewing party to the other party at least 60 days prior to the expiration
of the then-current term. The Administration Agreement is terminable with
respect to a particular Fund only upon mutual agreement of the parties to the
Administration Agreement and for cause (as defined in the Administration
Agreement) by the party alleging cause, on not less than 60 days notice by the
Group's Board of Trustees or by the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any loss suffered by the Eureka Funds in connection with the
matters to which the Administration Agreement relates, except a loss resulting
from willful misfeasance, bad faith, or gross negligence in the performance of
its duties, or from the reckless disregard by the Administrator of its
obligations and duties thereunder.
DISTRIBUTOR
BISYS serves as distributor to each Fund pursuant to a Distribution
Agreement dated October 21, 1997 (the "Distribution Agreement"). The
Distribution Agreement will continue in effect for one-year periods if such
continuance is approved at least annually (i) by the Board of Trustees or by
the vote of a majority of the outstanding Shares of the Funds or Fund subject
to such Distribution Agreement, and (ii) by the vote of a majority of the
Trustees who are not parties to such Distribution Agreement or interested
persons (as defined in the 1940 Act) of any party to such Distribution
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement may be terminated in the event of any
assignment, as defined in the 1940 Act.
For its services as Distributor, BISYS is entitled to a fee of 0.25%
of the average daily net assets of Class A Shares of each Fund payable under the
Fund's Distribution Plan.
The Distribution Plan was initially approved on October 21, 1997
by the Board of Trustees, including a majority of the trustees who are
not interested persons of the Fund (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the Distribution Plan (the "Independent
Trustees"). The Distribution Plan provides for fees only upon the Class A Shares
of each Fund.
In accordance with Rule 12b-1 under the 1940 Act, the Distribution Plan
may be terminated with respect to any Fund by a vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding Class A
Shares of that Fund. The Distribution Plan
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may be amended by vote of the Board of Trustees, including a majority of the
Independent Trustees, cast in person at a meeting called for such purpose,
except that any change in the Distribution Plan that would materially increase
the distribution fee with respect to a Fund requires the approval of the
holders of that Fund's Class A Shares. The Board of Trustees will review on a
quarterly and annual basis written reports of the amounts received and expended
under the Distribution Plan (including amounts expended by the Distributor to
Participating Organizations pursuant to the Servicing Agreements entered into
under the Distribution Plan) indicating the purposes for which such
expenditures were made.
CUSTODIAN
The Bank of New York serves as the Eureka Funds' Custodian.
TRANSFER AGENT AND FUND ACCOUNTING SERVICES
BISYS serves as transfer agent to each Fund pursuant to a Transfer
Agency Agreement.
BISYS also provides fund accounting services to each of the Funds
pursuant to a Fund Accounting Agreement with the Eureka Funds. Under the Fund
Accounting Agreement, BISYS receives a fee from each Fund at the annual rate of
.03% of such Fund's average daily net assets, subject to a minimum annual fee.
INDEPENDENT AUDITORS
Ernst & Young LLP has been selected as independent auditors. Ernst &
Young LLP's address is 10 West Broad Street, Columbus, Ohio 43215.
LEGAL COUNSEL
Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800 East,
Washington, DC 20005 serve as counsel to the Eureka Funds.
PERFORMANCE INFORMATION
YIELDS OF THE MONEY MARKET FUNDS
As summarized in the Fund's Prospectuses under the heading "Performance
Information," the "yield" of each Money Market Fund for a seven-day period (a
"base period") will be computed by determining the "net change in value"
(calculated as set forth below) of a hypothetical account having a balance of
one share at the beginning of the period, dividing the net change in account
value by the value of the account at the beginning of the base period to obtain
the base period return, and multiplying the base period return by 365/7
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with the resulting yield figure carried to the nearest hundredth of one percent.
Net changes in value of a hypothetical account will include the value of
additional shares purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares, but will not
include realized gains or losses or unrealized appreciation or depreciation on
portfolio investments. Yield may also be calculated on a compound basis (the
"effective yield") which assumes that net income is reinvested in Fund shares at
the same rate as net income is earned for the base period.
The yield and effective yield of each Money Market Fund will vary in
response to fluctuations in interest rates and in the expenses of each Fund. For
comparative purposes the current and effective yields should be compared to
current and effective yields offered by competing financial institutions for
that base period only and calculated by the methods described above.
YIELDS OF THE VARIABLE NAV FUNDS
As summarized in the Prospectuses under the heading "Performance
Information," yields of the Variable NAV Funds will be computed by annualizing
net investment income per share for a recent 30-day period and dividing that
amount by the maximum offering price per share (reduced by any undeclared earned
income expected to be paid shortly as a dividend) on the last trading day of
that period, according to the following formula:
a-b
30-Day Yield = 2[( ----- +1)(6)-1]
cd
In the above formula, "a" represents dividends and interest earned by a
particular class during the 30-day base period; "b" represents expenses accrued
to a particular class for the 30-day base period (net of reimbursements); "c"
represents the average daily number of shares of a particular class outstanding
during the 30-day base period that were entitled to receive dividends; and "d"
represents the maximum offering price per share of a particular class on the
last day of the 30-day base period.
Net investment income will reflect amortization of any market value
premium or discount of fixed income securities (except for obligations backed by
mortgages or other assets) and may include recognition of a pro rata portion of
the stated dividend rate of dividend paying portfolio securities. The yield of
each of the Variable NAV Funds will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Group allocated to each Fund. These factors and possible differences in the
methods used in calculating yield should be considered when comparing a Fund's
yield to yields published for other investment companies and other investment
vehicles. Yield should also be considered relative to changes in the value of
the Fund's shares and to the relative risks associated with the investment
objectives and policies of each Fund.
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Investors in the Variable NAV Funds are specifically advised that share
prices, expressed as the net asset values per share, will vary just as yields
will vary.
CALCULATION OF TOTAL RETURN
Total Return is a measure of the change in value of an investment in a
Fund over the period covered, assuming the investor paid the current maximum
applicable sales charge on the investment and that any dividends or capital
gains distributions were reinvested in the Fund immediately rather than paid to
the investor in cash. The formula for calculating Total Return includes four
steps: (1) adding to the total number of shares purchased by a hypothetical
$1,000 investment in the Fund all additional shares which would have been
purchased if all dividends and distributions paid or distributed during the
period had been immediately reinvested; (2) calculating the value of the
hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing this account value for the
hypothetical investor by the initial $1,000 investment and annualizing the
result for periods of less than one year.
At any time in the future, yields and total return may be higher or
lower than past yields, there can be no assurance that any historical results
will continue.
PERFORMANCE COMPARISONS
YIELD AND TOTAL RETURN. From time to time, performance information for
the Funds showing their average annual total return and/or yield may be included
in advertisements or in information furnished to present or prospective
shareholders and the ranking of those performance figures relative to such
figures for groups of mutual funds categorized by Lipper Analytical Services as
having the same investment objectives may from time to time be included in
advertisements.
From time to time, the Eureka Funds may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principals (such
as the effects of inflation, the power of compounding and the benefits of
dollar-cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for one or more of the
Funds within the Eureka Funds, (5) descriptions of investment strategies for
one or more of such Funds; (6) descriptions or comparisons of various savings
and investment products (including, but not limited to, insured bank products,
annuities, qualified retirement plans and individual stocks and bonds), which
may or may not include the Funds; (7) comparisons of investment products
(including the Funds) with relevant market or industry indices or other
appropriate benchmarks; (8) discussions of fund rankings or ratings by
recognized rating organizations; and (9) testimonials describing the experience
of persons that have invested in one or more of the Funds. The Funds may also
include in these communications calculations, such as
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hypothetical compounding examples, that describe hypothetical investment
results, such performance examples will be based on an express set of
assumptions and are not indicative of performance of any of the Funds.
Total return and/or yield may also be used to compare the performance
of the Funds against certain widely acknowledged standards or indices for stock
and bond market performance. The Standard & Poor's Composite Index of 500 stocks
(the "S&P 500") is a market value-weighted and unmanaged index showing the
changes in the aggregate market value of 500 Stocks relative to the base period
1941-43. The S&P 500 is composed almost entirely of common stocks of companies
listed on the NYSE, although the common stocks of a few companies listed on the
American Stock Exchange or traded over-the-counter are included. The 500
companies represented include 400 industrial, 60 transportation and 40 financial
services concerns. The S&P 500 represents about 80% of the market value of all
issues traded on the NYSE.
The Morgan Stanley Capital International Europe, Australia and the Far
East Index ("EAFE") is an index composed of a sample of companies representative
of the market structure of twenty European and Pacific Basin countries. The
Index represents the evolution of an unmanaged portfolio consisting of all
domestically listed stocks.
The Lehman Aggregate Bond Index ("Aggregate Bond Index") is a measure
of the market value of all public obligations of the U.S. Treasury; all publicly
issued debt of all agencies of the U.S. government; all quasi-federal
corporations; all corporate debt guaranteed by the U.S. government; and mortgage
backed securities. Corporate issues must have amounts outstanding in excess of
$1 million, have at least one year to maturity and be rated investment grade by
a NRSRO. Flower bonds and foreign targeted issues are also included in the
Aggregate Bond Index.
Current yields or performance will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield or
performance may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and
performance are functions of quality, composition, and maturity, as well as
expenses allocated to the Fund. Fees imposed upon customer accounts by SBCL or
its affiliated or correspondent banks for cash management services will reduce a
Fund's effective yield to Customers.
ADDITIONAL INFORMATION
ORGANIZATION AND DESCRIPTION OF SHARES
The Eureka Funds organized as a Massachusetts business trust by the
Agreement and Declaration of Trust, dated April 7, 1997, under the name "Sanwa
Fund." A copy of the Eureka Funds' Amended and Restated Agreement and
Declaration of Trust, (the "Declaration of Trust") is on file with the
Secretary of State of The Commonwealth of Massachusetts. The
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<PAGE> 69
Declaration of Trust authorizes the Board of Trustees to issue an unlimited
number of Shares, which are units of beneficial interest. The Eureka Funds
presently have five series of Shares offered to the public. The Declaration of
Trust authorizes the Board of Trustees to divide or redivide any unissued
Shares into one or more additional series.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectuses and this
Statement of Additional Information, the Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Eureka
Funds, Shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund which are available for distribution.
As described in the text of the Prospectuses following the caption
"GENERAL INFORMATION -- Description of the Eureka Funds and its Shares," shares
of the Group are entitled to one vote per share (with proportional voting for
fractional shares) on such matters as shareholders are entitled to vote.
Shareholders vote in the aggregate and not by series or class on all matters
except (i) when required by the 1940 Act, shares shall be voted by individual
series, (ii) when the Trustees have determined that the matter affects only the
interests of a particular series or class, then only Shareholders of such
series or class shall be entitled to vote thereon, and (iii) only the holders
of Class A Shares will be entitled to vote on matters submitted to Shareholder
vote with regard to the Distribution Plan applicable to Class A. There will
normally be no meetings of Shareholders for the purposes of electing Trustees
unless and until such time as less than a majority of the Trustees have been
elected by the Shareholders, at which time the Trustees then in office will
call a Shareholders' meeting for the election of Trustees. In addition,
Trustees may be removed from office by a written consent signed by the holders
of two-thirds of the outstanding shares of the Eureka Funds and filed with the
Eureka Funds' custodian or by vote of the holders of two-thirds of the
outstanding shares of the Eureka Funds at a meeting duly called for the
purpose, which meeting shall be held upon the written request of the holders of
not less than 10% of the outstanding shares of any Fund. Except as set forth
above, the Trustees shall continue to hold office and may appoint their
successors.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, Shareholders could, under certain
circumstances, be held personally liable for the obligations of the Eureka
Funds. However, the Eureka Funds Declaration of Trust disclaims Shareholder
liability for acts or obligations of the Eureka Funds and requires that notice
of such disclaimer be given in every agreement, obligation or instrument
entered into or executed by the Eureka Funds or the Trustees. The Declaration
of Trust provides for indemnification out of a Fund's property for all loss and
expense of any Shareholder of such Fund held liable on account of being or
having been a Shareholder. Thus, the risk of a Shareholder incurring
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financial loss on account of Shareholder liability is limited to circumstances
in which a Fund would be unable to meet its obligations.
The Agreement and Declaration of Trust states further that no Trustee,
officer or agent of the Eureka Funds shall be personally liable in connection
with the administration or preservation of the assets of the Eureka Funds or
the conduct of the Eureka Funds' business; nor shall any Trustee, officer, or
agent be personally liable to any person for any action or failure to act
except for his own bad faith, willful misfeasance, gross negligence, or
reckless disregard of his duties. The Agreement and Declaration of Trust also
provides that all persons having any claim against the Trustees or the Eureka
Funds shall look solely to the assets of the Eureka Funds for payment.
MISCELLANEOUS
The Eureka Funds may include information in its Annual Reports and
Semi-Annual Reports to Shareholders that (1) describes general economic trends,
(2) describes general trends within the financial services industry or the
mutual fund industry, (3) describes past or anticipated portfolio holdings for
one or more of the Funds within the Eureka Funds, or (4) describes investment
management strategies for such Funds. Such information is provided to inform
Shareholders of the activities of the Eureka Funds for the most recent fiscal
year or half-year and to provide the views of the SBCL and/or Eureka Funds
officers regarding expected trends and strategies.
The organizational expenses of the Eureka Funds have been allocated
to each Fund and are being amortized over a period of five years from the
commencement of the public offering of Shares of the Eureka Funds. In the event
any of the initial Shares of the Eureka Funds are redeemed during the
amortization period by any holder thereof, 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
total number of initial Shares outstanding at the time of redemption. Investors
purchasing Shares of the Eureka Funds subsequent to the date of the
Prospectuses and this Statement of Additional Information bear such expenses
only as they are amortized against a Fund's investment income.
The Eureka Funds are registered with the Securities and Exchange
Commission as a management investment company. Such registration does not
involve supervision by the Securities and Exchange Commission of the management
or policies of the Eureka Funds.
As of October 1, 1997, BISYS, 3435 Stelzer Road, Columbus, Ohio 43219,
directly or beneficially owned 100% of each Fund.
The Prospectuses of the Funds and this Statement of Additional
Information omit certain of the information contained in the Registration
Statement filed with the Securities and Exchange Commission. Copies of such
information may be obtained from the Securities and Exchange Commission upon
payment of the prescribed fee.
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The Prospectuses of the Funds and this Statement of Additional
Information are not an offering of the securities herein described in any state
in which such offering may not lawfully be made. No salesman, dealer, or other
person is authorized to give any information or make any representation other
than those contained in the Prospectuses of the Funds and this Statement of
Additional Information.
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APPENDIX
The NRSROs utilized by SBCL include Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("S&P"), Duff & Phelps Credit Rating Co. ("Duff"),
Fitch Investors Service, Inc. ("Fitch"), IBCA Limited and its affiliate, IBCA
Inc. (collectively, "IBCA"), and Thomson BankWatch, Inc. ("Thomson"). Set forth
below is a description of the relevant ratings of each such NRSRO.
LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds)
Description of the five highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):
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 edged." Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds 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 risk 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 some time in the
future.
Baa Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor
poorly secured). Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded
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during both good and bad times in the future. Uncertainty of
position characterizes bonds in this class.
Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA Debt rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA Debt rated AA differs from the highest rated obligations only
in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A Debt rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions
than obligations in higher rated categories. However, the
obligor's capacity to meet its financial commitment on the
obligation is still strong.
BBB Debt rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity of the obligor
to meet its financial commitment on the obligation.
BB Debt rated BB is regarded as having significant speculative
characteristics although it is less vulnerable to nonpayment
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or
economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the
obligation.
Description of the three highest long-term debt ratings by Duff:
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong.
AA Risk is modest but may vary slightly from time to time
AA- because of economic conditions.
A+ Protection factors are average but adequate. However,
A risk factors are more variable and greater in periods
A- of economic stress.
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Description of the three highest long-term debt ratings by Fitch (plus (+) or
minus (-) signs are used with a rating symbol to indicate the relative position
of the credit within the rating category):
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely
to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issues is generally rated "F-1+."
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
IBCA's description of its three highest long-term debt ratings:
AAA Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial, such that adverse changes in
business, economic or financial conditions are unlikely to
increase investment risk significantly.
AA Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial. Adverse changes in business,
economic, or financial conditions may increase investment
risk, albeit not very significantly.
A Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest
is strong, although adverse changes in business, economic or
financial conditions may lead to increased investment risk.
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SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have
a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often
be evidenced by many of the following characteristics:
- Leading market positions in well-established
industries.
- High rates of return on funds employed.
- Conservative capitalization structure with
moderate reliance on debt and ample asset
protection.
- Broad margins in earnings coverage of
fixed financial charges and high internal
cash generation.
- Well-established access to a range of
financial markets and assured sources of
alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have
a strong ability for repayment of senior short-term
debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while
sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate
liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have
an acceptable ability for repayment of senior
short-term obligations. The effect of industry
characteristics and market compositions may be more
pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection
measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1 Highest category. The obligor's capacity to meet its financial
commitments is strong. Within this category, certain
obligations are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial
commitments is extremely strong.
A-2 Obligations assigned this rating are somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than obligations in
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higher rating categories. However, the obligor's capacity to
meet its financial commitment on the obligation is
satisfactory.
A-3 Obligations assigned this rating exhibit adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity
of the obligor to meet its financial commitment on the
obligation.
Duff's description of its five highest short-term debt ratings. Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating category:
D-1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety
is just below risk-free U.S. Treasury short-term
obligations.
D-1 Very high certainty of timely payment. Liquidity factors
are excellent and supported by good fundamental protection
factors. Risk factors are minor.
D-1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection
factors. Risk factors are very small.
D-2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
D-3 Satisfactory liquidity and other protection factors
qualify issues as to investment grade. Risk factors are
larger and subject to more variation.
Nevertheless, timely payment is expected.
Fitch's description of its four highest short-term debt ratings:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F-1+.
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned F-1+
or F-1 ratings.
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F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment
grade.
IBCA's description of its three highest short-term debt ratings:
A1 Obligations supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit
feature, a rating of A1+ is assigned.
A2 Obligations supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to
adverse changes in business, economic or financial conditions.
SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS
Moody's description of its two highest short-term loan/municipal note ratings:
MIG 1/VMIG 1 This designation denotes best quality. There is
present strong protection by established cash flows,
superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of
protection are ample although not so large as in the
preceding group.
S&P's description of its two highest municipal note ratings:
SP-1 Strong capacity to pay principal and interest. An issue
determined to possess a very strong capacity to pay debt
service is given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with
some vulnerability to adverse financial and economic
changes over the term of the notes.
SHORT-TERM DEBT RATINGS
Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
The TBW Short-Term Debt Ratings apply only to specific debt instruments with
original maturities of one year or less. TBW ratings represent an assessment of
the likelihood of an untimely payment of principal and interest. Important
factors that may influence this assessment are the overall financial health of
the particular company, and the probability that
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the government will come to the aid of a troubled institution in order to avoid
a default or failure.
The TBW Short-Term Ratings represent an assessment of the likelihood of an
untimely payment of principal or interest.
TBW-1 The highest category; indicates a very high likelihood
that principal and interest will be paid on a timely
basis.
TBW-2 The second-highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as
for issues rated "TBW-1."
TBW-3 The lowest investment-grade category; indicates that while
the obligation is more susceptible to adverse developments
(both internal and external) than those with higher
ratings, the capacity to service principal and interest in
a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
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REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholder
Eureka Funds:
We have audited the accompanying statement of assets and liabilities of the
Eureka Funds (comprised of the Prime Money Market Fund, the U.S. Treasury
Obligations Fund, the Investment Grade Bond Fund, the Global Asset Allocation
Fund, and the Equity Fund) (the Fund) as of September 26, 1997. This statement
of assets and liabilities is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this statement of assets and
liabilities 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 statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of each of the
portfolios comprising the Eureka Funds at September 26, 1997, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Columbus, Ohio
September 30, 1997
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EUREKA FUNDS
Eureka Prime Money Market Fund
Statement of Assets and Liabilities
September 26, 1997
<TABLE>
<S> <C>
ASSETS:
Cash $20,000
Deferred organization expenses 25,000
=======
Total Assets 45,000
LIABILITIES:
Accrued organization expenses 25,000
-------
NET ASSETS: $20,000
=======
NET ASSETS CONSIST OF:
Capital - 20,000 shares of beneficial
interest ("shares") issued and outstanding;
unlimited shares authorized - Trust Shares $20,000
=======
NET ASSET VALUE:
Trust Shares ($20,000/20,000 shares outstanding) -
offering and redemption price per share $ 1.00
=======
</TABLE>
See notes to financial statements.
B-49
<PAGE> 81
EUREKA FUNDS
Eureka U.S. Treasury Obligations Fund
Statement of Assets and Liabilities
September 26, 1997
<TABLE>
<S> <C>
ASSETS:
Cash $20,000
Deferred organization expenses 25,000
-------
Total Assets 45,000
LIABILITIES:
Accrued organization expenses 25,000
-------
NET ASSETS: $20,000
=======
NET ASSETS CONSIST OF:
Capital - 20,000 shares of beneficial interest ("shares")
issued and outstanding; unlimited shares
authorized - Trust Shares $20,000
=======
NET ASSET VALUE:
Trust Shares ($20,000/20,000 shares outstanding) -
offering and redemption price per share $ 1.00
=======
</TABLE>
See notes to financial statements.
B-50
<PAGE> 82
EUREKA FUNDS
Eureka Investment Grade Bond Fund
Statement of Assets and Liabilities
September 26, 1997
<TABLE>
<S> <C>
ASSETS:
Cash $20,000
Deferred organization expenses 25,000
-------
Total Assets 45,000
LIABILITIES:
Accrued organization expenses 25,000
-------
NET ASSETS: $20,000
=======
NET ASSETS CONSIST OF:
Capital - 2,000 shares of beneficial
interest ("shares") issued and outstanding;
unlimited shares authorized - Trust Shares $20,000
=======
NET ASSET VALUE:
Trust Shares ($20,000/2,000 shares outstanding)
- offering and redemption price per share $ 10.00
=======
</TABLE>
See notes to financial statements.
B-51
<PAGE> 83
EUREKA FUNDS
Eureka Global Asset Allocation Fund
Statement of Assets and Liabilities
September 26, 1997
<TABLE>
<S> <C>
ASSETS:
Cash $20,000
Deferred organization expenses 25,000
-------
Total Assets 45,000
LIABILITIES:
Accrued organization expenses 25,000
-------
NET ASSETS: $20,000
=======
NET ASSETS CONSIST OF:
Capital - 2,000 shares of beneficial
interest ("shares") issued and outstanding;
unlimited shares authorized - Trust Shares $20,000
=======
NET ASSET VALUE:
Trust Shares ($20,000/2,000 shares outstanding) -
offering and redemption price per share $ 10.00
=======
</TABLE>
See notes to financial statements.
B-52
<PAGE> 84
EUREKA FUNDS
Eureka Equity Fund
Statement of Assets and Liabilities
September 26, 1997
<TABLE>
<S> <C>
ASSETS:
Cash $20,000
Deferred organization expenses 25,000
-------
Total Assets 45,000
LIABILITIES:
Accrued organization expenses 25,000
-------
NET ASSETS: $20,000
=======
NET ASSETS CONSIST OF:
Capital - 2,000 shares of beneficial interest ("shares")
issued and outstanding; unlimited shares
authorized - Trust Shares $20,000
=======
NET ASSET VALUE:
Trust Shares ($20,000/2,000 shares outstanding) -
offering and redemption price per share $ 10.00
=======
</TABLE>
See notes to financial statements.
B-53
<PAGE> 85
EUREKA FUNDS
NOTES TO FINANCIAL STATEMENTS
September 26, 1997
1. ORGANIZATION
The Eureka Funds (the "Group") was organized as a Massachusetts business
trust named Sanwa Fund on April 7, 1997. The Group is a diversified
open-end management investment company registered under the Investment
Company Act of 1940 (the "1940 Act"). There are an unlimited number of
authorized units of beneficial interest ("shares") of the Group which may
be divided into an unlimited number of series of shares, and which are
presently divided into five series: Eureka Prime Money Market Fund, Eureka
U.S. Treasury Obligations Fund, Eureka Investment Grade Bond Fund, Eureka
Global Asset Allocation Fund and Eureka Equity Fund (each a "Fund", and
collectively, the "Funds"). Each Fund offers two classes of shares with a
par value of $0.00001: Trust Shares and Class A Shares. Each share
represents an equal proportionate interest in a Fund with other shares of
the same series and class, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that
Fund. Trust Shares of the Funds are offered to Sanwa Bank California and
its affiliates and other financial service providers approved by the
Distributor for the investment of funds for which they act in a fiduciary,
advisory, agency, custodial (other than for individual retirement
accounts), or similar capacity. Class A Shares are offered to the general
public. Each class of shares is substantially the same, except that Class A
Shares bear the fees that are payable under the Group's Distribution and
Shareholder Services Plan (the "Distribution Plan") which relates only to
the Class A Shares.
The Funds have had no operations other than those actions relating to
organizational matters. As of September 26, 1997, only Trust shares have
been issued and all outstanding shares of the Funds are owned by BISYS Fund
Services, Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION EXPENSES: All costs incurred by the Group in connection with
the organization of the Funds and the initial public offering of shares of
the Funds, principally professional fees and printing, have been deferred.
Upon commencement of investment operations of each Fund, the deferred
organization expenses will be amortized on a straight-line basis over a
period of five years. In the event that any of the initial shares of the
Funds are redeemed during the amortization period by any holder thereof,
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<PAGE> 86
the redemption proceeds will be reduced by any unamortized organization
expenses in the same proportion as the number of said shares being redeemed
bears to the number of initial shares that are outstanding at the time of
the redemption.
FEDERAL INCOME TAXES: Each of the Funds intends to comply with the
requirements of the Internal Revenue Code necessary to qualify as a
regulated investment company and to make the requisite distributions of
taxable income to its shareholders which will be sufficient to relieve it
from all or substantially all federal income taxes.
3. RELATED PARTY TRANSACTIONS
Sanwa Bank California ("SBCL"), will serve as the investment adviser of
each Fund. SBCL is a wholly-owned subsidiary of The Sanwa Bank Limited, of
Japan. Under the terms of an investment advisory agreement between the
Group and SBCL, SBCL will be entitled to receive fees based on a percentage
of the average net assets of each Fund. SBCL has agreed to voluntarily
reduce the amount of its investment advisory fee through the end of the
Funds' initial fiscal year.
BISYS Fund Services, Inc. ("BISYS"), a wholly-owned subsidiary of The BISYS
Group, Inc., will serve as the administrator for each Fund and will also
act as the Group's principal underwriter and distributor. BISYS will also
serve as transfer agent for and provide fund accounting services to the
Group.
Under the Distribution Plan, a Fund will pay a monthly distribution fee to
BISYS as compensation for its services in connection with the Distribution
Plan at an annual rate equal to 0.25% of the average daily net assets of
Class A Shares of each Fund.
Certain officers of the Group are affiliated with BISYS. Such persons are
not paid directly by the Group for serving in those capacities.
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