Securities Act Registration No. 333-45361
Investment Company Act Reg. No. 811-8627
__________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
__________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. __ [_]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 1 [X]
(Check appropriate box or boxes.)
______________________
JOHNSONFAMILY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
4041 North Main Street
Racine, Wisconsin 53402
(Address of Principal Executive Offices) (Zip Code)
414) 681-4770
(Registrant's Telephone Number, including Area Code)
Copy to:
Joan A. Burke Richard L. Teigen
JohnsonFamily Funds, Inc. Foley & Lardner
4041 North Main Street 777 East Wisconsin Avenue
Racine, Wisconsin 53402 Milwaukee, Wisconsin 53202
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission acting
pursuant to said Section 8(a) may determine.
<PAGE>
JOHNSONFAMILY FUNDS, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus and
the Statement of Additional Information of the responses to the Items of
Parts A and B of Form N-1A.)
Caption or Subheading in
Prospectus or Statement of
Item No. on Form N-1A Additional Information
PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Prospectus Summary;
JohnsonFamily Intermediate
Fixed Income Fund;
JohnsonFamily Large Cap
Equity Fund; JohnsonFamily
Small Cap Equity Fund;
JohnsonFamily International
Fund
3. Condensed Financial Information Yield and Performance
Information
4. General Description of Registrant Prospectus Summary;
JohnsonFamily Intermediate
Fixed Income Fund;
JohnsonFamily Large Cap
Equity Fund; JohnsonFamily
Small Cap Equity Fund;
JohnsonFamily International
Fund; Additional Investment
Factors and Risks Regarding
the Funds; Risks of
Investing in Foreign
Securities; Investment
Restrictions
5. Management of the Fund JohnsonFamily Intermediate
Fixed Income Fund;
JohnsonFamily Large Cap
Equity Fund; JohnsonFamily
Small Cap Equity Fund;
JohnsonFamily International
Fund; Management of the
Company; Administration;
Transfer and Dividend
Disbursing Agent; Custodian
and Independent Accountants
5A. Management's Discussion of Fund *
Performance
6. Capital Stock and Other Securities Dividends, Distributions
and Taxes; Organization and
Description of Shares;
Questions
7. Purchase of Securities Being Offered Buying Shares of the Funds;
Exchange Privilege; Net
Asset Value (NAV);
Dividends, Distributions
and Taxes; Distribution
Fees
8. Redemption or Repurchase Selling (Redeeming) Shares
of the Funds
9. Legal Proceedings *
PART B - INFORMATION REQUIRED IN STATEMENT
OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History *
13. Investment Objectives and Policies Investment Restrictions;
Investment Considerations
14. Management of the Fund Directors and Officers of
the Corporation
15. Control Persons and Principal Holders Principal Shareholders
of Securities
16. Investment Advisory and Other Investment Adviser,
Services Administrator, Custodian
and Transfer Agent;
Distribution of Shares;
Independent Accountants
17. Brokerage Allocation Allocation of Portfolio
Brokerage
18. Capital Stock and Other Securities Included in Prospectus
under "ORGANIZATION AND
DESCRIPTION OF SHARES"
19. Purchase, Redemption and Pricing of Included in Prospectus
Securities Being Offered under "BUYING SHARES OF THE
FUNDS"; "EXCHANGE
PRIVILEGE"; "NET ASSET
VALUE (NAV)"; "DIVIDENDS,
DISTRIBUTIONS AND TAXES";
"SELLING (REDEEMING) SHARES
OF THE FUNDS";
Determination of Net Asset
Value and Performance;
Distribution of Shares
20. Tax Status Taxes
21. Underwriters Distribution of Shares
22. Calculations of Performance Data Determination of Net Asset
Value and Performance
23. Financial Statements Financial Statements
_______________________
* Answer negative or inapplicable
J O H N S O N F A M I L Y
F U N D S
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 (collectively, the "Funds").
The Funds offer distinct investment opportunities designed to meet the
needs of investors. The Funds are as follows:
Equity-Oriented
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
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.
Table of Contents/Information
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . 2
JohnsonFamily Intermediate Fixed Income Fund . . . . . . . . . . . . 3
JohnsonFamily Large Cap Equity Fund . . . . . . . . . . . . . . . . . 5
JohnsonFamily Small Cap Equity Fund . . . . . . . . . . . . . . . . . 7
JohnsonFamily International Equity Fund . . . . . . . . . . . . . . . 9
Additional Investment Factors
and Risks Regarding the Funds . . . . . . . . . . . . . . . . . . . . 11
Risks of Investing in Foreign Securities . . . . . . . . . . . . . . 14
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . 15
Management of the Company . . . . . . . . . . . . . . . . . . . . . . 16
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Transfer And Dividend Disbursing Agent, Custodian
and Independent Accountants . . . . . . . . . . . . . . . . . . . . . 18
Buying Shares of the Funds . . . . . . . . . . . . . . . . . . . . . 18
Selling (Redeeming) Shares of the Funds . . . . . . . . . . . . . . . 20
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . . 20
Net Asset Value (NAV) . . . . . . . . . . . . . . . . . . . . . . . . 20
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . 20
Distribution Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Yield and Performance Information . . . . . . . . . . . . . . . . . . 22
Organization and Description of Shares . . . . . . . . . . . . . . . 22
Asset Allocation (Diversification) . . . . . . . . . . . . . . . . . 23
Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Glossary of Important Terms . . . . . . . . . . . . . . . . . . . . . 24
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
JohnsonFamily Intermediate
Fixed Income Fund . . . . Current income Investment Interest
consistent Grade Fixed rate and
with capital Income credit
preservation securities
JohnsonFamily Large Cap
Equity Fund . . . . . . . Long-Term Large Company Financial
Capital Stocks and market
Appreciation
JohnsonFamily Small Cap
Equity Fund . . . . . . . Long-Term Small Company Financial
Capital Stocks and market
Appreciation
JohnsonFamily
International Equity Fund Long-Term Foreign Financial,
Capital Stocks market and
Appreciation foreign
investment
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 3 years and 10 years. Such
securities may include, without limitation:
(1) 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");
(2) securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities; and
(3) mortgage-related securities, asset-backed securities and taxable
municipal bonds rated within the four highest ratings category by a
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 a 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 a 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.
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as 2.75%
a percentage of offering price)
Maximum sales charge imposed on reinvested None
dividends (as a percentage of net asset value)
Maximum deferred sales charge (as a percentage None
of net asset value)
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 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.
Annual Fund Operating Expenses (as a percentage of
average net assets)
Management fee 0.45%
12b-1 fees 0.25%(1)
Other expenses (net of reimbursement) 0.15%(2)
Total Fund Operating Expenses (net of
reimbursement) 0.85%(2)
(1) 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.
(2) 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.
Expense Example
1 year $36
3 years $54
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 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 under the caption "Additional Investment Factors and Risks
Regarding the Funds."
The Large Cap Equity Fund will invest in stocks of issuers that the
Adviser believes (i) are inexpensive relative to their industry sector;
(ii) are exhibiting flat or increasing earnings estimate revisions; and
(iii) 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.
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a 4.00%
percentage of offering price)
Maximum sales charge imposed on reinvested None
dividends (as a percentage of net asset value)
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 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.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fee 0.75%
12b-1 fees 0.25%(1)
Other expenses (net of reimbursement) 0.45%(2)
Total Fund Operating Expenses 1.45%(2)
(1) 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.
(2) 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.
Expense Example
1 year $54
3 years $84
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 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 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 under the caption "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.
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a 4.00%
percentage of offering price)
Maximum sales charge imposed on reinvested None
dividends (as a percentage of net asset value)
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 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.
Annual Fund Operating Expenses (as a percentage of
average net assets)
Management fee 0.75%
12b-1 fees 0.25%(1)
Other expenses 0.50%(2)
Total Fund Operating Expenses 1.50%(2)
(1) 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.
(2) 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.
Expense Example
1 year $55
3 years $86
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
6 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 under the caption "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.
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a 4.00%
percentage of offering price)
Maximum sales charge imposed on reinvested dividends None
(as a percentage of net asset value)
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.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fee 0.90%
12b-1 fees 0.25%(1)
Other expenses 0.70%(2)
Total Fund Operating Expenses 1.85%(2)
(1) 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.
(2) 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.
Expense Example
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 6 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 not be
generally 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 a 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. While the loan is
outstanding on each business day, 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 the Fund believes cannot be sold within
seven days in the normal course of business at approximately the amount at
which the Fund has valued or priced the securities and include securities
the 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 cost 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 an Investment Advisory Agreement 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 return 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(1)
(For the Period Ended December 31, 1997)
8 Years(2) 5 Years 3 Years 1 Year
Large Cap Accounts 16.13% 19.05% 30.46% 36.20%
S&P 500/R/ (3) 16.63% 20.27% 31.15% 33.36%
Fixed Income Accounts 8.19% 6.68% 9.20% 8.44%
Lehman Brothers
Intermediate Government/
Corporate Bond Index(4) 7.99% 6.65% 8.98% 7.87%
(1) 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.
(2) Since inception.
(3) The S&P 500/R/ 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.
(4) The Lehman Brothers Intermediate Government/Corporate Bond Index
includes fixed rate U.S. Treasury, U.S. government agency and U.S.
corporate debt and dollar denominated debt securities of certain
foreign entities with maturities no greater than ten years.
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, Wisconsin
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. and Sunstone Distribution Services, LLC, 207 East Buffalo Street,
Suite 400, 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 Avenue, 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
Sales Charge as Sales Charge as
a Percentage a Percentage Reallowance to
Amount of Transaction of Offering of Net Asset Selected
at Offering Price Price Value Dealers
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
Sales Charge as Sales Charge as
a Percentage a Percentage Reallowance to
Amount of Transaction of Offering of Net Asset Selected
at Offering Price Price Value Dealers
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 reduce 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: (a) the dollar amount of the then current purchase of shares of
a Fund; and (b) 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, the shares will be held in escrow
shares 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; immediate
family members of each of the foregoing; clients of the Adviser; and
fiduciary accounts and agency accounts of Bank Affiliates 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 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 Code provides for a three-tiered tax
rate structure for long-term capital gains dependent upon the Fund's
holding period of the underlying financial instrument or capital asset.
The Funds distribute substantially all of their net investment income and
any net realized capital gains, if any, for the Funds as follows:
Capital
Dividends Gains
Fund (if any) (if any)
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 gain 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:
(i) to one vote per full share; (ii) to such distributions as may be
declared by the Company's Board of Directors out of funds legally
available; and (iii) 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 in respect of
that Fund and of that Fund's shares of the general liabilities of the
Funds in the proportion that the total net assets of the Fund bear to the
total net assets of all Funds. 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 Fund, 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, below.
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 represents the equity or
amount of ownership an investor has in the company issuing the stocks.
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 factors affecting a company's performance will
change, causing the company's stock to under-perform.
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 a 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 the fund are sold publicly, they
are not traded on an open exchange because the fund will buy and sell
shares to meet investor demand. Since the mutual fund can issue more
shares, the 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 below.
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 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.
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 and issue share certificates.
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 rate 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.
STATEMENT OF ADDITIONAL INFORMATION March 27, 1998
JOHNSONFAMILY FUNDS, INC.
4041 North Main Street
Racine, Wisconsin 53402
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus of JohnsonFamily Funds,
Inc., dated March 27, 1998 (the "Prospectus"). Requests for copies of the
Prospectus should be made by writing to JohnsonFamily Funds, Inc., Caller
No. 2012, Racine, Wisconsin 53401-9988, Attention: Secretary.
JOHNSONFAMILY FUNDS, INC.
Table of Contents
Page No.
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . 3
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . 15
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 17
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN AND TRANSFER
AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE . . . . . . . 20
DISTRIBUTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . 23
ALLOCATION OF PORTFOLIO BROKERAGE . . . . . . . . . . . . . . . . . . 23
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SHAREHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . 27
DESCRIPTION OF SECURITIES RATINGS . . . . . . . . . . . . . . . . . . 28
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . 33
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 33
No person has been authorized to give any information or to make
any representations other than those contained in this Statement of
Additional Information and the Prospectus dated March 27, 1998, and, if
given or made, such information or representations may not be relied upon
as having been authorized by JohnsonFamily Funds, Inc.
This Statement of Additional Information does not constitute an
offer to sell securities.
INVESTMENT RESTRICTIONS
As set forth in the Prospectus dated March 27, 1998 of
JohnsonFamily Funds, Inc. (the "Corporation") the investment objective of
JohnsonFamily Intermediate Fixed Income Fund (the "Fixed Income Fund") is
current income consistent with preservation of capital. The JohnsonFamily
Large Cap Equity Fund seeks long-term capital appreciation primarily by
investing in equity securities of large capitalization companies. The
JohnsonFamily Small Cap Equity Fund seeks long-term capital appreciation
by investing primarily in equity securities of small capitalization
companies. The investment objective of the JohnsonFamily International
Equity Fund is long-term capital appreciation by investing primarily in
equity securities of non-U.S. issuers. Consistent with these investment
objectives, each Fund has adopted the following investment restrictions
which are matters of fundamental policy and cannot be changed without
approval of the holders of the lesser of: (i) 67% of the Fund's shares
present or represented at a stockholders meeting at which the holders of
more than 50% of such shares are present or represented; or (ii) more than
50% of the outstanding shares of the Fund.
1. The Funds will not purchase securities on margin (except
for such short term credits as are necessary for the clearance of
transactions); provided, however, that the Funds may borrow money to the
extent set forth in investment restriction no. 4.
2. The Funds may sell securities short to the extent permitted
by the Investment Company Act of 1940 (the "Act").
3. The Funds may write put and call options to the extent
permitted by the Act.
4. None of the Funds will borrow money or issue senior
securities, except for temporary bank borrowings (not in excess of 10% of
the value of a Fund's net assets) or for emergency or extraordinary
purposes.
5. Each Fund may pledge or hypothecate its assets to secure
its borrowings.
6. The Funds will not lend money (except by purchasing
publicly distributed debt securities, purchasing securities of a type
normally acquired by institutional investors or entering into repurchase
agreements) and will not lend their portfolio securities, unless such
loans are secured continuously by collateral at least equal to the market
value of the securities loaned in the form of cash and/or securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, and provided that no such loan will be made if upon
making of such loan more than 30% of the value of the Fund's total assets
would be subject to such loans.
7. The Funds will not make investments for the purpose of
exercising control or management of any company.
8. The Funds will not purchase securities of any issuer (other
than the United States or an instrumentality of the United States) if, as
a result of such purchase, a Fund would hold more than 10% of any class of
securities, including voting securities, of such issuer or more than 5% of
a Fund's total assets, taken at current value, would be invested in
securities of such issuer, except that up to 25% of each Fund's total
assets may be invested without regard to these limitations.
9. No Fund will invest 25% or more of the value of its total
assets, determined at the time an investment is made, exclusive of U.S.
government securities, in securities issued by companies primarily engaged
in the same industry. In determining industry classifications the Funds
will use the current Directory of Companies Filing Annual Reports with the
Securities and Exchange Commission except to the extent permitted by the
Act.
10. No Fund will act as an underwriter or distributor of
securities other than shares of the Fund (except to the extent that the
Funds may be deemed to be underwriters within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), in the
disposition of restricted securities).
11. The Funds will not purchase or sell real estate or real
estate mortgage loans or real estate limited partnerships.
12. The Funds will not purchase or sell commodities or
commodity contracts, except that each Fund may invest in futures contracts
and options on futures contracts.
The Funds have adopted certain other investment restrictions
which are not fundamental policies and which may be changed by the
Corporation's Board of Directors without shareholder approval. These
additional restrictions are as follows:
1. No Fund will invest more than 15% of the value of its net
assets in illiquid securities.
2. The Funds will not purchase the securities of other
investment companies except: (a) as part of a plan of merger,
consolidation or reorganization approved by the stockholders of a Fund;
(b) securities of registered open-end investment companies that invest
exclusively in high quality, short-term debt securities; or (c) securities
of registered closed-end investment companies on the open market where no
commission results, other than the usual and customary broker's
commission. No purchases described in (b) and (c) will be made if as a
result of such purchases (i) a Fund and its affiliated persons would hold
more than 3% of any class of securities, including voting securities, of
any registered investment company; (ii) more than 5% of a Fund's net
assets would be invested in shares of any one registered investment
company; and (iii) more than 10% of a Fund's net assets would be invested
in shares of registered investment companies.
3. The Funds will not acquire or retain any security issued by
a company, an officer or director of which is an officer or director of
the Fund or an officer, director or other affiliated person of its
investment adviser, without authorization of the Corporation's Board of
Directors.
4. The Funds will not purchase any interest in any oil, gas or
other mineral leases or any interest in any oil, gas or any other mineral
exploration or development program.
The aforementioned percentage restrictions on investment or
utilization of assets refer to the percentage at the time an investment is
made. If these restrictions (other than those relating to borrowing of
money or issuing senior securities) are adhered to at the time an
investment is made, and such percentage subsequently changes as a result
of changing market values or some similar event, no violation of a Fund's
fundamental restrictions will be deemed to have occurred. Any changes in
a Fund's investment restrictions made by the Board of Directors will be
communicated to shareholders prior to their implementation.
INVESTMENT CONSIDERATIONS
Illiquid Securities
Each Fund may invest up to 15% of its net assets in securities
for which there is no readily available market ("illiquid securities").
The 15% limitation includes certain securities whose disposition would be
subject to legal restrictions ("restricted securities"). However certain
restricted securities that may be resold pursuant to Rule 144A under the
Securities Act may be considered liquid. The Board of Directors of the
Corporation has delegated to Johnson Asset Management, Inc. (the
"Adviser") the day-to-day determination of the liquidity of a security
although it has retained oversight and ultimate responsibility for such
determinations. The Board of Directors has directed the Adviser to
consider such factors as (i) the nature of the market for a security,
(including the institutional private resale markets); (ii) the terms of
the securities or other instruments allowing for the disposition to a
third party or the issuer thereof (e.g. certain repurchase obligations and
demand instruments); (iii) the availability of market quotations; and (iv)
other permissible factors in determining the liquidity of a security.
Restricted securities may be sold in privately negotiated or
other exempt transactions or in a public offering with respect to which a
registration statement is in effect under the Securities Act. When
registration is required, a Fund may be obligated to pay all or part of
the registration expenses and a considerable time may elapse between the
decision to sell and the sale date. If, during such period, adverse
market conditions were to develop, a Fund might obtain a less favorable
price than the price which prevailed when it decided to sell. Restricted
securities, if considered to be illiquid, will be priced at fair value as
determined in good faith by the Board of Directors.
Short Sales
The Funds may seek to realize additional gains through short
sale transactions in securities listed on one or more national securities
exchanges, or in unlisted securities. Short selling involves the sale of
borrowed securities. At the time a short sale is effected, a Fund incurs
an obligation to replace the security borrowed at whatever its price may
be at the time the Fund purchases it for delivery to the lender. The
price at such time may be more or less than the price at which the
security was sold by the Fund. Until the security is replaced, the Fund
is required to pay the lender amounts equal to any dividend or interest
which accrue during the period of the loan. To borrow the security, the
Fund also may be required to pay a premium, which would increase the cost
of the security sold. The proceeds of the short sale will be retained by
the broker, to the extent necessary to meet margin requirements, until the
short position is closed.
No short sale will be effected which will, at the time of making
such short sale transaction and giving effect thereto, cause the aggregate
market value of all securities sold short to exceed 5% of the value of a
Fund's net assets. Until a Fund closes its short position or replaces the
borrowed security, the Fund will: (a) maintain a segregated account
containing cash or liquid securities at such a level that the amount
deposited in the account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short; or (b)
otherwise cover the Fund's short position.
Lending of Portfolio Securities
In order to generate additional income, each Fund may lend
portfolio securities constituting up to 30% of its total assets to
unaffiliated broker-dealers, banks or other recognized institutional
borrowers of securities, provided that the borrower at all times maintains
cash, U.S. government securities or equivalent collateral or provides an
irrevocable letter of credit in favor of the Fund equal in value to at
least 100% of the value of the securities loaned. During the time
portfolio securities are on loan, the borrower pays the Fund an amount
equivalent to any dividends or interest paid on such securities, and the
Fund may receive an agreed-upon amount of interest income from the
borrower who delivered equivalent collateral or provided a letter of
credit. Loans are subject to termination at the option of the Fund or the
borrower. The Funds may pay reasonable administrative and custodial fees
in connection with a loan of portfolio securities and may pay a negotiated
portion of the interest earned on the cash or equivalent collateral to the
borrower or placing broker. The Funds do not have the right to vote
securities on loan, but could terminate the loan and regain the right to
vote if that were considered important with respect to the investment.
The primary risk in securities lending is a default by the
borrower during a sharp rise in price of the borrowed security resulting
in a deficiency in the collateral posted by the borrower. The Funds will
seek to minimize this risk by requiring that the value of the securities
loaned be computed each day and additional collateral be furnished each
day if required.
High Yield Convertible Securities
Each equity Fund may invest up to 5% of its net assets in high
yield, high risk, lower-rated convertible securities, commonly known as
"junk bonds." Investments in such securities are subject to greater
credit risks than higher rated securities. Debt securities rated below
investment grade have greater risks of default than investment grade debt
securities (including medium grade debt securities, and may in fact, be in
default. Issuers of "junk bonds" must offer higher yields to compensate
for the greater risk of default on the payment of principal and interest.
The market for high yield convertible securities is subject to
substantial volatility. An economic downturn or increase in interest
rates may have a more significant effect on high yield convertible
securities and their markets, as well as on the ability of securities'
issuers to repay principal and interest, than on higher-rated securities
and their issuers. Issuers of high yield convertible securities may be of
low creditworthiness and the high yield convertible securities may be
subordinated to the claims of senior lenders. During periods of economic
downturn or rising interest rates the issuers of high yield convertible
securities may have greater potential for insolvency and a higher
incidence of high yield bond defaults may be experienced. From 1989 to
1991, the percentage of high yield securities that defaulted rose
significantly above prior default levels. The default rate has decreased
subsequently.
The prices of high yield convertible securities have been found
to be less sensitive to interest rate changes than higher-rated
investments but are more sensitive to adverse economic changes or
individual corporate developments because of their lower credit quality.
During an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and
interest payment obligations, to meet projected business goals, and to
obtain additional financing. If the issuer of a high yield convertible
security owned by a Fund defaults, the Fund may incur additional expenses
in seeking recovery. Periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of high yield
convertible securities and a Fund's net asset value. Yields on high yield
convertible securities will fluctuate over time. Furthermore, in the case
of high yield convertible securities structured as zero coupon or pay-in-
kind securities, their market prices are affected to a greater extent by
interest rate changes and thereby tend to be more volatile than market
prices of securities which pay interest periodically and in cash.
The secondary market for high yield convertible securities may
at times become less liquid or respond to adverse publicity or investor
perceptions making it more difficult for a Fund to value accurately high
yield convertible securities or dispose of them. To the extent the Fund
owns or may acquire illiquid or restricted high yield convertible
securities, these securities may involve special registration
responsibilities, liabilities and costs, and liquidity difficulties, and
judgment will play a greater role in valuation because there is less
reliable and objective data available.
Special tax considerations are associated with investing in high
yield bonds structured as zero coupon or pay-in-kind securities. A Fund
will report the interest on these securities as income even though it
receives no cash interest until the security's maturity or payment date.
Further, the Fund must distribute substantially all of its income to its
shareholders to qualify for pass-through treatment under the tax law.
Accordingly, a Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash or may have to borrow to
satisfy distribution requirements.
Credit ratings evaluate the safety of principal and interest
payments, not the market value risk of high yield convertible securities.
Since credit rating agencies may fail to timely change the credit ratings
to reflect subsequent events, the Adviser monitors the issuers of high-
yield convertible securities in the portfolio to determine if the issuers
will have sufficient cash flow and profits to meet required principal and
interest payments, and to attempt to assure the securities' liquidity so
the Funds can meet redemption requests. To the extent that a Fund invests
in high yield convertible securities, the achievement of its investment
objective may be more dependent, on the Adviser's own credit analysis than
is the case for higher quality bonds. A Fund may retain a portfolio
security whose rating has been changed.
Mortgage-Backed and Asset-Backed Securities
Each of the Funds may purchase residential and commercial
mortgage-backed as well as other asset-backed securities (collectively
called "asset-backed securities") that are secured or backed by automobile
loans, installment sale contracts, credit card receivables or other assets
and are issued by entities such as Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA"),
Federal Home Loan Mortgage Corporation ("FHLMC"), commercial banks,
trusts, financial companies, finance subsidiaries of industrial companies,
savings and loan associations, mortgage banks and investment banks. These
securities represent interests in pools of assets in which periodic
payments of interest and/or principal on the securities are made, thus, in
effect passing through periodic payments made by the individual borrowers
on the assets that underlie the securities, net of any fees paid to the
issuer or guarantor of the securities. The average life of these
securities varies with the maturities and the prepayment experience of the
underlying instruments.
There are a number of important differences among the agencies
and instrumentalities of the U.S. government that issue mortgage-backed
securities and among the securities that they issue. Mortgage-backed
securities guaranteed by GNMA include GNMA Mortgage Pass-Through
Certificates (also known as "Ginnie Maes") which are guaranteed as to the
timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a
wholly-owned U.S. Government corporation within the Department of Housing
and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments
under its guarantee. Mortgage-backed securities issued by FNMA include
FNMA Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie
Maes") which are solely the obligations of FNMA and are not backed by or
entitled to the full faith and credit of the United States, but are
supported by the right of the issuer to borrow from the Treasury. FNMA is
a government-sponsored organization owned entirely by private
stockholders. Fannie Maes are guaranteed as to timely payment of the
principal and interest by FNMA. Mortgage-backed securities issued by the
FHLMC include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the
United States, created pursuant to an Act of Congress. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Bank and
do not constitute a debt or obligation of the United States or of any
Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment
of interest, which is guaranteed by the FHLMC. FHLMC guarantees either
ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment
of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an
underlying mortgage, but in no event later than one year after it becomes
payable.
Each of the Funds may also purchase mortgage-backed securities
structured as CMOs. CMOs are issued in multiple classes and their
relative payment rights may be structured in many ways. In many cases,
however, payments of principal are applied to the CMO classes in order of
their respective maturities, so that no principal payments will be made on
a CMO class until all other classes having an earlier maturity date are
paid in full. The classes may include accrual certificates (also known as
"Z-Bonds"), which do not accrue interest at a specified rate until other
specified classes have been retired and are converted thereafter to
interest-paying securities. They may also include planned amortization
classes ("PACs") which generally require, within certain limits, that
specified amounts of principal be applied to each payment date, and
generally exhibit less yield and market volatility than other classes.
The classes may include "IOs" which pay distributions consisting solely or
primarily for all or a portion of the interest in an underlying pool of
mortgages or mortgage-backed securities. "POs" which pay distributions
consisting solely or primarily of all or a portion of principal payments
made from the underlying pool of mortgages or mortgage-backed securities,
and "inverse floaters" which have a coupon rate that moves in the reverse
direction to an applicable index.
Investments in CMO certificates can expose the Funds to greater
volatility and interest rate risk than other types of mortgage-backed
obligations. Among tranches of CMOs, inverse floaters are typically more
volatile than fixed or adjustable rate tranches of CMOs. Investments in
inverse floaters could protect a Fund against a reduction in income due to
a decline in interest rates. A Fund would be adversely affected by the
purchase of an inverse floater in the event of an increase in interest
rates because the coupon rate thereon will decrease as interest rates
increase, and like other mortgage-backed securities, the value of an
inverse floater will decrease as interest rates increase. The cash flows
and yields on IO and PO classes are extremely sensitive to the rate of
principal payments (including prepayments) on the related underlying pool
of mortgage loans or mortgage-backed securities. For example, a rapid or
slow rate of principal payments may have a material adverse effect on the
yield to maturity of IOs or POs, respectively. If the underlying assets
experience greater than anticipated prepayments of principal, the holder
of an IO may incur substantial losses irrespective of its rating.
Conversely, if the underlying assets experience slower than anticipated
prepayments of principal, the yield and market value for the holders of a
PO will be affected more severely than would be the case with a
traditional mortgage-backed security. Prepayments on mortgage-backed
securities generally increase with falling interest rates and decrease
with rising interest rates. Prepayments are also influenced by a variety
of other economic and social factors.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal
amount of the obligations may be prepaid at any time because the
underlying assets (i.e., loans) generally may be prepaid at any time. As
a result, if an asset-backed security is purchased at a premium, a
prepayment rate that is faster than expected may reduce yield to maturity,
while a prepayment rate that is slower than expected may have the opposite
effect of increasing yield to maturity. Conversely, if an asset-backed
security is purchased at a discount, faster than expected prepayments may
increase, while slower than expected prepayments may decrease, yield to
maturity.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage loans. Like other fixed
income securities, when interest rates rise the value for an asset-backed
security generally will decline; however, when interest rates decline, the
value of an asset-backed security with prepayment features may not
increase as much as that of other fixed income securities.
Hedging Instrument
Each of the Funds may engage in options, futures and options on
futures transactions that constitute bona fide hedging or other
permissible risk management transactions.
Futures Contracts. When a Fund purchases a futures contract, it
agrees to purchase a specified underlying instrument at a specified future
date. When a Fund sells a futures contract, it agrees to sell the
underlying instrument at a specified future date. The price at which the
purchase and sale will take place is fixed when the Fund enters into the
contract. Futures can be held until their delivery dates, or can be
closed out before the delivery date if a liquid secondary market is
available.
The value of a futures contract tends to increase and decrease
in tandem with the value of its underlying instrument. Therefore,
purchasing futures contracts will tend to increase a Fund's exposure to
positive and negative price fluctuations in the underlying instrument,
much as if the Fund had purchased the underlying instrument directly.
When a Fund sells a futures contract, by contrast, the value of its future
position will tend to move in a direction contrary to the market. Selling
futures contracts, therefore, will tend to offset both positive and
negative market price changes, much as if the underlying instrument had
been sold.
Futures Margin Payments. The purchaser or seller of a futures
contract is not required to deliver or pay for the underlying instrument
unless the contract is held until the delivery date. However, both the
purchaser and seller are required to deposit "initial margin" with a
futures broker, known as a Futures Commission Merchant ("FCM"), when the
contract is entered into. Initial margin deposits are equal to a
percentage of the contract's value. If the value of either party's
position declines, that party will be required to make additional
"variation margin" payments to settle the change in value on a daily
basis. The party that has a gain may be entitled to receive all or a
portion of this amount. Initial and variation margin payments do not
constitute purchasing securities on margin for purposes of the Funds'
investment limitations. In the event of the bankruptcy of an FCM that
holds margin on behalf of a Fund, the Fund may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's
other customers, potentially resulting in losses to the Fund.
Purchasing Put and Call Options. By purchasing a put option, a
Fund obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this right,
the Fund pays the current market price for the option (known as the option
premium). Each Fund may purchase options on futures contracts as well as
options on securities and stock indices. Each of the Funds may terminate
its position in a put option it has purchased by allowing it to expire or
by exercising the option. If the option is allowed to expire, the Fund
will lose the entire premium it paid. If a Fund exercises the option, it
completes the sale of the underlying instrument at the strike price. A
Fund may also terminate a put option position by closing it out in the
secondary market at its current price, if a liquid secondary market
exists. The buyer of a put option can expect to realize a gain if
security prices fall substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of purchasing
the option, a put buyer can expect to suffer a loss (limited to the amount
of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those
of put options, except that the purchaser of a call option obtains the
right to purchase, rather than sell, the underlying instrument at the
option's strike price. A call buyer attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
Stock Index Options. Stock index options are put options and
call options on various stock indexes. In most respects, they are
identical to listed options on common stocks. The primary difference
between stock options and index options occurs when index options are
exercised. In the case of stock options the underlying security, common
stock, is delivered. However, upon the exercise of an index option,
settlement does not occur by delivery of the securities comprising the
index. The option holder who exercises the index option receives an
amount of cash if the closing level of the stock index upon which the
option is based is greater than in the case of a call, or less than, in
the case of a put, the exercise price of the option. This amount of cash
is equal to the difference between the closing price of the stock index
and the exercise price of the option expressed in dollars times a
specified multiple. A stock index fluctuates with changes in the market
value of the stocks included in the index. For example, some stock index
options are based on a broad market index, such as the Standard & Poor's
500 or the Value Line Composite Index, or a narrower market index, such as
the Standard & Poor's 100. Indexes also may be based on an industry or
market segment, such the AMEX Oil and Gas Index or the Computer and
Business Equipment Index. Options on stock indexes are currently traded
on the following exchanges: the Chicago Board Options Exchange, the New
York Stock Exchange, the American Stock Exchange, the Pacific Stock
Exchange, and the Philadelphia Stock Exchange.
Writing Call and Put Options. When a Fund writes a call option,
it receives a premium and agrees to sell the related investments to a
purchaser of the call during the call period (usually not more than nine
months) at a fixed exercise price (which may differ from the market price
of the related investments) regardless of market price changes during the
call period. If the call is exercised, the Fund forgoes any gain from an
increase in the market price over the exercise price. When writing an
option on a futures contract, a Fund will be required to make margin
payments to an FCM as described above for futures contracts.
To terminate its obligations on a call which it has written, a
Fund may purchase a call in a "closing purchase transaction". (As
discussed above, the Funds may also purchase calls other than as part of
such closing transactions.) A profit or loss will be realized depending
on the amount of option transaction costs and whether the premium
previously received is more or less than the price of the call purchased.
A profit may also be realized if the call lapses unexercised, because the
Fund retains the premium received. Any such profits are considered short-
term gains for federal income tax purposes and, when distributed, are
taxable as ordinary income.
Generally writing calls is a profitable strategy if prices
remain the same or fall. Through receipt of the option premium, a call
writer mitigates the effects of a price decline. At the same time,
because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
When a Fund writes a put option, it takes the opposite side of
the transaction from the option's purchaser. In return for receipt of a
premium, the Fund assumes the obligation to pay the strike price for the
option's underlying instrument if the other party to the option chooses to
exercise it. The Funds may only write covered puts. For a put to be
covered, a Fund must maintain in a segregated account cash or liquid
assets equal to the option price. A profit or loss will be realized
depending on the amount of option transaction costs and whether the
premium previously received is more or less than the put purchased in a
closing purchase transaction. A profit may also be realized if the put
lapses unexercised because the Fund retains the premium received. Any
such profits are considered short-term gains for federal income tax
purposes and, when distributed, are taxable as ordinary income.
Combined Option Positions. The Funds may purchase and write
options (subject to the limitations discussed above) in combination with
each other to adjust the risk and return characteristics of the overall
position. For example, a Fund may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a
futures contract. Another possible combined position would involve
writing a call option at one strike price and buying a call option at a
lower price, in order to reduce the risk of the written call option in the
event of a substantial price increase. Because combined options involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
Correlation of Price Changes. Because there are a limited
number of types of exchange-traded options and futures contracts, it is
likely that the standardized contracts available will not match the
applicable Fund's current or anticipated investments. Each of the Funds
may invest in options and futures contracts based on securities which
differ from the securities in which it typically invests. This involves a
risk that the options or futures position will not track the performance
of the Fund's investments.
Options and futures prices can also diverge from the prices of
their underlying instruments, even if the underlying instruments match the
applicable Fund's investments well. Options and future prices are
affected by such factors as current and anticipated short-term interest
rates, changes in volatility of the underlying instrument, and the time
remaining until expiration of the contract, which may not affect security
prices the same way. Imperfect correlation may also result from differing
levels of demand in the options and futures markets and the securities
markets, from structural differences in how options and futures and
securities are traded, or from imposition of daily price fluctuation
limits or trading halts. Each of the Funds may purchase or sell options
and futures contracts with a greater or lesser value than the securities
it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in historical volatility between the contract
and the securities, although this may not be successful in all cases. If
price changes in the applicable Funds' options or futures positions are
poorly correlated with its other investments, the positions may fail to
produce anticipated gains or result in losses that are not offset by gains
in other investments. Successful use of these techniques requires skills
different from those needed to select portfolio securities.
Liquidity of Options and Futures Contracts. There is no
assurance a liquid secondary market will exist for any particular options
or futures contract at any particular time. Options may have relatively
low trading volume and liquidity if their strike prices are not close to
the underlying instrument's current price. In addition, exchanges may
establish daily price fluctuation limits for options and futures
contracts, and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days
when the price fluctuation limit is reached or a trading halt is imposed,
it may be impossible for a Fund to enter into new positions or close out
existing positions. If the secondary market for a contract is not liquid
because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the
Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, a Fund's access to other
assets held to cover its options or futures positions could also be
impaired.
Asset Coverage for Futures and Option Positions. Each of the
Funds will comply with guidelines established by the Securities and
Exchange Commission with respect to coverage of options and futures
strategies by mutual funds, and if the guidelines so require will set
aside cash or liquid securities in a segregated custodial account in the
amount prescribed. Securities held in a segregated account cannot be sold
while the futures or option strategy is outstanding, unless they are
replaced with other suitable assets. As a result, there is a possibility
that segregation of a portion of a Fund's assets could impede portfolio
management or such Fund's ability to meet redemption requests or other
current obligations.
Special Risks of Hedging and Income Enhancement Strategies.
Participation in the options or futures markets involves investment risks
and transactions costs to which a Fund would not be subject absent the use
of these strategies. In particular, the loss from investing in futures
contracts is potentially unlimited. If the Adviser's prediction of
movements in the direction of the securities and interest rate markets are
inaccurate, the adverse consequences to the Fund may leave the Fund in a
worse position than if such strategies were not used. Risks inherent in
the use of futures contracts and options on futures contracts include:
(1) dependence on the Adviser's ability to predict correctly movements in
the direction of interest rates, securities prices and currency markets;
(2) imperfect correlation between the price of options and futures
contracts and options thereon and movements in the prices of the
securities being hedged; (3) the fact that skills needed to use these
strategies are different from those needed to select portfolio securities;
and (4) the possible absence of a liquid secondary market for any
particular instrument at any time.
Depository Receipts
Each of the Funds may invest in American Depository Receipts
("ADRs"). ADR facilities may be either "sponsored" or "unsponsored".
While similar, distinctions exist relating to the rights and duties of ADR
holders and market practices. A depository may establish an unsponsored
facility without the participation by or consent of the issuer of the
deposited securities, although a letter of non-objection from the issuer
is often requested. Holders of unsponsored ADRs generally bear all the
costs of such facility, which can include deposit and withdrawal fees,
currency conversion fees and other service fees. The depository of an
unsponsored facility may be under no duty to distribute shareholder
communications from the issuer or to pass through voting rights. Issuers
of unsponsored ADRs are not obligated to disclose material information in
the U.S. and, therefore, there may be not be a correlation between such
information and the market value of the ADR. Sponsored facilities enter
into an agreement with the issuer that sets out rights and duties of the
issuer, the depository and the ADR holder. This agreement also allocates
fees among the parties. Most sponsored agreements also provide that the
depository will distribute shareholder notices, voting instruments and
other communications. Each of the Funds may invest in sponsored and
unsponsored ADRs.
In addition to ADRs, each of the Funds may hold foreign
securities in the form of American Depository Shares ("ADSs"), Global
Depository Receipts ("GDRs") and European Depository Receipts ("EDRs"), or
other securities convertible into foreign securities. These receipts may
not be denominated in the same currency as the underlying securities.
Generally, American banks or trust companies issue ADRs and ADSs, which
evidence ownership of underlying foreign securities. GDRs represent
global offerings where an issuer issues two securities simultaneously in
two markets, usually publicly in a non-U.S. market and privately in the
U.S. market. EDRs (sometimes called Continental Depository Receipts
("CDRs")) are similar to ADRs, but usually issued in Europe. Typically
issued by foreign banks or trust companies, EDRs and CDRs evidence
ownership of foreign securities. Generally, ADRs and ADSs in registered
form trade in the U.S. securities markets, GDRs in the U.S. and European
markets, and EDRs and CDRs (in bearer form) in European markets.
Classification of Foreign Markets
Foreign markets are often classified as mature or emerging. The
countries in which the Funds may invest are classified below. The Funds
also may invest in additional countries when such investments are
consistent with the Fund's objective and policies.
Mature: Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Hong Kong, Ireland, Italy, Japan,
Luxembourg, Netherlands, New Zealand, Norway, Singapore,
Spain, Sweden, Switzerland, United Kingdom and United
States.
Emerging: Argentina, Brazil, Chile, China, Czech Republic, Ecuador,
Greece, Hungary, India, Indonesia, Jamaica, Kenya, Israel,
Jordan, Malaysia, Mexico, Morocco, Nigeria, Pakistan,
People's Republic of China, Peru, Philippines, Poland,
South Africa, South Korea, Sri Lanka, Taiwan, Thailand,
Turkey, Uruguay, Venezuela and Vietnam.
Foreign Currency Transactions
To manage the currency risk accompanying investments in foreign
securities and to facilitate the purchase and sale of foreign securities,
the Funds may engage in foreign currency transactions on a spot (cash)
basis at the spot rate prevailing in the foreign currency exchange market
or through entering into contracts to purchase or sell foreign currencies
at a future date ("forward foreign currency" contracts or "forward"
contracts).
A forward foreign currency contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are
principally traded in the inter-bank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement and no commissions
are charged at any stage for trades.
When a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward contract
for the purchase or sale of a fixed amount of U.S. dollars equal to the
amount of foreign currency involved in the underlying security
transaction, the Fund can protect itself against a possible loss,
resulting from an adverse change in the relationship between the U.S.
dollar and the subject foreign currency during the period between the date
the security is purchased or sold and the date on which the payment is
made or received.
When the Adviser believes that a particular foreign currency may
suffer a substantial decline against the U.S. dollar, they may enter into
a forward contract to sell a fixed amount of the foreign currency
approximating the value of some or all of a Fund's portfolio securities
denominated in such foreign currency. The precise matching of the forward
contract amounts and the value of the securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value
of those securities between the date the forward contract is entered into
and the date it matures. The projection of short-term currency market
movement is extremely difficult and the successful execution of a short-
term hedging strategy is highly uncertain. A Fund will not enter into
such forward contracts or maintain a net exposure to such contracts where
the consummation of the contracts would obligate the Fund to deliver an
amount of foreign currency in excess of the value of the Fund's securities
or other assets denominated in that currency. Under normal circumstances,
the Adviser considers the long-term prospects for a particular currency
and incorporate the prospects into its overall long-term diversification
strategies. The Adviser believes that it is important to have the
flexibility to enter into such forward contracts when it determines that
the best interests of a Fund will be served.
At the maturity of a forward contract, a Fund may either sell
the portfolio securities and make delivery of the foreign currency, or it
may retain the securities and terminate its contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract
obligating it to purchase, on the same maturity date, the same amount of
foreign currency.
If a Fund retains the portfolio securities and engages in an
offsetting transaction, the Fund will incur a gain or a loss to the extent
that there has been movement in forward contract prices. If a Fund
engages in an offsetting transaction, it may subsequently enter into a
forward contract to sell the foreign currency. Should forward prices
decline during the period when the Fund entered into the forward contract
for the sale of a foreign currency and the date it entered into an
offsetting contract for the purchase of the foreign currency, the Fund
will realize a gain to the extent the price of the currency it has agreed
to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Fund will suffer a loss to the extent
that the price of the currency it has agreed to purchase exceeds the price
of the currency it has agreed to sell.
Shareholders should note that: (1) foreign currency hedge
transactions do not protect against or eliminate fluctuations in the
prices of particular portfolio securities (i.e., if the price of such
securities declines due to an issuer's deteriorating credit situation);
and (2) it is impossible to forecast with precision the market value of
securities at the expiration of a forward contract. Accordingly, a Fund
may have to purchase additional foreign currency on the spot market (and
bear the expense of such purchase) if the market value of a Fund's
securities is less than the amount of the foreign currency upon expiration
of the contract. Conversely, a Fund may have to sell some of its foreign
currency received upon the sale of a portfolio security if the market
value of the Fund's securities exceed the amount of foreign currency the
Fund is obligated to deliver. A Fund's dealings in forward foreign
currency exchange contracts will be limited to the transactions described
above.
Although the Funds value their assets daily in terms of U.S.
dollars, they do not intend to convert their holdings of foreign
currencies into U.S. dollars on a daily basis. A Fund will do so from
time to time and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund
at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
Each of the Funds may purchase and sell currency futures and
purchase and write currency options to increase or decrease its exposure
to different foreign currencies. The uses and risks of currency options
and futures are similar to options and futures relating to securities or
indices, as discussed above. Currency futures contracts are similar to
forward foreign currency contracts, except that they are traded on
exchanges (and have margin requirements) and are standardized as to
contract size and delivery date. Most currency futures contracts call for
payment or delivery in U.S. dollars. The underlying instrument of a
currency option may be a foreign currency, which generally is purchased or
delivered in exchange for U.S. dollars, or may be a futures contract. The
purchaser of a currency call obtains the right to purchase the underlying
currency, and the purchaser of a currency put obtains the right to sell
the underlying currency.
Currency futures and options values can be expected to correlate
with exchange rates, but may not reflect other factors that affect the
value of the respective Fund's investments. A currency hedge, for
example, should protect a Yen-dominated security from a decline in the
Yen, but will not protect a particular Fund against a price decline
resulting from deterioration in the issuer's creditworthiness. Because
the value of a Fund's foreign-denominated investments change in response
to many factors other than exchange rates, it may not be possible to match
the amount of currency options and futures to the value of the Fund's
investments exactly over time.
DIRECTORS AND OFFICERS OF THE CORPORATION
The name, address principal occupations during the past five
years and other information with respect to each of the directors and
offices of the Corporation are as follows:
JoAnne Brandes -- Director. Ms. Brandes, 44, has been Senior
Vice President, General Counsel and Secretary of S.C. Johnson Commercial
Markets, Inc. since October 1997. Prior to that time, Ms. Brandes served
in various capacities as an officer of S.C. Johnson & Son, Inc since 1992.
Both S.C. Johnson Commercial Markets, Inc. and S.C. Johnson & Son, Inc.
are controlled by Samuel C. Johnson as is Johnson International, Inc., the
corporate parent of the Adviser. Ms. Brandes is also a director of
Alternative Resources Corporation, Lincolnshire, Illinois, a computer
servicer and supplier, and Corporate Family Solutions, Inc., Nashville,
Tennessee, a child care provider. Her address is 8310 16th Street, P.O.
Box 902, Sturtevant, WI 53177.
Richard Bibler -- Director. Mr. Bibler, 65, has been an owner
of Rudolph Stone Associates, a financial consulting firm since prior to
1990. His address is Suite 104, 500 West Brown Deer Road, Milwaukee, WI
53217.
F. Gregory Campbell -- Director. Dr. Campbell, 58, has been the
President of Carthage College since 1987. Dr. Campbell also serves as a
trustee of AAL Mutual Funds. His address is 2001 Alford Drive, Kenosha,
WI 53104.
Gerald Konz -- Director. Mr. Konz, 65, is an independent
consultant. Mr. Konz was Vice President and Tax Counsel and Chairman of
the pension and savings plan investment committees of S.C. Johnson & Son,
Inc. from 1982 until 1997. His address is c/o S.C. Johnson & Son, Inc.,
1525 Howe Street, Racine, WI 53403.
George Nelson -- Director. Mr. Nelson, 59, has been Vice
President - Administration & Finance of Evening Telegram, Inc. since 1982.
His address is 7025 Raymond Road, Madison, WI 53719.
*Wendell Perkins -- Director. Mr. Perkins, 34, has been Senior
Vice President of the Adviser since 1994. In 1993 Mr. Perkins was an
Assistant Vice President of Biltmore Investors Bank, an affiliate of the
Adviser. His address is 4041 North Main Street, Racine, WI 53402.
________________________
*Mr. Perkins is the only director who is an "interested person" of
the Corporation as that term is defined in the Investment Company Act of
1940.
Joan Burke -- President and Treasurer. Ms. Burke, 46, has been
President and Chief Executive Officer of the Adviser and Johnson Trust
Company since November, 1995. From December 1994 to November 1995 Ms.
Burke was Vice President of Firstar Bank of Madison and from October 1976
to October 1994 she was Senior Vice President of Valley Trust Company.
Her address is 4041 North Main Street, Racine, WI 53402.
George Balistreri -- Vice President and Secretary. Mr.
Balistreri, 54, has been Senior Vice President of the Adviser since 1990.
His address is 4041 North Main Street, Racine, WI 53402.
The Corporation's standard method of compensating directors is
to pay each director who is not an officer of the Corporation an annual
fee of $5,000 and a fee of $500 for each meeting of the Board of Directors
attended.
The Corporation was incorporated on January 27, 1998. The table
below sets Corporation during the fiscal year ending October 31, 1998:
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or Total
Aggregate Retirement Benefits Estimated Annual Compensation
Name of Compensation Accrued as Part of Benefits Upon from Corporation
Person from Corporation Fund Expenses Retirement Paid to Directors
<S> <C> <C> <C> <C>
JoAnne Brandes $6500 $0 $0 $6500
Richard Bibler 6500 0 0 6500
Gerald Konz 6500 0 0 6500
George Nelson 6500 0 0 6500
Wendell Perkins 0 0 0 0
</TABLE>
PRINCIPAL SHAREHOLDERS
As of the date hereof, Miriam M. Allison owned 100% of each
Fund's outstanding shares. As of such date Ms. Allison controlled each of
the Funds and the Corporation and owned sufficient shares to approve or
disapprove all matters brought before shareholders of the Corporation,
including the election of directors of the Corporation and the approval of
auditors. Ms. Allison is President of Sunstone Distribution Services,
LLC, the principal underwriter of shares of the Funds. Her address is 207
East Buffalo Street, Suite 400, Milwaukee, WI 53202. The Corporation
does not control any person.
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN
AND TRANSFER AGENT
As set forth in the Prospectus under the caption "Management of
the Fund," the investment adviser to the Funds is Johnson Asset
Management, Inc. (the "Adviser"). Pursuant to the investment advisory
agreements entered into between the Corporation and the Adviser with
respect to each of the Funds (the "Advisory Agreements"), the Adviser
furnishes continuous investment advisory services to each of the Funds.
The Adviser is a wholly-owned subsidiary of Johnson International, Inc., a
Wisconsin corporation. Johnson International, Inc. is a bank holding
company. Samuel C. Johnson controls the Adviser by virtue of his status
as trustee of the Johnson International, Inc. Voting Trust, which holds
55% of the outstanding shares of Johnson International, Inc. The
Adviser's executive officers include Joan A. Burke, President and Chief
Executive Officer, George A. Balistreri, Senior Vice President, Wendell
Perkins, Senior Vice President, and Frank J. Gambino, Vice President.
Pursuant to the Advisory Agreements, the Adviser has undertaken
to reimburse each of the Funds to the extent that the aggregate annual
operating expenses, including the investment advisory fee and the
administration fee but excluding interest, taxes, brokerage commissions
and other costs incurred in connection with the purchase or sale of
portfolio securities, and extraordinary items, exceed 2.5% of the average
net assets of a Fund (1.5% for the Intermediate Fixed Income Fund) for
such year, as determined by valuations made as of the close of each
business day of the year. Other expenses borne by the Funds include:
legal, auditing and accounting expenses; insurance premiums; governmental
fees; expenses of issuing and redeeming shares; organizational expenses;
expenses of registering or qualifying shares for sale; postage and
printing for reports and notices to shareholders; fees and disbursements
of the Funds' custodian and transfer agent; fees and disbursements
pursuant to the Service and Distribution Plan; and membership fees of
industry associations. Additionally, for the fiscal year ended October
31, 1998, the Adviser has agreed to reimburse each Fund for annual
operating expenses in excess of the percentage of its average net assets
for such year set forth below.
Fund Expense Limitation
Intermediate Fixed Income Fund 0.85%
Large Cap Equity Fund 1.45%
Small Cap Equity Fund 1.50%
International Equity Fund 1.85%
The Funds monitor their expense ratio on a monthly basis. If the accrued
amount of the expenses of a Fund exceeds the expense limitation, the Fund
creates an account receivable from the Adviser for the amount of such
excess. In such a situation the monthly payment of the Adviser's fee will
be reduced by the amount of such excess, subject to adjustment month by
month during the balance of the Fund's fiscal year if accrued expenses
thereafter fall below this limit.
Each Advisory Agreement will remain in effect as long as its
continuance is specifically approved at least annually (i) by the Board of
Directors of the Corporation or by the vote of a majority (as defined in
the Act) of the outstanding shares of the applicable Fund, and (ii) by the
vote of a majority of the directors of the Corporation who are not parties
to the Advisory Agreement or interested persons of the Adviser, cast in
person at a meeting called for the purpose of voting on such approval.
Each Advisory Agreement provides that it may be terminated at any time
without the payment of any penalty, by the Board of Directors of the
Corporation or by vote of the majority of the applicable Fund's
stockholders on sixty (60) days' written notice to the Adviser, and by the
Adviser on the same notice to the Corporation, and that it shall be
automatically terminated if it is assigned.
Each Advisory Agreement provides that the Adviser shall not be
liable to the Corporation or its stockholders for anything other than
willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations or duties. Each Advisory Agreement also provides that the
Adviser and its officers, directors and employees may engage in other
businesses, devote time and attention to any other business whether of a
similar or dissimilar nature, and render services to others.
As set forth in the Prospectus under the caption
"Administration," the administrator to the Funds is Sunstone Financial
Group, Inc., 207 East Buffalo Street, Suite 400, Milwaukee, Wisconsin
53202 (the "Administrator"). The Administrator provides various
administrative services and fund accounting services to the Funds (which
includes clerical, compliance, regulatory fund accounting and other
services) pursuant to an Administration and Fund Accounting Agreement (the
"Administration Agreement") with the Corporation on behalf of the Funds.
The Administration Agreement will remain in effect until December 31,
2000. Thereafter, the Administration Agreement may be terminated at any
time, without the payment of any penalty, by the Board of Directors of the
Corporation upon the giving of ninety (90) days' written notice to the
Administrator, or by the Administrator upon the giving of ninety (90)
days' written notice to the Corporation.
Under the Administration Agreement, the Administrator shall not
be liable for any loss suffered by the Funds in connection with the
performance of the Administration Agreement, except a loss resulting from
willful misfeasance, bad faith or negligence on the part of the
Administrator in the performance of its duties under the Administration
Agreement. The Administration Agreement also provides that the
Administrator may provide similar services to other investment companies.
Investors Fiduciary Trust Company serves as custodian of the
Corporation's assets pursuant to a Custody Agreement. Under the Custody
Agreement, Investors Fiduciary Trust Company has agreed to (i) maintain
separate accounts in the name of the Funds, (ii) make receipts and
disbursements of money on behalf of each of the Funds, (iii) collect and
receive all income and other payments and distributions on account of each
of the Fund's portfolio investments, (iv) respond to correspondence from
shareholders, security brokers and others relating to its duties; and (v)
make periodic reports to the Funds concerning the Funds' operations.
Investors Fiduciary Trust Company does not exercise any supervisory
function over the purchase and sale of securities.
Sunstone Investor Services, LLC serves as transfer agent and
dividend paying agent for the Fund under a Transfer Agency Agreement
between the Corporation and Sunstone Investors Services, LLC. As transfer
and dividend paying agent, Sunstone Investors Services, LLC has agreed to
(i) issue and redeem shares of the Funds, (ii) make dividend and other
distributions to shareholders of the Funds, (iii) respond to
correspondence by Fund shareholders and others relating to its duties,
(iv) maintain shareholder accounts, and (v) make periodic reports to the
Funds.
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
Pricing Considerations
As set forth in the Prospectus under the caption "Net Asset
Value (NAV)" the net asset value of each of the Funds will be determined
as of the close of regular trading (3:00 P.M. Central Time) on each day
the New York Stock Exchange is open for trading. The New York Stock
Exchange is open for trading Monday through Friday except New Year's Day,
Dr. Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Additionally, if any of the aforementioned holidays falls on a Saturday,
the New York Stock Exchange will not be open for trading on the preceding
Friday and when any such holiday falls on a Sunday, the New York Stock
Exchange will not be open for trading on the succeeding Monday, unless
unusual business conditions exist, such as the ending of a monthly or the
yearly accounting period.
Common stocks and securities sold short that are listed on any
national stock exchange or quoted on the Nasdaq Stock Market will be
valued at the last sale price on the date the valuation is made. Price
information on listed securities is taken from the exchange where the
security is primarily traded. Common stocks which are listed on any
national stock exchange or the Nasdaq Stock Market but which are not
traded on the valuation date are valued at the most recent bid price.
Securities sold short which are listed on any national stock exchange or
the Nasdaq Stock Market but which are not traded on the valuation date are
valued at the most recent asked price. Unlisted equity securities for
which market quotations are readily available will be valued at the most
recent bid price. Options purchased or written by the Funds are valued at
the average of the current bid and asked prices. The value of a futures
contract equals the unrealized gain or loss on the contract that is
determined by marking the contract to the current settlement price for a
like contract acquired on the day on which the futures contract is being
valued. A settlement price may not be changed if the market makes a limit
move in which event the futures contract will be valued at its fair market
value as determined by the Adviser in accordance with procedures approved
by the Board of Directors. Debt securities are valued at the latest bid
prices furnished by independent pricing services. Pricing services may
determine valuations based upon normal, institutional-size trading units
of such securities using market transactions for comparable securities and
various relationships between securities generally recognized by
institutional traders. Any securities for which there are no readily
available market quotations and other assets will be valued at their fair
value as determined in good faith by the Board of Directors. Short-term
instruments (those with remaining maturities of 60 days or less) are
valued at amortized cost, which approximates market.
The Funds price foreign securities in terms of U.S. dollars at
the official exchange rate. Alternatively, they may price these
securities at the average of the current bid and asked price of such
currencies against the dollar last quoted by a major bank that is a
regular participant in the foreign exchange market, or on the basis of a
pricing service that takes into account the quotes provided by a number of
such major banks. If the Funds do not have either of these alternatives
available to them or the alternatives do not provide a suitable method for
converting a foreign currency into U.S. dollars, the Board of Directors in
good faith will establish a conversion rate for such currency.
Generally, U.S. government securities and other fixed income
securities complete trading at various times prior to the close of the New
York Stock Exchange. For purposes of computing net asset value, the Funds
use the market value of such securities as of the time their trading day
ends. Occasionally, events affecting the value of such securities may
occur between such times and the close of the New York Stock Exchange,
which events will not be reflected in the computation of a Fund's net
asset value. If events materially affecting the value of a Fund's
securities occur during such a period, then these securities may be valued
at their fair value as determined in good faith by the Directors.
Foreign securities trading may not take place on all days when
the NYSE is open, or may take place on Saturdays and other days when NYSE
is not open and a Fund's net asset value is not calculated. When
determining net asset value, the Funds value foreign securities primarily
listed and/or traded in foreign markets at their market value as of the
close of the last primary market where the securities traded. Securities
trading in European countries and Pacific Rim countries is normally
completed well before 3:00 P.M. Central Time. Unless material, as
determined by the Adviser under the supervision of the Board of Directors,
events affecting the valuation of Fund securities occurring between the
time its net asset value is determined and the close of the NYSE will not
be reflected in such asset value.
Each Fund reserves the right to suspend or postpone redemptions
during any period when: (a) trading on the New York Stock Exchange is
restricted, as determined by the Securities and Exchange Commission, or
that the Exchange is closed for other than customary weekend and holiday
closings; (b) the Securities and Exchange Commission has by order
permitted such suspension; or (c) an emergency, as determined by the
Securities and Exchange Commission, exists, making disposal of portfolio
securities or valuation of net assets of the Fund not reasonably
practicable.
Performance Formulas
Any total rate of return quotation for a Fund will be for a
period of three or more months and will assume the reinvestment of all
dividends and capital gains distributions which were made by the Fund
during that period. Any period total rate of return quotation of a Fund
will be calculated by dividing the net change in value of a hypothetical
shareholder account established by an initial payment of $1,000 at the
beginning of the period by 1,000. The net change in the value of a
shareholder account is determined by subtracting $1,000 from the product
obtained by multiplying the net asset value per share at the end of the
period by the sum obtained by adding (A) the number of shares purchased at
the beginning of the period plus (B) the number of shares purchased during
the period with reinvested dividends and distributions. Any average
annual compounded total rate of return quotation of a Fund will be
calculated by dividing the redeemable value at the end of the period
(i.e., the product referred to in the preceding sentence) by $1,000. A
root equal to the period, measured in years, in question is then
determined and 1 is subtracted from such root to determine the average
annual compounded total rate of return.
The foregoing computation may also be expressed by the following
formula:
n
P(1 + T) = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made
at the beginning of the stated
periods at the end of the stated
periods
The calculations of average annual total return and total return
assume the reinvestment of all dividends and capital gain distributions on
the reinvestment dates during the period. The ending redeemable value
(variable "ERV") is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations. In addition, a Fund's
average annual total return and total return reflect the deduction of the
maximum front-end sales charge of 4.00% (2.75% for the Intermediate Fixed
Income Fund). A Fund may also advertise total return data without
reflecting sales charges in accordance with the rules of the Securities
and Exchange Commission. Quotations that do not reflect the sales charge
will, of course, be higher than quotations that do reflect the sales
charge.
The current yield for the Intermediate Fixed Income Fund is
based on a 30-day (or one-month) period and is computed by dividing the
net investment income per share earned during the period by the maximum
offering price per share on the last day of the period, according to the
following formula:
a-b 6
YIELD=2[(---+1) -1]
cd
Where: a = interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the maximum offering price per share on the last
day of the period.
DISTRIBUTION OF SHARES
The Corporation has adopted a Service and Distribution Plan (the
"Plan") in anticipation that the Funds will benefit from the Plan through
increased sales of shares, thereby reducing the expense ratio of each of
the Funds and providing the Adviser with greater flexibility in
management. The Plan may be terminated with respect to any Fund at any
time by a vote of the directors of the Corporation who are not interested
persons of the Corporation and who have no direct or indirect financial
interest in the Plan or any agreement related thereto (the "Rule 12b-1
Directors") or by a vote of a majority of the outstanding shares of the
Fund. JoAnne Brandes, Richard Bibler, F. Gregory Campbell, Gerald Konz
and George Nelson are currently the Rule 12b-1 Directors. Any change in
the Plan that would materially increase the distribution expenses of a
Fund provided for in the Plan requires approval of the stockholders of
that Fund and the Board of Directors, including the Rule 12b-1 Directors.
While the Plan is in effect, the selection and nomination of
directors who are not interested persons of the Corporation will be
committed to the discretion of the directors of the Corporation who are
not interested persons of the Corporation. The Board of Directors of the
Corporation must review the amount and purposes of expenditures pursuant
to the Plan quarterly as reported to it by a Distributor, if any, or
officers of the Corporation. The Plan will continue in effect for as long
as its continuance is specifically approved at least annually by the Board
of Directors, including the Rule 12b-1 Directors.
Sunstone Distribution Services, LLC (the "Distributor"), an
affiliate of Sunstone Financial Group, Inc., acts as the principal
underwriter of shares of the Funds. The Distributor distributes shares of
the Funds on a continuous "best efforts" basis. The Distributor has
entered into a Distribution Agreement with the Corporation pursuant to
which the Funds will pay to the Distributor a fee at the annual rate of
0.05% of each Fund's average daily net assets, less the proceeds of the
front-end sales charge paid by investors to the Distributor which are
retained by the Distributor.
As described in the Prospectus, the Corporation permits certain
investors to purchase shares of the Funds at net asset value. The
Corporation permits such sales because it believes such investors have
already been informed about the advantages of investing in mutual funds,
including the Funds, and that the Distributor incurs no material sales
expense in connection with sales to such investors.
ALLOCATION OF PORTFOLIO BROKERAGE
Decisions to buy and sell securities for the Funds are made by
the Adviser subject to review by the Corporation's Board of Directors. In
placing purchase and sale orders for portfolio securities for a Fund, it
is the policy of the Adviser to seek the best execution of orders at the
most favorable price in light of the overall quality of brokerage and
research services provided, as described in this and the following
paragraph. In selecting brokers to effect portfolio transactions, the
determination of what is expected to result in best execution at the most
favorable price involves a number of largely judgmental considerations.
Among these are the Adviser's evaluation of the broker's efficiency in
executing and clearing transactions, block trading capability (including
the broker's willingness to position securities and the broker's financial
strength and stability). The most favorable price to a Fund means the
best net price without regard to the mix between purchase or sale price
and commission, if any. Over-the-counter securities are generally
purchased and sold directly with principal market makers who retain the
difference in their cost in the security and its selling price. In some
instances, the Adviser feels that better prices are available from
non-principal market makers who are paid commissions directly.
In allocating brokerage business for a Fund, the Adviser also
takes into consideration the research, analytical, statistical and other
information and services provided by the broker, such as general economic
reports and information, reports or analyses of particular companies or
industry groups, market timing and technical information, and the
availability of the brokerage firm's analysts for consultation. While the
Adviser believes these services have substantial value, they are
considered supplemental to the Adviser's own efforts in the performance of
its duties under the Advisory Agreements. Other clients of the Adviser
may indirectly benefit from the availability of these services to the
Adviser, and the Funds may indirectly benefit from services available to
the Adviser as a result of transactions for other clients. The Advisory
Agreements provide that the Adviser may cause a Fund to pay a broker which
provides brokerage and research services to the Adviser a commission for
effecting a securities transaction in excess of the amount another broker
would have charged for effecting the transaction, if the Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of brokerage and research services provided by the
executing broker viewed in terms of either the particular transaction or
the Adviser's overall responsibilities with respect to the Fund and the
other accounts as to which it exercises investment discretion.
TAXES
General
As set forth in the Prospectus under the caption "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 (the
"Code"). The discussion that follows is not intended to be a full
discussion of present or proposed federal income tax laws and the effect
of such laws on an investor. Investors are urged to consult with their
tax advisers for a complete review of the tax ramifications of an
investment in the Funds.
Dividends from a Fund's net investment income, including short-
term capital gains, are taxable to shareholders as ordinary income, while
distributions of net capital gain are taxable as long-term capital gain
regardless of the shareholder's holding period for the shares. The Code
provides for a three-tiered tax rate structure for long-term capital gains
depending upon the Fund's holding period of the underlying financial
instrument or capital asset. Such dividends and distributions are taxable
to shareholders whether received in cash or in additional shares. The 70%
dividends-received deduction for corporations will apply to dividends from
a Fund's net investment income, subject to proportionate reductions if the
aggregate dividends received by the Fund from domestic corporations in any
year are less than 100% of the distribution of net investment company
income taxable made by the Fund.
Any dividend or capital gain distribution paid shortly after a
purchase of shares of a Fund, will have the effect of reducing the per
share net asset value of such shares by the amount of the dividend or
distribution. Furthermore, if the net asset value of the shares of a Fund
immediately after a dividend or distribution is less than the cost of such
shares to the shareholder, the dividend or distribution will be taxable to
the shareholder even though it results in a return of capital to him.
Redemption of shares will generally result in a capital gain or
loss for income tax purposes. Such capital gain or loss will be long term
or short term, depending upon the shareholder's holding period for the
shares. However, if a loss is realized on shares held for six months or
less, and the investor received a capital gain distribution during that
period, then such loss is treated as a long-term capital loss to the
extent of the capital gain distribution received.
Rule 17a-7 Transactions
The Funds have adopted procedures pursuant to Rule 17a-7 under
the Act pursuant to which each of the Funds may effect a purchase and sale
transaction with an affiliated person of the Funds (or an affiliated
person of such an affiliated person) in which a Fund issues its shares in
exchange for securities which are permitted investments for the Funds.
For purposes of determining the number of shares to be issued, the
securities to be exchanged will be valued in accordance with Rule 17a-7.
The Funds anticipate issuing shares pursuant to the Rule 17a-7 procedures
to collective investment trusts for which an affiliated person, Johnson
Trust Company, serves as trustee (the "Trusts"). The Funds anticipate
that the transactions with the Trusts will be tax-free under the Code and
as a result the Funds will acquire unrealized appreciation. The exact
amount of unrealized appreciation to be acquired by each Fund cannot be
determined at this time. Most Rule 17a-7 transactions will not be tax-
free.
Taxation of Hedging Instruments
If a call option written by a Fund expires, the amount of the
premium received by the Fund for the option will be short-term capital
gain. If a Fund enters into a closing transaction with respect to the
option, any gain or loss realized by a Fund as a result of the transaction
will be short-term capital gain or loss. If the holder of a call option
exercises the holder's right under the option, any gain or loss realized
by the Fund upon the sale of the underlying security or futures contract
pursuant to such exercise will be short-term or long-term capital gain or
loss to the Fund depending on the Fund's holding period for the underlying
security or futures contract.
With respect to call options purchased by a Fund, the Fund will
realize short-term or long-term capital gain or loss if such option is
sold and will realize short-term or long-term capital loss if the option
is allowed to expire depending on the Fund's holding period for the call
option. If such a call option is exercised, the amount paid by a Fund for
the option will be added to the basis of the stock or futures contract so
acquired.
A Fund may purchase or write options on stock indexes. Options
on "broadbased" stock indexes are generally classified as "nonequity
options" under the Code. Gains and losses resulting from the expiration,
exercise or closing of such nonequity options and on futures contracts
will be treated as long-term capital gain or loss to the extent of 60%
thereof and short-term capital gain or loss to the extent of 40% thereof
(hereinafter "blended gain or loss") for determining the character of
distributions. In addition, nonequity options and futures contracts held
by a Fund on the last day of a fiscal year will be treated as sold for
market value ("marked to market") on that date, and gain or loss
recognized as a result of such deemed sale will be blended gain or loss.
The realized gain or loss on the ultimate disposition of the option will
be increased or decreased to take into consideration the prior marked to
market gains and losses.
The trading strategies of a Fund involving nonequity options on
stock indexes may constitute "straddle" transactions. "Straddles" may
affect the short-term or long-term holding period of such instruments for
distributions characterization.
A Fund may acquire put options. Under the Code, put options on
stocks are taxed similar to short sales. If a Fund owns the underlying
stock or acquires the underlying stock before closing the option position,
the Straddle Rules may apply and the option positions may be subject to
certain modified short sale rules. If a Fund exercises or allows a put
option to expire, the Fund will be considered to have closed a short sale.
A Fund will generally have a short-term gain or loss on the closing of an
option position. The determination of the length of the holding period is
dependent on the holding period of the stock used to exercise that put
option. If a Fund sells the put option without exercising it, its holding
period will be the holding period of the option.
Foreign Taxes
Each of the Funds may be subject to foreign withholding taxes on
income and gains derived from its investments outside the U.S. Such taxes
would reduce the return on a Fund's investments. Tax treaties between
certain countries and the U.S. may reduce or eliminate such taxes. If
more than 50% of the value of a Fund's total assets at the close of any
taxable year consist of stocks or securities of foreign corporations, the
Fund may elect, for U.S. federal income tax purposes, to treat any foreign
country income or withholding taxes paid by the Fund that can be treated
as income taxes under U.S. income tax principles, as paid by its
shareholders. For any year that a Fund makes such an election, each of
its shareholders will be required to include in his income (in addition to
taxable dividends actually received) his allocable share of such taxes
paid by the Fund and will be entitled, subject to certain limitations, to
credit his portion of these foreign taxes against his U.S. federal income
tax due, if any, or to deduct it (as an itemized deduction) from his U.S.
taxable income, if any. Generally, credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax
attributable to his foreign source taxable income.
If the pass through election described above is made, the source
of a Fund's income flows through to its shareholders. Certain gains from
the sale of securities and currency fluctuations will not be treated as
foreign source taxable income. In addition, this foreign tax credit
limitation must be applied separately to certain categories of foreign
source income, one of which is foreign source "passive income." For this
purpose, foreign "passive income" includes dividends, interest, capital
gains and certain foreign currency gains. As a consequence, certain
shareholders may not be able to claim a foreign tax credit for the full
amount of their proportionate share of the foreign tax paid by the Fund.
The foreign tax credit can be used to offset only 90% of the
alternative minimum tax (as computed under the Code for purposes of this
limitation) imposed on corporations and individuals. If a Fund does not
make the pass through election described above, the foreign taxes it pays
will reduce its income and distributions by the Fund will be treated as
U.S. source income.
Each shareholder will be notified within 60 days after the close
of each Fund's taxable year whether, pursuant to the election described
above, the foreign taxes paid by the Fund will be treated as paid by its
shareholders for that year and, if so, such notification will designate:
(i) such shareholder's portion of the foreign taxes paid; and (ii) the
portion of the Fund's dividends and distributions that represent income
derived from foreign sources.
SHAREHOLDER MEETINGS
The Maryland Business Corporation Law permits registered
investment companies, such as the Corporation, to operate without an
annual meeting of stockholders under specified circumstances if an annual
meeting is not required by the Act. The Corporation has adopted the
appropriate provisions in its bylaws and may, at its discretion, not hold
an annual meeting in any year in which the election of directors is not
required to be acted upon by the shareholders under the Act.
The Corporation's bylaws also contain procedures for the removal
of directors by its shareholders. At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be
cast thereon, remove any director or directors from office and may elect a
successor or successors to fill any resulting vacancies for the unexpired
terms of removed directors.
Upon the written request of the holders of shares entitled to
not less than ten percent (10%) of all the votes entitled to be cast at
such meeting, the Secretary of the Corporation shall promptly call a
special meeting of shareholders for the purpose of voting upon the
question of removal of any director. Whenever ten or more shareholders of
record who have been such for at least six months preceding the date of
application, and who hold in the aggregate either shares having a net
asset value of at least $25,000 or at least one percent (1%) of the total
outstanding shares, whichever is less, shall apply to the Corporation's
Secretary in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to a request for a
meeting as described above and accompanied by a form of communication and
request which they wish to transmit, the Secretary shall within five
business days after such application either: (1) afford to such
applicants access to a list of the names and addresses of all shareholders
as recorded on the books of the Corporation; or (2) inform such applicants
as to the approximate number of shareholders of record and the approximate
cost of mailing to them the proposed communication and form of request.
If the Secretary elects to follow the course specified in
clause (2) of the last sentence of the preceding paragraph, the Secretary,
upon the written request of such applicants, accompanied by a tender of
the material to be mailed and of the reasonable expenses of mailing,
shall, with reasonable promptness, mail such material to all shareholders
of record at their addresses as recorded on the books unless within five
business days after such tender the Secretary shall mail to such
applicants and file with the Securities and Exchange Commission, together
with a copy of the material to be mailed, a written statement signed by at
least a majority of the Board of Directors to the effect that in their
opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the
basis of such opinion.
After opportunity for hearing upon the objections specified in
the written statement so filed, the Securities and Exchange Commission
may, and if demanded by the Board of Directors or by such applicants
shall, enter an order either sustaining one or more of such objections or
refusing to sustain any of them. If the Securities and Exchange
Commission shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of
such objections, the Securities and Exchange Commission shall find, after
notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all stockholders with reasonable promptness
after the entry of such order and the renewal of such tender.
DESCRIPTION OF SECURITIES RATINGS
Set forth below is a description of ratings used by three major
nationally recognized statistical ratings organizations ("NRSROs")
Standard & Poor's Corporation ("Standard & Poor's"), Moody's Investors
Service, Inc. ("Moody's") and Duff & Phelps Credit Rating Co. ("Duff &
Phelps"). NRSROs base their ratings on current information furnished by
the issuer or obtained from other sources they consider reliable. NRSROs
may change, suspend or withdraw their ratings due to changes in,
unavailability of, such information or for other reasons.
Commercial Paper Ratings
A Standard and Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard & Poor's for commercial paper in which the
Funds may invest:
"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determines to possess extremely strong safety
characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues
designated "A-1."
Moody's commercial paper ratings are opinions of the ability of
issues to repay punctually promissory obligations not having an original
maturity in excess of nine months. The following summarizes the rating
categories used by Moody's for commercial paper in which the Funds may
invest:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally be
evidenced by the following capacities: leading market positions in well-
established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and
ample asset protection; broad margins in earning coverage of fixed
financial charges and high internal cash generation; and well-established
access to a range of financial markets and assured sources of alternate
liquidity.
"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is
maintained.
Corporate Long-Term Debt Ratings
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a
current assessment of the creditworthiness of an obligor with respect to a
specific obligation. This assessment may take into consideration obligors
such as guarantors, insurers, or lessees. The debt rating is not a
recommendation to purchase, sell, or hold a security, inasmuch as it does
not comment as to market price or suitability for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with
any rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended, or withdrawn as a result of changes
in, or unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment
of principal in accordance with the terms of the
obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other
laws affecting creditors' rights.
Investment Grade
AAA - Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest an repay principal is
extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues only in
small degree.
A - Debt rated "A" has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher rated categories.
BBB - Debt rated "BBB" is regard as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
Speculative Grade
Debt rated "BB," "B," "CCC," "CC" and "C" is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of
speculation and "C" the highest. While such debt will likely have some
quality and protective characteristic, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
"BB" - Debt rated "BB" has less near-term vulnerability to
default than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely interest
and principal payments. The "BB" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BBB-
"rating.
"B" - Debt rated "B" has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay principal.
The "B" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "BB" or "BB-"rating.
"CCC" - Debt rated "CCC" has a current identifiable
vulnerability to default, and is dependent upon favorable business,
financial, and economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business, financial, or
economic conditions, it is not likely to have the capacity to pay interest
an repay principal. The "CCC" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "B" or
"B-" rating.
"CC" - Debt rated "CC" typically is applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC" rating.
"C" - Debt rated "C" typically is applied to debt subordinated
to senior debt which is assigned an actual or implied "CCC-" debt rating.
The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.
"CI" - The rating "CI" is reserved for income bonds on which no
interest is being paid.
"D" - Debt rated "D" is in payment default. The "D" rating
category is used when interest payments or principal payments are not made
on the date due even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made during
such period. The "D" rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Moody's Long-Term Debt Ratings
"Aaa" - Bonds which are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected by
a large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
"Aa" - Bonds which are rated "Aa" are judged to be of high
quality by all standards. Together with the "Aaa" group, they comprise
what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation or protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risk appear somewhat larger than in "Aaa" securities.
"A" - Bonds which are rated "A" possess many favorable
investment attributes and are to be considered as upper-medium grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.
"Baa" - Bonds which are rated "Baa" are considered as medium-
grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
"Ba" - Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate, and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
"B" - Bonds which are rated "B" generally lack characteristics
of the desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long period of
time may be small.
"Caa" - Bonds which are rated "Caa" are of poor standing. Such
issues may be in default or there may be present elements of danger with
respect to principal or interest.
"Ca" - Bonds which are rated "Ca" represent obligations which
are speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
"C" - Bonds which are rated "C" are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Duff & Phelps Rating Scale Definitions
"AAA" - Highest credit quality. The risk factors are
negligible, being only slightly more than for risk-free U.S. Treasury
debt.
"AA+", "AA", "AA-" - High credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A+", "A", "A-" - Protection factors are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB+", "BBB", "BBB-" - Below average protection factors but
still considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
"BB+", "BB", "BB-" - Below investment grade but deemed likely to
meet obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company fortunes.
Overall quality may move up or down frequently within this category.
"B+", "B", "B-" - Below investment grade and possessing risk
that obligation might not be met when due. Financial protection factors
will fluctuate widely according to economic cycles, industry conditions
and/or company fortunes. Potential exists for frequent changes in the
rating within this category or into a higher or lower rating grade.
"CCC" - Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions and/or
unfavorable company developments.
"DD" - Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee,
Wisconsin 53201-1215 has been selected as the independent accountants for
the Corporation. As such Arthur Andersen LLP performs an audit of each
Fund's financial statement and considers each Fund's internal control
structure.
FINANCIAL STATEMENTS
The following financial statements for the Corporation are
attached hereto:
- Report of Independent Accountants
- Statement of Assets and Liabilities
- Notes to the Financial Statement
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of
Directors of the JohnsonFamily Funds, Inc.
We have audited the statement of assets and liabilities of the
JohnsonFamily Intermediate Fixed Income Fund, the JohnsonFamily Large Cap
Equity Fund, the JohnsonFamily Small Cap Equity Fund and the JohnsonFamily
International Equity Fund (the "Funds"), each being a series of the
JohnsonFamily Funds, Inc., (the "Fund", a Maryland corporation) as of
March 19, 1998. These financial statements are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the net assets of the Fund as
of March 19, 1998, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
March 23, 1998
<PAGE>
<TABLE>
JOHNSONFAMILY FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
March 19, 1998
<CAPTION>
JohnsonFamily JohnsonFamily JohnsonFamily JohnsonFamily
Intermediate Large Cap Equity Small Cap International
Fixed Income Fund Fund Equity Fund Equity Fund
<S> <C> <C> <C> <C>
ASSETS:
Cash $50,000 $48,000 $1,000 $1,000
Unamortized
organizational costs 33,875 33,875 33,875 33,875
Prepaid assets 8,975 8,975 8,975 8,975
------ ------ ------ ------
Total Assets 92,850 90,850 43,850 43,850
------ ------ ------ ------
LIABILITIES:
Payable to Others 21,250 21,250 21,250 21,250
Payable to Adviser 6,875 6,875 6,875 6,875
Payable to Administrator 14,725 14,725 14,725 14,725
------ ------ ------ ------
Total Liabilities 42,850 42,850 42,850 42,850
------ ------ ------ ------
NET ASSETS $50,000 $48,000 $ 1,000
====== ====== ====== ======
Capital stock, $0.0001 par
value
Authorized 100,000,000 100,000,000 100,000,000 100,000,000
Issued and Outstanding 5,000 4,800 100 100
===== ===== ===== =====
Redemption price and net
asset value per share $10.00 $10.00 $10.00 $10.00
===== ===== ===== =====
Maximum offering price to
public $10.28 $10.42 $10.42 $10.42
===== ===== ===== =====
</TABLE>
The accompanying notes to the Financial Statements are an integral part of
these statements.
<PAGE>
JohnsonFamily Funds, Inc.
Notes to the Financial Statements
March 19, 1998
1 Organization
JohnsonFamily Funds, Inc. (the "Company") was organized in January
1998 as a Maryland corporation and is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company issuing its shares in series, each
series representing a distinct portfolio with its own investment
objectives and policies. At March 19, 1998, the only series
presently authorized are the JohnsonFamily Intermediate Fixed Income
Fund, the JohnsonFamily Large Cap Equity Fund, the JohnsonFamily
Small Cap Equity Fund and the JohnsonFamily International Equity Fund
(individually referred to as a "Fund" and collectively as the
"Funds").
2 Significant Accounting Policies
The following is a summary of significant accounting policies
consistently followed by the Funds in the preparation of their
financial statements. These policies are in conformity with
generally accepted accounting principles ("GAAP").
a. Investment Valuation
Equity securities listed on a national stock exchange or the
Nasdaq Stock Market are valued at the last sale price on the
securities exchange on which such securities are primarily
traded. Securities traded on only over-the-counter markets are
valued on the basis of closing over-the-counter bid prices.
Equity securities listed on a national stock exchange or the
Nasdaq Stock Market for which there were no transactions are
valued at the closing bid prices. Debt securities (other then
short-term instruments) are valued at bid prices furnished by a
pricing service. Debt instruments maturing within 60 days are
valued by the amortized cost method, which approximates value.
Any securities for which market quotations are not readily
available are valued at their fair value as determined in good
faith by Johnson Asset Management Inc. (the "Adviser") pursuant
to guidelines established by the Board of Directors.
b. Organization Cost
Costs incurred by the Funds in connection with their
organization, registration and the initial public offering of
shares have been deferred and will be amortized over the period
of benefit, but not to exceed five years from the date upon
which the Funds commenced their investment activities. If any
of the original shares of the Funds purchased by the initial
shareholder are redeemed by any holder thereof prior to the end
of the amortization period, the redemption proceeds will be
reduced by the pro rata share of the unamortized costs as of the
date of redemption. The pro rata share by which the proceeds
are reduced will be derived by dividing the number of original
shares of the Funds being redeemed by the total number of
original shares outstanding at the time of redemption.
c. Federal Income and Excise Taxes
Each Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated
investment company and to make the requisite distributions of
taxable income to its shareholders.
d. Distributions to Shareholders
Dividends from net investment income will be declared and paid
monthly for the Intermediate Fixed Income Fund, quarterly for
the Large Cap Equity Fund and annually for both the Small Cap
Equity and International Equity Funds. Distributions of net
realized gains, if any, will be declared at least annually.
Distributions to shareholders are recorded on the ex-dividend
date. The Funds may periodically make reclassifications among
certain of their capital accounts as a result of the recognition
and characterization of certain income and capital gain
distributions determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting
principles.
e. Securities Transactions and Investment Income
For financial reporting purposes, investment transactions are
accounted for on the trade date. The Funds determine the gain
or loss realized from investment transactions by comparing the
original cost of the security lot sold with the net sale
proceeds. Dividend income is recognized on the ex-dividend date
and interest income is recognized on an accrual basis.
Acquisition and market discounts will be amortized over the life
of the security.
f. Expenses
The Funds are charged for those expenses that are directly
attributable to each portfolio, such as advisory and custodian
fees. Expenses that are not directly attributable to a
portfolio are typically allocated among the portfolios in
proportion to their respective net assets.
g. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial
statements and the reported changes in net assets during the
reporting period. Actual results could differ from those
estimates.
3 Investment Adviser
The Funds have an agreement with the Adviser, with whom certain
officers and Directors of the Funds are affiliated, to furnish
investment advisory services to the Funds. Under the terms of this
agreement, the Funds will pay the Adviser a monthly fee based on the
Fund's average daily net assets at the annual rate of 0.45% for the
Intermediate Fixed Income Fund, 0.75% for the Large Cap Equity Fund,
0.75% for the Small Cap Equity Fund, and 0.90% for the International
Equity Fund.
Under the investment advisory agreements, if the aggregate annual
operating expenses (including the investment advisory fee and the
administration fee but excluding interest, taxes, brokerage
commissions and other costs incurred in connection with the purchase
or sale of portfolio securities, and extraordinary items) exceed
1.50% of the averaged daily net assets of the Intermediate Fixed
Income Fund, or 2.50% of each of the Large Cap Equity Fund, Small Cap
Equity Fund and International Equity Fund, the Adviser will reimburse
the Funds for the amount of such excess. Additionally, for the
fiscal period ended October 31, 1998, the Adviser has voluntarily
agreed to reimburse the Funds to the extent aggregate annual
operating expenses exceed 0.85%, 1.45%, 1.50%, and 1.85% of the daily
net assets of the Intermediate Fixed Income Fund, Large Cap Equity
Fund, Small Cap Equity Fund, and International Equity Fund,
respectively.
4 Capital Stock
The Company is authorized to issue a total of 1,000,000,000 shares of
common stock in series with a par value of $0.0001. A total of
400,000,000 shares of Common Stock shall initially be classified as
100,000,000 for each of the Intermediate Fixed Income Fund, Large Cap
Equity Fund, Small Cap Equity Fund, and International Equity Fund.
5 Service and Distribution Plan
The Company has entered into a distribution agreement with Sunstone
Distribution Services, LLC, (the "Distributor"), an affiliate of
Sunstone Financial Group, Inc., and Sunstone Investor Services, LLC.
Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted a
Service and Distribution Plan (the "Plan"). Under the Plan, each
Fund is authorized to pay expenses incurred for the purpose of
financing activities, including the employment of other dealers,
intended to result in the sale of shares of each Fund at an annual
rate of up to 0.25% of the Fund's average daily net assets.
6 Administrator
Sunstone Financial Group, Inc. (the "Administrator") acts as
administrator for the Funds. As compensation for its administrative
services and the assumption of certain administrative expenses, the
Administrator is entitled to a fee computed daily and payable
monthly, based on the Funds' average net assets at the annual rate
beginning at 0.20% and subject to a minimum fee of $206,000 for the
initial four portfolios.
The Administrator may periodically volunteer to reduce all or a
portion of its administrative fee with respect to the Fund. These
waivers may be terminated at any time at the Administrator's
discretion. The Administrator may not seek reimbursement of such
voluntarily reduced fees at a later date. The reduction of such fee
will cause the yield of the Funds to be higher than it would be in
the absence of such reduction.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a.) Financial Statement (included in Part B)
Report of Independent Accountants
Statement of Assets and Liabilities
Notes to Financial Statement
(b.) Exhibits
(1) Registrant's Articles of Incorporation, as amended
(1.1) Articles of Amendment
(2) Registrant's Bylaws
(3) None
(4) None
(5.1) Investment Advisory Agreement with Johnson Asset
Management, Inc. for JohnsonFamily Intermediate Fixed
Income Fund
(5.2) Investment Advisory Agreement with Johnson Asset
Management, Inc. for JohnsonFamily Large Cap Equity Fund
(5.3) Investment Advisory Agreement with Johnson Asset
Management, Inc. for JohnsonFamily Small Cap Equity Fund
(5.4) Investment Advisory Agreement with Johnson Asset
Management, Inc. for JohnsonFamily International Equity
Fund
(6) Distribution Agreement with Sunstone Distribution
Services, LLC (Exhibit 6 to Registrant's Registration
Statement on Form N-1A is incorporated by reference
pursuant to Rule 411 under the Securities Act of 1933.)
(7) None
(8) Custody Agreement with Investors Fiduciary Trust Company
(9.1) Administration and Fund Accounting Agreement with
Sunstone Financial Group, Inc. (Exhibit 9.1 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.)
(9.2) Transfer Agency Agreement with Sunstone Investor
Services, LLC (Exhibit 9.2 to Registrant's Registration
Statement on Form N-1A is incorporated by reference
pursuant to Rule 411 under the Securities Act of 1933.)
(10) Opinion of Foley & Lardner, counsel for Registrant
(11) Consent of Arthur Andersen LLP
(12) None
(13) Subscription Agreement
(14) None
(15.1) Service and Distribution Plan (Exhibit 15.1 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.)
(15.2) Form of Dealer Agreement
(16) None
(17) Financial Data Schedule
(18) None
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is controlled by Miriam M. Allison who owns 100% of
Registrant's voting securities as of March 19, 1998. Registrant does not
control any person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of March 19, 1998
Common Stock, Intermediate Fixed Income
$0.0001 par value (Series A) 1
Large Cap Equity
(Series B) 1
Small Cap Equity
(Series C) 1
International Equity
(Series D) 1
Item 27. Indemnification
Pursuant to the authority of the Maryland General Corporation
Law, particularly Section 2-418 thereof, Registrant's Board of Directors
has adopted the following bylaw which is in full force and effect and has
not been modified or cancelled:
Article VII
GENERAL PROVISIONS
Section 7. Indemnification.
A. The corporation shall indemnify all of its corporate
representatives against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
them in connection with the defense of any action, suit or proceeding, or
threat or claim of such action, suit or proceeding, whether civil,
criminal, administrative, or legislative, no matter by whom brought, or in
any appeal in which they or any of them are made parties or a party by
reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation
and with respect to any criminal proceeding, if he had no reasonable cause
to believe his conduct was unlawful provided that the corporation shall
not indemnify corporate representatives in relation to matters as to which
any such corporate representative shall be adjudged in such action, suit
or proceeding to be liable for gross negligence, willful misfeasance, bad
faith, reckless disregard of the duties and obligations involved in the
conduct of his office, or when indemnification is otherwise not permitted
by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly absolves the
corporate representative, or in the event of a settlement, each corporate
representative shall be indemnified hereunder only if there has been a
reasonable determination based on a review of the facts that
indemnification of the corporate representative is proper because he has
met the applicable standard of conduct set forth in paragraph A. Such
determination shall be made: (i) by the board of directors, by a majority
vote of a quorum which consists of directors who were not parties to the
action, suit or proceeding, or if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting solely of two or
more directors, not, at the time, parties to the action, suit or
proceeding and who were duly designated to act in the matter by the full
board in which the designated directors who are parties to the action,
suit or proceeding may participate; or (ii) by special legal counsel
selected by the board of directors or a committee of the board by vote as
set forth in (i) of this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the committee cannot be
established, by a majority vote of the full board in which directors who
are parties to the action, suit or proceeding may participate.
C. The termination of any action, suit or proceeding by judgment,
order, or settlement does not create a presumption that the person was
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties and obligations involved in the conduct of his or
her office. The termination of any action, suit or proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or any
entry of an order of probation prior to judgment, shall create a
rebuttable presumption that the person was guilty of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties and
obligations involved in the conduct of his or her office, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the preparation
of and/or presentation of the defense of a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized in the manner
provided in Section 2-418(F) of the Maryland General Corporation Law upon
receipt of: (i) an undertaking by or on behalf of the corporate
representative to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the corporation
as authorized in this bylaw; and (ii) a written affirmation by the
corporate representative of the corporate representative's good faith
belief that the standard of conduct necessary for indemnification by the
corporation has been met.
E. The indemnification provided by this bylaw shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under these bylaws, any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person subject to the limitations imposed from
time to time by the Investment Company Act of 1940, as amended.
F. This corporation shall have power to purchase and maintain
insurance on behalf of any corporate representative against any liability
asserted against him or her and incurred by him or her in such capacity or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under
this bylaw provided that no insurance may be purchased or maintained to
protect any corporate representative against liability for gross
negligence, willful misfeasance, bad faith or reckless disregard of the
duties and obligations involved in the conduct of his or her office.
G. "Corporate Representative" means an individual who is or was a
director, officer, agent or employee of the corporation or who serves or
served another corporation, partnership, joint venture, trust or other
enterprise in one of these capacities at the request of the corporation
and who, by reason of his or her position, is, was, or is threatened to be
made, a party to a proceeding described herein.
Insofar as indemnification for and with respect to liabilities
arising under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of Registrant pursuant to the foregoing
provisions or otherwise, Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid by a
director, officer or controlling person or Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Incorporated by reference to pages 15 through 19 of the
Statement of Additional Information pursuant to Rule 411 under the
Securities Act of 1933.
Item 29. Principal Underwriters
(a) Sunstone Distribution Services, LLC, the Registrant,
currently is principal underwriter of the shares of The Northern Funds,
The Haven Capital Management Trust, The Green Century Funds, First Omaha
Funds and The Marstco Investment Fund.
(b) To the best of Registrant's knowledge, the directors and
officers of Sunstone Distribution Services, LLC are as follows:
Position and Offices with Positions and
Name and Principal Sunstone Investors Offices with
Business Address Services, LLC Registrant
Miriam M. Allison President and Member None
207 East Buffalo Street
Suite 400
Milwaukee, WI 53202
Daniel S. Allison Secretary and Member None
207 East Buffalo Street
Suite 400
Milwaukee, WI 53202
Mary M. Tenwinkel Vice President None
207 East Buffalo Street
Suite 400
Milwaukee, WI 53202
(c) None
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder are in the
physical possession of Registrant, at Registrant's corporate offices,
except (1) records held and maintained by Investors Fiduciary Trust
Company relating to its functions as custodian, (2) records held and
maintained by Sunstone Financial Group, Inc., 207 East Buffalo Street,
Suite 400, Milwaukee, Wisconsin 53202 relating to its functions as
administrator and fund accountant, (3) records held and maintained by
Sunstone Investors Services, LLC, 207 East Buffalo Street, Suite 400,
Milwaukee, Wisconsin 53202 relating to its role as transfer agent, and (4)
records held and maintained by Sunstone Distribution Services, LLC, 207
East Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202, relating to
its role as distributor.
Item 31. Management Services
All management-related service contracts entered into by
Registrant are discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
With respect to stockholder meetings, Registrant undertakes to
call stockholder meetings in accordance with the provisions of Article I
of its Bylaws, which are discussed in Parts A and B of this Registration
Statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Amended Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Racine and State of
Wisconsin on the 19th day of March, 1998.
JohnsonFamily Funds, Inc.
(Registrant)
By: /s/ Joan A. Burke
Joan A. Burke, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the date(s) indicated.
Name Title Date
/s/ Joan A. Burke President (Principal March 19, 1998
Joan A. Burke Executive, Financial
and Accounting
Officer)
/s/ JoAnne Brandes Director March 20, 1998
JoAnne Brandes
/s/ Richard Bibler Director March 19, 1998
Richard Bibler
/s/ F. Gregory Campbell Director March 23, 1998
F. Gregory Campbell
/s/ Gerald Konz Director March 19, 1998
Gerald Konz
/s/ George Nelson Director March 19, 1998
George Nelson
/s/ Wendell Perkins Director March 19, 1998
Wendell Perkins
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
(1) Registrant's Articles of Incorporation, as
amended
(1.1) Articles of Amendment
(2) Registrant's Bylaws
(3) None
(4) None
(5.1) Investment Advisory Agreement - JohnsonFamily
Intermediate Fixed Income Fund
(5.2) Investment Advisory Agreement - JohnsonFamily
Large Cap Equity Fund
(5.3) Investment Advisory Agreement - JohnsonFamily
Small Cap Equity Fund
(5.4) Investment Advisory Agreement - JohnsonFamily
International Equity Fund
(6) Distribution Agreement
(7) None
(8) Custody Agreement
(9.1) Administration and Fund Accounting Agreement*
(9.2) Transfer Agency Agreement*
(10) Opinion of Foley & Lardner, counsel for
Registrant
(11) Consent of Arthur Andersen LLP
(12) None
(13) Subscription Agreement
(15.1) Service and Distribution Plan*
(15.2) Form of Dealer Agreement
(16) None
(17) Financial Data Schedule
(18) None
________________
* Incorporated by reference
Exhibit 1
ARTICLES OF INCORPORATION
OF
JOHNSONFAMILY FUNDS, INC.
The undersigned sole incorporator, being at least eighteen years
of age, hereby adopts the following Articles of Incorporation for the
purpose of forming a Maryland corporation under the general laws of the
State of Maryland:
ARTICLE I
The name of the corporation (hereinafter called "Corporation")
is:
JOHNSON FUNDS, INC.
ARTICLE II
The period of existence shall be perpetual.
ARTICLE III
The purposes for which the Corporation is formed are to engage
in any lawful business for which corporations may be organized under the
Maryland General Corporation Law.
ARTICLE IV
A. The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is One Billion (1,000,000,000)
shares, all with a par value of One Hundredth of a Cent ($0.0001) per
share, to be known and designated as "Common Stock." The aggregate par
value of the authorized shares of the Corporation is One Hundred Thousand
Dollars ($100,000). The Board of Directors of the Corporation may
increase or decrease the aggregate number of authorized shares of Common
Stock pursuant to Section 2-105 of the Maryland General Corporation Law or
any successor provision thereto. The Board of Directors of the
Corporation may classify or reclassify any unissued shares of Common Stock
and may designate or redesignate the name of any class of outstanding
Common Stock. The Board of Directors may divide the shares of each class
into one or more series. For purposes of the Corporation's filings with
the Securities and Exchange Commission under the federal securities laws,
including the Investment Company Act of 1940, the Corporation may refer to
"classes" of the Corporation's Common Stock that mean "series" as used in
these Articles of Incorporation and the Maryland General Corporation Law
and may refer to "series" that mean "classes" as used in these Articles of
Incorporation and the Maryland General Corporation Law. The Board of
Directors may fix the number of shares of Common Stock in any such class
or series and, except as specifically set forth in these Articles of
Incorporation, may set or change the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption of any class or
series of unissued shares of Common Stock. A total of Four Hundred
Million (400,000,000) shares of Common Stock shall initially be classified
as follows:
Class Fund Shares
A JohnsonFamily Intermediate Fixed Income Fund* 100,000,000
B JohnsonFamily Large Cap Equity Fund* 100,000,000
C JohnsonFamily Small Cap Equity Fund* 100,000,000
D JohnsonFamily International Equity Fund* 100,000,000
_________________
* or such other name designated by the Corporation's Board of Directors.
B. Notwithstanding the authority granted to the Board of
Directors of the Corporation with respect to the designation,
classification and reclassification of the unissued shares of Common Stock
of the Corporation, each class and series of Common Stock shall have the
following preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption:
1. Each holder of shares of Common Stock of the
Corporation, irrespective of the class or series, shall be
entitled to one (1) vote for each full share (and a fractional
vote for each fractional share) then standing in his or her name
on the books of the Corporation; provided, however, that shares
of any class or series of Common Stock owned, other than in a
fiduciary capacity, by the Corporation or by another corporation
in which the Corporation owns shares entitled to cast a majority
of all the votes entitled to be cast by all shares outstanding
and entitled to vote of such corporation, shall not be voted at
any meeting of stockholders. On any matter submitted to a vote
of stockholders all shares of the Corporation's Common Stock
then issued and outstanding and entitled to vote, irrespective
of the class or series, shall be voted in the aggregate and not
by class or series, except that: (a) when otherwise expressly
provided by the Maryland General Corporation Law, the Investment
Company Act of 1940 and the regulations thereunder, or other
applicable law, shares shall be voted by individual class or
series; and (b) when the matter to be acted upon does not affect
any interest of a particular class or series of the
Corporation's Common Stock, then only shares of the affected
class or series shall be entitled to vote thereon. At all
elections of directors of the Corporation, each stockholder
shall be entitled to vote the shares owned of record by him or
her for as many persons as there are directors to be elected,
but shall not be entitled to exercise any right of cumulative
voting.
2. All consideration received by the Corporation for the
issue or sale of shares of any class of the Corporation's Common
Stock, together with all assets in which such consideration is
invested and reinvested, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange
or liquidation thereof, and any such funds or payments derived
from any reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to the class of the
Corporation's Common Stock with respect to which such assets,
payments or funds were received by the Corporation for all
purposes, subject only to the rights of creditors, and shall be
so handled upon the books of account of the Corporation. The
consideration, assets, income, earnings, profits and proceeds
thereof of each series within a class shall be determined
separately and, accordingly, the net asset value of shares may
vary from series to series within a class. Such consideration,
assets, income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or
liquidation thereof, and any assets derived from any
reinvestment of such proceeds in whatever form, are herein
referred to as "assets belonging to" such class or series. Any
assets, income, earnings, profits and proceeds thereof, funds or
payments which are not readily attributable to any particular
class or series of the Corporation's Common Stock shall be
allocable among any one or more of the classes or series of the
Corporation's Common Stock in such manner and on such basis as
the Board of Directors, in its sole discretion, shall deem fair
and equitable. The power to make such allocations may be
delegated by the Board of Directors from time to time to one or
more of the officers of the Corporation.
3. The assets belonging to any class or series of the
Corporation's Common Stock shall be charged with the liabilities
in respect of such class or series of the Corporation's Common
Stock, and shall also be charged with the share of the general
liabilities of the Corporation allocated to such class or series
determined as hereinafter provided. The determination of the
Board of Directors shall be conclusive as to: (a) the amount of
such liabilities, including the amount of accrued expenses and
reserves; (b) any allocation of the same to a given class or
series; and (c) whether the same are allocable to one or more
classes or series. The liabilities so allocated to a class or
series are herein referred to as "liabilities belonging to" such
class or series. Any liabilities which are not readily
attributable to any particular class or series of the
Corporation's Common Stock shall be allocable among any one or
more of the classes or series of the Corporation's Common Stock
in such manner and on such basis as the Board of Directors, in
its sole discretion, shall deem fair and equitable. The power
to make such allocations may be delegated by the Board of
Directors from time to time to one or more of the officers of
the Corporation.
4. Shares of each class or series of the Corporation's
Common Stock shall be entitled to such dividends and
distributions, in stock or in cash or both, as may be declared
from time to time by the Board of Directors, acting in its sole
discretion, with respect to such class or series; provided,
however, that dividends and distributions on shares of a class
or series of the Corporation's Common Stock shall be paid only
out of the lawfully available "assets belonging to" such class
or series as such phrase is defined in this Article IV.
5. In the event of the liquidation or dissolution of the
Corporation, stockholders of a class or series of the
Corporation's Common Stock shall be entitled to receive, as a
class or series, out of the assets of the Corporation available
for distribution to stockholders, but other than general assets
not belonging to any particular class or series, the assets
belonging to such class or series, and the assets so
distributable to the holders of any class or series of the
Corporation's Common Stock shall be distributed among such
holders in proportion to the number of shares of such class or
series of the Corporation's Common Stock held by them and
recorded on the books of the Corporation. In the event that
there are any general assets not belonging to any particular
class or series of the Corporation's Common Stock and available
for distribution, such distribution shall be made to the holders
of all classes or series of the Corporation's Common Stock in
proportion to the net asset value of the respective class or
series of the Corporation's Common Stock determined as set forth
in the Bylaws of the Corporation.
6. Each share of each class or series of Common Stock of
the Corporation now or hereafter issued shall be subject to
redemption by the stockholders of the Corporation and, subject
to the suspension of such right of redemption as provided in the
Bylaws, each holder of shares of any class or series of Common
Stock of the Corporation, upon request to the Corporation
accompanied by surrender of the appropriate stock certificate or
certificates, if any, in proper form for transfer and after
complying with any other redemption procedures established by
the Board of Directors, shall be entitled to require the
Corporation to redeem all or any part of the shares of such
class or series of Common Stock standing in the name of such
holder on the books of the Corporation at the net asset value of
such shares. In the event that no certificates have been issued
to the holder, the Board of Directors may require the submission
of a stock power with an appropriate signature guarantee. All
shares of any class or series of its Common Stock redeemed by
the Corporation shall be deemed to be cancelled and restored to
the status of authorized but unissued shares. The method of
computing the net asset value of shares of each class or series
of Common Stock of the Corporation for purposes of the issuance
and sale, or redemption, thereof, as well as the time as of
which such net asset value shall be computed, shall be as set
forth in the Bylaws. Payment of the net asset value of each
share of each class or series of Common Stock of the Corporation
surrendered to it for redemption shall be made by the
Corporation within seven (7) days after surrender of such stock
to the Corporation for such purpose, or within such other
reasonable period as may be determined from time to time by the
Board of Directors. The Board of Directors of the Corporation
may, upon reasonable notice to the stockholders of the
Corporation, impose a fee for the privilege of redeeming shares,
such fee to be not in excess of two percent (2.0%) of the
proceeds of any such redemption. The Board shall have
discretionary authority to rescind the imposition of any such
fee and to reimpose the redemption fee from time to time upon
reasonable notice. Any fee so imposed shall be uniform as to
all stockholders to the extent required by the Investment
Company Act of 1940.
7. If, at any time when a request for transfer or
redemption of the shares of any class or series of Common Stock
is received by the Corporation or its agent, the value (computed
as set forth in the Bylaws) of the shares of such class or
series in a stockholder's account is less than such amount as
may be determined by the Board of Directors after giving effect
to such transfer or redemption, the Corporation may cause the
remaining shares of such class or series in such stockholder's
account to be redeemed in accordance with such procedures as the
Board of Directors shall adopt. The Corporation may redeem
shares of stock held by any stockholder to the extent permitted
by Section 2-310.1 of the Maryland General Corporation Law.
8. No holder of shares of any class or series of Common
Stock of the Corporation shall, as such holder, have any right
to purchase or subscribe for any shares of any class or series
of the Common Stock of the Corporation which it may issue or
sell (whether out of the number of shares authorized by these
Articles of Incorporation, or out of any shares of any class or
series of Common Stock of the Corporation acquired by it after
the issue thereof, or otherwise) other than such right, if any,
as the Board of Directors, in its discretion, may determine.
ARTICLE V
The number of directors constituting the Board of Directors
shall initially be five (5), and the names of the initial directors are
Richard Bibler, JoAnne Brandes, Gerald Konz, Wendell Perkins and George
Nelson. Thereafter, the number of directors shall be such number as is
fixed from time to time by the Bylaws.
ARTICLE VI
The Corporation reserves the right to enter into, from time to
time, investment advisory and administration agreements providing for the
management and supervision of the investments of the Corporation, the
furnishing of advice to the Corporation with respect to the desirability
of investing in, purchasing or selling securities or other property and
the furnishing of clerical and administrative services to the Corporation.
Such agreements shall contain such other terms, provisions and conditions
as the Board of Directors of the Corporation may deem advisable and as are
permitted by the Investment Company Act of 1940.
The Corporation may designate custodians, transfer agents,
registrars and/or disbursing agents for the stock and assets of the
Corporation and employ and fix the powers, rights, duties,
responsibilities and compensation of each such custodian, transfer agent,
registrar and/or disbursing agent.
ARTICLE VII
The following provisions define, limit and regulate the powers
of the Corporation, the Board of Directors and the stockholders:
A. The Corporation may issue and sell shares of any class or
series of its own Common Stock in such amounts and on such terms and
conditions, for such purposes and for such amount or kind of consideration
now or hereafter permitted by the laws of the State of Maryland, the
Bylaws and these Articles of Incorporation, as its Board of Directors may
determine; provided, however, that the consideration per share to be
received by the Corporation upon the sale of any shares of any class or
series of its Common Stock shall not be less than the net asset value per
share of such class or series of Common Stock outstanding at the time as
of which the computation of said net asset value shall be made.
B. The Board of Directors may, in its sole and absolute
discretion, reject in whole or in part orders for the purchase of shares
of any class or series of Common Stock and may, in addition, require such
orders to be in such minimum amounts as it shall determine.
C. The holders of any fractional shares of any class or series
of Common Stock shall be entitled to the payment of dividends on such
fractional shares, to receive the net asset value thereof upon redemption,
to share in the assets of the Corporation upon liquidation and to exercise
voting rights with respect thereto.
D. The Board of Directors shall have full power in accordance
with good accounting practice: (a) to determine what receipts of the
Corporation shall constitute income available for payment of dividends and
what receipts shall constitute principal and to make such allocation of
any particular receipt between principal and income as it may deem proper;
and (b) from time to time, in its discretion (i) to determine whether any
and all expenses and other outlays paid or incurred (including any and all
taxes, assessments or governmental charges which the Corporation may be
required to pay or hold under any present or future law of the United
States of America or of any other taxing authority therein) shall be
charged to or paid from principal or income or both, and (ii) to apportion
any and all of said expenses and outlays, including taxes, between
principal and income.
E. The Board of Directors shall have the power to determine
from time to time whether and to what extent and at what time and places
and under what conditions and regulations the books, accounts and
documents of the Corporation or any of them, shall be open to the
inspection of stockholders, except as otherwise provided by applicable
law; and except as so provided, no stockholder shall have any right to
inspect any book, account or document of the Corporation unless authorized
to do so by resolution of the Board of Directors.
ARTICLE VIII
The address of the principal office of the Corporation in
Maryland is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202.
ARTICLE IX
The address of the initial registered office is c/o The
Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland
21202.
ARTICLE X
The name of the initial registered agent at such address is The
Corporation Trust, Incorporated, a Maryland corporation.
ARTICLE XI
The name and address of the sole incorporator is:
Name Address
Richard L. Teigen c/o Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202
IN WITNESS WHEREOF, the undersigned incorporator who executed
the foregoing Articles of Incorporation hereby acknowledges the same to be
his act and further acknowledges that, to the best of his knowledge, the
matters and facts set forth therein are true in all material respects
under the penalties of perjury.
Dated this ____ day of January, 1998.
Richard L. Teigen
Sole Incorporator
Exhibit 1.1
ARTICLES OF AMENDMENT
TO ARTICLES OF INCORPORATION OF
JOHNSON FUNDS, INC.
The undersigned officer of JOHNSON FUNDS, INC., a corporation
duly organized and existing under the Maryland General Corporation Law
(the "Corporation"), does hereby certify:
FIRST: That the name of the Corporation is JOHNSON FUNDS, INC.
SECOND: That Article I of the Corporation's Articles of
Incorporation is amended in its entirety to read as follows:
ARTICLE I
The name of the corporation (hereinafter called "Corporation")
is:
JohnsonFamily Funds, Inc.
THIRD: That the last sentence of Section A of Article IV of the
Corporation's Articles of Incorporation is amended in its entirety to read
as follows:
A total of Four Hundred Million (400,000,000) shares of Common
Stock shall initially be classified as follows:
Class Fund Shares
A JohnsonFamily Intermediate Fixed 100,000,000
Income Fund*
B JohnsonFamily Large Cap Equity 100,000,000
Fund*
C JohnsonFamily Small Cap Equity 100,000,000
Fund*
D JohnsonFamily International Equity 100,000,000
Fund*
_______________
* or such other name designated by the Corporation's Board
of Directors.
FOURTH: That the amendments to the Corporation's Articles of
Incorporation (the "Amendments") were approved by a majority of the entire
Board of Directors of the Corporation.
FIFTH: That the Amendments are limited to changes expressly
permitted by Section 2-605 of the Maryland General Corporation Law to be
made without action by the stockholders of the Corporation
SIXTH: That the Corporation is registered as an open-end
investment company under the Investment Company Act of 1940.
IN WITNESS WHEREOF, the undersigned officer of the Corporation
who executed the foregoing Articles of Amendment hereby acknowledges the
same to be her act and further acknowledges that, to the best of her
knowledge, information and belief, the matters set forth herein are true
in all material respects under the penalty for perjury.
Dated and effective this 24th day of March, 1998.
JOHNSON FUNDS, INC.
By: _________________________________
Joan A. Burke
President
Attest: ____________________________
George A. Balistreri
Secretary
Exhibit 2
BYLAWS
OF
JOHNSONFAMILY FUNDS, INC.
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. Place of Meetings. All meetings of stockholders shall be
held at such location as the Board of Directors shall direct.
Section 2. Annual Meeting.
(a) The annual meeting of stockholders for the election of
directors and the transaction of such other business as may properly come
before it, if the annual meeting shall be held, shall be held at such date
and time as shall be fixed by the Board of Directors and stated in the
notice of such meeting, but in no event more than one hundred twenty (120)
days after the occurrence of the event requiring the meeting to elect
directors. Any business of the corporation may be transacted at the
annual meeting without being specifically designated in the notice, except
such business as is specifically required by statute to be stated in the
notice.
(b) The corporation shall not be required to hold an annual
meeting in any year in which the election of directors is not required to
be acted on by stockholders under the Investment Company Act of 1940.
Section 3. Special Meeting. Special meetings of the stockholders may
be called by the board of directors, the president, any vice president, or
the secretary, and shall be called by the secretary upon the written
request of the holders of shares entitled to not less than ten percent
(10%) of all the votes entitled to be cast at such meeting; provided that
such holders prepay the costs to the corporation of preparing and mailing
the notice of the meeting. The business transacted at any special meeting
of stockholders shall be limited to the purposes stated in the notice.
Section 4. Notice of Meeting. Not less than ten (10) days nor more
than ninety (90) days before the date of every stockholders' meeting, the
secretary shall give to each stockholder entitled to vote at such meeting
and to each other stockholder entitled to notice of such meeting under
applicable law, written or printed notice stating the time and place of
the meeting, and in the case of a special meeting (or where required by
applicable law) the purpose or purposes for which the meeting is called,
either by mail, by presenting it to him personally or by leaving it at his
residence or usual place of business. If mailed, such notice shall be
deemed to be given when deposited in the United States mail addressed to
the stockholder at his post office address as it appears on the records of
the corporation, with postage thereon prepaid.
Section 5. Quorum. At any meeting of stockholders the presence in
person or by proxy of stockholders entitled to cast a majority of the
votes thereat shall constitute a quorum; but this section shall not affect
any requirement under statute or under the charter for the vote necessary
for the adoption of any measure. If at any meeting a quorum is not
present or represented, the chairman of the meeting or the holders of a
majority of the stock present or represented may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until
a quorum is present or represented. At such adjourned meeting at which a
quorum is present or represented, any business may be transacted which
might have been transacted at the meeting as originally called.
Section 6. Stock Entitled to Vote. Each issued share of each class or
series of stock shall be entitled to vote at any meeting of stockholders
except shares owned, other than in a fiduciary capacity, by the
corporation or by another corporation in which the corporation owns shares
entitled to cast a majority of all the votes entitled to be cast by all
shares outstanding and entitled to vote of such corporation.
Section 7. Voting. Each outstanding share of each class or series of
stock entitled to vote at a meeting of stockholders shall be entitled to
one vote on each matter submitted to a vote. In all elections for
directors every stockholder shall have the right to vote the shares of
each class or series owned of record by him for as many persons as there
are directors to be elected, but shall not be entitled to exercise any
right of cumulative voting. A stockholder may vote the shares owned of
record by him either in person or by proxy executed in writing by the
stockholder or by his authorized attorney-in-fact. No proxy shall be
valid after eleven (11) months from its date unless otherwise provided in
the proxy. At all meetings of stockholders, unless the voting is
conducted by inspectors, all questions relating to the qualification of
voters, the validity of proxies and the acceptance or rejection of votes
shall be decided by the chairman of the meeting. A majority of the votes
cast at a meeting of stockholders, duly called and at which a quorum is
present, shall be sufficient to take or authorize any action which may
properly come before the meeting, unless a greater number is required by
statute or by the charter. Notwithstanding the foregoing a plurality of
all the votes cast at a meeting of stockholders, duly called and at which
a quorum is present, shall be sufficient to elect a director.
Section 8. Informal Action. Any action required or permitted to be
taken at any meeting of stockholders may be taken without a meeting, if a
consent in writing, setting forth such action, is signed by all the
stockholders entitled to vote on the subject matter thereof and such
consent is filed with the records of the corporation.
ARTICLE II
DIRECTORS
Section 1. Number. The initial number of directors of the corporation
shall be six (6). By vote of a majority of the entire board of directors,
the number of directors fixed by the charter or by these bylaws may be
increased or decreased from time to time to not more than fifteen nor less
than three, but the tenure of office of a director shall not be affected
by any decrease in the number of directors so made by the board.
Section 2. Election and Qualification. Until the first annual meeting
of stockholders and until successors are duly elected and qualified, the
board of directors shall consist of the persons named as such in the
charter and such additional director(s) as the board may appoint pursuant
to Article II, Section 3 of these Bylaws. At the first annual meeting of
stockholders, the stockholders shall elect directors to hold office until
their successors are elected and qualify. A director need not be a
stockholder of the corporation, but must be eligible to serve as a
director of a registered investment company under the Investment Company
Act of 1940.
Section 3. Vacancies. Any vacancy on the board of directors occurring
between stockholders' meetings called for the purpose of electing
directors may be filled, if immediately after filling any such vacancy at
least two-thirds of the directors then holding office shall have been
elected to such office at an annual or special meeting of stockholders, in
the following manner: (i) for a vacancy occurring other than by reason of
an increase in directors, by a majority of the remaining members of the
board, although such majority is less than a quorum; and (ii) for a
vacancy occurring by reason of an increase in the number of directors, by
action of a majority of the entire board. A director elected by the board
to fill a vacancy shall be elected to hold office until the next annual
meeting of stockholders or until his successor is elected and qualifies.
If by reason of the death, disqualification or bona fide resignation of
any director or directors, more than sixty percent (60%) of the members of
the board of directors are interested persons of the corporation, as
defined in the Investment Company Act of 1940, such vacancy shall be
filled within thirty (30) days if it may be filled by the board, or within
sixty (60) days if a vote of stockholders is required to fill such
vacancy; provided that such vacancy may be filled within such longer
period as the Securities and Exchange Commission may prescribe by rules
and regulations, upon its own motion or by order upon application. In the
event that at any time less than a majority of the directors were elected
by the stockholders, the board or proper officer shall forthwith cause to
be held as promptly as possible, and in any event within sixty (60) days,
a meeting of the stockholders for the purpose of electing directors to
fill any existing vacancies in the board, unless the Securities and
Exchange Commission shall by order extend such period.
Section 4. Powers. The business and affairs of the corporation shall
be managed under the direction of the board of directors, which may
exercise all of the powers of the corporation, except such as are by law
or by the charter or by these bylaws conferred upon or reserved to the
stockholders.
Section 5. Removal.
(a) At any meeting of stockholders, duly called and at which a
quorum is present, the stockholders may, by the affirmative vote of the
holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office and may elect a successor or successors
to fill any resulting vacancies for the unexpired terms of removed
directors.
(b) Notwithstanding any other provisions of these bylaws, the
secretary of the corporation shall promptly call a special meeting of
stockholders for the purpose of voting upon the question of removal of any
director upon the written request of the holders of shares entitled to not
less than ten percent (10%) of all the votes entitled to be cast at such
meeting.
(c) Whenever ten or more stockholders of record who have been
such for at least six months preceding the date of application, and who
hold in the aggregate either shares having a net asset value of at least
$25,000 or at least one percent (1%) of the total outstanding shares,
whichever is less, shall apply to the corporation's secretary in writing,
stating that they wish to communicate with other stockholders with a view
to obtaining signatures to a request for a meeting pursuant to subsection
(b) above and accompanied by a form of communication and request which
they wish to transmit, the secretary shall within five business days after
such application either: (1) afford to such applicants access to a list
of the names and addresses of all stockholders as recorded on the books of
the corporation; or (2) inform such applicants as to the approximate
number of stockholders of record and the approximate cost of mailing to
them the proposed communication and form of request.
(d) If the secretary elects to follow the course specified in
clause (2) of subsection (c) above, the secretary, upon the written
request of such applicants, accompanied by a tender of the material to be
mailed and of the reasonable expenses of mailing, shall, with reasonable
promptness, mail such material to all stockholders of record at their
addresses as recorded on the books, unless within five (5) business days
after such tender the secretary shall mail to such applicants and file
with the Securities and Exchange Commission, together with a copy of the
material to be mailed, a written statement signed by at least a majority
of the board of directors to the effect that in their opinion either such
material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or
would be in violation of applicable law, and specifying the basis of such
opinion.
(e) After opportunity for hearing upon the objections specified
in the written statement so filed, the Securities and Exchange Commission
may, and if demanded by the board of directors or by such applicants
shall, enter an order either sustaining one or more of such objections or
refusing to sustain any of them. If the Securities and Exchange
Commission shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of
such objections, the Securities and Exchange Commission shall find, after
notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the secretary shall mail
copies of such material to all shareholders with reasonable promptness
after the entry of such order and the renewal of such tender.
Section 6. Place of Meetings. Meetings of the board of directors,
regular or special, may be held at any place in or out of the State of
Maryland as the board may from time to time determine or as may be
specified in the notice of meeting.
Section 7. First Meeting of Newly Elected Board. The first meeting of
each newly elected board of directors shall be held without notice
immediately after and at the same general place as the annual meeting of
the stockholders, for the purpose of organizing the board, electing
officers and transacting any other business that may properly come before
the meeting.
Section 8. Regular Meetings. Regular meetings of the board of
directors may be held without notice at such time and place as shall from
time to time be determined by the board.
Section 9. Special Meetings. Special meetings of the board of
directors may be called at any time either by the board, the president, a
vice president or a majority of the directors in writing with or without a
meeting. Notice of special meetings shall either be mailed by the
secretary to each director at least three (3) days before the meeting or
shall be given personally or telegraphed to each director at least one (1)
day before the meeting. Such notice shall set forth the time and place of
such meeting but need not, unless otherwise required by law, state the
purposes of the meeting.
Section 10. Quorum and Vote Required for Action. At all meetings of
the board of directors a majority of the entire board shall constitute a
quorum for the transaction of business, and the action of a majority of
the directors present at any meetings at which a quorum is present shall
be the action of the board of directors unless the concurrence of a
greater proportion is required for such action by statute, the articles of
incorporation or these bylaws. If at any meeting a quorum is not present,
a majority of the directors present may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a
quorum is present. Members of the board of directors or a committee of
the board may participate in a meeting by means of a conference telephone
or similar communications equipment if all persons participating in the
meeting can hear each other at the same time; provided, however, that a
director may not participate in a meeting by means of a conference
telephone or similar communications equipment if the purpose of the
meeting is to approve the corporation's investment advisory agreement
and/or to approve the selection of the corporation's auditors, or if
participation in such a manner would otherwise violate the Investment
Company Act of 1940 or other applicable laws. Except as set forth in the
preceding sentence, participation in a meeting by these means constitutes
presence in person at the meeting.
Section 11. Executive and Other Committees. The board of directors may
appoint from among its members an executive and other committees composed
of two (2) or more directors. The board may delegate to such committees in
the intervals between meetings of the board any of the powers of the board
to manage the business and affairs of the corporation, except the power
to: (i) declare dividends or distributions upon the stock of the
corporation; (ii) issue stock of the corporation; (iii) recommend to the
stockholders any action which requires stockholder approval; (iv) amend
the bylaws; (v) approve any merger or share exchange which does not
require stockholder approval; or (vi) take any action required by the
Investment Company Act of 1940 to be taken by the independent directors of
the corporation or by the full board of directors.
Section 12. Informal Action. Except as set forth in the following
sentence, any action required or permitted to be taken at any meeting of
the board of directors or of a committee of the board may be taken without
a meeting, if a written consent to such action is signed by all members of
the board or the committee, as the case may be, and such written consent
is filed with the minutes of proceedings of the board or committee.
Notwithstanding the preceding sentence, no action may be taken by the
board of directors pursuant to a written consent with respect to the
approval of the corporation's investment advisory agreement, the approval
of the selection of the corporation's auditors, or any action required by
the Investment Company Act of 1940 or other applicable law to be taken at
a meeting of the board of directors to be held in person.
ARTICLE III
OFFICERS AND EMPLOYEES
Section 1. Election and Qualification. At the first meeting of each
newly elected board of directors there shall be elected a president, one
or more vice presidents, a secretary and a treasurer. The board may also
elect one or more assistant secretaries and assistant treasurers. No
officer need be a director. Any two or more offices, except the offices
of president and vice president, may be held by the same person but no
officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law, charter or these
bylaws to be executed, acknowledged or verified by two or more officers.
Each officer must be eligible to serve as an officer of a registered
investment company under the Investment Company Act of 1940. Nothing
herein shall preclude the employment of other employees or agents by the
corporation from time to time without action by the board.
Section 2. Term, Removal and Vacancies. The officers shall be elected
to serve until the next first meeting of a newly elected board of
directors and until their successors are elected and qualify. Any officer
may be removed by the board, with or without cause, whenever in its
judgment the best interests of the corporation will be served thereby, but
such removal shall be without prejudice to the contractual rights, if any,
of the person so removed. A vacancy in any office shall be filled by the
board for the unexpired term.
Section 3. Bonding. Each officer and employee of the corporation who
singly or jointly with others has access to securities or funds of the
corporation, either directly or through authority to draw upon such funds,
or to direct generally the disposition of such securities shall be bonded
against larceny and embezzlement by a reputable fidelity insurance
company. Each such bond, which may be in the form of an individual bond,
a schedule or blanket bond covering the corporation's officers and
employees and the officers and employees of the investment adviser to the
corporation and other corporations to which said investment adviser also
acts as investment adviser, shall be in such form and for such amount
(determined at least annually) as the board of directors shall determine
in compliance with the requirements of Section 17(g) of the Investment
Company Act of 1940, as amended from time to time, and the rules,
regulations or orders of the Securities and Exchange Commission
thereunder.
Section 4. President. The president shall be the principal executive
officer of the corporation. The president shall preside at all meetings
of the stockholders and directors, have general and active management of
the business of the corporation, see that all orders and resolutions of
the board of directors are carried into effect, and execute in the name of
the corporation all authorized instruments of the corporation, except
where the signing shall be expressly delegated by the board to some other
officer or agent of the corporation.
Section 5. Vice Presidents. The vice president, or if there be more
than one, the vice presidents in the order determined by the board of
directors, shall, in the absence or disability of the president, perform
the duties and exercise the powers of the president, and shall have such
other duties and powers as the board may from time to time prescribe or
the president delegate.
Section 6. Secretary and Assistant Secretaries. The secretary shall
give notice of, attend and record the minutes of meetings of stockholders
and directors, keep the corporate seal and, when authorized by the board,
affix the same to any instrument requiring it, attesting to the same by
his signature, and shall have such further duties and powers as are
incident to his office or as the board may from time to time prescribe.
The assistant secretary, if any, or, if there be more than one, the
assistant secretaries in the order determined by the board, shall in the
absence or disability of the secretary, perform the duties and exercise
the powers of the secretary, and shall have such other duties and powers
as the board may from time to time prescribe or the secretary delegate.
Section 7. Treasurer and Assistant Treasurers. The treasurer shall be
the principal financial and accounting officer of the corporation. The
treasurer shall be responsible for the custody and supervision of the
corporation's books of account and subsidiary accounting records, and
shall have such further duties and powers as are incident to his office or
as the board of directors may from time to time prescribe. The assistant
treasurer, if any, or, if there be more than one, the assistant treasurers
in the order determined by the board, shall in the absence or disability
of the treasurer, perform all duties and exercise the powers of the
treasurer, and shall have such other duties and powers as the board may
from time to time prescribe or the treasurer delegate.
ARTICLE IV
RESTRICTIONS ON COMPENSATION
TRANSACTIONS AND INVESTMENTS
Section 1. Salary and Expenses. Directors and executive officers as
such shall not receive any salary for their services or reimbursement for
expenses from the corporation; provided that the corporation may pay fees
in such amounts and at such times as the board of directors shall
determine to directors who are not interested persons of the corporation
for attendance at meetings of the board of directors. Clerical employees
shall receive compensation for their services from the corporation in such
amounts as are determined by the board of directors.
Section 2. Compensation and Profit from Purchase and Sales. No
affiliated person of the corporation, as defined in the Investment Company
Act of 1940, or affiliated person of such person, shall, except as
permitted by Section 17(e) of the Act, or the rules, regulations or orders
of the Securities and Exchange Commission thereunder, (i) acting as agent,
accept from any source any compensation for the purchase or sale of any
property or securities to or for the corporation or any controlled company
of the corporation, as defined in such Act, or (ii) acting as a broker, in
connection with the sale of securities to or by the corporation or any
controlled company of the corporation, receive from any source a
commission, fee or other remuneration for effecting such transaction.
Section 3. Transactions with Affiliated Person. No affiliated person
of the corporation, as defined in the Investment Company Act of 1940, or
affiliated person of such person shall knowingly (i) sell any security or
other property to the corporation or to any company controlled by the
corporation, as defined in the Act, except shares of stock of the
corporation or securities of which such person is the issuer and which are
part of a general offering to the holders of a class of its securities,
(ii) purchase from the corporation or any such controlled company any
security or property except shares of stock of the corporation or
securities of which such person is the issuer, (iii) borrow money or other
property from the corporation or any such controlled company, or (iv)
acting as a principal effect any transaction in which the corporation or
controlled company is a joint or joint and several participant with such
person; provided, however, that this section shall not apply to any
transaction permitted by Sections 17(a), (b), (c), (d) or 21(b) of the
Investment Company Act of 1940 or the rules, regulations or orders of the
Securities and Exchange Commission thereunder, and shall not prohibit the
joint participation by the corporation and an affiliate in a fidelity bond
arrangement.
Section 4. Investment Adviser. The corporation shall employ one or
more investment advisers, the employment of which shall be pursuant to
written agreements in accordance with Section 15 of the Investment Company
Act of 1940, as amended from time to time.
ARTICLE V
STOCK CERTIFICATES AND TRANSFER BOOKS
Section 1. Certificates. The shares of each class or series of stock
of the corporation shall be issued without certificates.
Section 2. Stock Ledger. The corporation shall maintain at its office
or at the office of its principal transfer agent, if any, an original or
duplicate stock ledger containing the names and addresses of all
stockholders and the number of shares of each class or series of stock
held by each stockholder.
Section 3. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as
such, as the owner of shares for all purposes, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not it shall have express or
other notice thereof, except as other provided by the laws of Maryland.
Section 4. Transfer Agent and Registrar. The corporation may maintain
one or more transfer offices or agencies, each in charge of a transfer
agent designated by the board of directors, where the shares of each class
or series of stock of the corporation shall be transferable. The
corporation may also maintain one or more registry offices, each in charge
of a registrar designated by the board, where the shares of such classes
or series of stock shall be registered.
Section 5. Fixing of Record Dates and Closing of Transfer Books. The
board of directors may fix, in advance, a date as the record date for the
purpose of determining stockholders entitled to notice of, or to vote at,
any meeting of stockholders, or stockholders entitled to receive payment
of any dividend or the allotment of any rights, or in order to make a
determination of stockholders for any other proper purpose. Such date, in
any case, shall be not more than ninety (90) days, and in case of a
meeting of stockholders not less than ten (10) days, prior to the date on
which the particular action requiring such determination of stockholders
is to be taken. In lieu of fixing a record date, the board may provide
that the stock transfer books shall be closed for a stated period but not
to exceed, in any case, twenty (20) days. If the stock transfer books are
closed or a record date is fixed for the purpose of determining
stockholders entitled to vote at a meeting of stockholders, such books
shall be closed for at least ten (10) days immediately preceding such
action.
ARTICLE VI
ACCOUNTS, REPORTS, CUSTODIAN AND INVESTMENT ADVISER
Section 1. Inspection of Books. The board of directors shall
determine from time to time whether, and, if allowed, when and under what
conditions and regulations the accounts and books of the corporation
(except such as may by statute be specifically open to inspection) or any
of them, shall be open to the inspection of the stockholders, and the
stockholders' rights in this respect are and shall be limited accordingly.
Section 2. Reliance on Records. Each director and officer shall, in
the performance of his duties, be fully protected in relying in good faith
on the books of account or reports made to the corporation by any of its
officials or by an independent public accountant.
Section 3. Preparation and Maintenance of Accounts, Records and
Statements. The president, a vice president or the treasurer shall
prepare or cause to be prepared annually, a full and correct statement of
the affairs of the corporation, including a balance sheet or statement of
financial condition and a financial statement of operations for the
preceding fiscal year, which shall be submitted at the annual meeting of
the stockholders and filed within twenty (20) days thereafter at the
principal office of the corporation. If the corporation is not required
to hold an annual meeting of stockholders, the statement of affairs shall
be placed on file at the corporation's principal office within one hundred
twenty (120) days after the end of the fiscal year. The proper officers
of the corporation shall also prepare, maintain and preserve or cause to
be prepared, maintained and preserved the accounts, books and other
documents required by Section 2-111 of the Maryland General Corporation
Law and Section 31 of the Investment Company Act of 1940 and shall prepare
and file or cause to be prepared and filed the reports required by Section
30 of such Act. No financial statement shall be filed with the Securities
and Exchange Commission unless the officers or employees who prepared or
participated in the preparation of such financial statement have been
specifically designated for such purpose by the board of directors.
Section 4. Auditors. No independent public accountant shall be
retained or employed by the corporation to examine, certify or report on
its financial statements for any fiscal year unless such selection shall
be made in accordance with the requirements of Section 32 of the
Investment Company Act of 1940.
Section 5. Custodianship. All securities owned by the corporation and
all cash, including, without limiting the generality of the foregoing, the
proceeds from sales of securities owned by the corporation and from the
issuance of shares of the capital stock of the corporation, payments of
principal upon securities owned by the corporation, and distributions in
respect of securities owned by the corporation which at the time of
payment are represented by the distributing corporation to be capital
distributions, shall be held by a custodian or custodians which shall be a
bank, as that term is defined in the Investment Company Act of 1940,
having capital, surplus and undivided profits aggregating not less than
$2,000,000. The terms of custody of such securities and cash shall
include provisions to the effect that the custodian shall deliver
securities owned by the corporation only (a) upon sales of such securities
for the account of the corporation and receipt by the custodian of payment
therefor, (b) when such securities are called, redeemed or retired or
otherwise become payable, (c) for examination by any broker selling any
such securities in accordance with "street delivery" custom, (d) in
exchange for or upon conversion into other securities alone or other
securities and cash whether pursuant to any plan of merger, consolidation,
reorganization, recapitalization or readjustment, or otherwise, (e) upon
conversion of such securities pursuant to their terms into other
securities, (f) upon exercise of subscription, purchase or other similar
rights represented by such securities, (g) for the purpose of exchanging
interim receipts or temporary securities for definitive securities, (h)
for the purpose of redeeming in kind shares of the capital stock of the
corporation, or (i) for other proper corporate purposes. Such terms of
custody shall also include provisions to the effect that the custodian
shall hold the securities and funds of the corporation in a separate
account or accounts and shall have sole power to release and deliver any
such securities and draw upon any such account, any of the securities or
funds of the corporation only on receipt by such custodian of written
instruction from one or more persons authorized by the board of directors
to give such instructions on behalf of the corporation, and that the
custodian shall deliver cash of the corporation required by this Section 5
to be deposited with the custodian only upon the purchase of securities
for the portfolio of the corporation and the delivery of such securities
to the custodian, for the purchase or redemption of shares of the capital
stock of the corporation, for the payment of interest, dividends, taxes,
management or supervisory fees or operating expenses, for payments in
connection with the conversion, exchange or surrender of securities owned
by the corporation, or for other proper corporate purposes. Upon the
resignation or inability to serve of any such custodian the corporation
shall (a) use its best efforts to obtain a successor custodian, (b)
require the cash and securities of the corporation held by the custodian
to be delivered directly to the successor custodian, and (c) in the event
that no successor custodian can be found, submit to the stockholders of
the corporation, before permitting delivery of such cash and securities to
anyone other than a successor custodian, the question whether the
corporation shall be dissolved or shall function without a custodian;
provided, however, that nothing herein contained shall prevent the
termination of any agreement between the corporation and any such
custodian by the affirmative vote of the holders of a majority of all the
shares of the capital stock of the corporation at the time outstanding and
entitled to vote. Upon its resignation or inability to serve, the
custodian may deliver any assets of the corporation held by it to a
qualified bank or trust company selected by it, such assets to be held
subject to the terms of custody which governed such retiring custodian,
pending action by the corporation as set forth in this Section 5.
Section 6. Termination of Custodian Agreement. Any employment
agreement with a custodian shall be terminable on not more than sixty (60)
days' notice in writing by the board of directors or the custodian and
upon any such termination the custodian shall turn over only to the
succeeding custodian designated by the board of directors all funds,
securities and property and documents of the corporation in its
possession.
Section 7. Checks and Requisitions. Except as otherwise authorized by
the board of directors, all checks and drafts for the payment of money
shall be signed in the name of the corporation by a custodian, and all
requisitions or orders for the payment of money by a custodian or for the
issue of checks and drafts therefore, all promissory notes, all
assignments of stock or securities standing in the name of the
corporation, and all requisitions or orders for the assignment of stock or
securities standing in the name of a custodian or its nominee, or for the
execution of powers to transfer the same, shall be signed in the name of
the corporation by not less than two persons (who shall be among those
persons designated for this purpose by the board of directors) at least
one of which shall be an officer. Promissory notes, checks or drafts
payable to the corporation may be endorsed only to the order of a
custodian or its nominee by the treasurer or president or by such other
person or persons as shall be thereto authorized by the board of
directors.
Section 8. Investment Advisory Contract. Any investment advisory
contract in effect after the first annual meeting of stockholders of the
corporation, to which the corporation is or shall become a party, whereby,
subject to the control of the board of directors of the corporation, the
investment portfolio with respect to any class of Common Stock of the
corporation shall be managed or supervised by the other party to such
contract, shall be effective and binding only upon the affirmative vote of
a majority of the outstanding voting securities of such class of Common
Stock of the corporation (as defined in the Investment Company Act of
1940), and the investment advisory contract currently in effect with
respect to any class of Common Stock shall be submitted to the holders of
shares of such class of Common Stock for ratification by the affirmative
vote of such majority. Any investment advisory contract to which the
corporation shall be a party whereby, subject to the control of the board
of directors of the corporation, the investment portfolio with respect to
any class of Common Stock of the corporation shall be managed or
supervised by the other party to such contract, shall provide, among other
things, that such contract cannot be assigned. Such investment advisory
contract shall prohibit the other party thereto from making short sales of
shares of capital stock of the corporation; and such investment advisory
contract shall prohibit such other party from purchasing shares otherwise
than for investment. Unless any such contract shall expressly otherwise
provide, any provisions therein for the termination thereof by action of
the board of directors of the corporation shall be construed to require
that such termination can be accomplished only upon the vote of a majority
of the entire board.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Offices. The registered office of the corporation in the
State of Maryland shall be in the City of Baltimore. The corporation
shall also have an office in Racine, Wisconsin. The corporation may also
have offices at such other places within and without the State of Maryland
as the board of directors may from time to time determine. Except as
otherwise required by statute, the books and records of the corporation
may be kept outside the State of Maryland.
Section 2. Seal. The corporate seal shall have inscribed thereon the
name of the corporation, and the words "Corporate Seal" and "Maryland".
The seal may be used by causing it or a facsimile thereof to be impressed,
affixed, reproduced or otherwise.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
fixed by the board of directors.
Section 4. Notice of Waiver of Notice. Whenever any notice of the
time, place or purpose of any meeting of stockholders or directors is
required to be given under the statute, the charter or these bylaws, a
waiver thereof in writing, signed by the person or persons entitled to
such notice and filed with the records of the meeting, either before or
after the holding thereof, or actual attendance at the meeting of
stockholders in person or by proxy or at the meeting of directors in
person, shall be deemed equivalent to the giving of such notice to such
person. No notice need be given to any person with whom communication is
made unlawful by any law of the United States or any rule, regulation,
proclamation or executive order issued by any such law.
Section 5. Voting of Stock. Unless otherwise ordered by the board of
directors, the president shall have full power and authority, in the name
and on behalf of the corporation, (i) to attend, act and vote at any
meeting of stockholders of any company in which the corporation may own
shares of stock of record, beneficially (as the proxy or attorney-in-fact
of the record holder) or of record and beneficially, and (ii) to give
voting directions to the record stockholder of any such stock beneficially
owned. At any such meeting, he shall possess and may exercise any and all
rights and powers incident to the ownership of such shares which, as the
holder or beneficial owner and proxy of the holder thereof, the
corporation might possess and exercise if personally present, and may
delegate such power and authority to any officer, agent or employee of the
corporation.
Section 6. Dividends. Dividends upon any class or series of stock of
the corporation, subject to the provisions of the charter, if any, may be
declared by the board of directors in any lawful manner. The source of
each dividend payment shall be disclosed to the stockholders receiving
such dividend, to the extent required by the laws of the State of Maryland
and by Section 19 of the Investment Company Act of 1940 and the rules and
regulations of the Securities and Exchange Commission thereunder.
Section 7. Indemnification.
A. The corporation shall indemnify all of its corporate
representatives against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
them in connection with the defense of any action, suit or proceeding, or
threat or claim of such action, suit or proceeding, whether civil,
criminal, administrative, or legislative, no matter by whom brought, or in
any appeal in which they or any of them are made parties or a party by
reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation
and with respect to any criminal proceeding, if he had no reasonable cause
to believe his conduct was unlawful provided that the corporation shall
not indemnify corporate representatives in relation to matters as to which
any such corporate representative shall be adjudged in such action, suit
or proceeding to be liable for gross negligence, willful misfeasance, bad
faith, reckless disregard of the duties and obligations involved in the
conduct of his office, or when indemnification is otherwise not permitted
by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly absolves
the corporate representative, or in the event of a settlement, each
corporate representative shall be indemnified hereunder only if there has
been a reasonable determination based on a review of the facts that
indemnification of the corporate representative is proper because he has
met the applicable standard of conduct set forth in paragraph A. Such
determination shall be made: (i) by the board of directors, by a majority
vote of a quorum which consists of directors who were not parties to the
action, suit or proceeding, or if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting solely of two or
more directors, not, at the time, parties to the action, suit or
proceeding and who were duly designated to act in the matter by the full
board in which the designated directors who are parties to the action,
suit or proceeding may participate; or (ii) by special legal counsel
selected by the board of directors or a committee of the board by vote as
set forth in (i) of this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the committee cannot be
established, by a majority vote of the full board in which directors who
are parties to the action, suit or proceeding may participate.
C. The termination of any action, suit or proceeding by
judgment, order or settlement does not create a presumption that the
person was guilty of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties and obligations involved in the conduct
of his or her office. The termination of any action, suit or proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an
entry of an order of probation prior to judgment shall create a rebuttable
presumption that the person was guilty of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties and obligations
involved in the conduct of his or her office, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the
preparation of and/or presentation of the defense of a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding as authorized in
the manner provided in Section 2-418(F) of the Maryland General
Corporation Law upon receipt of: (i) an undertaking by or on behalf of
the corporate representative to repay such amount unless it shall
ultimately be determined that he or she is entitled to be indemnified by
the corporation as authorized in this bylaw; and (ii) a written
affirmation by the corporate representative of the corporate
representative's good faith belief that the standard of conduct necessary
for indemnification by the corporation has been met.
E. The indemnification provided by this bylaw shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under these bylaws, any agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person subject to the limitations
imposed from time to time by the Investment Company Act of 1940, as
amended.
F. This corporation shall have power to purchase and maintain
insurance on behalf of any corporate representative against any liability
asserted against him or her and incurred by him or her in such capacity or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under
this bylaw provided that no insurance may be purchased or maintained to
protect any corporate representative against liability for gross
negligence, willful misfeasance, bad faith or reckless disregard of the
duties and obligations involved in the conduct of his or her office.
G. "Corporate Representative" means an individual who is or
was a director, officer, agent or employee of the corporation or who
serves or served another corporation, partnership, joint venture, trust or
other enterprise in one of these capacities at the request of the
corporation and who, by reason of his or her position, is, was, or is
threatened to be made, a party to a proceeding described herein.
Section 8. Amendments.
A. These bylaws may be altered, amended or repealed and new
bylaws may be adopted by the stockholders by affirmative vote of not less
than a majority of the shares of all classes and series of stock present
or represented at any annual or special meeting of the stockholders at
which a quorum is in attendance.
B. These bylaws may also be altered, amended or repealed and
new bylaws may be adopted by the Board of Directors by affirmative vote of
a majority of the number of directors present at any meeting at which a
quorum is in attendance; but no bylaw adopted by the stockholders shall be
amended or repealed by the Board of Directors if the bylaws so adopted so
provides.
C. Any action taken or authorized by the stockholders or by
the Board of Directors, which would be inconsistent with the bylaws then
in effect but is taken or authorized by affirmative vote of not less than
the number of shares or the number of directors required to amend the
bylaws so that the bylaws would be consistent with such action, shall be
given the same effect as though the bylaws had been temporarily amended or
suspended so far, but only so far, as was necessary to permit the specific
action so taken or authorized.
Section 9. Reports to Stockholders. The books of account of the
corporation shall be examined by an independent firm of public accountants
at the close of each annual fiscal period of the corporation and at such
other times, if any, as may be directed by the Board of Directors of the
corporation. A report to the stockholders based upon each such
examination shall be mailed to each stockholder of the corporation of
record on such date with respect to each report as may be determined by
the Board of Directors at his address as the same appears on the books of
the corporation. Each such report shall include the financial information
required to be transmitted to stockholders by rules or regulations of the
Securities and Exchange Commission under the Investment Company Act of
1940 and shall be in such form as the Board of Directors shall determine
pursuant to rules and regulations of the Securities and Exchange
Commission.
ARTICLE VIII
SALES, REDEMPTION AND
NET ASSET VALUE OF SHARES
Section 1. Sales of Shares. Shares of any class or series of Common
Stock of the corporation shall be sold by it for the net asset value per
share of such class or series of Common Stock outstanding at the time as
of which the computation of said net asset value shall be made as
hereinafter provided in these bylaws.
Section 2. Periodic Investment and Dividend Reinvestment Plans. The
corporation acting by and through the Board of Directors shall have the
right to adopt and to offer to the holders of each class or series of
stock and to the public a periodic investment plan and an automatic
reinvestment of dividend plan subject to the limitations and restrictions
imposed thereon and as set forth in the Investment Company Act of 1940 and
any rule or regulation adopted or issued thereunder.
Section 3. Shares Issued for Securities. In the case of shares of any
class or series of stock of the corporation issued in whole or in part in
exchange for securities, there may, at the discretion of the board of
directors of the corporation, be included in the value of said securities,
for the purpose of determining the number of shares of such class or
series of stock of the corporation issuable in exchange therefor, the
amount, if any, of brokerage commissions (not exceeding an amount equal to
the rates payable in connection with the purchase of comparable securities
on the New York Stock Exchange) or other similar costs of acquisition of
such securities paid by the holder of said securities in acquiring the
same.
Section 4. Redemption of Shares. Each share of each class or series
of Common Stock of the corporation now or hereafter issued shall be
subject to redemption, as provided in the Articles of Incorporation of the
corporation.
Section 5. Suspension of Right of Redemption. The Board of Directors
of the corporation may suspend the right of the holders of any class or
series of Common Stock of the corporation to require the corporation to
redeem shares of such class or series:
(1) for any period (a) during which the New York Stock
Exchange is closed other than customary weekend and holiday
closings, or (b) during which trading on the New York Stock
Exchange is restricted;
(2) for any period during which an emergency, as defined
by rules of the Securities and Exchange Commission or any
successor thereto, exists as a result of which (a) disposal by
the corporation of securities owned by it is not reasonably
practicable, or (b) it is not reasonably practicable for the
corporation fairly to determine the value of its net assets; or
(3) for such other periods as the Securities and Exchange
Commission or any successor thereto may by order permit for the
protection of security holders of the corporation.
Section 6. Computation of Net Asset Value. For purposes of these
bylaws, the following rules shall apply:
A. The net asset value of each share of each class or
series of Common Stock of the corporation shall be determined at
such time or times as may be disclosed in the then currently
effective Prospectus relating to such class or series of Common
Stock of this corporation. The Board of Directors may also,
from time to time by resolution, designate a time or times
intermediate of the opening and closing of trading on the New
York Stock Exchange on each day that said Exchange is open for
trading as of which the net asset value of each share of each
class or series of Common Stock of the corporation shall be
determined or estimated.
Any determination or estimation of net asset value as
provided in this subparagraph A shall be effective at the time
as of which such determination or estimation is made.
The net asset value of each share of each class or series
of Common Stock of the corporation for purposes of the issue of
such class or series of Common Stock shall be the net asset
value which becomes effective as provided in this Subparagraph
A, next succeeding receipt of the subscription to such share of
such class or series of Common Stock. The net asset value of
each share of each class or series of Common Stock of the
corporation tendered for redemption shall be the net asset value
which becomes effective as provided in this Subparagraph A, next
succeeding the tender of such share of such class or series of
Common Stock for redemption.
B. The net asset value of each share of each class or
series of Common Stock of the corporation, as of the close of
business on any day, shall be the quotient obtained by dividing
the value at such close of the net assets belonging to such
class or series (meaning the assets belonging to such class or
series and any other assets allocated to such class or series
less the liabilities belonging to such class or series and any
other liabilities allocated to such class or series excluding
capital and surplus) of the corporation by the total number of
shares of such class or series outstanding at such close.
(i) The assets belonging to any class or series
of Common Stock shall be that portion of the total
assets of the corporation as determined in accordance
with the provisions of Article IV of the Articles of
Incorporation of the corporation. The assets of the
corporation shall be deemed to include (a) all cash on
hand, on deposit, or on call, (b) all bills and notes
and accounts receivable, (c) all shares of stock and
subscription rights and other securities owned or
contracted for by the corporation, other than its own
common stock, (d) all stock and cash dividends and
cash distributions, to be received by the corporation,
and not yet received by it but declared to
stockholders of record on a date on or before the date
as of which the net asset value is being determined,
(e) all interest accrued on any interest-bearing
securities owned by the corporation, and (f) all other
property of every kind and nature including prepaid
expenses; the value of such assets to be determined in
accordance with the corporation's registration
statement filed with the Securities and Exchange
Commission.
(ii) The liabilities belonging to any class or
series of Common Stock shall be that portion of the
total liabilities of the corporation as determined in
accordance with the provisions of Article IV of the
Articles of Incorporation of the corporation. The
liabilities of the corporation shall be deemed to
include (a) all bills and notes and accounts payable,
(b) all administration expenses payable and/or accrued
(including investment advisory fees), (c) all
contractual obligations for the payment of money or
property including the amount of any unpaid dividend
declared upon the corporation's stock and payable to
stockholders of record on or before the day as of
which the value of the corporation's stock is being
determined, (d) all reserves, if any, authorized or
approved by the Board of Directors for taxes,
including reserves for taxes at current rates based on
any unrealized appreciation in the value of the assets
of the corporation, and (e) all other liabilities of
the corporation of whatever kind and nature except
liabilities represented by outstanding capital stock
and surplus of the corporation.
(iii) For the purposes hereof: (a) shares of
each class or series of Common Stock subscribed for
shall be deemed to be outstanding as of the time of
acceptance of any subscription and the entry thereof
on the books of the corporation and the net price
thereof shall be deemed to be an asset belonging to
such class or series; and (b) shares of each class or
series of Common Stock surrendered for redemption by
the corporation shall be deemed to be outstanding
until the time as of which the net asset value for
purposes of such redemption is determined or
estimated.
C. The net asset value of each share of each class or
series of Common Stock of the corporation, as of any time other
than the close of business on any day, may be determined by
applying to the net asset value as of the close of business on
the preceding business day, computed as provided in Paragraph B
of this Section of these bylaws, such adjustments as are
authorized by or pursuant to the direction of the Board of
Directors and designed reasonably to reflect any material
changes in the market value of securities and other assets held
and any other material changes in the assets or liabilities of
the corporation and in the number of its outstanding shares
which shall have taken place since the close of business on such
preceding business day.
D. In addition to the foregoing, the Board of Directors
is empowered, in its absolute discretion, to establish other
bases or times, or both, for determining the net asset value of
each share of each class or series of the Common Stock of the
corporation.
INVESTMENT ADVISORY AGREEMENT
Agreement made this ____ day of March, 1998 between
JohnsonFamily Funds, Inc., a Maryland corporation (the "Company"), and
Johnson Asset Management, Inc., a Wisconsin corporation (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Company is in the process of registering with the
Securities and Exchange Commission under the Investment Company Act of
1940 (the "Act") as an open-end management investment company consisting
as of the date hereof of four series, the JohnsonFamily Intermediate Fixed
Income Fund (the "Intermediate Fixed Income Fund"), the JohnsonFamily
Small Cap Equity Fund (the "Small Cap Equity Fund"), the JohnsonFamily
Large Cap Equity Fund (the "Large Cap Equity Fund") and the JohnsonFamily
International Equity Fund (the "International Equity Fund"); and
WHEREAS, the Company desires to retain the Adviser, which is an
investment adviser registered under the Investment Advisers Act of 1940,
as the investment adviser for the Intermediate Fixed Income Fund.
NOW, THEREFORE, the Company and the Adviser do mutually promise
and agree as follows:
1. Employment. The Company hereby employs the Adviser to
manage the investment and reinvestment of the assets of the Intermediate
Fixed Income Fund for the period and on the terms set forth in this
Agreement. The Adviser hereby accepts such employment for the
compensation herein provided and agrees during such period to render the
services and to assume the obligations herein set forth.
2. Authority of the Adviser. The Adviser shall supervise and
manage the investment portfolio of the Intermediate Fixed Income Fund and,
subject to such policies as the directors of the Company may determine,
direct the purchase and sale of investment securities in the day-to-day
management of the Intermediate Fixed Income Fund. The Adviser shall for
all purposes herein be deemed to be an independent contractor and shall,
unless otherwise expressly provided or authorized, have no authority to
act for or represent the Company or the Intermediate Fixed Income Fund in
any way or otherwise be deemed an agent of the Company or the Intermediate
Fixed Income Fund. However, one or more shareholders, officers, directors
or employees of the Adviser may serve as directors and/or officers of the
Company, but without compensation or reimbursement of expenses for such
services from the Company. Nothing herein contained shall be deemed to
require the Company to take any action contrary to its Articles of
Incorporation or By-Laws or any applicable statute or regulation, or to
relieve or deprive the directors of the Company of their responsibility
for, and control of, the affairs of the Intermediate Fixed Income Fund.
3. Expenses. The Adviser, at its own expense and without
reimbursement from the Company or the Intermediate Fixed Income Fund,
shall furnish office space, and all necessary office facilities, equipment
and executive personnel for managing the investments of the Intermediate
Fixed Income Fund. The Intermediate Fixed Income Fund shall bear all
expenses initially incurred by it, provided that the total expenses borne
by the Intermediate Fixed Income Fund, including the Adviser's fee but
excluding all federal, state and local taxes, interest, reimbursement
payments to securities lenders for dividend and interest payments on
securities sold short, brokerage commissions and extraordinary items,
shall not in any year exceed 1.5% of the average net assets of the
Intermediate Fixed Income Fund for such year, as determined by valuations
made as of the close of each business day. The expenses of the
Intermediate Fixed Income Fund's operations borne by the Intermediate
Fixed Income Fund include by way of illustration and not limitation,
director's fees paid to those directors who are not officers of the
Company, the costs of preparing and printing its registration statements
required under the Securities Act of 1933 and the Act (and amendments
thereto), the expense of registering its shares with the Securities and
Exchange Commission and in the various states, payments made pursuant to
the Service and Distribution Plan, the printing and distribution cost of
prospectuses mailed to existing shareholders, the cost of share
certificates (if any), director and officer liability insurance, reports
to shareholders, reports to government authorities and proxy statements,
interest charges, reimbursement payments to securities lenders for
dividend and interest payments on securities sold short, taxes, legal
expenses, salaries of administrative and clerical personnel, association
membership dues, auditing and accounting services, insurance premiums,
brokerage and other expenses connected with the execution of portfolio
securities transactions, fees and expenses of the custodian of the
Intermediate Fixed Income Fund's assets, expenses of calculating the net
asset value and repurchasing and redeeming shares, charges and expenses of
dividend disbursing agents, registrars and stock transfer agents and the
cost of keeping all necessary shareholder records and accounts.
The Company shall monitor the expense ratio of the Intermediate
Fixed Income Fund on a monthly basis. If the accrued amount of the
expenses of the Intermediate Fixed Income Fund exceeds the expense
limitation established herein, the Company shall create an account
receivable from the Adviser for the amount of such excess. In such a
situation the monthly payment of the Adviser's fee will be reduced by the
amount of such excess, subject to adjustment month by month during the
balance of the Company's fiscal year if accrued expenses thereafter fall
below the expense limitation.
4. Compensation of the Adviser. For the services and
facilities to be rendered and the charges and expenses to be assumed by
the Adviser hereunder, the Company, through and on behalf of the
Intermediate Fixed Income Fund shall pay to the Adviser an advisory fee,
paid monthly, based on the average net assets of the Intermediate Fixed
Income Fund, as determined by valuations made as of the close of each
business day of the month. The advisory fee shall be 1/12 of 0.45% (0.45%
per annum) of such average net assets of the Intermediate Fixed Income
Fund. For any month in which this Agreement is not in effect for the
entire month, such fee shall be reduced proportionately on the basis of
the number of calendar days during which it is in effect and the fee
computed upon the average net assets of the business days during which it
is so in effect.
5. Ownership of Shares of the Intermediate Fixed Income Fund.
Except in connection with the initial capitalization of the Intermediate
Fixed Income Fund, the Adviser shall not take, and shall not permit any of
its shareholders, officers, directors or employees to take, a long or
short position in the shares of the Intermediate Fixed Income Fund, except
for the purchase of shares of the Intermediate Fixed Income Fund for
investment purposes at the same price as that available to the public at
the time of purchase.
6. Exclusivity. The services of the Adviser to the
Intermediate Fixed Income Fund hereunder are not to be deemed exclusive
and the Adviser shall be free to furnish similar services to others as
long as the services hereunder are not impaired thereby. Although the
Adviser has permitted and is permitting the Intermediate Fixed Income Fund
and the Company to use the name "JohnsonFamily," it is understood and
agreed that the Adviser reserves the right to use and has permitted and
may permit other persons, firms or corporations, including investment
companies, to use such name, and that the Intermediate Fixed Income Fund
and the Company will not use such name if the Adviser ceases to be the
Intermediate Fixed Income Fund's sole investment adviser. During the
period that this Agreement is in effect, the Adviser shall be the
Intermediate Fixed Income Fund's sole investment adviser.
7. Liability. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the Intermediate Fixed Income Fund or to any shareholder of
the Intermediate Fixed Income Fund for any act or omission in the course
of, or connected with, rendering services hereunder, or for any losses
that may be sustained in the purchase, holding or sale of any security.
8. Brokerage Commissions. The Adviser shall have authority
and discretion to select brokers and dealers to exercise portfolio
transactions for the Intermediate Fixed Income Fund and for the selection
of the markets on or in which the transactions will be executed. The
Adviser may cause the Intermediate Fixed Income Fund to pay a
broker-dealer which provides brokerage and research services, as such
services are defined in Section 28(e) of the Securities Exchange Act of
1934 (the "Exchange Act"), to the Adviser a commission for effecting a
securities transaction in excess of the amount another broker-dealer would
have charged for effecting such transaction, if the Adviser determines in
good faith that such amount of commission is reasonable in relation to the
value of brokerage and research services provided by the executing
broker-dealer viewed in terms of either that particular transaction or his
overall responsibilities with respect to the accounts as to which he
exercises investment discretion (as defined in Section 3(a)(35) of the
Exchange Act). The Adviser will provide such reports as the Company's
Board of Directors may reasonably request with respect to the Intermediate
Fixed Income Fund's total brokerage and the manner in which that brokerage
was allocated.
9. Amendments. This Agreement may be amended by the mutual
consent of the parties; provided, however, that in no event may it be
amended without the approval of the directors of the Company in the manner
required by the Act, and, if required by the Act, by the vote of the
majority of the outstanding voting securities of the Intermediate Fixed
Income Fund, as defined in the Act.
10. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by the directors of the Company or by
a vote of the majority of the outstanding voting securities of the
Intermediate Fixed Income Fund, as defined in the Act, upon giving sixty
(60) days' written notice to the Adviser. This Agreement may be
terminated by the Adviser at any time upon the giving of sixty (60) days'
written notice to the Company. This Agreement shall terminate
automatically in the event of its assignment (as defined in Section
2(a)(4) of the Act). Subject to prior termination as hereinbefore
provided, this Agreement shall continue in effect for two (2) years from
the date hereof and indefinitely thereafter, but only so long as the
continuance after such two (2) year period is specifically approved
annually by (i) the directors of the Company or by the vote of the
majority of the outstanding voting securities of the Intermediate Fixed
Income Fund, as defined in the Act, and (ii) the directors of the Company
in the manner required by the Act, provided that any such approval may be
made effective not more than sixty (60) days thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day first above written.
JOHNSON ASSET MANAGEMENT, INC. JOHNSONFAMILY FUNDS, INC.
(the "Adviser") (the "Company")
By: By:
INVESTMENT ADVISORY AGREEMENT
Agreement made this ____ day of March, 1998 between
JohnsonFamily Funds, Inc., a Maryland corporation (the "Company"), and
Johnson Asset Management, Inc., a Wisconsin corporation (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Company is in the process of registering with the
Securities and Exchange Commission under the Investment Company Act of
1940 (the "Act") as an open-end management investment company consisting
as of the date hereof of four series, the JohnsonFamily Intermediate Fixed
Income Fund (the "Intermediate Fixed Income Fund"), the JohnsonFamily
Small Cap Equity Fund (the "Small Cap Equity Fund"), the JohnsonFamily
Large Cap Equity Fund (the "Large Cap Equity Fund") and the JohnsonFamily
International Equity Fund (the "International Equity Fund"); and
WHEREAS, the Company desires to retain the Adviser, which is an
investment adviser registered under the Investment Advisers Act of 1940,
as the investment adviser for the Large Cap Equity Fund.
NOW, THEREFORE, the Company and the Adviser do mutually promise
and agree as follows:
1. Employment. The Company hereby employs the Adviser to
manage the investment and reinvestment of the assets of the Large Cap
Equity Fund for the period and on the terms set forth in this Agreement.
The Adviser hereby accepts such employment for the compensation herein
provided and agrees during such period to render the services and to
assume the obligations herein set forth.
2. Authority of the Adviser. The Adviser shall supervise and
manage the investment portfolio of the Large Cap Equity Fund and, subject
to such policies as the directors of the Company may determine, direct the
purchase and sale of investment securities in the day-to-day management of
the Large Cap Equity Fund. The Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or
represent the Company or the Large Cap Equity Fund in any way or otherwise
be deemed an agent of the Company or the Large Cap Equity Fund. However,
one or more shareholders, officers, directors or employees of the Adviser
may serve as directors and/or officers of the Company, but without
compensation or reimbursement of expenses for such services from the
Company. Nothing herein contained shall be deemed to require the Company
to take any action contrary to its Articles of Incorporation or By-Laws or
any applicable statute or regulation, or to relieve or deprive the
directors of the Company of their responsibility for, and control of, the
affairs of the Large Cap Equity Fund.
3. Expenses. The Adviser, at its own expense and without
reimbursement from the Company or the Large Cap Equity Fund, shall furnish
office space, and all necessary office facilities, equipment and executive
personnel for managing the investments of the Large Cap Equity Fund. The
Large Cap Equity Fund shall bear all expenses initially incurred by it,
provided that the total expenses borne by the Large Cap Equity Fund,
including the Adviser's fee but excluding all federal, state and local
taxes, interest, reimbursement payments to securities lenders for dividend
and interest payments on securities sold short, brokerage commissions and
extraordinary items, shall not in any year exceed 2.5% of the average net
assets of the Large Cap Equity Fund for such year, as determined by
valuations made as of the close of each business day. The expenses of the
Large Cap Equity Fund's operations borne by the Large Cap Equity Fund
include by way of illustration and not limitation, director's fees paid to
those directors who are not officers of the Company, the costs of
preparing and printing its registration statements required under the
Securities Act of 1933 and the Act (and amendments thereto), the expense
of registering its shares with the Securities and Exchange Commission and
in the various states, payments made pursuant to the Service and
Distribution Plan, the printing and distribution cost of prospectuses
mailed to existing shareholders, the cost of share certificates (if any),
director and officer liability insurance, reports to shareholders, reports
to government authorities and proxy statements, interest charges,
reimbursement payments to securities lenders for dividend and interest
payments on securities sold short, taxes, legal expenses, salaries of
administrative and clerical personnel, association membership dues,
auditing and accounting services, insurance premiums, brokerage and other
expenses connected with the execution of portfolio securities
transactions, fees and expenses of the custodian of the Large Cap Equity
Fund's assets, expenses of calculating the net asset value and
repurchasing and redeeming shares, charges and expenses of dividend
disbursing agents, registrars and stock transfer agents and the cost of
keeping all necessary shareholder records and accounts.
The Company shall monitor the expense ratio of the Large Cap
Equity Fund on a monthly basis. If the accrued amount of the expenses of
the Large Cap Equity Fund exceeds the expense limitation established
herein, the Company shall create an account receivable from the Adviser
for the amount of such excess. In such a situation the monthly payment of
the Adviser's fee will be reduced by the amount of such excess, subject to
adjustment month by month during the balance of the Company's fiscal year
if accrued expenses thereafter fall below the expense limitation.
4. Compensation of the Adviser. For the services and
facilities to be rendered and the charges and expenses to be assumed by
the Adviser hereunder, the Company, through and on behalf of the Large Cap
Equity Fund shall pay to the Adviser an advisory fee, paid monthly, based
on the average net assets of the Large Cap Equity Fund, as determined by
valuations made as of the close of each business day of the month. The
advisory fee shall be 1/12 of 0.75% (0.75% per annum) of such average net
assets of the Large Cap Equity Fund. For any month in which this
Agreement is not in effect for the entire month, such fee shall be reduced
proportionately on the basis of the number of calendar days during which
it is in effect and the fee computed upon the average net assets of the
business days during which it is so in effect.
5. Ownership of Shares of the Large Cap Equity Fund. Except
in connection with the initial capitalization of the Large Cap Equity
Fund, the Adviser shall not take, and shall not permit any of its
shareholders, officers, directors or employees to take, a long or short
position in the shares of the Large Cap Equity Fund, except for the
purchase of shares of the Large Cap Equity Fund for investment purposes at
the same price as that available to the public at the time of purchase.
6. Exclusivity. The services of the Adviser to the Large Cap
Equity Fund hereunder are not to be deemed exclusive and the Adviser shall
be free to furnish similar services to others as long as the services
hereunder are not impaired thereby. Although the Adviser has permitted
and is permitting the Large Cap Equity Fund and the Company to use the
name "JohnsonFamily," it is understood and agreed that the Adviser
reserves the right to use and has permitted and may permit other persons,
firms or corporations, including investment companies, to use such name,
and that the Large Cap Equity Fund and the Company will not use such name
if the Adviser ceases to be the Large Cap Equity Fund's sole investment
adviser. During the period that this Agreement is in effect, the Adviser
shall be the Large Cap Equity Fund's sole investment adviser.
7. Liability. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the Large Cap Equity Fund or to any shareholder of the Large
Cap Equity Fund for any act or omission in the course of, or connected
with, rendering services hereunder, or for any losses that may be
sustained in the purchase, holding or sale of any security.
8. Brokerage Commissions. The Adviser shall have authority
and discretion to select brokers and dealers to exercise portfolio
transactions for the Large Cap Equity Fund and for the selection of the
markets on or in which the transactions will be executed. The Adviser may
cause the Large Cap Equity Fund to pay a broker-dealer which provides
brokerage and research services, as such services are defined in Section
28(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), to the
Adviser a commission for effecting a securities transaction in excess of
the amount another broker-dealer would have charged for effecting such
transaction, if the Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of brokerage and
research services provided by the executing broker-dealer viewed in terms
of either that particular transaction or his overall responsibilities with
respect to the accounts as to which he exercises investment discretion (as
defined in Section 3(a)(35) of the Exchange Act). The Adviser will
provide such reports as the Company's Board of Directors may reasonably
request with respect to the Large Cap Equity Fund's total brokerage and
the manner in which that brokerage was allocated.
9. Amendments. This Agreement may be amended by the mutual
consent of the parties; provided, however, that in no event may it be
amended without the approval of the directors of the Company in the manner
required by the Act, and, if required by the Act, by the vote of the
majority of the outstanding voting securities of the Large Cap Equity
Fund, as defined in the Act.
10. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by the directors of the Company or by
a vote of the majority of the outstanding voting securities of the Large
Cap Equity Fund, as defined in the Act, upon giving sixty (60) days'
written notice to the Adviser. This Agreement may be terminated by the
Adviser at any time upon the giving of sixty (60) days' written notice to
the Company. This Agreement shall terminate automatically in the event of
its assignment (as defined in Section 2(a)(4) of the Act). Subject to
prior termination as hereinbefore provided, this Agreement shall continue
in effect for two (2) years from the date hereof and indefinitely
thereafter, but only so long as the continuance after such two (2) year
period is specifically approved annually by (i) the directors of the
Company or by the vote of the majority of the outstanding voting
securities of the Large Cap Equity Fund, as defined in the Act, and (ii)
the directors of the Company in the manner required by the Act, provided
that any such approval may be made effective not more than sixty (60) days
thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day first above written.
JOHNSON ASSET MANAGEMENT, INC. JOHNSONFAMILY FUNDS, INC.
(the "Adviser") (the "Company")
By: By:
INVESTMENT ADVISORY AGREEMENT
Agreement made this ____ day of March, 1998 between
JohnsonFamily Funds, Inc., a Maryland corporation (the "Company"), and
Johnson Asset Management, Inc., a Wisconsin corporation (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Company is in the process of registering with the
Securities and Exchange Commission under the Investment Company Act of
1940 (the "Act") as an open-end management investment company consisting
as of the date hereof of four series, the JohnsonFamily Intermediate Fixed
Income Fund (the "Intermediate Fixed Income Fund"), the JohnsonFamily
Small Cap Equity Fund (the "Small Cap Equity Fund"), the JohnsonFamily
Large Cap Equity Fund (the "Large Cap Equity Fund") and the JohnsonFamily
International Equity Fund (the "International Equity Fund"); and
WHEREAS, the Company desires to retain the Adviser, which is an
investment adviser registered under the Investment Advisers Act of 1940,
as the investment adviser for the Small Cap Equity Fund.
NOW, THEREFORE, the Company and the Adviser do mutually promise
and agree as follows:
1. Employment. The Company hereby employs the Adviser to
manage the investment and reinvestment of the assets of the Small Cap
Equity Fund for the period and on the terms set forth in this Agreement.
The Adviser hereby accepts such employment for the compensation herein
provided and agrees during such period to render the services and to
assume the obligations herein set forth.
2. Authority of the Adviser. The Adviser shall supervise and
manage the investment portfolio of the Small Cap Equity Fund and, subject
to such policies as the directors of the Company may determine, direct the
purchase and sale of investment securities in the day-to-day management of
the Small Cap Equity Fund. The Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or
represent the Company or the Small Cap Equity Fund in any way or otherwise
be deemed an agent of the Company or the Small Cap Equity Fund. However,
one or more shareholders, officers, directors or employees of the Adviser
may serve as directors and/or officers of the Company, but without
compensation or reimbursement of expenses for such services from the
Company. Nothing herein contained shall be deemed to require the Company
to take any action contrary to its Articles of Incorporation or By-Laws or
any applicable statute or regulation, or to relieve or deprive the
directors of the Company of their responsibility for, and control of, the
affairs of the Small Cap Equity Fund.
3. Expenses. The Adviser, at its own expense and without
reimbursement from the Company or the Small Cap Equity Fund, shall furnish
office space, and all necessary office facilities, equipment and executive
personnel for managing the investments of the Small Cap Equity Fund. The
Small Cap Equity Fund shall bear all expenses initially incurred by it,
provided that the total expenses borne by the Small Cap Equity Fund,
including the Adviser's fee but excluding all federal, state and local
taxes, interest, reimbursement payments to securities lenders for dividend
and interest payments on securities sold short, brokerage commissions and
extraordinary items, shall not in any year exceed 2.5% of the average net
assets of the Small Cap Equity Fund for such year, as determined by
valuations made as of the close of each business day. The expenses of the
Small Cap Equity Fund's operations borne by the Small Cap Equity Fund
include by way of illustration and not limitation, director's fees paid to
those directors who are not officers of the Company, the costs of
preparing and printing its registration statements required under the
Securities Act of 1933 and the Act (and amendments thereto), the expense
of registering its shares with the Securities and Exchange Commission and
in the various states, payments made pursuant to the Service and
Distribution Plan, the printing and distribution cost of prospectuses
mailed to existing shareholders, the cost of share certificates (if any),
director and officer liability insurance, reports to shareholders, reports
to government authorities and proxy statements, interest charges,
reimbursement payments to securities lenders for dividend and interest
payments on securities sold short, taxes, legal expenses, salaries of
administrative and clerical personnel, association membership dues,
auditing and accounting services, insurance premiums, brokerage and other
expenses connected with the execution of portfolio securities
transactions, fees and expenses of the custodian of the Small Cap Equity
Fund's assets, expenses of calculating the net asset value and
repurchasing and redeeming shares, charges and expenses of dividend
disbursing agents, registrars and stock transfer agents and the cost of
keeping all necessary shareholder records and accounts.
The Company shall monitor the expense ratio of the Small Cap
Equity Fund on a monthly basis. If the accrued amount of the expenses of
the Small Cap Equity Fund exceeds the expense limitation established
herein, the Company shall create an account receivable from the Adviser
for the amount of such excess. In such a situation the monthly payment of
the Adviser's fee will be reduced by the amount of such excess, subject to
adjustment month by month during the balance of the Company's fiscal year
if accrued expenses thereafter fall below the expense limitation.
4. Compensation of the Adviser. For the services and
facilities to be rendered and the charges and expenses to be assumed by
the Adviser hereunder, the Company, through and on behalf of the Small Cap
Equity Fund shall pay to the Adviser an advisory fee, paid monthly, based
on the average net assets of the Small Cap Equity Fund, as determined by
valuations made as of the close of each business day of the month. The
advisory fee shall be 1/12 of 0.75% (0.75% per annum) of such average net
assets of the Small Cap Equity Fund. For any month in which this
Agreement is not in effect for the entire month, such fee shall be reduced
proportionately on the basis of the number of calendar days during which
it is in effect and the fee computed upon the average net assets of the
business days during which it is so in effect.
5. Ownership of Shares of the Small Cap Equity Fund. Except
in connection with the initial capitalization of the Small Cap Equity
Fund, the Adviser shall not take, and shall not permit any of its
shareholders, officers, directors or employees to take, a long or short
position in the shares of the Small Cap Equity Fund, except for the
purchase of shares of the Small Cap Equity Fund for investment purposes at
the same price as that available to the public at the time of purchase.
6. Exclusivity. The services of the Adviser to the Small Cap
Equity Fund hereunder are not to be deemed exclusive and the Adviser shall
be free to furnish similar services to others as long as the services
hereunder are not impaired thereby. Although the Adviser has permitted
and is permitting the Small Cap Equity Fund and the Company to use the
name "JohnsonFamily," it is understood and agreed that the Adviser
reserves the right to use and has permitted and may permit other persons,
firms or corporations, including investment companies, to use such name,
and that the Small Cap Equity Fund and the Company will not use such name
if the Adviser ceases to be the Small Cap Equity Fund's sole investment
adviser. During the period that this Agreement is in effect, the Adviser
shall be the Small Cap Equity Fund's sole investment adviser.
7. Liability. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the Small Cap Equity Fund or to any shareholder of the Small
Cap Equity Fund for any act or omission in the course of, or connected
with, rendering services hereunder, or for any losses that may be
sustained in the purchase, holding or sale of any security.
8. Brokerage Commissions. The Adviser shall have authority
and discretion to select brokers and dealers to exercise portfolio
transactions for the Small Cap Equity Fund and for the selection of the
markets on or in which the transactions will be executed. The Adviser may
cause the Small Cap Equity Fund to pay a broker-dealer which provides
brokerage and research services, as such services are defined in Section
28(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), to the
Adviser a commission for effecting a securities transaction in excess of
the amount another broker-dealer would have charged for effecting such
transaction, if the Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of brokerage and
research services provided by the executing broker-dealer viewed in terms
of either that particular transaction or his overall responsibilities with
respect to the accounts as to which he exercises investment discretion (as
defined in Section 3(a)(35) of the Exchange Act). The Adviser will
provide such reports as the Company's Board of Directors may reasonably
request with respect to the Small Cap Equity Fund's total brokerage and
the manner in which that brokerage was allocated.
9. Amendments. This Agreement may be amended by the mutual
consent of the parties; provided, however, that in no event may it be
amended without the approval of the directors of the Company in the manner
required by the Act, and, if required by the Act, by the vote of the
majority of the outstanding voting securities of the Small Cap Equity
Fund, as defined in the Act.
10. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by the directors of the Company or by
a vote of the majority of the outstanding voting securities of the Small
Cap Equity Fund, as defined in the Act, upon giving sixty (60) days'
written notice to the Adviser. This Agreement may be terminated by the
Adviser at any time upon the giving of sixty (60) days' written notice to
the Company. This Agreement shall terminate automatically in the event of
its assignment (as defined in Section 2(a)(4) of the Act). Subject to
prior termination as hereinbefore provided, this Agreement shall continue
in effect for two (2) years from the date hereof and indefinitely
thereafter, but only so long as the continuance after such two (2) year
period is specifically approved annually by (i) the directors of the
Company or by the vote of the majority of the outstanding voting
securities of the Small Cap Equity Fund, as defined in the Act, and (ii)
the directors of the Company in the manner required by the Act, provided
that any such approval may be made effective not more than sixty (60) days
thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day first above written.
JOHNSON ASSET MANAGEMENT, INC. JOHNSONFAMILY FUNDS, INC.
(the "Adviser") (the "Company")
By: By:
INVESTMENT ADVISORY AGREEMENT
Agreement made this ____ day of March, 1998 between
JohnsonFamily Funds, Inc., a Maryland corporation (the "Company"), and
Johnson Asset Management, Inc., a Wisconsin corporation (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Company is in the process of registering with the
Securities and Exchange Commission under the Investment Company Act of
1940 (the "Act") as an open-end management investment company consisting
as of the date hereof of four series, the JohnsonFamily Intermediate Fixed
Income Fund (the "Intermediate Fixed Income Fund"), the JohnsonFamily
Small Cap Equity Fund (the "Small Cap Equity Fund"), the JohnsonFamily
Large Cap Equity Fund (the "Large Cap Equity Fund") and the JohnsonFamily
International Equity Fund (the "International Equity Fund"); and
WHEREAS, the Company desires to retain the Adviser, which is an
investment adviser registered under the Investment Advisers Act of 1940,
as the investment adviser for the International Equity Fund.
NOW, THEREFORE, the Company and the Adviser do mutually promise
and agree as follows:
1. Employment. The Company hereby employs the Adviser to
manage the investment and reinvestment of the assets of the International
Equity Fund for the period and on the terms set forth in this Agreement.
The Adviser hereby accepts such employment for the compensation herein
provided and agrees during such period to render the services and to
assume the obligations herein set forth.
2. Authority of the Adviser. The Adviser shall supervise and
manage the investment portfolio of the International Equity Fund and,
subject to such policies as the directors of the Company may determine,
direct the purchase and sale of investment securities in the day-to-day
management of the International Equity Fund. The Adviser shall for all
purposes herein be deemed to be an independent contractor and shall,
unless otherwise expressly provided or authorized, have no authority to
act for or represent the Company or the International Equity Fund in any
way or otherwise be deemed an agent of the Company or the International
Equity Fund. However, one or more shareholders, officers, directors or
employees of the Adviser may serve as directors and/or officers of the
Company, but without compensation or reimbursement of expenses for such
services from the Company. Nothing herein contained shall be deemed to
require the Company to take any action contrary to its Articles of
Incorporation or By-Laws or any applicable statute or regulation, or to
relieve or deprive the directors of the Company of their responsibility
for, and control of, the affairs of the International Equity Fund.
3. Expenses. The Adviser, at its own expense and without
reimbursement from the Company or the International Equity Fund, shall
furnish office space, and all necessary office facilities, equipment and
executive personnel for managing the investments of the International
Equity Fund. The International Equity Fund shall bear all expenses
initially incurred by it, provided that the total expenses borne by the
International Equity Fund, including the Adviser's fee but excluding all
federal, state and local taxes, interest, reimbursement payments to
securities lenders for dividend and interest payments on securities sold
short, brokerage commissions and extraordinary items, shall not in any
year exceed 2.5% of the average net assets of the International Equity
Fund for such year, as determined by valuations made as of the close of
each business day. The expenses of the International Equity Fund's
operations borne by the International Equity Fund include by way of
illustration and not limitation, director's fees paid to those directors
who are not officers of the Company, the costs of preparing and printing
its registration statements required under the Securities Act of 1933 and
the Act (and amendments thereto), the expense of registering its shares
with the Securities and Exchange Commission and in the various states,
payments made pursuant to the Service and Distribution Plan, the printing
and distribution cost of prospectuses mailed to existing shareholders, the
cost of share certificates (if any), director and officer liability
insurance, reports to shareholders, reports to government authorities and
proxy statements, interest charges, reimbursement payments to securities
lenders for dividend and interest payments on securities sold short,
taxes, legal expenses, salaries of administrative and clerical personnel,
association membership dues, auditing and accounting services, insurance
premiums, brokerage and other expenses connected with the execution of
portfolio securities transactions, fees and expenses of the custodian of
the International Equity Fund's assets, expenses of calculating the net
asset value and repurchasing and redeeming shares, charges and expenses of
dividend disbursing agents, registrars and stock transfer agents and the
cost of keeping all necessary shareholder records and accounts.
The Company shall monitor the expense ratio of the International
Equity Fund on a monthly basis. If the accrued amount of the expenses of
the International Equity Fund exceeds the expense limitation established
herein, the Company shall create an account receivable from the Adviser
for the amount of such excess. In such a situation the monthly payment of
the Adviser's fee will be reduced by the amount of such excess, subject to
adjustment month by month during the balance of the Company's fiscal year
if accrued expenses thereafter fall below the expense limitation.
4. Compensation of the Adviser. For the services and
facilities to be rendered and the charges and expenses to be assumed by
the Adviser hereunder, the Company, through and on behalf of the
International Equity Fund shall pay to the Adviser an advisory fee, paid
monthly, based on the average net assets of the International Equity Fund,
as determined by valuations made as of the close of each business day of
the month. The advisory fee shall be 1/12 of 0.90% (0.90% per annum) of
such average net assets of the International Equity Fund. For any month
in which this Agreement is not in effect for the entire month, such fee
shall be reduced proportionately on the basis of the number of calendar
days during which it is in effect and the fee computed upon the average
net assets of the business days during which it is so in effect.
5. Ownership of Shares of the International Equity Fund.
Except in connection with the initial capitalization of the International
Equity Fund, the Adviser shall not take, and shall not permit any of its
shareholders, officers, directors or employees to take, a long or short
position in the shares of the International Equity Fund, except for the
purchase of shares of the International Equity Fund for investment
purposes at the same price as that available to the public at the time of
purchase.
6. Exclusivity. The services of the Adviser to the
International Equity Fund hereunder are not to be deemed exclusive and the
Adviser shall be free to furnish similar services to others as long as the
services hereunder are not impaired thereby. Although the Adviser has
permitted and is permitting the International Equity Fund and the Company
to use the name "JohnsonFamily," it is understood and agreed that the
Adviser reserves the right to use and has permitted and may permit other
persons, firms or corporations, including investment companies, to use
such name, and that the International Equity Fund and the Company will not
use such name if the Adviser ceases to be the International Equity Fund's
sole investment adviser. During the period that this Agreement is in
effect, the Adviser shall be the International Equity Fund's sole
investment adviser.
7. Liability. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the International Equity Fund or to any shareholder of the
International Equity Fund for any act or omission in the course of, or
connected with, rendering services hereunder, or for any losses that may
be sustained in the purchase, holding or sale of any security.
8. Brokerage Commissions. The Adviser shall have authority
and discretion to select brokers and dealers to exercise portfolio
transactions for the International Equity Fund and for the selection of
the markets on or in which the transactions will be executed. The Adviser
may cause the International Equity Fund to pay a broker-dealer which
provides brokerage and research services, as such services are defined in
Section 28(e) of the Securities Exchange Act of 1934 (the "Exchange Act"),
to the Adviser a commission for effecting a securities transaction in
excess of the amount another broker-dealer would have charged for
effecting such transaction, if the Adviser determines in good faith that
such amount of commission is reasonable in relation to the value of
brokerage and research services provided by the executing broker-dealer
viewed in terms of either that particular transaction or his overall
responsibilities with respect to the accounts as to which he exercises
investment discretion (as defined in Section 3(a)(35) of the Exchange
Act). The Adviser will provide such reports as the Company's Board of
Directors may reasonably request with respect to the International Equity
Fund's total brokerage and the manner in which that brokerage was
allocated.
9. Amendments. This Agreement may be amended by the mutual
consent of the parties; provided, however, that in no event may it be
amended without the approval of the directors of the Company in the manner
required by the Act, and, if required by the Act, by the vote of the
majority of the outstanding voting securities of the International Equity
Fund, as defined in the Act.
10. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by the directors of the Company or by
a vote of the majority of the outstanding voting securities of the
International Equity Fund, as defined in the Act, upon giving sixty (60)
days' written notice to the Adviser. This Agreement may be terminated by
the Adviser at any time upon the giving of sixty (60) days' written notice
to the Company. This Agreement shall terminate automatically in the event
of its assignment (as defined in Section 2(a)(4) of the Act). Subject to
prior termination as hereinbefore provided, this Agreement shall continue
in effect for two (2) years from the date hereof and indefinitely
thereafter, but only so long as the continuance after such two (2) year
period is specifically approved annually by (i) the directors of the
Company or by the vote of the majority of the outstanding voting
securities of the International Equity Fund, as defined in the Act, and
(ii) the directors of the Company in the manner required by the Act,
provided that any such approval may be made effective not more than sixty
(60) days thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day first above written.
JOHNSON ASSET MANAGEMENT, INC. JOHNSONFAMILY FUNDS, INC.
(the "Adviser") (the "Company")
By: By:
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this ______ day of________, 1998,
by and between JohnsonFamily Funds, Inc., a Maryland corporation (the
"Corporation"), and Sunstone Distribution Services, LLC, a Wisconsin
limited liability company (the "Distributor").
WHEREAS, the Corporation is an open-end investment company
registered under the Investment Company Act of 1940, as amended (the
"Act") and is authorized to issue shares of common stock (the "Shares") in
separate classes with each such class representing interests in a separate
portfolio of securities and other assets;
WHEREAS, the Distributor is registered as a broker-dealer under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a
member of the National Association of Securities Dealers, Inc. (the
"NASD"); and
WHEREAS, the Corporation and Distributor desire to enter into an
agreement pursuant to which Distributor shall be the distributor of the
Shares of the Corporation representing the investment portfolios listed on
Schedule A hereto and any additional investment portfolios the Corporation
and Distributor may agree upon and include on Schedule A as such Schedule
may be amended from time to time (such investment portfolios and any
additional investment portfolios are individually referred to as a "Fund"
and collectively the "Funds").
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein contained and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto, intending to
be legally bound, do hereby agree as follows:
1. Appointment of the Distributor.
The Corporation hereby appoints the Distributor as agent for the
distribution of the Shares, on the terms and for the period set forth in
this Agreement. Distributor hereby accepts such appointment as agent for
the distribution of the Shares on the terms and for the period set forth
in this Agreement.
2. Services and Duties of the Distributor.
2.1 Distributor will act as agent for the distribution of
Shares in accordance with the instructions of the Corporation's Board of
Directors and the registration statement and prospectuses then in effect
with respect to the Funds under the Securities Act of 1933, as amended
(the "1933 Act").
2.2 Distributor may finance appropriate activities which it
deems reasonable which are primarily intended to result in the sale of
Shares, including, but not limited to, advertising, the printing and
mailing of prospectuses to other than current shareholders, and the
printing and mailing of sales literature. All other expenses in
connection with the organization and operation of the Corporation and the
Funds shall be the responsibility of the Corporation. Distributor may
enter into servicing and/or selling agreements with qualified
broker/dealers and other persons with respect to the offering of Shares to
the public, and if it so chooses Distributor will act only on its own
behalf as principal. The Distributor shall not be obligated to sell any
certain number of Shares of any Fund.
2.3 All Shares of the Funds offered for sale by Distributor
shall be offered for sale to the public at a price per unit (the "offering
price") equal to their net asset value (determined in the manner set forth
in the Funds' then current prospectus), plus, except to those classes of
persons set forth in the then current prospectus, a sales charge which
shall be the percentage of the offering price of such shares as set forth
in the Funds' then current prospectus. The offering price, if not an
exact multiple of one cent, shall be adjusted to the nearest cent. The
excess, if any, of the sales price over the net asset value of the Shares
paid by an investor in connection with his or her purchase of Shares shall
be retained by the Distributor as a commission for its services hereunder.
Concessions to broker/dealers and other persons shall be set forth in
either the selling agreements, or if such concessions are described in the
Funds' then current prospectus, shall be as so set forth. No
broker/dealer or other person who enters into a selling agreement shall be
authorized to act as agent for the Funds in connection with the offering
or sale of its Shares to the public or otherwise.
2.4 If any shares sold by the Funds are redeemed or repurchased
by the Funds, or by Distributor as agent, or are tendered for redemption,
within seven business days after the date of confirmation of the original
purchase of said Shares, Distributor shall forfeit the amount above the
net asset value received by Distributor in respect of such Shares,
provided that the portion, if any, of such amount re-allowed, by
Distributor to broker/dealers or other persons shall be repayable to the
Funds only to the extent recovered by Distributor from the broker/dealer
or other person concerned. Distributor shall include in the forms of
agreement with such broker/dealers and other persons a corresponding
provision for the forfeiture by them of their concession with respect to
Shares sold by them or their principals and redeemed or repurchased by the
Funds or by Distributor as agent (or tendered for redemption) within seven
business days after the date of confirmation of such initial purchases.
2.5 Distributor shall act as distributor of the Shares in
compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, all rules and regulations made
or adopted pursuant to the 1940 Act, by the Securities and Exchange
Commission (the "Commission") and the NASD. Distributor shall provide to
the Corporation's Board of Directors, at least quarterly, a report of its
expenses incurred pursuant to this Agreement.
3. Duties and Representations of the Corporation.
3.1 The Corporation represents that it is registered as an
open-end management investment company under the 1940 Act and that it has
and will continue to act in conformity with its Articles of Incorporation,
By-Laws, its registration statement as may be amended from time to time
and resolutions and other instructions of its Board of Directors and has
and will continue to comply with all applicable laws, rules and
regulations including without limitation the 1933 Act, the 1934 Act, the
1940 Act, the laws of the states in which shares of the Funds are offered
and sold, and the rules and regulations thereunder.
3.2 The Corporation shall take or cause to be taken all
necessary action to register and maintain the registration of the Shares
under the 1933 Act for sale as herein contemplated and shall pay all costs
and expenses in connection with the registration of Shares under the 1933
Act, and be responsible for all expenses in connection with the
organization and operation of the Corporation and the Funds including
maintaining facilities for the issue and transfer of Shares and for
supplying information, prices and other data to be furnished by the
Corporation hereunder.
3.3 The Corporation shall execute any and all documents and
furnish any and all information and otherwise take all actions which may
be reasonably necessary in the discretion of the Corporation's officers in
connection with the qualification of the Shares for sale in such states as
Distributor and the Corporation may approve, shall maintain the
registration of a sufficient number or amount of shares thereunder, and
shall pay all expenses which may be incurred in connection with such
qualification.
3.4 The Corporation shall, at its expense, keep the Distributor
fully informed with regard to its affairs. In addition, the Corporation
shall furnish Distributor from time to time such information with respect
to the Corporation and the Shares as Distributor may reasonably request,
and the Corporation warrants that the statements contained in any such
information shall be true and correct. The Corporation represents that it
will not use or authorize the use of any advertising or sales material
unless and until such materials have been approved and authorized for use
by the Distributor.
3.5 The Corporation represents to Distributor that all
registration statements and prospectuses of the Corporation filed or to be
filed with the Commission under the 1933 Act with respect to the Shares
have been and will be prepared in conformity with the requirements of the
1933 Act, the 1940 Act, and the rules and regulations of the Commission
thereunder. As used in this Agreement the terms "registration statement"
and "prospectus" shall mean any registration statement and prospectus
(together with the related statement of additional information) at any
time now or hereafter filed with the Commission with respect to any of the
Shares and any amendments and supplements thereto which at any time shall
have been or will be filed with said Commission. The Corporation
represents and warrants to Distributor that any registration statement and
prospectus, when such registration statement becomes effective, will
contain all statements required to be stated therein in conformity with
the 1933 Act, the 1940 Act and the rules and regulations of the
Commission; that all information contained in the registration statement
and prospectus will be true and correct in all material respects when such
registration statement becomes effective; and that neither the
registration statement nor any prospectus when such registration statement
becomes effective will include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading. The Corporation agrees to
file timely from time to time such amendments, supplements, reports and
other documents as may be necessary or required in order to comply with
the 1933 Act and the 1940 Act and in order that there may be no untrue
statement of a material fact in a registration statement or prospectus, or
necessary or required in order that there may be no omission to state a
material fact in the registration statement or prospectus which omission
would make the statements therein misleading.
3.6 The Corporation shall not file any amendment to the
registration statement or supplement to any prospectus without giving
Distributor reasonable notice thereof in advance and if the Distributor
declines to assent to such amendment (after a reasonable time), the
Corporation may terminate this Agreement forthwith by written notice to
the Distributor without payment of any penalty. If the Corporation shall
not propose an amendment or amendments and/or supplement or supplements
promptly after receipt by the Corporation of a written request from
Distributor to do so, Distributor may, at its option, immediately
terminate this Agreement. In addition, if, at any time during the term of
this Agreement, the Distributor requests the Corporation to make any
change in its governing instruments or in its methods of doing business
which are necessary in order to comply with any requirement of applicable
law or regulation, and the Corporation fails to make any such change as
requested, the Distributor may terminate this Agreement forthwith by
written notice to the Corporation without payment of any penalty. Nothing
contained in this Agreement shall in any way limit the Corporation's right
to file at any time any amendments to any registration statement and/or
supplements to any prospectus, of whatever character, as the Corporation
may deem advisable, such right being in all respects absolute and
unconditional.
3.7 Whenever in their judgment such action is warranted by
market, economic or political conditions, or by circumstances of any kind,
the Corporation's officers may decline to accept any orders for, or make
any sales of, any Shares until such time as they deem it advisable to
accept such orders and to make such sales and the Corporation shall advise
Distributor promptly of such determination.
3.8 The Corporation agrees to advise the Distributor promptly
in writing:
(i) of any correspondence or other communication by the
Commission or its staff relating to a Fund, including requests by the
Commission for amendments to the registration statement or prospectuses,
and any correspondence or other communication by the Corporation or its
representatives or agents to the Commission or its staff relating to a
Fund;
(ii) in the event of the issuance by the Commission of any
stop order suspending the effectiveness of the registration statement or
prospectuses then in effect or the initiation of any proceeding for that
purpose;
(iii) of the happening of any event which makes untrue any
statement of a material fact made in the registration statement or
prospectuses or which requires the making of a change in such registration
statement or prospectuses in order to make the statements therein not
misleading; and
(iv) of all actions taken by the Commission with respect to
any amendments to any registration statement or prospectus which may from
time to time be filed with the Commission.
4. Compensation.
4.1 For the services provided pursuant to this Agreement, and
subject to the limitations contained in Section 4.3 below, the Funds will
pay to the Distributor a fee (the "Distribution Fee"), payable monthly in
arrears, at the annual rate of .05% per annum of each Fund's average daily
net assets.
4.2 In addition to the compensation payable pursuant to Section
4.1, and subject to the limitations contained in Section 4.3 below, the
Funds will reimburse the Distributor or pay directly, at the Distributor's
discretion, (i) the Distributor's reasonable out-of-pocket expenses
incurred in connection with activities primarily intended to result in the
sale of Shares including, without limitation, typesetting, printing and
distribution of prospectuses and shareholder reports, production, printing
and distribution of sales materials and forms, placement of media
advertising, engagement of designers, free lance writers and public
relation firms, long distance telephone lines, services and charges,
postage, overnight delivery charges, storage of inventory, regulatory
filing fees and travel, lodging and meals, and (ii) to the extent approved
by the Corporation trailing commissions paid by Distributor to dealers or
other persons entering into a selling agreement with Distributor or the
Corporation.
4.3 Subject to and calculated in accordance with the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., if
during any annual period the total of (i) the Distribution Fee and out-of-
pocket reimbursements under Sections 4.1 and 4.2 to the Distributor, and
(ii) amounts paid by a Fund which payment was primarily intended to result
in the sale of Shares pursuant to the Fund's Rule 12b-1 Plan and which was
approved by the Distributor, exceeds 0.25% of a Fund's average daily net
assets, the Distributor will rebate that portion of its Distribution Fee
and expenses necessary to result in the total of (i) and (ii) above not
exceeding 0.25% of the Fund's average daily net assets. The payment of
the Distribution Fee and reimbursement of expenditures is authorized
pursuant to the Corporation's Distribution Plan under Rule 12b-1 under the
1940 Act and is contingent upon the continued effectiveness of the
Corporation's Distribution Plan.
4.4 Notwithstanding the foregoing, the Distributor shall be
entitled to the excess of the sales price over the net asset value of the
Shares paid by investors as a commission for its services hereunder.
5. Indemnification.
5.1(a) The Corporation authorizes Distributor to use any
prospectus, in the form furnished to Distributor from time to time, in
connection with the sale of Shares. The Corporation shall indemnify,
defend and hold the Distributor, and each of its present or former
directors, officers, employees, representatives and any person who
controls or previously controlled the Distributor within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
losses, claims, demands, liabilities, damages and expenses (including the
costs of investigating or defending any alleged losses, claims, demands,
liabilities, damages or expenses and any counsel fees incurred in
connection therewith) which Distributor, each of its present and former
directors, officers, employees or representatives or any such controlling
person, may incur under the 1933 Act, the 1934 Act, any other statute
(including Blue Sky laws) or any rule or regulation thereunder, or under
common law or otherwise, arising out of or based upon any untrue
statement, or alleged untrue statement, of a material fact contained in
the registration statement or any prospectus, as from time to time amended
or supplemented, or an annual or interim report to shareholders, or
arising out of or based upon any omission, or alleged omission, to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the
Corporation's obligation to indemnify Distributor and any of the foregoing
indemnitees shall not be deemed to cover any losses, claims, demands,
liabilities, damages or expenses arising out of any untrue statement or
alleged untrue statement or omission or alleged omission made in the
registration statement, prospectus, or annual or interim report in
reliance upon and in conformity with information relating to the
Distributor and furnished to the Corporation or its counsel by Distributor
for the purpose of, and used in, the preparation thereof; and provided
further that the Corporation's agreement to indemnify Distributor and any
of the foregoing indemnitees shall not be deemed to cover any liability to
the Corporation or its shareholders to which Distributor would otherwise
be subject by reason of its willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement. The
Corporation's agreement to indemnify the Distributor, and any of the
foregoing indemnitees, as the case may be, with respect to any action, is
expressly conditioned upon the Corporation being notified of such action
brought against Distributor, or any of the foregoing indemnitees, within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Distributor, or such person, such notification to be given by letter or by
telegram addressed to the Corporation's President, but the failure so to
notify the Corporation of any such action shall not relieve the
Corporation from any liability which the Corporation may have to the
person against whom such action is brought by reason of any such untrue,
or alleged untrue, statement or omission, or alleged omission, otherwise
than on account of the Corporation's indemnity agreement contained in this
Section 5.1.
5.1(b) The Corporation shall be entitled to participate at
its own expense in the defense or, if it so elects, to assume the defense
of any suit brought to enforce any such loss, claim, demand, liability,
damage or expense, but if the Corporation elects to assume the defense,
such defense shall be conducted by counsel chosen by the Corporation and
approved by the Distributor, which approval shall not be unreasonably
withheld. In the event the Corporation elects to assume the defense of
any such suit and retain such counsel, the indemnified defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by them. If the Corporation does not elect to assume the
defense of any such suit, or in case the Distributor does not, in the
exercise of reasonable judgment, approve of counsel chosen by the
Corporation, the Corporation will reimburse the indemnified person or
persons named as defendant or defendants in such suit, for the fees and
expenses of any counsel retained by Distributor and them. The
Corporation's indemnification agreement contained in this Section 5.1 and
the Corporation's representations and warranties in this Agreement shall
remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Distributor, and each of its
present or former directors, officers, employees, representatives or any
controlling person, and shall survive the delivery of any Shares and the
termination of this Agreement. This agreement of indemnity will inure
exclusively to the Distributor's benefit, to the benefit of each of its
present or former directors, officers, employees or representatives or to
the benefit of any controlling persons and their successors. The
Corporation agrees promptly to notify Distributor of the commencement of
any litigation or proceedings against the Corporation or any of its
officers or directors in connection with the issue and sale of any of the
Shares.
5.2(a) Distributor shall indemnify, defend and hold the
Corporation, and each of its present or former Directors, officers,
employees, representatives, and any person who controls or previously
controlled the Corporation within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all losses, claims,
demands, liabilities, damages and expenses (including the costs of
investigating or defending any alleged losses, claims, demands,
liabilities, damages or expenses, and any counsel fees incurred in
connection therewith) which the Corporation, and each of its present or
former Directors, officers, employees, representatives, or any such
controlling person, may incur under the 1933 Act, the 1934 Act, any other
statute (including Blue Sky laws) or any rule or regulation thereunder, or
under common law or otherwise, arising out of or based upon any untrue, or
alleged untrue, statement of a material fact contained in the
Corporation's registration statement or any prospectus, as from time to
time amended or supplemented, or annual or interim report to shareholders
or the omission, or alleged omission, to state therein a material fact
required to be stated therein or necessary to make the statement not
misleading, but only if such statement or omission was made in reliance
upon, and in conformity with, information relating to the Distributor and
furnished to the Corporation or its counsel by the Distributor for the
purpose of, and used in, the preparation thereof. Distributor's agreement
to indemnify the Corporation and any of the foregoing indemnitees shall
not be deemed to cover any liability to Distributor to which the
Corporation would otherwise be subject by reason of its willful
misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of its reckless disregard of its obligations and
duties, under this Agreement. The Distributor's Agreement to indemnify
the Corporation, and any of the foregoing indemnitees, is expressly
conditioned upon the Distributor's being notified of any action brought
against the Corporation, and any of the foregoing indemnitees, such
notification to be given by letter or telegram addressed to Distributor's
President, within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon the Corporation or such person, but the failure so to notify
Distributor of any such action shall not relieve Distributor from any
liability which Distributor may have to the person against whom such
action is brought by reason of any such untrue, or alleged untrue,
statement or omission, otherwise than on account of Distributor's
indemnity agreement contained in this Section 5.2(a).
5.2(b) The Distributor shall be entitled to participate at
its own expense in the defense or, if it so elects, to assume the defense
of any suit brought to enforce any such loss, claim, demand, liability,
damage or expense, but if the Distributor elects to assume the defense,
such defense shall be conducted by counsel chosen by the Distributor and
approved by the Corporation, which approval shall not be unreasonably
withheld. In the event the Distributor elects to assume the defense of
any such suit and retain such counsel, the indemnified defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by them. If the Distributor does not elect to assume the
defense of any such suit, or in case the Corporation does not, in the
exercise of reasonable judgment, approve of counsel chosen by the
Distributor, the Distributor will reimburse the indemnified person or
persons named as defendant or defendants in such suit, for the fees and
expenses of any counsel retained by the Corporation and them. The
Distributor's indemnification agreement contained in this Section 5.2 and
the Distributor's representations and warranties in this Agreement shall
remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Corporation, and each of its
present or former directors, officers, employees, representatives or any
controlling person, and shall survive the delivery of any Shares and the
termination of this Agreement. This agreement of indemnity will inure
exclusively to the Corporation's benefit, to the benefit of each of its
present or former directors, officers, employees or representatives or to
the benefit of any controlling persons and their successors. The
Distributor agrees promptly to notify the Corporation of the commencement
of any litigation or proceedings against the Distributor or any of its
officers or directors in connection with the issue and sale of any of the
Shares.
6. Offering of Shares.
No Shares shall be offered by either the Distributor or the
Corporation under any of the provisions of this Agreement and no orders
for the purchase or sale of such Shares hereunder shall be accepted by the
Corporation if and so long as the effectiveness of the registration
statement then in effect or any necessary amendments thereto shall be
suspended under any of the provisions of the 1933 Act, or if and so long
as the current prospectus as required by Section 10 of the 1933 Act, as
amended, is not on file with the Commission; provided, however, that
nothing contained in this paragraph 6 shall in any way restrict or have an
application to or bearing upon the Corporation's obligation to repurchase
Shares from any shareholder in accordance with the provisions of the
prospectus or Articles of Incorporation.
7. Term.
7.1 This Agreement shall become effective with respect to each
Fund listed on Schedule A hereof as of the date hereof and, with respect
to each Fund not in existence on that date, on the date an amendment to
Schedule A to this Agreement relating to that Fund is executed. Unless
sooner terminated as provided herein, this Agreement shall continue in
effect with respect to each Fund until ______________, 1999. Thereafter,
if not terminated, this Agreement shall continue automatically in effect
as to each Fund for successive annual periods, provided such continuance
is specifically approved at least annually by (i) the Corporation's Board
of Directors or (ii) the vote of a majority (as defined in the 1940 Act)
of the outstanding voting securities of a Fund, and provided that in
either event the continuance is also approved by the Distributor and by a
majority of the Corporation's Board of Directors who are not "interested
persons" (as defined in the 1940 Act) of any party to this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval.
7.2 This Agreement may be terminated without penalty with
respect to a particular Fund (1) through a failure to renew this Agreement
at the end of a term, (2) upon mutual consent of the parties, or (3) on no
less than sixty (60) days' written notice, by the Corporation's Board of
Directors, by vote of a majority (as defined with respect to voting
securities in the 1940 Act) of the outstanding voting securities of a
Fund, or by the Distributor (which notice may be waived by the party
entitled to such notice). In addition, this Agreement may be terminated
at any time, without penalty, with respect to a particular Fund by vote of
a majority of the members of the Board of Directors who are not interested
persons of the Corporation (as defined in the 1940 Act) and have no direct
or indirect financial interest in the operation of the Corporation's
Service and Distribution Plan or in this Agreement. The terms of this
Agreement shall not be waived, altered, modified, amended or supplemented
in any manner whatsoever except by a written instrument signed by the
Distributor and the Corporation. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
8. Miscellaneous.
8.1 The services of the Distributor rendered to the Funds are
not deemed to be exclusive. The Distributor may render such services and
any other services to others, including other investment companies. The
Corporation recognizes that from time to time directors, officers, and
employees of the Distributor may serve as directors, Directors, officers
and employees of other entities (including other investment companies),
that such other entities may include the name of the Distributor as part
of their name and that the Distributor or its affiliates may enter into
distribution, administration, fund accounting, transfer agent or other
agreements with such other entities.
8.2 Distributor agrees on behalf of itself and its employees to
treat confidentially and as proprietary information of the Corporation all
records relative to the Funds and prior, present or potential shareholders
of the Corporation (and clients of said shareholders), and not to use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Corporation, which approval may not be
withheld where the Distributor may be exposed to civil or criminal
proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, when subject to governmental
or regulatory audit or investigation, or when so requested by the
Corporation. Records and information which have become known to the public
through no wrongful act of the Distributor or any of its employees, agents
or representatives shall not be subject to this paragraph.
8.3 This Agreement shall be governed by Wisconsin law. To the
extent that the applicable laws of the State of Wisconsin, or any of the
provisions herein, conflict with the applicable provisions of the 1940
Act, the latter shall control, and nothing herein shall be construed in a
manner inconsistent with the 1940 Act or any rule or order of the
Commission thereunder. Any provision of this Agreement which may be
determined by competent authority to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction.
8.4 Any notice required or to be permitted to be given by
either party to the other shall be in writing and shall be deemed to have
been given when sent by registered or certified mail, postage prepaid,
return receipt requested, as follows: Notice to the Distributor shall be
sent to Sunstone Distribution Services, LLC, 207 East Buffalo Street,
Suite 400, Milwaukee, WI, 53202, Attention: Miriam M. Allison, and notice
to the Corporation shall be sent to JohnsonFamily Funds, 4041 North Main
Street, Racine, Wisconsin 53402, Attention: Joan A. Burke.
8.5 This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original agreement
but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by a duly authorized officer as of the day and
year first above written.
JOHNSONFAMILY FUNDS, INC.
(the "Corporation")
By:
President
SUNSTONE DISTRIBUTION SERVICES, LLC
(the "Distributor")
By:
Miriam M. Allison, President
<PAGE>
Schedule A
to the
Distribution Agreement
by and between
JohnsonFamily Funds, Inc.
and
Sunstone Distribution Services, LLC
Name of Funds
JohnsonFamily Large Cap Equity Fund
JohnsonFamily Small Cap Equity Fund
JohnsonFamily International Equity Fund
JohnsonFamily Intermediate Fixed Income Fund
CUSTODY AGREEMENT
THIS AGREEMENT is made effective the ___ day of March, 1998, by and
between INVESTORS FIDUCIARY TRUST COMPANY, a trust company chartered under
the laws of the state of Missouri, having its trust office located at 801
Pennsylvania Ave, Kansas City, Missouri 64105 ("IFTC"), and JOHNSON
FUNDS, INC, a Maryland corporation, having its principal office and place
of business at 4041 North Main Street, Racine, Wisconsin 53402 ("Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint IFTC as custodian of the assets of
the Fund's investment portfolio or portfolios (each a "Portfolio", and
collectively the "Portfolios"); and
WHEREAS, IFTC is willing to accept such appointment on the terms and
conditions hereinafter set forth;
NOW THEREFORE, for and in consideration of the mutual promises
contained herein, the parties hereto, intending to be legally bound,
mutually covenant and agree as follows:
1. APPOINTMENT OF CUSTODIAN AND AGENT. Fund hereby constitutes and
appoints IFTC as custodian of the investment securities, interests in
loans and other non-cash investment property, and monies at any time
owned by each of the Portfolios and delivered to IFTC as custodian
hereunder ("Assets").
2. REPRESENTATIONS AND WARRANTIES.
A. Fund hereby represents, warrants and acknowledges to IFTC:
1. That it is a corporation duly organized and existing and in
good standing under the laws of its state of organization,
and that it is registered under the 1940 Act; and
2. That it has the requisite power and authority under
applicable law, its articles of incorporation and its
bylaws to enter into this Agreement; that it has taken all
requisite action necessary to appoint IFTC as custodian for
the Portfolios; that this Agreement has been duly executed
and delivered by Fund; and that this Agreement constitutes
a legal, valid and binding obligation of Fund, enforceable
in accordance with its terms.
B. IFTC hereby represents, warrants and acknowledges to Fund:
1. That it is a trust company duly organized and existing and
in good standing under the laws of the State of Missouri;
and
2. That it has the requisite power and authority under
applicable law, its charter and its bylaws to enter into
and perform this Agreement; that this Agreement has been
duly executed and delivered by IFTC; and that this
Agreement constitutes a legal, valid and binding obligation
of IFTC, enforceable in accordance with its terms.
3. DUTIES AND RESPONSIBILITIES OF THE PARTIES.
A. Delivery of Assets. Except as permitted by the 1940 Act, Fund
will deliver or cause to be delivered to IFTC on the effective
date hereof, or as soon thereafter as practicable, and from time
to time thereafter, all Assets acquired by, owned by or from
time to time coming into the possession of each of the
Portfolios during the term hereof. IFTC has no responsibility
or liability whatsoever for or on account of assets not so
delivered.
B. Delivery of Accounts and Records. Fund will turn over or cause
to be turned over to IFTC all of each Portfolio's relevant
accounts and records needed by IFTC to fully and properly
perform its duties and responsibilities hereunder. IFTC may rely
conclusively on the completeness and correctness of such
accounts and records.
C. Delivery of Assets to Third Parties. IFTC will receive delivery
of and keep safely the Assets of each Portfolio segregated in a
separate account. IFTC will not deliver, assign, pledge or
hypothecate any such Assets to any person except as permitted by
the provisions hereof or any agreement executed according to the
terms of Section 3.P hereof. Upon delivery of any such Assets to
a subcustodian appointed pursuant hereto (hereinafter referred
to as "Subcustodian"), IFTC will create and maintain records
identifying such Assets as belonging to the applicable
Portfolio. IFTC is responsible for the safekeeping of the
Assets only until they have been transmitted to and received by
other persons as permitted under the terms hereof, except for
Assets transmitted to Subcustodians, for which IFTC remains
responsible to the extent provided herein. IFTC may participate
directly or indirectly through a subcustodian in the Depository
Trust Company (DTC), Treasury/Federal Reserve Book Entry System
(Fed System), Participant Trust Company (PTC) or other
depository approved by Fund (as such entities are defined at 17
CFR Section 270.17f-4(b)) (each a "Depository" and collectively
the "Depositories"). IFTC will be responsible to Fund for any
loss, damage or expense suffered or incurred by Fund resulting
from the actions or omissions of any Depository only to the same
extent such Depository is responsible to IFTC.
D. Registration. IFTC will at all times hold registered Assets in
the name of IFTC as custodian, the applicable Portfolio, or a
nominee of either of them, unless specifically directed by
Instructions, as hereinafter defined, to hold such registered
Assets in so-called "street name;" provided that, in any event,
IFTC will hold all such Assets in an account of IFTC as
custodian containing only Assets of the applicable Portfolio, or
only assets held by IFTC as a fiduciary or custodian for
customers; and provided further, that IFTC's records at all
times will indicate the Portfolio or other customer for which
such Assets are held and the respective interests therein. If,
however, Fund directs IFTC to maintain Assets in "street name",
notwithstanding anything contained herein to the contrary, IFTC
will be obligated only to utilize its best efforts to timely
collect income due the Portfolio on such Assets and to notify
the Portfolio of relevant information, such as maturities and
pendency of calls, and corporate actions including, without
limitation, calls for redemption, tender or exchange offers,
declaration, record and payment dates and amounts of any
dividends or income, reorganization, recapitalization, merger,
consolidation, split-up of shares, change of par value, or
conversion ("Corporate Actions"). All Assets and the ownership
thereof by Portfolio will at all times be identifiable on the
records of IFTC. Fund agrees to hold IFTC and its nominee
harmless for any liability as a shareholder of record of
securities held in custody.
E. Exchange. Upon receipt of Instructions, IFTC will exchange, or
cause to be exchanged, Assets held for the account of a
Portfolio for other Assets issued or paid in connection with any
Corporate Action or otherwise, and will deposit any such Assets
in accordance with the terms of any such Corporate Action.
Without Instructions, IFTC is authorized to exchange Assets in
temporary form for Assets in definitive form, to effect an
exchange of shares when the par value of stock is changed, and,
upon receiving payment therefor, to surrender bonds or other
Assets at maturity or when advised of earlier call for
redemption, except that IFTC will receive Instruction prior to
surrendering any convertible security.
F. Purchases of Investments -- Other Than Options and Futures. On
each business day on which a Portfolio makes a purchase of
Assets other than options and futures, Fund will deliver to IFTC
Instructions specifying with respect to each such purchase:
1. If applicable, the name of the Portfolio making such
purchase;
2. The name of the issuer and description of the Asset;
3. The number of shares and the principal amount purchased,
and accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission,
taxes and other expenses payable in connection with the
purchase;
7. The total amount payable upon such purchase;
8. The name of the person from whom or the broker or dealer
through whom the purchase was made; and
9. Whether the Asset is to be received in certificated form or
via a specified Depository.
In accordance with such Instructions, IFTC will pay for out of
monies held for the purchasing Portfolio, but only insofar as
such monies are available for such purpose, and receive the
Assets so purchased by or for the account of such Portfolio,
except that IFTC, or a Subcustodian, may in its sole discretion
advance funds to such Portfolio which may result in an overdraft
because the monies held on behalf of such Portfolio are
insufficient to pay the total amount payable upon such purchase.
Except as otherwise instructed by Fund, IFTC will make such
payment only upon receipt of Assets: (a) by IFTC; (b) by a
clearing corporation of a national exchange of which IFTC is a
member; or (c) by a Depository. Notwithstanding the foregoing,
(i) IFTC may release funds to a Depository prior to the receipt
of advice from the Depository that the Assets underlying a
repurchase agreement have been transferred by book-entry into
the account maintained with such Depository by IFTC on behalf of
its customers; provided that IFTC's instructions to the
Depository require that the Depository make payment of such
funds only upon transfer by book-entry of the Assets underlying
the repurchase agreement in such account; (ii) IFTC may make
payment for time deposits, call account deposits, currency
deposits and other deposits, foreign exchange transactions,
futures contracts or options, before receipt of an advice or
confirmation evidencing said deposit or entry into such
transaction; and (iii) IFTC may make, or cause a Subcustodian to
make, payment for the purchase of Assets the settlement of which
occurs outside of the United States of America in accordance
with generally accepted local custom and market practice.
G. Sales and Deliveries of Investments -- Other Than Options and
Futures. On each business day on which a Portfolio makes a sale
of Assets other than options and futures, Fund will deliver to
IFTC Instructions specifying with respect to each such sale:
1. If applicable, the name of the Portfolio making such sale;
2. The name of the issuer and description of the Asset;
3. The number of shares and principal amount sold, and accrued
interest, if any;
4. The date on which the Assets sold were purchased or other
information identifying the Assets sold and to be
delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission, taxes
or other expenses payable in connection with such sale;
8. The total amount to be received by the Portfolio upon such
sale; and
9. he name and address of the broker or dealer through whom or
person to whom the sale was made.
IFTC will deliver or cause to be delivered the Assets thus
designated as sold for the account of the selling Portfolio as
specified in the Instructions. Except as otherwise instructed by
Fund, IFTC will make such delivery upon receipt of: (a) payment
therefor in such form as is satisfactory to IFTC; (b) credit to
the account of IFTC with a clearing corporation of a national
securities exchange of which IFTC is a member; or (c) credit to
the account maintained by IFTC on behalf of its customers with a
Depository. Notwithstanding the foregoing: (i) IFTC will
deliver Assets held in physical form in accordance with "street
delivery custom" to a broker or its clearing agent; or (ii) IFTC
may make, or cause a Subcustodian to make, delivery of Assets
the settlement of which occurs outside of the United States of
America upon payment therefor in accordance with generally
accepted local custom and market practice.
H. Purchases or Sales of Options and Futures. On each business day
on which a Portfolio makes a purchase or sale of the options
and/or futures listed below, Fund will deliver to IFTC
Instructions specifying with respect to each such purchase or
sale:
1. If applicable, the name of the Portfolio making such
purchase or sale;
2. In the case of security options:
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising,
expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded; and
j. Name and address of the broker or dealer through whom
the sale or purchase was made.
3. In the case of options on indices:
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising,
expiring or closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased; and
j. The name and address of the broker or dealer through
whom the sale or purchase was made, or other
applicable settlement instructions.
4. In the case of security index futures contracts:
a. The last trading date specified in the contract and,
when available, the closing level, thereof;
b. The index level on the date the contract is entered
into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in addition
to Instructions, and if not already in the possession
of IFTC, Fund will deliver a substantially complete
and executed custodial safekeeping account and
procedural agreement, incorporated herein by this
reference); and
f. The name and address of the futures commission
merchant through whom the sale or purchase was made,
or other applicable settlement instructions.
5. In the case of options on index future contracts:
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening,
exercising, expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
I. Assets Pledged or Loaned. If specifically allowed for in the
prospectus of a Portfolio, and subject to such additional terms
and conditions as IFTC may require:
1. Upon receipt of Instructions, IFTC will release or cause to
be released Assets to the designated pledgee by way of
pledge or hypothecation to secure any loan incurred by a
Portfolio; provided, however, that IFTC will release Assets
only upon payment to IFTC of the monies borrowed, except
that in cases where additional collateral is required to
secure a borrowing already made, further Assets may be
released or caused to be released for that purpose. Upon
receipt of Instructions, IFTC will pay, but only from funds
available for such purpose, any such loan upon redelivery
to it of the Assets pledged or hypothecated therefor and
upon surrender of the note or notes evidencing such loan.
2. Upon receipt of Instructions, IFTC will release Assets to
the designated borrower; provided, however, that the Assets
will be released only upon deposit with IFTC of full cash
collateral as specified in such Instructions, and that the
lending Portfolio will retain the right to any dividends,
interest or distribution on such loaned Assets. Upon
receipt of Instructions and the loaned Assets, IFTC will
release the cash collateral to the borrower.
J. Routine Matters. IFTC will, in general, attend to all routine
and mechanical matters in connection with the sale, exchange,
substitution, purchase, transfer, or other dealings with the
Assets except as may be otherwise provided herein or upon
Instruction from Fund.
K. Deposit Accounts. IFTC will open and maintain one or more
special purpose deposit accounts for each Portfolio in the name
of IFTC in such banks or trust companies (including, without
limitation, affiliates of IFTC) as may be designated by it or
Fund in writing ("Accounts"), subject only to draft or order by
IFTC upon receipt of Instructions. IFTC will deposit all monies
received by IFTC from or for the account of a Portfolio in an
Account maintained for such Portfolio. Subject to Section 5.J
hereof, IFTC agrees:
1. To make Fed Funds available to the applicable Portfolio at
9:00 a.m., Kansas City time, on the second business day
after deposit of any check into an Account, in the amount
of the check;
2. To make funds available immediately upon a deposit made by
Federal Reserve wire; and
3. To make funds available on the next business day after
deposit of ACH wires.
L. Income and Other Payments. IFTC will:
1. Collect, claim and receive and deposit for the account of
the applicable Portfolio all income (including income from
the Accounts) and other payments which become due and
payable on or after the effective date hereof with respect
to the Assets, and credit the account of such Portfolio in
accordance with the schedule attached hereto as Exhibit A.
If, for any reason, a Portfolio is credited with income
that is not subsequently collected, IFTC may reverse that
credited amount. If monies are collected after such
reversal, IFTC will credit the Portfolio in that amount;
2. Execute ownership and other certificates and affidavits for
all federal, state and local tax purposes in connection
with the collection of bond and note coupons; and
3. Take such other action as may be necessary or proper in
connection with (a) the collection, receipt and deposit of
such income and other payments, including but not limited
to the presentation for payment of all coupons and other
income items requiring presentation; and all other Assets
which may mature or be called, redeemed, retired or
otherwise become payable and regarding which IFTC has
actual knowledge, or should reasonably be expected to have
knowledge; and (b) the endorsement for collection, in the
name of Fund or a Portfolio, of all checks, drafts or other
negotiable instruments.
IFTC, however, will not be required to institute suit or
take other extraordinary action to enforce collection
except upon receipt of Instructions and upon being
indemnified to its satisfaction against the costs and
expenses of such suit or other actions. IFTC will receive,
claim and collect all stock dividends, rights and other
similar items and will deal with the same pursuant to
Instructions.
M. Proxies and Notices. IFTC will promptly deliver or mail (or
have delivered or mailed) to Fund all proxies properly signed,
all notices of meetings, all proxy statements and other notices,
requests or announcements affecting or relating to Assets and
will, upon receipt of Instructions, execute and deliver or mail
(or cause its nominee to execute and deliver or mail) such
proxies or other authorizations as may be required. Except as
provided herein or pursuant to Instructions hereafter received
by IFTC, neither it nor its nominee will exercise any power
inherent in any such Assets, including any power to vote the
same, or execute any proxy, power of attorney, or other similar
instrument voting any of such Assets, or give any consent,
approval or waiver with respect thereto, or take any other
similar action.
N. Disbursements. IFTC will pay or cause to be paid, insofar as
funds are available for the purpose, bills, statements and other
obligations of each Portfolio (including but not limited to
obligations in connection with the conversion, exchange or
surrender of Assets, interest charges, dividend disbursements,
taxes, management fees, custodian fees, legal fees, auditors'
fees, transfer agents' fees, brokerage commissions, compensation
to personnel, and other operating expenses of such Portfolio)
pursuant to Instructions setting forth the name of the person to
whom payment is to be made, and the amount and purpose of the
payment.
O. Daily Statement of Accounts. IFTC will, within a reasonable
time, render to Fund a detailed statement of the amounts
received or paid and of Assets received or delivered for the
account of each Portfolio during each business day. IFTC will
maintain such books and records as are necessary to enable it to
render, from time to time upon request by Fund, a detailed
statement of the Assets. IFTC will permit, and upon Instruction
will cause any Subcustodian to permit, such persons as are
authorized by Fund, including Fund's independent public
accountants, reasonable access to such records or will provide
reasonable confirmation of the contents of such records, and if
demanded, IFTC will permit, and will cause any Subcustodian to
permit, federal and state regulatory agencies to examine the
Assets, books and records of the Portfolios.
P. Appointment of Subcustodians. Notwithstanding any other
provisions hereof:
1. All or any of the Assets may be held in IFTC's own custody
or in the custody of one or more other banks or trust
companies (including, without limitation, affiliates of
IFTC) acting as Subcustodians as may be selected by IFTC.
Any such Subcustodian selected by IFTC must have the
qualifications required for a custodian under the 1940 Act.
IFTC will be responsible to the applicable Portfolio for
any loss, damage or expense suffered or incurred by such
Portfolio resulting from the actions or omissions of any
Subcustodians selected and appointed by IFTC (except
Subcustodians appointed at the request of Fund and as
provided in Subsection 2 below) to the same extent IFTC
would be responsible to Fund hereunder if it committed the
act or omission itself.
2. Upon request of Fund, IFTC will contract with other
Subcustodians reasonably acceptable to IFTC for purposes of
(a) effecting third-party repurchase transactions with
banks, brokers, dealers, or other entities through the use
of a common custodian or subcustodian, or (b) providing
depository and clearing agency services with respect to
certain variable rate demand note securities, or (c) for
other reasonable purposes specified by Fund; provided,
however, that IFTC will be responsible to Fund for any
loss, damage or expense suffered or incurred by Fund
resulting from the actions or omissions of any such
Subcustodian only to the same extent such Subcustodian is
responsible to IFTC. Fund may review IFTC's contracts with
such Subcustodians.
Q. Foreign Custody Manager.
1. Delegation to IFTC as FCM. The Fund, pursuant to
resolution adopted by its Board of Trustees or Directors
(the "Board"), hereby delegates to IFTC, subject to Section
(b) of Rule 17f-5, the responsibilities set forth in this
Section Q with respect to Foreign Assets held outside the
United States, and IFTC hereby accepts such delegation, as
FCM of each Portfolio. It is understood and agreed that
IFTC will sub-contract the performance of its
responsibilities hereunder with State Street Bank & Trust
Company. IFTC will be responsible to the applicable
Portfolio for any loss, damage or expense suffered or
incurred by such Portfolio resulting from the actions or
omissions of State Street Bank & Trust Company to the same
extent IFTC would be responsible to Fund hereunder if it
committed the act or omission itself. References herein to
"FCM" shall include IFTC and State Street Bank & Trust
Company.
2. Definitions. Capitalized terms in this Section Q have the
following meanings:
"Country Risk" means all factors reasonably related to the
systemic risk of holding Foreign Assets in a particular
country including, but not limited to, such country's
political environment; economic and financial
infrastructure (including financial institutions such as
any Mandatory Securities Depositories operating in the
country); prevailing or developing custody and settlement
practices; and laws and regulations applicable to the
safekeeping and recovery of Foreign Assets held in custody
in that country.
"Eligible Foreign Custodian" has the meaning set forth in
section (a)(1) of Rule 17f-5, except that the term does not
include Mandatory Securities Depositories.
"Foreign Assets" means any of the Portfolios' investments
(including foreign currencies) for which the primary market
is outside the United States and such cash and cash
equivalents in amounts deemed by Fund to be reasonably
necessary to effect the Portfolios' transactions in such
investments.
"Foreign Custody Manager" or "FCM" has the meaning set
forth in section (a)(2) of Rule 17f-5.
"Mandatory Securities Depository" means a foreign
securities depository or clearing agency that, either as a
legal or practical matter, must be used if the Fund
determines to place Foreign Assets in a country outside the
United States (I) because required by law or regulation;
(ii) because securities cannot be withdrawn from such
foreign securities depository or clearing agency; or (iii)
because maintaining or effecting trades in securities
outside the foreign securities depository or clearing
agency is not consistent with prevailing or developing
custodial or market practices.
3. Countries Covered. The FCM is responsible for performing
the delegated responsibilities defined below only with
respect to the countries and custody arrangements for each
such country listed on Exhibit C hereto, which may be
amended from time to time by the FCM. The FCM will list on
Exhibit C the Eligible Foreign Custodians selected by the
FCM to maintain the assets of each Portfolio. Mandatory
Securities Depositories are listed on Exhibit D hereto,
which Exhibit D may be amended from time to time by the
FCM. The FCM will provide amended versions of Exhibits C
and D in accordance with subsection 7 of this Section Q.
Upon the receipt by the FCM of Instructions to open an
account, or to place or maintain Foreign Assets, in a
country listed on Exhibit C, and the fulfillment by the
Fund of the applicable account opening requirements for
such country, the FCM is deemed to have been delegated by
the Board responsibility as FCM with respect to that
country and to have accepted such delegation. Following
the receipt of Instructions directing the FCM to close the
account of a Portfolio with the Eligible Foreign Custodian
selected by the FCM in a designated country, the delegation
by the Board to IFTC as FCM for that country is deemed to
have been withdrawn and IFTC will immediately cease to be
the FCM of the Portfolio with respect to that country.
The FCM may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon
written notice to the Fund. Thirty days (or such longer
period as to which the parties agree in writing) after
receipt of any such notice by the Fund, IFTC will have no
further responsibility as FCM to a Portfolio with respect
to the country as to which IFTC's acceptance of delegation
is withdrawn.
4. Scope of Delegated Responsibilities.
a. Selection of Eligible Foreign Custodians. Subject
to the provisions of this Section Q, the FCM may place
and maintain the Foreign Assets in the care of the
Eligible Foreign Custodian selected by the FCM in each
country listed on Exhibit C, as amended from time to
time.
In performing its delegated responsibilities as FCM to
place or maintain Foreign Assets with an Eligible
Foreign Custodian, the FCM will determine that the
Foreign Assets will be subject to reasonable care,
based on the standards applicable to custodians in the
country in which the Foreign Assets will be held by
that Eligible Foreign Custodian, after considering all
factors relevant to the safekeeping of such assets,
including, without limitation, those set forth in Rule
17f-5(c)(1)(i) through (iv).
b. Contracts With Eligible Foreign Custodians. The FCM
will determine that the contract (or the rules or
established practices or procedures in the case of an
Eligible Foreign Custodian that is a foreign
securities depository or clearing agency) governing
the foreign custody arrangements with each Eligible
Foreign Custodian selected by the FCM will provide
reasonable care for the Foreign Assets held by that
Eligible Foreign Custodian based on the standards
applicable to custodians in the particular country.
Each such contract will include the provisions set
forth in Rule 17f-5(c)(2)(i)(A) through (F), or, in
lieu of any or all of the provisions set forth in said
(A) through (F), such other provisions that the FCM
determines will provide, in their entirety, the same
or greater level of care and protection for the
Foreign Assets as the provisions set forth in said (A)
through (F) in their entirety.
c. Monitoring. In each case in which the FCM maintains
Foreign Assets with an Eligible Foreign Custodian
selected by the FCM, the FCM will establish a system
to monitor (a) the appropriateness of maintaining the
Foreign Assets with such Eligible Foreign Custodian
and (b) the contract governing the custody
arrangements established by the FCM with the Eligible
Foreign Custodian. In the event the FCM determines
that the custody arrangements with an Eligible Foreign
Custodian it has selected are no longer appropriate,
the FCM will notify the Board in accordance with
subsection 7 of this Section Q.
5. Guidelines for the Exercise of Delegated Authority. For
purposes of this Section Q, the Board will be solely
responsible for considering and determining to accept such
Country Risk as is incurred by placing and maintaining the
Foreign Assets in each country for which IFTC is serving as
FCM of a Portfolio, and the Board will be solely
responsible for monitoring on a continuing basis such
Country Risk to the extent that the Board considers
necessary or appropriate. The Fund, on behalf of the
Portfolios, and IFTC each expressly acknowledge that the
FCM will not be delegated any responsibilities under this
Section Q with respect to Mandatory Securities
Depositories.
6. Standard of Care as FCM of a Portfolio. In performing the
responsibilities delegated to it, the FCM agrees to
exercise reasonable care, prudence and diligence such as a
person having responsibility for the safekeeping of assets
of management investment companies registered under the
1940 Act would exercise.
7. Reporting Requirements. The FCM will report the withdrawal
of the Foreign Assets from an Eligible Foreign Custodian
and the placement of such Foreign Assets with another
Eligible Foreign Custodian by providing to the Board
amended Exhibits C and D at the end of the calendar quarter
in which an amendment to either Schedule has occurred. The
FCM will make written reports notifying the Board of any
other material change in the foreign custody arrangements
of a Portfolio described in this Section Q after the
occurrence of the material change.
8. Representations with Respect to Rule 17f-5. The FCM
represents to the Fund that it is a U.S. Bank as defined in
section (a)(7) of Rule 17f-5.
The Fund represents to IFTC that the Board has determined
that it is reasonable for the Board to rely on IFTC and
State Street Bank & Trust Company to perform the
responsibilities delegated pursuant to this Contract to
IFTC and State Street Bank & Trust Company as the FCM of
each Portfolio and that IFTC has been granted the authority
by Fund to delegate to State Street Bank & Trust Company
the FCM functions to which IFTC has been appointed by Fund.
9. Effective Date and Termination of IFTC as FCM. The Board's
delegation to IFTC as FCM of a Portfolio will be effective
as of the date hereof and will remain in effect until
terminated at any time, without penalty, by written notice
from the terminating party to the non-terminating party.
Termination will become effective thirty days after receipt
by the non-terminating party of such notice. The
provisions of subsection 3 of this Section Q govern the
delegation to and termination of IFTC as FCM of the Fund
with respect to designated countries.
R. Accounts and Records Property of Fund. IFTC acknowledges that
all of the accounts and records maintained by IFTC pursuant
hereto are the property of Fund, and will be made available to
Fund for inspection or reproduction within a reasonable period
of time, upon demand. IFTC will assist Fund's independent
auditors, or upon approval of Fund, or upon demand, any
regulatory body, in any requested review of Fund's accounts and
records but Fund will reimburse IFTC for all expenses and
employee time invested in any such review outside of routine and
normal periodic reviews. Upon receipt from Fund of the
necessary information or instructions, IFTC will supply
information from the books and records it maintains for Fund
that Fund needs for tax returns, questionnaires, periodic
reports to shareholders and such other reports and information
requests as Fund and IFTC agree upon from time to time.
S. Adoption of Procedures. IFTC and Fund hereby adopt the Funds
Transfer Operating Guidelines attached hereto as Exhibit B.
IFTC and Fund may from time to time adopt such additional
procedures as they agree upon, and IFTC may conclusively assume
that no procedure approved or directed by Fund, Fund's or
Portfolio's accountants or other advisors conflicts with or
violates any requirements of the prospectus, articles of
incorporation, bylaws, any applicable law, rule or regulation,
or any order, decree or agreement by which Fund may be bound.
Fund will be responsible for notifying IFTC of any changes in
statutes, regulations, rules, requirements or policies which
might necessitate changes in IFTC's responsibilities or
procedures.
T. Advances. Fund will pay on demand any advance of cash or
securities made by IFTC or any Subcustodian for a purpose
approved by the Fund, in its sole discretion, for any purpose
(including but not limited to securities settlements, purchase
or sale of foreign exchange or foreign exchange contracts and
assumed settlement) for the benefit of any Portfolio. Any such
cash advance will be subject to an overdraft charge at the rate
set forth in the then-current fee schedule from the date
advanced until the date repaid. As security for each such
advance, Fund hereby grants IFTC and such Subcustodian a lien on
and security interest in all Assets at any time held for the
account of the applicable Portfolio, including without
limitation all Assets acquired with the amount advanced. Should
Fund fail to promptly repay the advance, IFTC and such
Subcustodian may utilize available cash and dispose of such
Portfolio's Assets pursuant to applicable law to the extent
necessary to obtain reimbursement of the amount advanced and any
related overdraft charges. IFTC will consult with Fund before
selecting which Assets to liquidate.
U. Exercise of Rights; Tender Offers. Upon receipt of
Instructions, IFTC will: (1) deliver warrants, puts, calls,
rights or similar securities to the issuer or trustee thereof,
or to the agent of such issuer or trustee, for the purpose of
exercise or sale, provided that the new Assets, if any, are to
be delivered to IFTC; and (2) deposit securities upon
invitations for tenders thereof, provided that the consideration
for such securities is to be paid or delivered to IFTC or the
tendered securities are to be returned to IFTC.
V. Fund Shares.
1. Fund will deliver to IFTC Instructions with respect to the
declaration and payment of any dividend or other
distribution on the shares of capital stock of a Portfolio
("Fund Shares") by a Portfolio. On the date specified in
such Instruction, IFTC will pay out of the monies held for
the account of the Portfolio, insofar as it is available
for such purposes, and credit to the account of the
Dividend Disbursing Agent for the Portfolio, the amount
specified in such Instructions.
2. Whenever Fund Shares are repurchased or redeemed by a
Portfolio, Portfolio or its agent will give IFTC
Instructions regarding the aggregate dollar amount to be
paid for such shares. Upon receipt of such Instruction,
IFTC will charge such aggregate dollar amount to the
account of the Portfolio and either deposit the same in the
account maintained for the purpose of paying for the
repurchase or redemption of Fund Shares or deliver the same
in accordance with such Instruction. IFTC has no duty or
responsibility to determine that Fund Shares have been
removed from the proper shareholder accounts or that the
proper number of Fund Shares have been canceled and removed
from the shareholder records.
3. Whenever Fund Shares are purchased from Fund, Fund will
deposit or cause to be deposited with IFTC the amount
received for such shares. IFTC has no duty or
responsibility to determine that Fund Shares purchased from
Fund have been added to the proper shareholder account or
that the proper number of such shares have been added to
the shareholder records.
4. INSTRUCTIONS.
A. The term "Instructions", as used herein, means written
(including telecopied, telexed, or electronically transmitted)
or oral instructions which IFTC reasonably believes were given
by a designated representative of Fund. Fund will deliver to
IFTC, prior to delivery of any Assets to IFTC and thereafter
from time to time as changes therein are necessary, written
Instructions naming one or more designated representatives to
give Instructions in the name and on behalf of Fund, which
Instructions may be received and accepted by IFTC as conclusive
evidence of the authority of any designated representative to
act for Fund and may be considered to be in full force and
effect until receipt by IFTC of notice to the contrary. Unless
such written Instructions delegating authority to any person to
give Instructions specifically limit such authority to specific
matters or require that the approval of anyone else will first
have been obtained, IFTC will be under no obligation to inquire
into the right of such person, acting alone, to give any
Instructions whatsoever. If Fund fails to provide IFTC any such
Instructions naming designated representatives, any Instructions
received by IFTC from a person reasonably believed to be an
appropriate representative of Fund will constitute valid and
proper Instructions hereunder. "Designated representatives" may
include Fund's or a Portfolio's employees and agents, including
investment managers and their employees.
B. No later than the next business day immediately following each
oral Instruction, Fund will send IFTC written confirmation of
such oral Instruction. At IFTC's sole discretion, IFTC may
record on tape, or otherwise, any oral Instruction whether given
in person or via telephone, each such recording identifying the
date and the time of the beginning and ending of such oral
Instruction.
5. Fund will provide, upon IFTC's request a certificate signed by an
officer or designated representative of Fund, as conclusive proof of
any fact or matter required to be ascertained from Fund hereunder.
Fund will also provide IFTC Instructions with respect to any matter
concerning this Agreement requested by IFTC. If IFTC reasonably
believes that it could not prudently act according to the
Instructions, or the instruction or advice of Fund's or a Portfolio's
accountants or counsel, it may in its discretion, with notice to
Fund, not act according to such Instructions.
6. LIMITATION OF LIABILITY OF IFTC. Fund is not responsible or liable
for, and IFTC will indemnify and hold Fund harmless from and against,
any and all costs, expenses, losses, damages, charges, counsel fees,
payments and liabilities which may be asserted against or incurred by
Fund or for which Fund may be held to be liable, arising out of or
attributable to IFTC's negligence or willful misconduct, or the
failure of any representation or warranty of IFTC hereunder to be and
remain true and correct in all material respects during the terms
hereof.
IFTC is not responsible or liable for, and Fund will indemnify and
hold IFTC harmless from and against, any and all costs, expenses,
losses, damages, charges, counsel fees, payments and liabilities
which may be asserted against or incurred by IFTC or for which IFTC
may be held to be liable, arising out of or attributable to:
A. IFTC's action or omission to act pursuant hereto; provided that
IFTC has acted in good faith and with due diligence and
reasonable care.
B. IFTC's payment of money as requested by Fund, or the taking of
any action which might make it or its nominee liable for payment
of monies or in any other way; provided, however, that nothing
herein obligates IFTC to take any such action or expend its own
monies except in its sole discretion.
C. IFTC's action or omission to act hereunder upon any
Instructions, advice, notice, request, consent, certificate or
other instrument or paper appearing to it to be genuine and to
have been properly executed, including any Instructions,
communications, data or other information received by IFTC by
means of the Systems, as hereinafter defined, or any electronic
system of communication.
D. IFTC's action or omission to act in good faith reliance on the
advice or opinion of counsel for Fund or of its own counsel with
respect to questions or matters of law, which advice or opinion
may be obtained by IFTC at the expense of IFTC, or on the
Instructions, advice or statements of any officer or employee of
Fund, or Fund's accountants or other authorized individuals, and
other persons believed by it in good faith to be expert in
matters upon which they are consulted.
E. The purchase or sale of any securities or foreign currency
positions. Without limiting the generality of the foregoing,
IFTC is under no duty or obligation to inquire into:
1. The validity of the issue of any securities purchased by or
for any Portfolio, or the legality of the purchase thereof
or of foreign currency positions, or evidence of ownership
required by Fund to be received by IFTC, or the propriety
of the decision to purchase or the amount paid therefor;
2. The legality of the sale of any securities or foreign
currency positions by or for any Portfolio, or the
propriety of the amount for which the same are sold; or
3. The legality of the issue or sale of any Fund Shares, or
the sufficiency of the amount to be received therefor, the
legality of the repurchase or redemption of any Fund
Shares, or the propriety of the amount to be paid therefor,
or the legality of the declaration of any dividend by Fund,
or the legality of the issue of any Fund Shares in payment
of any stock dividend.
F. Any error, omission, inaccuracy or other deficiency in any
Portfolio's accounts and records or other information provided
by or on behalf of a Portfolio to IFTC, or the failure of Fund
to provide, or provide in a timely manner, any accounts,
records, or information needed by IFTC to perform hereunder.
G. Fund's refusal or failure to comply with the terms hereof
(including without limitation Fund's failure to pay or reimburse
IFTC under Section 5 hereof), Fund's negligence or willful
misconduct, or the failure of any representation or warranty of
Fund hereunder to be and remain true and correct in all respects
at all times.
H. The use or misuse, whether authorized or unauthorized, of the
Systems or any electronic system of communication used
hereunder, by Fund or by any person who acquires access to the
Systems or such other systems through the terminal device,
passwords, access instructions or other means of access to such
Systems or such other system which are utilized by, assigned to
or otherwise made available to Fund, except to the extent
attributable to any negligence or willful misconduct by IFTC.
I. Any money represented by any check, draft, wire transfer,
clearinghouse funds, uncollected funds, or instrument for the
payment of money to be received by IFTC on behalf of a Portfolio
until actually received; provided, however, that IFTC will
advise Fund promptly if it fails to receive any such money in
the ordinary course of business and will cooperate with Fund
toward the end that such money is received.
J. Except as provided in Section 3.P hereof, loss occasioned by the
acts, neglects, defaults or insolvency of any broker, bank,
trust company, or any other person with whom IFTC may deal.
K. The failure or delay in performance of its obligations
hereunder, or those of any entity for which it is responsible
hereunder, arising out of or caused, directly or indirectly, by
circumstances beyond the affected entity's reasonable control,
including, without limitation: any interruption, loss or
malfunction of any utility, transportation, computer (hardware
or software) or communication service; inability to obtain
labor, material, equipment or transportation, or a delay in
mails; governmental or exchange action, statute, ordinance,
rulings, regulations or direction; war, strike, riot,
emergency, civil disturbance, terrorism, vandalism, explosions,
labor disputes, freezes, floods, fires, tornados, acts of God or
public enemy, revolutions, or insurrection.
Neither party is liable for consequential, special, or punitive
damages in any event.
7. COMPENSATION. In consideration for its services hereunder, Fund will
pay to IFTC the compensation set forth in a separate fee schedule,
incorporated herein by this reference, to be agreed to by Fund and
IFTC from time to time, and reimbursement for IFTC's cash
disbursements and reasonable out-of-pocket costs and expenses,
including reasonable attorney's fees other than those incurred
pursuant to Section 6.D, incurred by IFTC in connection with the
performance of services hereunder, on demand. IFTC may charge such
compensation against monies held by it for the account of the
Portfolios. IFTC will also be entitled to charge against any monies
held by it for the account of the Portfolios the amount of any loss,
damage, liability, advance, overdraft or expense for which it is
entitled to reimbursement from Fund, including but not limited to
fees and expenses due to IFTC for other services provided to Fund by
IFTC. IFTC will be entitled to reimbursement by Fund for the losses,
damages, liabilities, advances, overdrafts and expenses of
Subcustodians only to the extent that (a) IFTC would have been
entitled to reimbursement hereunder if it had incurred the same
itself directly, and (b) IFTC is obligated to reimburse the
Subcustodian therefor.
8. TERM AND TERMINATION. The initial term of this Agreement is for a
period of one (1) year. Thereafter, Fund or IFTC may terminate the
same by notice in writing, delivered or mailed, postage prepaid, to
the other party and received not less than ninety (90) days prior to
the date upon which such termination will take effect. Upon
termination hereof:
A. Fund will pay IFTC its fees and compensation due hereunder and
its reasonable reimbursable disbursements, costs and expenses
paid or incurred to such date;
B. Fund will designate a successor custodian by Instruction to IFTC
by the termination date. In the event no such Instruction has
been delivered to IFTC on or before the date when such
termination becomes effective, then IFTC may, at its option, (i)
choose as successor custodian a bank or trust company meeting
the qualifications for custodian set forth in the 1940 Act and
having not less than Two Million Dollars ($2,000,000) aggregate
capital, surplus and undivided profits, as shown by its last
published report, or (ii) apply to a court of competent
jurisdiction for the appointment of a successor or other proper
relief, or take any other lawful action under the circumstances;
provided, however, that Fund will reimburse IFTC for its costs
and expenses, including reasonable attorney's fees, incurred in
connection therewith; and
C. IFTC will, upon payment of all sums due to IFTC from Fund
hereunder or otherwise, deliver all Assets, duly endorsed and in
form for transfer, to the successor custodian, or as specified
by the court, at IFTC's office. IFTC will co-operate in
effecting changes in book-entries at all Depositories. Upon
delivery to a successor or as specified by the court, IFTC will
have no further obligations or liabilities hereunder. Thereafter
such successor will be the successor hereunder and will be
entitled to reasonable compensation for its services.
In the event that Assets remain in the possession of IFTC after
the date of termination hereof for any reason other than IFTC's
failure to deliver the same, IFTC is entitled to compensation as
provided in the then-current fee schedule for its services
during such period, and the provisions hereof relating to the
duties and obligations of IFTC will remain in full force and
effect.
9. NOTICES. Notices, requests, instructions and other writings
addressed to Fund at the address set forth above, or at such other
address as Fund may have designated to IFTC in writing, will be
deemed to have been properly given to Fund hereunder. Notices,
requests, Instructions and other writings addressed to IFTC at the
address set forth above, Attention: Custody Department, or to such
other address as it may have designated to Fund in writing, will be
deemed to have been properly given to IFTC hereunder.
10. THE SYSTEMS; CONFIDENTIALITY.
A. If IFTC provides Fund direct access to the computerized
investment portfolio custody systems used by IFTC ("Systems") or
if IFTC and Fund agree to utilize any electronic system of
communication, Fund agrees to implement and enforce appropriate
security policies and procedures to prevent unauthorized or
improper access to or use of the Systems or such other system.
B. Fund will preserve the confidentiality of the Systems and the
tapes, books, reference manuals, instructions, records,
programs, documentation and information of, and other materials
relevant to, the Systems and the business of IFTC ("Confidential
Information"). Fund agrees that it will not voluntarily
disclose any such Confidential Information to any other person
other than its own employees who reasonably have a need to know
such information pursuant hereto. Fund will return all such
Confidential Information to IFTC upon termination or expiration
hereof.
C. Fund has been informed that the Systems are licensed for use by
IFTC from one or more third parties ("Licensors"), and Fund
acknowledges that IFTC and Licensors have proprietary rights in
and to the Systems and all other IFTC or Licensor programs,
code, techniques, know-how, data bases, supporting
documentation, data formats, and procedures, including without
limitation any changes or modifications made at the request or
expense or both of Fund (collectively, the "Protected
Information"). Fund acknowledges that the Protected Information
constitutes confidential material and trade secrets of IFTC and
Licensors. Fund will preserve the confidentiality of the
Protected Information, and Fund hereby acknowledges that any
unauthorized use, misuse, disclosure or taking of Protected
Information, residing or existing internal or external to a
computer, computer system, or computer network, or the knowing
and unauthorized accessing or causing to be accessed of any
computer, computer system, or computer network, may be subject
to civil liabilities and criminal penalties under applicable
law. Fund will so inform employees and agents who have access
to the Protected Information or to any computer equipment
capable of accessing the same. Licensors are intended to be and
are third party beneficiaries of Fund's obligations and
undertakings contained in this Section.
D. Fund hereby represents and warrants to IFTC that it has
determined to its satisfaction that the Systems are appropriate
and suitable for its use. THE SYSTEMS ARE PROVIDED ON AN AS IS,
AS AVAILABLE BASIS. IFTC EXPRESSLY DISCLAIMS ALL WARRANTIES
EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED
TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
E. IFTC will take reasonable steps to ensure that its products (and
those of its third-party suppliers) reflect the available state
of the art technology to offer products that are Year 2000
compliant, including, but not limited to, century recognition of
dates, calculations that correctly compute same century and
multi century formulas and date values, and interface values
that reflect the date issues arising between now and the next
one-hundred years, and if any changes are required, IFTC will
make the changes to its products at no cost to the Fund and in a
commercially reasonable time frame and will require third-party
suppliers to do likewise.
11. MULTIPLE PORTFOLIOS. If Fund is comprised of more than one
Portfolio:
A. Each Portfolio will be regarded for all purposes hereunder as a
separate party apart from each other Portfolio. Unless the
context otherwise requires, with respect to every transaction
covered hereby, every reference herein to Fund is deemed to
relate solely to the particular Portfolio to which such
transaction relates. Under no circumstances will the rights,
obligations or remedies with respect to a particular Portfolio
constitute a right, obligation or remedy applicable to any other
Portfolio. The use of this single document to memorialize the
separate agreement of each Portfolio is understood to be for
clerical convenience only and will not constitute any basis for
joining the Portfolios for any reason.
B. Fund may appoint IFTC as its custodian for additional Portfolios
from time to time by written notice, provided that IFTC consents
to such addition. Rates or charges for each additional
Portfolio will be as agreed upon by IFTC and Fund in writing.
12. MISCELLANEOUS.
A. This Agreement will be construed according to, and the rights
and liabilities of the parties hereto will be governed by, the
laws of the State of Missouri, without reference to the choice
of laws principles thereof.
B. All terms and provisions hereof will be binding upon, inure to
the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
C. The representations and warranties, the indemnifications
extended hereunder, and the provisions of Section 9 hereof are
intended to and will continue after and survive the expiration,
termination or cancellation hereof.
D. No provisions hereof may be amended or modified in any manner
except by a written agreement properly authorized and executed
by each party hereto.
E. The failure of either party to insist upon the performance of
any terms or conditions hereof or to enforce any rights
resulting from any breach of any of the terms or conditions
hereof, including the payment of damages, will not be construed
as a continuing or permanent waiver of any such terms,
conditions, rights or privileges, but the same will continue and
remain in full force and effect as if no such forbearance or
waiver had occurred. No waiver, release or discharge of any
party's rights hereunder will be effective unless contained in a
written instrument signed by the party sought to be charged.
F. The captions herein are included for convenience of reference
only, and in no way define or limit any of the provisions hereof
or otherwise affect their construction or effect.
G. This Agreement may be executed in two or more counterparts, each
of which is deemed an original but all of which together
constitute one and the same instrument.
H. If any provision hereof is determined to be invalid, illegal, in
conflict with any law or otherwise unenforceable, the remaining
provisions hereof will be considered severable and will not be
affected thereby, and every remaining provision hereof will
remain in full force and effect and will remain enforceable to
the fullest extent permitted by applicable law.
I. This Agreement may not be assigned by either party hereto
without the prior written consent of the other party.
J. Neither the execution nor performance hereof will be deemed to
create a partnership or joint venture by and between IFTC and
Fund or any Portfolio.
K. Except as specifically provided herein, this Agreement does not
in any way affect any other agreements entered into among the
parties hereto and any actions taken or omitted by either party
hereunder will not affect any rights or obligations of the other
party hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers.
INVESTORS FIDUCIARY TRUST JOHNSON FUNDS, INC.
COMPANY
By: __________________________ By: _________________________
Title: _______________________ Title: ______________________
<PAGE>
EXHIBIT A -- INCOME AVAILABILITY SCHEDULE
Foreign--Income will be credited contractually on pay day in the markets
noted with Contractual Income Policy. The markets noted with Actual
income policy will be credited income when it is received.
Income Income Income
Market Policy Market Policy Market Policy
Argentina Actual Hong Kong Contractual Poland Actual
Australia Contractual Hungary Actual Portugal Contractual
Austria Contractual India Actual Russia Actual
Bahrain Actual Indonesia Actual Singapore Contractual
Bangladesh Actual Ireland Actual Slovak Actual
Republic
Belgium Contractual Israel Actual South Actual
Africa
Bermuda Actual Italy Contractual South Korea Actual
* Bolivia Actual Ivory Coast Actual Spain Contractual
Botswana Actual * Jamaica Actual Sri Lanka Actual
Brazil Actual Japan Contractual Swaziland Actual
Canada Contractual Jordan Actual Sweden Contractual
Chile Actual Kenya Actual Switzerland Contractual
China Actual Lebanon Actual Taiwan Actual
Colombia Actual Luxembourg Actual Thailand Actual
Cyprus Actual Malaysia Actual * Trinidad Actual
& Tobago
Czech Actual Mauritius Actual * Tunisia Actual
Republic
Denmark Contractual Mexico Actual Turkey Actual
Ecuador Actual Morocco Actual United Contrac-
Kingdom tual
Egypt Actual Namibia Actual United See
States Attached
**Euroclear Contractual/ Netherlands Contractual Uruguay Actual
Actual
Euro CDs Actual New Zealand Contractual Venezuela Actual
Finland Contractual Norway Contractual Zambia Actual
France Contractual Oman Actual Zimbabwe Actual
Germany Contractual Pakistan Actual
Ghana Actual Peru Actual
Greece Actual Philippines Actual
* Market is not 17F-5 eligible
** For Euroclear, contractual income paid only in markets listed with
Income Policy of Contractual.
United States--
Income Type DTC FED PTC Physical
Dividends Contractual N/A N/A Actual
Fixed Rate Contractual Contractual N/A Actual
Interest
Variable Rate Contractual Contractual N/A Actual
Interest
GNMA I N/A N/A Contractual PD +1 N/A
GNMA II N/A N/A Contractual PD *** N/A
Mortgages Actual Contractual Contractual Actual
Maturities Actual Contractual N/A Actual
Exceptions to the above Contractual Income Policy include securities that
are:
Involved in a trade whose settlement either failed, or is pending over the
record date, (excluding the United States);
' On loan under a self directed securities lending program other than
IFTC's own vendor lending program;
' Known to be in a condition of default, or suspected to present a risk
of default or payment delay;
' In the asset categories, without limitation, of Private Placements,
Derivatives, Options, Futures, CMOs, and Zero Coupon Bonds.
' Securities whose amount of income and redemption cannot be calculated
in advance of payable date, or determined in advance of actual
collection, examples include ADRs;
' Payments received as the result of a corporate action, not limited
to, bond calls, mandatory or optional puts, and tender offers.
*** For GNMA II securities, if the 19th day of the month is a business
day, Payable/Distribution Date is the next business day. If the 19th is
not a business day, but the 20th is a business day, Payable/Distribution
date is the first business day after the 20th. If both the 19th and 20th
are not business days, Payable/Distribution will be the next business day
thereafter.
<PAGE>
EXHIBIT B -- FUNDS TRANSFER OPERATING GUIDELINES
1. OBLIGATION OF THE SENDER: IFTC is authorized to promptly debit Fund's
("Client's") account(s) upon the receipt of a payment order in compliance
with any of the Security Procedures chosen by the Client, from those
offered on the attached selection form (and any updated selection forms
hereafter executed by the Client), for funds transfers and in the amount
of money that IFTC has been instructed to transfer. IFTC is hereby
instructed to accept funds transfer instructions only via the delivery
methods and Security Procedures indicated on the attached selection form
(and any updated executed by the Client). The Client agrees that the
Security Procedures are reasonable and adequate for its wire transfer
transactions and agrees to be bound by any payment orders, amendments and
cancellations, whether or not authorized, issued in its name and accepted
by IFTC after being confirmed by any of the selected Security Procedures.
The Client also agrees to be bound by any other valid and authorized
payment order accepted by IFTC. IFTC shall execute payment orders in
compliance with the selected Security Procedures and with the
Client's/Investment Manager's instructions on the execution date provided
that such payment order is received by the customary deadline for
processing such a request, unless the payment order specifies a later
time. IFTC will use reasonable efforts to execute on the execution date
payment orders received after the customary deadline, but if it is unable
to execute any such payment order on the execution date, such payment
order will be deemed to have been received on the next business day.
2. SECURITY PROCEDURES: The Client acknowledges that the selected
Security Procedures were selected by the Client from Security Procedures
offered by IFTC. The Client shall restrict access to confidential
information relating to the Security Procedures to authorized persons as
communicated in writing to IFTC. The Client must notify IFTC immediately
if it has reason to believe unauthorized persons may have obtained access
to such information or of any change in the Client's authorized personnel.
IFTC shall verify the authenticity of all instructions according to the
selected Security Procedures.
3. ACCOUNT NUMBERS: IFTC shall process all payment orders on the basis
of the account number contained in the payment order. In the event of a
discrepancy between any name indicated on the payment order and the
account number, the account number shall take precedence and govern.
Financial institutions that receive payment orders initiated by IFTC at
the instruction of the Client may also process payment orders on the basis
of account numbers, regardless of any name included in the payment order.
IFTC will also rely on any financial institution identification numbers
included in any payment order, regardless of any financial institution
name included in the payment order.
4. REJECTION: IFTC reserves the right to decline to process or delay the
processing of a payment order which (a) is in excess of the collected
balance in the account to be charged at the time of IFTC's receipt of such
payment order; (b) if initiating such payment order would cause IFTC, in
IFTC's sole judgment, to exceed any applicable volume, aggregate dollar,
network, time, credit or similar limits upon wire transfers; or (c) if
IFTC, in good faith, is unable to satisfy itself that the transaction has
been properly authorized.
5. CANCELLATION OR AMENDMENT: IFTC shall use reasonable efforts to act
on all authorized requests to cancel or amend payment orders received in
compliance with the selected Security Procedures provided that such
requests are received in sufficient time to afford IFTC a reasonable
opportunity to act prior to executing the payment order. However, IFTC
assumes no liability if the request for amendment or cancellation cannot
be satisfied by IFTC's reasonable efforts.
6. ERRORS: IFTC shall assume no responsibility for failure to detect any
erroneous payment order provided that IFTC complies with the payment order
instructions as received and IFTC complies with the selected Security
Procedures. The Security Procedures are established for the purpose of
authenticating payment orders only and not for the detection of errors in
payment orders.
7. INTEREST AND LIABILITY LIMITS: IFTC shall assume no responsibility
for lost interest with respect to the refundable amount of any
unauthorized payment order, unless IFTC is notified of the unauthorized
payment order within thirty (30) days of notification by IFTC of the
acceptance of such payment order. In no event (including but not limited
to failure to execute a payment order) shall IFTC be liable for special,
indirect or consequential damages, even if advised of the possibility of
such damages.
8. AUTOMATED CLEARING HOUSE ("ACH") CREDIT ENTRIES/PROVISIONAL PAYMENTS:
When the Client initiates or receives ACH credit and debit entries
pursuant to these Guidelines and the rules of the National Automated
Clearing House Association and the Mid-America Payment Exchange or other
similar body, IFTC or its agent will act as an Originating Depository
Financial Institution and/or Receiving Depository Financial Institution,
as the case may be, with respect to such entries. Credits given with
respect to an ACH credit entry are provisional until final settlement for
such entry is received from the Federal Reserve Bank. If such final
settlement is not received, the Client agrees to promptly refund the
amount credited to the Client in connection with such entry, and the party
making payment to the Client via such entry shall not be deemed to have
paid the amount of the entry.
9. CONFIRMATIONS: Confirmation of IFTC's execution of payment orders
shall ordinarily be provided within 24 hours. Notice may be delivered
through IFTC's account statements, advices, information systems, or by
facsimile or callback. The Client must report any objections to the
execution of a payment order within 30 days.
10. MISCELLANEOUS: IFTC may use the Federal Reserve System Fedwire to
execute payment orders, and any payment order carried in whole or in part
through Fedwire will be subject to applicable Federal Reserve Board rules
and regulations. IFTC and the Client agree to cooperate to attempt to
recover any funds erroneously paid to wrong parties, regardless of any
fault of IFTC or the Client, but the party responsible for the erroneous
payment shall bear all costs and expenses incurred in trying to effect
such recovery. These Guidelines may not be amended except by a written
agreement signed by the parties.
<PAGE>
SECURITY PROCEDURES SELECTION FORM
Please select one or more of the funds transfer security procedures
indicated below.
[] SWIFT SWIFT (Society for Worldwide Interbank Financial
Telecommunication) is a cooperative society owned and operated by
member financial institutions that provides telecommunication
services for its membership. Participation is limited to securities
brokers and dealers, clearing and depository institutions, recognized
exchanges for securities, and investment management institutions.
SWIFT provides a number of security features through encryption and
authentication to protect against unauthorized access, loss or wrong
delivery of messages, transmission errors, loss of confidentiality
and fraudulent changes to messages. Selection of this security
procedure would be most appropriate for existing SWIFT members.
[] REMOTE BATCH TRANSMISSION Wire transfer instructions are
delivered via Computer-to-Computer (CPU-CPU) data communications
between the Client and/or its agent and IFTC and/or its agent.
Security procedures include encryption and/or the use of a test key
by those individuals authorized as Automated Batch Verifiers or a
callback procedure to those individuals. Clients selecting this
option should have an existing facility for completing CPU-CPU
transmissions. This delivery mechanism is typically used for high-
volume business such as shareholder redemptions and dividend
payments.
[] TELEPHONE CONFIRMATION (CALL BACK) This procedure requires Clients to
designate individuals as authorized initiators and authorized
verifiers. IFTC will verify that the instruction contains the
signature of an authorized person and prior to execution of the
payment order, will contact someone other than the originator at the
Client's location to authenticate the instruction. Selection of this
alternative is appropriate for Clients who do not have the capability
to use other security procedures.
[] TEST KEY Test Key confirmation will be used to verify all non-
repetitive funds transfer instructions received via facsimile or
phone. IFTC will provide test keys if this option is chosen. IFTC
will verify that the instruction contains the signature of an
authorized person and prior to execution of the payment order, will
authenticate the test key provided with the corresponding test key at
IFTC. Selection of this alternative is appropriate for Clients who
do not have the capability to use other security procedures.
[] REPETITIVE WIRES For situations where funds are transferred
periodically from an existing authorized account to the same payee
(destination bank and account number) and only the date and currency
amount are variable, a repetitive wire may be implemented.
Repetitive wires will be subject to a $10 million limit. If the
payment order exceeds the $10 million limit, the instruction will be
confirmed by telephone or test key prior to execution. Repetitive
wire instructions must be reconfirmed annually. Clients may
establish Repetitive Wires by following the agreed upon security
procedures as described by Telephone Confirmation (Call Back) or Test
Key. This alternative is recommended whenever funds are frequently
transferred between the same two accounts.
[] STANDING INSTRUCTIONS Funds are transferred by IFTC to a counter
party on the Client's established list of authorized counter parties.
Only the date and the dollar amount are variable. Clients may
establish Standby Instructions by following the agreed upon security
procedures as described by Telephone Confirmation (Call Back) or Test
Key. This option is used for transactions that include but are not
limited to Foreign Exchange Contracts, Time Deposits and Tri-Party
Repurchase Agreements.
[] AUTOMATED CLEARING HOUSE (ACH) IFTC or its agent receives an
automated transmission from a Client for the initiation of payment
(credit) or collection (debit) transactions through the ACH network.
The transactions contained on each transmission or tape must be
authenticated by the Client. The transmission is sent from the
Client's or its agent's system to IFTC's or its agent's system with
encryption.
KEY CONTACT INFORMATION
Whom shall we contact to implement your selection(s)?
CLIENT OPERATIONS CONTACT ALTERNATE CONTACT
Name Name
Address Address
City/State/Zip Code City/State/Zip Code
Telephone Number Telephone Number
Facsimile Number
SWIFT Number
JOHNSON FUNDS, INC.
By:
Title:
Date:
<PAGE>
EXHIBIT C
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND
OPTIONAL DEPOSITORIES
Country Subcustodian Optional Depositories
Argentina Citibank, N.A. --
Australia Westpac Banking Corporation --
Austria GiroCredit Bank Aktiengesellschaft der
Sparkassen --
Bahrain The British Bank of the Middle East (as
delegate of the Hongkong and Shanghai
Banking Corporation Limited) --
Bangladesh Standard Chartered Bank --
Belgium Generale Bank --
Bermuda The Bank of Bermuda Limited --
Bolivia Banco Boliviano Americano --
Botswana Barclays Bank of Botswana Limited --
Brazil Citibank, N.A. --
Canada Canada Trustco Mortgage Company --
Chile Citibank, N.A. --
People's The Hongkong and Shanghai Banking --
Republic of Corporation Limited Shanghai and
China Shenzhen branches
Colombia Cititrust Colombia S.A.Sociedad
Fiduciaria --
Croatia Privredana banka Zagreb d.d --
Cyprus Barclays Bank PLC Cyprus Offshore
Banking Unit --
Czech Ceskoslovenska Obchodni Banka A.S. --
Republic
Denmark Den Danske Bank --
Ecuador Citibank, N.A. --
Egypt National Bank of Egypt --
Estonia Hansabank --
Finland Merita Bank Limited --
France Banque Paribas --
Germany Dresdner Bank AG --
Ghana Barclays Bank of Ghana Limited --
Greece National Bank of Greece S.A
Bank of Greece
Hong Kong Standard Chartered Bank --
Hungary Citibank Budapest Rt. --
India Deutsche Bank AG;The Hongkong and Shanghai --
Banking Corporation Limited
Indonesia Standard Chartered Bank --
Ireland Bank of Ireland --
Israel Bank Hapoalim B.M. --
Italy Banque Paribas --
Ivory Coast Societe Generale de Banques en Cote
d'Ivoire --
Jamaica Scotiabank Trust and Merchant Bank --
Japan The Daiwa Bank, Limited; The Fuji Bank Japan
Depository Limited The Sumitomo Trust & Banking Securities
Co., Ltd.
Jordan The British Bank of the Middle East (as
delegate of the Hongkong and Shanghai
Banking Corporation Limited) --
Kenya Barclays Bank of Kenya Limited --
Republic of Citibank, N.A. --
Korea
Lebanon The British Bank of the Middle East Custodian and
(as delegate of the Hongkong and Clearing Center of
Shanghai Banking Corporation Limited) Financial
Instruments for
Lebanon (MIDCLEAR)
S.A.L.;
Malaysia Standard Chartered Bank Malaysia Berhad --
Mauritius The Hongkong and Shanghai Banking --
Corporation Limited
Mexico Citibank Mexico, S.A. --
Morocco Banque Commerciale du Maroc --
Namibia (via) Standard Bank of South Africa --
Netherlands MeesPierson N.V. --
New Zealand ANZ Banking Group (New Zealand) Limited --
Norway Christiania Bank og Kreditkasse --
Oman The British Bank of the Middle East (as
delegate of the Hongkong and Shanghai
Banking Corporation Limited) --
Pakistan Deutsche Bank AG --
Peru Citibank, N.A. --
Philippines Standard Chartered Bank --
Poland Citibank Poland S.A. --
Portugal Banco Comercial Portugues --
Romania ING Bank, N.V. --
Russia Credit Suisse First Boston, Zurich via
Credit Suisse First Boston Limited, Moscow --
Singapore The Development Bank of Singapore Ltd. --
Slovak Ceskoslovenska ObchodnaBanka A.S. --
Republic
South Africa Standard Bank of South Africa Limited --
Spain Banco Santander, S.A. --
Sri Lanka The Hongkong and Shanghai Banking
Corporation Limited --
Swaziland Barclays Bank of Swaziland Limited --
Sweden Skandinaviska Enskilda Banken --
Switzerland Union Bank of Switzerland --
Taiwan - Central Trust of China --
R.O.C.
Thailand Standard Chartered Bank --
Trinidad Republic Bank Ltd. --
& Tobago
Tunisia Banque Internationale Arabe de Tunisie --
Turkey Citibank, N.A. --
United State Street Bank and Trust --
Kingdom
Uruguay Citibank, N.A. --
Venezuela Citibank, N.A. --
Zambia Barclays Bank of Zambia Limited --
Zimbabwe Barclays Bank of Zimbabwe Limited --
Euroclear (The Euroclear System)
Cedel (Cedel Bank, societe anonyme)
INTERSETTLE (for EASDAQ Securities)
<PAGE>
EXHIBIT D
STATE STREET GLOBAL CUSTODY NETWORK MANDATORY DEPOSITORIES
Country Mandatory Depositories (Includes entities for which use is
mandatory as a matter of law or effectively mandatory as a
matter of market practice)
Argentina -Caja de Valores S.A.;
-CRYL
Australia -Austraclear Limited;
-Reserve Bank Information and Transfer System
Austria -Oesterreichische Kontrollbank AG (Wertpapiersammelbank
Division)
Belgium -Caisse Interprofessionnelle de Depots et de Virements de
Titres S.A.;
-Banque Nationale de Belgique
Brazil -Bolsa de Valores de S o Paulo;
-Bolsa de Valores de Rio de Janeiro
-All SSB clients presently use Calispa
-Central de Custodia e de Liquidac o Financeira de Titulos
-Banco Central do Brasil, Systema Especial de Liquidac o e
Custodia
Canada -The Canadian Depository for Securities Limited; West
Canada Depository Trust Company [depositories linked]
People's
Republic -Shanghai Securities Central Clearing and Registration
of China Corporation;
-Shenzhen Securities Central Clearing Co., Ltd.
Croatia Ministry of Finance
Czech
Republic -Stredisko cenn ch papiru;
-Czech National Bank
Denmark -Vardipapircentralen - The Danish Securities Center
Egypt -Misr Company for Clearing, Settlement, and Central
Depository
Estonia -Eesti Vaartpaberite Keskdepositooruim
Finland -The Finnish Central Securities Depository
France -Societe Interprofessionnelle pour la Compensation des
Valeurs Mobilieres;
-Banque de France, Saturne System
Germany -The Deutscher Kassenverein AG
Greece -The Central Securities Depository (Apothetirion Titlon
A.E.);
Hong Kong -The Central Clearing and Settlement System;
-The Central Money Markets Unit
Hungary -The Central Depository and Clearing House (Budapest) Ltd.
[Mandatory for Gov't Bonds only; SSB does not use for
other securities]
Indonesia -Bank of Indonesia
Ireland -The Central Bank of Ireland, The Gilt Settlement Office
Israel -The Clearing House of the Tel Aviv Stock Exchange;
-Bank of Israel
Italy -Monte Titoli S.p.A.;
-Banca d'Italia
Japan -Bank of Japan Net System
Republic of -Korea Securities Depository
Korea
Lebanon -The Central Bank of Lebanon
Malaysia -Malaysian Central Depository Sdn. Bhd.;
-Bank Negara Malaysia, Scripless Securities Trading and
Safekeeping Systems
Mauritius -The Central Depository & Settlement System
Mexico -S.D. INDEVAL, S.A. de C.V.(Instituto para el Deposito de
Valores);
Netherlands -Nederlands Centraal Instituut voor Giraal Effectenverkeer
B.V. ("NECIGEF") [** It is planned that as of 1/1/98 NBNV
will no longer hold government securities, all securities
will be transferred to NECIGEF];
-De Nederlandsche Bank N.V. ("NBNV")**
New Zealand -New Zealand Central Securities Depository Limited
Norway -Verdipapirsentralen - The Norwegian Registry of Securities
Oman -Muscat Securities Market
Peru -Caja de Valores y Liquidaciones (CAVALI, S.A.)
Philippines -The Philippines Central Depository Inc.
-The Book-Entry-System of Bangko Sentral ng Pilipinas;
-The Registry of Scripless Securities of the Bureau of the
Treasury
Poland -The National Depository of Securities (Krajowy Depozyt
Papierow Wartos'ciowych);
-National Bank of Poland
Portugal -Central de Valores Mobiliarios
Romania -National Securities Clearing, Settlement and Depository
Co.;
-Bucharest Stock Exchange;
-National Bank of Romania
Singapore -The Central Depository (Pte)Limited;
-Monetary Authority of Singapore
Slovak -Stredisko Cennych Papierov;
Republic -National Bank of Slovakia
South Africa -The Central Depository Limited
Spain -Servicio de Compensacion y Liquidacion de Valores, S.A.;
-Banco de Espana, Anotaciones en Cuenta
Sri Lanka -Central Depository System (Pvt) Limited
Sweden -Vardepapperscentralen VPC AB - The Swedish Central
Securities Depository
Switzerland -Schweizerische Effekten - Giro AG;
Taiwan -The Taiwan Securities Central Depository Company, Ltd.
- R.O.C
Thailand -Thailand Securities Depository Company Limited
Tunisia -STICODEVAM;
-Central Bank of Tunisia;
-Tunisian Treasury
Turkey -Takas ve Saklama Bankasi A.S.;
-Central Bank of Turkey
United -The Bank of England, The Central Gilts Office; The Central
Kingdom Moneymarkets Office; The European Settlements Office;
-First Chicago Clearing Centre
Uruguay -Central Bank of Uruguay
Zambia -Lusaka Central Depository
F O L E Y & L A R D N E R
A T T O R N E Y S A T L A W
CHICAGO FIRSTAR CENTER SAN DIEGO
JACKSONVILLE 777 EAST WISCONSIN AVENUE SAN FRANCISCO
LOS ANGELES MILWAUKEE, WISCONSIN 53202-5367 TALLAHASSEE
MADISON TELEPHONE (414) 271-2400 TAMPA
ORLANDO FACSIMILE (414) 297-4900 WASHINGTON, D.C.
SACRAMENTO WEST PALM BEACH
WRITER'S DIRECT LINE
(414) 297-5660
March 26, 1998
JohnsonFamily Funds, Inc.
4041 North Main Street
Racine, WI 53402
Gentlemen:
We have acted as counsel for you in connection with the
preparation of a Registration Statement on Form N-1A relating to the sale
by you of an indefinite amount of JohnsonFamily Funds, Inc. Common Stock,
$0.0001 par value (such Common Stock being hereinafter referred to as the
"Stock"), in the manner set forth in the Registration Statement to which
reference is made. In this connection we have examined: (a) the
Registration Statement on Form N-1A, as amended; (b) your Articles of
Incorporation and Bylaws, as amended to date; (c) corporate proceedings
relative to the authorization for issuance of the Stock; and (d) such
other proceedings, documents and records as we have deemed necessary to
enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the shares
of Stock when sold as contemplated in the Registration Statement will be
legally issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to
the Form N-1A Registration Statement. In giving this consent, we do not
admit that we are experts within the meaning of Section 11 of the
Securities Act of 1933, as amended, or within the category of persons
whose consent is required by Section 7 of said Act.
Very truly yours,
/s/ FOLEY & LARDNER
FOLEY & LARDNER
Exhibit 11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of
this registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
March 23, 1998
1. SUBSCRIPTION AGREEMENT
JohnsonFamily Funds, Inc.
4041 North Main Street
Racine, Wisconsin 53402
Ladies and Gentlemen:
The undersigned hereby subscribes to 10,000 shares of Common Stock,
$0.0001 par value per share, of JohnsonFamily Funds, Inc., consisting of
5,000 shares of the Intermediate Fixed Income Fund, 4,800 shares of the
Large Cap Equity Fund, 100 shares of the Small Cap Equity Fund and 100
shares of the International Equity Fund (the Intermediate Fixed Income
Fund, Large Cap Equity Fund, Small Cap Equity Fund and International
Equity Fund are hereinafter collectively referred to as the "Funds"). In
consideration for which the undersigned agrees to transfer to you upon
demand cash in the amount of $100,000 ($10 per share of each Fund). It is
understood that upon receipt by you of payment therefor, said shares shall
be issued and shall be deemed to be fully paid and nonassessable. The
undersigned agrees that the shares are being purchased for investment with
no present intention of reselling or redeeming said shares.
The proceeds of redemption of these shares by you will be reduced by a
pro rata portion of any then unamortized organization expenses of the
Funds. This proration will be calculated by dividing the number of shares
to be redeemed by the aggregate number of shares held which represent the
initial capital of the Funds.
Dated and effective as of this ___day of __________, 1998.
Miriam M. Allison
2. ACCEPTANCE
The foregoing subscription is hereby accepted. Dated and effective as of
this _____ day of ____________, 1998.
JOHNSONFAMILY FUNDS, INC.
By:
President
Sunstone Distribution Services, LLC
207 East Buffalo Street, Suite 400
Milwaukee, WI 53202
DEALER AGREEMENT
Sunstone Distribution Services, LLC ("Distributor") has entered into a
Distribution Agreement with the JohnsonFamily Funds, Inc. (the "Funds")
pursuant to which it acts as distributor of shares of the Funds (the
"Distribution Agreement"). This Agreement, being made between the
Distributor and the undersigned authorized dealer (the "Dealer"), relates
to the sale of shares of the Funds, the services to be provided by the
Dealer and the payments to be made therefore.
1. Sale of Shares.
(a) Dealer will offer and sell the shares of the Funds only in
accordance with the terms and conditions set forth in the then current
Prospectus relating to the respective Fund (which term "Prospectus" used
herein shall include any related Statement of Additional Information), and
in accordance with all applicable laws, rules and regulations. Dealer
will use its best efforts in the development and promotion of sales of
shares of each Fund and agrees to be responsible for the proper
instruction and training of all sales personnel employed by or associated
with Dealer, in order that such shares will be offered in accordance with
the terms and conditions of this Agreement and all applicable laws, rules
and regulations.
(b) Dealer understands that the shares of each Fund will be offered
and sold at the current offering price in effect at the time an order for
such shares is confirmed and accepted by the Fund. All purchase requests
and applications submitted by Dealer are subject to acceptance or
rejection in the Fund's sole discretion. Orders shall be placed either
directly with the Funds' Transfer Agent in accordance with such procedures
as may be established by Distributor, the Funds or the Transfer Agent, or
with the Transfer Agent through the facilities of the National Securities
Clearing Corporation ("NSCC"), if available, in accordance with the rules
of the NSCC. If payment is not received by the Fund in accordance with
such procedures, the Fund reserves the right, without notice, to cancel
the sale, in which case Dealer will be responsible for any losses,
including loss of profit, suffered by Distributor and that Fund resulting
from Dealer's failure to make the aforesaid payment.
(c) Dealer understands and agrees that the sales charge and dealer
commission relative to any sale of shares of a Fund made by Dealer will be
in an amount as set forth in the then current Prospectus relating to that
Fund or in separate written notice to Dealer. Unless at the time of
transmitting an order Dealer advises the Funds to the contrary, the Funds
may consider the order to be the total holding of an investor and assume
that the investor is not entitled to any reduction in sales price beyond
that accorded to the amount of the purchase as determined by the schedule
set forth in the then applicable current Prospectus.
(d) Distributor's obligations to Dealer under this Agreement are
subject to all provisions of any agreement entered into between
Distributor and the Fund. Dealer understands and agrees that for all
purposes of this Agreement Dealer is acting as an independent contractor,
and Distributor is in no way responsible for the manner of Dealer's
performance or for any of Dealer's acts or omissions in connection
therewith. Nothing in this Agreement shall be construed to constitute
Dealer or any of Dealer's agents, employees or representatives as
Distributor's agent, partner or employee, or the agent or employee of any
Fund.
(e) Neither the Dealer nor any of its officers, employees or agents
are authorized to make any representations concerning Distributor, the
Funds or the shares of the Funds except those contained in the Funds' then
current Prospectuses.
(f) Dealer understands and agrees that if any shares sold by Dealer
under the terms of this Agreement are redeemed by a Fund or are
repurchased by Distributor as agent for that Fund or are tendered to that
Fund for redemption within seven business days after the confirmation to
Dealer of its purchase order for such shares, Dealer will promptly refund
Distributor the full amount of the commission allowed to Dealer on the
original sale.
2. Distribution Services.
(a) To the extent that Dealer provides distribution assistance
and/or account maintenance and personal services, including furnishing
services and assistance to Dealer's customers who invest in and own shares
of any such Fund, Dealer shall be paid a fee at the annual rate of 0.25%
of the average daily net asset value of the shares of the respective Fund
which are owned of record by Dealer as nominee for its customers or which
are owned by those customers of Dealer whose records, as maintained by
such Fund or its agent, designate Dealer as the customer's dealer of
record, which fee will be computed daily and payable quarterly. For
purposes of determining the fees payable under this Section 2, the average
daily net asset value of such shares will be computed in the manner
specified in the Funds' Registration Statement (as the same is in effect
from time to time) in connection with the computation of the net asset
value of shares for purposes of purchases and redemptions.
(b) Dealer understands that this Section 2 has been entered into
pursuant to the Service and Distribution Plan (the "Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act")
adopted by the Funds, and is subject to the provisions of the Plan, said
Rule, as well as any other applicable rules or regulations promulgated by
the Securities and Exchange Commission.
3. Miscellaneous.
(a) Dealer certifies that (a) it is a member of the National
Association of Securities Dealers, Inc. ("NASD") and it agrees to maintain
membership in the NASD, or (b) it is a foreign dealer not eligible for
membership in the NASD. In either case, Dealer agrees to abide by all the
rules and regulations of the Securities and Exchange Commission and the
NASD that are binding upon underwriters and dealers in the distribution of
securities of open-end investment companies, including, without
limitation, Section 2830 of the Conduct Rules of the NASD, all of which
are incorporated herein as if set forth in full. Dealer further agrees to
comply with all applicable state and federal laws and the rules and
regulations of authorized regulatory agencies.
(b) Dealer will not sell or offer for sale shares of any Fund in any
state where (i) Dealer is not qualified to act as a dealer, or (ii) the
shares are not qualified for sale under the Blue Sky laws and regulations
for such state, except for states in which they are exempt from
qualification. Distributor will inform Dealer, upon request, as to the
states in which it believes the shares of the Funds have been qualified
for sale, but Distributor shall have no obligation or responsibility to
make shares of the Funds available for sale to Dealer customer's in any
jurisdiction. Dealer agrees to notify Distributor immediately if its
license or registration to act as a broker-dealer is revoked or suspended
by any Federal, self-regulatory or state agency.
(c) Dealer agrees to and hereby does release, indemnify and hold
Distributor and each Fund harmless from and against any and all
liabilities or losses resulting from requests, directions, actions or
inactions of or by Dealer or its officers, employees or agents ("Dealer
Affiliates") regarding Dealer's or Dealer Affiliate's responsibilities
hereunder, the purchase, redemption, transfer or registration of shares of
the Funds (or orders relating to the same) by Dealer or any Dealer
Affiliate or their clients, or Dealer's or any Dealer Affiliate's
violation of any law, rule or regulation, or any provision of this
Agreement. Notwithstanding anything herein to the contrary, the foregoing
indemnity and hold harmless agreement shall indefinitely survive the
termination of this Agreement. In the event that Distributor and/or any
Fund determine to refund any amount paid by any investor by reason for any
such violation, Dealer shall return to Distributor and/or that Fund any
commission previously paid or discounts allowed by Distributor with
respect to the transaction for which the refund is made. All expenses
which Dealer incurs in connection with its activities under this Agreement
shall be borne by Dealer.
(d) Dealer shall furnish Distributor and the Funds with such
information as shall reasonably be requested either by the Funds or by
Distributor with respect to the services provided and the fees paid to
Dealer pursuant to this Agreement.
(e) This Agreement shall become effective upon acceptance and
execution by Distributor. Unless sooner terminated as provided herein,
this Agreement shall continue in full force and effect as long as the
continuance of the Funds' Distribution and Service Plan and this Agreement
are approved at least annually by a vote of the Fund's Directors,
including a majority of the directors of such Fund who are not interested
persons of such Fund ("Independent Directors"), cast in person at a
meeting called for the purpose of voting thereon. Distributor may enter
into agreements with others relating to the sale of shares of the Funds
and the provision of distribution services.
(f) This Agreement may be terminated with respect to any Fund at any
time, without payment of any penalty, by the Distributor, the Dealer, the
vote of a majority of the Independent Directors of such Fund or by a vote
of a majority of the Fund's outstanding shares, upon notice to the other
party. It will be terminated, without notice, by any act which terminates
either the Distribution Agreement or the Funds' Service and Distribution
Plan, upon Dealer's expulsion or suspension from the NASD, and in any
event, it shall terminate automatically in the event of its assignment as
that term is defined in the 1940 Act.
(g) Dealer acknowledges that Distributor has and reserves the right,
in its sole discretion without notice, to suspend sales of shares of any
of the Funds, or to withdraw entirely the offering of shares of any of the
Funds, or, in its sole discretion, to modify, amend or cancel this
Agreement upon written notice to Dealer of such modification, amendment or
cancellation, which shall be effective on the date stated in such notice.
(h) This Agreement shall be governed by and construed in accordance
with the laws of the State of Wisconsin. All notices hereunder shall be
to the respective parties at the address or numbers listed below, unless
changed by written notice given in accordance with this Agreement. All
communications shall be hereby given if mailed or sent by facsimile (with
confirming copy by mail) to the address or number specified below.
Name of Dealer (Please Print or Type)
Address of Dealer
By:
Authorized Officer
Date:
Phone and Fax:
NOTE: Please sign and return both copies of this Agreement to Sunstone
Distribution Services, LLC. Upon acceptance, one countersigned copy will
be returned to you for your files.
ACCEPTED:
SUNSTONE DISTRIBUTION SERVICES, LLC
207 East Buffalo Street, Suite 400
Milwaukee, Wisconsin 53202
By:
Authorized Officer
Date:
Phone and Fax:
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<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> JOHNSONFAMILY LARGE CAPITAL EQUITY FUND
<S> <C>
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<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> MAR-19-1998
<INVESTMENTS-AT-COST> 0
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</TABLE>
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