As filed with the Securities and Exchange Commission on November 30, 1998
Registration Nos. 333-45675 and 811-08631
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 1 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 3 [X]
EUCLID MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
900 Third Avenue - 31st Floor
New York, New York 10022
(Address of Principal Executive Offices) (Zip code)
Registrant's Telephone Number, including Area Code: (212) 451-1100
EUGENE J. GLASER, President
Euclid Advisors LLC
900 Third Avenue - 31st Floor
New York, New York 10022
(Name and Address of Agent for Service)
Copy to:
PAUL S. SCHREIBER, Esq.
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b)
|X| on November 30, 1998 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| on (date) 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 file post-effective amendment.
DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended,
the Registrant has registered an indefinite number or amount of securities
under the Securities Act of 1933, as amended.
<PAGE>
EUCLID MUTUAL FUNDS
CONTENTS
This Registration Statement on Form N-1A consists of the following:
1. Facing Sheet
2. Contents
3. Cross-Reference Sheet
4. Part A - Prospectus for all shares of Euclid Market Neutral Fund
5. Part B - Statement of Additional Information for all shares of Euclid
Market Neutral Fund
6. Part C - Other Information
7. Signature Sheet
8. Exhibits
<PAGE>
EUCLID MUTUAL FUNDS
Cross-Reference Sheet pursuant to Rule 495(a) for all shares of
Euclid Market Neutral Fund
Form N-1A
================================================================================
ITEM NO. LOCATION
- --------------------------------------------------------------------------------
Part A Prospectus
- --------------------------------------------------------------------------------
1. Cover Page Cover
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2. Synopsis Cover
Fee Table
- --------------------------------------------------------------------------------
3. Condensed Financial Information Not Applicable
- --------------------------------------------------------------------------------
4. General Description of Registrant Cover
Our General Investment Philosophy and
Strategy;
Investment Objective;
Organization of the Fund;
Other Investment Policies;
Risk Factors
- --------------------------------------------------------------------------------
5. Management of the Registrant Organization of the Fund
The Manager and Management Fee;
Cover;
The Portfolio Manager;
How to Invest in the Fund;
How to Sell Your Fund Shares
- --------------------------------------------------------------------------------
5A. Management's Discussion of Advisor's Prior Performance
Fund Performance Fund Performance Information
- --------------------------------------------------------------------------------
6. Capital Stock and Other Securities Some Things You Should Know Above
Euclid Market Neutral Fund;
Organization of the Fund;
Choosing Among Classes When Purchasing
Shares;
Cover;
Distributions and Taxes
- --------------------------------------------------------------------------------
7. Purchase of Securities Being Offered Fee Table;
Cover;
Net Asset Value;
Choosing Among Classes When Purchasing
Shares;
How to Invest in the Fund;
The Distributor;
Exchange Privilege;
- --------------------------------------------------------------------------------
8. Redemption or Repurchase How to Sell Your Fund Shares;
Exchange Privilege;
Choosing Among Classes When Purchasing
Shares;
Fee Table
- --------------------------------------------------------------------------------
9. Legal Proceedings Not Applicable
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Part B - Statement of Additional Information
- --------------------------------------------------------------------------------
10. Cover Page Cover
- --------------------------------------------------------------------------------
11. Table of Contents Table of Contents
- --------------------------------------------------------------------------------
12. General Information and History Not Applicable
- --------------------------------------------------------------------------------
13. Investment Objectives and Policies Investment Objectives and Policies;
Investment Restrictions;
Other Investment Policies
- --------------------------------------------------------------------------------
14. Management of the Fund Trustees and Officers of the Trust
- --------------------------------------------------------------------------------
15. Control Persons and Principal Control Persons and Principal Holders
Holders of Securities of Securities
- --------------------------------------------------------------------------------
16. Investment Advisory and Other Investment Management and
Services Other Services;
Trustees and Officers of the Trust
- --------------------------------------------------------------------------------
17. Brokerage Allocation and Other Portfolio Transactions and Brokerage
Practices
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18. Capital Stock and Other Securities Purchase and Redemption of Shares
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19. Purchase, Redemption and Pricing of Purchase and Redemption of Shares;
Securities Being Offered Reinstatement Privilege;
Involuntary Redemptions;
Exchange Privilege;
Retirement Plans;
Net Asset Value and Taxes
- --------------------------------------------------------------------------------
20. Tax Status Net Asset Value and Taxes
- --------------------------------------------------------------------------------
21. Underwriters Investment Management and
Other Services
- --------------------------------------------------------------------------------
22. Calculation of Performance Data Yield and Performance Information
- --------------------------------------------------------------------------------
23. Financial Statements Financial Statements
- --------------------------------------------------------------------------------
Part C - Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement on Form
N-1A.
================================================================================
<PAGE>
[GRAPHIC LOGO
NOT INCLUDED OF INVESTMENT MANAGER
EUCLID MUTUAL FUNDS Euclid Advisors LLC
900 Third Avenue 900 Third Avenue, 31st Floor
New York, NY 10022-4728] New York, New York 10022-4728
PRINCIPAL DISTRIBUTOR
Zweig Securities Corp.
900 Third Avenue, 31st Floor
New York, New York 10022-4728
CUSTODIAN
The Bank of New York
48 Wall Street
New York, New York 10015
TRANSFER AGENT AND DIVIDEND PAYING AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
COUNSEL
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
INDEPENDENT ACCOUNTANTS
PriceWaterhouseCoopers L.L.P.
1301 Avenue of the Americas
New York, New York 10019
No dealer, salesperson or other person has been
authorized to give any information or to make
any representations, other than those contained
in this Prospectus, in connection with the offer
contained in this Prospectus, and, if given or
made, such other information or representations
must not be relied upon as having been
authorized by the Trust, the Investment Manager
or the Distributor. This Prospectus does not
constitute an offering in any state in which
such offering may not lawfully be made.
For more information, contact your
financial advisor or call us at 1.800.272.2700.
Visit our website at www.euclidfunds.com
(c) Zweig Securities Corp. Member NASD.
Printed on recycled paper. TPMN 9807
<PAGE>
November 30, 1998
PROSPECTUS
EUCLID MARKET NEUTRAL FUND
Euclid Market Neutral Fund (the "Fund") seeks to increase
the value of your investment (capital appreciation) in bull
markets and in bear markets while maintaining minimal
exposure to general market risk by always having both long
and short positions in equity securities.
The Fund utilizes proprietary stock selection models that
are designed to predict relative performance of stocks. The
Euclid Market Neutral Fund strives to profit by buying
stocks that are ranked favorably (and therefore deemed
likely to outperform) and by selling short stocks that are
ranked poorly (and therefore deemed likely to underperform).
It is expected that the Fund's performance will have little
correlation with the direction of the stock market. The Fund
seeks a total return greater than the return on 3-month U.S.
Treasury Bills. For a description of the risks of an
investment in the Fund and the differences between an
investment in the Fund and in 3-month Treasury Bills, see
"Investment Objective" and "Risk Factors."
Shares of the Fund are not deposits or obligations of, or
guaranteed, endorsed or insured by, any entity or person,
including the U.S. Government and the Federal Deposit
Insurance Corporation.
The Fund is the first of a series of Euclid Mutual Funds, a
Delaware business trust (the "Trust"). The Trust is an
open-end, diversified management investment company.
Call your financial advisor or write us at 900 Third Avenue,
New York, NY 10022-4728, or call 1-800-272-2700 for more
information.
This prospectus will help you learn more about the Fund.
Please read it carefully before you invest, and keep it for
future reference.
Our Statement of Additional Information (SAI) dated November
30, 1998, as may be amended from time to time, includes more
information about the Fund's policies and procedures. You
can obtain a free copy by calling 1-800-272- 2700. It has
been filed with the Securities and Exchange Commission and
is incorporated by reference into this Prospectus. The
Commission maintains a World Wide Web site at
http://www.sec.gov that contains the SAI and other
information regarding the Trust.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
SOME THINGS YOU SHOULD KNOW ABOUT EUCLID MARKET NEUTRAL FUND
o The Fund is designed for investors who intend to invest for the long
term, not for investors who intend to liquidate their investment
after a short period of time.
o There are risks associated with investing in the Fund, including the
possible loss of capital. See "Risk Factors."
o The Fund offers four classes of shares. Before purchasing, you should
determine which class is right for you. More information about the
classes of shares appears under the heading "Choosing Among Classes
When Purchasing Shares."
o Euclid Advisors LLC (the "Manager") is the investment manager of the
Fund. The Manager is a subsidiary of Zweig/Glaser Advisers. Zweig
Securities Corp. is the distributor of the Fund's shares.
<PAGE>
TABLE OF CONTENTS
ABOUT THE FUND
Fee Table 3
Financial Highlights 3
Investment Objective 4
Our General Investment Philosophy and Strategy 4
Other Investment Policies 4
The Portfolio Manager 5
Risk Factors 5
Year 2000 Preparedness 7
Advisor's Prior Performance 7
Fund Performance Information 8
ABOUT YOUR ACCOUNT
Choosing Among Classes When Purchasing Shares 9
How to Invest in the Fund 12
How To Sell Your Fund Shares 13
Exchange Privilege 14
Net Asset Value 14
Distributions and Taxes 14
OTHER INFORMATION
The Distributor 15
The Manager and Management Fee 15
Organization of the Fund 15
2
<PAGE>
FEE TABLE
Mutual fund investors bear two types of expenses: transaction expenses and
operating expenses. You pay transaction expenses when you buy shares in the
Fund. The Fund as a whole pays operating expenses, which reduce the Fund's
annual return to you.
The table below is designed to assist you in understanding the various costs and
expenses you will bear. The examples do not represent past or future expense
levels, which may be greater or less than those shown. The amount for "Other
Expenses" is based on expenses for the first year. Federal regulations require
the examples to assume a 5% annual return, but actual annual returns may vary.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C CLASS I
- -------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Initial Sales Charge on purchases
(as % of Offering Price) 5.50% None None None
Maximum Contingent Deferred Sales Charge (CDSC)
(as % of redemption proceeds) None* 5.00%** 1.25%*** None
</TABLE>
* A 1% CDSC is imposed on redemptions within 18 months of purchases of $1
million or more originally purchased without an initial sales charge as
described under "Quantity Discounts on Class A Shares."
** The maximum CDSC is imposed on Class B Shares redeemed in the first year;
thereafter, the CDSC declines (See "Class B Shares").
*** The CDSC on Class C Shares applies only if redemption occurs in the first
year.
<TABLE>
<CAPTION>
------------------------ ------------------------
EXAMPLE: YOU WOULD PAY EXAMPLE: YOU WOULD PAY
THE FOLLOWING EXPENSES* THE FOLLOWING EXPENSES*
ANNUAL FUND OPERATING EXPENSES ON A $1,000 INVESTMENT ON A $1,000 INVESTMENT
(AS A PERCENTAGE OF AVERAGE NET ASSETS) ASSUMING ASSUMING
(A) 5% ANNUAL RETURN AND (A) 5% ANNUAL RETURN AND
TOTAL FUND (B) REDEMPTION AT THE (B) NO REDEMPTION TIME
MANAGEMENT 12B-1 OTHER OPERATING END OF EACH TIME PERIOD: PERIOD:
EUCLID MARKET NEUTRAL FUND FEES(2) FEES(1) EXPENSES EXPENSES(2) 1 YEAR 3 YEARS 1 YEAR 3 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares 1.46%* 0.30% 0.54% 2.30%* 77 123 77 123
Class B Shares 1.46%* 1.00% 0.54% 3.00%* 80 123 30 93
Class C Shares 1.46%* 1.00% 0.54% 3.00%* 43 93 30 93
Class I Shares 1.46%* -- 0.54% 2.00%* 20 63 20 63
------------------------ ------------------------
</TABLE>
* After expense reimbursement. Excludes dividends on short sales which
amounted to 1.35% (annualized) of the average net assets for each class of
shares.
(1) The 12b-1 Fees include a 0.25% Service Fee, which is paid to financial
services firms, including National Association of Securities Dealers,
Inc. ("NASD") member firms (commencing one year after purchase with
respect to Class B and Class C Shares) for continuous personal service
by such firms to investors in the Fund. Personal service includes
responding to shareholder inquiries, quoting net asset values, providing
current marketing materials and attending to other shareholder matters.
The distributor retains all or a portion of the asset-based sales charge
also included in the 12b-1 Fees. The NASD limits asset based sales
charges to 6.25% of new sales, plus interest. Long-term shareholders may
pay more than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
(2) The Manager has voluntarily undertaken to limit the expenses of the fund
(exclusive of taxes, interest, dividends paid on securities sold short,
brokerage commissions, 12b-1 fees and extraordinary expenses) until
April 30, 1999 to 2.00% of its average net assets. The Management Fees
noted above, without reimbursement, would be 1.50% for each Class, and
Total Fund Operating Expenses would be 2.34% for Class A Shares, 3.04%
for Class B and Class C Shares, and 2.04% for Class I Shares.
FINANCIAL HIGHLIGHTS
The information presented below is for the period May 1, 1998 (commencement of
operations) to October 31, 1998.
PricewaterhouseCoopers LLP, the Fund's independent accountants, has audited this
information. Their report is included in the 1998 Annual Report of the Fund
which is available upon request and is incorporated by reference into the
Statement of Additional Information (SAI).
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.34 $11.34 $11.34 $11.34
------ ------ ------ ------
Net Investment Income 0.09 0.06 0.06 0.14
Net Realized and Unrealized Gains (Losses) (0.59) (0.59) (0.60) (0.63)
------ ------ ------ ------
Total from Investment Operations (0.50) (0.53) (0.54) (0.49)
Dividends from Investment Operations - - - -
------ ------ ------ ------
Net Asset Value, End of Period $10.84 $10.81 $10.80 $10.85
====== ====== ====== ======
Total Return *** (4.41)%** (4.67)%** (4.76)%** (4.32)%**
Ratios to Average Net Assets:
Expenses (excluding dividends on short sales)
after expense reimbursement 2.30%* 3.00%* 3.00%* 2.00%*
Expenses (including dividends on short sales)
after expense reimbursement 3.65%* 4.35%* 4.35%* 3.35%*
Expenses (including dividends on short sales)
before expense reimbursement 3.69%* 4.39%* 4.39%* 3.39%*
Net Investment Income before expense reimbursement 2.29%* 1.59%* 1.59%* 2.59%*
Net Investment Income after expense reimbursement 2.33%* 1.63%* 1.63%* 2.63%*
Portfolio Turnover Rate 431%* 431%* 431%* 431%*
Net Assets, End of Period (in thousands) $39,331 $47,794 $56,874 $20,846
</TABLE>
During 1998, the Manager voluntarily reimbursed each Class $. 003 per share
(0.04% ratio of expenses to average net assets).
* Annualized.
** Not Annualized.
*** Total Return does not consider the effect of any initial or contingent
deferred sales charge.
3
<PAGE>
INVESTMENT OBJECTIVE
Euclid Market Neutral Fund (the "Fund") seeks to increase the value of your
investment over the long-term (capital appreciation) while maintaining minimal
portfolio exposure to general equity market risk by always having both long and
short positions in equity securities.
The Fund's performance benchmark is the return on 3-month U.S. Treasury Bills.
An investment in 3-month U.S. Treasury Bills is different from an investment in
the Fund because Treasury Bills are backed by the full faith and credit of the
United States, have a fixed rate of return and a short duration, and have no
risk of losing capital.
Except as explicitly set forth in this prospectus or in the SAI, the investment
objective and policies of the Fund may be changed without shareholder approval.
We designed Euclid Market Neutral Fund for investors who seek to balance the
need for a total return greater than the return on 3-month U.S. Treasury Bills
in bull markets and in bear markets with the need to limit the risks associated
with investing in equity securities. As with any mutual fund, there is no
assurance that the Fund's objective will be achieved.
An investor desiring capital appreciation with minimal exposure to general
equity market risk may wish to consider the Fund.
OUR GENERAL INVESTMENT PHILOSOPHY AND STRATEGY
We believe that stocks of companies with improving fundamentals will, over time,
outperform stocks of companies with deteriorating fundamentals, though this
relationship may not hold over the short term for various reasons. We also
believe that stocks with low valuations relative to their historical norms will
outperform stocks with high valuations relative to their historical norms. We
rank stocks using a variety of proprietary stock selection models. These models
analyze fundamental trends and data on companies, as well as the price histories
of their stocks. Fundamental data includes earnings, dividends, cash flow,
revenues, and book value. Examples of valuation measures are price-to-earnings
ratio, price-to-cash flow ratio, price-to-book value ratio, and dividend yield.
Some of our stock selection models are designed to predict relative performance
of broad universes of stocks. Others are designed to perform favorably within
more specific areas of the market, such as growth stocks or value stocks. Though
different models may emphasize different variables, the models have certain
similarities. Generally speaking, they all rank stocks on the underlying
company's fundamentals and how the trend in such fundamentals compares to the
stock's current valuation. A model's output is a best-to-worst ranking of stocks
in the particular universe being examined. Stocks with higher scores tend to
outperform the average stock in the universe; stocks with lower scores tend to
underperform the average stock in the universe.
By taking both long and short positions, the Fund attempts to neutralize the
effect of general stock market movements on the Fund's performance. At the same
time, the Fund strives to profit from the models' predictive power by being long
stocks that are ranked favorably (and therefore deemed likely to outperform) and
by being short stocks that are ranked poorly (and therefore deemed likely to
underperform). Although the Fund's investment strategy seeks to minimize the
risk associated with investing in the equity market, an investment in the Fund
is subject to the risk of poor stock selection by the Manager (see "Risk
Factors").
Under normal circumstances, some of the Fund's investments will be profitable
during a general rise in stock prices and some of the Fund's investments will be
profitable during a general stock market decline. The Fund will, under normal
circumstances, strive to maintain a balance between investments that are
expected to benefit from a general rise in stock prices and investments that are
expected to benefit from a general stock market decline. Historically, the Fund
has maintained a short position exposure within 5% of its long position
exposure. If the stocks held long outperform the stocks sold short, the Fund
will profit, regardless of whether the stocks held long appreciate in value or
whether the stocks sold short depreciate in value. Conversely, if the stocks
held long under-perform the stocks sold short, the Fund will incur a loss. In
addition to purchasing or selling short individual securities, the Fund may
purchase or sell short any type of future or option related to its investments.
These may include options not traded on exchanges and futures or options tied to
individual securities or to stock indexes or averages. Futures and options also
may be used or combined with each other in order to adjust the risk and return
characteristics of an overall strategy. It is expected that profits and losses
from long and short equity holdings will generally be the most significant
contributors to our return, although it is contemplated that from time to time
futures and options will be used to implement our strategies more effectively
and economically and to enhance returns. Please read the "Other Investment
Policies" and "Risk Factors" sections of this prospectus for more detailed
information about the investment practices of the Fund. The SAI has further
details.
OTHER INVESTMENT POLICIES
MONEY MARKET INSTRUMENTS. To meet margin requirements, redemptions or for
investment purposes, the Fund will hold a portion of its assets in full faith
and credit obligations of the United States (e.g., U.S. Treasury Bills), high
quality short-term notes, commercial paper or other money market instruments. To
be considered "high quality" such obligations must be rated at least "A-2" or
"AA" by Standard & Poor's ("S&P") or Prime 2 or "Aa" by Moody's Investors
Service, Inc. ("Moody's"), issued by companies having an outstanding debt issue
rated at least "AA" by S&P or at least "Aa" by Moody's, or determined by the
Manager to be of comparable quality to any of the foregoing.
REPURCHASE AGREEMENTS. The Fund may buy a security issued by the U. S.
Government (including its agencies) at one price and at the same time agree to
sell the security back to the seller at a higher price, usually on the next
business day (a "repurchase agreement"). Repurchase agreements offer a means of
generating income from excess cash that the Fund might otherwise hold
uninvested. Delays in payment or losses could result if the other party to the
agreement defaults or becomes bankrupt.
4
<PAGE>
The Fund's repurchase agreements must be fully backed by collateral that is
marked to market, or priced, each day; and it will enter into repurchase
agreements only with member banks of the Federal Reserve System or primary
dealers in U.S. Government securities.
SECURITIES OF FOREIGN ISSUERS. The Fund's long and short positions may include
equity securities of foreign issuers if they are principally traded in the
markets of the United States and may also include up to 5% of its assets in
securities that are principally traded outside the United States. Foreign
issuers may be subject to different, and often less comprehensive, accounting,
reporting and disclosure standards than comparable U.S. companies and may be
subject to risks related to economic and political conditions in foreign
countries, including possible nationalization or expropriation of their assets.
Securities of foreign issuers may be less liquid and at times more volatile than
securities of comparable U.S. companies.
ILLIQUID SECURITIES. Illiquid securities may be difficult to sell promptly at an
acceptable price, or may be sold only pursuant to certain legal restrictions.
Difficulty in selling securities may result in a loss or entail expenses not
normally associated with the sale of a portfolio security. No more than 15% of
the Fund's net assets may be invested in illiquid securities.
PORTFOLIO TURNOVER RATE. We do not usually consider the length of time the Fund
has held a position when making investment decisions. The Fund's turnover rate
is expected to be higher than that of other mutual Funds (a portfolio turnover
rate in excess of 100% may be deemed to be high) and will vary significantly
from time to time depending on the volatility of economic and market conditions.
Although the rate of portfolio turnover was significantly higher for its initial
six months of operations, it is anticipated that the annual portfolio turnover
rate of the Fund may be approximately 200% under normal circumstances. Short
sales and associated closing transactions are not included in portfolio turnover
because there is no intention to maintain the short position for more than one
year. It is, however, impossible to predict portfolio turnover in future years.
Portfolio turnover may result in realization of taxable capital gains, and
generally involves some expense, including brokerage costs. To the extent
portfolio turnover results in the realization of net short-term capital gains,
such gains ordinarily are taxed to shareholders at ordinary income tax rates.
(The SAI contains a detailed explanation of certain relevant tax
considerations.)
LENDING SECURITIES. The Fund may lend securities to broker/dealers and
institutions as a means of earning income. Delays or losses could result if a
borrower becomes bankrupt or defaults on its obligation to return the loaned
security. The Fund will lend securities only (a) pursuant to agreements
requiring that the loan be fully backed by collateral at all times, and (b) if
the value of all loaned securities is less than one-third of the Fund's total
assets.
BORROWING. The Fund may make temporary borrowings from banks to cover
redemptions. Although the Fund does not anticipate the need to borrow, if it
should and the performance of the Fund's investments failed to cover interest
and other costs of borrowing, the net asset value of its shares would decrease
faster than if the Fund had no borrowings outstanding.
THE PORTFOLIO MANAGER
David Katzen is the Fund's portfolio manager. He is also the portfolio manager
for three funds in the Zweig Series Trust, a reg- istered investment company
managed by an affiliate of the Manager. Mr. Katzen has been the Executive Vice
President of the Manager since its inception and has worked for affiliates of
the Manager since 1986. He received his B.A. in Mathematics from City University
of New York and an M.A. in Mathematics from Dartmouth College.
RISK FACTORS
INVESTMENT RISK. There is a trade-off that successful investors are keenly aware
of -- the stock market's long-term upward trend comes at the price of volatility
(share prices go up and down) and the risk of losing your money (your investment
may be worth less when you sell). The chart below illustrates the frequency and
extent of bear markets since 1945. Some declines end relatively quickly. For
example, the major market declines of 1987 (the DJIA declined 36.1% in 55 days,
excluding dividends) and 1990 (the DJIA declined 21.2% in 87 days) were among
the shortest bear markets on record. Likewise the 13.3% correction in 1997
lasted only 59 days and the 19.3% correction in 1998 lasted only 32 days. Other
market declines have been more prolonged. In the bear market of 1973-1974, the
DJIA declined 45.1% over 23 months. In 1981-1982, the DJIA declined 24.1% over a
period of nearly 16 months.
DECLINES OF 20% OR MORE SINCE WORLD WAR II IN THE STOCK MARKET (AS MEASURED BY
THE S&P 500)
HIGH LOW % DECLINE DAYS
- --------------------------------------------------------------
May 29, 1946 May 17, 1947 -28.78 353
June 15, 1948 June 13, 1949 -20.57 363
August 2, 1956 October 22, 1957 -21.63 446
December 12, 1961 June 26, 1962 -27.97 196
February 9, 1966 October 7, 1966 -22.18 240
November 29, 1968 May 26, 1970 -36.06 543
January 11, 1973 October 3, 1974 -48.20 630
November 28, 1980 August 12, 1982 -27.11 622
August 25, 1987 December 4, 1987 -33.51 101
Average since 1945 -29.56 388
Source: Ned Davis Research
5
<PAGE>
Once you've incurred a loss, it can take many months (and sometimes years) to
return to break-even. For example, if you exclude dividends it took about 10
months to break even from the market top in July 1990. In 1987, it took about 18
months to get back to the prior market top. By comparison, it took almost 10
years to return to break-even from the market top in 1973 and 24 years from the
1929 market top to break even!
It is impossible to predict the timing and extent of corrections and bear
markets, but it should be noted that periods of unusually high returns have
historically increased the risk of stock investing for subsequent periods. The
current bull market, which began in 1982, has been the best 16-year period ever
for the DJIA, producing an average annual return of 13.8%, excluding dividends.
Successful investors recognize the risks associated with investing in stocks and
stock mutual funds. It is important that you try to understand your "financial
personality." What is your tolerance for loss? How patient will you be during
the break-even period? What is your financial staying power?
It is also important to note that the impact of a bear market depends not only
upon the extent of the decline, but also when in your investing lifecycle it
happens. For many people, the closer they are to retirement--or the deeper they
are into retirement--the harder it is to calmly view a bear market as a
temporary decline.
Since the Fund will have both a long equity portfolio and a short equity
portfolio, it will involve different risks from those normally associated with a
mutual fund. While we seek to minimize the Fund's exposure to general equity
market risk with a short portfolio to offset the Fund's long portfolio, we
cannot eliminate risk. The shorter the time period of your investment, the
greater the possibility of loss.
MANAGEMENT RISK. There is a risk that we may not be successful in executing our
strategy of having long positions in stocks that outperform the market and short
positions in stocks that underperform the market. Despite the intent to reduce
risk, it is possible that the Fund's long positions will decline in value at the
same time that the value of the securities sold short increases, thereby
increasing the potential for loss. It is also possible that we will misjudge the
effect a particular security will have on exposure to market risk or that the
particular combination of securities held long and those sold short will fail to
insulate the Fund from general equity market risk as anticipated. Though our
models have been used successfully in the past (see "Performance Information"
below), there is no guarantee that they will continue to accurately predict
relative stock performance, assess risk, or contribute to performance in any way
in the future. It is also possible that the Fund will not be able to implement
the strategy dictated by the models for reasons set forth below under "Risks of
Short Sales."
RISKS OF SHORT SALES. Under normal circumstances, the short positions of the
Fund will be substantial so as to neutralize the long positions and thereby
minimize the Fund's exposure to general equity market risk. In order to
establish a short position in a security, the Fund must first borrow the
security from a broker or other institution to complete the sale. The Fund may
not always be able to borrow a security, in which event it will lose the
opportunity to benefit from that short sale even if our models correctly
identify an overvalued security. The Fund will incur a loss as a result of a
short sale if the price of the borrowed security increases between the date of
the short sale and the date on which the Fund replaces such security. The Fund
will realize a gain if the security declines in price between those dates. There
is also a risk that the Fund will be unable to close out a short position at any
particular time or at an acceptable price. During the time the Fund is short a
security it is subject to the risk that the lender will terminate the loan at a
time when the Fund is unable to borrow the same security from another lender. In
such event the Fund may be "bought in" at the price required to purchase the
security to close out the short position. Although the Fund's gain is limited to
the amount at which it sold a security short, its potential loss is limited only
by the maximum attainable price of the security less the price at which the
security was sold short. The Fund also is required to repay the lender any
dividends or interest that accrue during the period of the loan. The Fund must
maintain collateral at least equal to the current market value of the security
sold short with the broker. Depending on the arrangements made, the Fund may not
receive any payments (including interest) on the collateral. The Fund will not
make a short sale if the market value of all short positions would exceed 100%
of the value of the Fund's net assets after giving effect to such sale.
RISKS OF FUTURES AND OPTIONS. Futures and options tied to a securities index
utilizing standardized contracts that are traded on an exchange have been used
by mutual funds for many years to manage their portfolios more efficiently.
Although the value of futures and options depends on the price of the security,
index or other asset to which it is tied, futures and options involve market
risk in excess of their value. For example, futures on securities indexes
currently require a margin deposit of only 2% to 5% of the position size
represented by the futures contract. An advantage of using futures and options
is that transaction costs normally will be lower than purchasing or selling a
related security or index. However, the use of futures or options may result in
larger losses or smaller gains than would otherwise be the case. The prices of
futures or options and the price movements of the securities that the future or
option is intended to simulate may not correlate well. The liquidity of the
market in futures contracts also could be adversely affected by "daily price
fluctuation limits." These limits, established by the relevant futures exchange,
limit the price fluctuation of an index future during a single trading day. Once
the contract's daily limit has been reached, no trades may be entered into at a
price beyond that limit. In such event, it may not be possible for the Fund to
close out its futures position. This may compel the Fund to continue to make
daily cash payments to the broker to meet margin requirements. The futures
markets also may attract more speculators than do the securities markets,
because deposit requirements in the futures markets are less onerous than margin
requirements in the securities markets. Increased participation by speculators
in the futures markets may cause price distortions. Some futures and option
contracts are customized financial contracts between two parties. Such contracts
are subject to the additional risk that the counterparty will not meet its
obligations under the contract. They also may be less liquid and more difficult
to value than standardized contracts traded on a regulated exchange.
6
<PAGE>
RISKS OF EQUITY SWAP CONTRACTS. In an equity swap contract, one party generally
agrees to pay the other party: (i) the theoretical amount by which a stock or
basket of stocks comprising an agreed upon securities index or average (the
"notional amount") increases in value during the time the contract is in effect,
plus (ii) the dividends that would have been received on those stocks over that
period. The other party agrees to pay to the first party (i) a floating rate of
interest (typically tied to the London Inter Bank Offered Rate) on the notional
amount plus (ii) the amount by which the notional amount would have decreased in
value had it been invested in such stocks. Accordingly, if the Fund is long an
equity swap contract it will generally realize a loss if the value of the agreed
upon stock or stocks declines and will generally realize a gain if the value of
the stock or stocks rises. Conversely, if the Fund is short an equity swap
contract it will generally realize a loss if the stock or stocks rises and will
generally realize a gain if the value of the stock or stocks declines. The Fund
only will enter into equity swap contracts that require each party's obligations
to be netted out daily, with the Fund paying or receiving each day the net
amount necessary to mark the contract to market.
Equity swap contracts may provide a less costly alternative for implementing our
strategy than maintaining long and short positions. If the counterparty to an
equity swap contract defaults, however, the Fund will be limited to contractual
remedies pursuant to the agreements related to the transaction. In the event of
default, there can be no assurance that the Fund will succeed in pursuing its
contractual remedies. The Fund thus assumes the risk that it may be delayed in
or prevented from obtaining payments owed to it pursuant to the contract.
Pursuing its contractual remedies may also entail expense. The Fund will not
enter into an equity swap contract unless the unsecured senior debt of the
counterparty is rated at least A by Moody's or S&P at the time of entering into
such transaction. The Fund will also monitor the credit of equity swap contract
counterparties in order to minimize these risks.
The staff of the Securities and Exchange Commission considers equity swap
contracts to be illiquid securities. Consequently, while the staff maintains
this position, the Fund will not invest in equity swap contracts if, as a result
of the investment, the total value of such investments together with that of all
other illiquid securities which the Fund owns would exceed 15% of the Fund's net
assets. The net amount of the excess, if any, of the Fund's obligations over its
entitlement with respect to each equity swap contract will be accrued on a daily
basis. Cash, U.S. Government Securities or other liquid securities having an
aggregate market value at least equal to the accrued excess will be maintained
in a segregated account by the Fund's custodian. The Fund does not believe that
its obligations under equity swap contracts are senior securities, so long as
such a segregated account is maintained. Accordingly, the Fund will not treat
them as being subject to its borrowing restrictions.
YEAR 2000 PREPAREDNESS
Because computer programs were designed using only two fields to indicate the
year, at midnight December 31, 1999, computers will be unable to recognize that
January 1 is the year 2000. The major systems that would impact the Fund with
respect to the year 2000 are those of the transfer agent and custodian. The Fund
has been advised in writing by both the transfer agent and the custodian that
they are working to fix, and expect to have fixed in time, all of the issues
relating to the year 2000. Management of the Fund will continue to monitor the
progress of the transfer agent and the custodian in solving the year 2000
problem. However, no assurance can be given that their systems will be fixed on
time, or what the magnitude of the problems would be if such systems are not
fixed.
ADVISOR'S PRIOR PERFORMANCE
Euclid Advisors LLC has also served as the manager of other accounts. The
performance information shown below is based on a composite of all accounts with
investment objectives, policies and strategies that were substantially similar
to those of the Fund managed by Euclid Advisors LLC or by Euclid Advisors, Inc.,
the Manager's predecessor, and Zweig/Katzen Investors, L.P. (collectively, the
"Accounts"). David Katzen was the portfolio manager for each of the Accounts
since inception. The performance information shown in the tables below has been
adjusted to give effect to the annualized expenses (without giving effect to any
expense waivers or reimbursements) of the different classes of shares during the
Fund's first fiscal year of operations. Quarterly performance data is set forth
in the SAI. The information below should not be considered a prediction of
future performance of the Fund. The Accounts were not registered under the 1940
Act and therefore were not subject to the diversification and other requirements
of the 1940 Act and the Internal Revenue Code. If the Accounts had been subject
to these requirements, their performance might have been adversely affected. The
performance of the Accounts was computed using a method based on the standards
developed by the Association of Investment Management & Research ("AIMR"), which
differs from the performance standards required by the Securities and Exchange
Commission for mutual funds. Mutual funds compute net asset values every day,
while the AIMR method does not. Therefore, while mutual funds account for cash
flows on a daily basis, they are accounted for on a monthly basis under the AIMR
method. As a result, the performance of the Fund may be higher or lower than the
performance of the Accounts. The following tables also show the average annual
total returns on 3-month U.S. Treasury Bills for the same periods.
An investment in 3-month U.S. Treasury Bills is different from an investment in
the Fund or in the Accounts because Treasury Bills are backed by the full faith
and credit of the United States, have a fixed rate of return and a short
duration, and investors in Treasury Bills do not risk losing capital. It has
been standard for market neutral managers of private accounts, including Euclid
Advisors, to use the 3-month Treasury Bill as a benchmark. Traditional
benchmarks for stock funds are not appropriate because market neutral returns
are not tied to the direction of the stock market. Moreover, part of the return
from a market neutral strategy is from interest on the proceeds from short
sales, which will approximate the 3-month Treasury Bill return. Unlike Treasury
Bills, however, please keep in mind that market neutral investing involves
risk--stock prices are more volatile and there is a risk of losing your capital.
7
<PAGE>
<TABLE>
<CAPTION>
FOR PERIODS ENDED DECEMBER 31, 1997: EIGHT-YEAR PERIOD
PERFORMANCE OF ACCOUNTS ADJUSTED FOR THE ONE-YEAR PERIOD THREE-YEAR PERIOD FIVE-YEAR PERIOD FROM INCEPTION ON
FEES AND EXPENSES OF THE DIFFERENT CLASSES ENDED ENDED ENDED JANUARY 1, 1990
OF SHARES OF THE FUND: DEC. 31, 1997 DEC. 31, 1997 DEC. 31, 1997 TO DEC. 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A with maximum sales charge 3.46% 9.14% 7.55% 11.23%
Class A with no sales charge 9.48% 11.22% 8.77% 12.02%
Class B with CDSC 4.48% 9.62% 7.72% 11.34%
Class B with no CDSC 8.72% 10.45% 8.02% 11.34%
Class C with CDSC 7.47% 10.45% 8.02% 11.24%
Class C with no CDSC 8.72% 10.45% 8.02% 11.24%
Class I 9.80% 11.55% 9.10% 12.35%
Performance of 3-month U. S. Treasury Bills* 5.31% 5.45% 4.78% 5.14%
FOR PERIODS ENDED APRIL 30, 1998:
PERFORMANCE OF ACCOUNTS ADJUSTED FOR THE ONE-YEAR PERIOD THREE-YEAR PERIOD FIVE-YEAR PERIOD FROM INCEPTION ON
FEES AND EXPENSES OF THE DIFFERENT CLASSES ENDED ENDED ENDED JANUARY 1, 1990
OF SHARES OF THE FUND: APRIL 30, 1998 APRIL 30, 1998 APRIL 30, 1998 TO APRIL 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Class A with maximum sales charge 10.17% 9.70% 7.16% 11.39%
Class A with no sales charge 16.58% 11.79% 8.38% 12.15%
Class B with CDSC 10.78% 10.20% 7.33% 11.47%
Class B with no CDSC 15.78% 11.01% 7.63% 11.47%
Class C with CDSC 14.53% 11.01% 7.63% 11.38%
Class C with no CDSC 15.78% 11.01% 7.63% 11.38%
Class I 16.93% 12.12% 8.70% 12.49%
Performance of 3-month U. S. Treasury Bills* 5.28% 5.37% 4.93% 5.15%
</TABLE>
*Source: Morningstar, Inc.
The above tables are not the performance of the Fund. Giving effect to the
expense limitation set forth in the "Fee Table" section, the average annual
total return of the Accounts for the one-year, three-year, five-year and periods
since inception would have been apporoximately 0.04% higher for all classes of
shares.
FUND PERFORMANCE INFORMATION
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EUCLID MARKET NEUTRAL
FUND CLASS A, B, C AND I SHARES AND THE 3-MONTH U. S. T-BILL FOR THE PERIOD
ENDED OCTOBER 31, 1998.
[THE FOLLOWING TABLE REPRESENTS A GRAPHIC CHART.]
May 1, 1998 Oct. 31, 1998
- --------------------------------------------------------------------------------
$10,400
$10,200 $10,234 3-Month U.S. T-Bill
$10,000
$9,800
$9,600 $ 9,568 Euclid Market Neutral Fund
Class I
$ 9,533 Euclid Market Neutral Fund
Class B
$ 9,524 Euclid Market Neutral Fund
Class C
$9,400
$9,200
$ 9,033 Euclid Market Neutral Fund
Class A
$9,000
$8,800
$8,600
$8,400
Past performance is not predictive of future results.
<TABLE>
<CAPTION>
TOTAL RETURN - CLASS A SHARES TOTAL RETURN - CLASS B SHARES TOTAL RETURN - CLASS C SHARES TOTAL RETURN - CLASS I SHARES
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
From Inception on 5/1/98 From Inception on 5/1/98 From Inception on 5/1/98 From Inception on 5/1/98
-4.41% -4.67% -4.76% -4.32%
</TABLE>
8
<PAGE>
For its first six months of operations, the Fund's Class A Shares declined 4.4%,
compared to the 2.5% return of 3-month Treasury Bills. Class B, C, and I Shares
declined 4.7%, 4.8%, and 4.3%, respectively.
The models we use to identify long and short candidates rank stocks on the basis
of various growth and value characteristics. During the Fund's initial six
months of operation, however, the market valued "size" (i.e. very large,
well-known stocks) more than fundamentals. The "bigger is better" sentiment was
further fueled by Russia's economic turmoil, Japan's deepening recession, the
unwinding of some highly leveraged hedge funds and the ongoing presidential
scandal. The pessimism created by these events resulted in a flight to very
large, well-known stocks, though they lacked both compelling earnings and
attractive value.
CHOOSING AMONG CLASSES WHEN PURCHASING SHARES
The Fund offers investors four classes of shares, which are described below. All
except Class I Shares bear sales charges in different forms and amounts and all
bear different levels of expenses (see Fee Table). You should choose the class
of shares that is most beneficial given the amount of your purchase, the length
of time you expect to hold the shares and other relevant circumstances.
Class A Shares are sold with an initial sales charge that varies based upon the
amount invested as shown in the table below. Class B Shares have no initial
sales charge, but are subject to a declining contingent deferred sales charge
(CDSC) if sold within six years of purchase. Class C Shares have no initial
sales charge, but are subject to a CDSC if sold within one year of purchase.
Class B and Class C Shares have higher annual expenses than Class A Shares.
Class B Shares convert to Class A Shares after a holding period of seven years
from the initial purchase. Class C Shares have a shorter CDSC period than Class
B Shares, but they do not convert to Class A Shares. Class I Shares are offered
at net asset value without an initial sales charge and are not subject to a
contingent deferred sales charge or a Rule 12b-1 distribution fee. Class I
Shares are only available to persons subject to the Manager's Code of Ethics
relating to securities transactions, to tax-exempt retirement plans of the
distributor and its affiliates, and to institutional investors that invest at
least $1 million directly with the distributor. Institutional investors include:
(1) unaffiliated benefit plans, such as qualified retirement plans (other than
individual retirement accounts and certain other self-directed retirement
plans); (2) unaffiliated banks, insurance companies and other institutional
accounts purchasing for their own accounts; and (3) endowment funds of
unaffiliated non-profit organizations.
Contingent Deferred Sales Charge (CDSC). The applicable CDSC rate for each class
of shares is set forth in the Fee Table and under "Class B Shares." The CDSC is
imposed on the lesser of the current market value or the initial cost of the
shares being redeemed. No CDSC is imposed upon shares acquired by reinvesting
distributions. In determining whether a CDSC applies, the order of redemption is
first of shares purchased through reinvestment and then of shares held the
longest. Any CDSC is paid to the distributor or directly to a third party at the
direction of the distributor.
We may waive the CDSC on redemption(s): (a) following the death of a
shareholder; (b) if a shareholder becomes unable to engage in any substantial
gainful activity because of a medically determinable physical or mental
impairment which can be expected to result in death or be of long-continued and
indefinite duration; (c) when a total or partial redemption is made in
connection with a distribution from retirement plans after reaching age 59 1/2,
except that if, immediately prior to the redemption, the aggregate amount
invested by the retirement plan in Class B Shares of the Fund (excluding the
reinvestment of distributions) during the prior four year period equals 50% or
more of the total value of the retirement plan's assets in the Fund or any other
fund distributed by Zweig Securities Corp., then the CDSC will not be waived;
(d) from certain retirement plans; (e) under the systematic withdrawal program
if the amount being withdrawn per month is no more than 1% of the value of the
account at the time the program was established; and (f) effected pursuant to
the Fund's right to liquidate a shareholder's account if it is less than the
then effective minimum account size.
The distributor has sold, and expects to sell in the future, the right to
receive all or substantially all of the 12b-1 distribution fees on Class B
Shares together with the related CDSC in the event the Shares are redeemed
within six (6) years of purchase. The holder of the right to receive such
payments, in its sole discretion, may elect to establish its own waiver
criteria, which may differ from those set forth above.
CLASS A SHARES. Class A Shares are sold at net asset value plus the applicable
sales charge. The offering price applies to purchases made by a single purchaser
or by a single trust account. An individual, his or her spouse, and children
under 21 are considered to be a single purchaser. The sales charge on Class A
Shares is allocated between your investment dealer and the distributor, as shown
below.
QUANTITY DISCOUNTS ON CLASS A SHARES. When you invest in Class A Shares, you may
receive quantity discounts at certain dollar levels, or breakpoints. The more
you invest, the smaller percentage you pay in sales charges, as shown below.
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF
-----------------------------------------------------
OFFERING PRICE OF NET ASSET VALUE OF DEALER'S SALES
AMOUNT INVESTED THE SHARES PURCHASED THE SHARES PURCHASED CONCESSION
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 4.75%
$50,000 but less than $100,000 4.75% 4.99% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000 1.75% 1.78% 1.50%
$1,000,000 or more 0.00% 0.00% (see below)
</TABLE>
9
<PAGE>
Commissions (as set forth below) will be paid to dealers who initiate and are
responsible for purchases of $1 million or more and for purchases at net asset
value made by unallocated accounts held by third party administrators,
registered investment advisers, trust companies, and bank trust departments
which exercise discretionary authority or hold accounts in fiduciary, agency,
custodial or similar capacity if in the aggregate such accounts equal or exceed
$1 million and by retirement plans with assets of $1 million or more or at least
50 eligible employees.
AMOUNT PURCHASED DEALER'S COMMISSION (AS % OF PURCHASE)
- ----------------------------------------------------------------------------
$1,000,000 to $2,000,000 0.75%
$2,000,000 to $5,000,000 0.50%
Amount over $5,000,000 0.25%
No initial sales charge applies on these investments; however, a 1% CDSC will
apply on redemptions within 18 months of purchase, except for redemptions of
shares purchased by an investor in amounts of $1 million or more where such
investor's dealer of record, due to the nature of the investor's account,
notifies the distributor prior to the time of the investment that the dealer
waives the commission otherwise payable to the dealer as described above, or
agrees to receive such commissions ratably over an 18 month period.
Class A Shares of the Fund are made available to 401(k) participants in the
Merrill Lynch Daily K Plan (the "Plan") at net asset value ("NAV") without an
initial sales charge if the Plan has at least $3 million in assets or 500 or
more eligible employees. Class B Shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan has less than $3 million in
assets or fewer than 500 eligible employees. On such sales, the distributor does
not make the dealer payment described under Class B Shares. For further
information see "Retirement Plans" in the Fund's SAI.
Class A Shares also may be purchased at net asset value by current or retired,
trustees, directors, officers or employees, and their families, of the Fund,
Zweig Mutual Funds, the Manager, the distributor and any company affiliated with
these companies, or by current or retired registered representatives or
full-time employees, and their families, of securities dealers that are members
of the NASD. Class A Shares also may be sold at net asset value through certain
investment dealers registered under the Investment Advisers Act of 1940 and
other financial services firms that adhere to certain standards established by
the distributor, including a requirement that such shares be sold for the
benefit of their clients participating in a "wrap account" or similar program,
or as a pricing alternative for transaction services, under which such clients
pay an ongoing fee to the investment adviser, dealer or other firm and to
retirement plans and deferred compensation plans and trusts used to fund those
plans (including, for example, plans qualified or created under sections 401(a),
403(b) or 457 of the Internal Revenue Code) and "rabbi trusts" that buy shares
for their own accounts, in each case if those purchases are made through a
broker or agent or other financial intermediary that has made special
arrangements with the distributor for those purchases. Such shares are sold for
investment purposes and on the condition that they will not be resold except
through redemption or repurchase by the Fund. Class A Shares also may be
purchased at net asset value for shareholders by dealers where the amount
invested represents redemption proceeds from funds distributed other than by the
distributor and where the shareholder has paid a sales charge in connection with
the purchase of such other fund's shares; provided that (i) such Class A Shares
are purchased within 30 days after redemption of such other fund's shares, and
(ii) sufficient documentation of such redemption as the distributor may require
shall be provided at the time the Class A Shares are purchased. This provision
is not available where the shares of a fund being redeemed were subject to a
deferred sales load or redemption fee.
CUMULATIVE QUANTITY DISCOUNTS ON CLASS A SHARES. A new purchase may be combined
with Class A Shares you already own of the Fund and any other mutual fund that
is distributed by Zweig Securities Corp. to qualify for a discount. The sales
charge on the shares being purchased will be at the rate shown in the table
above applicable to the net asset value of the shares then owned plus the amount
of the new purchase. To receive this discount, you or your investment dealer
must request it when placing the order and give the transfer agent or
distributor sufficient information to confirm that your purchase qualifies for
the discount. We reserve the right to change or terminate quantity discounts at
any time.
QUANTITY DISCOUNTS THROUGH A LETTER OF INTENTION. You may pay a reduced sales
charge on Class A Shares if you sign a Letter of Intention at the time of your
purchase. The Letter also may be backdated to include purchases made within 90
days prior to signing the Letter of Intention. The Letter, included on the
application form in this Prospectus, states your intention to purchase a
sufficient quantity of Class A Shares of the Fund and any other mutual fund
distributed by Zweig Securities Corp. indicated within the 13-month period
specified to qualify for a reduced sales charge. Purchases under the Letter are
made at the sales charge applicable to the entire amount to be purchased under
the Letter, as if purchased in a single transaction. A Letter of Intention can
be amended during the 13-month period by filing an amended Letter with the same
expiration date as the original.
The Letter of Intention is not binding. During the period covered by the Letter,
the transfer agent will hold shares in escrow representing 5% of the intended
purchase. After the end of the period, a price adjustment based upon the actual
amount invested will be made (by redeeming escrowed shares if the purchase is
not completed or by investing the difference in sales charges if the total
purchases under the Letter qualify for a lower sales charge).
CLASS B SHARES. Class B Shares are sold without an initial sales charge. For
sales of Class B Shares, your dealer will receive 4% of the purchase amount from
the distributor. The distributor, or its assignee, is reimbursed over time by
the 12b-1 fees paid by Class B Shares and, if Class B shares are redeemed within
six years, by a declining CDSC paid by the redeeming shareholder as follows:
10
<PAGE>
YEAR SINCE PURCHASE WAS MADE THE CDSC IS EQUAL TO
-------------------------------------------------------------------------------
Year One 5%
Year Two 4%
Year Three 3%
Year Four 3%
Year Five 2%
Year Six 1%
Year Seven None*
*Class B Shares convert to Class A Shares after seven (7) years as described
below.
CLASS B SHARE CONVERSION FEATURE. After a holding period of seven years from the
initial date of purchase, Class B Shares automatically convert to Class A Shares
of the Fund at respective net asset values on the 10th business day of the month
following the anniversary date. At the time of conversion, Class B Shares of the
Fund acquired through reinvestment of distributions will convert to the
corresponding Class A Shares of the Fund pro-rata with Class B Shares of the
Fund not acquired through reinvestment. Conversion of Class B Shares to Class A
Shares will not be deemed a purchase or sale of the shares for federal income
tax purposes. The conversion of Class B Shares will relieve the Class B Shares
that have been held for at least seven years from the higher ongoing
distribution fees. Only Class B Shares have this conversion feature.
CLASS C SHARES. Class C Shares are sold without an initial sales charge. For
sales of Class C Shares, your dealer will receive up to 1% of the purchase
amount in a manner agreed in advance from the distributor. If you redeem within
one year of your purchase, you will be charged a CDSC equal to 1.25% of the
lessor of the current market value or the initial cost of the shares being
redeemed.
Class B and Class C Shares offer the benefit of putting all of your dollars to
work immediately; however, they have higher annual expenses and pay lower
dividends than Class A Shares. Class C Shares have a shorter CDSC period than
Class B Shares; however, they do not convert to Class A Shares.
CLASS I SHARES. Class I Shares, which have no initial sales charge and no Rule
12b-1 fee, are currently available for purchase only from the distributor by
existing clients of Euclid Advisors LLC, by persons subject to the Manager's
Code of Ethics relating to personal securities transactions and by tax-exempt
retirement plans of the distributor and its affiliates and certain institutional
investors. Class I Shares may be purchased at net asset value in exchange for
security positions on deposit at the Depository Trust Company ("DTC") valued
using the same procedures as used to determine net asset value, or by a
combination of such positions and cash, subject to the determination by the
portfolio manager that the security positions to be exchanged are appropriate
investments and the transaction is in the Fund's interest. Generally, the
transaction will be a taxable event for federal income tax purposes. Class I
Shares are not available in all states.
The distributor will reallow up to 0.15% to dealers whose representatives have
sold or are expected to sell substantial amounts of shares of funds distributed
by Zweig Securities Corp. provided that the dealer has agreed to supply special
assistance in marketing shares of the funds, including providing access to the
dealer's sales personnel and information dissemination systems such as computer
screens, internal publications, publications sent to clients and mailing lists.
These reallowances are in addition to the sales concessions shown in the above
tables, and may be subject to chargeback for redemptions within one year. An
alternative arrangement, available to any dealer that has agreed to provide
marketing, record keeping and related administrative services to tax-qualified
employee benefit plans, including the processing of orders for investment and
reinvestment of plan assets in shares of the funds at net asset value, provides
for compensation at an annual rate of up to 0.20% of plan participant holdings
of Zweig Funds. In addition, the distributor may pay dealers a fee at the annual
rate of up to 0.10% of the average daily net assets that have been continually
invested in the funds for at least four years. The distributor also may pay
dealers a fee of up to 0.10% of the average daily net assets invested through
such dealers in Zweig Funds by participants in programs sponsored by such
dealers. The distributor reserves the right to alter or discontinue paying any
of the foregoing fees at any time. These fees will be paid from The
distributor's or the Manager's own funds, including past profits or any other
source available to them. With respect to certain retirement plans the
distributor may not make dealer payments as described above.
The distributor, at its expense, may also provide dealers who have sold shares
of the Fund with financial assistance in connection with conferences, sales
training or promotional programs for their employees, seminars for the public,
advertising campaigns regarding one or more of the funds it distributes or other
dealer-sponsored special events. Such financial assistance may include payment
for travel expenses and lodging incurred in connection with trips taken by
invited registered representatives and members of their families for meetings
and seminars of a business nature.
The above arrangements relate to purchases effected through dealers in the
United States. Purchases outside the United States may be subject to local rules
and customs, and different sales charges, fees and dealer compensation may
apply. Certain dealers may not sell all classes of shares.
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HOW TO INVEST IN THE FUND
You can buy shares through your investment professional, directly from the
Fund's transfer agent, or automatically through a regular investment plan.
MINIMUM INITIAL MINIMUM INITIAL MINIMUM SUBSEQUENT
CLASS INVESTMENT IRA INVESTMENT* INVESTMENT
- --------------------------------------------------------------------------------
A, B and C $1,000 $250 None
I $1,000,000 $1,000,000 None
*or other retirement accounts, pension and profit sharing plans, custodial
accounts under the Uniform Gift to Minors Act, trusts and estates or qualifying
group plans.
The Fund and its transfer agent have appointed, and may in the future appoint,
organizations qualified to serve in such capacity to act as a sub-transfer agent
for the Fund. Purchases of Fund shares will be at the offering price next
determined after the transfer or sub-transfer agent or investment dealer
receives the order, provided the dealer transmits the order to the Fund's
transfer or sub-transfer agent that day. We reserve the right to change or waive
minimums or to reject any order.
HOW TO BUY SHARES THROUGH YOUR INVESTMENT PROFESSIONAL
o To open your account, contact your investment professional.
If you invest through an investment professional, the firm may have its own
service features, transaction charges and fees. This prospectus should be read
in conjunction with such firms' material regarding their fees and services. If
you wish us to refer you to an investment professional, call us at
1-800-444-2706. Investment professionals receive compensation for providing
investment advice, and such compensation may differ for selling shares of
different classes of Euclid Mutual Funds. The Fund may be unable to provide
account information or other services for shares held in the name of, or
controlled by, an investment dealer.
HOW TO BUY SHARES THROUGH THE TRANSFER AGENT
o Complete the attached application or send a letter specifying the class of
shares you wish to buy. If you do not specify a class, your purchase will be
automatically invested in Class A Shares.
o Enclose a check made payable to State Street Bank and Trust Company or to
Euclid Market Neutral Fund. (We will not accept third party checks, i.e. any
checks which are not payable to the order of State Street Bank and Trust
Company or Euclid Market Neutral Fund.)
o Mail to State Street Bank and Trust Company
By regular mail: By courier or overnight mail:
P.O. Box 8505 2 Heritage Drive, Third Floor
Boston, MA 02266-8505 Quincy, MA 02171
Att: Euclid Mutual Funds Att: Euclid Mutual Funds
o For wire instructions (Federal funds) please call 1-800-628-0441.
o Automatic investment plan purchases. Move money from your bank account or via
payroll deduction into the fund on any day of each month or quarter. Please
refer to the application form in this prospectus or call 1-800-272-2700 for
assistance. If an account registration is changed, this feature will be
terminated unless its continuance is specifically requested.
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HOW TO SELL YOUR FUND SHARES
You can sell your shares on any day the New York Stock Exchange (NYSE) is open.
The price you receive will be the net asset value less any applicable contingent
deferred sales charge. The net asset value you will receive is calculated as of
the close of regular trading on the NYSE on the day your sell order is received
at the transfer or sub-transfer agent. Proceeds of your sale will generally be
mailed to you within seven days after your request is received. If shares are
bought with an uncertified check and sold within 15 days after purchase, the
proceeds may not be paid until 15 days after the purchase. If the Fund is given
evidence of cleared funds, money will be released earlier.
SELLING YOUR SHARES THROUGH YOUR INVESTMENT PROFESSIONAL
o Contact your investment professional if you bought your shares at your
brokerage firm. You will receive the price next determined after your
investment firm receives your order, provided it transmits the order to the
Fund's transfer or sub-transfer agent that day prior to the close of regular
trading on the NYSE, less any applicable contingent deferred sales charge.
SELLING YOUR SHARES BY MAIL THROUGH THE TRANSFER AGENT
o Send a letter to sell your shares to: State Street Bank and Trust Company
By regular mail: By courier or overnight mail:
P.O. Box 8505 2 Heritage Drive, Third Floor
Boston, MA 02266-8505 Quincy, MA 02171
Att: Euclid Mutual Funds Att: Euclid Mutual Funds
o Remember to sign the letter exactly as your account is registered.
o Sales over $25,000 require a signature guarantee of the registered owner(s) or
legal representative. Appropriate signature guarantors include: banks and
savings associations, credit unions, member firms of a national securities
exchange, municipal securities dealers and government securities dealers. See
the SAI or call 1-800-272-2700 for assistance.
o Corporate and Fiduciary shareholders selling shares must include the
appropriate documentation establishing the authority of the person seeking to
act on behalf of the account.
SELLING YOUR SHARES BY TELEPHONE THROUGH THE TRANSFER AGENT
o You may sell your shares by telephone (unless you elected not to have this
privilege in your account application or your address of record has been
changed within the preceding 15 days). Call 1-800-272-2700.
The maximum amount that may be redeemed by telephone is $25,000. Neither the
Fund, the distributor, nor the transfer agent will be liable for any loss in
acting on telephone instructions reasonably believed to be authentic, and the
investor will bear the risk of loss in the event of a fraudulent telephone
redemption, provided that the Fund and/or its transfer agent has established and
employed procedures reasonably designed to confirm that instructions given by
phone are genuine. Such procedures would include recording telephone
instructions. For identification purposes, the Fund's transfer agent will
require such information as it deems necessary before accepting redemption
instructions. Without such reasonable procedures, the Fund may otherwise be
liable for any losses due to unauthorized or fraudulent instructions.
Proceeds will be mailed to the address on the account. If you designated a
domestic bank on the application form when you opened your account, you may have
redemption proceeds of $1,000 or more wired to the bank. Any change in wire
redemption directions requires a signature guarantee from an appropriate
guarantor. In order to sell shares on the day you place the order, the transfer
agent must receive your instructions to sell before the close of regular trading
on the NYSE.
During periods of extremely drastic economic or market changes, it may become
difficult to implement a telephone redemption. In the event that you have
difficulty reaching the transfer agent at its toll-free number, you should
consider sending written redemption instructions in the manner explained above.
We reserve the right to refuse telephone redemption requests and to limit their
amount or frequency.
Redemptions normally will be made in cash. Redemptions also may be made in kind
pursuant to an election under Rule 18f-1 of the Investment Company Act of 1940
(the 1940 Act), as discussed more fully in the SAI. Rights of redemption may be
suspended if the NYSE is closed, other than customary weekend or holiday
closings, or for such other periods as the Securities and Exchange Commission
has permitted.
REINSTATEMENT PRIVILEGE. If you have made a partial or complete redemption of
shares, you may reinvest all or part of the redemption proceeds and receive a
pro rata credit for any CDSC or initial sales charge paid, provided the
reinvestment is made within 30 days after the redemption. You may exercise this
privilege only once a year.
SYSTEMATIC CASH WITHDRAWAL PROGRAMS. If your account has $5,000 or more, you may
set up a program to receive a specific amount in cash either monthly or
quarterly. Contact your investment professional or complete the application form
in this prospectus. Under these programs, all distributions must be reinvested.
Purchasing additional shares while receiving payments under these programs
ordinarily will be disadvantageous because of sales charges. Shares redeemed may
be subject to a CDSC. We may modify or terminate these programs at any time. If
an account registration is changed, this feature will be terminated unless its
continuance is specifically requested.
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MINIMUM ACCOUNT SIZE. If your account balance falls below $1,000 as a result of
redeeming shares, you may be given 60 days' notice to reestablish the minimum
balance. If you do not increase your balance, we reserve the right to close your
account and send the proceeds to you. Your shares will be redeemed at the net
asset value on the day your account is closed. We normally will not close an
account maintained in connection with a tax-deferred retirement plan.
EXCHANGE PRIVILEGE
You can exchange shares of the Fund for shares of the same class of another fund
distributed by Zweig Securities Corp. at their respective net asset values. All
exchanges are effected as of the close of regular trading on the NYSE. You can
exchange shares either through your investment professional or, if the shares
are registered in your name, through the transfer agent. You may exchange shares
through the transfer agent by mail or by telephone, or you may instruct the
transfer agent to make systematic exchanges of Fund shares on the 15th day of
each month or quarter (see the application form in this Prospectus).
Each exchange is a sale of shares of the Fund and a purchase of the same class
of shares of another fund. An exchange may produce a gain or a loss for tax
purposes, and is subject to the terms and conditions applicable to telephone
redemptions and the minimum investment requirement of each fund. We reserve the
right to reject any exchange request, or to modify or terminate exchange
privileges upon 60 days' written notice to shareholders.
NET ASSET VALUE
The Fund determines the net asset value of each class of its shares on each day
that the NYSE is open. Net asset values are calculated as of the close of
regular trading on the NYSE.
We value portfolio securities at market value when quotations are readily
available. We value securities for which market quotations are not readily
available at fair value as determined using procedures determined by the Board
of Trustees. We value short-term obligations having a remaining maturity of 60
days or less at amortized cost (which approximates market value).
DISTRIBUTIONS AND TAXES
Any net realized capital gains will be paid at least annually, except that net
short-term capital gains may be paid more frequently, with dividends from net
investment income.
Distributions are declared separately for each class of shares of the Fund.
Distributions will be reinvested at net asset value unless you elect to receive
distributions in cash. If an account registration is changed, the cash election
will be terminated unless its continuance is specifically requested.
Shareholders who have elected to receive distributions in cash but whose
accounts had two consecutive mailings returned as "undeliverable", will
automatically have their future distributions reinvested at net asset value.
Because Class B and Class C Shares have higher 12b-1 fees, dividends on Class A
Shares will be higher than dividends on Class B and Class C Shares. Because
Class I Shares have no 12b-1 fees, dividends on Class I Shares will be higher
than dividends on Class A Shares.
The Fund intends to qualify as a regulated investment company for federal income
tax purposes so long as, in management's view, such qualification is in the
shareholders' interest. We intend to distribute all of the Fund's net investment
income and net capital gains so as to be relieved of federal taxes.
Distributions of net investment income and short-term capital gains are taxed as
dividends. For noncorporate taxpayers, long-term capital gains (defined as gains
realized upon the sale of assets held more than 12 months) are subject to a
maximum tax rate of 20% (10% for individuals in the 15% tax bracket).
Distributions are taxable when paid, whether taken in cash or reinvested, except
that distributions declared in November and December and paid in January are
taxable as if paid on December 31st. You should receive by January 31 of each
year, a statement showing the tax status of your distributions for the prior
year and the proceeds of your redemptions (including exchanges), if any. When
you sell your shares, their tax basis is the total of your cash investments plus
all distributions that have been reinvested, less any return of capital
distributions. To assist you in determining your tax basis, please keep your
year-end account statements with your other tax records. The foregoing is a
summary of certain federal income tax consequences. Be sure to consult your own
tax adviser to determine the precise effect of your investment in the Fund on
your particular tax situation, and any state and local tax consequences.
14
<PAGE>
THE DISTRIBUTOR
Zweig Securities Corp. serves as distributor of shares of the Fund. At any given
time, the distributor may incur expenses in distributing shares of the Fund that
are in excess of the total payments made by the Fund under the Rule 12b-1 Plans
for distribution (Class I Shares do not have a Rule 12b-1 Plan). Because there
is no requirement that the distributor be reimbursed for all its expenses, or
that a plan be continued from year to year, this excess does not constitute a
liability of the Fund. Although there is no legal obligation for the Fund to pay
expenses in excess of payments made to the distributor under the plans, if for
any reason a plan is terminated, the Board of Trustees will consider the manner
in which to treat such expenses. Any cumulative unreim-bursed expenses may or
may not be recovered through future distribution fees.
A service fee equal to 0.25% may be paid to financial services firms, including
NASD member firms that have signed agreements for continuous personal service by
such firms to investors in the Fund. Such firms may also be paid a portion of
the asset-based sales charges on Class C Shares, so that these dealers receive
such reallowances at the following aggregate annual rates: (i) 0.25% commencing
from date of purchase for the Class A Shares, (ii) 0.25% commencing one year
after purchase for the Class B Shares, and (iii) 0.95% commencing one year after
purchase for the Class C Shares.
THE MANAGER AND MANAGEMENT FEE
Euclid Advisors LLC, a wholly-owned subsidiary of Zweig/Glaser Advisers, manages
the investments of the Fund. In addition to managing the Fund's investments,
Euclid Advisors LLC also makes recommendations with respect to the Fund's
business affairs, furnishes certain administrative services, office space and
equipment, and permits its employees or arranges for employees of affiliates to
serve as the officers of the Trust without additional compensation from the
Fund. The Manager's fee is based on the average daily net assets of the Fund at
the annual rate of 1.50%. The rate is constant and does not diminish with an
increase in the net assets of the Fund. The management fee is higher than that
paid by most funds. All other expenses incurred in the operation of the Fund, a
detailed list of which appears in the SAI, are borne by the Fund.
BROKERAGE TRANSACTIONS. To buy and sell securities for the Fund, Euclid Advisors
LLC may use its broker/dealer affiliates or other firms that sell shares of the
Fund, provided they have the execution capability and that their commission
rates are comparable to those of other unaffiliated broker/dealers.
ORGANIZATION OF THE FUND
The Trust was established as a Delaware business trust on February 3, 1998. The
Board of Trustees directs the management of the business of the Trust. The Board
has duties and responsibilities comparable to those of the boards of directors
of corporations, not to those of trustees under customary trust principles. The
Trustees oversee the Trust's activities, elect the officers of the Trust who are
responsible for its day-to-day operations, review contractual arrangements with
the companies that provide services to the Trust, and review investment
performance.
The Trust, an open-end, diversified, management investment company, has an
unlimited number of shares of beneficial interest which, without shareholder
approval, may be divided by the Trustees into an unlimited number of funds and
classes. Voting rights are based on a shareholder's total dollar interest in a
Series and are thus allocated in proportion to the value of each shareholder's
investment. Shares vote together on matters that concern the entire Trust, or by
individual fund or class when the Board of Trustees determines that the matter
affects only the interests of a particular fund or class.
15
<PAGE>
EUCLID MARKET NEUTRAL FUND
A Series of
EUCLID MUTUAL FUNDS
900 Third Avenue, New York, N.Y. 10022-4728
STATEMENT OF ADDITIONAL INFORMATION
November 30, 1998
Euclid Market Neutral Fund (the "Fund"), is a diversified, open-end
management investment company organized as a series of Euclid Mutual Funds, a
Delaware business trust (the "Trust").
This Statement of Additional Information, which should be kept for
future reference, is not a prospectus. It should be read in conjunction with the
Prospectus of the Fund (the "Prospectus"), dated November 30, 1998, which can be
obtained without cost by contacting your financial professional or by calling or
writing the Fund at the telephone number and address printed on this cover page.
This Statement of Additional Information is intended to provide you with further
information about the Fund.
Euclid Mutual Funds
(Toll Free 1-800-272-2700)
TABLE OF CONTENTS Page
INVESTMENT OBJECTIVE AND POLICIES 2
INVESTMENT RESTRICTIONS 2
OTHER INVESTMENT POLICIES 3
PURCHASE AND REDEMPTION OF SHARES 6
REINSTATEMENT PRIVILEGE 6
EXCHANGE PRIVILEGE 7
INVOLUNTARY REDEMPTIONS 7
RETIREMENT PLANS 7
NET ASSET VALUE AND TAXES 7
TRUSTEES AND OFFICERS OF THE TRUST 9
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 11
INVESTMENT MANAGEMENT AND OTHER SERVICES 12
Manager 12
Distributor 13
Distribution Plans 13
Custodian, Fund Accounting Agent, Transfer Agent and
Dividend Paying Agent 14
Independent Accountants 14
Counsel 14
ADVISOR'S PRIOR PERFORMANCE 14
PORTFOLIO TRANSACTIONS AND BROKERAGE 16
YIELD AND PERFORMANCE INFORMATION 17
REGISTRATION STATEMENT 18
FINANCIAL STATEMENTS 18
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective and policies and permitted investments
are described in the Prospectus under the headings "Investment Objective", "Our
General Investment Philosophy and Strategy", "Other Investment Policies" and
"Risk Factors". Set forth below is additional information with respect to the
investment policies and a description of certain financial instruments and
techniques utilized by the Fund. Except as explicitly set forth in this
Statement of Additional Information, the investment objective and policies of
the Fund may be changed without shareholder approval.
INVESTMENT RESTRICTIONS
The first eight investment restrictions set forth below are fundamental
policies of the Fund. These restrictions cannot be changed without a vote of a
majority of the outstanding voting securities of the Fund. However, these
policies may be modified by the Trustees without shareholder approval to the
extent necessary to facilitate the implementation of a master-feeder structure
for the Fund ( I.E., a structure under which the Fund acts as a feeder and
invests all of its assets in a single pooled master fund with substantially the
same investment objectives and policies).
FUNDAMENTAL POLICIES. Except as stated above with respect to a
master-feeder structure, the Fund may not:
1. Purchase the securities of issuers conducting their principal
business activities in the same industry if immediately after such purchase the
value of the Fund's investments in such industry would be 25% or more of the
value of its total assets (there is no such limitation with respect to
obligations of the U.S. Government, its agencies or instrumentalities or with
respect to investments in other investment companies complying with such
policy).
2. With respect to 75% of the Fund's assets, purchase the securities of
any one issuer if immediately after such purchase (i) more than 5% of the value
of the Fund's total assets would be invested in such issuer or (ii) the Fund
would own more than 10% of the outstanding voting securities of such issuer.
(Such limitations do not apply to securities issued by the U.S. Government, its
agencies or instrumentalities or with respect to investments in other investment
companies complying with such policy).
3. Invest in real estate, provided that this limitation shall not
prohibit the purchase of securities issued by companies that invest in real
estate or interests therein, including real estate investment trusts.
4. Make loans, except that this restriction shall not prohibit the
purchase and holding of a portion of an issue of publicly distributed debt
securities, the lending of portfolio securities (if the aggregate value of the
loaned securities does not at any time exceed one-third of the total assets of
the Fund), or the entry into repurchase agreements.
5. Issue "senior securities," except as permitted under the Investment
Company Act of 1940.
6. Act as an underwriter, except that the Fund technically may be
deemed to be an underwriter in a registration under the Securities Act of 1933
to resell restricted securities.
7. Invest in physical commodities or commodity contracts; provided that
this limitation shall not prevent the Fund from purchasing and selling futures
contracts and options.
8. Borrow money in excess of 20% of its total assets taken at cost or
at market value, whichever is lower, and then only from banks as a temporary
measure for extraordinary or emergency purposes. If such borrowings exceed 5% of
the Fund's total assets, the Fund will make no further investments until such
borrowing is repaid. (Short sales and related borrowings of securities are not
subject to these restrictions.)
NON-FUNDAMENTAL RESTRICTIONS. The following investment restrictions and
policies are non-fundamental and can be changed by the Board of Trustees without
shareholder approval. Currently, the Fund may not:
9. Maintain a short position, or sell securities short if, when added
together, more than 100% of the value of the Fund's net assets would be (i)
deposited as collateral for the obligation to replace securities borrowed to
effect short sales, and (ii) allocated to segregated accounts in connection with
short sales. Short sales "against the box" are not considered in applying this
limitation.
10. Pledge its assets in an amount greater than 10% of the value of its
total assets, and then only to secure borrowings permitted by Restriction 8
(collateral or deposit arrangements with respect to short sales, swaps and other
derivatives, or the deposit of initial or maintenance margin in connection with
futures contracts, will not be deemed to be a pledge of the Fund's assets).
11. Purchase securities on margin, except for such short-term credits
as are necessary for the clearance of transactions and initial and variation
margin payments in connection with transactions in futures and options
contracts. (Short sales may be made in a margin account).
12. Purchase securities which are not readily marketable, such as
securities subject to legal or contractual restrictions on resale or securities
which are otherwise illiquid including repurchase agreements having more than
seven days remaining to maturity, if, as a result, more than 15% of the Fund's
net assets would consist of such securities.
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<PAGE>
13. Purchase securities of any other investment company, except (i) by
purchase in the open market involving only customary brokers' commissions, (ii)
in connection with a merger, consolidation, reorganization or acquisition of
assets, or (iii) as otherwise permitted by applicable law.
14. Participate on a joint or a joint and several basis in any trading
account in securities. (The bunching of orders for the sale or purchase of
portfolio securities of two or more accounts managed by the Manager or its
affiliates shall not be considered participation in a joint securities trading
account).
LIMITATIONS APPLY AT THE TIME AN INVESTMENT IS MADE; A SUBSEQUENT INCREASE OR
DECREASE IN PERCENTAGE RESULTING FROM CHANGES IN VALUES OR NET ASSETS WILL NOT
BE DEEMED TO BE AN INVESTMENT THAT IS CONTRARY TO THESE RESTRICTIONS.
The phrases "shareholder approval" and "vote of a majority of the
outstanding voting securities", as used in the Prospectus or in this Statement
of Additional Information means the affirmative vote of (i) 67% or more of the
Fund's voting securities present at a meeting of shareholders if the holders of
more than 50% of the Fund's outstanding voting securities are present in person
or by proxy, or (ii) more than 50% of the Fund's outstanding voting securities,
whichever is less. Shares of the Fund have voting power based on dollar value
and are thus allocated in proportion to the value of each shareholder's
investment on the record date.
The Board of Trustees, which has the primary responsibility for the
overall management of the Fund, has determined that, while there are certain
risks inherent in using short sales, futures and options, the Manager has
demonstrated its expertise and ability to use these financial instruments and
investment techniques effectively. The flexibility and potential for enhanced
long-term performance and risk reduction warrant their use, in the opinion of
the Board of Trustees.
OTHER INVESTMENT POLICIES
SHORT SALES. The Fund will seek to neutralize the exposure of its long
equity positions to general equity market risk and to realize additional gains
through the use of short sales (selling a security it does not own) in
anticipation of a decline in the value of the security sold short relative to
the long positions held by the Fund. Historically, the Fund has maintained a
short position exposure within 5% of its long position exposure.To complete such
a transaction, the Fund must borrow the security to make delivery to the buyer.
The Fund then is obligated to replace the security borrowed by purchasing it at
the market price at the time of replacement. 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 repay the lender any dividends or
interest that 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 net proceeds of the short sale will be retained by the broker
(or by the Fund's custodian in a special custody account) until the short
position is closed out, to the extent necessary to meet margin requirements. The
Fund also will incur transaction costs in effecting short sales. The amount of
any gain will be decreased, and the amount of any loss increased, by the amount
of the premium, dividends, interest or expenses a Fund may be required to pay in
connection with a short sale. An increase in the value of a security sold short
by the Fund over the price at which it was sold short will result in a loss to
the Fund, and there can be no assurance that the Fund will be able to close out
the position at any particular time or at an acceptable price.
INDEX FUTURES, AND INDEX AND EQUITY OPTIONS. In addition to purchasing
or selling short individual securities, the Fund may purchase or sell short any
type of future or option related to its investments. These may include options
not traded on exchanges, futures or options tied to stock indexes or averages
and options on individual securities. Futures and options also may be used or
combined with each other in order to implement the Fund's overall strategy.
Futures and options tied to a securities index such as the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500") have been used by mutual
funds for many years to manage their portfolios more efficiently. An S&P 500
futures contract is a contract to buy or sell units of the S&P 500 at a
specified future date at a price agreed upon when the contract is made. A unit
is the value of the S&P 500 from time to time. Entering into a contract to buy
units is commonly referred to as buying or purchasing a contract, or holding a
long position in the S&P 500. Entering into a contract to sell units is commonly
referred to as selling a contract, or holding a short position in the S&P 500.
FUTURES CONTRACTS. In contrast to purchases of a common stock, no price
is paid or received by the Fund upon the purchase of a futures contract. Upon
entering into a futures contract, the Fund will be required to deposit in an
account for the futures broker a specified amount of cash or liquid securities,
currently 2% to 5% of the contract amount. This is known as "initial margin".
The type of instruments that may be deposited as initial margin, and the
required amount of initial margin, are determined by the futures exchange(s) on
which the futures are traded. The nature of initial margin in futures
transactions is different from that of margin in securities transactions in that
futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions.
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<PAGE>
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination of the
futures contract, assuming all contractual obligations have been satisfied. In
addition to initial margin, the Fund is required to deposit cash, liquid debt
securities, liquid equity securities or cash equivalents in an amount equal to
the notional value of all long futures contracts, less the initial margin
amount, in a segregated account with the custodian to ensure that the use of
such futures contracts is not leveraged. If the value of the securities placed
in the segregated account declines, additional securities, cash or cash
equivalents must be placed in the segregated account so that the value of the
account will at least equal the amount of the Fund's commitments with respect to
such futures contracts. Subsequent payments to and from the broker, called
"variation margin," will be made on a daily basis as the price of the future
fluctuates, a process known as "marking to the market". For example, if the Fund
purchases an S&P 500 future and the S&P 500 has risen, the Fund's corresponding
futures position will increase in value and the Fund will receive from the
broker a variation margin payment equal to that increase in value. Conversely,
when the S&P 500 declines, the Fund's futures position will be less valuable and
the Fund will be required to make a variation margin payment to the broker. When
the Fund terminates a position in a futures contract, a final determination of
variation margin is made, additional cash is paid to or by the Fund, and the
Fund realizes a gain or a loss.
The price of index futures may not correlate perfectly with movement in
the underlying index due to certain market distortions. First, all participants
in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the index and futures markets.
Secondly, the deposit requirements in the futures market are less onerous than
margin requirements in the securities market, and as a result the futures market
may attract more speculators than does the securities market which also may
cause temporary price distortions.
Positions in futures contracts may be closed out only if there is a
secondary market for such futures. Although the Fund intends to purchase or sell
futures only where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
or at any particular time. In such event, it may not be possible to close a
futures position and, in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of maintenance margin.
Generally, a futures contract is terminated by entering into an
offsetting transaction. An offsetting transaction for a futures contract sale is
effected by the Fund entering into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument with the same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund immediately is paid the difference and thus realizes a gain.
If the offsetting purchase price exceeds the price in the sale, the Fund pays
the difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by the Fund entering into a futures contract sale.
If the offsetting sale price exceeds the purchase price, the Fund realizes a
gain, and if the purchase price exceeds the offsetting price, the Fund realizes
a loss.
The hours of trading for futures contracts may not conform to the hours
during which the underlying securities are traded. To the extent that the
futures contracts markets close after the markets for the underlying securities,
significant price movements can take place in the futures contracts markets that
cannot be reflected in the markets of the underlying securities.
Successful use of futures contracts by the Fund is also subject to the
Manager's ability to correctly predict movements in the direction of prices for
securities. Due to the possibility of price distortion in the futures market and
because of the imperfect correlation between movements in securities prices and
movements in the prices of futures contracts, a correct forecast of securities
prices by the Manager may still not result in a successful hedging transaction
over a short period of time. The Fund does not intend to devote more than 15% of
its assets to margin on futures contracts.
OPTIONS. When the Fund purchases an option, an amount equal to the
premium paid by the Fund for the option (its cost) is recorded initially as an
investment. The amount of the investment is "marked-to-the-market" daily to
reflect the current market value of the option. If the current market value of
an option exceeds the premium paid, the excess represents unrealized
appreciation; conversely, if the premium paid exceeds the current market value,
the excess represents unrealized depreciation.
When the Fund writes an option, an amount equal to the premium received
by the Fund is recorded as an asset and as an offsetting liability. The amount
of the liability is "marked-to-the-market" daily to reflect the current market
value of the option. If an option written by the Fund expires, or the Fund
enters into a closing purchase transaction, the Fund will realize a gain (or a
loss if the cost of a closing transaction exceeds the premium received) and the
liability related to such option will be extinguished.
If the Fund writes a covered call option and is unable to effect a
closing purchase transaction in a secondary market, it will not be able to sell
the underlying security until the option expires and may be required to deliver
the underlying security upon exercise. Although the Fund generally will purchase
or write only those options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary
4
<PAGE>
market exist for any particular option, or at any particular time, and for some
options no secondary market on an exchange may exist. In such event, it might
not be possible to effect closing transactions in particular options, with the
result that the Fund would have to exercise the option in order to realize any
profit or would incur transaction costs on the sale of underlying securities
pursuant to the exercise of put options it had written. Reasons for the absence
of a liquid secondary market include the following: (a) there may be
insufficient interest in trading certain options; (b) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(c) trading halts, suspensions or other restrictions may be imposed with respect
to particular classes or series of options or underlying securities; (d) unusual
or unforeseen circumstances may interrupt normal operations on an exchange; (e)
the facilities of an exchange or the Options Clearing Corporation (the "OCC" )
may not at all times be adequate to handle current trading volume; or (f) one or
more exchanges might, for economic or other reasons, decide or be compelled at
some future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the OCC as a result of trades
on that exchange would continue to be exercisable in accordance with their
terms. In addition, there is no assurance that higher-than-anticipated trading
activity or other unforeseen events might not, at times, render certain of the
facilities of the OCC inadequate, and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution of
customers' orders. In the event of a shortage of the underlying securities
deliverable on exercise of a listed option, the OCC has the authority to permit
other, generally comparable securities to be delivered in fulfillment of option
exercise obligations. If the OCC exercises its discretionary authority to allow
such other securities to be delivered, it may also adjust the exercise prices of
the affected options by setting different prices at which otherwise ineligible
securities may be delivered. As an alternative to permitting such substitute
deliveries, the OCC may impose special exercise settlement procedures. The Fund
is required to deposit cash, liquid debt securities, liquid equity securities or
cash equivalents in an amount equal to the exercise price of any option it has
written in a segregated account with the custodian to ensure that the use of
such options is not leveraged. The Fund does not intend to devote more than 5%
of its assets to option premiums.
OPTIONS ON FUTURES CONTRACTS. Options on index futures contracts give
the purchaser the right, in return for the premium paid, to assume a position in
an index futures contract at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the holder of the long
position would assume the underlying futures position and would receive a
variation margin payment of cash or securities approximating the increase in the
value of the holder's option position. If an option is exercised on the last
trading day prior to the expiration date of the futures contract, the settlement
will be made entirely in cash based on the difference between the exercise price
of the option and the final settlement price of the futures contract on the
expiration date.
The ability to establish and close out positions in options on futures
contracts will be subject to the development and maintenance of a liquid
secondary market. It is not certain that such a market will develop. Although
the Fund generally will purchase only those options for which there appears to
be an active secondary market, there is no assurance that a liquid secondary
market on an exchange will exist for any particular option or at any particular
time. In the event no such market exists for particular options, it might not be
possible to effect closing transactions in such options, with the result that
the Fund would have to exercise the options in order to realize any profit.
Compared to the purchase or sale of futures contracts, the purchase of
options on futures contracts may involve less potential risk to the Fund because
the maximum amount at risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the use of an option on a
futures contract would result in a loss to the Fund when the use of a futures
contract would not, such as when there is no movement in the prices of debt
securities. Purchasers of options who fail to exercise their options prior to
the exercise date suffer a loss of the premium paid.
Writing an option on a futures contract involves risks similar to those
arising in the sale of futures contracts.
In purchasing and selling futures contracts and in purchasing options
on futures contracts, the Fund presently intends to comply with rules and
interpretations of the Commodity Futures Trading Commission ("CFTC") under which
it is exempted from regulation as a commodity pool operator. The CFTC
regulations which exempt the Fund from regulation as a commodity pool operator
require, among other things, (i) that futures and related options be used solely
for bona fide hedging purposes, as defined in CFTC regulations or,
alternatively, with respect to each long futures or options position, the Fund
will ensure that the underlying commodity value of such contract does not exceed
the sum of segregated cash or money market instruments, margin deposits on such
contracts, cash proceeds from investments due in 30 days and accrued profits on
such contracts held by the
5
<PAGE>
commodity broker, and (ii) that the Fund not enter into futures and related
options for which the aggregate initial margin and premiums exceed 5% of the
fair market value of the Fund's total assets. There is no other limitation on
the percentage of the Fund's assets that may be invested in futures and related
options.
REPURCHASE AGREEMENTS. In a repurchase agreement transaction, the Fund
agrees to purchase and resell, and the seller also agrees to buy back, usually
on the next business day, a security at a fixed time and price which reflects an
agreed-upon market rate. Repurchase agreements may be thought of as loans to the
seller collateralized by the security to be repurchased. The risk to the Fund is
the ability of the seller to pay the agreed-upon sum on the repurchase date. In
the event of default, the repurchase agreement provides that the Fund is
entitled to sell the collateral. If the seller defaults when the value of the
underlying collateral is less than the repurchase price, the Fund could incur a
loss of both principal and interest. The manager monitors the value of the
collateral daily during the term of the repurchase agreement to determine that
the value of the collateral equals or exceeds the agreed-upon repurchase price.
If a defaulting seller were to be subject to a Federal bankruptcy proceeding,
the ability of the Fund to liquidate the collateral could be delayed or impaired
because of certain provisions of the bankruptcy laws. Except for temporary
defensive purposes, the Fund does not intend to invest more than 20% of its
assets in repurchase agreements.
PURCHASE AND REDEMPTION OF SHARES
The Fund does not issue share certificates. Instead, an account is
established for each investor and all shares purchased or received, including
those obtained through reinvestment of distributions, are credited to such
account on the books of the Fund.
Reference is made to the materials in the Prospectus under the headings
"Choosing Among Classes When Purchasing Shares," "How to Invest in the Fund" and
"How to Redeem Your Fund Shares," which describe the methods of purchase and
redemption of the Fund's shares. If you invest through an investment dealer or
agent, that firm may have its own service features, transaction charges and
fees. This SAI and the accompanying Prospectus should be read in conjunction
with such firms' material regarding their fees and services. If you wish us to
refer you to an investment professional, call us at 1-800-272-2700. Investment
professionals receive compensation for providing investment advice, and such
compensation may differ for selling shares of different classes of the Fund.
If the Board of Trustees should determine that it is advisable in the
interest of the remaining shareholders of the Fund or Class to make payment
wholly or partly in cash, the Fund may pay redemption proceeds in whole or in
part by a distribution in kind of securities from the portfolio of the Fund, in
lieu of cash, in conformity with the applicable rules of the Commission. If
shares are redeemed in kind, the redeeming shareholder might incur brokerage
costs in converting the assets into cash. Where the Fund makes a redemption in
kind, such redemption will be made in readily marketable securities whose value
is easily ascertainable. The method of valuing portfolio securities for this
purpose is as described under Net Asset Value and Taxes. The Fund has, however,
elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which it is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
its net assets during any 90-day period for any one shareholder.
REINSTATEMENT PRIVILEGE
Reinvestment of redemption proceeds under the reinstatement privilege
described in the prospectus will be made at the net asset value next determined
after receipt of the reinstatement order. If the shareholder has realized a gain
on the redemption, the transaction is taxable and reinvestment will not alter
any capital gains tax payable. If there has been a loss on the redemption, some
or all of the loss may not be allowed as a tax deduction depending on the amount
reinvested.
For purposes of determining the amount of CDSC payable on any
subsequent redemptions, the purchase payment made through exercise of the
reinvestment privilege will be deemed to have been made at the time of the
initial purchase (rather than at the time the reinvestment was effected).
EXCHANGE PRIVILEGE
The minimum value of any class of shares that may be exchanged into the
fund in which shares are not already held is $1,000 and no exchange out of the
fund (other than by a complete exchange of all the shares of that fund) may be
made if it would reduce the shareholder's interest in that fund to less than
$1,000. Participating securities dealers who have signed a Selling Agreement
with the Distributor may exchange by telephone their clients' shares for the
same class of another fund distributed by the Distributor.
The Fund reserves the right at any time to modify or terminate the
exchange privilege with respect to one or more classes of shares, if the Board
of Trustees determines that continuing the privilege may be detrimental to
shareholders.
6
<PAGE>
INVOLUNTARY REDEMPTIONS
As with voluntary redemptions, an involuntary redemption may result in
the payment of a tax by the shareholder. (See "Distributions and Taxes" in the
Prospectus.)
RETIREMENT PLANS
Shares may be purchased in connection with all types of tax-deferred
retirement plans. The minimum initial investment in connection with tax-deferred
retirement plans is $250 and the minimum may be waived on payments made directly
to the Transfer Agent. There is no minimum for additional purchase payments for
tax-deferred retirement plans.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill Lynch
and, on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement, the Plan has $3 million or more in assets invested in broker/dealer
funds not advised or managed by Merrill Lynch Asset Management L.P. ("MLAM")
that are made available pursuant to a Service Agreement between Merrill Lynch
and the fund's principal underwriter or distributor and in funds advised or
managed by MLAM (collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a contract or
alliance arrangement with Merrill Lynch, and on the date the Plan Sponsor signs
the Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or
more in assets, excluding money market funds, invested in Applicable
Investments, or
(iii) the Plan has 500 or more eligible employees, as determined by
Merrill Lynch plan conversion manager, on the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement.
Alternatively, Class B shares of the Fund are made available to
Plan participants at NAV without a CDSC if the Plan conforms with the
requirements for eligibility set forth in (i) through (iii) above but either
does not meet the $3 million asset threshold or does not have 500 or more
eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an
independent recordkeeper under a contract with Merrill Lynch that are currently
investing in Class B shares of the Fund convert to Class A shares once the Plan
has reached $5 million invested in Applicable Investments, or after the normal
holding period of seven years from the initial date of purchase.
NET ASSET VALUE AND TAXES
The net asset value per share of each class of shares is determined as
of the close of regular trading on the NYSE, on each day that the NYSE is open.
The NYSE is closed on the following holidays (or the weekdays on which these
holidays are celebrated when they fall on a weekend): New Year's Day,
President's Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
We subtract the non-class specific liabilities of a Fund from the
Fund's assets to determine its total net assets. We then determine each class's
proportionate interest in the Fund's net assets. The liabilities attributable to
that class, including its distribution fees, are then deducted and the resulting
amount is divided by the number of shares of that class outstanding to produce
its net asset value per share.
Stocks, futures and options are valued at the closing prices reported
on recognized securities exchanges or if no sale was reported, and for unlisted
securities, at the mean between the last-reported bid and asked prices.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Trustees. Short-term obligations having a remaining maturity of 60 days or less
are valued at amortized cost (which approximates market value).
TAX STATUS. By paying dividends representing its investment company
taxable income within the time periods specified in the Internal Revenue Code of
1986, as amended (the Code) and by meeting certain other requirements, the Fund
intends to qualify as a regulated investment company under the Code. Since the
Fund intends to distribute annually its investment company taxable income, net
capital gains, and capital gain net income, it will not be subject to income or
excise taxes otherwise applicable to undistributed income of a regulated
investment company. If the Fund were to fail to distribute all its income and
gains, it would be subject to income tax and, in certain circumstances, a 4%
excise tax.
TAXATION OF SHAREHOLDERS. Dividends from net investment income and
distributions from short-term capital gains are taxable to shareholders as
ordinary income. Regardless of how long the Fund shares have been held,
distributions of long-term gains realized upon the sale of capital assets are
subject to a maximum federal income tax rate for noncorporate taxpayers of 20%
if held for more than 12 months (10% for individuals in the 15% tax bracket).
Any loss realized by a shareholder upon the disposition of Fund shares held for
six months or less will be treated as long-term capital loss to the extent of
any amounts treated as distributions of long-term capital gain held for more
than one year during such six-month period.
7
<PAGE>
Distributions by the Fund out of dividend income from domestic
corporations may qualify in whole or in part for the dividends received
deduction if the distributing Fund does not sell the stock in respect of which
it received such dividends before satisfying a 46-day holding period requirement
(91 days for certain preferred stock), and the shareholder holds Fund shares for
at least 46 days. For this purpose, the distributing Fund holding period in such
stock may be reduced for periods during which the Fund reduces its risk of loss
from holding the stock (e.g., by entering into option contracts).
Investors who purchase shares shortly before the record date for a
distribution will pay a share price that includes the value of the anticipated
distribution and will be taxed on the distribution when it is received even
though with respect to them the distribution in effect represents a return of a
portion of their purchase price. Any loss realized on a sale or exchange of
shares will be disallowed if the shares disposed of are replaced within a period
of 61 days beginning 30 days before being acquired.
Individuals and certain other non-exempt payees will be subject to a
31% backup Federal withholding tax on dividends and other distributions from the
Fund, as well as on the proceeds of redemptions if the Fund is not provided with
the shareholder's correct taxpayer identification number and certification that
the shareholder is not subject to such backup withholding, or if the Internal
Revenue Service notifies the Fund that the shareholder has failed to report
proper interest or dividends. For most individuals, the taxpayer identification
number is the taxpayer's social security number.
TAX TREATMENT OF CERTAIN TRANSACTIONS. In general, and as explained
more fully below, if the Fund enters into combinations of investment positions
by virtue of which its risk of loss from holding an investment position is
reduced on account of one (or more) other positions (i) losses realized on one
position may be deferred to the extent of any unrecognized gain on another
position and (ii) long-term capital gains or short-term capital losses may be
recharacterized, respectively, as short-term gains and long-term losses.
Investments in foreign currency denominated instruments or securities may
generate, in whole or in part, ordinary income or loss. The Federal income tax
treatment of gains and losses realized from transactions involving options on
stock or securities entered into by the Fund will be as follows: Gain or loss
from a closing transaction with respect to options written by the Fund, or gain
from the lapse of any such option, will be treated as short-term capital gain or
loss. Gain or loss from the sale of put and call options that the Fund
purchases, and loss attributable to the lapse of such options, will be treated
as capital gain or loss. For this purpose, an unexercised option will be deemed
to have been sold on the date it expired. It should be noted, however, that if a
put is acquired at a time when the underlying stock or security has been held
for not more than one year, or if shares of the underlying stock or security are
acquired while such put is held, any gain on the subsequent exercise, sale or
expiration of the put will generally be short-term gain.
Any regulated futures contract or listed non-equity option held by the
Fund at the close of its taxable year will be treated as sold for its fair
market value on the last business day of such taxable year. Sixty percent of any
gain or loss with respect to such deemed sales, as well as the gain or loss from
the termination during the taxable year of the Fund's obligation (or rights)
with respect to such contracts by offsetting, by taking or making delivery, by
exercise or being exercised, by assignment or being assigned, by lapse, or
otherwise, will be treated as long-term capital gain or loss and the remaining
forty percent will be treated as short term capital gain or loss. The Fund may
make certain elections that modify the above tax treatment with respect to
regulated futures contracts or listed non-equity options that are part of a
mixed straddle, as defined by the Code.
The Fund may invest in certain investments that may cause it to realize
income prior to the receipt of cash distributions, including securities bearing
original issue discount. The level of such investments is not expected to affect
the Fund's ability to distribute adequate income to qualify as a regulated
investment company.
Treasury Regulations pursuant to Section 1092 provide for the
coordination of the wash sale rules and the short sale rules with the straddle
rules. Generally, the wash sale rules prevent the recognition of loss where a
position is sold at a loss and a substantially identical position is acquired
within a prescribed period. The short sale rules generally prevent the use of
short sales to convert short-term capital gain to long-term capital gain and
long-term capital loss to short-term capital loss.
In addition to the Federal income tax consequences described above
relating to an investment in the Fund, there may be other Federal, state, local
or foreign tax considerations that depend upon the circumstances of each
particular investor. Prospective shareholders are therefore urged to consult
their tax advisers with respect to the effects of this investment on their
specific situations.
8
<PAGE>
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Trust and their business affiliations
for the past five years are as follows:
<TABLE>
<CAPTION>
NAME,ADDRESS AND AGE POSITION WITH THE TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
-------------------- ----------------------- ----------------------------------------
<S> <C> <C>
James Balog Trustee Retired; Director and member of the Audit, Investment, Stock
2205 N. South Wind Blvd. Option and Compensation Committees of Transatlantic Holdings, Inc.
Vero Beach, FL 32963 (reinsurance); Director and Member of the Executive Committee of
(70) Elan, Plc (pharmaceuticals); Director and Member of the Executive
and Investment & Credit Committees of Great West Life and Annuity
Insurance Company; Member of the Technical Advisory Board of Galen
Partners (health care); and Trustee of Zweig Series Trust. Former
Director, Chairman of the Audit Committee and Member of the
Executive Committee of A.L. Pharma, Inc. (health care); Chairman
of 1838 Investment Advisors, L.P. and Chairman of Lambert Brussels
Capital Corporation (investments);
Claire B. Benenson Trustee Consultant on Financial Conferences and Former Director of
870 U.N. Plaza Financial Conferences and Chairman, Department of Business and
New York, NY 10017 (79) Financial Affairs, The New School for Social Research. President
of the Money Marketeers of New York University; Trustee of Zweig
Series Trust and of Simms Global Fund; and Director of The Burnham
Fund Inc.; Former Director of Zweig Cash Fund Inc.
S. Leland Dill Trustee Retired; Director of Coutts & Co. Trust Holdings Limited, Coutts &
5070 North Ocean Dr. Co. Group, Coutts & Co. (USA) (private banking); Trustee of BT
Singer Island, FL 33404 Portfolios, BT Investment Funds and Zweig Series Trust. Former
(68) partner of Peat Marwick Mitchell & Co. and Director of Zweig Cash
Fund Inc. and Vintners International Company, Inc. (winery).
Eugene J. Glaser* Chairman, President, President of the Manager and of Zweig/Glaser Advisers;
900 Third Avenue Chief Executive President and Director of the Distributor; Chairman and Trustee of Zweig
New York, NY 10022 Officer and Trustee Series Trust; Director of The Zweig Fund, Inc.; and former (58)
Director of Zweig Cash Fund Inc.
NAME, ADDRESS AND AGE POSITION WITH THE TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- --------------------- ----------------------- ----------------------------------------
David Katzen* Executive Vice President Executive Vice President of the Manager; Senior Vice President
900 Third Avenue and Trustee of Zweig/Glaser Advisors and Zweig Series Trust, and Vice
New York, NY 10022 President of Zweig Advisors Inc. Former Director of
(41) Quantitative Research at Avatar Investors Associates Corp.;
Director of Equity Research for Zweig Total Return Advisors, Inc.;
Research Director of Zweig Advisors Inc.; and Vice President of The
Zweig Fund, Inc. and ZZK Management, Inc.
Donald B. Romans Trustee President of Romans & Company (private investors and financial
233 East Wacker Dr. consultants); Director of Zweig Series Trust and The Burnham Fund
Chicago, IL 60601 Inc.; Former Consultant to and Executive Vice President and Chief
(67) Financial Officer of Bally Manufacturing Corporation and Director
of Zweig Cash Fund Inc.
Barry Mandinach First Vice President Executive Vice President of the Distributor; Senior Vice President
900 Third Avenue of the Manager and of Zweig/Glaser Advisers. First Vice President
New York, NY 10022 of Zweig Series Trust.
(42)
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME,ADDRESS AND AGE POSITION WITH THE TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
-------------------- ----------------------- ----------------------------------------
<S> <C> <C>
Alfred J. Ratcliffe First Vice President, First Vice President of the Manager and of Zweig/Glaser Advisers;
900 Third Avenue Treasurer, Principal First Vice President, Principal Accounting Officer, Treasurer and
New York, NY 10022 Accounting Officer Assistant Secretary of Zweig Series Trust; Former Vice
(51) and Assistant Secretary President of The Bank of New York.
Charles I. Leone First Vice President First Vice President and Chief Financial Officer of the Manager
900 Third Avenue and Assistant Secretary and of Zweig/Glaser Advisers; First Vice President, Chief
New York, NY 10022 Financial Officer and Assistant Secretary of the Distributor;
(37) First Vice President and Assistant Secretary of Zweig Series
Trust; Former Assistant Treasurer of Zweig Cash Fund Inc.
Annemarie Gilly First Vice President First Vice President of the Manager and the Distributor;
900 Third Avenue Vice President of Zweig Series Trust; Former Vice President of Concord
New York, NY 10022 Financial Group and Executive Vice President and Chief Operating
(47) Officer of The Gabelli Equity Trust, Inc.
Beth Abraham Assistant Vice Assistant Vice President of Zweig/Glaser Advisers and Zweig Series
900 Third Avenue President Trust
New York, NY 10022
(43)
Rhonda Lee Berzner Assistant Vice Senior Research Analyst for the Manager and Zweig/Glaser Advisers;
900 Third Avenue President and Assistant Vice President of Zweig Series Trust.
New York, NY 10022
(33)
Tom Disbrow Assistant Vice Vice President of the Manager and of Zweig/Glaser Advisers;
900 Third Avenue President and Assistant Vice President and Assistant Treasurer of Zweig Series
New York, NY 10022 Assistant Treasurer Trust.
(32)
NAME,ADDRESS AND AGE POSITION WITH THE TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
-------------------- ----------------------- ----------------------------------------
Tom Farrell Assistant Vice Assistant Vice President of the Manager and of Zweig/Glaser
900 Third Avenue President and Advisers.
New York, NY 10022 Assistant Treasurer
(34)
Marc Baltuch Secretary First Vice President of the Manager and of Zweig/Glaser Advisers;
900 Third Avenue Director, First Vice President, Chief Compliance Officer and
New York, NY 10022 Secretary of the Distributor.; Director and President of Watermark
(53) Securities, Inc. Secretary of Zweig Series Trust; Assistant
Secretary of Gotham Advisors, Inc., Zweig Total Return Advisors,
Inc. and of Zweig Advisors Inc.; Former Secretary of Zweig Cash
Fund Inc.
</TABLE>
*DESIGNATES A TRUSTEE WHO IS AN "INTERESTED PERSON" OF THE TRUST WITHIN THE
MEANING OF THE 1940 ACT.
10
<PAGE>
Set forth below is a table showing the compensation of the Board of
Trustees:
Total Compensation
Aggregate Compensation from the Trust paid
Name of Person, Position From the Trust to the Trustees
- ------------------------ -------------- ---------------
James Balog, Trustee $4,125 $4,125
Claire B. Benenson, Trustee 4,125 4,125
S. Leland Dill, Trustee 4,125 4,125
Eugene J Glaser, Chairman,
Chief Executive Officer and
Trustee 0 0
David Katzen, Executive Vice
President and Trustee 0 0
Donald B. Romans, Trustee 4,125 4,125
Those Trustees and officers of the Trust who are affiliated with the
Distributor or the Manager are not separately compensated for their services as
Trustees or officers of the Trust. The Fund currently pays each of its
"disinterested" Trustees a fee of $2,500 per year, plus $750 per meeting
attended ($500 per phone meeting) and reimburses their expenses for attendance
at meetings. For the period May 1, 1998(commencement of operations) to October
31, 1998, the fees and expenses of disinterested Trustees, as a group, were
$16,530. As of October 31, 1998, except for Dr. Zweig, the Trustees and officers
of the Trust, as a group, owned less than 1% of any Class of the Fund.
Trustees may be removed from office at any meeting of shareholders
by a vote of two-thirds of the outstanding shares of the Trust. A shareholders
meeting may be called by the Trustees or by the President of the Trust, or shall
be called promptly by the Trustees upon the written request of shareholders of
the Trust holding at least ten percent (10%) of the outstanding shares entitled
to vote. Except as set forth above, the Trustees shall continue to hold office
and may appoint their successors.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of October 31, 1998, to the Fund's knowledge, except for Mollie
F. Zweig (625 Park Avenue, New York, NY 10021) who owns 45.44%, Dr. Martin E.
Zweig (900 Third Avenue, New York, NY 10022) who owns 9.27%, The Loomis
Institute (4 Batchelder Road, Windsor, CT 06095) who owns 9.22%, Raymond Larsen
(7914 Fisher Island Drive, Fisher Island FL 33109) who owns 7.51%, and R & L
Equity Partners (5400 Jefferson Highway, Harahan, LA 70123) who owns 6.50% of
the Fund's Class I Shares; and William M.& Sharon Hope (3615 Oakton Ridge,
Minnetonka, MN 55305) who own 6.98% of the Fund's Class A Shares, no person is
the beneficial owner of 5% or more of the outstanding shares of any Class of
Shares of the Fund.
In addition, as of October 31, 1998, to the Fund's knowledge,
except for Merrill Lynch, Pierce, Fenner & Smith Inc. (4800 Deer Lake Drive
East, Jacksonville, FL 32246) who owns 7,24% of the Fund's Class A Shares,
26.86% of the Fund's Class B Shares and 18.00% of the Fund's Class C Shares,
Prudential Securities Inc. (fbo Zweig Advisors MPP/PS Plan, 900 Third Avenue,
New York, NY 10022) who owns 8.78% of the Fund's Class I Shares, and Donaldson,
Lufkin and Jenrette Securities Corp., Inc. (P.O. Box 2052, Jersey City NJ 07303)
who owns 6.69% of the Fund's Class A Shares, no person is the record owner of 5%
or more of the outstanding shares of any Class of Shares of the Fund.
INVESTMENT MANAGEMENT AND OTHER SERVICES
MANAGER. The Trust and Euclid Advisors LLC, the Manager, entered into
an investment management agreement, dated April 16, 1998, (the "Management
Agreement") pursuant to which the Manager reviews the portfolio of securities
and investments of the Fund, and advises and assists the Fund with respect to
the selection, acquisition, holding or disposal of securities. In addition, the
Manager makes recommendations with respect to other aspects and affairs of each
Fund. The Manager also furnishes the Trust with certain administrative services,
office space and equipment, and permits its officers and employees who may be
elected Trustees or officers of the Trust to serve in the capacities to which
they are elected without additional compensation from the Trust. All other
expenses incurred in the operation of the Fund are borne by the Fund, including:
interest, taxes, fees and commissions of every kind; expenses of issue,
repurchase or redemption of shares; costs of registering or qualifying shares
for sale (including printing costs, legal fees and other expenses relating to
the preparation and filing of the Fund's registration statement with the
appropriate regulatory authorities and the production and filing of the Fund's
prospectus); costs of insurance; association membership dues; all charges of
custodians, including fees as custodian, escrow agent, and fees for keeping
books and performing portfolio valuations; all charges of transfer agents,
registrars, pricing services, independent accountants and legal counsel;
expenses of preparing, printing and distributing prospectuses and all proxy
materials, reports and notices to shareholders; expenses of distribution of
shares pursuant to Rule 12b-1 Plans; out-of-pocket expenses of Trustees; fees of
Trustees who are not "affiliated persons" as defined in the 1940 Act; and all
other costs incident to the Trust's existence as a business trust. The
Distributor purchases copies of the Fund's prospectus and shareholder reports
used for sales purposes at printer's overrun cost.
11
<PAGE>
The Fund pays the Manager for its services pursuant to the Management
Agreement a monthly fee at the annual rate of 1.50% of the average daily net
assets of the Fund. During the period May 1, 1998 (commencement of operations)
to October 31, 1998, the management fees paid to the Manager by the Fund
aggregated $883,943 before expense reimbursements. The Manager has voluntarily
undertaken to limit the expenses of the Fund (exclusive of taxes, interest,
dividends paid on securities sold short, brokerage commissions, 12b-1 fees and
extraordinary expenses) until April 30, 1999 to 2.00% of its average daily net
assets During the period May 1, 1998 (commencement of operations) to October 31,
1998, the Manager's reimbursements to the Fund aggregated $52,190. The
Management Agreement will continue in effect from year to year if specifically
approved annually by a majority of the Board of Trustees who are not parties to
such contract or "interested persons" of any such party. The Management
Agreement may be terminated without penalty by either party on 60 days' written
notice and must terminate in the event of its assignment.
The Management Agreement provides that the Manager is liable only for
its acts or omissions caused by its willful misfeasance, bad faith or gross
negligence in the performance of its duties or reckless disregard of its
obligations under the Management Agreement. The Management Agreement permits the
Manager to render services to others and to engage in other activities.
The Manager may draw upon the resources of the Distributor and its
qualified affiliates in rendering its services to the Fund. The Distributor or
its affiliates may provide the Manager (without charge to the Fund) with
investment information and recommendations that may serve as the principal basis
for investment decisions with respect to the Fund.
The Manager has adopted a Code of Ethics (the "Code") that requires all
persons subject to the Code to pre-clear any proposed non-exempt personal
securities transaction. Permission for any proposed transaction will be granted
provided it is determined that such would not negatively impact activity in
client accounts. In the event that a client of Manager's affiliates also owns
such security, or it is proposed that such client purchase such security,
available investments or opportunities for sales will be allocated in a manner
deemed to be equitable by the Manager.
DISTRIBUTOR. Pursuant to its Distribution Agreement with the Trust (the
"Distribution Agreement"), Zweig Securities Corp., the Distributor, acts as
distributor of the Fund's shares. The Distribution Agreement was approved by the
Trustees on April 16,1998. The compensation of the Distributor and selling
dealer is described the Prospectus under "Choosing Among Classes When Purchasing
Shares." Normally, the Distributor receives a front-end sales commission on
sales of Class A Shares, a declining CDSC ranging from 5% to 1% on Class B
Shares held for less than seven years, and a CDSC of 1.25% on Class C Shares
held for less than one year. A 1% CDSC may apply on redemptions within 18 months
of purchases of Class A Shares not subject to a sales charge. The Distributor
also is compensated under the Rule 12b-1 distribution plans as described more
fully below. During the period May 1, 1998 (commencement of operations) to
October 31, 1998, $37,539 and $ 21,413 in CDSC's was collected on Class B and
Class C Shares, respectively.
The Distributor may reallow amounts in excess of the sales concessions
listed in the Prospectus, and pay certain costs, to dealers who provide
additional services and special assistance in selling shares of the Fund.
DISTRIBUTION PLANS. The Fund has adopted a distribution plan for each
class of shares except Class I Shares in accordance with Rule 12b-1 under the
Act (the "Plan"), to compensate the Distributor for the services it provides and
for the expenses it bears under the Distribution Agreement. Each class of shares
(other than Class I Shares) pays a service fee at a rate of 0.25% per annum of
the average daily net assets of such class and a distribution fee based on
average daily net assets at the rate of 0.05% per annum for Class A Shares and
0.75% per annum for Class B Shares and Class C Shares. If the Distributor
receives any Rule 12b-1 payments in excess of actual distribution expenses, the
difference could be viewed as profit to the Distributor for that year.
Accordingly, the Fund's Class A, B, and C Rule 12b-1 Plans are classified as
compensation plans.
A report of the amounts expended under the Plan must be made to, and
reviewed by, the Board of Trustees at least quarterly. In addition, the Plan
provides that it may not be amended to increase materially the costs which the
Fund may bear for distribution pursuant to the Plan without shareholder approval
and that other material amendments to the Plan must be approved by a majority of
the Board, including a majority of the Board who are neither "interested
persons" of the Fund (as defined in the 1940 Act) nor have any direct or
indirect financial interest in the operation of the Plan (the "Qualified
Trustees"), by vote cast in person at a meeting called for the purpose of
considering such amendments.
The Plan is subject to annual approval by a majority of the Board of
Trustees, including a majority of the Qualified Trustees, by vote cast in person
at a meeting called for the purpose of voting on the Plan. The Plan is
terminable at any time by vote of a majority of the Qualified Trustees or, with
respect to any class - by vote of a majority of the shares of such class. . If
the Plan is terminated (or not renewed) with respect to one or more classes, it
12
<PAGE>
may continue in effect with respect to any class as to which it has not been
terminated (or has not been renewed). Pursuant to the Plan, any new Trustee who
is not an "interested person" must be nominated by existing Trustees who are not
"interested persons".
During the period May 1, 1998 (commencement of operations) to
October 31, 1998, the Class A Shares, Class B Shares and Class C Shares paid
$43,240, $146,745 and $193,313, respectively, pursuant to the Fund's
distribution plans.
Because all amounts paid pursuant to the Plan is paid to the
Distributor, the Distributor, its officers, directors and employees, may all be
deemed to have a direct or indirect financial interest in the operation of the
Plan. None of the Trustees who is not an "interested person" of the Fund has a
direct or indirect financial interest in the operation of the Plan.
Benefits from the Plan may accrue to the Fund and its shareholders from
the growth in assets due to sales of shares to the public pursuant to the Plan.
Increases in the Fund's net assets from sales pursuant to its Plan may benefit
shareholders by reducing per share expenses, permitting increased investment
flexibility and diversification of the Fund's assets, and facilitating economies
of scale (e.g., block purchases) in the Fund's securities transactions. Under
its terms, the Plan will continue from year to year, provided that such
continuance is approved annually by a vote of the Trustees in the manner
described above.
The adoption of the Plan was approved by the Board of Trustees,
including a majority of the Qualified Trustees, at a meeting held on April 16,
1998. Prior to approving the adoption of the Plan, the Board requested and
received from the Distributor all the information that it deemed necessary to
arrive at an informed determination as to such continuance and adoption of the
Plans. In making its determination to adopt the Plan, the Board considered,
among other factors: (1) the experience under a substantially identical Plan and
previous Rule 12b-1 Plan's of Zweig Series Trust, and whether such experience
indicates that the Plan would operate as anticipated; (2) the benefits the Fund
would be likely to obtain under the Plan; including the fact that the Plan was
necessary to permit the Fund to offer exchangeability of its shares for shares
of the same Class of the funds that comprise Zweig Series Trust (3) what
services would be provided under the Plan by the Distributor to the Fund and its
shareholders; and (4) the reasonableness of the fees to be paid to the
Distributor for its services under the Plan. Based upon their review, the Board,
including each of the Qualified Trustees, determined that the adoption of the
Plan would be in the best interest of the Fund, and that there was a reasonable
likelihood that the Plan would benefit the Fund and its shareholders. In the
Board's quarterly review of the Plan, the Trustees will consider its continued
appropriateness and the level of compensation provided therein.
The Board of Trustees has the right to terminate the Rule 12b-1 Plan
for the Class B Shares, and in the event of such termination, no further
payments would be made thereunder. However, in the event the Board of Trustees
were to terminate the Rule 12b-1 Plan for the Class B Shares for any Fund, the
Fund may not thereafter adopt a new Rule 12b-1 Plan for a class of that Fund
having, in the good faith determination of the Board of Trustees, substantially
similar economic characteristics to the Class B Shares. Termination of the Rule
12b-1 Plan for the Class B Shares or the Distribution Agreement does not affect
the obligation of the Class B shareholders to pay CDSC's. The Distributor has
sold its right to receive certain payments under the Distribution Agreement to
financial institutions in order to finance the distribution of the Class B
Shares.
The Board of Trustees has also adopted a Rule 18f-3 Multi-Class Share
Plan permitting the issuance of shares in multiple classes.
CUSTODIAN, FUND ACCOUNTING AGENT, TRANSFER AGENT AND DIVIDEND PAYING
AGENT. The Bank of New York, One Wall Street, New York, New York 10286 serves as
custodian and fund accounting agent, and State Street Bank and Trust Company,
P.O. Box 8505, Boston, Massachusetts 02260-8505, serves as the transfer agent
and dividend paying agent for the Fund.
INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP, 1301 Avenue of the
Americas, New York, New York 10019, serves as independent accountants for the
Fund. In addition to reporting annually on the financial statements of the Fund,
the Fund's accountants also review certain filings of the Fund with the
Securities and Exchange Commission.
COUNSEL. Shearman & Sterling, 599 Lexington Avenue, New York, New York
10022, is counsel to the Fund. The firm also acts as counsel to the Manager and
the Distributor.
ADVISOR'S PRIOR PERFORMANCE.
Prior to the commencement of operations of the Fund, Euclid
Advisors LLC served as the manager of other accounts. The performance
information shown below is based on a composite of all accounts with investment
objectives, policies and strategies that were substantially similar to those of
the Fund managed by Euclid Advisors LLC or by Euclid Advisors, Inc., the
Manager's predecessor, and Zweig/Katzen Investors, L.P. (collectively, the
"Accounts"). David Katzen was the portfolio manager for each of the Accounts
since inception.
13
<PAGE>
The performance information shown in the table below has been adjusted
to give effect to the annualized expenses of the different classes of shares
during the Fund's first fiscal year of operations (without giving effect to any
expense waivers or reimbursements). The information below should not be
considered a prediction of future performance of the Fund. The performance of
the Fund may be higher or lower than the performance of the Accounts. The
Accounts were not registered under the 1940 Act and therefore were not subject
to the diversification and other requirements of the 1940 Act and the Internal
Revenue Code. If the Accounts had been subject to these requirements, their
performance might have been adversely affected. The following tables also shows
the average annual total returns on 3-month U.S. Treasury bills for the same
periods.
<TABLE>
<CAPTION>
EIGHT-YEAR PERIOD
PERFORMANCE OF ACCOUNTS ADJUSTED FOR THE ONE-YEAR PERIOD THREE-YEAR PERIOD FIVE-YEAR PERIOD FROM INCEPTION
FEES AND EXPENSES OF THE DIFFERENT ENDING ENDING ENDING ON JANUARY 1, 1990
CLASSES OF SHARES OF THE FUND DEC. 31, 1997 DEC. 31, 1997 DEC. 31, 1997 TO DEC. 31, 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A with maximum sales charge 3.46% 9.14% 7.55% 11.23%
Class A with no sales charge 9.48% 11.22% 8.77% 12.02%
Class B with CDSC 4.48% 9.62% 7.72% 11.34%
Class B with no CDSC 8.72% 10.45% 8.02% 11.34%
Class C with CDSC 7.47% 10.45% 8.02% 11.24%
Class C with no CDSC 8.72% 10.45% 8.02% 11.24%
Class I 9.80% 11.55% 9.10% 12.35%
Performance of 3-month U.S. Treasury Bills. 5.31% 5.45% 4.78% 5.14%
EIGHT-YEAR PERIOD
PERFORMANCE OF ACCOUNTS ADJUSTED FOR THE ONE-YEAR PERIOD THREE-YEAR PERIOD FIVE-YEAR PERIOD FROM INCEPTION
FEES AND EXPENSES OF THE DIFFERENT ENDING ENDING ENDING ON JANUARY 1, 1990
CLASSES OF SHARES OF THE FUND APRIL 30,1998 APRIL 30, 1998 APRIL 30, 1998 TO APRIL 30, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A with maximum sales charge 10.17% 9.70% 7.16% 11.39%
Class A with no sales charge 16.58% 11.79% 8.38% 12.15%
Class B with CDSC 10.78% 10.20% 7.33% 11.47%
Class B with no CDSC 15.78% 11.01% 7.63% 11.47%
Class C with CDSC 14.53% 11.01% 7.63% 11.38%
Class C with no CDSC 15.78% 11.01% 7.63% 11.38%
Class I 16.93% 12.12% 8.70% 12.49%
Performance of 3-month U.S. Treasury Bills. 5.28% 5.37% 4.93% 5.15%
</TABLE>
The above table is not the performance of the Fund. Giving effect to
the expense limitation set forth in the "Fee Table" section, the average annual
total return of the Accounts for the one-year, three-year, five-year and periods
since-inception would have been approximately 0.04% higher for all classes of
shares.
An investment in 3-month U.S. Treasury Bills is different from an
investment in the Fund or in the Accounts because Treasury Bills are backed by
the full faith and credit of the United States, have a fixed rate of return and
a short duration, and investors in Treasury Bills do not risk losing capital.
The following table shows the total return of the Accounts, QUARTER
BY QUARTER, since inception adjusted for the expenses of the different classes
of shares but without adjustment for sales charges. Sales charges apply at the
time of purchase (Class A Shares) or if shares are redeemed within specified
14
<PAGE>
periods (Class B and Class C Shares) - see "Choosing Among Classes When
Purchasing shares" in the prospectus. Also shown, by quarter, is the total
return of 3-month U.S. Treasury bills.
1998 First Quarter Second Quarter*
Adjusted for Class A expenses 4.62% 0.28%
Adjusted for Class B expenses 4.44% 0.22%
Adjusted for Class C expenses 4.44% 0.22%
Adjusted for Class I expenses 4.69% 0.30%
Performance of 3-month U.S. Treasury Bills. 1.30% 0.42%
*through April 30
<TABLE>
<CAPTION>
1997 First Quarter Second Quarter Third Quarter Fourth Quarter
<S> <C> <C> <C> <C>
Adjusted for Class A expenses 0.81% 2.49% 6.86% -0.85%
Adjusted for Class B expenses 0.64% 2.31% 6.68% -1.02%
adjusted for Class C expenses 0.64% 2.31% 6.68% -1.02%
adjusted for Class I expenses 0.89% 2.56% 6.94% -0.77%
Performance of 3-month U.S. Treasury Bills. 1.31% 1.31% 1.30% 1.31%
1996 First Quarter Second Quarter Third Quarter Fourth Quarter
adjusted for Class A expenses 0.85% 5.97% 0.04% 3.98%
adjusted for Class B expenses 0.68% 5.79% -0.13% 3.80%
adjusted for Class C expenses 0.68% 5.79% -0.13% 3.80%
adjusted for Class I expenses 0.93% 6.05% 0.12% 4.06%
Performance of 3-month U.S. Treasury Bills. 1.27% 1.30% 1.32% 1.29%
1995 First Quarter Second Quarter Third Quarter Fourth Quarter
adjusted for Class A expenses 0.62% 8.11% 5.85% -1.84%
adjusted for Class B expenses 0.44% 7.93% 5.67% -2.01%
adjusted for Class C expenses 0.44% 7.93% 5.67% -2.01%
adjusted for Class I expenses 0.69% 8.19% 5.93% -1.77%
Performance of 3-month U.S. Treasury Bills. 1.49% 1.45% 1.39% 1.36%
1994 First Quarter Second Quarter Third Quarter Fourth Quarter
Adjusted for Class A expenses 1.49% -0.45% -4.18% 3.32%
adjusted for Class B expenses 1.31% -0.63% -4.35% 3.14%
adjusted for Class C expenses 1.31% -0.63% -4.35% 3.14%
adjusted for Class I expenses 1.57% -0.38% -4.11% 3.40%
Performance of 3-month U.S. Treasury Bills. 0.83% 1.04% 1.15% 1.36%
1993 First Quarter Second Quarter Third Quarter Fourth Quarter
Adjusted for Class A expenses 8.13% 3.44% 4.78% -5.57%
adjusted for Class B expenses 7.94% 3.26% 4.60% -5.74%
adjusted for Class C expenses 7.94% 3.26% 4.60% -5.74%
adjusted for Class I expenses 8.21% 3.51% 4.86% -5.50%
Performance of 3-month U.S. Treasury Bills. 0.76% 0.76% 0.77% 0.79%
1992 First Quarter Second Quarter Third Quarter Fourth Quarter
Adjusted for Class A expenses 2.52% 2.83% 0.35% 3.55%
adjusted for Class B expenses 2.34% 2.65% 0.18% 3.37%
adjusted for Class C expenses 2.34% 2.65% 0.18% 3.37%
adjusted for Class I expenses 2.60% 2.91% 0.43% 3.63%
Performance of 3-month U.S. Treasury Bills. 1.00% 0.94% 0.80% 0.79%
1991 First Quarter Second Quarter Third Quarter Fourth Quarter
Adjusted for Class A expenses 1.26% 0.56% 3.56% 5.83%
adjusted for Class B expenses 1.09% 0.39% 3.38% 5.65%
adjusted for Class C expenses 1.09% 0.39% 3.38% 5.65%
adjusted for Class I expenses 1.34% 0.64% 3.64% 5.91%
Performance of 3-month U.S. Treasury Bills. 1.56% 1.44% 1.40% 1.17%
1990 First Quarter Second Quarter Third Quarter Fourth Quarter
Adjusted for Class A expenses 0.93% 5.21% 14.60% 9.42%
Adjusted for Class B expenses 0.76% 5.03% 14.41% 9.23%
Adjusted for Class C expenses 0.76% 5.03% 14.41% 9.23%
Adjusted for Class I expenses 1.01% 5.29% 14.68% 9.50%
Performance of 3-month U.S. Treasury Bills. 1.99% 2.01% 1.94% 1.81%
</TABLE>
15
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Officers and Trustees of the Fund and officers of the Manager who are
also officers or directors of the Distributor or its affiliates receive indirect
benefits from the Fund as a result of its usual and customary brokerage
commissions which the Distributor or its affiliates may receive for acting as
broker to the Fund in the purchase and sale of portfolio securities. The
Management Agreement does not provide for a reduction of the advisory fee by any
portion of the brokerage fees generated by portfolio transactions of the Fund
that the Distributor may receive. During the period May 1, 1998 (commencement of
operations) to October 31, 1998, the Fund paid total brokerage commissions of
$958,971, of which $825, or 0.1% was paid to the Distributor.
Allocation of transactions, including their frequency, to various
dealers is determined by the Manager in its best judgment and in a manner deemed
fair and reasonable to shareholders. The primary consideration is prompt and
efficient execution of orders in an effective manner at the most favorable
price. Subject to this consideration, dealers who provide supplemental
investment research, statistical or other services to the Manager may receive
orders for transactions by the Fund. Information so received will enable the
Manager to supplement its own research and analysis with the views and
information of other securities firms. Such information may be useful and of
value to the Manager and its affiliates in servicing other clients as well as
the Fund; in addition, information obtained by the Manager and its affiliates in
servicing other clients may be useful and of value to the Manager in servicing
the Fund. No principal transactions are effected with Zweig Securities Corp. or
any of its affiliated companies.
The Fund may from time to time allocate brokerage commissions to firms
that furnish research and statistical information to the Manager. The
supplementary research supplied by such firms is useful in varying degrees and
is of indeterminable value. Such research may, among other things, include
advice regarding economic factors and trends, advice as to occasional
transactions in specific securities and similar information relating to
securities. No formula has been established for the allocation of business to
such brokers. Consideration may be given to research provided and payment may be
made of a fee higher than that charged by another broker-dealer which does not
furnish research services or which furnishes research services deemed to be of
lesser value, so long as the criteria of Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "1934 Act") are met. Section 28(e) of the
1934 Act specifies that a person with investment discretion shall not be "deemed
to have acted unlawfully or to have breached a fiduciary duty" solely because
such person has caused the account to pay a higher commission than the lowest
available under certain circumstances. To obtain the benefit of Section 28(e),
the person so exercising investment discretion must make a good faith
determination that the commissions paid are reasonable in relation to the value
of the brokerage and research services provided viewed in terms of either that
particular transaction or his overall responsibilities with respect to the
accounts as to which he exercises investment discretion.
Currently, it is not possible to determine the extent to which
commissions that reflect an element of value for research services might exceed
commissions that would be payable for execution alone, nor generally can the
value of research services be measured. Research services furnished might be
useful and of value to the Manager and its affiliates in serving other clients
as well as the Fund, but on the other hand, any research service obtained by the
Manager or the Distributor from the placement of portfolio brokerage of other
clients might be useful and of value to the Manager in carrying out its
obligation to the Fund.
There are no fixed limitations regarding the turnover rates of the
Fund's long and short portfolios. In computing the portfolio turnover rate, all
securities, including options, the maturities or expiration dates of which at
the time of acquisition are one year or less, are excluded. Subject to this
exclusion, the turnover rate is calculated by dividing (A) the lesser of
purchases or sales of securities in the Fund's long or short portfolio for the
fiscal year by (B) the monthly average of the value of portfolio securities
owned by such portfolio during the fiscal year.
The exercise of calls written by the Fund may cause the Fund to sell
portfolio securities, thus increasing its turnover rate. The exercise of puts
also may cause a sale of securities and increase turnover; although such
exercise is within the Fund's control, holding a protective put might cause the
Fund to sell the underlying securities for reasons which would not exist in the
absence of the put. The Fund will pay a brokerage commission each time it buys
or sells a security in connection with the exercise of a put or call. Some
commissions may be higher than those that would apply to direct purchases or
sales of portfolio securities.
16
<PAGE>
YIELD AND PERFORMANCE INFORMATION
The Fund will include performance data for Class A, Class B and Class C
Shares of the Fund in its advertisements, sales literature and other information
distributed to the public that includes performance data of the Fund. Such
performance information will be based on investment yields or total returns for
the Fund.
YIELD. Yield may not be the same as the distribution rate or the income
reported in the Funds' financial statements. We compute yield by taking the
interest and dividend income the Fund earns in a 30-day period, net of expenses,
and dividing that amount by the average number of shares entitled to receive
dividends. Yield will be calculated, using a one-month base period, according to
the following formula:
Yield = 2 X [(a-b/cd) + 1]6 - 1
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period.
AVERAGE ANNUAL TOTAL RETURN. Total return represents the average annual
compounded rate of return on an investment of $1,000 at the maximum public
offering price (in the case of Class A Shares) or reflecting the deduction of
any applicable CDSC. All data are based on past investment results. Average
annual total return for a given period is computed by finding the average annual
compounded rate of return over the period that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
P (1 + T) n = ERV
Where:
P = a hypothetical initial investment in the Fund of $1,000
T = average annual total return n = number of years in period
ERV = ending redeemable value, at the end of the period, of a hypothetical
$1,000 investment in the Fund made at the beginning of the period.
The investment results of Shares of the Fund will tend to fluctuate
over time, so that historical yields, current distributions and total returns
should not be considered representations of what an investment may earn in any
future period. Actual dividends will tend to reflect changes in market yields,
and will also depend upon the level of a Class's or the Fund's expenses,
realized or unrealized investment gains and losses, and the results of the
Fund's investment policies. Thus, at any point in time, investment yields,
current distributions or total returns may be either higher or lower than past
results, and there is no assurance that any historical performance record will
continue.
The Fund also may include in its advertisements data from Age Wave,
Inc.; the American Association of Retired Persons; BARRON'S; BUSINESS WEEK;
CDA/Wiesenberger Investment Companies Service; Dalbar Surveys; DONOGHUE'S MONEY
FUND REPORT; FINANCIAL PLANNING; FINANCIAL WORLD; FORBES; FORTUNE; FUNDSCOPE,
HULBERT FINANCIAL DIGEST; Ibbotson Associates; INDIVIDUAL INVESTOR; INVESTMENT
ADVISOR; INVESTORS BUSINESS DAILY; THE LISCIO REPORT; Lipper Analytical
Services, Inc.; Micropal Inc.; MONEY; MORNINGSTAR MUTUAL Funds; MUTUAL FUND
FORECASTER; MUTUAL FUNDS MAGAZINE; The National Center for Education Statistics;
THE NEW YORK TIMES; The Philatelic Foundation; SMART MONEY; USA TODAY; U.S. NEWS
& WORLD REPORT; THE WALL STREET JOURNAL; WORTH and other industry publications.
17
<PAGE>
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Registration Statement filed with
the Commission under the 1933 Act with respect to the securities offered by the
Prospectus. The Registration Statement, including the exhibits filed therewith,
may be examined at the office of the Commission in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus as to the contents of any contract or other document are not
complete and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information and the Prospectus form a part, each
such statement being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The audited financial statements of the Fund for the fiscal year
ended October 31, 1998 and the report of the Fund's independent accountants in
connection therewith, are included in the 1998 Annual Report to Shareholders,
which is incorporated by reference into this Statement of Additional
Information. Copies of the 1998 Annual Report are available upon request,
without charge, by calling 1-800-272-2700.
18
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
For Euclid Market Neutral Fund
The following report and financial statements for Euclid
Market Neutral Fund (the "Fund") are incorporated in Part B by
reference to the Fund's Annual Report to Shareholders for the period
May 1, 1998 (commencement of operations) to October 31, 1998; Report
of PricewaterhouseCoopers LLP, Independent Accountants; Statement of
Operations for the period May 1, 1998 (commencement of operations) to
October 31, 1998; Statement of Changes in Net Assets for the period
May 1, 1998 (commencement of operations) to October 31, 1998;
Schedule of Investments and Securities Sold Short dated October 31,
1998; Statement of Assets and Liabilities dated October 31, 1998; and
the Notes to Financial Statements dated October 31, 1998.
(b) Exhibits
(1) Agreement and Declaration of Trust.*
(2) By-laws of the Trust.*
(3) Inapplicable.
(4) Inapplicable.
(5) Management Agreement between the
Trust and Euclid Advisors LLC.**
(6) Distribution Agreements.**
(7) Inapplicable.
(8) Custodian Agreement.**
(9) Transfer Agency Agreement.**
(10) Opinion of counsel.
(11) Consent of independent accountants.
(12) Inapplicable.
(13) Subscription Agreement for Shares of
the Euclid Market Neutral Fund.**
(14) (a) Individual Retirement Account.**
(b) Simple Individual Retirement
Account.**
<PAGE>
(c) 401(k) Prototype Plan.**
(d) 403(b)(7) Custodial Account.**
(15) Rule 12b-1 Distribution Plan.**
(16) Inapplicable.
(17) Inapplicable.
(18) Rule 18f-3 Plan.**
(19) Powers of Attorney.**
- -------------------------
Notes to Item 24 (b).
* Previously filed with the Registrant's Registration Statement filed on
Form N-1A on February 5, 1998 and incorporated herein by reference.
** Previously filed with the Registrant's Pre-Effective Amendment No. 2 to
its Registration Statement on Form N-1A on or about April 28, 1998 and
incorporated herein by reference.
Item 25. Persons Controlled by or Under Common Control with the Trust
The Trust does not control and is not under common control
with any other person.
<PAGE>
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Shares of Beneficial Interest of: Number of Record
Euclid Market Neutral Fund Holders as of October 31, 1998
-------------------------- ------------------------------
<S> <C> <C>
Class A 1,442
Class B 2,423
Class C 2,154
Class I 22
</TABLE>
Item 27. Indemnification
All officers, Trustees, employees and agents of the Trust are
to be indemnified as set forth in Article VII of the Agreement
and Declaration of Trust filed herewith. The Trust (i) may
indemnify an agent of the Trust or any person who is serving
or has served at the Trust's request as an agent of another
organization in which the Trust has any interest as a
shareholder, creditor or otherwise and (ii) shall indemnify
each person who is, or has been, a Trustee, officer or
employee of the Trust and any person who is serving or has
served at the Trust's request as a director, officer, trustee
or employee of another organization in which the Trust has any
interest as a shareholder, creditor or otherwise, to the
fullest extent consistent with the Investment Company Act of
1940 and in the manner provided in the By-Laws; provided that
such indemnification shall not be available to any of the
foregoing persons in connection with a claim, suit or other
proceeding by such person against the Trust or a series (or
class) thereof. To this end, the Trust intends to obtain an
Officers' and Trustees' Errors and Omissions Insurance Policy
for liability and for all expenses reasonably incurred or paid
or expected to be paid by a Trustee, officer, employee or
agent of the Trust in connection with any claim, action, suit
or proceeding in which he or she becomes involved by virtue of
his or her capacity or former capacity with the Trust.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "1933 Act") may be
permitted for trustees, officers and controlling persons of
the Trust pursuant to the foregoing provisions, or otherwise,
the Trust 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 the Trust of expenses incurred or paid by a
trustee, officer or controlling person of the Trust in the
successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Trust
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 whether such
indemnification by it is against public policy as expressed in
the 1933 Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Manager
The investment manager of the Trust, Euclid Advisors LLC
("Euclid"), which is a wholly owned subsidiary of Zweig/Glaser
Advisers, a general partnership ("ZGA"), engages in no
business other than that of investment counselling for
clients, including the Zweig Series Trust and the Trust,
registered investment companies. The Officers and Directors of
Euclid and ZGA and their respective relationships with Zweig
Securities Corp. (the "Distributor") and with the Trust are as
follows:
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
-------------------------------------------------------------------------------------
EUCLID AND ZGA DISTRIBUTOR TRUST
---------------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
Eugene J. Glaser Manager and President of President and Director Trustee, Chairman,
Euclid and President of ZGA President and Chief
Executive Officer
Martin E. Zweig, Ph.D. Chairman of Euclid and ZGA None None
Barry M. Mandinach Senior Vice President of
Euclid and ZGA Executive Vice President First Vice President
David Katzen Executive Vice President None Trustee and Executive Vice
of Euclid and Senior Vice President
President of ZGA
Alfred J. Ratcliffe First Vice President of None First Vice President,
Euclid and ZGA Treasurer, Principal
Accounting Officer and
Assistant Secretary
Charles I. Leone First Vice President and First Vice President, First Vice President and
Chief Financial Officer of Chief Financial Officer Assistant Secretary
Euclid and ZGA and Assistant Secretary
Annemarie Gilly First Vice President of First Vice President First Vice President
Euclid
Marc Baltuch First Vice President of First Vice President, Secretary
Euclid and ZGA Chief Compliance Officer,
Secretary and Director
Gavin M. Whitmore First Vice President of None None
Euclid and Vice President
of ZGA
Jeffrey Cerutti First Vice President of None None
Euclid and Vice President
of ZGA
Rhonda Lee Berzner Senior Research Analyst None Assistant Vice President
for Euclid and ZGA
Tom Disbrow Assistant Vice President None Assistant Vice President
of Euclid and Vice and Assistant Treasurer
President of ZGA
Tom Farrell Assistant Vice President None Assistant Vice President
of Euclid and ZGA and Assistant Treasurer
</TABLE>
The principal occupation of all of such persons other than Dr.
Zweig and Mr. Baltuch is with Euclid and ZGA, and the business
address of such persons is 900 Third Avenue, New York, New
York 10022. Dr. Zweig's principal occupation is an investment
advisor and analyst, and Mr. Baltuch's principal occupation is
Chief Compliance Officer of the Distributor and Zweig Series
Trust; their business address is 900 Third Avenue, New York,
New York 10022.
<PAGE>
Item 29. Principal Underwriters
(a) Zweig Securities Corp., the Distributor, acts as
principal distributor of the Trust's shares and for
Zweig Series Trust.
(b) The officers and directors of the Distributor who
also serve on behalf of the Trust are as follows:
<TABLE>
<CAPTION>
POSITION WITH POSITION WITH
THE DISTRIBUTOR THE TRUST
------------------------- ---------------------------------
<S> <C> <C>
Eugene J. Glaser President and Director Trustee, Chairman, President and
Chief Executive Officer
Barry M. Mandinach Executive Vice President First Vice President
Marc Baltuch First Vice President, Chief Secretary
Compliance Officer, Secretary and
Director
Annemarie Gilly First Vice President Vice President
Charles I. Leone Chief Financial Officer, First Vice First Vice President and Assistant
President and Assistant Secretary Secretary
</TABLE>
The principal business address of all such persons is 900
Third Avenue, New York, New York 10022.
(c) None.
Item 30. Location of Accounts and Records
Euclid Mutual Funds
900 Third Avenue
New York, New York 10022
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02266
Item 31. Management Services
The Trust has not entered into any management-related service
contracts other than as described in Part A and B of this
Registration Statement.
Item 32. Undertakings
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant represents and
certifies that this Post-Effective Amendment No. 1 to the Registration Statement
on Form N-1A meets all the requirements for effectiveness under paragraph (b) of
Rule 485 under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City and State of New York on this 23rd day of November,
1998.
Euclid Mutual Funds
By:/s/ EUGENE J. GLASER
----------------------------------
Eugene J. Glaser, Chairman, President,
Chief Executive Officer and Trustee
Chief Executive Officer and Trustee
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 1 to the Registration Statement of the Trust on
Form N-1A has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/ JAMES BALOG* Trustee November 23, 1998
- --------------------------------------------
James Balog
/s/ CLAIRE B. BENENSON* Trustee November 23, 1998
- --------------------------------------------
Claire B. Benenson
/s/ S. LELAND DILL* Trustee November 23, 1998
- --------------------------------------------
S. Leland Dill
/s/ EUGENE J. GLASER Chairman, President, November 23, 1998
- -------------------------------------------- Chief Executive Officer
Eugene J. Glaser and Trustee
/s/ DAVID KATZEN* Executive Vice President November 23, 1998
- -------------------------------------------- and Trustee
David Katzen
/s/ DONALD B. ROMANS* Trustee November 23, 1998
- --------------------------------------------
Donald B. Romans
/s/ ALFRED J. RATCLIFFE First Vice President, November 23, 1998
- -------------------------------------------- Treasurer, Principal
Alfred J. Ratcliffe Accounting Officer
and Assistant Secretary
</TABLE>
* By Eugene J. Glaser by Power of Attorney
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant represents and
certifies that this Post-Effective Amendment No. 1 to the Registration Statement
on Form N-1A meets all the requirements for effectiveness under paragraph (b) of
Rule 485 under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City and State of New York on this 23rd day of November,
1998.
Euclid Mutual Funds
By:
-------------------------------------------------
Eugene J. Glaser, Chairman, President,
Chief Executive Officer and Trustee
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 1 to the Registration Statement of the Trust on
Form N-1A has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/ JAMES BALOG* Trustee November 23, 1998
- -------------------------------------------
James Balog
/s/ CLAIRE B. BENENSON Trustee November 23, 1998
- -------------------------------------------
Claire B. Benenson
/s/ S. LELAND DILL Trustee November 23, 1998
- -------------------------------------------
S. Leland Dill
- ------------------------------------------- Chairman, President, November 23, 1998
Eugene J. Glaser Chief Executive Officer
and Trustee
- ------------------------------------------- Executive Vice President November 23, 1998
David Katzen and Trustee
/s/ DONALD B. ROMANS Trustee November 23, 1998
- -------------------------------------------
Donald B. Romans
- ------------------------------------------- First Vice President, November 23, 1998
Alfred J. Ratcliffe Treasurer, Principal
Accounting Officer
and Assistant Secretary
</TABLE>
* By Eugene J. Glaser by Power of Attorney
<PAGE>
EXHIBIT INDEX TO
TO THE REGISTRATION STATEMENT
ON FORM N-1A
(1) Agreement and Declaration of Trust.*
(2) By-laws of the Trust.*
(3) Inapplicable.
(4) Inapplicable.
(5) Management Agreement between the
Trust and Euclid Advisors LLC.**
(6) Distribution Agreements.**
(7) Inapplicable.
(8) Custodian Agreement.**
(9) Transfer Agency Agreement.**
(10) Opinion of counsel.
(11) Consent of independent accountants.
(12) Inapplicable.
(13) Subscription Agreement for Shares of
the Euclid Market Neutral Fund.**
(14) (a) Individual Retirement Account.**
(b) Simple Individual Retirement
Account.**
(c) 401(k) Prototype Plan.**
<PAGE>
(d) 403(b)(7) Custodial Account.**
(15) Rule 12b-1 Distribution Plan.**
(16) Inapplicable.
(17) Inapplicable.
(18) Rule 18f-3 Plan.**
(19) Powers of Attorney.**
- -------------------------
NOTES TO EXHIBIT INDEX
* Previously filed with the Registrant's Registration Statement filed on
Form N-1A on February 5, 1998 and incorporated herein by reference.
** Previously filed with the Registrant's Pre-Effective Amendment No. 2 to
its Registration Statement on Form N-1A on or about April 28, 1998 and
incorporated herein by reference.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form N-1A (Securities Act File No. 33-45675 and Investment Company Act File No.
811-08631) of our report dated November 24, 1998, on our audit of the financial
statements and financial highlights of the Euclid Market Neutral Fund, which
report is included in the Annual Report of Euclid Market Neutral Fund, which is
also incorporated by reference in this registration statement. We also consent
to the reference to our firm under the captions "Financial Highlights" and
"Independent Accountants".
PricewaterhouseCoopers LLP
New York, New York
November 25, 1998
