(LOGO)
JOHNSON FAMILY
FUNDS
PROSPECTUS MARCH 27, 1998
TABLE OF CONTENTS
Prospectus Summary 2
JohnsonFamily Intermediate Fixed Income Fund 3
JohnsonFamily Large Cap Equity Fund 5
JohnsonFamily Small Cap Equity Fund 8
JohnsonFamily International Equity Fund 10
Additional Investment Factors
and Risks Regarding the Funds 13
Risks of Investing in Foreign Securities 17
Investment Restrictions 19
Management of the Company 19
Administration 21
Transfer and Dividend Disbursing Agent,
Custodian and Independent Accountants 21
Buying Shares of the Funds 22
Selling (Redeeming)
Shares of the Funds 24
Exchange Privilege 24
Net Asset Value (NAV) 25
Dividends, Distributions and Taxes 25
Distribution Fees 26
Yield and Performance Information 27
Organization and Description of Shares 28
Asset Allocation (Diversification) 28
Questions 28
Glossary of Important Terms 29
JOHNSONFAMILY FUNDS PROSPECTUS March 27, 1998
JOHNSONFAMILY FUNDS (the "Company") is an open-end, diversified management
investment company consisting of four separate mutual fund portfolios, each with
a specific investment objective (individually a "Fund" and collectively, the
"Funds"). The Funds offer distinct investment opportunities designed to meet
the needs of investors. The Funds are as follows:
EQUITY-ORIENTED
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Each of these Funds seeks long-term capital
appreciation by investing primarily in:
JOHNSONFAMILY LARGE CAP EQUITY FUND
Large company stocks
JOHNSONFAMILY SMALL CAP EQUITY FUND
Small company stocks
JOHNSONFAMILY INTERNATIONAL EQUITY FUND
Foreign securities
INCOME-ORIENTED
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This Fund seeks current income consistent
with preservation of capital by investing
primarily in:
JOHNSONFAMILY INTERMEDIATE FIXED INCOME FUND
Fixed income securities including corporate
debt, U.S. government obligations and
mortgage-related securities
This Prospectus sets forth concisely the information about the Funds that
prospective investors should know before investing. Investors are advised to
read this Prospectus carefully and keep it for future reference. More detailed
information about the Funds, including investment policies, techniques,
restrictions and the risks associated with them, can be found in the Statement
of Additional Information ("SAI") as supplemented from time to time dated March
27, 1998. The SAI has been filed with the Securities and Exchange Commission
("SEC") and is incorporated in this Prospectus by reference (which means that it
is legally considered part of this Prospectus even though it is not printed
here). A copy of the SAI may be obtained, without charge, by writing the
Company at Caller No. 2012, Racine, Wisconsin 53401-9988. The SEC maintains a
Website (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference and other information regarding
registrants that file electronically with the SEC.
LIKE ALL MUTUAL FUND SHARES, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS AND ARE NEITHER ENDORSED BY, INSURED
BY, GUARANTEED BY, OBLIGATIONS OF, NOR OTHERWISE SUPPORTED BY THE FDIC, THE
FEDERAL RESERVE BOARD, JOHNSON ASSET MANAGEMENT, INC., JOHNSON INTERNATIONAL,
INC., ITS AFFILIATES OR ANY OTHER BANK, OR OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN EACH OF THE FUNDS INVOLVES INVESTMENT RISKS INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
PROSPECTUS SUMMARY
ORGANIZATION OF JOHNSONFAMILY FUNDS
JohnsonFamily Funds (the "Company") was incorporated under the laws of Maryland
on January 27, 1998 and is an open-end, diversified management investment
company registered under the Investment Company Act of 1940 (the "Act"). The
Company presently consists of four separate investment portfolios:
JohnsonFamily Intermediate Fixed Income Fund, JohnsonFamily Large Cap Equity
Fund, JohnsonFamily Small Cap Equity Fund and JohnsonFamily International Equity
Fund.
Johnson Asset Management, Inc. ("JAM") is the investment adviser ("Adviser") for
each of the Funds. As the Adviser, JAM makes the investment decisions for the
Funds. As of December 31, 1997, JAM managed approximately $650,000,000 in
assets. The Funds are distributed by Sunstone Distribution Services, LLC (the
"Distributor").
THE FUNDS
This Prospectus provides information on: the investment objectives, policies
and risks of investing in the Funds, how to buy and sell shares, management and
services provided to the Funds and other information. To assist investors in
reading this Prospectus, there is a glossary defining important terms at the end
of the Prospectus.
The Company's capital stock consists of a single class of common stock, which is
divisible into an unlimited number of "series." Each Fund represents a separate
series of common stock. Investors pay a sales charge immediately when any
shares of common stock are purchased (front-end sales charge). In addition,
there are "12b-1 fees" for each series. The 12b-1 fees are ongoing asset-based
fees that the Funds charge pursuant to a plan to cover the costs of certain
activities related to the distribution and service of the Funds' shares.
The series of shares an investor should purchase depends on the investor's
investment objectives.
INVESTMENT PRIMARY PRIMARY
OBJECTIVE INVESTMENTS RISKS
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JohnsonFamily Current Income Investment-Grade Interest Rate
Intermediate Fixed Consistent With Fixed Income and Credit
Income Fund Capital Preservation Securities
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JohnsonFamily Large Long-Term Capital Large Company Financial
Cap Equity Fund Appreciation Stocks and Market
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JohnsonFamily Small Long-Term Capital Small Company Financial
Cap Equity Fund Appreciation Stocks and Market
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JohnsonFamily Long-Term Capital Foreign Stocks Financial,
International Appreciation Market and
Equity Fund Foreign
Investment
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JOHNSONFAMILY INTERMEDIATE FIXED INCOME FUND
INVESTMENT OBJECTIVE
The Intermediate Fixed Income Fund seeks current income consistent with capital
preservation by investing primarily in a diversified portfolio of investment-
grade fixed income securities including corporate debt, U.S. government
obligations and mortgage-related securities. In addition to producing current
income, investing in fixed income securities can provide an opportunity for
capital appreciation during periods of declining interest rates, when the market
value of such securities can be expected to increase.
INVESTMENT POLICIES
Under normal market conditions, the Intermediate Fixed Income Fund will invest
at least 65% of its total assets in fixed income securities with stated or
remaining maturities between three years and ten years. Such securities may
include, without limitation:
<F1> corporate debt securities, including notes, bonds and debentures of U.S.
and foreign issuers payable in U.S. dollars rated within the four highest
rating categories by a nationally recognized statistical rating
organization ("NRSRO") at the time of initial purchase;
<F2> securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities; and
<F3> mortgage-related securities, asset-backed securities and taxable municipal
bonds rated within the four highest ratings category by an NRSRO.
The Intermediate Fixed Income Fund may invest the remaining 35% of its assets in
high-quality money market instruments, including commercial paper, certificates
of deposit and bankers' acceptances, variable rate master demand notes;
government securities stripped of unmatured interest coupons; variable and
floating rate bonds; repurchase agreements; financial futures; and options on
debt securities.
The Intermediate Fixed Income Fund will not invest in debt securities if they
are not rated within the four highest rating categories at the time of purchase
by an NRSRO or, if unrated, found by the Adviser to be of comparable quality.
Generally at least 75% of the Intermediate Fixed Income Fund's total assets will
be invested in securities rated A or better by an NRSRO. The Intermediate Fixed
Income Fund expects to maintain a dollar-weighted average portfolio maturity of
three to seven years. The stated final maturity date of a security is used in
calculating average maturity, notwithstanding earlier call dates and possible
prepayments.
ANNUAL ADVISORY FEE
0.45% per annum of the daily net assets of the Intermediate Fixed Income Fund.
INVESTMENT FACTORS AND RISKS INVOLVED
Interest Rate Risk
Changes in interest rate levels affect the value of the securities in the
portfolio and the value of the Intermediate Fixed Income Fund as a whole.
See "Additional Investment Factors and Risks Regarding the Funds."
Credit Risk
The creditworthiness of issuers will affect the value of their securities, which
may decline while held by the Intermediate Fixed Income Fund and affect the
value of the Intermediate Fixed Income Fund as a whole.
EXPENSE SUMMARY AND EXAMPLE
The following expense summary and example should assist investors in
understanding the various recurring and non-recurring costs and expenses that an
investor in the Intermediate Fixed Income Fund may directly or indirectly incur.
Shareholder Transaction Expenses
Shareholder transaction expenses are charges an investor pays when buying or
selling shares of the Intermediate Fixed Income Fund.
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Maximum sales charge imposed on purchases
(as a percentage of offering price) 2.75%
Maximum sales charge imposed on reinvested dividends
(as a percentage of net asset value) None
Maximum deferred sales charge (as a percentage of net asset value) None
Redemption fee None*
Exchange fee None*
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*An investor's broker may charge a fee for wire redemptions and/or exchanges.
Annual Fund Operating Expenses (as a percentage of average net assets)
The following table reflects estimated annual operating expenses to be paid by
the Intermediate Fixed Income Fund. The annual operating expenses include a
management fee paid to the Adviser, 12b-1 distribution and service fees and
other expenses for maintaining shareholder records and furnishing shareholder
services, statements and financial reports.
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Management fee 0.45%
12b-1 fees 0.25%<F1>
Other expenses (net of reimbursement) 0.15%<F2>
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Total Fund Operating Expenses (net of reimbursement) 0.85%<F2>
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<F1> The maximum level of distribution expenses is 0.25% per annum of the
Intermediate Fixed Income Fund's average net assets. See "Distribution
Fees." The distribution expenses for long-term shareholders may total more
than the maximum sales charge that would have been permissible if imposed
entirely as an initial sales charge.
<F2> The Adviser has agreed to waive its management fee and/or reimburse the
Intermediate Fixed Income Fund to limit the total operating expenses of the
Intermediate Fixed Income Fund (excluding interest, taxes, brokerage and
extraordinary expense) to an annual rate of 0.85% of the Intermediate Fixed
Income Fund's average net assets for the fiscal year ending October 31,
1998. After this date, the expense limitation may be terminated or revised
at any time. Absent the limitation, the Intermediate Fixed Income Fund
expects to incur Other Expenses (estimated) and Total Fund Operating
Expenses (estimated) of 0.44% and 1.14%, respectively, for the fiscal year
ending October 31, 1998.
Expense Example
The following expense example shows the cumulative expenses attributable to a
hypothetical $1,000 investment with a 5% annual return and redemption at the end
of each period.
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1 year $36
3 years $54
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THE EXPENSE EXAMPLE SHOULD BE USED FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE INTERMEDIATE FIXED INCOME FUND'S ACTUAL EXPENSES AND RETURNS,
EITHER PAST OR FUTURE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of the Intermediate
Fixed Income Fund.
Portfolio Manager
George A. Balistreri, CFA, Senior Vice President of the Adviser, is responsible
for the day-to-day management of the Intermediate Fixed Income Fund's portfolio.
Mr. Balistreri has managed fixed income portfolios for the Adviser since
February 1990.
JOHNSONFAMILY LARGE CAP EQUITY FUND
INVESTMENT OBJECTIVE
The Large Cap Equity Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of equity securities (such as common
stocks, preferred stocks, securities convertible or exchangeable for common
stocks and warrants or rights to purchase common stocks) of large capitalization
companies. The Adviser considers large capitalization companies to be those
with market capitalizations in excess of $2.0 billion at the time of initial
purchase. Although income is considered in the selection of securities, the
Large Cap Equity Fund is not designed for investors whose primary investment
objective is income.
INVESTMENT POLICIES
Under normal circumstances, the Large Cap Equity Fund intends to invest at least
65% of its total assets in equity securities of large capitalization companies.
The Large Cap Equity Fund intends to invest principally in securities of U.S.
issuers, although it may invest up to 25% of its total assets (valued at the
time of investment) in securities of non-U.S. issuers, including foreign
government obligations and foreign equity and debt securities that are traded
over-the-counter or on foreign exchanges. The Large Cap Equity Fund may also
invest in the types of securities discussed in "Additional Investment Factors
and Risks Regarding the Funds."
The Large Cap Equity Fund will invest in stocks of issuers that the Adviser
believes (1) are inexpensive relative to their industry sector; (2) are
exhibiting flat or increasing earnings estimate revisions; and (3) have evident
positive catalysts for change. Such catalysts include, but are not limited to,
the potential for stock repurchases, corporate restructurings and changes in
management. The Adviser also considers a company's potential as an acquisition
candidate.
ANNUAL ADVISORY FEE
0.75% per annum of the daily net assets of the Large Cap Equity Fund.
INVESTMENT FACTORS AND RISKS INVOLVED
Financial Risk
Although stocks of larger, established companies present less risk of losing
value than stocks of smaller, less established companies, the Large Cap Equity
Fund's investment practice of investing in attractively priced stocks will
frequently result in investing in stocks which currently are out-of-favor with
investors. Such stocks present the risk that improving fundamentals may not be
recognized as fast as would be the case with other stocks and that the market
for out-of-favor stocks may be more volatile than other stocks.
Market Risk
Over time, the stock market tends to move in cycles, with periods when stock
prices rise generally and periods when stock prices decline generally. There
also are periods when the prices of large cap stocks rise generally and the
prices of small cap stocks decline generally and periods when the opposite
occurs. Due to the tendency for large cap stocks to have more liquidity in the
market than smaller company stocks, the value of the Large Cap Equity Fund's
investments might increase and decrease less than the stock market in general,
as measured by the S&P 500(R). Nevertheless, an investor could lose money
investing in the Large Cap Equity Fund.
EXPENSE SUMMARY AND EXAMPLE
The following expense summary and example should assist investors in
understanding the various recurring and non-recurring costs and expenses that an
investor in the Large Cap Equity Fund may directly or indirectly incur.
Shareholder Transaction Expenses
Shareholder transaction expenses are charges an investor pays when buying or
selling shares of the Large Cap Equity Fund.
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Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.00%
Maximum sales charge imposed on reinvested dividends
(as a percentage of net asset value) None
Maximum deferred sales charge None
Redemption fee None*
Exchange fee None*
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*An investor's broker may charge a fee for wire redemptions and/or exchanges.
Annual Fund Operating Expenses (as a percentage of net assets)
The following table reflects estimated annual operating expenses to be paid by
the Large Cap Equity Fund. The annual operating expenses include a management
fee paid to the Adviser, 12b-1 distribution and service fees and other expenses
for maintaining shareholder records and furnishing shareholder services,
statements and financial reports.
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Management fee 0.75%
12b-1 fees 0.25%<F1>
Other expenses (net of reimbursement) 0.45%<F2>
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Total Fund Operating Expenses 1.45%<F2>
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<F1> The maximum level of distribution expenses is 0.25% per annum of the Large
Cap Equity Fund's average net assets. See "Distribution Fees." The
distribution expenses for long-term shareholders may total more than the
maximum sales charge that would have been permissible if imposed entirely
as an initial sales charge.
<F2> The Adviser has agreed to waive its management fee and/or reimburse the
Large Cap Equity Fund to limit the total operating expenses of the Large
Cap Equity Fund (excluding interest, taxes, brokerage and extraordinary
expense) to an annual rate of 1.45% of the Large Cap Equity Fund's average
net assets for the fiscal year ending October 31, 1998. After this date,
the expense limitation may be terminated or revised at any time. Absent
the limitation, the Large Cap Equity Fund expects to incur Other Expenses
(estimated) and Total Fund Operating Expenses (estimated) of 0.46% and
1.46%, respectively, for the fiscal year ending October 31, 1998.
Expense Example
The following expense example shows the cumulative expenses attributable to a
hypothetical $1,000 investment with a 5% annual return and redemption at the
end of each period.
- ------------------------------
1 year $54
3 years $84
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THE EXPENSE EXAMPLE SHOULD BE USED FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE LARGE CAP EQUITY FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST
OR FUTURE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of the Large Cap
Equity Fund.
Portfolio Managers
Wendell L. Perkins, CFA, and Frank J. Gambino, CFA, are responsible for the day-
to-day management of the Large Cap Equity Fund's portfolio. Mr. Perkins is a
Senior Vice President of the Adviser and has managed equity portfolios for the
Adviser since January 1994. In 1993, Mr. Perkins was an Assistant Vice
President of Biltmore Investors Bank, an affiliate of the Adviser, and advised
clients on the placement of private debt and equity capital. 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. From 1992 through November 1993,
Mr. Gambino was a corporate services officer at Valley Bank, N.A. Madison,
Wisconsin and advised clients on cash management strategies.
JOHNSONFAMILY SMALL CAP EQUITY FUND
INVESTMENT OBJECTIVE
The Small Cap Equity Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of equity securities (such as common
stocks, preferred stocks, securities convertible or exchangeable for common
stocks and warrants or rights to purchase common stocks) of small capitalization
companies. The Adviser considers small capitalization companies to be those
with market capitalizations of less than $2.0 billion at the time of initial
purchase. Although income is considered in the selection of securities, the
Small Cap Equity Fund is not designed for investors whose primary investment
objective is income.
INVESTMENT POLICIES
Under normal circumstances, the Small Cap Equity Fund intends to invest at least
65% of its total assets in equity securities of small capitalization companies.
In selecting stocks for the Small Cap Equity Fund, the Adviser uses the same
investment selection methodology it follows in selecting stocks for the Large
Cap Equity Fund and the International Equity Fund. Like the Large Cap Equity
Fund, the Small Cap Equity Fund intends to invest principally in securities of
U.S. issuers, although it may invest up to 25% of its total assets (valued at
the time of investment) in securities of non-U.S. issuers, including foreign
government obligations and foreign equity and debt securities that are traded
over-the-counter or on foreign exchanges. The Small Cap Equity Fund may also
invest in the types of securities discussed in "Additional Investment Factors
and Risks Regarding the Funds."
ANNUAL ADVISORY FEE
0.75% per annum of the daily net assets of the Small Cap Equity Fund.
INVESTMENT FACTORS AND RISKS INVOLVED
Financial Risk
Small capitalization companies may have 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. Stocks of
these companies present a greater risk of losing value than stocks of larger,
more established companies.
Market Risk
Over time, the stock market tends to move in cycles, with periods when stock
prices rise generally and periods when stock prices decline generally. There
are also periods when small capitalization stocks outperform or underperform
large capitalization stocks. Historically, small capitalization stocks have
experienced more price volatility than large capitalization stocks. Some of
the reasons they have greater volatility include:
1) less certain growth prospects of small firms;
2) lower degree of liquidity in the markets for such stocks; and
3) greater sensitivity of small companies to changing economic conditions.
As a result, the value of the Small Cap Equity Fund's investments tends to
increase and decrease more than the stock market in general, as measured by the
S&P 500(R). Investors can lose money investing in the Small Cap Equity Fund.
EXPENSE SUMMARY AND EXAMPLE
The following expense summary and example should assist investors in
understanding the various recurring and non-recurring costs and expenses that an
investor may directly or indirectly incur.
Shareholder Transaction Expenses
Shareholder transaction expenses are charges an investor pays when buying or
selling shares of the Small Cap Equity Fund.
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Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.00%
Maximum sales charge imposed on reinvested dividends
(as a percentage of net asset value) None
Maximum deferred sales charge None
Redemption fee None*
Exchange fee None*
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*An investor's broker may charge a fee for wire redemptions and/or exchanges.
Annual Fund Operating Expenses (as a percentage of net assets)
The following table reflects estimated annual operating expenses to be paid by
the Small Cap Equity Fund. The annual operating expenses include a management
fee paid to the Adviser, 12b-1 distribution and service fees and other expenses
for maintaining shareholder records and furnishing shareholder services,
statements and financial reports.
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Management fee 0.75%
12b-1 fees 0.25%<F1>
Other expenses 0.50%<F2>
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Total Fund Operating Expenses 1.50%<F2>
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<F1> The maximum level of distribution expenses is 0.25% per annum of the Small
Cap Equity Fund's average net assets. See "Distribution Fees." The
distribution expenses for long-term shareholders may total more than the
maximum sales charge that would have been permissible if imposed entirely
as an initial sales charge.
<F2> The Adviser has agreed to waive its management fee and/or reimburse the
Small Cap Equity Fund to limit the total operating expenses of the Small
Cap Equity Fund (excluding interest, taxes, brokerage and extraordinary
expense) to an annual rate of 1.50% of the Small Cap Equity Fund's average
net assets for the fiscal year ending October 31, 1998. After this date,
the expense limitation may be terminated or revised at any time. Absent
the limitation, the Small Cap Equity Fund expects to incur Other Expenses
(estimated) and Total Fund Operating Expenses (estimated) of 0.51% and
1.51%, respectively, for the fiscal year ending October 31, 1998.
Expense Example
The following expense example shows the cumulative expenses attributable to a
hypothetical $1,000 investment with a 5% annual return and redemption at the
end of each period.
- ------------------------------
1 year $55
3 years $86
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THE EXPENSE TABLE SHOULD BE USED FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE SMALL CAP EQUITY FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST
OR FUTURE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of the Small Cap
Equity Fund.
Portfolio Managers
Wendell L. Perkins, CFA, and Frank J. Gambino, CFA, are responsible for the
day-to-day management of the Small Cap Equity Fund's portfolio. See page 7
for a discussion of the business experience of Mr. Perkins and Mr. Gambino.
JOHNSONFAMILY INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE
The International Equity Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of equity securities of non-U.S. issuers.
Although income is considered in the selection of securities, the International
Equity Fund is not designed for investors whose primary investment objective is
income.
INVESTMENT POLICIES
Under normal circumstances, the International Equity Fund intends to invest at
least 65% of its total assets in foreign common stocks and equity-related
securities, including preferred stocks, warrants, convertible securities and
other similar rights. The International Equity Fund may purchase securities of
foreign issuers directly or in the form of American Depository Receipts (ADRs),
European Depository Receipts (EDRs), Global Depository Receipts (GDRs) or other
securities representing shares of non-U.S. issuers. See "Glossary of Important
Terms - Depository Receipts." The International Equity Fund may also invest in
the types of securities discussed in "Additional Investment Factors and Risks
Regarding the Funds."
The International Equity Fund intends to diversify its holdings among several
countries and to have, under normal market conditions, investments in the
securities markets of at least 5 countries outside the U.S. The International
Equity Fund does not have any limitations on the percentage of its assets that
may be invested in securities primarily traded in any one country. The
International Equity Fund may invest in securities traded in mature markets,
such as Japan, Canada and the United Kingdom; less developed markets, such as
Mexico and Thailand; and in emerging markets, such as Indonesia and Argentina.
In selecting stocks for the International Equity Fund, the Adviser uses the same
investment selection methodology it follows in selecting stocks for the Large
Cap Equity Fund and Small Cap Equity Fund.
ANNUAL ADVISORY FEE
0.90% per annum of the average daily net assets of the International Equity
Fund.
INVESTMENT FACTORS AND RISKS INVOLVED
Foreign Investment Risk
In addition to the risks of investing in stocks of different-sized companies,
investors in the International Equity Fund face particular risks associated with
foreign investing. Foreign investment risks include currency, liquidity,
political, economic and market risks, as well as risks associated with
governmental regulation and nonuniform corporate disclosure standards. The
International Equity Fund may invest from 0% to 25% of its net assets in
securities traded in emerging markets, which may entail more risk than investing
in securities traded in mature markets. The greater the percentage of net
assets the International Equity Fund invests in emerging countries, the greater
the investment risks.
EXPENSE SUMMARY AND EXAMPLE
The following expense summary and example should assist investors in
understanding the various recurring and non-recurring costs and expenses that an
investor may directly or indirectly incur.
Shareholder Transaction Expenses
Shareholder transaction expenses are charges an investor pays when buying,
selling or holding shares of the International Equity Fund.
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.00%
Maximum sales charge imposed on reinvested dividends
(as a percentage of net asset value) None
Maximum deferred sales charge 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 (as a percentage of net assets)
The following table reflects estimated annual operating expenses to be paid by
the International Equity Fund. The annual operating expenses include a
management fee paid to the Adviser, 12b-1 distribution and service fees and
other expenses for maintaining shareholder records and furnishing shareholder
services, statements and financial reports.
- --------------------------------------------------------------------------------
Management fee 0.90%
12b-1 fees 0.25%<F1>
Other expenses 0.70%<F2>
- --------------------------------------------------------------------------------
Total Fund Operating Expenses 1.85%<F2>
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<F1> The maximum level of distribution expenses is 0.25% per annum of the
International Equity Fund's average net assets. See "Distribution Fees."
The distribution expenses for long-term shareholders may total more than
the maximum sales charge that would have been permissible if imposed
entirely as an initial sales charge.
<F2> The Adviser has agreed to waive its management fee and/or reimburse the
International Equity Fund to limit the total operating expense of the
International Equity Fund (excluding interest, taxes, brokerage and
extraordinary expense) to an annual rate of 1.85% of the International
Equity Fund's average net assets for the fiscal year ending October 31,
1998. After this date, the expense limitation may be terminated or revised
at any time. Absent the limitation, the International Equity Fund expects
to incur Other Expenses (estimated) and Total Fund Operating Expenses
(estimated) of 0.71% and 1.86%, respectively, for the fiscal year ending
October 31, 1998.
Expense Example
The following expense example shows the cumulative expenses attributable to a
hypothetical $1,000 investment with 5% annual return and redemption at the end
of each period.
- ------------------------------
1 year $58
3 years $96
- ------------------------------
THE EXPENSE EXAMPLE SHOULD BE USED FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The example assumes a 5%
annual rate of return pursuant to requirements of the Securities and Exchange
Commission. This hypothetical rate of return is not intended to be
representative of past or future performance of the International Equity Fund.
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 International
Equity Fund's portfolio. Messrs. Perkins, Gambino, Heritier and Gigon utilize a
team approach to portfolio management. See page 7 for a discussion of the
business experience of Mr. Perkins and Mr. Gambino. 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 International Equity Fund.
ADDITIONAL INVESTMENT FACTORS AND RISKS
REGARDING THE FUNDS
TEMPORARY DEFENSIVE PURPOSES
Each Fund may adopt a temporary defensive position policy that allows it to
invest up to 100% of the Fund's total assets in cash and money market
obligations, including money market mutual funds, short-term investment-grade
fixed-income securities, bankers' acceptances, commercial paper, commercial
paper master notes and repurchase agreements when significant adverse market,
economic, political or other circumstances require immediate action to avoid
losses.
None of the Funds will invest in commercial paper or commercial paper master
notes which are not rated at the time of purchase within the two highest rating
categories by an NRSRO. When entering into repurchase agreements, a Fund must
hold an amount of cash or government securities at least equal to the market
value of the securities held pursuant to the agreement. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, a Fund may
experience delays and expenses in liquidating the securities, declines in the
securities' value and loss of interest. The Funds will only 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 reporting primary dealers with a
capital base in excess of $100 million. When investing in money market mutual
funds, a Fund, in addition to its advisory fees and expenses it bears directly
in connection with its operations, would indirectly as a shareholder of a money
market mutual fund, bear its pro rata share of the money market mutual fund's
advisory fees and other expenses.
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. To the extent a
Fund is invested in temporary defensive instruments, it will not be pursuing its
stated investment objective.
INTEREST RATE RISK
Investors in the Intermediate Fixed Income Fund can expect that interest rate
changes will significantly affect the value of their investment. (Since the
other Funds will not invest a significant percentage of their assets in fixed-
income securities, the discussion that follows will generally not be applicable
to investors in the other Funds.) In general, a decline in prevailing interest
rate levels will increase the value of the securities, particularly the bonds,
held in the Intermediate Fixed Income Fund's portfolio and vice versa. As a
result, interest rate fluctuations will affect the Intermediate Fixed Income
Fund's net asset value but not the income received from its existing portfolio.
However, changes in the prevailing interest rate level will affect the yield on
subsequently purchased securities. Because yields on the securities available
for purchase by the Intermediate Fixed Income Fund will vary over time, the
Intermediate Fixed Income Fund cannot assure a specific yield on its shares.
Intermediate-term bonds are more sensitive to interest rate changes than
shorter-term bonds and less sensitive to interest rate changes than longer-term
bonds. Longer-term bond prices increase more dramatically when interest rates
fall and decrease more dramatically when interest rates rise. Prices of short-
term debt, such as money market instruments, are less price sensitive to
interest rate changes because of their short durations.
INVESTMENT GRADE AND MEDIUM-GRADE INVESTMENTS
The Adviser may purchase investment-grade debt securities for the Funds. A debt
or other fixed income security is considered investment grade if it is rated
investment grade by an NRSRO, such as BBB or better by Duff and Phelps Credit
Rating Co. ("D&P") and Standard & Poor's Corporation ("S&P") or Baa or better
by Moody's Investors Services, Inc. ("Moody's"). Securities rated in the
fourth highest category, such as BBB by D&P or S&P or Baa by Moody's, are
considered medium grade and have more sensitivity to economic changes and
speculative characteristics. If a security held by a Fund has lost its rating
or has had its rating reduced, the Fund does not have to sell the security,
but the Adviser will consider the lost or reduced rating in determining
whether that Fund should continue to hold the security.
Each of the equity Funds may invest in convertible debt securities when the
Adviser believes the underlying common stock is a suitable investment for the
Fund and a greater potential for total return exists by purchasing the
convertible security because of its higher yield. None of the Funds will
invest more than 5% of its net assets at the time of investment in convertible
securities rated less than investment grade. Investments in less than
investment-grade securities entail relatively greater risk of loss of income
or principal than investments in investment-grade securities.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
The Intermediate Fixed Income Fund may invest in mortgage-backed securities as
well as other asset-backed securities (i.e., securities backed by credit card
receivables, automobile loans or other assets). Mortgage-backed securities
represent pro rata interests in pools of mortgage loans made by lenders such as
savings and loan institutions, mortgage bankers, commercial banks and others or
collateralized mortgage obligations ("CMOs"), which provide the holder with a
specified interest in the cash flow of a pool of underlying mortgages or other
mortgage-backed securities. Mortgage-backed securities other than CMOs
generally provide for a "pass through" of monthly payments made by individual
borrowers on their residential mortgage loans, net of any fees paid to the
issuer or guarantor of the securities. The yield on these securities applies
only to the unpaid principal balance. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final distribution date.
The relevant payment rights of the various CMO classes may be subject to greater
volatility and interest rate risk than other types of mortgage-backed
securities.
Mortgagors can generally prepay interest or principal on their mortgages
whenever they choose. Therefore, mortgage-backed securities are often subject
to more rapid repayment than their stated maturity date would indicate as a
result of principal prepayments on the underlying loans. This can result in
significantly greater price and yield volatility than is the case with
traditional fixed-income securities. During periods of declining interest
rates, prepayments can be expected to accelerate, and thus impair a Fund's
ability to reinvest the returns of principal at comparable yields. Conversely,
in a rising interest rate environment, a declining prepayment rate will extend
the average life of many mortgage-backed securities, increase a Fund's exposure
to rising interest rates and prevent a Fund from taking advantage of such higher
yields.
Asset-backed securities may involve certain risks that are not presented by
mortgage-backed securities arising 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. 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 the Intermediate Fixed Income Fund to
experience difficulty in valuing or liquidating such securities.
PORTFOLIO TURNOVER
Although the Funds do not purchase securities with the intent of turning them
over rapidly, the Adviser, in pursuit of each Fund's investment objective, will
continuously monitor each Fund's investments and make changes whenever changes
in the markets, industry trends or the outlook for any portfolio security
indicates to them that the objective could be better achieved by investment in
another security, regardless of portfolio turnover. 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.
Fund turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. A higher turnover rate (100% or more)
increases transaction costs (e.g., brokerage commissions, portfolio trading
costs), which are paid by the Funds, and increases realized gains and losses.
Distributions to shareholders of realized gains, to the extent they consist of
net short-term capital gains, will be considered ordinary income for federal tax
purposes. It is expected that under normal market conditions, the annual
portfolio turnover rate for each of the Funds will not exceed 100%. Trading in
fixed-income securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs.
REVERSE REPURCHASE AGREEMENTS AND BORROWING
The Funds may borrow money, but only from banks and only for temporary or
emergency purposes. The Funds may not borrow more than 10% of their net assets
and must repay any amount borrowed before buying additional securities. The
Funds may also enter into reverse repurchase agreements. When entering into
reverse repurchase agreements, a Fund will maintain in a segregated account with
its custodian, cash or liquid securities in an amount equal to its obligations
under the reverse repurchase agreement, less the value of the collateral
securing the reverse repurchase agreement.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
To ensure the availability of suitable securities, the Funds may buy when-issued
or delayed-delivery securities. Generally, the Funds will not pay for when-
issued securities or start earning interest until they have received the
underlying securities. The Funds intend to purchase the securities with the
expectation of acquiring the underlying securities when delivered. However, the
Funds may sell when-issued securities before the settlement date when the
Adviser believes it is in the best interest of a Fund.
The payment obligation and interest rate on when-issued and delayed-delivery
securities is fixed at the time the Fund enters into the commitment. Unless the
Fund has entered into an offsetting agreement to sell the securities, cash or
liquid assets equal to the amount of the Fund's commitment must be segregated
and maintained with the Fund's custodian to secure the Fund's obligation and to
partially offset the leverage inherent in these securities. The market value of
the securities, when delivered, may be less than the amount paid by the Fund.
LENDING PORTFOLIO SECURITIES
To generate additional income, each of the Funds may from time to time lend
securities from a Fund's portfolio to brokers, dealers and financial
institutions such as banks and trust companies. On each business day while the
loan is outstanding, the value of the securities loaned will be secured by
collateral consisting of cash, bank letters of credit or U.S. government
securities at least equal to the value of the loaned securities. No Fund will
lend securities having a value in excess of 30% of the value of its total assets
at the time the loan is made.
ILLIQUID AND RESTRICTED SECURITIES
Each Fund may hold up to 15% of its net assets in illiquid securities. Illiquid
securities are securities a Fund believes cannot be sold within seven days in
the normal course of business at approximately the amount at which a Fund has
valued or priced the securities and include securities a Fund may have acquired
in private placements that have restrictions on their resale ("restricted
securities"). The Funds deem time deposits and repurchase agreements maturing in
more than seven days illiquid. 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 Board of Directors will establish
procedures for determining the liquidity of securities and delegate the day-to-
day liquidity determinations to the Adviser.
Subject to the limitations for illiquid investments stated above, each Fund may
purchase liquid restricted securities eligible for resale under Rule 144A under
the Securities Act of 1933 (the "Act"), without regard to the 15% limitation.
Rule 144A permits certain qualified institutional buyers to trade in privately
placed securities not registered under the Act. Institutional markets for
restricted securities have developed as a result of Rule 144A, providing both
readily ascertainable market values for 144A securities and the ability to
liquidate these investments to satisfy redemption orders. 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.
FUTURES CONTRACTS AND OPTIONS
Each of the Funds may engage in options, futures and options on futures
transactions, but only for bona fide hedging or other permissible risk
management purposes. Generally, the Funds do not make these investments if the
initial margin deposits and premiums paid for unexpired options exceed 5% of a
Fund's total assets. In addition, each Fund does not
- commit more than 5% of a Fund's net assets to such instruments; or
- commit more than 5% of a Fund's net assets to cover its obligations
with respect to such instruments.
The futures contracts which the Funds may buy or sell include instruments such
as interest rate and index futures contracts and options thereon. The Funds may
use futures transactions for several reasons, including: (1) hedging unrealized
portfolio gains; (2) minimizing adverse principal fluctuations in a Fund's debt
and fixed-income securities; or (3) as a means of adjusting exposure to various
markets. A Fund's transactions in securities options may include purchasing or
writing put and call options on securities and stock indexes. The Funds will
deal only in exchange-traded futures contracts and in exchange-traded or over-
the-counter securities options.
The Funds' ability to use futures and options transactions successfully depends
upon the Adviser's skill for predicting the level and direction of the
securities, options and futures markets, interest rates and other factors. If
options and futures transactions are used, an incorrect prediction may make the
implementation of the hedging strategy in furtherance of a Fund's investment
objectives, difficult. For example, significant differences may exist between
the securities and the options and futures markets that could result in an
imperfect correlation between them. Also, incorrectly predicting the changes in
the level and direction of interest rates could cause the Intermediate Fixed
Income Fund to have a lower return than it would have had if it had not
attempted the hedging transaction. In the absence of the ability to hedge,
however, the Funds might take portfolio actions in anticipation of the same
market movements with similar investment results, but, presumably, at greater
transaction costs.
GOVERNMENT OBLIGATIONS
Each of the Funds may invest in a variety of U.S. Treasury obligations
consisting of bills, notes and bonds, which principally differ only in 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; 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
instrumentalities. No assurance can be given that the U.S. government would
provide financial support to its agencies or instrumentalities if it is not
obligated to do so by law. There is no assurance that these commitments will be
undertaken or complied with in the future.
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
during a specified period of time. The purchase of warrants involves the risk
that a Fund could lose the purchase value of a warrant if the right to subscribe
to additional shares is not exercised prior to the warrant's expiration. Also,
the purchase of warrants involves the risk that the effective price paid for the
warrant added to the subscription price of the related security may exceed the
value of the subscribed security's market price such as when there is no
movement in the level of the underlying security. No more than 5% of each equity
Fund's net assets, valued at the time of investment, will be invested in
warrants.
RISKS OF INVESTING IN FOREIGN SECURITIES
CURRENCY RISK
Even though a Fund may hold securities denominated or traded in foreign
currencies, a Fund's performance is measured in terms of U.S. dollars, which may
subject a Fund to foreign currency risk. Foreign currency risk is the risk that
the U.S. dollar value of foreign securities (and any income generated therefrom)
held by a Fund may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations. Therefore, the net
asset value of a Fund may go up or down as the value of the dollar falls or
rises compared to a foreign currency. To manage this risk and facilitate the
purchase and sale of foreign securities for a Fund, the Adviser may engage in
foreign currency transactions involving (1) the purchase and sale of forward
foreign currency exchange contracts (agreements to exchange one currency for
another at a future date); (2) options on foreign currencies; (3) currency
futures contracts; or (4) options on currency futures contracts. Although the
Funds may use foreign currency transactions to protect against adverse currency
movements, foreign currency transactions involve the risk that the Adviser may
not accurately predict the currency movements, which could adversely affect a
Fund's total return.
LIQUIDITY RISK
Foreign markets or exchanges tend to have less trading volume than the New York
Stock Exchange or other domestic stock exchanges or markets, meaning the foreign
market may have less liquidity. Lower liquidity in a foreign market can affect a
Fund's ability to purchase or sell blocks of securities and obtain the best
price in the foreign market. Foreign markets tend to have greater spreads
between bid and asked prices, trading interruptions or suspensions and brokerage
and other transaction costs. Settlement practices vary from country to country
and many foreign markets have longer settlement periods for their securities in
comparison to domestic securities. These differing practices may cause a Fund to
lose opportunities for favorable purchases elsewhere as well as interest income.
Also, foreign markets may trade on days when the Funds do not value their
portfolios. This means that a Fund's Net Asset Value can change on days when an
investor's account cannot be accessed. The Funds may incur extra costs when
involved in currency hedging.
FOREIGN INVESTMENT EXPENSES
Investing in foreign securities generally costs more than investing in U.S.
securities because of higher transaction costs, such as the commissions paid per
share. As a result, mutual funds that invest in foreign securities tend to have
higher expenses, particularly those that invest primarily in foreign securities
(e.g., the International Equity Fund). In addition to higher commissions, they
generally have higher advisory and custodial fees. However, investors may find
investing in a mutual fund that purchases foreign securities a more efficient
way to invest in foreign securities than investing in individual foreign
securities.
POLITICAL, ECONOMIC AND MARKET RISKS
The degree of political and economic stability varies from country to country.
If a country expropriates money from foreigners or nationalizes an industry, a
Fund may lose some or all of any particular investment in that country.
Individual foreign economies may vary favorably or unfavorably from the U.S.
economy in such areas as growth of gross national product, inflation rate,
savings, balance of payments and capital investment, which may affect the value
of a Fund's investment in any foreign country.
GOVERNMENTAL REGULATION
Many foreign countries do not subject their markets to the same degree and type
of laws and regulations that cover the U.S. markets. Also, many foreign
governments impose restrictions on investments in their capital markets as well
as taxes or other restrictions on repatriation of investment income. The
regulatory differences in some foreign countries make investing or trading in
their markets more difficult and risky.
LACK OF UNIFORM CORPORATE DISCLOSURE STANDARDS
Many countries have laws making information on publicly traded companies, banks
and governments more difficult to obtain, incomplete or unavailable. The lack of
uniform accounting standards and practices among countries impairs the ability
of investors to compare common valuation measures, such as price/earnings
ratios, as applied to securities of different countries.
INVESTMENT RESTRICTIONS
In addition to specific investment restrictions described in the Statement of
Additional Information, only a vote of the majority of the outstanding shares
can change:
- the policies on borrowing and lending securities;
- the restriction on concentrating investments in a single industry, which
limits a Fund from investing more than 25% of its total assets in any
single industry. This restriction does not apply to securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities;
and
- the restriction requiring issuer diversification by limiting a Fund from
investing more than 5% of its net assets in a single issuer, except that
up to 25% of its total assets may be invested without regard to this
limitation. This restriction does not apply to securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
The Board of Directors may change any of the Funds' investment objective and
other investment policies without shareholder approval. For example, the Board
of Directors may change the policies regarding specific investments, discussed
above (other than the policies on borrowing and securities lending). A
description of all of the investment restrictions applicable to the Funds is
included in the Statement of Additional Information.
MANAGEMENT OF THE COMPANY
THE BOARD OF DIRECTORS
The Board of Directors decides matters of general policy and reviews the
activities of the Adviser and the officers who conduct and supervise the daily
business operations of the Funds. The Statement of Additional Information
contains the name and background information regarding each director.
THE ADVISER
Under Investment Advisory Agreements with the Company and subject to the
supervision of the Company's Board of Directors, 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.
Historical Performance of Investment Advisory Accounts Managed by the Adviser
Set forth below is composite historical performance data relating to the
Adviser's Large Cap Accounts and Fixed Income Accounts (hereinafter defined),
measured against relevant broad-based market indices. The Large Cap Accounts
include all portfolios managed by the Adviser 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 the Adviser with
objectives, strategies and techniques substantially similar to those employed by
the Intermediate Fixed Income Fund. (The Adviser has been managing portfolios
having objectives, similar to the Small Cap Equity Fund for less than one year.
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.)
All performance data presented 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 quoted
are time-weighted total rates of return and include the reinvestment of
dividends and interest. Performance figures are net of investment advisory fees
and expenses. The fees and expenses of both the Large Cap Accounts and the
Fixed Income Accounts were less than the estimated 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
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 Adviser's Large Cap Accounts and Fixed Income Accounts
differs from the method required by the SEC in calculating standardized average
annual total returns of mutual funds. See "Yield and Performance Information."
All information presented is based on data supplied by the Adviser or from
statistical services, reports or other sources believed by the Adviser to be
reliable. However, such information has not been verified by any third party
and is unaudited.
Compounded Annual Rates of Return<F1> (For the Period Ended December 31, 1997)
8 YEARS<F2> 5 YEARS 3 YEARS 1 YEAR
- --------------------------------------------------------------------------------
Large Cap Accounts 16.13% 19.05% 30.46% 36.20%
S&P 500(R)<F3> 16.63% 20.27% 31.15% 33.36%
Fixed Income Accounts 8.19% 6.68% 9.20% 8.44%
Lehman Brothers Intermediate 7.99% 6.65% 8.98% 7.87%
Government/Corporate Bond Index<F4>
- --------------------------------------------------------------------------------
<F1> All returns quoted are time-weighted total rates of return and include the
reinvestment of dividends and interest. Performance figures are net of
investment advisory fees and expenses. Total annual rate of return is the
change in redemption value of units purchased with an initial $1,000
investment, assuming the reinvestment of dividends. 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.
<F2> Since inception.
<F3> 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 value (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.
<F4> 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.
Past performance may not be indicative 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.
PORTFOLIO TRANSACTIONS
The Adviser directs the placement of orders for the purchase and sale of the
Funds' portfolio securities. In directing orders, the Adviser will consider a
number of factors to attain what it believes is the best combination of price
and execution for the Funds. The Adviser normally will select a broker or dealer
who furnishes research services and in consideration therefor may pay a
commission to such a broker in excess of the amount another broker would have
charged for executing the transaction. The Adviser is authorized to allocate
orders for the purchase and sale of the Funds' portfolio securities to take into
account the sale of Fund shares, if the Adviser believes that the quality of the
transaction and the amount of the commission are comparable to what they would
be with other qualified firms.
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.
ADMINISTRATION
Pursuant to an Administration and Fund Accounting Agreement (the "Administration
Agreement"), Sunstone Financial Group, Inc. (the "Administrator"), 207 East
Buffalo Street, Suite 400, Milwaukee, WI 53202-5712, acts as administrator for
the Funds. The Administrator, at its own expense and without reimbursement from
the Funds, furnishes office space and all necessary office facilities,
equipment, supplies and clerical and executive personnel for performing the
services required to be performed by it under the Administration Agreement. For
its administrative services (which include clerical, compliance, regulatory,
fund accounting and other 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.
TRANSFER AND DIVIDEND DISBURSING AGENT, CUSTODIAN
AND INDEPENDENT ACCOUNTANTS
Sunstone Investor Services, LLC, an affiliate of Sunstone Financial Group, Inc.,
207 East Buffalo Street, Suite 315, Milwaukee, WI 53202-5712, acts as each
Fund's Transfer and Dividend Disbursing Agent. Investors Fiduciary Trust
Company, which has its principal address at 801 Pennsylvania, Kansas City,
Missouri 64105, acts as Custodian of the Funds' investments. Neither the
Transfer and Dividend Disbursing Agent nor the Custodian has any part in
deciding the Funds' investment policies or which securities are to be purchased
or sold for the Funds' portfolios. Arthur Andersen LLP, 100 East Wisconsin
Avenue, Milwaukee, WI 53202, serves as the Company's independent accountants.
BUYING SHARES OF THE FUNDS
Shares of the Funds are offered and sold on a continuous basis by the
Distributor. The Distributor is a registered broker/dealer that is independent
of the Adviser. Shares of each Fund may be purchased only through bank
affiliates of the Adviser, including Johnson Trust Company (collectively the
"Bank Affiliates"), or brokers/dealers ("Selected Dealers") who have entered
into a sales agreement with the Distributor at the offering price next
determined after receipt of the purchase order. The offering price is the net
asset value per share of the Fund, the shares of which are being purchased, plus
a sales charge which varies in accordance with the amount of the purchase.
INTERMEDIATE FIXED INCOME FUND
- --------------------------------------------------------------------------------
Amount of Transaction Sales Charge as Sales Charge as Reallowance to
at Offering Price a Percentage a Percentage Selected Dealers
of Offering Price of Net Asset Value
- --------------------------------------------------------------------------------
Less than $50,000 2.75% 2.83% 2.25%
$50,000 to $99,999 2.25% 2.30% 1.75%
$100,000 to $249,999 2.00% 2.04% 1.50%
$250,000 or more None None None
- --------------------------------------------------------------------------------
LARGE CAP EQUITY FUND, SMALL CAP EQUITY FUND AND INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Amount of Transaction Sales Charge as Sales Charge as Reallowance to
at Offering Price a Percentage a Percentage Selected Dealers
of Offering Price of Net Asset Value
- --------------------------------------------------------------------------------
Less than $50,000 4.00% 4.17% 3.50%
$50,000 to $99,999 3.00% 3.09% 2.50%
$100,000 to $249,999 2.00% 2.04% 1.50%
$250,000 or more None None None
- --------------------------------------------------------------------------------
In addition to the reallowance shown in the table above, the Distributor may
from time to time pay a bonus or other incentive to selected dealers which
employ a sales representative who sells a minimum dollar amount of shares of a
Fund during a specific time. In no event will the value of such bonus or other
incentive paid by the Distributor to the dealer exceed the difference between
the sales charges and the reallowance to dealers.
Investors may be entitled to reduced sales charges through the Right of
Accumulation or under a Letter of Intent, even if they do not make an investment
of a size that would normally qualify for a quantity discount. To qualify for
a reduction of or exception to the sales charge, investors must notify their
Selected Dealer at the time of purchase. The reduction in sales charge is
subject to confirmation of the investor's holdings through a check of records.
The Funds may modify or terminate quantity discounts at any time.
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 Intermediate 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 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
said 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.
NET ASSET VALUE PURCHASES
Investors may purchase shares of the Funds at net asset value to the extent that
the investment represents the proceeds from the redemption, within the previous
sixty days, of shares of another mutual fund. When making a purchase at net
asset value pursuant to this provision, the investor should forward to the
Selected Dealer a copy of the confirmation from the other fund, showing the
redemption transaction. Former shareholders of the Funds may purchase shares of
the Funds at net asset value up to an amount not exceeding their prior
investment in the Funds. When making a purchase at net asset value pursuant to
this privilege, the former shareholder should forward to the Selected Dealer a
copy of the account statement showing the prior investment in the Funds.
The Company 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.
PROCEDURES TO PURCHASE SHARES
Investors must purchase shares through Selected Dealers or Bank Affiliates.
These entities will become shareholders of record of the Funds and have
established procedures which investors must follow in purchasing shares. Such
procedures need not be identical among Selected Dealers and the procedures
established by Bank Affiliates may differ from those of Selected Dealers. These
procedures should be carefully reviewed by investors. Each of the Selected
Dealers and the Bank Affiliates will establish minimum purchase requirements
which need not be identical. 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
applicable offering price determined that day. Selected Dealers and Bank
Affiliates are responsible for promptly forwarding orders and payment to the
Transfer Agent.
SELLING (REDEEMING) SHARES OF THE FUNDS
Investors can sell (redeem) their shares on any business day. All redemption
requests must be made through the shareholder of record (i.e., a Selected Dealer
or Bank Affiliate). These entities have established procedures which investors
must follow in selling (redeeming) shares. Such procedures need not be
identical among Selected Dealers and the procedures established by Bank
Affiliates may differ from those of Selected Dealers. These procedures should
be carefully reviewed by investors. When investors sell their shares they
receive the net asset value per share. If the shareholder of record receives a
redemption request in the form required by its procedures before the close of
regular trading on the NYSE (normally 3:00 p.m. Central Time) the investor will
receive that day's price. If the shareholder of record receives the redemption
request after the close of regular trading on the NYSE, or on a holiday, weekend
or a day the NYSE is closed, it will process the transaction on the next
business day.
EXCHANGE PRIVILEGE
Investors may exchange shares of one Fund for shares of another Fund without
paying any additional sales charge, if they initially paid a sales charge. For
example, if an investor had purchased shares of the International Equity Fund
and paid the applicable sales charge and wanted to exchange them for shares of
the Large Cap Equity Fund, the investor could do so without paying an additional
sales charge. The following guidelines apply:
- Investors must follow procedures established by the Selected Dealer or
Bank Affiliate;
- Investors may only exchange into Funds that are legally available for
sale in their state;
- Investors may have a taxable gain or loss as a result of an exchange; and
- The Funds reserve the right to change or end 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)
The Funds compute the net asset value of a Fund share by adding up the value of
the individual Fund's assets (i.e., stocks and bonds in the Fund's portfolio),
subtracting the Fund's liabilities and dividing the balance by the total number
of shares outstanding. The Funds compute the net asset value of each Fund at
the end of the day after regular trading on the NYSE closes (normally 3:00 p.m.
Central Time). The Funds do not calculate the net asset value for the Funds on
the days when the NYSE is not open.
The Funds value (or price) securities owned by a Fund at current market value.
For securities with readily available market quotations, the Funds use market
quotations to price the security. If a security does not have a readily
available quotation, the Funds value the security as determined in good faith by
or under the direction of the Board of Directors. The Board of Directors may
approve the use of pricing services to assist the Funds in the determination of
net asset values. The Funds value all securities with a remaining maturity of
60 days or less on an amortized cost basis.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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 ("Code"). Pursuant to the requirements of the Code, the
Funds intend to distribute substantially all of their net investment income and
net realized capital gains, if any, less any available capital loss carryover,
to their shareholders annually, so as to avoid paying income tax on their net
investment income and net realized capital gains or being subject to a federal
excise tax on undistributed net investment income and net realized gains.
Annually, the Funds provide investors with full information on dividends and
capital gains distributions for each Fund.
Provided below is a general description of the distribution policies and some of
the tax consequences for investors in the Funds. Investors should always check
with their tax adviser to determine whether any dividends and distributions paid
to them by a Fund are subject to any taxes, including state and local taxes.
The dividends from net investment income of the Funds, including net short-term
capital gains are taxable as ordinary income to shareholders whether paid in
additional shares or in cash. Any long-term capital gains distributed to
investors are taxable as capital gains, whether received in cash or in
additional shares, and regardless of the length of time an investor has owned
the shares.
The Funds distribute substantially all of their net investment income and any
net realized capital gains, if any, for the Funds as follows:
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
- --------------------------------------------------------------------------------
MISCELLANEOUS TAX CONSIDERATIONS
Federal law requires the Funds to withhold 31% of a shareholder's reportable
payments (which include dividends, capital gains distributions and redemption
proceeds) for shareholders who have not properly certified that the Social
Security or other Taxpayer Identification Number they provided is correct and
that the investor is not subject to back-up withholding. The Funds
(particularly the Large Cap Equity Fund) anticipate issuing some shares in
exchange for securities which are permitted investments in transactions which
are tax-free under the Code. In such transactions, a Fund may acquire securities
having unrealized appreciation that may result in a taxable gain when the
securities are sold by the Fund. The Funds do not provide information on state
and local tax consequences of owning shares in the Funds.
REINVESTMENT OF FUND DISTRIBUTIONS
Investors can reinvest all of their income dividends and/or capital gains
distributions into the Funds at net asset value and pay no up-front sales
charges. Investors also can have their distributions paid in cash. When
investors receive a distribution they may have to pay taxes whether or not they
reinvested the distribution.
DISTRIBUTION FEES
In addition to the sales charge deducted at the time of purchase, the Funds have
adopted a Service and Distribution Plan pursuant to Rule 12b-1 under the Act
(the "Service and Distribution 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 Service and Distribution 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 may enter into agreements from time to time with Selected
Dealers or with affiliates of the Adviser, 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.
YIELD AND PERFORMANCE INFORMATION
From time to time, the Funds calculate and advertise performance information for
different historical periods of time, by quoting yields or total returns
designed to inform investors of the performance of a Fund. Whenever the Funds
advertise performance, standardized yield and total return information is
calculated in accordance with methods established by the Securities and Exchange
Commission. Other total return calculations may be included if the Funds believe
that investors would find such total return calculations useful in evaluating a
Fund's investment performance. The Funds base yields and total returns on
historical performance. Such historical performance information should not be
used as an indication of future performance. Investment returns and the
principal value of investments will fluctuate and may be worth more or less than
the investor's original cost when redeemed.
STANDARDIZED YIELD AND TOTAL RETURNS
The Funds may advertise a standardized current yield based on income generated
by an investment in a particular Fund over a 30-day period. The Funds determine
income earned on debt obligations by applying a calculated yield-to-maturity
percentage to the obligations held during the period. The Funds determine income
earned from stocks by using the stated annual dividend rate applied over the
performance period. Then, the Funds annualize the income earned. The Funds
assume that the amount of income generated during the 30-day period is generated
and reinvested monthly to provide a six-month return which the Funds then
annualize. The Funds show the return as a percentage of the maximum offering
price per share on the last day of the period.
The Funds may advertise a standardized average annual total rate of return for
one, five and ten-year periods, or for so long as a Fund has been in existence
(since inception). The standardized average annual total rate of return is the
change in redemption value of shares purchased with an assumed initial
investment of a specified amount, after giving effect to the maximum applicable
sales charge for shares, assuming the reinvestment of dividends and capital
gains distributions.
OTHER TOTAL RETURNS
If the Funds believe it would be useful in evaluating performance, the Funds may
advertise total returns for a Fund in ways other than the standardized average
annual total rate of return or the other measures of return described above.
For example, the Funds may advertise total returns calculated on the basis of
the net amount invested in a Fund (the dollars invested without giving effect to
the maximum applicable sales charge). Return calculations based on the net
amount invested will be higher than those calculated by the standardized methods
for the same time period.
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 Industrial Average, Nasdaq
Composite Index, Nasdaq Industrials Index, Value Line Composite Index, the S&P
500(R), S&P 400 Mid-Cap Growth Index, S&P 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.
The Funds have provided more information on yield and performance in the
Statement of Additional Information.
ORGANIZATION AND DESCRIPTION OF SHARES
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 attibutable 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.
The Maryland Business Corporation Law permits registered investment companies,
such as the Company, to operate without an annual meeting of shareholders under
specified circumstances if an annual meeting is not required by the Act. The
Company has adopted the appropriate provisions in its Bylaws and does not
anticipate holding an annual meeting of shareholders to elect directors unless
otherwise required by the Act. The Company has also adopted provisions in its
Bylaws for the removal of directors by its shareholders.
ASSET ALLOCATION (DIVERSIFICATION)
Investors should not consider an investment in any one Fund a complete
investment program. Like most investors, investors in the Funds should hold a
number of different investments, each with a different level of risk, such as
common stocks, bonds and money market instruments.
QUESTIONS
If you have questions concerning the Funds, contact your registered
representative, investment manager or broker.
GLOSSARY OF IMPORTANT TERMS
AMERICAN DEPOSITORY RECEIPTS (ADRS): See Depository Receipts.
AMORTIZED: Paying the principal on a debt by installments, an accounting method
that provides for the gradual decline in the value of an asset.
ANNUALIZED: Calculated to represent a year; a statement produced by calculating
financial results for periods other than complete year.
ASSET-BACKED SECURITIES: See Mortgage and Asset-Backed Securities on page 31.
BOND: An interest-bearing debt security, or discounted government or corporate
security, that requires the issuer to pay a specified amount of interest for a
specified time, usually a number of years, then repay the bondholder the face
amount of the bond.
BUSINESS DAY: Any day both the Federal Reserve Bank of New York and the New York
Stock Exchange (NYSE) are open for business. A business day normally begins at
8:30 a.m. Central Time when the NYSE opens, and usually ends at 3:00 p.m.
Central Time when the NYSE closes.
CAPITAL GAIN OR LOSS: A capital gain or loss equals the increase or decrease in
the value of a security over the original purchase price. A gain or loss is
REALIZED when the security that has increased or decreased in value is sold. An
UNREALIZED GAIN or LOSS occurs when the value of a security increases or
decreases but the security is not sold. If a security is held for more than the
applicable capital gains tax holding period and then sold at a profit, that
profit is a REALIZED LONG-TERM CAPITAL GAIN. If it is sold at a profit before
the applicable period, that profit is a REALIZED SHORT-TERM CAPITAL GAIN.
CHARTERED FINANCIAL ANALYST (CFA): Designation earned by financial analysts who
pass examinations in economics, financial accounting, portfolio management,
security analysis and standards of conduct.
COLLATERAL: Something of value, such as real estate, stocks and bonds, pledged
to secure a debt.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS): A debt security providing the holder
with a specified interest in the cash flow of a pool of underlying mortgages or
other mortgage-backed securities. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final distribution date.
COMMERCIAL PAPER: Short-term unsecured debt obligations issued by businesses and
sold at a discount but redeemed at par within 2 to 270 days.
COMMERCIAL PAPER MASTER NOTES: Unsecured debt obligations issued by businesses
that permit a series of short-term borrowings under a single promissory note.
Borrowings under commercial paper master notes are payable in whole or in part
at any time, may be prepaid in whole or in part at any time, and bear interest
at rates which are fixed to known lending rates and automatically adjusted when
such known lending rates change.
COMPANY: JohnsonFamily Funds, Inc.
CONVERTIBLE DEBT SECURITIES: Debt securities that convert or exchange into
stocks or carry with it the right to acquire stocks evidenced by warrants
attached to the bond or acquired as part of the unit with the bonds.
CREDIT RISK: The fundamental risk of investing that the issuer of a security may
not be able to meet its obligations to its investors, usually used in describing
the fundamental risk of debt securities. Nationally recognized statistical
rating organizations (NRSROs) rate debt securities on the ability of the issuer
to pay the interest and principal on the debt issued.
DEBT SECURITIES: Bonds and other debt instruments used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity.
DELAYED-DELIVERY SECURITIES: Refers to the delivery of securities later than the
customary delivery date.
DEPOSITORY RECEIPTS: Depository receipts are receipts evidencing ownership in
the underlying shares of a foreign company. Generally U.S. banks and trusts
issue American depository receipts (ADRs) and American depository shares (ADSs).
They hold the foreign company securities underlying the receipts in their
vaults. In addition to the underlying securities, the receipts entitle the
shareholder to all dividends and capital gains. The bank or trust company
issuing the receipts may have denominated the receipts in a currency other than
the currency underlying the foreign security. U.S. and European banks and trust
companies usually issue global depository receipts (GDRs), which are receipts in
the shares of a global offering of a foreign issuer who has issued two
securities simultaneously in two markets, usually publicly in a non-U.S. market
and privately in the U.S. market. European banks and trust companies generally
issue European depository receipts (EDRs), sometimes called continental
depository receipts (CDRs) when issued in bearer form, which evidence ownership
in foreign securities.
EQUITY: Ownership interest in a company; stocks represent the equity or amount
of ownership an investor has in the company issuing the stock.
FDIC: The Federal Deposit Insurance Corporation is an agency of the federal
government that guarantees individual deposits up to $100,000 at participating
banks and savings and loan associations.
FINANCIAL RISK: The fundamental risk of how a company will perform after
analyzing its balance sheet and income statements to forecast its future stock
price movements. Fundamental analysts consider past records of assets, earnings,
sales, product, management and markets in predicting future trends in these
indicators of a company's success or failure. There is a risk that the factors
affecting a company's performance will change, causing the company's stock to
underperform.
FUTURES CONTRACT: Agreement to buy or sell a specific amount of a commodity or
financial instrument at a particular price on a stipulated future date.
GENERAL OBLIGATION BONDS: Municipal bonds secured by the issuer's pledge of its
credit and taxing power for the payment of principal and interest.
INTEREST: The payment borrowers (i.e., bond issuers) make to lenders (i.e., bond
holders) for the use of their money, usually expressed as a percentage of the
amount borrowed (the principal). Usually interest is expressed as a rate per
period of time, typically one year, in which case it is called an annual rate of
interest.
INTEREST RATE RISK: The risk that a rise in the level of interest rates will
reduce the market value (price) of securities held, particularly bonds, in a
fund's portfolio. Typically, a bond pays a fixed rate of interest (called the
"coupon"). When interest rates rise in the economy the value of the coupon (the
amount of money received periodically on the bond) falls in comparison. As a
result, the price of the bond declines. In general, a decline in prevailing
interest rate levels increases the value of the securities, particularly the
bonds, held in a fund's portfolio and vice versa. Interest rate fluctuations
affect a fund's net asset value but not the income received from its existing
portfolio because the income paid on the bonds or other securities does not
change. However, changes in prevailing interest rates will affect the yields on
subsequently purchased securities.
INVESTMENT GRADE: A bond or other fixed-income security is considered investment
grade if it is rated investment grade by an NRSRO, such as BBB or better by D&P,
or S&P or Baa or better by Moody's.
LIQUIDITY: The ease and speed at which an investor or holder of the security can
sell or otherwise convert the security into cash.
MARGIN: Amount a customer deposits with a broker when borrowing from the broker
to buy securities.
MARKET CAPITALIZATION: The value of a corporation as determined by multiplying
the current market price of a share of common stock by the number of shares held
by shareholders. Thus, if a corporation has one million shares outstanding and
the market price of a share is $10, the market capitalization of the corporation
is $10 million.
MARKET RISK: The tendency of security prices to move together. The risk that a
broad market downturn will affect investments in a particular asset class.
MARKET VALUE: The price at which an investor can buy or sell a security at a
given time in an open market.
MATURITY: The date on which the principal of a debt obligation, such as a bond,
comes due and must be repaid.
MONEY MARKET MUTUAL FUND: Mutual funds that invest exclusively in money market
instruments.
MONEY MARKET INSTRUMENT: Short-term, liquid debt, such as Treasury bills and
commercial paper. The issuers sell these instruments at a discount but redeem
them at par. See Commercial Paper.
MORTGAGE AND ASSET-BACKED SECURITIES: Typically these securities consist of
interest in pools of mortgages or consumer loans that provide monthly payments
consisting of both interest and principal payments. In effect, these securities
"pass through" the monthly payments that individual borrowers make on their
mortgages or consumer loans net of any fees paid to the issuers or guarantors of
such securities. Mortgage-backed and/or asset-backed securities may make
additional payments due to principal prepayments made on the mortgages or loans,
refinancing or foreclosures on the underlying property. Mortgage-backed
securities also may include debt obligations collateralized by mortgage loans or
mortgage pass-through securities ("CMOs") and stripped mortgage-backed
securities, as well as other types of mortgage-backed securities. For more
information on mortgage-backed securities, please refer to the Statement of
Additional Information.
MUNICIPAL BONDS: Debt obligations issued by or on behalf of state government,
U.S. territories or possessions, the District of Columbia and their political
subdivisions, agencies and instrumentalities.
MUTUAL FUND: Also called an open-end investment company. People invest by
buying shares in the mutual fund, thereby pooling shareholders' money and
allowing the fund to invest in a number of securities. The fund distributes any
profits from these investments, after expenses, to the fund's shareholders.
Although shares in a fund are sold publicly, they are not traded on an open
exchange because a fund will buy and sell shares to meet investor demand. Since
the mutual fund can issue more shares, a mutual fund's capitalization is not
fixed but open.
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO): A company that
assesses the quality and potential performance of bonds, commercial paper,
preferred and common stocks and municipal short-term issues, and rates the
probability that the issuer of the debt will meet the scheduled interest
payments and repay the principal. Ratings are published by such companies as
Moody's Investors Service (Moody's), Standard & Poor's Corporation (S&P) and
Duff & Phelps, Inc. (D&P).
PRINCIPAL: The amount of an obligation (such as a bond or loan) that must be
repaid at maturity.
PORTFOLIO: Combined holdings of more than one stock, bond, commodity, real
estate investment, cash equivalent or other asset by an individual or
institutional investor. The purpose of a portfolio is to reduce risk by
diversification.
PORTFOLIO TURNOVER RATE: See Turnover on page 33.
PREFERRED STOCKS: Stocks with a fixed dividend that must be paid before the
dividends of common stock are paid.
RECORD DATE: Date on which a shareholder must officially own shares in order to
be entitled to a dividend.
REGULATED INVESTMENT COMPANY: Term used by the Internal Revenue Code to define a
mutual fund.
REPURCHASE AGREEMENT AND REVERSE REPURCHASE AGREEMENT: Agreement between a
seller and a buyer, usually of U.S. government securities, whereby the seller
agrees to repurchase the securities at an agreed upon price and, usually, at a
stated time. Such agreements, from the perspective of the buyer, are assets and
are referred to as "repurchase agreements" and from the perspective of the
seller, are liabilities and are referred to as "reverse repurchase agreements."
REVENUE BONDS: Municipal bonds that usually are payable only from the revenues
derived from a particular facility or class of facilities, or in some cases from
the proceeds of a special excise tax or other specific revenue source.
RISK: The possibility that an investor may lose all or part of his or her
investment, that the value of the investment will decrease, or that the investor
will receive little or no return on the investment. There are many kinds of
risk in investing. See Credit Risk, Financial Risk, Interest Rate Risk and
Market Risk.
SEC: The U.S. Securities and Exchange Commission.
SECURITIES: Financial instruments, usually stocks, bonds, money market
instruments or mutual fund shares issued by corporations, municipalities and
state, local or national governments or investment companies to raise or borrow
money or give the public an opportunity to participate in the growth of a
company.
STOCKS: See Equity on page 30.
TOTAL RETURN: The combination of the price change of an investment plus any
income (or other distributions), expressed as a percentage gain or loss in the
investment's value.
TRANSFER AGENT: An agent appointed by a mutual fund to maintain shareholder
records.
Trust: An arrangement that permits one party, the Trustee, to hold legal title
of and control property for the benefit of, another party, the beneficiary.
TURNOVER: Also called the Portfolio Turnover Rate. A measure of the amount of
buying and selling activity in a fund's portfolio. A portfolio turnover rate of
100% implies that an amount equal to the value of the entire portfolio is turned
over in a year. Market conditions, the portfolio manager's investment style,
the nature of the fund, and investor purchases and redemptions affect the
portfolio turnover rate.
12B-1 DISTRIBUTION FEE: The fee a mutual fund charges shareholders to cover the
expenses the fund has for shareholder service, advertising, promoting and
selling shares in the fund; also called distribution fee.
VARIABLE OR FLOATING RATE BONDS: Variable or floating rate debt obligations that
bear variable or floating interest rates. Floating rate instruments have
interest rates that change whenever there is a change in a designated base rate
while variable rate instruments provide for a specified periodic adjustment in
the interest rate. The interest rate formulas are designed to reduce the effect
of changing interest rates on the underlying market values of the instruments.
VOLATILITY: The measure of the rise and fall of a security's price over a stated
period of time.
WHEN-ISSUED SECURITIES: The term refers to a transaction made conditionally
because the security, although authorized, has not yet been issued. New issues
of stocks and bonds, stocks that have split and Treasury securities are all
traded on a when-issued basis.
YIELD: The income generated by an investment (from dividends or interest) over a
given period of time, expressed as a percentage of either cost or current price.
JohnsonFamily Funds, Inc.
Caller No. 2012
Racine, WI 53401-9988
