As filed with the Securities and Exchange Commission on
February 29, 2000
File Nos. 333-33365, 811-8323
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 7 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. _10_ X
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SAMCO FUNDS, INC.
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(Exact name of registrant as specified in charter)
200 Clarendon Street
Boston, MA 02116, 9130
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(Address of principal executive offices)
Registrant's telephone number: 800-247-0473
Christina Seix
Seix Investment Advisors Inc.
300 Tice Boulevard
Woodcliff Lake, NJ 07675-7633
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(Name and address of agent for service)
With a copy to:
Jack Murphy, Esq.
Dechert Price & Rhoads
1775 Eye Street,
N.W., Washington, D.C. 20006-2401
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Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b)
/ X / On March 1, 2000, pursuant to paragraph (b)
/ / 60 days after filing, pursuant to paragraph (a)(1)
/ / On ____, pursuant to paragraph (a) (1)
/ / 75 days after filing, pursuant to paragraph (a) (2)
/ / On _________, pursuant to paragraph (a) (2) of Rule 485.
<PAGE>
SAMCO FUNDS, INC.
SAMCO AGGREGATE FIXED INCOME FUND CLASS A SHARES
SAMCO INTERMEDIATE FIXED INCOME FUND CLASS A SHARES
The SAMCO Aggregate Fixed Income Fund (the "Fixed Income Fund") and the SAMCO
Intermediate Fixed Income Fund (the "Intermediate Fixed Income Fund") are
non-diversified investment portfolios (each a "Portfolio" and collectively the
"Portfolios") of SAMCO Funds, Inc., an open-end management investment company
(the "Fund").
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
THE DATE OF THIS PROSPECTUS IS MARCH 1, 2000.
<PAGE>
TABLE OF CONTENTS
PAGE
RISK/RETURN SUMMARY 1
FIXED INCOME FUND 1
INTERMEDIATE FIXED INCOME FUND 1
PRINCIPAL INVESTMENT RISKS 2
RISK/RETURN BAR CHARTS AND TABLES 3
RISK/RETURN SUMMARY: FEE TABLE 4
FUND MANAGEMENT 5
PURCHASE OF SHARES 6
REDEMPTION OF SHARES 6
ADDITIONAL INFORMATION 7
FINANCIAL HIGHLIGHTS 9
APPENDIX A: DESCRIPTION OF INVESTMENTS 10
<PAGE>
RISK/RETURN SUMMARY
The following is a summary of certain key information about each Portfolio,
including investment objectives, principal investment strategies and principal
investment risks. A more detailed description of certain allowable investments
is included in Appendix A.
INVESTMENT OBJECTIVES:
FIXED INCOME: The Fixed Income Fund's investment objective is to provide
investors with a total return which consistently exceeds the total return
of the broad United States investment grade bond market. Performance is
measured against the Lehman Brothers Aggregate Bond Index (LBA Benchmark).
INTERMEDIATE FIXED INCOME: The Intermediate Fixed Income Fund's investment
objective is to provide investors with a total return which consistently
exceeds the total return of the intermediate portion of the broad United
States investment grade bond market. Performance is measured against the
Lehman Brothers Intermediate Government/Corporate Index (LBI Benchmark).
PRINCIPAL INVESTMENT STRATEGIES: Each Portfolio seeks to achieve its objective
primarily through investment in various types of income producing debt
securities including mortgage and asset-backed securities, United States
Government and Agency Obligations, and corporate obligations. At least 65% of
total assets will be invested in the broad universe of available United States
dollar denominated fixed income securities.
INVESTMENT MANAGEMENT APPROACH: Seix Investment Advisors Inc. (Investment
Adviser) will manage the portfolios based on its fixed income approach
which is founded upon four cornerstones:
DURATION/MATURITY: Duration measures the expected life of a debt security
on a present value basis. In general, duration rises with maturity,
therefore the greater the duration of a bond, the greater its percentage
volatility.
o The Fixed Income Portfolio will be managed with a duration that is
close to the duration of the LBA Benchmark, which is 4.7 years as of
December 31, 1999.
o The Intermediate Fixed Income Portfolio will maintain an
average-weighted portfolio maturity of three to ten years. It will be
managed with a duration that is close to the duration of the LBI
Benchmark, which is 3.4 years as of December 31, 1999.
YIELD: Although each Portfolio is managed on a total return basis, a
premium is placed on income. Income is considered the most powerful
contributor to fixed income returns. Non-United States Treasury securities
generally play a dominant role in each Portfolio.
PORTFOLIO CONSTRUCTION: Each Portfolio's construction is generally
determined through a research driven process designed to identify value
areas within the fixed income market. Each Portfolio will typically
maintain an over-weighting in obligations of domestic corporations and an
under-weighting of United States Treasury securities.
PROPRIETARY ANALYSIS: Due to the complexity of the bond market, the
Investment Adviser uses financial investment techniques which it developed
internally to attempt to identify value and adequately control risk.
CREDIT QUALITY: Each Portfolio may only invest in investment grade securities,
which are those securities rated by one or more nationally recognized
statistical rating organizations (NRSROs) in one of the four highest rating
categories at the time of purchase (e.g. AAA, AA, A or BBB by Standard & Poor's
Corporation (Standard & Poor's), Duff & Phelps Credit Rating Co. (Duff &
Phelps), or Fitch Investors Service, Inc. (Fitch) or Aaa, Aa, A or Baa by
Moody's Investors Service, Inc. (Moody's). If the security is unrated, it must
meet, in the judgment of the Investment Adviser, comparable credit quality
standards.
The Intermediate Fixed Income Portfolio will not, at the time of purchase,
invest more than 15% of its net assets in securities rated BBB by Standard &
Poor's, Duff & Phelps, or Fitch or Baa by Moody's.
PRINCIPAL INVESTMENTS: Each Portfolio will principally invest in the following
securities: obligations issued or guaranteed by the United States Government,
obligations of domestic corporations or other entities, obligations of domestic
banks, mortgage and asset-backed securities, obligations backed by the full
faith and credit of the United States, and obligations issued or guaranteed by
United States Government Agencies, Government-Sponsored Enterprises (GSE's) or
instrumentalities where each Portfolio must look principally to the issuing or
guaranteeing agency for ultimate repayment.
1
<PAGE>
PRINCIPAL INVESTMENT RISKS
A loss of money on your investment in each Portfolio, or the
under-performance of each Portfolio relative to other investments could occur
due to certain risks. In general, the greater the risk, the greater the
possibility of losing money. The possibility exists that the investment
decisions made by the portfolio managers of the Fund will not accomplish what
they are designed to achieve. No assurance can be given that a Portfolio's
investment objective will be achieved.
The principal risks associated with each Portfolio's investment policies and
strategies are as follows:
INTEREST RATE Investing in debt securities will subject the Portfolios
RISK: to the risk that the market value of the debt securities
will decline because of rising interest rates. The prices of
debt securities are generally linked to the prevailing market
interest rates. In general, when interest rates rise, the
prices of debt securities fall. The price volatility of a debt
security also depends on its maturity or duration. Generally,
the longer the maturity or duration of a debt security the
greater its sensitivity to changes in interest rates.
CREDIT RISK: The debt securities in the Fund's portfolios are subject to
credit risk. Credit risk is the possibility that an issuer
will fail to make timely payments of interest or principal.
Securities rated in the lowest category of investment grade
securities have some risky characteristics and changes in
economic conditions are more likely to cause issuers of these
securities to be unable to make payments.
PREPAYMENT Payments from the pool of loans underlying mortgage or
RISK: asset-backed securities may not be enough to meet the monthly
payments of the mortgage or asset-backed security. If this
occurs such securities will lose value. Also, prepayments of
loans or mortgage foreclosures will shorten the life of these
securities. Prepayments vary based on several factors,
including the level of interest rates, general economic
conditions, the location and age of the mortgage and other
demographic conditions. When interest rates are declining,
there are usually more prepayments. The reinvestment of cash
received from prepayments will, therefore, usually be at a
lower interest rate than the original investment, lowering a
Portfolio's yield.
NON- Each of the Portfolios is non-diversified in that it
DIVERSIFICATION concentrates its investments among fewer securities than a
RISK: diversified mutual fund would. Non-diversification can
intensify risk should a particular investment suffer from
adverse market conditions.
PORTFOLIO Because the Investment Adviser may engage in active and
TURNOVER frequent trading of portfolio securities shareholders
may incur taxes on any realized capital gains which could
result in a lower total return for a Portfolio.
2
<PAGE>
RISK/RETURN BAR CHARTS AND TABLES
THE BAR CHART AND TABLE SHOWN BELOW INDICATE THE RISKS OF INVESTING IN THE FIXED
INCOME FUND BY ILLUSTRATING HOW IT HAS PERFORMED. THE BAR CHART SHOWS THE YEARLY
PERFORMANCE OF THE CLASS A SHARES OF THE FIXED INCOME FUND AND THE TABLE BELOW
SHOWS THE PERFORMANCE OF THE CLASS A SHARES OF THE FIXED INCOME FUND AS COMPARED
TO A SELECTED BROAD BASED INDEX. THE PAST PERFORMANCE OF THE FIXED INCOME FUND
DOES NOT NECESSARILY INDICATE HOW IT WILL PERFORM IN THE FUTURE.
FIXED INCOME FUND
[BAR GRAPH]
Calendar Year Quarterly Return
------------- ----------------
1998 7.82%
1999 -0.53%
During the periods shown in the Fixed Income Fund's bar chart, the highest
quarterly return was 3.18% (quarter ended 9/30/98) and the lowest quarterly
return was -1.16% (quarter ended 6/30/99).
Average Annual Total
Returns(for the period(s)
ended December 31, 1999) Past 1 Year Since Inception
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SAMCO Aggregate
Fixed Income Fund* -0.53% 3.65%
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Lehman Brothers
Aggregate Bond Index -0.83 3.93%**
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* Date of Inception: 12/30/97. The name of the Portfolio was changed on
June 10, 1999 by the Board of Directors from SAMCO Fixed Income Portfolio
to SAMCO Aggregate Fixed Income Fund.
** Reflects performance of the LBA Benchmark since 12/31/97.
BECAUSE THE INTERMEDIATE FIXED INCOME FUND COMMENCED OPERATIONS ON JUNE 30, 1999
ITS PERFORMANCE INFORMATION HAS NOT BEEN INCLUDED.
3
<PAGE>
RISK/RETURN SUMMARY: FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
Class A shares of each of the Portfolios.
Shareholder Fees
(Fees Paid Directly Intermediate
From Your Investment) Fixed Income Fund Fixed Income Fund
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Sales Loads None None
Redemption Fees None None
Exchange Fee None None
ANNUAL FUND OPERATING
EXPENSES (Expenses
Deducted From Fund Assets)
Management Fees 0.25% 0.25%
Other Expenses (a) 0.46% 1.56% (b)
Total Annual Fund
Operating Expenses (c) 0.71% 1.81%
(a) Other Expenses include fees for shareholder services, custodial,
administration, dividend disbursing and transfer agency fees, legal and auditing
fees, printing costs and registration fees.
(b) Because Intermediate Fixed Income Fund commenced investment operations on
June 30, 1999, expenses are estimates based upon the expected expenses that the
Intermediate Fixed Income Fund would incur in the current fiscal year.
(c) The Investment Adviser has voluntarily agreed to limit the total expenses
for each of the Fixed Income Fund and the Intermediate Fixed Income Fund
(excluding interest, taxes, brokerage and extraordinary expenses) to annual
rates of 0.45% of their average daily net assets. There is no specific time
period for how long the voluntary expense limitations will last, and such
waivers may be cancelled at any time. As long as these temporary expense
limitations continue, it may lower the Portfolios' expenses and increase their
total returns. For the fiscal year ended October 31, 1999, the Investment
Adviser and Investors Bank & Trust Company (the "Administrator") waived fees in
the amount of 0.26% and 1.36% for the Fixed Income Fund and the Intermediate
Fixed Income Fund, respectively.
EXAMPLE. This example is intended to help you compare the cost of investing in
each of the Portfolios with the cost of investing in other mutual funds.
The example assumes that:
o You invest $10,000 in the Portfolio for the time periods indicated;
o Your investment has a 5% return each year; and
o The Portfolio's operating expenses remain the same.
The results apply whether or not you redeem your investment at the end of each
period. Although your costs may be higher or lower, based on these assumptions
your costs would be:
Fixed Income Fund Intermediate Fixed Income Fund
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1 Year 73 184
3 Years 228 570
5 Years 396
10 Years 882
4
<PAGE>
FUND MANAGEMENT
BOARD OF DIRECTORS
The Board of Directors of the Fund consists of five individuals who are
responsible for the overall supervision of the operations of the Fund and
perform the various duties imposed on the directors of investment companies by
the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund's
Directors are Christina Seix, John G. Talty, Peter J. Bourke, John E. Manley,
Sr., and John R. O'Brien. Additional information about the Directors and the
Fund's executive officers may be found in the Statement of Additional
Information under the heading "Management of the Fund."
INVESTMENT ADVISER
Seix Investment Advisors Inc., established in 1992, is a registered investment
adviser that specializes in professional fixed income management for
corporations, public funds, endowments, foundations and hospitals. The
Investment Adviser currently has approximately $5.2 billion in assets under
management. The Investment Adviser is located at 300 Tice Boulevard, Woodcliff
Lake, N.J. 07675. Seix Investment Advisors Inc. acts as the investment adviser
to the Fund and provides the Fund with management and investment advisory
services. The advisory agreement with the Investment Adviser provides that,
subject to the direction of the Board of Directors of the Fund, the Investment
Adviser is responsible for the actual management of the Fund. The responsibility
for making decisions to buy, sell or hold a particular security rests with the
Investment Adviser, subject to review by the Board of Directors. The Investment
Adviser also is obligated to provide all the office space, facilities, equipment
and personnel necessary to perform its duties under the Advisory Agreement.
PAYMENT OF FUND EXPENSES
Fund expenses directly attributable to a Portfolio are charged to that
Portfolio; other expenses are allocated proportionately among all the Portfolios
in relation to their net assets. As compensation for the services rendered by
the Investment Adviser under the Advisory Agreements, each Portfolio pays the
Investment Adviser a monthly advisory fee. This advisory fee is calculated by
applying the following annual percentage rates to such Portfolio's average daily
net assets for the month:
FUND NAME RATE
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Fixed Income Fund 0.25%
Intermediate Fixed Income Fund 0.25%
Because the Adviser voluntarily waived advisory fees for the fiscal year ended
October 31, 1999, advisory fees paid by the Fixed Income Fund amounted to 0.12%
of average daily net assets.
Because the Adviser voluntarily waived advisory fees for the period June 30,
1999 (commencement of operations) to October 31, 1999, the Intermediate Fixed
Income Fund did not pay any advisory fees.
PORTFOLIO MANAGERS
Each Portfolio will be managed using a team approach with all of the portfolio
managers listed below contributing investment expertise in their respective
areas. The following lists each Portfolio Manager's position with the Advisor
and their investment experience.
CHRISTINA SEIX, CFA, CHAIRMAN, CEO & CHIEF INVESTMENT OFFICER
Formerly, Chairman & CEO, Head of Investment Policy, MacKay-Shields
Total Investment Experience: 24 years
BA, Fordham University, Mathematics; MA, SUNY, Mathematics
JOHN TALTY, CFA, PRESIDENT & SENIOR PORTFOLIO MANAGER
Formerly, Chief Fixed Income Strategist, J.P. Morgan Securities
Total Investment Experience: 16 years
B.A., Connecticut College, Economics, Phi Beta Kappa, Magna Cum Laude
BARBARA HOFFMANN, MANAGING DIRECTOR AND SENIOR PORTFOLIO MANAGER
Formerly, Senior Portfolio Manager, MetLife Investment Management Co.
Total Investment Experience: 18 years
BS, University of Maine, Education/Mathematics
5
<PAGE>
MICHAEL MCEACHERN, CFA, DIRECTOR AND SENIOR PORTFOLIO MANAGER
Formerly, Vice President, Fixed Income, American General Corp., June 1997
Total Investment Experience: 13 years
BA, University of California, Operations Research; MBA, Rice University,
Accounting/Public Administration
JOSEPH CALABRESE, DIRECTOR AND SENIOR PORTFOLIO MANAGER
Formerly, Director, Fixed Income, MetLife Insurance Company, June 1997
Total Investment Experience: 10 years
BS, New Jersey Institute of Technology, Industrial Engineering; MBA, New York
University, Finance
PURCHASE OF SHARES
There is no sales charge imposed by the Fund. The minimum initial
investment in the Class A shares of each Portfolio in the Fund is $1,000,000.
The minimum investment may be waived at any time at the discretion of the
Investment Adviser. Additional purchases may be of any amount.
The offering of shares of each Portfolio is continuous and purchases of
shares of the Portfolios may be made Monday through Friday, except for the
holidays declared by the Federal Reserve Banks of New York or Boston (a
"Business Day"). At the present time, these holidays are: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Memorial Day, Fourth of July, Labor Day,
Columbus Day, Veterans Day, Thanksgiving, and Christmas. Each Portfolio's shares
are offered at a public offering price equal to the net asset value next
determined after receipt of a purchase order.
In order to purchase shares on a particular Business Day, subject to the
offering dates described above, a purchaser must submit a completed Account
Application Form (and other required documents) and call Investors Bank & Trust
Company (Transfer Agent) at (800) 247-0473 prior to 4:00 p.m. Eastern time to
inform the Fund of the incoming wire transfer. If Federal funds are received by
the Fund that same day, the order will be effective on that day. If the Fund
receives notification on a non-business day, or after 4:00 p.m. Eastern time, or
if Federal funds are received by the Transfer Agent after 4:00 p.m. Eastern
time, such purchase order shall be deemed received as of the next business day.
Shares purchased will begin accruing dividends on the day Federal funds are
received.
Purchases of shares must be made by wire transfer of Federal funds. Please
note that the shareholder's bank may impose a charge to execute the wire
transfer. The wiring instructions for purchasing shares of a Portfolio are:
Investors Bank & Trust Company
Boston, MA
ABA # 011-001-438
Acct: 303030303
Benf: (name of Portfolio)
F/F/C (Shareholder's Account at Fund)
REDEMPTION OF SHARES
The Fund will redeem all full and fractional shares of each Portfolio upon
request of shareholders. The redemption price is the net asset value per share
next determined after receipt by the Transfer Agent of proper notice of
redemption as described below. If such notice is received by the Transfer Agent
by 4:00 p.m. Eastern time on any Business Day, the redemption will be effective
on that Business Day. If such notice of redemption is received by the Transfer
Agent after 4:00 p.m. Eastern time, the redemption shall be effective on the
following Business Day. Payment will ordinarily be made by wire on the next
Business Day, but within no more than seven days from the date of receipt. If
the notice is received on a day that is not a Business Day or after the
above-mentioned cut-off times, the redemption notice will be deemed received as
of the next Business Day.
There is no charge imposed by the Fund to redeem shares of a Portfolio;
however, a shareholder's bank may impose its own wire transfer fee for receipt
of the wire. Redemptions may be executed in any amount requested by the
shareholder up to the amount such shareholder has invested in the Portfolio.
To redeem shares, a shareholder or any authorized agent (so designated on
the Account Application Form) must provide the Transfer Agent with the dollar or
share amount to be redeemed, the account to which the redemption proceeds should
be wired (which account shall have been previously designated by the shareholder
on its Account Application Form), the name of the shareholder and the
shareholder's account number. Shares redeemed receive dividends up to and
including the day preceding the day the redemption proceeds are wired.
6
<PAGE>
A shareholder may change its authorized agent, the address of record or the
account designated to receive redemption proceeds at any time by writing to the
Transfer Agent with a signature guaranteed by a national bank, which is a member
firm of any national or regional securities exchange (a Signature Guarantee). If
the guarantor institution belongs to one of the Medallion Signature Programs, it
must use the Medallion "Guaranteed" stamp. Notarized signatures are not
sufficient. Further documentation may be required when deemed appropriate by the
Transfer Agent.
A shareholder may request redemption by calling the Transfer Agent at (800)
247-0473. Telephone redemption is made available to shareholders of the Fund on
the Account Application Form. The Fund and the Transfer Agent may employ
reasonable procedures designed to confirm that instructions communicated by
telephone are genuine. If either the Fund or the Transfer Agent does not employ
such procedures, it may be liable for losses due to unauthorized or fraudulent
instructions. The Fund or the Transfer Agent may require personal identification
codes and will only wire funds through pre-existing bank account instructions.
No bank instruction changes will be accepted via telephone.
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption of the Fund by making payment
in whole or in part in readily marketable securities chosen by the Fund and
valued as they are for purposes of computing the Fund's net asset value
(redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting the securities to cash.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
Dividends are automatically reinvested in additional Class A shares of the
applicable Portfolio on the last day of each month at the net asset value per
share on the last Business Day of that month unless shareholders indicate their
desire to receive dividends in cash (payable on the first Business Day of the
following month) on the Account Application Form. In the event that a Portfolio
realizes net long-term capital gains (i.e., with respect to assets held more
than 12 months), it will distribute them at least annually by automatically
reinvesting (unless a shareholder has elected to receive cash) such long-term
capital gains in additional shares of the Portfolio at the net asset value on
the date the distribution is declared.
The net investment income (including accrued but unpaid interest and
amortization of original issue and market discount or premium) of a Portfolio
will be declared as a dividend payable monthly to shareholders of record as of
the last Business Day of each month. Each Portfolio will also declare, to the
extent necessary, a net short-term capital gain dividend once per year.
Dividends are paid on the first Business Day of the month.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is calculated by the Fund's
Accounting Agent as of 4:00 p.m. Eastern time on each Business Day the Fund is
open. The net asset value per share of each class of each Portfolio is computed
by dividing the sum of the value of the securities held by the Portfolio plus
any cash or other assets (including interest and dividends accrued but not yet
received) minus all liabilities (including any accrued expenses that are
specific to that class) by the total number of shares outstanding at such time,
rounded to the nearest cent. Expenses, including the investment advisory fees
payable to the Investment Adviser, are accrued daily.
The following methods are used to calculate the value of a Portfolio's
assets: (1) all portfolio securities for which over-the-counter market
quotations are readily available (including asset-backed securities) are valued
at the latest bid price; (2) deposits and repurchase agreements are valued at
their cost plus accrued interest unless the Investment Adviser determines in
good faith, under procedures established by and under the general supervision of
the Fund's Board of Directors, that such value does not approximate the fair
value of such assets; and (3) the value of other assets will be determined in
good faith by the Investment Adviser at fair value under procedures established
by and under the general supervision of the Fund's Board of Directors. The
procedures establish guidelines for the Board to follow in pricing securities in
the Portfolios for which market quotations are not readily available. These
securities will be priced by the Fund's Pricing Committee and then reported to
Board seeking ratification of the price by the Board at its next quarterly
meeting.
To the extent that the Portfolios invest in foreign securities, these
securities may be listed on foreign exchanges that trade on days when the
Portfolios do not price their shares. As a result, the net asset value per share
of the Portfolios may change at a time when shareholders are not able to
purchase or redeem their shares.
7
<PAGE>
TAXES
The following discussion is only a brief summary of some of the important
tax considerations affecting each Portfolio and its shareholders. No attempt is
made to present a detailed explanation of all federal, state, local and foreign
income tax considerations, and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential investors are urged to consult
their own tax advisers with specific reference to their own tax situation.
Distributions paid by a Portfolio from net investment income are designated
by the Portfolio as "ordinary income dividends" and, whether paid in cash or
reinvested in additional shares, will be taxable to the Portfolio's shareholders
that are otherwise subject to tax as ordinary income. Distributions made from a
Portfolio's net capital gain which are designated by the Portfolio as "capital
gains dividends" are taxable to shareholders as long-term capital gains,
regardless of the length of time the shareholder has owned the Portfolio's
shares. Each Portfolio expects that its distributions will represent primarily
ordinary income to shareholders. Shareholders receiving distributions from the
Portfolio in the form of additional shares will be treated for federal income
tax purposes as receiving a distribution in an amount equal to the net asset
value of the additional shares on the date of such a distribution. Each
shareholder will receive an annual statement detailing the tax status of
Portfolio distributions for each year.
Gain or loss, if any, recognized on the sale or other disposition of shares
of a Portfolio will be taxed as capital gain or loss if the shares are capital
assets in the shareholder's hands. Generally, a shareholder's gain or loss will
be a long-term gain or loss if the shares have been held for more than one year.
A loss realized on a sale or exchange of shares may be disallowed if other
shares are acquired within a 61-day period beginning 30 days before and ending
30 days after the date that the shares are disposed of.
Dividends and distributions by a Portfolio are generally taxable to the
shareholders at the time the dividend or distribution is made. Any dividend
declared in October, November or December of any year, however, that is payable
to shareholders of record on a specified date in such month will be deemed to
have been received by the shareholders and paid by a Portfolio on December 31 of
such year in the event such dividends are actually paid during January of the
following year.
A Portfolio may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to taxable
shareholders. This tax may be withheld from dividends if (i) the shareholder
fails to furnish the Portfolio with the shareholder's correct taxpayer
identification number, (ii) the Internal Revenue Service ("IRS") notifies the
Portfolio that the shareholder has failed to report properly certain interest
and dividend income to the IRS and to respond to notices to that effect, or
(iii) when required to do so, the shareholder fails to certify that he or she is
not subject to backup withholding.
8
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance for the period of each Portfolio's operations. Certain
information reflects financial results for a single share. The total returns in
the table represent the rate that an investor would have earned (or lost) on an
investment in each Portfolio, assuming reinvestment of all dividends and
distributions. This information has been audited by Ernst & Young LLP,
independent auditors, whose report, along with each Portfolio's financial
statements, are included in the Annual Report, which is available upon request.
<TABLE>
<CAPTION>
SAMCO FUNDS, INC.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Aggregate Fixed Intermediate Fixed
Income Fund Income Fund
<S> <C> <C> <C>
For the period For the period
Year Ended from 12/30/97* from 6/30/99*
10/31/99 to 10/31/98 to 10/31/99
Net asset value,
beginning of period $10.26 $10.00 $10.00
---------- --------------- ----------------
Increases From
Investment Operations
Net investment income 0.56 0.21 0.20
Net realized and
unrealized gain
(loss) on
investments (0.48) 0.46 (0.09)
------------ -------------- -----------------
Total from
investment
operations 0.08 0.67 0.11
LESS
DISTRIBUTIONS
From net
investment income (0.56) (0.41) (0.19)
From net realized
gains on investments (0.11) - -
Total
distributions (0.67) (0.41) (0.19)
-------- ------------ ------------------
Net asset value,
end of period $9.67 $10.26 $9.92
-------- ------------ ------------------
-------- ------------ ------------------
TOTAL RETURN (a) 0.80% 6.87%(b) 1.13%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period (000's) $56,285 $43,899 $10,926
Ratio of net
expenses to average
net assets 0.45% 0.45%(c) 0.45%
Ratio of expenses
to average net
assets (before
expense waivers
and reimbursement
of other expenses) 0.71% 1.03%(c) 1.81%
Ratio of net
investment income
to average
net assets 5.78% 5.17%(c) 5.93%
Portfolio turnover
rate 562% 478%(b) 117%
- -----------------------------------------------------------------------------------------
</TABLE>
(a) Total return would have been lower had certain expenses not been waived or
reimbursed
(b) Not Annualized
(c) Annualized
* Commencement of investment operations
- -------------------------------------------------------------------------------
9
<PAGE>
APPENDIX A
DESCRIPTION OF INVESTMENTS
Each Portfolio may invest in the securities defined below in accordance
with their principal investment strategies and any quality or policy
constraints. Additional information regarding the associated risks accompanying
the securities defined below is located in the Fund's Statement of Additional
Information.
CORPORATE ISSUES
The Portfolios may invest in corporate issues which are debt instruments issued
by private corporations. Bondholders, as creditors, have a prior legal claim
over common and preferred stockholders of the corporation as to both income and
assets for the principal and interest due to the bondholder. The Portfolios will
buy corporate issues subject to any quality constraints. If a security held by a
Portfolio is downgraded, the Portfolio may retain the security if the Investment
Adviser deems retention of the security to be in the best interests of the
Portfolio.
INVESTMENT GRADE DEBT SECURITIES
The Portfolios may invest in investment grade securities that are those rated by
one or more NRSROs in one of the four highest rating categories at the time of
purchase (e.g. AAA, AA, A or BBB by Standard & Poor's, Fitch, or Duff & Phelps,
or Aaa, Aa, A or Baa by Moody's). Securities rated BBB or Baa represent the
lowest of four levels of investment grade securities and are regarded as
borderline between definitely sound obligations and those in which the
speculative element begins to predominate. Mortgage-backed securities, including
mortgage pass-throughs and collateralized mortgage obligations (CMOs), deemed
investment grade by the Investment Adviser, will either carry a guarantee from
an agency of the U.S. Government or a private issuer of the timely payment of
principal and interest (such guarantees do not extend to the market value of
such securities or the net asset value per share of the Portfolio) or, in the
case of unrated securities, be sufficiently seasoned that they are considered by
the Investment Adviser to be investment grade quality. The Investment Adviser
may retain securities if their ratings fall below investment grade if it deems
retention of the security to be in the best interests of the Portfolio. The
Portfolio may hold unrated securities if the Investment Adviser considers the
risks involved in owning that security to be equivalent to the risks involved in
holding an Investment Grade Security.
MORTGAGE-BACKED SECURITIES AND ASSET-BACKED DEBT SECURITIES
Mortgage-backed debt securities are secured or backed by mortgages or other
mortgage-related assets. Such securities may be issued by such entities as
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"),
commercial banks, savings and loan associations, mortgage banks, or by issuers
that are affiliates of or sponsored by such entities. Other asset-backed
securities are secured or backed by assets other than mortgage-related assets,
such as automobile and credit card receivables, and are issued by such
institutions as finance companies, finance subsidiaries of industrial companies,
and investment banks. The Portfolios will purchase only asset-backed securities
that the Investment Adviser determines to be liquid. The Portfolios will not
purchase mortgage-backed or asset-backed securities that do not meet the above
minimum credit standards.
An important feature of mortgage and asset-backed securities is that the
principal amount is generally subject to partial or total prepayment at any time
because the underlying assets (i.e., loans) generally may be prepaid at any
time. If an asset-backed security is purchased at a premium to par, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if an asset-backed security is
purchased at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will decrease, yield to maturity. It should
also be noted that these securities may not have any security interest in the
underlying assets, and recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
10
<PAGE>
U.S. TREASURY AND U.S. GOVERNMENT AGENCY SECURITIES
U.S. Government Securities include instruments issued by the U.S. Treasury,
including bills, notes and bonds. These instruments are direct obligations of
the U.S. Government and, as such, are backed by the full faith and credit of the
United States. They differ primarily in their interest rates, the lengths of
their maturities and the dates of their issuances. In addition, U.S. Government
Securities include securities issued by instrumentalities of the U.S.
Government, such as the Government National Mortgage Association ("GNMA"), which
are also backed by the full faith and credit of the United States. U.S.
Government Agency Securities include instruments issued by instrumentalities
established or sponsored by the U.S. Government, such as the Student Loan
Marketing Association ("SLMA"), the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). While these
securities are issued, in general, under the authority of an Act of Congress,
the U.S. Government is not obligated to provide financial support to the issuing
instrumentalities.
EACH PORTFOLIO MAY ALSO INVEST IN THE SECURITIES DEFINED BELOW IN ACCORDANCE
WITH THEIR ALLOWABLE INVESTMENTS AND ANY QUALITY OR POLICY CONSTRAINTS.
ADDITIONAL INFORMATION REGARDING THE ASSOCIATED RISKS ACCOMPANYING THE
SECURITIES DEFINED BELOW IS LOCATED IN THE FUND'S STATEMENT OF ADDITIONAL
INFORMATION.
BANK OBLIGATIONS
Each Portfolio may invest in obligations of domestic and foreign banks,
including time deposits, certificates of deposit, bankers' acceptances, bank
notes, deposit notes, Eurodollar time deposits, Eurodollar certificates of
deposit, variable rate notes, loan participations, variable amount master demand
notes, and custodial receipts. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Certificates of deposit are negotiable short-term obligations
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is adjusted periodically
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer, or storage of goods). A Portfolio will not concentrate more
than 25% of its total assets in domestic bank obligations. Domestic bank
obligations include instruments that are issued by United States (domestic)
banks; United States branches of foreign banks, if such branches are subject to
the same regulations as United States banks; and foreign branches of United
States banks, if the Investment Adviser determines that the investment risk
associated with investing in instruments issued by such branches is the same as
that of investing in instruments issued by the United States parent bank, in
that the United States parent bank would be unconditionally liable in the event
that the foreign branch fails to pay on its instruments. Bank obligations entail
varying amounts of interest rate and credit risk, with the lowest-rated and
longest-dated bank obligations entailing the greatest risk of loss to the
Portfolios.
CMOS--COLLATERALIZED MORTGAGE OBLIGATIONS
The Portfolios may purchase collateralized mortgage obligations which are
collateralized by mortgage pass-through securities. Cash flows from the mortgage
pass-through securities are allocated to various tranches (a "tranche" is
essentially a separate security) in a predetermined, specified order. Each
tranche has a stated maturity - the latest date by which the tranche can be
completely repaid, assuming no prepayments - and has an average life - the
average of the time to receipt of a principal payment weighted by the size of
the principal payment. The average life is typically used as a proxy for
maturity because the debt is amortized (repaid a portion at a time), rather than
being paid off entirely at maturity, as would be the case in a straight debt
instrument.
EURODOLLAR AND YANKEE OBLIGATIONS
Eurodollar bank obligations are dollar-denominated certificates of deposit and
time deposits issued outside the U.S. capital markets by foreign branches of
U.S. banks and by foreign banks. Yankee bank obligations are dollar- denominated
obligations issued in the U.S. capital markets by foreign banks.
FLOATERS
Floaters--Floating and Variable Rate Obligations -- are debt obligations with a
floating or variable rate of interest, i.e. the rate of interest varies with
changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry a
demand feature that permits the holder to tender them back to the issuer of the
underlying instrument, or to a third party, at par value prior to maturity.
MUNICIPAL DEBT SECURITIES
The Portfolios may, from time to time, purchase municipal debt securities when,
in the Investment Adviser's opinion, such instruments will provide a greater
return than taxable instruments of comparable quality. It is not anticipated
that such securities will ever represent a significant portion of a Portfolio's
assets. Fund distributions that are derived from interest on municipal debt
securities will be taxable to shareholders in the same manner as distributions
derived from taxable debt securities.
PREFERRED STOCK
The Portfolios may invest in preferred stock which is non-voting ownership
shares in a corporation which pay a fixed or variable stream of dividends.
11
<PAGE>
WHEN-LSSUED AND FORWARD COMMITMENT SECURITIES
The Portfolios may purchase securities on a "when-issued" basis and may purchase
or sell securities on a "forward commitment" basis. In such transactions,
instruments are bought with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous yield or price at the
time of the transaction. Delivery of and payment for these securities may take
more than a month after the date of the purchase commitment, but will take place
no more than 120 days after the trade date. No income accrues prior to delivery
on securities that have been purchased pursuant to a forward commitment or on a
when-issued basis. However, interest is generated on the short-term investments
that are segregated for the settlement of these securities. At the time the
Portfolio enters into a transaction on a when-issued or forward commitment
basis, a segregated account consisting of cash or liquid securities equal to the
value of the when-issued or forward commitment securities will be established in
the Portfolio and maintained in the Portfolio and will be marked to market
daily. A short term investment in this segregated account may not have a
duration that exceeds 180 days. Forward commitments, or delayed deliveries, are
deemed to be outside the normal corporate settlement structure. They are subject
to segregation requirements; however, when a forward commitment purchase is made
to close a forward commitment sale, or vice versa, the difference between the
two may be netted for segregation purposes until settlement date.
ZERO COUPON DEBT SECURITIES
The Portfolios may invest in zero coupon debt securities (bonds that pay no
interest but are originally sold at an original issue discount). Because they do
not pay interest until maturity, zero coupon securities tend to be subject to
greater fluctuation of market value in response to changes in interest rates
than interest-paying securities of similar maturities.
This Prospectus contains a concise statement of information investors should
know before they invest in the Portfolios. Please retain this Prospectus for
future reference. Additional information about each Portfolio's investments is
available in the Fund's annual and semi-annual reports to shareholders, as well
as the Statement of Additional Information (SAI). The SAI provides more
information about the Portfolios, including their operations and investment
policies. A current SAI is on file with the Securities and Exchange Commission
and is incorporated by reference, meaning it is legally considered a part of
this Prospectus. In the Fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
performance during its last fiscal year.
The Fund's SAI, annual, semi-annual reports, and other information are
available, without charge, upon request by contacting First Fund Distributors at
their toll free telephone number (800) 247-0473.
Information about the Fund (including the SAI) can be reviewed and copied at the
Commission's Public Reference Room in Washington D.C. Information on the
operation of the public reference room may be obtained by calling the Commission
at 202-942-8090. Reports and other information about the Fund may be obtained on
the Commission's Internet site at http://www.sec.gov. Copies of this information
may be obtained, upon payment of a duplicating fee, by writing the Public
Reference Section of the Commission, Washington D.C. 20549-0102 or by electronic
request at the following e-mail address: [email protected].
Fund's Investment Company Act File number: 811-8323.
12
<PAGE>
SAMCO FUNDS, INC.
SAMCO AGGREGATE FIXED INCOME FUND CLASS B SHARES
SAMCO INTERMEDIATE FIXED INCOME FUND CLASS B SHARES
The SAMCO Aggregate Fixed Income Fund (the "Fixed Income Fund") and the SAMCO
Intermediate Fixed Income Fund (the "Intermediate Fixed Income Fund") are
non-diversified investment portfolios (each a "Portfolio" and collectively the
"Portfolios") of SAMCO Funds, Inc., an open-end management investment company
(the "Fund").
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
THE DATE OF THIS PROSPECTUS IS MARCH 1, 2000.
<PAGE>
TABLE OF CONTENTS
PAGE
RISK/RETURN SUMMARY 1
FIXED INCOME FUND 1
INTERMEDIATE FIXED INCOME FUND 1
PRINCIPAL INVESTMENT RISKS 2
RISK/RETURN BAR CHARTS AND TABLES 3
RISK/RETURN SUMMARY: FEE TABLE 4
FUND MANAGEMENT 5
PURCHASE OF SHARES 6
REDEMPTION OF SHARES 6
ADDITIONAL INFORMATION 7
APPENDIX A: DESCRIPTION OF INVESTMENTS 9
<PAGE>
RISK/RETURN SUMMARY
The following is a summary of certain key information about each Portfolio,
including investment objectives, principal investment strategies and principal
investment risks. A more detailed description of certain allowable investments
is included in Appendix A.
INVESTMENT OBJECTIVES:
FIXED INCOME: The Fixed Income Fund's investment objective is to
provide investors with a total return which consistently exceeds the total
return of the broad United States investment grade bond market. Performance
is measured against the Lehman Brothers Aggregate Bond Index (LBA
Benchmark).
INTERMEDIATE FIXED INCOME: The Intermediate Fixed Income Fund's
investment objective is to provide investors with a total return which
consistently exceeds the total return of the intermediate portion of the
broad United States investment grade bond market. Performance is measured
against the Lehman Brothers Intermediate Government/Corporate Index (LBI
Benchmark).
PRINCIPAL INVESTMENT STRATEGIES: Each Portfolio seeks to achieve its objective
primarily through investment in various types of income producing debt
securities including mortgage and asset-backed securities, United States
Government and Agency Obligations, and corporate obligations. At least 65% of
total assets will be invested in the broad universe of available United States
dollar denominated fixed income securities.
INVESTMENT MANAGEMENT APPROACH: Seix Investment Advisors Inc.
(Investment Adviser) will manage the portfolios based on its fixed income
approach which is founded upon four cornerstones:
DURATION/MATURITY: Duration measures the expected life of a debt
security on a present value basis. In general, duration rises with
maturity, therefore the greater the duration of a bond, the greater its
percentage volatility.
o The Fixed Income Portfolio will be managed with a duration that
is close to the duration of the LBA Benchmark, which is 4.7 years
as of December 31, 1999.
o The Intermediate Fixed Income Portfolio will maintain an
average-weighted portfolio maturity of three to ten years. It
will be managed with a duration that is close to the duration of
the LBI Benchmark, which is 3.4 years as of December 31, 1999.
YIELD: Although each Portfolio is managed on a total return basis, a
premium is placed on income. Income is considered the most powerful
contributor to fixed income returns. Non-United States Treasury securities
generally play a dominant role in each Portfolio.
PORTFOLIO CONSTRUCTION: Each Portfolio's construction is generally
determined through a research driven process designed to identify value
areas within the fixed income market. Each Portfolio will typically
maintain an over-weighting in obligations of domestic corporations and an
under-weighting of United States Treasury securities.
PROPRIETARY ANALYSIS: Due to the complexity of the bond market, the
Investment Adviser uses financial investment techniques which it developed
internally to attempt to identify value and adequately control risk.
CREDIT QUALITY: Each Portfolio may only invest in investment grade securities,
which are those securities rated by one or more nationally recognized
statistical rating organizations (NRSROs) in one of the four highest rating
categories at the time of purchase (e.g. AAA, AA, A or BBB by Standard & Poor's
Corporation (Standard & Poor's), Duff & Phelps Credit Rating Co. (Duff &
Phelps), or Fitch Investors Service, Inc. (Fitch) or Aaa, Aa, A or Baa by
Moody's Investors Service, Inc. (Moody's). If the security is unrated, it must
meet, in the judgment of the Investment Adviser, comparable credit quality
standards.
1
<PAGE>
The Intermediate Fixed Income Portfolio will not, at the time of purchase,
invest more than 15% of its net assets in securities rated BBB by Standard &
Poor's, Duff & Phelps, or Fitch or Baa by Moody's.
PRINCIPAL INVESTMENTS: Each Portfolio will principally invest in the following
securities: obligations issued or guaranteed by the United States Government,
obligations of domestic corporations or other entities, obligations of domestic
banks, mortgage and asset-backed securities, obligations backed by the full
faith and credit of the United States, and obligations issued or guaranteed by
United States Government Agencies, Government-Sponsored Enterprises (GSE's) or
instrumentalities where each Portfolio must look principally to the issuing or
guaranteeing agency for ultimate repayment.
2
<PAGE>
PRINCIPAL INVESTMENT RISKS
A loss of money on your investment in each Portfolio, or the
under-performance of each Portfolio relative to other investments could occur
due to certain risks. In general, the greater the risk, the greater the
possibility of losing money. The possibility exists that the investment
decisions made by the portfolio managers of the Fund will not accomplish what
they are designed to achieve. No assurance can be given that a Portfolio's
investment objective will be achieved.
The principal risks associated with each Portfolio's investment policies and
strategies are as follows:
INTEREST RATE Investing in debt securities will subject the Portfolios to the
RISK: risk that the market value of the debt securities will decline
because of rising interest rates. The prices of debt
securities are generally linked to the prevailing market
interest rates. In general, when interest rates rise, the
prices of debt securities fall. The price volatility of a debt
security also depends on its maturity or duration. Generally,
the longer the maturity or duration of a debt security the
greater its sensitivity to changes in interest rates.
CREDIT RISK: The debt securities in the Fund's portfolios are subject to
credit risk. Credit risk is the possibility that an issuer
will fail to make timely payments of interest or principal.
Securities rated in the lowest category of investment grade
securities have some risky characteristics and changes in
economic conditions are more likely to cause issuers of these
securities to be unable to make payments.
PREPAYMENT Payments from the pool of loans underlying mortgage or asset-
RISK: backed securities may not be enough to meet the monthly
payments of the mortgage or asset-backed security. If this
occurs such securities will lose value. Also, prepayments of
loans or mortgage foreclosures will shorten the life of these
securities. Prepayments vary based on several factors,
including the level of interest rates, general economic
conditions, the location and age of the mortgage and other
demographic conditions. When interest rates are declining,
there are usually more prepayments. The reinvestment of cash
received from prepayments will, therefore, usually be at a
lower interest rate than the original investment, lowering a
Portfolio's yield.
NON- Each of the Portfolios is non-diversified in that it
DIVERSIFICATION concentrates its investments among fewer securities than a
RISK: diversified mutual fund would. Non-diversification can
intensify risk should a particular investment suffer from
adverse market conditions.
PORTFOLIO Because the Investment Adviser may engage in active and
TURNOVER frequent trading of portfolio securities shareholders may incur
taxes on any realized capital gains which could result in a
lower total return for a Portfolio.
3
<PAGE>
RISK/RETURN BAR CHARTS AND TABLES
(CLASS A SHARES OF THE FIXED INCOME FUND INDICATED)
THE BAR CHART AND TABLE SHOWN BELOW INDICATE THE RISKS OF INVESTING IN THE FIXED
INCOME FUND BY ILLUSTRATING HOW IT HAS PERFORMED. THE BAR CHART SHOWS THE YEARLY
PERFORMANCE OF THE CLASS A SHARES OF THE FIXED INCOME FUND AND THE TABLE BELOW
SHOWS THE PERFORMANCE OF THE CLASS A SHARES OF THE FIXED INCOME FUND AS COMPARED
TO A SELECTED BROAD BASED INDEX. THE PAST PERFORMANCE OF THE FIXED INCOME FUND
DOES NOT NECESSARILY INDICATE HOW IT WILL PERFORM IN THE FUTURE.
FIXED INCOME FUND
[BAR GRAPH]
Calendar Year Quarterly Return
------------- ----------------
1998 7.82%
1999 -0.53%
During the periods shown in the Fixed Income Fund's bar chart, the highest
quarterly return was 3.18% (quarter ended 9/30/98) and the lowest quarterly
return was -1.16% (quarter ended 6/30/99).
Average Annual Total
Returns(for the period(s)
ended December 31, 1999) Past 1 Year Since Inception
- -----------------------------------------------------------------------------
SAMCO Aggregate
Fixed Income Fund* -0.53% 3.65%
- -----------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond Index -0.83 3.93%**
- -----------------------------------------------------------------------------
* Date of Inception of Class A Shares of the Fixed Income Fund: 12/30/97. The
name of the Portfolio was changed on June 10, 1999 by the Board of Directors
from SAMCO Fixed Income Portfolio to SAMCO Aggregate Fixed Income Fund. The
returns in the bar chart and table are for shares in Class A of the Fixed Income
Fund which are not offered in this Prospectus. The Fixed Income Fund expects
that the annual returns of the Class B shares would be substantially similar to
the returns of Class A because both classes of shares invest in the same
portfolio of securities, and the returns would differ only to the extent that
the two classes of shares have different expenses. An example of the different
class fees are the 12b-1 fees in the amount of 0.25% of the average daily net
assets of the Fixed Income Fund which the Class B Shares have and which the
Class A Shares do not.
** Reflects performance of the LBA Benchmark since 12/31/97.
BECAUSE THE INTERMEDIATE FIXED INCOME FUND COMMENCED OPERATIONS ON JUNE 30, 1999
ITS PERFORMANCE INFORMATION HAS NOT BEEN INCLUDED.
4
<PAGE>
RISK/RETURN SUMMARY: FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
Class B shares of each of the Portfolios.
Shareholder Fees
(Fees Paid Directly Intermediate Fixed
From Your Investment) Fixed Income Fund Income Fund
- ------------------------------------------------------------------------------
Sales Loads None None
Redemption Fees None None
Exchange Fee None None
ANNUAL FUND
OPERATING EXPENSES
(Expenses Deducted
From Fund Assets)
Management Fees 0.25% 0.25%
Other Expenses (a) 0.46% 1.56% (b)
Total Annual
Fund Operating
Expenses (c) 0.71% 1.81%
- -----------------------------------------------------------------------------
(a) Other Expenses include fees for shareholder services, custodial,
administration, dividend disbursing and transfer agency fees, legal and auditing
fees, printing costs and registration fees.
(b) Because Intermediate Fixed Income Fund commenced investment operations on
June 30, 1999, expenses are estimates based upon the expected expenses that the
Intermediate Fixed Income Fund would incur in the current fiscal year.
(c) The Investment Adviser has voluntarily agreed to limit the total expenses
for each of the Fixed Income Fund and the Intermediate Fixed Income Fund
(excluding interest, taxes, brokerage and extraordinary expenses) to annual
rates of 0.45% of their average daily net assets. There is no specific time
period for how long the voluntary expense limitations will last, and such
waivers may be cancelled at any time. As long as these temporary expense
limitations continue, it may lower the Portfolios' expenses and increase their
total returns. For the fiscal year ended October 31, 1999, the Investment
Adviser and Investors Bank & Trust Company (the "Administrator") waived fees in
the amount of 0.26% and 1.36% for the Fixed Income Fund and the Intermediate
Fixed Income Fund, respectively.
EXAMPLE. This example is intended to help you compare the cost of investing in
each of the Portfolios with the cost of investing in other mutual funds.
The example assumes that:
o You invest $10,000 in the Portfolio for the time periods indicated;
o Your investment has a 5% return each year; and
o The Portfolio's operating expenses remain the same.
The results apply whether or not you redeem your investment at the end of each
period. Although your costs may be higher or lower, based on these assumptions
your costs would be:
Intermediate Fixed
Fixed Income Fund Income Fund
1 Year 73 184
3 Years 228 570
5 Years 396
10 Years 882
- ------------------------------------------------------------------------------
5
<PAGE>
FUND MANAGEMENT
BOARD OF DIRECTORS
The Board of Directors of the Fund consists of five individuals who are
responsible for the overall supervision of the operations of the Fund and
perform the various duties imposed on the directors of investment companies by
the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund's
Directors are Christina Seix, John G. Talty, Peter J. Bourke, John E. Manley,
Sr., and John R. O'Brien. Additional information about the Directors and the
Fund's executive officers may be found in the Statement of Additional
Information under the heading "Management of the Fund."
INVESTMENT ADVISER
Seix Investment Advisors Inc., established in 1992, is a registered investment
adviser that specializes in professional fixed income management for
corporations, public funds, endowments, foundations and hospitals. The
Investment Adviser currently has approximately $5.2 billion in assets under
management. The Investment Adviser is located at 300 Tice Boulevard, Woodcliff
Lake, N.J. 07675. Seix Investment Advisors Inc. acts as the investment adviser
to the Fund and provides the Fund with management and investment advisory
services. The advisory agreement with the Investment Adviser provides that,
subject to the direction of the Board of Directors of the Fund, the Investment
Adviser is responsible for the actual management of the Fund. The responsibility
for making decisions to buy, sell or hold a particular security rests with the
Investment Adviser, subject to review by the Board of Directors. The Investment
Adviser also is obligated to provide all the office space, facilities, equipment
and personnel necessary to perform its duties under the Advisory Agreement.
PAYMENT OF FUND EXPENSES
Fund expenses directly attributable to a Portfolio are charged to that
Portfolio; other expenses are allocated proportionately among all the Portfolios
in relation to their net assets. As compensation for the services rendered by
the Investment Adviser under the Advisory Agreements, each Portfolio pays the
Investment Adviser a monthly advisory fee. This advisory fee is calculated by
applying the following annual percentage rates to such Portfolio's average daily
net assets for the month:
FUND NAME RATE
- -----------------------------------------------
Fixed Income Fund 0.25%
Intermediate Fixed Income Fund 0.25%
Because the Adviser voluntarily waived advisory fees for the fiscal year ended
October 31, 1999, advisory fees paid by the Fixed Income Fund amounted to 0.12%
of average daily net assets.
Because the Adviser voluntarily waived advisory fees for the period June 30,
1999 (commencement of operations) to October 31, 1999, the Intermediate Fixed
Income Fund did not pay any advisory fees.
PORTFOLIO MANAGERS
Each Portfolio will be managed using a team approach with all of the portfolio
managers listed below contributing investment expertise in their respective
areas. The following lists each Portfolio Manager's position with the Advisor
and their investment experience.
CHRISTINA SEIX, CFA, CHAIRMAN, CEO & CHIEF INVESTMENT OFFICER
Formerly, Chairman & CEO, Head of Investment Policy, MacKay-Shields
Total Investment Experience: 24 years
BA, Fordham University, Mathematics; MA, SUNY, Mathematics
JOHN TALTY, CFA, PRESIDENT & SENIOR PORTFOLIO MANAGER
Formerly, Chief Fixed Income Strategist, J.P. Morgan Securities
Total Investment Experience: 16 years
B.A., Connecticut College, Economics, Phi Beta Kappa, Magna Cum Laude
BARBARA HOFFMANN, MANAGING DIRECTOR AND SENIOR PORTFOLIO MANAGER
Formerly, Senior Portfolio Manager, MetLife Investment Management Co.
Total Investment Experience: 18 years
BS, University of Maine, Education/Mathematics
6
<PAGE>
MICHAEL MCEACHERN, CFA, DIRECTOR AND SENIOR PORTFOLIO MANAGER
Formerly, Vice President, Fixed Income, American General Corp., June 1997
Total Investment Experience: 13 years
BA, University of California, Operations Research; MBA, Rice University,
Accounting/Public Administration
JOSEPH CALABRESE, DIRECTOR AND SENIOR PORTFOLIO MANAGER
Formerly, Director, Fixed Income, MetLife Insurance Company, June 1997
Total Investment Experience: 10 years
BS, New Jersey Institute of Technology, Industrial Engineering; MBA,
New York University, Finance
PURCHASE OF SHARES
There is no sales charge imposed by the Fund. The minimum initial
investment in the Class A shares of each Portfolio in the Fund is $1,000,000.
The minimum investment may be waived at any time at the discretion of the
Investment Adviser. Additional purchases may be of any amount.
The offering of shares of each Portfolio is continuous and purchases of
shares of the Portfolios may be made Monday through Friday, except for the
holidays declared by the Federal Reserve Banks of New York or Boston (a
"Business Day"). At the present time, these holidays are: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Memorial Day, Fourth of July, Labor Day,
Columbus Day, Veterans Day, Thanksgiving, and Christmas. Each Portfolio's shares
are offered at a public offering price equal to the net asset value next
determined after receipt of a purchase order.
In order to purchase shares on a particular Business Day, subject to the
offering dates described above, a purchaser must submit a completed Account
Application Form (and other required documents) and call Investors Bank & Trust
Company (Transfer Agent) at (800) 247-0473 prior to 4:00 p.m. Eastern time to
inform the Fund of the incoming wire transfer. If Federal funds are received by
the Fund that same day, the order will be effective on that day. If the Fund
receives notification on a non-business day, or after 4:00 p.m. Eastern time, or
if Federal funds are received by the Transfer Agent after 4:00 p.m. Eastern
time, such purchase order shall be deemed received as of the next business day.
Shares purchased will begin accruing dividends on the day Federal funds are
received.
Purchases of shares must be made by wire transfer of Federal funds. Please
note that the shareholder's bank may impose a charge to execute the wire
transfer. The wiring instructions for purchasing shares of a Portfolio are:
Investors Bank & Trust Company
Boston, MA
ABA # 011-001-438
Acct: 303030303
Benf: (name of Portfolio)
F/F/C (Shareholder's Account at Fund)
REDEMPTION OF SHARES
The Fund will redeem all full and fractional shares of each Portfolio upon
request of shareholders. The redemption price is the net asset value per share
next determined after receipt by the Transfer Agent of proper notice of
redemption as described below. If such notice is received by the Transfer Agent
by 4:00 p.m. Eastern time on any Business Day, the redemption will be effective
on that Business Day. If such notice of redemption is received by the Transfer
Agent after 4:00 p.m. Eastern time, the redemption shall be effective on the
following Business Day. Payment will ordinarily be made by wire on the next
Business Day, but within no more than seven days from the date of receipt. If
the notice is received on a day that is not a Business Day or after the
above-mentioned cut-off times, the redemption notice will be deemed received as
of the next Business Day.
There is no charge imposed by the Fund to redeem shares of a Portfolio;
however, a shareholder's bank may impose its own wire transfer fee for receipt
of the wire. Redemptions may be executed in any amount requested by the
shareholder up to the amount such shareholder has invested in the Portfolio.
To redeem shares, a shareholder or any authorized agent (so designated on
the Account Application Form) must provide the Transfer Agent with the dollar or
share amount to be redeemed, the account to which the redemption proceeds should
be wired (which account shall have been previously designated by the shareholder
on its Account Application Form), the name of the shareholder and the
shareholder's account number. Shares redeemed receive dividends up to and
including the day preceding the day the redemption proceeds are wired.
7
<PAGE>
A shareholder may change its authorized agent, the address of record or the
account designated to receive redemption proceeds at any time by writing to the
Transfer Agent with a signature guaranteed by a national bank, which is a member
firm of any national or regional securities exchange (a Signature Guarantee). If
the guarantor institution belongs to one of the Medallion Signature Programs, it
must use the Medallion "Guaranteed" stamp. Notarized signatures are not
sufficient. Further documentation may be required when deemed appropriate by the
Transfer Agent.
A shareholder may request redemption by calling the Transfer Agent at (800)
247-0473. Telephone redemption is made available to shareholders of the Fund on
the Account Application Form. The Fund and the Transfer Agent may employ
reasonable procedures designed to confirm that instructions communicated by
telephone are genuine. If either the Fund or the Transfer Agent does not employ
such procedures, it may be liable for losses due to unauthorized or fraudulent
instructions. The Fund or the Transfer Agent may require personal identification
codes and will only wire funds through pre-existing bank account instructions.
No bank instruction changes will be accepted via telephone.
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption of the Fund by making payment
in whole or in part in readily marketable securities chosen by the Fund and
valued as they are for purposes of computing the Fund's net asset value
(redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting the securities to cash.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
Dividends are automatically reinvested in additional Class B shares of the
applicable Portfolio on the last day of each month at the net asset value per
share on the last Business Day of that month unless shareholders indicate their
desire to receive dividends in cash (payable on the first Business Day of the
following month) on the Account Application Form. In the event that a Portfolio
realizes net long-term capital gains (i.e., with respect to assets held more
than 12 months), it will distribute them at least annually by automatically
reinvesting (unless a shareholder has elected to receive cash) such long-term
capital gains in additional shares of the Portfolio at the net asset value on
the date the distribution is declared.
The net investment income (including accrued but unpaid interest and
amortization of original issue and market discount or premium) of a Portfolio
will be declared as a dividend payable monthly to shareholders of record as of
the last Business Day of each month. Each Portfolio will also declare, to the
extent necessary, a net short-term capital gain dividend once per year.
Dividends are paid on the first Business Day of the month.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is calculated by the Fund's
Accounting Agent as of 4:00 p.m. Eastern time on each Business Day the Fund is
open. The net asset value per share of each class of each Portfolio is computed
by dividing the sum of the value of the securities held by the Portfolio plus
any cash or other assets (including interest and dividends accrued but not yet
received) minus all liabilities (including any accrued expenses that are
specific to that class) by the total number of shares outstanding at such time,
rounded to the nearest cent. Expenses, including the investment advisory fees
payable to the Investment Adviser, are accrued daily.
The following methods are used to calculate the value of a Portfolio's
assets: (1) all portfolio securities for which over-the-counter market
quotations are readily available (including asset-backed securities) are valued
at the latest bid price; (2) deposits and repurchase agreements are valued at
their cost plus accrued interest unless the Investment Adviser determines in
good faith, under procedures established by and under the general supervision of
the Fund's Board of Directors, that such value does not approximate the fair
value of such assets; and (3) the value of other assets will be determined in
good faith by the Investment Adviser at fair value under procedures established
by and under the general supervision of the Fund's Board of Directors. The
procedures establish guidelines for the Board to follow in pricing securities in
the Portfolios for which market quotations are not readily available. These
securities will be priced by the Fund's Pricing Committee and then reported to
Board seeking ratification of the price by the Board at its next quarterly
meeting.
To the extent that the Portfolios invest in foreign securities, these
securities may be listed on foreign exchanges that trade on days when the
Portfolios do not price their shares. As a result, the net asset value per share
of the Portfolios may change at a time when shareholders are not able to
purchase or redeem their shares.
8
<PAGE>
RULE 12B-1 PLAN
Each Portfolio has adopted a Distribution Plan with respect to its Class B
shares pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, a Portfolio
may pay a quarterly distribution related fee in an amount not to exceed 0.25% of
the average daily value of the net assets attributable to Class B shares of the
Portfolio. Such amounts received under the Plan are to be used for payments to
qualifying dealers for their assistance in the distribution of the Portfolio's
shares and the provision of shareholder services and for other expenses such as
advertising costs and the payment for the printing and distribution of
prospectuses to prospective investors. Because these fees are paid out of the
Portfolio's assets on an on-going basis, over time these fees will increase the
cost of your investment and may cost you more than paying other types of sales
charges.
TAXES
The following discussion is only a brief summary of some of the important
tax considerations affecting each Portfolio and its shareholders. No attempt is
made to present a detailed explanation of all federal, state, local and foreign
income tax considerations, and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential investors are urged to consult
their own tax advisers with specific reference to their own tax situation.
Distributions paid by a Portfolio from net investment income are designated
by the Portfolio as "ordinary income dividends" and, whether paid in cash or
reinvested in additional shares, will be taxable to the Portfolio's shareholders
that are otherwise subject to tax as ordinary income. Distributions made from a
Portfolio's net capital gain which are designated by the Portfolio as "capital
gains dividends" are taxable to shareholders as long-term capital gains,
regardless of the length of time the shareholder has owned the Portfolio's
shares. Each Portfolio expects that its distributions will represent primarily
ordinary income to shareholders. Shareholders receiving distributions from the
Portfolio in the form of additional shares will be treated for federal income
tax purposes as receiving a distribution in an amount equal to the net asset
value of the additional shares on the date of such a distribution. Each
shareholder will receive an annual statement detailing the tax status of
Portfolio distributions for each year.
Gain or loss, if any, recognized on the sale or other disposition of shares
of a Portfolio will be taxed as capital gain or loss if the shares are capital
assets in the shareholder's hands. Generally, a shareholder's gain or loss will
be a long-term gain or loss if the shares have been held for more than one year.
A loss realized on a sale or exchange of shares may be disallowed if other
shares are acquired within a 61-day period beginning 30 days before and ending
30 days after the date that the shares are disposed of.
Dividends and distributions by a Portfolio are generally taxable to the
shareholders at the time the dividend or distribution is made. Any dividend
declared in October, November or December of any year, however, that is payable
to shareholders of record on a specified date in such month will be deemed to
have been received by the shareholders and paid by a Portfolio on December 31 of
such year in the event such dividends are actually paid during January of the
following year.
A Portfolio may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to taxable
shareholders. This tax may be withheld from dividends if (i) the shareholder
fails to furnish the Portfolio with the shareholder's correct taxpayer
identification number, (ii) the Internal Revenue Service ("IRS") notifies the
Portfolio that the shareholder has failed to report properly certain interest
and dividend income to the IRS and to respond to notices to that effect, or
(iii) when required to do so, the shareholder fails to certify that he or she is
not subject to backup withholding.
9
<PAGE>
APPENDIX A
DESCRIPTION OF INVESTMENTS
EACH PORTFOLIO MAY INVEST IN THE SECURITIES DEFINED BELOW IN ACCORDANCE
WITH THEIR PRINCIPAL INVESTMENT STRATEGIES AND ANY QUALITY OR POLICY
CONSTRAINTS. ADDITIONAL INFORMATION REGARDING THE ASSOCIATED RISKS ACCOMPANYING
THE SECURITIES DEFINED BELOW IS LOCATED IN THE FUND'S STATEMENT OF ADDITIONAL
INFORMATION.
CORPORATE ISSUES
The Portfolios may invest in corporate issues which are debt
instruments issued by private corporations. Bondholders, as creditors, have a
prior legal claim over common and preferred stockholders of the corporation as
to both income and assets for the principal and interest due to the bondholder.
The Portfolios will buy corporate issues subject to any quality constraints. If
a security held by a Portfolio is downgraded, the Portfolio may retain the
security if the Investment Adviser deems retention of the security to be in the
best interests of the Portfolio.
INVESTMENT GRADE DEBT SECURITIES
The Portfolios may invest in investment grade securities that are those rated by
one or more NRSROs in one of the four highest rating categories at the time of
purchase (e.g. AAA, AA, A or BBB by Standard & Poor's, Fitch, or Duff & Phelps,
or Aaa, Aa, A or Baa by Moody's). Securities rated BBB or Baa represent the
lowest of four levels of investment grade securities and are regarded as
borderline between definitely sound obligations and those in which the
speculative element begins to predominate. Mortgage-backed securities, including
mortgage pass-throughs and collateralized mortgage obligations (CMOs), deemed
investment grade by the Investment Adviser, will either carry a guarantee from
an agency of the U.S. Government or a private issuer of the timely payment of
principal and interest (such guarantees do not extend to the market value of
such securities or the net asset value per share of the Portfolio) or, in the
case of unrated securities, be sufficiently seasoned that they are considered by
the Investment Adviser to be investment grade quality. The Investment Adviser
may retain securities if their ratings fall below investment grade if it deems
retention of the security to be in the best interests of the Portfolio. The
Portfolio may hold unrated securities if the Investment Adviser considers the
risks involved in owning that security to be equivalent to the risks involved in
holding an Investment Grade Security.
MORTGAGE-BACKED SECURITIES AND ASSET-BACKED DEBT SECURITIES
Mortgage-backed debt securities are secured or backed by mortgages or other
mortgage-related assets. Such securities may be issued by such entities as
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"),
commercial banks, savings and loan associations, mortgage banks, or by issuers
that are affiliates of or sponsored by such entities. Other asset-backed
securities are secured or backed by assets other than mortgage-related assets,
such as automobile and credit card receivables, and are issued by such
institutions as finance companies, finance subsidiaries of industrial companies,
and investment banks. The Portfolios will purchase only asset-backed securities
that the Investment Adviser determines to be liquid. The Portfolios will not
purchase mortgage-backed or asset-backed securities that do not meet the above
minimum credit standards.
An important feature of mortgage and asset-backed securities is that the
principal amount is generally subject to partial or total prepayment at any time
because the underlying assets (i.e., loans) generally may be prepaid at any
time. If an asset-backed security is purchased at a premium to par, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if an asset-backed security is
purchased at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will decrease, yield to maturity. It should
also be noted that these securities may not have any security interest in the
underlying assets, and recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
U.S. TREASURY AND U.S. GOVERNMENT AGENCY SECURITIES
U.S. Government Securities include instruments issued by the U.S. Treasury,
including bills, notes and bonds. These instruments are direct obligations of
the U.S. Government and, as such, are backed by the full faith and credit of the
United States. They differ primarily in their interest rates, the lengths of
their maturities and the dates of their issuances. In addition, U.S. Government
Securities include securities issued by instrumentalities of the U.S.
Government, such as the Government National Mortgage Association ("GNMA"), which
are also backed by the full faith and credit of the United States. U.S.
Government Agency Securities include instruments issued by instrumentalities
established or sponsored by the U.S. Government, such as the Student Loan
Marketing Association ("SLMA"), the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). While these
securities are issued, in general, under the authority of an Act of Congress,
the U.S. Government is not obligated to provide financial support to the issuing
instrumentalities.
10
<PAGE>
EACH PORTFOLIO MAY ALSO INVEST IN THE SECURITIES DEFINED BELOW IN ACCORDANCE
WITH THEIR ALLOWABLE INVESTMENTS AND ANY QUALITY OR POLICY CONSTRAINTS.
ADDITIONAL INFORMATION REGARDING THE ASSOCIATED RISKS ACCOMPANYING THE
SECURITIES DEFINED BELOW IS LOCATED IN THE FUND'S STATEMENT OF ADDITIONAL
INFORMATION.
BANK OBLIGATIONS
Each Portfolio may invest in obligations of domestic and foreign banks,
including time deposits, certificates of deposit, bankers' acceptances, bank
notes, deposit notes, Eurodollar time deposits, Eurodollar certificates of
deposit, variable rate notes, loan participations, variable amount master demand
notes, and custodial receipts. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Certificates of deposit are negotiable short-term obligations
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is adjusted periodically
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer, or storage of goods). A Portfolio will not concentrate more
than 25% of its total assets in domestic bank obligations. Domestic bank
obligations include instruments that are issued by United States (domestic)
banks; United States branches of foreign banks, if such branches are subject to
the same regulations as United States banks; and foreign branches of United
States banks, if the Investment Adviser determines that the investment risk
associated with investing in instruments issued by such branches is the same as
that of investing in instruments issued by the United States parent bank, in
that the United States parent bank would be unconditionally liable in the event
that the foreign branch fails to pay on its instruments. Bank obligations entail
varying amounts of interest rate and credit risk, with the lowest-rated and
longest-dated bank obligations entailing the greatest risk of loss to the
Portfolios.
CMOS--COLLATERALIZED MORTGAGE OBLIGATIONS
The Portfolios may purchase collateralized mortgage obligations which are
collateralized by mortgage pass-through securities. Cash flows from the mortgage
pass-through securities are allocated to various tranches (a "tranche" is
essentially a separate security) in a predetermined, specified order. Each
tranche has a stated maturity - the latest date by which the tranche can be
completely repaid, assuming no prepayments - and has an average life - the
average of the time to receipt of a principal payment weighted by the size of
the principal payment. The average life is typically used as a proxy for
maturity because the debt is amortized (repaid a portion at a time), rather than
being paid off entirely at maturity, as would be the case in a straight debt
instrument.
EURODOLLAR AND YANKEE OBLIGATIONS
Eurodollar bank obligations are dollar-denominated certificates of deposit and
time deposits issued outside the U.S. capital markets by foreign branches of
U.S. banks and by foreign banks. Yankee bank obligations are dollar- denominated
obligations issued in the U.S. capital markets by foreign banks.
FLOATERS
Floaters--Floating and Variable Rate Obligations -- are debt obligations with a
floating or variable rate of interest, i.e. the rate of interest varies with
changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry a
demand feature that permits the holder to tender them back to the issuer of the
underlying instrument, or to a third party, at par value prior to maturity.
MUNICIPAL DEBT SECURITIES
The Portfolios may, from time to time, purchase municipal debt securities when,
in the Investment Adviser's opinion, such instruments will provide a greater
return than taxable instruments of comparable quality. It is not anticipated
that such securities will ever represent a significant portion of a Portfolio's
assets. Fund distributions that are derived from interest on municipal debt
securities will be taxable to shareholders in the same manner as distributions
derived from taxable debt securities.
PREFERRED STOCK
The Portfolios may invest in preferred stock which is non-voting ownership
shares in a corporation which pay a fixed or variable stream of dividends.
11
<PAGE>
WHEN-LSSUED AND FORWARD COMMITMENT SECURITIES
The Portfolios may purchase securities on a "when-issued" basis and may purchase
or sell securities on a "forward commitment" basis. In such transactions,
instruments are bought with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous yield or price at the
time of the transaction. Delivery of and payment for these securities may take
more than a month after the date of the purchase commitment, but will take place
no more than 120 days after the trade date. No income accrues prior to delivery
on securities that have been purchased pursuant to a forward commitment or on a
when-issued basis. However, interest is generated on the short-term investments
that are segregated for the settlement of these securities. At the time the
Portfolio enters into a transaction on a when-issued or forward commitment
basis, a segregated account consisting of cash or liquid securities equal to the
value of the when-issued or forward commitment securities will be established in
the Portfolio and maintained in the Portfolio and will be marked to market
daily. A short term investment in this segregated account may not have a
duration that exceeds 180 days. Forward commitments, or delayed deliveries, are
deemed to be outside the normal corporate settlement structure. They are subject
to segregation requirements; however, when a forward commitment purchase is made
to close a forward commitment sale, or vice versa, the difference between the
two may be netted for segregation purposes until settlement date.
ZERO COUPON DEBT SECURITIES
The Portfolios may invest in zero coupon debt securities (bonds that pay no
interest but are originally sold at an original issue discount). Because they do
not pay interest until maturity, zero coupon securities tend to be subject to
greater fluctuation of market value in response to changes in interest rates
than interest-paying securities of similar maturities.
12
<PAGE>
This Prospectus contains a concise statement of information investors should
know before they invest in the Portfolios. Please retain this Prospectus for
future reference. Additional information about each Portfolio's investments is
available in the Fund's annual and semi-annual reports to shareholders, as well
as the Statement of Additional Information (SAI). The SAI provides more
information about the Portfolios, including their operations and investment
policies. A current SAI is on file with the Securities and Exchange Commission
and is incorporated by reference, meaning it is legally considered a part of
this Prospectus. In the Fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
performance during its last fiscal year.
The Fund's SAI, annual, semi-annual reports, and other information are
available, without charge, upon request by contacting First Fund Distributors at
their toll free telephone number (800) 247-0473.
Information about the Fund (including the SAI) can be reviewed and copied at the
Commission's Public Reference Room in Washington D.C. Information on the
operation of the public reference room may be obtained by calling the Commission
at 202-942-8090. Reports and other information about the Fund may be obtained on
the Commission's Internet site at http://www.sec.gov. Copies of this information
may be obtained, upon payment of a duplicating fee, by writing the Public
Reference Section of the Commission, Washington D.C. 20549-0102 or by electronic
request at the following e-mail address: [email protected].
Fund's Investment Company Act File number: 811-8323.
13
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
SAMCO FUNDS, INC.
SAMCO AGGREGATE FIXED INCOME FUND
SAMCO INTERMEDIATE FIXED INCOME FUND
200 Clarendon Street
Boston, MA 02116
(800) 247-0473
SAMCO Aggregate Fixed Income Fund (the "Fixed Income Fund") and SAMCO
Intermediate Fixed Income Fund (the "Intermediate Fixed Income Fund") are
non-diversified investment portfolios (each a "Portfolio" and collectively the
"Portfolios") of SAMCO Funds, Inc. (the "Fund"), an open-end management
investment company. Shares of each of the Portfolios may be purchased through
First Fund Distributors, Inc. (the "Distributor").
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of the Fund, dated March 1, 2000 (the
"Prospectus"), which has been filed with the Securities and Exchange Commission
(the "Commission") and can be obtained, without charge, by calling or writing
the Administrator at the telephone number or address stated below. The annual
report to shareholders dated October 31, 1999 is incorporated by reference
herein.
Distributed by: Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, MA 02116
(800) 247-0473
STATEMENT OF ADDITIONAL INFORMATION DATED March 1, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
MANAGEMENT OF THE FUND 3
INVESTMENT ADVISER AND ADVISORY AGREEMENTS 4
ADMINISTRATOR 5
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 6
DISTRIBUTION OF FUND SHARES 6
CODE OF ETHICS 7
SUPPLEMENTAL DESCRIPTION OF INVESTMENTS 7
SUPPLEMENTAL DESCRIPTIONS OF RISKS 12
INVESTMENT RESTRICTIONS 18
PORTFOLIO TURNOVER 19
PORTFOLIO TRANSACTIONS 19
TAX CONSIDERATIONS 20
SHAREHOLDER INFORMATION 22
SERVICE PROVIDERS 23
ORGANIZATION OF THE FUND AND DESCRIPTION OF CAPITAL STOCK 24
CALCULATION OF PERFORMANCE DATA 24
QUALITY RATING DESCRIPTIONS 25
2
<PAGE>
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS AND OFFICERS
The Fund is managed by its Board of Directors. The Board of Directors is
generally responsible for management of the business and affairs of the Fund.
The Board of Directors formulates the general policies of the Fund, approves
contracts and authorizes Fund officers to carry out the decisions of the Board.
The Board of Directors and principal officers of the Fund are listed below
together with information on their positions with the Fund, address, age,
principal occupations during the past five years and other principal business
affiliations. An asterisk (*) has been placed next to the name of each director
who is an "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), by virtue of such
person's affiliation with the Fund or the Fund's investment adviser, Seix
Investment Advisors Inc. (the "Investment Adviser").
<TABLE>
<CAPTION>
Name, Address and Age Office Principal Occupation During Past Five Years
- --------------------- ------ -------------------------------------------
<S> <C> <C>
*Christina Seix Director and Seix Investment Advisors Inc., Chairman and Chief
300 Tice Blvd. Chairman Investment Officer 1992-Present
Woodcliff Lake, NJ 07675
Age: 49
*John G. Talty Director and Seix Investment Advisors Inc., Managing Director,
300 Tice Blvd. President President 1993-Present
Woodcliff Lake, NJ 07675
Age: 41
*Peter J. Bourke Director and Seix Investment Advisors Inc., Managing Director,
300 Tice Blvd. Assistant Secretary 1997-Present
Woodcliff Lake, NJ 07675
Age: 48
John R. O'Brien Director Retired
275 Manor Road
Ridgewood, NJ 07450
Age: 67
John E. Manley, Sr. Director Consultant to Mutual of America
86505 Holmes April 1996- March 1997
Chapel Hill, NC 27514
Age: 65
Carla E. Dearing Assistant Treasurer Investors Capital Services, Inc., (Formerly AMT Capital
Investors Capital Services, Inc. Services, Inc.), President, 1/92 - present; AMT Capital
600 Fifth Avenue, 26th Floor Advisers, Inc., Principal and Senior Vice President, 1/92 -
New York, NY 10020 5/98; Morgan Stanley & Co., Vice President, 11/88 - 1/92.
Age: 36
William E. Vastardis Treasurer and Investors Capital Services, Inc., (Formerly AMT Capital
Investors Capital Services, Inc. Secretary Services, Inc.), Managing Director 7/92 - present; Vanguard
600 Fifth Avenue, 26th Floor Group Inc., Vice President, 1/87 - 4/92.
New York, NY 10020
Age: 42
</TABLE>
No employee of the Investment Adviser nor the Distributor receives any
compensation from the Fund for acting as an officer or director of the Fund. The
Fund pays each director who is not a director, officer or employee of the
Investment Adviser or the Distributor or any of their affiliates. Each
Independent Director receives an annual retainer of $2,000 which is paid in
quarterly installments and a fee of $1,000 for each committee meeting attended
plus out of pocket expenses.
3
<PAGE>
DIRECTOR'S COMPENSATION TABLE FOR SAMCO FUNDS, INC.*
FISCAL YEAR ENDED OCTOBER 31, 1999**
<TABLE>
<CAPTION>
Director Aggregate Pension or Retirement Estimated Annual Total Compensation From
Compensation From Benefits Accrued As benefits Upon Registrant and Fund
Registrant Part of Fund Expenses Retirement Complex Paid to Directors
----------------- --------------------- ---------------- -------------------------
<S> <C> <C> <C> <C>
John E. Manley, Sr. $3,500 $0 $0 $3,500
John R. O'Brien $4,000 $0 $0 $4,000
</TABLE>
* The Directors' fees paid for the fiscal year ended October 31, 1999 are
calculated using an annual retainer of $1,000, payable quarterly and a fee of
$500 per committee meeting attended. At the September 23, 1999 board meeting,
the compensation for each Independent Director increased to an annual retainer
of $2,000 plus $1,000 per committee meeting attended.
** The Intermediate Fixed Income Fund commenced operations on June 30, 1999.
By virtue of the responsibilities assumed by the Investment Adviser and the
Distributor and their affiliates under their respective agreements with the
Fund, the Fund itself requires no employees in addition to its officers.
Directors and officers of the Fund collectively owned less than 1% of the Fund's
outstanding shares as of February 1, 2000.
INVESTMENT ADVISER AND ADVISORY AGREEMENTS
Seix Investment Advisors Inc., established in 1992, is a registered
investment adviser that specializes in professional fixed income management for
corporations, public funds, endowments, foundations and hospitals. Christina
Seix may be deemed a "controlling person" of the Investment Adviser on the basis
of her ownership of the Investment Adviser's stock.
Pursuant to the terms of the advisory agreements between each Portfolio of
the Fund and the Investment Adviser (the "Advisory Agreements"), the Investment
Adviser, subject to the control and supervision of the Fund's Board of Directors
and in conformance with the stated investment objectives and policies of each
Portfolio of the Fund, shall manage the investment and reinvestment of the
assets of the Fund. In this regard, it is the responsibility of the Investment
Adviser to make investment decisions for the Fund and to place the Fund's
purchase and sales orders for investment securities.
Each Advisory Agreement shall remain in effect for two years following its
date of execution and thereafter will automatically continue for successive
annual periods, so long as such continuance is specifically approved at least
annually by (a) the Board of Directors or (b) the vote of a "majority" (as
defined in the 1940 Act) of a Portfolio's outstanding shares voting as a single
class; provided, that in either event the continuance is also approved by at
least a majority of the Board of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund or the Investment Adviser by vote cast in
person at a meeting called for the purpose of voting on such approval.
The Advisory Agreements are terminable without penalty on not less than 60
days' notice by the Board of Directors or by a vote of the holders of a majority
of a Portfolio's outstanding shares voting as a single class, or upon not less
than 60 days' notice by the Investment Adviser. The Advisory Agreements will
terminate automatically in the event of their "assignment" (as defined in the
1940 Act).
4
<PAGE>
The Investment Adviser pays all of its expenses arising from the
performance of its obligations under the Advisory Agreements, including all
executive salaries and expenses of the directors and officers of the Fund who
are employees of the Investment Adviser or its affiliates, and office rent of
the Fund. Subject to the expense reimbursement provisions described in the
Prospectus under "Risk/Return Summary: Fee Table," other expenses incurred in
the operation of the Fund are borne by each Portfolio of the Fund, including,
without limitation, brokerage commissions, interest, fees and expenses of
independent attorneys, auditors, custodians, accounting agents, transfer agents,
taxes, cost of stock certificates and any other expenses (including clerical
expenses) of issue, sale, repurchase or redemption of shares, expenses of
registering and qualifying shares of the Fund under Federal and state laws and
regulations, expenses of printing and distributing reports, notices and proxy
materials to existing shareholders, expenses of printing and filing reports and
other documents filed with governmental agencies, expenses of annual and special
shareholders' meetings, fees and expenses of Directors of the Fund who are not
employees of the Investment Adviser or its affiliates, membership dues in the
Investment Company Institute, insurance premiums and extraordinary expenses such
as litigation expenses.
As compensation for its services, the Investment Adviser receives monthly
compensation at the annual rate of 0.25% of the average daily net assets of each
Portfolio of the Fund. The Investment Adviser may waive all or part of its fee
from time to time in order to increase the net income available for distribution
to shareholders of a Portfolio of the Fund. The Fund will not be required to
reimburse the Investment Adviser for any advisory fees waived. In addition, the
Investment Adviser has voluntarily agreed to limit the total expenses of Class A
Shares of each Portfolio of the Fund (excluding taxes, interest, brokerage, and
extraordinary expenses) to an annual rate of 0.45% of each Portfolio's average
daily net assets for an indefinite time period. As long as this temporary
expense limitation continues, it may lower a Portfolio's expenses and increase
its total return. In the event the Investment Adviser removes the expense cap, a
Portfolio's expenses may increase and its total return may be reduced depending
on the total assets of the Portfolio of the Fund.
For the period beginning December 30, 1997 (commencement of operations) to
October 31, 1998, the Fixed Income Fund incurred advisory fees of $44,287, which
was waived by the Investment Adviser. For the fiscal year ended October 31,
1999, the Fixed Income Fund incurred advisory fees of $119,906, of which $61,376
was waived by the Investment Adviser.
For the period beginning June 30, 1999 (commencement of operations) to
October 31, 1999, the Intermediate Fixed Income Fund incurred advisory fees of
$9,241, which was waived by the Investment Adviser.
ADMINISTRATOR
The administration agreement dated November 1, 1999 (the "Administration
Agreement") between the Fund and Investors Bank and Trust Company, (the
"Administrator"), will remain in effect until November 3, 2002. After the
expiration date, the Administration Agreement shall automatically be renewed
annually thereafter, and may be terminated thereafter, by either party on 120
days prior written notice. Upon termination of the Administration Agreement, the
Fund shall pay to the Administrator such compensation as may be due under the
terms of the Agreement on the date of such termination. The Administrator
provides for, or assists in managing and supervising all aspects of, the general
day-to-day business activities and operations of the Fund other than investment
advisory activities, including custodial, transfer agency, dividend disbursing,
accounting, auditing, compliance and related services. The Fund is subject to an
administration fee of seven (7) basis points, which will be applied to all
assets for which Investors Bank and Trust Company acts as Administrator. The
Fund pays the Administrator a minimum annual fee of $50,000 for the first year
of the Administration Agreement (11/1/99-10/31/00). In the second year of the
relationship, the minimum for the two Funds will increase to $62,500 and in the
third year to $75,000. The Administrator is entitled to reimbursement from the
Fund for its out-of-pocket expenses incurred under the Administration Agreement.
Prior to November 1, 1999, the administrator of the Fund was Investors Capital
Services, Inc. The Fund paid Investors Capital Services, Inc. a monthly fee at
an annual rate of 0.15% of the Fund's average daily net assets.
5
<PAGE>
For the period beginning December 30, 1997 (commencement of operations) to
October 31, 1998, the Fixed Income Fund incurred administration fees (not
including waivers and reimbursements) of $41,667. For the fiscal year ended
October 31, 1999, the Fixed Income Fund incurred administration fees of $71,994,
of which $63,610 was reimbursed by the Investment Adviser and the Administrator.
For the period beginning June 30, 1999 (commencement of operations) to
October 31, 1999, the Intermediate Fixed Income Fund incurred administration
fees of $5,545, which was reimbursed by the Investment Adviser and the
Administrator.
6
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 1, 2000, the following shareholders were deemed to be a
"control person" in either the Class A or the Class B shares of the Portfolios
as that term is defined in the Investment Company Act of 1940, as amended (the
"1940 Act").
<TABLE>
<CAPTION>
Name and Address of Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Fixed Income Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares of American College Direct Ownership 36.3%
Common Stock of Cardiology
$.001 per Share 911 Old Georgetown Road
Bethesda, MD 20814
</TABLE>
As of February 1, 2000, the following persons held 5% or more of the
outstanding shares of the Class A shares of the Fixed Income Fund:
<TABLE>
<CAPTION>
Name and Address of Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Fixed Income Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares American College Direct Ownership 36.3%
of Common Stock of Cardiology
$.001 per Share 911 Old Georgetown Road
Bethesda, MD 20814
Class A Shares Regional Transportation Direct Ownership 23.2%
of Common Stock Authority Pension Plan
$.001 per Share P O Box 1443
Chicago IL 60690-1443
Class A Shares ENRON Corporation Direct Ownership 11.3%
of Common Stock PO Box 92956
$.001 per Share Chicago, IL 60675
Class A Shares NOITU Individual Account Direct Ownership 6.8%
of Common Stock Pension Plan
$.001 per Share 148-06 Hillside Avenue
Jamaica, NY11435
</TABLE>
The amount of shares of the Fund owned by all the officers, directors, and
members of the advisory board of the Fund as a group is less than 1% of the
Fund's outstanding securities.
7
<PAGE>
DISTRIBUTION OF FUND SHARES
DISTRIBUTION AGREEMENT. The distribution agreement dated January 1, 2000
(the "Distribution Agreement") between the Fund and First Fund Distributors,
Inc., (the "Distributor") will remain in effect for one year. The Fund will pay
the Distributor a monthly fee at an annual rate of [ ]% of the Fund's average
daily net assets. Prior to First Fund Distributors, Inc., the distributor of the
Fund was AMT Capital Securities, L.L.C. The distribution agreement between the
Fund and AMT Capital Securities, L.L.C. was last approved by the Fund's Board of
Directors on September 23, 1999 and remained in effect until December 31, 1999.
The Distribution Agreement will continue in effect for successive one-year
periods, provided that each such continuance is specifically approved (i) by the
vote of a majority of the Directors or by a vote of a majority of the shares of
the Fund; and (ii) by a majority of the Directors who are not parties to the
Distribution Agreement or interested persons (as defined in the 1940 Act) of any
such person, cast in person at a meeting called for the purpose of voting on
such approval. The Distribution Agreement between the Fund and First Fund
Distributors, Inc. was approved by the Fund's Board of Directors on December 15,
1999 and became effective January 1, 2000.
DISTRIBUTION PLAN. Each Portfolio of the Fund has adopted a Distribution
Plan and related agreements pursuant to Rule 12b-1 under the 1940 Act, which
provides that investment companies may pay distribution expenses, directly or
indirectly, pursuant to a distribution plan adopted by the investment company's
board and approved by its shareholders. Under the Distribution Plan, Class B
Shares of each Portfolio of the Fund make assistance payments to brokers,
financial institutions and other financial intermediaries ("payee(s)") for
shareholder accounts ("qualified accounts") as to which a payee has rendered
distribution assistance services to the Class B shares at an annual rate of
0.25% of the average net asset value of the Class B shares. Substantially all
such monies are paid by the Investment Adviser to payees for their distribution
assistance with any remaining amounts being used to partially defray other
expenses incurred by the Investment Adviser in distributing each Portfolio of
the Fund's shares. In addition to the amounts required by the Distribution Plan,
the Investment Adviser may, in its discretion, pay additional amounts from its
own resources. The rate of any additional amounts that may be paid will be based
upon the Investment Adviser's analysis of the contribution that a payee makes to
the Class B Shares of each Portfolio of the Fund by increasing assets under
management and reducing expense ratios and the cost to the Class B Shares of
each Portfolio of the Fund if such services were provided directly by the Class
B Shares of each Portfolio of the Fund or other authorized persons. The
Investment Adviser will also consider the need to respond to competitive offers
of others, which could result in assets being withdrawn from the Class B Shares
of each Portfolio of the Fund and an increase in the expense ratio for the Class
B Shares of each Portfolio of the Fund. The Investment Adviser may elect to
retain a portion of the distribution assistance payments to pay for sales
material or other promotional activities. The Directors have determined that
there is a reasonable likelihood the Distribution Plan will benefit the Class B
Shares of each Portfolio of the Fund and its shareholders.
Under the Distribution Plan, the Fund's Treasurer reports quarterly to the
Board of Directors the amounts and purposes of assistance payments. During the
continuance of the Distribution Plan, the selection and nomination of the
disinterested Directors are at the discretion of the disinterested Directors
currently in office.
CODE OF ETHICS
Rule 17j-1 of the Investment Company Act of 1940, as amended, addresses
conflicts of interest that arise from personal trading activities of investment
company personnel. The rule requires funds and their investment advisers and
principal underwriters to adopt a code of ethics and to report periodically to
the board on issues raised under its code of ethics. To assure compliance with
these restrictions, the Fund, the Adviser, and the Distributor each have adopted
and agreed to be governed by a code of ethics containing provisions reasonably
necessary to prevent fraudulent, deceptive or manipulative acts with regard to
the personal securities transactions of their employees. The Fund's Code of
Ethics permits personal investing transactions of Fund employees that avoid
conflicts of interest with the Fund.
Information about these codes of ethics may be obtained by calling the
Commission's Public Reference Room at 1-202-942-8090. Copies of the codes of
ethics may also be obtained on the EDGAR Database on the Commission's Internet
site at http://www.sec.gov. Alternatively, this information may be obtained,
upon payment of a duplicating fee, by writing the Public Reference Section of
the Commission, Washington D.C. 20549-0102 or by electronic request at the
following e-mail address: [email protected].
8
<PAGE>
SUPPLEMENTAL DESCRIPTIONS OF INVESTMENTS
The investment objective of the Fixed Income Fund is to provide investors
with a total return which consistently exceeds the total return of the broad
U.S. investment grade bond market as measured by the Lehman Brothers Aggregate
Bond Index. The investment objective of the Intermediate Fixed Income Fund is to
provide investors with a total return which consistently exceeds the total
return of the intermediate portion of the broad U.S. investment grade bond
market as measured by the Lehman Brothers Intermediate Government Corporate
Index. The different types of securities in which a Portfolio of the Fund may
invest, subject to its investment objective, policies and restrictions, are
described in the Prospectus under "Descriptions of Investments." Additional
information concerning the characteristics of certain of the investments of a
Portfolio of the Fund is set forth below. Each Portfolio of the Fund is
permitted to invest in the same types of securities. Any reference to the term
Fund in the following section is intended to include both Portfolios of the
Fund.
AGENCIES
Each Portfolio may invest in agencies which are securities that are not
guaranteed by the United States Government, but which are issued, sponsored or
guaranteed by a federal agency or federally sponsored agency such as the Student
Loan Marketing Association or any of several other agencies.
BANK OBLIGATIONS
Each Portfolio may invest in obligations of domestic and foreign banks,
including time deposits, certificates of deposit, bankers' acceptances, bank
notes, deposit notes, Eurodollar time deposits, Eurodollar certificates of
deposit, variable rate notes, loan participations, variable amount master demand
notes, and custodial receipts. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Certificates of deposit are negotiable short-term obligations
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is adjusted periodically
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer, or storage of goods). A Portfolio will not concentrate more
than 25% of its total assets in domestic bank obligations. Domestic bank
obligations include instruments that are issued by United States (domestic)
banks; United States branches of foreign banks, if such branches are subject to
the same regulations as United States banks; and foreign branches of United
States banks, if the Investment Adviser determines that the investment risk
associated with investing in instruments issued by such branches is the same as
that of investing in instruments issued by the United States parent bank, in
that the United States parent bank would be unconditionally liable in the event
that the foreign branch fails to pay on its instruments. Bank obligations entail
varying amounts of interest rate and credit risk, with the lowest-rated and
longest-dated bank obligations entailing the greatest risk of loss to the Fund.
Each Portfolio limits its investments in U.S. bank obligations to
obligations of U.S. banks that in the Investment Adviser's opinion meet
sufficient creditworthiness criteria. Each Portfolio limits its investments in
foreign bank obligations to obligations of foreign banks (including U.S.
branches of foreign banks) that, in the opinion of the Investment Adviser, are
of an investment quality comparable to obligations of U.S. banks in which the
Fund may invest.
CMOS--COLLATERALIZED MORTGAGE OBLIGATIONS
The Portfolios may purchase collateralized mortgage obligations which are
collateralized by mortgage pass-through securities. Cash flows from the mortgage
pass-through securities are allocated to various tranches (a "tranche" is
essentially a separate security) in a predetermined, specified order. Each
tranche has a stated maturity - the latest date by which the tranche can be
completely repaid, assuming no prepayments - and has an average life - the
average of the time to receipt of a principal payment weighted by the size of
the principal payment. The average life is typically used as a proxy for
maturity because the debt is amortized (repaid a portion at a time), rather than
being paid off entirely at maturity, as would be the case in a straight debt
instrument.
9
<PAGE>
CORPORATE ISSUES
The Portfolios may invest in corporate issues, which are debt instruments
issued by private corporations. Bondholders, as creditors, have a prior legal
claim over common and preferred stockholders of the corporation as to both
income and assets for the principal and interest due to the bondholder. The
Portfolios will buy corporate issues subject to any quality constraints. If a
security held by a Portfolio is downgraded, the Portfolio may retain the
security if the Investment Adviser deems retention of the security to be in the
best interests of the Portfolio.
EURODOLLAR AND YANKEE OBLIGATIONS
Eurodollar bank obligations are dollar-denominated certificates of deposit
and time deposits issued outside the U.S. capital markets by foreign branches of
U.S. banks and by foreign banks. Yankee bank obligations are dollar-denominated
obligations issued in the U.S. capital markets by foreign banks.
10
<PAGE>
FLOATERS
Floaters--Floating and Variable Rate Obligations -- are debt obligations
with a floating or variable rate of interest, i.e. the rate of interest varies
with changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry a
demand feature that permits the holder to tender them back to the issuer of the
underlying instrument, or to a third party, at par value prior to maturity.
FOREIGN GOVERNMENT AND INTERNATIONAL AND SUPRANATIONAL AGENCY DEBT SECURITIES
The Portfolios may purchase U.S. dollar denominated debt obligations issued
or guaranteed by foreign governments or their subdivisions, agencies, and
instrumentalities, and debt obligations issued or guaranteed by international
agencies and supranational entities.
INVESTMENT GRADE DEBT SECURITIES
The Portfolios may invest in investment grade securities that are those
rated by one or more NRSROs in one of the four highest rating categories at the
time of purchase (e.g. AAA, AA, A or BBB by Standard & Poor's Corporation
(Standard & Poor's), Duff & Phelps Credit Rating Co. (Duff & Phelps), or Fitch
Investors Service, Inc. (Fitch) or Aaa, Aa, A or Baa by Moody's Investors
Service, Inc. (Moody's). Securities rated BBB or Baa represent the lowest of
four levels of investment grade securities and are regarded as borderline
between definitely sound obligations and those in which the speculative element
begins to predominate. The Intermediate Fixed Income Fund will not, at the time
of purchase, invest more than 15% of its net assets in securities rated BBB by
Standard & Poor's, Duff & Phelps, or Fitch or Baa by Moody's. Mortgage-backed
securities, including mortgage pass-throughs and collateralized mortgage
obligations (CMOs), deemed investment grade by the Investment Adviser, will
either carry a guarantee from an agency of the U.S. Government or a private
issuer of the timely payment of principal and interest (such guarantees do not
extend to the market value of such securities or the net asset value per share
of the Portfolio) or, in the case of unrated securities, be sufficiently
seasoned that they are considered by the Investment Adviser to be investment
grade quality. The Investment Adviser may retain securities if their ratings
fall below investment grade if it deems retention of the security to be in the
best interests of the Portfolio. A Portfolio may hold unrated securities if the
Investment Adviser considers the risks involved in owning that security to be
equivalent to the risks involved in holding an Investment Grade Security.
INVESTMENT FUNDS
Each Portfolio is permitted to invest in investment funds and will make
such investments only where appropriate given that the Portfolios' shareholders
will bear indirectly the layer of expenses of the underlying investment funds in
addition to their proportionate share of the expenses of the Portfolio.
MORTGAGE-BACKED SECURITIES AND ASSET-BACKED DEBT SECURITIES
Mortgage-backed securities ("MBS") are securities which represent ownership
interests in, or are debt obligations secured entirely or primarily by, "pools"
of residential or commercial mortgage loans or other asset-backed securities
(the "Underlying Assets"). Such securities may be issued by such entities as
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"),
commercial banks, savings and loan associations, mortgage banks, or by issuers
that are affiliates of or sponsored by such entities. Other asset-backed
securities are secured or backed by assets other than mortgage-related assets,
such as automobile and credit card receivables, and are issued by such
institutions as finance companies, finance subsidiaries of industrial companies,
and investment banks. The Portfolios will purchase only asset-backed securities
that the Investment Adviser determines to be liquid. The Portfolios will not
purchase mortgage backed or asset-backed securities that do not meet the above
minimum credit standards. In the case of mortgage-backed securities representing
ownership interests in the Underlying Assets, the principal and interest
payments on the underlying mortgage loans are distributed monthly to the holders
of the mortgage-backed securities. In the case of mortgage-backed securities
representing debt obligations secured by the Underlying Assets, the principal
and interest payments on the underlying mortgage loans, and any reinvestment
income thereon, provide the funds to pay debt service on such mortgage-backed
securities.
11
<PAGE>
Certain mortgage-backed securities represent an undivided fractional
interest in the entirety of the Underlying Assets (or in a substantial portion
of the Underlying Assets, with additional interests junior to that of the
mortgage-backed security), and thus have payment terms that closely resemble the
payment terms of the Underlying Assets.
In addition, many mortgage-backed securities are issued in multiple
classes. Each class of such multi-class mortgage-backed securities often
referred to as a "tranche", is issued at a specific fixed or floating coupon
rate and has a stated maturity or final distribution date. Principal prepayment
on the Underlying Assets may cause the MBSs to be retired substantially earlier
than their stated maturities or final distribution dates. Interest is paid or
accrues on all or most classes of the MBSs on a periodic basis, typically
monthly or quarterly. The principal of and interest on the Underlying Assets may
be allocated among the several classes of a series of a MBS in many different
ways. In a relatively common structure, payments of principal (including any
principal prepayments) on the Underlying Assets are applied to the classes of a
series of a MBS in the order of their respective stated maturities so that no
payment of principal will be made on any class of MBSs until all other classes
having an earlier stated maturity have been paid in full.
An important feature of mortgage and asset-backed securities is that the
principal amount is generally subject to partial or total prepayment at any time
because the underlying assets (i.e., loans) generally may be prepaid at any
time. If an asset-backed security is purchased at a premium to par, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if an asset-backed security is
purchased at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will decrease, yield to maturity. It should
also be noted that these securities may not have any security interest in the
underlying assets, and recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
MUNICIPAL DEBT SECURITIES
The Portfolios may, from time to time, purchase municipal debt securities
when, in the Investment Adviser's opinion, such instruments will provide a
greater return than taxable instruments of comparable quality. It is not
anticipated that such securities will ever represent a significant portion of a
Portfolio's assets. Fund distributions that are derived from interest on
municipal debt securities will be taxable to shareholders in the same manner as
distributions derived from taxable debt securities.
Municipal notes may include such instruments as tax anticipation notes,
revenue anticipation notes, and bond anticipation notes. Municipal notes are
issued by state and local governments and public authorities as interim
financing in anticipation of tax collections, revenue receipts or bond sales.
Municipal bonds, which may be issued to raise money for various public purposes,
include general obligation bonds and revenue bonds. General obligation bonds are
backed by the taxing power of the issuing municipality and are considered the
safest type of bonds. Revenue bonds are backed by the revenues of a project or
facility such as the tolls from a toll bridge. Industrial development revenue
bonds are a specific type of revenue bond backed by the credit and security of a
private user. Revenue bonds are generally considered to have more potential risk
than general obligation bonds.
Municipal obligations can have floating, variable or fixed rates. The value
of floating and variable rate obligations generally is more stable than that of
fixed rate obligations in response to changes in interest rate levels. Variable
and floating rate obligations usually carry rights that permit the Fund to sell
them at par value plus accrued interest upon short notice. The issuers or
financial intermediaries providing rights to sell may support their ability to
purchase the obligations by obtaining credit with liquidity supports. These may
include lines of credit, which are conditional commitments to lend, and letters
of credit, which will ordinarily be irrevocable, both issued by domestic banks
or foreign banks which have a branch, agency or subsidiary in the United States.
When considering whether an obligation meets the Fund's quality standards, the
Investment Adviser will look at the creditworthiness of the party providing the
right to sell as well as to the quality of the obligation itself.
Municipal securities may be issued to finance private activities, the
interest from which is an item of tax preference for purposes of the federal
alternative minimum tax. Such "private activity" bonds might include industrial
development revenue bonds, and bonds issued to finance such projects as solid
waste disposal facilities, student loans or water and sewage projects.
PREFERRED STOCK
The Portfolios may invest in preferred stock which is non-voting ownership
shares in a corporation which pay a fixed or variable stream of dividends.
12
<PAGE>
REPURCHASE AGREEMENTS
Repurchase agreements are transactions by which a Portfolio purchases a
security and simultaneously commits to resell that security to the seller (a
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or date of maturity of the purchased security. Such agreements
permit the Portfolio to keep all its assets at work while retaining overnight
flexibility in pursuit of investments of a longer term nature. The Investment
Adviser will continually monitor the value of the underlying collateral to
ensure that its value, including accrued interest, always equals or exceeds the
repurchase price and that transactions are only entered into with approved
counterparties.
Repurchase agreements may be characterized as loans secured by the
underlying securities. Such transactions afford an opportunity for the Fund to
earn a return on available cash at minimal market risk, although the Fund may be
subject to various delays and risks of loss if the vendor becomes subject to a
proceeding under the U.S. Bankruptcy Code or is otherwise unable to meet its
obligation to repurchase.
In addition, repurchase agreements may also involve the securities of
certain foreign governments in which there is an active repurchase market. The
Investment Adviser expects that such repurchase agreements will primarily
involve government securities of countries belonging to the Organization for
Economic Cooperation and Development ("OECD"). Transactions in foreign
repurchase agreements may involve additional risks.
U.S. TREASURY AND U.S. GOVERNMENT AGENCY SECURITIES
U.S. Government Securities include instruments issued by the U.S. Treasury,
including bills, notes and bonds. These instruments are direct obligations of
the U.S. Government and, as such, are backed by the full faith and credit of the
United States. They differ primarily in their interest rates, the lengths of
their maturities and the dates of their issuances. In addition, U.S. Government
Securities include securities issued by instrumentalities of the U.S.
Government, such as the Government National Mortgage Association ("GNMA"), which
are also backed by the full faith and credit of the United States. U.S.
Government Agency Securities include instruments issued by instrumentalities
established or sponsored by the U.S. Government, such as the Student Loan
Marketing Association ("SLMA"), the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). While these
securities are issued, in general, under the authority of an Act of Congress,
the U.S. Government is not obligated to provide financial support to the issuing
instrumentalities.
VARIABLE AMOUNT MASTER DEMAND NOTES
Variable amount master demand notes permit the investment of fluctuating
amounts at varying rates of interest pursuant to direct arrangements between the
Fund (as lender) and the borrower. These notes are direct lending arrangements
between lenders and borrowers, and are generally not transferable, nor are they
ordinarily rated by either Moody's, Standard & Poor's, Fitch, or Duff & Phelps.
WHEN-LSSUED AND FORWARD COMMITMENT SECURITIES
The Portfolios may purchase securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. In such
transactions, instruments are bought with payment and delivery taking place in
the future in order to secure what is considered to be an advantageous yield or
price at the time of the transaction. Delivery of and payment for these
securities may take more than a month after the date of the purchase commitment,
but will take place no more than 120 days after the trade date. No income
accrues prior to delivery on securities that have been purchased pursuant to a
forward commitment or on a when-issued basis. However, interest is generated on
the short-term investments that are segregated for the settlement of these
securities. At the time a Portfolio enters into a transaction on a when-issued
or forward commitment basis, a segregated account consisting of cash or liquid
securities equal to the value of the when-issued or forward commitment
securities will be established in the Portfolio and maintained in the Portfolio
and will be marked to market daily. A short term investment in this segregated
account may not have a duration that exceeds 180 days. Forward commitments, or
delayed deliveries, are deemed to be outside the normal corporate settlement
structure. They are subject to segregation requirements; however, when a forward
commitment purchase is made to close a forward commitment sale, or vice versa,
the difference between the two may be netted for segregation purposes until
settlement date.
13
<PAGE>
ZERO COUPON DEBT SECURITIES
The Portfolios may invest in zero coupon debt securities (bonds that pay no
interest but are originally sold at an original issue discount). Because they do
not pay interest until maturity, zero coupon securities tend to be subject to
greater fluctuation of market value in response to changes in interest rates
than interest-paying securities of similar maturities.
Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal (the "coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRS") and "Certificate of Accrual on Treasuries"
("CATS"). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that for Federal tax and securities law
purposes, in their opinion, purchasers of such certificates, such as the Fund,
most likely will be deemed the beneficial holders of the underlying U.S.
Treasury securities.
Recently, the Treasury has facilitated transfer of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program as
established by the Treasury Department is known as "Separate Trading of
Registered Interest and Principal of Securities" ("STRIPS"). Under the STRIPS
program, the Fund can be able to have its beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu of
holding certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold in such bundled form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.
SUPPLEMENTAL DISCUSSION OF RISKS ASSOCIATED WITH
THE FUND'S INVESTMENT POLICIES AND INVESTMENT TECHNIQUES
The risks associated with the different types of securities in which the
Fund may invest are described in the Prospectus. Additional information
concerning risks associated with certain of a Portfolio's investments is set
forth below. Each Portfolio of the Fund is permitted to invest in the same types
of securities. Any reference to the term Fund in the following section is
intended to include both Portfolios of the Fund.
EURODOLLAR AND YANKEE OBLIGATIONS. Eurodollar and Yankee obligations are
subject to the same risks that pertain to domestic issues, notably credit risk,
market risk and liquidity risk. Additionally, Eurodollar (and to a limited
extent, Yankee) obligations are subject to certain sovereign risks. One such
risk is the possibility that a sovereign country might prevent capital, in the
form of dollars, from flowing across their borders. Other risks include: adverse
political and economic developments; the extent and quality of government
regulation of financial markets and institutions; the imposition of foreign
withholding taxes; and the expropriation or nationalization of foreign issuers.
FUTURES CONTRACTS. The Fund may enter into contracts for the purchase or
sale for future delivery (a "futures contract") of fixed-income securities or
foreign currencies, or contracts based on financial indices including any index
of U.S. Government Securities, foreign government securities or corporate debt
securities. U.S. futures contracts have been designed by exchanges which have
been designated as "contracts markets" by the Commodity Futures Trading
Commission ("CFTC"), and must be executed through a futures commission merchant,
or brokerage firm, which is a member of the relevant contract market. Futures
contracts trade on a number of exchange markets and, through their clearing
corporations, the exchanges guarantee performance of the contracts as between
the clearing members of the exchange. The Fund will enter into futures contracts
that are based on debt securities that are backed by the full faith and credit
of the U.S. Government, such as long-term U.S. Treasury Bonds, Treasury Notes,
GNMA-modified pass-through mortgage-backed securities and three-month U.S.
Treasury Bills.
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The Fund would purchase or sell futures contracts to attempt to protect the
U.S. dollar-equivalent value of its securities from fluctuations in interest or
foreign exchange rates without actually buying or selling securities or foreign
currency. For example, if the Fund expected the value of a foreign currency to
increase against the U.S. dollar, the Fund might enter into futures contracts
for the sale of that currency. Such a sale would have much the same effect as
selling an equivalent value of foreign currency. If the currency did increase,
the value of the securities in the portfolio would decline, but the value of the
futures contracts to the Fund would increase at approximately the same rate,
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities or currency, in most cases the contractual obligation
is fulfilled before the date of the contract without having to make or take
delivery of the securities or currency. The offsetting of a contractual
obligation is accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for delivery in the
same month. Such a transaction, which is effected through a member of an
exchange, cancels the obligation to make or take delivery of the securities or
currency. Since all transactions in the futures market are made, offset or
fulfilled through a clearinghouse associated with the exchange on which the
contracts are traded, the Fund will incur brokerage fees when it purchases or
sells futures contracts.
At the time a futures contract is purchased or sold, the Fund must allocate
cash or securities as a deposit payment ("initial margin"). It is expected that
the initial margin on U.S. exchanges may range from approximately 3% to
approximately 15% of the value of the securities or commodities underlying the
contract. Under certain circumstances, however, such as periods of high
volatility, the Fund may be required by an exchange to increase the level of its
initial margin payment. Additionally, initial margin requirements may be
increased generally in the future by regulatory action. An outstanding futures
contract is valued daily and the payment in cash of "variation margin" may be
required, a process known as "marking to the market." Each day the Fund will be
required to provide (or will be entitled to receive) variation margin in an
amount equal to any decline (in the case of a long futures position) or increase
(in the case of a short futures position) in the contract's value since the
preceding day.
Futures contracts entail special risks. Among other things, the ordinary
spreads between values in the cash and futures markets, due to differences in
the character of these markets, are subject to distortions relating to (1)
investors' obligations to meet additional variation margin requirements, (2)
decisions to make or take delivery, rather than entering into offsetting
transactions and (3) the difference between margin requirements in the
securities markets and margin deposit requirements in the futures market. The
possibility of such distortion means that a correct forecast of general market,
foreign exchange rate or interest rate trends by the Investment Adviser may
still not result in a successful transaction.
Although the Investment Adviser believes that use of such contracts and
options thereon will benefit the Fund, if the Investment Adviser's judgment
about the general direction of securities market movements, foreign exchange
rates or interest rates is incorrect, the Fund's overall performance would be
poorer than if it had not entered into any such contracts or purchased or
written options thereon. For example, if the Fund had hedged against the
possibility of an increase in interest rates which would adversely affect the
price of debt securities held in its portfolio and interest rates decreased
instead, the Fund would lose part or all of the benefit of the increased value
of its assets which it had hedged because it would have offsetting losses in its
futures positions. In addition, particularly in such situations, if the Fund has
insufficient cash, it may have to sell assets from its portfolio to meet daily
variation margin requirements. Any such sale of assets may, but will not
necessarily, be at increased prices which reflect the rising market.
Consequently, the Fund may have to sell assets at a time when it may be
disadvantageous to do so.
The Fund's ability to establish and close out positions in futures
contracts and options on futures contracts will be subject to the development
and maintenance of a liquid market. Although the Fund generally will purchase or
sell only those futures contracts and options thereon for which there appears to
be a liquid market, there is no assurance that a liquid market on an exchange
will exist for any particular futures contract or option thereon at any
particular time. Where it is not possible to effect a closing transaction in a
contract to do so at a satisfactory price, the Fund would have to make or take
delivery under the futures contract or, in the case of a purchased option,
exercise the option. In the case of a futures contract that the Fund has sold
and is unable to close out, the Fund would be required to maintain margin
deposits on the futures contract and to make variation margin payments until the
contract is closed.
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Under certain circumstances, exchanges may establish daily limits in the
amount that the price of a futures contract or related option contract may vary
either up or down from the previous day's settlement price. Once the daily limit
has been reached in a particular contract, no trades may be made that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may prevent the liquidation of unfavorable positions. Futures or options
contract prices could move to the daily limit for several consecutive trading
days with little or no trading and thereby prevent prompt liquidation of
positions and subject some traders to substantial losses.
Buyers and sellers of foreign currency futures contracts are subject to the
same risks that apply to the use of futures generally. In addition, there are
risks associated with foreign currency futures contracts and their use as
hedging devices similar to those associated with options on foreign currencies
described above. Further, settlement of a foreign currency futures contract must
occur within the country issuing the underlying currency. Thus, the Fund must
accept or make delivery of the underlying foreign currency in accordance with
any U.S. or foreign restrictions or regulations regarding the maintenance of
foreign banking arrangements by U.S. residents and may be required to pay any
fees, taxes or charges associated with such delivery that are assessed in the
country of the underlying currency.
ILLIQUID AND RESTRICTED SECURITIES. Under the 1940 Act, the Fund may invest
up to 15% of the value of its net assets in illiquid assets. Illiquid assets are
investments that are difficult to sell at the price at which such assets are
valued by the Fund within seven days of the date a decision to sell them is
made. Securities treated as illiquid assets include: over-the-counter options;
repurchase agreements, time deposits, and dollar roll transactions maturing in
more than seven days; loan participations; securities without readily available
market quotations, including interests in private commingled investment vehicles
in which the Fund might invest; and certain restricted securities. Restricted
securities, including private placements, are generally subject to legal or
contractual restrictions on resale. They can be eligible for purchase without
SEC registration by certain institutional investors known as "qualified
institutional buyers."
The Board of Directors of the Fund may consider certain restricted
securities (including but not limited to Rule 144A and Section 4(2) commercial
paper) liquid if such securities meet specified criteria established by the
Fund's Board of Directors. Due to the absence of an organized market for such
securities, interim valuations of the market value of illiquid securities used
in calculating Fund net asset values for purchases and redemptions can diverge
substantially from their true value, notwithstanding the application of
appraisal methods deemed appropriate and prudent by the Fund's Board and the
Fund's independent accountants. Due to possible restrictions on the
transferability of illiquid securities, forced liquidation of such securities to
meet redemption requests could produce large losses. Although, the 1940 Act
permits the Fund to invest up to 15% of its net assets in these securities; the
Investment Adviser does not anticipate investing over 5% of the Fund's assets in
these securities.
MORTGAGE AND OTHER ASSET-BACKED SECURITIES. Prepayments on securitized
assets such as mortgages, automobile loans and credit card receivables
("Securitized Assets") generally increase with falling interest rates and
decrease with rising interest rates; furthermore, prepayment rates are
influenced by a variety of economic and social factors. In general, the
collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. In addition to prepayment risk, borrowers on the underlying
Securitized Assets may default in their payments creating delays or loss of
principal.
Non-mortgage asset-backed securities involve certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do not have
the benefit of a security interest in assets underlying the related mortgage
collateral. Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
automobile receivables permit the servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have an effective security interest in all of the
obligations backing such receivables. Therefore, there is a possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
Some forms of asset-backed securities are relatively new forms of
investments. Although the Fund will only invest in asset-backed securities that
the Investment Adviser believes are liquid, because the market experience in
certain of these securities is limited, the market's ability to sustain
liquidity through all phases of a market cycle may not have been tested.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and sell (or write)
put and call options on foreign currencies to protect against a decline in the
U.S. dollar-equivalent value of its portfolio securities or payments due thereon
or a rise in the U.S. dollar-equivalent cost of securities that it intends to
purchase. A foreign currency put option grants the holder the right, but not the
obligation, at a future date to sell a specified amount of a foreign currency to
its counterparty at a predetermined price. Conversely, a foreign currency call
option grants the holder the right, but not the obligation, to purchase at a
future date a specified amount of a foreign currency at a predetermined price.
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As in the case of other types of options, the benefit to the Fund deriving
from the purchase of foreign currency options will be reduced by the amount of
the premium and related transaction costs. In addition, where currency exchange
rates do not move in the direction or to the extent anticipated, the Fund could
sustain losses on transactions in foreign currency options which would require
it to forego a portion or all of the benefits of advantageous changes in such
rates.
The Fund may write options on foreign currencies for hedging purposes. For
example, where the Fund anticipates a decline in the dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the decrease in value of portfolio securities will be offset by
the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar costs of securities to be acquired, the Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased costs up to the amount of the premium. As in the case of other types
of options, however, the writing of a foreign currency option will constitute
only a partial hedge up to the amount of the premium, and only if rates move in
the expected direction. If this movement does not occur, the option may be
exercised and the Fund would be required to purchase or sell the underlying
currency at a loss which may not be fully offset by the amount of the premium.
Through the writing of options on foreign currencies, the Fund also may be
required to forego all or a portion of the benefits that might otherwise have
been obtained from favorable movements in exchange rates.
OPTIONS ON FUTURES CONTRACTS. The purchase of a call option on a futures
contract is similar in some respects to the purchase of a call option on an
individual security or currency. Depending on the pricing of the option compared
to either the price of the futures contract upon which it is based or the price
of the underlying securities or currency, it may or may not be less risky than
ownership of the futures contract or the underlying securities or currency. As
with the purchase of futures contracts, when the Fund is not fully invested it
may purchase a call option on a futures contract to hedge against a market
advance due to declining interest rates or a change in foreign exchange rates.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Fund will retain the
full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Fund's portfolio holdings. The writing of
a put option on a futures contract constitutes a partial hedge against
increasing prices of the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Fund will retain the full amount
of the option premium which provides a partial hedge against any increase in the
price of securities which the Fund intends to purchase. If a put or call option
the Fund has written is exercised, the Fund will incur a loss that will be
reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, the Fund's losses from existing options
on futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Fund may purchase a put option on a futures contract to hedge its
portfolio against the risk of rising interest rates.
The amount of risk the Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions in such options
is subject to the maintenance of a liquid secondary market. To mitigate this
problem, the Fund will not purchase or write options on foreign currency futures
contracts unless and until, in the Investment Adviser's opinion, the market for
such options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with transactions in the
underlying foreign currency futures contracts. Compared to the purchase or sale
of foreign currency futures contracts, the purchase of call or put options
thereon involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the option (plus transaction costs). However, there
may be circumstances when the purchase of a call or put option on a foreign
currency futures contract would result in a loss, such as when there is no
movement in the price of the underlying currency or futures contract, when use
of the underlying futures contract would not.
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OPTIONS ON SECURITIES. The Fund may also enter into closing sale
transactions with respect to options it has purchased. A put option on a
security grants the holder the right, but not the obligation, at a future date
to sell the security to its counterparty at a predetermined price. Conversely, a
call option on a security grants the holder the right, but not the obligation,
to purchase at a future date the security underlying the option at a
predetermined price.
The Fund would normally purchase put options in anticipation of a decline
in the market value of securities in its portfolio or securities it intends to
purchase. If the Fund purchased a put option and the value of the security in
fact declined below the strike price of the option, the Fund would have the
right to sell that security to its counterparty for the strike price (or realize
the value of the option by entering into a closing transaction), and
consequently would protect itself against any further decrease in the value of
the security during the term of the option.
Conversely, if the Investment Adviser anticipates that a security that it
intends to acquire will increase in value, it might cause the Fund to purchase a
call option on that security or securities similar to that security. If the
value of the security does rise, the call option may wholly or partially offset
the increased price of the security. As in the case of other types of options,
however, the benefit to the Fund will be reduced by the amount of the premium
paid to purchase the option and any related transaction costs. If, however, the
value of the security fell instead of rose, the Fund would have foregone a
portion of the benefit of the decreased price of the security in the amount of
the option premium and the related transaction costs.
The Fund would purchase put and call options on securities indices for the
same purposes as it would purchase options on securities. Options on securities
indices are similar to options on securities except that the options reflect the
change in price of a group of securities rather than an individual security and
the exercise of options on securities indices are settled in cash rather than by
delivery of the securities comprising the index underlying the option.
Transactions by the Fund in options on securities and securities indices
will be governed by the rules and regulations of the respective exchanges,
boards of trade or other trading facilities on which the options are traded.
CONSIDERATIONS CONCERNING OPTIONS. The writer of an option receives a
premium which it retains regardless of whether the option is exercised. The
purchaser of a call option has the right, for a specified period of time, to
purchase the securities or currency subject to the option at a specified price
(the "exercise price"). By writing a call option, the writer becomes obligated
during the term of the option, upon exercise of the option, to sell the
underlying securities or currency to the purchaser against receipt of the
exercise price. The writer of a call option also loses the potential for gain on
the underlying securities or currency in excess of the exercise price of the
option during the period that the option is open.
Conversely, the purchaser of a put option has the right, for a specified
period of time, to sell the securities or currency subject to the option to the
writer of the put at the specified exercise price. The writer of a put option is
obligated during the term of the option, upon exercise of the option, to
purchase securities or currency underlying the option at the exercise price. A
writer might, therefore, be obligated to purchase the underlying securities or
currency for more than their current market price or U.S. dollar value,
respectively.
The Fund may purchase and sell both exchange-traded and Over-the-Counter
("OTC") options. Currently, although many options on equity securities and
options on currencies are exchange-traded, options on debt securities are
primarily traded in the over-the-counter market. The writer of an
exchange-traded option that wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. Options of the same series are
options with respect to the same underlying security or currency, having the
same expiration date and the same exercise price. Likewise, an investor who is
the holder of an option may liquidate a position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
An exchange-traded option position may be closed out only where there
exists a secondary market for an option of the same series. For a number of
reasons, a secondary market may not exist for options held by the Fund, or
trading in such options might be limited or halted by the exchange on which the
option is trading, in which case it might not be possible to effect closing
transactions in particular options the Fund has purchased with the result that
the Fund would have to exercise the options in order to realize any profit. If
the Fund is unable to effect a closing purchase transaction in a secondary
market in an option the Fund has written, it will not be able to sell the
underlying security or currency until the option expires or deliver the
underlying security or currency upon exercise or otherwise cover its position.
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Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees every exchange-traded option transaction. In contrast, OTC
options are contracts between the Fund and its counterparty with no clearing
organization guarantee. Thus, when the Fund purchases OTC options, it relies on
the dealer from which it purchased the OTC option to make or take delivery of
the securities underlying the option. Failure by the dealer to do so would
result in the loss of the premium paid by the Fund as well as the loss of the
expected benefit of the transaction. The Investment Adviser will only purchase
options from dealers determined by the Investment Adviser to be creditworthy.
Exchange-traded options generally have a continuous liquid market whereas
OTC options may not. Consequently, the Fund will generally be able to realize
the value of an OTC option it has purchased only by exercising it or reselling
it to the dealer who issued it. Similarly, when the Fund writes an OTC option,
it generally will be able to close out the OTC option prior to its expiration
only by entering into a closing purchase transaction with the dealer to which
the Fund originally wrote the OTC option. Although the Fund will enter into OTC
options only with dealers that agree to enter into, and that are expected to be
capable of entering into, closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate an OTC option at a favorable
price at any time prior to expiration. Until the Fund is able to effect a
closing purchase transaction in a covered OTC call option the Fund has written,
it will not be able to liquidate securities used as cover until the option
expires or is exercised or different cover is substituted. In the event of
insolvency of the counterparty, the Fund may be unable to liquidate an OTC
option. In the case of options written by the Fund, the inability to enter into
a closing purchase transaction may result in material losses to the Fund. For
example, since the Fund must maintain a covered position with respect to any
call option on a security it writes, the Fund may be limited in its ability to
sell the underlying security while the option is outstanding. This may impair
the Fund's ability to sell the Fund security at a time when such a sale might be
advantageous.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options market until they
reopen. Because foreign currency transactions occurring in the interbank market
involve substantially larger amounts than those that may be involved in the use
of foreign currency options, investors may be disadvantaged by having to deal in
an odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
The use of options to hedge the Fund's foreign currency-denominated
portfolio, or to enhance return raises additional considerations. As described
above, the Fund may, among other things, purchase call options on securities it
intends to acquire in order to hedge against anticipated market appreciation in
the price of the underlying security or currency. If the market price does
increase as anticipated, the Fund will benefit from that increase but only to
the extent that the increase exceeds the premium paid and related transaction
costs. If the anticipated rise does not occur or if it does not exceed the
amount of the premium and related transaction costs, the Fund will bear the
expense of the options without gaining an offsetting benefit. If the market
price of the underlying currency or securities should fall instead of rise, the
benefit the Fund obtains from purchasing the currency or securities at a lower
price will be reduced by the amount of the premium paid for the call options and
by transaction costs.
The Fund also may purchase put options on currencies or portfolio
securities when it believes a defensive posture is warranted. Protection is
provided during the life of a put option because the put gives the Fund the
right to sell the underlying currency or security at the put exercise price,
regardless of a decline in the underlying currency's or security's market price
below the exercise price. This right limits the Fund's losses from the
currency's or security's possible decline in value below the exercise price of
the option to the premium paid for the option and related transaction costs. If
the market price of the currency or the Fund's securities should increase,
however, the profit that the Fund might otherwise have realized will be reduced
by the amount of the premium paid for the put option and by transaction costs.
The value of an option position will reflect, among other things, the
current market price of the underlying currency or security, the time remaining
until expiration, the relationship of the exercise price to the market price,
the historical price volatility of the underlying currency or security and
general market conditions. For this reason, the successful use of options as a
hedging strategy depends upon the ability of the Investment Adviser to forecast
the direction of price fluctuations in the underlying currency or securities
market.
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Options normally have expiration dates of up to nine months. The exercise
price of the options may be below, equal to or above the current market values
of the underlying securities or currency at the time the options are written.
Options purchased by the Fund that expire unexercised have no value, and
therefore a loss will be realized in the amount of the premium paid (and related
transaction costs). If an option purchased by the Fund is in-the-money prior to
its expiration date, unless the Fund exercises the option or enters into a
closing transaction with respect to that position, the Fund will not realize any
gain on its option position.
The Fund's activities in the options market may result in higher portfolio
turnover rates and additional brokerage costs. Nevertheless, the Fund may also
save on commissions and transaction costs by hedging through such activities
rather than buying or selling securities or foreign currencies in anticipation
of market moves or foreign exchange rate fluctuations.
REPURCHASE AGREEMENTS. The use of repurchase agreements involves certain
risks. For example, if the seller of the agreements defaults on its obligation
to repurchase the underlying securities at a time when the value of these
securities has declined, the Fund may incur a loss upon disposition of them. If
the seller of the agreement becomes insolvent and subject to liquidation or
reorganization under the Bankruptcy Code or other laws, a bankruptcy court may
determine that the underlying securities are collateral not within the control
of the Fund and therefore subject to sale by the trustee in bankruptcy. Finally,
it is possible that the Fund may not be able to substantiate its interest in the
underlying securities. While the Fund's management acknowledges these risks, it
is expected that they can be controlled through stringent security selection
criteria and careful monitoring procedures.
INVESTMENT RESTRICTIONS
The Fund has adopted the investment restrictions listed below relating to
the investment of each Portfolio of the Fund's assets and its activities. These
investment restrictions apply as indicated to each Portfolio of the Fund.
These are fundamental policies that may not be changed without the approval
of the holders of a majority of the outstanding voting securities of the Fund
(which for this purpose and under the 1940 Act means the lesser of (i) 67% of
the shares represented at a meeting at which more than 50% of the outstanding
shares are represented or (ii) more than 50% of the outstanding shares).
As a fundamental investment policy the Fund may not:
(1) borrow money, including entering into reverse repurchase agreements;
(2) make loans except that it may enter into repurchase agreements;
(3) issue senior securities;
(4) purchase securities on margin (although deposits referred to as
"margin" will be made in connection with investments in futures
contracts, as explained above, and the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales
of securities);
(5) underwrite securities of other issuers;
(6) invest in companies for the purpose of exercising control or
management;
(7) purchase or sell real estate (other than marketable securities
representing interests in, or backed by, real estate);
(8) purchase or sell physical commodities or related commodity contracts;
(9) invest more than 25% of the total assets of the Fund in the securities
of issuers having their principal activities in any particular
industry, except for tax-exempt obligations issued or guaranteed by
the U.S. government, its agencies, GSE's, instrumentalities or by any
state, territory or any possession of the United States or any of
their authorities, agencies, instrumentalities or political
subdivisions, or with respect to repurchase agreements collateralized
by any of such obligations. For purposes of this restriction,
supranational issuers will be considered to comprise an industry as
will each foreign government that issues securities purchased by the
Fund. In the case of Asset Backed Securities, the industry will be
defined by the underlying assets in each trust. (For example, credit
card receivables and auto loans would each be considered separate
industries); and
(10) invest the cash securing a forward commitment in mortgage backed
securities in investments that have a duration exceeding 180 days
The Fund's investment policies (other than its investment objective) are
not fundamental and may be changed by the Board of Directors of the Fund without
the approval of shareholders.
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<PAGE>
The Fund has the following non-fundamental investment policies:
(1) it will not invest in the securities of any company which has a
primary line of business in the manufacture and sale of tobacco
products;
(2) the Intermediate Fixed Income Fund will not engage in the strategy of
establishing or rolling forward TBA mortgage commitments; and
(3) the Intermediate Fixed Income Fund will not, at the time of purchase,
invest more than 15% of its net assets in securities rated BBB by
Standard & Poor's, Duff & Phelps, or Fitch or Baa by Moody's.
Whenever an investment policy or limitation states a maximum percentage of
the Fund's assets that may be invested in any security or other asset or sets
forth a policy regarding quality standards, such standard or percentage
limitation shall be determined immediately after and as a result of the Fund's
acquisition of such security or other asset. Accordingly, any later increase or
decrease in a percentage resulting from a change in values, net assets or other
circumstances will not be considered when determining whether that investment
complies with the Fund's investment policies and limitations.
ILLIQUID SECURITIES. The staff of the Commission has taken the position
that purchased OTC options and the assets used as cover for written OTC options
are illiquid securities. Therefore, the Fund has adopted an investment policy
pursuant to which it generally will not purchase or sell OTC options if, as a
result of such transaction, the sum of the market value of OTC options currently
outstanding that are held by the Fund, the market value of the underlying
securities covered by OTC call options currently outstanding that were sold by
the Fund and margin deposits on the Fund's existing OTC options on futures
contracts exceed 15% of the net assets of the Fund, taken at market value,
together with all other assets of the Fund that are illiquid or are not
otherwise readily marketable. This investment policy applies to each Portfolio
of the Fund. This policy as to OTC options is not a fundamental policy of the
Fund and may be amended by the Directors of the Fund without the approval of the
Fund's shareholders. However, the Fund will not change or modify this policy
prior to a change or modification by the Commission staff of its position.
PORTFOLIO TURNOVER
Each Portfolio of the Fund may engage in portfolio trading when considered
appropriate, but short-term trading will not be used as the primary means of
achieving its investment objective. The portfolio turnover rate of the Fixed
Income Fund for the period December 30, 1997 (commencement of operations) to
October 31, 1998 and for the fiscal year ended October 31, 1999 was 478% and
562%, respectively. The portfolio turnover rate of the Intermediate Fixed Income
Fund for the period June 30, 1999 (commencement of operations) to October 31,
1999 was 117%. However, there are no limits on the rate of portfolio turnover,
and investments may be sold without regard to length of time held when, in the
opinion of the Investment Adviser, investment considerations warrant such
actions. Higher portfolio turnover rates, such as rates in excess of 400%, and
short-term trading generally involve correspondingly greater commission expenses
and transactions costs. Further, high turnover rates, such as rates in excess of
400%, generate higher short-term capital gains. For a more detailed description
of short-term capital gain treatment, please refer to the section entitled "Tax
Considerations."
PORTFOLIO TRANSACTIONS
The debt securities in which each Portfolio of the Fund invests are traded
primarily in the over-the-counter market by dealers who are usually acting as
principal for their own account. On occasion, securities may be purchased
directly from the issuer. Such securities are generally traded on a net basis
and do not normally involve either brokerage commissions or transfer taxes. Each
Portfolio of the Fund may enter into financial futures and options contracts
which normally involve brokerage commissions.
The cost of executing transactions will consist primarily of dealer
spreads. The spread is not included in the expenses of a Portfolio of the Fund
and therefore is not subject to the expense cap described above under
"Investment Adviser and Advisory Agreement"; nevertheless, the incurrence of
this spread, ignoring the other intended positive effects of each such
transaction, will decrease the total return of the Fund. However, the Investment
Adviser will buy one asset and sell another only if the Investment Adviser
believes it is advantageous to do so after considering the effect of the
additional custodial charges and the spread on a Portfolio's total return.
21
<PAGE>
All purchases and sales will be executed with major dealers and banks on a
best net price basis. No trades will be executed with the Investment Adviser,
their affiliates, officers or employees acting as principal or agent for others,
although such entities and persons may be trading contemporaneously in the same
or similar securities.
For the period December 30, 1997 (commencement of operations) to October
31, 1998 and the fiscal year ended October 31, 1999 the amount of brokerage
commissions paid by the Fixed Income Fund was $0 and $0, respectively.
For the period June 30, 1999 (commencement of operations) to October 31,
1999, the amount of brokerage commissions paid by the Intermediate Fixed Income
Fund was $0.
TAX CONSIDERATIONS
The following summary of tax consequences, which does not purport to be
complete, is based on U.S. federal tax laws and regulations in effect on the
date of this Statement of Additional Information, which are subject to change by
legislative or administrative action.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fixed Income Fund has qualified, and intends to continue to qualify, to
be treated as a regulated investment company ("RIC") under the Internal Revenue
Code of 1986, as amended (the "Code"). The Intermediate Fixed Income Fund
intends to qualify as a RIC. In order for a Portfolio to qualify as a RIC it
must, among other things:
a. derive at least 90% of its gross income each taxable year, from dividends,
interest, payments (with respect to securities loans and gains from the
sale or other disposition of securities or foreign currencies) or other
income (including gains from options, futures or forward contracts) derived
from its business of investing in securities or foreign currencies (the
"Qualifying Income Requirement");
b. diversify its holdings so that, at the end of each quarter of the
Portfolio's taxable year:
i) at least 50% of the Portfolio's asset market value is represented by
cash and cash items (including receivables), U.S. Government
Securities, securities of other RICs and other securities, with such
other securities of any one issuer limited to an amount not greater
than 5% of the value of the Portfolio's total assets and not greater
than 10% of the outstanding voting securities of such issuer and
ii) not more than 25% of the value of the Portfolio's total assets is
invested in the securities of any one issuer (other than U.S.
Government Securities or the securities of other RICs); and
c. distribute at least 90% of its investment company taxable income (which
includes, among other items, interest and net short-term capital gains in
excess of net long-term capital losses).
The U.S. Treasury Department has the authority to promulgate regulations,
pursuant to which, gains from foreign currency (and options, futures and forward
contracts on foreign currency) not directly related to a RIC's principal
business of investing in stocks and securities would not be treated as
qualifying income. To date, such regulations have not been promulgated.
If a Portfolio does not qualify as a RIC for any taxable year, all of its
taxable income will be taxed to the Portfolio at corporate rates. For each
taxable year the Portfolio qualifies as a RIC, it will not be subject to federal
income tax on that part of its investment company taxable income and net capital
gains (the excess of net long-term capital gain over net short-term capital
loss) it distributes to its shareholders. In addition, to avoid a nondeductible
4% federal excise tax, the Portfolio must distribute during each calendar year
an amount at least equal to the sum of :
a. 98% of its ordinary income (not taking into account any capital gains or
losses), determined on a calendar year basis;
b. 98% of its capital gains in excess of capital losses, determined in general
on an October 31 year-end basis; and any undistributed amounts from
previous years.
Each Portfolio intends to distribute all of its net income and gains each
year. Each Portfolio will monitor its compliance with all of the rules set forth
in the preceding paragraph.
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<PAGE>
DISTRIBUTIONS
Generally, shareholders will be treated as if the Portfolio had distributed
income and gains to them and they reinvested such amounts in Portfolio
shares--even though no cash distributions have been made to shareholders. The
distribution of ordinary income and net realized short-term Portfolio capital
gains will be taxable to shareholders as ordinary income. Each Portfolio's
distribution of any net long-term capital gains designated as capital gain
dividends by the Portfolio will be taxable to the shareholders as long-term
capital gain. This is the case regardless of how long they have held their
shares. None of the amounts treated as distributed to a Portfolio's shareholders
will be eligible for the corporate dividends received deduction. A distribution
will be treated as paid on December 31 of the current calendar year, if the
Portfolio:
a. declares it during October, November or December, and
b. the distribution has a record date in such a month, and
c. it is paid by the Portfolio during January of the following calendar year.
Such distributions will be taxable to shareholders in the calendar year in
which the distributions are declared, rather than in the calendar year in
which the distributions are received. Each Portfolio will inform
shareholders of the amount and tax status of all amounts treated as
distributed to them in a calendar year in January of the following calendar
year.
SALE OF SHARES
Upon the sale or other disposition of Portfolio shares, or upon receipt of
a distribution in complete liquidation of a Portfolio, a shareholder usually
will realize a capital gain or loss. This loss may be long-term or short-term,
generally depending upon the shareholder's holding period for the shares. For
tax purposes, a loss will be disallowed on the sale or exchange of shares if the
disposed of shares are replaced (including shares acquired pursuant to a
dividend reinvestment plan) within a period of 61 days. The 61 day time window
begins 30 days before and ends 30 days after the date of the sale or exchange of
such shares. Should a disposition fall within this 61 day window, the basis of
the acquired shares will be adjusted to reflect the disallowed loss. Any loss
realized by the shareholder on its disposition of Fund shares held by the
shareholder for six months or less, will be treated as a long term capital loss,
to the extent of any distributions of net capital gains deemed received by the
shareholder, with respect to such shares.
ZERO COUPON SECURITIES
A Portfolio's investment in zero coupon securities will result in Portfolio
income, equal to a portion of the excess of the amortized face value of the
securities over their issue price (the "original issue discount"), prior
amortized value or purchased cost for each year that the securities are held.
This is so, even though the Portfolio receives no cash interest payments during
the holding period. This income is included when determining the amount of
income the Portfolio must distribute to maintain its status as a RIC and to
avoid the payment of Federal income tax and the 4% excise tax.
BACKUP WITHHOLDING
A Portfolio may be required to withhold U.S. Federal income tax at the rate
of 31% of all amounts deemed to be distributed as a result of the automatic
reinvestment by the Portfolio of its income and gains in additional shares of
the Portfolio. The 31% rate applies to shareholders receiving redemption
payments who:
a. fail to provide the Portfolio with their correct taxpayer identification
number;
b. fail to make required certifications,
c. have been notified by the Internal Revenue Service that they are subject to
backup withholding.
Backup withholding is not an additional tax. Any amounts withheld will be
credited against a shareholder's U.S. federal income tax liability. Corporate
shareholders and certain other shareholders are exempt from such backup
withholding.
FOREIGN SHAREHOLDERS
A foreign shareholder, qualifying as a non-resident alien, a foreign trust
or estate, foreign corporation, or foreign partnership ("foreign shareholder")
may have to pay U.S. tax depending on whether the Portfolio income is
"effectively connected" with a U.S. trade or business carried on by the
shareholders.
If a foreign shareholder's Portfolio income is not "effectively connected"
with a U.S. trade or business, the distributions of investment company taxable
income, including net short-term capital gains, will be subject to a U.S. tax of
30% (or lower treaty rate).
If a foreign shareholder's Portfolio income is effectively connected with a
U.S. trade or business, then:
a. distributions of investment company taxable income,
b. capital gain dividends, and
c. any gain realized upon the redemption, sale or exchange of shares of the
Portfolio will be subject to U.S. Federal income tax at the graduated rates
applicable to U.S. citizens or domestic corporations. Such shareholders may
also be subject to the branch profits tax at a 30% rate.
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<PAGE>
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those described herein.
Foreign shareholders are advised to consult their own tax advisers regarding
investment tax consequences in a Portfolio.
OTHER TAXES
A Portfolio may be subject to state, local or foreign taxes in any
jurisdiction where the Portfolio is deemed to be doing business. In addition,
Portfolio shareholders may be subject to state, local or foreign taxes on
Portfolio distributions. In many states, Portfolio distributions derived from
interest on certain U.S. Government obligations may be exempt from taxation.
Shareholders should consult their own tax advisers concerning these matters.
SHAREHOLDER INFORMATION
Certificates representing shares of each Portfolio of the Fund will not be
issued to shareholders. Investors Bank & Trust Company, the Fund's transfer
agent (the "Transfer Agent"), will maintain an account for each shareholder upon
which the registration and transfer of shares are recorded, and any transfers
shall be reflected by bookkeeping entry, without physical delivery. Detailed
confirmations of each purchase or redemption are sent to each shareholder.
Monthly statements of account are sent which include shares purchased as a
result of a reinvestment of a Portfolio's distributions.
The Transfer Agent will require that a shareholder provide requests in
writing, accompanied by a valid signature guarantee form, when changing certain
information in an account (i.e., wiring instructions, telephone privileges,
etc.). Neither the Fund, the Administrator, nor the Transfer Agent will be
responsible for the validity of written or telephonic requests.
PURCHASE OF SHARES
There is no sales charge imposed by the Fund, nor does the Fund impose
sales commissions (loads). The minimum initial investment in Class B shares is
$1,000. The minimum initial investment in Class A shares is $1,000,000. In Class
A shares, the minimum investment may be waived at any time at the discretion of
the Investment Adviser. Additional purchases of Class A or Class B shares may be
of any amount.
The offering of shares of each Portfolio is continuous and purchases of
shares of the Portfolios may be made Monday through Friday, except for the
holidays declared by the Federal Reserve Banks of New York or Boston (a
"Business Day"). At the present time, these holidays are: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Memorial Day, Fourth of July, Labor Day,
Columbus Day, Veterans Day, Thanksgiving, and Christmas. Each Portfolio's shares
are offered at a public offering price equal to the net asset value next
determined after receipt of a purchase order.
In order to purchase shares on a particular Business Day, subject to the
offering dates described above, a purchaser must submit a completed Account
Application Form (and other required documents) and call Investors Bank & Trust
Company at (800) 247-0473 prior to 4:00 p.m. Eastern time to inform the Fund of
the incoming wire transfer. If Federal funds are received by the Fund that same
day, the order will be effective on that day. If the Fund receives notification
on a non-business day, or after 4:00 p.m. Eastern time, or if Federal funds are
received by the Transfer Agent after 4:00 p.m. Eastern time, such purchase order
shall be deemed received as of the next business day. Shares purchased will
begin accruing dividends on the day Federal funds are received.
Purchases of shares must be made by wire transfer of Federal funds. Please
note that the shareholder's bank may impose a charge to execute the wire
transfer. The wiring instructions for purchasing shares of a Portfolio are:
Investors Bank & Trust Company
Boston, MA
ABA # 011-001-438
Acct: 303030303
Benf: (name of Portfolio)
F/F/C (Shareholder's Account at Fund)
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<PAGE>
REDEMPTION OF SHARES
The Fund will redeem all full and fractional shares of each Portfolio in
the Fund upon request of shareholders. The redemption price is the net asset
value per share next determined after receipt by the Transfer Agent of proper
notice of redemption as described below. If such notice is received by the
Transfer Agent by 4:00 p.m. Eastern time on any Business Day, the redemption
will be effective on the date of receipt. If such notice of redemption is
received by the Transfer Agent after 4:00 p.m. Eastern time, the redemption of
the shareholder shall be effective on the following Business Day. Payment will
ordinarily be made by wire on the next Business Day but within no more than
seven days from the date of receipt. If the notice is received on a day that is
not a Business Day or after the above-mentioned cut-off times, the redemption
notice will be deemed received as of the next Business Day.
There is no charge imposed by the Fund to redeem shares of a Portfolio;
however, a shareholder's bank may impose its own wire transfer fee for receipt
of the wire. Redemptions may be executed in any amount requested by the
shareholder up to the amount such shareholder has invested in the Portfolio.
To redeem shares, a shareholder or any authorized agent (so designated on
the Account Application Form) must provide the Transfer Agent with the dollar or
share amount to be redeemed, the account to which the redemption proceeds should
be wired (which account shall have been previously designated by the shareholder
on its Account Application Form), the name of the shareholder and the
shareholder's account number. Shares redeemed receive dividends up to and
including the day preceding the day the redemption proceeds are wired.
A shareholder may change its authorized agent or the account designated to
receive redemption proceeds at any time by writing to the Transfer Agent with an
appropriate signature guarantee. Further documentation may be required when
deemed appropriate by the Transfer Agent.
A shareholder may request redemption by calling the Transfer Agent at (800)
247-0473. Telephone redemption is made available to shareholders of the Fund on
the Account Application Form. The Fund and the Transfer Agent may employ
reasonable procedures designed to confirm that instructions communicated by
telephone are genuine. If either the Fund or the Transfer Agent does not employ
such procedures, it may be liable for losses due to unauthorized or fraudulent
instructions. The Fund or the Transfer Agent may require personal identification
codes and will only wire funds through pre-existing bank account instructions.
No bank instruction changes will be accepted via telephone.
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption of the Fund by making payment
in whole or in part in readily marketable securities chosen by the Fund and
valued as they are for purposes of computing the Fund's net asset value
(redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting the securities to cash.
SERVICE PROVIDERS
CUSTODIAN AND ACCOUNTING AGENT
Investors Bank & Trust Company, 200 Clarendon Street, P.O. Box 9130,
Boston, Massachusetts 02116, is Custodian and Accounting Agent for the Fund.
TRANSFER AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, 200 Clarendon Street, Boston, Massachusetts
02116, is Transfer Agent for the shares of the Fund, and Dividend Disbursing
Agent for the Fund.
LEGAL COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006, is
legal counsel for the Fund.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, was the
independent auditor for the Fund's 1999 Fiscal Year End. Deloitte & Touche LLP,
Two World Financial Center, New York, New York 10281-1414, will render
accounting services for the Fund's 2000 fiscal year end.
26
<PAGE>
ORGANIZATION OF THE FUND AND DESCRIPTION OF CAPITAL STOCK
The Fund was incorporated on August 4, 1997 as a Maryland corporation and
is authorized to issue 2,500,000,000 shares of Common Stock, $0.001 par value.
For each Portfolio 350,000,000 shares are authorized as Class A shares and
150,000,000 shares are authorized as Class B shares. The Fund currently consists
of two portfolios: the SAMCO Aggregate Fixed Income Fund and the SAMCO
Intermediate Fixed Income Fund. Prior to June 10, 1999 the name of the SAMCO
Aggregate Fixed Income Fund was the SAMCO Fixed Income Portfolio and the name of
the Fund was "SAMCO Fund, Inc." The Fund's shares have no preemptive,
conversion, exchange or redemption rights. Each share of the Fund has equal
voting, dividend, distribution and liquidation rights. All shares issued and
outstanding are fully paid and non-assessable, transferable, and redeemable at
their net asset value at the option of the shareholder. All voting rights for
the election of directors are non-cumulative, which means that the holders of
more than 50% of the shares can elect 100% of the Directors then nominated for
election if they choose to do so and, in such event, the holders of the
remaining less than 50% of the shares will not be able to elect any Directors.
The foregoing description is subject to the provisions contained in the Fund's
Articles of Incorporation and By-laws.
The Board of Directors is authorized to reclassify and issue any unissued
shares of the Fund without shareholder approval. Accordingly, in the future, the
Directors may create additional series of portfolios with different investment
objectives, policies and restrictions. Any issuance of shares of another series
would be governed by the 1940 Act and Maryland law.
Each Portfolio currently offers two classes of shares, which may have
different operating and other expenses. For more information about other classes
of the Portfolios' shares, investors should contact the Administrator at the
address or phone number set forth on the cover of this Statement of Additional
Information.
CALCULATION OF PERFORMANCE DATA
Each Portfolio may, from time to time, include the yield and total return
in reports to shareholders or prospective investors. Quotations of yield for a
Portfolio will be based on all investment income per share during a particular
30-day (or one month) period (including dividends and interest), less expenses
accrued during the period ("net investment income"), and are computed by
dividing net investment income by the maximum, offering price per share on the
last day of the period, according to the following formula which is prescribed
by the Commission:
YIELD = 2[( a - b + 1)6 - 1]
----
cd
Where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of Shares of the Fund
outstanding during the period that were entitled to
receive dividends, and
d = the maximum offering price per share on the last day
of the period.
Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in a
Portfolio over periods of 1, 5 and 10 years (up to the life of the Portfolio),
calculated pursuant to the following formula which is prescribed by the SEC:
P(1 + T)n = ERV
Where P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.
All total return figures assume that all dividends are reinvested when
paid.
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Average Annual Total Returns of Class A shares for the fiscal year ended
October 31, 1999 and since inception are as follows:
1 year Since Inception*
- ------------------------------------------------------------------------
Fixed Income Fund - A Shares 0.80% 4.14%
Intermediate Fixed
Income Fund - A Shares - 1.13%
*The Fixed Income Fund commenced operations on December 30, 1997. The
Intermediate Fixed Income Fund commenced operations on June 30, 1999.
QUALITY RATING DESCRIPTIONS
STANDARD & POORS CORPORATION
AAA. Bonds rated AAA are highest grade debt obligations. This rating
indicates an extremely strong capacity to pay principal and interest.
AA. Bonds rated AA also qualify as high-quality obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A. Bonds rated A have a strong capacity to pay principal and interest,
although they are more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB. Bonds rated BBB are regarded as having adequate capacity to pay
interest or principal. Although these bonds normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and principal.
The ratings AA to D may be modified by the addition of a plus or minus sign
to show relative standing within the major rating categories.
Municipal notes issued since July 29, 1984 are designated "SP-1", "SP-2",
and "SP-3". The designation SP-1 indicates a very strong capacity to pay
principal and interest. A "+" is added to those issues determined to possess
overwhelming safety characteristics.
A-1. Standard & Poor's Commercial Paper ratings are current assessments of
the likelihood of timely payments of debts having original maturity of no more
than 365 days. The A-1 designation indicates the degree of safety regarding
timely payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
MOODY'S INVESTORS SERVICE, INC.
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
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A. Bonds which are rated A possess many favorable investment attributes and
may be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa. Baa rated bonds are considered 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.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Moody's ratings for state and municipal and other short-term obligations
will be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance in long-term borrowing risk are of lesser importance in the short
run.
MIG-1. Notes bearing this designation are of the best quality enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or both.
MIG-2. Notes bearing this designation are of favorable quality, with all
security elements accounted for, but lacking the undeniable strength of the
previous grade. Market access for refinancing, in particular, is likely to be
less well established.
P-1. Moody's Commercial Paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months. The designation "Prime-1" or "P-1" indicates
the highest quality repayment capacity of the rated issue.
P-2. Issuers have a strong capacity for repayment of short-term promissory
obligations.
THOMSON BANKWATCH, INC.
A. Company possess an exceptionally strong balance sheet and earnings
record, translating into an excellent reputation and unquestioned access to its
natural money markets. If weakness or vulnerability exists in any aspect of the
company's business, it is entirely mitigated by the strengths of the
organization.
A/B. Company is financially very solid with a favorable track record and no
readily apparent weakness. Its overall risk profile, while low, is not quite as
favorable as companies in the highest rating category.
IBCA LIMITED
A1. Short-term obligations rated A1 are supported by a very strong capacity
for timely repayment. A plus sign is added to those issues determined to possess
the highest capacity for timely payment.
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FINANCIAL STATEMENTS
The Fund's audited Financial Statements, including the Financial
Highlights, for the period ended October 31, 1999 appearing in the Annual Report
to Shareholders and the report thereon of Ernst & Young LLP, independent
auditors, appearing therein are hereby incorporated by reference in this
Statement of Additional Information. The Annual Report to Shareholders is
delivered with this Statement of Additional Information to shareholders
requesting this Statement of Additional Information.
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PART C. OTHER INFORMATION
ITEM 24. EXHIBITS.
---------
EXHIBIT
NUMBER DESCRIPTION
------- -----------
a(1) -- Registrant's Articles of Incorporation (previously filed
in the Registrant's Registration Statement on August 4, 1997) are incorporated
herein by reference.
a(2) -- Articles Supplementary to the Articles of Incorporation,
effective October 16, 1997 (previously filed in the Registrant's Post-Effective
Amendment No.6 to the Registration Statement on December 28, 1999) are
incorporated herein by reference.
a(3) -- Articles Supplementary to the Articles of Incorporation,
effective June 16, 1999 (previously filed in the Registrant's Post-Effective
Amendment No.6 to the Registration Statement on December 28, 1999) are
incorporated herein by reference.
b(1) -- By-Laws (previously filed in the Registrant's
Registration Statement on August 4, 1997) are incorporated herein by reference.
c -- None.
d(1) -- Advisory Agreement between the Registrant, on behalf of
SAMCO Fixed Income Portfolio and Seix Investment Advisors Inc., dated November
3, 1997, (previously filed in the Registrant's Post-Effective Amendment No.6 to
the Registration Statement on December 28, 1999) is incorporated herein by
reference.
d(2) -- Advisory Agreement between the Registrant, on behalf of
SAMCO Intermediate Fixed Income Fund and Seix Investment Advisors Inc., dated
June 14, 1999, (previously filed in the Registrant's Post-Effective Amendment
No.6 to the Registration Statement on December 28, 1999) is incorporated herein
by reference.
e(1) -- Form of Distribution Agreement between the Registrant and
First Fund Distributors, Inc. (previously filed in the Registrant's
Post-Effective Amendment No.6 to the Registration Statement on December 28,
1999) is incorporated herein by reference.
f -- None.
g -- Custodian Agreement between the Registrant and Investors
Bank & Trust Company (previously filed in the Pre-Effective Amendment No. 2 to
the Registrant's Registration Statement on October 20, 1997) is incorporated
herein by reference.
h(1) -- Transfer Agency and Service Agreement between Registrant
and Investors Bank & Trust Company (previously filed in the Pre-Effective
Amendment No. 2 to the Registrant's Registration Statement on October 20, 1997)
is incorporated herein by reference.
h(2) Form of Administration Agreement between the Registrant and
Investors Bank & Trust Company, dated November 1, 1999 is filed herein.
<PAGE>
i(1) -- Opinion and Consent of Dechert Price & Rhoads (previously
filed to the Pre-Effective Amendment No. 3 to the Registrant's Registration
Statement on Form N-1A on October 29, 1997) is incorporated herein by reference.
i(2) -- Consent of Dechert Price & Rhoads is filed herein.
j(1) -- Consent of Auditors is filed herein.
j(2) -- Powers of Attorney (previously filed in the Pre-Effective
Amendment No. 2 to the Registrant's Registration Statement on October 20, 1997)
are incorporated herein by reference.
k -- None.
l(1) -- Share Purchase Agreement between Registrant and Seix
Investment Advisors Inc. (previously filed in the Pre-Effective Amendment No. 2
to the Registrant's Registration Statement on October 20, 1997) is incorporated
herein by reference.
m(1) -- Services and Distribution Plan between the Registrant and
AMT Capital Securities, LLC. on behalf of SAMCO Fixed Income Portfolio Class B
(previously filed in the Pre-Effective Amendment No. 2 to the Registrant's
Registration on October 20, 1997) is incorporated herein by reference.
m(2) -- Services and Distribution Plan between the Registrant on
behalf of SAMCO Intermediate Fixed Income Fund Class B and AMT Capital
Securities, LLC., dated June, 1999 (previously filed in the Registrant's
Post-Effective Amendment No.6 to the Registration Statement on December 28,
1999) is incorporated herein by reference.
n -- Inapplicable.
o(1) -- Multiple Class Plan (previously filed in the
Pre-Effective Amendment No. 2 to the Registrant's Registration Statement on
October 20, 1997) is incorporated herein by reference.
o(2)-- Multiple Class Plan for SAMCO Intermediate Fixed Income
Fund (previously filed in the Post-Effective Amendment No. 4 to the Registrant's
Registration Statement on March 30, 1999) is incorporated herein by reference.
o(3)-- Registrant's Code of Ethics is filed herein.
<PAGE>
ITEM 24
PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
- -------------------------------------------------------------
As of February 1, 2000, the following shareholders were deemed to be a "control
person" of the Fund as such term is defined in the 1940 Act.
Nature of
Name and Address of Beneficial Percent
Title of Class Beneficial Owner Ownership of Portfolio
- -------------- ------------------- ---------- ------------
Class A Shares of American College of Direct Ownership 36.3%
SAMCO Aggregate Cardiology 911 Old
Fixed Income Fund Georgetown Road
Bethesda, MD 20814
Class A Shares of Noitu Insurance Trust Direct Ownership 100%
SAMCO Intermediate Fund H&W Plan
Fixed Income Fund (501) CA 148-06
Hillside Avenue
Jamaica, NY 11435
ITEM 25
INDEMNIFICATION.
- ----------------
The Registrant shall indemnify directors, officers, employees and agents of
the Registrant against judgments, fines, settlements and expenses to the fullest
extent allowed, and in the manner provided, by applicable Federal and Maryland
law, including Section 17(h) and (i) of the Investment Company Act of 1940. In
this regard, the Registrant undertakes to abide by the provisions of Investment
Company Act Releases No. 11330 and 7221 until amended or superseded by
subsequent interpretation of legislative or judicial action.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, Registrant understands that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a director, officer or
controlling person of Registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 26
BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
- -----------------------------------------------------
Seix Investment Advisors Inc. (the "Investment Adviser") is a company
organized under the laws of New Jersey and an investment adviser registered
under the Investment Advisers Act of 1940 (the "Advisers Act").
<PAGE>
The list required by this Item 26 of officers and directors of the
Investment Adviser, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by reference
to Schedules A and D of Form ADV filed by the Investment Adviser pursuant to the
Advisers Act (SEC File No. 801-42070).
ITEM 27
PRINCIPAL UNDERWRITER.
- ----------------------
(a) The Registrant's principal underwriter also acts as principal underwriter
for the following investment companies:
Guiness Flight Investment Funds
Fleming Capital Mutual Fund Group, Inc.
Fremont Mutual Funds, Inc.
Jurika & Voyles Fund Group
Kayne Anderson Mutual Funds
Masters' Select Investment Trust
O'Shaughnessy Funds, Inc.
PIC Investment Trust
The Purisima Funds
Professionally Managed Portfolios
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group, Inc.
Brandes Investment Trust
Allegiance Investment Trust
The Dessauer Global Equity Fund
Puget Sound Alternative Investment Trust
(b) The following information is furnished with respect to the officers and
directors of First Fund Distributors, Inc.:
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS & OFFICES POSITIONS & OFFICES
WITH DISTRIBUTOR WITH DISTRIBUTOR WITH REGISTRANT
- ----------------- ------------------- -------------------
Robert H. Wadsworth President & Treasurer None
4455 E. Camelback Road
Suite 261E
Phoenix, AZ 85018
Eric M. Banhazl Vice President None
2020 E. Financial Way
Suite 100
Glendora, CA 91741
Steven J. Paggioli Vice President None
915 Broadway & Secretary
Suite 1605
New York, NY 10010
<PAGE>
(c) Not applicable.
ITEM 28
LOCATION OF ACCOUNTS AND RECORDS.
- ---------------------------------
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended (the "1940
Act"), and the rules thereunder will be maintained at the offices of the
Investment Adviser, the Custodian and the Administrator.
Advisor: Seix Investment Advisors Inc.
300 Tice Boulevard
Woodcliff Lake, NJ 07675-7633
Custodian/Administrator: Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116-9130
ITEM 29
MANAGEMENT SERVICES.
- --------------------
Not applicable.
ITEM 30
UNDERTAKINGS.
- -------------
Not applicable.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirement for effectiveness of this registration statement under rule
485(b) under the Securities Act of 1933 and has duly caused this registration
statement to be signed on its behalf by the undersigned, duly authorized, in the
City of Woodcliff Lake and State of New Jersey on the 24th day of February,
2000.
SAMCO FUNDS, INC.
By: /s/ Christina Seix
------------------
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on the 24th day of February, 2000.
SIGNATURE TITLE
/s/ Christina Seix Director
- ------------------
Christina Seix
/s/ John G. Talty Director, President
- -----------------
John G. Talty
/s/ Peter J. Bourke Director
- ------------------
Peter J. Bourke
*/s/ John E. Manley, Sr. Director
- -----------------------
John E. Manley, Sr.
*/s/ John R. O'Brien Director
- --------------------
John R. O'Brien
/s/ William E. Vastardis Treasurer
- ----------------------- (Principal Financial and Accounting Officer)
William E. Vastardis
/s/ William E. Vastardis *Attorney-in-Fact William E. Vastardis
- -----------------------
William E. Vastardis
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
EXHIBITS
TO
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND THE
INVESTMENT COMPANY ACT OF 1940
------------------
SAMCO FUNDS, INC.
<PAGE>
SAMCO FUNDS, INC.
INDEX TO EXHIBITS
Exhibit h(2)
Exhibit i(2)
Exhibit j(1)
Exhibit o(3)
ADMINISTRATION AGREEMENT
AGREEMENT dated as of November l, 1999 by and between SAMCO FUNDS, INC., a
Maryland corporation (the "Fund"), and INVESTORS BANK & TRUST COMPANY, a
Massachusetts trust company ("Investors Bank").
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
consisting of the separate portfolios listed on APPENDIX A hereto;
WHEREAS, the Fund offers shares of common stock, par value $.001 per share,
which have been registered under the Securities Act of 1933, as amended;
WHEREAS, the Fund desires to retain Investors Bank to render certain
administrative services, including supervision of certain third party vendors to
the Fund and Investors Bank is willing to render such services.
NOW, THEREFORE, in consideration of the above premises and of other good
and valuable consideration the parties hereto, intending to be legally bound
hereby, agree as follows:
1. APPOINTMENT OF ADMINISTRATOR. The Fund hereby appoints Investors Bank to act
as administrator to the Fund for the period and on the terms set forth in this
Agreement. Investors Bank accepts such appointment and agrees to render the
services herein set forth for the compensation herein provided.
2. DUTIES OF ADMINISTRATOR. Subject to the supervision and direction of the
Board of Directors of the Fund, Investors Bank, as Administrator, will assist in
conducting various aspects of the Fund's administrative operations and
undertakes to perform the services described in APPENDIX B hereto. Investors
Bank may, from time to time, perform additional duties and functions which shall
be set forth in an amendment to such APPENDIX B executed by both parties. At
such time, the fee schedule included in APPENDIX C hereto shall be appropriately
amended.
In performing all services under this Agreement, Investors Bank shall act
in conformity with the Fund's Articles and By-Laws and the 1940 Act, as the same
may be amended from time to time, and the investment objectives, investment
policies and other practices and policies set forth in the Fund's Registration
Statement, as the same may be amended from time to time. Notwithstanding any
item discussed herein, Investors Bank has no discretion over the Fund's assets
or choice of investments and cannot be held liable for any problem relating to
such investments. Investors Bank will perform all of its obligations under this
Agreement in accordance with applicable law, including without limitation laws
against discrimination.
<PAGE>
3. DUTIES OF THE FUND
A. The Fund is solely responsible (through its transfer agent or otherwise)
for (i) providing timely and accurate reports ("Daily Sales Reports") which will
enable Investors Bank as Administrator to monitor the total number of shares
sold in each state on a daily basis and (ii) identifying any exempt transactions
("Exempt Transactions") which are to be excluded from the Daily Sales Reports.
B. The Fund will deliver to Investors Bank copies of each of the following
documents and will deliver to Investors Bank all future amendments and
supplements, if any:
(1) A certified copy of the Articles of Incorporation of the Fund as
amended and currently in effect;
(2) A copy of the Fund's By-Laws as amended and currently in effect,
certified by the Secretary of the Fund;
(3) A copy of the resolution of the Fund's Board of Directors authorizing
this Agreement, certified by the Secretary of the Fund;
(4) The Fund's registration statement on Form N-1A as filed with, and
declared effective by, the U.S. Securities and Exchange Commission ("SEC"),
and all amendments thereto;
(5) Each resolution of the Board of Directors of the Fund authorizing the
original issue of its shares, certified by the Secretary of the Fund;
(6) Copies of the resolutions of the Fund's Board of Directors authorizing:
(i) certain officers and employees of Investors Bank to give instructions
to the Fund's custodian and transfer agent as required by agreements with
such parties, and (ii) certain officers and employees of Investors Bank to
sign checks and pay expenses on behalf of the Fund, certified by the
Secretary of the Fund;
(7) A copy of the current Investment Advisory Agreement between the Fund
and Seix Investment Advisors, Inc.;
(8) A copy of the Custodian Agreement and Transfer Agency Agreement
relating to the Fund; and
-2-
<PAGE>
(9) Such other certificates, documents or opinions which Investors Bank
may, in its reasonable discretion, deem necessary or appropriate in the
proper performance of its duties.
C. The Fund will cooperate in providing Investors Bank with all information
reasonably necessary to permit Investors Bank to perform its duties hereunder.
D. The Fund certifies to Investors Bank that, as of the close of business
on the date of this Agreement, it has authorized capitalization of 2,500,000,000
shares of its common stock, $.001 par value (the "Shares"), and agrees that
Investors Bank will be promptly notified from time to time when the Fund takes
corporate action to increase the number of authorized shares, including
restoring redeemed shares held in its treasury to the status of authorized and
unissued shares.
4. SERVICES TO BE OBTAINED INDEPENDENTLY BY THE FUND
The Fund shall, at its own expense, provide for any of its own:
A. Organizational expenses;
B. Services of an independent accountant;
C. Services of outside legal counsel (including such counsel's review of
the Fund's registration statement, proxy materials and other reports and
materials prepared by Investors Bank under this Agreement);
D. Services contracted for by the Fund directly from parties other than
Investors Bank acting as administrator (or subcontracted for by Investors Bank
on behalf of the Fund, subject to review and approval by the Fund's executive
officers or Board of Directors);
E. Trading operations and brokerage fees, commissions and transfer taxes in
connection with the purchase and sale of securities for its investment
portfolio;
F. Investment advisory services;
G. Taxes, insurance premiums and other fees and expenses applicable to its
operation;
H. Costs incidental to any meeting of shareholders including, but not
limited to, legal and accounting fees, proxy filing fees and costs incidental to
the preparation, printing and mailing of any proxy materials;
I. Cost incidental to Directors' meetings, including fees and expenses of
Directors;
-3-
<PAGE>
J. The salary and expenses of any officer or employee of the Fund who is
not also an officer or employee of Investors Bank;
K. Custodian and depository banks, and all services related thereto;
L. Costs incidental to the preparation, printing and distribution of its
registration statement and any amendments thereto, and shareholder reports,
including printing setup, printing and mailing costs;
M. All registration fees and filing fees required under the securities laws
of the United States and state regulatory authorities;
N. Fidelity bond and director's and officers' liability insurance;
O. Record retention costs of third parties;
P. Distribution fees pursuant to any distribution plan, if and when adopted
pursuant to Rule 12b-1 under the 1940 Act; and
Q. Litigation and indemnification expenses and other extraordinary expenses
not incurred in the ordinary course of the Fund's business.
5. Price and Charges
(a) For the services to be rendered and the facilities to be furnished
by Investors Bank, as provided for in this Agreement, the Fund will compensate
Investors Bank in accordance with the fee schedule attached as Appendix C
hereto. Such fees do not include out-of-pocket disbursements (as delineated on
the fee schedule or other expenses with the prior approval of the Fund's
management) of Investors Bank for which Investors Bank shall be entitled to bill
the Fund separately and for which the Fund shall reimburse Investors Bank.
(b) Investors Bank shall not be required to pay any expenses incurred by
the Fund.
-4-
<PAGE>
6. Limitation of Liability and Indemnification
A. Investors Bank shall provide its services in a professional manner
customarily provided by leading mutual fund administration companies. Investors
Bank shall be responsible for the performance of only such duties as are set
forth or contemplated herein or contained in instructions given to it by the
Fund which are not contrary to this Agreement. Investors Bank shall have no
liability for any loss or damage resulting from the performance or
non-performance of its duties hereunder unless caused by or resulting from the
gross negligence, bad faith or willful misconduct of Investors Bank, its
officers or employees or the violation by any of such persons of this Agreement.
In no event, however, shall Investors Bank be liable for any consequential
damages including, without limitation, any taxes, penalties, litigation expenses
or other loss or damage resulting from the failure by other persons providing
services to the Fund to conform to applicable legal or regulatory requirements,
or to the Fund's investment policies and restrictions as set forth in its
registration statement, notwithstanding that Investors Bank, in the course of
carrying out its monitoring duties hereunder, failed to discover such failure.
B. The Fund shall indemnify and hold Investors Bank harmless from all loss,
cost, damage and expense, including reasonable expenses for counsel, incurred by
it resulting from any claim, demand, action or suit in connection with any
action or omission by it in the performance of its duties hereunder, or as a
result of acting upon any instructions reasonably believed by it to have been
executed by a duly authorized officer of the Fund, provided that this
indemnification shall not apply to actions or omissions of Investors Bank, its
officers or employees in cases of its or their own gross negligence or
misconduct or the violation by any of such persons of this Agreement.
C. The Fund will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any liability subject to the indemnification provided above, and if the
Fund elects to assume the defense, such defense shall be conducted by counsel
chosen by the Fund. In the event the Fund elects to assume the defense of any
such suit and retain such counsel, Investors Bank or any of its affiliated
persons, named as defendant or defendants in the suit, may retain additional
counsel at its or their own expense, except that, if the Fund shall have
specifically authorized the retaining of such counsel, then the reasonable
expenses for such counsel shall be reimbursed by the Fund.
D. At any time Investors Bank may apply to any executive officer of the
Fund or executive officer of the Fund's investment adviser for instructions, and
may consult with legal counsel for the Fund, if consented to by an executive
officer of the Fund at the expense of the Fund, with respect to any matter
arising in connection with the services to be performed by Investors Bank under
this Agreement and Investors Bank shall not be liable and shall be indemnified
by the Fund for any action taken or omitted by it in good faith in reliance upon
such instructions or upon the opinion of such counsel. Investors Bank shall be
protected and indemnified in acting upon any paper or document of the Fund
reasonably believed by it to be genuine and to have been signed by the proper
person or persons and shall not be held to have notice of any change of
authority of any representative of the Fund, until receipt of written notice
thereof from the Fund, unless an officer of Investors Bank shall have actual
knowledge of such change. Investors Bank shall also be protected and
indemnified, except where a stop order is in effect, in recognizing transfer
documents which Investors Bank reasonably believes to bear the proper manual or
facsimile signature of the officers of the Fund, and the proper
counter-signatures of any present or former transfer agent.
-5-
<PAGE>
7. Confidentiality
Investors Bank agrees on behalf of itself and its directors, officers and
employees to treat confidentially and as proprietary information of the Fund all
records and other information relative to the Fund and its prior, present or
potential shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities hereunder, except (i)
after prior notification to and approval in writing by the Fund, which approval
shall not be unreasonably withheld, when requested to divulge such information
by duly constituted authorities and may not be withheld where Investors Bank may
be exposed to civil or criminal contempt proceedings for failure to comply, and
Investors Bank shall disclose all such records and information to the investment
adviser to the Fund when so requested by the adviser or the Fund.
8. Compliance With Governmental Rules and Regulations
The Fund assumes full responsibility for complying with all applicable
requirements of the Securities Act of 1933, the 1940 Act and the Securities
Exchange Act of 1934, all as amended, and any laws, rules and regulations of
governmental authorities having jurisdiction, except to the extent that
Investors Bank specifically assumes any such obligations under the terms of this
Agreement.
Investors Bank shall maintain and preserve for the period prescribed, such
records relating to the services to be performed by Investors Bank under this
Agreement as are required pursuant to the 1940 Act and the Securities Exchange
Act of 1934, all as amended, and the rules and regulations thereunder. All such
records shall at all times remain the respective properties of the Fund, shall
be readily accessible during normal business hours and shall be promptly
surrendered upon the termination of this Agreement or otherwise on written
request. Records shall be surrendered in usable machine readable form.
-6-
<PAGE>
9. Status of Investors Bank
Investors Bank shall be deemed to be an independent contractor and shall,
unless otherwise expressly provided herein or authorized by the Fund from time
to time, have no authority to act or represent the Fund in any way or otherwise
be deemed an agent of the Fund.
Nothing herein shall be deemed to limit or restrict Investors Bank's right
or that of any of its affiliates or employees, to engage in any other business
or to devote time and attention to the administration or other related aspects
of any other registered investment company or to render services of any kind to
any other corporation, firm, individual or association.
10. Printed Matter Concerning the Fund or Investors Bank
Neither the Fund nor Investors Bank shall publish and circulate any printed
matter which contains any reference to the other party without its prior written
approval, excepting such printed matter as refers in accurate terms to Investors
Bank's appointment under this Agreement and/or any other agreement between the
Fund and Investors Bank, and excepting as may be required by applicable laws or
regulations.
11. Term, Amendment and Termination
This Agreement may be modified or amended, from time to time, by mutual
agreement between the parties hereto. This Agreement shall remain in effect from
the date hereof, and shall expire on November 3, 2002. After the expiration
date, this Agreement shall automatically be renewed annually thereafter, and may
be terminated thereafter, by either party on 120 days' prior written notice.
Upon termination of the Agreement, the Fund shall pay to Investors Bank such
compensation as may be due under the terms hereof on the date of such
termination.
12. Default
Should either party materially breach, materially neglect or materially
fail, in whole or in part, to perform its duties and/or observe its obligations
hereunder (a "Default"), that party shall be in Default hereunder (the
"Defaulting Party"). The other party hereto may give written notice to the
Defaulting Party, and if such Default fails to be remedied within sixty (60)
days after receipt of such written notice, then the party giving such notice may
terminate this Agreement by thirty (30) days' written notice of such termination
to the Defaulting Party. Such termination shall not affect any rights or
obligations of either party arising from, or relating to, such Default under the
terms hereof.
-7-
<PAGE>
The provisions of this Section 12 shall not limit either party's
termination rights under Section 11 of this Agreement. The provisions of Section
11 and this Section 12 shall govern the method of termination of this Agreement,
but shall not limit any other rights or remedies of either party in the event of
any breach of this Agreement by the other party.
13. Notices
Any notice or other communication authorized or required hereunder shall be
in writing or by confirming telegram, cable, telex or facsimile sending device.
Notice shall be addressed to the Fund at 300 Tice Boulevard, Woodcliff Lake, New
Jersey 07675 Attention: Peter Bourke; and to Investors Bank & Trust Company, 200
Clarendon Street, Boston, MA 02116, Attention: Carol Lowd, Senior Director,
Client Management, with a copy to Investors Capital Services, Inc., 600 Fifth
Avenue, 26th Floor, New York, New York 10020, Attention: William Vastardis.
Either party may designate a different address by notice to the other party. Any
such notice or other communication shall be deemed given when actually received.
14. Non-Assignability
This Agreement shall not be assigned by either of the parties hereto
without the prior consent in writing of the other party. Any purported
assignment in violation of this Agreement shall be void and of no effect.
15. Successors
This Agreement shall be binding on and shall inure to the benefit of the
Fund and Investors Bank, and their respective successors and permitted assigns.
16. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
SAMCO FUNDS, INC.
By: /s/
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By: /s/
Name:
Title:
<PAGE>
Appendix A
SAMCO Aggregate Fixed Income Portfolio
SAMCO Intermediate Fixed Income Portfolio
<PAGE>
NOVEMBER 1, 1999
APPENDIX B
INVESTORS BANK & TRUST
SUMMARY OF ADMINISTRATION FUNCTIONS
SAMCO FUNDS
<TABLE>
<CAPTION>
FUNCTION INVESTORS BANK & TRUST SEIX INVESTMENT MANAGEMENT SUGGESTED FUND
AUDITOR OR COUNSEL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MANAGEMENT REPORTING
& TREASURY ADMINISTRATION
Monitor portfolio compliance Perform tests of certain specific Continuously monitor portfolio A/C - Provide
in accordance with the current portfolio activity designed from activity and Fund operations in consultation
Prospectus and SAI. provisions of the Fund's Prospectus conjunction with 1940 Act, as needed on
and SAI. Follow-up on potential Prospectus, SAI and any other compliance issues.
violations. applicable laws and regulations.
Monitor testing results and
approve resolution of
compliance issues.
FREQUENCY: DAILY
Provide compliance Provide a report Review report. A/C - Provide
summary package. of compliance consultation as
FREQUENCY: MONTHLY testing results. needed.
Perform asset Perform asset diversification Continuously monitor portfolio A - Provide
diversification testing tests at each tax activity in conjunction with consultation as
to establish qualification quarter end. IRS requirements. Review needed in
as a RIC. Follow-up on issues. test results and take any establishing
necessary action. Approve positions to be
tax positions taken. taken in tax
treatment of
particular issues.
Review quarter end
tests on a current
basis.
FREQUENCY: QUARTERLY
1
<PAGE>
NOVEMBER 1, 1999
FUNCTION INVESTORS BANK & TRUST SEIX INVESTMENT MANAGEMENT SUGGESTED FUND
AUDITOR OR COUNSEL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Perform qualifying income Perform qualifying income testing Continuously monitor portfolio A-Consult as needed
testing to establish on book basis income, unless activity in conjunction on tax accounting
qualification as a RIC. ( material differences are with IRS requirements. positions to be
anticipated) on quarterly Review test results and taken. Review in
basis and as may otherwise take any necessary action. conjunction with
be necessary. Approve tax positions taken. year-end audit.
Follow-up on issues.
Frequency: Quarterly
- -------------------------
MANAGEMENT REPORTING
& TREASURY ADMINISTRATION
(CONT.)
- -------------------------
Calculate total return Provide total return Review total return information.
information on Funds as calculations for fund
defined in the current and appropriate
Prospectus and SAI. benchmark index.
FREQUENCY: MONTHLY
Prepare the Fund's annual Prepare preliminary expense Provide asset level projections.
expense budget. Establish budget. Notify fund Approve expense budget.
daily accruals. accounting of new accrual rates.
Frequency: Annually
Monitor the Fund's Monitor actual expenses Provide asset level projections C/A - Provide
expense budget. updating budgets/ expense quarterly. Provide vendor consultation as
accruals. information as necessary. requested.
Review expense analysis and
approve budget revisions.
FREQUENCY: QUARTERLY
Receive and coordinate Propose allocations of Authorize invoices when appropriate.
payment of fund expenses. invoice among Funds and Send invoices to IBT
obtain authorized approval in a timely manner.
to process payment.
FREQUENCY: AS OFTEN AS
NECESSARY
2
<PAGE>
NOVEMBER 1, 1999
FUNCTION INVESTORS BANK & TRUST SEIX INVESTMENT MANAGEMENT SUGGESTED FUND
AUDITOR OR COUNSEL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prepare responses to Prepare, coordinate as necessary, Identify the services to
major industry questionnaires. and submit responses to which the Funds report.
the appropriate agency. Provide information as requested.
FREQUENCY: AS OFTEN
AS NECESSARY
- -------------------------
MANAGEMENT REPORTING
& TREASURY ADMINISTRATION
(CONT.)
- -------------------------
Calculate periodic dividend Calculate amounts available for Establish and maintain dividend C - Review dividend
rates to be declared in distribution. Coordinate review and distribution policies. resolutions in
accordance with management by management and/or auditors. Approve distribution rates conjunction with
guidelines. Notify custody and transfer per share and aggregate Board approval.
agent of authorized dividend rates amounts. Obtain Board approval A - Review and
in accordance with Board approved when required. concur with proposed
policy. Report dividends to Board distributions
as required.
FREQUENCY: ACCORDING
TO DIVIDEND POLICY
Prepare disinterested Summarize amounts paid during Provide social security numbers
director/trustee Form the calendar year to and current mailing address
1099-MISC. directors/trustees and other for trustees and vendors.
required vendors. Prepare and Review and approve information
mail Form 1099-MISC. provided for Form 1099-MISC.
FREQUENCY: ANNUALLY
Supervision of third Supervise the quality of Review and approve
party vendors to the Fund. service and competitiveness recommendations.
of fees of certain fund
vendors, including outside
counsel, independent
accountant and other vendors
utilized by fund.
FREQUENCY: ANNUALLY
3
<PAGE>
NOVEMBER 1, 1999
FUNCTION INVESTORS BANK & TRUST SEIX INVESTMENT MANAGEMENT SUGGESTED FUND
AUDITOR OR COUNSEL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL REPORTING
- -------------------
Prepare financial Prepare selected portfolio Review financial information.
information for and financial information
presentation to for inclusion in board material.
Fund Management and
Board of Directors.
FREQUENCY: QUARTERLY
Prepare condensed financial Prepare condensed month end Review financial information.
information for review by and year-to-date expense
Fund Management. information. Prepare selected
portfolio information.
FREQUENCY: MONTHLY
4
<PAGE>
NOVEMBER 1, 1999
FUNCTION INVESTORS BANK & TRUST SEIX INVESTMENT MANAGEMENT SUGGESTED FUND
AUDITOR OR COUNSEL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Coordinate the annual audit Coordinate the creation of Approve format and text as A - Perform audit
and semi-annual preparation templates reflecting standard. Approve production and issue opinion
and printing of financial client-selected standardized cycle and assist in on annual financial.
statements and notes with appearance and text of financial managing to the cycle. statements
management, fund accounting statements and footnotes. Coordinate review and approval A/C - Review
and the fund auditors. Draft and manage production cycle. by portfolio managers of reports.
Coordinate with IBT fund accounting portfolio listings to be
the electronic receipt of included in financial statements.
portfolio and general ledger Prepare appropriate management
information. Assist in resolution letter and coordinate production
of accounting issues. Using of Management Discussion and
templates, draft financial Analysis. Review and approve
statements, coordinate auditor entire report. Make appropriate
and management review, and representations in conjunction
clear comments. Coordinate with audit.
printing of reports and EDGAR
conversion with outside printer
and filing with the
SEC via EDGAR.
FREQUENCY: SEMI-ANNUALLY
FINANCIAL REPORTING (CONT.)
- ---------------------------
Prepare and file Form N-SAR. Prepare form for filing. Provide appropriate responses. C - Review initial
Obtain any necessary supporting Review and authorize filing. filing.
documents. File with SEC via A - Provide annual
Edgar. audit internal
control letter to
accompany the
annual filing.
FREQUENCY: SEMI-ANNUALLY
LEGAL
- -----
5
<PAGE>
NOVEMBER 1, 1999
FUNCTION INVESTORS BANK & TRUST SEIX INVESTMENT MANAGEMENT SUGGESTED FUND
AUDITOR OR COUNSEL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prepare agenda and board Maintain annual calendar of Review and approve board C - Review agenda,
materials for quarterly required quarterly and materials and board and resolutions, board
board meetings. annual approvals. Prepare committee meeting minutes. material and
agenda, resolutions and other board and committee
board materials for quarterly meeting minutes.
board meetings. Prepare Ensure BOD material
supporting information and contains all
materials when necessary. required
Assemble, check and distribute information that
books in advance of meeting. the BOD must
Attend board and committee review and/or
meetings and prepare minutes. approve to perform
their duties as
directors.
FREQUENCY: QUARTERLY
Prepare amendments to Prepare and coordinate the Review and approve. A/C - Review and
Registration Statement. filing of post-effective approve filings.
amendments. Coordinate with A/C - Provide
outside printers the Edgar consents as
conversion, filing with the appropriate.
SEC and printing of prospectus.
FREQUENCY: ANNUAL UPDATE
(INCLUDES UPDATING
FINANCIAL HIGHLIGHTS,
EXPENSE TABLES, RATIOS)
PLUS ONE ADDITIONAL
FILING PER FISCAL YEAR
Prepare Prospectus/SAI Prepare Prospectus and SAI Review and approve. C - Review and
supplements. supplements. File with approve
the SEC via Edgar. Coordinate supplements.
printing of supplements.
FREQUENCY: AS OFTEN
AS REQUIRED
LEGAL (CONT.)
- -------------
Preparation and filing Accumulate capital stock Review and approve filing. A - Review
of 24f-2 Notice. information and draft Form informally when
24f-2 Notice. File requested
approved Form with SEC via Edgar.
FREQUENCY: ANNUALLY
6
<PAGE>
NOVEMBER 1, 1999
FUNCTION INVESTORS BANK & TRUST SEIX INVESTMENT MANAGEMENT SUGGESTED FUND
AUDITOR OR COUNSEL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proxy Material/Shareholder Prepare drafts of proxy material Review and approve proxy. C - Review and
Meetings and file materials or coordinate approve proxy.
filing with SEC and coordinate
printing. Assist proxy
solicitation firm and prepare
scripts. Attend meeting and
prepare minutes.
FREQUENCY: ONE PROXY
FILING PER FISCAL YEAR.
Assist in updating of Make annual filing of Obtain required fidelity bond
fidelity bond insurance fidelity bond insurance insurance coverage. Monitor
coverage. material with the SEC. level of fidelity bond
insurance maintained in
accordance with required
coverage. Obtain
appropriate E&O/D&O
insurance coverage.
FREQUENCY: ANNUALLY
Respond to Compile and provide Coordinate with regulatory C - Provide
regulatory audits. documentation pursuant to auditors to provide consultation
audit requests. Assist requested documentation as needed.
client in resolution of and resolutions to inquiries.
audit inquiries.
FREQUENCY: AS NEEDED
BLUE SKY
- --------
7
<PAGE>
NOVEMBER 1, 1999
FUNCTION INVESTORS BANK & TRUST SEIX INVESTMENT MANAGEMENT SUGGESTED FUND
AUDITOR OR COUNSEL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maintain effective Maintain records of fund Identify states in which filings C - Provide
Blue Sky notification sales for client designated are to be made. consultation as
filings for states in states via PW Blue2 Identify exempt transactions to needed on Blue
which Fund Management compliance system. File transfer agent for appropriate Sky issues.
intends to solicit annual notification exclusion from blue sky reporting.
sales of fund shares. renewal documents and C - Provide
annual sales reports. consultation on .
File amendments to increase product and
dollar amounts authorized for institutional
sales by funds, based upon exemptions
client instruction.
File notifications to states for
new funds and/or classes, mergers
and liquidations. Provide periodic
reports on state authorization
amounts and sales amounts. Determine
state filing requirements by using
CCH Blue Sky Law Reporter, ICI
memoranda and state securities
commission directives(both written
and oral).
FREQUENCY: ON-GOING
File amendments to registration File updated registration Inform IBT of filings prior C - Provide .
statement with the applicable statements, prospectuses, to SEC filing. consultation as
state securities commissions in SAIs, supplements thereto, needed on Blue Sky
coordination with SEC filing. and annual reports to filing issues
FREQUENCY: ANNUAL UPDATES shareholders upon
(INCLUDES REGISTRATION STATEMENT, approval/authorization
PROSPECTUS, SAI) PLUS ONE by client.
ADDITIONAL FILING PER FISCAL YEAR
TAX
- ----
8
<PAGE>
NOVEMBER 1, 1999
FUNCTION INVESTORS BANK & TRUST SEIX INVESTMENT MANAGEMENT SUGGESTED FUND
AUDITOR OR COUNSEL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prepare income tax Calculate investment company Provide transaction information A - Provide
provisions. taxable income, net tax exempt as requested. Identify Passive consultation as
interest, net capital gain and Foreign Investment Companies (PFICs). needed in
spillback dividend requirements. Approve tax accounting positions establishing
Identify book-tax accounting to be taken. Approve provisions. positions to be
differences. Track required taken in tax
information relating to treatment of
accounting differences. particular issues.
Perform review in
conjunction with
the year-end audit.
FREQUENCY: ANNUALLY
Calculate excise tax Calculate required distributions Provide transaction information as A - Provide
distributions to avoid imposition of excise tax. requested. Identify Passive Foreign consultation as
- Calculate capital gain net Investment Companies (PFICs). needed in
income and foreign currency Approve tax accounting positions to establishing
gain/loss through October 31. be taken. Review and approve all positions to be
- Calculate ordinary income income and distribution taken in tax
and distributions through calculations, including projected treatment of
a specified cut off date. income and dividend shares. particular issues.
- Project ordinary income Approve distribution rates per Review and concur
from cut off date to share and aggregate amounts. with proposed
December 31. Obtain Board approval when required distributions per
- Ascertain dividend shares. share.
Identify book-tax accounting
differences. Track required
information relating to accounting
differences. Coordinate review by
management and fund auditors.
Notify custody and transfer agent
of authorized dividend rates in
accordance with Board approved
policy. Report dividends to Board
as required.
FREQUENCY: ANNUALLY
TAX (CONT.)
- -----------
9
<PAGE>
NOVEMBER 1, 1999
FUNCTION INVESTORS BANK & TRUST SEIX INVESTMENT MANAGEMENT SUGGESTED FUND
AUDITOR OR COUNSEL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prepare tax returns Prepare excise and RIC tax returns. Review tax returns. A - Review and sign
Prepare applicable state tax tax return as
returns, including Maryland Form preparer.
500, Maryland Form 1, New York
CT-3 and New York City Tax Return.
Fund officer signs tax returns.
FREQUENCY: ANNUALLY
Prepare Form 1099-DIV Obtain yearly distribution Review and approve information
information. Calculate 1099-DIV provided for Form 1099-DIV.
reclasses and coordinate with
transfer agent.
FREQUENCY: ANNUALLY
Prepare other year-end Obtain yearly income distribution Review and approve information
tax-related disclosures information. Calculate disclosures provided.
(i.e., dividend received deductions,
foreign tax credits, tax-exempt
income, income by jurisdiction) and
coordinate with transfer agent.
FREQUENCY: ANNUALLY
</TABLE>
10
<PAGE>
NOVEMBER 1, 1999
Review and Approval
The attached Summary of Administration Functions has been reviewed and
represents the services currently being provided.
_________________________________________________________
Signature of IBT Mutual Fund Administration Director/Date
__________________________________________________________
Signature of Authorized Client Representative/Date
11
<PAGE>
APPENDIX C
SAMCO FUNDS, INC.
FEE SCHEDULE*
NOVEMBER 1, 1999
A. MUTUAL FUND ADMINISTRATION SERVICES
Seven (7) basis point charges will be applied to all assets for which Investors
Bank acts as Administrator.
o The Fund will also commit to a Minimum Annual Fee for the current SAMCO
Fund relationship of $50,000 for the first year of the new Agreement
(11/1/99 - 10/31/00). In the second year of the new agreement, the minimum
for the two funds will increase to $62,500.00 and in the third year to
$75,000.
o Any new Portfolios will be subject to the same Administration Fee of seven
(7) basis points, subject to the minimums detailed below.
o A new fund launched in the first year of the contract (11/1/99-10/31/00)
would cause the Minimum Annual Fee Requirement for the Fund Family to
increase by $15,000.
o A new fund launched in the second year of the contract (11/1/00-10/31/01)
would cause the Minimum Annual Fee Requirement for the Fund Family to
increase by an additional $20,000.
o A new fund launched in the third year of the contract (11/1/01-10/31/02)
would cause the Minimum Annual Fee Requirement for the Fund Family to
increase by an additional $25,000.
o If a second new Fund is launched in any year of the contract, (i.e. 2 new
funds in one fiscal or contract year) the Minimum Annual Fee Requirement
for the Fund Family would increase by an additional $25,000. (over and
above the increase in the Min. Annual Fee Requirement incurred by the first
new fund.)
B. OUT-OF-POCKET CHARGES
These charges consist of:
- Printing, Delivery & Postage - Edgar Filings
- Forms and Supplies - Data Transmissions
- Travel expenses when incurred
on official Fund business
- Customized Reporting & Interfaces
- Storage Costs for hard copy
Fund records
<PAGE>
C. SYSTEMS
The details of any systems work will be determined after a thorough business
analysis. Systems work will be billed on a time and materials basis.
D. PAYMENT These fees will be charged against the fund's custodial account 5
business days after month end.
* THE FEE SCHEDULE ASSUMES MONTHLY BILLING AND EXECUTION OF INVESTORS BANK'S
STANDARD CONTRACTUAL AGREEMENTS FOR A MINIMUM OF THREE(3) YEARS.
[DECHERT PRICE & RHOADS LETTERHEAD]
February 25, 2000
SAMCO Funds, Inc.
600 Fifth Avenue, 26th Floor
New York, New York 10020
Re: SAMCO Funds, Inc.
(File Nos. 333-33365 and 811-8323)
Dear Sirs:
We hereby consent to the incorporation by reference to our opinion as an
exhibit to Post-Effective Amendment No. 7 to the Registration Statement of SAMCO
Funds, Inc., and to all references to our firm therein. In giving such consent,
however, we do not admit that we are within the category of persons whose
consent is required by Section 7 of the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
Very truly yours,
Dechert Price & Rhoads
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights", "Service Providers--Independent Auditors" and "Financial
Statements" and to the incorporation by reference of our report dated December
7, 1999, in this Registration Statement (Form N-1A No. 333-33365) of SAMCO
Funds, Inc.
ERNST & YOUNG LLP
New York, New York
February 24, 2000
SAMCO FUNDS, INC. &
SEIX INVESTMENT ADVISORS, INC.
CODE OF ETHICS
(Rule 17j-l Policy)
Governing Purchase and Sale of Securities by Each
Officer, Director, and Employee
EFFECTIVE MARCH 9, 2000
I. Legal Requirement
Rule 17j-l under the Investment Company Act of 1940 ("Rule 17j-1") makes it
unlawful for any director, officer or employee of SAMCO Funds, Inc. ( the
"Fund") or of its investment adviser or principal underwriter (as well as other
persons), in connection with the purchase and sale by such person of a security
"held or to be acquired" by the Fund:
1. To employ any device, scheme or artifice to defraud the Fund;
2. To make to the Fund any untrue statement of a material fact or omit to
state to the Fund a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
3. To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon the Fund; or
4. To engage in any manipulative practice with respect to the Fund.
A security is "held or to be acquired" if within the most recent 15 days it
(i) is or has been held by the Fund, or (ii) is being considered by the Fund or
Seix Investment Advisors Inc. (the "Adviser") for purchase by the Fund.
To assure compliance with these restrictions, the Fund and the Adviser
adopt and agree to be governed by the provisions contained in this Code of
Ethics, provided that the Adviser and each person affiliated with the Adviser,
as applicable, who would otherwise be subject to the provisions of this Code
will instead be governed by the provisions of the Code of Ethics of the Adviser
as long as such Code of Ethics and any changes thereto have been approved in
accordance with the requirements of Rule 17j-1, if applicable, provided further
that the Adviser shall provide to the Compliance Officer, in advance of each
meeting of the Board of Directors, information regarding any violations of the
Code of Ethics of the Adviser, as applicable, involving persons who would
otherwise be Access Persons hereunder whose violations were relevant to the
Fund.
<PAGE>
II. General Principles
The Fund shall be governed by the following principles and shall apply them
to their directors, officers, employees and "Access Persons," as applicable.1
A. No Access Person shall engage in any act, practice or course of conduct
that would violate the provisions of Rule 17j-l set forth above.
B. The interests of the Fund and its shareholders are paramount and come
before the interests of any Access Person or employee.
C. Personal investing activities of all Access Persons and employees shall be
conducted in a manner that shall avoid actual or potential conflicts of
interest with the Fund and its shareholders.
D. Access Persons shall not use such positions, or any investment
opportunities presented by virtue of such positions, to the detriment of
the Fund and its shareholders.
III. Substantive Restrictions
A. The price paid or received by the Fund for any security should not be
affected by a buying or selling interest on the part of an Access Person,
or otherwise result in an inappropriate advantage to the Access Person. To
that end:
(a) no Access Person shall enter an order for the purchase or sale of a
security which the Fund is, or is considering, purchasing or selling
until the day after the Fund's transactions in that security have been
completed unless the Compliance Officer determines that it is clear
that, in view of the nature of the security and the market for such
security, the order of the Access Person will not affect the price
paid or received by the Fund, provided that the provisions of this
paragraph III.A shall not apply to any director of the Fund who is not
an "interested person" of the Fund (as defined in Section 2(a)(19) of
the Investment Company Act of 1940) except with respect to securities
transactions where such director knew or, in the ordinary course of
fulfilling his or her official duties as a director of the Fund,
should have known that such security was being purchased or sold by
the Fund or a purchase or sale of such security was being considered
by or with respect to the Fund; and
- ----------------------
1 An "Access Person" is (1) each director, or officer of the Fund, or
the Adviser; (2) any natural person in a control relationship (25%
ownership) to the Fund and the Adviser; (3) each of those employees of
the Fund and the Adviser who in connection with his or her regular
duties obtains information about the purchase or sale of a security by
the Fund or whose functions relate to the making of such
recommendations, provided that, each Access Person who is affiliated
with the Adviser will be governed by the provisions of the Code of
Ethics of the Adviser and will not be subject to the provisions of
this Code.
2
<PAGE>
(b) a Portfolio Manager of the Fund may not buy or sell a security
within seven days before or after the Fund trades in the
security.2
B. No "Investment Person" may acquire any securities issued as part of an
initial public offering of the issuer.3
C. Each Investment Person must seek prior approval from the Compliance Officer
for private placement transactions. Such approval shall take into account,
among other factors, whether the investment opportunity should be reserved
for the Fund and whether the opportunity is being offered to such person
because of his or her position with the Fund. Any such Investment Person
who has been authorized to acquire securities in a private placement must
disclose his or her interest if he or she is involved in the Fund's
consideration of an investment in such issuer. Any decision to acquire such
issuer's securities on behalf of the Fund shall be subject to review by
Investment Persons with no personal interest in the issuer.
D. An Investment Person may not profit from the purchase and sale or sale and
purchase of the same or equivalent securities within sixty calendar days.
Nothing in this restriction shall be deemed to prohibit avoidance of a net
loss from a purchase and sale or sale and purchase of the same or
equivalent securities within a period shorter than sixty calendar days.
E. An Investment Person must not accept gifts in excess of limits contained in
Conduct Rule 3060 of The National Association of Securities Dealers from
any entity doing business with or on behalf of the Fund or the Adviser.
F. An Investment Person shall not serve on the boards of directors of publicly
traded companies, or in any similar capacity, absent the prior approval of
such service by the Compliance Officer following the receipt of a written
request for such approval. In the event such a request is approved,
procedures shall be developed to avoid potential conflicts of interest.
G. Any profits derived from securities transactions in violation of paragraphs
A, B, C or D, above, shall be forfeited and paid to the Fund for the
benefit of its shareholders. Gifts accepted in violation of paragraph E
shall be forfeited, if practicable, and/or dealt with in any manner
determined appropriate and in the best interests of the Fund and its
shareholders.
H. The restrictions of this Section III shall not apply to the following
transactions unless the Compliance Officer determines that such
transactions violate the General Principles of this Code:
1. reinvestments of dividends pursuant to a plan;
- ---------------------
2 "Portfolio Managers" include those employees of the Fund or the
Adviser authorized to make investment decisions on behalf of the Fund.
3 An "Investment Person" includes any Portfolio Manager or employee of
the Fund or the Adviser such as a securities analyst and trader, who
advises Portfolio Managers or executes their decisions.
3
<PAGE>
2. transactions in: short-term securities issued or guaranteed by an
agency or instrumentality of the U.S. Government; bankers'
acceptances; U.S. bank certificates of deposit; and commercial paper;
3. transactions in which direct or indirect beneficial ownership is not
acquired or disposed of;
4. transactions in accounts as to which an Access Person has no
investment control, subject, as applicable, to subparagraph IV.A 4(e);
5. transactions in accounts of an Access Person for which investment
discretion is not maintained by the Access Person but is granted to
any of the following that are unaffiliated with the Adviser or
Manager: a registered broker-dealer, registered investment adviser or
other investment manager acting in a similar fiduciary capacity,
PROVIDED the following conditions are satisfied:
(a) The terms of the account agreement ("Agreement") must be in
writing and filed with the Compliance Officer prior to any
transactions;
(b) Any amendment to the Agreement must be filed with the Compliance
Officer prior to its effective date;
(c) The Agreement must require the account manager to comply with the
reporting provisions of paragraph 3 of this Section IV.A;
(d) The exemption provided by this Section IV.A 4(e) shall not be
available for a transaction or class of transactions which is
suggested or directed by the Access Person or as to which the
Access Person acquires advance information; and
6. transactions in securities in connection with an employer sponsored or
other tax qualified plan, such as a 401(k) plan, an IRA, or ESOP, in an
amount not exceeding $1,000 in any calendar month.
7. transactions in shares issued by open-end investment companies.
IV. Procedures
A. To enable the Fund to determine with reasonable assurance whether the
provisions of Rule 17j-l (b) and this Code of Ethics are being observed by
its Access Persons:
<PAGE>
1. Upon commencement of employment by the Fund or otherwise assuming the
status of "Access Person", each Access Person shall within ten days of
attaining such status disclose in writing, in a form acceptable to the
Compliance Officer, all direct or indirect "Beneficial Ownership"
interests of such Access Person in "Reportable Securities." 4 Such
form shall include, at a minimum:
a. The title, number of shares and principal amount of each security
in which the Access Person had any direct or indirect Beneficial
Ownership when the person became an Access Person;
b. The name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were held
for the direct or indirect benefit of the Access Person as of the
date the person became an Access Person; and
c. The date that the report was submitted by the Access Person.
2. Each Access Person shall obtain the prior approval of the Compliance
Officer of all personal securities transactions in Reportable
Securities.
3. Each Access Person shall notify the Compliance Officer of all
brokerage accounts in which he or she has any beneficial interest (a)
within ten days of receipt of this Code or (b) within ten days after
the later opening of any such account. With respect to any new account
established by the Access Person in which any securities are held for
the direct or indirect benefit of the Access Person, the following
information must be reported:
a. The name of the broker, dealer or bank with whom the Access
Person established the account;
b. The date that the account was established; and,
c. The date that the report is submitted by the Access Person.
- ---------------------------
4 (a) "Beneficial Ownership" generally means having a direct or
indirect pecuniary interest in a security and is legally defined
to be beneficial ownership as used in Rule 16a-1(a)(2) under
Section 16 of the Securities Exchange Act of 1934. Beneficial
ownership is presumed regarding securities and accounts held in
the name of a spouse or any other family member living in the
same household. Beneficial ownership also extends to transactions
by entities over which a person has ownership, voting or
investment control, including corporations (and similar
entities), trusts and foundations.
(b) "Reportable Securities" include generally all securities, and
financial instruments related to securities, except: securities
issued by, or that are direct obligations of, the United States
Government; bankers' acceptances; bank certificates of deposit;
commercial paper; and shares of registered open-end investment
companies.
5
<PAGE>
4. Each Access Person, with respect to each brokerage account in which
such Access Person has any beneficial interest shall arrange that the
broker shall mail directly to the Compliance Officer at the same time
they are mailed or furnished to such Access Person (a) duplicate
copies of brokers' advice covering each transaction in Reportable
Securities in such account, (b) copies of periodic statements with
respect to the account, and (c) copies of broker trade confirmations.
5. Annually, each Access Person must submit a report containing the
following information (which information must be current as of a date
no more than 30 days before the report is submitted):
a. The title, number of shares and principal amount of each security
in which the Access Person had any direct or indirect Beneficial
Ownership;
b. The name of any broker, dealer or bank with whom the Access
Person maintains an account in which any securities were held for
the direct or indirect benefit of the Access Person; and
c. The date that the report is submitted.
6. The provisions of this Section IV.A shall not apply to any director of
the Fund who is not an "interested person" of the Fund (as defined in
Section 2(a)(19) of the Investment Company Act of 1940) except with
respect to reporting of securities transactions where such director
knew or, in the ordinary course of fulfilling his or her official
duties as a director of the Fund, should have known that, during the
15-day period immediately preceding or after the date of a transaction
in a security by the director, such security was purchased or sold by
the Fund or a purchase or sale of such security was considered by the
Fund or the Adviser.
7. Notwithstanding the provisions of this Section IV.
A. no Access Person shall be required to make any report with respect to
securities held in any account over which such person does not have any
direct or indirect influence or control.
B. The Compliance Officer shall notify each Access Person that he or she is
subject to this reporting requirement, and shall deliver a copy of this
policy to each Access Person. The Compliance Officer shall annually obtain
written assurances from each Access Person that he or she is aware of his
or her obligations under this Code of Ethics and has complied with the Code
and with its reporting requirements.
C. The Compliance Officer shall cause a system of monitoring personal
investment activity by Access Persons to be designed that would identify
abusive or inappropriate trading patterns or other practices of Access
Persons. The Compliance Officer shall report on such system to the Board of
Directors of the Fund at the next Board meeting following its design and
thereafter in connection with the annual review of this Code referred to in
paragraph IV.G, below.
6
<PAGE>
D. The Compliance Officer shall report to the Board of Directors of the Fund
at each meeting regarding the following matters not previously reported:
1. Any information pursuant to Sections IV.A.4 and 6 with respect to each
reported transaction in a security which was held by or acquired by
the Fund within 15 days before or after the date of the reported
transaction or at a time when, to the knowledge of the individual
responsible for monitoring compliance with the Code of Ethics, the
Fund or the investment adviser was considering the purchase or sale of
such security, unless the transaction was a reinvestment of dividends
pursuant to a plan.
2. With respect to any transaction not required to be reported to the
Board of Directors by the operation of subparagraph (1) that he
believes nonetheless may evidence violation of this policy.
3. Apparent violations of the reporting requirement.
4. Other material violations of this Code of Ethics of which the
Compliance Officer has become aware since the previous report pursuant
to this Section IV.D.
5. Any violations of the Code of Ethics of the Adviser reported by the
Adviser in accordance with Section I hereof.
6. The results of monitoring of personal investment activities of Access
Persons in accordance with the procedures referred to in Section IV.C
hereof.
E. The Compliance Officer shall have discretion not to make a report to the
Board of Directors under paragraph IV.D if he or she finds that by reason
of the size of the transaction, the circumstances or otherwise, no fraud or
deceit or manipulative practice could reasonably be found to have been
practiced on the Fund in connection with its holding or acquisition of the
security or that no other material violation of this Code has occurred. A
written memorandum of any such finding shall be filed with reports made
pursuant to this Code.
F. The Board of Directors shall consider reports made to it hereunder and upon
discovering that a violation of this Code has occurred, the Board of
Directors may impose such sanctions, in addition to any forfeitures imposed
pursuant to Section III.G. hereof, as it deems appropriate, including,
among other things, a letter of sanction or suspension or termination of
the employment of the violator.
G. The Compliance Officer shall report to the Board of Directors on an annual
basis concerning existing personal investing procedures, violations during
the prior year, sanctions imposed and any recommended changes in existing
restrictions or procedures. The Compliance Officer shall also certify on an
annual basis that the Fund, the investment adviser, and the principal
underwriter, as applicable, has adopted procedures necessary to prevent
Access Persons from violating the Code.
H. The Board of Directors shall review the Code and its operation at least
once a year.
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I. This Code and any related procedures, a copy of each report by (or
duplicate brokers' advice for the account of) an Access Person, any written
report or memorandum hereunder by the Compliance Officer, and lists of all
persons required to make reports shall be preserved with the Fund's records
for the period required by Rule 17j-l.
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