Securities Act Registration No. 333-45361
Investment Company Act Reg. No. 811-8627
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. __ |_|
Post-Effective Amendment No. 2 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 3 |X|
(Check appropriate box or boxes.)
-----------------------------------
JOHNSONFAMILY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
4041 North Main Street
Racine, Wisconsin 53402
(Address of Principal Executive Offices) (ZIP Code)
(414) 681-4770
(Registrant's Telephone Number, including Area Code)
Copy to:
Joan A. Burke Richard L. Teigen
JohnsonFamily Funds, Inc. Foley & Lardner
4041 North Main Street 777 East Wisconsin Avenue
Racine, Wisconsin 53402 Milwaukee, Wisconsin 53202
- --------------------------------------------- --------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective.
It is proposed that this filing become effective (check appropriate box):
|_| immediately upon filing pursuant to paragraph (b)
|X| on June 30, 1999 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| on (date) pursuant to paragraph (a)(1)
|_| 75 days after filing pursuant to paragraph (a)(2)
|_| on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
Johnson Family
--------------
Funds
PROSPECTUS
RACINE, WISCONSIN
JUNE 30, 1999
<PAGE>
This prospectus contains information you should know before investing, including
information about risks. Please read it carefully before you invest and keep it
with your financial records.
As with all mutual funds, neither the Securities and Exchange Commission nor any
state securities commission has approved or disapproved these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
It's important you know that JohnsonFamily Funds:
*Are not bank deposits
*Are not federally insured
*Are not endorsed or guaranteed by any bank or government agency
*Are not guaranteed to achieve their goals
<PAGE>
TABLE OF CONTENTS
-----------------
PROSPECTUS SUMMARY
* Welcome to JohnsonFamily Funds 2
- ---------------------------------------------------------------------
ABOUT THE FUNDS
* JohnsonFamily Intermediate Fixed Income Fund 3
* JohnsonFamily Large Cap Equity Fund 7
* JohnsonFamily Small Cap Equity Fund 10
* JohnsonFamily International Equity Fund 14
- ---------------------------------------------------------------------
ABOUT YOUR ACCOUNT
* How to Purchase Shares 18
* Selling (Redeeming) Shares of the Funds 23
* Exchange Privilege 27
* Other Purchase, Redemption and Exchange Policies 28
* Net Asset Value (NAV) 29
* Dividends, Distributions and Taxes 30
- ---------------------------------------------------------------------
MORE ABOUT THE FUNDS
* Management of the Funds 31
* Year 2000 Issues 34
* Financial Highlights 35
- ---------------------------------------------------------------------
FOR MORE INFORMATION 36
<PAGE>
PROSPECTUS SUMMARY
WELCOME TO JOHNSONFAMILY FUNDS
-------------------------------
JohnsonFamily Funds offers a selection of four diversified mutual fund
portfolios, each with a distinct investment objective and risk/reward profile.
The descriptions on the following pages include information you should know
before you invest, including the types of securities in which each Fund invests
and the risks associated with those investments. You'll want to read all this
information carefully. You can find more detailed information about the Funds in
the Statement of Additional Information ("SAI").
Although each Fund invests in a number of securities, you should not consider an
investment in any one Fund a complete investment program. Like most investors,
you will want to hold a number of different investments, each with a different
level of risk.
Each of the JohnsonFamily Funds is managed by Johnson Asset Management, Inc.
("JAM"). JAM managed more than $600 million in assets as of April 30, 1999.
The Funds are distributed by Sunstone Distribution Services, LLC
(the "Distributor").
<TABLE>
INVESTMENT PRIMARY PRIMARY
JOHNSONFAMILY FUNDS OBJECTIVE<F1> INVESTMENTS RISKS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Fixed Current income Investment grade Market, interest rate,
Income Fund consistent with bonds credit, prepayment
capital preservation and liquidity risk
- -------------------------------------------------------------------------------------------------------
Large Cap Long-term capital Large company Market and
Equity Fund appreciation and stocks financial risk
current income
- -------------------------------------------------------------------------------------------------------
Small Cap Long-term capital Small company Market, financial
Equity Fund appreciation stocks and smaller
companies risk
- -------------------------------------------------------------------------------------------------------
International Long-term capital Foreign stocks Market, financial
Equity Fund appreciation and foreign
investment risk
- -------------------------------------------------------------------------------------------------------
<F1>A Fund's investment objective may be changed without shareholder approval.
</TABLE>
2
<PAGE>
ABOUT THE FUNDS
JOHNSONFAMILY INTERMEDIATE FIXED INCOME FUND
---------------------------------------------
MAIN GOAL
The Fund seeks current income consistent with capital preservation.
HOW THE FUND INVESTS
The Fund invests mainly in investment grade fixed income securities. Under
normal market conditions, the Fund will maintain a weighted average effective
maturity between three and ten years. Generally, at least 75% of the Fund's
total assets will be invested in securities rated A or better by a nationally
recognized rating agency. Fixed income securities may include:
* Corporate debt securities, including notes, bonds and debentures of U.S. and
foreign issuers payable in U.S. dollars;
* U.S. Treasury, government agency securities and government securities
stripped of unmatured interest coupons;
* Mortgage-backed securities, asset-backed securities and taxable municipal
bonds; and
* Preferred stocks.
INVESTMENT STRATEGY
In selecting securities for the Fund, the portfolio manager follows a highly
disciplined investment approach. Using the Lehman Intermediate/Corporate Bond
Index as the Fund's benchmark, the portfolio manager:
1.First, analyzes interest rate trends as well as economic and market
information;
2.Then determines the desired weighted average effective maturity for the
overall portfolio, based on the outlook for the direction of interest rates;
3.Next, reviews sectors and industries to identify those that are most
attractively priced; and
4.Finally, focuses on investment grade quality issues which are relatively
undervalued (i.e., has a higher yield than other similar issues of similar
quality).
The Fund may take a temporary defensive position in response to adverse market
conditions. When it does so, the weighted average effective maturity of the
Fund's portfolio will be less than three years as the Fund will invest in money
market instruments. Money market instruments generally have lower yields than
debt securities with longer maturities. Under normal market conditions, the Fund
will hold some cash and money market instruments so it can pay expenses, satisfy
redemption requests or take advantage of investment opportunities.
The portfolio manager is a patient investor. He does not attempt to achieve the
Fund's investment objective by active and frequent trading of fixed income
securities.
INVESTMENT GRADE SECURITIES are those bonds which carry one of the four highest
credit ratings (BBB or higher) from a nationally recognized rating agency, such
as Standard & Poor's Ratings Group or Moody's Investors Service. Generally,
investment grade bonds are considered less likely to default than lower-rated
bonds.
AVERAGE EFFECTIVE MATURITY is a measure of a bond's maturity that takes into
account the possibility that the bond may be prepaid by the issuer or redeemed
by the holder before its stated maturity date.
3
<PAGE>
ABOUT THE FUNDS
MAIN INVESTMENT RISKS
The Fund is subject to the following risks:
*MARKET RISK. This is the risk that the price of a security will fall due to
changing economic, political, or market conditions or for other reasons. The
price declines may be steep, sudden and/or prolonged. This means you may lose
money.
*INTEREST RATE RISK. This is the risk that changes in prevailing interest
rates will affect the value of the Fund's securities. Generally, when interest
rates rise, the market value of the Fund's securities will decline.
Conversely, when interest rates fall, the market value of the Fund's
securities will typically rise. The longer the maturity of a bond, the greater
its sensitivity to changes in interest rates.
*CREDIT RISK. Also known as default risk, this is the risk that a bond
issuer's credit rating will be downgraded or that it will default on its
principal and interest payments. If an issuer fails to make interest or
principal payments, the Fund's income level and share price may fall as well.
*PREPAYMENT RISK. This is the risk that issuers of securities held by the Fund
may be able to prepay principal due on securities, particularly during periods
of declining interest rates. Securities subject to prepayment risk generally
offer less potential for gains when interest rates decline, and may offer a
greater potential for loss when interest rates rise. Rising interest rates
may cause prepayments to occur at a slower than expected rate thereby
increasing the average life of the security and making the security more
sensitive to interest rate changes. Prepayment risk is a major risk of
mortgage-backed securities.
*LIQUIDITY RISK. This is the risk that lower or lack of trading volume may
make it difficult for the Fund to sell securities held by it at quoted market
prices.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
4
<PAGE>
ABOUT THE FUNDS
INVESTOR EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
*SHAREHOLDER FEES are fees paid directly from your investment.
- ---------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
Maximum deferred sales charge (load)
(as a percentage of net asset value) None
Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of net asset value) None
Redemption fee None <F1>
Exchange fee None
- ---------------------------------------------------------------------
<F1> The Funds charge a $10 fee for any redemption by wire and a $15 fee for any
redemption from an IRA account.
*ANNUAL FUND OPERATING EXPENSES are expenses that are deducted from Fund
assets. They are expressed as a percentage of the Fund's average net assets.
- ---------------------------------------------------------------------
Management fee 0.45%
Distribution and/or service (12b-1) fees 0.25%
Other expenses 0.41%
Total Fund Operating Expenses 1.11% <F1>
- ---------------------------------------------------------------------
<F1> The Adviser waives its advisory fee to the extent necessary to ensure that
the Total Fund Operating Expenses do not exceed 0.85% of the Fund's average
daily net assets. The Adviser may terminate the fee waiver at any time, but
will not do so prior to October 31, 1999.
The Fund has adopted a plan under Rule 12b-1 that allows it to pay distribution
fees for the sale and distribution of its shares. The maximum level of
distribution expenses is 0.25% per annum of the Fund's average net assets. The
distribution expenses for long-term shareholders may total more than the maximum
sales charge that would have been allowed if paid entirely as an initial sales
charge.
5
<PAGE>
ABOUT THE FUNDS
EXPENSE EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. This Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
- --------------------------------------------------------------------
1 Year 3 Years 5 years 10 Years
$113 $353 $612 $1,352
- --------------------------------------------------------------------
PORTFOLIO MANAGER
George A. Balistreri, CFA, Senior Vice President of the Adviser, is responsible
for the day-to-day management of the Fund's portfolio. Mr. Balistrei has
managed fixed income portfolios for the Adviser since February 1990.
6
<PAGE>
ABOUT THE FUNDS
JOHNSONFAMILY LARGE CAP EQUITY FUND
------------------------------------
MAIN GOAL
The Fund seeks long-term capital appreciation and current income.
HOW THE FUND INVESTS
The Fund invests mainly (65% or more of its net assets) in common stocks of U.S.
companies having a market capitalization of $2 billion or more at the time of
purchase.
INVESTMENT STRATEGY
The portfolio managers of the Fund are "value" investors, meaning they purchase
common stocks at prices which are relatively low in relation to their earnings
or other fundamental measures, such as book value. In attempting to outperform
the S&P 500(R) Stock Index, the portfolio managers focus on stock selection
rather than sector concentration. Most of the time, the sector allocation of
the Fund will be roughly comparable to the S&P 500(R) Stock Index. The
allocation rarely will be identical to the S&P 500(R) Stock Index because the
portfolio managers usually will find more or better investment opportunities in
some sectors than others and because sector performance will vary.
The portfolio managers use a variety of resources, including computer models and
fundamental research, to identify stocks that they believe are suitable
investments. Specifically, the managers look for companies that have all or some
of the following attributes:
*Positive free cash flow
*Corporate restructuring or management changes
*Increasing market share or new product development
*Inexpensive (i.e., low valuation) relative to their industry sector
*Relatively flat or increasing earnings estimate revisions
*Other evidence of positive catalysts for change
The Fund typically sells a stock when its portfolio managers no longer consider
it undervalued relative to other companies in its sector, or if a change in the
company's business or financial outlook no longer makes it a suitable holding
for the portfolio.
The Fund may take temporary defensive positions in response to adverse market
conditions. When it does so, it will invest some or all of its assets in money
market instruments. The Fund will not be able to achieve its investment
objective of capital appreciation to the extent it invests in money market
instruments, since these securities earn interest but do not appreciate in
value. Under normal market conditions, the Fund will hold some cash and money
market instruments so it can pay expenses, satisfy redemption requests or take
advantage of investment opportunities.
MARKET CAPITALIZATION
is a measure of the market value of a publicly traded company. It is calculated
by multiplying the number of a company's outstanding shares by the current
market price per share.
7
<PAGE>
ABOUT THE FUNDS
The portfolio managers are patient investors. They do not attempt to achieve
the Fund's investment objectives by active and frequent trading of common
stocks.
MAIN INVESTMENT RISKS The Fund is subject to the following risks:
*MARKET RISK. This is the risk that the price of a security will fall due to
changing economic, political, or market conditions or for other reasons. The
price declines may be steep, sudden and/or prolonged. This means you may lose
money.
*FINANCIAL RISK. This is the risk that the price of a common stock will
decline because the issuing company experiences financial distress.
The Fund attempts to manage investment risk by diversifying its holdings among
many companies and industries. However, the Fund cannot guarantee that it will
reach its goal or its performance will be positive over any period of time.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
INVESTOR EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
*SHAREHOLDER FEES are fees paid directly from your investment.
- ---------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
Maximum deferred sales charge (load)
(as a percentage of net asset value) None
Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of net asset value) None
Redemption fee None <F1>
Exchange fee None
- ---------------------------------------------------------------------
<F1> The Funds charge a $10 fee for any redemption by wire and a $15 fee for any
redemption from an IRA account.
8
<PAGE>
ABOUT THE FUNDS
*ANNUAL FUND OPERATING EXPENSES are expenses that are deducted from Fund
assets. They are expressed as a percentage of the Fund's net assets.
- ---------------------------------------------------------------------
Management fee 0.75%
Distribution and/or service (12b-1) fees 0.25%
Other expenses 0.45%
Total Fund Operating Expenses 1.45%
- ---------------------------------------------------------------------
The Fund has adopted a plan under Rule 12b-1 that allows it to pay distribution
fees for the sale and distribution of its shares. The maximum level of
distribution expenses is 0.25% per annum of the Fund's average net assets. The
distribution expenses for long-term shareholders may total more than the maximum
sales charge that would have been allowed if paid entirely as an initial sales
charge.
EXPENSE EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. This Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
- ---------------------------------------------------------------------
1 Year 3 Years 5 years 10 Years
$148 $459 $792 $1,735
- ---------------------------------------------------------------------
PORTFOLIO MANAGERS
Wendell L. Perkins, CFA, and Frank J. Gambino, CFA, are responsible for the day-
to-day management of the Fund's portfolio. Mr. Perkins is a Senior Vice
President of the Adviser and has managed equity portfolios for the Adviser since
January 1994. Mr. Gambino is a Vice President of the Adviser and has served as a
portfolio manager and equity analyst for the Adviser since December 1993.
9
<PAGE>
ABOUT THE FUNDS
JOHNSONFAMILY SMALL CAP EQUITY FUND
------------------------------------
MAIN GOAL
The Fund seeks long-term capital appreciation.
HOW THE FUND INVESTS
The Fund invests mainly (65% or more of its net assets) in common stocks of U.S.
companies having a market capitalization of less than $2 billion at the time of
purchase.
INVESTMENT STRATEGY
The portfolio managers of the Fund are "value" investors, meaning they purchase
common stocks at prices which are relatively low in relation to their earnings
or other fundamental measures, such as book value. In attempting to outperform
the S&P SmallCap 600 Stock Index, the portfolio managers focus on stock
selection rather than sector concentration. Most of the time, the sector
allocation of the Fund will be roughly comparable to the S&P SmallCap 600 Stock
Index. The allocation rarely will be identical to the S&P SmallCap 600 Stock
Index because the portfolio managers usually will find more or better investment
opportunities in some sectors than others and because sector performance will
vary.
The portfolio managers use a variety of resources, including computer models and
fundamental research, to identify stocks that they believe are suitable
investments. Specifically, the managers look for companies that have some or all
of the following attributes:
*Positive free cash flow
*Corporate restructuring or management changes
*Increasing market share or new product development
*Inexpensive (i.e., low valuation) relative to their industry sector
*Relatively flat or increasing earnings estimate revisions
*Sufficient analysts' coverage and liquidity
*Other evidence of positive catalysts for change
The Fund may take temporary defensive positions in response to adverse market
conditions. When it does so, it will invest some or all of its assets in money
market instruments. The Fund will not be able to achieve its investment
objective of capital appreciation to the extent it invests in money market
instruments, since these securities earn interest but do not appreciate in
value. Under normal market conditions, the Fund will hold some cash and money
market instruments so it can pay expenses, satisfy redemption requests or take
advantage of investment opportunities.
The portfolio managers are patient investors. They do not attempt to achieve
the Fund's investment objective by active and frequent trading of common stocks.
SMALL CAP STOCKS have historically provided greater returns than the stocks of
larger, more established companies. However, their prices tend to be more
volatile.
10
<PAGE>
ABOUT THE FUNDS
MAIN INVESTMENT RISKS
The Fund is subject to the following risks:
*MARKET RISK. This is the risk that the price of a security will fall due to
changing economic, political, or market conditions or for other reasons. The
price declines may be steep, sudden and/or prolonged. This means you may lose
money.
*FINANCIAL RISK. This is the risk that the price of a common stock will
decline because the issuing company experiences financial distress.
*SMALLER COMPANIES RISK. This is a risk associated with smaller capitalization
companies that results from smaller companies typically having relatively
lower revenues, limited product lines, lack of management depth and a smaller
share of the market for their products or services than larger capitalization
companies. The stocks of smaller capitalization companies tend to have less
trading volume than stocks of larger capitalization companies. Less trading
volume may make it more difficult to sell smaller capitalization companies at
quoted market prices. Finally, there are periods when investing in smaller
capitalization stocks fall out of favor with investors and smaller
capitalization stocks underperform.
As a result of these and other risks, the value of the Fund's investments tends
to be more volatile than the stock market in general, as measured by the S&P
500(R) Stock Index. The Fund attempts to manage investment risk by diversifying
its holdings among many companies and industries. However, the Fund cannot
guarantee that it will reach its goal or that its performance will be positive
over any period of time.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
11
<PAGE>
ABOUT THE FUNDS
INVESTOR EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
*SHAREHOLDER FEES are fees paid directly from your investment.
- ---------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
Maximum deferred sales charge (load)
(as a percentage of net asset value) None
Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of net asset value) None
Redemption fee None <F1>
Exchange fee None
- ---------------------------------------------------------------------
<F1> The Funds charge a $10 fee for any redemption by wire and a $15 fee for any
redemption from an IRA account.
*ANNUAL FUND OPERATING EXPENSES are expenses that are deducted from Fund
assets. They are expressed as a percentage of the Fund's average net assets.
- ---------------------------------------------------------------------
Management fee 0.75%
Distribution and/or service (12b-1) fees 0.25%
Other expenses 0.57%
Total Fund Operating Expenses 1.57% <F2>
- ---------------------------------------------------------------------
<F2> The Adviser waives its advisory fee to the extent necessary to ensure that
the Total Fund Operating Expenses do not exceed 1.50% of the Fund's average
daily net assets. The Adviser may terminate the fee waiver at any time,
but will not do so prior to October 31, 1999.
The Fund has adopted a plan under Rule 12b-1 that allows it to pay distribution
fees for the sale and distribution of its shares. The maximum level of
distribution expenses is 0.25% per annum of the Fund's average net assets. The
distribution expenses for long-term shareholders may total more than the maximum
sales charge that would have been allowed if paid entirely as an initial sales
charge.
12
<PAGE>
ABOUT THE FUNDS
EXPENSE EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. This Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
- ---------------------------------------------------------------------
1 Year 3 Years 5 years 10 Years
$160 $496 $855 $1,867
- ---------------------------------------------------------------------
PORTFOLIO MANAGERS
Wendell L. Perkins, CFA, and Frank J. Gambino, CFA, are responsible for the day-
to-day management of the Fund's portfolio. Mr. Perkins is a Senior Vice
President of the Adviser and has managed equity portfolios for the Adviser since
January 1994. Mr. Gambino is a Vice President of the Adviser and has served as
a portfolio manager and equity analyst for the Adviser since December 1993.
13
<PAGE>
ABOUT THE FUNDS
JOHNSONFAMILY INTERNATIONAL EQUITY FUND
---------------------------------------
MAIN GOAL
The Fund seeks long-term capital appreciation.
HOW THE FUND INVESTS
The Fund invests mainly (65% or more of its net assets) in stocks of foreign
companies of any size market capitalization. To ensure adequate
diversification, the Fund spreads its investments across many different regions
around the world. The portfolio managers assign country weightings based on the
Fund's benchmark, the Morgan Stanley Capital International All-Country World
(less U.S.) Index. Within each country, the portfolio managers identify the most
attractively valued companies and choose stocks based on the strategy described
below. The portfolio managers of the Fund are "value" investors, meaning they
purchase common stocks at prices which are relatively low in relation to their
earnings or other fundamental measures, such as book value. In attempting to
outperform the Morgan Stanley Capital International All-Country World (less
U.S.) Index, the portfolio managers focus on stock selection rather than country
concentration. The country allocation rarely will be identical to the Morgan
Stanley Capital International All-Country World (less U.S.) Index because the
portfolio managers usually will find more or better investment opportunities in
some countries than others and because country performance will vary.
INVESTMENT STRATEGY
In choosing stocks, the Fund focuses on foreign companies that appear to be
undervalued relative to their real worth or future prospects. The portfolio
managers use a variety of resources, including computer models and fundamental
research, to identify foreign stocks that they believe are favorably priced.
Specifically, the managers look for non-U.S. companies that have some or all of
the following attributes:
*Positive free cash flow
*Corporate restructuring or management changes
*Increasing market share or new product development
*Inexpensive (i.e., low valuation) relative to their industry sector
*Relatively flat or increasing earnings estimate revisions
*Sufficient analysts' coverage and liquidity
*Other evidence of positive catalysts for change
The Fund may take temporary defensive positions in response to adverse market
conditions. When it does so, it will invest some or all of its assets in money
market instruments. The Fund will not be able to achieve its investment
objective of capital appreciation to the extent it invests in money market
instruments, since these securities earn interest but do not appreciate in
value. Under normal market conditions, the Fund will hold some cash and money
market instruments so it can pay expenses, satisfy redemption requests or take
advantage of investment opportunities.
14
<PAGE>
ABOUT THE FUNDS
The portfolio managers are patient investors. They do not attempt to achieve
the Fund's investment objective by active and frequent trading of foreign
securities.
MAIN INVESTMENT RISKS
The Fund is subject to the following risks:
*MARKET RISK. This is the risk that the price of a security will fall due to
changing economic, political, or market conditions or for other reasons. The
price declines may be steep, sudden and/or prolonged. This means you may lose
money.
*FINANCIAL RISK. This is the risk that the price of a common stock will
decline because the issuing company experiences financial distress.
*FOREIGN INVESTMENT RISKS. These are risks associated with investing in
foreign common stocks that are in addition to the risks associated with
investing in U.S. common stocks.
- -- CURRENCY RISK. This is the risk that the U.S. dollar value of foreign
securities traded in foreign currencies (and any dividends and interest
earned) may be affected unfavorably by changes in foreign currency exchange
rates. An increase in the U.S. dollar relative to the foreign currencies in
which securities held by the Fund are traded will adversely affect the Fund.
- -- COUNTRY RISK. This is the risk that political, social or economic events
in a country may adversely affect the Fund's investments in the country.
- -- REGULATION RISK. This is the risk that investors in a foreign securities
market may not be afforded the same protections as investors in U.S.
securities markets. This is also the risk that it may be more difficult,
costly and slower to enforce legal rights of the Fund in foreign countries.
- -- LIQUIDITY RISK. This is the risk that lower or lack of trading volume
may make it difficult for the Fund to sell securities held by it at quoted
market prices.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
15
<PAGE>
ABOUT THE FUNDS
INVESTOR EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
*SHAREHOLDER FEES are fees paid directly from your investment.
- ---------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
Maximum deferred sales charge (load)
(as a percentage of net asset value) None
Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of net asset value) None
Redemption fee None<F1>
Exchange fee None
- ---------------------------------------------------------------------
<F1> The Funds charge a $10 fee for any redemption by wire and a $15 fee for any
redemption from an IRA account.
*ANNUAL FUND OPERATING EXPENSES are expenses that are deducted from Fund
assets. They are expressed as a percentage of the Fund's average net assets.
- ---------------------------------------------------------------------
Management fee 0.90%
Distribution and/or service (12b-1) fees 0.25%
Other expenses 0.81%
Total Fund Operating Expenses 1.96%<F2>
- ---------------------------------------------------------------------
<F2> The Adviser waives its advisory fee to the extent necessary to ensure that
the Total Fund Operating Expenses do not exceed 1.85% of the Fund's average
daily net assets. The Adviser may terminate the fee waiver at any time, but
will not do so prior to October 31, 1999.
The Fund has adopted a plan under Rule 12b-1 that allows it to pay distribution
fees for the sale and distribution of its shares. The maximum level of
distribution expenses is 0.25% per annum of the Fund's average net assets. The
distribution expenses for long-term shareholders may total more than the maximum
sales charge that would have been allowed if paid entirely as an initial sales
charge.
16
<PAGE>
ABOUT THE FUNDS
EXPENSE EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. This Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
- ---------------------------------------------------------------------
1 Year 3 Years 5 years 10 Years
$199 $615 $1,057 $2,285
- ---------------------------------------------------------------------
PORTFOLIO MANAGERS
Wendell L. Perkins, CFA, Frank J. Gambino, CFA, Jean-Claude Heritier and Patrick
Gigon are responsible for the day-to-day management of the Fund. Together, they
utilize a team approach to portfolio management. Mr. Perkins is a Senior Vice
President of the Adviser and has managed equity portfolios for the Adviser since
January 1994. Mr. Gambino is a Vice President of the Adviser and has served as a
portfolio manager and equity analyst for the Adviser since December 1993. Mr.
Heritier has been employed by Banque Franck, S.A., Geneva, Switzerland, since
1987 as a specialist in international equity management. Banque Franck, S.A. is
an affiliate of the Adviser. Mr. Gigon serves as General Manager of Banque
Franck, S.A. and has been employed by Banque Franck, S.A. since 1992. Although
employed by Banque Franck, S.A., Messrs. Heritier and Gigon act under the
supervision and control of the Adviser when advising the Fund.
17
<PAGE>
ABOUT YOUR ACCOUNT
HOW TO PURCHASE SHARES
----------------------
The JohnsonFamily Funds are no-load, which means you may purchase shares at net
asset value ("NAV"), without any front-end or deferred sales charge or
commission. NAV, the price of one share of a fund, is calculated at the close of
regular trading (generally, 3:00 p.m. Central Time) each day the New York Stock
Exchange ("NYSE") is open. The NYSE is closed weekends and national holidays.
Shares may be purchased directly from the Fund, Johnson Investment Services or
through certain broker/dealers ("Selected Dealers") who have signed a sales
agreement with the Funds' Distributor, Sunstone Distribution Services, LLC.
MINIMUM INVESTMENT
INITIAL ADDITIONAL
INVESTMENT INVESTMENT
- ---------------------------------------------------------------------
Regular Accounts $2,500 $50
Automatic Investment Plan $1,000 $50
IRAs $1,000 $50
Gifts to Minors $1,000 $50
- ---------------------------------------------------------------------
The Funds may waive minimums for qualified retirement plans. Investors must
make purchases in U.S. dollars, by checks drawn on U.S. banks. The Funds do not
accept cash, credit cards or third-party checks.
Whether you are opening a new account or adding to an existing one, the Funds
provide you with several methods to buy shares.
The Funds must receive a properly completed Purchase Application to establish
telephone and exchange privileges. The Funds may return incomplete applications
or checks.
The Funds may reject any purchase order or refuse a telephone transaction if the
Funds believe it is advisable to do so. The Funds will not accept an account if
you're investing for another person as attorney-in-fact or an account with Power
of Attorney ("POA") in the Purchase Application's registration.
Also, the Funds do not issue stock certificates. You'll receive a statement
confirming your purchase.
18
<PAGE>
ABOUT YOUR ACCOUNT
BY MAIL
* TO OPEN AN ACCOUNT:
- -- Complete a JohnsonFamily Funds Application.
- -- Call 1-800-276-8272 or visit Johnson Investment Services or Selected Dealer
to obtain a Purchase Application. If you are opening an IRA, please
complete an IRA Application.
- -- Mail your completed and signed Application along with a check payable to
JOHNSONFAMILY FUNDS to:
JohnsonFamily Funds
P.O. Box 1177
Milwaukee, WI 53201-1177
- -- For overnight or express mail, use the following address:
JohnsonFamily Funds
207 E. Buffalo Street, Suite 315
Milwaukee, WI 53202-5217
* TO ADD TO AN EXISTING ACCOUNT:
- -- Mail your check payable to JOHNSONFAMILY FUNDS, along with an investment
slip from a recent JohnsonFamily Funds statement. If you do not have an
investment slip, you may send a note signed by you as the account owner(s),
indicating the account's full name and number.
- -- Mail to:
JohnsonFamily Funds
P.O. Box 1177
Milwaukee, WI 53201-1177
- -- For overnight or express mail, use the following address:
JohnsonFamily Funds
207 E. Buffalo Street, Suite 315
Milwaukee, WI 53202-5217
19
<PAGE>
ABOUT YOUR ACCOUNT
BY WIRE
* TO OPEN AN ACCOUNT:
- -- Prior to the wire purchase you must call 1-800-276-8272 for an investor
account number. At the same time, you must complete and mail a Purchase
Application or IRA Application.
- -- Have your bank wire Federal funds to UMB Bank, n.a. using these
instructions:
A.B.A. Routing Number 101000695
For credit to JohnsonFamily Funds
Account # 987-098-3737
For further credit to:
(Investor account number)
(Name or account registration)
(Social Security or Taxpayer Identification Number)
(Name of Fund you intend to purchase)
- -- Mail your ORIGINAL Purchase Application to JohnsonFamily Funds as soon as
possible. THE FUNDS MUST RECEIVE A PROPERLY COMPLETED AND EXECUTED PURCHASE
APPLICATION TO ESTABLISH TELEPHONE AND EXCHANGE PRIVILEGES, AS WELL AS TO
CERTIFY YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER. IF THE
FUNDS DO NOT RECEIVE YOUR ORIGINAL APPLICATION, THEY MAY DELAY PAYMENT OF
REDEMPTION PROCEEDS AND WITHHOLD TAXES.
- -- Wired funds are considered received in good order on the day they reach the
Funds' bank account by the Funds' cut-off time for purchases and all
required information is provided in the wire instructions. The wire
instructions will determine the terms of the purchase transaction.
* TO ADD TO AN EXISTING ACCOUNT:
- -- Call 1-800-276-8272 for instructions if your account is already open.
- -- Have your bank wire Federal funds to UMB Bank, n.a. using the instructions
above. Be sure to include your account number and the name of the Fund to
be purchased.
- -- Wired funds are considered received in good order on the day they reach the
Funds' bank account by the Funds' cut-off time for purchases and all
required information is
20
<PAGE>
ABOUT YOUR ACCOUNT
provided in the wire instructions. The wire instructions will determine
the terms of the purchase transaction.
BY AUTOMATIC INVESTMENT PLAN
* TO OPEN AN ACCOUNT:
- -- Complete the Automatic Investment Plan section on your Purchase
Application.
- -- Make your check payable to JOHNSONFAMILY FUNDS.
- -- The minimum initial investment is $1,000.
- -- Each month, quarter or year, the amount you specify ($50 or more) is
automatically withdrawn from your bank account to buy Fund shares. You can
choose to have withdrawals on the 5th, 10th, 15th, 20th, 25th and/or last
business day of each month.
- -- The Funds require 10 days to verify your bank information before initiating
the plan.
- -- You will receive quarterly statements showing these purchases.
* TO ADD TO AN EXISTING ACCOUNT:
- -- If you would like to add the Automatic Investment Plan to an existing
account, call 1-800-276-8272 to request an Automatic Investment Plan
Application.
- -- Complete the Application, having all signatures guaranteed, and return it
to the address provided above.
- -- The Funds require 10 days to verify your bank information before initiating
the plan.
- -- The minimum subsequent investment is $50.
Presently, the Funds do not charge a service fee for the Automatic Investment
Plan. However, if there is not enough money in your bank account to cover the
withdrawal, the Funds will charge you a $20 fee, cancel your purchase, and you
will be responsible for any resulting loss to the Funds.
21
<PAGE>
ABOUT YOUR ACCOUNT
A redemption of all funds from your account will automatically discontinue the
Automatic Investment Plan. If you would like to suspend your Automatic
Investment Plan, please call our Shareholder Services Department at 1-800-276-
8272 for details. The Funds can terminate the Automatic Investment Plan at any
time with 60 days' notice.
BY ELECTRONIC FUNDS TRANSFER
* TO ADD TO AN EXISTING ACCOUNT:
- -- Call 1-800-276-8272 for instructions if your account is already open.
- -- The Funds require 7 business days to verify your bank information before
initiating this privilege.
- -- You may request electronic tranfers by phone or in writing in amounts from
$50 to $50,000 per day.
- -- The Funds withdraw money from the bank account you designated when
establishing the privilege and invest it at the NAV calculated after they
receive your request in good order.
PURCHASES THROUGH A FINANCIAL INTERMEDIARY, SELECTED DEALER OR OTHER THIRD PARTY
If you purchase shares through a financial intermediary, Selected Dealer or
other provider, their minimum investment requirements, policies and fees may
differ from those described here. Please contact your financial intermediary or
provider for a complete description of its policies. You will want to carefully
review these procedures before investing. The Funds may accept requests to buy
additional shares into a Selected Dealer street name account only from the
Selected Dealer.
The Funds may authorize Selected Dealers and their designees to accept purchase
orders on the Funds' behalf. The Funds consider such orders received when the
Selected Dealer accepts them, and price them at the next NAV calculated after
receipt by the Selected Dealer.
The Funds have agreed to allow some Selected Dealers to enter purchase orders
for their customers with payment to follow. The Funds price these telephone
orders at the next NAV calculated after the Selected Dealer accepts them. The
Selected Dealer is responsible for placing the orders promptly and for ensuring
the Funds receive payment within the agreed-upon period. Otherwise, the
Selected Dealer could be liable for resulting fees or losses.
Purchase orders placed with a Selected Dealer prior to the close of regular
trading on the NYSE (normally 3:00 p.m. Central Time) will be priced at the NAV
calculated later that day. Selected Dealers are responsible for promptly
forwarding orders and payment to the Transfer Agent. If your request is
received by the Selected Dealer after the close of regular trading on the NYSE,
or on a holiday, weekend or a day the NYSE is closed, the Funds will process
your purchase request on the next business day at that day's NAV.
22
<PAGE>
ABOUT YOUR ACCOUNT
RETURNED CHECKS/INSUFFICIENT FUNDS
The Funds will charge a $20 service fee against your account for any check or
electronic transfer returned unpaid. YOUR PURCHASE WILL BE CANCELLED, AND YOU
WILL BE RESPONSIBLE FOR ANY RESULTING LOSS TO THE FUNDS.
REDEMPTION REQUESTS SHORTLY AFTER PURCHASE
Payment for redemptions may be delayed up to 7 business days to make sure there
are sufficient funds to cover the check or electronic transfer you use to make
the purchase. If you plan to exchange or redeem shares shortly after purchase,
you may want to make your purchase by wire.
SELLING (REDEEMING) SHARES OF THE FUNDS
---------------------------------------
You may sell (redeem) your shares on any business day the NYSE is open for
trading. There is no charge to redeem shares except if you redeem by wire ($10)
or if you redeem from an IRA account ($15) to cover the cost of tax reporting.
For more information, see your IRA Disclosure Statement and Custodial Agreement.
The Funds may withhold taxes on IRA redemptions to meet Federal law
requirements.
If your redemption request is received in good order before the close of regular
trading on the NYSE (normally 3:00 p.m. Central Time), you will receive that
day's NAV. See page 28 for a definition of "good order." If your request is
received after the close of regular trading on the NYSE, or on a holiday,
weekend or a day the NYSE is closed, you will receive the next business day's
NAV.
If you are redeeming shares that were recently purchased by check, the Funds may
delay the payment of your redemption proceeds until your check or electronic
transfer has cleared. This may delay payment of redemption proceeds up to 7
business days. If you plan to redeem or exchange shares shortly after purchase,
you may want to make your purchase by wire.
23
<PAGE>
ABOUT YOUR ACCOUNT
The Funds provide you with several methods to redeem shares.
BY MAIL
* Send your unconditional written request for redemption to:
JohnsonFamily Funds
P.O. Box 1177
Milwaukee, WI 53201-1177
* For overnight or express mail, use the following address:
JohnsonFamily Funds
207 E. Buffalo Street, Suite 315
Milwaukee, WI 53202-5217
* Your unconditional written request must include:
- -- The names and signatures of all account holders. All account holders need
to sign the request exactly as their names appear on the account;
- -- The number of shares or the dollar amount to be redeemed;
- -- The Fund's name; and
- -- The account number to be redeemed.
* If you are redeeming from an IRA, also include the amount or percentage of
tax withholding on your redemption request. If this information is not
included, the Funds are required to automatically withhold 10% of your
redemption proceeds.
* Payments will be mailed within 7 business days of receiving redemption
instructions in good order. See page 28 for a definition of "good order."
* Include documentation required for corporate, partnership or fiduciary
accounts, call 1-800-276-8272 for details.
24
<PAGE>
ABOUT YOUR ACCOUNT
* Signatures must be guaranteed if:
- -- Your redemption request is greater than $50,000;
- -- The proceeds are to be paid to someone other than the account holder;
- -- The proceeds are to be sent to an address other than the address of record;
or
- -- The request is made within 60 days' of an address change.
BY TELEPHONE
* If you did not waive the telephone redemption privilege on your Purchase
Application, you may call 1-800-276-8272 to redeem shares.
* You will be asked to provide:
- -- Your name;
- -- Account number; and
- -- Dollar amount or number of shares to be redeemed.
* The minimum amount that may be redeemed by telephone is $500; the maximum is
$50,000 per day.
* Proceeds will be sent to you at the address of record on your account or sent
by wire or electronic funds transfer to the bank account listed in your
records.
* Wire payments for redemptions requested by phone will usually be made on the
next business day.
* Electronic funds transfer will ordinarily arrive at your bank 2 to 3 banking
days after transmission.
* The Funds will deduct a $10 wire redemption fee from your redemption
proceeds. There is also a $15 fee for redemptions from IRAs.
* The Funds reserve the right to refuse a telephone redemption request.
* The Funds do not accept redemption requests via fax.
25
<PAGE>
ABOUT YOUR ACCOUNT
* The Funds will not accept telephone redemption requests for payment by
check for 60 days following an address change.
* You must make the request in writing, with all signatures guaranteed.
SYSTEMATIC WITHDRAWAL PLAN
If your account balance is $10,000 or more, you can request regular
distributions of at least $50. Note that withdrawals may result in a gain or
loss for Federal income tax purposes.
* Call 1-800-276-8272 to request a Systematic Withdrawal Plan Application.
* To change your plan, send a request in writing along with a signature
guarantee for each registered holder of the account.
* You can stop the Systematic Withdrawal Plan at anytime without charge or
penalty, call 1-800-276-8272 for details.
* The Funds reserve the right to change or eliminate the plan anytime with 60
days' notice.
REDEMPTIONS THROUGH A FINANCIAL INTERMEDIARY, SELECTED DEALER OR OTHER THIRD
PARTY
A financial intermediary, Selected Dealer or other third party may charge a fee
to redeem your Fund shares. If the Selected Dealer is the shareholder of record,
the Funds may accept redemption requests only from that Selected Dealer. Because
redemption procedures vary from dealer to dealer, you will want to carefully
review these procedures before redeeming shares.
The Funds may authorize Selected Dealers and their designees to accept
redemption requests on the Funds' behalf. The Funds consider these requests
received when the Selected Dealers accept them, and price them at the next
calculated NAV.
OTHER REDEMPTION POLICIES
If the dollar amount you request to be redeemed is greater than the current
account value (as determined by the NAV on the redemption date), the Funds will
redeem your entire account balance.
26
<PAGE>
ABOUT YOUR ACCOUNT
TELEPHONE AND WIRE REQUESTS
During times of unusual market activity, you may have trouble placing a request
by telephone or wire. In this event, consider sending your order by mail or
overnight delivery using the address provided on page 24.
The Funds take reasonable measures to prevent unauthorized telephone
transactions and will not be liable for such transactions. THE FUNDS RESERVE THE
RIGHT TO REFUSE A TELEPHONE TRANSACTION AND DO NOT ACCEPT REDEMPTION REQUESTS
VIA FAX.
REDEMPTIONS IN LOW BALANCE ACCOUNTS
If a redemption or exchange leaves your account below $1,000, or you discontinue
the Automatic Investment Plan before you have invested $1,000, the Funds may
provide you a 30-day notice to add to your balance or renew your Automatic
Investment Plan. Otherwise, the Funds may close your account and send you the
proceeds.
EXCHANGE PRIVILEGE
-------------------
Investors may exchange shares of one JohnsonFamily Fund for shares of another
JohnsonFamily Fund. Note that an exchange is an ordinary sale and purchase for
Federal income tax purposes. As a result, you may realize a capital gain or
loss. You may only exchange into Funds that are legally qualified for sale in
your state.
* To open a new account with an exchange, the transaction must meet account
minimums ($2,500 for a regular account; $1,000 for an IRA).
* New accounts will have the same registration and privileges as your existing
account unless you specify otherwise.
* To add to an account, the exchange must be $500 or more.
* To exchange shares by telephone, follow the instructions under "Selling
(Redeeming) Shares of the Funds - By Telephone."
* The Funds offer an Automatic Exchange Plan to make automatic exchanges from
one Fund to another:
- -- The minimum transaction is $50;
- -- The exchange is a sale and purchase for Federal income tax purposes; you
may realize a capital gain or loss; and
- -- To establish an Automatic Exchange Plan after your account is open, call
1-800-276-8272 for details.
27
<PAGE>
ABOUT YOUR ACCOUNT
JohnsonFamily Funds are intended as long-term investments. Excessive trading can
hurt the Funds' performance and negatively impact shareholders. As a result:
* The Funds may suspend or terminate, without notice, the exchange privilege of
any investor who uses it excessively (e.g., more than 4 times a year); and
* The Funds may restrict or refuse exchanges if they receive or anticipate
simultaneous orders affecting significant portions of a Fund's assets.
OTHER PURCHASE, REDEMPTION AND EXCHANGE POLICIES
-------------------------------------------------
GOOD ORDER
The Funds must receive your request to buy, sell or exchange shares in good
order. The request must include:
* The Fund's name and your account number.
* The number or dollar amount of shares you want to buy or sell.
* Signatures of all account holders, exactly as registered on the account.
* Signature guarantees for the following:
- -- If the amount to be redeemed is more than $50,000;
- -- If the proceeds are sent to someone other than the shareholder of record;
or
- -- If the request is made within 60 days of an address change.
* Any documentation required for redemptions by corporations, trusts, estates
and other organizations.
28
<PAGE>
ABOUT YOUR ACCOUNT
TELEPHONE TRANSACTIONS
Unless you waive telephone privileges on your Purchase Application, you
automatically have the privilege to make telephone inquiries, exchanges and
redemptions. Once your account is established, you must make requests to change
these privileges in writing, signed by each account holder with all signatures
guaranteed. A NOTARY PUBLIC IS NOT AN ACCEPTABLE GUARANTOR.
The Funds will take reasonable measures to prevent unauthorized telephone
transactions and will not be liable for such transactions. THE FUNDS RESERVE
THE RIGHT TO REFUSE A TELEPHONE TRANSACTION.
SIGNATURE GUARANTEES
Generally, whenever you change your account privileges, your bank information or
your account registration information, you must provide a signature guarantee
for each account holder. Signature guarantee requirements help protect you from
fraud. You may obtain a signature guarantee from a U.S. commercial bank or
trust company, a member of the National Association of Securities Dealers, Inc.
or other eligible institutions. A NOTARY PUBLIC IS NOT AN ACCEPTABLE GUARANTOR.
RETIREMENT PLANS
JohnsonFamily Funds may be an appropriate choice for your retirement plan. In
addition, the Funds may be used as investment options for 401(k) plans and other
retirement vehicles. Descriptions of the plans, application forms, as well as
descriptions of applicable service fees and certain limitations on contributions
and withdrawals are available by calling 1-800-276-8272.
NET ASSETS VALUE (NAV)
----------------------
Each of the JohnsonFamily Funds calculates its net asset value (NAV) each day
the NYSE is open, after the close of business (normally 3:00 p.m. Central Time).
NAV is calculated by adding together the value of a Fund's total assets,
subtracting its liabilities, and then dividing the balance by the number of
shares outstanding. The Funds do not calculate their NAVs on the days when the
NYSE is closed.
The Funds typically use current market quotations to value their securities. The
Funds will value fixed income securities with a remaining maturity of 60 days or
less on an amortized cost basis. If a security does not have a readily available
market quotation, the Funds will use a good faith valuation provided by the
Board of Directors or will value the securities under the Board's direction. The
Board of Directors may also approve the use of pricing services to assist in the
determination of NAVs for the Funds.
29
<PAGE>
ABOUT YOUR ACCOUNT
The International Equity Fund will, and the other Funds may, hold securities
that are primarily listed on foreign exchanges that trade on weekends or other
days when the Funds do not calculate their NAVs. To the extent they do so,
their NAVs may change on days when you cannot purchase or redeem Fund shares.
To date, the euro conversion has not had a material effect on the ability of the
Funds' investment adviser or other service providers to provide the services
they have agreed to provide to the Funds.
DIVIDENDS, DISTRIBUTIONS AND TAXES
-----------------------------------
The Funds typically distribute most or all of their net income to shareholders
in the form of dividends. The Funds distribute net capital gains, if any,
annually.
In general, any dividends and net short-term capital gains you receive from the
Funds are taxable as ordinary income. Any net long-term capital gains you
receive are taxable as capital gains, regardless of how long you have owned your
shares. The Funds expect that the distributions of the Intermediate Fixed
Income Fund will consist primarily of ordinary income; the distributions of the
Small Cap Equity Fund will consist primarily of net capital gains; and the
distributions of the Large Cap Equity Fund and International Equity Fund will
consist of both ordinary income and net capital gains.
The following table summarizes the distribution policies for each of the Funds:
DIVIDENDS CAPITAL GAINS
FUND (IF ANY) (IF ANY)
- --------------------------------------------------------------------------------
Intermediate Fixed Income Fund monthly annually
Large Cap Equity Fund quarterly annually
Small Cap Equity Fund annually annually
International Equity Fund annually annually
- --------------------------------------------------------------------------------
REINVESTMENT OF FUND DISTRIBUTIONS
Investors can reinvest all of their income dividends and/or capital gain
distributions into the Funds at NAV or receive their distributions in cash. For
investors whose income is subject to tax, distributions are taxable whether they
are paid in cash or reinvested in additional shares.
30
<PAGE>
MORE ABOUT THE FUNDS
TAX CONSIDERATIONS
The sale of shares in your account may produce a taxable gain or a loss. An
exchange of shares of one Fund for another is treated as a sale of the Fund
shares surrendered in exchange and may result in a taxable gain. A percentage
of ordinary income distributions from the Intermediate Fixed Income Fund may be
exempt from state taxation. Please consult your tax adviser regarding the
treatment of your distribution.
ASSET ALLOCATION (DIVERSIFICATION)
You should not consider an investment in any one Fund a complete investment
program. Like most investors, you should hold a number of different investments,
each with a different level of risk, including common stocks, bonds and money
market instruments.
MANAGEMENT OF THE FUNDS
------------------------
INVESTMENT ADVISER
Johnson Asset Management, Inc. ("JAM") is the investment adviser for the Funds.
Located at 4041 N. Main Street, Racine, WI 53402, JAM manages the Funds'
investments and its business operations under the overall supervision of the
Funds' Board of Directors. As of April 30, 1999, JAM had a total of
approximately $600 million in assets under management.
JAM manages the portfolio of securities for each Fund. As compensation for JAM's
services, the Funds pay JAM a fee which is calculated daily and payable monthly,
based upon the average daily net assets of each Fund at the following annual
rates:
- --------------------------------------------------------------------------------
Intermediate Fixed Income Fund 0.45%
Large Cap Equity Fund 0.75%
Small Cap Equity Fund 0.75%
International Equity Fund 0.90%
- --------------------------------------------------------------------------------
HISTORICAL PERFORMANCE OF INVESTMENT ADVISORY ACCOUNTS MANAGED BY THE ADVISER
The Funds are providing composite historical performance data for JAM's Large
Cap Accounts and Fixed Income Accounts. The performance data illustrates the
investment performance of portfolios similar to the Intermediate Fixed Income
Fund and the Large Cap Equity Fund and compares the performance of these
portfolios to relevant broad-based market indices. The Large Cap Accounts
include all portfolios managed by JAM with objectives, strategies and policies
substantially similar to those employed by the Large Cap Equity Fund. The Fixed
Income Accounts include all portfolios managed
31
<PAGE>
MORE ABOUT THE FUNDS
by JAM with objectives, strategies and policies substantially similar to those
employed by the Intermediate Fixed Income Fund. (JAM had been managing
portfolios having objectives, similar to the Small Cap Equity Fund for less than
one year prior to the organization of the Small Cap Equity Fund. The portfolio
managers of the International Equity Fund have managed portfolios having
objectives similar to the International Equity Fund but using different
strategies and policies.)
The following performance data is historical and investors should not consider
this performance data as an indication of the future performance of either the
Large Cap Equity Fund, the Intermediate Fixed Income Fund or the results an
individual investor might achieve by investing in either the Large Cap Equity
Fund or the Intermediate Fixed Income Fund. Investors should not rely on the
historical performance data when making an investment decision.
All returns are time-weighted total rates of return and include the reinvestment
of dividends and interest. The performance data for both the Large Cap Accounts
and the Fixed Income Accounts are net of investment advisory fees and expenses.
The fees and expenses of each of the Large Cap Accounts and the Fixed Income
Accounts were less than the annual expenses for the Large Cap Equity Fund and
the Intermediate Fixed Income Fund, respectively. The performance of the Large
Cap Accounts and the Fixed Income Accounts would have been lower had they
incurred higher fees and expenses. The Large Cap Accounts and the Fixed Income
Accounts were not subject to certain investment limitations, diversification
requirements and other restrictions imposed by the Investment Company Act and
the Internal Revenue Code, which, if applicable, may have adversely affected
their performance results. The method used to calculate the historical
performance of the Large Cap Accounts and Fixed Income Accounts differs from the
method required by the Securities and Exchange Commission in calculating
standardized average annual total returns of mutual funds.
The performance information for the Large Cap Accounts, Fixed Income Accounts
and the indices is based on data supplied by the Adviser or from statistical
services, reports or other sources which the Adviser believes are reliable. The
performance information has not been verified by any third party and is
unaudited.
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<PAGE>
MORE ABOUT THE FUNDS
Compounded Annual Rates of Return(1) (For the Period Ended December 31, 1998)
9 MONTHS 1 YEAR 3 YEARS 5 YEARS 9 YEARS
<F2> <F3>
- --------------------------------------------------------------------------------
Large Cap Equity Fund 5.16% n/a n/a n/a n/a
Intermediate Fixed
Income Fund 6.21% n/a n/a n/a n/a
Large Cap Composite 5.31% 21.12% 26.08% 21.85% 16.68%
S&P 500(R)<F4> 12.84% 28.58% 28.23% 24.06% 17.90%
Fixed Income Composite 6.21% 7.49% 6.41% 6.19% 8.11%
Lehman Brothers Intermediate
Government/Corporate
Bond Index<F5> 6.77% 8.44% 6.77% 6.60% 8.05%
- --------------------------------------------------------------------------------
<F1> Compounded annual rate of return represents the level annual rate which, if
earned for each year in a multiple year period, would produce the cumulative
rate of return over that period.
<F2> The Large Cap Equity Fund and the Intermediate Fixed Income Fund commenced
operations on March 31, 1998. Performance information consists of total return
from April 1, 1998 through December 31, 1998 and is not annualized.
<F3> Since inception of the Large Cap Composite and the Fixed Income Composite.
<F4> The S&P 500(R) (the "Index") consists of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The Standard & Poor's
Ratings Group designates the stocks to be included in the Index on a statistical
basis. A particular stock's weighting in the Index is based on its relative
total market capitalization (i.e., its market price per share times the number
of shares outstanding). Stocks may be added or deleted from the Index from time
to time.
<F5> The Lehman Brothers Intermediate Government/Corporate Bond Index includes
fixed rate U.S. Treasury, U.S. government agency and U.S. corporate debt and
dollar-denominated debt securities of certain foreign entities with maturities
no greater than ten years.
Please remember that past performance may not be an indication of future rates
of return. Investors should also be aware that other performance calculation
methods may produce different results, and the comparisons of investment results
should consider qualitative circumstances and should be made only for portfolios
with generally similar investment objectives.
DISTRIBUTION FEES
The Funds have adopted a Service and Distribution Plan under Rule 12b-1 under
the Investment Company Act. The Plan allows a Fund to use part of the Fund's
assets (up to 0.25% of its average daily net assets) to pay sales, distribution
and other fees for the sale of its shares and for services provided to
investors. Because these fees are paid out of Fund assets, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
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<PAGE>
MORE ABOUT THE FUNDS
ADMINISTRATOR, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Sunstone Financial Group, Inc. acts as administrator, transfer agent and
dividend disbursing agent for the Funds. Located at 207 East Buffalo Street,
Suite 315, Milwaukee, WI 53202-5712, Sunstone provides administrative and
accounting services to the Fund, including calculating each Fund's NAV.
CUSTODIAN
Investors Fiduciary Trust Company, which has its principal address at 801
Pennsylvania, Kansas City, Missouri 64105, acts as custodian of the Funds'
investments.
YEAR 2000 ISSUES
-----------------
Many computer systems were designed to use two digits rather than four to
identify the year. Unless modified, these systems may not be able to correctly
distinguish the Year 2000 from the Year 1900. The Funds could be adversely
affected if the computer systems used by the Funds' investment adviser or other
service providers do not properly address this problem before January 1, 2000.
The Funds' investment adviser expects to have addressed this problem before
then, and does not anticipate that the services it provides will be adversely
affected. The Funds' other service providers have told the Adviser that they
also expect to resolve the Year 2000 problem before January 1, 2000. The
Adviser will continue to monitor the situation as Year 2000 approaches. However,
it cannot control the success of those efforts. The Funds are establishing
contingency plans to provide alternatives in case the providers experience
significant Year 2000 difficulties. The Year 2000 Problem could also have a
negative impact on the companies in which the Funds invest, and this could hurt
the Funds' investment returns.
34
<PAGE>
MORE ABOUT THE FUNDS
FINANCIAL HIGHLIGHTS
---------------------
The financial highlights table is intended to help you understand the Funds'
financial performance since their inception. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Funds (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along with
the Funds' financial statements, are included in the Annual Report, which is
available upon request.
JOHNSONFAMILY FUNDS, INC.
FINANCIAL HIGHLIGHTS
FOR THE PERIOD ENDED OCTOBER 31, 1998 <F1>
<TABLE>
INTERMEDIATE
FIXED INCOME LARGE CAP SMALL CAP INTERNATIONAL
FUND EQUITY FUND EQUITY FUND EQUITY FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.00 $10.00 $10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.31 0.03 0.00 0.09
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 0.27 (0.42) (1.78) (1.12)
------ ------ ---- ----
Total from investment operations 0.58 (0.39) (1.78) (1.03)
------ ------ ----
LESS DISTRIBUTIONS PAID:
From net investment income (0.31) (0.02) 0.00 0.00
------ ------ ---- ----
NET ASSET VALUE, END OF PERIOD $10.27 $9.59 $8.22 $8.97
====== ===== ===== ====
TOTAL RETURN<F2> 5.89% (3.87)% (17.80)% (10.30)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s) $68,050 $40,933 $22,831 $19,858
Ratio of expenses to average
net assets, net of waivers<F3> 0.85% 1.45% 1.50% 1.85%
Ratio of net investment income to
average net assets, net of waivers<F3> 5.32% 0.55% 0.03% 1.85%
Ratio of expenses to average net
assets, before waivers<F3> 1.11% 1.45% 1.57% 1.96%
Ratio of net investment income to
average net assets, before waivers<F3> 5.06% 0.55% (0.04)% 1.74%
Portfolio turnover rate<F2> 47% 27% 3% 6%
- ------------------------------------------------------------------------------------------------------------------------
<F1> Commenced operations on March 31, 1998.
<F2> Not annualized.
<F3> Annualized.
</TABLE>
35
<PAGE>
INFORMATION
FOR MORE INFORMATION
--------------------
You can find additional information about the JohnsonFamily Funds in the
following documents:
*ACCOUNT STATEMENTS. You will receive a periodic statement detailing activity
in your account from JohnsonFamily Funds, your financial intermediary or other
provider.
*ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS. These reports detail the Funds'
actual investments (as of the report date) and performance information. The
Annual Report includes a discussion by the Adviser of recent market conditions
and investment strategies that significantly affected the performance of the
Funds during their last fiscal year. The Annual Report is audited by the
Funds' independent accountant. To reduce expenses, the Funds will mail one
copy of each report to each Tax ID even though the investor may have more than
one account with the Funds.
*STATEMENT OF ADDITIONAL INFORMATION (SAI). The SAI contains more detailed
information on all aspects of the Funds. A current SAI has been filed with the
Securities and Exchange Commission (SEC) and is incorporated by reference (is
legally part of) in this prospectus. You may visit the SEC's Internet website
(www.sec.gov) to view the SAI and other information. The SAI is also available
from Selected Dealers through which shares of the JohnsonFamily Funds may be
purchased or sold.
To request a free copy of the current Annual/Semiannual Report or SAI, please
write or call the Funds at:
JohnsonFamily Funds
207 E. Buffalo, Suite 315
Milwaukee, WI 53202-5712
1-800-276-8272
You can review and copy information about the JohnsonFamily Funds (including the
SAI) at the SEC's Public Reference Room in Washington, D.C. You can call 1-800-
SEC-0330 for information on the operations of the Public Reference Room.
Reports and other information about the JohnsonFamily Funds are also available
at the SEC's Internet site at http://www.sec.gov and copies of this information
may be obtained, upon payment of a duplicating fee by writing to:
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
SEC File Number: 811-8627
36
<PAGE>
JohnsonFamily Funds
P.O. Box 515
Racine, WI 53401-0515
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION FOR June 30, 1999
JOHNSONFAMILY INTERMEDIATE FIXED INCOME FUND
JOHNSONFAMILY LARGE CAP EQUITY FUND
JOHNSONFAMILY SMALL CAP EQUITY FUND
JOHNSONFAMILY INTERNATIONAL EQUITY FUND
JOHNSONFAMILY FUNDS, INC.
4041 North Main Street
Racine, Wisconsin 53402
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of JohnsonFamily Funds, Inc., dated
June 30, 1999. Requests for copies of the Prospectus should be made by writing
to JohnsonFamily Funds, Inc., P.O. Box 1177, Milwaukee, Wisconsin 53201-1177,
Attention: Secretary.
The following financial statements are incorporated by reference to the
Annual Report, dated October 31, 1998, of JohnsonFamily Funds, Inc. (File No.
811-8627) as filed with the Securities and Exchange Commission on December 29,
1998.
Schedule of Investments
JohnsonFamily Intermediate Fixed Income Fund
JohnsonFamily Large Cap Equity Fund
JohnsonFamily Small Cap Equity Fund
JohnsonFamily International Equity Fund
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Public Accountants
Shareholders may obtain a copy of the Annual Report, without charge, by
calling (800) 276-8272.
<PAGE>
JOHNSONFAMILY FUNDS, INC.
Table of Contents
-----------------
Page No.
--------
FUND HISTORY AND CLASSIFICATION................................................1
INVESTMENT RESTRICTIONS........................................................1
INVESTMENT CONSIDERATIONS......................................................3
DIRECTORS AND OFFICERS OF THE CORPORATION.....................................18
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS............................20
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT...............20
DETERMINATION OF NET ASSET VALUE..............................................23
PERFORMANCE INFORMATION.......................................................24
DISTRIBUTION OF SHARES........................................................26
ALLOCATION OF PORTFOLIO BROKERAGE.............................................28
TAXES ........................................................................29
SHAREHOLDER MEETINGS..........................................................32
CAPITAL STRUCTURE.............................................................33
DESCRIPTION OF SECURITIES RATINGS.............................................33
INDEPENDENT ACCOUNTANTS.......................................................38
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 June 30, 1999, and, if given or made, such
information or representations may not be relied upon as having been authorized
by JohnsonFamily Funds, Inc.
This Statement of Additional Information does not constitute an offer
to sell securities.
-i-
<PAGE>
FUND HISTORY AND CLASSIFICATION
JohnsonFamily Funds, Inc. (the "Corporation") is an open-end,
diversified management investment company consisting of four separate
portfolios, the JohnsonFamily Large Cap Equity Fund (the "Large Cap Equity
Fund"), JohnsonFamily Small Cap Equity Fund (the "Small Cap Equity Fund"),
JohnsonFamily International Equity Fund (the "International Equity Fund") and
JohnsonFamily Intermediate Fixed Income Fund (the "Fixed Income Fund").
JohnsonFamily Funds, Inc. is registered under the Investment Company Act of
1940. JohnsonFamily Funds, Inc. was incorporated as a Maryland corporation on
January 27, 1998.
INVESTMENT RESTRICTIONS
Each of the Fixed Income Fund, Large Cap Equity Fund, Small Cap Equity
Fund and International Equity Fund has adopted the following investment
restrictions which are matters of fundamental policy and cannot be changed
without approval of the holders of the lesser of: (i) 67% of the Fund's shares
present or represented at a stockholders meeting at which the holders of more
than 50% of such shares are present or represented; or (ii) more than 50% of the
outstanding shares of the Fund.
1. The Funds will not purchase securities on margin (except for such
short term credits as are necessary for the clearance of transactions);
provided, however, that the Funds may borrow money to the extent set forth in
investment restriction no. 4.
2. The Funds may sell securities short to the extent permitted by the
Investment Company Act of 1940 (the "Act").
3. The Funds may write put and call options to the extent permitted by
the Act.
4. None of the Funds will borrow money or issue senior securities,
except for temporary bank borrowings (not in excess of 10% of the value of a
Fund's net assets) or for emergency or extraordinary purposes.
5. Each Fund may pledge or hypothecate its assets to secure its
borrowings.
6. The Funds will not lend money (except by purchasing publicly
distributed debt securities, purchasing securities of a type normally acquired
by institutional investors or entering into repurchase agreements) and will not
lend their portfolio securities, unless such loans are secured continuously by
collateral at least equal to the market value of the securities loaned in the
form of cash and/or securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, and provided that no such loan will be made if
upon making of such loan more than 30% of the value of the Fund's total assets
would be subject to such loans.
7. The Funds will not make investments for the purpose of exercising
control or management of any company.
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%
<PAGE>
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
2
<PAGE>
relating to borrowing of money or issuing senior securities) are adhered to at
the time an investment is made, and such percentage subsequently changes as a
result of changing market values or some similar event, no violation of a Fund's
fundamental restrictions will be deemed to have occurred. Any changes in a
Fund's investment restrictions made by the Board of Directors will be
communicated to shareholders prior to their implementation.
INVESTMENT CONSIDERATIONS
Temporary Investments
Each Fund may invest in cash and money market securities. The Funds may
do so when taking a temporary defensive position or to have assets available to
pay expenses, satisfy redemption requests or take advantage of investment
opportunities. Money market securities include money market mutual funds,
short-term investment-grade fixed-income securities, bankers' acceptances,
commercial paper, commercial paper master notes and repurchase agreements.
The Funds may invest in commercial paper or commercial paper master
notes rated, at the time of purchase, within the two highest rating categories
by a nationally recognized statistical rating organization (NRSRO).
The Funds may enter into repurchase agreements with banks that are
Federal Reserve Member banks and non-bank dealers of U.S. government securities
which, at the time of purchase, are on the Federal Reserve Bank of New York's
list of primary dealers with a capital base greater than $100 million. When
entering into repurchase agreements, a Fund will hold as collateral an amount of
cash or government securities at least equal to the market value of the
securities that are part of the repurchase agreement. A repurchase agreement
involves the risk that a seller may declare bankruptcy or default. In this
event, a Fund may experience delays, increased costs and a possible loss.
The Funds may also invest in money market mutual funds issued by other
investment companies. As a shareholder of a money market fund, a Fund would be
subject to the same risks as any other investor and will bear a proportionate
share of any fees and expenses incurred by the mutual fund in which it invests.
These will be in addition to the advisory and other fees paid by the Fund.
During adverse market conditions, up to 100% of the International
Equity Fund's total assets may be invested in U.S. securities or in securities
primarily traded in one or more foreign countries, or in debt securities.
Investment Grade Investments
The Funds may invest in investment-grade debt securities, or unrated
securities if Johnson Asset Management, Inc. (the "Adviser") believes they are
equivalent in quality. A debt or other fixed income security is considered
investment grade if it is rated BBB or better by Duff and Phelps Credit Rating
Co. ("D&P"), Standard & Poor's Ratings Group ("S&P"), Fitch IBCA ("Fitch"); or
Baa or better by Moody's Investors Services, Inc. ("Moody's") or any other
NRSRO.
3
<PAGE>
Investment-grade bonds rated BBB by D&P, S&P or Fitch, or Baa by
Moody's are considered to be of medium-grade quality. Medium-grade securities
have certain speculative characteristics. This means they are typically more
sensitive to economic changes and subject to a higher degree of risk than higher
rated securities.
Ratings are determined at the time of investment. If a security held by
a Fund loses its rating or has its rating reduced, the Fund does not have to
sell the security immediately. However, the Adviser will closely monitor the
security to determine what action, if any, the Fund should take.
Illiquid Securities
Each Fund may invest up to 15% of its net assets in securities for
which there is no readily available market ("illiquid securities"). Because an
active market may not exist for illiquid securities, the Funds may experience
delays and additional costs when trying to sell illiquid securities. The 15%
limitation includes certain securities whose disposition would be subject to
legal restrictions ("restricted securities"). However certain restricted
securities that may be resold pursuant to Rule 144A under the Securities Act may
be considered liquid. Rule 144A permits certain qualified institutional buyers
to trade in privately placed securities not registered under the Securities Act.
Institutional markets for restricted securities have developed as a result of
Rule 144A, providing both readily ascertainable market values for Rule 144A
securities and the ability to liquidate these securities to satisfy redemption
requests. However an insufficient number of qualified institutional buyers
interested in purchasing certain Rule 144A securities held by a Fund could
adversely affect their marketability, causing the Fund to sell the securities at
unfavorable prices. The Board of Directors of the Corporation has delegated to
the Adviser the day-to-day determination of the liquidity of a security although
it has retained oversight and ultimate responsibility for such determinations.
The Board of Directors has directed the Adviser to consider such factors as (i)
the nature of the market for a security, (including the institutional private
resale markets); (ii) the terms of the securities or other instruments allowing
for the disposition to a third party or the issuer thereof (e.g. certain
repurchase obligations and demand instruments); (iii) the availability of market
quotations; and (iv) other permissible factors in determining the liquidity of a
security.
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
4
<PAGE>
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 in convertible debt securities when the
Adviser believes the underlying common stock is a suitable investment for the
Fund and when the convertible security offers greater potential for total return
because of its higher yield. Convertible securities are bonds or preferred
stocks that may be converted (exchanged) into common stock of the issuing
company within a certain period of time, for a specified number of shares.
5
<PAGE>
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.
6
<PAGE>
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, mortgages 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
7
<PAGE>
principal at any time after default on an underlying mortgage, but in no event
later than one year after it becomes payable.
Each of the Funds may also purchase mortgage-backed securities
structured as CMOs. CMOs are issued in multiple classes and their relative
payment rights may be structured in many ways. In many cases, however, payments
of principal are applied to the CMO classes in order of their respective
maturities, so that no principal payments will be made on a CMO class until all
other classes having an earlier maturity date are paid in full. The classes may
include accrual certificates (also known as "Z-Bonds"), which do not accrue
interest at a specified rate until other specified classes have been retired and
are converted thereafter to interest-paying securities. They may also include
planned amortization classes ("PACs") which generally require, within certain
limits, that specified amounts of principal be applied to each payment date, and
generally exhibit less yield and market volatility than other classes. The
classes may include "IOs", which pay distributions consisting solely or
primarily of all or a portion of the interest in an underlying pool of mortgages
or mortgage-backed 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.
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In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage loans. Like other fixed income
securities, when interest rates rise the value for an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed income securities.
Asset-backed securities may involve certain risks that are not
presented by mortgage-backed securities. These risks arise primarily from the
nature of the underlying assets (i.e., credit card and automobile loan
receivables as opposed to real estate mortgages). Non-mortgage asset-backed
securities do not have the benefit of the same security interest in the
collateral as mortgage-backed securities. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which have given debtors the right to
reduce the balance due on the credit cards. Most issuers of automobile
receivables permit the servicers to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is the risk that the purchaser would acquire an interest superior to that
of the holders of related automobile receivables. In addition, because of the
large number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of the automobile
receivables may not have an effective security interest in all of the
obligations backing such receivables. Therefore, there is a possibility that
payments on the receivables together with recoveries on repossessed collateral
may not, in some cases, be able to support payments on these securities.
Asset-backed securities may be subject to greater risk of default
during periods of economic downturn than other instruments. Also, while the
secondary market for asset-backed securities is ordinarily quite liquid, in
times of financial stress the secondary market may not be as liquid as the
market for other types of securities, which could cause a Fund to experience
difficulty in valuing or liquidating such securities.
Hedging Instruments
Each of the Funds may engage in options, futures and options on futures
transactions that constitute bona fide hedging or other permissible risk
management transactions. The Funds may use futures transactions for several
reasons, including: (i) hedging unrealized portfolio gains; (ii) minimizing
adverse principal fluctuations in a Fund's debt and fixed-income securities; or
(iii) as a means of adjusting exposure to various markets. The Funds will deal
only in exchange-traded futures contracts and in exchange-traded or
over-the-counter securities options.
Generally, the Funds may engage in a futures contract or options
transactions if the initial margin deposits and premiums paid for unexpired
options do not exceed 5% of a Fund's total assets. In addition, each Fund will
commit no more than 5% of its net assets to futures contracts and options or
more than 5% of its net assets to cover its obligations with respect to futures
contracts and options.
Futures Contracts. When a Fund purchases a futures contract, it agrees
to purchase a specified underlying instrument at a specified future date. When a
Fund sells a futures contract, it agrees to sell the underlying instrument at a
specified future date. The price at which the purchase and sale will take place
is fixed when the Fund enters into the contract. Futures can be
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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.
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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
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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
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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,
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American banks or trust companies issue ADRs and ADSs, which evidence ownership
of underlying foreign securities. GDRs represent global offerings where an
issuer issues two securities simultaneously in two markets, usually publicly in
a non-U.S. market and privately in the U.S. market. EDRs (sometimes called
Continental Depository Receipts ("CDRs")) are similar to ADRs, but usually
issued in Europe. Typically issued by foreign banks or trust companies, EDRs and
CDRs evidence ownership of foreign securities. Generally, ADRs and ADSs in
registered form trade in the U.S. securities markets, GDRs in the U.S. and
European markets, and EDRs and CDRs (in bearer form) in European markets.
Portfolio Turnover
Generally, the Funds do not purchase securities with the intent of
turning them over rapidly. However, the Adviser will continuously monitor each
Fund's investments and adjust the portfolio whenever the Adviser believes it is
in the best interest of the Fund to do so. Fund turnover may increase as a
result of large amounts of purchases and redemptions of shares of a Fund due to
economic, market or other factors that are not within the control of the Fund's
management.
Portfolio turnover measures the amount of trading that occurs in a
Fund's portfolio during the year. A 100% turnover rate, for example, means that
on average, every security in the portfolio has been replaced once during the
year. Funds with higher turnover rates often have higher transaction costs (e.g.
brokerage commissions, portfolio trading costs), which are paid by the Funds,
and may generate short-term capital gains. Distributions to shareholders of
realized gains, to the extent they consist of net short-term capital gains, will
be considered ordinary income for tax purposes. The turnover rate for the Fund
may vary from year to year. However, the Adviser expects that under normal
market conditions, the annual portfolio turnover rate for each of the Funds will
not exceed 100%.
Borrowing
The Funds may borrow money, but only from banks and only for temporary
or emergency purposes. The Funds may borrow up to 10% of their net assets.
However, they must repay any amount borrowed before buying additional
securities. If the securities held by a Fund decline in value while borrowings
are outstanding, the net asset value of the Fund's outstanding shares may also
lose value.
Reverse Repurchase Agreements
The Funds may enter into reverse repurchase agreements. In a reverse
repurchase agreement, a Fund sells securities with the understanding that it
will buy them back within a particular time at a specified price.
Reverse repurchase agreements involve certain risks, including the
chance that the market value of the securities sold may decline below the price
of the securities the Fund is obligated to repurchase. They are also subject to
the risk that the securities may not be returned to the Fund.
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To manage risk, a Fund will maintain in a segregated account with its
custodian certain cash or liquid securities. These must have a value at least
equal to the repurchase price of the securities sold, less the value of the
collateral securing the reverse repurchase agreement.
When-Issued and Delayed-Delivery Securities
To ensure the availability of suitable securities for their portfolios,
the Funds may buy when-issued or delayed-delivery securities. The Funds intend
to purchase the securities with the expectation of acquiring the underlying
securities when delivered. However, a Fund may sell when-issued securities
before the settlement date when the Adviser believes it is in the best interests
of a Fund to do so. Unless a Fund has entered into an offsetting agreement to
sell the securities, it must maintain segregated cash or liquid assets equal to
the amount of the Fund's commitment with the Fund's custodian.
When-issued and delayed-delivery securities represent securities that
have been authorized but not yet issued. The price of when-issued and
delayed-delivery securities is fixed at the time a commitment to purchase is
made, but delivery and payment take place at a later date. As a result, they are
subject to certain risks, including the chance that these securities may fall in
value by the time they are actually issued or delivered. New issues of stocks
and bonds, stocks that have split and Treasury securities are examples of
securities that are traded on a when-issued or delayed-delivery basis.
Government Obligations
Each of the Funds may invest in a variety of U.S. Treasury obligations,
including bills, notes and bonds. These obligations differ only in terms of
their interest rates, maturities and time of issuance. The Funds may also invest
in other securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities.
Obligations of certain agencies and instrumentalities, such as the
Government National Mortgage Association ("GNMA"), are supported by the full
faith and credit of the U.S. Treasury. Others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; and others, such as those of the Federal
National Mortgage Association ("FNMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Student Loan Marketing Association are supported
only by the credit of the agency or instrumentality that issues them. There is
no guarantee that the U.S. Government will provide financial support to its
agencies or instrumentalities, now or in the future, if it is not obligated to
do so by law.
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Warrants
Each of the equity Funds may purchase warrants and similar rights,
which are privileges issued by corporations enabling the owners to subscribe to
and purchase a specified number of shares of the corporation at a specified
price for a specified period of time. Like options, warrants involve certain
risks, including the chance that a Fund could lose the purchase value of the
warrant if the warrant is not exercised prior to its expiration. Warrants also
involve the risk that the effective price paid for the warrant added to the
subscription price of the related security may be greater than the value of the
subscribed security's market price. To manage risk, no more than 5% of each
equity Fund's net assets, valued at the time of investment, will be invested in
warrants.
Classification of Foreign Markets
Foreign markets are often classified as mature or emerging. The
countries in which the Funds may invest are classified below. The Funds also may
invest in additional countries when such investments are consistent with the
Fund's objective and policies.
Mature: Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Hong Kong, Ireland,
Italy, Japan, Luxembourg, Netherlands, New
Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, United Kingdom and United States.
Emerging: Argentina, Brazil, Chile, China, Czech Republic,
Ecuador, Greece, Hungary, India, Indonesia,
Jamaica, Kenya, Israel, Jordan, Malaysia, Mexico,
Morocco, Nigeria, Pakistan, People's Republic of
China, Peru, Philippines, Poland, South Africa,
South Korea, Sri Lanka, Taiwan, Thailand, Turkey,
Uruguay, Venezuela and Vietnam.
Foreign Currency Transactions
To manage the currency risk accompanying investments in foreign
securities and to facilitate the purchase and sale of foreign securities, the
Funds may engage in foreign currency transactions on a spot (cash) basis at the
spot rate prevailing in the foreign currency exchange market or through entering
into contracts to purchase or sell foreign currencies at a future date ("forward
foreign currency" contracts or "forward" contracts).
A forward foreign currency contract involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. These contracts are principally traded in the
inter-bank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement and no commissions are charged at any stage for trades.
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
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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.
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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
As a Maryland corporation, the business and affairs of the Corporation
are managed by its officers under the direction of its Board of Directors. The
name, address, principal occupations during the past five years and other
information with respect to each of the directors and offices of the Corporation
are as follows:
JoAnne Brandes -- Director. Ms. Brandes, 45, has been Senior Vice
President, General Counsel and Secretary of S.C. Johnson Commercial Markets,
Inc. since October 1997. Prior to that time, Ms. Brandes served in various
capacities as an officer of S.C. Johnson & Son, Inc since 1992. Both S.C.
Johnson Commercial Markets, Inc. and S.C. Johnson & Son, Inc. are controlled by
Samuel C. Johnson as is Johnson International, Inc., the corporate parent of the
Adviser. Ms. Brandes is also a director of Alternative Resources Corporation,
Lincolnshire, Illinois, a computer servicer and supplier, and Corporate Family
Solutions, Inc., Nashville, Tennessee, a child care provider. Her address is
8310 16th Street, P.O. Box 902, Sturtevant, WI 53177.
Richard Bibler -- Director. Mr. Bibler, 67, 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.
18
<PAGE>
F. Gregory Campbell -- Director. Dr. Campbell, 59, has been the
President of Carthage College since 1987. Dr. Campbell also serves as a trustee
of AAL Mutual Funds. His address is Carthage College, 2001 Alford Drive,
Kenosha, WI 53104.
Gerald Konz -- Director. Mr. Konz, 67, 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, 61, has been Vice President -
Administration & Finance of Evening Telegram, Inc. since 1982. His address is
7025 Raymond Road, Madison, WI 53719.
*Wendell Perkins -- Director. Mr. Perkins, 35, has been Senior Vice
President of the Adviser since 1994. In 1993 Mr. Perkins was an Assistant Vice
President of Biltmore Investors Bank, an affiliate of the Adviser. His address
is 4041 North Main Street, Racine, WI 53402.
Joan Burke -- President and Treasurer. Ms. Burke, 48, 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, 55,
has been Senior Vice President of the Adviser since 1990. His address is 4041
North Main Street, Racine, WI 53402.
The Corporation's standard method of compensating directors is to pay
each director who is not an officer of the Corporation an annual fee of $5,000
and a fee of $500 for each meeting of the Board of Directors attended.
The Corporation was incorporated on January 27, 1998. The table below
sets forth the compensation paid by the Corporation to each of the directors of
the Corporation during the fiscal year ended October 31, 1998:
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total
Pension or Compensation
Aggregate Retirement Benefits Estimated Annual from Corporation
Name of Compensation Accrued as Part of Benefits Upon and Fund Complex
Person from Corporation Fund Expenses Retirement Paid to Directors
------ ---------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
JoAnne Brandes $6500 $0 $0 $6500
Richard Bibler 6500 0 0 6500
- --------------
*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.
19
<PAGE>
<CAPTION>
<S> <C> <C> <C> <C>
F. Gregory Campbell 6500 0 0 6500
Gerald Konz 6500 0 0 6500
George Nelson 6500 0 0 6500
Wendell Perkins 0 0 0 0
</TABLE>
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
As of May 31, 1999, the officers and directors of the Corporation
owned less than 1% of the outstanding securities of each Fund. Set forth below
are the names and addresses of all holders of each of the Funds' shares who as
of May 31, 1999 owned of record or to the knowledge of the Funds, beneficially
owned more than 5% of a Funds' then outstanding shares.
<TABLE>
<CAPTION>
Large Cap Small Cap International
Equity Fund Equity Fund Fixed Income Fund Equity Fund
No. of Percent No. of Percent No. of Percent No. of Percent
Shares of Class Shares of Class Shares of Class Shares of Class
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Johnson Trust Company 4,464,154 97.39% 2,457,177 99.52% 6,223,498 99.34% 2,302,536 99.86%
4041 North Main Street
Racine, WI 53402
</TABLE>
By virtue of its stock ownership, Johnson Trust Company, as a fiduciary for its
clients, is deemed to "control," as that term is defined in the Investment
Company Act of 1940, each of the Funds and the Corporation.
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN
AND TRANSFER AGENT
The investment adviser to the Funds is Johnson Asset Management, Inc.
(the "Adviser"). Pursuant to the investment advisory agreements entered into
between the Corporation and the Adviser with respect to each of the Funds (the
"Advisory Agreements"), the Adviser manages the investment and reinvestment of
each Fund's assets; provides the Funds with personnel, facilities and management
services; and supervises each Fund's daily business affairs. The Adviser
formulates and implements a continuous investment program for the Funds
consistent with each Fund's investment objective, policies and restrictions. The
Adviser provides office space as well as executive and other personnel to the
Funds. For its services to the Funds, the Adviser receives a monthly fee (before
fee waivers as explained below) based on the average daily net assets of each
Fund at the annual rate of 0.45% for the Fixed Income Fund, 0.75% for the Large
Cap Equity Fund, 0.75% for the Small Cap Equity Fund and 0.90% for the
International Equity Fund. The Adviser is a wholly-owned subsidiary of Johnson
International, Inc., a Wisconsin corporation. Johnson International, Inc. is a
bank holding company. Samuel C. Johnson controls the Adviser by virtue of his
status as trustee of the Johnson International, Inc. Voting Trust, which holds
55% of the outstanding shares of Johnson International, Inc. The Adviser's
executive officers include Joan A. Burke, President and Chief Executive Officer,
George A. Balistreri, Senior Vice President, Wendell Perkins, Senior Vice
President, and Frank J. Gambino, Vice President.
20
<PAGE>
Pursuant to the Advisory Agreements, the Adviser has undertaken to
reimburse each of the Funds to the extent that the aggregate annual operating
expenses, including the investment advisory fee and the administration fee but
excluding interest, taxes, brokerage commissions and other costs incurred in
connection with the purchase or sale of portfolio securities, and extraordinary
items, exceed 2.5% of the average net assets of a Fund (1.5% for the
Intermediate Fixed Income Fund) for such year, as determined by valuations made
as of the close of each business day of the year. Other expenses borne by the
Funds include: legal, auditing and accounting expenses; insurance premiums;
governmental fees; expenses of issuing and redeeming shares; organizational
expenses; expenses of registering or qualifying shares for sale; postage and
printing for reports and notices to shareholders; fees and disbursements of the
Funds' custodian and transfer agent; fees and disbursements pursuant to the
Service and Distribution Plan; and membership fees of industry associations.
Additionally, for the fiscal year ended October 31, 1998, the Adviser reimbursed
each Fund for annual operating expenses in excess of the percentage of its
average net assets for such year set forth below.
Fund Expense Limitation
---- ------------------
Intermediate Fixed Income Fund 0.85%
Large Cap Equity Fund 1.45%
Small Cap Equity Fund 1.50%
International Equity Fund 1.85%
The Funds monitor their expense ratio on a monthly basis. If the
accrued amount of the expenses of a Fund exceeds the expense limitation, the
Fund creates an account receivable from the Adviser for the amount of such
excess. In such a situation the monthly payment of the Adviser's fee will be
reduced by the amount of such excess, subject to adjustment month by month
during the balance of the Fund's fiscal year if accrued expenses thereafter fall
below this limit.
The Funds did not commence operations until March 31, 1998. For
services by the Adviser under the Advisory Agreements during the period from
March 31, 1998 through October 31, 1998, the Funds incurred advisory fees
payable to the Adviser of $174,092 for the Large Cap Equity Fund, $93,683 for
the Small Cap Equity Fund, $173,214 for the Fixed Income Fund and $105,901 for
the International Equity Fund. During the period from March 31, 1998
(commencement of operations) through October 31, 1998, the Adviser made
reimbursements for excess expenses of $393 to the Large Cap Equity Fund, $10,276
to the Small Cap Equity Fund, $100,890 to the Fixed Income Fund and $13,163 to
the International Equity Fund.
Each Advisory Agreement will remain in effect as long as its
continuance is specifically approved at least annually (i) by the Board of
Directors of the Corporation or by the vote of a majority (as defined in the
Act) of the outstanding shares of the applicable Fund, and (ii) by the vote of a
majority of the directors of the Corporation who are not parties to the Advisory
Agreement or interested persons of the Adviser, cast in person at a meeting
called for the purpose of voting on such approval. Each Advisory Agreement
provides that it may be terminated at any time without the payment of any
penalty, by the Board of Directors of the Corporation or by vote
21
<PAGE>
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.
The administrator to the Funds is Sunstone Financial Group, Inc., 207
East Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202 (the
"Administrator"). The Administrator provides various administrative services and
fund accounting services to the Funds (which includes clerical, compliance,
regulatory fund accounting and other services) pursuant to an Administration and
Fund Accounting Agreement (the "Administration Agreement") with the Corporation
on behalf of the Funds. For its administrative services, the Administrator
receives from each Fund a fee, computed daily and payable monthly, based on each
Fund's average net assets at the annual rate of 0.20%, subject to a combined
annual minimum for all four Funds of $206,000, plus out-of-pocket expenses. The
Administration Agreement will remain in effect until December 31, 2000.
Thereafter, the Administration Agreement may be terminated at any time, without
the payment of any penalty, by the Board of Directors of the Corporation upon
the giving of ninety (90) days' written notice to the Administrator, or by the
Administrator upon the giving of ninety (90) days' written notice to the
Corporation.
For the period from March 31, 1998 (commencement of operations)
through October 31, 1998, the Large Cap Equity Fund paid the Administrator
$46,424, the Small Cap Equity Fund paid the Administrator $24,982, the Fixed
Income Fund paid the Administrator $76,984 and the International Equity Fund
paid the Administrator $23,534, pursuant to the Administration Agreement.
Under the Administration Agreement, the Administrator shall not be
liable for any loss suffered by the Funds in connection with the performance of
the Administration Agreement, except a loss resulting from willful misfeasance,
bad faith or negligence on the part of the Administrator in the performance of
its duties under the Administration Agreement. The Administration Agreement also
provides that the Administrator may provide similar services to other investment
companies.
Investors Fiduciary Trust Company serves as custodian of the
Corporation's assets pursuant to a Custody Agreement. Under the Custody
Agreement, Investors Fiduciary Trust Company has agreed to (i) maintain separate
accounts in the name of the Funds, (ii) make receipts and disbursements of money
on behalf of each of the Funds, (iii) collect and receive all income and other
payments and distributions on account of each of the Fund's portfolio
investments, (iv) respond to correspondence from shareholders, security brokers
and others relating to its duties; and (v) make periodic reports to the Funds
concerning the Funds' operations. Investors Fiduciary Trust Company does not
exercise any supervisory function over the purchase and sale of securities.
22
<PAGE>
Sunstone Financial Group, Inc. serves as transfer agent and dividend
paying agent for the Funds under a Transfer Agency Agreement between it and the
Corporation. As transfer and dividend paying agent, Sunstone Financial Group,
Inc. has agreed to (i) issue and redeem shares of the Funds, (ii) make dividend
and other distributions to shareholders of the Funds, (iii) respond to
correspondence by Fund shareholders and others relating to its duties, (iv)
maintain shareholder accounts, and (v) make periodic reports to the Funds.
DETERMINATION OF NET ASSET VALUE
Pricing Considerations
The net asset value of each of the Funds will be determined as of the
close of regular trading (3:00 P.M. Central Time) on each day the New York Stock
Exchange is open for trading. The New York Stock Exchange is open for trading
Monday through Friday except New Year's Day, Dr. Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, if any of the aforementioned
holidays falls on a Saturday, the New York Stock Exchange will not be open for
trading on the preceding Friday and when any such holiday falls on a Sunday, the
New York Stock Exchange will not be open for trading on the succeeding Monday,
unless unusual business conditions exist, such as the ending of a monthly or the
yearly accounting period.
Each Fund's net asset value is equal to the quotient obtained by
dividing the value of its net assets (its assets less its liabilities) by the
number of shares outstanding.
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
debt instruments (those with remaining maturities of 60 days or less) are valued
at amortized cost, which approximates market.
23
<PAGE>
The Funds price foreign securities in terms of U.S. dollars at the
official exchange rate. Alternatively, they may price these securities at the
average of the current bid and asked price of such currencies against the dollar
last quoted by a major bank that is a regular participant in the foreign
exchange market, or on the basis of a pricing service that takes into account
the quotes provided by a number of such major banks. If the Funds do not have
either of these alternatives available to them or the alternatives do not
provide a suitable method for converting a foreign currency into U.S. dollars,
the Board of Directors in good faith will establish a conversion rate for such
currency.
Generally, U.S. government securities and other fixed income
securities complete trading at various times prior to the close of the New York
Stock Exchange. For purposes of computing net asset value, the Funds use the
market value of such securities as of the time their trading day ends.
Occasionally, events affecting the value of such securities may occur between
such times and the close of the New York Stock Exchange, which events will not
be reflected in the computation of a Fund's net asset value. It is currently the
policy of the Funds that events affecting the valuation of Fund securities
between such times and the close of the New York Stock Exchange, even if
material, will not be reflected in such net asset value.
Foreign securities trading may not take place on all days when the New
York Stock Exchange is open, or may take place on Saturdays and other days when
New York Stock Exchange is not open and a Fund's net asset value is not
calculated. When determining net asset value, the Funds value foreign securities
primarily listed and/or traded in foreign markets at their market value as of
the close of the last primary market where the securities traded. Securities
trading in European countries and Pacific Rim countries is normally completed
well before 3:00 P.M. Central Time. It is currently the policy of the Funds that
events affecting the valuation of Fund securities occurring between the time its
net asset value is determined and the close of the New York Stock Exchange, even
if material, will not be reflected in such net asset value.
Each Fund reserves the right to suspend or postpone redemptions during
any period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the Securities and Exchange Commission, or that the Exchange is
closed for other than customary weekend and holiday closings; (b) the Securities
and Exchange Commission has by order permitted such suspension; or (c) an
emergency, as determined by the Securities and Exchange Commission, exists,
making disposal of portfolio securities or valuation of net assets of the Fund
not reasonably practicable.
PERFORMANCE INFORMATION
Any total rate of return quotation for a Fund will be for a period of
three or more months and will assume the reinvestment of all dividends and
capital gains distributions which were made by the Fund during that period. Any
period total rate of return quotation of a Fund will be calculated by dividing
the net change in value of a hypothetical shareholder account established by an
initial payment of $1,000 at the beginning of the period by 1,000. The net
change in the value of a shareholder account is determined by subtracting $1,000
from 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
24
<PAGE>
compounded total rate of return quotation of a Fund will be calculated by
dividing the redeemable value at the end of the period (i.e., the product
referred to in the preceding sentence) by $1,000. A root equal to the period,
measured in years, in question is then determined and 1 is subtracted from such
root to determine the average annual compounded total rate of return.
The foregoing computation may also be expressed by the following
formula:
P(1 + T)n = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
stated periods at the end of the stated periods
The calculations of average annual total return and total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV") is determined by assuming complete redemption of the hypothetical
investment and the deduction of all nonrecurring charges at the end of the
period covered by the computations.
The total rate of return for the period from March 31, 1998
(commencement of operations) through October 31, 1998, was -3.87% for the Large
Cap Equity Fund, -17.80% for the Small Cap Equity Fund, 5.89% for the Fixed
Income Fund and -10.30% for the International Equity Fund.
The current yield for the Fixed Income Fund is based on a 30-day (or
one-month) period and is computed by dividing the net investment income per
share earned during the period by the net asset value per share on the last day
of the period, according to the following formula:
a-b
YIELD = S[(---- + 1)6 -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 net asset value per share on the last
day of the period.
25
<PAGE>
The Fixed Income Fund's SEC 30-day yield for the period from October
1, 1998 through October 31, 1998 was 4.49%. Absent fee waivers, the yield would
have been 4.48%.
Each of the Funds may compare its performance to other mutual funds
with similar investment objectives and to the industry as a whole, as reported
by Morningstar, Inc. and Lipper Analytical Services, Inc.; Money, Forbes,
Business Week and Barron's magazines; and The Wall Street Journal. (Morningstar,
Inc. and Lipper Analytical Services, Inc. are independent ranking services that
each rank over 1,000 mutual funds based upon total return performance.) Each of
the Funds may also compare its performance to the Dow Jones Industrials Average,
Nasdaq Composite Index, Nasdaq Industrials Index, Value Line Composite Index,
the S&P 500r, S&P 400 Mid-Cap Growth Index, S&P Small Cap 600 Index, S&P BARRA
Value Index, Lehman Brothers Intermediate Government/Corporate Bond Index,
Russell 1000 Growth Index, Russell 2000 Index, Morgan Stanley Capital
International World (ex. U.S.) Index and the Consumer Price Index. Such
comparisons may be made in advertisements, shareholder reports or other
communications to shareholders.
DISTRIBUTION OF SHARES
Service and Distribution Plan
In addition to the sales charge deducted at the time of purchase, the
Corporation has adopted a Service and Distribution Plan pursuant to Rule 12b-1
under the Act (the "Plan") to use a portion of the Funds' assets to cover the
costs of certain activities relating to the distribution of its shares to
investors. The Corporation adopted the Plan in anticipation that the Funds will
benefit from the Plan through increased sales of shares, thereby reducing the
expense ratio of each of the Funds and providing the Adviser with greater
flexibility in management. The Plan may be terminated with respect to any Fund
at any time by a vote of the directors of the Corporation who are not interested
persons of the Corporation and who have no direct or indirect financial interest
in the Plan or any agreement related thereto (the "Rule 12b-1 Directors") or by
a vote of a majority of the outstanding shares of the Fund. JoAnne Brandes,
Richard Bibler, F. Gregory Campbell, Gerald Konz and George Nelson are currently
the Rule 12b-1 Directors. Any change in the Plan that would materially increase
the distribution expenses of a Fund provided for in the Plan requires approval
of the stockholders of that Fund and the Board of Directors, including the Rule
12b-1 Directors.
While the Plan is in effect, the selection and nomination of directors
who are not interested persons of the Corporation will be committed to the
discretion of the directors of the Corporation who are not interested persons of
the Corporation. The Board of Directors of the Corporation must review the
amount and purposes of expenditures pursuant to the Plan quarterly as reported
to it by a Distributor, if any, or officers of the Corporation. The Plan will
continue in effect for as long as its continuance is specifically approved at
least annually by the Board of Directors, including the Rule 12b-1 Directors.
Sunstone Distribution Services, LLC (the "Distributor"), an affiliate
of Sunstone Financial Group, Inc., acts as the principal underwriter of shares
of the Funds. The Distributor distributes shares of the Funds on a continuous
"best efforts" basis. The Plan permits the Funds to reimburse the Distributor
for expenses incurred in distributing the Funds' shares to investors,
26
<PAGE>
which include expenses relating to: sales representative compensation;
advertising preparation and distribution of sales literature and prospectuses to
prospective investors; implementing and operating the Plan; and performing other
promotional or administrative activities on behalf of the Funds. Pursuant to the
Plan, the Funds may reimburse the Distributor for overhead expenses incurred in
distributing the Funds' shares. The Funds may not reimburse the Distributor for
expenses of past fiscal years or in contemplation of expenses for future fiscal
years. The Funds may not use distribution fees paid by one Fund to finance the
distribution of shares for another Fund. The Distributor has entered into a
Distribution Agreement with the Corporation pursuant to which the Funds pay to
the Distributor a fee at the annual rate of 0.05% of each Fund's average daily
net assets.
The Distributor may enter into agreements from time to time with
broker-dealers ("Selected Dealers") providing for certain support and/or
distribution services to their customers who are the beneficial owners of shares
of the Funds. Under these agreements, shareowner support services may include
assisting investors in processing purchase, exchange and redemption requests;
processing dividend and distribution payments from the Funds; providing
information periodically to customers showing their positions in shares of the
Funds; and providing sub-accounting with respect to shares beneficially owned by
customers or the information necessary for sub-accounting. Such entities may
also provide assistance, such as the forwarding of sales literature and
advertising to their customers, in connection with the distribution of shares.
Under these agreements, the Distributor may pay fees at annual rates of up to
0.25% of the average daily net asset value of the shares covered by the
agreement.
During the period from March 31, 1998 (commencement of operations)
through October 31, 1998, the Funds incurred distribution fees under the Plan of
$58,031 for the Large Cap Equity Fund, $31,228 for the Small Cap Equity Fund,
$96,230 for the Fixed Income Fund and $29,417 for the International Equity Fund.
These fees were allocated to the following activities:
<TABLE>
<CAPTION>
Large Cap Small Cap Fixed Income International
Equity Fund Equity Fund Fund
<S> <C> <C> <C> <C>
Advertising $23,460 $12,684 $38,897 $11,894
Compensation to Distributor 20,903 11,154 34,673 10,594
Training of Sales Personnel 12,238 6,617 20,290 6,204
Printing and Mailing of Prospectuses 1,139 616 1,888 577
Compensation to Selected Dealers 291 157 482 148
</TABLE>
During the period from March 31, 1998 (commencement of operations)
through October 31, 1998 the Distributor received a sales charge or underwriting
commission on certain sales of shares of the Funds. The aggregate amount of
underwriting commissions paid to the Distributor and the amounts retained by the
Distributor (i.e. not reallowed to Selected Dealers) were:
27
<PAGE>
<TABLE>
<CAPTION>
Aggregate Amount of Underwriting Amounts Retained by the
Commissions Paid Distributor
to Distributor
<S> <C> <C>
Fixed Income Fund $ 572 $132
Large Cap Equity Fund $3,401 $663
Small Cap Equity Fund $1,808 $233
International Equity Fund $ 8 $ 1
</TABLE>
ALLOCATION OF PORTFOLIO BROKERAGE
Decisions to buy and sell securities for the Funds are made by the
Adviser subject to review by the Corporation's Board of Directors. In placing
purchase and sale orders for portfolio securities for a Fund, it is the policy
of the Adviser to seek the best execution of orders at the most favorable price
in light of the overall quality of brokerage and research services provided, as
described in this and the following paragraph. Many of these transactions
involve payment of a brokerage commission by a Fund. In some cases transactions
are with firms who act as principal for their own accounts. In selecting brokers
to effect portfolio transactions, the determination of what is expected to
result in best execution at the most favorable price involves a number of
largely judgmental considerations. Among these are the Adviser's evaluation of
the broker's efficiency in executing and clearing transactions, block trading
capability (including the broker's willingness to position securities and the
broker's financial strength and stability). The most favorable price to a Fund
means the best net price without regard to the mix between purchase or sale
price and commission, if any. Over-the-counter securities are generally
purchased and sold directly with principal market makers who retain the
difference in their cost in the security and its selling price (i.e. "markups"
when the market maker sells a security and "markdowns" when the market maker
purchases a security). In some instances, the Adviser feels that better prices
are available from non-principal market makers who are paid commissions
directly. The Adviser, in allocating orders for the purchase and sale of the
Funds' portfolio securities, is authorized to take into account the sale of Fund
shares, if the Adviser believes that the quality of the transaction and the
amount of the commission are comparable to what they would be with other
qualified firms.
In allocating brokerage business for a Fund, the Adviser also takes
into consideration the research, analytical, statistical and other information
and services provided by the broker, such as general economic reports and
information, reports or analyses of particular companies or industry groups,
market timing and technical information, and the availability of the brokerage
firm's analysts for consultation. While the Adviser believes these services have
substantial value, they are considered supplemental to the Adviser's own efforts
in the performance of its duties under the Advisory Agreements. Other clients of
the Adviser may indirectly benefit from the availability of these services to
the Adviser, and the Funds may indirectly benefit from services available to the
Adviser as a result of transactions for other clients. The Advisory Agreements
provide that the Adviser may cause a Fund to pay a broker which provides
brokerage and research services to the Adviser a commission for effecting a
securities transaction in excess of the amount another broker would have charged
for effecting the transaction, if the Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of brokerage and
research services provided by the executing broker viewed in terms of either the
28
<PAGE>
particular transaction or the Adviser's overall responsibilities with respect to
the Fund and the other accounts as to which it exercises investment discretion.
Brokerage commissions paid by the Funds during the period from January
27, 1998 (commencement of operations) through October 31, 1998 totaled $57,336
on total transactions of $37,191,797 for the Large Cap Equity Fund, $60,012 on
total transaction of $24,513,204 for the Small Cap Equity Fund, and $68,366 on
total transactions of $20,742,290 for the International Equity Fund. The Fixed
Income Fund did not pay brokerage commissions during this period. Substantially
all of the commissions paid by the Funds were paid on transactions which were
directed to brokers providing research services.
The Adviser may have other clients for which it is making investment
and order placement decisions similar to the Funds. When making simultaneous
purchases or sales for the Funds and another client, if any, the Adviser's
decisions could have a detrimental effect on the price or volume of the
securities purchased or sold for the Funds. In other cases, simultaneous
purchases or sales of securities for the Funds and other clients could provide
the Funds with the ability to participate in volume transactions that may cost
less per share or unit traded than smaller transactions.
TAXES
General
The Funds intend to qualify annually for and elect tax treatment
applicable to a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). The discussion that follows is
not intended to be a full discussion of present or proposed federal income tax
laws and the effect of such laws on an investor. Investors are urged to consult
with their tax advisers for a complete review of the tax ramifications of an
investment in the Funds.
If a Fund fails to qualify as a regulated investment company under
Subchapter M in any fiscal year, it will be treated as a corporation for federal
income tax purposes. As such that Fund would be required to pay income taxes on
its net investment income and net realized capital gains, if any, at the rates
generally applicable to corporations. Shareholders in a Fund that did not
qualify as a regulated investment company under Subchapter M would not be liable
for income tax on that Fund's net investment income or net realized gains in
heir individual capacities. Distributions to shareholders, whether from that
Fund's net investment income or net realized capital gains, would be treated as
taxable dividends to the extent of current or accumulated earnings and profits
of that Fund.
Dividends from a Fund's net investment income, including short-term
capital gains, are taxable to shareholders as ordinary income, while
distributions of net capital gain are taxable as long-term capital gain
regardless of the shareholder's holding period for the shares. Such dividends
and distributions are taxable to shareholders whether received in cash or in
additional shares. The 70% dividends-received deduction for corporations will
apply to dividends from a Fund's net investment income, subject to proportionate
reductions if the aggregate dividends received by the
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Fund from domestic corporations in any year are less than 100% of the
distribution of net investment company income taxable made by the Fund.
Any dividend or capital gain distribution paid shortly after a
purchase of shares of a Fund, will have the effect of reducing the per share net
asset value of such shares by the amount of the dividend or distribution.
Furthermore, if the net asset value of the shares of a Fund immediately after a
dividend or distribution is less than the cost of such shares to the
shareholder, the dividend or distribution will be taxable to the shareholder
even though it results in a return of capital to him.
Redemption of shares will generally result in a capital gain or loss
for income tax purposes. Such capital gain or loss will be long term or short
term, depending upon the shareholder's holding period for the shares. However,
if a loss is realized on shares held for six months or less, and the investor
received a capital gain distribution during that period, then such loss is
treated as a long-term capital loss to the extent of the capital gain
distribution received.
Rule 17a-7 Transactions
The Funds have adopted procedures pursuant to Rule 17a-7 under the Act
pursuant to which each of the Funds may effect a purchase and sale transaction
with an affiliated person of the Funds (or an affiliated person of such an
affiliated person) in which a Fund issues its shares in exchange for securities
which are permitted investments for the Funds. For purposes of determining the
number of shares to be issued, the securities to be exchanged will be valued in
accordance with Rule 17a-7. Certain of the transactions may be tax-free with the
result that the Funds acquire unrealized appreciation. Most Rule 17a-7
transactions will not be tax-free.
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
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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.
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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.
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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.
CAPITAL STRUCTURE
The Company's Articles of Incorporation permit the Board of Directors
to issue 1,000,000,000 shares of common stock. The Board of Directors has the
power to designate one or more classes ("series") of shares of common stock and
to designate or redesignate any unissued shares with respect to such series.
Each series is a separate Fund. Shareholders are entitled: (1) to one vote per
full share; (2) to such distributions as may be declared by the Company's Board
of Directors out of funds legally available; and (3) upon liquidation, to
participate ratably in the assets available for distribution. There are no
conversion or sinking fund provisions applicable to the shares, and the holders
have no preemptive rights and may not cumulate their votes in the election of
directors. Consequently the holders of more than 50% of the shares of the
Company voting for the election of directors can elect the entire Board of
Directors and in such event the holders of the remaining shares voting for the
election of directors will not be able to elect any person or persons to the
Board of Directors. The shares are redeemable and are transferable. All shares
issued and sold by the Fund will be fully paid and nonassessable. Fractional
shares entitle the holder to the same rights as whole shares.
As a general matter, shares are voted in the aggregate and not by
class, except where class voting would be required by Maryland law or the Act
(e.g., a change in investment policy or approval of an investment advisory
agreement). All consideration received from the sale of shares of any Fund,
together with all income, earnings, profits and proceeds thereof, belong to that
Fund and are charged with the liabilities directly attributable to that Fund.
Expenses that are not directly attributable to a Fund are typically allocated
among the Funds in proportion to their respective net assets. The net asset
value of a share of any Fund is based on the assets belonging to that Fund less
the liabilities charged to that Fund, and dividends may be paid on shares of any
Fund only out of lawfully available assets belonging to that Fund. In the event
of liquidation or dissolution of the Funds, the holders of each Fund would be
entitled, out of the assets of the Funds available for distribution, to the
assets belonging to that Fund.
DESCRIPTION OF SECURITIES RATINGS
Set forth below is a description of ratings used by three major
nationally recognized statistical ratings organizations ("NRSROs") Standard &
Poor's Corporation ("Standard & Poor's"), Moody's Investors Service, Inc.
("Moody's") and Duff & Phelps Credit Rating Co. ("Duff & Phelps"). NRSROs base
their ratings on current information furnished by the issuer or obtained from
other sources they consider reliable. NRSROs may change, suspend or withdraw
their ratings due to changes in, unavailability of, such information or for
other reasons.
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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.
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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 regarded 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.
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"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.
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"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.
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"DD" - Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin
53201-1215 serves as the independent accountants for the Corporation. As such
Arthur Andersen LLP performs an annual audit of each Fund's financial statement
and considers each Fund's internal control structure.
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PART C
OTHER INFORMATION
Item 23. Exhibits
--------
(a) Registrant's Articles of Incorporation, as amended(2)
(b) Registrant's Bylaws(2)
(c) None
(d)(1) Investment Advisory Agreement with Johnson Asset Management, Inc.
for JohnsonFamily Intermediate Fixed Income Fund(2)
(d)(2) Investment Advisory Agreement with Johnson Asset Management, Inc.
for JohnsonFamily Large Cap Equity Fund(2)
(d)(3) Investment Advisory Agreement with Johnson Asset Management, Inc.
for JohnsonFamily Small Cap Equity Fund(2)
(d)(4) Investment Advisory Agreement with Johnson Asset Management, Inc.
for JohnsonFamily International Equity Fund(2)
(e) Distribution Agreement with Sunstone Distribution Services, LLC
(f) None
(g) Custody Agreement with Investors Fiduciary Trust Company(2)
(h)(1) Administration and Fund Accounting Agreement with Sunstone
Financial Group, Inc.(1)
(h)(2) Transfer Agency Agreement with Sunstone Financial Group, Inc.
(i) Opinion of Foley & Lardner, counsel for Registrant
(j) Consent of Arthur Andersen LLP
(k) None
(l) Subscription Agreement(2)
(m)(1) Service and Distribution Plan(1)
(m)(2) Form of Dealer Agreement
(n) Financial Data Schedule
S-1
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(o) None
- ---------------
(1) Previously filed as an exhibit to the Registration Statement and
incorporated by reference thereto. The Registration Statement was filed on
January 30, 1998 and its accession number is 0000897069-98-000025.
(2) Previously filed as an exhibit to Pre-Effective Amendment No. 1 to the
Registration Statement and incorporated by reference thereto. Pre-effective
Amendment No. 1 was filed on March 26, 1998 and its accession number is
0000897069-98-000165.
Item 24. Persons Controlled by or under Common Control with Registrant
Registrant is controlled by Johnson Trust Company. Johnson Trust
Company is controlled by Johnson International, Inc. which in turn is controlled
by Samuel C. Johnson by virtue of his status as trustee of the Johnson
International Inc. Voting Trust which holds 55% of the outstanding shares of
Johnson International, Inc. Johnson International, Inc. is a Wisconsin
corporation and a bank holding company. In addition to owning all or
substantially all of the outstanding stock of the Johnson Banks and Banque
Franck, S.A., Johnson International, Inc. owns all of the outstanding stock of
Johnson Asset Management, Inc., a Wisconsin corporation. Registrant does not
control any person.
Item 25. Indemnification
Pursuant to the authority of the Maryland General Corporation Law,
particularly Section 2-418 thereof, Registrant's Board of Directors has adopted
the following bylaw which is in full force and effect and has not been modified
or cancelled:
Article VII
GENERAL PROVISIONS
Section 7. Indemnification.
A. The corporation shall indemnify all of its corporate representatives
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by them in connection with the
defense of any action, suit or proceeding, or threat or claim of such action,
suit or proceeding, whether civil, criminal, administrative, or legislative, no
matter by whom brought, or in any appeal in which they or any of them are made
parties or a party by reason of being or having been a corporate representative,
if the corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation and
with respect to any criminal proceeding, if he had no reasonable cause to
believe his conduct was unlawful provided that the corporation shall not
indemnify corporate representatives in relation to 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.
S-2
<PAGE>
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
S-3
<PAGE>
insurance may be purchased or maintained to protect any corporate representative
against liability for gross negligence, willful misfeasance, bad faith or
reckless disregard of the duties and obligations involved in the conduct of his
or her office.
G. "Corporate Representative" means an individual who is or was a
director, officer, agent or employee of the corporation or who serves or served
another corporation, partnership, joint venture, trust or other enterprise in
one of these capacities at the request of the corporation and who, by reason of
his or her position, is, was, or is threatened to be made, a party to a
proceeding described herein.
Insofar as indemnification for and with respect to liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer or controlling person or
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser
Incorporated by reference to pages 22 through 24 of the Statement of
Additional Information pursuant to Rule 411 under the Securities Act of 1933.
Item 27. Principal Underwriters
(a) Sunstone Distribution Services, LLC currently is principal
underwriter of the shares of The Northern Funds, The Haven Capital Management
Trust, The Green Century Funds, First Omaha Funds, La Crosse Funds and The
Marsico Investment Fund.
(b) To the best of Registrant's knowledge, the directors and officers
of Sunstone Distribution Services, LLC are as follows:
S-4
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Position and Offices with Positions and Offices
Business Address Sunstone Distribution Services, LLC with Registrant
- ------------------ ----------------------------------- ---------------------
<S> <C> <C>
Miriam M. Allison President and Member None
207 East Buffalo Street
Suite 400
Milwaukee, WI 53202
Daniel S. Allison Secretary and Member None
207 East Buffalo Street
Suite 400
Milwaukee, WI 53202
Terry Ladwig Vice President None
207 East Buffalo Street
Suite 400
Milwaukee, WI 53202
Peter Hammond Vice President None
207 East Buffalo Street
Suite 400
Milwaukee, WI 53202
(c) None
</TABLE>
Item 28. Location of Accounts and Records
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the physical possession of Registrant,
at Registrant's corporate offices, except (1) records held and maintained by
Investors Fiduciary Trust Company relating to its functions as custodian, (2)
records held and maintained by Sunstone Financial Group, Inc., 207 East Buffalo
Street, Suite 400, Milwaukee, Wisconsin 53202 relating to its functions as
administrator, fund accountant and transfer agent, and (3) records held and
maintained by Sunstone Distribution Services, LLC, 207 East Buffalo Street,
Suite 400, Milwaukee, Wisconsin 53202, relating to its role as distributor.
Item 29. Management Services
All management-related service contracts entered into by Registrant are
discussed in Parts A and B of this Registration Statement.
Item 30. Undertakings
Registrant undertakes to furnish each person to whom a prospectus is
delivered a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
S-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Fund certifies that it meets all of the
requirements for effectiveness of this Amended Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933 and 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 15th day of
June, 1999.
JohnsonFamily Funds, Inc.
(Registrant)
By: /s/ Joan A. Burke
Joan A. Burke, President
Pursuant to the requirements of the Securities Act of 1933,
this Amended Registration Statement has been signed below by the following
persons in the capacities and on the date(s) indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Joan A. Burke President (Principal Executive, June 15, 1999
Joan A. Burke Financial and Accounting Officer)
/s/ JoAnne Brandes Director June 15, 1999
JoAnne Brandes
/s/ Richard Bibler Director June 15, 1999
Richard Bibler
/s/ F. Gregory Campbell Director June 15, 1999
F. Gregory Campbell
/s/ Gerald Konz Director June 15, 1999
Gerald Konz
/s/ George Nelson Director June 15, 1999
George Nelson
/s/ Wendell Perkins Director June 15, 1999
Wendell Perkins
</TABLE>
S-6
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit Page No.
- ----------- ------- --------
(a) Registrant's Articles of Incorporation,
as amended*
(b) Registrant's Bylaws*
(c) None
(d)(1) Investment Advisory Agreement - JohnsonFamily
Intermediate Fixed Income Fund*
(d)(2) Investment Advisory Agreement - JohnsonFamily
Large CapEquity Fund*
(d)(3) Investment Advisory Agreement - JohnsonFamily
Small CapEquity Fund*
(d)(4) Investment Advisory Agreement - JohnsonFamily
International Equity Fund*
(e) Distribution Agreement
(f) None
(g) Custody Agreement*
(h)(1) Administration and Fund Accounting Agreement*
(h)(2) Transfer Agency Agreement
(i) Opinion of Foley & Lardner, counsel for Registrant
(j) Consent of Arthur Andersen LLP
(k) None
(l) Subscription Agreement*
(m)(1) Service and Distribution Plan*
(m)(2) Form of Dealer Agreement
(n) Financial Data Schedule
(o) None
- ---------------
* Incorporated by reference
DISTRIBUTION AGREEMENT (Revised)
THIS AGREEMENT is made as of this ______ day of________, 1999, 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").
<PAGE>
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).
2.4 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
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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.
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
<PAGE>
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
6
<PAGE>
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
7
<PAGE>
terminated as provided herein, this Agreement shall continue in effect with
respect to each Fund until________, 2000. 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.
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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
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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
TRANSFER AGENCY AGREEMENT
THIS AGREEMENT is made as of this 30 day of June, 1999, by and between
JohnsonFamily Funds, Inc., a Maryland corporation (the "Corporation"), and
Sunstone Financial Group, Inc., a Wisconsin corporation ("Sunstone").
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 Shares in a separate portfolio of securities and other
assets; and
WHEREAS, the Corporation and Sunstone desire to enter into an agreement
pursuant to which Sunstone shall provide certain transfer agency services to
such investment portfolios of the Corporation as are listed on Schedule A hereto
and any additional investment portfolios the Corporation and Sunstone 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:
ARTICLE I
APPOINTMENT OF TRANSFER AGENT
A. Appointment.
1. The Corporation hereby appoints Sunstone as transfer agent and
dividend disbursing agent of all the Shares of the Funds during the period of
this Agreement, and Sunstone hereby accepts such appointment as transfer agent
and dividend disbursing agent and agrees to perform the duties thereof as
hereinafter set forth.
2. Sunstone shall perform the transfer agent and dividend disbursing
agent services described on Schedule B hereto. To the extent that the
Corporation requests Sunstone to perform any additional services, Sunstone and
the Corporation shall mutually agree as to the services to be accomplished, the
manner of accomplishment and the compensation to which Sunstone shall be
entitled with respect thereto.
3. Sunstone may, in its discretion, appoint in writing other parties
qualified to perform transfer agency services reasonably acceptable to the
Corporation (individually, a "Sub-transfer Agent") to carry out some or all of
its responsibilities under this Agreement with respect to a Fund; provided,
however, that unless the Corporation shall enter into a written agreement with
such Sub-transfer Agent, the Sub-transfer Agent shall be the agent of Sunstone
and not the
<PAGE>
agent of the Corporation and, in such event Sunstone shall be fully responsible
for the acts or omissions of such Sub-transfer Agent and shall not be relieved
of any of its responsibilities hereunder by the appointment of such Sub-transfer
Agent.
4. Sunstone shall have no duties or responsibilities whatsoever
hereunder except such duties and responsibilities as are specifically set forth
in this Agreement, and no covenant or obligation shall be implied in this
Agreement against Sunstone.
B. Documents/Records.
1. In connection with such appointment, the Corporation shall deliver
or cause to be delivered to Sunstone the following documents:
a) A copy of the Articles of Incorporation and By-laws of the
Corporation and all amendments thereto, and a copy of the resolutions of the
Board of Directors of the Corporation appointing Sunstone and authorizing the
execution of this Transfer Agency Agreement on behalf of the Funds;
b) A certificate signed by the President and Secretary of the
Corporation specifying: the number of authorized Shares and the number of such
authorized Shares issued and currently outstanding, if any; the names of the
officers of the Corporation authorized to provide oral instructions and to sign
written instructions and requests on behalf of the Corporation (hereinafter
referred to as "Authorized Persons") and to change the persons authorized to
provide such instructions from time to time, it being understood Sunstone shall
not be held to have notice of any change in the authority of any Authorized
Person until receipt of written notice thereof from the Corporation; and
c) Copies of the Corporation's Registration Statement, as amended
to date, and the most recently filed Post-Effective Amendment thereto, filed by
the Corporation with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "1933 Act"), and under the 1940 Act.
2. The Corporation agrees to deliver or to cause to be delivered to
Sunstone in Milwaukee, Wisconsin, at the Corporation's expense, all of its
shareholder account records relating to the Funds in a format acceptable to
Sunstone and all such other documents, records and information as Sunstone may
reasonably request in order for Sunstone to perform its services hereunder.
ARTICLE II
COMPENSATION & EXPENSES
A. Compensation. In consideration for its services hereunder as transfer
agent and dividend disbursing agent, each Fund will pay to Sunstone such
compensation as provided in Schedule C. The parties may amend Schedule C to
include fees for any additional services
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<PAGE>
requested by the Corporation. The Corporation agrees to pay Sunstone's then
current rate for any services added to Schedule C after the execution of this
Agreement.
B. Expenses. The Corporation on behalf of each Fund also agrees to promptly
reimburse Sunstone for all reasonable estimated, allocated and actual
out-of-pocket expenses or disbursements incurred by Sunstone in connection with
the performance of services under this Agreement including, but not limited to,
expenses for postage, express delivery services, freight charges, envelopes,
checks, drafts, forms (continuous or otherwise), specially requested reports and
statements, bank account service fees and charges, telephone calls, telegraphs,
stationery supplies, outside printing and mailing firms, magnetic tapes, reels
or cartridges (if sent to a Fund or to a third party at a Fund's request) and
magnetic tape handling charges, on-site and off-site record storage, media for
storage of records (e.g., microfilm, microfiche, optical platters, computer
tapes and disks), computer equipment installed at a Fund's request at a Fund's
or a third party's premises, telecommunications equipment,
telephone/telecommunication lines between the Corporation and its agents, on one
hand, and Sunstone on the other, transmission of statement data for remote
printing or processing, and transaction fees to the extent any of the foregoing
are paid by Sunstone.
C. Payment Procedures.
1. Amounts due hereunder shall be due and paid by the respective Fund
on or before the thirtieth (30th) day after the date of the statement therefore
(the "Due Date"). Service fees are billed monthly, and out-of-pocket expenses
are billed as incurred (unless prepayment is requested by Sunstone). If
requested by Sunstone, postage and other out-of-pocket expenses are payable in
advance, and in the event requested, postage is due at least seven days prior to
the anticipated mail date. In the event Sunstone requests advance payment,
Sunstone shall not be obligated to incur such expenses or perform the related
service(s) until payment is received. Sunstone may, at its option, arrange to
have various service providers submit invoices directly to the Funds for payment
of out-of-pocket expenses reimbursable hereunder. The Corporation is aware that
its failure to pay all amounts in a timely fashion so that they will be received
by Sunstone on or before the Due Date will give rise to costs to Sunstone not
contemplated by this Agreement, including but not limited to carrying,
processing and accounting charges. Accordingly, in the event that any amounts
due hereunder are not received by Sunstone within ten (10) days of the date of a
notice of past due amounts, the Corporation shall pay a late charge equal to one
and one-half percent (1.5%) per month or the maximum amount permitted by law,
whichever is less from the date of the past due notice to the date of Sunstone's
receipt of payment of such past due amount. In addition, the Corporation shall
pay all costs of collection, including reasonable attorney's fees and court
costs, of Sunstone. The parties hereby agree that such late charge represents a
fair and reasonable computation of the costs incurred by reason of late payment
or payment of amounts not properly due. Acceptance of such late charge shall in
no event constitute a waiver of a Fund's breach or prevent Sunstone from
exercising any other rights and remedies available to it.
2. In the event that any charges are disputed, the Corporation shall,
on or before the Due Date, pay all undisputed amounts due hereunder and notify
Sunstone in writing of any disputed charges for out-of-pocket expenses which it
is disputing in good faith. Payment for
3
<PAGE>
such disputed charges shall be due on or before the close of the fifth (5th)
business day after the day on which Sunstone provides to the Fund documentation
which an objective observer would agree reasonably supports the disputed charges
(the "Revised Due Date"). Late charges shall not begin to accrue as to charges
disputed in good faith until the first day after the Revised Due Date.
ARTICLE III
PROCESSING AND PROCEDURES
A. Issuance, Redemption and Transfer of Shares
1. Sunstone acknowledges that it has received a copy of each Fund's
Prospectus (as hereinafter defined), which Prospectus describes how sales and
redemptions of shares of each Fund shall be made and Sunstone agrees to accept
purchase orders and redemption requests with respect to Fund shares on each Fund
Business Day in accordance with such Prospectus. "Fund Business Day" shall be
deemed to be each day on which the New York Stock Exchange is open for trading,
and "Prospectus" shall mean the last Fund prospectus actually received by
Sunstone from the Fund with respect to which the Fund has indicated a
registration statement under the 1933 Act has become effective, including the
Statement of Additional Information, incorporated by reference therein.
2. On each Fund Business Day Sunstone shall, as of the time at which
the net asset value of each Fund is computed, issue to and redeem from the
accounts specified in a purchase order or redemption request in proper form and
accepted by the Corporation, which in accordance with the Prospectus is
effective on such day, the appropriate number of full and fractional Shares
based on the net asset value per Share of the respective Fund specified in an
advice received on such Fund Business Day from or on behalf of the Fund.
3. Upon the issuance of any Shares in accordance with this Agreement,
Sunstone shall not be responsible for the payment of any original issue or other
taxes required to be paid by the Fund in connection with such issuance of any
Shares.
4. Sunstone shall not be required to issue any Shares after it has
received from an Authorized Person or from an appropriate federal or state
authority written notification that the sale of Shares has been suspended or
discontinued, and Sunstone shall be entitled to rely upon such written
notification.
5. Upon receipt of a redemption request and monies paid to it by the
Custodian in connection with a redemption of Shares, Sunstone shall cancel the
redeemed Shares and after making appropriate deduction for any withholding of
taxes required of it by applicable federal law, make payment in accordance with
the Fund's redemption and payment procedures described in the Prospectus.
6. (a) Except as otherwise provided in sub-paragraph (b) of this
paragraph, Shares will be transferred or redeemed upon presentation to Sunstone
of instructions properly
4
<PAGE>
endorsed for exchange, transfer or redemption, accompanied by such documents as
the Corporation and Sunstone deem necessary to evidence the authority of the
person making such transfer or redemption, and bearing satisfactory evidence of
the payment of stock transfer taxes. Sunstone reserves the right to refuse to
transfer or redeem Shares until it is satisfied that the instructions are valid
and genuine, and for that purpose it will require, unless otherwise instructed
by an Authorized Person or except as provided in sub-paragraph (b) of this
paragraph, a guarantee of signature by an "Eligible Guarantor Institution" as
that term is defined by SEC Rule 17Ad-15. Sunstone also reserves the right to
refuse to transfer or redeem Shares until it is satisfied that the requested
transfer or redemption is legally authorized, and it shall incur no liability
for the refusal, in good faith, to make transfers or redemptions which Sunstone,
in its judgment, deems improper or unauthorized, or until it is satisfied that
there is no reasonable basis to any claims adverse to such transfer or
redemption. Sunstone may, in effecting transfers and redemptions of Shares, rely
upon those provisions of the Uniform Act for the Simplification of Fiduciary
Security Transfers or the Uniform Commercial Code, as the same may be amended
from time to time, applicable to the transfer of securities, and shall not be
responsible for any act done or omitted by it in good faith in reliance upon
such laws.
(b) Notwithstanding the foregoing or any other provision
contained in this Agreement to the contrary, Sunstone shall be fully protected
by each Fund in not requiring any instruments, documents, assurances,
endorsements or guarantees, including, without limitation, any signature
guarantees, in connection with a redemption, exchange or transfer of Shares
whenever Sunstone reasonably believes that requiring the same would be
inconsistent with the transfer and redemption procedures as described in the
Prospectus.
7. Notwithstanding any provision contained in this Agreement to the
contrary, Sunstone shall not be required or expected to require, as a condition
to any transfer or redemption of any Shares pursuant to a computer tape or
electronic data transmission, any documents to evidence the authority of the
person requesting the transfer or redemption and/or the payment of any stock
transfer taxes, and shall be fully protected in acting in accordance with the
applicable provisions of this Article.
8. In connection with each purchase and each redemption of Shares,
Sunstone shall send such statements as are prescribed by the Federal securities
laws applicable to transfer agents or as described in the Prospectus. It is
understood that certificates representing Shares will not be offered by the
Corporation or available to investors.
9. On each Fund Business Day Sunstone shall supply the Fund with a
statement specifying with respect to the immediately preceding Fund Business
Day: the total number of Shares of the Fund (including fractional Shares) issued
and outstanding at the opening of business on such day; the total number of
Shares of the Fund sold on such day; the total number of Shares of the Fund and
the dollar amount redeemed from Shareholders by Sunstone on such day and the
total number of Shares of the Fund issued and outstanding.
10. Procedures for effecting purchase, redemption or transfer
transactions accepted from investors by telephone or other methods shall be
established by mutual agreement between the Corporation and Sunstone and
consistent with the terms of the Prospectus. Sunstone upon
5
<PAGE>
notice to the Corporation may establish such additional procedures, rules and
regulations governing the purchase, redemption or transfer of Shares, as it may
deem advisable and consistent with the Prospectus and such rules and regulations
generally adopted by mutual fund transfer agents. Sunstone shall not be liable,
and shall be held harmless by the Corporation, for its actions or omissions
which are consistent with the foregoing procedures.
11. Prior to the effective date of any increase or decrease in the
total number of Shares authorized to be issued, or the issuance of any
additional Shares of a Fund pursuant to stock dividends, stock splits,
recapitalizations, capital adjustments or similar transactions, the Corporation
agrees to deliver to Sunstone such documents, certificates, reports and legal
opinions as Sunstone may reasonably request.
B. Dividends and Distributions.
1. The Corporation shall furnish to Sunstone a copy of a resolution of
its Board of Directors, certified by an Authorized Person, either (i) setting
forth the date of the declaration of a dividend or distribution, the date of
accrual or payment, as the case may be, thereof, the record date as of which
shareholders entitled to payment, or accrual, as the case may be, shall be
determined, the amount per Share of such dividend or distribution, the payment
date on which all previously accrued and unpaid dividends are to be paid, and
the total amount, if any, payable to Sunstone on such payment date, or (ii)
authorizing the declaration of dividends and distributions on a daily or other
periodic basis and authorizing Sunstone to rely on a certificate of an
Authorized Person setting forth the information described in subsection (i) of
this paragraph.
2. In connection with a reinvestment of a dividend or distribution of
Shares of a Fund, Sunstone shall as of each Fund Business Day as specified in a
certificate or resolution described in paragraph 1, issue Shares of the Fund
based on the net asset value per Share of such Fund specified in an advice
received from or on behalf of the Fund on such Fund Business Day.
3. Upon the mail date specified in such certificate or resolution, as
the case may be, the Corporation shall, in the case of a cash dividend or
distribution, cause the Custodian to deposit in an account in the name of
Sunstone on behalf of a Fund, an amount of cash, if any, sufficient for Sunstone
to make the payment, as of the mail date, specified in such Certificate or
resolution, as the case may be, to the Shareholders who were of record on the
record date. Sunstone will, upon receipt of any such cash, make payment of such
cash dividends or distributions to the shareholders of record as of the record
date. Sunstone shall not be liable for any improper payments made in accordance
with a certificate or resolution described in the preceding paragraph. If
Sunstone shall not receive from the Custodian sufficient cash to make payments
of any cash dividend or distribution to all shareholders of the Fund as of the
record date, Sunstone shall, upon notifying the Fund, withhold payment to all
shareholders of record as of the record date until sufficient cash is provided
to Sunstone.
4. It is understood that Sunstone in its capacity as transfer agent
and dividend disbursing agent shall in no way be responsible for the
determination of the rate or form of dividends or capital gain distributions due
to the shareholders pursuant to the terms of this Agreement. It is further
understood that Sunstone shall file with the Internal Revenue Service
6
<PAGE>
and shareholders such appropriate federal tax forms concerning the payment of
dividend and capital gain distributions but shall in no way be responsible for
the collection or withholding of taxes due on such dividends or distributions
due to shareholders, except and only to the extent, required by applicable law.
C. Records.
1. Sunstone shall keep such records as are specified in Schedule D
hereto in the form and manner, and for such period, as it may deem advisable but
not inconsistent with the rules and regulations of appropriate government
authorities, in particular Rules 31a-2 and 31a-3 under the 1940 Act. Sunstone
may deliver to the Corporation from time to time at Sunstone's discretion, for
safekeeping or disposition by the Corporation in accordance with law, such
records, papers and documents accumulated in the execution of its duties as such
transfer agent, as Sunstone may deem expedient, other than those which Sunstone
is itself required to maintain pursuant to applicable laws and regulations. The
Corporation shall assume all responsibility for any failure thereafter to
produce any record, paper, canceled Share certificate, or other document so
returned, if and when required. To the extent required by Section 31 of the 1940
Act and the rules and regulations thereunder, the records specified in Schedule
D hereto maintained by Sunstone, which have not been previously delivered to the
Corporation pursuant to the foregoing provisions of this paragraph, shall be
considered to be the property of the Corporation, shall be made available upon
request for inspection by the officers, employees, and auditors of the
Corporation, and shall be delivered to the Corporation promptly upon request and
in any event upon the date of termination of this Agreement, in the form and
manner kept by Sunstone on such date of termination or such earlier date as may
be requested by the Corporation.
2. Sunstone agrees to keep all records and other information relative
to the Corporation, the Funds and their shareholders confidential. In case of
any requests or demands for the inspection of the shareholder records of a Fund,
Sunstone will endeavor to notify the Fund promptly and to secure instructions
from an Authorized Person as to such inspection. Sunstone reserves the right,
however, to exhibit the shareholder records to any person whenever it reasonably
believes there is a reasonable likelihood that Sunstone will be held liable for
the failure to exhibit the shareholder records to such person; provided,
however, that in connection with any such disclosure Sunstone shall promptly
notify the Corporation that such disclosure is to be made. Notwithstanding the
foregoing, Sunstone may disclose information when requested by a shareholder
concerning an account as to which such shareholder claims a legal or beneficial
interest or when requested by the Corporation, the shareholder or the dealer of
record as to such account.
ARTICLE IV
CONCERNING THE CORPORATION
A. Representations. The Corporation represents and warrants to Sunstone
that:
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<PAGE>
(a) It is a Corporation duly organized and existing under the laws of
the State of Maryland, it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement, and all
requisite proceedings have been taken to authorize it to enter into and perform
this Agreement.
(b) It is an investment company registered under the 1940 Act.
(c) A registration statement under the 1933 Act with respect to the
Shares is effective. The Corporation shall notify Sunstone if such registration
statement or any state securities registrations have been terminated, lapse or a
stop order has been entered with respect to the Shares.
B. Covenants.
1. The Corporation will provide to Sunstone copies of all amendments
to its Articles of Incorporation and By-laws made after the date of this
Agreement. If requested by Sunstone, each copy of the Articles of Incorporation
and By-laws of the Corporation and copies of all amendments thereto shall be
certified by the Secretary of the Corporation.
2. The Corporation shall deliver to Sunstone the Fund's currently
effective Prospectus and, for purposes of this Agreement, Sunstone shall not be
deemed to have notice of any information contained in such Prospectus until a
reasonable time after it is actually received by Sunstone.
3. All requisite steps will be taken by the Corporation from time to
time when and as necessary to register the Corporation's shares for sale in all
states in which the Corporation's shares shall at the time be offered for sale
and require registration. The Corporation shall provide notice to Sunstone as to
each state its shares are registered for sale in. If at any time the Corporation
receives notice of any stop order or other proceeding in any such state
affecting such registration or the sale of Corporation shares, or of any stop
order or other proceeding under the federal securities laws affecting the sale
of Corporation shares, the Corporation will give prompt notice thereof to
Sunstone.
4. The Corporation will comply with all applicable requirements of the
1933 Act, the Securities Exchange Act of 1934, as amended, the 1940 Act, blue
sky laws, and any other applicable laws, rules and regulations.
5. The Corporation agrees that prior to effecting any change in the
Prospectus which would increase or alter the duties and obligations of Sunstone
hereunder, it shall advise Sunstone of such proposed change at least 30 days
prior to the intended date of the same, and shall proceed with such change only
if it shall have received the written consent of Sunstone thereto, which shall
not be unreasonably withheld.
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ARTICLE V
CONCERNING THE TRANSFER AGENT
A. Representations. Sunstone represents and warrants to the Fund that:
(a) It is a corporation duly organized and existing under the laws of
the State of Wisconsin, is empowered under applicable law and by its Articles
and By-Laws to enter into and perform this Agreement, and all requisite
proceedings have been taken to authorize it to enter into and perform this
Agreement.
(b) It is duly registered as a transfer agent under Section 17A of the
Securities Exchange Act of 1934, as amended, to the extent required.
B. Limitation of Liability; Indemnification.
1. Sunstone shall use reasonable care and act in good faith in
providing services under this Agreement, but shall not be liable for any loss or
damage, including counsel fees, resulting from its actions or omissions to act
or otherwise, in the absence of its bad faith, willful misfeasance, negligence
or reckless disregard of its duties under this Agreement.
2. The Corporation on behalf of the Funds agrees to indemnify and hold
harmless Sunstone, its employees, agents, members, officers and nominees from
and against any and all claims, demands, actions and suits, whether groundless
or otherwise, and from and against any and all judgments, liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature and
character arising out of or in any way relating to Sunstone's actions taken or
nonactions with respect to the performance of services under this Agreement or
based, if applicable, upon reliance on information, records, instructions (oral
or written) or requests given or made to Sunstone by the Funds, its officers,
Authorized Persons, directors, agents or representatives; provided that this
indemnification shall not apply to actions or omissions of Sunstone in cases of
its own willful misfeasance or negligence, and further provided that prior to
confessing any claim against it which may be the subject of this
indemnification, Sunstone shall give the Funds written notice of and reasonable
opportunity to defend against said claim in its own name or in the name of
Sunstone. The indemnity and defense provisions provided hereunder shall
indefinitely survive the termination of this Agreement.
3. Sunstone agrees to indemnify and hold harmless the Funds, its
employees, agents, directors, officers and nominees from and against any and all
claims, demands, actions and suits, whether groundless or otherwise, and from
and against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character resulting from
Sunstone's bad faith, willful misfeasance, negligence or reckless disregard of
its duties under this Agreement; provided that prior to confessing any claim
against it which may be the subject of this indemnification, the Funds shall
give Sunstone written notice of and reasonable opportunity to defend against
said claim in its own name or in the name of the
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<PAGE>
Funds. The indemnity and defense provisions provided hereunder shall
indefinitely survive the termination of this Agreement.
4. Sunstone assumes no responsibility hereunder, and shall not be
liable, for any damage, loss of data, errors, delay or any other loss whatsoever
caused by events beyond its reasonable control. Sunstone will, however, take all
reasonable steps to minimize service interruptions for any period that such
interruption continues beyond Sunstone's control.
5. In no event and under no circumstances shall either party to this
Agreement be liable to anyone, including, without limitation to the other party,
for consequential or punitive damages for any act or failure to act under any
provision of this Agreement even if advised of the possibility thereof.
6. Notwithstanding anything herein to the contrary, Sunstone shall not
be liable and shall be indemnified in acting upon any writing or document
reasonably believed by it to be genuine and to have been signed or made by an
Authorized Person or verbal instructions which the individual receiving the
instructions on behalf of Sunstone reasonably believes in good faith to have
been given by an Authorized Person, and Sunstone shall not be held to have any
notice of any change of authority of any person until receipt of written notice
thereof from a Fund or such person.
7. At any time Sunstone may request instructions and/or receive
directions from an Authorized Person with respect to any matter arising in
connection with Sunstone's duties and obligations under this Agreement, and
Sunstone shall not be liable for any action taken or permitted by it in good
faith in accordance with such instructions or directions. Such request for
instructions by Sunstone may set forth any action proposed to be taken or
omitted by Sunstone with respect to its duties or obligations under this
Agreement and the date on and/or which such action shall be taken. Sunstone
shall not be liable for any action taken or omitted in accordance with a
proposal included in any such request on or after the date specified therein
unless, prior to taking or omitting any such action, Sunstone has received
instructions in response to such application specifying the action to be taken
or omitted. Sunstone may consult counsel of the Corporation at the expense of
the Corporation and shall be fully protected with respect to anything done or
omitted by it in good faith in accordance with the advice or opinion of counsel
to the Corporation.
8. Notwithstanding any of the provisions of this Agreement to the
contrary, Sunstone shall be under no duty or obligation under this Agreement to
inquire into, and shall not be liable for:
(a) The legality of the issue or sale of any Shares, the
sufficiency of the amount to be received therefore, or the authority of a Fund,
as the case may be, to request such sale or issuance;
(b) The legality of a transfer of Shares, or of a redemption of
any Shares, the propriety of the amount to be paid therefore, or the authority
of a Fund, as the case may be, to request such transfer or redemption;
10
<PAGE>
(c) The legality of the declaration of any dividend by a Fund, or
the legality of the issue of any Shares in payment of any stock dividend, or the
legality of any recapitalization or readjustment of Shares.
C. Year 2000 Compliance
Sunstone represents that its proprietary systems will be Year 2000
compliant in all material respects with regard to the services to be provided
herein and shall monitor the Year 2000 compliance status of its software
vendors.
ARTICLE VI
TERM
1. This Agreement shall remain in full force and effect until June 30,
2000 (the "Initial Term"), and thereafter shall automatically extend for
successive twelve (12) month terms unless earlier terminated as provided below.
2. Either of the parties hereto may terminate this Agreement after the
Initial Term by giving to the other party a notice in writing specifying the
date of such termination, which shall be not less than ninety (90) days after
the date of receipt of such notice. In the event such notice is given by a Fund,
it shall be accompanied by a copy of a resolution of the Board of Directors of
the Corporation, certified by the Secretary or any Assistant Secretary, electing
to terminate this Agreement and designating the successor transfer agent or
transfer agents. In the event such notice is given by Sunstone, the Fund shall
on or before the termination date, deliver to Sunstone a copy of a resolution of
its Board of Directors certified by the Secretary or any Assistant Secretary
designating a successor transfer agent or transfer agents. In the absence of
such designation by the Fund, the Fund shall upon the date specified in the
notice of termination of this Agreement and delivery of the records maintained
hereunder, be deemed to be its own transfer agent and Sunstone shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement. Fees and
out-of-pocket expenses incurred by Sunstone, but unpaid by a Fund upon such
termination, shall be immediately due and payable upon and notwithstanding such
termination.
3. In the event this Agreement is terminated as provided herein,
Sunstone, upon the written request of the Corporation, shall deliver the records
of the Corporation to the Corporation or its successor transfer agent in the
form maintained by Sunstone. The Corporation shall be responsible to Sunstone
for all out-of-pocket expenses and for the reasonable costs and expenses
associated with the preparation and delivery of such media, including: (a) any
custom programming requested by the Corporation in connection with the
preparation of such media; (b) transportation of forms and other materials used
in connection with the processing of Fund transactions by Sunstone; and (c)
transportation of records and files in the possession of Sunstone. Sunstone
shall not reduce the level of service provided to the Corporation following
notice of termination by the Corporation.
11
<PAGE>
ARTICLE VII
MISCELLANEOUS
A. Notices. 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 Sunstone shall be sent to Sunstone Financial
Group, Inc., 207 East Buffalo Street, Suite 400, Milwaukee, WI, 53202,
Attention: Miriam M. Allison, and notice to the Corporation shall be sent to
JohnsonFamily Funds, Inc., 4041 North Main Street, Racine, Wisconsin 53402
Attention: Joan Burke.
B. Amendments/Assignments.
1. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the formality of this
Agreement.
2. This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns. This Agreement
shall not be assignable by either party without the written consent of the other
party except that Sunstone may assign this Agreement to an affiliate with
advance written notice to the Corporation.
C. Wisconsin Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin. If any part, term or
provision of this Agreement is determined by the courts or any regulatory
authority having jurisdiction over the issue to be illegal, in conflict with any
law or otherwise invalid, the remaining portion or portions shall be considered
severable and not be affected, and the rights and obligations of the parties
shall be construed and enforced as if the Agreement did not contain the
particular part, term or provision held to be illegal or invalid.
D. Counterparts. This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
E. Non-Exclusive; Other Agreements. The services of Sunstone hereunder are
not deemed exclusive and Sunstone shall be free to render similar services to
others. 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 any party hereunder shall not affect any rights or
obligations of any other party hereunder.
F. Captions. The captions in the Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officer, thereunto duly authorized and
their respective corporate seals to be hereunto affixed, as the day and year
first above written.
SUNSTONE FINANCIAL GROUP, INC. JOHNSONFAMILY FUNDS, INC.
By: ______________________________ By: ________________________________
(Signature) (Signature)
------------------------------ --------------------------------
(Name) (Name)
------------------------------ --------------------------------
(Title) (Title)
------------------------------ --------------------------------
(Date Signed) (Date Signed)
13
<PAGE>
Schedule A
to the
Transfer Agent Agreement
by and between
JohnsonFamily Funds, Inc.
and
Sunstone Financial Group, Inc.
Name of Funds
Large Cap Equity Fund
Small Cap Equity Fund
International Equity Fund
Intermediate Fixed Income Fund
14
<PAGE>
Schedule B
to the
Transfer Agent Agreement
by and between
JohnsonFamily Funds, Inc.
and
Sunstone Financial Group, Inc.
SERVICES
* Maintenance of accounts
x Maintain accounts for each shareholder of record;
x Scan documents related to omnibus accounts;
x Issue periodic statement for shareholder of record.
* Shareholder servicing and shareholder transactions
x Respond to written and telephone (recorded lines) inquiries from
broker-dealers and other authorized individuals representing
shareholder of record for information about their accounts maintained
on Sunstone's system;
x Process purchase and redemption orders for shareholders of record;
x Set-up account information, including address, taxpayer identification
numbers and wire instructions for shareholders of record;
x Issue transaction confirmations for shareholders of record.
* Compliance reporting
x Provide required reports to the Securities and Exchange Commission,
the National Association of Securities Dealers;
x Prepare and distribute any required Internal Revenue Service forms
relating to earned income and capital gains to fund and shareholders
of record.
* Dealer/load processing
x Provide dealer access through NSCC's FundSERV;
x Calculate fees due under 12b-1 plans for distribution and marketing
expenses.
15
<PAGE>
* Telephone service representatives on-line access
x Respond to inquiries from dealers or other authorized individuals
representing shareholders of record related to:
+ Share balances;
+ Account registration;
+ Dividend and capital gain distribution status;
+ Transaction dates and types;
+ Shares traded;
+ Tax ID number for shareholders of record;
+ Address;
+ Dealer information;
+ Shares purchased/redeemed today;
+ Dividend accrual, current dividend period; and
+ Market value of shares.
* Standard reports
x Purchases and redemptions, (monthly)
x Rule 12b-1 reports (quarterly)
Other Service Features
In addition to the standard features listed above, Sunstone's system offers
additional features to meet specialized needs.
* Specialized needs
x 12b-1 fee calculations
x Duplicate statements to authorized third parties
16
<PAGE>
Schedule C
to the
Transfer Agent Agreement
by and between
JohnsonFamily Funds, Inc.
and
Sunstone Financial Group, Inc.
Investor Services Fees
FEE SCHEDULE
STANDARD SERVICES
The following fees are charged for essential shareholder services.
Base fees
* Open account fee (per year)
* No load equity and non-daily accrual fixed income funds $8.50
* Additional for 12b-1 fee $0.75
* Additional for front-end load $1.50
* Additional for CDSC or back-end load $2.00
* Money market and daily accrual fixed income funds $11.00
* Additional for 12b-1 fee $0.75
* Additional for front-end load $1.50
* Additional for CDSC or back-end load $2.00
* Closed account fee (per year) $3.00
* Monthly base (per fund)
* One to three funds in fund family $1,500
* 4 or more funds in fund family $1,000
Account maintenance fees (per occurrence)
* New account set up $3.00
* Financial transactions $1.50
* Maintenance transactions $1.00
* Research/correspondence $2.50
* Transfer on death (TOD) set-up $7.50
* Fund/SERV
* Initial set-up per fund family $3,500
* Set-up fee per subsequent CUSIP $1,000
* New account set-up $1.00
* Per transaction - no load fund $0.25
* Per transaction - load fund $0.35
* Adjustments and rebills $2.50
* Fund/SERV direct charges at cost
* Commission/SERV (per check) $0.25
* ACH/AIP/SWP/automatic exchanges
* Set-up $1.00
* Per transaction $0.25
* Withholding per eligible account per year $0.25
Account transcripts older than 2 years
(may be charged to shareholders) $5.00
17
<PAGE>
* Locating lost shareholders $8.00
* Postal clean up per account $3.00
* Tax ID number solicitation $2.50
Shareholder servicing fees
* Telephone calls (per call) $2.50
Investor Services Fees (continued)
* Annual maintenance per omnibus account $150
Tax and retirement fees
* Retirement accounts (IRA/Roth/others)
* Annual maintenance per account (may be
charged to shareholders) $12.50
* Account distribution (may be charged to shareholders) $12.50
* IRA transfer/rollover $7.50
Document Services
* Per statement, confirmation and check processing $0.25
* Per tax form processing $0.25
* Per label printing for proxy or marketing purposes $0.10
* Bulk mailings/insert handling charge
* 1 insert $0.06
* 2 - 3 inserts $0.08
* 4 or more inserts as quoted
* Production of ad hoc reports starting at $100
PREMIUM SERVICES
The following services are offered "ala carte" and may be selected to best fit
your needs.
Optional shareholder services
* Telephone follow-up on incomplete transactions $2.50
* Average cost calculation per eligible account $0.25
* Use of Sunstone Fund/SERV membership (per fund/per year)
* First three funds in fund family $2,000
* 4 or more funds $1,000
* Dedicated representative monthly fee $5,800
* Weekend shareholder services (8 hours)
* Daily fee (minimum 3 phone representatives) $2,000
* Additional representatives (each) $400
* Additional hours more than 8 (per representative/hour) $75
18
<PAGE>
* Customized reorder form tracking
* Base fee per project $300
* Per item $0.08
* Special projects fees (per representative/hour) $50.00
Tax and retirement
Investor Services Fees (continued)
* Required minimum distribution (age 70 1/2)
* Correspondence letters $2.50
* Per calculation $7.50
* Removal of excess contributions
* Correspondence letters $2.50
* Per calculation $7.50
* Other solicitation letters
* Beneficiary information $2.50
* Birthday information $2.50
* Retirement plan documents as quoted
* Transfer on Death documents as quoted
Sunstone offered money market exchange vehicles
* One-time set up per money market fund used $2,000
* Monthly base fee per money market fund used $650
* Money market checkbooks at cost
* Signature verification of check writing $2.00
Forms and Applications
* Standard applications and forms with custom logo $1,500 plus printing
* Customized forms as quoted
Sunstone 4promptSM Services (monthly fees)
* Tier I and II - Basic Service
* Monthly maintenance fee $125
* One time set up fee $750
* Investor Services Fees (continued)
* Tier III - Automated Account Information
* Monthly maintenance fee $325
* One time set up fee $3,500
* Tier IV - Automated Prospectus Service
* Monthly maintenance fee $325
* One time set up fee $350
19
<PAGE>
* Tier V - Automated Account Information and Prospectus Service
* Monthly maintenance fee $350
* One time set up fee $3,750
* Tier VI - Adviser Services Line
* Monthly maintenance fee $450
* One time set up fee $500
* Customized services (per toll-free number)
* Each additional 10 second greeting $50.00 plus recording
* Each additional 10 second
intramenu announcement $40.00 plus recording
* Pricing script per market index $25.00 plus recording
* Customized performance script $50.00 plus recording
* Changes in announcements at cost
Sunstone 4.netSM Services
* Sunstone 4.netSM Adviser Services
* Set up fee (per location) $5,000
* Monthly maintenance (per fund family) $500
* Sunstone 4.netSM RIA/Broker Services
* Set up fee (per fund family) $6,000
* Monthly maintenance
* 1-10 RIA/broker representatives $150
* 11-25 RIA/broker representative $250
* 26-50 RIA/broker representatives $400
* 51-100 RIA/broker representatives $750
* over 100 RIA/broker representatives $1,000
* Sunstone 4.netSM Shareholder Services
* Set up fee (per fund family) $7,500
* Monthly maintenance
* Less than 5,000 total shareholder accounts $250
* 5,000 to 25,000 total shareholder accounts $350
* 25,001 to 50,000 total shareholder accounts $500
*over 50,000 total shareholder accounts $750
Investor Services Fees (continued)
* Sunstone 4.NAVSM Services
* Set up fee (per fund family) $2,000
* Monthly maintenance (per fund) $150
20
<PAGE>
* Sunstone 4.emailSM Services
* Set up fee (per fund family) $3,000
* Monthly maintenance
* Less than 5,000 total accounts $100
* 5,000 to 25,000 total accounts $200
* 25,001 to 50,000 total accounts $350
* over 50,000 accounts $500
Investor Services Fees (continued)
*Undeliverable e-mail follow up (per occurrence) $5.00
*Processing (per e-mail sent) $0.10
Reprocessings due to NAV errors
This charge applies when shareholder transactions are required to be reprocessed
as a result of NAV errors caused by the adviser or fund accountant unaffiliated
with Sunstone. This charge is not a fund expense and is billed to the adviser.
* Base fee (per occurrence) $750
* Transaction fee $1.00
Custom programming
Additional fees at $150 per hour or quoted by project may apply for special
programming to meet your servicing requirements or to create custom reports.
Out-of-pocket expenses
Document Charges
* Copying charges (per page) $0.15
* Facsimile charges (per fax) $1.25
* Inventory and records storage $20.00/pallet
Supplies and Services
* Statement paper, check stock, envelopes, tax forms at cost
* Postage and express delivery charges at cost
* Tape/disk storage at cost
* Telephone and long distance at cost
* P.O. box rental at cost
* Toll-free number at cost
Bank Charges
* Bank account service fees and any other bank charges at cost
* Outgoing wire fee varies by bank
* Non-sufficient funds varies by bank
* Stopped check on money market funds $25.00
21
<PAGE>
Schedule D
to the
Transfer Agent Agreement
by and between
JohnsonFamily Funds, Inc.
and
Sunstone Financial Group, Inc.
RECORDS MAINTAINED BY SUNSTONE
* Checks including check registers, reconciliation records and any adjustment
records
* Shareholder correspondence regarding shareholders of record
* Shareholder transaction records for shareholders of record
* Share transaction history of the Funds for shareholders of record
22
FOLEY & LARDNER
CHICAGO FIRSTAR CENTER SACRAMENTO
DENVER 777 EAST WISCONSIN AVENUE SAN DIEGO
JACKSONVILLE MILWAUKEE, WISCONSIN 53202-5367 SAN FRANCISCO
LOS ANGELES TELEPHONE (414) 271-2400 TALLAHASSEE
MADISON FACSIMILE (414) 297-4900 TAMPA
MILWAUKEE WASHINGTON, D.C.
ORLANDO WEST PALM BEACH
June 30, 1999
Johnson Family Funds, Inc.
4041 North Main Street
Racine, WI 53402
Ladies & Gentlemen:
We have acted as counsel for you in connection with the preparation
of an Amended Registration Statement on Form N-1A relating to the sale by you of
an indefinite amount of JohnsonFamily Funds, Inc. Common Stock (such Common
Stock being hereinafter referred to as the "Stock") in the manner set forth in
the Amended Registration Statement to which reference is made. In this
connection we have examined: (a) the Amended Registration Statement on Form
N-1A; (b) your Articles of Incorporation and Bylaws, as amended to date; (c)
corporate proceedings relative to the authorization for issuance of the Stock;
and (d) such other proceedings, documents and records as we have deemed
necessary to enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the shares of
Stock when sold as contemplated in the Amended Registration Statement will be
legally issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to the
Amended Registration Statement on Form N-1A. In giving this consent, we do not
admit that we are experts within the meaning of Section 11 of the Securities Act
of 1933, as amended, or within the category of persons whose consent is required
by Section 7 of said Act.
Very truly yours,
/s/Foley & Lardner
Foley & Lardner
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of Registration
Statement File No. 811-8627.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
June 29, 1999
Sunstone Distribution Services, LLC
207 East Buffalo Street, Suite 400
Milwaukee, WI 53202
Dealer Agreement (Revised)
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) 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.
<PAGE>
(d) 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.
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.
2
<PAGE>
(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.
3
<PAGE>
(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:-----------------------------
4
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF JOHNSON FAMILYFUNDS, INC. AS OF AND FOR THE EIGHT
MONTHS ENDING OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001053555
<NAME> JOHNSON FAMILY FUNDS INC.
<SERIES>
<NUMBER> 1
<NAME> INTERMDIATE FIZED INCOME FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> MAR-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 65,775,367
<INVESTMENTS-AT-VALUE> 67,515,218
<RECEIVABLES> 888,889
<ASSETS-OTHER> 29,553
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 68,433,660
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 384,022
<TOTAL-LIABILITIES> 384,022
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,249,502
<SHARES-COMMON-STOCK> 6,625,127
<SHARES-COMMON-PRIOR> 5,000
<ACCUMULATED-NII-CURRENT> 21,661
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 38,624
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,739,851
<NET-ASSETS> 68,049,638
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,373,438
<OTHER-INCOME> 0
<EXPENSES-NET> (327,182)
<NET-INVESTMENT-INCOME> 2,046,256
<REALIZED-GAINS-CURRENT> 38,624
<APPREC-INCREASE-CURRENT> 1,640,755
<NET-CHANGE-FROM-OPS> 3,725,635
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,027,129)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,974,258
<NUMBER-OF-SHARES-REDEEMED> (446,218)
<SHARES-REINVESTED> 92,087
<NET-CHANGE-IN-ASSETS> 67,999,638
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 173,214
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 428,072
<AVERAGE-NET-ASSETS> 65,646,008
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .31
<PER-SHARE-GAIN-APPREC> .27
<PER-SHARE-DIVIDEND> (.31)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.27
<EXPENSE-RATIO> .85
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF JOHNSON FAMILYFUNDS, INC. AS OF AND FOR THE EIGHT
MONTHS ENDING OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001053555
<NAME> JOHNSON FAMILY FUNDS INC.
<SERIES>
<NUMBER> 2
<NAME> LARGE CAP EQUITY FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> MAR-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 36,882,423
<INVESTMENTS-AT-VALUE> 40,837,709
<RECEIVABLES> 958,404
<ASSETS-OTHER> 28,743
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,824,856
<PAYABLE-FOR-SECURITIES> 816,098
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 75,770
<TOTAL-LIABILITIES> 891,868
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,649,853
<SHARES-COMMON-STOCK> 4,266,457
<SHARES-COMMON-PRIOR> 4,800
<ACCUMULATED-NII-CURRENT> 32,397
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 295,452
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,955,286
<NET-ASSETS> 40,932,988
<DIVIDEND-INCOME> 416,609
<INTEREST-INCOME> 47,383
<OTHER-INCOME> 0
<EXPENSES-NET> (336,577)
<NET-INVESTMENT-INCOME> 127,415
<REALIZED-GAINS-CURRENT> 295,452
<APPREC-INCREASE-CURRENT> (2,106,481)
<NET-CHANGE-FROM-OPS> (1,683,614)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (97,237)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,531,893
<NUMBER-OF-SHARES-REDEEMED> (275,602)
<SHARES-REINVESTED> 5,366
<NET-CHANGE-IN-ASSETS> 40,844,988
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 174,092
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 336,970
<AVERAGE-NET-ASSETS> 39,593,898
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> (.42)
<PER-SHARE-DIVIDEND> (.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.59
<EXPENSE-RATIO> 1.45
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF JOHNSON FAMILYFUNDS, INC. AS OF AND FOR THE EIGHT
MONTHS ENDING OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001053555
<NAME> JOHNSON FAMILY FUNDS INC.
<SERIES>
<NUMBER> 3
<NAME> SMALL CAP EQUITY FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> MAR-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 26,607,593
<INVESTMENTS-AT-VALUE> 22,825,010
<RECEIVABLES> 18,737
<ASSETS-OTHER> 28,156
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,871,903
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40,568
<TOTAL-LIABILITIES> 40,568
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,963,160
<SHARES-COMMON-STOCK> 2,778,564
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 6,353
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (355,595)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,782,583)
<NET-ASSETS> 22,831,335
<DIVIDEND-INCOME> 148,118
<INTEREST-INCOME> 43,613
<OTHER-INCOME> 0
<EXPENSES-NET> (187,366)
<NET-INVESTMENT-INCOME> 4,365
<REALIZED-GAINS-CURRENT> (355,595)
<APPREC-INCREASE-CURRENT> (3,782,583)
<NET-CHANGE-FROM-OPS> (4,133,813)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,966,300
<NUMBER-OF-SHARES-REDEEMED> (187,836)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 22,830,335
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 93,683
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 197,642
<AVERAGE-NET-ASSETS> 21,407,147
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (1.78)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.22
<EXPENSE-RATIO> 1.50
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF JOHNSON FAMILYFUNDS, INC. AS OF AND FOR THE EIGHT
MONTHS ENDING OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001053555
<NAME> JOHNSON FAMILY FUNDS INC.
<SERIES>
<NUMBER> 4
<NAME> SMALL CAP EQUITY FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> MAR-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 22,279,539
<INVESTMENTS-AT-VALUE> 19,819,957
<RECEIVABLES> 66,432
<ASSETS-OTHER> 28,259
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,914,648
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56,679
<TOTAL-LIABILITIES> 56,679
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,123,791
<SHARES-COMMON-STOCK> 2,214,951
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 191,380
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,640
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,458,842)
<NET-ASSETS> 19,857,969
<DIVIDEND-INCOME> 328,393
<INTEREST-INCOME> 106,449
<OTHER-INCOME> 0
<EXPENSES-NET> (271,686)
<NET-INVESTMENT-INCOME> 217,156
<REALIZED-GAINS-CURRENT> (26,019)
<APPREC-INCREASE-CURRENT> (2,458,842)
<NET-CHANGE-FROM-OPS> (2,267,705)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,409,981
<NUMBER-OF-SHARES-REDEEMED> (195,130)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 19,856,969
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 105,901
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 230,849
<AVERAGE-NET-ASSETS> 20,072,118
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> (1.12)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.97
<EXPENSE-RATIO> 1.85
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
