Securities Act Registration No. 333-45361
Investment Company Act Reg. No. 811-8627
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
--------------------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. __ |_|
Post-Effective Amendment No. 3 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 4 |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 February 29, 2000 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>
(LOGO)
JOHNSON FAMILY
--------------
Funds
RACINE, WISCONSIN
PROSPECTUS FEBRUARY 29, 2000
<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 11
- - JohnsonFamily International Equity Fund 15
- ---------------------------------------------------------------------------
ABOUT YOUR ACCOUNT
- - How to Purchase Shares 19
- - Selling (Redeeming) Shares of the Funds 24
- - Exchange Privilege 28
- - Other Purchase, Redemption and Exchange Policies 29
- - Net Asset Value (NAV) 30
- - Dividends, Distributions and Taxes 31
- --------------------------------------------------------------------------
MORE ABOUT THE FUNDS
- - Management of the Funds 32
- - Financial Highlights 36
- --------------------------------------------------------------------------
FOR MORE INFORMATION 38
<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 approximately $540 million in assets as of December 31,
1999. The Funds are distributed by Sunstone Distribution Services, LLC (the
"Distributor").
<TABLE>
<CAPTION>
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
- --------------------------------------------------------------------------------------------------------
</TABLE>
<F1> A Fund's investment objective may be changed without shareholder approval.
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., have 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
PERFORMANCE HISTORY
The return information provided in the bar chart and table below
illustrates how
the Fund's performance can vary, which is one indication of the risks of
investing in the Fund. The table also illustrates how the Fund's average
annual
returns compare to a broad measure of market performance. Please keep in mind
that past performance is not necessarily indicative of future returns.
INTERMEDIATE FIXED INCOME FUND (INCEPTION 3/31/98)
- -------------------------------------------------------------------------------
Calendar Year Total Return Best and Worst Quarterly Performance
for the year ended 12/31/99
-------------------------------------
30% -
Best Worst
20% - Quarter Quarter
Return Return
10% - --------------------------------------
0% 1999 0.57% (2.11)%
--------------- (3rd quarter, 1999) (2nd quarter, 1999)
(3.30)%
-10%
AVERAGE ANNUALIZED TOTAL RETURNS AS OF DECEMBER 31, 1999
- -------------------------------------------------------------------------------
ONE SINCE INCEPTION
YEAR (3/31/98)
- -------------------------------------------------------------------------------
Intermediate Fixed Income Fund (3.30)% 1.53%
Lehman Bros. Gov't./Corp. Bond Index 0.38% 4.04%
The Lehman Brothers Intermediate Government/Corporate Bond Index includes all
public obligations of the U.S. Treasury, excluding flower bonds and foreign-
targeted issues; all publicly issued debt of U.S. government agencies and quasi-
federal corporations and corporate debt guaranteed by the U.S. government; all
publicly issued, fixed rate, nonconvertible investment-grade dollar-denominated,
SEC-registered corporate debt. The Index sectors are industrial, finance,
utility and Yankee. Also included among Yankees is debt issued or guaranteed by
foreign sovereign governments, municipalities or governmental or international
agencies. It includes only those bonds with maturities of up to 10 years.
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.
5
<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 average net assets.
- -------------------------------------------------------------------------------
Management fee 0.45%
Distribution and/or service (12b-1) fees 0.25%
Other expenses 0.37%
Total Fund Operating Expenses 1.07%<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, 2000.
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
$109 $340 $590 $1,306
- -------------------------------------------------------------------------------
PORTFOLIO MANAGER
George A. Balistreri, CFA, Senior Vice President of the Adviser, is responsible
for the day-to-day management of the Fund's portfolio. Mr. Balistreri has
managed fixed income portfolios for the Adviser since February 1990.
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 allocation. The Fund's sector 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.
PERFORMANCE HISTORY
The return information provided in the bar chart and table below illustrates how
the Fund's performance can vary, which is one indication of the risks of
investing in the Fund. The table also illustrates how the Fund's average annual
returns compare to a broad measure of market performance. Please keep in mind
that past performance is not necessarily indicative of future returns.
LARGE CAP EQUITY FUND (INCEPTION 3/31/98)
- -------------------------------------------------------------------------------
Calendar Year Total Return Best and Worst Quarterly Performance
for the year ended 12/31/99
-------------------------------------
30% -
Best Worst
20% - Quarter Quarter
Return Return
10% - --------------------------------------
0% 1999 7.62% (9.58)%
--------------- (2nd quarter, 1999) (3rd quarter, 1999)
(3.74)%
-10%
8
<PAGE>
ABOUT THE FUNDS
AVERAGE ANNUALIZED TOTAL RETURNS AS OF DECEMBER 31, 1999
- -------------------------------------------------------------------------------
ONE SINCE INCEPTION
YEAR (3/31/98)
- -------------------------------------------------------------------------------
Large Cap Equity Fund (3.74)% 0.70%
S&P 500/R Index 21.04% 19.46%
The S&P 500/R Composite Stock Index is an unmanaged index of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The Index is
heavily weighted toward stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks.
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 net assets.
- -------------------------------------------------------------------------------
Management fee 0.75%
Distribution and/or service (12b-1) fees 0.25%
Other expenses 0.39%
Total Fund Operating Expenses 1.39%
- -------------------------------------------------------------------------------
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.
9
<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
$142 $440 $761 $1,669
- -------------------------------------------------------------------------------
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.
10
<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 allocation. The Fund's sector 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.
11
<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 falls 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.
PERFORMANCE HISTORY
The return information provided in the bar chart and table below illustrates how
the Fund's performance can vary, which is one indication of the risks of
investing in the Fund. The table also illustrates how the Fund's average annual
returns compare to a broad measure of market performance. Please keep in mind
that past performance is not necessarily indicative of future returns.
12
<PAGE>
ABOUT THE FUNDS
SMALL CAP EQUITY FUND (INCEPTION 3/31/98)
- -------------------------------------------------------------------------------
Calendar Year Total Return Best and Worst Quarterly Performance
for the year ended 12/31/99
-------------------------------------
40% -
Best Worst
30% - Quarter Quarter
Return Return
20% - --------------------------------------
15.88% (10.44)%
10% (2nd quarter, 1999) (1st quarter, 1999)
1.11%
0% ---------------
1999
AVERAGE ANNUALIZED TOTAL RETURNS AS OF DECEMBER 31, 1999
- -------------------------------------------------------------------------------
ONE SINCE INCEPTION
YEAR (3/31/98)
- -------------------------------------------------------------------------------
Small Cap Equity Fund 1.11% (6.88)%
S&P SmallCap 600 Stock Index 12.40% (0.07)%
The S&P SmallCap 600 Index is a capitalization-weighted index of 600 domestic
stocks that measures the performance of companies with a small market
capitalization. The S&P SmallCap 600 Index fluctuates due to changes in the
aggregate market value of these stocks.
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.
13
<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 average net
assets.
- -------------------------------------------------------------------------------
Management fee 0.75%
Distribution and/or service (12b-1) fees 0.25%
Other expenses 0.47%
Total Fund Operating Expenses 1.47%
- -------------------------------------------------------------------------------
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
$150 $465 $803 $1,757
- -------------------------------------------------------------------------------
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.
14
<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 allocation.
The Fund's 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.
15
<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.
16
<PAGE>
ABOUT THE FUNDS
PERFORMANCE HISTORY
The return information provided in the bar chart and table below illustrates how
the Fund's performance can vary, which is one indication of the risks of
investing in the Fund. The table also illustrates how the Fund's average annual
returns compare to a broad measure of market performance. Please keep in mind
that past performance is not necessarily indicative of future returns.
INTERNATIONAL EQUITY FUND (INCEPTION 3/31/98)
- -------------------------------------------------------------------------------
Calendar Year Total Return Best and Worst Quarterly Performance
for the year ended 12/31/99
-------------------------------------
40% -
Best Worst
30% - Quarter Quarter
Return Return
20% - 20.88% --------------------------------------
12.44% 0.73%
10% (4th quarter, 1999) (1st quarter, 1999)
0% ---------------
1999
AVERAGE ANNUALIZED TOTAL RETURNS AS OF DECEMBER 31, 1999
- -------------------------------------------------------------------------------
ONE SINCE INCEPTION
YEAR (3/31/98)
- -------------------------------------------------------------------------------
International Equity Fund 20.88% 9.39%
Morgan Stanley Capital International
All-Country World ex-USA Index 29.68% 15.27%
The Morgan Stanley Capital International All-Country World ex-USA Index is the
aggregate of 47 of 51 individual country indices calculated by MSCI. The Index
excludes the USA. Each country index is calculated using the five following
steps: 1) define the local market by constructing a matrix of all listed
securities; 2) sort the matrix by industry; 3) capture 60% of the market cap of
each group by selecting the most investable stocks in each industry; 4) avoid
cross-ownership; and 5) apply full market cap weights to each stock in the
index.
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.
17
<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 average net
assets.
- -------------------------------------------------------------------------------
Management fee 0.90%
Distribution and/or service (12b-1) fees 0.25%
Other expenses 0.71%
Total Fund Operating Expenses 1.86%<F1>
- -------------------------------------------------------------------------------
<F1> 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, 2000.
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
$189 $585 $1,006 $2,180
- -------------------------------------------------------------------------------
PORTFOLIO MANAGERS
Wendell L. Perkins, CFA, and Frank J. Gambino, CFA, are responsible for the day-
to-day management of the Fund. 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.
18
<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.
19
<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 a 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
20
<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.
- The Funds consider wired funds to be received in good order on the day
they reach the Funds' bank account by the Funds' cut-off time for
purchases and all
21
<PAGE>
ABOUT YOUR ACCOUNT
required information is 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.
22
<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.
23
<PAGE>
ABOUT YOUR ACCOUNT
The Funds will price purchase orders you place with a Selected Dealer prior to
the close of regular trading on the NYSE (normally 3:00 p.m. Central Time) 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.
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
The Funds may delay payment for redemptions 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 29 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.
24
<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 29 for a definition of "good order."
- - Include documentation required for corporate, partnership or fiduciary
accounts, call 1-800-276-8272 for details.
25
<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.
26
<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.
27
<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 25.
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. If you do not act within the 30-day period, 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
28
<PAGE>
ABOUT YOUR ACCOUNT
- To establish an Automatic Exchange Plan after your account is open, call
1-800-276-8272 for details.
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
receiving 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.
29
<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 ASSET 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
30
<PAGE>
ABOUT YOUR ACCOUNT
value the securities under the Board's direction. The Board of Directors may
also approve the use of pricing services to assist in the calculation of NAVs
for the Funds.
The International Equity Fund will, and the other Funds may, hold securities
that are primarily listed on foreign exchanges that trade on weekends or other
days when the Funds do not calculate their NAVs. To the extent they do so,
their NAVs may change on days when you cannot purchase or redeem Fund shares.
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 in additional shares.
31
<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 December 31, 1999, JAM had a total of
approximately $540 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
32
<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. Affiliates of
JAM 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.
33
<PAGE>
MORE ABOUT THE FUNDS
Compounded Annual Rates of Return<F1> (For the Period Ended December 31, 1999)
1 YEAR 3 YEARS 5 YEARS 10 YEARS<F2>
- ------------------------------------------------------------------------------
Large Cap Equity Fund<F3> (3.74)% n/a n/a n/a
Intermediate Fixed
Income Fund<F3> (3.30)% n/a n/a n/a
Large Cap Composite (1.78)% 17.45% 21.44% 14.69%
S&P 500/R<F4> 21.04% 27.56% 28.56% 18.21%
Fixed Income Composite (3.30)% 4.08% 6.25% 6.92%
Lehman Brothers Intermediate
Government/Corporate
Bond Index<F5> 0.39% 5.50% 7.10% 7.26%
- -------------------------------------------------------------------------------
<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> Since inception of the Large Cap Composite and the Fixed Income Composite.
<F3> The Large Cap Equity Fund and the Intermediate Fixed Income Fund commenced
operations on March 31, 1998.
<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.
34
<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
State Street Bank and Trust Company, located at 801 Pennsylvania, Kansas City,
Missouri 64105, acts as custodian of the Funds' investments.
35
<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.
<TABLE>
<CAPTION>
INTERMEDIATE LARGE CAP
FIXED INCOME FUND EQUITY FUND
------------------------------------- -----------------------------------------
FISCAL YEAR ENDED PERIOD ENDED FISCAL YEAR ENDED PERIOD ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998<F1> OCTOBER 31, 1999 OCTOBER 31, 1998<F1>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.27 $10.00 $9.59 $10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.54 0.31 0.07 0.03
Net realized and unrealized gain (loss)
on investments and foreign
currency transactions (0.77) 0.27 0.54 (0.42)
-------- -------- -------- --------
Total from Investment Operations (0.23) 0.58 0.61 (0.39)
-------- -------- -------- --------
LESS DISTRIBUTIONS PAID:
From net investment income (0.53) (0.31) (0.07) (0.02)
From capital gains (0.01) _ (0.07) _
-------- -------- -------- --------
Total Distributions (0.54) (0.31) (0.14) (0.02)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $9.50 $10.27 $10.06 $9.59
======== ======== ======== ========
TOTAL RETURN2 (2.26)% 5.89% 6.33% (3.87)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s) $61,624 $68,050 $46,422 $40,933
Ratio of expenses to average net assets,
net of waivers<F3> 0.85% 0.85% 1.39% 1.45%
Ratio of net investment income to
average net assets, net of waivers<F3> 5.44% 5.32% 0.66% 0.55%
Ratio of expenses to average net assets,
before waivers<F3> 1.07% 1.11% 1.39% 1.45%
Ratio of net investment income to average net
assets, before waivers<F3> 5.22% 5.06% 0.66% 0.55%
Portfolio turnover rate<F2> 91% 47% 76% 27%
</TABLE>
<F1> Commenced operations on March 31, 1998
<F2> Not annualized - For the periods less than a full year
<F3> Annualized
36
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL
EQUITY FUND EQUITY FUND
------------------------------------- -----------------------------------------
FISCAL YEAR ENDED PERIOD ENDED FISCAL YEAR ENDED PERIOD ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998<F1> OCTOBER 31, 1999 OCTOBER 31, 1998<F1>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.22 $10.00 $8.97 $10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.03 - 0.09 0.09
Net realized and unrealized gain (loss)
on investments and foreign
currency transactions 0.11 (1.78) 1.50 (1.12)
-------- -------- -------- --------
Total from Investment Operations 0.14 (1.78) 1.59 (1.03)
-------- -------- -------- --------
LESS DISTRIBUTIONS PAID:
From net investment income (0.01) - (0.09) -
From capital gains - - - -
-------- -------- -------- --------
Total Distributions (0.01) - (0.09) -
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $8.35 $ 8.22 $10.47 $8.97
======== ======== ======== ========
TOTAL RETURN2 1.67% (17.80)% 17.85% (10.30)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s) $30,062 $22,831 $25,918 $19,858
Ratio of expenses to average net assets,
net of waivers<F3> 1.47% 1.50% 1.85% 1.85%
Ratio of net investment income to
average net assets, net of waivers<F3> 0.30% 0.03% 1.08% 1.85%
Ratio of expenses to average net assets,
before waivers<F3> 1.47% 1.57% 1.86% 1.96%
Ratio of net investment income to average net
assets, before waivers<F3> 0.30% (0.04)% 1.07% 1.74%
Portfolio turnover rate<F2> 83% 3% 13% 6%
</TABLE>
<F1> Commenced operations on March 31, 1998
<F2> Not annualized - For the periods less than a full year
<F3> Annualized
37
<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 1-202-
942-8090 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 the address below or
by electronic request to [email protected].
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
SEC File Number: 811-8627
38
<PAGE>
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<PAGE>
This page intentionally left blank.
<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 acheive their goals
<PAGE>
(LOGO)
JohnsonFamily Funds
P.O. Box 515
Racine, WI 53401-0515
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION FOR February 29, 2000
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 February 29, 2000. 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, 1999, of JohnsonFamily Funds, Inc. (File
No. 811-8627) as filed with the Securities and Exchange Commission on December
27, 1999.
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 the 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......................................................25
DISTRIBUTION OF SHARES.......................................................26
ALLOCATION OF PORTFOLIO BROKERAGE............................................28
TAXES........................................................................29
SHAREHOLDER MEETINGS.........................................................32
CAPITAL STRUCTURE............................................................33
DESCRIPTION OF SECURITIES RATINGS............................................34
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 February 29, 2000, 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
(the "Act"). 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
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
The Fund's prospectus describes its principal investment strategies
and risks. This section expands upon that discussion and also discusses
non-principal investment strategies and risks.
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
3
<PAGE>
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.
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.
4
<PAGE>
Short Sales
The Funds may seek to realize additional gains through short sale
transactions in securities listed on one or more national securities exchanges,
or in unlisted securities. Short selling involves the sale of borrowed
securities. At the time a short sale is effected, a Fund incurs an obligation to
replace the security borrowed at whatever its price may be at the time the Fund
purchases it for delivery to the lender. The price at such time may be more or
less than the price at which the security was sold by the Fund. Until the
security is replaced, the Fund is required to pay the lender amounts equal to
any dividend or interest which accrue during the period of the loan. To borrow
the security, the Fund also may be required to pay a premium, which would
increase the cost of the security sold. The proceeds of the short sale will be
retained by the broker, to the extent necessary to meet margin requirements,
until the short position is closed.
No short sale will be effected which will, at the time of making such
short sale transaction and giving effect thereto, cause the aggregate market
value of all securities sold short to exceed 5% of the value of a Fund's net
assets. Until a Fund closes its short position or replaces the borrowed
security, the Fund will: (a) maintain a segregated account containing cash or
liquid securities at such a level that the amount deposited in the account plus
the amount deposited with the broker as collateral will equal the current value
of the security sold short; or (b) otherwise cover the Fund's short position.
Lending of Portfolio Securities
In order to generate additional income, each Fund may lend portfolio
securities constituting up to 30% of its total assets to unaffiliated
broker-dealers, banks or other recognized institutional borrowers of securities,
provided that the borrower at all times maintains cash, U.S. government
securities or equivalent collateral or provides an irrevocable letter of credit
in favor of the Fund equal in value to at least 100% of the value of the
securities loaned. During the time portfolio securities are on loan, the
borrower pays the Fund an amount equivalent to any dividends or interest paid on
such securities, and the Fund may receive an agreed-upon amount of interest
income from the borrower who delivered equivalent collateral or provided a
letter of credit. Loans are subject to termination at the option of the Fund or
the borrower. The Funds may pay reasonable administrative and custodial fees in
connection with a loan of portfolio securities and may pay a negotiated portion
of the interest earned on the cash or equivalent collateral to the borrower or
placing broker. The Funds do not have the right to vote securities on loan, but
could terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
The primary risk in securities lending is a default by the borrower
during a sharp rise in price of the borrowed security resulting in a deficiency
in the collateral posted by the borrower. The Funds will seek to minimize this
risk by requiring that the value of the securities loaned be computed each day
and additional collateral be furnished each day if required.
High Yield Convertible Securities
Each equity Fund may invest in convertible debt securities when the
Adviser believes the underlying common stock is a suitable investment for the
Fund and when the
5
<PAGE>
convertible security offers greater potential for total return because of its
higher yield. Convertible securities are bonds or preferred stocks that may be
converted (exchanged) into common stock of the issuing company within a certain
period of time, for a specified number of shares.
Each equity Fund may invest up to 5% of its net assets in high yield,
high risk, lower-rated convertible securities, commonly known as "junk bonds."
Investments in such securities are subject to greater credit risks than higher
rated securities. Debt securities rated below investment grade have greater
risks of default than investment grade debt securities, including medium grade
debt securities, and may in fact, be in default. Issuers of "junk bonds" must
offer higher yields to compensate for the greater risk of default on the payment
of principal and interest.
The market for high yield convertible securities is subject to
substantial volatility. An economic downturn or increase in interest rates may
have a more significant effect on high yield convertible securities and their
markets, as well as on the ability of securities' issuers to repay principal and
interest, than on higher-rated securities and their issuers. Issuers of high
yield convertible securities may be of low creditworthiness and the high yield
convertible securities may be subordinated to the claims of senior lenders.
During periods of economic downturn or rising interest rates the issuers of high
yield convertible securities may have greater potential for insolvency and a
higher incidence of high yield bond defaults may be experienced. From 1989 to
1991, the percentage of high yield securities that defaulted rose significantly
above prior default levels. The default rate has decreased subsequently.
The prices of high yield convertible securities have been found to be
less sensitive to interest rate changes than higher-rated investments but are
more sensitive to adverse economic changes or individual corporate developments
because of their lower credit quality. During an economic downturn or
substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. If the issuer of a high
yield convertible security owned by a Fund defaults, the Fund may incur
additional expenses in seeking recovery. Periods of 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
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date. Further, the Fund must distribute substantially all of its income to its
shareholders to qualify for pass-through treatment under the tax law.
Accordingly, a Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash or may have to borrow to satisfy
distribution requirements.
Credit ratings evaluate the safety of principal and interest payments,
not the market value risk of high yield convertible securities. Since credit
rating agencies may fail to timely change the credit ratings to reflect
subsequent events, the Adviser monitors the issuers of high-yield convertible
securities in the portfolio to determine if the issuers will have sufficient
cash flow and profits to meet required principal and interest payments, and to
attempt to assure the securities' liquidity so the Funds can meet redemption
requests. To the extent that a Fund invests in high yield convertible
securities, the achievement of its investment objective may be more dependent,
on the Adviser's own credit analysis than is the case for higher quality bonds.
A Fund may retain a portfolio security whose rating has been changed.
Mortgage-Backed and Asset-Backed Securities
Each of the Funds may purchase residential and commercial
mortgage-backed as well as other asset-backed securities (collectively called
"asset-backed securities") that are secured or backed by automobile loans,
installment sale contracts, credit card receivables, 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
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Bank and do not constitute a debt or obligation of the United States or of any
Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment of
interest, which is guaranteed by the FHLMC. FHLMC guarantees either ultimate
collection or timely payment of all principal payments on the underlying
mortgage loans. When FHLMC does not guarantee timely payment of principal, FHLMC
may remit the amount due on account of its guarantee of ultimate payment of
principal at any time after default on an underlying mortgage, but in no event
later than one year after it becomes payable.
Each of the Funds may also purchase mortgage-backed securities
structured as CMOs. CMOs are issued in multiple classes and their relative
payment rights may be structured in many ways. In many cases, however, payments
of principal are applied to the CMO classes in order of their respective
maturities, so that no principal payments will be made on a CMO class until all
other classes having an earlier maturity date are paid in full. The classes may
include accrual certificates (also known as "Z-Bonds"), which do not accrue
interest at a specified rate until other specified classes have been retired and
are converted thereafter to interest-paying securities. They may also include
planned amortization classes ("PACs") which generally require, within certain
limits, that specified amounts of principal be applied to each payment date, and
generally exhibit less yield and market volatility than other classes. The
classes may include "IOs", which pay distributions consisting solely or
primarily of all or a portion of the interest in an underlying pool of mortgages
or mortgage-backed 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
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may reduce yield to maturity, while a prepayment rate that is slower than
expected may have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments may increase, while slower than expected prepayments may
decrease, yield to maturity.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage loans. Like other fixed income
securities, when interest rates rise the value for an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed income securities.
Asset-backed securities may involve certain risks that are not
presented by mortgage-backed securities. These risks arise primarily from the
nature of the underlying assets (i.e., credit card and automobile loan
receivables as opposed to real estate mortgages). Non-mortgage asset-backed
securities do not have the benefit of the same security interest in the
collateral as mortgage-backed securities. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which have given debtors the right to
reduce the balance due on 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.
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Futures Contracts. When a Fund purchases a futures contract, it agrees
to purchase a specified underlying instrument at a specified future date. When a
Fund sells a futures contract, it agrees to sell the underlying instrument at a
specified future date. The price at which the purchase and sale will take place
is fixed when the Fund enters into the contract. Futures can be held until their
delivery dates, or can be closed out before the delivery date if a liquid
secondary market is available.
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore, purchasing
futures contracts will tend to increase a Fund's exposure to positive and
negative price fluctuations in the underlying instrument, much as if the Fund
had purchased the underlying instrument directly. When a Fund sells a futures
contract, by contrast, the value of its future position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
Futures Margin Payments. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and seller
are required to deposit "initial margin" with a futures broker, known as a
Futures Commission Merchant ("FCM"), when the contract is entered into. Initial
margin deposits are equal to a percentage of the contract's value. If the value
of either party's position declines, that party will be required to make
additional "variation margin" payments to settle the change in value on a daily
basis. The party that has a gain may be entitled to receive all or a portion of
this amount. Initial and variation margin payments do not constitute purchasing
securities on margin for purposes of the Funds' investment limitations. In the
event of the bankruptcy of an FCM that holds margin on behalf of a Fund, the
Fund may be entitled to return of margin owed to it only in proportion to the
amount received by the FCM's other customers, potentially resulting in losses to
the Fund.
Purchasing Put and Call Options. By purchasing a put option, a Fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). Each Fund may
purchase options on futures contracts as well as options on securities and stock
indices. Each of the Funds may terminate its position in a put option it has
purchased by allowing it to expire or by exercising the option. If the option is
allowed to expire, the Fund will lose the entire premium it paid. If a Fund
exercises the option, it completes the sale of the underlying instrument at the
strike price. A Fund may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary market
exists. The buyer of a put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer attempts to participate in potential price increases of the
underlying instrument with risk limited to the cost of the option if security
prices
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fall. At the same time, the buyer can expect to suffer a loss if security prices
do not rise sufficiently to offset the cost of the option.
Stock Index Options. Stock index options are put options and call
options on various stock indexes. In most respects, they are identical to listed
options on common stocks. The primary difference between stock options and index
options occurs when index options are exercised. In the case of stock options
the underlying security, common stock, is delivered. However, upon the exercise
of an index option, settlement does not occur by delivery of the securities
comprising the index. The option holder who exercises the index option receives
an amount of cash if the closing level of the stock index upon which the option
is based is greater than in the case of a call, or less than, in the case of a
put, the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the stock index and the exercise price
of the option expressed in dollars times a specified multiple. A stock index
fluctuates with changes in the market value of the stocks included in the index.
For example, some stock index options are based on a broad market index, such as
the Standard & Poor's 500 or the Value Line Composite Index, or a narrower
market index, such as the Standard & Poor's 100. Indexes also may be based on an
industry or market segment, such the AMEX Oil and Gas Index or the Computer and
Business Equipment Index. Options on stock indexes are currently traded on the
following exchanges: the Chicago Board Options Exchange, the New York Stock
Exchange, the American Stock Exchange, the Pacific Stock Exchange, and the
Philadelphia Stock Exchange.
Writing Call and Put Options. When a Fund writes a call option, it
receives a premium and agrees to sell the related investments to a purchaser of
the call during the call period (usually not more than nine months) at a fixed
exercise price (which may differ from the market price of the related
investments) regardless of market price changes during the call period. If the
call is exercised, the Fund forgoes any gain from an increase in the market
price over the exercise price. When writing an option on a futures contract, a
Fund will be required to make margin payments to an FCM as described above for
futures contracts.
To terminate its obligations on a call which it has written, a Fund
may purchase a call in a "closing purchase transaction". (As discussed above,
the Funds may also purchase calls other than as part of such closing
transactions.) A profit or loss will be realized depending on the amount of
option transaction costs and whether the premium previously received is more or
less than the price of the call purchased. A profit may also be realized if the
call lapses unexercised, because the Fund retains the premium received. Any such
profits are considered short-term gains for federal income tax purposes and,
when distributed, are taxable as ordinary income.
Generally writing calls is a profitable strategy if prices remain the
same or fall. Through receipt of the option premium, a call writer mitigates the
effects of a price decline. At the same time, because a call writer must be
prepared to deliver the underlying instrument in return for the strike price,
even if its current value is greater, a call writer gives up some ability to
participate in security price increases.
When a Fund writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of a premium, the
Fund assumes the obligation to pay the strike price for the option's underlying
instrument if the other party to the option chooses to exercise it. The Funds
may only write covered puts. For a put to be covered, a Fund must
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maintain in a segregated account cash or liquid assets equal to the option
price. A profit or loss will be realized depending on the amount of option
transaction costs and whether the premium previously received is more or less
than the put purchased in a closing purchase transaction. A profit may also be
realized if the put lapses unexercised because the Fund retains the premium
received. Any such profits are considered short-term gains for federal income
tax purposes and, when distributed, are taxable as ordinary income.
Combined Option Positions. The Funds may purchase and write options
(subject to the limitations discussed above) in combination with each other to
adjust the risk and return characteristics of the overall position. For example,
a Fund may purchase a put option and write a call option on the same underlying
instrument, in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another possible
combined position would involve writing a call option at one strike price and
buying a call option at a lower price, in order to reduce the risk of the
written call option in the event of a substantial price increase. Because
combined options involve multiple trades, they result in higher transaction
costs and may be more difficult to open and close out.
Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the applicable Fund's current or
anticipated investments. Each of the Funds may invest in options and futures
contracts based on securities which differ from the securities in which it
typically invests. This involves a risk that the options or futures position
will not track the performance of the Fund's investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the applicable
Fund's investments well. Options and future prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. Each of the Funds may purchase or sell
options and futures contracts with a greater or lesser value than the securities
it wishes to hedge or intends to purchase in order to attempt to compensate for
differences in historical volatility between the contract and the securities,
although this may not be successful in all cases. If price changes in the
applicable Funds' options or futures positions are poorly correlated with its
other investments, the positions may fail to produce anticipated gains or result
in losses that are not offset by gains in other investments. Successful use of
these techniques requires skills different from those needed to select portfolio
securities.
Liquidity of Options and Futures Contracts. There is no assurance a
liquid secondary market will exist for any particular options or futures
contract at any particular time. Options may have relatively low trading volume
and liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily price
fluctuation limits for options and futures contracts, and may halt trading if a
contract's price moves upward or downward more than the limit in a given day. On
volatile trading days when the price fluctuation limit is reached or a trading
halt is imposed, it may be impossible for a Fund to enter
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into new positions or close out existing positions. If the secondary market for
a contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and potentially could
require the Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, a Fund's access to other assets
held to cover its options or futures positions could also be impaired.
Asset Coverage for Futures and Option Positions. Each of the Funds
will comply with guidelines established by the Securities and Exchange
Commission with respect to coverage of options and futures strategies by mutual
funds, and if the guidelines so require will maintain cash or liquid securities
with its custodian in the amount prescribed. Securities so maintained 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
such maintenance 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.
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In addition to ADRs, each of the Funds may hold foreign securities in
the form of American Depository Shares ("ADSs"), Global Depository Receipts
("GDRs") and European Depository Receipts ("EDRs"), or other securities
convertible into foreign securities. These receipts may not be denominated in
the same currency as the underlying securities. Generally, American banks or
trust companies issue ADRs and ADSs, which evidence ownership of underlying
foreign securities. GDRs represent global offerings where an issuer issues two
securities simultaneously in two markets, usually publicly in a non-U.S. market
and privately in the U.S. market. EDRs (sometimes called Continental Depository
Receipts ("CDRs")) are similar to ADRs, but usually issued in Europe. Typically
issued by foreign banks or trust companies, EDRs and CDRs evidence ownership of
foreign securities. Generally, ADRs and ADSs in registered form trade in the
U.S. securities markets, GDRs in the U.S. and European markets, and EDRs and
CDRs (in bearer form) in European markets.
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%. The annual portfolio turnover rate for each of the Funds was
higher during the fiscal year ended October 31, 1999 than in the fiscal period
beginning March 31, 1998 and ending October 31, 1998 primarily because fiscal
1999 was a twelve month period and fiscal 1998 was a seven month period.
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.
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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.
To manage risk, a Fund will maintain with its custodian cash or liquid
securities having 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 with the Fund's custodian
cash or liquid assets equal to the amount of the Fund's commitment.
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
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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.
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.
16
<PAGE>
When a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the U.S.
dollar price of the security. By entering into a forward contract for the
purchase or sale of a fixed amount of U.S. dollars equal to the amount of
foreign currency involved in the underlying security transaction, the Fund can
protect itself against a possible loss, resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date the security is purchased or sold and the date on which
the payment is made or received.
When the Adviser believes that a particular foreign currency may
suffer a substantial decline against the U.S. dollar, they may enter into a
forward contract to sell a fixed amount of the foreign currency approximating
the value of some or all of a Fund's portfolio securities denominated in such
foreign currency. The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible since the future
value of such securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult and the successful execution of
a short-term hedging strategy is highly uncertain. A Fund will not enter into
such forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's securities or other assets
denominated in that currency. Under normal circumstances, the Adviser considers
the long-term prospects for a particular currency and incorporate the prospects
into its overall long-term diversification strategies. The Adviser believes that
it is important to have the flexibility to enter into such forward contracts
when it determines that the best interests of a Fund will be served.
At the maturity of a forward contract, a Fund may either sell the
portfolio securities and make delivery of the foreign currency, or it may retain
the securities and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of foreign currency.
If a Fund retains the portfolio securities and engages in an
offsetting transaction, the Fund will incur a gain or a loss to the extent that
there has been movement in forward contract prices. If a Fund engages in an
offsetting transaction, it may subsequently enter into a forward contract to
sell the foreign currency. Should forward prices decline during the period when
the Fund entered into the forward contract for the sale of a foreign currency
and the date it entered into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Fund will suffer a loss to the
extent that the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
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
17
<PAGE>
have to sell some of its foreign currency received upon the sale of a portfolio
security if the market value of the Fund's securities exceed the amount of
foreign currency the Fund is obligated to deliver. A Fund's dealings in forward
foreign currency exchange contracts will be limited to the transactions
described above.
Although the Funds value their assets daily in terms of U.S. dollars,
they do not intend to convert their holdings of foreign currencies into U.S.
dollars on a daily basis. A Fund will do so from time to time and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they realize a profit based on the
difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to a Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
Each of the Funds may purchase and sell currency futures and purchase
and write currency options to increase or decrease its exposure to different
foreign currencies. The uses and risks of currency options and futures are
similar to options and futures relating to securities or indices, as discussed
above. Currency futures contracts are similar to forward foreign currency
contracts, except that they are traded on exchanges (and have margin
requirements) and are standardized as to contract size and delivery date. Most
currency futures contracts call for payment or delivery in U.S. dollars. The
underlying instrument of a currency option may be a foreign currency, which
generally is purchased or delivered in exchange for U.S. dollars, or may be a
futures contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obtains the right
to sell the underlying currency.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of the
respective Fund's investments. A currency hedge, for example, should protect a
Yen-dominated security from a decline in the Yen, but will not protect a
particular Fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of a Fund's foreign-denominated
investments change in response to many factors other than exchange rates, it may
not be possible to match the amount of currency options and futures to the value
of the Fund's investments exactly over time.
DIRECTORS AND OFFICERS OF THE CORPORATION
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, 46, 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,
18
<PAGE>
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.
F. Gregory Campbell -- Director. Dr. Campbell, 60, 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, 36, 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, 56,
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 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, 1999:
- -------------------
* 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>
<TABLE>
COMPENSATION TABLE
<CAPTION>
Total
Pension or Compensation
Aggregate Retirement Benefits Estimated Annual from Corporation
Name of Compensation Accrued as Part of Benefits Upon and Fund Complex
Person from Corporation Fund Expenses Retirement Paid to Directors
------ ---------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
JoAnne Brandes $7,000 $0 $0 $7,000
Richard Bibler 6,500 0 0 6,500
F. Gregory Campbell 7,000 0 0 7,000
Gerald Konz 7,000 0 0 7,000
George Nelson 7,000 0 0 7,000
Wendell Perkins 0 0 0 0
</TABLE>
The Corporation and the Adviser have adopted separate codes of ethics
pursuant to Rule 17j-1 under the Act. Each code of ethics permits personnel
subject thereto to invest in securities, including securities that may be
purchased or held by the Funds. Each code of ethics prohibits, among other
things, persons subject thereto from purchasing or selling securities if they
know at the time of such purchase or sale that the security is being considered
for purchase or sale by a Fund or is being purchased or sold by a Fund.
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
As of January 31, 2000, 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 January 31, 2000 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 4,842,679 98.02% 3,678,664 99.33% 6,477,738 99.71% 2,494,493 99.73%
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
20
<PAGE>
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.
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 period ended October 31, 1998 and the fiscal year
ended October 31, 1999, the Adviser reimbursed each Fund for annual operating
expenses in excess of the percentage of its average net assets for such period
or 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.
21
<PAGE>
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. For services by the Adviser under the Advisory
Agreements for the fiscal year ended October 31, 1999, the Funds incurred
advisory fees payable to the Adviser of $345,616 for the Large Cap Equity Fund,
$216,617 for the Small Cap Equity Fund, $278,869 for the Fixed Income Fund and
$204,329 for the International Equity Fund. For the fiscal year ended October
31, 1999, the Adviser made reimbursements for excess expenses of $135,054 to the
Fixed Income Fund and $2,572 to the International Equity Fund.
Each Advisory Agreement will remain in effect as long as its
continuance is specifically approved at least annually (i) by the Board of
Directors of the Corporation or by the vote of a majority (as defined in the
Act) of the outstanding shares of the applicable Fund, and (ii) by the vote of a
majority of the directors of the Corporation who are not parties to the Advisory
Agreement or interested persons of the Adviser, cast in person at a meeting
called for the purpose of voting on such approval. Each Advisory Agreement
provides that it may be terminated at any time without the payment of any
penalty, by the Board of Directors of the Corporation or by vote of the majority
of the applicable Fund's stockholders on sixty (60) days' written notice to the
Adviser, and by the Adviser on the same notice to the Corporation, and that it
shall be automatically terminated if it is assigned.
Each Advisory Agreement provides that the Adviser shall not be liable
to the Corporation or its stockholders for anything other than willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties. Each Advisory Agreement also provides that the Adviser
and its officers, directors and employees may engage in other businesses, devote
time and attention to any other business whether of a similar or dissimilar
nature, and render services to others.
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.
22
<PAGE>
For the period from March 31, 1998 (commencement of operations)
through October 31, 1998 and for the fiscal year ended October 31, 1999, the
Large Cap Equity Fund paid the Administrator $46,424 and $92,164, respectively,
the Small Cap Equity Fund paid the Administrator $24,982 and $57,765,
respectively, the Fixed Income Fund paid the Administrator $76,984 and $123,942,
respectively, and the International Equity Fund paid the Administrator $23,534
and $45,407, respectively, 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.
State Street Bank and Trust Company, 801 Pennsylvania Avenue, Kansas
City, Missouri 64105, 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. State Street Bank and Trust Company does not exercise any
supervisory function over the purchase and sale of securities.
Sunstone Financial Group, Inc. serves as transfer agent and dividend
paying agent for the Funds under a Transfer Agency Agreement between it and the
Corporation. As transfer and dividend paying agent, Sunstone Financial Group,
Inc. has agreed to (i) issue and redeem shares of the Funds, (ii) make dividend
and other distributions to shareholders of the Funds, (iii) respond to
correspondence by Fund shareholders and others relating to its duties, (iv)
maintain shareholder accounts, and (v) make periodic reports to the Funds.
DETERMINATION OF NET ASSET VALUE
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
23
<PAGE>
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.
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
24
<PAGE>
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 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.
25
<PAGE>
For the one-year period ended October 31, 1999 and for the period from
March 31, 1998 (commencement of operations) through October 31, 1999, the
average annual compounded rates of return were 6.33% and 1.39%, respectively,
for the Large Cap Equity Fund, 1.67% and -10.70%, respectively, for the Small
Cap Equity Fund, -2.26% and 2.19%, respectively, for the Fixed Income Fund and
17.85% and 3.56%, respectively, 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=2[(_____+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.
The Fixed Income Fund's SEC 30-day yield for the period from October
1, 1999 through October 31, 1999 was 6.21%. Absent fee waivers, the yield would
have been 5.90%.
Each of the Funds may compare its performance to other mutual funds
with similar investment objectives and to the industry as a whole, as reported
by Morningstar, Inc. and Lipper Analytical Services, Inc.; Money, Forbes,
Business Week and Barron's magazines; and The Wall Street Journal. (Morningstar,
Inc. and Lipper Analytical Services, Inc. are independent ranking services that
each rank over 1,000 mutual funds based upon total return performance.) Each of
the Funds may also compare its performance to the Dow Jones Industrials Average,
Nasdaq Composite Index, Nasdaq Industrials Index, Value Line Composite Index,
the S&P 500/R/, 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
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
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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, 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 fiscal year ended October 31, 1999, the Funds incurred
distribution fees under the Plan of $107,358 for the Large Cap Equity Fund,
$68,141 for the Small Cap Equity
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Fund, $141,622 for the Fixed Income Fund and $52,722 for the International
Equity Fund. These fees were allocated to the following activities:
Large Cap Small Cap Fixed Income International
Equity Fund Equity Fund Fund
Advertising $80,224 $51,179 $105,207 $39,397
Compensation to Distributor 23,041 14,443 30,986 11,353
Printing and Mailing of
Prospectuses 2,808 1,733 3,688 1,354
Compensation to Selected Dealers 1,285 786 1,741 618
During the period from November 1, 1998 through June 30, 1999 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:
Aggregate Amount of Amounts Retained by the
Underwriting Commissions Paid Distributor
to Distributor
Fixed Income Fund $11 $ 2
Large Cap Equity Fund $93 $12
Small Cap Equity Fund $42 $ 5
International Equity Fund $12 $ 2
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
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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
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 March
31, 1998 (commencement of operations) through October 31, 1998 and for the
fiscal year ended October 31, 1999 totaled $57,336 on total transactions of
$37,191,797 and $93,054 on total transactions of $68,827,974, respectively, for
the Large Cap Equity Fund, $60,012 on total transactions of $24,513,204 and
$88,343 on total transactions of $49,976,947, respectively, for the Small Cap
Equity Fund, and $68,366 on total transactions of $20,742,290 and $15,585 on
total transactions of $9,381,175, respectively, for the International Equity
Fund. The Fixed Income Fund did not pay brokerage commissions during either
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
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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
their individual capacities. Distributions to shareholders, whether from that
Fund's net investment income or net realized capital gains, would be treated as
taxable dividends to the extent of current or accumulated earnings and profits
of that Fund.
Dividends from a Fund's net investment income, including short-term
capital gains, are taxable to shareholders as ordinary income, while
distributions of net capital gain are taxable as long-term capital gain
regardless of the shareholder's holding period for the shares. Such dividends
and distributions are taxable to shareholders whether received in cash or in
additional shares. The 70% dividends-received deduction for corporations will
apply to dividends from a Fund's net investment income, subject to proportionate
reductions if the aggregate dividends received by the Fund from domestic
corporations in any year are less than 100% of the distribution of net
investment company income taxable made by the Fund.
Any dividend or capital gain distribution paid shortly after a
purchase of shares of a Fund, will have the effect of reducing the per share net
asset value of such shares by the amount of the dividend or distribution.
Furthermore, if the net asset value of the shares of a Fund immediately after a
dividend or distribution is less than the cost of such shares to the
shareholder, the dividend or distribution will be taxable to the shareholder
even though it results in a return of capital to him.
At October 31, 1999, the Fixed Income Fund and the Small Cap Equity
Fund had accumulated net realized capital loss carryovers of $481,470 and
$1,219,860, respectively, expiring in 2007. To the extent these Funds realize
future net capital gains, taxable distributions to shareholders will be offset
by any unused capital loss carryover.
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
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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 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
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investments. Tax treaties between certain countries and the U.S. may reduce or
eliminate such taxes. If more than 50% of the value of a Fund's total assets at
the close of any taxable year consist of stocks or securities of foreign
corporations, the Fund may elect, for U.S. federal income tax purposes, to treat
any foreign country income or withholding taxes paid by the Fund that can be
treated as income taxes under U.S. income tax principles, as paid by its
shareholders. For any year that a Fund makes such an election, each of its
shareholders will be required to include in his income (in addition to taxable
dividends actually received) his allocable share of such taxes paid by the Fund
and will be entitled, subject to certain limitations, to credit his portion of
these foreign taxes against his U.S. federal income tax due, if any, or to
deduct it (as an itemized deduction) from his U.S. taxable income, if any.
Generally, credit for foreign taxes is subject to the limitation that it may not
exceed the shareholder's U.S. tax attributable to his foreign source taxable
income.
If the pass through election described above is made, the source of a
Fund's income flows through to its shareholders. Certain gains from the sale of
securities and currency fluctuations will not be treated as foreign source
taxable income. In addition, this foreign tax credit limitation must be applied
separately to certain categories of foreign source income, one of which is
foreign source "passive income." For this purpose, foreign "passive income"
includes dividends, interest, capital gains and certain foreign currency gains.
As a consequence, certain shareholders may not be able to claim a foreign tax
credit for the full amount of their proportionate share of the foreign tax paid
by the Fund.
The foreign tax credit can be used to offset only 90% of the
alternative minimum tax (as computed under the Code for purposes of this
limitation) imposed on corporations and individuals. If a Fund does not make the
pass through election described above, the foreign taxes it pays will reduce its
income and distributions by the Fund will be treated as U.S. source income.
Each shareholder will be notified within 60 days after the close of
each Fund's taxable year whether, pursuant to the election described above, the
foreign taxes paid by the Fund will be treated as paid by its shareholders for
that year and, if so, such notification will designate: (i) such shareholder's
portion of the foreign taxes paid; and (ii) the portion of the Fund's dividends
and distributions that represent income derived from foreign sources.
SHAREHOLDER MEETINGS
The Maryland Business Corporation Law permits registered investment
companies, such as the Corporation, to operate without an annual meeting of
stockholders under specified circumstances if an annual meeting is not required
by the Act. The Corporation has adopted the appropriate provisions in its bylaws
and may, at its discretion, not hold an annual meeting in any year in which the
election of directors is not required to be acted upon by the shareholders under
the Act.
The Corporation's bylaws also contain procedures for the removal of
directors by its shareholders. At any meeting of shareholders, duly called and
at which a quorum is present, the shareholders may, by the affirmative vote of
the holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office and may elect a successor or successors to
fill any resulting vacancies for the unexpired terms of removed directors.
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Upon the written request of the holders of shares entitled to not less
than ten percent (10%) of all the votes entitled to be cast at such meeting, the
Secretary of the Corporation shall promptly call a special meeting of
shareholders for the purpose of voting upon the question of removal of any
director. Whenever ten or more shareholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate either shares having a net asset value of at least $25,000 or at least
one percent (1%) of the total outstanding shares, whichever is less, shall apply
to the Corporation's Secretary in writing, stating that they wish to communicate
with other shareholders with a view to obtaining signatures to a request for a
meeting as described above and accompanied by a form of communication and
request which they wish to transmit, the Secretary shall within five business
days after such application either: (1) afford to such applicants access to a
list of the names and addresses of all shareholders as recorded on the books of
the Corporation; or (2) inform such applicants as to the approximate number of
shareholders of record and the approximate cost of mailing to them the proposed
communication and form of request.
If the Secretary elects to follow the course specified in clause (2)
of the last sentence of the preceding paragraph, the Secretary, upon the written
request of such applicants, accompanied by a tender of the material to be mailed
and of the reasonable expenses of mailing, shall, with reasonable promptness,
mail such material to all shareholders of record at their addresses as recorded
on the books unless within five business days after such tender the Secretary
shall mail to such applicants and file with the Securities and Exchange
Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Board of Directors to the effect
that in their opinion either such material contains untrue statements of fact or
omits to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion.
After opportunity for hearing upon the objections specified in the
written statement so filed, the Securities and Exchange Commission may, and if
demanded by the Board of Directors or by such applicants shall, enter an order
either sustaining one or more of such objections or refusing to sustain any of
them. If the Securities and Exchange Commission shall enter an order refusing to
sustain any of such objections, or if, after the entry of an order sustaining
one or more of such objections, the Securities and Exchange Commission shall
find, after notice and opportunity for hearing, that all objections so sustained
have been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all stockholders with reasonable promptness after the
entry of such order and the renewal of such tender.
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
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the election of directors can elect the entire Board of Directors and in such
event the holders of the remaining shares voting for the election of directors
will not be able to elect any person or persons to the Board of Directors. The
shares are redeemable and are transferable. All shares issued and sold by the
Fund will be fully paid and nonassessable. Fractional shares entitle the holder
to the same rights as whole shares.
As a general matter, shares are voted in the aggregate and not by
class, except where class voting would be required by Maryland law or the Act
(e.g., a change in investment policy or approval of an investment advisory
agreement). All consideration received from the sale of shares of any Fund,
together with all income, earnings, profits and proceeds thereof, belong to that
Fund and are charged with the liabilities directly attributable to that Fund.
Expenses that are not directly attributable to a Fund are typically allocated
among the Funds in proportion to their respective net assets. The net asset
value of a share of any Fund is based on the assets belonging to that Fund less
the liabilities charged to that Fund, and dividends may be paid on shares of any
Fund only out of lawfully available assets belonging to that Fund. In the event
of liquidation or dissolution of the Funds, the holders of each Fund would be
entitled, out of the assets of the Funds available for distribution, to the
assets belonging to that Fund.
DESCRIPTION OF SECURITIES RATINGS
Set forth below is a description of ratings used by three major
nationally recognized statistical ratings organizations ("NRSROs") Standard &
Poor's Corporation ("Standard & Poor's"), Moody's Investors Service, Inc.
("Moody's") and Duff & Phelps Credit Rating Co. ("Duff & Phelps"). NRSROs base
their ratings on current information furnished by the issuer or obtained from
other sources they consider reliable. NRSROs may change, suspend or withdraw
their ratings due to changes in, unavailability of, such information or for
other reasons.
Commercial Paper Ratings
A Standard and Poor's commercial paper rating is a current assessment
of the likelihood of timely payment of debt having an original maturity of no
more than 365 days. 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-
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established industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earning coverage of fixed financial charges and
high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
Corporate Long-Term Debt Ratings
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees. The debt rating is not a recommendation to
purchase, sell, or hold a security, inasmuch as it does not comment as to market
price or suitability for a particular investor.
The ratings are based on current information furnished by the issuer
or obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment
of principal in accordance with the terms of the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other
laws affecting creditors' rights.
Investment Grade
AAA - Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest an repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small degree.
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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.
"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
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period has not expired, unless Standard & Poor's believes that such payments
will be made during such period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Moody's Long-Term Debt Ratings
"Aaa" - Bonds which are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"Aa" - Bonds which are rated "Aa" are judged to be of high quality by
all standards. Together with the "Aaa" group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or fluctuation
or protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger than in
"Aaa" securities.
"A" - Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
"Baa" - Bonds which are rated "Baa" are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
"Ba" - Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
"B" - Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
"Caa" - Bonds which are rated "Caa" are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
"Ca" - Bonds which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
"C" - Bonds which are rated "C" are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
37
<PAGE>
Duff & Phelps Rating Scale Definitions
"AAA" - Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
"AA+", "AA", "AA-" - High credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A+", "A", "A-" - Protection factors are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB+", "BBB", "BBB-" - Below average protection factors but still
considered sufficient for prudent investment. Considerable variability in risk
during economic cycles.
"BB+", "BB", "BB-" - Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category.
"B+", "B", "B-" - Below investment grade and possessing risk that
obligation might not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
"CCC" - Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions and/or unfavorable company
developments.
"DD" - Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin
53201-1215 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.
38
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
--------
(a) Registrant's Articles of Incorporation, as amended(2)
(b) Registrant's Bylaws(2)
(c) None
(d)(1) Investment Advisory Agreement with Johnson Asset Management,
Inc. for JohnsonFamily Intermediate Fixed Income Fund(2)
(d)(2) Investment Advisory Agreement with Johnson Asset Management,
Inc. for JohnsonFamily Large Cap Equity Fund(2)
(d)(3) Investment Advisory Agreement with Johnson Asset Management,
Inc. for JohnsonFamily Small Cap Equity Fund(2)
(d)(4) Investment Advisory Agreement with Johnson Asset Management,
Inc. for JohnsonFamily International Equity Fund(2)
(e) Distribution Agreement with Sunstone Distribution Services,
LLC(3)
(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.(3)
(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(3)
(n) None
S-1
<PAGE>
(p)(1) Registrant's Code of Ethics
(p)(2) Code of Ethics of Johnson Asset Management, Inc.
- ---------------
(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.
(3) Previously filed as an exhibit to Post-Effective Amendment No. 2 to the
Registration Statement and incorporated by reference thereto.
Post-Effective Amendment No. 2 was filed on June 30, 1999 and its accession
number is 0000897069-99-000369.
Item 24. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Registrant is controlled by Johnson Trust Company by virtue of its
owning at January 31, 2000, as a fiduciary for its clients, 98.02% of the
outstanding shares of the JohnsonFamily Large Cap Equity Fund, 99.33% of the
outstanding shares of the JohnsonFamily Small Cap Equity Fund, 99.71% of the
outstanding shares of the JohnsonFamily Intermediate Fixed Income Fund, and
99.73% of the outstanding shares of the JohnsonFamily International Equity Fund.
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
S-2
<PAGE>
claim of such action, suit or proceeding, whether civil, criminal,
administrative, or legislative, no matter by whom brought, or in any appeal in
which they or any of them are made parties or a party by reason of being or
having been a corporate representative, if the corporate representative acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation and with respect to any criminal proceeding,
if he had no reasonable cause to believe his conduct was unlawful provided that
the corporation shall not indemnify corporate representatives in relation to
matters as to which any such corporate representative shall be adjudged in such
action, suit or proceeding to be liable for gross negligence, willful
misfeasance, bad faith, reckless disregard of the duties and obligations
involved in the conduct of his office, or when indemnification is otherwise not
permitted by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly absolves the corporate
representative, or in the event of a settlement, each corporate representative
shall be indemnified hereunder only if there has been a reasonable determination
based on a review of the facts that indemnification of the corporate
representative is proper because he has met the applicable standard of conduct
set forth in paragraph A. Such determination shall be made: (i) by the board of
directors, by a majority vote of a quorum which consists of directors who were
not parties to the action, suit or proceeding, or if such a quorum cannot be
obtained, then by a majority vote of a committee of the board consisting solely
of two or more directors, not, at the time, parties to the action, suit or
proceeding and who were duly designated to act in the matter by the full board
in which the designated directors who are parties to the action, suit or
proceeding may participate; or (ii) by special legal counsel selected by the
board of directors or a committee of the board by vote as set forth in (i) of
this paragraph, or, if the requisite quorum of the full board cannot be obtained
therefor and the committee cannot be established, by a majority vote of the full
board in which directors who are parties to the action, suit or proceeding may
participate.
C. The termination of any action, suit or proceeding by judgment, order, or
settlement does not create a presumption that the person was guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties and
obligations involved in the conduct of his or her office. The termination of any
action, suit or proceeding by conviction, or upon a plea of nolo contendere or
its equivalent, or any entry of an order of probation prior to judgment, shall
create a rebuttable presumption that the person was guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties and
obligations involved in the conduct of his or her office, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the preparation of
and/or presentation of the defense of a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding as authorized in the manner provided in Section
2-418(F) of the Maryland General Corporation Law upon receipt of: (i) an
undertaking by or on behalf of the corporate representative to repay such amount
unless it shall ultimately be determined that he or she is entitled to be
indemnified by the corporation as authorized in this bylaw; and (ii) a written
affirmation by the corporate representative of the corporate representative's
good faith belief that the standard of conduct necessary for indemnification by
the corporation has been met.
S-3
<PAGE>
E. The indemnification provided by this bylaw shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under these
bylaws, any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person subject
to the limitations imposed from time to time by the Investment Company Act of
1940, as amended.
F. This corporation shall have power to purchase and maintain insurance on
behalf of any corporate representative against any liability asserted against
him or her and incurred by him or her in such capacity or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under this bylaw provided that no
insurance may be purchased or maintained to protect any corporate representative
against liability for gross negligence, willful misfeasance, bad faith or
reckless disregard of the duties and obligations involved in the conduct of his
or her office.
G. "Corporate Representative" means an individual who is or was a director,
officer, agent or employee of the corporation or who serves or served another
corporation, partnership, joint venture, trust or other enterprise in one of
these capacities at the request of the corporation and who, by reason of his or
her position, is, was, or is threatened to be made, a party to a proceeding
described herein.
Insofar as indemnification for and with respect to liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer or controlling person or
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
Incorporated by reference to pages 18 through 22 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 Choice Funds, The Haven Capital Management Trust,
The Green Century Funds, First Omaha Funds, Lend Lease 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>
Name and Principal Position and Offices with Positions and Offices
Business Address Sunstone Distribution Services, LLC with Registrant
- ------------------ ----------------------------------- -------------------
Miriam M. Allison President and Member None
207 East Buffalo Street
Suite 400
Milwaukee, WI 53202
Daniel S. Allison Secretary and Member None
207 East Buffalo Street
Suite 400
Milwaukee, WI 53202
Peter Hammond Vice President None
207 East Buffalo Street
Suite 400
Milwaukee, WI 53202
(c) None
Item 28. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the physical possession of Registrant,
at Registrant's corporate offices, except (1) records held and maintained by
Investors Fiduciary Trust Company relating to its functions as custodian, (2)
records held and maintained by Sunstone Financial Group, Inc., 207 East Buffalo
Street, Suite 400, Milwaukee, Wisconsin 53202 relating to its functions as
administrator, fund accountant and transfer agent, and (3) records held and
maintained by Sunstone Distribution Services, LLC, 207 East Buffalo Street,
Suite 400, Milwaukee, Wisconsin 53202, relating to its role as distributor.
Item 29. Management Services
-------------------
All management-related service contracts entered into by Registrant
are discussed in Parts A and B of this Registration Statement.
Item 30. Undertakings
------------
Registrant undertakes to furnish each person to whom a prospectus is
delivered a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
S-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Fund 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 17th day of
February, 2000.
Family Funds, Inc.
(Registrant)
By: /s/ Joan A. Burke
---------------------------------
Joan A. Burke, President
Pursuant to the requirements of the Securities Act of 1933, this
Amended Registration Statement has been signed below by the following persons in
the capacities and on the date(s) indicated.
Name Title Date
- ---- ----- ----
/s/ Joan A. Burke President (Principal Executive, February 17, 2000
- ---------------------- Financial and Accounting
Joan A. Burke Officer)
/s/ JoAnne Brandes Director February 14, 2000
- ----------------------
JoAnne Brandes
/s/ Richard Bibler Director February 14, 2000
- ----------------------
Richard Bibler
Director February __, 2000
- ----------------------
F. Gregory Campbell
/s/ Gerald Konz Director February 14, 2000
- ----------------------
Gerald Konz
/s/ George Nelson Director February 10, 2000
- ----------------------
George Nelson
Director February __, 2000
- ----------------------
Wendell Perkins
S-6
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit Page No.
----------- ------- --------
(a) Registrant's Articles of Incorporation, as
amended*
(b) Registrant's Bylaws*
(c) None
(d)(1) Investment Advisory Agreement - JohnsonFamily
Intermediate Fixed Income Fund*
(d)(2) Investment Advisory Agreement - JohnsonFamily
Large Cap Equity Fund*
(d)(3) Investment Advisory Agreement - JohnsonFamily
Small Cap Equity Fund*
(d)(4) Investment Advisory Agreement - JohnsonFamily
International Equity Fund*
(e) Distribution Agreement*
(f) None
(g) Custody Agreement*
(h)(1) Administration and Fund Accounting Agreement*
(h)(2) Transfer Agency Agreement*
(i) Opinion of Foley & Lardner, counsel for Registrant
(j) Consent of Arthur Andersen LLP
(k) None
(l) Subscription Agreement*
(m)(1) Service and Distribution Plan*
(m)(2) Form of Dealer Agreement*
(n) None
(p)(1) Registrant's Code of Ethics
(p)(2) Code of Ethics of Johnson Asset Management, Inc.
- --------------------
* Incorporated by reference
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
February 25, 2000
JohnsonFamily Funds, Inc.
4041 North Main Street
Racine, WI 53402
Ladies & Gentlemen:
We have acted as counsel for you in connection with the preparation of
an Amended Registration Statement on Form N-1A relating to the sale by you of an
indefinite amount of JohnsonFamily Funds, Inc. Common Stock (such Common Stock
being hereinafter referred to as the "Stock") in the manner set forth in the
Amended Registration Statement to which reference is made. In this connection we
have examined: (a) the Amended Registration Statement on Form N-1A; (b) your
Articles of Incorporation and Bylaws, as amended to date; (c) corporate
proceedings relative to the authorization for issuance of the Stock; and (d)
such other proceedings, documents and records as we have deemed necessary to
enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the shares of
Stock when sold as contemplated in the Amended Registration Statement will be
legally issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to the
Amended Registration Statement on Form N-1A. In giving this consent, we do not
admit that we are experts within the meaning of Section 11 of the Securities Act
of 1933, as amended, or within the category of persons whose consent is required
by Section 7 of said Act.
Very truly yours,
/s/ FOLEY & LARDNER
Foley & Lardner
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report,
and to all references to our firm, included in or made a part of this Form N-1A
registration statement (No. 811-8627) for JohnsonFamily Funds.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
February 23, 2000
JohnsonFamily Funds, Inc.
Code of Ethics
Amended effective as of December 14, 1999
I. DEFINITIONS
-----------
A. "Access person" means any director, officer or advisory person of the
Fund.
B. "Act" means the Investment Company Act of 1940, as amended.
C. "Advisory person" means: (i) any employee of the Fund or of any
company in a control relationship to the Fund, who, in connection with
his or her regular functions or duties, makes, participates in, or
obtains information regarding the purchase or sale of Covered
Securities by the Fund, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (ii) any
natural person in a control relationship to the Fund who obtains
information concerning recommendations made to the Fund with regard to
the purchase or sale of Covered Securities by the Fund.
D. A Covered Security is "being considered for purchase or sale" when a
recommendation to purchase or sell the Covered Security has been made
and communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
E. "Beneficial ownership" shall be interpreted in the same manner as it
would be under Rule 16a-1(a)(2) under the Securities Exchange Act of
1934 in determining whether a person is the beneficial owner of a
security for purposes as such Act and the rules and regulations
promulgated thereunder.
F. "Control" has the same meaning as that set forth in Section 2(a)(9) of
the Act.
G. "Covered Security" means a security as defined in Section 2(a)(36) of
the Act, except that it does not include:
(i) Direct obligations of the Government of the United States;
(ii) Bankers' acceptances, bank certificates of deposit,
commercial paper and high quality short-term debt
instruments, including repurchase agreements; and
(iii) Shares issued by open-end registered investment companies.
H. "Disinterested director" means a director of the Fund who is not an
"interested person" of the Fund within the meaning of Section 2(a)(19)
of the Act.
<PAGE>
I. "Fund" means JohnsonFamily Funds, Inc. or any series of JohnsonFamily
Funds, Inc.
J. "Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements
of Section 13 or Section 15(d) of the Securities Exchange Act of 1934.
K. "Investment personnel" means: (i) any employee of the Fund or of any
company in a control relationship to the Fund who, in connection with
his or her regular functions or duties, makes or participates in
making recommendations regarding the purchase or sale of securities by
the Fund; and (ii) any natural person who controls the Fund and who
obtains information concerning recommendations made to the Fund
regarding the purchase or sale of securities by the Fund.
L. A "Limited Offering" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2)
or Section 4(6) thereof or pursuant to Rule 504, Rule 505 or Rule 506
thereunder.
M. "Purchase or sale of a Covered Security" includes, among other things,
the writing of an option to purchase or sell a Covered Security.
II. CODE OF ETHICS OF INVESTMENT ADVISER
------------------------------------
A. Prior to retaining the services of an investment adviser to the Fund,
the Board of Directors of the Fund, including a majority of the
Disinterested directors, shall approve the code of ethics adopted by
such investment adviser pursuant to Rule 17j-1 under the Act. The
Board of Directors of the Fund, including a majority of the
Disinterested directors, shall approve any material changes to any
such code of ethics within six months after the adoption of the
material change. Prior to approving any such code of ethics or
amendment thereto, the Board of Directors shall receive a
certification from such investment adviser that it has adopted such
procedures as are reasonably necessary to prevent access persons of
such investment adviser from violating such code. Prior to approving
this Code of Ethics and the code of ethics of an investment adviser,
and any material changes thereto, the Board of Directors must
determine that any such code of ethics contain provisions reasonably
necessary to prevent the applicable access persons from violating Rule
17j-1(b) of the Act.
B. No less frequently than annually, the officers of the Fund and the
officers of the investment adviser to the Fund shall furnish a report
to the Board of Directors of the Fund:
1. Describing issues arising under the applicable code of ethics
since the last report to the Board of Directors, including, but
not limited to,
2
<PAGE>
information about material violations of the code and sanctions
imposed in response to such material violations. Such report
shall also include a list of access persons under the code of
ethics.
2. Certifying that the Fund or investment adviser as applicable has
adopted such procedures as are reasonably necessary to prevent
access persons from violating the code of ethics.
C. The officers of the investment adviser to the Fund shall furnish a
written report to the Board of Directors of the Fund describing any
material changes made to the code of ethics of such investment adviser
within ten (10) days after making any such material change.
D. This Code of Ethics, the code of ethics of the investment adviser, the
certifications required by Sections II.A. and II.B.(2), and the
reports required by Sections II.B.(1), II.C and V. shall be maintained
by the Fund's Administrator.
III. EXEMPTED TRANSACTIONS
---------------------
The prohibitions of Section IV of this Code of Ethics shall not apply to:
(a) Purchases or sales effected in any account over which the access
person has no direct or indirect influence or control.
(b) Purchases or sales of Covered Securities which are not eligible
for purchase or sale by either Fund; provided, however, that the
prohibitions of Section IV.B of this Code of Ethics shall apply
to such purchases and sales.
(c) Purchases or sales which are non-volitional on the part of either
the access person or the Fund.
(d) Purchases which are part of an automatic dividend reinvestment
plan.
(e) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to
the extent such rights were acquired from such issuer, and sales
of such rights so acquired.
(f) Purchases or sales which receive the prior approval of the Board
of Directors of the Fund because they are only remotely
potentially harmful to a Fund because they would be very unlikely
to affect a highly institutional market, or because they clearly
are not related economically to the securities to be purchased,
sold or held by the Funds.
3
<PAGE>
IV. PROHIBITED ACTIVITIES
---------------------
A. Except in a transaction exempted by Section III of this Code, no
access person shall purchase or sell, directly or indirectly, any
Covered Security in which he has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership and which to his
actual knowledge at the time of such purchase or sale is being
considered for purchase or sale by a Fund or is being purchased or
sold by a Fund. The code of ethics of the investment adviser for the
Fund shall contain a similar prohibition.
B. Except in a transaction exempted by Section III of this Code of
Ethics, Investment Personnel of the Fund must obtain approval from the
Board of Directors before directly or indirectly acquiring beneficial
ownership in any securities in an Initial Public Offering or in a
Limited Offering. Prior approval shall not be given if the Board of
Directors believes that the investment opportunity should be reserved
for the Fund or is being offered to the individual by reason of his or
her position with the Fund. The code of ethics of the investment
adviser for the Fund shall contain a similar prohibition, but may
provide for prior approval of an officer of the investment adviser.
C. Except for service which began prior to February 26, 1998, Investment
Personnel shall not serve on the board of directors of publicly traded
companies absent prior authorization of the Board of Directors of the
Fund. The Board of Directors of the Fund may so authorize such board
service only if it determines that such board service is consistent
with the interests of the Fund and it shareholders.
V. REPORTING
---------
A. Except as provided in Section V.B. of this Code of Ethics, every
access person shall report to the Fund the information described in
Section V.C., Section V.D. and Section V.E. of this Code of Ethics.
All reports shall be filed with the Fund's Administrator.
B. 1. A Disinterested director of the Fund need not make a report
pursuant to Section V.C. and V.E. of this Code of Ethics and need
only report a transaction in a Covered Security pursuant to
Section V.D. of this Code of Ethics if such Disinterested
director, at the time of such transaction, knew or, in the
ordinary course of fulfilling his official duties as a director
of the Fund, should have known that, during the 15-day period
immediately preceding the date of the transaction by the
director, such Covered Security was purchased or sold by the Fund
or was being considered by the Fund or its investment adviser for
purchase or sale by the Fund.
4
<PAGE>
2. An access person need not make a report with respect to
transactions effected for, and Covered Securities held in, any
account over which the person has no direct or indirect influence
or control.
3. An access person need not make a quarterly transaction report
pursuant to Section V.D. of this Code of Ethics if the report
would duplicate information contained in broker trade
confirmations or account statements received by the Fund with
respect to the access person in the time period required by
Section V.D., provided that all of the information required by
Section V.D. is contained in the broker trade confirmations or
account statements or in the records of the Fund.
4. An access person that is required to file reports pursuant to the
code of ethics of the investment adviser need not make any report
pursuant to Section V.C., Section V.D. and Section V.E. of this
Code of Ethics if such access person makes comparable reports
pursuant to the code of ethics of the investment adviser.
C. Every access person shall, no later than ten (10) days after the
person becomes an access person, file an initial holdings report
containing the following information:
1. The title, number of shares and principal amount of each Covered
Security in which the access person had any direct or indirect
beneficial ownership when the person becomes an access person;
2. The name of any broker, dealer or bank with whom the access
person maintained an account in which any securities were held
for the direct or indirect benefit of the access person; and
3. The date that the report is submitted by the access person.
D. Every access person shall, no later than ten (10) days after the end
of a calendar quarter, file a quarterly transaction report containing
the following information:
1. With respect to any transaction during the quarter in a Covered
Security in which the access person had any direct or indirect
beneficial ownership:
(a) The date of the transaction, the title and the number of
shares, and the principal amount of each security involved;
(b) The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
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(c) The price of the Covered Security at which the transaction
was effected;
(d) The name of the broker, dealer or bank with or through whom
the transaction was effected; and
(e) The date that the report is submitted by the access person.
2. With respect to any account established by the access person in
which any securities were held during the quarter for the direct
or indirect benefit of the access person:
(a) The name of the broker, dealer or bank with whom the access
person established the account;
(b) The date the account was established; and
(c) The date that the report is submitted by the access person.
E. Every access person shall, no later than January 30 each year, file an
annual holdings report containing the following information as of the
preceding December 31:
1. The title, number of shares and principal amount of each Covered
Security in which the access person had any direct or indirect
beneficial ownership;
2. The name of any broker, dealer or bank with whom the access
person maintains an account in which any securities are held for
the direct or indirect benefit of the access person; and
3. The date that the report is submitted by the access person.
F. Any report filed pursuant to Section V.C., Section V.D. or Section
V.E. of this Code of Ethics may contain a statement that the report
shall not be construed as an admission by the person making such
report that he has any direct or indirect beneficial ownership in the
security to which the report relates.
G. The Fund's President or designee shall review all reports filed
pursuant to Section V.C., Section V.D. or Section V.E. of this Code of
Ethics. The Fund's President or designee shall identify all access
persons who are required to file reports pursuant to this Section V of
this Code of Ethics and must inform such access persons of their
reporting obligation.
H. Each year access persons shall certify to the Fund that (i) they have
read and understand this Code of Ethics and recognize that they are
subject thereto, and (ii) they have complied with the requirements of
this Code of Ethics and that
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they have disclosed or reported all personal securities transactions
required to be disclosed or reported pursuant to the requirements of
this Code of Ethics.
I. Compliance with this Code of Ethics does not relieve access persons of
their obligations under any other code of ethics.
VI. SANCTIONS
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Upon discovering a violation of this Code of Ethics, the Board of Directors of
the Fund may impose such sanctions as it deems appropriate, including inter
alia, issuing a letter of censure, or suspension or termination of employment of
the violator.
7
CODE OF ETHICS
JOHNSON ASSET MANAGEMENT, INC.
October 18, 1999
The nature of our business places all employees of the JAM organization in a
position of public trust. In addition, Rule 204-2(a)(12) under the Investment
Advisers Act of 1940 requires investment advisers to adopt a code of ethics
regarding insider transactions and requires all employees to report beneficial
ownership of securities to their employer. Therefore, this Code of Ethics has
been adopted by JAM to assure that we carry out our personal investment
transactions in such a manner that under no circumstances will our activities
create a conflict of interest situation or allow improper personal benefit
through our relationship with our clients.
1. Compliance with governing laws and regulations and codes of ethics
JAM employees shall not knowingly participate in, assist, or condone any
acts in violation of any statute or regulation governing securities
matters, nor any act which would violate any provisions of these Standards
of Professional Conduct. Nor will they knowingly violate any provision in
accordance with the Bylaws of the Association for Investment Management &
Research.
2. Investment opinions
A. JAM employees shall have a reasonable and objective basis for
investment opinions or actions. Appropriate records shall be
maintained to support their logic. Employees shall be accurate and
complete when reporting or utilizing facts and shall distinguish
between facts and opinions in presentations of investment
recommendations or in taking investment actions.
B. JAM employees, in making an investment recommendation or taking
investment action, shall exercise diligence and thoroughness in the
analysis of relevant investment risks and the valuation of, or the
expected return from, investment securities. Any such recommendation
or action shall be supported by appropriate research and
investigation.
C. JAM employees shall not, in the preparation of material for
distribution to their employer, associates, customers, clients, or the
general public, copy or use in substantially the same form material
prepared by other persons without acknowledging its use and
identifying the name of the author or publisher of such material. The
analyst may, however, use without acknowledgment, recognized sources
including statistical services for factual data.
D. JAM employees shall scrupulously avoid any statements, oral or
written, which guarantee any investment.
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E. JAM employees, in making an investment recommendation or taking
investment action, shall make reasonable efforts to be aware of and
consider appropriateness and suitability of such recommendation or
action for the recipients of the material or the persons to whom a
fiduciary responsibility is owed in such circumstances.
3. Inside Information
A. Definitions
"INSIDER TRADING":
The term is not defined in the federal securities laws, but generally is
used to refer to the use of material nonpublic information to trade in
securities (whether or not one is an "insider") or to communications of
material nonpublic information to others.
While the law concerning insider trading is not static, it is generally
understood that the law prohibits:
1. trading by an insider, while in possession of material nonpublic
information, or
2. trading by a non-insider, while in possession of material nonpublic
information, where the information either was disclosed to the
non-insider in violation of an insider's duty to keep it confidential
or was misappropriated, or
3. communicating material nonpublic information to others.
The elements of insider trading and the penalties for such unlawful conduct
are discussed within. If, after reviewing this policy statement, you have
any questions you should consult the President of JAM.
"INSIDER":
The concept of "insider" is broad. It includes officers directors and
employees of a company. In addition, a person can be a "temporary insider"
if he or she enters into a special confidential relationship in the conduct
of a company's affairs and as a result is given access to information
solely for the company's purposes. A temporary insider can include, among
others, a company's attorneys, accountants, consultants, bank lending
officers, and the employees of such organizations. In addition, JAM may
become a temporary insider of a company it advises or for which it performs
other services. According to the Supreme Court, the company must expect the
outsider to keep the disclosed nonpublic information confidential and the
relationship must at least imply such a duty before the outsider will be
considered an insider.
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"MATERIAL INFORMATION":
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment
decisions, or information that is reasonably certain to have a substantial
effect on the price of a company's securities. Information that officers,
directors and employees should consider material includes, but is not
limited to: dividend changes, earnings estimates, changes in previously
released earnings estimates, significant merger or acquisition proposals or
agreements, major litigation, liquidation problems, and extraordinary
management developments.
Material information does not have to relate to a company's business. For
example, in Carpenter v. U.S., 108 U.S. 316 (1987), the Supreme Court
considered as material certain information about the contents of a
forthcoming newspaper column that was expected to affect the market price
of a security. In that case, a Wall Street Journal reporter was found
criminally liable for disclosing to others the dates that reports on
various companies would appear in the Journal and whether those reports
would be favorable or not.
"NONPUBLIC INFORMATION":
Information is nonpublic until it has been effectively communicated to the
market place. One must be able to point to some fact to show that the
information is generally public. For example, information found in a report
filed with the SEC, or appearing in Dow Jones, Reuters Economic Services,
The Wall Street Journal or other publications of general circulation would
be considered public.
Attached is a copy of the Investment Company Institute's bases for
liability, and penalties for insider trading.
JAM forbids any officer, director or employee from trading, either personally or
on behalf of others, including mutual funds and private accounts managed by JAM,
on material nonpublic information or communicating material nonpublic
information to others in violation of the law. This conduct is frequently
referred to as "insider trading." JAM's policy applies to every officer,
director and employee and extends to activities within and outside their duties
at JAM. Every officer, director and employee must read and retain this policy
statement. Any questions regarding JAM's Code of Ethics or Policies & Procedures
should be referred to the President of JAM.
The following procedures have been established to aid the officers, directors
and employees of JAM in avoiding insider trading, and to aid JAM in preventing,
detecting and imposing sanctions against insider trading. Every officer,
director and employee of JAM must follow these procedures or risk serious
sanctions, including dismissal, substantial personal liability and criminal
penalties. If you have any questions about these procedures you should consult
the President of JAM.
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4. Identifying Inside Information
Before trading for yourself or others, including investment companies or
private accounts managed by JAM, in the securities of a company about which
you may have potential inside information, ask yourself the following
questions:
i. Is the information material? Is this information that an investor
would consider important in making his or her investment decisions? Is
this information that would substantially effect the market price of
the securities if generally disclosed?
ii. Is the information nonpublic? To whom has this information been
provided? Has the information been effectively communicated to the
marketplace by being published in Reuters, The Wall Street Journal or
other publications of general circulation?
If, after consideration of the above, you believe that the information is
material and nonpublic, or if you have questions as to whether the
information is material and nonpublic, you should take the following steps:
i. Report the matter immediately to the President of JAM or compliance
person.
ii. Do not purchase or sell the securities on behalf of yourself or
others, including investment companies or private accounts managed by
JAM.
iii. Do not communicate the information inside or outside JAM, other than
to the President of JAM or compliance person.
iv. After the President of JAM or compliance person has reviewed the
issue, you will be instructed to continue the prohibitions against
trading and communication, or you will be allowed to trade and
communicate the information.
4.A. Resolving Issues Concerning Insider Trading
If, after consideration of the items set forth in paragraph 1, doubt remains as
to whether information is material or nonpublic, or if there is any unresolved
question as to the applicability or interpretation of the foregoing procedures,
or as to the propriety of any action, it must be discussed with the President of
JAM or compliance person before trading or communicating the information to
anyone.
4.B. Restricting Access to Material Nonpublic Information
Information in your possession that you identify as material and nonpublic may
not be communicated to anyone, including persons within JAM, except as provided
in paragraph 1 above. In addition, care should be taken so that such information
is secure.
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5. Personal Securities Trading and Disclosure of Conflicts
i. All officers, directors and employees of JAM shall submit to the
President of JAM a quarterly report of every securities transaction in
which they, their families (including the spouse, minor children and
adults living in the same household as the officer, director or
employee), (excluded from these transactions are bank CD's, and all
mutual fund transactions) and trusts of which they are trustees or in
which they have a beneficial interest have participated. The report
shall include the name of the security, date of the transaction,
quantity, price, and broker-dealer through which the transaction was
effected. The report shall also disclose if the reporting person has
established a securities account with a broker, dealer or bank during
the quarter. The report shall be dated the date it is submitted by the
reporting person. Reports are due ten days after the end of the
calendar quarter.
ii. JAM employees shall comply with lawful requirements of disclosure
requirements by law and rules and regulations of organizations
governing his activities. When making recommendations or taking
investment action he shall disclose to his clients and employer any
material ownership of securities involved which could reasonably be
expected to impair his ability to render unbiased and objective advice
or take investment action as related to himself or JAM.
iii. A listing of all security holdings must be provided annually (by
January 30 reporting holdings as of the previous December 31) and
initially (within 10 days of commencement of employment) meeting the
requirements of (I) above. Such listings must be in a report dated as
of the date it is submitted by the reporting person and must also
disclose all broker, dealer or bank securities of the reporting
person.
Priority of transactions
A. JAM employees shall be able to justify with complete reasonableness
inclusion or omission of securities from certain managed portfolios
vis-a-vis others, in particular, affiliates of JAM.
B. Purchase and sale of particular securities will be accomplished on a
fair and equitable basis among the clients of JAM.
C. JAM employees shall conduct themselves in such manner that
transactions for clients, and employer have priority over personal
transactions, and that personal transactions do not operate adversely
to employer and client interests. They shall act with impartiality
with respect to clients and JAM affiliates. Thus, if an employee has
decided to make a recommendation or take an action on the purchase or
sale of a security, he shall give his clients and employer adequate
opportunity to act on such recommendation before acting on his own
behalf. No
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employee shall purchase or sell a security if to his actual knowledge
at the time of such purchase or sale it is being considered for
purchase or sale by a client or is being purchased or sold by a
client. -
D. Employee shall use caution as to potential conflicts which may arise
when dealing with brokers or vendors which also service JAM. The
acceptance of gifts and personal favors should be discouraged and the
acceptance of other than nominal gifts or favors is forbidden.
E. When, in the course of practice, the JAM employee has encountered
evidence that illegal acts have occurred, he is encouraged to report
such evidence to an appropriate governmental or self-regulatory
authority and the President of JAM.
F. JAM investment personnel shall not engage in the purchase or sale of
stocks on the current Working List without clearing the trade with the
compliance officer, in order to avoid any potential conflict or
appearance of conflict.
G. Any individual assuming a position on the investment staff of JAM
shall disclose any and all securities positions owned directly or
indirectly as described herein and any directorships as well as any
potential conflicts.
H. Pre-clearance is required before an investment can be made in an IPO
or Private Placement of any type.
Annually each member of the staff and Board will sign the Code of Ethics and
return it to the President of JAM in order to assure awareness and compliance
with the Code of Ethics.
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MEMORANDUM
DATE: October 18, 1999
TO: All Employees, Officers and Directors of
Johnson Asset Management
FROM:
RE: CODE OF ETHICS
Attached is our Code of Ethics. It is distributed annually to all employees and
members of the Board as a reminder of our code of professional conduct. Please
take the time to read the Code of Ethics carefully. It is incumbent that each
one of us understand the provisions of the Code and adhere to them strictly. If
you have any questions, please take with me about them.
Please sign and return this page to me.
I have read and understand the Code of Ethics dated October 18, 1999.
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Name Date