Securities Act Registration No. 333-45361
Investment Company Act Reg. No. 811-8627
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. 1 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 2 |X|
(Check appropriate box or boxes.)
-----------------------------------
JOHNSONFAMILY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
4041 North Main Street
Racine, Wisconsin 53402
(Address of Principal Executive Offices) (ZIP Code)
(414) 681-4770
(Registrant's Telephone Number, including Area Code)
Copy to:
Joan A. Burke Richard L. Teigen
JohnsonFamily Funds, Inc. Foley & Lardner
4041 North Main Street 777 East Wisconsin Avenue
Racine, Wisconsin 53402 Milwaukee, Wisconsin 53202
- ---------------------------------------- --------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective.
It is proposed that this filing become effective (check appropriate box):
|_| immediately upon filing pursuant to paragraph (b)
|_| on (date) pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|X| on February 28, 1999 pursuant to paragraph (a)(1)
|_| 75 days after filing pursuant to paragraph (a)(2)
|_| on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
JohnsonFamily Funds
Prospectus
February 28, 1999
This prospectus contains information you should know before investing, including
information about risks. Please read it carefully before you invest and keep it
with your financial records.
As with all mutual funds, neither the Securities and Exchange Commission nor any
state securities commission has judged the merit of these securities nor do they
guarantee that this prospectus is complete or accurate. Any representation to
the contrary is a criminal offense.
It's important you know that JohnsonFamily Funds:
* Are not bank deposits
* Are not federally insured
* Are not endorsed or guaranteed by any bank or government agency
* Are not guaranteed to achieve their goals
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Table Of Contents
About the Funds
* Prospectus Summary
* JohnsonFamily Intermediate Fixed Income Fund
* JohnsonFamily Large Cap Equity Fund
* JohnsonFamily Small Cap Equity Fund
* JohnsonFamily International Equity Fund
About your Account
* Buying shares of the Funds
* Selling shares of the Funds
* Exchanging shares of the Funds
* Net Asset Value
* Dividends, Distributions and Taxes
More About the Funds
* Management
* Year 2000 Issues
* Financial Highlights
For More Information
Page 2
<PAGE>
Prospectus Summary
Welcome to JohnsonFamily Funds
JohnsonFamily Funds offers a selection of four diversified mutual fund
portfolios, each with a distinct investment objective and risk/reward profile.
The descriptions on the following pages include information you should know
before you invest, including the types of securities in which each Fund invests
and the risks associated with those investments. You'll want to read all this
information carefully. You can find more detailed information about the Funds in
the Statement of Additional Information ("SAI").
Although each Fund invests in a broad range of securities, you should not
consider an investment in any one Fund a complete investment program. Like most
investors, you will want to hold a number of different investments, each with a
different level of risk.
Each of the JohnsonFamily Funds is managed by Johnson Asset Management, Inc.
("JAM"). JAM managed more than $600 million in assets as of November 30, 1998.
The Funds are distributed by Sunstone Distribution Services, LLC (the
"Distributor").
<TABLE>
<CAPTION>
- ------------------------------ ----------------------------------- -------------------------------- -------------------------------
JohnsonFamily Funds Investment Objective Primary Investments Primary Risks
- ------------------------------ ----------------------------------- -------------------------------- -------------------------------
<S> <C> <C> <C>
Intermediate Fixed Income Current income consistent with Investment-grade bonds Market, interest rate,
Fund capital preservation credit, prepayment and
liquidity risk
Large Cap Equity Fund Long-term capital appreciation Large company stocks Market and financial risk
and current income
Small Cap Equity Fund Long-term capital appreciation Small company stocks Market, financial, and
smaller companies risk
International Equity Fund Long-term capital appreciation Foreign stocks Market, financial and foreign
investment risk
- ------------------------------ ----------------------------------- -------------------------------- -------------------------------
</TABLE>
Page 3
<PAGE>
About the Funds
JohnsonFamily Intermediate Fixed Income Fund
Main Goal
The Fund seeks current income consistent with capital preservation.
How the Fund Invests
The Fund invests mainly in investment-grade fixed income securities. Under
normal market conditions, the Fund will maintain a weighted average effective
maturity between three and ten years. Generally, at least 75% of the Fund's
total assets will be invested in securities rated A or better by a nationally
recognized rating agency. Fixed income securities may include:
* Corporate debt securities, including notes, bonds and debentures of
U.S. and foreign issuers payable in U.S. dollars;
* U.S. Treasury, government agency securities and government securities
stripped of unmatured interest coupons;
* Mortgage-backed securities, asset-backed securities and taxable
municipal bonds; and
* Preferred stocks
- --------------------------------------------------------------------------------
((Sidebar))
<icon of magnifying glass?>
* Investment grade securities are those bonds which carry one of the
four highest credit ratings (BBB or higher) from a nationally
recognized rating agency, such as Standard & Poor's Ratings Group or
Moody's Investors Service. Generally, investment-grade bonds are
considered less likely to default than lower-rated bonds.
* Average effective maturity is a measure of a bond's maturity that
takes into account the possibility that the bond may be prepaid by the
issuer or redeemed by the holder before its stated maturity date.
- --------------------------------------------------------------------------------
Investment Strategy
In selecting securities for the Fund, the portfolio manager follows a highly
disciplined investment approach. Using the Lehman Intermediate/Corporate Bond
Index as the Fund's benchmark, the portfolio manager:
1. First, analyzes interest rate trends as well as economic and market
information;
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<PAGE>
2. Then determines the weighted average effective maturity of the overall
portfolio, based on the outlook for the direction of interest rates;
3. Next, reviews sectors and industries to identify those that are most
attractively priced; and
4. Finally, focuses on investment grade quality issues which are relatively
undervalued.
The Fund may take a temporary defensive position in response to adverse market
conditions. When it does so, the weighted average effective maturity of the
Fund's portfolio will be less than three years as the Fund will invest in money
market instruments. Money market instruments generally have lower yields than
debt securities with longer maturities. Under normal market conditions, the Fund
will hold some cash and money market instruments so it can pay expenses, satisfy
redemption requests or take advantage of investment opportunities.
The portfolio manager is a patient investor. He does not attempt to achieve the
Fund's investment objective by active and frequent trading of fixed income
securities.
Main Investment Risks
The Fund is subject to the following risks:
* Market Risk. This is the risk that the price of a security will fall due to
changing economic, political, or market conditions or for other reasons.
The price declines may be steep, sudden and/or prolonged. This means you
may lose money.
* Interest Rate Risk. This is the risk that changes in prevailing interest
rates will affect the value of the Fund's securities. Generally, when
interest rates rise, the market value of the Fund's securities will
decline. Conversely, when interest rates fall, the market value of the
Fund's securities will typically rise. The longer the maturity of a bond,
the greater its sensitivity to changes in interest rates.
* Credit Risk. Also known as default risk, this is the risk that a bond
issuer's credit rating will be downgraded or that it will default on its
principal and interest payments. If an issuer fails to make interest or
principal payments, the Fund's income level and share price may fall as
well.
* Prepayment Risk. This is the risk that issuers of securities held by the
Fund may be able to prepay principal due on securities, particularly during
periods of declining interest rates. Securities subject to prepayment risk
generally offer less potential for gains when interest rates decline, and
may offer a greater potential for loss when interest rates rise.
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<PAGE>
Rising interest rates may cause prepayments to occur at a slower than
expected rate thereby increasing the average life of the security and
making the security more sensitive to interest rate changes. Prepayment
risk is a major risk of mortgage-backed securities.
* Liquidity Risk. This is the risk that lower or lack of trading volume may
make it difficult for the Fund to sell securities held by it at quoted
market prices.
An investment in the Fund is not a deposit of the Johnson Banks and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Investor Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
* Shareholder Transaction Expenses are fees paid directly from your
investment.
- --------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 2.75%
Maximum deferred sales charge (load)
(as a percentage of net asset value) None
Maximum sales charge (load) imposed on
reinvested dividends (as a percentage of net asset value) None
Redemption fee None*
Exchange fee None*
- --------------------------------------------------------------------------------
* An investor's broker may charge a fee for wire redemptions and/or
exchanges.
* Annual Fund Operating Expenses are expenses that are deducted from Fund
assets. They are expressed as a percentage of the Fund's average net
assets.
- --------------------------------------------------------------------------------
After Fee Waivers* Before Fee Waivers*
Management fee 0.19% 0.45%
12b-1 fees 0.25% 0.25%
Other expenses 0.41% 0.41%
Total Fund Operating Expenses 0.85% 1.11%
- --------------------------------------------------------------------------------
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<PAGE>
* The Adviser waives its advisory fee to the extent necessary to ensure that the
Total Fund Operating Expenses do not exceed 0.85% of the Fund's average daily
net assets. The Adviser may terminate the fee waiver at any time, but will not
do so prior to October 31, 1999.
The Fund has adopted a plan under Rule 12b-1 that allows it to pay distribution
fees for the sale and distribution of its shares. The maximum level of
distribution expenses is 0.25% per annum of the Fund's average net assets. The
distribution expenses for long-term shareholders may total more than the maximum
sales charge that would have been allowed if paid entirely as an initial sales
charge.
Expense Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. This Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
- --------------------------------------------------------------------------------
1 Year 3 Years 5 years 10 Years
$385 $618 $870 $1,590
- --------------------------------------------------------------------------------
Portfolio Manager
George A. Balistreri, CFA, Senior Vice President of the Adviser, is responsible
for the day-to-day management of the Fund's portfolio. Mr. Balistreri has
managed fixed income portfolios for the Adviser since February 1990.
Page 7
<PAGE>
About the Funds
JohnsonFamily Large Cap Equity Fund
Main Goal
The Fund seeks long-term capital appreciation and current income.
How the Fund Invests
The Fund mainly invests in common stocks of U.S. companies having a market
capitalization of $2 billion or more at the time of purchase.
- --------------------------------------------------------------------------------
((Sidebar))
<icon of magnifying glass>
* Market capitalization is a measure of the market value of a publicly traded
company. It is calculated by multiplying the number of a company's
outstanding shares by the current market price per share.
- --------------------------------------------------------------------------------
Investment Strategy
The portfolio managers of the Fund are "value" investors, meaning they purchase
common stocks at prices which are relatively low in relation to their earnings
or other fundamental measures, such as book value. In attempting to outperform
the S&P 500 Stock Index, the portfolio managers focus on stock selection rather
than sector concentration. Most of the time, the sector allocation of the Fund
will be roughly comparable to the S&P 500(R) Stock Index. The allocation rarely
will be identical to the S&P 500(R) Stock Index because the portfolio managers
usually will find more or better investment opportunities in some sectors than
others and because sector performance will vary.
The portfolio managers use a variety of tools, including computer models and
fundamental research, to identify stocks that they believe are suitable
investments. Specifically, the managers look for companies that have all or some
of the following attributes:
* Positive free cash flow
* Corporate restructuring or management changes
* Increasing market share or new product development
* Inexpensive relative to their industry sector
Page 8
<PAGE>
* Relatively flat or increasing earnings estimate revisions
* Other evidence of positive catalysts for change
The Fund typically sells a stock when its portfolio managers no longer consider
it undervalued relative to other companies in its sector, or if a change in the
company's business or financial outlook no longer makes it a suitable holding
for the portfolio.
The Fund may take temporary defensive positions in response to adverse market
conditions. When it does so, it will invest in money market instruments which do
not appreciate in value. Under normal market conditions, the Fund will hold some
cash and money market instruments so it can pay expenses, satisfy redemption
requests or take advantage of investment opportunities.
The portfolio managers are patient investors. They do not attempt to achieve the
Fund's investment objectives by active and frequent trading of common stocks.
Main Investment Risks
The Fund is subject to the following risks:
* Market Risk. This is the risk that the price of a security will fall due to
changing economic, political, or market conditions or for other reasons.
The price declines may be steep, sudden and/or prolonged. This means you
may lose money.
* Financial Risk. This is the risk that the price of a common stock will
decline because the issuing company experiences financial distress.
The Fund attempts to manage investment risk by diversifying its holdings among
many companies and industries. However, the Fund cannot guarantee that it will
reach its goal or its performance will be positive over any period of time.
An investment in the Fund is not a deposit of the Johnson Banks and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Investor Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Page 9
<PAGE>
* Shareholder Transaction Expenses are fees paid directly from your
investment.
- --------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 4.00%
Maximum deferred sales charge (load) (as a
percentage of net asset value) None
Maximum sales charge (load) imposed on
reinvested dividends (as a percentage of net asset value) None
Redemption fee None*
Exchange fee None*
- --------------------------------------------------------------------------------
* An investor's broker may charge a fee for wire redemptions and/or exchanges.
* Annual Fund Operating Expenses are expenses that are deducted from Fund
assets. They are expressed as a percentage of the Fund's net assets.
- --------------------------------------------------------------------------------
Management fee 0.75%
12b-1 fees 0.25%
Other expenses 0.45%
Total Fund Operating Expenses 1.45%
- --------------------------------------------------------------------------------
The Fund has adopted a plan under Rule 12b-1 that allows it to pay distribution
fees for the sale and distribution of its shares. The maximum level of
distribution expenses is 0.25% per annum of the Fund's average net assets. The
distribution expenses for long-term shareholders may total more than the maximum
sales charge that would have been allowed if paid entirely as an initial sales
charge.
Expense Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. This example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
$542 $840 $1,160 $2,066
- --------------------------------------------------------------------------------
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<PAGE>
Portfolio Managers
Wendell L. Perkins, CFA, and Frank J. Gambino, CFA, are responsible for the
day-to-day management of the Fund's portfolio. Mr. Perkins is a Senior Vice
President of the Adviser and has managed equity portfolios for the Adviser since
January 1994. Mr. Gambino is a Vice President of the Adviser and has served as a
portfolio manager and equity analyst for the Adviser since December 1993.
Page 11
<PAGE>
About the Funds
JohnsonFamily Small Cap Equity Fund
Main Goal
The Fund seeks long-term capital appreciation.
How the Fund Invests
The Fund invests mainly in common stocks of U.S. companies having a market
capitalization of less than $2.0 billion at the time of purchase.
- --------------------------------------------------------------------------------
((Sidebar))
<icon of magnifying glass>
* Small cap stocks have historically provided greater returns than the stocks
of larger, more established companies. However, their prices tend to be
more volatile.
- --------------------------------------------------------------------------------
Investment Strategy
The portfolio managers of the Fund are "value" investors, meaning they purchase
common stocks at prices which are relatively low in relation to their earnings
or other fundamental measures, such as book value. In attempting to outperform
the S&P SmallCap 600 Stock Index, the portfolio managers focus on stock
selection rather than sector concentration. Most of the time, the sector
allocation of the Fund will be roughly comparable to the S&P SmallCap 600 Stock
Index. The allocation rarely will be identical to the S&P SmallCap 600 Stock
Index because the portfolio managers usually will find more or better investment
opportunities in some sectors than others and because sector performance will
vary.
The portfolio managers use a variety of tools, including computer models and
fundamental research, to identify stocks that they believe are suitable
investments. Specifically, the managers look for companies that have some or all
of the following attributes:
* Positive free cash flow ss. Corporate restructuring or management changes
* Increasing market share or new product development
* Inexpensive relative to their industry sector
Page 12
<PAGE>
* Relatively flat or increasing earnings estimate revisions
* Sufficient analysts' coverage and liquidity
* Other evidence of positive catalysts for change
The Fund may take temporary defensive positions in response to adverse market
conditions. When it does so, it will invest in money market instruments which do
not appreciate in value. Under normal market conditions, the Fund will hold some
cash and money market instruments so it can pay expenses, satisfy redemption
requests or take advantage of investment opportunities.
The portfolio managers are patient investors. They do not attempt to achieve the
Fund's investment objective by active and frequent trading of common stocks.
Main Investment Risks
The Fund is subject to the following risks:
* Market Risk. This is the risk that the price of a security will fall
due to changing economic, political, or market conditions or for other
reasons. The price declines may be steep, sudden and/or prolonged.
This means you may lose money.
* Financial Risk. This is the risk that the price of a common stock will
decline because the issuing company experiences financial distress.
* Smaller Companies Risk. This is a risk associated with smaller
capitalization companies that results from smaller companies typically
having relatively lower revenues, limited product lines, lack of
management depth and a smaller share of the market for their products
or services than larger capitalization companies. The stocks of
smaller capitalization companies tend to have less trading volume than
stocks of larger capitalization companies. Less trading volume may
make it more difficult to sell smaller capitalization companies at
quoted market prices. Finally, there are periods when investing in
smaller capitalization stocks fall out of favor with investors and
smaller capitalization stocks underperform.
As a result of these and other risks, the value of the Fund's investments tends
to be more volatile than the stock market in general, as measured by the S&P
500(R) Stock Index. The Fund attempts to manage investment risk by diversifying
its holdings among
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<PAGE>
many companies and industries. However, the Fund cannot guarantee that it will
reach its goal or that its performance will be positive over any period of time.
An investment in the Fund is not a deposit of the Johnson Banks and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Investor Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
* Shareholder Transaction Expenses are fees paid directly from your investment.
- --------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 4.00%
Maximum deferred sales charge (load) (as
a percentage of net asset value) None
Maximum sales charge (load) imposed on
reinvested dividends (as a percentage of net asset value) None
Redemption fee None*
Exchange fee None*
- --------------------------------------------------------------------------------
* An investor's broker may charge a fee for wire redemptions and/or
exchanges.
* Annual Fund Operating Expenses are expenses that are deducted from Fund
assets. They are expressed as a percentage of net assets.
- --------------------------------------------------------------------------------
After Fee Waivers* Before Fee Waivers*
Management fee 0.68% 0.75%
12b-1 fees 0.25% 0.25%
Other expenses 0.57% 0.57%
Total Fund Operating Expenses 1.50% 1.57%
- --------------------------------------------------------------------------------
*The Adviser waives its advisory fee to the extent necessary to ensure that the
Total Fund Operating Expenses do not exceed 1.50% of the Fund's average daily
net assets. The Adviser may terminate the fee waiver at any time, but will not
do so prior to October 31, 1999.
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<PAGE>
The Fund has adopted a plan under Rule 12b-1 that allows it to pay distribution
fees for the sale and distribution of its shares.The maximum level of
distribution expenses is 0.25% per annum of the Fund's average net assets. The
distribution expenses for long-term shareholders may total more than the maximum
sales charge that would have been allowed if paid entirely as an initial sales
charge.
Expense Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. This Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
$553 $876 $1,221 $2,193
- --------------------------------------------------------------------------------
Portfolio Managers
Wendell L. Perkins, CFA, and Frank J. Gambino, CFA, are responsible for the
day-to-day management of the Fund's portfolio. Mr. Perkins is a Senior Vice
President of the Adviser and has managed equity portfolios for the Adviser since
January 1994. Mr. Gambino is a Vice President of the Adviser and has served as a
portfolio manager and equity analyst for the Adviser since December 1993.
Page 15
<PAGE>
About the Funds
JohnsonFamily International Equity Fund
Main Goal
The Fund seeks long-term capital appreciation.
How the Fund Invests
The Fund mainly invests in stocks of foreign companies of any size market
capitalization. To ensure adequate diversification, the Fund spreads its
investments across many different regions around the world. The portfolio
managers assign country weightings based on the Fund's benchmark, the Morgan
Stanley Capital Institute All-Country World (less U.S.) Index. Within each
country, the portfolio managers identify the most attractively valued companies
and choose stocks based on the strategy described below. The portfolio managers
of the Fund are "value" investors, meaning they purchase common stocks at prices
which are relatively low in relation to their earnings or other fundamental
measures, such as book value. In attempting to outperform the Morgan Stanley
Capital Institute All-Country World (less U.S.) Index, the portfolio managers
focus on stock selection rather than country concentration. The country
allocation rarely will be identical to the Morgan Stanley Capital Institute
All-County World (less U.S.) Index because the portfolio managers usually will
find more or better investment opportunities in some countries than others and
because country performance will vary.
Investment Strategy
In choosing stocks, the Fund focuses on foreign companies that appear to be
undervalued relative to their real worth or future prospects. The portfolio
managers use a variety of tools, including computer models and fundamental
research, to identify foreign stocks that they believe are favorably priced.
Specifically, the managers look for non-U.S. companies that have some or all of
the following attributes:
* Positive free cash flow
* Corporate restructuring or management changes
* Increasing market share or new product development
* Inexpensive relative to their industry sector
* Relatively flat or increasing earnings estimate revisions
* Sufficient analysts' coverage and liquidity
* Other evidence of positive catalysts for change
Page 16
<PAGE>
The Fund may take temporary defensive positions in response to adverse market
conditions. When it does so, it will invest in money market instruments which do
not appreciate in value. Under normal market conditions, the Fund will hold some
cash and money market instruments so it can pay expenses, satisfy redemption
requests or take advantage of investment opportunities.
The portfolio managers are patient investors. They do not attempt to achieve the
Fund's investment objective by active and frequent trading of foreign
securities.
Main Investment Risks
The Fund is subject to the following risks:
* Market Risk. This is the risk that the price of a security will fall
due to changing economic, political, or market conditions or for other
reasons. The price declines may be steep, sudden and/or prolonged.
This means you may lose money.
* Financial Risk. This is the risk that the price of a common stock will
decline because the issuing company experiences financial distress.
* Foreign Investment Risks. These are risks associated with investing in
foreign common stocks that are in addition to the risks associated
with investing in U.S. common stocks.
+ Currency Risk. This is the risk that the U.S. dollar value of
foreign securities traded in foreign currencies (and any
dividends and interest earned) may be affected unfavorably by
changes in foreign currency exchange rates. An increase in the
U.S. dollar relative to the foreign currencies in which
securities held by the Fund are traded will adversely affect the
Fund.
+ Country Risk. This is the risk that political, social or economic
events in a country may adversely affect the Fund's investments
in the country.
+ Regulation Risk. This is the risk that investors in a foreign
securities market may not be afforded the same protections as
investors in U.S. securities markets. This is also the risk that
it may be more difficult, costly and slower to enforce legal
rights of the Fund in foreign countries.
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<PAGE>
+ Liquidity Risk. This is the risk that lower or lack of trading
volume may make it difficult for the Fund to sell securities held
by it at quoted market prices.
An investment in the Fund is not a deposit of the Johnson
Banks and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government
agency.
Investor Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
* Shareholder Transaction Expenses are fees paid directly from your
investment.
- --------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 4.00%
Maximum deferred sales charge (load)
(as a percentage of net asset value) None
Maximum sales charge (load) imposed on
reinvested dividends (as a percentage of
net asset value) None
Redemption fee None*
Exchange fee None*
- --------------------------------------------------------------------------------
* An investor's broker may charge a fee for wire redemptions and/or exchanges.
* Annual Fund Operating Expenses are expenses that are deducted from
Fund assets. They are expressed as a percentage of average net assets.
- ----------------------------------- ----------------------- --------------------
After Fee Waivers* Before Fee Waivers*
Management fee 0.79% 0.90%
12b-1 fees 0.25% 0.25%
Other expenses 0.81% 0.81%
Total Fund Operating Expenses 1.85% 1.96%
- ----------------------------------- ----------------------- --------------------
*The Adviser waives its advisory fee to the extent necessary to ensure that the
Total Fund Operating Expenses do not exceed 1.85% of the Fund's average daily
net assets. The Adviser may terminate the fee waiver at any time, but will not
do so prior to October 31, 1999.
The Fund has adopted a plan under Rule 12b-1 that allows it to pay distribution
fees for the sale and distribution of its shares. The maximum level of
distribution expenses is 0.25% per annum of the Fund's average net assets. The
distribution expenses for
Page 18
<PAGE>
long-term shareholders may total more than the maximum sales charge that would
have been allowed if paid entirely as an initial sales charge.
Expense Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. This Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
- ------------------- ----------------- ----------------- ---------------------
1 year 3 years 5 years 10 years
$591 $991 $1,415 $2,594
- ------------------- ----------------- ----------------- ---------------------
Portfolio Managers
Wendell L. Perkins, CFA, Frank J. Gambino, CFA, Jean-Claude Heritier, and
Patrick Gigon are responsible for the day-to-day management of the Fund.
Together, they utilize a team approach to portfolio management. Mr. Perkins is a
Senior Vice President of the Adviser and has managed equity portfolios for the
Adviser since January 1994. Mr. Gambino is a Vice President of the Adviser and
has served as a portfolio manager and equity analyst for the Adviser since
December 1993. Mr. Heritier has been employed by Banque Franck, S.A., Geneva,
Switzerland, since 1987 as a specialist in international equity management.
Banque Franck, S.A. is an affiliate of the Adviser. Mr. Gigon serves as General
Manager of Banque Franck, S.A. and has been employed by Banque Franck, S.A.
since 1992. Although employed by Banque Franck, S.A., Messrs. Heritier and Gigon
act under the supervision and control of the Adviser when advising the Fund.
Page 19
<PAGE>
About Your Account
Buying Shares of the Funds
You may purchase shares of JohnsonFamily Funds through Johnson Trust Company and
any of the other Bank Affiliates of the Funds' investment adviser, Johnson Asset
Management, Inc. Although you may not purchase shares directly from the Fund,
you also may buy them through certain broker/dealers ("Selected Dealers") who
have a signed sales agreement with the Funds' Distributor, Sunstone Distribution
Services, LLC.
When you invest in JohnsonFamily Funds, you purchase shares at the offering
price. The offering price is equal to the net asset value at the time of
purchase, plus any applicable sales charge.
Intermediate Fixed Income Fund
Amount of Transaction Sales Charge as Sales Charge as
at Offering Price a Percentage a Percentage
of Offering Price of Net Asset Value
Less than $50,000 2.75% 2.83%
$50,000 to $99,999 2.25% 2.30%
$100,000 to $249,999 2.00% 2.04%
$250,000 or more None None
Large Cap Equity Fund, Small Cap Equity Fund and International Equity Fund
Amount of Transaction Sales Charge as Sales Charge as
at Offering Price a Percentage a Percentage
of Offering Price of Net Asset Value
Less than $50,000 4.00% 4.17%
$50,000 to $99,999 3.00% 3.09%
$100,000 to $249,999 2.00% 2.04%
$250,000 or more None None
(At various times, the Distributor may implement programs under which Selected
Dealers' sales force may be eligible to win cash or non-cash awards for sales
efforts, and may finance sales contracts or recognition programs conforming to
criteria established by the Distributor. The Distributor may also provide
marketing services to Selected Dealers consisting of written informational
material relating to sales incentive campaigns conducted by such entities for
their representatives.)
Reducing your sales charge
You may be able to reduce or waive the sales charges on your JohnsonFamily Funds
purchases either through the Right of Accumulation or under a Letter of Intent.
To qualify, you must notify your broker at the time of purchase. Your broker
will explain how the Right of Accumulation and the Letter of Intent operate. The
reduction in sales charge is subject to confirmation of your holdings. The Funds
may modify or terminate quantity discounts at any time.
Page 20
<PAGE>
Net Asset Value Purchases
You may purchase shares of the Funds at net asset value (without a sales
charge) if you:
* Invest $250,000 or more in the Funds.
* Purchase JohnsonFamily Funds shares using the proceeds from the
redemption, within the previous sixty days, of shares of another
mutual fund. To qualify for this waiver, you should provide your
broker, at the time of purchase, a copy of the confirmation from
the other fund, showing the redemption transaction.
* Redeem JohnsonFamily Funds shares and later buy new shares. The
amount eligible for this "Reinstatement Privilege" may not exceed
the amount of your redemption proceeds. To qualify to use this
privilege, you should provide your broker with a copy of your
account statement showing the prior investment in the Funds.
* Or an immediate family member are an officer or director of the
Company; an officer, director or employee of Johnson
International, Inc. or its subsidiaries, S.C. Johnson & Son, Inc.
or its subsidiaries, Johnson Worldwide Associates, Inc. or its
subsidiaries, Frye-Louis Capital Management, Inc. J/K Management
Services, Inc.; an officer, director or employee of the
Distributor or its affiliates; an employee of a Selected Dealer;
or a client of the Adviser. A person's immediate family includes
the person's spouse, parents, grandparents, siblings, children
and grandchildren.
* Or an immediate family member holds a fiduciary account or agency
account with any of the Company's Bank Affiliates.
How to Purchase Shares
Shares may be purchased only through a JohnsonFamily Funds Selected Dealer or
Bank Affiliate. Each dealer and bank affiliate has its own procedures for
purchasing shares and minimum investment requirements. Because purchase
procedures will differ from dealer to dealer or bank affiliate, you will want to
carefully review these procedures before investing.
Purchase orders placed with a Selected Dealer or a Bank Affiliate prior to the
close of regular trading on the New York Stock Exchange ("NYSE") (normally 3:00
p.m. Central Time) will be priced at the offering price calculated later that
day. Selected Dealers and Bank Affiliates are responsible for promptly
forwarding orders and payment to the Transfer Agent. If your request is received
by the Selected Dealer or Bank Affiliate after the close of regular trading on
the NYSE, or on a holiday, weekend or a day the NYSE is closed, the Funds will
process your purchase request on the next business day at that day's offering
price.
Page 21
<PAGE>
About Your Account
Selling (Redeeming) Shares of the Funds
You may sell (redeem) your shares on any business day the New York Stock
Exchange is open for trading. You must sell (redeem) your shares through a
JohnsonFamily Funds Selected Dealer or Bank Affiliate. These entities have
established procedures which investors must follow in selling (redeeming)
shares. Because redemption procedures vary from dealer to dealer or bank
affiliate, you will want to carefully review these procedures before redeeming
shares.
If your redemption request is received in good order by a JohnsonFamily Funds
Selected Dealer or Bank Affiliate before the close of regular trading on the
NYSE (normally 3:00 p.m. Central Time), you will receive that day's net asset
value. If your request is received after the close of regular trading on the
NYSE, or on a holiday, weekend or a day the NYSE is closed, your redemption will
be processed on the next business day at that day's net asset value.
Exchange Privileges
Investors may exchange shares of one JohnsonFamily Fund for shares of another
JohnsonFamily Fund without paying a sales charge, subject to the following
guidelines:
* You must follow procedures established by the Selected Dealer or Bank
Affiliate;
* You may only exchange into Funds that are legally available for sale
in your state;
* You may have a taxable gain or loss as a result of an exchange; and
* The Funds reserve the right to change or terminate this privilege upon
60 days notice, or suspend this privilege without notice when economic
or market changes make it difficult to carry out such transactions.
Net Asset Value (NAV)
Each of the JohnsonFamily Funds calculates its net asset values each day the New
York Stock Exchange is open, after the close of business (normally 3:00 p.m.
Central Time). Net asset value is calculated by adding together the value of a
Fund's total assets, subtracting its liabilities, and then dividing the balance
by the number of shares outstanding. The Funds do not calculate their net asset
values on the days when the NYSE is closed.
The Funds typically use current market quotations to value their securities. The
Funds will value securities with a remaining maturity of 60 days or less on an
amortized cost basis. If a security does not have a readily available market
quotation, the Funds will use a good faith valuation provided by the Board of
Directors or will value the securities under the Board's direction. The Board of
Directors may also approve the use of pricing services to assist in the
determination of net asset values for the Funds.
The International Equity Fund will, and the other Funds may, hold securities
that are primarily listed on foreign exchanges that trade on weekends or other
days when the Funds do not calculate their net asset values. To the extent they
do so, their net asset values may change on days when you cannot purchase or
redeem Fund shares.
Page 22
<PAGE>
About Your Account
Dividends, Distributions and Taxes
The Funds typically distribute most or all of their net income to shareholders
in the form of dividends. The Funds distribute capital gains, if any, annually.
In general, any dividends and net short-term capital gains you receive from the
Funds are taxable as ordinary income, whether they are paid in cash or
reinvested in additional shares. Any long-term capital gains you receive are
taxable as capital gains, regardless of how long you have owned your shares.
The following table summarizes the distribution policies for each of the Funds:
Dividends Capital Gains
Fund (if any) (if any)
Intermediate Fixed Income Fund monthly annually
Large Cap Equity Fund quarterly annually
Small Cap Equity Fund annually annually
International Equity Fund annually annually
Reinvestment of Fund Distributions
Investors can reinvest all of their income dividends and/or capital gain
distributions into the Funds at net asset value, without a sales charge.
Investors also can receive their distributions in cash. Distributions are
taxable whether they are paid in cash or reinvested in additional shares.
Tax Considerations
The sale of shares in your account may produce a taxable gain or a loss. An
exchange of shares of one Fund for another is treated as a sale of the Fund
shares and may result in a taxable gain.
Asset Allocation (Diversification)
You should not consider an investment in any one Fund a complete investment
program. Like most investors, you should hold a number of different investments,
each with a different level of risk, including common stocks, bonds and money
market instruments.
Page 23
<PAGE>
More About the Funds
Management of the Funds
Investment Adviser
Johnson Asset Management, Inc. ("JAM") is the investment adviser for the Funds.
Located at 4041 N. Main Street, Racine, WI 53402, JAM manages the Funds'
investments and its business operations under the overall supervision of the
Funds' Board of Directors. As of November 30, 1998, JAM had a total of
approximately $600 million in assets under management.
JAM manages the portfolio of securities for each Fund. As compensation for JAM's
services, the Funds pay JAM a fee which is calculated daily and payable monthly,
based upon the average daily net assets of each Fund at the following annual
rates:
- ----------------------------------------
Intermediate Fixed Income Fund 0.45%
Large Cap Equity Fund 0.75%
Small Cap Equity Fund 0.75%
International Equity Fund 0.90%
- ----------------------------------------
Historical Performance of Investment Advisory Accounts Managed by the Adviser
The Funds are providing composite historical performance data for JAM's Large
Cap Accounts and Fixed Income Accounts. The performance data illustrates the
investment performance of portfolios similar to the Intermediate Fixed Income
Fund and the Large Cap Equity Fund and compares the performance of these
portfolios to relevant broad-based market indices. The Large Cap Accounts
include all portfolios managed by JAM with objectives, strategies and techniques
substantially similar to those employed by the Large Cap Equity Fund. The Fixed
Income Accounts include all portfolios managed by JAM with objectives,
strategies and techniques substantially similar to those employed by the
Intermediate Fixed Income Fund. (JAM had been managing portfolios having
objectives, similar to the Small Cap Equity Fund for less than one year prior to
the organization of the Small Cap Equity Fund. The portfolio managers of the
International Equity Fund have managed portfolios having objectives similar to
the International Equity Fund but using different strategies and techniques.)
The following performance data is historical and investors should not consider
this performance data as an indication of the future performance of either the
Large Cap Equity Fund, the Intermediate Fixed Income Fund or the results an
individual investor might achieve by investing in either the Large Cap Equity
Fund or the Intermediate Fixed Income Fund. Investors should not rely on the
historical performance when making an investment decision.
All returns are time-weighted total rates of return and include the reinvestment
of dividends and interest. The performance data for both the Large Cap Accounts
and the Fixed Income Accounts are net of investment advisory fees and expenses.
The fees and expenses of each of the Large Cap Accounts and the Fixed Income
Accounts were less than the annual expenses for the Large Cap Equity Fund and
the Intermediate Fixed Income Fund, respectively. The performance of the Large
Cap Accounts and the Fixed Income Accounts would have been lower had they
incurred higher fees and expenses. The Large Cap Accounts and the Fixed Income
Accounts were not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the Investment Company Act and
the Internal Revenue Code, which, if applicable, may have adversely affected
their performance results. The method used to calculate the historical
performance of the Large Cap Accounts and Fixed Income Accounts differs from the
method required by the Securities and Exchange Commission in calculating
standardized average annual total returns of mutual funds.
Page 24
<PAGE>
The performance information for the Large Cap Accounts, Fixed Income Accounts
and the indices is based on data supplied by the Adviser or from statistical
services, reports or other sources which the Adviser believes are reliable. The
performance information has not been verified by any third party and is
unaudited.
Compounded Annual Rates of Return(1) (For the Period Ended December 31, 1998)
9 Years (2) 5 Years 3 Years 1 Year
Large Cap Accounts XX.XX% XX.XX% XX.XX% XX.XX%
S&P 500(R)3 XX.XX% XX.XX% XX.XX% XX.XX%
Fixed Income Accounts XX.XX% XX.XX% XX.XX% XX.XX%
Lehman Brothers Intermediate XX.XX% XX.XX% XX.XX% XX.XX%
Government/Corporate Bond Index 4
- --------------------
1) Compounded annual rate of return represents the level annual rate which, if
earned for each year in a multiple year period, would produce the cumulative
rate of return over that period.
- ------------------
2) Since inception.
3) The S&P 500(R) (the "Index") consists of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. The Standard & Poor's Ratings
Group designates the stocks to be included in the Index on a statistical basis.
A particular stock's weighting in the Index is based on its relative total
market capitalization (i.e., its market price per share times the number of
shares outstanding). Stocks may be added or deleted from the Index from time to
time.
4) The Lehman Brothers Intermediate Government/Corporate Bond Index includes
fixed rate U.S. Treasury, U.S. government agency and U.S. corporate debt and
dollar-denominated debt securities of certain foreign entities with maturities
no greater than ten years.
Please remember that past performance may not be an indication of future rates
of return. Investors should also be aware that other performance calculation
methods may produce different results, and the comparisons of investment results
should consider qualitative circumstances and should be made only for portfolios
with generally similar investment objectives.
Distribution Fees
The Funds have adopted a Service and Distribution Plan under Rule 12b-1 under
the Investment Company Act. The Plan allows a Fund to use part of the Fund's
assets (up to 0.25% of its average daily net assets) to pay sales, distribution
and other fees for the sale of its shares and for services provided to
investors. Because these fees are paid out of Fund assets, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
Administrator, Transfer Agent and Dividend Disbursing Agent
Sunstone Financial Group, Inc. acts as administrator, transfer agent and
dividend disbursing agent for the Funds. Located at 207 East Buffalo Street,
Suite 400, Milwaukee, WI 53202-5712, Sunstone provides administrative and
accounting services to the Fund, including calculating each Fund's net asset
value.
Page 25
<PAGE>
Custodian
Investors Fiduciary Trust Company, which has its principal address at 801
Pennsylvania, Kansas City, Missouri 64105, acts as custodian of the Funds'
investments.
Page 26
<PAGE>
More About the Funds
Year 2000 Issues
Many computer systems were designed to use two digits rather than four to
identify the year. Unless modified, these systems may not be able to correctly
distinguish the Year 2000 from the Year 1900. The Funds could be adversely
affected if the computer systems used by the Funds' investment adviser or other
service providers do not properly address this problem before January 1, 2000.
The Funds' investment adviser expects to have addressed this problem before
then, and does not anticipate that the services it provides will be adversely
affected. The Funds' other service providers have told the Adviser that they
also expect to resolve the Year 2000 problem before January 1, 2000. The Adviser
will continue to monitor the situation as Year 2000 approaches. However, it
cannot control the success of those efforts. The Funds are establishing
contingency plans to provide alternatives in case the providers experience
significant Year 2000 difficulties. The Year 2000 Problem could also have a
negative impact on the companies in which the Funds invest, and this could hurt
the Funds' investment returns.
Financial Highlights
The financial highlights table is intended to help you understand the Funds'
financial performance since their inception. Certain information reflects
financial results for a single Fund shares. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Funds (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along with
the Funds' financial statements, are included in the Annual Report, which is
available upon request.
JohnsonFamily Funds, Inc.
Financial Highlights
For the Period Ended October 31, 19981
<TABLE>
<CAPTION>
Intermediate
Fixed Income Large Cap Small Cap International
Fund Equity Fund Equity Fund Equity Fund
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $10.00 $10.00 $10.00
Income (Loss) from Investment Operations:
Net investment income 0.31 0.03 0.00 0.09
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 0.27 (0.42) (1.78) (1.12)
----- ------ ------ -----
Total from investment operations 0.58 (0.39) (1.78) (1.03)
----- ----- ------ -----
Page 27
<PAGE>
Less Distributions Paid:
From net investment income (0.31) (0.02) 0.00 0.00
------ ----- ----- ----
(0.31) (0.02) 0.00 0.00
------ ----- ----- ----
Net Asset Value, End of Period $10.27 $9.59 $8.22 $8.97
====== ===== ====== =====
Total Return (2) 5.89% (3.87)% (17.80)% (10.30)%
Supplemental Data and Ratios:
Net assets, end of period (000s) $68,050 $40,933 $22,831 $19,858
Ratio of expenses to average net
assets, net of waivers (3) 0.85% 1.45% 1.50% 1.85%
Ratio of net investment income
to average net assets, net of
waivers (3) 5.32% 0.55% 0.03% 1.85%
Ratio of expenses to average
net assets, before waivers (3) 1.11% 1.45% 1.57% 1.96%
Ratio of net investment income
to average net assets, before
waivers (3) 5.06% 0.55% (0.04)% 1.74%
Portfolio turnover rate (2) 47% 27% 3% 6%
</TABLE>
1) Commenced operations on March 31, 1998.
2) Not annualized
3) Annualized
Page 28
<PAGE>
((Back page))
For more information
You can find additional information about the JohnsonFamily Funds in the
following documents:
* Account statements. You will receive a periodic statement detailing
activity in your account from your JohnsonFamily Funds Selected Dealer or
Bank Affiliate.
* Annual/Semiannual Report to Shareholders. These reports detail the Funds'
actual investments (as of the report date) and performance information. The
Annual Report includes a discussion by the Adviser of recent market
conditions and investment strategies that significantly affected the
performance of the Funds during their last fiscal year. The Annual Report
is audited by the Funds' independent accountant.
* Statement of Additional Information (SAI). The SAI contains more detailed
information on all aspects of the Funds. A current SAI has been filed with
the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally part of) this prospectus. You may visit the SEC's
Internet website (www.sec.gov) to view the SAI and other information. The
SAI is also available from Selected Dealers and Bank Affiliates through
which shares of the JohnsonFamily Funds may be purchased or sold.
To request a free copy of the current Annual/Semi-Annual Report or SAI, please
write or call the Funds at:
The JohnsonFamily Funds
P.O. Box 575
Racine, WI 53401-9988
(800) <telephone number>[SFG 800# to come]
You may also obtain copies of the SAI directly from the SEC by visiting its
Public Reference Room in Washington DC (1-800-SEC-0330) or by sending your
request along with a duplicating fee to the SEC's Public Reference Section,
Washington DC 20549-6009.
SEC File Number: 811-8850
Page 29
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION FOR February 28, 1999
JOHNSONFAMILY LARGE CAP EQUITY FUND
JOHNSONFAMILY SMALL CAP EQUITY FUND
JOHNSONFAMILY INTERNATIONAL EQUITY FUND
JOHNSONFAMILY INTERMEDIATE FIXED INCOME FUND
JOHNSONFAMILY FUNDS, INC.
4041 North Main Street
Racine, Wisconsin 53402
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus of JohnsonFamily Funds, Inc.,
dated February 28, 1999. Requests for copies of the Prospectus should be made by
writing to JohnsonFamily Funds, Inc., Caller No. 2012, Racine, Wisconsin
53401-9988, Attention: Secretary.
The following financial statements are incorporated by reference to
the Annual Report, dated October 31, 1998, of JohnsonFamily Funds, Inc. (File
No. 811-8627) as filed with the Securities and Exchange Commission on December
29, 1998.
Schedule of Investments
JohnsonFamily Intermediate Fixed Income Fund
JohnsonFamily Large Cap Equity Fund
JohnsonFamily Small Cap Equity Fund
JohnsonFamily International Equity Fund
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Public Accountants
Shareholders may obtain a copy of the Annual Report, without charge,
by calling (800) ___-____.
<PAGE>
JOHNSONFAMILY FUNDS, INC.
Table of Contents
Page No.
FUND HISTORY AND CLASSIFICATION .................................. 1
INVESTMENT RESTRICTIONS .......................................... 1
INVESTMENT CONSIDERATIONS ........................................ 3
DIRECTORS AND OFFICERS OF THE CORPORATION ........................ 20
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS ............... 21
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT... 22
DETERMINATION OF NET ASSET VALUE ................................. 25
PERFORMANCE INFORMATION .......................................... 26
DISTRIBUTION OF SHARES ........................................... 28
ALLOCATION OF PORTFOLIO BROKERAGE ................................ 32
TAXES ............................................................ 33
SHAREHOLDER MEETINGS ............................................. 36
CAPITAL STRUCTURE ................................................ 38
DESCRIPTION OF SECURITIES RATINGS ................................ 38
INDEPENDENT ACCOUNTANTS .......................................... 43
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated February 28, 1999, and, if given or made,
such information or representations may not be relied upon as having been
authorized by JohnsonFamily Funds, Inc.
This Statement of Additional Information does not constitute an offer
to sell securities.
-i-
<PAGE>
FUND HISTORY AND CLASSIFICATION
JohnsonFamily Funds, Inc. (the "Corporation") is an open-end,
diversified management investment company consisting of four separate
portfolios, the JohnsonFamily Large Cap Equity Fund (the "Large Cap Equity
Fund"), JohnsonFamily Small Cap Equity Fund (the "Small Cap Equity Fund"),
JohnsonFamily International Equity Fund (the "International Equity Fund") and
JohnsonFamily Intermediate Fixed Income Fund (the "Fixed Income Fund").
JohnsonFamily Funds, Inc. is registered under the Investment Company Act of
1940. JohnsonFamily Funds, Inc. was incorporated as a Maryland corporation on
January 27, 1998.
INVESTMENT RESTRICTIONS
Each of the Fixed Income Fund, Large Cap Equity Fund, Small Cap Equity
Fund and International Equity Fund has adopted the following investment
restrictions which are matters of fundamental policy and cannot be changed
without approval of the holders of the lesser of: (i) 67% of the Fund's shares
present or represented at a stockholders meeting at which the holders of more
than 50% of such shares are present or represented; or (ii) more than 50% of the
outstanding shares of the Fund.
1. The Funds will not purchase securities on margin (except for such
short term credits as are necessary for the clearance of transactions);
provided, however, that the Funds may borrow money to the extent set forth in
investment restriction no. 4.
2. The Funds may sell securities short to the extent permitted by the
Investment Company Act of 1940 (the "Act").
3. The Funds may write put and call options to the extent permitted by
the Act.
4. None of the Funds will borrow money or issue senior securities,
except for temporary bank borrowings (not in excess of 10% of the value of a
Fund's net assets) or for emergency or extraordinary purposes.
5. Each Fund may pledge or hypothecate its assets to secure its
borrowings.
6. The Funds will not lend money (except by purchasing publicly
distributed debt securities, purchasing securities of a type normally acquired
by institutional investors or entering into repurchase agreements) and will not
lend their portfolio securities, unless such loans are secured continuously by
collateral at least equal to the market value of the securities loaned in the
form of cash and/or securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, and provided that no such loan will be made if
upon making of such loan more than 30% of the value of the Fund's total assets
would be subject to such loans.
7. The Funds will not make investments for the purpose of exercising
control or management of any company.
<PAGE>
8. The Funds will not purchase securities of any issuer (other than
the United States or an instrumentality of the United States) if, as a result of
such purchase, a Fund would hold more than 10% of any class of securities,
including voting securities, of such issuer or more than 5% of a Fund's total
assets, taken at current value, would be invested in securities of such issuer,
except that up to 25% of each Fund's total assets may be invested without regard
to these limitations.
9. No Fund will invest 25% or more of the value of its total assets,
determined at the time an investment is made, exclusive of U.S. government
securities, in securities issued by companies primarily engaged in the same
industry. In determining industry classifications the Funds will use the current
Directory of Companies Filing Annual Reports with the Securities and Exchange
Commission except to the extent permitted by the Act.
10. No Fund will act as an underwriter or distributor of securities
other than shares of the Fund (except to the extent that the Funds may be deemed
to be underwriters within the meaning of the Securities Act of 1933, as amended
(the "Securities Act"), in the disposition of restricted securities).
11. The Funds will not purchase or sell real estate or real estate
mortgage loans or real estate limited partnerships.
12. The Funds will not purchase or sell commodities or commodity
contracts, except that each Fund may invest in futures contracts and options on
futures contracts.
The Funds have adopted certain other investment restrictions which are not
fundamental policies and which may be changed by the Corporation's Board of
Directors without shareholder approval. These additional restrictions are as
follows:
1. No Fund will invest more than 15% of the value of its net assets in
illiquid securities.
2. The Funds will not purchase the securities of other investment
companies except: (a) as part of a plan of merger, consolidation or
reorganization approved by the stockholders of a Fund; (b) securities of
registered open-end investment companies that invest exclusively in high
quality, short-term debt securities; or (c) securities of registered closed-end
investment companies on the open market where no commission results, other than
the usual and customary broker's commission. No purchases described in (b) and
(c) will be made if as a result of such purchases (i) a Fund and its affiliated
persons would hold more than 3% of any class of securities, including voting
securities, of any registered investment company; (ii) more than 5% of a Fund's
net assets would be invested in shares of any one registered investment company;
and (iii) more than 10% of a Fund's net assets would be invested in shares of
registered investment companies.
3. The Funds will not acquire or retain any security issued by a
company, an officer or director of which is an officer or director of the Fund
or an officer, director or other
2
<PAGE>
affiliated person of its investment adviser, without authorization of the
Corporation's Board of Directors.
4. The Funds will not purchase any interest in any oil, gas or other
mineral leases or any interest in any oil, gas or any other mineral exploration
or development program.
The aforementioned percentage restrictions on investment or utilization of
assets refer to the percentage at the time an investment is made. If these
restrictions (other than those relating to borrowing of money or issuing senior
securities) are adhered to at the time an investment is made, and such
percentage subsequently changes as a result of changing market values or some
similar event, no violation of a Fund's fundamental restrictions will be deemed
to have occurred. Any changes in a Fund's investment restrictions made by the
Board of Directors will be communicated to shareholders prior to their
implementation.
INVESTMENT CONSIDERATIONS
Temporary Investments
Each Fund may invest in cash and money market securities. The Funds
may do so when taking a temporary defensive position or to have assets available
to pay expenses, satisfy redemption requests or take advantage of investment
opportunities. Money market securities include money market mutual funds,
short-term investment-grade fixed-income securities, bankers' acceptances,
commercial paper, commercial paper master notes and repurchase agreements.
The Funds may invest in commercial paper or commercial paper master
notes rated, at the time of purchase, within the two highest rating categories
by a nationally recognized rating organization (NSRO).
The Funds may enter into repurchase agreements with banks that are
Federal Reserve Member banks and non-bank dealers of U.S. government securities
which, at the time of purchase, are on the Federal Reserve Bank of New York's
list of primary dealers with a capital base greater than $100 million. When
entering into repurchase agreements, a Fund will hold as collateral an amount of
cash or government securities at least equal to the market value of the
securities that are part of the repurchase agreement. A repurchase agreement
involves the risk that a seller may declare bankruptcy or default. In this
event, a Fund may experience delays, increased costs and a possible loss.
The Funds may also invest in money market mutual funds issued by other
investment companies. As a shareholder of a money market fund, a Fund would be
subject to the same risks as any other investor and will bear a proportionate
share of any fees and expenses incurred by the mutual fund in which it invests.
These will be in addition to the advisory and other fees paid by the Fund.
3
<PAGE>
During adverse market conditions, up to 100% of the International
Equity Fund's total assets may be invested in U.S. securities or in securities
primarily traded in one or more foreign countries, or in debt securities.
Investment Grade Investments
The Funds may invest in investment-grade debt securities, or unrated
securities if Johnson Asset Management, Inc. (the "Adviser") believes they are
equivalent in quality. A debt or other fixed income security is considered
investment grade if it is rated BBB or better by Duff and Phelps Credit Rating
Co. ("D&P"), Standard & Poor's Ratings Group ("S&P"), Fitch IBCA ("Fitch"); or
Baa or better by Moody's Investors Services, Inc. ("Moody's") or any other NSRO.
Investment-grade bonds rated BBB by D&P, S&P or Fitch, or Baa by
Moody's are considered to be of medium-grade quality. Medium-grade securities
have certain speculative characteristics. This means they are typically more
sensitive to economic changes and subject to a higher degree of risk than higher
rated securities.
Ratings are determined at the time of investment. If a security held
by a Fund loses its rating or has its rating reduced, the Fund does not have to
sell the security immediately. However, the Adviser will closely monitor the
security to determine what action, if any, the Fund should take.
Illiquid Securities
Each Fund may invest up to 15% of its net assets in securities for
which there is no readily available market ("illiquid securities"). Because an
active market may not exist for illiquid securities, the Funds may experience
delays and additional costs when trying to sell illiquid securities. The 15%
limitation includes certain securities whose disposition would be subject to
legal restrictions ("restricted securities"). However certain restricted
securities that may be resold pursuant to Rule 144A under the Securities Act may
be considered liquid. Rule 144A permits certain qualified institutional buyers
to trade in privately placed securities not registered under the Securities Act.
Institutional markets for restricted securities have developed as a result of
Rule 144A, providing both readily ascertainable market values for Rule 144A
securities and the ability to liquidate these securities to satisfy redemption
requests. However an insufficient number of qualified institutional buyers
interested in purchasing certain Rule 144A securities held by a Fund could
adversely affect their marketability, causing the Fund to sell the securities at
unfavorable prices. The Board of Directors of the Corporation has delegated to
the Adviser the day-to-day determination of the liquidity of a security although
it has retained oversight and ultimate responsibility for such determinations.
The Board of Directors has directed the Adviser to consider such factors as (i)
the nature of the market for a security, (including the institutional private
resale markets); (ii) the terms of the securities or other instruments allowing
for the disposition to a third party or the issuer thereof (e.g. certain
repurchase obligations and demand instruments); (iii) the availability of market
quotations; and (iv) other permissible factors in determining the liquidity of a
security.
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Restricted securities may be sold in privately negotiated or other
exempt transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. When registration is required,
a Fund may be obligated to pay all or part of the registration expenses and a
considerable time may elapse between the decision to sell and the sale date. If,
during such period, adverse market conditions were to develop, a Fund might
obtain a less favorable price than the price which prevailed when it decided to
sell. Restricted securities, if considered to be illiquid, will be priced at
fair value as determined in good faith by the Board of Directors.
Short Sales
The Funds may seek to realize additional gains through short sale
transactions in securities listed on one or more national securities exchanges,
or in unlisted securities. Short selling involves the sale of borrowed
securities. At the time a short sale is effected, a Fund incurs an obligation to
replace the security borrowed at whatever its price may be at the time the Fund
purchases it for delivery to the lender. The price at such time may be more or
less than the price at which the security was sold by the Fund. Until the
security is replaced, the Fund is required to pay the lender amounts equal to
any dividend or interest which accrue during the period of the loan. To borrow
the security, the Fund also may be required to pay a premium, which would
increase the cost of the security sold. The proceeds of the short sale will be
retained by the broker, to the extent necessary to meet margin requirements,
until the short position is closed.
No short sale will be effected which will, at the time of making such
short sale transaction and giving effect thereto, cause the aggregate market
value of all securities sold short to exceed 5% of the value of a Fund's net
assets. Until a Fund closes its short position or replaces the borrowed
security, the Fund will: (a) maintain a segregated account containing cash or
liquid securities at such a level that the amount deposited in the account plus
the amount deposited with the broker as collateral will equal the current value
of the security sold short; or (b) otherwise cover the Fund's short position.
Lending of Portfolio Securities
In order to generate additional income, each Fund may lend
portfolio securities constituting up to 30% of its total assets to unaffiliated
broker-dealers, banks or other recognized institutional borrowers of securities,
provided that the borrower at all times maintains cash, U.S. government
securities or equivalent collateral or provides an irrevocable letter of credit
in favor of the Fund equal in value to at least 100% of the value of the
securities loaned. During the time portfolio securities are on loan, the
borrower pays the Fund an amount equivalent to any dividends or interest paid on
such securities, and the Fund may receive an agreed-upon amount of interest
income from the borrower who delivered equivalent collateral or provided a
letter of credit. Loans are subject to termination at the option of the Fund or
the borrower. The Funds may pay reasonable administrative and custodial fees in
connection with a loan of portfolio securities and may pay a negotiated portion
of the interest earned on the cash or equivalent collateral to the borrower or
placing broker. The Funds do
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not have the right to vote securities on loan, but could terminate the loan and
regain the right to vote if that were considered important with respect to the
investment.
The primary risk in securities lending is a default by the borrower
during a sharp rise in price of the borrowed security resulting in a deficiency
in the collateral posted by the borrower. The Funds will seek to minimize this
risk by requiring that the value of the securities loaned be computed each day
and additional collateral be furnished each day if required.
High Yield Convertible Securities
Each equity Fund may invest in convertible debt securities when the
Adviser believes the underlying common stock is a suitable investment for the
Fund and when the convertible security offers greater potential for total return
because of its higher yield. Convertible securities are bonds or preferred
stocks that may be converted (exchanged) into common stock of the issuing
company within a certain period of time, for a specified number of shares.
Each equity Fund may invest up to 5% of its net assets in high yield,
high risk, lower-rated convertible securities, commonly known as "junk bonds."
Investments in such securities are subject to greater credit risks than higher
rated securities. Debt securities rated below investment grade have greater
risks of default than investment grade debt securities, including medium grade
debt securities, and may in fact, be in default. Issuers of "junk bonds" must
offer higher yields to compensate for the greater risk of default on the payment
of principal and interest.
The market for high yield convertible securities is subject to
substantial volatility. An economic downturn or increase in interest rates may
have a more significant effect on high yield convertible securities and their
markets, as well as on the ability of securities' issuers to repay principal and
interest, than on higher-rated securities and their issuers. Issuers of high
yield convertible securities may be of low creditworthiness and the high yield
convertible securities may be subordinated to the claims of senior lenders.
During periods of economic downturn or rising interest rates the issuers of high
yield convertible securities may have greater potential for insolvency and a
higher incidence of high yield bond defaults may be experienced. From 1989 to
1991, the percentage of high yield securities that defaulted rose significantly
above prior default levels. The default rate has decreased subsequently.
The prices of high yield convertible securities have been found to be
less sensitive to interest rate changes than higher-rated investments but are
more sensitive to adverse economic changes or individual corporate developments
because of their lower credit quality. During an economic downturn or
substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. If the issuer of a high
yield convertible security owned by a Fund defaults, the Fund may incur
additional expenses in seeking recovery. Periods of
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economic uncertainty and changes can be expected to result in increased
volatility of market prices of high yield convertible securities and a Fund's
net asset value. Yields on high yield convertible securities will fluctuate over
time. Furthermore, in the case of high yield convertible securities structured
as zero coupon or pay-in-kind securities, their market prices are affected to a
greater extent by interest rate changes and thereby tend to be more volatile
than market prices of securities which pay interest periodically and in cash.
The secondary market for high yield convertible securities may at
times become less liquid or respond to adverse publicity or investor perceptions
making it more difficult for a Fund to value accurately high yield convertible
securities or dispose of them. To the extent the Fund owns or may acquire
illiquid or restricted high yield convertible securities, these securities may
involve special registration responsibilities, liabilities and costs, and
liquidity difficulties, and judgment will play a greater role in valuation
because there is less reliable and objective data available.
Special tax considerations are associated with investing in high yield
bonds structured as zero coupon or pay-in-kind securities. A Fund will report
the interest on these securities as income even though it receives no cash
interest until the security's maturity or payment date. Further, the Fund must
distribute substantially all of its income to its shareholders to qualify for
pass-through treatment under the tax law. Accordingly, a Fund may have to
dispose of its portfolio securities under disadvantageous circumstances to
generate cash or may have to borrow to satisfy distribution requirements.
Credit ratings evaluate the safety of principal and interest payments,
not the market value risk of high yield convertible securities. Since credit
rating agencies may fail to timely change the credit ratings to reflect
subsequent events, the Adviser monitors the issuers of high-yield convertible
securities in the portfolio to determine if the issuers will have sufficient
cash flow and profits to meet required principal and interest payments, and to
attempt to assure the securities' liquidity so the Funds can meet redemption
requests. To the extent that a Fund invests in high yield convertible
securities, the achievement of its investment objective may be more dependent,
on the Adviser's own credit analysis than is the case for higher quality bonds.
A Fund may retain a portfolio security whose rating has been changed.
Mortgage-Backed and Asset-Backed Securities
Each of the Funds may purchase residential and commercial
mortgage-backed as well as other asset-backed securities (collectively called
"asset-backed securities") that are secured or backed by automobile loans,
installment sale contracts, credit card receivables or other assets and are
issued by entities such as Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation ("FHLMC"), commercial banks, trusts, financial companies, finance
subsidiaries of industrial companies, savings and loan associations, mortgage
banks and investment banks. These securities represent interests in pools of
assets in which periodic payments of interest and/or principal on the securities
are made, thus, in effect passing through periodic payments made by the
individual borrowers on the assets that underlie the securities,
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net of any fees paid to the issuer or guarantor of the securities. The average
life of these securities varies with the maturities and the prepayment
experience of the underlying instruments.
There are a number of important differences among the agencies and
instrumentalities of the U.S. government that issue mortgage-backed securities
and among the securities that they issue. Mortgage-backed securities guaranteed
by GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments under
its guarantee. Mortgage-backed securities issued by FNMA include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes") which are
solely the obligations of FNMA and are not backed by or entitled to the full
faith and credit of the United States, but are supported by the right of the
issuer to borrow from the Treasury. FNMA is a government-sponsored organization
owned entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of the principal and interest by FNMA. Mortgage-backed securities issued
by the FHLMC include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress. Freddie Macs are not guaranteed
by the United States or by any Federal Home Loan Bank and do not constitute a
debt or obligation of the United States or of any Federal Home Loan Bank.
Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
Each of the Funds may also purchase mortgage-backed securities
structured as CMOs. CMOs are issued in multiple classes and their relative
payment rights may be structured in many ways. In many cases, however, payments
of principal are applied to the CMO classes in order of their respective
maturities, so that no principal payments will be made on a CMO class until all
other classes having an earlier maturity date are paid in full. The classes may
include accrual certificates (also known as "Z-Bonds"), which do not accrue
interest at a specified rate until other specified classes have been retired and
are converted thereafter to interest-paying securities. They may also include
planned amortization classes ("PACs") which generally require, within certain
limits, that specified amounts of principal be applied to each payment date, and
generally exhibit less yield and market volatility than other classes. The
classes may include "IOs", which pay distributions consisting solely or
primarily of all or a portion of the interest in an underlying pool of mortgages
or mortgage-backed
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securities, "POs", which pay distributions consisting solely or primarily of all
or a portion of principal payments made from the underlying pool of mortgages or
mortgage-backed securities, and "inverse floaters", which have a coupon rate
that moves in the reverse direction to an applicable index.
Investments in CMO certificates can expose the Funds to greater
volatility and interest rate risk than other types of mortgage-backed
obligations. Among tranches of CMOs, inverse floaters are typically more
volatile than fixed or adjustable rate tranches of CMOs. Investments in inverse
floaters could protect a Fund against a reduction in income due to a decline in
interest rates. A Fund would be adversely affected by the purchase of an inverse
floater in the event of an increase in interest rates because the coupon rate
thereon will decrease as interest rates increase, and like other mortgage-backed
securities, the value of an inverse floater will decrease as interest rates
increase. The cash flows and yields on IO and PO classes are extremely sensitive
to the rate of principal payments (including prepayments) on the related
underlying pool of mortgage loans or mortgage-backed securities. For example, a
rapid or slow rate of principal payments may have a material adverse effect on
the yield to maturity of IOs or POs, respectively. If the underlying assets
experience greater than anticipated prepayments of principal, the holder of an
IO may incur substantial losses irrespective of its rating. Conversely, if the
underlying assets experience slower than anticipated prepayments of principal,
the yield and market value for the holders of a PO will be affected more
severely than would be the case with a traditional mortgage-backed security.
Prepayments on mortgage-backed securities generally increase with falling
interest rates and decrease with rising interest rates. Prepayments are also
influenced by a variety of other economic and social factors.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected may reduce yield to maturity, while a prepayment rate that is slower
than expected may have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments may increase, while slower than expected prepayments may
decrease, yield to maturity.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage loans. Like other fixed income
securities, when interest rates rise the value for an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed income securities.
Asset-backed securities may involve certain risks that are not
presented by mortgage-backed securities. These risks arise primarily from the
nature of the underlying assets (i.e., credit card and automobile loan
receivables as opposed to real estate mortgages). Non-mortgage asset-backed
securities do not have the benefit of the same security interest in the
collateral as mortgage-backed securities. 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 have given debtors the right to
reduce the balance due on the credit cards.
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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 the risk that the purchaser would acquire an interest
superior to that of the holders of 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
payments on the receivables together with recoveries on repossessed collateral
may not, in some cases, be able to support payments on these securities.
Asset-backed securities may be subject to greater risk of default
during periods of economic downturn than other instruments. Also, while the
secondary market for asset-backed securities is ordinarily quite liquid, in
times of financial stress the secondary market may not be as liquid as the
market for other types of securities, which could cause a Fund to experience
difficulty in valuing or liquidating such securities.
Hedging Instruments
Each of the Funds may engage in options, futures and options on
futures transactions that constitute bona fide hedging or other permissible risk
management transactions. The Funds may use futures transactions for several
reasons, including: (i) hedging unrealized portfolio gains; (ii) minimizing
adverse principal fluctuations in a Fund's debt and fixed-income securities; or
(iii) as a means of adjusting exposure to various markets. The Funds will deal
only in exchange-traded futures contracts and in exchange-traded or
over-the-counter securities options.
Generally, the Funds may engage in a futures contract or options
transactions if the initial margin deposits and premiums paid for unexpired
options do not exceed 5% of a Fund's total assets. In addition, each Fund will
commit no more than 5% of its net assets to futures contracts and options or
more than 5% of its net assets to cover its obligations with respect to futures
contracts and options.
Futures Contracts. When a Fund purchases a futures contract, it agrees
to purchase a specified underlying instrument at a specified future date. When a
Fund sells a futures contract, it agrees to sell the underlying instrument at a
specified future date. The price at which the purchase and sale will take place
is fixed when the Fund enters into the contract. Futures can be held until their
delivery dates, or can be closed out before the delivery date if a liquid
secondary market is available.
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore, purchasing
futures contracts will tend to increase a Fund's exposure to positive and
negative price fluctuations in the underlying instrument, much as if the Fund
had purchased the underlying instrument directly. When a Fund sells a futures
contract, by contrast, the value of its future position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both
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positive and negative market price changes, much as if the underlying instrument
had been sold.
Futures Margin Payments. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and seller
are required to deposit "initial margin" with a futures broker, known as a
Futures Commission Merchant ("FCM"), when the contract is entered into. Initial
margin deposits are equal to a percentage of the contract's value. If the value
of either party's position declines, that party will be required to make
additional "variation margin" payments to settle the change in value on a daily
basis. The party that has a gain may be entitled to receive all or a portion of
this amount. Initial and variation margin payments do not constitute purchasing
securities on margin for purposes of the Funds' investment limitations. In the
event of the bankruptcy of an FCM that holds margin on behalf of a Fund, the
Fund may be entitled to return of margin owed to it only in proportion to the
amount received by the FCM's other customers, potentially resulting in losses to
the Fund.
Purchasing Put and Call Options. By purchasing a put option, a Fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). Each Fund may
purchase options on futures contracts as well as options on securities and stock
indices. Each of the Funds may terminate its position in a put option it has
purchased by allowing it to expire or by exercising the option. If the option is
allowed to expire, the Fund will lose the entire premium it paid. If a Fund
exercises the option, it completes the sale of the underlying instrument at the
strike price. A Fund may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary market
exists. The buyer of a put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer attempts to participate in potential price increases of the
underlying instrument with risk limited to the cost of the option if security
prices fall. At the same time, the buyer can expect to suffer a loss if security
prices do not rise sufficiently to offset the cost of the option.
Stock Index Options. Stock index options are put options and call
options on various stock indexes. In most respects, they are identical to listed
options on common stocks. The primary difference between stock options and index
options occurs when index options are exercised. In the case of stock options
the underlying security, common stock, is delivered. However, upon the exercise
of an index option, settlement does not occur by delivery of the securities
comprising the index. The option holder who exercises the index option receives
an amount of cash if the closing level of the stock index upon which the option
is based is greater than in the case of a call, or less than, in the case of a
put, the exercise price of the option.
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This amount of cash is equal to the difference between the closing price of the
stock index and the exercise price of the option expressed in dollars times a
specified multiple. A stock index fluctuates with changes in the market value of
the stocks included in the index. For example, some stock index options are
based on a broad market index, such as the Standard & Poor's 500 or the Value
Line Composite Index, or a narrower market index, such as the Standard & Poor's
100. Indexes also may be based on an industry or market segment, such the AMEX
Oil and Gas Index or the Computer and Business Equipment Index. Options on stock
indexes are currently traded on the following exchanges: the Chicago Board
Options Exchange, the New York Stock Exchange, the American Stock Exchange, the
Pacific Stock Exchange, and the Philadelphia Stock Exchange.
Writing Call and Put Options. When a Fund writes a call option, it
receives a premium and agrees to sell the related investments to a purchaser of
the call during the call period (usually not more than nine months) at a fixed
exercise price (which may differ from the market price of the related
investments) regardless of market price changes during the call period. If the
call is exercised, the Fund forgoes any gain from an increase in the market
price over the exercise price. When writing an option on a futures contract, a
Fund will be required to make margin payments to an FCM as described above for
futures contracts.
To terminate its obligations on a call which it has written, a Fund
may purchase a call in a "closing purchase transaction". (As discussed above,
the Funds may also purchase calls other than as part of such closing
transactions.) A profit or loss will be realized depending on the amount of
option transaction costs and whether the premium previously received is more or
less than the price of the call purchased. A profit may also be realized if the
call lapses unexercised, because the Fund retains the premium received. Any such
profits are considered short-term gains for federal income tax purposes and,
when distributed, are taxable as ordinary income.
Generally writing calls is a profitable strategy if prices remain the
same or fall. Through receipt of the option premium, a call writer mitigates the
effects of a price decline. At the same time, because a call writer must be
prepared to deliver the underlying instrument in return for the strike price,
even if its current value is greater, a call writer gives up some ability to
participate in security price increases.
When a Fund writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of a premium, the
Fund assumes the obligation to pay the strike price for the option's underlying
instrument if the other party to the option chooses to exercise it. The Funds
may only write covered puts. For a put to be covered, a Fund must maintain in a
segregated account cash or liquid assets equal to the option price. A profit or
loss will be realized depending on the amount of option transaction costs and
whether the premium previously received is more or less than the put purchased
in a closing purchase transaction. A profit may also be realized if the put
lapses unexercised because the Fund retains the premium received. Any such
profits are considered short-term gains for federal income tax purposes and,
when distributed, are taxable as ordinary income.
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Combined Option Positions. The Funds may purchase and write options
(subject to the limitations discussed above) in combination with each other to
adjust the risk and return characteristics of the overall position. For example,
a Fund may purchase a put option and write a call option on the same underlying
instrument, in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another possible
combined position would involve writing a call option at one strike price and
buying a call option at a lower price, in order to reduce the risk of the
written call option in the event of a substantial price increase. Because
combined options involve multiple trades, they result in higher transaction
costs and may be more difficult to open and close out.
Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the applicable Fund's current or
anticipated investments. Each of the Funds may invest in options and futures
contracts based on securities which differ from the securities in which it
typically invests. This involves a risk that the options or futures position
will not track the performance of the Fund's investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the applicable
Fund's investments well. Options and future prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. Each of the Funds may purchase or sell
options and futures contracts with a greater or lesser value than the securities
it wishes to hedge or intends to purchase in order to attempt to compensate for
differences in historical volatility between the contract and the securities,
although this may not be successful in all cases. If price changes in the
applicable Funds' options or futures positions are poorly correlated with its
other investments, the positions may fail to produce anticipated gains or result
in losses that are not offset by gains in other investments. Successful use of
these techniques requires skills different from those needed to select portfolio
securities.
Liquidity of Options and Futures Contracts. There is no assurance a
liquid secondary market will exist for any particular options or futures
contract at any particular time. Options may have relatively low trading volume
and liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily price
fluctuation limits for options and futures contracts, and may halt trading if a
contract's price moves upward or downward more than the limit in a given day. On
volatile trading days when the price fluctuation limit is reached or a trading
halt is imposed, it may be impossible for a Fund to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the Fund to
continue to hold a position until delivery or expiration regardless of changes
in its value. As a result, a Fund's access to other assets held to cover its
options or futures positions could also be impaired.
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Asset Coverage for Futures and Option Positions. Each of the Funds
will comply with guidelines established by the Securities and Exchange
Commission with respect to coverage of options and futures strategies by mutual
funds, and if the guidelines so require will set aside cash or liquid securities
in a segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a result,
there is a possibility that segregation of a portion of a Fund's assets could
impede portfolio management or such Fund's ability to meet redemption requests
or other current obligations.
Special Risks of Hedging and Income Enhancement Strategies.
Participation in the options or futures markets involves investment risks and
transactions costs to which a Fund would not be subject absent the use of these
strategies. In particular, the loss from investing in futures contracts is
potentially unlimited. If the Adviser's prediction of movements in the direction
of the securities and interest rate markets are inaccurate, the adverse
consequences to the Fund may leave the Fund in a worse position than if such
strategies were not used. Risks inherent in the use of futures contracts and
options on futures contracts include: (1) dependence on the Adviser's ability to
predict correctly movements in the direction of interest rates, securities
prices and currency markets; (2) imperfect correlation between the price of
options and futures contracts and options thereon and movements in the prices of
the securities being hedged; (3) the fact that skills needed to use these
strategies are different from those needed to select portfolio securities; and
(4) the possible absence of a liquid secondary market for any particular
instrument at any time.
Depository Receipts
Each of the Funds may invest in American Depository Receipts ("ADRs").
ADR facilities may be either "sponsored" or "unsponsored". While similar,
distinctions exist relating to the rights and duties of ADR holders and market
practices. A depository may establish an unsponsored facility without the
participation by or consent of the issuer of the deposited securities, although
a letter of non-objection from the issuer is often requested. Holders of
unsponsored ADRs generally bear all the costs of such facility, which can
include deposit and withdrawal fees, currency conversion fees and other service
fees. The depository of an unsponsored facility may be under no duty to
distribute shareholder communications from the issuer or to pass through voting
rights. Issuers of unsponsored ADRs are not obligated to disclose material
information in the U.S. and, therefore, there may be not be a correlation
between such information and the market value of the ADR. Sponsored facilities
enter into an agreement with the issuer that sets out rights and duties of the
issuer, the depository and the ADR holder. This agreement also allocates fees
among the parties. Most sponsored agreements also provide that the depository
will distribute shareholder notices, voting instruments and other
communications. Each of the Funds may invest in sponsored and unsponsored ADRs.
In addition to ADRs, each of the Funds may hold foreign securities in
the form of American Depository Shares ("ADSs"), Global Depository Receipts
("GDRs") and European Depository Receipts ("EDRs"), or other securities
convertible into foreign
14
<PAGE>
securities. These receipts may not be denominated in the same currency as the
underlying securities. Generally, American banks or trust companies issue ADRs
and ADSs, which evidence ownership of underlying foreign securities. GDRs
represent global offerings where an issuer issues two securities simultaneously
in two markets, usually publicly in a non-U.S. market and privately in the U.S.
market. EDRs (sometimes called Continental Depository Receipts ("CDRs")) are
similar to ADRs, but usually issued in Europe. Typically issued by foreign banks
or trust companies, EDRs and CDRs evidence ownership of foreign securities.
Generally, ADRs and ADSs in registered form trade in the U.S. securities
markets, GDRs in the U.S. and European markets, and EDRs and CDRs (in bearer
form) in European markets.
Portfolio Turnover
Generally, the Funds do not purchase securities with the intent of
turning them over rapidly. However, the Adviser will continuously monitor each
Fund's investments and adjust the portfolio whenever the Adviser believes it is
in the best interest of the Fund to do so. Fund turnover may increase as a
result of large amounts of purchases and redemptions of shares of a Fund due to
economic, market or other factors that are not within the control of the Fund's
management.
Portfolio turnover measures the amount of trading that occurs in a
Fund's portfolio during the year. A 100% turnover rate, for example, means that
on average, every security in the portfolio has been replaced once during the
year. Funds with higher turnover rates often have higher transaction costs (e.g.
brokerage commissions, portfolio trading costs), which are paid by the Funds,
and may generate short-term capital gains. Distributions to shareholders of
realized gains, to the extent they consist of net short-term capital gains, will
be considered ordinary income for tax purposes. The turnover rate for the Fund
may vary from year to year. However, the Adviser expects that under normal
market conditions, the annual portfolio turnover rate for each of the Funds will
not exceed 100%.
Borrowing
The Funds may borrow money, but only from banks and only for temporary
or emergency purposes. The Funds may borrow up to 10% of their net assets.
However, they must repay any amount borrowed before buying additional
securities. If the securities held by a Fund decline in value while borrowings
are outstanding, the net asset value of the Fund's outstanding shares may also
lose value.
Reverse Repurchase Agreements
The Funds may enter into reverse repurchase agreements. In a reverse
repurchase agreement, a Fund sells securities with the understanding that it
will buy them back within a particular time at a specified price.
Reverse repurchase agreements involve certain risks, including the
chance that the market value of the securities sold may decline below the price
of the securities the Fund is
15
<PAGE>
obligated to repurchase. They are also subject to the risk that the securities
may not be returned to the Fund.
To manage risk, a Fund will maintain in a segregated account with its
custodian certain cash or liquid securities. These must have a value at least
equal to the repurchase price of the securities sold, less the value of the
collateral securing the reverse repurchase agreement.
When-Issued and Delayed-Delivery Securities
To ensure the availability of suitable securities for their
portfolios, the Funds may buy when-issued or delayed-delivery securities. The
Funds intend to purchase the securities with the expectation of acquiring the
underlying securities when delivered. However, a Fund may sell when-issued
securities before the settlement date when the Adviser believes it is in the
best interests of a Fund to do so. Unless a Fund has entered into an offsetting
agreement to sell the securities, it must maintain segregated cash or liquid
assets equal to the amount of the Fund's commitment with the Fund's custodian.
When-issued and delayed-delivery securities represent securities that
have been authorized but not yet issued. The price of when-issued and
delayed-delivery securities is fixed at the time a commitment to purchase is
made, but delivery and payment take place at a later date. As a result, they are
subject to certain risks, including the chance that these securities may fall in
value by the time they are actually issued or delivered. New issues of stocks
and bonds, stocks that have split and Treasury securities are examples of
securities that are traded on a when-issued or delayed-delivery basis.
Government Obligations
Each of the Funds may invest in a variety of U.S. Treasury
obligations, including bills, notes and bonds. These obligations differ only in
terms of their interest rates, maturities and time of issuance. The Funds may
also invest in other securities issued or guaranteed by the U.S. government, its
agencies and instrumentalities.
Obligations of certain agencies and instrumentalities, such as the
Government National Mortgage Association ("GNMA"), are supported by the full
faith and credit of the U.S. Treasury. Others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; and others, such as those of the Federal
National Mortgage Association ("FNMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Student Loan Marketing Association are supported
only by the credit of the agency or instrumentality that issues them. There is
no guarantee that the U.S. Government will provide financial support to its
agencies or instrumentalities, now or in the future, if it is not obligated to
do so by law.
16
<PAGE>
Warrants
Each of the equity Funds may purchase warrants and similar rights,
which are privileges issued by corporations enabling the owners to subscribe to
and purchase a specified number of shares of the corporation at a specified
price for a specified period of time. Like options, warrants involve certain
risks, including the chance that a Fund could lose the purchase value of the
warrant if the warrant is not exercised prior to its expiration. Warrants also
involve the risk that the effective price paid for the warrant added to the
subscription price of the related security may be greater than the value of the
subscribed security's market price. To manage risk, no more than 5% of each
equity Fund's net assets, valued at the time of investment, will be invested in
warrants.
Classification of Foreign Markets
Foreign markets are often classified as mature or emerging. The
countries in which the Funds may invest are classified below. The Funds also may
invest in additional countries when such investments are consistent with the
Fund's objective and policies.
Mature: Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Hong Kong, Ireland,
Italy, Japan, Luxembourg, Netherlands, New
Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, United Kingdom and United States.
Emerging: Argentina, Brazil, Chile, China, Czech Republic,
Ecuador, Greece, Hungary, India, Indonesia,
Jamaica, Kenya, Israel, Jordan, Malaysia, Mexico,
Morocco, Nigeria, Pakistan, People's Republic of
China, Peru, Philippines, Poland, South Africa,
South Korea, Sri Lanka, Taiwan, Thailand, Turkey,
Uruguay, Venezuela and Vietnam.
Foreign Currency Transactions
To manage the currency risk accompanying investments in foreign
securities and to facilitate the purchase and sale of foreign securities, the
Funds may engage in foreign currency transactions on a spot (cash) basis at the
spot rate prevailing in the foreign currency exchange market or through entering
into contracts to purchase or sell foreign currencies at a future date ("forward
foreign currency" contracts or "forward" contracts).
A forward foreign currency contract involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. These contracts are principally traded in the
inter-bank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement and no commissions are charged at any stage for trades.
17
<PAGE>
When a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the U.S.
dollar price of the security. By entering into a forward contract for the
purchase or sale of a fixed amount of U.S. dollars equal to the amount of
foreign currency involved in the underlying security transaction, the Fund can
protect itself against a possible loss, resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date the security is purchased or sold and the date on which
the payment is made or received.
When the Adviser believes that a particular foreign currency may
suffer a substantial decline against the U.S. dollar, they may enter into a
forward contract to sell a fixed amount of the foreign currency approximating
the value of some or all of a Fund's portfolio securities denominated in such
foreign currency. The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible since the future
value of such securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult and the successful execution of
a short-term hedging strategy is highly uncertain. A Fund will not enter into
such forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's securities or other assets
denominated in that currency. Under normal circumstances, the Adviser considers
the long-term prospects for a particular currency and incorporate the prospects
into its overall long-term diversification strategies. The Adviser believes that
it is important to have the flexibility to enter into such forward contracts
when it determines that the best interests of a Fund will be served.
At the maturity of a forward contract, a Fund may either sell the
portfolio securities and make delivery of the foreign currency, or it may retain
the securities and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of foreign currency.
If a Fund retains the portfolio securities and engages in an
offsetting transaction, the Fund will incur a gain or a loss to the extent that
there has been movement in forward contract prices. If a Fund engages in an
offsetting transaction, it may subsequently enter into a forward contract to
sell the foreign currency. Should forward prices decline during the period when
the Fund entered into the forward contract for the sale of a foreign currency
and the date it entered into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Fund will suffer a loss to the
extent that the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
18
<PAGE>
Shareholders should note that: (1) foreign currency hedge transactions
do not protect against or eliminate fluctuations in the prices of particular
portfolio securities (i.e., if the price of such securities declines due to an
issuer's deteriorating credit situation); and (2) it is impossible to forecast
with precision the market value of securities at the expiration of a forward
contract. Accordingly, a Fund may have to purchase additional foreign currency
on the spot market (and bear the expense of such purchase) if the market value
of a Fund's securities is less than the amount of the foreign currency upon
expiration of the contract. Conversely, a Fund may have to sell some of its
foreign currency received upon the sale of a portfolio security if the market
value of the Fund's securities exceed the amount of foreign currency the Fund is
obligated to deliver. A Fund's dealings in forward foreign currency exchange
contracts will be limited to the transactions described above.
Although the Funds value their assets daily in terms of U.S. dollars,
they do not intend to convert their holdings of foreign currencies into U.S.
dollars on a daily basis. A Fund will do so from time to time and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they realize a profit based on the
difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to a Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
Each of the Funds may purchase and sell currency futures and purchase
and write currency options to increase or decrease its exposure to different
foreign currencies. The uses and risks of currency options and futures are
similar to options and futures relating to securities or indices, as discussed
above. Currency futures contracts are similar to forward foreign currency
contracts, except that they are traded on exchanges (and have margin
requirements) and are standardized as to contract size and delivery date. Most
currency futures contracts call for payment or delivery in U.S. dollars. The
underlying instrument of a currency option may be a foreign currency, which
generally is purchased or delivered in exchange for U.S. dollars, or may be a
futures contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obtains the right
to sell the underlying currency.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of the
respective Fund's investments. A currency hedge, for example, should protect a
Yen-dominated security from a decline in the Yen, but will not protect a
particular Fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of a Fund's foreign-denominated
investments change in response to many factors other than exchange rates, it may
not be possible to match the amount of currency options and futures to the value
of the Fund's investments exactly over time.
19
<PAGE>
DIRECTORS AND OFFICERS OF THE CORPORATION
As a Maryland corporation, the business and affairs of the Corporation
are managed by its officers under the direction of its Board of Directors. The
name, address, principal occupations during the past five years and other
information with respect to each of the directors and offices of the Corporation
are as follows:
JoAnne Brandes -- Director. Ms. Brandes, 45, has been Senior Vice
President, General Counsel and Secretary of S.C. Johnson Commercial Markets,
Inc. since October 1997. Prior to that time, Ms. Brandes served in various
capacities as an officer of S.C. Johnson & Son, Inc since 1992. Both S.C.
Johnson Commercial Markets, Inc. and S.C. Johnson & Son, Inc. are controlled by
Samuel C. Johnson as is Johnson International, Inc., the corporate parent of the
Adviser. Ms. Brandes is also a director of Alternative Resources Corporation,
Lincolnshire, Illinois, a computer servicer and supplier, and Corporate Family
Solutions, Inc., Nashville, Tennessee, a child care provider. Her address is
8310 16th Street, P.O. Box 902, Sturtevant, WI 53177.
Richard Bibler -- Director. Mr. Bibler, 66, has been an owner of
Rudolph Stone Associates, a financial consulting firm since prior to 1990. His
address is Suite 104, 500 West Brown Deer Road, Milwaukee, WI 53217.
F. Gregory Campbell -- Director. Dr. Campbell, 59, has been the
President of Carthage College since 1987. Dr. Campbell also serves as a trustee
of AAL Mutual Funds. His address is 2001 Alford Drive, Kenosha, WI 53104.
Gerald Konz -- Director. Mr. Konz, 66, is an independent consultant.
Mr. Konz was Vice President and Tax Counsel and Chairman of the pension and
savings plan investment committees of S.C. Johnson & Son, Inc. from 1982 until
1997. His address is c/o S.C. Johnson & Son, Inc., 1525 Howe Street, Racine, WI
53403.
George Nelson -- Director. Mr. Nelson, 60, has been Vice President -
Administration & Finance of Evening Telegram, Inc. since 1982. His address is
7025 Raymond Road, Madison, WI 53719.
*Wendell Perkins -- Director. Mr. Perkins, 35, has been Senior Vice
President of the Adviser since 1994. In 1993 Mr. Perkins was an Assistant Vice
President of Biltmore Investors Bank, an affiliate of the Adviser. His address
is 4041 North Main Street, Racine, WI 53402.
Joan Burke -- President and Treasurer. Ms. Burke, 47, has been
President and Chief Executive Officer of the Adviser and Johnson Trust Company
since November, 1995. From December 1994 to November 1995 Ms. Burke was Vice
President of Firstar Bank of
- -------
* Mr. Perkins is the only director who is an "interested person" of the
Corporation as that term is defined in the Investment Company Act of 1940.
20
<PAGE>
Madison and from October 1976 to October 1994 she was Senior Vice President of
Valley Trust Company. Her address is 4041 North Main Street, Racine, WI 53402.
George Balistreri -- Vice President and Secretary. Mr. Balistreri, 55,
has been Senior Vice President of the Adviser since 1990. His address is 4041
North Main Street, Racine, WI 53402.
The Corporation's standard method of compensating directors is to pay
each director who is not an officer of the Corporation an annual fee of $5,000
and a fee of $500 for each meeting of the Board of Directors attended.
The Corporation was incorporated on January 27, 1998. The table below
sets forth the compensation paid by the Corporation to each of the directors of
the Corporation during the fiscal year ended October 31, 1998:
<TABLE>
COMPENSATION TABLE
<CAPTION>
Total
Pension or Compensation
Aggregate Retirement Benefits Estimated Annual from Corporation
Name of Compensation Accrued as Part of Benefits Upon and Fund Complex
Person from Corporation Fund Expenses Retirement Paid to Directors
------ ---------------- ------------- -- ------------- -----------------
<S> <C> <C> <C> <C>
JoAnne Brandes $6500 $0 $0 $6500
Richard Bibler 6500 0 0 6500
Gerald Konz 6500 0 0 6500
George Nelson 6500 0 0 6500
Wendell Perkins 0 0 0 0
</TABLE>
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
As of November 30, 1998, the officers and directors of the Corporation
owned less than 1% of the outstanding securities of each Fund. Set forth below
are the names and addresses of all holders of each of the Funds' shares who as
of November 30, 1998 owned of record or to the knowledge of the Funds,
beneficially owned more than 5% of a Funds' then outstanding shares.
<TABLE>
<CAPTION>
Large Cap Small Cap International
Equity Fund Equity Fund Fixed Income Fund Equity Fund
No. of Percent No. of Percent No. of Percent No. of Shares Percent
Shares of Class Shares of Class Shares of Class of Class
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Johnson Trust Company 4,027,323 96.8% 8,247,675 99.2% 6,143,310 95.6% 20,288,785 99.7%
4041 North Main Street
Racine, WI 53402
</TABLE>
21
<PAGE>
By virtue of its stock ownership, Johnson Trust Company, as a fiduciary for its
clients, is deemed to "control," as that term is defined in the Investment
Company Act of 1940, each of the Funds and the Corporation.
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN
AND TRANSFER AGENT
The investment adviser to the Funds is Johnson Asset Management, Inc.
(the "Adviser"). Pursuant to the investment advisory agreements entered into
between the Corporation and the Adviser with respect to each of the Funds (the
"Advisory Agreements"), the Adviser manages the investment and reinvestment of
each Fund's assets; provides the Funds with personnel, facilities and management
services; and supervises each Fund's daily business affairs. The Adviser
formulates and implements a continuous investment program for the Funds
consistent with each Fund's investment objective, policies and restrictions. The
Adviser provides office space as well as executive and other personnel to the
Funds. For its services to the Funds, the Adviser receives a monthly fee based
on the average daily net assets of each Fund at the annual rate of 0.45% for the
Fixed Income Fund, 0.75% for the Large Cap Equity Fund, 0.75% for the Small Cap
Equity Fund and 0.90% for the International Equity Fund. The Adviser is a
wholly-owned subsidiary of Johnson International, Inc., a Wisconsin corporation.
Johnson International, Inc. is a bank holding company. Samuel C. Johnson
controls the Adviser by virtue of his status as trustee of the Johnson
International, Inc. Voting Trust, which holds 55% of the outstanding shares of
Johnson International, Inc. The Adviser's executive officers include Joan A.
Burke, President and Chief Executive Officer, George A. Balistreri, Senior Vice
President, Wendell Perkins, Senior Vice President, and Frank J. Gambino, Vice
President.
Pursuant to the Advisory Agreements, the Adviser has undertaken to
reimburse each of the Funds to the extent that the aggregate annual operating
expenses, including the investment advisory fee and the administration fee but
excluding interest, taxes, brokerage commissions and other costs incurred in
connection with the purchase or sale of portfolio securities, and extraordinary
items, exceed 2.5% of the average net assets of a Fund (1.5% for the
Intermediate Fixed Income Fund) for such year, as determined by valuations made
as of the close of each business day of the year. Other expenses borne by the
Funds include: legal, auditing and accounting expenses; insurance premiums;
governmental fees; expenses of issuing and redeeming shares; organizational
expenses; expenses of registering or qualifying shares for sale; postage and
printing for reports and notices to shareholders; fees and disbursements of the
Funds' custodian and transfer agent; fees and disbursements pursuant to the
Service and Distribution Plan; and membership fees of industry associations.
Additionally, for the fiscal year ended October 31, 1998, the Adviser reimbursed
each Fund for annual operating expenses in excess of the percentage of its
average net assets for such year set forth below.
22
<PAGE>
Fund Expense Limitation
Intermediate Fixed Income Fund 0.85%
Large Cap Equity Fund 1.45%
Small Cap Equity Fund 1.50%
International Equity Fund 1.85%
The Funds monitor their expense ratio on a monthly basis. If the
accrued amount of the expenses of a Fund exceeds the expense limitation, the
Fund creates an account receivable from the Adviser for the amount of such
excess. In such a situation the monthly payment of the Adviser's fee will be
reduced by the amount of such excess, subject to adjustment month by month
during the balance of the Fund's fiscal year if accrued expenses thereafter fall
below this limit.
The Funds did not commence operations until January 27, 1998. For
services by the Adviser under the Advisory Agreements during the period from
January 27, 1998 through October 31, 1998, the Funds incurred advisory fees
payable to the Adviser of $174,092 for the Large Cap Equity Fund, $93,683 for
the Small Cap Equity Fund, $173,214 for the Fixed Income Fund and $105,901 for
the International Equity Fund. During the period from January 27, 1998
(commencement of operations) through October 31, 1998, the Adviser made
reimbursements for excess expenses of $393 to the Large Cap Equity Fund, $10,276
to the Small Cap Equity Fund, $100,890 to the Fixed Income Fund and $13,163 to
the International Equity Fund.
Each Advisory Agreement will remain in effect as long as its
continuance is specifically approved at least annually (i) by the Board of
Directors of the Corporation or by the vote of a majority (as defined in the
Act) of the outstanding shares of the applicable Fund, and (ii) by the vote of a
majority of the directors of the Corporation who are not parties to the Advisory
Agreement or interested persons of the Adviser, cast in person at a meeting
called for the purpose of voting on such approval. Each Advisory Agreement
provides that it may be terminated at any time without the payment of any
penalty, by the Board of Directors of the Corporation or by vote of the majority
of the applicable Fund's stockholders on sixty (60) days' written notice to the
Adviser, and by the Adviser on the same notice to the Corporation, and that it
shall be automatically terminated if it is assigned.
Each Advisory Agreement provides that the Adviser shall not be liable
to the Corporation or its stockholders for anything other than willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties. Each Advisory Agreement also provides that the Adviser
and its officers, directors and employees may engage in other businesses, devote
time and attention to any other business whether of a similar or dissimilar
nature, and render services to others.
23
<PAGE>
The administrator to the Funds is Sunstone Financial Group, Inc., 207
East Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202 (the
"Administrator"). The Administrator provides various administrative services and
fund accounting services to the Funds (which includes clerical, compliance,
regulatory fund accounting and other services) pursuant to an Administration and
Fund Accounting Agreement (the "Administration Agreement") with the Corporation
on behalf of the Funds. For its administrative services, the Administrator
receives from each Fund a fee, computed daily and payable monthly, based on each
Fund's average net assets at the annual rate of 0.20%, subject to a combined
annual minimum for all four Funds of $206,000, plus out-of-pocket expenses. The
Administration Agreement will remain in effect until December 31, 2000.
Thereafter, the Administration Agreement may be terminated at any time, without
the payment of any penalty, by the Board of Directors of the Corporation upon
the giving of ninety (90) days' written notice to the Administrator, or by the
Administrator upon the giving of ninety (90) days' written notice to the
Corporation.
For the period from January 27, 1998 (commencement of operations)
through October 31, 1998, the Large Cap Equity Fund paid the Administrator
$46,424, the Small Cap Equity Fund paid the Administrator $24,982, the Fixed
Income Fund paid the Administrator $76,984 and the International Equity Fund
paid the Administrator $23,534, pursuant to the Administration Agreement.
Under the Administration Agreement, the Administrator shall not be
liable for any loss suffered by the Funds in connection with the performance of
the Administration Agreement, except a loss resulting from willful misfeasance,
bad faith or negligence on the part of the Administrator in the performance of
its duties under the Administration Agreement. The Administration Agreement also
provides that the Administrator may provide similar services to other investment
companies.
Investors Fiduciary Trust Company serves as custodian of the
Corporation's assets pursuant to a Custody Agreement. Under the Custody
Agreement, Investors Fiduciary Trust Company has agreed to (i) maintain separate
accounts in the name of the Funds, (ii) make receipts and disbursements of money
on behalf of each of the Funds, (iii) collect and receive all income and other
payments and distributions on account of each of the Fund's portfolio
investments, (iv) respond to correspondence from shareholders, security brokers
and others relating to its duties; and (v) make periodic reports to the Funds
concerning the Funds' operations. Investors Fiduciary Trust Company does not
exercise any supervisory function over the purchase and sale of securities.
Sunstone Financial Group, Inc. serves as transfer agent and dividend
paying agent for the Funds under a Transfer Agency Agreement between it and the
Corporation. As transfer and dividend paying agent, Sunstone Financial Group,
Inc. has agreed to (i) issue and redeem shares of the Funds, (ii) make dividend
and other distributions to shareholders of the Funds, (iii) respond to
correspondence by Fund shareholders and others relating to its duties, (iv)
maintain shareholder accounts, and (v) make periodic reports to the Funds.
24
<PAGE>
DETERMINATION OF NET ASSET VALUE
Pricing Considerations
The net asset value of each of the Funds will be determined as of the
close of regular trading (3:00 P.M. Central Time) on each day the New York Stock
Exchange is open for trading. The New York Stock Exchange is open for trading
Monday through Friday except New Year's Day, Dr. Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, if any of the aforementioned
holidays falls on a Saturday, the New York Stock Exchange will not be open for
trading on the preceding Friday and when any such holiday falls on a Sunday, the
New York Stock Exchange will not be open for trading on the succeeding Monday,
unless unusual business conditions exist, such as the ending of a monthly or the
yearly accounting period.
Each Fund's net asset value is equal to the quotient obtained by
dividing the value of its net assets (its assets less its liabilities) by the
number of shares outstanding. Each Fund's offering price is equal to the sum
obtained by adding the applicable sales charge or load to the net asset value.
The excess of the offering price over the net amount invested is paid to the
Fund's principal underwriter.
Common stocks and securities sold short that are listed on any
national stock exchange or quoted on the Nasdaq Stock Market will be valued at
the last sale price on the date the valuation is made. Price information on
listed securities is taken from the exchange where the security is primarily
traded. Common stocks which are listed on any national stock exchange or the
Nasdaq Stock Market but which are not traded on the valuation date are valued at
the most recent bid price. Securities sold short which are listed on any
national stock exchange or the Nasdaq Stock Market but which are not traded on
the valuation date are valued at the most recent asked price. Unlisted equity
securities for which market quotations are readily available will be valued at
the most recent bid price. Options purchased or written by the Funds are valued
at the average of the current bid and asked prices. The value of a futures
contract equals the unrealized gain or loss on the contract that is determined
by marking the contract to the current settlement price for a like contract
acquired on the day on which the futures contract is being valued. A settlement
price may not be changed if the market makes a limit move in which event the
futures contract will be valued at its fair market value as determined by the
Adviser in accordance with procedures approved by the Board of Directors. Debt
securities are valued at the latest bid prices furnished by independent pricing
services. Pricing services may determine valuations based upon normal,
institutional-size trading units of such securities using market transactions
for comparable securities and various relationships between securities generally
recognized by institutional traders. Any securities for which there are no
readily available market quotations and other assets will be valued at their
fair value as determined in good faith by the Board of Directors. Short-term
instruments (those with remaining maturities of 60 days or less) are valued at
amortized cost, which approximates market.
25
<PAGE>
The Funds price foreign securities in terms of U.S. dollars at the
official exchange rate. Alternatively, they may price these securities at the
average of the current bid and asked price of such currencies against the dollar
last quoted by a major bank that is a regular participant in the foreign
exchange market, or on the basis of a pricing service that takes into account
the quotes provided by a number of such major banks. If the Funds do not have
either of these alternatives available to them or the alternatives do not
provide a suitable method for converting a foreign currency into U.S. dollars,
the Board of Directors in good faith will establish a conversion rate for such
currency.
Generally, U.S. government securities and other fixed income
securities complete trading at various times prior to the close of the New York
Stock Exchange. For purposes of computing net asset value, the Funds use the
market value of such securities as of the time their trading day ends.
Occasionally, events affecting the value of such securities may occur between
such times and the close of the New York Stock Exchange, which events will not
be reflected in the computation of a Fund's net asset value. It is currently the
policy of the Funds that events affecting the valuation of Fund securities
between such times and the close of the New York Stock Exchange, even if
material, will not be reflected in such net asset value.
Foreign securities trading may not take place on all days when the New
York Stock Exchange is open, or may take place on Saturdays and other days when
New York Stock Exchange is not open and a Fund's net asset value is not
calculated. When determining net asset value, the Funds value foreign securities
primarily listed and/or traded in foreign markets at their market value as of
the close of the last primary market where the securities traded. Securities
trading in European countries and Pacific Rim countries is normally completed
well before 3:00 P.M. Central Time. It is currently the policy of the Funds that
events affecting the valuation of Fund securities occurring between the time its
net asset value is determined and the close of the New York Stock Exchange, even
if material, will not be reflected in such net asset value.
Each Fund reserves the right to suspend or postpone redemptions during
any period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the Securities and Exchange Commission, or that the Exchange is
closed for other than customary weekend and holiday closings; (b) the Securities
and Exchange Commission has by order permitted such suspension; or (c) an
emergency, as determined by the Securities and Exchange Commission, exists,
making disposal of portfolio securities or valuation of net assets of the Fund
not reasonably practicable.
PERFORMANCE INFORMATION
Any total rate of return quotation for a Fund will be for a period of
three or more months and will assume the reinvestment of all dividends and
capital gains distributions which were made by the Fund during that period. Any
period total rate of return quotation of a Fund will be calculated by dividing
the net change in value of a hypothetical shareholder account established by an
initial payment of $1,000 at the beginning of the period by 1,000. The net
change in the value of a shareholder account is determined by subtracting $1,000
from
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<PAGE>
the product obtained by multiplying the net asset value per share at the end of
the period by the sum obtained by adding (A) the number of shares purchased at
the beginning of the period plus (B) the number of shares purchased during the
period with reinvested dividends and distributions. Any average annual
compounded total rate of return quotation of a Fund will be calculated by
dividing the redeemable value at the end of the period (i.e., the product
referred to in the preceding sentence) by $1,000. A root equal to the period,
measured in years, in question is then determined and 1 is subtracted from such
root to determine the average annual compounded total rate of return.
The foregoing computation may also be expressed by the following
formula:
P(1 + T)n = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
stated periods at the end of the stated periods
The calculations of average annual total return and total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV") is determined by assuming complete redemption of the hypothetical
investment and the deduction of all nonrecurring charges at the end of the
period covered by the computations. In addition, a Fund's average annual total
return and total return reflect the deduction of the maximum front-end sales
charge of 4.00% (2.75% for the Intermediate Fixed Income Fund). A Fund may also
advertise total return data without reflecting sales charges in accordance with
the rules of the Securities and Exchange Commission. Quotations that do not
reflect the sales charge will, of course, be higher than quotations that do
reflect the sales charge.
The total rate of return for the period from January 27, 1998
(commencement of operations) through October 31, 1998, was -7.74% for the Large
Cap Equity Fund, -21.11% for the Small Cap Equity Fund, 3.01% for the Fixed
Income Fund and -13.92% for the International Equity Fund.
The current yield for the Fixed Income Fund is based on a 30-day (or
one-month) period and is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
a-b 6
YIELD=2[(--- + 1) -1]
cd
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<PAGE>
Where: a = interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the
last day of the period.
The Fixed Income Fund's SEC 30-day yield for the period from October
1, 1998 through October 31, 1998 was 4.49%. Absent fee waivers, the yield would
have been 4.48%.
Each of the Funds may compare its performance to other mutual funds
with similar investment objectives and to the industry as a whole, as reported
by Morningstar, Inc. and Lipper Analytical Services, Inc.; Money, Forbes,
Business Week and Barron's magazines; and The Wall Street Journal. (Morningstar,
Inc. and Lipper Analytical Services, Inc. are independent ranking services that
each rank over 1,000 mutual funds based upon total return performance.) Each of
the Funds may also compare its performance to the Dow Jones Industrials Average,
Nasdaq Composite Index, Nasdaq Industrials Index, Value Line Composite Index,
the S&P 500, S&P 400 Mid-Cap Growth Index, S&P Small Cap 600 Index, S&P
BARRA Value Index, Lehman Brothers Intermediate Government/Corporate Bond Index,
Russell 1000 Growth Index, Russell 2000 Index, Morgan Stanley Capital Institute
World (ex. U.S.) Index and the Consumer Price Index. Such comparisons may be
made in advertisements, shareholder reports or other communications to
shareholders.
DISTRIBUTION OF SHARES
Service and Distribution Plan
In addition to the sales charge deducted at the time of purchase, the
Corporation has adopted a Service and Distribution Plan pursuant to Rule 12b-1
under the Act (the "Plan") to use a portion of the Funds' assets to cover the
costs of certain activities relating to the distribution of its shares to
investors. The Corporation adopted the Plan in anticipation that the Funds will
benefit from the Plan through increased sales of shares, thereby reducing the
expense ratio of each of the Funds and providing the Adviser with greater
flexibility in management. The Plan may be terminated with respect to any Fund
at any time by a vote of the directors of the Corporation who are not interested
persons of the Corporation and who have no direct or indirect financial interest
in the Plan or any agreement related thereto (the "Rule 12b-1 Directors") or by
a vote of a majority of the outstanding shares of the Fund. JoAnne Brandes,
Richard Bibler, F. Gregory Campbell, Gerald Konz and George Nelson are currently
the Rule 12b-1 Directors. Any change in the Plan that would materially increase
the
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<PAGE>
distribution expenses of a Fund provided for in the Plan requires approval of
the stockholders of that Fund and the Board of Directors, including the Rule
12b-1 Directors.
While the Plan is in effect, the selection and nomination of directors
who are not interested persons of the Corporation will be committed to the
discretion of the directors of the Corporation who are not interested persons of
the Corporation. The Board of Directors of the Corporation must review the
amount and purposes of expenditures pursuant to the Plan quarterly as reported
to it by a Distributor, if any, or officers of the Corporation. The Plan will
continue in effect for as long as its continuance is specifically approved at
least annually by the Board of Directors, including the Rule 12b-1 Directors.
Sunstone Distribution Services, LLC (the "Distributor"), an affiliate
of Sunstone Financial Group, Inc., acts as the principal underwriter of shares
of the Funds. The Distributor distributes shares of the Funds on a continuous
"best efforts" basis. The Plan permits the Funds to reimburse the Distributor
for expenses incurred in distributing the Funds' shares to investors, which
include expenses relating to: sales representative compensation (excluding the
initial sales charge); advertising preparation and distribution of sales
literature and prospectuses to prospective investors; implementing and operating
the Plan; and performing other promotional or administrative activities on
behalf of the Funds. Pursuant to the Plan, the Funds may reimburse the
Distributor for overhead expenses incurred in distributing the Funds' shares.
The Funds may not reimburse the Distributor for expenses of past fiscal years or
in contemplation of expenses for future fiscal years. The Funds may not use
distribution fees paid by one Fund to finance the distribution of shares for
another Fund. The Distributor has entered into a Distribution Agreement with the
Corporation pursuant to which the Funds pay to the Distributor a fee at the
annual rate of 0.05% of each Fund's average daily net assets.
The Distributor may enter into agreements from time to time with
broker-dealers ("Selected Dealers") providing for certain support and/or
distribution services to their customers who are the beneficial owners of shares
of the Funds. Under these agreements, shareowner support services may include
assisting investors in processing purchase, exchange and redemption requests;
processing dividend and distribution payments from the Funds; providing
information periodically to customers showing their positions in shares of the
Funds; and providing sub-accounting with respect to shares beneficially owned by
customers or the information necessary for sub-accounting. Such entities may
also provide assistance, such as the forwarding of sales literature and
advertising to their customers, in connection with the distribution of shares.
Under these agreements, the Distributor may pay fees at annual rates of up to
0.25% of the average daily net asset value of the shares covered by the
agreement.
During the period from January 27, 1998 (commencement of operations)
through October 31, 1998, the Funds incurred distribution fees under the Plan of
$58,031 for the Large Cap Equity Fund, $31,228 for the Small Cap Equity Fund,
$96,230 for the Fixed Income Fund and $29,417 for the International Equity Fund.
These fees were allocated to the following activities:
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<PAGE>
<TABLE>
Large Cap Equity Small Cap Equity Fixed Income Fund International
Fund Fund
<S> <C> <C> <C> <C>
Advertising $23,460 $12,684 $38897 $11,894
Compensation to Distributor 20,903 11,154 34,673 10,594
Training of Sales Personnel 12,238 6,617 20,290 6,204
Printing and Mailing of Prospectuses 1,139 616 1,888 577
Compensation to Selected Dealers ... 291 157 482 148
</TABLE>
As described in the Prospectus, the Corporation permits its officers
and directors; officers, directors and employees of each of Johnson
International, Inc. and its subsidiaries, S.C. Johnson & Son, Inc. and its
subsidiaries, Johnson Worldwide Associates, Inc. and its subsidiaries,
Frye-Louis Capital Management, Inc. and J/K Management Services, Inc.; the
Distributor, its affiliates and their employees; Selected Dealers and their
employees; clients of the Adviser; fiduciary accounts and agency accounts of
Bank Affiliates; and immediate family members of each of the foregoing to
purchase shares of the Funds at net asset value. All purchases made through Bank
Affiliates must be by persons or entities eligible to purchase shares of the
Funds at net asset value. A person's immediate family includes the person's
spouse, parents, grandparents, siblings, children and grandchildren. The
Corporation also has a reinstatement privilege pursuant to which shareholders
who have redeemed their shares may later buy shares of the Fund at net asset
value provided that the amount purchased does not exceed the amount of the
redemption proceeds. Finally the Corporation permits investors to purchase
shares of the Funds at net asset value using the proceeds from the redemption,
within the previous sixty days, of shares of another mutual fund. The
Corporation permits such sales because it believes such investors have already
been informed about the advantages of investing in mutual funds, including the
Funds, and that the Distributor incurs no material sales expense in connection
with sales to such investors.
Dealer Reallowances
The Dealer will reallow to Selected Dealers a portion of the front-end
sales load in accordance with the following schedule:
Fixed Income Fund
Amount of Transaction Sales Charge as a Percentage Reallowance to
at Offering Price of Offering Price Selected Dealers
Less than $50,000 2.75% 2.25%
$50,000 to $99,999 2.25% 1.75%
$100,000 to $249,000 2.00% 1.50%
$250,000 or more None None
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<PAGE>
Large Cap Equity Fund, Small Cap Equity Fund and International Equity Fund
Amount of Transaction Sales Charge as a Percentage Reallowance to
at Offering Price of Offering Price Selected Dealers
Less than $50,000 4.00% 3.50%
$50,000 to $99,999 3.00% 2.50%
$100,000 to $249,000 2.00% 1.50%
$250,000 or more None None
During the period from January 27, 1998 (commencement of operations)
through October 31, 1998 the aggregate amount of underwriting commissions paid
to the Distributor and the amounts retained by the Distributor were:
Aggregate Amount of Underwriting Amounts Retained
Commissions Paid to Distributor by the Distributor
Fixed Income Fund $ 572 $132
Large Cap Equity Fund $3,401 $663
Small Cap Equity Fund $1,808 $233
International Equity Fund $ 8 $ 1
Right of Accumulation
A reduced sales charge applies to any purchase of shares of any Fund
that is purchased with a sales charge where an investor's then current aggregate
investment is $50,000 or more. "Aggregate investment" means the total of: (1)
the dollar amount of the then current purchase of shares of a Fund; and (2) the
value (based on current net asset value) of previously purchased and
beneficially owned shares of any Funds on which a sales charge has been paid.
If, for example, an investor beneficially owns shares of one or more Funds, with
an aggregate current value of $50,000 on which a sales charge has been paid and
subsequently purchases shares of a Fund having a current value of $1,000, the
sales charge applicable to the subsequent purchase would be reduced to 3.00%
(2.25% for the Fixed Income Fund) of the offering price. Similarly, each
subsequent investment in Fund shares may be added to an investor's aggregate
investment at the time of purchase to determine the applicable sales charge.
Letter of Intent
By signing a Letter of intent (available from Selected
Dealers), an investor becomes eligible for the reduced sales charge applicable
to the total number of Fund shares purchased in a 13-month period pursuant to
the terms and under the conditions set forth in the Letter of Intent. To compute
the applicable sales charge, the offering price of shares of a Fund on which a
sales charge has been paid, beneficially owned by an investor on the date of
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<PAGE>
submission of the Letter of Intent, may be used as a credit toward completion of
the Letter of Intent. However, the reduced sales charge will be applied only to
new purchases.
During the term of the Letter of Intent, shares will be held in escrow
equal to 5% of the amount indicated in the Letter of Intent for payment of a
higher sales charge if an investor does not purchase the full amount indicated
in the Letter of Intent. The escrow will be released when an investor fulfills
the terms of the Letter of Intent by purchasing the specified amount. Any
redemptions made during the 13-month period will be subtracted from the amount
of purchases in determining whether the Letter of Intent has been completed. If
total purchases qualify for a further sales charge reduction, the sales charge
will be adjusted to reflect an investor's total purchases. If total purchases
are less than the amount specified in the Letter of Intent, an investor will be
requested to remit an amount equal to the difference between the sales charge
actually paid and the sales charge applicable to the total purchases. If such
remittance is not received within 20 days, the Transfer Agent, as
attorney-in-fact pursuant to the terms of the Letter of Intent and at the
Selected Dealer's direction, will redeem an appropriate number of shares held in
escrow to realize the difference. Signing a Letter of Intent does not bind an
investor to purchase the full amount indicated at the sales charge in effect at
the time of signing, but an investor must complete the intended purchase in
accordance with the terms of the Letter of Intent to obtain the reduced sales
charge. To apply, an investor must indicate his or her intention to do so under
a Letter of Intent at the time of purchase of shares.
ALLOCATION OF PORTFOLIO BROKERAGE
Decisions to buy and sell securities for the Funds are made by the
Adviser subject to review by the Corporation's Board of Directors. In placing
purchase and sale orders for portfolio securities for a Fund, it is the policy
of the Adviser to seek the best execution of orders at the most favorable price
in light of the overall quality of brokerage and research services provided, as
described in this and the following paragraph. Many of these transactions
involve payment of a brokerage commission by a Fund. In some cases transactions
are with firms who act as principal for their own accounts. In selecting brokers
to effect portfolio transactions, the determination of what is expected to
result in best execution at the most favorable price involves a number of
largely judgmental considerations. Among these are the Adviser's evaluation of
the broker's efficiency in executing and clearing transactions, block trading
capability (including the broker's willingness to position securities and the
broker's financial strength and stability). The most favorable price to a Fund
means the best net price without regard to the mix between purchase or sale
price and commission, if any. Over-the-counter securities are generally
purchased and sold directly with principal market makers who retain the
difference in their cost in the security and its selling price (i.e. "markups"
when the market maker sells a security and "markdowns" when the market maker
purchases a security). In some instances, the Adviser feels that better prices
are available from non-principal market makers who are paid commissions
directly. The Adviser, in allocating orders for the purchase and sale of the
Funds' portfolio securities, is authorized to take into account the sale of Fund
shares, if the Adviser believes that the quality of the transaction and
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<PAGE>
the amount of the commission are comparable to what they would be with other
qualified firms.
In allocating brokerage business for a Fund, the Adviser also takes
into consideration the research, analytical, statistical and other information
and services provided by the broker, such as general economic reports and
information, reports or analyses of particular companies or industry groups,
market timing and technical information, and the availability of the brokerage
firm's analysts for consultation. While the Adviser believes these services have
substantial value, they are considered supplemental to the Adviser's own efforts
in the performance of its duties under the Advisory Agreements. Other clients of
the Adviser may indirectly benefit from the availability of these services to
the Adviser, and the Funds may indirectly benefit from services available to the
Adviser as a result of transactions for other clients. The Advisory Agreements
provide that the Adviser may cause a Fund to pay a broker which provides
brokerage and research services to the Adviser a commission for effecting a
securities transaction in excess of the amount another broker would have charged
for effecting the transaction, if the Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of brokerage and
research services provided by the executing broker viewed in terms of either the
particular transaction or the Adviser's overall responsibilities with respect to
the Fund and the other accounts as to which it exercises investment discretion.
Brokerage commissions paid by the Funds during the period from January
27, 1998 (commencement of operations) through October 31, 1998 totaled $57,336
on total transactions of $37,191,797 for the Large Cap Equity Fund, $60,012 on
total transaction of $24,513,204 for the Small Cap Equity Fund, and $68,366 on
total transactions of $20,742,290 for the International Equity Fund. The Fixed
Income Fund did not pay brokerage commissions during this period. Substantially
all of the commissions paid by the Funds were paid on transactions which were
directed to brokers providing research services.
The Adviser may have other clients for which it is making investment
and order placement decisions similar to the Funds. When making simultaneous
purchases or sales for the Funds and another client, if any, the Adviser's
decisions could have a detrimental effect on the price or volume of the
securities purchased or sold for the Funds. In other cases, simultaneous
purchases or sales of securities for the Funds and other clients could provide
the Funds with the ability to participate in volume transactions that may cost
less per share or unit traded than smaller transactions.
TAXES
General
The Funds intend to qualify annually for and elect tax treatment
applicable to a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). The discussion that follows is
not intended to be a full discussion of present or proposed federal income tax
laws and the effect of such laws on an investor.
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<PAGE>
Investors are urged to consult with their tax advisers for a complete review of
the tax ramifications of an investment in the Funds.
If a Fund fails to qualify as a regulated investment company under
Subchapter M in any fiscal year, it will be treated as a corporation for federal
income tax purposes. As such that Fund would be required to pay income taxes on
its net investment income and net realized capital gains, if any, at the rates
generally applicable to corporations. Shareholders in a Fund that did not
qualify as a regulated investment company under Subchapter M would not be liable
for income tax on that Fund's net investment income or net realized gains in
heir individual capacities. Distributions to shareholders, whether from that
Fund's net investment income or net realized capital gains, would be treated as
taxable dividends to the extent of current or accumulated earnings and profits
of that Fund.
Dividends from a Fund's net investment income, including short-term
capital gains, are taxable to shareholders as ordinary income, while
distributions of net capital gain are taxable as long-term capital gain
regardless of the shareholder's holding period for the shares. Such dividends
and distributions are taxable to shareholders whether received in cash or in
additional shares. The 70% dividends-received deduction for corporations will
apply to dividends from a Fund's net investment income, subject to proportionate
reductions if the aggregate dividends received by the Fund from domestic
corporations in any year are less than 100% of the distribution of net
investment company income taxable made by the Fund.
Any dividend or capital gain distribution paid shortly after a
purchase of shares of a Fund, will have the effect of reducing the per share net
asset value of such shares by the amount of the dividend or distribution.
Furthermore, if the net asset value of the shares of a Fund immediately after a
dividend or distribution is less than the cost of such shares to the
shareholder, the dividend or distribution will be taxable to the shareholder
even though it results in a return of capital to him.
Redemption of shares will generally result in a capital gain or loss
for income tax purposes. Such capital gain or loss will be long term or short
term, depending upon the shareholder's holding period for the shares. However,
if a loss is realized on shares held for six months or less, and the investor
received a capital gain distribution during that period, then such loss is
treated as a long-term capital loss to the extent of the capital gain
distribution received.
Rule 17a-7 Transactions
The Funds have adopted procedures pursuant to Rule 17a-7 under the Act
pursuant to which each of the Funds may effect a purchase and sale transaction
with an affiliated person of the Funds (or an affiliated person of such an
affiliated person) in which a Fund issues its shares in exchange for securities
which are permitted investments for the Funds. For purposes of determining the
number of shares to be issued, the securities to be exchanged will be valued in
accordance with Rule 17a-7. Certain of the transactions may be tax-free with the
result that the Funds acquire unrealized appreciation. Most Rule 17a-7
transactions will not be tax-free.
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<PAGE>
Taxation of Hedging Instruments
If a call option written by a Fund expires, the amount of the premium
received by the Fund for the option will be short-term capital gain. If a Fund
enters into a closing transaction with respect to the option, any gain or loss
realized by a Fund as a result of the transaction will be short-term capital
gain or loss. If the holder of a call option exercises the holder's right under
the option, any gain or loss realized by the Fund upon the sale of the
underlying security or futures contract pursuant to such exercise will be
short-term or long-term capital gain or loss to the Fund depending on the Fund's
holding period for the underlying security or futures contract.
With respect to call options purchased by a Fund, the Fund will
realize short-term or long-term capital gain or loss if such option is sold and
will realize short-term or long-term capital loss if the option is allowed to
expire depending on the Fund's holding period for the call option. If such a
call option is exercised, the amount paid by a Fund for the option will be added
to the basis of the stock or futures contract so acquired.
A Fund may purchase or write options on stock indexes. Options on
"broadbased" stock indexes are generally classified as "nonequity options" under
the Code. Gains and losses resulting from the expiration, exercise or closing of
such nonequity options and on futures contracts will be treated as long-term
capital gain or loss to the extent of 60% thereof and short-term capital gain or
loss to the extent of 40% thereof (hereinafter "blended gain or loss") for
determining the character of distributions. In addition, nonequity options and
futures contracts held by a Fund on the last day of a fiscal year will be
treated as sold for market value ("marked to market") on that date, and gain or
loss recognized as a result of such deemed sale will be blended gain or loss.
The realized gain or loss on the ultimate disposition of the option will be
increased or decreased to take into consideration the prior marked to market
gains and losses.
The trading strategies of a Fund involving nonequity options on stock
indexes may constitute "straddle" transactions. "Straddles" may affect the
short-term or long-term holding period of such instruments for distributions
characterization.
A Fund may acquire put options. Under the Code, put options on stocks
are taxed similar to short sales. If a Fund owns the underlying stock or
acquires the underlying stock before closing the option position, the Straddle
Rules may apply and the option positions may be subject to certain modified
short sale rules. If a Fund exercises or allows a put option to expire, the Fund
will be considered to have closed a short sale. A Fund will generally have a
short-term gain or loss on the closing of an option position. The determination
of the length of the holding period is dependent on the holding period of the
stock used to exercise that put option. If a Fund sells the put option without
exercising it, its holding period will be the holding period of the option.
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<PAGE>
Foreign Taxes
Each of the Funds may be subject to foreign withholding taxes on
income and gains derived from its investments outside the U.S. Such taxes would
reduce the return on a Fund's investments. Tax treaties between certain
countries and the U.S. may reduce or eliminate such taxes. If more than 50% of
the value of a Fund's total assets at the close of any taxable year consist of
stocks or securities of foreign corporations, the Fund may elect, for U.S.
federal income tax purposes, to treat any foreign country income or withholding
taxes paid by the Fund that can be treated as income taxes under U.S. income tax
principles, as paid by its shareholders. For any year that a Fund makes such an
election, each of its shareholders will be required to include in his income (in
addition to taxable dividends actually received) his allocable share of such
taxes paid by the Fund and will be entitled, subject to certain limitations, to
credit his portion of these foreign taxes against his U.S. federal income tax
due, if any, or to deduct it (as an itemized deduction) from his U.S. taxable
income, if any. Generally, credit for foreign taxes is subject to the limitation
that it may not exceed the shareholder's U.S. tax attributable to his foreign
source taxable income.
If the pass through election described above is made, the source of a
Fund's income flows through to its shareholders. Certain gains from the sale of
securities and currency fluctuations will not be treated as foreign source
taxable income. In addition, this foreign tax credit limitation must be applied
separately to certain categories of foreign source income, one of which is
foreign source "passive income." For this purpose, foreign "passive income"
includes dividends, interest, capital gains and certain foreign currency gains.
As a consequence, certain shareholders may not be able to claim a foreign tax
credit for the full amount of their proportionate share of the foreign tax paid
by the Fund.
The foreign tax credit can be used to offset only 90% of the
alternative minimum tax (as computed under the Code for purposes of this
limitation) imposed on corporations and individuals. If a Fund does not make the
pass through election described above, the foreign taxes it pays will reduce its
income and distributions by the Fund will be treated as U.S. source income.
Each shareholder will be notified within 60 days after the close of
each Fund's taxable year whether, pursuant to the election described above, the
foreign taxes paid by the Fund will be treated as paid by its shareholders for
that year and, if so, such notification will designate: (i) such shareholder's
portion of the foreign taxes paid; and (ii) the portion of the Fund's dividends
and distributions that represent income derived from foreign sources.
SHAREHOLDER MEETINGS
The Maryland Business Corporation Law permits registered investment
companies, such as the Corporation, to operate without an annual meeting of
stockholders under specified circumstances if an annual meeting is not required
by the Act. The Corporation has adopted the appropriate provisions in its bylaws
and may, at its discretion, not hold an annual meeting in any year in which the
election of directors is not required to be acted upon by the shareholders under
the Act.
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<PAGE>
The Corporation's bylaws also contain procedures for the removal of
directors by its shareholders. At any meeting of shareholders, duly called and
at which a quorum is present, the shareholders may, by the affirmative vote of
the holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office and may elect a successor or successors to
fill any resulting vacancies for the unexpired terms of removed directors.
Upon the written request of the holders of shares entitled to not less
than ten percent (10%) of all the votes entitled to be cast at such meeting, the
Secretary of the Corporation shall promptly call a special meeting of
shareholders for the purpose of voting upon the question of removal of any
director. Whenever ten or more shareholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate either shares having a net asset value of at least $25,000 or at least
one percent (1%) of the total outstanding shares, whichever is less, shall apply
to the Corporation's Secretary in writing, stating that they wish to communicate
with other shareholders with a view to obtaining signatures to a request for a
meeting as described above and accompanied by a form of communication and
request which they wish to transmit, the Secretary shall within five business
days after such application either: (1) afford to such applicants access to a
list of the names and addresses of all shareholders as recorded on the books of
the Corporation; or (2) inform such applicants as to the approximate number of
shareholders of record and the approximate cost of mailing to them the proposed
communication and form of request.
If the Secretary elects to follow the course specified in clause (2)
of the last sentence of the preceding paragraph, the Secretary, upon the written
request of such applicants, accompanied by a tender of the material to be mailed
and of the reasonable expenses of mailing, shall, with reasonable promptness,
mail such material to all shareholders of record at their addresses as recorded
on the books unless within five business days after such tender the Secretary
shall mail to such applicants and file with the Securities and Exchange
Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Board of Directors to the effect
that in their opinion either such material contains untrue statements of fact or
omits to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion.
After opportunity for hearing upon the objections specified in the
written statement so filed, the Securities and Exchange Commission may, and if
demanded by the Board of Directors or by such applicants shall, enter an order
either sustaining one or more of such objections or refusing to sustain any of
them. If the Securities and Exchange Commission shall enter an order refusing to
sustain any of such objections, or if, after the entry of an order sustaining
one or more of such objections, the Securities and Exchange Commission shall
find, after notice and opportunity for hearing, that all objections so sustained
have been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all stockholders with reasonable promptness after the
entry of such order and the renewal of such tender.
37
<PAGE>
CAPITAL STRUCTURE
The Company's Articles of Incorporation permit the Board of Directors
to issue 1,000,000,000 shares of common stock. The Board of Directors has the
power to designate one or more classes ("series") of shares of common stock and
to designate or redesignate any unissued shares with respect to such series.
Each series is a separate Fund. Shareholders are entitled: (1) to one vote per
full share; (2) to such distributions as may be declared by the Company's Board
of Directors out of funds legally available; and (3) upon liquidation, to
participate ratably in the assets available for distribution. There are no
conversion or sinking fund provisions applicable to the shares, and the holders
have no preemptive rights and may not cumulate their votes in the election of
directors. Consequently the holders of more than 50% of the shares of the
Company voting for the election of directors can elect the entire Board of
Directors and in such event the holders of the remaining shares voting for the
election of directors will not be able to elect any person or persons to the
Board of Directors. The shares are redeemable and are transferable. All shares
issued and sold by the Fund will be fully paid and nonassessable. Fractional
shares entitle the holder to the same rights as whole shares.
As a general matter, shares are voted in the aggregate and not by
class, except where class voting would be required by Maryland law or the Act
(e.g., a change in investment policy or approval of an investment advisory
agreement). All consideration received from the sale of shares of any Fund,
together with all income, earnings, profits and proceeds thereof, belong to that
Fund and are charged with the liabilities directly attributable to that Fund.
Expenses that are not directly attributable to a Fund are typically allocated
among the Funds in proportion to their respective net assets. The net asset
value of a share of any Fund is based on the assets belonging to that Fund less
the liabilities charged to that Fund, and dividends may be paid on shares of any
Fund only out of lawfully available assets belonging to that Fund. In the event
of liquidation or dissolution of the Funds, the holders of each Fund would be
entitled, out of the assets of the Funds available for distribution, to the
assets belonging to that Fund.
DESCRIPTION OF SECURITIES RATINGS
Set forth below is a description of ratings used by three major
nationally recognized statistical ratings organizations ("NRSROs") Standard &
Poor's Corporation ("Standard & Poor's"), Moody's Investors Service, Inc.
("Moody's") and Duff & Phelps Credit Rating Co. ("Duff & Phelps"). NRSROs base
their ratings on current information furnished by the issuer or obtained from
other sources they consider reliable. NRSROs may change, suspend or withdraw
their ratings due to changes in, unavailability of, such information or for
other reasons.
Commercial Paper Ratings
A Standard and Poor's commercial paper rating is a current assessment
of the likelihood of timely payment of debt having an original maturity of no
more than 365 days.
38
<PAGE>
The following summarizes the rating categories used by Standard & Poor's for
commercial paper in which the Funds may invest:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determines to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."
Moody's commercial paper ratings are opinions of the ability of issues
to repay punctually promissory obligations not having an original maturity in
excess of nine months. The following summarizes the rating categories used by
Moody's for commercial paper in which the Funds may invest:
"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
capacities: leading market positions in well-established industries; high rates
of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
Corporate Long-Term Debt Ratings
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees. The debt rating is not a recommendation to
purchase, sell, or hold a security, inasmuch as it does not comment as to market
price or suitability for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
Irating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
39
<PAGE>
1. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment
of principal in accordance with the terms of the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other
laws affecting creditors' rights.
Investment Grade
AAA - Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest an repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated "BBB" is regard as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Speculative Grade
Debt rated "BB," "B," "CCC," "CC" and "C" is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristic, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
"BB" - Debt rated "BB" has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-"rating.
"B" - Debt rated "B" has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay
40
<PAGE>
principal. The "B" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BB" or "BB-"rating.
"CCC" - Debt rated "CCC" has a current identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest an repay principal. The "CCC" rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied "B" or "B-" rating.
"CC" - Debt rated "CC" typically is applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating.
"C" - Debt rated "C" typically is applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - The rating "CI" is reserved for income bonds on which no
interest is being paid.
"D" - Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such period. The "D" rating also
will be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
Moody's Long-Term Debt Ratings
"Aaa" - Bonds which are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"Aa" - Bonds which are rated "Aa" are judged to be of high quality by
all standards. Together with the "Aaa" group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or fluctuation
or protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger than in
"Aaa" securities.
"A" - Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
41
<PAGE>
"Baa" - Bonds which are rated "Baa" are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
"Ba" - Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
"B" - Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
"Caa" - Bonds which are rated "Caa" are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
"Ca" - Bonds which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
"C" - Bonds which are rated "C" are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Duff & Phelps Rating Scale Definitions
"AAA" - Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
"AA+", "AA", "AA-" - High credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A+", "A", "A-" - Protection factors are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB+", "BBB", "BBB-" - Below average protection factors but still
considered sufficient for prudent investment. Considerable variability in risk
during economic cycles.
"BB+", "BB", "BB-" - Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category.
"B+", "B", "B-" - Below investment grade and possessing risk that
obligation might not be met when due. Financial protection factors will
fluctuate widely according to
42
<PAGE>
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.
"CCC" - Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions and/or unfavorable company
developments.
"DD" - Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin
53201-1215 serves as the independent accountants for the Corporation. As such
Arthur Andersen LLP performs an audit of each Fund's financial statement and
considers each Fund's internal control structure.
<PAGE>
PART C
OTHER INFORMATION
Item 23 Exhibits
(a) Registrant's Articles of Incorporation, as amended(2)
(b) Registrant's Bylaws(2)
(c) None
(d)(1) Investment Advisory Agreement with Johnson Asset Management, Inc.
for JohnsonFamily Intermediate Fixed Income Fund(2)
(d)(2) Investment Advisory Agreement with Johnson Asset Management, Inc.
for JohnsonFamily Large Cap Equity Fund(2)
(d)(3) Investment Advisory Agreement with Johnson Asset Management, Inc.
for JohnsonFamily Small Cap Equity Fund(2)
(d)(4) Investment Advisory Agreement with Johnson Asset Management, Inc.
for JohnsonFamily International Equity Fund(2)
(e) Distribution Agreement with Sunstone Distribution Services, LLC(1)
(f) None
(g) Custody Agreement with Investors Fiduciary Trust Company(2)
(h)(1) Administration and Fund Accounting Agreement with Sunstone
Financial Group, Inc.(1)
(h)(2) Transfer Agency Agreement with Sunstone Investor Services, LLC
(predecessor to Sunstone
Financial Group, Inc.)(1)
(i) Opinion of Foley & Lardner, counsel for Registrant
(j) Consent of Arthur Andersen LLP
(k) None
(l) Subscription Agreement(2)
(m)(1) Service and Distribution Plan(1)
(m)(2) Form of Dealer Agreement(2)
S-1
<PAGE>
(n) Financial Data Schedule
(o) None
- ---------------
(1) Previously filed as an exhibit to the Registration Statement and
incorporated by reference thereto. The Registration Statement was filed
on January 30, 1998 and its accession number is 0000897069-98-000025.
(2) Previously filed as an exhibit to Pre-Effective Amendment No. 1 to the
Registration Statement and incorporated by reference thereto.
Pre-effective Amendment No. 1 was filed on March 26, 1998 and its
accession number is 0000897069-98-000165.
Item 24 Persons Controlled by or under Common Control with Registrant
Registrant is controlled by Johnson Trust Company. Johnson Trust
Company is controlled by Johnson International, Inc. which in turn is controlled
by Samuel C. Johnson by virtue of his status as trustee of the Johnson
International Inc. Voting Trust which holds 55% of the outstanding shares of
Johnson International, Inc. Johnson International, Inc. is a Wisconsin
corporation and a bank holding company. In addition to owning all or
substantially all of the outstanding stock of the Johnson Banks and Banque
Franck, S.A., Johnson International, Inc. owns all of the outstanding stock of
Johnson Asset Management, Inc., a Wisconsin corporation. Registrant does not
control any person.
Item 25 Indemnification
Pursuant to the authority of the Maryland General Corporation Law,
particularly Section 2-418 thereof, Registrant's Board of Directors has adopted
the following bylaw which is in full force and effect and has not been modified
or cancelled:
Article VII
GENERAL PROVISIONS
Section 7. Indemnification.
A. The corporation shall indemnify all of its corporate representatives
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by them in connection with the
defense of any action, suit or proceeding, or threat or claim of such action,
suit or proceeding, whether civil, criminal, administrative, or legislative, no
matter by whom brought, or in any appeal in which they or any of them are made
parties or a party by reason of being or having been a corporate representative,
if the corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation and
with respect to any criminal proceeding, if he had no reasonable cause to
believe his conduct was unlawful provided that the corporation shall not
indemnify corporate representatives in relation to
S-2
<PAGE>
matters as to which any such corporate representative shall be adjudged in such
action, suit or proceeding to be liable for gross negligence, willful
misfeasance, bad faith, reckless disregard of the duties and obligations
involved in the conduct of his office, or when indemnification is otherwise not
permitted by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly absolves the corporate
representative, or in the event of a settlement, each corporate representative
shall be indemnified hereunder only if there has been a reasonable determination
based on a review of the facts that indemnification of the corporate
representative is proper because he has met the applicable standard of conduct
set forth in paragraph A. Such determination shall be made: (i) by the board of
directors, by a majority vote of a quorum which consists of directors who were
not parties to the action, suit or proceeding, or if such a quorum cannot be
obtained, then by a majority vote of a committee of the board consisting solely
of two or more directors, not, at the time, parties to the action, suit or
proceeding and who were duly designated to act in the matter by the full board
in which the designated directors who are parties to the action, suit or
proceeding may participate; or (ii) by special legal counsel selected by the
board of directors or a committee of the board by vote as set forth in (i) of
this paragraph, or, if the requisite quorum of the full board cannot be obtained
therefor and the committee cannot be established, by a majority vote of the full
board in which directors who are parties to the action, suit or proceeding may
participate.
C. The termination of any action, suit or proceeding by judgment, order, or
settlement does not create a presumption that the person was guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties and
obligations involved in the conduct of his or her office. The termination of any
action, suit or proceeding by conviction, or upon a plea of nolo contendere or
its equivalent, or any entry of an order of probation prior to judgment, shall
create a rebuttable presumption that the person was guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties and
obligations involved in the conduct of his or her office, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the preparation of
and/or presentation of the defense of a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding as authorized in the manner provided in Section
2-418(F) of the Maryland General Corporation Law upon receipt of: (i) an
undertaking by or on behalf of the corporate representative to repay such amount
unless it shall ultimately be determined that he or she is entitled to be
indemnified by the corporation as authorized in this bylaw; and (ii) a written
affirmation by the corporate representative of the corporate representative's
good faith belief that the standard of conduct necessary for indemnification by
the corporation has been met.
E. The indemnification provided by this bylaw shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under these
bylaws, any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall
S-3
<PAGE>
inure to the benefit of the heirs, executors and administrators of such a person
subject to the limitations imposed from time to time by the Investment Company
Act of 1940, as amended.
F. This corporation shall have power to purchase and maintain insurance on
behalf of any corporate representative against any liability asserted against
him or her and incurred by him or her in such capacity or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under this bylaw provided that no
insurance may be purchased or maintained to protect any corporate representative
against liability for gross negligence, willful misfeasance, bad faith or
reckless disregard of the duties and obligations involved in the conduct of his
or her office.
G. "Corporate Representative" means an individual who is or was a director,
officer, agent or employee of the corporation or who serves or served another
corporation, partnership, joint venture, trust or other enterprise in one of
these capacities at the request of the corporation and who, by reason of his or
her position, is, was, or is threatened to be made, a party to a proceeding
described herein.
Insofar as indemnification for and with respect to liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 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 or
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, 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 of whether such indemnification is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 26 Business and Other Connections of Investment Adviser
Incorporated by reference to pages 22 through 24 of the Statement of
Additional Information pursuant to Rule 411 under the Securities Act of 1933.
Item 27 Principal Underwriters
(a) Sunstone Distribution Services, LLC, the Registrant, currently is
principal underwriter of the shares of The Northern Funds, The Haven Capital
Management Trust, The Green Century Funds, First Omaha Funds and The Marsico
Investment Fund.
(b) To the best of Registrant's knowledge, the directors and officers
of Sunstone Distribution Services, LLC are as follows:
S-4
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Position and Offices with Positions and Offices
Business Address Sunstone Investors Services, LLC with Registrant
- ------------------ -------------------------------- ---------------------
<S> <C> <C>
Miriam M. Allison President and Member None
207 East Buffalo Street
Suite 400
Milwaukee, WI 53202
Daniel S. Allison Secretary and Member None
207 East Buffalo Street
Suite 400
Milwaukee, WI 53202
Mary M. Tenwinkel Vice President None
207 East Buffalo Street
Suite 400
Milwaukee, WI 53202
</TABLE>
C. None
Item 28. Location of Accounts and Records
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the physical possession of Registrant,
at Registrant's corporate offices, except (1) records held and maintained by
Investors Fiduciary Trust Company relating to its functions as custodian, (2)
records held and maintained by Sunstone Financial Group, Inc., 207 East Buffalo
Street, Suite 400, Milwaukee, Wisconsin 53202 relating to its functions as
administrator, fund accountant and transfer agent, and (3) records held and
maintained by Sunstone Distribution Services, LLC, 207 East Buffalo Street,
Suite 400, Milwaukee, Wisconsin 53202, relating to its role as distributor.
Item 29. Management Services
All management-related service contracts entered into by Registrant
are discussed in Parts A and B of this Registration Statement.
Item 30. Undertakings
Registrant undertakes to furnish each person to whom a prospectus is
delivered a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
S-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Fund has duly caused this Amended
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Racine and State of Wisconsin on the 18th day of
December, 1998.
JohnsonFamily Funds, Inc.
(Registrant)
By: /s/ Joan A. Burke
Joan A. Burke, President
Pursuant to the requirements of the Securities Act of 1933, this
Amended Registration Statement has been signed below by the following persons in
the capacities and on the date(s) indicated.
Name Title Date
/s/ Joan A. Burke President (Principal Executive, December 18, 1998
- -----------------------
Joan A. Burke Financial and Accounting Officer)
/s/ JoAnne Brandes Director December 18, 1998
JoAnne Brandes
/s/ Richard Bibler Director December 18, 1998
Richard Bibler
/s/ F. Gregory Campbell Director December 18, 1998
- -----------------------
F. Gregory Campbell
/s/ Gerald Konz Director December 18, 1998
Gerald Konz
/s/ George Nelson Director December 18, 1998
George Nelson
/s/ Wendell Perkins Director December 18, 1998
Wendell Perkins
S-6
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
----------- ------- --------
(a) Registrant's Articles of Incorporation, as amended*
(b) Registrant's Bylaws*
(c) None
(d)(1) Investment Advisory Agreement - JohnsonFamily Intermediate
Fixed Income Fund*
(d)(2) Investment Advisory Agreement - JohnsonFamily Large Cap
Equity Fund*
(d)(3) Investment Advisory Agreement - JohnsonFamily Small Cap
Equity Fund*
(d)(4) Investment Advisory Agreement - JohnsonFamily International
Equity Fund*
(e) Distribution Agreement*
(f) None
(g) Custody Agreement*
(h)(1) Administration and Fund Accounting Agreement*
(h)(2) Transfer Agency Agreement*
(i) Opinion of Foley & Lardner, counsel for Registrant
(j) Consent of Arthur Andersen LLP
(k) None
(l) Subscription Agreement*
(m)(1) Service and Distribution Plan*
(m)(2) Form of Dealer Agreement*
(n) Financial Data Schedule
(o) None
- --------
* Incorporated by reference
FOLEY & LARDNER
Exhibit 10
CHICAGO FIRSTAR CENTER SACRAMENTO
DENVER 777 EAST WISCONSIN AVENUE SAN DIEGO
JACKSONVILLE MILWAUKEE, WISCONSIN 53202-5367 SAN FRANCISCO
LOS ANGELES TELEPHONE (414) 271-2400 TALLAHASSEE
MADISON FACSIMILE (414) 297-4900 TAMPA
MILWAUKEE WASHINGTON, D.C.
ORLANDO WEST PALM BEACH
December 30, 1998
JohnsonFamily Funds, Inc.
4041 North Main Street
Racine, WI 53402
Ladies & Gentlemen:
We have acted as counsel for you in connection with the
preparation of an Amended Registration Statement on Form N-1A relating to the
sale by you of an indefinite amount of JohnsonFamily Funds, Inc. Common Stock
(such Common Stock being hereinafter referred to as the "Stock") in the manner
set forth in the Amended Registration Statement to which reference is made. In
this connection we have examined: (a) the Amended Registration Statement on Form
N-1A; (b) your Articles of Incorporation and Bylaws, as amended to date; (c)
corporate proceedings relative to the authorization for issuance of the Stock;
and (d) such other proceedings, documents and records as we have deemed
necessary to enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the
shares of Stock when sold as contemplated in the Amended Registration Statement
will be legally issued, fully paid and nonassessable
We hereby consent to the use of this opinion as an exhibit to
the Amended Registration Statement on Form N-1A. In giving this consent, we do
not admit that we are experts within the meaning of Section 11 of the Securities
Act of 1933, as amended, or within the category of persons whose consent is
required by Section 7 of said Act.
Very truly yours,
/S/Foley & Lardner
Foley & Lardner
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our name and
to all references to us in connection with this Form N-1A Registration Statement
for JohnsonFamily Funds.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
December 28, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF JOHNSON FAMILYFUNDS, INC. AS OF AND FOR THE EIGHT
MONTHS ENDING OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001053555
<NAME> JOHNSONFAMILY FUNDS INC.
<SERIES>
<NUMBER> 1
<NAME> INTERMDIATE FIZED INCOME FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> MAR-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 65,775,367
<INVESTMENTS-AT-VALUE> 67,515,218
<RECEIVABLES> 888,889
<ASSETS-OTHER> 29,553
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 68,433,660
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 384,022
<TOTAL-LIABILITIES> 384,022
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,249,502
<SHARES-COMMON-STOCK> 6,625,127
<SHARES-COMMON-PRIOR> 5,000
<ACCUMULATED-NII-CURRENT> 21,661
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 38,624
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,739,851
<NET-ASSETS> 68,049,638
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,373,438
<OTHER-INCOME> 0
<EXPENSES-NET> (327,182)
<NET-INVESTMENT-INCOME> 2,046,256
<REALIZED-GAINS-CURRENT> 38,624
<APPREC-INCREASE-CURRENT> 1,640,755
<NET-CHANGE-FROM-OPS> 3,725,635
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,027,129)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,974,258
<NUMBER-OF-SHARES-REDEEMED> (446,218)
<SHARES-REINVESTED> 92,087
<NET-CHANGE-IN-ASSETS> 67,999,638
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 173,214
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 428,072
<AVERAGE-NET-ASSETS> 65,646,008
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .31
<PER-SHARE-GAIN-APPREC> .27
<PER-SHARE-DIVIDEND> (.31)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.27
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF JOHNSON FAMILYFUNDS, INC. AS OF AND FOR THE EIGHT
MONTHS ENDING OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001053555
<NAME> JOHNSONFAMILY FUNDS INC.
<SERIES>
<NUMBER> 2
<NAME> LARGE CAP EQUITY FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> MAR-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 36,882,423
<INVESTMENTS-AT-VALUE> 40,837,709
<RECEIVABLES> 958,404
<ASSETS-OTHER> 28,743
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,824,856
<PAYABLE-FOR-SECURITIES> 816,098
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 75,770
<TOTAL-LIABILITIES> 891,868
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,649,853
<SHARES-COMMON-STOCK> 4,266,457
<SHARES-COMMON-PRIOR> 4,800
<ACCUMULATED-NII-CURRENT> 32,397
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 295,452
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,955,286
<NET-ASSETS> 40,932,988
<DIVIDEND-INCOME> 416,609
<INTEREST-INCOME> 47,383
<OTHER-INCOME> 0
<EXPENSES-NET> (336,577)
<NET-INVESTMENT-INCOME> 127,415
<REALIZED-GAINS-CURRENT> 295,452
<APPREC-INCREASE-CURRENT> (2,106,481)
<NET-CHANGE-FROM-OPS> (1,683,614)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (97,237)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,531,893
<NUMBER-OF-SHARES-REDEEMED> (275,602)
<SHARES-REINVESTED> 5,366
<NET-CHANGE-IN-ASSETS> 40,844,988
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 174,092
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 336,970
<AVERAGE-NET-ASSETS> 39,593,898
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> (.42)
<PER-SHARE-DIVIDEND> (.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.59
<EXPENSE-RATIO> 1.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF JOHNSON FAMILYFUNDS, INC. AS OF AND FOR THE EIGHT
MONTHS ENDING OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001053555
<NAME> JOHNSONFAMILY FUNDS INC.
<SERIES>
<NUMBER> 3
<NAME> SMALL CAP EQUITY FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> MAR-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 26,607,593
<INVESTMENTS-AT-VALUE> 22,825,010
<RECEIVABLES> 18,737
<ASSETS-OTHER> 28,156
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,871,903
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40,568
<TOTAL-LIABILITIES> 40,568
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,963,160
<SHARES-COMMON-STOCK> 2,778,564
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 6,353
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (355,595)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,782,583)
<NET-ASSETS> 22,831,335
<DIVIDEND-INCOME> 148,118
<INTEREST-INCOME> 43,613
<OTHER-INCOME> 0
<EXPENSES-NET> (187,366)
<NET-INVESTMENT-INCOME> 4,365
<REALIZED-GAINS-CURRENT> (355,595)
<APPREC-INCREASE-CURRENT> (3,782,583)
<NET-CHANGE-FROM-OPS> (4,133,813)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,966,300
<NUMBER-OF-SHARES-REDEEMED> (187,836)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 22,830,335
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 93,683
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 197,642
<AVERAGE-NET-ASSETS> 21,407,147
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (1.78)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.22
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF JOHNSON FAMILYFUNDS, INC. AS OF AND FOR THE EIGHT
MONTHS ENDING OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001053555
<NAME> JOHNSONFAMILY FUNDS INC.
<SERIES>
<NUMBER> 4
<NAME> SMALL CAP EQUITY FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> MAR-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 22,279,539
<INVESTMENTS-AT-VALUE> 19,819,957
<RECEIVABLES> 66,432
<ASSETS-OTHER> 28,259
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,914,648
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56,679
<TOTAL-LIABILITIES> 56,679
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,123,791
<SHARES-COMMON-STOCK> 2,214,951
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 191,380
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,640
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,458,842)
<NET-ASSETS> 19,857,969
<DIVIDEND-INCOME> 328,393
<INTEREST-INCOME> 106,449
<OTHER-INCOME> 0
<EXPENSES-NET> (271,686)
<NET-INVESTMENT-INCOME> 217,156
<REALIZED-GAINS-CURRENT> (26,019)
<APPREC-INCREASE-CURRENT> (2,458,842)
<NET-CHANGE-FROM-OPS> (2,267,705)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,409,981
<NUMBER-OF-SHARES-REDEEMED> (195,130)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 19,856,969
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 105,901
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 230,849
<AVERAGE-NET-ASSETS> 20,072,118
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> (1.12)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.97
<EXPENSE-RATIO> 1.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>