STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2000
AS AMENDED DECEMBER 4, 2000
GILFORD OAKWOOD EQUITY FUND,
A SERIES OF TRUST FOR INVESTMENT MANAGERS
1901 AVENUE OF THE STARS, SUITE 390
LOS ANGELES, CA 90067
1-800-282-2340
This Statement of Additional Information ("SAI") is not a prospectus and it
should be read in conjunction with the Prospectus dated March 1, 2000, as may be
revised, of the Gilford Oakwood Equity Fund (the "Fund"), a series of Trust for
Investment Managers (the "Trust"). Oakwood Capital Management LLC (the
"Advisor") is the advisor to the Fund. A copy of the Fund's Prospectus is
available by calling number listed above.
TABLE OF CONTENTS
The Trust.................................................................. B-2
Investment Objective and Policies.......................................... B-2
Investment Restrictions.................................................... B-10
Distributions and Tax Information.......................................... B-11
Trustees and Executive Officers............................................ B-14
The Fund's Investment Advisor.............................................. B-15
The Fund's Administrator................................................... B-15
The Fund's Distributor..................................................... B-16
Execution of Portfolio Transactions........................................ B-16
Portfolio Turnover......................................................... B-18
Additional Purchase and Redemption Information............................. B-18
Determination of Share Price............................................... B-20
Performance Information.................................................... B-22
General Information........................................................ B-23
Appendix................................................................... B-24
B-1
<PAGE>
THE TRUST
The Trust for Investment Managers (the "Trust") is an open-end management
investment company organized as a Delaware business trust. The Trust may consist
of various series which represent separate investment portfolios. This SAI
relates only to the Fund.
The Trust is registered with the SEC as a management investment company. Such a
registration does not involve supervision of the management or policies of the
Fund. The Prospectus of the Fund and this SAI omit certain of the information
contained in the Registration Statement filed with the SEC. Copies of such
information may be obtained from the SEC upon payment of the prescribed fee.
INVESTMENT OBJECTIVE AND POLICIES
The Fund has the investment objective of seeking long-term growth of capital.
The Fund is diversified, which under the Investment Company Act of 1940 ("1940
Act") means that as to 75% of its total assets, no more than 5% may be invested
in the securities of a single issuer and that it may hold no more than 10% of
the voting securities of a single issuer. The following information supplements
the discussion of the Fund's investment objective and policies as set forth in
its Prospectus. There can be no guarantee that the Fund's objective will be
attained.
CONVERTIBLE SECURITIES AND WARRANTS. The Fund may invest in convertible
securities and warrants. A convertible security is a fixed-income security (a
debt instrument or a preferred stock) which may be converted at a stated price
within a specified period of time into a certain quantity of the common stock of
the same or a different issuer. Convertible securities are senior to common
stocks in an issuer's capital structure, but are usually subordinated to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance in
the convertible security's underlying common stock.
A warrant gives the holder a right to purchase at any time during a specified
period a predetermined number of shares of common stock at a fixed price. Unlike
convertible debt securities or preferred stock, warrants do not pay a fixed
dividend. Investments in warrants involve certain risks, including the possible
lack of a liquid market for resale of the warrants, potential price fluctuations
as a result of speculation or other factors, and failure of the price of the
underlying security to reach or have reasonable prospects of reaching a level at
which the warrant can be prudently exercised (in which event the warrant may
expire without being exercised, resulting in a loss of the Fund's entire
investment therein).
PREFERRED STOCK. The Fund may invest in preferred stocks. A preferred stock is a
blend of the characteristics of a bond and common stock. It can offer the higher
yield of a bond and has priority over common stock in equity ownership, but does
B-2
<PAGE>
not have the seniority of a bond and, unlike common stock, its participation in
the issuer's growth may be limited. Preferred stock has preference over common
stock in the receipt of dividends and in any residual assets after payment to
creditors should the issuer be dissolved. Although the dividend is set at a
fixed annual rate, in some circumstances it can be changed or omitted by the
issuer.
INVESTMENT COMPANIES. The Fund may invest in shares of other investment
companies in pursuit of its investment objective. This may include investment in
money market mutual funds in connection with the Fund's management of daily cash
positions. In addition to the advisory and operational fees the Fund bears
directly in connection with its own operation, the Fund and its shareholders
will also bear the pro rata portion of each other investment company's advisory
and operational expenses.
DOMESTIC COMPANIES WITH FOREIGN OPERATIONS. Securities of companies which have
significant foreign operations, often called "multinational companies," involve
certain risks not associated with those operating domestically, including
foreign currency risk. Multinational companies that receive a substantial
portion of their revenues in foreign currencies are subject to the risk that
those currencies will decline in value relative to the U.S. dollar.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. Under such
agreements, the seller of the security agrees to repurchase it at a mutually
agreed upon time and price. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price on repurchase. In either case, the income to the Fund
is unrelated to the interest rate on the U.S. Government security itself. Such
repurchase agreements will be made only with banks with assets of $500 million
or more that are insured by the Federal Deposit Insurance Corporation or with
Government securities dealers recognized by the Federal Reserve Board and
registered as broker-dealers with the Securities and Exchange Commission ("SEC")
or exempt from such registration. The Fund will generally enter into repurchase
agreements of short durations, from overnight to one week, although the
underlying securities generally have longer maturities. The Fund may not enter
into a repurchase agreement with more than seven days to maturity if, as a
result, more than 15% of the value of its net assets would be invested in
illiquid securities including such repurchase agreements.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from
the Fund to the seller of the U.S. Government security subject to the repurchase
agreement. It is not clear whether a court would consider the U.S. Government
security acquired by the Fund subject to a repurchase agreement as being owned
by the Fund or as being collateral for a loan by the Fund to the seller. In the
event of the commencement of bankruptcy or insolvency proceedings with respect
to the seller of the U.S. Government security before its repurchase under a
repurchase agreement, the Fund may encounter delays and incur costs before being
B-3
<PAGE>
able to sell the security. Delays may involve loss of interest or a decline in
price of the U.S. Government security. If a court characterizes the transaction
as a loan and the Fund has not perfected a security interest in the U.S.
Government security, the Fund may be required to return the security to the
seller's estate and be treated as an unsecured creditor of the seller. As an
unsecured creditor, the Fund would be at the risk of losing some or all of the
principal and income involved in the transaction. As with any unsecured debt
instrument purchased for the Fund, the Advisor seeks to minimize the risk of
loss through repurchase agreements by analyzing the creditworthiness of the
other party, in this case the seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the seller may fail to repurchase the security. However, the Fund will
always receive as collateral for any repurchase agreement to which it is a party
securities acceptable to it, the market value of which is equal to at least 100%
of the amount invested by the Fund plus accrued interest, and the Fund will make
payment against such securities only upon physical delivery or evidence of book
entry transfer to the account of its Custodian. If the market value of the U.S.
Government security subject to the repurchase agreement becomes less than the
repurchase price (including interest), the Fund will direct the seller of the
U.S. Government security to deliver additional securities so that the market
value of all securities subject to the repurchase agreement will equal or exceed
the repurchase price. It is possible that the Fund will be unsuccessful in
seeking to impose on the seller a contractual obligation to deliver additional
securities.
ILLIQUID SECURITIES. The Fund may not invest more than 15% of the value of its
net assets in securities that at the time of purchase have legal or contractual
restrictions on resale or are otherwise illiquid. The Advisor will monitor the
amount of illiquid securities in the Fund's portfolio, under the supervision of
the Trust's Board of Trustees, to ensure compliance with the Fund's investment
restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to sell restricted or other illiquid securities promptly or at reasonable prices
and might thereby experience difficulty satisfying redemption requests within
seven days. The Fund might also have to register such restricted securities in
order to sell them, resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
B-4
<PAGE>
to certain institutions may not reflect the actual liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the SEC under the Securities Act,
the Trust's Board of Trustees may determine that such securities are not
illiquid securities despite their legal or contractual restrictions on resale.
In all other cases, however, securities subject to restrictions on resale will
be deemed illiquid.
FOREIGN SECURITIES. The Fund may invest up to 20% of its total assets in US
Dollar denominated securities issued by foreign companies. The Fund may also
invest up to 5% of it total assets in securities of foreign issuers that are not
publicly traded in the United States, including securities from emerging
markets. The Fund may also invest in American Depositary Receipts (ADRs") and
European Depositary Receipts ("EDRs").
DEPOSITARY RECEIPTS. Generally, ADRs, in registered form, are denominated in
U.S. dollars and are designed for use in the U.S. securities markets, while
EDRs, in bearer form, may be denominated in other currencies and are designed
for use in European securities markets. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities.
EDRs are European receipts evidencing a similar arrangement. For purposes of the
Fund's investment policies, ADRs and EDRs are deemed to have the same
classification as the underlying securities they represent. Thus, an ADR or EDR
representing ownership of common stock will be treated as common stock.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign securities
involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and diversification and balance of
payments position. The internal politics of some foreign countries may not be as
stable as those of the United States. Governments in some foreign countries also
continue to participate to a significant degree, through ownership interest or
regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are affected by the
trade policies and economic conditions of their trading partners. If these
trading partners enacted protectionist trade legislation, it could have a
significant adverse effect upon the securities markets of such countries.
CURRENCY FLUCTUATIONS. The Fund will invest only in securities denominated in
U.S. dollars. For this reason, the value of the Fund's assets may not be subject
to risks associated with variations in the value of foreign currencies relative
to the U.S. dollar to the same extent as might otherwise be the case. Changes in
the value of foreign currencies against the U.S. dollar may, however, affect the
value of the assets and/or income of foreign companies whose U.S. dollar
denominated securities are held by the Fund. Such companies may also be affected
significantly by currency restrictions and exchange control regulations enacted
from time to time.
B-5
<PAGE>
EURO CONVERSION. Several European countries adopted a single uniform currency
known as the "euro," effective January 1, 1999. The euro conversion, that will
take place over a several-year period, could have potential adverse effects on
the Fund's ability to value its portfolio holdings in foreign securities, and
could increase the costs associated with the Fund's operations. The Fund and the
Advisor are working with providers of services to the Fund in the areas of
clearance and settlement of trade to avoid any material impact on the Fund due
to the euro conversion; there can be no assurance, however, that the steps taken
will be sufficient to avoid any adverse impact on the Fund.
MARKET CHARACTERISTICS. The Advisor expects that many foreign securities in
which the Fund invests will be purchased in over-the-counter markets or on
exchanges located in the countries in which the principal offices of the issuers
of the various securities are located, if that is the best available market.
Foreign exchanges and markets may be more volatile than those in the United
States. While growing, they usually have substantially less volume than U.S.
markets, and the Fund's foreign securities may be less liquid and more volatile
than U.S. securities. Also, settlement practices for transactions in foreign
markets may differ from those in United States markets, and may include delays
beyond periods customary in the United States. Foreign security trading
practices, including those involving securities settlement where Fund assets may
be released prior to receipt of payment or securities, may expose the Fund to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer.
LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
TAXES. The interest and dividends payable on some of the Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to Fund shareholders.
COSTS. To the extent that the Fund invests in foreign securities, its expense
ratio is likely to be higher than those of investment companies investing only
in domestic securities, since the cost of maintaining the custody of foreign
securities is higher.
OPTIONS ON SECURITIES. The Fund may write (sell) covered call options to a
limited extent on its portfolio securities ("covered options") in an attempt to
enhance gain.
When the Fund writes a covered call option, it gives the purchaser of the option
the right, upon exercise of the option, to buy the underlying security at the
price specified in the option (the "exercise price") at any time during the
option period, generally ranging up to nine months. If the option expires
unexercised, the Fund will realize income to the extent of the amount received
for the option (the "premium"). If the call option is exercised, a decision over
which the Fund has no control, the Fund must sell the underlying security to the
B-6
<PAGE>
option holder at the exercise price. By writing a covered option, the Fund
forgoes, in exchange for the premium less the commission ("net premium") the
opportunity to profit during the option period from an increase in the market
value of the underlying security above the exercise price.
The Fund may terminate its obligation as writer of a call option by purchasing
an option with the same exercise price and expiration date as the option
previously written. This transaction is called a "closing purchase transaction."
Closing sale transactions enable the Fund immediately to realize gains or
minimize losses on its options positions. There is no assurance that a liquid
secondary market on an options exchange will exist for any particular option, or
at any particular time, and for some options no secondary market may exist. If
the Fund is unable to effect a closing purchase transaction with respect to
options it has written, it will not be able to terminate its obligations or
minimize its losses under such options prior to their expiration. If the Fund is
unable to effect a closing sale transaction with respect to options that it has
purchased, it would have to exercise the option in order to realize any profit.
The hours of trading for options may not conform to the hours during which the
underlying securities are traded. To the extent that the options markets close
before the markets for the underlying securities, significant price and rate
movements may take place in the underlying markets that cannot be reflected in
the options markets. The purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions.
OPTIONS ON SECURITIES INDICES. The Fund may write (sell) covered call options on
securities indices in an attempt to increase gain. A securities index option
written by the Fund would obligate it, upon exercise of the options, to pay a
cash settlement, rather than to deliver actual securities, to the option holder.
Although the Fund will not ordinarily own all of the securities comprising the
stock indices on which it writes call options, such options will usually be
written on those indices which correspond most closely to the composition of the
Fund's portfolio. As with the writing of covered call options on securities, the
Fund will realize a gain in the amount of the premium received upon writing an
option if the value of the underlying index increases above the exercise price
and the option is exercised, the Fund will be required to pay a cash settlement
that may exceed the amount of the premium received by the Fund. The Fund may
purchase call options in order to terminate its obligations under call options
it has written.
The Fund may purchase call and put options on securities indices for the purpose
of hedging against the risk of unfavorable price movements adversely affecting
the value of the Fund's securities or securities the Fund intends to buy.
Securities index options will not be purchased for speculative purposes. Unlike
an option on securities, which gives the holder the right to purchase or sell
specified securities at a specified price, an option on a securities index gives
the holder the right, upon the exercise of the option, to receive a cash
"exercise settlement amount" equal to (i) the difference between the exercise
price of the option and the value of the underlying securities index on the
exercise date multiplied by (ii) a fixed "index multiplier."
B-7
<PAGE>
A securities index fluctuates with changes in the market value of the securities
included in the index. For example, some securities index options are based on a
broad market index such as the Standard & Poor's 500 or the Value Line Composite
Index, or a narrower market index such as the Standard & Poor's 100. Indices may
also be based on industry or market segments.
The Fund may purchase put options in order to hedge against an anticipated
decline in stock market prices that might adversely affect the value of the
Fund's portfolio securities. If the Fund purchases a put option on a stock
index, the amount of payment it receives on exercising the option depends on the
extent of any decline in the level of the stock index below the exercise price.
Such payments would tend to offset a decline in the value of the Fund's
portfolio securities. If, however, the level of the stock index increases and
remains above the exercise price while the put option is outstanding, the Fund
will not be able to profitably exercise the option and will lose the amount of
the premium and any transaction costs. Such loss may be partially offset by an
increase in the value of the Fund's portfolio securities. The Fund may write put
options on stock indices in order to close out positions in stock index put
options which it has purchased.
The Fund may purchase call options on stock indices in order to participate in
an anticipated increase in stock market prices or to lock in a favorable price
on securities that it intends to buy in the future. If the Fund purchases a call
option on a stock index, the amount of the payment it receives upon exercising
the option depends on the extent of any increase in the level of the stock index
above the exercise price. Such payments would in effect allow the Fund to
benefit from stock market appreciation even though it may not have had
sufficient cash to purchase the underlying stocks. Such payments may also offset
increases in the price of stocks that the Fund intends to purchase. If, however,
the level of the stock index declines and remains below the exercise price while
the call option is outstanding, the Fund will not be able to exercise the option
profitably and will lose the amount of the premium and transaction costs. Such
loss may be partially offset by a reduction in the price the Fund pays to buy
additional securities for its portfolio. The Fund may write call options on
stock indices in order to close out positions in stock index call options which
it has purchased.
The effectiveness of hedging through the purchase of options on securities
indices will depend upon the extent to which price movements in the portion of
the securities portfolio being hedged correlate with price movements in the
selected stock index. Perfect correlation is not possible because the securities
held or to be acquired by the Fund will not exactly match the composition of the
stock indices on which the options are available. In addition, the purchase of
stock index options involves the risk that the premium and transaction costs
paid by the Fund in purchasing an option will be lost as a result of
unanticipated movements in prices of the securities comprising the stock index
on which the option is based.
CORPORATE DEBT SECURITIES. The Fund may invest up to 20% of its assets in debt
securities, including debt securities rated below investment grade. Bonds rated
below BBB by S&P or Baa by Moody's, commonly referred to "junk bonds," typically
carry higher coupon rates than investment grade bonds, but also are described as
speculative by both S&P and Moody's and may be subject to greater market price
fluctuations, less liquidity and greater risk of income or principal including
B-8
<PAGE>
greater possibility of default and bankruptcy of the issuer of such securities
than more highly rated bonds. Lower rated bonds also are more likely to be
sensitive to adverse economic or company developments and more subject to price
fluctuations in response to changes in interest rates. The market for
lower-rated debt issues generally is thinner and less active than that for
higher quality securities, which may limit the Fund's ability to sell such
securities at fair value in response to changes in the economy or financial
markets. During periods of economic downturn or rising interest rates, highly
leveraged issuers of lower rated securities may experience financial stress
which could adversely affect their ability to make payments of interest and
principal and increase the possibility of default.
Ratings of debt securities represent the rating agencies' opinions regarding
their quality, are not a guarantee of quality and may be reduced after the Fund
has acquired the security. If a security's rating is reduced while it held by
the Fund, the Advisor will consider whether the Fund should continue to hold the
security but is not required to dispose of it. Credit ratings attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's current financial conditions may be better or worse than the rating
indicates. The ratings for corporate debt securities are described in Appendix
A.
LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities in an
amount not exceeding 33-1/3% of its total assets to financial institutions such
as banks and brokers if the loan is collateralized in accordance with applicable
regulations. Under the present regulatory requirements which govern loans of
portfolio securities, the loan collateral must, on each business day, at least
equal the value of the loaned securities and must consist of cash, letters of
credit of domestic banks or domestic branches of foreign banks, or securities of
the U.S. Government or its agencies. To be acceptable as collateral, letters of
credit must be irrevocable and obligate a bank to pay amounts demanded by the
Fund if the demand meets the terms of the letter. Such terms and the issuing
bank would have to be satisfactory to the Fund. Any loan might be secured by any
one or more of the three types of collateral. The terms of the Fund's loans must
permit the Fund to reacquire loaned securities on three days' notice or in time
to vote on any serious matter and must meet certain tests under the Internal
Revenue Code (the "Code").
SHORT-TERM INVESTMENTS. The Fund may invest in any of the following securities
and instruments:
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The Fund may
acquire certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar-denominated obligations of domestic banks, savings and loan associations
or financial institutions which, at the time of purchase, have capital, surplus
and undivided profits in excess of $100 million (including assets of both
B-9
<PAGE>
domestic and foreign branches), based on latest published reports, or less than
$100 million if the principal amount of such bank obligations are fully insured
by the U.S. Government.
In addition to purchasing certificates of deposit and bankers' acceptances, to
the extent permitted under its investment objective and policies stated above
and in its prospectus, the Fund may make interest-bearing time or other
interest-bearing deposits in commercial or savings banks. Time deposits are
non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate.
COMMERCIAL PAPER AND SHORT-TERM NOTES. The Fund may invest a portion of its
assets in commercial paper and short-term notes. Commercial paper consists of
unsecured promissory notes issued by corporations. Issues of commercial paper
and short-term notes will normally have maturities of less than nine months and
fixed rates of return, although such instruments may have maturities of up to
one year.
Commercial paper and short-term notes will consist of issues rated at the time
of purchase "A-2" or higher by Standard & Poor's Ratings Group, "Prime-1" or
"Prime-2" by Moody's Investors Service, Inc., or similarly rated by another
nationally recognized statistical rating organization or, if unrated, will be
determined by the Adviser to be of comparable quality. These rating symbols are
described in the Appendix.
INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted by the Fund
and (unless otherwise noted) are fundamental and cannot be changed without the
affirmative vote of a majority of the Fund's outstanding voting securities as
defined in the 1940 Act. The Fund may not:
1. Make loans to others, except (a) through the purchase of debt securities in
accordance with its investment objectives and policies, (b) to the extent the
entry into a repurchase agreement is deemed to be a loan.
2. (a) Borrow money, except as stated in the Prospectus and this SAI. Any such
borrowing will be made only if immediately thereafter there is an asset coverage
of at least 300% of all borrowings.
(b) Mortgage, pledge or hypothecate any of its assets except in connection
with any such borrowings.
3. Purchase securities on margin, participate on a joint or joint and several
basis in any securities trading account, or underwrite securities. (Does not
preclude the Fund from obtaining such short-term credit as may be necessary for
the clearance of purchases and sales of its portfolio securities).
4. Purchase or sell real estate, commodities or commodity contracts. (As a
matter of operating policy, the Board of Trustees may authorize the Fund in the
B-10
<PAGE>
future to engage in certain activities regarding futures contracts for bona fide
hedging purposes; any such authorization will be accompanied by appropriate
notification to shareholders).
5. Invest 25% or more of the market value of its assets in the securities of
companies engaged in any one industry. (Does not apply to investment in the
securities of the U.S. Government, its agencies or instrumentalities.)
6. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges, or (b) entering into options,
futures, forward or repurchase transactions.
7. With respect to 75% of its total assets, invest more than 5% of its total
assets in securities of a single issuer or hold more than 10% of the voting
securities of such issuer. (Does not apply to investment in the securities of
the U.S. Government, its agencies or instrumentalities.) The Fund observes the
following policies, which are not deemed fundamental and which may be changed
without shareholder vote. The Fund may not:
8. Invest in any issuer for purposes of exercising control or management.
9. Invest in securities of other investment companies except as permitted under
the 1940 Act.
10. Invest, in the aggregate, more than 15% of its net assets in securities with
legal or contractual restrictions on resale, securities which are not readily
marketable and repurchase agreements with more than seven days to maturity.
11. With respect to fundamental investment restriction 2(a) above, the Fund will
not purchase portfolio securities while outstanding borrowings exceed 5% of its
assets.
If a percentage restriction described in the Prospectus or in this SAI is
adhered to at the time of investment, a subsequent increase or decrease in a
percentage resulting from a change in the values of assets will not constitute a
violation of that restriction, except with respect to borrowing or the purchase
of restricted or illiquid securities.
DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS. Dividends from net investment income and distributions from net
profits from the sale of securities are generally made annually. Also, the Fund
expects to distribute any undistributed net investment income on or about
December 31 of each year. Any net capital gains realized through the period
ended October 31 of each year will also be distributed by December 31 of each
year.
Each distribution by the Fund is accompanied by a brief explanation of the form
and character of the distribution. In January of each year the Fund will issue
B-11
<PAGE>
to each shareholder a statement of the federal income tax status of all
distributions.
TAX INFORMATION. Each series of the Trust is treated as a separate entity for
federal income tax purposes. The Fund intends to continue to qualify and elect
to be treated as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"), provided that it complies with all
applicable requirements regarding the source of its income, diversification of
its assets and timing of distributions. It is the Fund's policy to distribute to
its shareholders all of its investment company taxable income and any net
realized capital gains for each fiscal year in a manner that complies with the
distribution requirements of the Code, so that the Fund will not be subject to
any federal income tax or excise taxes based on net income. To avoid the excise
tax, the Fund must also distribute (or be deemed to have distributed) by
December 31 of each calendar year (i) at least 98% of its ordinary income for
such year, (ii) at least 98% of the excess of its realized capital gains over
its realized capital losses for the one-year period ending on October 31 during
such year and (iii) any amounts from the prior calendar year that were not
distributed and on which the Fund paid no federal excise tax.
The Fund's ordinary income generally consists of interest and dividend income,
less expenses. Net realized capital gains for a fiscal period are computed by
taking into account any capital loss carryforward of the Fund.
Distributions of net investment income and net short-term capital gains are
taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Portfolio designates the amount
distributed as a qualifying dividend. This designated amount cannot, however,
exceed the aggregate amount of qualifying dividends received by the Portfolio
for its taxable year. The deduction, if any, may be reduced or eliminated if
Portfolio shares held by a corporate investor are treated as debt-financed or
are held for fewer than 46 days.
Any long-term capital gain distributions are taxable to shareholders as
long-term capital gains regardless of the length of time they have held their
shares. Capital gains distributions are not eligible for the dividends-received
deduction referred to in the previous paragraph. Distributions of any ordinary
income and net realized capital gains will be taxable as described above,
whether received in shares or in cash. Shareholders who choose to receive
distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share on the reinvestment date. Distributions are generally taxable
when received. However, distributions declared in October, November or December
to shareholders of record on a date in such a month and paid the following
January are taxable as if received on December 31. Distributions are includable
in alternative minimum taxable income in computing a shareholder's liability for
the alternative minimum tax.
B-12
<PAGE>
Under the Code, the Fund will be required to report to the Internal Revenue
Service all distributions of ordinary income and capital gains as well as gross
proceeds from the redemption of Portfolio shares, except in the case of exempt
shareholders, which includes most corporations. Pursuant to the backup
withholding provisions of the Code, distributions of any taxable income and
capital gains and proceeds from the redemption of Fund shares may be subject to
withholding of federal income tax at the current maximum federal tax rate of 31
percent in the case of non-exempt shareholders who fail to furnish the Fund with
their taxpayer identification numbers and with required certifications regarding
their status under the federal income tax law. If the backup withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in additional shares, will be reduced by the amounts required
to be withheld. Corporate and other exempt shareholders should provide the Fund
with their taxpayer identification numbers or certify their exempt status in
order to avoid possible erroneous application of backup withholding. The Fund
reserves the right to refuse to open an account for any person failing to
certify the person's taxpayer identification number.
The Fund will not be subject to corporate income tax in the State of Delaware as
long as its qualifies as regulated investment companies for federal income tax
purposes. Distributions and the transactions referred to in the preceding
paragraphs may be subject to state and local income taxes, and the tax treatment
thereof may differ from the federal income tax treatment.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30 percent (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income.
In addition, the foregoing discussion of tax law is based on existing provisions
of the Code, existing and proposed regulations thereunder, and current
administrative rulings and court decisions, all of which are subject to change.
Any such charges could affect the validity of this discussion. The discussion
also represents only a general summary of tax law and practice currently
applicable to the Fund and certain shareholders therein, and, as such, is
subject to change. In particular, the consequences of an investment in shares of
the Fund under the laws of any state, local or foreign taxing jurisdictions are
not discussed herein. Each prospective investor should consult his or her own
tax advisor to determine the application of the tax law and practice in his or
her own particular circumstances.
B-13
<PAGE>
TRUSTEES AND EXECUTIVE OFFICERS
The Trustees of the Trust, who were elected for an indefinite term by the
initial shareholders of the Trust, are responsible for the overall management of
the Trust, including general supervision and review of the investment activities
of the Fund. The Trustees, in turn, elect the officers of the Trust, who are
responsible for administering the day-to-day operations of the Trust and its
separate series. The current Trustees and officers, their affiliations, dates of
birth and principal occupations for the past five years are set forth below.
Unless noted otherwise, each person has held the position listed for a minimum
of five years.
George J. Rebhan (66) Trustee
1920 Mission St., South Pasadena, CA 91030. Retired. Formerly President,
Hotchkis and Wiley Funds. (mutual funds), 1985-93.
Ashley T. Rabun (48) Trustee
2161 India St., San Diego, CA 92101. Founder and Chief Executive Officer,
InvestorReach, Inc., (financial services marketing and distribution consulting).
Formerly Partner and Director, Nicholas-Applegate Capital Management, 1992-96
(investment management).
James Clayburn LaForce (72) Trustee
Dean Emeritus, John E. Anderson Graduate School of Management, University of
California, Los Angeles.
Robert H. Wadsworth* (60) Trustee and President
4455 E. Camelback Rd., Suite 261E, Phoenix, AZ 85018. President of the Wadsworth
Group (consulting); President of Investment Company Administration, LLC
("ICA")(mutual fund administrator and the Trust's Administrator) and First Fund
Distributors, Inc.("FFD")(registered broker-dealer and the Trust's Distributor).
Thomas W. Marschel* (29) Treasurer
4455E. Camelback Rd., Suite 261E, Phoenix, Arizona 85018. Employed by Investment
Company Administration LLC (since July, 1996); Secretary, Advisors Series Trust;
formerly employed by Bank One, N.A. (From August, 1995 until July, 1996)
Chris O. Moser* (51) Secretary
4455 E. Camelback Rd. Suite 261-E, Phoenix, AZ 85018. Employed by Investment
Company Administration, LLC (since July 1996); Formerly employed by Bank One,
N.A. (From August 1995 until July 1996.
----------
* Indicates an "interested person" of the Trust as defined in the 1940 Act.
B-14
<PAGE>
Set forth below is the rate of compensation received by the following Trustees
from all portfolios of the Trust. This total amount is allocated among the
portfolios. Disinterested Trustees receive an annual retainer of $5,000 plus
$1,500 for each meeting attended and are reimbursed for expenses. No other
compensation or retirement benefits were received by any Trustee or officer from
the portfolios of the Trust.
Name of Trustee Total Annual Compensation
--------------- -------------------------
George J. Rebhan $7,500
Ashley T. Rabun $7,500
James Clayburn LaForce $7,500
As of the date of this SAI, the Trustees and officers of the Trust as a group
did not own more than 1% of the outstanding shares of the Fund.
THE FUNDS INVESTMENT ADVISOR
As stated in the Prospectus, investment advisory services are provided to the
Fund by Oakwood Capital Management LLC, the Advisor, pursuant to an Investment
Advisory Agreement. (the "Advisory Agreement"). As compensation, the Fund pays
the Advisor a monthly management fee (accrued daily) based upon the average
daily net assets of the Fund at the annual rate of 1.00%.
The Advisory Agreement continues in effect for successive annual periods so long
as such continuation is approved at least annually by the vote of (1) the Board
of Trustees of the Trust (or a majority of the outstanding shares of the Fund,
and (2) a majority of the Trustees who are not interested persons of any party
to the Advisory Agreement, in each case cast in person at a meeting called for
the purpose of voting on such approval. The Advisory Agreement may be terminated
at any time, without penalty, by either party to the Advisory Agreement upon
sixty days' written notice and is automatically terminated in the event of its
"assignment," as defined in the 1940 Act.
THE FUNDS ADMINISTRATOR
The Fund has an Administration Agreement with Investment Company Administration,
LLC (the "Administrator"), a corporation owned and controlled in part by Mr.
Wadsworth with offices at 4455 E. Camelback Rd., Ste. 261-E, Phoenix, AZ 85018.
The Administration Agreement provides that the Administrator will prepare and
coordinate reports and other materials supplied to the Trustees; prepare and/or
supervise the preparation and filing of all securities filings, periodic
financial reports, prospectuses, statements of additional information, marketing
materials, tax returns, shareholder reports and other regulatory reports or
filings required of the Fund; prepare all required notice filings necessary to
maintain the Fund's ability to sell shares in all states where the Fund
currently does, or intends to do business; coordinate the preparation, printing
and mailing of all materials (e.g., Annual Reports) required to be sent to
shareholders; coordinate the preparation and payment of Fund related expenses;
monitor and oversee the activities of the Fund's servicing agents (i.e.,
transfer agent, custodian, fund accountants, etc.); review and adjust as
necessary the Fund's daily expense accruals; and perform such additional
services as may be agreed upon by the Fund and the Administrator. For its
services, the Administrator receives a monthly fee at the following annual rate:
Average Net Assets Fee or Fee Rate
------------------ ---------------
Less than $22.5 million $45,000
$22.5 to $50 million 0.20%
$50 to $100 million 0.15%
$100 to $150 million 0.10%
Over $150 million 0.05%
B-15
<PAGE>
THE FUND'S DISTRIBUTOR
Gilford Securities (the "Distributor"), 850 Third Avenue, New York, NY 10022
acts as the Fund's principal underwriter in a continuous public offering of the
Fund's shares. The Distribution Agreement between the Fund and the Distributor
continues in effect from year to year if approved at least annually by (i) the
Board of Trustees or the vote of a majority of the outstanding shares of the
Fund (as defined in the 1940 Act) and (ii) a majority of the Trustees who are
not interested persons of any such party, in each case cast in person at a
meeting called for the purpose of voting on such approval. The Distribution
Agreement may be terminated without penalty by the parties thereto upon sixty
days' written notice, and is automatically terminated in the event of its
assignment as defined in the 1940 Act.
Pursuant to a plan of distribution adopted by the Trust, on behalf of the Fund,
pursuant to Rule 12b-1 under the 1940 Act (the "Plan"), the Fund will pay a
distribution fee at an annual rate of 0.75% of its average daily net assets to
the Distributor. The Plan provides for the compensation to the Distributor
regardless of the Fund's distribution expenses.
The Plan allows excess distribution expenses to be carried forward by the
Distributor and resubmitted in a subsequent fiscal year, provided that (i)
distribution expenses cannot be carried forward for more than three years
following initial submission; (ii) the Trustees have made a determination at the
time of initial submission that the distribution expenses are appropriate to be
carried forward and (iii) the Trustees make a further determination, at the time
any distribution expenses which have been carried forward are submitted for
payment, that payment at the time is appropriate, consistent with the objectives
of the Plan and in the current best interests of shareholders.
Under the Plan, the Trustees will be furnished quarterly with information
detailing the amount of expenses paid under the Plan and the purposes for which
payments were made. The Plan may be terminated at any time by vote of a majority
of the Trustees of the Trust who are not interested persons. Continuation of the
Plan is considered by such Trustees no less frequently than annually.
The Fund also has a Shareholder Servicing Agreement with the Distributor
pursuant to which payments or reimbursements of payments may be made to selected
brokers, dealers or administrators which have entered into agreements for
services provided to shareholders of the Fund. Under the Agreement, the Fund is
authorized to pay the Distributor a maximum fee in the amount of 0.25% of the
Fund's average daily net assets annually. Payment to the Distributor under the
Agreement reimburses the Distributor for payments it makes to selected brokers,
dealers and administrators who have entered into Service Agreements for services
provided to shareholders of the Fund.
EXECUTION OF PORTFOLIO TRANSACTIONS
Pursuant to the Advisory Agreement, the Advisor determines which securities are
to be purchased and sold by the Fund and which broker-dealers are eligible to
execute the Fund's portfolio transactions. Purchases and sales of securities in
the over-the-counter market will generally be executed directly with a
"market-maker" unless, in the opinion of the Advisor, a better price and
execution can otherwise be obtained by using a broker for the transaction.
Purchases of portfolio securities for the Fund also may be made directly from
issuers or from underwriters. Where possible, purchase and sale transactions
will be effected through dealers (including banks) which specialize in the types
of securities which the Fund will be holding, unless better executions are
available elsewhere. Dealers and underwriters usually act as principal for their
own accounts. Purchases from underwriters will include a concession paid by the
issuer to the underwriter and purchases from dealers will include the spread
between the bid and the asked price. If the execution and price offered by more
than one dealer or underwriter are comparable, the order may be allocated to a
dealer or underwriter that has provided research or other services as discussed
below.
B-16
<PAGE>
In placing portfolio transactions, the Advisor will use its reasonable efforts
to choose broker-dealers capable of providing the services necessary to obtain
the most favorable price and execution available. The full range and quality of
services available will be considered in making these determinations, such as
the size of the order, the difficulty of execution, the operational facilities
of the firm involved, the firm's risk in positioning a block of securities, and
other factors. In those instances where it is reasonably determined that more
than one broker-dealer can offer the services needed to obtain the most
favorable price and execution available, consideration may be given to those
broker-dealers which furnish or supply research and statistical information to
the Advisor that it may lawfully and appropriately use in its investment
advisory capacities, as well as provide other services in addition to execution
services. The Advisor considers such information, which is in addition to and
not in lieu of the services required to be performed by it under its Agreement
with the Fund, to be useful in varying degrees, but of indeterminable value.
Portfolio transactions may be placed with broker-dealers who sell shares of the
Fund subject to rules adopted by the National Association of Securities Dealers,
Inc.
While it is the Fund's general policy to seek first to obtain the most favorable
price and execution available in selecting a broker-dealer to execute portfolio
transactions for the Fund, weight is also given to the ability of a
broker-dealer to furnish brokerage and research services to the Fund or to the
Advisor, even if the specific services are not directly useful to the Fund and
may be useful to the Advisor in advising other clients. In negotiating
commissions with a broker or evaluating the spread to be paid to a dealer, the
Fund may therefore pay a higher commission or spread than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission or spread has been determined in good faith
by the Advisor to be reasonable in relation to the value of the brokerage and/or
research services provided by such broker-dealer. The standard of reasonableness
is to be measured in light of the Advisor's overall responsibilities to the
Fund.
Investment decisions for the Fund are made independently from those of other
client accounts or mutual funds ("Funds") managed or advised by the Advisor.
Nevertheless, it is possible that at times identical securities will be
acceptable for both the Fund and one or more of such client accounts or Funds.
In such event, the position of the Fund and such client account(s) or Funds in
the same issuer may vary and the length of time that each may choose to hold its
investment in the same issuer may likewise vary. However, to the extent any of
these client accounts or Funds seeks to acquire the same security as the Fund at
the same time, the Fund may not be able to acquire as large a portion of such
security as it desires, or it may have to pay a higher price or obtain a lower
yield for such security. Similarly, the Fund may not be able to obtain as high a
price for, or as large an execution of, an order to sell any particular security
at the same time. If one or more of such client accounts or Funds simultaneously
purchases or sells the same security that the Fund is purchasing or selling,
each day's transactions in such security will be allocated between the Fund and
all such client accounts or Funds in a manner deemed equitable by the Advisor,
taking into account the respective sizes of the accounts and the amount being
purchased or sold. It is recognized that in some cases this system could have a
detrimental effect on the price or value of the security insofar as the Fund is
concerned. In other cases, however, it is believed that the ability of the Fund
to participate in volume transactions may produce better executions for the
Fund.
The Fund does not effect securities transactions through brokers in accordance
with any formula, nor does it effect securities transactions through brokers
solely for selling shares of the Fund, although the Fund may consider the sale
of shares as a factor in allocating brokerage. However, as stated above,
broker-dealers who execute brokerage transactions may effect purchase of shares
of the Fund for their customers.
B-17
<PAGE>
PORTFOLIO TURNOVER
Although the Fund generally will not invest for short-term trading purposes,
portfolio securities may be sold without regard to the length of time they have
been held when, in the opinion of the Advisor, investment considerations warrant
such action. Portfolio turnover rate is calculated by dividing (1) the lesser of
purchases or sales of portfolio securities for the fiscal year by (2) the
monthly average of the value of portfolio securities owned during the fiscal
year. A 100% turnover rate would occur if all the securities in the Fund's
portfolio, with the exception of securities whose maturities at the time of
acquisition were one year or less, were sold and either repurchased or replaced
within one year. A high rate of portfolio turnover (100% or more) generally
leads to transaction costs and may result in a greater number of taxable
transactions. See "Execution of Portfolio Transactions."
SIGNATURE GUARANTEES. If you sell shares having a net asset value of $10,000 a
signature guarantee is required. Certain other transactions, including
redemptions, also require a signature guarantee. Signature guarantees may be
obtained from a bank, broker-dealer, credit union (if authorized under state
law), securities exchange or association, clearing agency or savings
institution. A notary public cannot provide a signature guarantee.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The information provided below supplements the information contained in the
Fund's Prospectus regarding the purchase and redemption of Fund shares.
HOW TO BUY SHARES. The public offering price of Fund shares is the net asset
value. Each Fund receives the net asset value. Shares are purchased at the
public offering price next determined after the Transfer Agent receives your
order in proper form. In most cases, in order to receive that day's public
offering price, the Transfer Agent must receive your order in proper form before
the close of regular trading on the New York Stock Exchange ("NYSE"), normally
4:00 p.m., Eastern time.
The NYSE annually announces the days on which it will not be open for trading.
The most recent announcement indicates that it will not be open on the following
days: New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, the NYSE may close on days not included in that announcement.
The Trust reserves the right in its sole discretion (i) to suspend the continued
offering of the Fund's shares, (ii) to reject purchase orders in whole or in
part when in the judgment of the Advisor or the Distributor such rejection is in
the best interest of the Fund, and (iii) to reduce or waive the minimum for
initial and subsequent investments for certain fiduciary accounts or under
circumstances where certain economies can be achieved in sales of the Fund's
shares.
HOW TO SELL SHARES. You can sell your Fund shares any day the NYSE is open for
regular trading. The Fund may require documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Transfer Agent for details.
B-18
<PAGE>
Delivery of redemption proceeds. Payments to shareholders for shares of the Fund
redeemed directly from the Fund will be made as promptly as possible but no
later than seven days after receipt by the Fund's Transfer Agent of the written
request in proper form, with the appropriate documentation as stated in the
Prospectus, except that the Fund may suspend the right of redemption or postpone
the date of payment during any period when (a) trading on the NYSE is restricted
as determined by the SEC or the NYSE is closed for other than weekends and
holidays; (b) an emergency exists as determined by the SEC making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable; or (c) for such other period as the SEC may permit for the
protection of the Fund's shareholders. Under unusual circumstances, the Fund may
suspend redemptions, or postpone payment for more than seven days, but only as
authorized by SEC rules.
The value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of the Fund's portfolio
securities at the time of redemption or repurchase.
TELEPHONE REDEMPTIONS. Shareholders must have selected telephone transactions
privileges on the Account Application when opening a Fund account. Upon receipt
of any instructions or inquiries by telephone from a shareholder or, if held in
a joint account, from either party, or from any person claiming to be the
shareholder, the Fund or its agent is authorized, without notifying the
shareholder or joint account parties, to carry out the instructions or to
respond to the inquiries, consistent with the service options chosen by the
shareholder or joint shareholders in his or their latest Account Application or
other written request for services, including purchasing or redeeming shares of
the Fund and depositing and withdrawing monies from the bank account specified
in the Bank Account Registration section of the shareholder's latest Account
Application or as otherwise properly specified to the Fund in writing.
The Transfer Agent will employ these and other reasonable procedures to confirm
that instructions communicated by telephone are genuine; if it fails to employ
reasonable procedures, the Fund and the Transfer Agent may be liable for any
losses due to unauthorized or fraudulent instructions. If these procedures are
followed, an investor agrees, however, that to the extent permitted by
applicable law, neither the Fund nor its agents will be liable for any loss,
liability, cost or expense arising out of any redemption request, including any
fraudulent or unauthorized request. For information, consult the Transfer Agent.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Transfer Agent by telephone. In this event,
you may wish to submit a written redemption request, as described in the
Prospectus. The Telephone Redemption Privilege may be modified or terminated
without notice.
REDEMPTIONS-IN-KIND. The Trust has filed an election under SEC Rule 18f-1
committing to pay in cash all redemptions by a shareholder of record up to
amounts specified by the rule (in excess of the lesser of (i) $250,000 or (ii)
1% of the Fund's assets). The Fund has reserved the right to pay the redemption
price of its shares in excess of the amounts specified by the rule, either
totally or partially, by a distribution in kind of portfolio securities (instead
of cash). The securities so distributed would be valued at the same amount as
that assigned to them in calculating the net asset value for the shares being
sold. If a shareholder receives a distribution in kind, the shareholder could
incur brokerage or other charges in converting the securities to cash.
B-19
<PAGE>
AUTOMATIC INVESTMENT PLAN. As discussed in the Prospectus, the Fund provides an
Automatic Investment Plan for the convenience of investors who wish to purchase
shares of the Fund on a regular basis. All record keeping and custodial costs of
the Automatic Investment Plan are paid by the Fund. The market value of the
Fund's shares is subject to fluctuation, so before undertaking any plan for
systematic investment, the investor should keep in mind that this plan does not
assure a profit nor protect against depreciation in declining markets.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales charge
imposed on Fund shares does not apply to (a) any redemption pursuant to a
tax-free return of an excess contribution to an individual retirement account or
other qualified retirement plan if the Fund is notified at the time of such
request; (b) any redemption of a lump-sum or other distribution from qualified
retirement plans or accounts provided the shareholder has attained the minimum
age of 70 1/2 years and has held the Fund shares for a minimum period of three
years; (c) any redemption by advisory accounts managed by the Advisor or its
affiliates; (d) any redemption made by employees, officers or directors of the
Advisor or its affiliates; (e) any redemption by a tax-exempt employee benefit
plan if continuation of the investment would be improper under applicable laws
or regulations; and (f) any redemption or transfer of ownership of shares
following the death or disability, as defined in Section 72(m)(7) of the Code,
of a shareholder if the Fund is provided with proof of death or disability and
with all documents required by the Transfer Agent within one year after the
death or disability.
DETERMINATION OF SHARE PRICE
The net asset value of the Fund's shares will fluctuate and is determined as of
the close of trading on the New York Stock Exchange (the "NYSE") (generally 4:00
p.m. Eastern time) each business day. The NYSE annually announces the days on
which it will not be open for trading. The most recent announcement indicates
that it will not be open for the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. However, the NYSE may close
on days not included in that announcement.
The net asset value per share is computed by dividing the value of the
securities held by the Fund plus any cash or other assets (including interest
and dividends accrued but not yet received) minus all liabilities (including
accrued expenses) by the total number of shares in the Fund outstanding at such
time.
Generally, trading in and valuation of foreign securities is substantially
completed each day at various times prior to the close of the NYSE. In addition,
trading in and valuation of foreign securities may not take place on every day
in which the NYSE is open for trading. In that case, the price used to determine
the Fund's net asset value on the last day on which such exchange was open will
be used, unless the Trust's Board of Trustees determines that a different price
should be used. Furthermore, trading takes place in various foreign markets on
days in which the NYSE is not open for trading and on which the Fund's net asset
value is not calculated. Occasionally, events affecting the values of such
securities in U.S. dollars on a day on which the Fund calculates its net asset
value may occur between the times when such securities are valued and the close
of the NYSE that will not be reflected in the computation of the Fund's net
asset value unless the Board or its delegates deem that such events would
materially affect the net asset value, in which case an adjustment would be
made.
B-20
<PAGE>
Generally, the Fund's investments are valued at market value or, in the absence
of a market value, at fair value as determined in good faith by the Advisor and
the Trust's Valuation Committee pursuant to procedures approved by or under the
direction of the Board.
The Fund's securities, including ADRs and EDRs, which are traded on securities
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any reported sales, at the mean between the last
available bid and asked price. Securities that are traded on more than one
exchange are valued on the exchange determined by the Advisor to be the primary
market. Securities primarily traded in the NASDAQ National Market System for
which market quotations are readily available shall be valued at the last sale
price on the day of valuation, or if there has been no sale on such day, at the
mean between the bid and asked prices. Over-the-counter ("OTC") securities which
are not traded in the NASDAQ National Market System shall be valued at the most
recent trade price. Securities and assets for which market quotations are not
readily available (including restricted securities which are subject to
limitations as to their sale) are valued at fair value as determined in good
faith by or under the direction of the Board.
Short-term debt obligations with remaining maturities in excess of 60 days are
valued at current market prices, as discussed above. Short-term securities with
60 days or less remaining to maturity are, unless conditions indicate otherwise,
amortized to maturity based on their cost to the Fund if acquired within 60 days
of maturity or, if already held by the Fund on the 60th day, based on the value
determined on the 61st day.
Corporate debt securities are valued on the basis of valuations provided by
dealers in those instruments, by an independent pricing service, approved by the
Board, or at fair value as determined in good faith by procedures approved by
the Board. Any such pricing service, in determining value, will use information
with respect to transactions in the securities being valued, quotations from
dealers, market transactions in comparable securities, analyses and evaluations
of various relationships between securities and yield to maturity information.
An option that is written by the Fund is generally valued at the last sale price
or, in the absence of the last sale price, the last offer price. An option that
is purchased by the Fund is generally valued at the last sale price or, in the
absence of the last sale price, the last bid price. If an options exchange
closes after the time at which the Fund's net asset value is calculated, the
last sale or last bid and asked prices as of that time will be used to calculate
the net asset value.
Any assets or liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the official exchange rate or, alternatively, at
the mean of the current bid and asked prices of such currencies against the U.S.
dollar last quoted by a major bank that is a regular participant in the foreign
exchange market or on the basis of a pricing service that takes into account the
quotes provided by a number of such major banks. If neither of these
alternatives is available or both are deemed not to provide a suitable
methodology for converting a foreign currency into U.S. dollars, the Board in
good faith will establish a conversion rate for such currency.
All other assets of the Fund are valued in such manner as the Board in good
faith deems appropriate to reflect their fair value.
B-21
<PAGE>
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in advertisements and
investor communications. Total return may be stated for any relevant period as
specified in the advertisement or communication. Any statements of total return
will be accompanied by information on the Fund's average annual compounded rate
of return for the most recent one, five and ten year periods, or shorter periods
from inception, through the most recent calendar quarter. The Fund may also
advertise aggregate and average total return information over different periods
of time.
The Fund's total return may be compared to relevant indices, including Standard
& Poor's 500 Composite Stock Index and indices published by Lipper Analytical
Services, Inc. From time to time, evaluations of the Fund's performance by
independent sources may also be used in advertisements and in information
furnished to present or prospective investors in the Fund.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's total return for any period should
not be considered as a representation of what an investment may earn or what an
investor's total return may be in any future period.
The Fund's average annual compounded rate of return is determined by reference
to a hypothetical $1,000 investment that includes capital appreciation and
depreciation for the stated period, according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial purchase order of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at the
end of the period
Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period.
B-22
<PAGE>
GENERAL INFORMATION
Investors in the Fund will be informed of the Fund's progress through periodic
reports. Financial statements certified by independent public accountants will
be submitted to shareholders at least annually.
Firstar Institutional Custody Services, located at 425 Walnut St., Cincinnati,
Ohio 45201 acts as Custodian of the securities and other assets of the Fund.
American Data Services, Inc., P.O. Box 5536, Hauppauge, NY 11788, acts as the
Fund's transfer and shareholder service agent. The Custodian and Transfer Agent
do not participate in decisions relating to the purchase and sale of securities
by the Fund.
Tait, Weller & Baker, 8 Penn Center Plaza, Philadelphia, PA 19103, are the
independent auditors for the Fund.
Paul, Hastings, Janofsky & Walker LLP, 345 California Street, 29th Floor, San
Francisco, California 94104, are legal counsel to the Fund.
The Trust was organized as a Delaware business trust on April 27, 1999. The
Agreement and Declaration of Trust permits the Board of Trustees to issue an
limited number of full and fractional shares of beneficial interest, without par
value, which may be issued in any number of series. The Board of Trustees may
from time to time issue other series, the assets and liabilities of which will
be separate and distinct from any other series.
Shares issued by the Fund have no preemptive, conversion, or subscription
rights. Shareholders have equal and exclusive rights as to dividends and
distributions as declared by the Fund and to the net assets of the Fund upon
liquidation or dissolution. The Fund, as a separate series of the Trust, votes
separately on matters affecting only the Fund (e.g., approval of the Advisory
Agreement); all series of the Trust vote as a single class on matters affecting
all series jointly or the Trust as a whole (e.g., election or removal of
Trustees). Voting rights are not cumulative, so that the holders of more than
50% of the shares voting in any election of Trustees can, if they so choose,
elect all of the Trustees. While the Trust is not required and does not intend
to hold annual meetings of shareholders, such meetings may be called by the
Trustees in their discretion, or upon demand by the holders of 10% or more of
the outstanding shares of the Trust, for the purpose of electing or removing
Trustees.
B-23
<PAGE>
APPENDIX
COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
Prime-1: Issuers (or related supporting institutions) rated "Prime-1" have a
superior ability for repayment of senior short-term debt obligations. "Prime-1"
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2: Issuers (or related supporting institutions) rated "Prime-2" have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
B-24
