<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 26, 1999
FILE NOS.
333-83421
811-9489
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
PRE-EFFECTIVE AMENDMENT NO. 2
POST-EFFECTIVE AMENDMENT NO.
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
AMENDMENT NO. 2
-------------------------------
USALLIANZ FUNDS
(Exact Name of Registrant)
55 GREENS FARMS ROAD
WESTPORT, CT 06881
(Address of Principal Executive Offices)
(888) 247-9744
-----------------------------
GARY TENKMAN
BISYS FUND SERVICES
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(Name and Address for Agent for Service)
COPIES OF COMMUNICATIONS TO:
MATTHEW G. MALONEY, ESQ.
DICKSTEIN SHAPIRO MORIN & OSHINSKY LLP
2101 L STREET, N.W
WASHINGTON, D.C. 20037
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
The Registrant hereby amends this Registration Statement under the
Securities Act of 1933 on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with the provisions of Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may determine.
<PAGE> 2
QUESTIONS?
Call toll free 1-877-833-7113
or your investment representative.
USALLIANZ FUNDS
GROWTH FUND
GLOBAL OPPORTUNITIES FUND
FIXED INCOME FUND
MONEY MARKET FUND
DIVERSIFIED ASSETS FUND
CLASS A SHARES
CLASS B SHARES
CLASS Y SHARES
PROSPECTUS
OCTOBER 27, 1999
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED THE
SHARES DESCRIBED IN THIS PROSPECTUS OR
DETERMINED WHETHER THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
[TRIANGLE
LOGO]
Carefully review this 3-4 Growth Fund
important section, which 5-6 Global Opportunities Fund
summarizes each fund's 7-9 Fixed Income Fund
investments, risks, past 10 Money Market Fund
performance, and fees. 11-12 Diversified Assets Fund
13-16 Fees and Expenses of the Funds
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
[TRIANGLE
LOGO]
Review this section for 17 Investment Objectives, Strategies and Risks
specific information on each 25 Other Considerations
fund's investment, 25 Year 2000
strategies and risks.
FUND MANAGEMENT
[TRIANGLE
LOGO]
Review this section for 27 The Investment Adviser
details on the people and 27 Portfolio Managers
organizations who oversee 28 Adviser's Prior Performance
the funds 29 The Administrator and Distributor
SHAREHOLDER INFORMATION
[TRIANGLE
LOGO]
Review this section for 30 Pricing of Fund Shares
details on how shares are 31 Purchasing Shares
valued, how to purchase, 35 Selling Your Shares
sell and exchange shares, 38 Distribution Arrangements/Sales Charges
related charges and payments 44 Exchanging Your Shares
of dividends and 45 Dividends, Distributions and Taxes
distributions
BACK COVER
[TRIANGLE
LOGO]
Where to Learn More About USAllianz Funds
</TABLE>
2
<PAGE> 4
RISK/RETURN SUMMARY AND FUND EXPENSES
[LOGO]
The following is a summary of certain key information about USAllianz Funds
which offers five separate, diversified investment portfolios (collectively,
the "Funds" and each individually, a "Fund"). The "Risk/Return Summary and
Fund Expenses" describe each Fund's objectives, principal investment
strategies, principal investment risks and certain performance information
under "Risk/Return Summary" and the Funds' expenses under "Fund Expenses."
Additional information about the Funds can be found by referring to pages
17-26 further back in the Prospectus. Please be sure to read the more
complete descriptions of the Funds' risks following this summary before you
invest. The Funds are managed by Allianz of America, Inc. (the "Adviser").
GROWTH FUND
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE Long-term growth of capital.
PRINCIPAL INVESTMENT The Fund normally invests at least 80% of its total assets
STRATEGIES in equity securities, which include common stocks, preferred
stocks and convertible securities. The Fund may invest in
both U.S. issuers and foreign issuers whose securities are
U.S. dollar denominated and traded on a U.S. securities
market. Although the Fund invests primarily in equity
securities of larger capitalization companies, the Fund is
not limited to such investments and may invest in companies
with varying market capitalizations.
The Adviser uses a fundamental, "bottom-up" approach to
selecting securities for investment. Factors considered
include analysis of an issuer's financial condition,
industry position, management, growth prospects, earnings
estimates and other general economic and market conditions.
Based upon the analysis of such factors, the Adviser selects
those securities which, in the Adviser's judgment, will
outperform the average for companies included in the S&P
500(R) Index. The Adviser will consider selling those
securities when it determines that such securities would no
longer meet its criteria for purchase or when alternative
investments become more attractive.
PRINCIPAL INVESTMENT RISKS The principal risks of investing in the Fund are:
- Market Risk. This is the risk that the value of the Fund's
investments will fluctuate as the stock or bond markets
fluctuate and that prices overall will decline over short
or long-term periods.
- Selection Risk. This is the risk that poor security
selection will cause the Fund to underperform other funds
with similar investment objectives.
- Capitalization Risk. Securities of small and
mid-capitalization companies tend to be more volatile, have
less predictable earnings, and are less liquid than those
of large capitalization companies.
- You may lose money by investing in the Fund.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
- Investing for long-term goals, such as retirement
- Seeking to add a growth component to your portfolio
This Fund will not be appropriate for someone:
- Seeking safety of principal
- Investing for the short-term or investing emergency
reserves
- Looking primarily for regular income
</TABLE>
3
<PAGE> 5
RISK/RETURN SUMMARY AND FUND EXPENSES
[Logo]
GROWTH FUND
CONTINUED
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS Y SHARES+
[CHART]
<TABLE>
<S> <C>
1994 -3.22%
1995 32.93%
1996 21.5%
1997 33.03%
1998 26.35%
</TABLE>
Past performance is not necessarily an
indication of how the Fund will perform in
the future.
The returns for Class A and B shares will
be lower than the Class Y shares' returns
shown in the bar chart because fees and
expenses (including sales loads) of the
Class A and B shares are higher.
+ For the period January 1, 1999 through
September 30, 1999, the aggregate
(non-annualized) total return of the
Commingled Account adjusted for Class A, B,
and Y shares' expenses was 0.10%, 0.26% and
6.05%, respectively.
Best quarter: 4th Quarter
1998 25.74%
Worst quarter: 3rd Quarter
1998 -11.91%
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ending
December 31, 1998)
<TABLE>
<CAPTION>
PAST PAST SINCE INCEPTION
YEAR 5 YEARS INCEPTION DATE
<S> <C> <C> <C> <C>
---------------------------------------
CLASS A SHARES
(with maximum sales charge) 26.04% 21.01% 18.59% 4/1/93
---------------------------------------
CLASS B SHARES
(with applicable CDSC) 25.12% 20.12% 17.71% 4/1/93
---------------------------------------
CLASS Y SHARES 26.35% 21.31% 18.88% 4/1/93
---------------------------------------
S&P 500(R)INDEX 28.58% 24.06% 21.74%
-------------------------------------------------------------------------------------
</TABLE>
* The quoted performance of the Fund represents the performance of the
Commingled Account as described above. The Commingled Account was not
registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 and therefore was not subject to the
investment restrictions imposed by law on registered mutual funds. If the
Commingled Account had been registered, the Commingled Account's
performance may have been adversely affected.
PERFORMANCE INFORMATION OF COMMINGLED ACCOUNT
While the Fund only commenced operations as of the date of this prospectus, it
has adopted the performance of a master trust portfolio ("Commingled Account")
advised by the Adviser, for periods dating back to April 1, 1993, as adjusted to
reflect the full contractual rate of expenses associated with the Fund and its
classes of shares at its inception. The Fund's investment objectives, policies
and strategies are in all material respects equivalent to those employed by the
Adviser in managing the Commingled Account. The assets of the Commingled Account
are being transferred to the Fund.
The bar chart and table provide an indication of the risks of an investment in
the Fund by showing performance of the Commingled Account from year to year and
as compared to a broad-based securities index.* The Standard and Poor's 500
Composite Stock Price Index (the "S&P 500(R)") in the table below is an
unmanaged index of 500 selected common stocks, most of which are listed on the
New York Stock Exchange.
4
<PAGE> 6
RISK/RETURN SUMMARY AND FUND EXPENSES
[Logo]
GLOBAL OPPORTUNITIES FUND
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE Long-term growth of capital.
PRINCIPAL INVESTMENT Under normal circumstances, the Fund invests at least 80% of
STRATEGIES its total assets in equity securities of U.S. and foreign
companies. Although the Fund invests primarily in equity
securities of larger capitalization companies, the Fund is
not limited to such investments and may invest in companies
with varying market capitalizations. The Adviser organizes
its research of equity securities into seven
internally-defined sectors based on global economic or
industry themes. These sectors include companies in the
natural resources, life style, financial, high technology,
telemedia, life science and transportation businesses. The
Fund may be overweighted or underweighted in a particular
sector or country relative to the Fund's benchmark, the MSCI
World Equity Index. Because the United States currently
comprises approximately 50% of such Index, the Fund will
normally invest approximately the same amount in U.S.
securities.
The Adviser uses a fundamental "bottom-up" approach to
selecting securities for investment. Factors considered may
include analysis of an issuer's financial condition,
industry position, management, growth prospects, earnings
estimates and other general economic and market conditions.
Based upon the analysis of such factors, the Adviser selects
investments which, in the Adviser's judgment, will
outperform the average for companies included in the MSCI
World Equity Index.
The Adviser will consider selling securities when the
securities no longer meet the Adviser's criteria for
purchase or when alternative investments become more
attractive.
PRINCIPAL INVESTMENT RISKS The principal risks that apply to the Fund are:
- Market Risk. This is the risk that the value of the Fund's
investments will fluctuate as the stock or bond markets
fluctuate and that prices overall will decline over short
or long-term periods.
- Foreign Risk. This is the risk of investments in issuers
located in foreign countries, which may have greater price
volatility and less liquidity. Investments in foreign
securities also are subject to political, regulatory, and
diplomatic risks. Changes in currency rates are an
additional risk of investments in foreign securities.
- Selection Risk. This is the risk that poor security
selection will cause the Fund to underperform other funds
with similar investment objectives.
- You may lose money by investing in the Fund.
</TABLE>
5
<PAGE> 7
RISK/RETURN SUMMARY AND FUND EXPENSES
[Logo]
GLOBAL OPPORTUNITIES FUND
CONTINUED
<TABLE>
<S> <C>
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are an individual:
- Investing for Long-Term Goals, Such As Retirement
- Seeking to Add a Global Growth Component to Your Portfolio
- Seeking Capital Appreciation and Are Willing To Accept The
Higher Volatility Associated With Investing In Foreign
Stocks
This Fund will not be appropriate for someone:
- Seeking Safety of Principal
- Investing for the short-term or investing emergency
reserves
- Looking primarily for regular income
PERFORMANCE INFORMATION This is a new Fund for which performance information is not
yet available.
The net asset value ("NAV") of the Fund will fluctuate with
market conditions.
</TABLE>
6
<PAGE> 8
RISK/RETURN SUMMARY AND FUND EXPENSES
[Logo]
FIXED INCOME FUND
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE To maximize total return with secondary emphasis on income.
PRINCIPAL INVESTMENT The Fund primarily invests in U.S. dollar denominated fixed
STRATEGIES income securities.
The Adviser begins the portfolio management process by
reviewing current economic activity and forecasting how it
may change in the future. The Adviser uses this forecast to
allocate the Fund's assets across different market sectors
and maturities based on its view of the relative value of
each sector or maturity.
The Fund will normally invest in government bonds,
investment grade corporate bonds, mortgage-backed
securities, asset-backed securities and municipal securities
and may invest in non-investment grade corporate bonds but
does not presently intend to do so. Under normal conditions,
the Fund intends to hold securities (other than money market
securities) with maturities between 1 and 30 years with an
average maturity of between 5 and 13 years, when weighted
according to the Fund's holdings. However, securities with
any maturity are eligible for purchase. Individual
securities are bought and sold based on fundamental analysis
of the structural features of specific securities, current
market price and estimated future value, and the credit
quality of its issuer.
</TABLE>
7
<PAGE> 9
RISK/RETURN SUMMARY AND FUND EXPENSES
[LOGO]
FIXED INCOME FUND
CONTINUED
<TABLE>
<S> <C>
PRINCIPAL INVESTMENT RISKS The principal risks of investing in the Fund are:
- Interest Rate Risk. This is the risk that changes in
interest rates will affect the value of the Fund's
investments in income-producing or debt securities.
Increases in interest rates may cause the value of the
Fund's investments to decline.
- Yield Curve Risk. This is the risk that changes in the
shape of the yield curve will affect the value of the Fund's
investments in income-producing or debt securities.
- Volatility Risk. This is the risk that the magnitude of
the changes in the shape of the yield curve will affect the
value of the Fund's investments in income-producing or
debt securities.
- Credit Risk. This is the risk that the issuer of a
security will be unable or unwilling to make timely payments
of interest or principal, or to otherwise honor its
obligations.
- Selection Risk. This is the risk that poor security
selection will cause the Fund to underperform other funds
with similar investment objectives.
- Prepayment Risk. The Fund's investments in
mortgage-related and asset-backed securities are subject to
the risk that the principal amount of the underlying
obligation may be repaid prior to the bond's maturity
date. Such repayments are common when interest rates
decline. When such a repayment occurs, no additional
interest will be paid on the investment. Prepayment
exposes the Fund to lower return upon subsequent
reinvestment of the principal.
- You may lose money by investing in the Fund.
</TABLE>
<TABLE>
<S> <C>
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
- Seeking to add a monthly income component to your
portfolio
- Willing to accept the risks of price and income
fluctuations
- Wanting to add diversification to a portfolio invested
primarily in stocks
This Fund will not be appropriate for someone:
- Investing emergency reserves
- Seeking a stable share price
</TABLE>
8
<PAGE> 10
RISK/RETURN SUMMARY AND FUND EXPENSES
[LOGO]
FIXED INCOME FUND
CONTINUED
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31 FOR CLASS Y SHARES+
[CHART]
<TABLE>
<S> <C>
1994 -3.93%
1995 19.52%
1996 2.63%
1997 9.61%
1998 8.97%
</TABLE>
The returns for Class A and B shares will
be lower than the Class Y shares' returns
shown in the bar chart because fees and
expenses (including sales loads) of the
Class A and B shares are higher.
Past performance is not necessarily an
indication of how the Fund will perform in
the future.
+ For the period January 1, 1999 through
September 30, 1999, the aggregate
(non-annualized) total return of the
Commingled Account adjusted for Class A, B,
and Y Shares' expenses was -7.57%, -8.20%
and -2.64%, respectively.
Best quarter: 2nd Quarter
1995 6.97%
Worst quarter: 1st Quarter
1994 -3.07%
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ending
December 31, 1998)
<TABLE>
<CAPTION>
PAST PAST SINCE INCEPTION
YEAR 5 YEARS INCEPTION DATE
<S> <C> <C> <C> <C>
------------------------------------------
CLASS A SHARES
(with maximum sales charge) 3.95% 6.07% 6.21 % 4/1/93
------------------------------------------
CLASS B SHARES
(with applicable CDSC) 3.89% 5.86% 5.90 % 4/1/93
------------------------------------------
CLASS Y SHARES 8.97% 7.07% 7.09 % 4/1/93
------------------------------------------
LEHMAN GOVERNMENT/CORPORATE
BOND INDEX 9.47% 7.30% 7.42 %
----------------------------------------------------------------------------------------
</TABLE>
* The quoted performance of the Fund represents the performance of the
Commingled Account as described above. The Commingled Account was not
registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 and therefore was not subject to the
investment restrictions imposed by law on registered mutual funds. If the
Commingled Account had been registered, the Commingled Account's
performance may have been adversely affected.
PERFORMANCE INFORMATION OF COMMINGLED ACCOUNT
While the Fund only commenced operations as of the date of this prospectus, it
has adopted the performance of a master trust portfolio ("Commingled Account")
advised by the Adviser, for periods dating back to April 1, 1993, as adjusted to
reflect the full contractual rate of expenses associated with the Fund and its
classes of shares at its inception. The Fund's investment objectives, policies
and strategies are in all material respects equivalent to those employed by the
Adviser in managing the Commingled Account. The assets of the Commingled Account
are being transferred to the Fund.
The bar chart and table provide an indication of the risks of an investment in
the Fund by showing performance of the Commingled Account from year to year and
as compared to a broad-based securities index.* The Lehman Government/Corporate
Bond Index in the table below, is a widely recognized, unmanaged index comprised
of U.S. government and corporate debt securities and is generally representative
of the bond market as a whole.
9
<PAGE> 11
RISK/RETURN SUMMARY AND FUND EXPENSES
[Logo]
MONEY MARKET FUND
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE Current income consistent with stability of principal.
PRINCIPAL INVESTMENT The Fund invests primarily in high quality, U.S.
STRATEGIES dollar-denominated short-term obligations, including
commercial paper, asset-backed securities, obligations of
financial institutions and other high-quality money market
instruments issued by U.S. and foreign issuers. These
securities will be rated in the two highest short-term
rating categories of at least two rating agencies or will be
unrated securities of comparable quality. The Adviser
evaluates investments based on credit analysis and interest
rate outlook.
As a money market fund, the Fund is subject to strict
federal requirements which restrict the Fund's investments
to high-quality securities, limit the average maturity of
the portfolio to 90 days or less, and limit the maturity of
any security to no more than 397 days.
PRINCIPAL INVESTMENT RISKS Investors in the Fund should also be aware of the following
risks:
- Interest Rate Risk. This is the risk that changes in
interest rates will affect the value of the Fund's
investments in income-producing or debt securities.
Increases in interest rates may cause the value of the
Fund's investments to decline.
- Credit Risk. This is the risk that the issuer of a
security will be unable or unwilling to make timely payments
of interest or principal, or to otherwise honor its
obligations.
- An investment in the Fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other
government agency. Although the Fund seeks to preserve the
value of your investment at $1.00 per share, it is
possible to lose money by investing in the Fund.
WHO MAY WANT TO INVEST? Consider investing in the Money Market Fund if you:
- Are seeking preservation of capital
- Have a low risk tolerance
The Money Market Fund will not be appropriate for anyone:
- Seeking high total returns
- Pursuing a long-term goal or investing for retirement
PERFORMANCE INFORMATION This is a new Fund for which performance information is not
yet available.
The yield of the Fund will fluctuate with market conditions.
</TABLE>
10
<PAGE> 12
RISK/RETURN SUMMARY AND FUND EXPENSES
[Logo]
DIVERSIFIED ASSETS FUND
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE Total return consistent with reduction of long-term
volatility.
PRINCIPAL INVESTMENT The Fund pursues its objective through asset allocation and
STRATEGIES security selection by investing in a diversified portfolio
of bonds, stocks and money market securities of U.S. and
foreign issuers. The Adviser will seek to allocate on
average about 65% of the Fund's total assets to bonds, 25%
to stocks and 10% to money market securities.
- Bonds. The Fund invests in fixed income securities
including (1) government and corporate bonds, (2)
mortgage-backed securities, and (3) asset-backed
securities. The Fund invests primarily in bonds rated
within the four highest long-term or two highest
short-term rating categories or comparable quality unrated
securities. The Fund may invest up to 20% of its total
assets in high yield debt securities although it does not
presently intend to do so. Under normal conditions, the
Fund intends to hold securities (other than money market
securities) with maturities between 1 and 10 years.
However, securities with any maturity are eligible for
purchase. The Adviser begins the portfolio management
process by reviewing current economic activity and
forecasting how it may change in the future. The Adviser
uses this forecast to allocate the Fund's assets across
different market sectors and maturities based on its view
of the relative value of each sector or maturity.
- Stocks. The Fund invests in common stocks, preferred
stocks and convertible securities. The Fund may invest in
both U.S. issuers and foreign issuers whose securities are
U.S. dollar denominated and traded on an U.S. security
market, and invests primarily in equity securities of
larger capitalization companies. The Adviser uses a
"bottom-up" approach to selecting securities for
investment. Based upon the analysis of various factors,
the Adviser selects those securities which, in its
judgment, will outperform the average for the companies
included in the S&P 500(R) Index.
- Money Market Instruments. The Fund will invest in
high-quality, U.S. dollar denominated short-term
obligations, including commercial paper, asset-backed
securities, obligations of financial institutions and
other high-quality money market instruments issued by U.S.
and foreign issuers. These securities will be rated in the
two highest short-term rating categories of at least two
rating agencies or will be unrated securities of
comparable quality.
The Fund seeks to exceed the total return of a blended
benchmark consisting of 65% of the Lehman Intermediate
Government/Corporate Bond Index, 25% of the S&P 500(R) Index
and 10% of the 90-day Treasury Bill. The Fund typically
sells securities when the Adviser determines that such
securities would no longer meet its criteria for purchase or
when alternative investments become more attractive.
</TABLE>
11
<PAGE> 13
RISK/RETURN SUMMARY AND FUND EXPENSES
[LOGO]
DIVERSIFIED ASSETS FUND
CONTINUED
<TABLE>
<S> <C>
PRINCIPAL INVESTMENT RISKS The principal risks of investing in the Fund are:
- Market Risk. This is the risk that the value of the Fund's
investments will fluctuate as the stock or bond markets
fluctuate and that prices overall will decline over short
or long-term periods.
- Selection Risk. This is the risk that poor security
selection will cause the Fund to underperform other funds
with similar investment objectives.
- Capitalization Risk. Securities of small and
mid-capitalization companies tend to be more volatile, have
less predictable earnings, and are less liquid than those
of large capitalization companies.
- Yield Curve Risk. This is the risk that changes in the
shape of the yield curve will affect the value of the Fund's
investments in income-producing or debt securities.
- Volatility Risk. This is the risk that the magnitude of
the changes in the shape of the yield curve will affect the
value of the Fund's investments in income-producing or
debt securities.
- Credit Risk. This is the risk that the issuer of a
security will be unable or unwilling to make timely payments
of interest or principal, or to otherwise honor its
obligations.
- Interest Rate Risk. This is the risk that changes in
interest rates will affect the value of the Fund's
investments in income-producing or debt securities.
Increases in interest rates may cause the value of the
Fund's investments to decline.
- You may lose money by investing in the Fund.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
- Investing for long-term goals, such as retirement
- Seeking regular monthly income
- Pursuing a balanced approach to investments in both
growth- and income-producing securities
This Fund will not be appropriate for someone:
- Pursuing an aggressive high growth investment strategy
- Seeking a stable share price
- Investing emergency reserves
PERFORMANCE INFORMATION This is a new Fund for which performance information is not
yet available.
The NAV of the Fund will fluctuate with market conditions.
</TABLE>
12
<PAGE> 14
RISK/RETURN SUMMARY AND FUND EXPENSES
[LOGO]
FEES AND EXPENSES OF THE FUNDS
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD SHARES OF THE FUNDS.
FEE TABLE
<TABLE>
<CAPTION>
GROWTH FUND GLOBAL OPPORTUNITIES FUND
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR --------------------------- ---------------------------
INVESTMENT) CLASS A CLASS B CLASS Y CLASS A CLASS B CLASS Y
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 5.75% None None 5.75% None None
Maximum Deferred Sales Load (as a percentage
of offering price) None 5.00% None None 5.00% None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management fees .75% .75% .75% .95% .95% .95%
Distribution (12b-1) fees .25% .75% None .25% .75% None
Other expenses .28% .53%(1) .28% 1.80% 2.05%(1) 1.80%
Total Annual Fund Operating Expenses(2) 1.28% 2.03% 1.03% 3.00% 3.75% 2.75%
Fee Waivers and/or Expense Reimbursements(3) None None None 1.15% 1.15% 1.15%
Net Expenses 1.28% 2.03% 1.03% 1.85% 2.60% 1.60%
</TABLE>
(1) Certain Service Organizations may receive fees from a Fund in amounts up
to an annual rate of 0.25% of the daily net asset value of the Fund
shares owned by the shareholders with whom the Service Organization has a
servicing relationship.
(2) Other Expenses and Total Annual Fund Operating Expenses are estimated for
the current fiscal year.
(3) The Adviser has entered into a contractual expense limitation agreement
with the Trust, pursuant to which, until at least September 30, 2000, (a)
the Adviser has agreed to limit each Fund's and each class' total
expenses and (b) the Adviser is entitled to recoup any waived fees to the
extent the actual total operating expenses are less than those stated
above.
13
<PAGE> 15
RISK/RETURN SUMMARY AND FUND EXPENSES
[LOGO]
FEES AND EXPENSES OF THE FUNDS
CONTINUED
FEE TABLE
<TABLE>
<CAPTION>
FIXED INCOME FUND MONEY MARKET FUND
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR --------------------------- ---------------------------
INVESTMENT) CLASS A CLASS B CLASS Y CLASS A CLASS B CLASS Y
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 4.75% None None None None None
Maximum Deferred Sales Load (as a percentage
of offering price) None 5.00% None None 5.00% None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management fees .50% .50% .50% .35% .35% .35%
Distribution (12b-1) fees .25% .75% None .25% .75% None
Other expenses .30% .55%(1) .30% 1.90% 2.15%(1) 1.90%
Total Annual Fund Operating Expenses(2) 1.05% 1.80% .80% 2.50% 3.25% 2.25%
Fee Waivers and/or Expense Reimbursements(3) None None None 1.62% 1.62% 1.62%
Net Expenses 1.05% 1.80% .80% .88% 1.63% .63%
</TABLE>
(1) Certain Service Organizations may receive fees from a Fund in amounts up
to an annual rate of 0.25% of the daily net asset value of the Fund
shares owned by the shareholders with whom the Service Organization has a
servicing relationship.
(2) Other Expenses and Total Annual Fund Operating Expenses are estimated for
the current fiscal year.
(3) The Adviser has entered into a contractual expense limitation agreement
with the Trust, pursuant to which, until at least September 30, 2000, (a)
the Adviser has agreed to limit each Fund's and each class' total
expenses and (b) the Adviser is entitled to recoup any waived fees to the
extent the actual total operating expenses are less than those stated
above.
14
<PAGE> 16
RISK/RETURN SUMMARY AND FUND EXPENSES
[Logo]
FEES AND EXPENSES OF THE FUNDS
CONTINUED
FEE TABLE
<TABLE>
<CAPTION>
DIVERSIFIED ASSETS FUND
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR ---------------------------
INVESTMENT) CLASS A CLASS B CLASS Y
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 5.75% None None
Maximum Deferred Sales Load (as a percentage
of offering price) None 5.00% None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management fees .55% .55% .55%
Distribution (12b-1) fees .25% .75% None
Other expenses 1.94% 2.19%(1) 1.94%
Total Annual Fund Operating Expenses(2) 2.74% 3.49% 2.49%
Fee Waivers and/or Expense Reimbursements(3) 1.54% 1.54% 1.54%
Net Expenses 1.20% 1.95% .95%
</TABLE>
(1) Certain Service Organizations may receive fees from a Fund in amounts up
to an annual rate of 0.25% of the daily net asset value of the Fund
shares owned by the shareholders with whom the Service Organization has a
servicing relationship.
(2) Other Expenses and Total Annual Fund Operating Expenses are estimated for
the current fiscal year.
(3) The Adviser has entered into a contractual expense limitation agreement
with the Trust, pursuant to which, until at least September 30, 2000, (a)
the Adviser has agreed to limit each Fund's and each class' total
expenses and (b) the Adviser is entitled to recoup any waived fees to the
extent the actual total operating expenses are less than those stated
above.
15
<PAGE> 17
RISK/RETURN SUMMARY AND FUND EXPENSES
[Logo]
FEES AND EXPENSES OF THE FUNDS
CONTINUED
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C> <C>
GLOBAL FIXED MONEY DIVERSIFIED
GROWTH OPPORTUNITIES INCOME MARKET ASSETS
FUND FUND FUND FUND FUND
CLASS A
1 YEAR $698 $ 752 $577 $ 90 $ 690
3 YEARS $958 $1,347 $793 $ 624 $1,239
CLASS B
1 YEAR $706 $ 763 $683 $ 666 $ 698
3 YEARS $937 $1,341 $866 $1,149 $1,228
CLASS Y
1 YEAR $105 $ 163 $ 82 $ 64 $ 97
3 YEARS $328 $ 744 $255 $ 202 $ 628
</TABLE>
THIS EXAMPLE IS INTENDED TO
HELP YOU COMPARE THE COST
OF INVESTING IN THE FUNDS
WITH THE COST OF INVESTING
IN OTHER MUTUAL FUNDS. THE
EXAMPLE ASSUMES THAT YOU
INVEST $10,000 IN THE
INDICATED FUND FOR THE
TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR
SHARES AT THE END OF THOSE
PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR
INVESTMENT HAS A 5% RETURN
EACH YEAR AND THAT EACH
FUND'S OPERATING EXPENSES
REMAIN THE SAME. ALTHOUGH
YOUR ACTUAL COSTS MAY BE
HIGHER OR LOWER, BASED ON
THESE ASSUMPTIONS, YOUR
COSTS WOULD BE:
16
<PAGE> 18
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
[logo]
This section of the Prospectus provides descriptions of the Funds'
objectives, risks, strategies, and investments. Other strategies and
investments not described below may be found in the Funds' Statement of
Additional Information (SAI).
GROWTH FUND
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES: The Fund's
investment objective is long-term growth of capital, which objective may not
be changed without shareholder approval. In pursuit of its objective, the
Fund normally invests at least 80% of its total assets in equity securities,
which include common stocks, preferred stocks and convertible securities of
U.S. issuers and foreign issuers whose securities are U.S. dollar denominated
and are traded on a U.S. securities market. Although the Fund invests
primarily in equity securities of larger capitalization companies, the Fund
is not limited to such investments and will consider investing in securities
of companies with varying market capitalizations if they otherwise meet the
Adviser's criteria for purchases.
The Adviser uses a fundamental, "bottom-up" approach to selecting securities
for investment. Factors considered may include analysis of an issuer's
financial condition, industry position, management, growth prospects,
earnings estimates and other general economic and market conditions. Based
upon the analysis of such factors, the Adviser selects those securities
which, in the Adviser's judgment, will produce a return that exceeds the
average for companies included in the S&P 500(R) Index. (See "Other
Considerations -- Temporary Defensive Positions".)
PRINCIPAL INVESTMENT RISKS: The price per share of the Fund will fluctuate
with changes in value of the investments held by the Fund. You may lose money
by investing in the Fund. The Fund faces the following general risks:
- Market Risk: The values of stocks fluctuate in response to the activities
of individual companies and general stock market and economic conditions.
Stock prices may decline over short or even extended periods. Stocks are
more volatile and riskier than some other forms of investment, such as
short-term, high-grade fixed-income securities.
- Selection Risk: Selection risk is the chance that poor security selection
will cause the Fund to underperform other funds with similar investment
objectives.
- Capitalization Risk: To the extent the Fund invests significantly in
small or mid-capitalization companies, it may have capitalization risk.
These companies may present additional risk because they have less
predictable earnings, more volatile share prices and less liquid
securities than large-capitalization companies. These securities may
fluctuate in value more than those of larger, more established companies
and, as a group, may suffer more severe price declines during periods of
generally declining stock prices.
17
<PAGE> 19
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
[logo]
GLOBAL OPPORTUNITIES FUND
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES: The Fund's
investment objective is long-term growth of capital, which objective may not
be changed without shareholder approval. In pursuit of its objective, the
Fund normally invests at least 80% of its total assets in equity securities,
which include common stocks, preferred stocks, convertible securities,
warrants and rights of U.S. and foreign issuers. Generally, the companies in
which the Fund invests will be doing business in one of the following seven
industry sectors:
- Natural Resources: Natural resources, energy and construction service
industries, including companies that provide basic resources for
developing and industrialized countries (such as energy resources,
utilities, building materials, forest and paper products, metals and
miscellaneous materials).
- Life Style: Innovative, solution-oriented companies in the consumer goods
industry (such as producers and providers of appliances, household
durable products, household products, recreation and other consumer
goods), food industry (such as beverages, food and tobacco) and companies
engaged in the design, production and/or distribution of goods or
services in the leisure, tourism and merchandising industry.
- Financial: Forward-thinking, solution driven companies providing
financial-related services (such as banking, insurance and financial
services, as well as real estate, wholesaling and international trade
firms).
- High Technology: Companies that rely extensively on high technology in
their product range, development and/or operations (such as data
processing and reproduction companies, electrical, electronics and
electronic equipment companies.
- Telemedia: Companies engaged in the development, production, sale and/or
distribution of media-related services (such as broadcasting, publishing
and internet companies) and companies committed to the development of new
information technologies, contributing to progress being made in the
development of new communication infrastructures and developing strategic
communication solutions for the global economy.
- Life Science: Global companies that offer innovative health and personal
care services and products (including pharmaceutical and chemical
companies).
- Transportation: Innovative and solution-driven companies engaged in the
business of transportation on either a regional or global basis.
Although the Fund invests primarily in larger capitalization companies, the
Fund is not limited to such investments and will consider investing in
securities of companies with varying market capitalizations if they otherwise
meet the Adviser's criteria for purchases. Similarly, while companies whose
principal trading markets are developed or industrialized countries are
likely to be the Fund's principal investments, the Fund is not limited to
such investments and will consider investing in securities of companies
trading in emerging or developing markets. The Fund may invest more than 25%
of its total assets in a single country.
18
<PAGE> 20
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
[logo]
GLOBAL OPPORTUNITIES FUND
CONTINUED
The Adviser uses its own research, as well as input from its affiliates
around the world and other third parties to identify attractive companies
meeting the above sector descriptions. The Adviser then uses a fundamental
"bottom-up" approach to selecting securities for investment. Factors
considered may include analysis of an issuer's financial condition, industry
position, management, growth prospects, earnings estimates and other general
economic and market conditions. Based upon the analysis of such factors, the
Adviser selects those securities which, in the Adviser's judgment, will
produce a return that exceeds the average for companies included in the MSCI
World Equity Index. The Fund may be overweighted or underweighted in a
particular sector or country relative to the MSCI World Equity Index based
upon the Adviser's judgment as to the relative prospects for investments in
particular sectors and countries.
The Adviser does not intend to invest in markets where property rights are
not defined and supported by adequate legal infrastructure. The Fund may
trade forward foreign currency contracts to hedge currency fluctuations of
underlying security positions when it is believed that a foreign currency may
suffer a decline against the U.S. dollar.
(See "Other Considerations -- Temporary Defensive Positions".)
PRINCIPAL INVESTMENT RISKS: The price per share of the Fund will fluctuate
with changes in value of the investments held by the Fund. You may lose money
by investing in the Fund. The Fund faces the following general risks:
- Market Risk: The values of stocks fluctuate in response to the activities
of individual companies and general stock market and economic conditions.
Stock prices may decline over short or even extended periods. Stocks are
more volatile and riskier than some other forms of investment, such as
short-term, high-grade fixed-income securities.
- Foreign Risk: Foreign investments may be riskier than U.S. investments.
Such risks include, but are not limited to:
- lack of, or less stringent, uniform accounting, auditing and financial
reporting standards
- changes in currency rates
- nationalization, confiscation, difficulties enforcing contracts, or
foreign withholding/taxes
- political instability and diplomatic developments that could adversely
affect the Fund's investments
- less government oversight of foreign stock exchanges, brokers and
listed companies
- less liquidity due to lower trading volumes of foreign markets which
may increase price volatility
- foreign trading practices (including higher trading commissions,
higher custodial charges and delayed settlements)
- less publicly available information about foreign companies
- negative effect on the value of the Fund's investments due to
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies
- Selection Risk: Selection risk is the chance that poor security selection
will cause the Fund to underperform other funds with similar investment
objectives.
19
<PAGE> 21
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
logo
FIXED INCOME FUND
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES: The Fund's
investment objective is to maximize total return with secondary emphasis on
income, which objective may not be changed without shareholder approval.
In pursuit of its objective, the Fund normally invests at least 80% of its
total assets in fixed income securities rated within the four highest rating
categories by a primary credit rating agency or, if unrated, which are
determined by the Adviser to be of comparable quality. Fixed income
securities include U.S. Government securities; corporate debt securities;
U.S. dollar denominated securities of foreign issuers (including corporate
debt securities, certificates of deposit and bankers' acceptances issued by
foreign banks, and obligations of foreign governments or their subdivisions,
agencies and instrumentalities, international agencies and supranational
entities); zero coupon and pay-in-kind securities; asset-backed securities,
mortgage-backed securities (including stripped mortgage-backed securities)
and taxable and tax-exempt municipal securities.
Although it does not presently intend to do so, the Fund also may invest up
to 20% of its total assets in high yield securities (debt securities
determined by a primary credit rating agency to have a lower probability of
being paid and have a credit rating lower than BBB by Standard & Poor's or
Baa by Moody's Investor Services, Inc. or, if unrated, which are deemed of
comparable quality by the Adviser).
The Adviser begins the portfolio management process by reviewing current
economic activity and forecasting how it may change in the future. The
Adviser uses this forecast to allocate the Fund's assets across different
market sectors and maturities based on its view of the relative value of each
sector or maturity. The Adviser analyzes the risk profile of the Fund's
benchmark, the Lehman Government/ Corporate Bond Index, then adjusts the
portfolio's risk relative to the benchmark to enhance long-term returns.
Specific securities are included in the portfolio based on a fundamental
analysis of the securities' cash flow risk and/or credit fundamentals.
Under normal conditions, the Fund intends to hold securities (other than
money market securities) with maturities primarily between 1 and 30 years
with an average maturity of between 5 and 13 years, when weighted according
to the Fund's holdings. However, securities with any maturity are eligible
for purchase. The Adviser may sell a security if its fundamental qualities
deteriorate or to take advantage of more attractive investment opportunities.
(See "Other Considerations -- Temporary Defensive Positions".)
PRINCIPAL INVESTMENT RISKS: The price per share of the Fund will fluctuate
with changes in value of the investments held by the Fund. You may lose money
by investing in the Fund. The Fund faces the following general risks:
- Interest Rate Risk: Interest rate risk is the chance that the value of
the bonds the Fund holds will decline due to rising interest rates. When
interest rates rise, the price of most bonds goes down. When interest
rates go down, bond prices go up. The price of a bond is also affected by
its maturity. Bonds with longer maturities generally have greater
sensitivity to changes in interest rates.
20
<PAGE> 22
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
logo
FIXED INCOME FUND
CONTINUED
- Credit Risk: Credit risk is the chance that a bond issuer will fail to
repay interest and principal in a timely manner, reducing the Fund's
return. Also, an issuer may suffer adverse changes in financial condition
that could lower the credit quality of a security, leading to greater
volatility in the price of the security and the Fund's shares. A change in
the quality rating of a bond can affect the bond's liquidity and make it
more difficult for the Fund to sell. Because of their more precarious
financial position, issuers of high yield bonds may be more vulnerable to
changes in the economy or to interest rate changes that might affect their
ability to repay debt.
- Prepayment Risk: The Fund's investments in mortgage-related and
asset-backed securities are subject to the risk that the principal amount
of the underlying obligation may be repaid prior to the bond's maturity
date. Such repayments are common when interest rates decline. When such a
repayment occurs, no additional interest will be paid on the investment.
Prepayment exposes the Fund to lower return upon subsequent reinvestment
of the principal.
- Income Risk: Income risk is the chance that falling interest rates will
cause the Fund's income to decline. Income risk is generally higher for
short-term bonds.
- Selection Risk: Selection risk is the chance that poor security selection
will cause the Fund to underperform other funds with similar investment
objectives.
- Yield Curve Risk: This is the risk that changes in the shape of the yield
curve will affect the value of the Fund's investments in income-producing
or debt securities.
- Volatility Risk: This is the risk that the magnitude of the changes in
the shape of the yield curve will affect the value of the Fund's
investments in income-producing or debt securities.
ADDITIONAL RISKS:
- Asset-backed securities involve the risk that such securities may not
have the benefit of a complete security interest in the related
collateral.
- The Fund has authority to invest up to 20% of its assets in high yield,
high risk debt securities. These lower quality securities have
speculative characteristics and are more volatile and are more subject to
credit risk than investment grade securities. High yield securities tend
to be more susceptible to high interest rates and to real or perceived
adverse economic and competitive industry conditions.
21
<PAGE> 23
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
[logo]
MONEY MARKET FUND
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES: The Fund's
investment objective is current income consistent with stability of
principal, which objective may not be changed without shareholder approval.
The Fund invests substantially all (but not less than 80%) of its total
assets in a diversified and liquid portfolio of high quality, money market
investments, including:
- U.S. Government securities;
- Certificates of deposits, time deposits, bankers' acceptances and other
short-term instruments issued by U.S. or foreign banks;
- U.S. and foreign commercial paper and other short-term corporate debt
obligations, including those with floating rate or variable rates of
interest;
- Obligations issued or guaranteed by one or more foreign governments or
their agencies, including supranational entities;
- Loan participation interests;
- Asset backed securities; and
- Repurchase agreements collateralized by the types of securities described
above.
The Fund is required to invest at least 95% of its assets in the securities
of issuers with the highest credit rating, with the remainder invested in
securities with the second-highest credit rating. The Fund is subject to
certain federal requirements which include the following:
- maintain an average dollar-weighted portfolio maturity of 90 days or less
- buy individual securities that have remaining maturities of 13 months or
less
- invest only in high-quality, dollar-denominated, short-term obligations.
(See "Other Considerations -- Temporary Defensive Positions".)
PRINCIPAL INVESTMENT RISKS: The Fund is not guaranteed to maintain a constant
net asset value of $1.00 per share, and it is possible to lose money by
investing in the Fund.
- Interest Rate Risk: This is the risk that changes in interest rates will
affect the value of the Fund's investments in income-producing or debt
securities. Increases in interest rates may cause the value of the Fund's
investments to decline.
- Credit Risk: Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest
or repay principal, the value of your investment could decline.
22
<PAGE> 24
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
logo
DIVERSIFIED ASSETS FUND
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES: The Fund's
investment objective is total return consistent with reduction of long-term
volatility, which objective may not be changed without shareholder approval.
While the Fund normally invests approximately 65% of its total assets in
fixed income securities (which include investment grade corporate bonds and
U.S. Government securities), 25% in equity securities and 10% in money market
securities, the mix may vary within ranges of 50-70% for fixed income
securities, 20-40% for stocks and 5-15% for money market securities.
The Adviser uses a portfolio management team approach. In making asset
allocation decisions, the portfolio management team evaluates forecasts for
inflation, interest rates and long-term corporate earnings growth. The team
then examines the potential effect of these factors on each asset group over
a one-to-three year time period and compares its risk analysis to a weighted
index of 65% of the Lehman Intermediate Government/Corporate Bond Index, 25%
of the S&P 500(R) Index, and 10% of the 90-day Treasury Bill. The team then
selects securities based on a bottom-up analysis in accordance with the
following criteria:
- Bonds. The Fund invests in fixed income securities including (1)
government and corporate bonds, (2) mortgage-backed securities (including
stripped mortgage-backed securities) and (3) asset-backed securities. The
Fund invests primarily in bonds rated within the four highest long-term
or two highest short-term rating categories or comparable quality unrated
securities. The Fund may invest up to 20% of its total assets in high
yield debt securities although it does not presently intend to do so.
Under normal conditions, the Fund intends to hold debt securities (other
than money market securities) with maturities between 1 and 10 years.
However, securities with any maturity are eligible for purchase. The
Adviser begins the portfolio management process by reviewing current
economic activity and forecasting how it may change in the future. The
Adviser uses this forecast to allocate the Fund's assets across different
market sectors and maturities based on its view of the relative value of
each sector or maturity.
- Stocks. The Fund invests in common stocks, preferred stocks and
convertible securities. The Fund may invest in both U.S. issuers and
foreign issuers whose securities are U.S. dollar denominated and traded
on a U.S. security market, and invests primarily in equity securities of
larger capitalization companies. The Adviser uses a "bottom-up" approach
to selecting securities for investment. Based upon the analysis of
various factors, the Adviser selects those securities which, in its
judgment, will outperform the average for the companies included in the
S&P 500(R) Index.
- Money Market Instruments. The Fund will invest in high-quality, U.S.
dollar-denominated short-term obligations, including commercial paper,
asset-backed securities, obligations of financial institutions and other
high-quality money market instruments issued by U.S. and foreign issuers.
These securities will be rated in one of the two highest short-term
rating categories of at least two rating agencies or will be unrated
securities of comparable quality.
(See "Other Considerations -- Temporary Defensive Positions".)
23
<PAGE> 25
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
[logo]
DIVERSIFIED ASSETS FUND
CONTINUED
PRINCIPAL INVESTMENT RISKS: The price per share of the Fund will fluctuate
with changes in value of the investments held by the Fund. You may lose money
by investing in the Fund. The Fund faces the following general risks:
- Market Risk: The values of stocks fluctuate in response to the activities
of individual companies and general stock market and economic conditions.
Stock prices may decline over short or even extended periods. Stocks are
more volatile and riskier than some other forms of investment, such as
short-term, high-grade fixed income securities.
- Interest Rate Risk: Interest rate risk is the chance that the value of
the bonds the Fund holds will decline due to rising interest rates. When
interest rates rise, the price of most bonds goes down. When interest
rates go down, bond prices go up. The price of a bond is also affected by
its maturity. Bonds with longer maturities generally have greater
sensitivity to changes in interest rates.
- Credit Risk: Credit risk is the chance that a bond issuer will fail to
repay interest and principal in a timely manner, reducing the Fund's
return. Credit risk is somewhat minimized by the Fund's policy of
investing primarily in bonds rated within the four highest long-term or
two highest short-term rating categories or comparable quality unrated
securities and through adequate diversification among issuers and
industries.
- Selection Risk: Selection risk is the chance that poor security selection
will cause the Fund to underperform other funds with similar investment
objectives.
- Capitalization Risk: Securities of small and mid-capitalization companies
tend to be more volatile, have less predictable earnings, and are less
liquid than those of large capitalization companies.
- Yield Curve Risk: This is the risk that changes in the shape of the yield
curve will affect the value of the Fund's investments in income-producing
or debt securities.
- Volatility Risk: This is the risk that the magnitude of the changes in
the shape of the yield curve will affect the value of the Fund's
investments in income-producing or debt securities.
24
<PAGE> 26
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
logo
OTHER CONSIDERATIONS
TEMPORARY DEFENSIVE POSITIONS: In order to meet liquidity needs or for
temporary defensive purposes, each Fund may hold investments, including
uninvested cash reserves, that are not part of its main investment strategy.
Each of the Growth Fund, Global Opportunities Fund, Diversified Assets Fund
and Fixed Income Fund (the "Non-Money Market Funds") may invest up to 100% of
its assets in money market instruments, including short-term debt securities
issued by the U.S. Government and its agencies and instrumentalities,
domestic bank obligations, commercial paper or in repurchase agreements
secured by bank instruments (with regard to the Global Opportunities Fund,
such investment may include those of foreign governments and companies). In
addition, each Non-Money Market Fund may hold equity securities which in the
Adviser's opinion are more conservative than the types of securities in which
the Fund typically invests. To the extent the Funds are engaged in temporary
or defensive investments, a Fund will not be pursuing its investment
objective.
PORTFOLIO TURNOVER: While the Funds do not engage in short-term trading, in
some cases in response to market conditions, a Fund's portfolio turnover may
exceed 100%. A higher rate of portfolio turnover increases brokerage and
other expenses, which must be borne by the Fund and its shareholders and may
adversely affect the Fund's performance. High portfolio turnover also may
result in the realization of substantial net short-term capital gains, which
are taxable as ordinary income when distributed to shareholders.
YEAR 2000
Like other funds and business organizations around the world, the Funds could
be adversely affected if the computer systems used by the Adviser and other
service providers do not properly process and calculate date-related
information for the year 2000 and beyond.
The Funds have been assured that the Adviser and other service providers
(i.e., Administrator, Transfer Agent, Fund Accounting Agent, Custodian and
Distributor) have developed and are implementing clearly defined and
documented plans intended to minimize risks to services critical to the
Funds' operations associated with Year 2000 issues. Internal efforts include
a commitment to dedicate adequate staff and funding to identify and remedy
Year 2000 issues, and specific actions such as inventorying software systems,
determining inventory items that may not function properly after December 31,
1999, reprogramming or replacing such systems, and retesting for Year 2000
readiness. The Funds' Adviser and service providers are likewise seeking
assurances from their respective vendors and suppliers that such entities are
addressing any Year 2000 issues, and each provider intends to engage, where
appropriate, in private and industry or "streetwide" interface testing of
systems for Year 2000 readiness.
25
<PAGE> 27
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
[logo]
YEAR 2000
CONTINUED
In the event that any systems upon which the Funds are dependent are not Year
2000 compliant by December 31, 1999, administrative errors and account
maintenance failures would likely occur. While the ultimate costs or
consequences of incomplete or untimely resolution of Year 2000 issues by the
Adviser or the Funds' service providers cannot be accurately assessed at this
time, the Funds currently have no reason to believe that the Year 2000 plans
of the Adviser and other service providers will not be completed by December
31, 1999, or that the anticipated costs associated with full implementation
of their plans will have a material adverse impact on either their business
operations or financial condition or those of the Funds. The Funds and the
Adviser will continue to closely monitor developments relating to this issue,
including development by the Adviser and other service providers of
contingency plans for providing back-up computer services in the event of a
systems failure or the inability of any provider to achieve Year 2000
readiness. Separately, the Adviser will monitor potential investment risk
related to Year 2000 issues.
In addition, Year 2000 issues may adversely affect companies in which the
Funds invest where, for example, such companies incur substantial costs to
address Year 2000 issues or suffer losses caused by the failure to adequately
or timely do so. This risk may be greater for those Funds which invest in the
securities of foreign issuers.
26
<PAGE> 28
FUND MANAGEMENT
[LOGO]
THE INVESTMENT ADVISER
Allianz of America, Inc., (the "Adviser"), is the adviser for the Funds. The
Adviser, a registered investment adviser, was established in 1976 and as of
December 31, 1998, managed more than $21 billion in fixed income, equity and
real estate investments. The Adviser is a subsidiary of Allianz AG Holding
("Allianz AG"), one of the world's largest insurance and financial services
companies. Allianz AG is headquartered in Munich, Germany and has operations
in 68 countries. In North America, Allianz AG owns and operates Fireman's
Fund Insurance Company, Allianz Life Insurance Company of North America,
Jefferson Insurance Company, Allianz Insurance Company, Allianz Canada, and
Allianz Mexico. Through its portfolio management team, the Adviser makes the
day-to-day investment decisions and continuously reviews, supervises and
administers the Funds' investment programs.
For these advisory services, each Fund pays the Adviser a fee at the annual
rate shown below:
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
NET ASSETS
---------------------
<S> <C>
Growth Fund .75%
Global Opportunities Fund .95%
Fixed Income Fund .50%
Money Market Fund .35%
Diversified Assets Fund .55%
</TABLE>
Ordinarily, the Adviser may voluntarily waive a portion of its advisory fee
and/or reimburse expenses incurred by the Funds, and such waiver and/or
reimbursements may be discontinued at any time. The Adviser has entered into
a contractual expense limitation agreement with the Trust, pursuant to which,
until at least September 30, 2000 (a) the Adviser has agreed to limit each
Fund's and each class' total expenses and (b) the Adviser is entitled to
recoup any waived fees to the extent the actual total operating expenses are
less than those stated in this Prospectus.
PORTFOLIO MANAGERS
The Adviser has several portfolio managers committed to the day-to-day
management of the Funds. Each Portfolio Manager uses a team approach to the
investment management of the Non-Money Market Funds and relies on analysis,
research and other information furnished by the team's experienced investment
professionals.
Fixed Income Investments: Gary Brown is responsible for the team of highly
trained investment professionals who manage the assets of the Fixed Income
Fund. He is also responsible for the fixed income investments of the
Diversified Assets Fund and for the Money Market Fund. He is Senior Managing
Director, Fixed Income of the Adviser and has twenty-four years of investment
experience. Mr. Brown is currently responsible for directing the management
of the Adviser's fixed income investments. He has been with the Adviser since
1991, after serving as Managing Director at CIGNA Investments from 1986 to
1991, with responsibility for CIGNA's public taxable and tax-exempt bond
portfolios, as well as four fixed income mutual funds and institutional
client portfolios. His investment experience has covered all fixed income
securities, including governments, corporates, mortgages, high yield,
convertibles, and various derivative products. Mr. Brown was a Vice President
with CIGNA from 1982 to 1986 managing public and private fixed income
investments for the insurance company
27
<PAGE> 29
FUND MANAGEMENT
[LOGO]
PORTFOLIO MANAGERS
CONTINUED
portfolios, responsible for asset and liability management and CIGNA's
convertible securities portfolio. Prior to joining CIGNA, he managed public
bond and private placement investments for INA Capital Advisors, Inc from
1979 to 1982, and was an investment analyst with The Penn Mutual Life
Insurance Company from 1975 to 1979. Mr. Brown received a B.S. and an M.B.A.
from Drexel University.
Equity Investments: Ronald M. Clark, Senior Managing Director, is responsible
for the day to day management of the Growth Fund and the Global Opportunities
Fund and is also responsible for the equity investments of the Diversified
Assets Fund. Mr. Clark is also responsible for directing the management of
all equity investments of the Adviser and has twenty-nine years of investment
experience. He began his career in 1972 at Mutual of New York as an
investment analyst, and shortly thereafter joined its subsidiary, North
American Life and Casualty, which was later renamed Allianz Life Insurance
Company of North America, where he was Chief Investment Officer from 1973 to
1980. Since 1980, Mr. Clark has been with the Adviser. In addition to equity
investments, his responsibilities include membership on the Investment Policy
Committee of Allianz worldwide and the Finance Committee of the Adviser. In
addition, he provides senior level oversight of real estate investments and
holding company corporate finance activities. He is a graduate of the
University of Wisconsin, with an undergraduate degree in Industrial
Engineering, and masters in Finance and Real Estate.
The Statement of Additional Information (SAI) has more detailed information
about the Adviser and other service providers.
ADVISER'S PRIOR PERFORMANCE
Both the Money Market Fund and Diversified Assets Fund are substantially
similar to other pooled accounts advised by the Adviser. The performance
information shown below is the performance of unregistered master trust
portfolios managed by the Adviser for tax-exempt investors. Each master trust
portfolio has investment objectives, policies, styles and strategies
substantially similar to ones that will be employed by the corresponding
Fund. Each master trust portfolio is not subject to the diversification
requirements, specific tax restrictions and investment limitations imposed on
the Funds by the Investment Company Act of 1940 and Subchapter M of the
Internal Revenue Code. Consequently, the
28
<PAGE> 30
FUND MANAGEMENT
[LOGO]
performance of each master trust portfolio may have been adversely affected
if it had been regulated as an investment company under the federal
securities laws. Although this performance reflects the fees and expenses of
the master trust portfolios, this performance HAS NOT BEEN adjusted to
reflect the fees and expenses which will apply to the Funds. Had such
performance been adjusted for such fees and expenses, the performance results
would have been lower. The information does not represent the Funds'
performance, as each is newly organized and has no performance record of its
own, nor is it indicative of the Funds' future performance. The performance
was calculated in accordance with recommended standards of the Association
for Investment Management and Research (AIMR), retroactively applied to all
time periods. Investment results were not calculated pursuant to the
methodology established by the Securities and Exchange Commission that will
be used to calculate the Funds' performance results.
MASTER TRUST PORTFOLIO ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------
MONEY MARKET 4.26% 3.54% 3.98% 6.10% 5.50% 5.67% 5.49%
------------------------------------------------------
DIVERSIFIED ASSETS 4.19% 5.49% -1.65% 20.66% 10.36% 15.91% 13.82%
-------------------------------------------------------------------------------
</TABLE>
MASTER TRUST PORTFOLIO
AVERAGE ANNUAL RATES OF RETURN FOR PERIODS ENDING
DECEMBER 31, 1998
The table below provides an indication of the risks of an investment in the
Funds by showing performance of the master trust portfolios, as described
above, as compared to a broad based securities index and in the case of the
diversified assets master trust portfolio, additionally to an index created
by the Adviser.
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS INCEPTION DATE
<S> <C> <C> <C> <C>
---------------------------------------
MONEY MARKET 5.49% 5.35% 4.93% 1/1/92*
---------------------------------------
3 MONTH TREASURY BILL 5.06% 5.11% 4.61%
-------------------------------------------------------------------------------------
DIVERSIFIED ASSETS 13.82% 11.56% 9.59% 1/1/92*
---------------------------------------
LEHMAN INTERMEDIATE GOVERNMENT/ CORPORATE
BOND INDEX 8.42% 6.59% 6.99%
---------------------------------------
DIVERSIFIED ASSETS INDEX** 13.36% 10.78% 9.91%
-------------------------------------------------------------------------------------
*Commencement of Operations
**An index created by the Adviser consisting of several securities market indices
including 65% of the Lehman Intermediate Government/Corporate Bond Index, 25% of
the S&P 500(R) Index and 10% of the 90-day Treasury Bill.
</TABLE>
THE ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Ohio, Inc. ("BISYS"), whose address is 3435 Stelzer Road,
Columbus, Ohio 43219-3035, serves as the Funds' administrator, transfer agent
and fund accountant. Administrative services of BISYS include providing
office space, equipment and clerical personnel to the Funds and supervising
custodial, auditing, valuation, bookkeeping, legal and dividend disbursing
services.
BISYS Fund Services Limited Partnership serves as the distributor of the
Funds' shares (the "Distributor"). The Distributor may provide financial
assistance in connection with pre-approved seminars, conferences and
advertising to the extent permitted by applicable state or self-regulatory
agencies, such as the National Association of Securities Dealers.
29
<PAGE> 31
SHAREHOLDER INFORMATION
[Logo]
PRICING OF FUND SHARES
---------------------------
HOW NET ASSET VALUE IS
CALCULATED
NAV is calculated by adding
the total value of a Fund's
investments and other
assets, subtracting its
liabilities and then
dividing that figure by the
number of outstanding
shares of the Fund:
NAV =
Total Assets - Liabilities
-----------------------------
Number of Shares
Outstanding
NAV is calculated
separately for each Class.
---------------------------
MONEY MARKET FUND
The Money Market Fund's NAV, the offering price, is expected to be constant at
$1.00 per share although this value is not guaranteed. The NAV is determined
each day at 1:00 p.m. Eastern time, on days the New York Stock Exchange (the
"NYSE") is open. The Money Market Fund values its securities at its amortized
cost. The amortized cost method values a portfolio security initially at its
cost on the date of the purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and initial cost.
OTHER FUNDS
Per share NAV for each Fund, other than the Money Market Fund, is determined
and its shares are priced at the close of regular trading on the NYSE, normally
at 4:00 p.m. Eastern time, on days the NYSE is open.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is received in proper form by the Fund less any
applicable sales charge (as noted in the section on "Distribution
Arrangements/Sales Charges") on any day that both the NYSE and the Funds'
custodian are open for business. This is what is known as the offering price.
For example: If you place a purchase order to buy shares of the Fund, it must
be received by 4:00 p.m. Eastern time in order to receive the NAV calculated at
4:00 p.m. Eastern time. If your order is received after 4:00 p.m. Eastern time,
you will receive the NAV calculated on the next day at 4:00 p.m. Eastern time.
The securities (other than short-term debt securities) of the Funds, except the
Money Market Fund, are generally valued at current market prices. If market
quotations are not available, prices will be based on fair value as determined
in good faith by or at the direction of the Funds' Trustees.
After the pricing of a foreign security has been established, if an event
occurs which would likely cause the value to change, the value of the foreign
security may be priced at fair value as determined in good faith by or at the
direction of the Fund's Trustees. The effect of using fair value pricing is
that the Fund's NAV will be subject to the judgment of the Board of Trustees or
its designees instead of being determined by the market. In addition, the
foreign securities acquired by a Fund may be valued in foreign markets on days
when the Fund's NAV is not calculated. In such cases, the NAV of a Fund may be
significantly affected on days when investors cannot buy or sell shares.
30
<PAGE> 32
SHAREHOLDER INFORMATION
[Logo]
PURCHASING SHARES
<TABLE>
<CAPTION>
MINIMUM MINIMUM
INITIAL SUBSEQUENT
ACCOUNT TYPE INVESTMENT INVESTMENT
<S> <C> <C>
CLASS A, B OR Y
Regular (non-retirement) $ 500 $ 50
Retirement (IRA) $ 250 $ 250
Automatic Investment Plan $ 250 $ 50
</TABLE>
- All purchases must be in U.S. dollars.
- A fee will be charged for any checks that
do not clear.
- Third-party checks are not accepted.
A Fund may waive its minimum purchase
requirement and the Distributor may reject
a purchase order if it considers it in the
best interest of the Fund and its shareholders
You may purchase shares
of the Funds through the
Distributor or through
banks, brokers and other
investment
representatives, which
may charge additional
fees and may require
higher minimum
investments or impose
other limitations on
buying and selling
shares. If you purchase
shares through an
investment
representative, that
party is responsible for
transmitting orders by
close of business and
may have an earlier
cut-off time for
purchase and sale
requests. Consult your
investment
representative or
institution for specific
information.
-----------------------------------------------------------------------------
AVOID 31% TAX WITHHOLDING
Each Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with
IRS rules. To avoid this, make sure you provide your correct Tax
Identification Number (Social Security Number for most investors) on your
account application.
-----------------------------------------------------------------------------
31
<PAGE> 33
SHAREHOLDER INFORMATION
[Logo]
PURCHASING SHARES
CONTINUED
INSTRUCTIONS FOR OPENING OR
ADDING TO AN ACCOUNT
BY REGULAR MAIL OR EXPRESS MAIL
If purchasing through your financial advisor or brokerage account, simply
tell your advisor or broker that you wish to purchase shares of the Funds and
he or she will take care of the necessary documentation. For all other
purchases, follow the instructions below.
All investments made by regular mail or express delivery, whether initial or
subsequent, should be sent:
BY REGULAR MAIL:
USAllianz Funds
P.O. Box 182248
Columbus, OH 43218-2248
BY EXPRESS MAIL:
USAllianz Funds
3435 Stelzer Road
Columbus, OH 43219
For Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "USAllianz Funds" Also
include the name of the appropriate Fund(s) on the check.
3. Mail or deliver application and payment to the address above.
For Subsequent Investment:
1. Use the investment slip attached to your
account statement. Or, if unavailable,
provide the following information:
- Fund name
- Share class
- Amount invested
- Account name and Account number
2. Mail or deliver investment slip and payment
to the address above.
ELECTRONIC PURCHASES
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. Bank. Your bank or broker may charge for this service.
Establish electronic purchase option on your account application or call toll
free 1-877-833-7113. Your account can generally be set up for electronic
purchases within 15 days.
Call toll free 1-877-833-7113 to arrange a transfer from your bank account.
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial institutions to send funds to each other, almost
instantaneously. With an electronic purchase or sale, the transaction is made
through the Automated Clearing House (ACH) and may take up to eight days to
clear.
32
<PAGE> 34
SHAREHOLDER INFORMATION
[Logo]
PURCHASING SHARES
CONTINUED
BY WIRE TRANSFER
Note: Your bank may charge a wire transfer fee.
For initial investment:
Fax the completed application, along with a request for a confirmation number
to 1-877-833-7113 (toll free). Follow the instructions below after receiving
your confirmation number.
For initial and subsequent investments:
Instruct your bank to wire transfer your investment to:
- Huntington National Bank
- Routing Number: ABA #044000024
- A/C #01899622559
- Include:
- Your name
- Your confirmation number
After instructing your bank to wire the funds, call toll free 1-877-833-7113
to advise us of the amount being transferred and the name of your bank.
-----------------------------------------------------------------------------
You can also add to your account by using the convenient options described
below. Each Fund reserves the right to change or eliminate these privileges
at any time with 60 days notice.
-----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN
You can make automatic investments in the Funds from your bank account,
through payroll deduction or from your federal employment, Social Security or
other regular government checks. Automatic investments can be as little as
$50 per month, once you've invested the $250 minimum required to open the
account.
To invest regularly from your bank account:
Complete the Automatic Investment Plan portion on your Account Application.
Make sure you note:
- Your bank name, address and account number
- The amount you wish to invest automatically (minimum $50)
- Attach a voided personal check.
To invest regularly from your paycheck or government check: Call toll free
1-877-833-7113 for an enrollment form.
33
<PAGE> 35
SHAREHOLDER INFORMATION
[Logo]
PURCHASING SHARES
CONTINUED
DIRECTED DIVIDEND OPTION
By selecting the appropriate box in the Account Application, you can elect to
receive your distributions in cash (check) or have distributions (capital
gains and dividends) reinvested in another Fund without a sales charge. You
must maintain the minimum balance in each Fund into which you plan to
reinvest dividends or the reinvestment will be suspended and your dividends
paid to you in cash. Each Fund may modify or terminate this reinvestment
option without notice. In the event a Fund modifies this reinvestment option
in a manner which makes it unavailable to you, or terminates it entirely, you
would receive all distributions in cash (check). You can change or terminate
your participation in the reinvestment option at any time.
-----------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Dividends are higher for Class Y shares than for Class A and Class B shares,
because Class Y shares have lower distribution expenses. Capital gains are
distributed at least annually.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE
OWNED YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION
DATE, SOME OF YOUR INVESTMENT MAY BE RETURNED TO YOU IN THE FORM OF A
DISTRIBUTION.
-----------------------------------------------------------------------------
34
<PAGE> 36
SHAREHOLDER INFORMATION
[LOGO]
SELLING YOUR SHARES
You may sell your shares
at any time. Your sales
price will be the next NAV
after your sell order is
received by the Fund, its
transfer agent, or your
investment representative.
Normally you will receive
your proceeds within a
week after your request is received. See section on "General Policies on
Selling Shares below."
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
When you sell Class B shares, you will be charged a fee for any shares that
have not been held for a sufficient length of time. These fees will be
deducted from the money paid to you. See the section on "Distribution
Arrangements/Sales Charges" below for details.
INSTRUCTIONS FOR SELLING SHARES
If selling your shares through your financial adviser or broker, ask him or
her for redemption procedures. Your adviser and/or broker may have
transaction minimums and/or transaction times which will affect your
redemption. For all other sales transactions, follow the instructions below.
<TABLE>
<S> <C>
BY TELEPHONE 1. Call toll free 1-877-833-7113 with instructions as to
(unless you have declined telephone how you wish to receive your funds (mail, wire, electronic
sales privileges) transfer). (See "General Policies on Selling
Shares -- Verifying Telephone Redemptions" below)
BY MAIL 1. Call toll free 1-877-833-7113 to request redemption
(See "Selling Your Shares -- forms or write a letter of instruction indicating:
Redemptions in Writing Required") - your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to: USAllianz Funds, P.O. Box 182248, Columbus, OH
43218-2248
BY OVERNIGHT SERVICE See "By mail" instruction 1 above.
(See "General Policies on Selling
Shares -- Redemptions in Writing 2. Send to: USAllianz Funds, c/o BISYS Fund Services
Required" below) Attn: T.A. Operations, 3435 Stelzer Road, Columbus, OH
43219
WIRE TRANSFER Call toll free 1-877-833-7113 to request a wire transfer.
You must indicate this option on
your application. If you call by 4 p.m. Eastern time, your payment will
normally be wired to your bank on the next business day.
Note: Your financial institution
may also charge a separate fee.
ELECTRONIC REDEMPTIONS Call toll free 1-877-833-7113 to request an electronic
Your bank must participate in the redemption.
Automated Clearing House (ACH) and
must be a U.S. bank. If you call by 4 p.m. Eastern time, the NAV of your shares
will normally be determined on the same day and the
Your bank may charge for this proceeds credited within 8 days.
service.
</TABLE>
35
<PAGE> 37
SHAREHOLDER INFORMATION
[Logo]
SELLING YOUR SHARES
CONTINUED
SYSTEMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $50. To activate this
feature:
- Make sure you've checked the appropriate box on the Account Application. Or
call toll free 1-877-833-7113.
- Include a voided personal check.
- Your account must have a value of $10,000 or more to start withdrawals.
- If the value of your account falls below $500, you may be asked to add
sufficient funds to bring the account back to $500, or the Fund may close
your account and mail the proceeds to you.
REDEMPTION BY CHECK WRITING -- MONEY MARKET FUND
You may write an unlimited number of checks a month in amounts of $250 or
more on your account in the Money Market Fund. To obtain checks, complete the
signature card section of the Account Application or contact the Fund to
obtain a signature card. Dividends and distributions will continue to be paid
up to the day the check is presented for payment. The check writing feature
may be modified or terminated upon 30-days' written notice. You must maintain
the minimum required account balance of ($500) and you may not close your
Money Market Fund account by writing a check.
GENERAL POLICIES ON SELLING SHARES
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee, which include each of
the following:
- Redemptions over $50,000
- Your account registration or the name(s) in your account has changed
within the last 15 days
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another Fund account
with a different registration.
A signature guarantee can be obtained from a financial institution, such as
a bank, broker-dealer, or credit union, or from members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock
Exchange Medallion Signature Program) or SEMP (Stock Exchanges Medallion
Program). Members are subject to dollar limitations which must be
considered when requesting their guarantee. The Transfer Agent may reject
any signature guarantee if it believes the transaction would otherwise be
improper.
36
<PAGE> 38
SHAREHOLDER INFORMATION
[Logo]
SELLING YOUR SHARES
CONTINUED
GENERAL POLICIES ON SELLING SHARES
VERIFYING TELEPHONE REDEMPTIONS
The Funds make every effort to insure that telephone redemptions are only
made by authorized shareholders. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity.
Given these precautions, unless you have specifically indicated on your
application that you do not want the telephone redemption feature, you may be
responsible for any fraudulent telephone orders. If appropriate precautions
have not been taken, the Transfer Agent may be liable for losses due to
unauthorized transactions.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, payment of your
redemption proceeds will be delayed until the Transfer Agent is satisfied
that the check has cleared (which may take up to 15 business days). You can
avoid this delay by purchasing shares with a certified check or federal funds
wire.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders. If you experience difficulty making a telephone
redemption during periods of drastic economic or market change, you can send
the Funds your request by regular or express mail.
REDEMPTION IN KIND
Each Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund
operations (for example, more than 1% of the Fund's net assets). If the Fund
deems it advisable for the benefit of all shareholders, redemption in kind
will consist of securities equal in market value to your shares. When you
convert these securities to cash, you will pay brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $500.00 (not as a result of market action), the
Fund may ask you to increase your balance. If it is still below $500.00 after
60 days, the Fund may close your account and send you the proceeds at the
current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be canceled and the money reinvested in
the appropriate Fund at its current NAV.
37
<PAGE> 39
SHAREHOLDER INFORMATION
[Logo]
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
This section describes the sales charges and fees you will pay as an investor
in different share classes offered by the Funds and ways to qualify for
reduced sales charges.
<TABLE>
<S> <C> <C>
CLASS A CLASS B
Sales Charge (Load) Front-end sales charge (not No front-end sales charge. A
applicable to money market funds); contingent deferred sales charge
reduced sales charges available. (CDSC) may be imposed on shares
redeemed within six years after
purchase; shares automatically
convert to Class A shares after 8
years. Maximum initial investment
is $250,000.
Distribution (12b-1) and Service Subject to annual distribution fee Subject to annual distribution and
Fee of up to 0.25% of the Fund's shareholder servicing fees of up
assets. to 1.00% of the Fund's assets.
Fund Expenses Lower annual expenses than Class B Higher annual expenses than Class
shares. A shares.
</TABLE>
There is also a Class Y open to:
- Investors for whom the Adviser and its affiliates manage separate
accounts in a fiduciary, advisory, custodial (other than retirement
accounts), agency or similar capacity
- Participants in 401(k) or 403(b) retirement plans
- Trustees of the Funds and employees and family members of the Adviser and
its affiliates.
Class Y shares are not subject to any sales charges or 12b-1 distribution
fees.
38
<PAGE> 40
SHAREHOLDER INFORMATION
[logo]
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
CALCULATION OF SALES CHARGES
CLASS A SHARES
Class A shares are sold at their public offering price. This price includes
the initial sales charge. Therefore, part of the money you invest will be
used to pay the sales charge. The remainder is invested in shares. The sales
charge decreases with larger purchases. There is no sales charge on
reinvested dividends and distributions.
The current sales charge rates are as follows:
FOR THE FIXED INCOME FUND
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
<S> <C> <C>
Up to $49,999 4.75% 4.99%
$50,000 up to $75,000 4.50% 4.71%
$75,001 up to $100,000 3.50% 3.63%
$100,001 up to $250,000 3.25% 3.36%
$250,001 up to $500,000 2.50% 2.56%
$500,001 up to $1,000,000 2.00% 2.04%
$1,000,001 and above(1) 0.00% 0.00%
</TABLE>
FOR THE GROWTH FUND, GLOBAL OPPORTUNITIES FUND AND DIVERSIFIED ASSETS FUND
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
<S> <C> <C>
Up to $49,999 5.75% 6.10%
$50,000 up to $75,000 4.75% 4.99%
$75,001 up to $100,000 4.50% 4.71%
$100,001 up to $250,000 3.00% 3.09%
$250,001 up to $500,000 2.50% 2.56%
$500,001 up to $1,000,000 2.00% 2.04%
$1,000,001 and above(1) 0.00% 0.00%
</TABLE>
(1) There is no initial sales charge on purchases of $1 million or more.
However, a contingent deferred sales charge (CDSC) of up to 1.00% of the
purchase price will be charged to the shareholder if shares are redeemed
in the first year after purchase. This charge will be based on the lower
of your cost for the shares or their NAV at the time of redemption. There
will be no CDSC on reinvested distributions.
39
<PAGE> 41
SHAREHOLDER INFORMATION
[logo]
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
CDSC AS A % OF DOLLAR
AMOUNT SUBJECT TO
YEARS SINCE PURCHASE CHARGE
<S> <C>
0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
more than 6 None
</TABLE>
CLASS B AND CLASS Y SHARES
Class B and Y shares are offered at
NAV, without any up-front sales
charge. Therefore, all the money
you invest is used to purchase
shares. However, if you sell your
Class B shares of a Fund before the
sixth anniversary of purchase, you
will have to pay a contingent
deferred sales charge at the time
of redemption. The CDSC will be
based upon the lower of the NAV at
the time of purchase or the NAV at
the time of redemption according to
the schedule below. There is no
CDSC on reinvested dividends or
distributions. Unlike Class B
shares, you may sell your Class Y
shares without incurring a CDSC.
If you sell some but not all of your Class B shares, certain shares not
subject to the CDSC (i.e., shares purchased with reinvested dividends) will
be redeemed first, followed by shares subject to the lowest CDSC (typically
shares held for the longest time).
CONVERSION FEATURE -- CLASS B SHARES
- Class B shares automatically convert to Class A shares of the same Fund
after eight years from the end of the month of purchase.
- After conversion, your shares will be subject to the lower distribution and
shareholder servicing fees charged on Class A shares, which will increase
your investment return compared to the Class B shares.
- You will not pay any sales charge or fees when your shares convert, nor
will the transaction be subject to any tax.
- If you purchased Class B shares of one Fund which you exchanged for Class B
shares of another Fund, your holding period will be calculated from the
time of your original purchase of Class B shares. The dollar value of Class
A shares you receive will equal the dollar value of the Class B shares
converted.
40
<PAGE> 42
SHAREHOLDER INFORMATION
[logo]
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
SALES CHARGE REDUCTIONS
Reduced sales charges for Class A shares are available to shareholders with
investments of $50,000 or more. In addition, you may qualify for reduced
sales charges under the following circumstances:
- Letter of Intent. You inform a Fund in writing that you intend to
purchase enough shares over a 13-month period to qualify for a reduced
sales charge. You must include a minimum of 5% of the total amount you
intend to purchase with your letter of intent. Shares purchased under the
non-binding letter of intent will be held in escrow until the total
investment has been completed. In the event the letter of intent is not
completed, sufficient escrowed shares will be redeemed to pay any
applicable front-end sales charges.
- Rights of Accumulation. When the value of shares you already own plus the
amount you intend to invest reaches the amount needed to qualify for
reduced sales charges, your added investment will qualify for the reduced
sales charge.
- Combination Privilege. Combine accounts of multiple Funds (excluding the
Money Market Fund) or accounts of immediate family household members
(spouse and children under 21) to achieve reduced sales charges.
SALES CHARGE WAIVERS
CLASS A SHARES
The following qualify for waivers of sales charges:
- Shares purchased by investment representatives through fee-based
investment products or accounts.
- Proceeds from redemptions from another mutual fund complex within 90 days
after redemption, if you paid a front end sales charge for those shares.
- Proceeds from the redemption of Class Y shares.
- Reinvestment of distributions from a deferred compensation plan, agency,
trust, or custody account that was maintained by the Adviser or its
affiliates or invested in any USAllianz Fund.
- Shares purchased by any organization, or its employees, that provides
services to the Funds; retired Fund trustees; dealers who have an
agreement with the Distributor; and any trade organization to which the
Adviser or the Administrator belongs.
41
<PAGE> 43
SHAREHOLDER INFORMATION
[logo]
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
REINSTATEMENT PRIVILEGE
If you have sold Class A or Class B shares and decide to reinvest in the same
Fund within a 90 day period, you will not be charged the applicable sales
load on amounts up to the value of the shares you sold. You must provide a
written reinstatement request and payment within 90 days of the date your
instructions to sell were processed.
CLASS B SHARES
The CDSC will be waived under certain circumstances, including the following:
- Distributions from retirement plans if the distributions are made
following the death or disability of shareholders or plan participants.
- Redemptions from accounts other than retirement accounts following the
death or disability of the shareholder.
- Returns of excess contributions to retirement plans.
- Distributions of less than 12% of the annual account value under a
Systematic Withdrawal Plan.
- Shares issued in a plan of reorganization sponsored by the Adviser, or
shares redeemed involuntarily in a similar situation.
DISTRIBUTION (12b-1) FEES -- CLASS A AND B SHARES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and
distribution of the Funds' shares. 12b-1 fees are paid from Fund assets on an
ongoing basis. Over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
The 12b-1 fees vary by share class as follows:
- Class A shares pay a 12b-1 fee of up to .25% of the average daily net
assets of a Fund.
- Class B shares pay a 12b-1 fee of up to .75% of the average daily net
assets of the applicable Fund. This will cause expenses for Class B
shares to be higher and dividends to be lower than for Class A shares.
The higher 12b-1 fee on Class B shares, together with the CDSC, help the
Distributor sell Class B shares without an "up-front" sales charge. In
particular, these fees help to defray the Distributor's costs of advancing
brokerage commissions to investment representatives.
Over time holders of Class B shares may pay more than the equivalent of the
maximum permitted front-end sales charge because 12b-1 distribution and
service fees are paid out of the Fund's assets on an on-going basis.
42
<PAGE> 44
SHAREHOLDER INFORMATION
[logo]
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
SHAREHOLDER SERVICE FEES
Various banks, trust companies, broker-dealers (other than the Distributor)
and other financial organizations ("Service Organization(s)") may provide
certain shareholder services for their customers who invest in the Funds'
Class B shares, through accounts maintained at that Service Organization.
Each Fund, under shareholder servicing agreements with the Service
Organization, will pay the Service Organization a fee at an annual rate of up
to .25% of the Fund's average daily net assets for these services, which
include:
- receiving and processing shareholder orders
- maintaining retirement plan accounts
- answering questions and handling correspondence for customer accounts
- acting as the sole shareholder of record for customer accounts
- issuing shareholder reports and transaction confirmations
43
<PAGE> 45
SHAREHOLDER INFORMATION
[LOGO]
EXCHANGING YOUR SHARES
You can exchange your shares
in one Fund for shares of the
same class of another
USAllianz Fund, usually
without paying additional
sales charges (see "Notes"
below). No transaction fees
are charged for exchanges.
You must meet the minimum
investment requirements and
shares must be eligible for
sale in the state for the
Fund into which you are
exchanging. Exchanges from
one Fund to another are
taxable.
AUTOMATIC EXCHANGES
You can use the Money Market
Fund's Automatic Exchange
feature to purchase shares of
the other Funds at regular
intervals through regular,
automatic redemptions from
the Money Market Fund. To
participate in the Automatic
Exchange:
- Complete the appropriate
section of the Account
Application.
- Keep a minimum of $5,000
in the Money Market Fund
and $1,000 in the Fund
whose shares you are
buying.
To change the Automatic Exchange instructions or to discontinue the feature,
you must send a written request to USAllianz Funds, P.O. Box 182248,
Columbus, Ohio 43218-2248.
NOTES ON EXCHANGES
When exchanging from a Fund that has no sales charge or a lower sales charge
to a Fund with a higher sales charge, you will pay the difference.
The registration and tax identification numbers of the two accounts must be
identical.
The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time upon a 60-day notice to shareholders.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to USAllianz Funds, P.O. Box
182248, Columbus OH 43218-2248, or by calling toll free 1-877-833-7113. Please
provide the following information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security number)
- Dollar value or number of shares to be exchanged
- The name of the Fund from which the exchange is to be made
- The name of the Fund into which the exchange is being made
See "Selling your Shares" for important information about telephone
transactions.
To prevent disruption in the management of the Funds, due to market timing
strategies, exchange activity may be limited to five exchanges within a one
year period or three exchanges within a calendar quarter.
44
<PAGE> 46
SHAREHOLDER INFORMATION
[logo]
DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income a Fund receives is paid out, less expenses, in the form of
dividends to its shareholders. Shares begin accruing dividends on the day
they are purchased. Income dividends on the Growth Fund and Global
Opportunities Fund are usually paid semiannually. Income dividends on the
Money Market Fund, Diversified Assets Fund and Fixed Income Fund are usually
paid monthly. Capital gains for all Funds are distributed at least annually.
An exchange of shares is considered a sale, and any related gains may be
subject to applicable taxes.
Dividends generally are taxable as ordinary income. Taxes on capital gains by
the Funds will vary with the length of time the Fund has held the
security -- not how long you have invested in the Fund.
The Global Opportunities Fund may incur foreign income taxes in connection
with some of its investments. Certain of these taxes may be credited to
shareholders.
Dividends are taxable in the year in which they are declared, even if they
are paid and appear on your account statement the following year. Dividends
and distributions are treated in the same manner for federal income tax
purposes whether you receive them in cash or in additional shares.
You will be notified in January each year about the federal tax status of
distributions made by a Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements.
There is a penalty on certain pre-retirement distributions from retirement
accounts. Consult your tax adviser about the federal, state and local tax
consequences in your particular circumstances.
45
<PAGE> 47
For more information about the Funds, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS (REPORTS):
Each Fund's annual and semi-annual reports to shareholders contain additional
information about the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected each Fund's performance during its last fiscal year. As of the date of
this Prospectus, the Funds have not yet issued any reports.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Funds, including their
respective operations and investment policies. It is incorporated by reference
and is legally considered a part of this Prospectus.
You can get free copies of Reports and the SAI, or request other information and
discuss your questions about the USAllianz Funds by contacting a broker or bank
that sells the Funds. Or contact the Funds at:
USALLIANZ FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219
TELEPHONE: 1-877-833-7113
E-Mail: [email protected]
Internet: Http://www.usallianzfunds.com
You can review the Funds' Reports and the SAI at the Public Reference Room of
the Securities and Exchange Commission in Washington, D.C. Call 1-800-SEC-0330
for information on the operation of the Public Reference Room. This information
is also available on the SEC's internet site at http://www.sec.gov.
Investment Company Act file no. 811-9489.
<PAGE> 48
GROWTH FUND
GLOBAL OPPORTUNITIES FUND
FIXED INCOME FUND
MONEY MARKET FUND
DIVERSIFIED ASSETS FUND
Each a Fund of
USALLIANZ FUNDS
Statement of Additional Information
Class A Shares, Class B Shares and Class Y Shares
October 27, 1999
Each above Fund has distinct investment objectives and policies. Shares
of the Funds are sold to the public by BISYS Fund Services Limited Partnership
("BISYS LP" or the "Distributor") as an investment vehicle for individuals,
institutions, corporations and fiduciaries, including customers of the Adviser
or its affiliates.
USAllianz Funds is offering an indefinite number of shares of each
class of each Fund. The Class Y shares of each Fund are available only to
accounts managed by the Adviser and to institutional investors. Class Y shares
have no front-end sales charge or contingent deferred sales charge.
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Prospectus for USAllianz Funds dated
November 8, 1999, which may be supplemented from time to time. This Statement of
Additional Information is incorporated by reference in its entirety into the
Prospectus. Copies of the Prospectus may be obtained without charge, upon
request, by writing USAllianz Funds at 3435 Stelzer Road, Columbus, Ohio 43219,
or by calling toll free (877) 833-7113.
<PAGE> 49
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES...................................B-3
The Funds ................................................................B-3
Additional Information on Portfolio Instruments...........................B-5
Investment Restrictions...................................................B-18
Portfolio Turnover........................................................B-20
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................B-20
NET ASSET VALUE..................................................................B-22
Valuation of the Funds..................................................B-22
MANAGEMENT OF THE TRUST..........................................................B-24
Trustees and Officers...................................................B-24
The Adviser.............................................................B-28
Portfolio Transactions..................................................B-29
Administrator, Transfer Agent and Fund Accountant.......................B-30
Distributor.............................................................B-31
Shareholder Service Fees................................................B-32
Custodian...............................................................B-33
Independent Auditors....................................................B-33
Legal Counsel...........................................................B-33
ADDITIONAL INFORMATION...........................................................B-33
Description of Shares...................................................B-33
Vote of a Majority of the Outstanding Shares............................B-34
Additional Tax Information..............................................B-34
Additional Tax Information Concerning the Global Opportunities Fund.....B-36
Performance Information.................................................B-37
Yields of the Funds.....................................................B-37
Calculation of Total Return.............................................B-38
Performance Comparisons.................................................B-38
Miscellaneous...........................................................B-39
Financial Statements....................................................B-44
APPENDIX.........................................................................B-50
</TABLE>
2
<PAGE> 50
STATEMENT OF ADDITIONAL INFORMATION
USALLIANZ FUNDS
USAllianz Funds (the "Trust") is an open-end, management company
organized in July 1999 as a Delaware business trust which offers five separate
and diversified investment portfolios (collectively, the "Funds" and each
individually, a "Fund"), each with a different investment objective. The Trust
offers four variable net asset value funds: the Growth Fund, the Fixed Income
Fund, the Global Opportunities Fund and the Diversified Assets Fund. The Trust
also offers a money market fund, the Money Market Fund.
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus of the Trust
described above. Capitalized terms not defined herein are defined in the
Prospectus. No investment in shares of a Fund should be made without first
reading the Trust's Prospectus.
INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES
The investment objectives of each Fund are fundamental and may not be
changed without the vote of the Fund's shareholders.
THE FUNDS
GROWTH FUND. The Fund pursues its objective of long-term growth of capital by
investing primarily in a diversified portfolio of publicly traded common and
preferred stocks and securities convertible into or exchangeable for common
stock (see "Convertible Securities"). The Fund expects to invest primarily in
securities of U.S.-based companies, but it may also invest in securities of
non-U.S. companies, generally through American Depository Receipts ("ADRs"). The
Fund may without limit, hold uninvested cash reserves or invest in debt
instruments for temporary defensive purposes when the Adviser has determined
that abnormal market or economic conditions so warrant. These debt obligations
may include U.S. Government securities; certificates of deposit, bankers'
acceptances and other short-term debt obligations of banks with total assets of
at least $100,000,000; debt obligations of corporations (corporate bonds,
debentures, notes and other similar corporate debt instruments); variable and
floating rate demand and master demand notes; commercial paper; and repurchase
agreements with respect to securities in which the Fund is authorized to invest.
(See "Bank Obligations", "Government Obligations", "Commercial Paper",
"Corporate Debt Securities", "Repurchase Agreements" and "Variable and Floating
Rate Demand and Master Demand Notes"). Although the Fund's investments in such
debt securities and in convertible and preferred stock will generally be rated
A, A-1, or better by Standard & Poor's Corporation ("S&P") or A, Prime-1 or
better by Moody's Investors Service, Inc. ("Moody's"), or deemed of comparable
quality by the Adviser, the Fund is authorized to invest up to 15% of its assets
in securities rated as low as BBB by S&P or Baa by Moody's, or deemed of
comparable quality by the Adviser. Securities rated BBB or Baa, or deemed
equivalent to such securities, may have speculative characteristics. If any
security held by the Fund is downgraded below BBB/Baa (or so deemed by the
Adviser), the securities will generally be sold unless it is determined that
such sale is not in the best interest of the Fund. The Fund will invest in no
securities rated below BBB or Baa. In addition, the Fund may enter into stock
index futures contracts, options on securities and options on futures contracts
to a limited extent (see "Future Contracts", and "Option Trading"). The Fund has
no intention to utilize options and futures in the near future and will
supplement its prospectus disclosure in the event it employs such investment
practices. The Fund may also invest in investment companies and real estate
investment trusts ("REITs") and lend portfolio securities (see "Securities of
Other Investment Companies", "Lending of Portfolio Securities", and "Real Estate
Investment Trusts").
3
<PAGE> 51
GLOBAL OPPORTUNITIES FUND. The Fund pursues its objective of long-term growth of
capital by investing, under normal circumstances, at least 80% of its total
assets in equity securities, including convertible securities of U.S. and
foreign issuers (see "Convertible Securities"). In addition, the Fund may enter
into stock index futures contracts, options on securities, options on futures
contracts and forward foreign currency exchange contracts to a limited extent
(see "Futures Contracts", "Options Trading", "Foreign Currency Options and
Futures Transactions", and "Forward Foreign Currency Exchange Contracts"). The
Fund has no intention to utilize options and futures in the near future and will
supplement its prospectus disclosure in the event it employs such investment
practice. The balance of the Fund's assets may be invested in investment grade
debt obligations issued by domestic and foreign companies, banks and governments
including institutions such as the World Bank (known as "Supranational Agency
Bonds"). For temporary defensive purposes when the Adviser has determined that
abnormal market or economic conditions so warrant, the Fund may invest without
limit in debt instruments of the same types, and subject to the same conditions,
as the Growth Fund under such circumstances. The Fund may also invest without
limitation in debt securities of foreign companies, banks and governments during
such abnormal market or economic conditions.
FIXED INCOME FUND. The Fund pursues its objective of maximizing total return
with secondary emphasis on income by investing in a diversified portfolio
consisting primarily of investment grade fixed rate debt obligations, including
U.S. government securities. Under normal market conditions, at least 80% of the
Fund's total assets will be invested in: obligations of the U.S. government, its
agencies and instrumentalities; corporate bonds of U.S. issuers; mortgage-backed
securities issued by U.S. government agencies and other asset backed securities
(see "Government Obligations", "Mortgage Related Securities" and "Corporate Debt
Securities").
The Fund also has authority to invest in other types of securities, including
preferred stocks, securities convertible into common stock, dollar-denominated
obligations of non-U.S. issuers, various types of asset-backed securities,
taxable and tax-free municipal bonds and money market instruments (see
"Convertible Securities" and "Foreign Investment"). The Fund may also invest in
income-producing securities issued by REITs and Guaranteed Investment Contracts
("GICs") (see "Real Estate Investment Trusts" and "Guaranteed Investment
Contracts"). The Fund may engage in transactions in covered options and
interest-rate futures contracts in order to lengthen or shorten the average
maturity of its portfolio. (see "Futures Contracts", and "Option Trading"). The
Fund expects to maintain a dollar-weighted average portfolio maturity of between
5 and 13 years.
At least 80% of the Fund's portfolio securities will be rated Baa or better by
Moody's or BBB or better by S&P or, if unrated, deemed of comparable quality by
the Adviser. If the rating of a security held by the Fund is reduced, the
Adviser is not required to sell the security but will do so if and when the
Adviser believes the sale is in the best interests of the Fund. Up to 20% of the
Fund's assets may be invested in securities rated below BBB by S&P or Baa by
Moody's (or, if unrated, deemed of comparable quality by the Adviser) at the
time of purchase by the Fund. See the Appendix for a description of such lower
ratings and "Corporate Debt Securities" for a discussion of risks posed by lower
rated securities. The Fund may invest, for temporary defensive purposes, in
short term debt obligations of the foregoing as well as bank obligations,
commercial paper and repurchase agreements (see "Bank Obligations", "Commercial
Paper" and "Repurchase Agreements"). The Fund may also invest in other
investment companies; when-issued and delayed delivery securities, forward
foreign currency exchange contracts, and restricted securities. (See "Securities
of Other Investment Companies", and When-Issued and Delayed Delivery
Securities", "Forward Foreign Currency Exchange Contracts", and "Restricted
Securities"). The Fund has authority to lend its portfolio securities (see
"Lending of Portfolio Securities").
4
<PAGE> 52
MONEY MARKET FUND. The Fund pursues its objective of current income consistent
with stability of principal by investing in a broad range of high quality,
short-term, money market instruments that have remaining maturities not
exceeding 397 days. The Fund is required to maintain a dollar-weighted average
portfolio maturity no greater than 90 days. The Fund's investments may include
any investments permitted under federal rules governing money market funds,
including: U.S. Government securities; bank obligations; commercial paper,
corporate debt securities, variable rate demand notes (see "Corporate Debt
Securities", "Repurchase Agreements", and "Variable and Floating Rate Demand and
Master Demand Notes").
The Adviser selects only those U.S. dollar-denominated debt instruments that
meet the high quality and credit risk standards established by the Board of
Trustees and consistent with Federal requirements applicable to money market
funds. In accordance with such requirements, the Fund will purchase securities
that are rated within the top two rating categories by at least two nationally
recognized statistical rating organizations ("NRSROs") or, if only one NRSRO has
rated the security, by that NRSRO, or if not rated, the securities are deemed of
comparable quality pursuant to standards adopted by the Board of Trustees.
Corporate debt securities (bonds, debentures, notes and other similar debt
instruments) in which the Fund may invest have 397 days or less to maturity and
are rated AA or better by S&P or Aa or better by Moody's. The Fund will invest
no more than 5% of its total assets in debt securities which are rated below the
top rating category or, if unrated, are of comparable investment quality as
determined by the Adviser.
The Fund may also invest up to 5% of its total assets in another investment
company, not to exceed 10% of the value of its total assets in the securities of
other investment companies (see "Securities of Other Investment Companies"). The
Fund may also invest in when issued and delayed delivery securities and lend its
portfolio securities (see "When Issued and Delayed Delivery Securities" and
"Lending of Portfolio Securities").
DIVERSIFIED ASSETS FUND. The Fund pursues its objective through asset allocation
and security selection by investing in a diversified portfolio of bonds, stocks
and money market securities of U.S. and foreign issuers. The Adviser will seek
to allocate on average about 65% of the Fund's total assets to bonds, 25% to
stocks and 10% to money market securities.
- - Bonds. The Fund invests in fixed income securities including (1) government
and corporate bonds, (2) mortgage-backed securities and (3) asset-backed
securities. The Fund invests primarily in bonds rated within the four highest
long-term or two highest short-term rating categories or comparable quality
unrated securities. The Fund may invest up to 20% of its total assets in high
yield debt securities although it does not presently intend to do so. Under
normal conditions, the Fund intends to hold securities with maturities between
1 and 10 years. The Adviser begins the portfolio management process by
reviewing current economic activity and forecasting how it may change in the
future. The Adviser uses this forecast to allocate the Fund's assets across
different market sectors and maturities based on its view of the relative
value of each sector or maturity.
- - Stocks. The Fund invests in common stocks, preferred stocks and convertible
securities. The Fund may invest in both U.S. issuers and foreign issuers whose
securities are U.S. dollar denominated and traded on an U.S. security market,
and invests primarily in equity securities of larger capitalization companies.
The Adviser uses a "bottom-up" approach to selecting securities for
investment. Based upon the analysis of various factors, the Adviser selects
those securities which in its judgment will outperform the average for the
companies included in the S&P 500(R) Index.
- - Money Market Instruments. The Fund will invest in high-quality, U.S. dollar
denominated short-term obligations, including commercial paper, asset-backed
securities, obligations of financial institutions and other high-quality money
market instruments issued by U.S. and foreign issuers. These securities will
be rated in the two highest short-term rating categories of at least two
rating agencies or will be unrated securities of comparable quality.
The Fund seeks to exceed the total return of a blended benchmark consisting of
65% of the Lehman Intermediate Government/Corporate Bond Index, 25% of the S&P
500(R) Index and 10% of the 90-day Treasury Bill. The Fund typically sells
securities when the Adviser determines that such securities would no longer meet
its criteria for purchase or when alternative investments become more
attractive.
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
The following policies supplement the investment objectives and
policies of each Fund of the Trust as set forth above and in the Prospectus for
the Trust.
BANK OBLIGATIONS. (ALL FUNDS)
Each of the Funds may invest in bank obligations consisting of bankers'
acceptances, certificates of deposit and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically 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. Bankers' acceptances
invested in by the Funds will be those guaranteed by domestic and foreign banks
having, at the time of investment, capital, surplus and undivided profits in
excess of $100,000,000 (as of the date of their most recently published
financial statements).
5
<PAGE> 53
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
and time deposits will be those of domestic and foreign banks and savings and
loan associations if (a) at the time of investment, the depository or
institution has capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of its most recently published financial
statements), or (b) the principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation.
Each of the Funds may also invest in Eurodollar certificates of deposit
("Euro CDs"), which are U.S. dollar-denominated certificates of deposit issued
by offices of foreign and domestic banks located outside the United States;
Yankee certificates of deposit ("Yankee CDs") which are certificates of deposit
issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held
in the United States; Eurodollar time deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or foreign bank;
and Canadian time deposits, which are basically the same as ETDs, except they
are issued by Canadian offices of major Canadian banks.
COMMERCIAL PAPER (ALL FUNDS)
Commercial paper consists of unsecured promissory notes issued by
corporations. Except as noted below with respect to variable amount master
demand notes, issues of commercial paper normally have maturities of less than 9
months and fixed rates of return.
The Global Opportunities Fund, Growth Fund, Diversified Assets Fund and
Fixed Income Fund may invest in commercial paper rated in any rating category or
not rated by an NRSRO. In general, investment in lower-rated instruments is more
risky than investment in instruments in higher-rated categories. For a
description of the rating symbols of each NRSRO, see the Appendix. Each Fund may
also invest in Canadian commercial paper, which is commercial paper issued by a
Canadian corporation and Europaper, which is commercial paper issued by a
European-based corporation.
VARIABLE AND FLOATING RATE DEMAND AND MASTER DEMAND NOTES (ALL FUNDS).
The Funds may, from time to time, buy variable rate demand notes issued
by corporations, bank holding companies and financial institutions and similar
taxable and tax-exempt instruments issued by government agencies and
instrumentalities. These securities will typically have a maturity in the 5 to
20 year range but carry with them the right of the holder to put the securities
to a remarketing agent or other entity on short notice, typically seven days or
less. The obligation of the issuer of the put to repurchase the securities is
backed up by a letter of credit or other obligation issued by a financial
institution. The purchase price is ordinarily par plus accrued and unpaid
interest. Ordinarily, the remarketing agent will adjust the interest rate every
seven days (or at other intervals corresponding to the notice period for the
put), in order to maintain the interest rate at the prevailing rate for
securities with a seven-day maturity
Variable amount master demand notes in which each Fund may invest are
unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate according to the terms of
the instrument. Because master demand notes are direct lending arrangements
between a Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, a Fund may demand payment of principal and
accrued interest at any time. While the notes are not rated by credit rating
agencies, issuers of variable amount master demand notes (which are normally
manufacturing, retail, financial and other business concerns) must satisfy the
same criteria set forth above for commercial paper. The Adviser will consider
the earning power, cash flow, and other liquidity ratios of such notes and will
continuously monitor the financial status and ability to make payment on demand.
In determining dollar average maturity, a variable amount master demand note
will be deemed to have a maturity equal to the longer of the period of time
remaining until the next interest
6
<PAGE> 54
rate adjustment or the period of time remaining until the principal amount can
be recovered from the issuer through demand.
GUARANTEED INVESTMENT CONTRACTS (FIXED INCOME FUND AND DIVERSIFIED ASSETS FUND)
The Fixed Income Fund and Diversified Assets Fund may invest in GICs.
In determining average portfolio maturity, GICs will be deemed to have a
maturity equal to the period of time remaining until the next readjustment of
the guaranteed interest rate.
DEPOSITARY RECEIPTS (ALL FUNDS EXCEPT MONEY MARKET FUND)
For many foreign securities, U.S. dollar-denominated ADRs, which are
traded in the United States on exchanges or over-the-counter, are issued by
domestic banks. ADRs represent an interest in the securities of a foreign issuer
deposited in a domestic bank or a correspondent bank. ADRs do not eliminate all
of the risk inherent in investing in the securities of foreign issuers. However,
by investing in ADRs rather than directly in foreign issuers' stock, a Fund can
avoid currency risks during the settlement period for either purchases or sales.
In general, there is a large liquid market in the United States for many ADRs.
The Global Opportunities Fund may also invest in EDRs and GDRs which are
receipts evidencing an arrangement with European and other banks similar to that
for ADRs and are designed for use in European and other securities markets. EDRs
and GDRs are not necessarily denominated in the currency of the underlying
security.
Certain depositary receipts, typically those categorized as
unsponsored, require the holders to bear most of the costs of such facilities
while issuers of sponsored facilities normally pay more of the costs. The
depository of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
securities or to pass through the voting rights to facility holders with respect
to the deposited securities, whereas the depository of a sponsored facility
typically distributes shareholder communications and passes through the voting
rights.
SECURITIES OF OTHER INVESTMENT COMPANIES (ALL FUNDS).
Each Fund may invest in securities issued by other investment
companies. Each of the Funds currently intends to limit its investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of the value of its total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by any of the Funds; and (d) not more than 10%
of the outstanding voting stock of any one investment company will be owned in
the aggregate by the Funds. As a shareholder of another investment company, a
Fund would bear, along with other shareholders, its pro rata portion of that
company's expenses, including advisory fees. These expenses would be in addition
to the advisory and other expenses that the Fund bears directly in connection
with its own operations. Investment companies in which a Fund may invest may
also impose a sales or distribution charge in connection with the purchase or
redemption of their shares and other types of commissions or charges. Such
charges will be payable by the Funds and, therefore, will be borne indirectly by
shareholders.
GOVERNMENT OBLIGATIONS (ALL FUNDS)
Each of the Funds may invest in obligations issued or guaranteed by the
U.S. government or its agencies or instrumentalities, including bills, notes and
bonds issued by the U.S. Treasury, as well as "stripped" U.S. Treasury
obligations ("Stripped Treasury Obligations") such as Treasury receipts issued
by the U.S. Treasury representing either future interest or principal payments.
Stripped securities are
7
<PAGE> 55
issued at a discount to their "face value" and may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
Obligations of certain agencies and instrumentalities of the U.S.
government, such as the Government National Mortgage Association ("GNMA"), are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of Federal National Mortgage Association ("FNMA"), are supported by the
right of the issuer to borrow from the Treasury; others, such as those of the
Student Loan Marketing Association ("SLMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks or the Federal Home Loan
Mortgage Corporation ("FHLMC"), are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored agencies or
instrumentalities, such as FNMA, SLMA, or the FHLMC, since it is not obligated
to do so by law. These agencies or instrumentalities are supported by the
issuer's right to borrow specific amounts from the U.S. Treasury, the
discretionary authority of the U.S. government to purchase certain obligations
from such agencies or instrumentalities, or the credit of the agency or
instrumentality.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES (ALL FUNDS)
Each Fund may purchase securities on a "when-issued" or
"delayed-delivery" basis. The Funds will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with their investment objectives and policies, not for
investment leverage, although such transactions represent a form of leveraging.
When-issued securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield and thereby involve risk that the
yield obtained in the transaction will be less than those available in the
market when the delivery takes place. A Fund will not pay for such securities or
start earning interest on them until they are received. When a Fund agrees to
purchase securities on a "when-issued" or "delayed-delivery" basis, the Trust's
Custodian will set aside cash or liquid securities equal to the amount of the
commitment in a separate account. Normally, the Custodian will set aside
portfolio securities to satisfy the purchase commitment, and in such case, a
Fund may be required subsequently to place additional assets in the separate
account in order to assure that the value of the account remains equal to the
amount of a Fund's commitment. It may be expected that a Fund's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. In addition, because a
Fund will set aside cash or liquid securities to satisfy its purchase
commitments in the manner described above, a Fund's liquidity and the ability of
the Adviser to manage it might be affected in the event its commitments to
purchase "when-issued" or "delayed-delivery" securities ever exceeded 25% of the
value of its total assets. Under normal market conditions, however, a Fund's
commitments to purchase "when-issued" or "delayed-delivery" securities will not
exceed 25% of the value of its total assets.
Securities purchased on a when-issued basis are recorded as an asset
and are subject to changes in the value based upon changes in the general level
of interest rates. In when-issued and delayed-delivery transactions, a Fund
relies on the seller to complete the transaction; the seller's failure to do so
may cause such Fund to miss a price or yield considered to be advantageous. If a
Fund sells a "when-issued" or "delayed-delivery" security before a delivery, any
gain would be taxable.
MORTGAGE-RELATED SECURITIES (ALL FUNDS EXCEPT GLOBAL OPPORTUNITIES FUND)
Each of the Funds, except the Global Opportunities Fund, may,
consistent with its investment objective and policies, invest in
mortgage-related securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities. The Fixed Income Fund and the Diversified Assets
Fund may, in addition, invest in mortgage-related securities issued by
non-governmental entities, including collateralized mortgage obligations
structured on pools of mortgage pass-through certificates or mortgage loans,
subject to the rating limitations described in the Prospectus.
8
<PAGE> 56
Mortgage-related securities, for purposes of the Prospectus and this
Statement of Additional Information, represent pools of mortgage loans assembled
for sale to investors by various governmental agencies such as GNMA and
government-related organizations such as FNMA and the FHLMC, as well as by
non-governmental issuers such as commercial banks, savings and loan
institutions, mortgage bankers and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third party or
are otherwise similarly secured, the market value of the security, which may
fluctuate, is not so secured. Accelerated prepayments have an adverse impact on
yields for pass-through securities purchased at a premium (i.e., a price in
excess of principal amount) and may involve additional risk of loss of principal
because the premium may not have been fully amortized at the time the obligation
is prepaid. The opposite is true for pass-through securities purchased at a
discount. The Funds may purchase mortgage-related securities at a premium or at
a discount. If a Fund purchases a mortgage-related security at a premium, that
portion may be lost if there is a decline in the market value of the security
whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. As with other interest-bearing securities, the
prices of such securities are inversely affected by changes in interest rates.
However, though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the securities are prone to
prepayment, thereby shortening the life of the security and shortening the
period of time over which income at the higher rate is received. When interest
rates are rising, though, the rate of prepayment tends to decrease, thereby
lengthening the period of time over which income at the lower rate is received.
For these and other reasons, a mortgage-related security's average maturity may
be shortened or lengthened as a result of interest rate fluctuations and,
therefore, it is not possible to predict accurately the security's return to the
Funds. In addition, regular payments received in respect of mortgage-related
securities include both interest and principal. No assurance can be given as to
the return the Funds will receive when these amounts are reinvested.
There are a number of important differences among the agencies and the
instrumentalities of the U.S. government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guaranty is backed by the full-faith and credit of the United
States. GNMA is a wholly-owned U.S. government corporation within the Department
of Housing and Urban Development. GNMA certificates are also supported by the
authority of the GNMA to borrow funds from the U.S. Treasury to make payments
under its guarantee. Mortgage-related securities issued by FNMA include FNMA
Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of FNMA and are not backed by or entitled to
the full faith and credit of the United States. FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are guaranteed
as to timely payment of the principal and interest by FNMA. Mortgage-related
securities issued by FHLMC include FHLMC mortgage participation certificates
(also known as "Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of
the United States, organized pursuant to an Act of Congress, which is owned
entirely by the Federal Home Loan banks. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan banks and do not constitute a debt or
obligation of the United States or of any Federal Home Loan bank. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by the
FHLMC. FHLMC guarantees either ultimate collection or timely payment of all
principal payments on the underlying mortgage loans. When FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due on account
of its guarantee of ultimate payment of principal at any time after default on
an underlying mortgage, but in no event later than one year after it becomes
payable.
Mortgage-related securities in which the above-named Funds may invest
may also include collateralized mortgage obligations ("CMOs"). CMOs are debt
obligations issued generally by finance subsidiaries or trusts that are secured
by mortgage-backed certificates, including, in many cases, certificates issued
by government-related guarantors, including GNMA, FNMA and FHLMC, together
9
<PAGE> 57
with certain funds and other collateral. Although payment of the principal of
and interest on the mortgage-backed certificates pledged to secure the CMOs may
be guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of
the issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations.
CMOs are issued in multiple classes. Each class of CMOs, often referred
to as a "tranche," is issued at a specific adjustable or fixed interest rate and
must be fully retired no later than its final distribution date. Principal
prepayments on the mortgage loans or the mortgage assets underlying the CMOs may
cause some or all of the classes of CMOs to be retired substantially earlier
than their final distribution dates. Generally, interest is paid or accrues on
all classes of CMOs on a monthly basis.
The principal of and interest on the mortgage assets may be allocated
among the several classes of CMOs in various ways. In certain structures (known
as "sequential pay" CMOs), payments of principal, including any principal
prepayments, on the mortgage assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay"
CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the mortgage assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
CORPORATE DEBT SECURITIES (ALL FUNDS)
The Funds may invest in investment grade corporate debt securities
subject to the limitations set forth in the Prospectus. Depending upon the
prevailing market conditions, the Adviser may purchase debt securities at a
discount from face value, which produces a yield greater than the coupon rate.
Conversely, if debt securities are purchased at a premium over face value the
yield will be lower than the coupon rate. The Fixed Income Fund expects to
invest in bonds, notes and debentures of a wide range of U.S. corporate issuers.
Such obligations, in the case of debentures will represent unsecured promises to
pay, and in the case of notes and bonds, may be secured by mortgages on real
property or security interests in personal property and will in most cases
differ in their interest rates, maturities and times of issuance.
The Fixed Income Fund and Diversified Assets Fund may invest without
limitation in securities which are rated the fourth highest rating group
assigned by an NRSRO (e.g., securities rated BBB by S&P or Baa by Moody's) or,
if not rated, are of comparable quality as determined by the Adviser
("Medium-Grade Securities"). After purchase by a Fund, a security may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require a sale of such security by the Fund. A
split rated security, i.e., rated in the fourth highest category by one NRSRO
and also rated below the fourth highest category by another NRSRO, will not be
considered a "medium grade security."
As with other fixed-income securities, Medium-Grade Securities are
subject to credit risk and market risk. Market risk relates to changes in a
security's value as a result of changes in interest rates. Credit risk relates
to the ability of an issuer to make payments of principal and interest.
Medium-Grade Securities are considered by Moody's to have speculative
characteristics.
The Fixed Income Fund and the fixed income portion of the Diversified
Assets Fund may invest up to 20% of its total assets in lower rated securities.
Fixed income securities with ratings below Baa (Moody's) or BBB (S&P) are
considered
10
<PAGE> 58
below investment grade and are commonly referred to as "junk" bonds ("Lower
Rated Securities"). The Fixed Income Fund also may invest in unrated lower
quality bonds.
These Lower Rated Securities generally offer higher interest payments
because the company that issues the bond - the issuer - is at greater risk of
default (failure to repay the bond). This may be because the issuer is small or
new to the market, the issuer has financial difficulties, or the issuer has a
greater amount of debt.
Some risks of investing in lower rated securities include:
o Greater credit risk - Because of their more precarious financial
position, issuers of high yield bonds may be more vulnerable to
changes in the economy or to interest rate changes that might
affect their ability to repay debt.
o Reduced liquidity - There are fewer investors willing to buy high
yield bonds than there are for higher rated, investment grade
securities. Therefore, it may be more difficult to sell these
securities or to receive a fair market price for them.
o Lack of historical data - Because high yield bonds are a relatively
new type of security, there is little data to indicate how such
bonds will behave in a prolonged economic downturn. However, there
is a risk that such an economic downturn would negatively affect
the ability of issuers to repay their debts, leading to increased
defaults and overall losses to the Fund.
Particular types of Medium-Grade and Lower Rated Securities may present
special concerns. The prices of payment-in-kind or zero-coupon securities react
more strongly to changes in interest rates than the prices of other Medium-Grade
or Lower Rated Securities. Some Medium-Grade Securities in which a Fund may, and
some Lower Rated Securities which the Fixed Income Fund and the Diversified
Assets Fund may, invest may be subject to redemption or call provisions that may
limit increases in market value that might otherwise result from lower interest
rates while increasing the risk that such Fund may be required to reinvest
redemption or call proceeds during a period of relatively low interest rates.
The credit ratings issued by Moody's and S&P are subject to various
limitations. For example, while such ratings evaluate credit risk, they
ordinarily do not evaluate the market risk of Medium-Grade or Lower Rated
Securities. In certain circumstances, the ratings may not reflect in a timely
fashion adverse developments affecting an issuer. For these reasons, the Adviser
conducts its own independent credit analysis of Medium-Grade and Lower Rated
Securities.
RESTRICTED SECURITIES (ALL FUNDS)
Securities in which each of the Funds may invest include securities
issued by corporations without registration under the Securities Act of 1933, as
amended (the "1933 Act"), in reliance on the so-called "private placement"
exemption from registration which is afforded by Section 4(2) of the 1933 Act
("Section 4(2) Securities"). Section 4(2) Securities are restricted as to
disposition under the federal securities laws, and generally are sold to
institutional investors, such as the Funds, who agree that they are purchasing
the securities for investment and not with a view to public distribution. Any
resale must also generally be made in an exempt transaction. Section 4(2)
Securities are normally resold to other institutional investors through or with
the assistance of the issuer or investment dealers who make a market in such
Section 4(2) Securities, thus providing liquidity. The Trust's Board of Trustees
has delegated to the Adviser the day-to-day authority to determine whether a
particular issue of Section 4(2) Securities that are eligible for resale under
Rule 144A under the 1933 Act should be treated as liquid. Rule 144A provides a
safe-harbor exemption from the registration requirements of the 1933 Act for
resales to "qualified institutional buyers" as defined in the Rule. With the
exception of registered broker-
11
<PAGE> 59
dealers, a qualified institutional buyer must generally own and invest on a
discretionary basis at least $100 million in securities.
The Adviser may deem Section 4(2) Securities liquid if it believes
that, based on the trading markets for such security, such security can be
disposed of within seven (7) days in the ordinary course of business at
approximately the amount at which a Fund has valued the security. In making such
determination, the Adviser generally considers any and all factors that it deems
relevant, which may include: (i) the credit quality of the issuer; (ii) the
frequency of trades and quotes for the security; (iii) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers; (iv) dealer undertakings to make a market in the security; and (v)
the nature of the security and the nature of market-place trades.
Subject to the limitations described above, the Funds may acquire
investments that are illiquid or of limited liquidity, such as private
placements or investments that are not registered under the 1933 Act. An
illiquid investment is any investment that cannot be disposed of within seven
days in the normal course of business at approximately the amount at which it is
valued by a Fund. The price a Fund pays for illiquid securities or receives upon
resale may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly, the valuation of these securities will
reflect any limitations on their liquidity. A Fund may not invest in additional
illiquid securities if, as a result, more than 15% (10% in the case of Money
Market Fund) of the market value of its net assets would be invested in illiquid
securities.
Treatment of Section 4(2) Securities as liquid could have the effect of
decreasing the level of a Fund's liquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.
REPURCHASE AGREEMENTS (ALL FUNDS)
Securities held by each of the Funds may be subject to repurchase
agreements. Under the terms of a repurchase agreement, a Fund would acquire
securities from member banks of the Federal Deposit Insurance Corporation and
registered broker-dealers which the Adviser deems creditworthy, subject to the
seller's agreement to repurchase such securities at a mutually agreed upon date
and price. The repurchase price would generally equal the price paid by a Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. The seller
under a repurchase agreement will be required to maintain at all times the value
of collateral held pursuant to the agreement at not less than the repurchase
price (including accrued interest). If the seller were to default on its
repurchase obligations or become insolvent, the Fund holding such obligation
would suffer a loss to the extent that the proceeds from the sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by the Fund
were delayed pending court action. Additionally, there is no controlling legal
precedent confirming that a Fund would be entitled, as against the claim by such
seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, although the Board of Trustees of the Trust believes that, under the
regular procedures normally in effect for the custody of a Fund's securities
subject to repurchase agreements, and under federal laws, a court of competent
jurisdiction would rule in favor of the Trust if presented with the question.
Securities subject to repurchase agreements will be held by the Trust's
Custodian or another qualified custodian or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by a Fund
under the Investment Company Act of 1940, as amended (the "1940 Act").
12
<PAGE> 60
REVERSE REPURCHASE AGREEMENTS (ALL FUNDS) AND DOLLAR ROLL AGREEMENTS (FIXED
INCOME FUND AND DIVERSIFIED ASSETS FUND )
Each of the Funds may borrow money by entering into reverse repurchase
agreements and, with respect to the Fixed Income Fund and Diversified Assets
Fund, dollar roll agreements in accordance with these Funds' investment
restrictions. Pursuant to such agreements, a Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers and agree
to repurchase the securities, or substantially similar securities in the case of
a dollar roll agreement, at a mutually agreed-upon date and price. A dollar roll
agreement is identical to a reverse repurchase agreement except for the fact
that substantially similar securities may be repurchased. At the time a Fund
enters into a reverse repurchase agreement or a dollar roll agreement, it will
place in a segregated custodial account assets such as U.S. government
securities or other liquid high-grade debt securities consistent with the Fund's
investment restrictions having a value equal to the repurchase price (including
accrued interest), and will subsequently continually monitor the account to
insure that such equivalent value is maintained. Reverse repurchase agreements
and dollar roll agreements involve the risk that the market value of the
securities sold by a Fund may decline below the price at which a Fund is
obligated to repurchase the securities. Reverse repurchase agreements and dollar
roll agreements are considered to be borrowings by a Fund under the 1940 Act
and, therefore, a form of leverage. A Fund may experience a negative impact on
its net asset value if interest rates rise during the term of a reverse
repurchase agreement or dollar roll agreement. A Fund generally will invest the
proceeds of such borrowings only when such borrowings will enhance a Fund's
liquidity or when the Fund reasonably expects that the interest income to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction.
OPTIONS TRADING (ALL FUNDS EXCEPT MONEY MARKET FUND)
A Fund may write (or sell) put and call options on the securities that
the Fund is authorized to buy or already holds in its portfolio. These option
contracts may be listed for trading on a national securities exchange or traded
over-the-counter. A Fund may also purchase put and call options. A Fund will not
write covered calls on more than 25% of its portfolio, and a Fund will not write
covered calls with strike prices lower than the underlying securities' cost
basis on more than 25% of its total portfolio. A Fund may not invest more than
5% of its total assets in option purchases.
A call option gives the purchaser of the option the right to buy, and
the writer has the obligation to sell, the underlying security or foreign
currency at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price or exchange rate of the security or
foreign currency, as the case may be. The premium paid to the writer is
consideration for undertaking the obligations under the option contract. A put
option gives the purchaser the right to sell the underlying security or foreign
currency at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price or exchange rate of the security
or foreign currency, as the case may be. Put and call options purchased by the
Funds are valued at the last sale price, or in the absence of such a price, at
the mean between bid and asked price.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included in the liability
section of the Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked-to-market to
reflect the current value of the option written. The current value of the traded
option is the last sale price or, in the absence of a sale, the average of the
closing bid and asked prices. If an option expires on the stipulated expiration
date or if the Fund enters into a closing purchase transaction, it will realize
a gain (or a loss if the cost of a closing purchase transaction exceeds the net
premium received when the option is sold) and the deferred credit related to
such option will be eliminated. If an option is exercised, the Fund may deliver
the underlying security in the open market. In either event, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss.
13
<PAGE> 61
In order to close out a call option it has written, the Fund will enter
into a "closing purchase transaction" (the purchase of a call option on the same
security or currency with the same exercise price and expiration date as the
call option which such Fund previously has written). When the portfolio security
or currency subject to a call option is sold, the Fund will effect a closing
purchase transaction to close out an existing call option on that security or
currency. If such Fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security or currency until the option
expires or that Fund delivers the underlying security or currency upon exercise.
In addition, upon the exercise of a call option by the option holder, the Fund
will forego the potential benefit represented by market depreciation over the
exercise price.
A Fund may sell "covered" put and call options as a means of hedging
the price risk of securities in the Fund's portfolio. The sale of a call option
against an amount of cash equal to the put's potential liability constitutes a
"covered put."
Over-the-counter options ("OTC options") differ from exchange-traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than exchange-traded
options. Because OTC options are not traded on an exchange, pricing is normally
done by reference to information from a market marker. This information is
carefully monitored by the Adviser and verified in appropriate cases. OTC
options transactions will be made by a Fund only with recognized U.S. Government
securities dealers. OTC options are subject to the Funds' 15% limit on
investments in securities which are illiquid or not readily marketable (see
"Investment Restrictions"), provided that OTC option transactions by a Fund with
a primary U.S. Government securities dealer which has given the Fund an absolute
right to repurchase according to a "repurchase formula" will not be subject to
such 15% limit.
Each of the Growth Fund, Diversified Assets Fund, and Global
Opportunities Fund may also purchase or sell index options. Index options (or
options on securities indices) are similar in many respects to options on
securities except that an index option gives the holder the right to receive,
upon exercise, cash instead of securities, if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
Because index options are settled in cash, a call writer cannot
determine the amount of its settlement obligations in advance and, unlike call
writing on specific securities, cannot provide in advance for, or cover, its
potential settlement obligations by acquiring and holding the underlying
securities. A Fund may be required to segregate assets or provide an initial
margin to cover index options that would require it to pay cash upon exercise.
FUTURES CONTRACTS (ALL FUNDS EXCEPT MONEY MARKET FUND)
Each of the Funds except Money Market Fund may enter into futures
contracts. This investment technique is designed primarily to hedge against
anticipated future changes in market conditions or foreign exchange rates which
otherwise might adversely affect the value of securities which a Fund holds or
intends to purchase. For example, when interest rates are expected to rise or
market values of portfolio securities are expected to fall, a Fund can seek
through the sale of futures contracts to offset a decline in the value of its
portfolio securities. When interest rates are expected to fall or market values
are expected to rise, a Fund, through the purchase of such contract, can attempt
to secure better rates or prices for the Fund than might later be available in
the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price to sell or to purchase the underlying futures contract, upon exercising
the option any time during the option period.
14
<PAGE> 62
Futures transactions involve broker costs and require a Fund to
segregate liquid assets, such as cash, U.S. government securities or other
liquid high-grade debt obligations to cover its performance under such
contracts. A Fund may lose the expected benefit of futures contracts if interest
rates, securities or foreign exchange rates move in an unanticipated manner.
Such unanticipated changes may also result in poorer overall performance than if
the Fund had not entered into any futures transactions. In addition, the value
of a Fund's futures positions may not prove to be perfectly or even highly
correlated with its portfolio securities and foreign currencies, limiting the
Fund's ability to hedge effectively against interest rate, foreign exchange rate
and/or market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out futures positions.
RISKS OF FUTURES AND OPTIONS INVESTMENTS (ALL FUNDS EXCEPT MONEY MARKET FUND)
A Fund will incur brokerage fees in connection with its futures and
options transactions, and it will be required to segregate funds for the benefit
of brokers as margin to guarantee performance of its futures and options
contracts. In addition, while such contracts will be entered into to reduce
certain risks, trading in these contracts entails certain other risks. Thus,
while a Fund may benefit from the use of futures contracts and related options,
unanticipated changes in interest rates may result in a poorer overall
performance for that Fund than if it had not entered into any such contracts.
Additionally, the skills required to invest successfully in futures and options
may differ from skills required for managing other assets in the Fund's
portfolio.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid being classified as a "commodity
pool operator," a Fund will not enter into a futures contract or purchase an
option thereon if immediately thereafter the initial margin deposits for futures
contracts held by such Fund plus premiums paid by it for open options on futures
would exceed 5% of such Fund's total assets. Such Fund will not engage in
transactions in financial futures contracts or options thereon for speculation,
but only to attempt to hedge against changes in market conditions affecting the
values of securities which such Fund holds or intends to purchase. When futures
contracts or options thereon are purchased to protect against a price increase
on securities intended to be purchased later, it is anticipated that at least
25% of such intended purchases will be completed. When other futures contracts
or options thereon are purchased, the underling value of such contracts will at
all times not exceed the sum of: (1) accrued profit on such contracts held by
the broker; (2) cash or high-quality money market instruments set aside in an
identifiable manner; and (3) cash proceeds from investments due in 30 days.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (ALL FUNDS EXCEPT MONEY MARKET FUND)
Each of the Funds, except Money Market Fund, may invest in forward
foreign currency exchange contracts. A Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through forward contracts
to purchase or sell foreign currencies. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded directly between currency traders (usually large commercial
banks) and their customers.
The Funds may enter into forward currency contracts in order to hedge
against adverse movements in exchange rates between currencies. For example,
when a Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the United States
dollar cost or proceeds, as the case may be. By entering into a forward currency
contract in United States dollars for the purchase or sale of the amount of
foreign currency involved in an underlying security transaction, such Fund is
able to protect itself against a possible loss between trade and settlement
dates resulting from an adverse change in the relationship between the United
States dollar and such foreign currency. Additionally, for example, when a Fund
believes that a foreign currency may
15
<PAGE> 63
suffer a substantial decline against the U.S. dollar, it may enter into a
forward currency sale contract to sell an amount of that foreign currency
approximating the value of some or all of that Fund's portfolio securities or
other assets denominated in such foreign currency. Alternatively, when a Fund
believes a foreign currency will increase in value relative to the U.S. dollar,
it may enter into a forward currency purchase contract to buy that foreign
currency for a fixed U.S. dollar amount; however, this tends to limit potential
gains which might result from a positive change in such currency relationships.
No Fund intends to enter into such forward foreign currency exchange
contracts if such Fund would have more than 15% of the value of its total assets
committed to such contracts on a regular or continuous basis. A Fund also will
not enter into such forward contracts or maintain a net exposure on such
contracts where such Fund would be obligated to deliver an amount of foreign
currency in excess of the value of such Fund's securities or other assets
denominated in that currency. The Adviser believes that it is important to have
the flexibility to enter into such forward contracts when it determines that to
do so is in the best interests of a Fund. The Fund's Custodian segregates cash
or liquid high-grade securities in an amount not less than the value of the
Fund's total assets committed to forward foreign currency exchange contracts
entered into for the purchase of a foreign security. If the value of the
securities segregated declines, additional cash or securities are added so that
the segregated amount is not less than the amount of such Fund's commitments
with respect to such contracts. The Funds generally do not enter into a forward
contract for a term longer than one year.
If the Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss to the extent that there has
been a movement in forward currency contract prices. If the Fund engages in an
offsetting transaction it may subsequently enter into a new forward currency
contract to sell the foreign currency. If forward prices decline during the
period between which a Fund enters into a forward currency contract for the sale
of foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, such Fund would realize a gain to the extent
the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. The Funds will have to convert their
holdings of foreign currencies into United States dollars from time to time.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies.
FOREIGN CURRENCY OPTIONS AND FUTURES TRANSACTIONS (GLOBAL OPPORTUNITIES FUND)
The Global Opportunities Fund may invest in foreign currency options. A
foreign currency option provides the option buyer with the right to buy or sell
a stated amount of foreign currency at the exercise price at a specified date or
during the option period. A call option gives its owner the right, but not the
obligation, to buy the currency while a put option gives its owner the right,
but not the obligation, to sell the currency. The option seller (writer) is
obligated to fulfill the terms of an option sold if it is exercised. However,
either seller or buyer may close its position during the option period in the
secondary market for such options at any time prior to expiration.
A call rises in value if the underlying currency appreciates.
Conversely, a put rises in value if the underlying currency depreciates. While
purchasing a foreign currency option can protect the Fund against an adverse
movement in the value of a foreign currency, it does not limit the gain which
might result from a favorable movement in the value of such currency. For
example, if a Fund were holding securities denominated in an appreciating
foreign currency and had purchased a foreign currency put to hedge against the
decline of the value of the currency, it would not have to exercise its put.
Similarly, if the Fund has entered into a contract to purchase a security
denominated in a foreign currency and had purchased a foreign currency call to
hedge against a rise in the value of the currency but instead the currency had
depreciated in value between the date of the purchase and the settlement date,
the Fund would not have to exercise its call, but could acquire in the spot
market the amount of foreign currency needed for settlement.
16
<PAGE> 64
The Global Opportunities Fund may invest in foreign currency futures
transactions. As part of its financial futures transactions, the Fund may use
foreign currency futures contracts and options on such futures contracts.
Through the purchase or sale of such contracts, the Fund may be able to achieve
many of the same objectives it may achieve through forward foreign currency
exchange contracts more effectively and possibly at a lower cost. Unlike forward
foreign currency exchange contracts, foreign currency futures contracts and
options on foreign currency futures contracts are standardized as to amount and
delivery, and may be traded on boards of trade and commodities exchanges or
directly with a dealer which makes a market in such contracts and options. It is
anticipated that such contracts may provide greater liquidity and lower cost
than forward foreign currency exchange contracts.
LENDING OF PORTFOLIO SECURITIES (ALL FUNDS)
In order to generate additional income, each of the Funds may, from
time to time, lend its portfolio securities to broker-dealers, banks or
institutional borrowers of securities. A Fund must receive 102% collateral in
the form of cash or U.S. government securities. This collateral must be valued
daily by the Adviser and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund. During
the time portfolio securities are on loan, the borrower pays the Fund any
dividends or interest paid on such securities. Loans are subject to termination
by the Fund or the borrower at any time. While the Fund does not have the right
to vote securities on loan, it intends to terminate the loan and regain the
right to vote if that is considered important with respect to the investment. In
the event the borrower defaults in its obligation to a Fund, the Fund bears the
risk of delay in the recovery of its portfolio securities and the risk of loss
of rights in the collateral. The Fund will only enter into loan arrangements
with broker-dealers, banks or other institutions which the Adviser has
determined are creditworthy under guidelines established by the Trust's Board of
Trustees.
CONVERTIBLE SECURITIES (ALL FUNDS EXCEPT MONEY MARKET FUND)
Convertible securities give the holder the right to exchange the
security for a specific number of shares of common stock. Convertible securities
include convertible preferred stocks, convertible bonds, notes and debentures,
and other securities. Convertible securities typically involve less credit risk
than common stock of the same issuer because convertible securities are "senior"
to common stock -- i.e., they have a prior claim against the issuer's assets.
Convertible securities generally pay lower dividends or interest than
non-convertible securities of similar quality. They may also reflect changes in
the value of the underlying common stock.
REAL ESTATE INVESTMENT TRUSTS
Each Fund may invest in equity or debt REITs. Equity REITs are trusts
that sell shares to investors and use the proceeds to invest in real estate or
interests in real estate. Debt REITs invest in obligations secured by mortgages
on real property or interests in real property. A REIT may focus on particular
types of projects, such as apartment complexes or shopping centers, or on
particular geographic regions, or both. An investment in a REIT may be subject
to certain risks similar to those associated with direct ownership of real
estate, including: declines in the value of real estate; risks related to
general and local economic conditions, overbuilding and competition; increases
in property taxes and operating expenses; and variations in rental income. Also,
REITs may not be diversified. A REIT may fail to qualify for pass-through tax
treatment of its income under the Internal Revenue Code of 1986, as amended (the
"Code") and may also fail to maintain its exemption from registration under the
1940 Act. Also, REITs (particularly equity REITs) may be dependent upon
management skill and face risks of failing to obtain adequate financing on
favorable terms.
17
<PAGE> 65
INVESTMENT RESTRICTIONS
Each Fund's investment objective may not be changed without a vote of
the holders of a majority of the Fund's outstanding shares. In addition, the
following investment restrictions may be changed with respect to a particular
Fund only by the vote of a majority of the outstanding shares of that Fund (as
defined under "ADDITIONAL INFORMATION - Vote of a Majority of the Outstanding
Shares" in this Statement of Additional Information). All other investment
limitations described in the Prospectus or this Statement of Additional
Information may be changed by the Trust's Board of Trustees.
No Fund may:
1. Act as an underwriter of securities within the meaning of the 1933
Act except insofar as it might be deemed to be an underwriter upon the
disposition of portfolio securities acquired within the limitation on purchases
of illiquid securities and except to the extent that the purchase of obligations
directly from the issuer thereof in accordance with its investment objective,
policies and limitations may be deemed to be underwriting;
2. Invest in commodities, except that as consistent with its investment
objective and policies the Fund may: (a) purchase and sell options, forward
contracts, futures contracts, including without limitation those relating to
indices; (b) purchase and sell options on futures contracts or indices; and (c)
purchase publicly traded securities of companies engaging in whole or in part in
such activities.
3. Purchase or sell real estate, except that it may purchase securities
of issuers which deal in real estate and may purchase securities which are
secured by interests in real estate;
4. Purchase any securities which would cause 25% or more of the value
of its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry, provided that:
(a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. government, any state, territory or possession
of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions,
and repurchase agreements secured by such instruments;
(b) wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are primarily
related to financing the activities of the parents;
(c) utilities will be divided according to their services, for
example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry; and
(d) personal credit and business credit businesses will be
considered separate industries.
5. Purchase securities of any one issuer, other than securities issued
or guaranteed by the U.S. government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer or the Fund would hold more than 10% of
any class of securities of the issuer or more than 10% of the outstanding voting
securities of the issuer, except that up to 25% of the value of the Fund's total
assets may be invested without regard to such limitations.
6. Make loans, except that a Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an amount
not exceeding one-third of its total assets.
7. Issue senior securities except to the extent permitted under the
1940 Act or any rule, order or interpretation thereunder.
18
<PAGE> 66
8. Borrow money (not including reverse repurchase agreements or dollar
roll agreements), except that each Fund may borrow from banks for temporary or
emergency purposes and then only in amounts up to 30% of its total assets at the
time of borrowing (and provided that such bank borrowings and reverse repurchase
agreements and dollar roll agreements do not exceed in the aggregate one-third
of the Fund's total assets (10% in the case of the Money Market Fund) less
liabilities other than the obligations represented by the bank borrowings,
reverse repurchase agreements and dollar roll agreements), or mortgage, pledge
or hypothecate any assets except in connection with a bank borrowing in amounts
not to exceed 30% of the Fund's net assets at the time of borrowing.
For purposes of the above investment limitations, the Funds treat all
supranational organizations as a single industry and each foreign government
(and all of its agencies) as a separate industry. In addition, a security is
considered to be issued by the government entity (or entities) whose assets and
revenues back the security.
With respect to investment limitation No. 2 above, "commodities"
includes commodity contracts. With respect to investment limitation No. 8 above,
and as a non-fundamental policy which may be changed without the vote of
shareholders, no Fund will purchase securities while its outstanding borrowings
(including reverse repurchase agreements) are in excess of 5% of its total
assets. Securities held in escrow or in separate accounts in connection with a
Fund's investment practices described in the Funds' Prospectus or Statement of
Additional Information are not deemed to be pledged for purposes of this
limitation.
In addition, the Funds are subject to the following non-fundamental
limitations, which may be changed without the vote of shareholders.
No Fund may:
1. Write or sell put options, call options, straddles, spreads, or any
combination thereof, except, as consistent with the Fund's investment objective
and policies for transactions in options on securities or indices of securities,
future contracts and options on futures contracts and in similar investments.
2. Purchase securities on margin, make short sales of securities or
maintain a short position, except that, as consistent with a Fund's investment
objective and policies, (a) this investment limitation shall not apply to the
Fund's transactions in futures contracts and related options, options on
securities or indices of securities and similar instruments, and (b) it may
obtain short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities.
3. Purchase securities of companies for the purpose of exercising
control.
4. Invest more than 15% (10% with respect to the Money Market Fund) of
its net assets in illiquid securities.
Except for the Funds' policy on illiquid securities, and borrowing, if
a percentage limitation is satisfied at the time of investment, a later increase
or decrease in such percentage resulting from a change in the value of a Fund's
portfolio securities will not constitute a violation of such limitation for
purposes of the 1940 Act.
TEMPORARY DEFENSIVE POSITIONS
In order to meet liquidity needs or for temporary defensive purposes,
each Fund may hold investments including uninvested cash reserves, that are not
part of its main investment strategy. Each of the Growth Fund, Global
Opportunities Fund, Diversified Assets Fund and Fixed Income Fund (the
"Non-Money Market Funds") may invest up to 100% of its assets in money market
instruments, including
19
<PAGE> 67
short-term debt securities issued by the U.S. Government and its agencies and
instrumentalities, domestic bank obligations, commercial paper or in repurchase
agreements secured by bank instruments (with regard to the Global Opportunities
Fund, such investment may include those of foreign governments and companies).
In addition, each Non-Money Market Fund may hold equity securities which, in the
Adviser's opinion, are more conservative than the types of securities in which
the Fund typically invests. To the extent the Funds are engaged in temporary or
defensive investments, a Fund will not be pursuing its investment objective.
PORTFOLIO TURNOVER
The portfolio turnover rate for each of the Funds is calculated by
dividing the lesser of a Fund's purchases or sales of portfolio securities for
the year by the monthly average value of the securities. The SEC requires that
the calculation exclude all securities whose maturities at the time of
acquisition are one year or less. The portfolio turnover rates for the Funds of
the Trust may vary greatly from year to year as well as within a particular
year, and may also be affected by cash requirements for redemption of shares.
High portfolio turnover rates will generally result in higher transaction costs
to a Fund, including brokerage commissions, and may result in additional tax
consequences to a Fund's shareholders.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each of the classes of shares of the Trust's Funds is sold on a continuous basis
by the Trust's distributor, BISYS Fund Services Limited Partnership ("BISYS LP"
or the "Distributor"), and the Distributor has agreed to use appropriate efforts
to solicit all purchase orders. The Trust's Funds offer one or more of the
following classes of shares: Class A shares, Class B shares and Class Y shares.
As stated in the Prospectus, the public offering price of Class A shares of the
Money Market Fund is their net asset value per share which is sought to be
maintained at $1.00. The public offering price of Class A shares of each of the
other Funds is their net asset value per share next computed after the sale plus
a sales charge which varies based upon the quantity purchased. The public
offering price of such Class A shares is calculated by dividing net asset value
by the difference (expressed as a decimal) between 100% and the sales charge
percentage of offering price applicable to the purchase.
The offering price is rounded to two decimal places each time a computation is
made. The amount of sales charge reallowed to dealers is set forth below as
applicable to purchases of Class A shares of a Fund.
AMOUNT OF SALES CHARGE REALLOWED TO DEALERS
AS A PERCENTAGE OF PUBLIC OFFERING PRICE*
CLASS A SHARES - Growth Fund, Global Opportunities Fund and Diversified Assets
Fund
<TABLE>
<S> <C>
AMOUNT OF INVESTMENT
up to $49,999 5.18%
$50,000 up to $75,000 4.28%
$75,001 up to $100,000 4.05%
$100,001 up to $250,000 2.70%
$250,001 up to $500,000 2.25%
$500,001 up to $1,000,000 1.80%
$1,000,001 and above (See below)
</TABLE>
20
<PAGE> 68
CLASS A SHARES - Fixed Income Fund
<TABLE>
<S> <C>
AMOUNT OF INVESTMENT
up to $49,999 4.28%
$50,000 up to $75,000 4.05%
$75,001 up to $100,000 3.15%
$100,001 up to $250,000 2.93%
$250,001 up to $500,000 2.25%
$500,001 up to $1,000,000 1.80%
$1,000,001 and above (See below)
</TABLE>
- ----------
* The staff of the Securities and Exchange Commission has indicated that
dealers who receive more than 90% of the sales charge may be considered
underwriters.
Although no sales charge is applied to purchases of $1,000,000 or more,
the Distributor may pay the following dealer concessions for such purchases: for
Growth Fund, Global Opportunities Fund, Fixed Income Fund and Diversified Assets
Fund - up to 1.00% on purchases of $1,000,000 or more.
PURCHASES BY AFFILIATES OF THE TRUST
The following individuals may buy Class A shares at NAV without any
sales charge because there are nominal sales efforts associated with their
purchases:
o retired Trustees of the Trust;
o any organization, or its employees, which provides services to the
Funds;
o dealers who have an agreement with the Distributor; and
o any trade organization to which the Adviser or the Administrator
belongs.
QUANTITY DISCOUNTS IN THE SALES CHARGES
Right Of Accumulation
The Funds permit sales charges on Class A shares to be reduced through
rights of accumulation. For Class A shares, the schedule of reduced sales
charges will be applicable once the accumulated value of the account has reached
$50,000. For this purpose, the dollar amount of the qualifying concurrent or
subsequent purchase is added to the net asset value of any other Class A shares
of those Funds in the Trust owned at the time by the investor. The sales charge
imposed on the Class A shares being purchased will then be at the rate
applicable to the aggregate of Class A shares purchased. For example, if the
investor held Class A shares of these Funds valued at $100,000 and purchased an
additional $20,000 of shares of these Funds (totaling an investment of
$120,000), the sales charge for the $20,000 purchase would be at the next lower
sales charge on the schedule (i.e., the sales charge for purchases over $100,000
but less than $250,000). There can be no assurance that investors will receive
the cumulative discounts to which they may be entitled unless, at the time of
placing their purchase order, the investors, their dealers, or Service
Organizations make a written request for the discount. The cumulative discount
program may be amended or terminated at any time. This particular privilege does
not entitle the investor to any adjustment in the sales charge paid previously
on purchases of shares of the Funds. If the investor knows that he will be
making additional purchases of shares in the future, he may wish to consider
executing a Letter of Intent.
Letter Of Intent
The schedule of reduced sales charges is also available to Class A
investors who enter into a written Letter of Intent providing for the purchase,
within a 13-month period, of Class A shares of a particular Fund. Shares of such
Fund previously purchased during a 90-day period prior to the date of
21
<PAGE> 69
receipt by the Fund of the Letter of Intent which are still owned by the
shareholder may also be included in determining the applicable reduction,
provided the shareholder, dealer, or Service Organization notifies the Fund of
such prior purchases.
A Letter of Intent permits an investor in Class A shares to establish a
total investment goal to be achieved by any number of investments over a
13-month period. Each investment made during the period will receive the reduced
sales commission applicable to the amount represented by the goal as if it were
a single investment. A number of shares totaling 5% of the dollar amount of the
Letter of Intent will be held in escrow by the Fund in the name of the
shareholder. The initial purchase under a Letter of Intent must be equal to at
least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, or a
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the 13-month period, the investor is required to pay the
difference between the sales charge otherwise applicable to the purchases made
during this period and sales charges actually paid. The Fund is authorized by
the shareholder to liquidate a sufficient number of escrowed shares to obtain
such difference. If the goal is exceeded and purchases pass the next sales
charge level, the sales charge on the entire amount of the purchase that results
in passing that level and on subsequent purchases will be subject to further
reduced sales charges in the same manner as set forth under "Right of
Accumulation," but there will be no retroactive reduction of sales charges on
previous purchases. At any time while a Letter of Intent is in effect, a
shareholder may, by written notice to the Fund, increase the amount of the
stated goal. In that event, shares purchased during the previous 90-day period
and still owned by the shareholder will be included in determining the
applicable sales charge reduction. The 5% escrow and minimum purchase
requirements will be applicable to the new stated goal. Investors electing to
purchase Fund shares pursuant to a Letter of Intent should carefully read the
application for Letter of Intent which is available from the Fund.
The Trust may suspend the right of redemption or postpone the date of payment
for shares during a period when: (a) trading on the New York Stock Exchange (the
"NYSE") is restricted by applicable rules and regulations of the SEC; (b) the
NYSE is closed for other than customary weekend and holiday closings; (c) the
SEC has by order permitted such suspensions; or (d) an emergency exists as a
result of which: (i) disposal by the Trust of securities owned by it is not
reasonably practicable, or (ii) it is not reasonably practicable for the Trust
to determine the fair market value of its net assets
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund is
determined and the shares of each Fund are priced as of the Valuation Times
defined in the Prospectus on each Business Day of the Trust. A "Business Day" is
a day on which the NYSE is open for trading. Currently, the NYSE will not be
open in observance of 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.
VALUATION OF THE MONEY MARKET FUND
The Money Market Fund has elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost initially and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price a Fund would receive if it sold the instrument. The value of
securities in the Money Market Fund can be expected to vary inversely with
changes in prevailing interest rates.
22
<PAGE> 70
Pursuant to Rule 2a-7, the Money Market Fund will maintain a
dollar-weighted average maturity appropriate to the Fund's objective of
maintaining a stable net asset value per share, provided that the Fund will not
purchase any security with a remaining maturity of more than 397 days (thirteen
months) (securities subject to repurchase agreements may bear longer maturities)
nor will it maintain a dollar-weighted average maturity which exceeds 90 days.
The Trust's Board of Trustees has also undertaken to establish procedures
reasonably designed, taking into account current market conditions and the
investment objective of the Fund, to stabilize the net asset value per share of
the Fund for purposes of sales and redemptions at $1.00. These procedures
include review by the Trustees, at such intervals as they deem appropriate, to
determine the extent, if any, to which the net asset value per share of the Fund
calculated by using available market quotations deviates from $1.00 per share.
In the event such deviation exceeds 0.5%, Rule 2a-7 requires that the Board of
Trustees promptly consider what action, if any, should be initiated. If the
Trustees believe that the extent of any deviation from the Fund's $1.00
amortized cost price per share may result in material dilution or other unfair
results to new or existing investors, they will take such steps as they consider
appropriate to eliminate or reduce, to the extent reasonably practicable, any
such dilution or unfair results. These steps may include selling portfolio
instruments prior to maturity, shortening the dollar-weighted average maturity,
withholding or reducing dividends, reducing the number of the Fund's outstanding
shares without monetary consideration, or utilizing a net asset value per share
determined by using available market quotations. As permitted by Rule 2a-7 and
the procedures adopted by the Board, certain of the Board's responsibilities
under the Rule may be delegated to the Adviser.
VALUATION OF THE NON-MONEY MARKET FUNDS
Portfolio securities, the principal market for which is a securities
exchange, will be valued at the closing sales price on that exchange on the day
of computation or, if there have been no sales during such day, at the latest
bid quotation. Portfolio securities, the principal market for which is not a
securities exchange, will be valued at their latest bid quotation in such
principal market. In either case, if no such bid price is available then such
securities will be valued in good faith at their respective fair market values
using methods by or under the supervision of the Board of Trustees of the Trust.
Portfolio securities with a remaining maturity of 60 days or less will be valued
either at amortized cost or original cost plus accrued interest, which
approximates current value.
Portfolio securities which are primarily traded on foreign exchanges
may be valued with the assistance of a pricing service and are generally valued
at the preceding closing values of such securities on their respective
exchanges, except that when an occurrence subsequent to the time a foreign
security is valued is likely to have changed such value, then the fair value of
those securities may be determined by consideration of other factors by or under
the direction of the Board of Trustees. Over-the-counter securities are valued
on the basis of the bid price at the close of business on each business day.
Notwithstanding the above, bonds and other fixed-income securities are valued by
using market quotations and may be valued on the basis of prices provided by a
pricing service approved by the Board of Trustees. All assets and liabilities
initially expressed in foreign currencies will be converted into U.S. dollars at
the mean between the bid and asked prices of such currencies against U.S.
dollars as last quoted by any major bank.
All other assets and securities, including securities for which market
quotations are not readily available, will be valued at their fair value as
determined in good faith under the general supervision of the Board of Trustees
of the Trust.
REDEMPTION IN KIND
Although the Funds intend to pay share redemptions in cash, the Funds reserve
the right to make payment in whole or in part in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than $250,000 or 1% of a Fund's net assets). If the Fund
deems it advisable
23
<PAGE> 71
for the benefit of all shareholders, redemption in kind will consist of
securities equal in market value to your shares. When you convert these
securities to cash, you will pay brokerage charges.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
Overall responsibility for management of the Trust rests with its Board
of Trustees, who are elected by the shareholders of the Trust. The Trustees
elect the officers of the Trust who supervise its day-to-day operations.
The Trust will be managed by the Trustees in accordance with the laws
of the state of Delaware governing business trusts. There are currently four
Trustees, one of whom is an "interested person" of the Trust within the meaning
of that term under the 1940 Act. The Trustees of the Trust receive $2,000 for
each Board meeting attended, plus reimbursement for expenses incurred in
connection with attending meetings. However, no officer or employee of the
Distributor, BISYS Fund Services Ohio, Inc. ("BISYS"), or Allianz of America,
Inc. (the "Adviser") or its affiliates receives any compensation from the Trust
for acting as a Trustee of the Trust. The officers of the Trust receive no
compensation directly from the Trust for performing the duties of their offices.
BISYS, an affiliate of the Distributor, receives fees from the Trust for acting
as Administrator and Transfer Agent and for providing certain fund accounting
services.
The Trustees and Officers of the Trust, their addresses, ages and their
principal occupations during the past 5 years are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE PRINCIPAL OCCUPATION
TRUST DURING PAST 5 YEARS
AND OTHER AFFILIATIONS
<S> <C> <C>
David P. Marks*, Age 52 Chairman of the Board, 1991 to present; Chief
55 Greens Farms Road Trustee and President Investment Officer of Allianz of
Westport, CT 06881-5160 America, Inc.
Harrison Conrad, Age 65 Trustee 1995 to present, board member
79 Dorchester Road of Capital Re Corporation, a
Darien, CT 06820 financial-guaranty reinsurer;
serves as an advisor to several
companies in the financial services
industry; Retired from J.P. Morgan in
1995 after 34 years, during which he
worked in the corporate finance,
general banking, investments, venture
capital, strategic planning and
marketing development and legal
areas.
</TABLE>
24
<PAGE> 72
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE PRINCIPAL OCCUPATION
TRUST DURING PAST 5 YEARS
AND OTHER AFFILIATIONS
<S> <C> <C>
Roger Gelfenbien, Age 56 Trustee Retired; from 1983 to August, 1999,
37 Stonegate Drive Partner of Andersen Consulting; Chairman
Wethersfield, CT 06109 of the Board of the University of
Connecticut.
Arthur C. Reeds III, Age 55 Trustee September 1999 to present,
36 Fernwood Road Chairman, Chief Executive and
West Hartford, CT 06119 President of Conning Corp. a money
manager; 1997 to September 1999,
Investment Consultant; from 1991 to
1997, Chief Investment Officer of
CIGNA Corporation;; member of the
Board of Connecticut Water Service,
Inc.
Charles L. Booth, Age 39 Vice President April 1988 to present, Vice
BISYS Fund Services, Inc. President of Fund Administration
3435 Stelzer Road of BISYS Fund Services.
Columbus, Ohio 43219
Gary Brown, Age 46 Vice President 1991 to present, Senior
55 Greens Farms Road Managing Director of Allianz of
Westport, CT 06881-5160 America, Inc.
</TABLE>
25
<PAGE> 73
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE PRINCIPAL OCCUPATION
TRUST DURING PAST 5 YEARS
AND OTHER AFFILIATIONS
<S> <C> <C>
Ronald M. Clark, Age 52 Vice President 1980 to present, Senior
55 Greens Farms Road Managing Director of Allianz of
Westport, CT 06881-5160 America, Inc.
Edwin Ghigliotty, Age 43 Vice President April 1999 to present, Chief
55 Greens Farms Road Administrative Officer of Allianz
Westport, CT 06881-5160 of America, Inc. 1991 to April
1999, Senior Vice President of
Operations and Chief Financial
Officer of Jefferson Insurance
Group.
Gregory T. Maddox, Age 31 Vice President April 1991 to present, Vice
BISYS Fund Services, Inc. President, Client Services of
1230 Columbia St BISYS Fund Services.
Suite 500
San Diego, CA 92101
Irimga McKay, Age 39 Vice President November 1988 to present,
BISYS Fund Services, Inc. Senior Vice President, Client
1230 Columbia St Services of BISYS Fund Services.
Suite 500
San Diego, CA 92101
Chris Pinkerton, Age 41 Vice President April 1999 to present, President,
1750 Hennepin Avenue USAllianz Investor Services and
Minneapolis, MN 55403-2195 Vice President, Allianz Life
Insurance Co. of North America.
Prior to joining Allianz, Vice
President of marketing, sales
operations and director of
marketing at Nationwide
Financial Services.
Jennifer L. Ryan, Age 33 Vice President October 1999 to present, Director
55 Greens Farms Road of Mutual Funds, Allianz of America,
Westport, CT 06881-5160 Inc.; 1993 to October 1999, Managing
Director, Key Asset Management.
Brian Welker, Age 32 Vice President May 1998 to present, Senior
55 Greens Farms Road Business Analyst and
Westport, CT 06881-5160 Compliance Officer at Allianz of
America, Inc.; 1989 to 1998,
Internal Auditor with the
Internal Revenue Service.
</TABLE>
26
<PAGE> 74
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE PRINCIPAL OCCUPATION
TRUST DURING PAST 5 YEARS
AND OTHER AFFILIATIONS
<S> <C> <C>
Lisa M. Hurley, Age 44 Secretary May 1998 to present, Senior
BISYS Fund Services, Inc. Vice President and General
90 Park Avenue Counsel of BISYS Fund
New York, NY 10016 Services; May 1996 to May 1998,
General Counsel of Moore
Capital Management, Inc.;
October 1993 to May 1996
Senior Vice President & General
Counsel of Northstar Investment
Management Corporation.
Paige C. Hodgin, Age 33 Assistant Secretary 1992 to present, Director of
BISYS Fund Services, Inc. Legal Services of BISYS Fund
3435 Stelzer Road Services.
Columbus, Ohio 43219
Alaina V. Metz, Age 36 Assistant Secretary June 1995 to present, Chief
BISYS Fund Services, Inc. Administration Officer of BISYS
3435 Stelzer Road Fund Services. Supervisor of
Columbus, Ohio 43219 Alliance Capital Management for
more than five years prior to
joining BISYS.
Gary Tenkman, Age 29 Treasurer April 1998 to present, Vice
BISYS Fund Services, Inc. President of Financial Services
3435 Stelzer Road of BISYS Fund Services; prior to
Columbus, Ohio 43219 joining BISYS, served as an
Audit Manager for Ernst &
Young LLP.
</TABLE>
*Mr. Marks is an "interested person" of the Trust, as defined in the
1940 Act because of his employment with the Adviser. He receives no compensation
from the Trust for acting as a Trustee. It is anticipated that each Trustee
(except Mr. Marks) will receive an aggregate of $8,000 in compensation from the
Trust and total compensation from the Trust and the Fund Complex of $16,000 for
the first fiscal year of the Trust.
Each of the above-named Trustees and officers also hold the same position with
USAllianz Variable Insurance Products Trust, an investment company that is also
advised by the Adviser. The Trust and USAllianz Variable Insurance Products
Trust comprise the USAllianz "Fund Complex."
27
<PAGE> 75
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of October 25, 1999, the Trustees and officers of the Trust, as a
group, owned none of the shares of any Fund of the Trust. As of October 25,
1999, the Adviser, owned beneficially 100% of each of the Funds. The Adviser may
be presumed to control both the Trust and each of the Funds because it possesses
or shares investment or voting power with respect to more than 25% of the total
shares outstanding of certain of the Funds. As a result, the Adviser may have
the ability to elect the Trustees of the Trust, approve the Investment Advisory
and Distribution Agreements for each of the Funds and to control any other
matters submitted to the shareholders of the Funds for their approval or
ratification.
THE ADVISER
Subject to the general supervision of the Trust's Board of Trustees and
in accordance with the Fund's investment objectives and restrictions, investment
advisory services are provided to the Funds of the Trust by the Adviser.
The Adviser is a registered investment adviser since 1981. The Adviser,
55 Greens Farms Road, Westport, Connecticut 06881 is a Delaware corporation
incorporated on June 15, 1976 and as of December 31, 1998 had $21,310,812,000 of
assets under management. The Adviser has no previous experience in providing
investment management services to an investment company. Allianz AG Holding is
the principal owner of the Adviser. Allianz AG Holding, headquartered in Munich
Germany, is one of the world's largest insurance and financial services
companies with operations in 68 countries.
Under the Investment Advisory Agreement, the Adviser has agreed to
provide investment advisory services for each of the Trust's Funds as described
in the Prospectus. For the services provided and the expenses assumed pursuant
to the Investment Advisory Agreement, each of the Trust's Funds pays the Adviser
a fee, computed daily and paid monthly, at an annual rate calculated as a
percentage of the average daily net assets of that Fund. The annual rates for
the Funds are as follows: .75% for the Growth Fund; .55% for the Diversified
Assets Fund; .50% for the Fixed Income Fund; .95% for the Global Opportunities
Fund; and .35% for the Money Market Fund. The Adviser may periodically
voluntarily reduce all or a portion of its advisory fee with respect to any Fund
to increase the net income of one or more of the Funds available for
distribution as dividends.
Pursuant to the Investment Advisory Agreement, the Adviser will pay all
expenses, including as applicable, the compensation of any subadvisers directly
appointed by it, incurred by it in connection with its activities under the
Investment Advisory Agreement other than the cost of securities (including
brokerage commissions) if any, purchased for the Trust.
Unless sooner terminated, the Investment Advisory Agreement continues
in effect as to a particular Fund for an initial period of two years and
thereafter for successive one-year periods if such continuance is approved at
least annually (i) by the Trust's Board of Trustees or by vote of a majority of
the outstanding voting securities of such Fund and (ii) by vote of a majority of
the Trustees who are not parties to the Investment Advisory Agreement, or
interested persons (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for such purpose. The Investment Advisory Agreement
is terminable as to a particular Fund at any time on 60 days' prior written
notice without penalty by the Trustees, by vote of a majority of outstanding
shares of that Fund, or by the Adviser. The Agreement also terminates
automatically in the event of any assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by the Trust in connection with the performance of its duties, except a loss
suffered by a Fund resulting from a breach of fiduciary duty with respect to its
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross
28
<PAGE> 76
negligence on the part of the Adviser in the performance of its duties, or from
reckless disregard of its duties and obligations thereunder.
Pursuant to an expense limitation agreement, the Adviser has agreed to
limit each Fund's and class' total expenses and the Adviser is entitled to
recoup any waived fees to the extent the actual total operating expenses are
less than the stated expense caps. The expense limitations are set forth in the
Fee Table in the Prospectus.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Adviser determines,
subject to the general supervision of the Trustees of the Trust and in
accordance with each Fund's objective and restrictions, which securities are to
be purchased and sold by a Fund and selects brokers to execute such Fund's
portfolio transactions.
Purchases and sales of portfolio securities which are debt securities
usually are principal transactions in which portfolio securities are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities generally
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers may include the spread between
the bid and asked prices. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal transactions with dealers. With respect to the
over-the-counter market, the Trust, where possible will deal directly with the
dealers who make a market in the securities involved except under those
circumstances where better price and execution are available elsewhere.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by the Adviser in its best judgment and in the
manner deemed fair and reasonable to shareholders. The primary consideration is
prompt execution of orders in an effective manner at the most favorable price.
Subject to this consideration, brokers and dealers who provide supplemental
investment research to the Adviser may receive orders for transactions on behalf
of the Trust. Information so received is in addition to and not in lieu of
services required to be performed by the Adviser and does not reduce the fees
payable to such adviser by the Trust . Such information may be useful to the
Adviser in serving both the Trust and other clients and, conversely supplemental
information obtained by the placement of business of other clients may be useful
to the Adviser in carrying out its obligations to the Trust.
While the Adviser generally seeks competitive commissions, the Trust
may not necessarily pay the lowest commission available on each brokerage
transaction for the reasons discussed above.
Except as permitted by applicable rules under the 1940 Act, the Trust
will not acquire portfolio securities issued by, make savings deposits in, or
enter into repurchase or reverse repurchase agreements with the Adviser or the
Distributor, or their affiliates, and will not give preference to the Adviser's
correspondents with respect to such transactions, securities, savings deposits,
repurchase agreements and reverse repurchase agreements. Subject to the
requirements of the 1940 Act and the oversight of the Board of Trustees of the
Trust, the Funds may borrow from the Adviser for temporary or emergency purposes
in order to meet unanticipated redemptions or to meet payment obligations when a
portfolio transaction "fails" due to circumstances beyond a Fund's control.
Investment decisions for each Fund of the Trust are made independently
from those made for the other Funds or any other portfolio investment company or
account managed by the Adviser. Any such other portfolio, investment company or
account may also invest in the same securities as the Trust. When a purchase or
sale of the same security is made at substantially the same time on behalf of a
Fund and another Fund, portfolio, investment company or account, the transaction
will be averaged as to price and available investments will be allocated as to
amount in a manner which the Adviser believes to be equitable to the Fund(s) and
such other portfolio, investment company, or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained by the Fund. To the extent permitted by
law, the Adviser may aggregate the securities to be sold or purchased for a Fund
with those to be sold or purchased for other Funds or for other portfolios,
29
<PAGE> 77
investment companies, or accounts in order to obtain best execution. In making
investment recommendations for the Trust, the Adviser will not inquire or take
into consideration whether an issuer of securities proposed for purchase or sale
by the Trust is a customer of the Adviser, its parent or affiliates, and, in
dealing with its customers, the Adviser, its parent and affiliates will not
inquire or take into consideration whether securities of such customers are held
by the Trust.
30
<PAGE> 78
ADMINISTRATOR, TRANSFER AGENT AND FUND ACCOUNTANT
BISYS, whose principal location of business is 3435 Stelzer Road,
Columbus, Ohio 43219, serves as the administrator (the "Administrator"),
transfer agent (the "Transfer Agent") and fund accountant (the "Fund
Accountant") to the Trust pursuant to a Services Agreement dated as of October
6, 1999 (the "Services Agreement").
As Administrator, BISYS has agreed to maintain office facilities for
the Trust; furnish statistical and research data, clerical and certain
bookkeeping services and stationery and office supplies; prepare the periodical
reports to the SEC on Form N-SAR or any replacement forms therefor; compile data
for, prepare for execution by the Funds and file certain federal and state tax
returns and required tax filings; prepare compliance filings pursuant to state
securities laws with the advice of the Trust's counsel; keep and maintain the
financial accounts and records of the Funds, including calculation of daily
expense accruals; and generally assist in all aspects of the Trust's operations
other than those performed by the Adviser under the Investment Advisory
Agreement or by the Custodian under the Custody Agreement. Under the Services
Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.
As Transfer Agent, BISYS performs the following services in connection
with each Fund's shareholders of record: maintains shareholder records;
processes shareholder purchase and redemption orders; processes transfers and
exchanges of shares of the Funds on the shareholder files and records; processes
dividend payments and reinvestments; and assists in the mailing of shareholder
reports and proxy solicitations.
As Fund Accountant, BISYS maintains the accounting books and records
for the Funds, including journals containing an itemized daily record of all
purchases and sales of portfolio securities, all receipts and disbursements of
cash and all other debits and credits, general and auxiliary ledgers reflecting
all asset, liability, reserve, capital, income and expense accounts, including
interest accrued and interest received and other required separate ledger
accounts; maintains a monthly trial balance of all ledger accounts; performs
certain accounting services for the Funds, including calculation of the net
asset value per share, calculation of the dividend and capital gain
distributions, if any, and of yield, reconciliation of cash movements with
Funds, custodians, affirmation to the Trust's custodian of all portfolio trades
and cash settlements, verification and reconciliation with the Trust's custodian
of all daily trade activities; provides certain reports; obtains dealer
quotations, prices from a pricing service or matrix prices on all portfolio
securities in order to mark the portfolio to the market; and prepares an interim
balance sheet, statement of income and expense, and statement of changes in net
assets for the Funds.
BISYS receives a fee from each Fund for its services as Administrator,
Transfer Agent and Fund Accountant and expenses assumed pursuant to the Services
Agreement, calculated daily and paid monthly, at the annual rate of .10% of the
combined average daily net assets of the Funds up to $5 billion; .07% of the
combined average daily net assets of the Funds of the next $5 billion; and .05%
of the combined average daily net assets of the Funds if over $10 billion. From
time to time, BISYS may waive all or a portion of the administration fee payable
to it by the Funds, either voluntarily or pursuant to applicable statutory
expense limitations.
Unless sooner terminated as provided therein, the Services Agreement
between the Trust and BISYS will continue in effect for three years. The
Services Agreement thereafter shall be renewed for successive three-year terms
unless terminated by either party not less than 60 days prior to the expiration
of such term
31
<PAGE> 79
if such continuance is approved at least annually (i) by the Trust's Board of
Trustees or by vote of a majority of the outstanding voting securities of the
affected Fund and (ii) by vote of a majority of the Trustees who are not
interested persons (as defined in the 1940 Act) of any party to the Services
Agreement cast in person at a meeting called for such purpose. The Services
Agreement is terminable with respect to a particular Fund at any time on 60
days' written notice without penalty by vote of the Trustees, by vote of a
majority of the outstanding shares of that Fund or by BISYS.
The Services Agreement provides that BISYS shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Trust in
connection with the matters to which the Services Agreement relates, except a
loss from willful misfeasance, bad faith or gross negligence in the performance
of its duties, or from the reckless disregard by BISYS of its obligations and
duties thereunder.
DISTRIBUTOR
BISYS LP, whose principal location of business is 3435 Stelzer Road,
Columbus, Ohio 43219, serves as distributor to the Trust pursuant to a
Distribution Agreement dated as of October 27, 1999 (the "Distribution
Agreement"). The Distribution Agreement provides that the Distributor will use
its best efforts to maintain a broad distribution of the Funds' shares among
bona fide investors and may enter into selling group agreements with responsible
dealers and dealer managers as well as sell the Funds' shares to individual
investors. The Distributor is not obligated to sell any specific amount of
shares.
Unless otherwise terminated, the Distribution Agreement between the
Trust and BISYS LP is effective for one year from the date of the Prospectus and
thereafter will continue in effect for successive one-year periods if approved
at least annually (i) by the Trust's Board of Trustees or by the vote of a
majority of the outstanding shares of the Trust, and (ii) by the vote of a
majority of the Trustees of the Trust who are not parties to the Distribution
Agreement or interested persons (as defined in the 1940 Act) of any party to the
Distribution Agreement, cast in person at a meeting called for the purpose of
voting on such approval. The Distribution Agreement is terminable at any time on
60 days' written notice without penalty by the Trustees, by a vote of a majority
of the shareholders of the Trust, or by BISYS LP on 90 days' written notice. The
Distribution Agreement will automatically terminate in the event of any
assignment as defined in the 1940 Act.
DISTRIBUTION PLAN. A Distribution Plan (the "Plan") has been adopted by
each of the Funds pursuant to Rule 12b-1 of the 1940 Act. The Plan for each Fund
provides for different rates of fee payment with respect to Class A shares and
Class B shares, as described in the Prospectus. No Plan has been adopted for
Class Y shares of any Fund. Pursuant to the Plans, the Funds may pay directly or
reimburse the Distributor monthly in amounts described in the Prospectus for
costs and expenses of marketing the shares, or classes of shares, of the Funds.
The Plan provides for payments by each Fund to the Distributor at an
annual rate not to exceed 0.75% of the Fund's average net assets attributable to
its Class B shares and 0.25% of the Funds' average net assets attributable to
Class A shares. The Distributor also receives the proceeds of any CDSC imposed
on redemptions of Class B shares.
Although Class B shares are sold without an initial sales charge, the
Distributor pays a sales commission equal to 4.00% of the amounts invested in
each of the Funds to securities dealers and other financial institutions who
sell Class B shares. The Distributor may, at times, pay sales commissions higher
than the above on sales of Class B shares. These commissions are not paid on
exchanges from other Funds and sales to investors for whom the CDSC is waived.
Under each Plan, each Fund pays the Distributor and other securities
dealers and other financial
32
<PAGE> 80
institutions and organizations for certain distribution activities. Selling
dealers may be paid amounts subject to overall limits applicable to each class.
Amounts received by the Distributor may, additionally, subject to each Plan's
maximums, be used to cover certain other costs and expenses related to the
distribution of Fund shares and provision of service to Fund shareholders,
including: (a) advertising by radio, television, newspapers, magazines,
brochures, sales literature, direct mail or any other form of advertising; (b)
expenses of sales employees or agents of the Distributor, including salary,
commissions, travel and related expenses; (c) costs of printing prospectuses and
other materials to be given or sent to prospective investors; and (d) such other
similar services as the Trustees determine to be reasonably calculated to result
in the sale of shares of the Funds. Each Fund will pay all costs and expenses in
connection with the preparation, printing and distribution of the Prospectus to
current shareholders and the operation of its Plan(s), including related legal
and accounting fees. A Fund will not be liable for distribution expenditures
made by the Distributor in any given year in excess of the maximum amount
payable under a Plan for that Fund in that year.
The Plan provides that it may not be amended to increase materially the
costs which the Funds or a class of shares may bear pursuant to the Plan without
shareholder approval and that other material amendments of the Plan must be
approved by the Board of Trustees, and by the Trustees who are neither
"interested persons" (as defined in the 1940 Act) of the Trust nor have any
direct or indirect financial interest in the operation of the particular Plan or
any related agreement, by vote cast in person at a meeting called for the
purpose of considering such amendments. The selection and nomination of the
Trustees of the Trust have been committed to the discretion of the Trustees who
are not "interested persons" of the Trust. The Plan with respect to each of the
Funds was approved by the Board of Trustees and by the Trustees who are neither
"interested persons" nor have any direct or indirect financial interest in the
operation of any Plan ("Plan Trustee"), by vote cast in person at a October 6,
1999 meeting called for the purpose of voting on the Plan, and by the sole
shareholder of each class of shares of each of the Funds on October 26, 1999.
The continuance of the Plan is subject to similar annual approval by the
Trustees and the Plan Trustees. Each Plan is terminable with respect to a class
of shares of a Fund at any time by a vote of a majority of the Plan Trustees or
by vote of the holders of a majority of the shares of the class. The Board of
Trustees has concluded that there is a reasonable likelihood that the Plan will
benefit the Funds and their shareholders.
SHAREHOLDER SERVICE FEES
The Trust may also contract with banks, trust companies, broker-dealers
(other than BISYS or BISYS LP) or other financial organizations ("Service
Organizations") to provide certain administrative services for the Funds.
Services provided by Service Organizations may include among other things:
providing necessary personnel and facilities to establish and maintain certain
shareholder accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with client orders to purchase or redeem shares;
verifying and guaranteeing client signatures in connection with redemption
orders, transfers among and changes in client-designating accounts; providing
periodic statements showing a client's account balance and, to the extent
practicable, integrating such information with other client transactions;
furnishing periodic and annual statements and confirmations of all purchases and
redemptions of shares in a client's account; transmitting proxy statements,
annual reports, and updating prospectuses and other communications from the
Funds to clients; and providing such other services as the Funds or a client
reasonably may request, to the extent permitted by applicable statute, rule or
regulation. Neither BISYS, BISYS LP nor the Adviser will be a Service
Organization or receive fees for servicing.
Some Service Organizations may impose additional or different
conditions on their clients, such as requiring their clients to invest more than
the minimum initial or subsequent investments specified by the Funds or charging
a direct fee for servicing. If imposed, these fees would be in addition to any
amounts that might be paid to the Service Organization by the Funds. Each
Service Organization has
33
<PAGE> 81
agreed to transmit to its clients a schedule of any such fees. Shareholders
using Service Organizations are urged to consult them regarding any such fees or
conditions.
34
<PAGE> 82
CUSTODIAN
The Northern Trust Company, 50 South LaSalle Street, Chicago, IL 60675,
serves as Custodian to the Trust pursuant to the Custody Agreement dated as of
October 6, 1999 (the "Custody Agreement"). The Custodian's responsibilities
include safeguarding and controlling the Funds' cash and securities, handling
the receipt and delivery of securities, and collecting interest and dividends on
the Funds' investments.
INDEPENDENT AUDITORS
KPMG LLP, 2 Nationwide Plaza, Columbus, OH 43215 serves as the
independent auditors for the Trust.
LEGAL COUNSEL
Dickstein Shapiro Morin and Oshinsky LLP, 2101 L Street NW, Washington,
D.C. 20037 serves as counsel to the Trust and the Adviser.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES
The Trust is a Delaware business trust organized on July 13, 1999. The
Declaration of Trust authorizes the issuance of an unlimited number of shares of
beneficial interest of series and classes of shares. Pursuant to such authority,
the Board of Trustees has established five series: the Growth Fund, Global
Opportunities Fund, Fixed Income Fund, Diversified Assets Fund and Money Market
Fund and has authorized the issuance of an unlimited number of Class A, Class B
and Class Y shares of each such Fund. Each share of each Fund represents an
equal proportionate interest with each other share of that series and/or class.
Upon liquidation, shares are entitled to a pro rata share of the Trust based on
the relative net assets of each series and/or class. Shareholders have no
preemptive or conversion rights except that Class B shares convert to Class A
shares after 8 years. Shares are redeemable and transferable.
35
<PAGE> 83
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual shareholder meetings. At meetings called for the initial election
of Trustees or to consider other matters, each share is entitled to one vote for
each dollar of net asset value applicable to such share. Shares generally vote
together as one class on all matters. Classes of shares of each Fund have equal
voting rights. No amendment may be made to the Declaration of Trust that
adversely affects any class of shares without the approval of a majority of the
votes applicable to shares of that class. Shares have non-cumulative voting
rights, which means that the holders of more than 50% of the votes applicable to
shares voting for the election of Trustees can elect all of the Trustees to be
elected at a meeting.
After the initial meeting as described above, no further shareholder
meetings for the purpose of electing Trustees will be held, unless required by
law, unless and until such time as less than a majority of Trustees holding
office have been elected by shareholders, at which time the Trustees then in
office will call a shareholders' meeting for the election of Trustees. The
Declaration of Trust provides that a Trustee will not be liable for errors of
judgment or mistakes of fact or law, but nothing in the Declaration of Trust
protects a Trustee against any liability to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties involved in the conduct of his office.
36
<PAGE> 84
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES
As used in the Funds' Prospectus and in this Statement of Additional
Information, "vote of a majority of the outstanding shares" of the Trust or the
Fund means the affirmative vote, at an annual or special meeting of shareholders
duly called, of the lesser of: (a) 67% or more of the votes of shareholders of
the Trust or the Fund, present at such meeting at which the holders of more than
50% of the votes attributable to the shareholders of record of the Trust or the
Fund are represented in person or by proxy, or (b) the holders of more than
fifty percent (50%) of the outstanding votes of shareholders of the Trust or the
Fund.
ADDITIONAL TAX INFORMATION
Each Fund intends to qualify as a "regulated investment company" (a
"RIC" under the Code). Such qualification generally will relieve the Funds of
liability for federal income taxes to the extent their earnings are distributed
in accordance with the Code. However, taxes may be imposed on the Funds,
particularly the Global Opportunities Fund, by foreign countries with respect to
income received on foreign securities. Depending on the extent of each Fund's
activities in states and localities in which its offices are maintained, in
which its agents or independent contractors are located, or in which it is
otherwise deemed to be conducting business, each Fund may be subject to the tax
laws of such states or localities. In addition, if for any taxable year the Fund
does not qualify for the special tax treatment afforded regulated investment
companies, all of its taxable income will be subject to a federal tax at regular
corporate rates (without any deduction for distributions to its shareholders).
In such event, dividend distributions would be taxable to shareholders to the
extent of earnings and profits, and would be eligible for the dividends-received
deduction for corporations.
A non-deductible 4% excise tax is also imposed on regulated investment
companies that do not make distributions to shareholders on a timely basis in
accordance with calendar-year distribution requirements (regardless of whether
they otherwise have a non-calendar taxable year). These rules require annual
distributions equal to 98% of their ordinary income for the calendar year plus
98% of their capital gain net income for the one-year period ending on October
31 of such calendar year. The balance of such income must be distributed during
the next calendar year. For the foregoing purposes, a Fund is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year. If distributions during a calendar year were less
than the required amount, a particular Fund would be subject to a non-deductible
excise tax equal to 4% of the deficiency.
Each of the Funds will be required in certain cases to withhold and
remit to the United States Treasury 31% of taxable distributions paid to a
shareholder who has provided either an incorrect tax identification number or no
number at all, or who is subject to withholding by the Internal Revenue Service
for failure to report properly payments of interest or dividends.
Dividends of investment company taxable income (including net
short-term capital gains) are taxable to shareholders as ordinary income.
Distributions of investment company taxable income may be eligible for the
corporate dividends-received deduction to the extent attributable to a Fund's
dividend income from U.S. corporations, and if other applicable requirements are
met. Distributions of net capital gains (the excess of net long-term capital
gains over net short-term capital losses) designated by a Fund as capital gain
dividends are not eligible for the dividends-received deduction and will
generally be taxable to shareholders as long-term capital gains, regardless of
the length of time the Fund's shares have been held by a shareholder. Capital
gains from assets held for one year or less will be taxed as ordinary income.
Generally, dividends are taxable to shareholders, whether received in cash or
reinvested in shares of a Fund. Any distributions that are not from a Fund's
investment company taxable income or net capital gain may be characterized as a
return of capital to shareholders or, in some cases, as capital gain.
Shareholders will be notified annually as to the federal tax status of dividends
and distributions they receive and any tax withheld thereon. Dividends,
including capital gain dividends, declared in October, November, or December
with a record date of such month and paid during the following January will be
37
<PAGE> 85
treated as having been paid by a Fund and received by shareholders on December
31 of the calendar year in which declared, rather than the calendar year in
which the dividends are actually received.
Upon the taxable disposition (including a sale or redemption) of shares
of a Fund, a shareholder may realize a gain or loss depending upon his basis in
his shares. Such gain or loss generally will be treated as capital gain or loss
if the shares are capital assets in the shareholder's hands. Such gain or loss
will be long-term or short-term, generally depending upon the shareholder's
holding period for the shares. However, a loss realized by a shareholder on the
disposition of Fund shares with respect to which capital gain dividends have
been paid will, to the extent of such capital gain dividends, be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less. Further, a loss realized on a disposition will be disallowed to
the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Shareholders receiving distributions in the form of additional shares will have
a cost basis for Federal income tax purposes in each share received equal to the
net asset value of a share of the Funds on the reinvestment date.
A portion of the difference between the issue price and the face amount
of zero coupon securities ("Original Issue Discount") will be treated as income
to any Fund holding securities with Original Issue Discount each year although
no current payments will be received by such Fund with respect to such income.
This original issue discount will comprise a part of the investment company
taxable income of such Fund which must be distributed to shareholders in order
to maintain its qualification as a RIC and to avoid federal income tax at the
level of the relevant Fund. Taxable shareholders of such a Fund will be subject
to income tax on such original issue discount, whether or not they elect to
receive their distributions in cash. In the event that a Fund acquires a debt
instrument at a market discount, it is possible that a portion of any gain
recognized on the disposition of such instrument may be treated as ordinary
income.
A Fund's investment in options, futures contracts and forward
contracts, options on futures contracts and stock indices and certain other
securities, including transactions involving actual or deemed short sales or
foreign exchange gains or losses are subject to many complex and special tax
rules. For example, over-the-counter options on debt securities and certain
equity options, including options on stock and on narrow-based stock indexes,
will be subject to tax under Section 1234 of the Code, generally producing, a
long-term or short-term capital gain or loss upon lapse of the option or sale of
the underlying stock or security.
By contrast, a Fund's treatment of certain other options, futures and
forward contracts entered into by the Fund is generally governed by Section 1256
of the Code. These "Section 1256" positions generally include regulated futures
contracts, foreign currency contracts, non-equity options and dealer equity
options. Each such Section 1256 position held by a Fund will be marked-to-market
(i.e., treated as if it were sold for fair market value) on the last business
day of that Fund's fiscal year, and all gain or loss associated with fiscal year
transactions and marked-to-market positions at fiscal year end (except certain
currency gain or loss covered by Section 988 of the Code) will generally be
treated as 60% long term capital gain or loss and 40% short-term capital gain or
loss. The effect of Section 1256 mark-to-market rules may be to accelerate
income or to convert what otherwise would have been long-term capital gains into
short-term capital gains or short-term capital losses into long-term capital
losses within such Fund. The acceleration of income on Section 1256 positions
may require the Fund to accrue taxable income without the corresponding receipt
of cash. In order to generate cash to satisfy the distribution requirements of
the Code, a Fund may be required to dispose of portfolio securities that it
otherwise would have continued to hold or to use cash flows from other sources,
such as the sale of the Fund's shares. In these ways, any or all of these rules
may affect the amount, character and timing of income earned and in turn
distributed to shareholders by the Funds.
38
<PAGE> 86
When a Fund holds options or contracts which substantially diminish its
risk of loss with respect to other positions (as might occur in some hedging
transactions), this combination of positions could be treated as a straddle for
tax purposes, resulting in possible deferral of losses, adjustments in the
holding periods of securities owned by a Fund and conversion of short-term
capital losses into long-term capital losses. Certain tax elections exist for
mixed straddles, i.e., straddles comprised of at least one Section 1256 position
and at least one non-Section 1256, position which may reduce or eliminate-the
operation of these straddle rules.
Each Fund will monitor its transactions in such options and contracts
and may make certain other tax elections in order to mitigate the effect of the
above rules and to prevent disqualification of a Fund as a RIC under Subchapter
M of the Code.
In order for a Fund to qualify as a RIC for any taxable year, at least
90% of the Fund's annual gross income must be derived from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities, including gains from foreign currencies, and
other income derived with respect to the business of investing in stock,
securities or currencies. Future Treasury regulations may provide that foreign
exchange gains may not qualify for purposes of the 90% limitation if such gains
are not directly related to a Fund's principal business of investing in stock or
securities, or options or futures with respect to such stock or securities.
Currency speculation or the use of currency forward contracts or other currency
instruments for non-hedging purposes may generate gains deemed to be not
directly related to the Fund's principal business of investing in stock or
securities and related options or futures. Each Fund will limit its activities
involving foreign exchange gains to the extent necessary to comply with the
above requirements.
The federal income tax treatment of interest rate and currency swaps is
unclear in certain respects and may in some circumstances result in the
realization of income not qualifying under the 90% limitation described above.
Each Fund will limit its interest rate and currency swaps to the extent
necessary to comply with this requirement.
Information set forth in the Prospectus and this Statement of
Additional Information which relates to federal taxation is only a summary of
some of the important federal tax considerations generally affecting purchasers
of shares of the Funds. No attempt has been made to present a detailed
explanation of the federal income tax treatment of a Fund or its shareholders
and this description is not intended as a substitute for federal tax planning.
Accordingly, potential purchasers of shares of a Fund are urged to consult their
tax advisers with specific reference to their own tax situation, including any
application of foreign, state or local tax laws. In addition, the tax discussion
in the Prospectus and this Statement of Additional Information is based on tax
laws and regulations which are in effect on the date of the Prospectus and this
Statement of Additional Information; such laws and regulations may be changed by
legislative or administrative action.
ADDITIONAL TAX INFORMATION CONCERNING THE GLOBAL OPPORTUNITIES FUND
The Global Opportunities Fund may invest in non-U.S. corporations,
which would be treated as "passive foreign investment companies" ("PFICs") under
the Code which will result in adverse tax consequences upon the disposition of,
or the receipt of "excess distributions" with respect to, such equity
investments. To the extent that the Global Opportunities Fund invests in PFICs,
it may adopt certain tax strategies to reduce or eliminate the adverse effects
of certain federal tax provisions governing PFIC investments. Many non-U.S.
banks and insurance companies may not be treated as PFICs if they satisfy
certain technical requirements under the Code. To the extent that the Global
Opportunities Fund invests in foreign securities which is determined to be PFIC
securities and are required to pay a tax on such investments, a credit for this
tax would not be allowed to be passed through to the Global Opportunities Fund
shareholders. Therefore, the payment of this tax would reduce the Global
Opportunities Fund's
39
<PAGE> 87
economic return from its PFIC investments. Gains from dispositions of PFIC
shares and excess distributions received with respect to such shares are treated
as ordinary income rather than capital gains.
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their
average annual total return, aggregate total return and/or yield may be
presented in advertisements, sales literature and shareholder reports. Such
performance figures are based on historical earnings and are not intended to
indicate future performance. Average annual total return of a Fund will be
calculated for the period since the establishment of the Fund and will reflect
the imposition of the maximum sales charge, if any. Average annual total return
is measured by comparing the value of an investment in a Fund at the beginning
of the relevant period to the redemption value of the investment at the end of
the period (assuming immediate reinvestment of any dividends or capital gains
distributions) and annualizing the result. Aggregate total return is calculated
similarly to average annual total return except that the return figure is
aggregated over the relevant period instead of annualized. Yield of a Fund will
be computed by dividing a Fund's net investment income per share earned during a
recent one-month period by that Fund's per share maximum offering price (reduced
by any undeclared earned income expected to be paid shortly as a dividend) on
the last day of the period and annualizing the result. Each Fund may also
present its average annual total return, aggregate total return and yield, as
the case may be, excluding the effect of a sales charge, if any.
In addition, from time to time the Funds may present their respective
distribution rates in shareholder reports and in supplemental sales literature
which is accompanied or preceded by a Prospectus and in shareholder reports.
Distribution rates will be computed by dividing the distribution per share over
a twelve-month period by the maximum offering price per share. The calculation
of income in the distribution rate includes both income and capital gains
dividends and does not reflect unrealized gains or losses, although a Fund may
also present a distribution rate excluding the effect of capital gains. The
distribution rate differs from the yield, because it includes capital gains
which are often non-recurring in nature, whereas yield does not include such
items. Distribution rates may also be presented excluding the effect of a sales
charge, if any.
Total return and yield are functions of the type and quality of
instruments held in the portfolio, levels of operation expenses and changes in
market conditions. Consequently, total return and yield will fluctuate and are
not necessarily representative of future results. In addition, if the Adviser or
BISYS voluntarily reduce all or a part of their respective fees, as further
discussed in this Prospectus, the total return of such Fund will be higher than
it would otherwise be in the absence of such voluntary fee reductions.
YIELDS OF THE MONEY MARKET FUND
The standardized seven-day yield for the Money Market Fund is computed:
(1) by determining the net change, exclusive of capital changes, in the value of
a hypothetical pre-existing account in that Fund having a balance of one share
at the beginning of the seven-day base period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts; (2) dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return; and (3) annualizing the results (i.e., multiplying the base
period return by (365/7)). The net change in the account value of the Money
Market Fund includes the value of additional shares purchased with dividends
from the original share, dividends declared on both the original share and any
additional shares, and all fees, other than non-recurring account charges
charged to all shareholder accounts in proportion to the length of the base
period and assuming that Fund's average account size. The capital changes to be
excluded from the calculation of the net change in account value are net
realized gains and losses from the sale of securities and unrealized
appreciation and depreciation.
40
<PAGE> 88
The effective yield for the Money Market Fund is computed by
compounding the base period return, as calculated above by adding one to the
base period return, raising the sum to a power equal to 365 divided by seven and
subtracting one from the result. Each of the thirty-day yields and effective
yields is calculated as described above except that the base period is 30 days
rather than 7 days.
At any time in the future, yields may be higher or lower than past
yields and there can be no assurance that any historical results will continue.
YIELDS OF THE NON-MONEY MARKET FUNDS
Yields of each of the Non-Money Market Funds will be computed by
analyzing net investment income per share for a recent thirty-day period and
dividing that amount by a Fund share's maximum offering price (reduced by any
undeclared earned income expected to be paid shortly as a dividend) on the last
trading day of that period. Net investment income will reflect amortization of
any market value premium or discount of fixed income securities (except for
obligations backed mortgages or other assets) and may include recognition of a
pro rata portion of the stated dividend rate of dividend paying portfolio
securities. The yield of each of the Non-Money Market Funds will vary from time
to time depending upon market conditions, the composition of a Fund's portfolio
and operating expenses of the Trust allocated to each Fund. These factors and
possible differences in the methods used in calculating yield should be
considered when comparing a Fund's yield to yields published for other
investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of the Fund's shares and to the
relative risks associated with the investment objectives and policies of each of
the Funds.
CALCULATION OF TOTAL RETURN
Average annual total return is a measure of the change in value of the
investment in a Fund over the period covered, which assumes any dividends or
capital gains distributions are reinvested in the Fund immediately rather than
paid to the investor in cash. Average annual total return will be calculated by:
(1) adding to the total number of shares purchased by a hypothetical $1,000
investment in the Fund and all additional shares which would have been purchased
if all dividends and distributions paid or distributed during the period had
immediately been reinvested, (2) calculating the value of the hypothetical
initial investment of $1,000 as of the end of the period by multiplying the
total number of shares owned at the end of the period by the net asset value per
share on the last trading day of the period, (3) assuming redemption at the end
of the period, and (4) dividing this account value for the hypothetical investor
by the initial $1,000 investment and annualizing the result for periods of less
than one year.
PERFORMANCE COMPARISONS
Investors may judge the performance of the Funds by comparing their
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as the Morgan Stanley Capital International EAFE Index
and those prepared by Dow-Jones & Co., Inc., Standard & Poor's Corporation,
Shearson-Lehman Brothers, Inc. and the Russell 2000 Growth Index and to data
prepared by Lipper Analytical Services, Inc. a widely recognized independent
service which monitors the performance of mutual funds, Morningstar, Inc. and
the Consumer Price Index. Comparisons may also be made to indices or data
published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The Bond
Buyer's Weekly, 20-Bond Index, The Bond Buyer's Index, The Bond Buyer, The New
York Times, Business Week, Pensions and Investments, and USA Today. In addition
to performance information, general information about these Funds that appears
in a publication such as those mentioned above, may be included in
advertisements and in reports to shareholders,
From time to time, the Funds may include the following types of
information in advertisements, supplemental sales literature and reports to
shareholders: (1) discussions of general economic or financial
41
<PAGE> 89
principles (such as the effects of compounding and the benefits of dollar-cost
averaging); (2) discussions of general economic trends; (3) presentations of
statistical data to supplement such discussions; (4) descriptions of past or
anticipated portfolio holdings for one or more of the Funds within the Trust;
(5) descriptions of investment strategies for one or more of the Funds; (6)
descriptions or comparisons of various savings and investment policies
(including, but not limited to, insured bank products, annuities, qualified
retirement plans and individual stocks and bonds), which may or may not include
the Funds; (7) comparisons of investment products (including the Funds) with
relevant market or industry indices or other appropriate benchmarks; and (8)
discussions of fund rankings or ratings by recognized rating organizations. The
Funds may also include calculations, such as hypothetical compounding examples
which describe hypothetical investment results in such communications. Such
performance examples will be based on an expressed set of assumptions and are
not indicative of the performance of any of the Funds.
Morningstar, Inc., Chicago, Illinois, rates mutual funds on a one- to
five-star rating scale with five stars representing the highest rating. Such
ratings are based on a fund's historical risk/reward ratio as determined by
Morningstar relative to other funds in that fund's class. Funds are divided into
classes based upon the respective investment objectives. The one- to five-star
ratings represent the following ratings by Morningstar, respectively: Lowest,
Below Average, Neutral, Above Average and Highest.
Current yields or performance will fluctuate from time to time and are
not necessarily representative of future results. Accordingly a Fund's yield or
performance may not provide for comparison with bank deposits or other
investments which provide fixed returns for a stated period of time. Yield and
performance are functions of a Fund's quality, composition and maturity as well
as expenses allocated to the Fund. Fees imposed on customer accounts by the
Adviser or its affiliated or correspondent banks or cash management services
will reduce a Fund's effective yield to its customers.
MISCELLANEOUS
Individual Trustees are elected by the shareholders and, subject to
removal by a vote of two-thirds of the Board of Trustees, serve until their
successors are elected and qualified. Meetings of shareholders are not required
to be held at any specific intervals. Individual Trustees may be removed by vote
of the shareholders voting not less than two-thirds of the shares then
outstanding.
The Trust is registered with the SEC as a management investment
company. Such registration does not involve supervision of the management
policies of the Trust.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the SEC. Copies of such information may be obtained from the SEC by payment of
the prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer or other person is authorized to
give any information or make any representation other than those contained in
the Prospectus and this Statement of Additional Information.
42
<PAGE> 90
FINANCIAL STATEMENTS
The Trust's balance sheet as of October 25, 1999 has been audited by
KPMG LLP and is included herein along with the report thereon of KPMG LLP,
independent auditors of the Trust.
43
<PAGE> 91
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
USAllianz Funds:
We have audited the accompanying statements of assets and liabilities of the
USAllianz Funds (comprised of the Money Market Fund, Fixed Income Fund,
Diversified Assets Fund, Growth Fund and Global Opportunities Fund)
(collectively, the Funds), as of October 25, 1999, and the related statements of
operations for the day ended October 25, 1999. These financial statements are
the responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
verification of cash owned as of October 25, 1999, by confirmation with the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the USAllianz Funds at October
25, 1999, and the results of its operations for the day then ended, in
conformity with generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
October 25, 1999
44
<PAGE> 92
<TABLE>
USALLIANZ FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 25, 1999
<CAPTION>
MONEY FIXED DIVERSIFIED GLOBAL
MARKET INCOME ASSETS GROWTH OPPORTUNITIES
FUND FUND FUND FUND FUND
------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash $20,000 $20,000 $20,000 $20,000 $20,000
Reimbursement receivable from the Advisor 30,000 30,000 30,000 30,000 30,000
------- ------- ------- ------- -------
Total Assets 50,000 50,000 50,000 50,000 50,000
LIABILITIES
Accrued organizational expenses 30,000 30,000 30,000 30,000 30,000
------- ------- ------- ------- -------
Total Liabilities 30,000 30,000 30,000 30,000 30,000
------- ------- ------- ------- -------
NET ASSETS $20,000 $20,000 $20,000 $20,000 $20,000
======= ======= ======= ======= =======
NET ASSETS CONSIST OF:
Capital $20,000 $20,000 $20,000 $20,000 $20,000
------- ------- ------- ------- -------
NET ASSETS $20,000 $20,000 $20,000 $20,000 $20,000
======= ======= ======= ======= =======
CLASS Y SHARES
Net Assets $10,000 $10,000 $10,000 $10,000 $10,000
Shares Outstanding 10,000 1,000 1,000 1,000 1,000
Offering and Redemption price per share $ 1.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
======= ======= ======= ======= =======
CLASS B SHARES
Net Assets $ 5,000 $ 5,000 $ 5,000 $ 5,000
Shares Outstanding 500 500 500 500
Offering price per share* $ 10.00 $ 10.00 $ 10.00 $ 10.00
======= ======= ======= =======
CLASS A SHARES
Net Assets $10,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000
Shares Outstanding 10,000 500 500 500 500
Redemption price per share $ 1.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
======= ======= ======= ======= =======
Maximum sales charge N/A 4.75% 5.75% 5.75% 5.75%
------- ------- ------- ------- -------
Maximum offering price per share (100%/(100% = Maximum
sales charge) of net asset value adjusted
to the nearest cent) $ 1.00 $ 10.50 $ 10.61 $ 10.61 $ 10.61
======= ======= ======= ======= =======
</TABLE>
*-Redemption price per share varies by length of time shares are held.
See Notes to Financial Statements.
45
<PAGE> 93
<TABLE>
USALLIANZ FUNDS
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED OCTOBER 25, 1999*
<CAPTION>
MONEY FIXED DIVERSIFIED GLOBAL
MARKET INCOME ASSETS GROWTH OPPORTUNITIES
FUND FUND FUND FUND FUND
-------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
none $ -- $ -- $ -- $ -- $ --
EXPENSES
Organization costs 30,000 30,000 30,000 30,000 30,000
Reimbursement of expenses (30,000) (30,000) (30,000) (30,000) (30,000)
-------- -------- -------- -------- --------
Net expenses -- -- -- -- --
-------- -------- -------- -------- --------
NET INVESTMENT INCOME $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
* The date of initial capitalization was October 25, 1999
See Notes to Financial Statements.
46
<PAGE> 94
USALLIANZ FUNDS
NOTES TO FINANCIAL STATEMENTS
October 25, 1999
1. ORGANIZATION
The USAllianz Funds (the "Trust") was organized as a Delaware business
trust on July 13th, 1999. The Trust is a diversified open-end
management investment company registered under the Investment Company
Act of 1940 (the "1940 Act"). The Trust consists of five series, the
Money Market Fund, the Fixed Income Fund, the Diversified Assets Fund,
the Growth Fund, and the Global Opportunities Fund (collectively the
"Funds" and individually a "Fund"). The Trust is authorized to issue an
unlimited number of shares. Currently, the Funds are authorized to
issue three classes of shares, Class Y Shares, Class A Shares, and
Class B shares (except for the Money Market Fund which currently does
not offer Class B Shares).
The Money Market Fund's objective is current income consistent with
stability of principal. The Fixed Income Fund's objective is to
maximize total return with secondary emphasis on income. The
Diversified Assets Fund's objective is total return consistent with
reduction of long-term volatility. The Growth Fund's objective is long
term capital growth. The Global Opportunities Fund's objective is long
term capital growth.
2. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION EXPENSE. All costs incurred by the Trust in connection
with the organization of the Funds and the initial public offering of
shares of the Funds, principally professional fees and printing, will
be reimbursed to the Funds by Allianz of America, Inc. (the "Investment
Advisor") and is subject to recovery by the Investment Advisor pursuant
to the Expense Limitation Agreement (See Note 3).
FEDERAL INCOME TAXES: The Funds intend to comply with the requirements
of the Internal Revenue Code necessary to qualify as a regulated
investment company and to make the requisite distributions of taxable
income to its shareholders which will be sufficient to relieve it from
all or substantially all federal income taxes.
USE OF ESTIMATES: Estimates and assumptions are required to be made
regarding assets and liabilities and the reported amounts of income and
expenses for the period when financial statements are prepared. Changes
in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to
differ from these amounts.
3. RELATED PARTY TRANSACTIONS
Allianz of America, Inc., (the "Investment Adviser") will serve as the
investment adviser of the Fund. Under the terms of an investment
advisory agreement between the Trust and the
47
<PAGE> 95
Investment Adviser, the Investment Adviser will be entitled to receive
fees based on a percentage of the average net assets of each Fund.
The Funds will pay the Investment Advisor an annual rate based on the
Fund's average daily net assets as follows:
----------------------------------------------
Fund Fee Rate
---- --------
----------------------------------------------
Money Market Fund .35%
----------------------------------------------
Fixed Income Fund .50%
----------------------------------------------
Diversified Assets Fund .55%
----------------------------------------------
Growth Fund .75%
----------------------------------------------
Global Opportunities Fund .95%
----------------------------------------------
Pursuant to the Expense Limitation Agreement, the Investment Adviser
has contractually agreed to waive a portion of its advisory fees and if
necessary reimburse each Fund's organizational and operational expenses
so that each of the Fund's net expenses are at or below the following
annualized expense ratios (the "Caps"):
----------------------------------------------------------
Fund Expense Limitation
---- ------------------
----------------------------------------------------------
Money Market Fund
----------------------------------------------------------
Class A 0.88%
----------------------------------------------------------
Class Y 0.63%
----------------------------------------------------------
Fixed Income Fund
----------------------------------------------------------
Class A 1.05%
----------------------------------------------------------
Class B 1.80%
----------------------------------------------------------
Class Y 0.80%
----------------------------------------------------------
Diversified Assets Fund
----------------------------------------------------------
Class A 1.20%
----------------------------------------------------------
Class B 1.95%
----------------------------------------------------------
Class Y 0.95%
----------------------------------------------------------
Growth Fund
----------------------------------------------------------
Class A 1.28%
----------------------------------------------------------
Class B 2.03%
----------------------------------------------------------
Class Y 1.03%
----------------------------------------------------------
Global Opportunities Fund
----------------------------------------------------------
Class A 1.85%
----------------------------------------------------------
Class B 2.60%
----------------------------------------------------------
Class Y 1.60%
----------------------------------------------------------
If at any point during the period prior to September 30th, 2002, the
operational expenses of the Funds fall below the Caps, the Investment
Adviser may recoup fees previously waived or reimbursed fees so long as
the amount of recouped fees does not 1) cause the Funds' aggregate
expenses on an annualized basis to exceed the Caps, and 2) exceed the
fees
48
<PAGE> 96
previously waived or reimbursed by the Investment Adviser.
As part of the Trust's organization, each Fund (except the Money Market
Fund) has issued in a private placement 500 shares of beneficial
interest of Class A and Class B Shares and 1,000 shares of beneficial
interest of Class Y to the Investment Adviser at $10.00 a share. The
Money Market Fund issued 10,000 shares of beneficial interest of Class
A and Class Y Shares to the Investment Advisor at $1.00 a share. The
Trust has had no operations except for the initial issuance of Class Y,
Class A, and Class B Shares to each fund (except Class B to the Money
Market Fund) and organizational expenses accrued and reimbursed.
BISYS Fund Services Ohio, Inc. ("BISYS"), a wholly-owned subsidiary of
The BISYS Group, Inc., will serve as the administrator, transfer agent
and fund accountant to the Funds. BISYS will also serve as principal
underwriter and distributor of the Funds' shares.
Certain Trustees and officers of the Trust are affiliated with the
Investment Adviser or BISYS. Such persons are not paid directly by the
Trust for serving in those capacities.
Pursuant to the Shareholder Servicing Plan, the Fund's Class B shares
pay BISYS for the provision of certain services at an annual rate of
0.25% of the value of the average daily net assets of each Fund. The
services provided may include personal services relating to shareholder
accounts and services related to the maintenance of such shareholder
accounts. BISYS may pay financial institutions, including the
Investment Adviser, broker/dealers and other institutions in respect to
these services. Pursuant to the Distribution Plan, each Fund's Class A
and Class B Shares pays BISYS for advertising, marketing and
distributing such shares at an annual rate of 0.25% and 0.75%,
respectively, of the value of the average daily net assets represented
by that class. BISYS may pay financial institutions, broker/dealers and
other institutions, with respect of these services.
49
<PAGE> 97
APPENDIX
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment is strong. Within this
category, certain obligations are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
rated "A-1". However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes such payments will
be made during such grace period. The "D" rating will also be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually debt obligations not having an original maturity in excess
of one year, unless explicitly noted. The following summarizes the rating
categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) 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 structure 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 supporting institutions) 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, may be more subject to
variation.
50
<PAGE> 98
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the rating categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of securities rated
"F1."
51
<PAGE> 99
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates
that the capacity for meeting financial commitments is solely reliant upon a
sustained, favorable business and economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest rating
category and indicates that the obligation is regarded as non-investment grade
and therefore speculative.
CORPORATE LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
52
<PAGE> 100
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having significant
speculative characteristics. "BB" indicates the least degree of speculation and
"C" the highest. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
"B" - Debt is more vulnerable to non-payment than obligations rated
"BB," but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is dependent
upon favorable business, financial and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This rating is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
53
<PAGE> 101
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca" and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD" and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
54
<PAGE> 102
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of investment risk
and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is very unlikely to be adversely
affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of investment risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of investment risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to adverse changes in circumstances or in
economic conditions than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
investment risk. The capacity for timely payment of financial commitments is
adequate, but adverse changes in circumstances and in economic conditions are
more likely to impair this category.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC," "CC" and "C" - Bonds have high default risk. Capacity for
meeting financial commitments is reliant upon sustained, favorable business or
economic developments. "CC" ratings indicate that default of some kind appears
probable, and "C" ratings signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not meeting
obligations and are extremely speculative. "DDD" designates the highest
potential for recovery on these securities, and "D" represents the lowest
potential for recovery.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "B" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes the
rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
55
<PAGE> 103
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC" and "CC" - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded as
having speculative characteristics regarding the likelihood of timely payment of
principal and interest. "BB" indicates the lowest degree of speculation and "CC"
the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include
a plus or minus sign designation which indicates where within the respective
category the issue is placed.
56
<PAGE> 104
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
(a) Agreement and Declaration of Trust dated 7/13/99 (1)
(b) By-laws (1)
(c) Not Applicable
(d) Form of Investment Advisory Agreement dated October __,
1999*
(e) Form of Distribution Agreement dated October __, 1999 *
(f) Not Applicable
(g) Custody Agreement dated October 6, 1999 *
(h)(1) Services Agreement dated October 6, 1999*
(h)(2) Form of Shareholder Services Agreement*
(h)(3) Form of Expense Limitation Agreement dated October __,
1999*
(i) Opinion and Consent of Counsel to the Registrant*
(j) Consent of KPMG LLP*
(k) N/A
(l) N/A
(m) Form of Rule 12b-1 Plan*
(n) N/A
(o) Form of Rule 18f-3 Plan *
(p) Powers of Attorney*
* Filed herewith.
(1) Filed with initial registration statement on July 21, 1999, and
incorporated herein by reference.
(2) Filed as an exhibit to Pre-Effective Amendment #1 on October 15, 1999
and incorporated herein by reference.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 25. INDEMNIFICATION
The Trust's Agreement and Declaration of Trust provides that the Trust
will indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Trust, except if it is determined in the manner specified
in the Agreement and Declaration of Trust that they have not acted in good faith
in the reasonable belief that their actions were in or not opposed to the best
interests of the Trust or that such indemnification would relieve any officer or
Trustee of any liability to the Trust or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of his or her
duties or, in a criminal proceeding, such Trustee or officers had reasonable
cause to believe their conduct was unlawful. The Trust, at its expense, will
provide liability insurance for the benefit of its Trustees and officers.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is,
<PAGE> 105
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
Allianz of America, Inc., the Registrant's investment adviser (the "Adviser"),
is a registered investment adviser. The Adviser manages private accounts
representing assets of approximately $21 billion. The Adviser, (and its
predecessor organization) has been engaged in advising private client accounts
since 1976. The Adviser was organized on June 15, 1976.
Set forth below is a description of other business, profession,
vocation or employment of a substantial nature in which each
member/principal/officer of the Adviser is or has been engaged, at any time
during the past two fiscal years, for his own account or in the capacity of
director, officer, employee, partner or trustee:
<TABLE>
<CAPTION>
NAME POSITION WITH ADVISER OTHER BUSINESS ADDRESS
<S> <C> <C> <C>
Henning Schulte-Noelle Director and President and Chairman, Managing Board, Koeniginstrasse 28
Chief Executive Officer Allianz AG Munich, Germany 80802
Lowell C. Anderson Director Chairman, President and 1750 Hennepin Avenue
Chief Executive Officer, Minneapolis, MN 55403
Allianz Life Insurance Co.
of North America
Diethart Breipohl Director Member of Board of Koeniginstrasse 28
Management, Allianz AG Munich, Germany 80802
Herbert F. Hansmeyer Director Member of Board of Koeniginstrasse 28
Management, Allianz AG Munich, Germany 80802
David P. Marks Director, Chief Investment N/A 55 Greens Farms Road
Officer and Secretary Westport, CT 06881
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Hans-Juergen Schinzler Director Chairman of The Board of Koeniginstrasse 107
Management Munich Munich, Germany 80791
Reinsurance, Company
Ronald M. Clark Chief Operating Officer and N/A 55 Greens Farms Road
Treasurer Westport, CT 06881
Ed Ghigliotty Chief Administrative Officer Senior Vice President of 55 Greens Farms Road
(since 4/99) Operations & Chief Financial Westport, CT 06881
Officer, Jefferson Insurance
company of New York (prior
to 4/99)
Gary Brown Vice President and Manager N/A 55 Greens Farms Road
Director Westport, CT 06881
Wendell R. Kurtz Vice President and Managing N/A 55 Greens Farms Road
Director Westport, CT 06881
Raymond W. Gebhardt Assistant Secretary Assistant Tax Director, 777 San Marin Drive
Fireman's Fund Insurance Co. Novato, CA 94998
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITER
(a) BISYS Fund Services L.P. serves as the Registrant's principal
underwriter and serves as the principal underwriter for the following investment
companies:
BISYS FUND SERVICES LIMITED PARTNERSHIP
---------------------------------------
Alpine Equity Trust
American Performance Funds
AmSouth Mutual Funds
The BB&T Mutual Funds Group
The Coventry Group
ESC Strategic Funds, Inc.
The Eureka Funds
Governor Funds
Fifth Third Funds
Hirtle Callaghan Trust
HSBC Funds Trust and HSBC Mutual Funds Trust
INTRUST Funds Trust
<PAGE> 107
The Infinity Mutual Funds, Inc.
The Kent Funds
Magna Funds
Meyers Investment Trust
Mercantile Mutual Funds
MMA Praxis Mutual Funds
M.S.D.&T. Funds
Pacific Capital Funds
The Parkstone Advantage Funds
Republic Advisor Funds Trust
Republic Funds Trust
Sefton Funds Trust
Summit Investment Trust
Variable Insurance Funds
The Victory Portfolios
The Victory Variable Insurance Funds
Vintage Mutual Funds, Inc.
(b) Directors, Officers and Partners.
Name and Principal Position Positions and
Business Address with Underwriter Offices with Registrant
- - ---------------- ---------------- -----------------------
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, New Jersey
(c) None
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Registrant's accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules thereunder are in the
physical possession of the following:
BISYS Fund Services
3435 Stelzer Road, Columbus, Ohio 43219
----------------------------------------
31a-1(a)
31a-1(b)(2)A, B, C and D
31a-1(b) 4, 5, 6, 8, 9, 10, 11, 12
31a-2(a) 1 and 2
31a-2(c)
<PAGE> 108
Allianz of America, Inc.
55 Greens Farms Road, Westport, Connecticut 06881
--------------------------------------------------
31a-1(b) 10
31a-1(f)
31a-2(e)
31a-1(d)
31a-2(c)
31a-2(e)
Not Applicable
--------------
31a-1(b) 3 and 7
31a-1(c)
31a-1(e)
31a-2(b)
31a-2(d)
ITEM 29. MANAGEMENT SERVICES
N/A
ITEM 30. UNDERTAKINGS
(a) Registrant undertakes to call a meeting of shareholders for
the purpose of voting upon the removal of a trustee if
requested to do so by the holders of at least 10% of the
Registrant's outstanding shares.
(b) Registrant undertakes to provide the support to shareholders
specified in Section 16(c) of the 1940 Act as though that
section applied to the Registrant.
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders upon request and without charge.
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Columbus, in the State of
Ohio on the 26th day of October, 1999.
USALLIANZ FUNDS
By: /s/ David P. Marks*
----------------------------
David P. Marks
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement of USAllianz Funds has been signed below by the
following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ David P. Marks* Trustee, Chairman of the Board and October 26, 1999
- ----------------------------- President (principal executive officer)
David P. Marks
/s/ Harrison Conrad* Trustee October 26, 1999
- -----------------------------
Harrison Conrad
/s/ Roger Gelfenbien* Trustee October 26, 1999
- -----------------------------
Roger Gelfenbien
/s/ Arthur C. Reeds III* Trustee October 26, 1999
- -----------------------------
Arthur C. Reeds III
/s/ Gary Tenkman* Treasurer (principal financial and October 26, 1999
- ----------------------------- accounting officer)
Gary Tenkman
*By: /s/ Charles Booth
----------------------------- October 26, 1999
Charles Booth
-------------
Attorney-in-Fact
</TABLE>
<PAGE> 110
<TABLE>
USALLIANZ FUNDS
INDEX OF EXHIBITS
<CAPTION>
DESCRIPTION OF EXHIBIT EXHIBIT
- ---------------------- -------
REFERENCE
- ---------
<S> <C>
Agreement and Declaration of Trust dated July 13, 1999....................(a)(1)
By-laws ..................................................................(b)(1)
Form of Investment Advisory Agreement dated October __, 1999 ............(d)*
Form of Distribution Agreement dated October __, 1999 .................. (e)*
Custody Agreement dated October 6, 1999 ...............................(g)(1)*
Services Agreement dated October 6, 1999 ..............................(h)(1)*
Form of Shareholder Services Agreement.................................(h)(2)*
Form of Expense Limitation Agreement dated October __, 1999 ..........(h)(3)*
Opinion and Consent of Counsel to the Registrant..........................(i)*
Consent of KPMG LLP.......................................................(j)*
Rule 12b-1 Plan of Distribution...........................................(m)*
Rule 18f-3 Plan...........................................................(o)*
Powers of Attorney........................................................(p)*
</TABLE>
* Filed herewith.
- --------------------
(1) Filed with initial registration statement on July 21, 1999, and incorporated
herein by reference.
(2) Filed as an exhibit to Pre-Effective Amendment #1 on October 15, 1999 and
incorporated herein by reference.
<PAGE> 1
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made the day of October, 1999, by and between
USALLIANZ FUNDS, a Delaware business trust (the "Trust"), and Allianz of
America, Inc., a Delaware corporation (the "Adviser").
WHEREAS, the Trust and the Adviser wish to enter into an Agreement
setting forth the terms on which the Adviser will perform certain services for
the Trust, its series of shares as listed on Schedule A to this agreement and
each series of shares subsequently issued by the Trust (each singly a "Fund" or
collectively the "Funds").
THEREFORE, in consideration of the promises and the mutual
agreements hereinafter contained, the Trust and the Adviser agree as follows:
1. (a) The Trust hereby employs the Adviser to manage the
investment and reinvestment of the assets of each Fund of the Trust in
conformity with such Fund's investment objectives and restrictions as may be set
forth from time to time in the Fund's then current prospectus and statement of
additional information, if any, and other governing documents, and to supervise
the provision of services to the Trust and each of its Funds by others, all
subject to the supervision of the Board of Trustees of the Trust, for the period
and on the terms set forth in this Agreement. The Adviser hereby accepts such
employment and agrees during such period, at its own expense, to render the
services and to assume the obligations set forth herein, for the compensation
provided herein. The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust.
(b) In the event that the Trust establishes one or more Funds, in
addition to the Funds listed on Schedule A, for which it wishes the Adviser to
perform services hereunder, it shall notify the Adviser in writing. If the
Adviser is willing to render such services, it shall notify the Trust in writing
and upon execution of an addendum hereto such Fund shall become a Fund hereunder
and the compensation payable to the Adviser by the new Fund will be as agreed in
writing at the time and set forth in such addendum.
2. The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of each Fund with broker-dealers selected
by the Adviser. In executing portfolio transactions and selecting
broker-dealers, the Adviser will use its best efforts to seek best execution on
behalf of each Fund. In assessing the best execution available for any
transaction, the Adviser shall consider all factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer, the
reasonableness of the commission, if any (all for the specific transaction and
on a continuing basis). In evaluating the best execution available, and in
selecting the broker-dealer to execute a particular transaction, the Adviser may
also consider the brokerage and research services (as those terms are used in
Section 28(e) of the Securities Exchange Act of 1934 (the "1934 Act")) provided
to a Fund and/or other accounts over which the Adviser or an affiliate of the
Adviser exercises investment discretion. The Adviser is authorized to pay a
broker-dealer who provides such brokerage and research services a commission for
executing a
<PAGE> 2
portfolio transaction for a Fund which is in excess of the amount of commission
another broker-dealer would have charged for effecting that transaction if, but
only if, the Adviser determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer viewed in terms of that particular transaction or
in terms of all of the accounts over which investment discretion is so
exercised.
3. To the extent not otherwise arranged by the Trust pursuant to
other agreements for management, administration and/or other services, the
Adviser, at its own expense, shall furnish to the Trust office space in the
offices of the Adviser or in such other place as may be agreed upon by the
parties from time to time, all necessary office facilities, equipment and
personnel in connection with its services hereunder, and shall arrange, if
desired by the Trust, for members of the Adviser's organization to serve without
salaries from the Trust as officers or, as may be agreed from time to time, as
agents of the Trust. The Adviser assumes and shall pay or reimburse the Trust
for:
(a) the compensation (if any) of the Trustees of the Trust who are
affiliated with the Adviser or with its affiliates, or with any adviser retained
by the Adviser, and of all officers of the Trust affiliated with the Adviser or
any of its affiliates, and
(b) all expenses of the Adviser incurred in connection with its
services hereunder.
The Trust assumes and shall pay all other expenses of the Trust
and its Funds, including, without limitation:
(c) all charges and expenses of any custodian or depository
appointed by the Trust for the safekeeping of the cash, securities and other
property of any of its Funds;
(d) all charges and expenses for administration and management
services (except as otherwise specifically provided in Section 1(a) hereof;
(e) all charges and expenses for bookkeeping and auditors;
(f) all charges and expenses of any transfer agents and registrars
appointed by the Trust;
(g) all fees of all Trustees of the Trust who are not affiliated
with the Adviser or any of its affiliates, or with any adviser retained by the
Adviser;
(h) all brokers' fees, expenses, and commissions and issue and
transfer taxes chargeable to a Fund in connection with transactions involving
securities and other property to which the Fund is a party;
(i) all costs and expenses of distribution of shares of its Funds
incurred pursuant to Plans of Distribution adopted under Rule 12b-1 under the
Investment Company Act of 1940 ("1940 Act");
(j) all costs and expenses of shareholder servicing;
2
<PAGE> 3
(k) all taxes and trust fees payable by the Trust or its Funds to
Federal, state, or other governmental agencies;
(l) all costs of certificates representing shares of the Trust or
its Funds;
(m) all fees and expenses involved in registering and maintaining
registrations of the Trust, its Funds and of their shares with the Securities
and Exchange Commission (the "Commission") and registering or qualifying the
Funds' shares under state or other securities laws, including, without
limitation, the preparation and printing of registration statements,
prospectuses, and statements of additional information for filing with the
Commission and other authorities;
(n) expenses of preparing, printing, and mailing prospectuses and
statements of additional information to shareholders of each Fund of the Trust;
(o) all expenses of shareholders' and Trustees' meetings and of
preparing, printing, and mailing notices, reports, and proxy materials to
shareholders of the Funds;
(p) all charges and expenses of legal counsel for the Trust and
its Funds and for Trustees of the Trust in connection with legal matters
relating to the Trust and its Funds, including, without limitation, legal
services rendered in connection with the Trust and its Funds' existence, trust,
and financial structure and relations with its shareholders, registrations and
qualifications of securities under Federal, state, and other laws, issues of
securities, expenses which the Trust and its Funds has herein assumed, whether
customary or not, and extraordinary matters, including, without limitation, any
litigation involving the Trust and its Funds, its Trustees, officers, employees,
or agents;
(q) all charges and expenses of filing annual and other reports
with the Commission and other authorities; and
(r) all extraordinary expenses and charges of the Trust and its
Funds.
In the event that the Adviser provides any of these services or
pays any of these expenses, the Trust and any affected Fund will promptly
reimburse the Adviser therefor.
The services of the Adviser to the Trust and its Funds hereunder
are not to be deemed exclusive, and the Adviser shall be free to render similar
services to others.
4. As compensation for the Adviser's services to the Trust with
respect to each Fund during the period of this Agreement, the Trust will pay to
the Adviser a fee at the annual rate set forth on Schedule A for such Fund.
The Adviser's fee is computed as of the close of business on each
business day.
A pro rata portion of the Trust's fee with respect to a Fund shall
be payable in arrears at the end of each day or calendar month as the Adviser
may from time to time specify to the Trust. If and when this Agreement
terminates, any compensation payable hereunder for the period ending with the
date of such termination shall be payable upon such termination. Amounts payable
hereunder shall be promptly paid when due.
3
<PAGE> 4
The Adviser may from time to time and for such periods as it deems
appropriate reduce its compensation (and, if appropriate, assume expenses of one
or more of the Funds) to the extent that any Fund's expenses exceed such lower
expense limitation as the Adviser may, by notice to the Trust, voluntarily
declare to be effective.
5. The Adviser may enter into an agreement to retain, at its own
expense, a firm or firms ("SubAdviser") to provide the Trust with respect to all
or any of its Funds all of the services to be provided by the Adviser hereunder,
if such agreement is approved as required by law. Such agreement may delegate to
such SubAdviser all of Adviser's rights, obligations, and duties hereunder.
6. The Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust or any of its Funds in
connection with the performance of this Agreement, except a loss resulting from
the Adviser's willful misfeasance, bad faith, gross negligence, or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, Director, partner, employee, or agent of the
Adviser, who may be or become an officer, Trustee, employee, or agent of the
Trust, shall be deemed, when rendering services to the Trust or any of its Funds
or acting on any business of the Trust or any of its Funds (other than services
or business in connection with the Adviser's duties hereunder), to be rendering
such services to or acting solely for the Trust or any of its Funds and not as
an officer, Director, partner, employee, or agent or one under the control or
direction of the Adviser even though paid by it.
7. The Trust shall cause the books and accounts of each of its
Funds to be audited at least once each year by a reputable independent public
accountant or organization of public accountants who shall render a report to
the Trust.
8. Subject to and in accordance with the Declaration of Trust of
the Trust, the governing documents of the Adviser and the governing documents of
any SubAdviser, it is understood that Trustees, Directors, officers, agents and
shareholders of the Trust or any Adviser are or may be interested in the Adviser
(or any successor thereof) as Directors and officers of the Adviser or its
affiliates, as stockholders of Allianz AG Holding or otherwise; that Directors,
officers and agents of the Adviser and its affiliates or stockholders of Allianz
AG Holding are or may be interested in the Trust or any Adviser as Trustees,
Directors, officers, shareholders or otherwise; that the Adviser (or any such
successor) is or may be interested in the Trust or any SubAdviser as
shareholder, or otherwise; and that the effect of any such adverse interests
shall be governed by the Declaration of Trust of the Trust, governing documents
of the Adviser and governing documents of any SubAdviser.
9. This Agreement shall continue in effect for two years from the
date set forth above and after such date if (a) such continuance is specifically
approved at least annually by the Board of Trustees of the Trust or by a vote of
a majority of the outstanding voting securities of the Trust, and (b) such
renewal has been approved by the vote of the majority of Trustees of the Trust
who are not interested persons, as that term is defined in the 1940 Act, of the
Adviser or of the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
10. On sixty days' written notice to the Adviser, this Agreement
may be terminated at any time without the payment of any penalty by the Board of
Trustees of the Trust or by vote of the holders of a majority of the outstanding
voting securities of the affected Funds;
4
<PAGE> 5
and on sixty days' written notice to the Trust, this Agreement may be terminated
at any time without the payment of any penalty by the Adviser. This Agreement
shall automatically terminate upon its assignment (as that term is defined in
the 1940 Act). Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postage prepaid, to the other party at the
main office of such party.
11. This Agreement may be amended at any time by an instrument in
writing executed by both parties hereto or their respective successors, provided
that with regard to material amendments such execution by the Trust shall have
been first approved by the vote of the holders of a majority of the outstanding
voting securities of the affected Funds and by the vote of a majority of
Trustees of the Trust who are not interested persons (as that term is defined in
the 1940 Act) of the Adviser, or of the Trust, cast in person at a meeting
called for the purpose of voting on such approval. A "majority of the
outstanding voting securities of the Trust or the affected Funds" shall have,
for all purposes of this Agreement, the meaning provided therefor in the 1940
Act.
12. Any compensation payable to the Adviser hereunder for any
period other than a full year shall be proportionately adjusted.
13. The Trust acknowledges that the Adviser and its affiliates
have granted the Trust the non-exclusive right to use of the name "USAllianz
Funds" and agrees that all rights in and to such name and any and all service
marks or other intellectual property related thereto or associated therewith are
and remain the property of the Adviser and its affiliates. Without limiting the
generality of the foregoing, the Trust acknowledges that the Adviser and its
affiliates may withdraw the right to use such name and related intellectual
property by notice in writing to the Trust and upon receipt of such notice, the
Trust agrees to promptly take such steps as may be necessary to change its name
and/or the name of any Funds and to cease use of any intellectual property
belonging to the Adviser or its affiliates.
14. The provisions of this Agreement shall be governed, construed,
and enforced in accordance with the laws of The State of Delaware.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
USALLIANZ FUNDS
By: ___________________________________
Name:
Title:
ALLIANZ OF AMERICA, INC.
By: ___________________________________
Name:
Title:
<PAGE> 7
Schedule A
----------
Name of Fund Compensation
- ------------------------------------------------- ------------------------
Diversified Assets Fund 0.55%
Global Opportunities Fund 0.95%
Growth Fund 0.75%
Fixed Income Fund 0.50%
Money Market Fund 0.35%
The advisory fee shall be accrued daily at the rate of 1/365th of
the applicable percentage applied to the daily net assets of each Fund. The
advisory fee so accrued shall be paid to the Adviser as provided in Section 4 of
the Investment Advisory Agreement.
<PAGE> 1
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made this ____ day of November, 1999, between USALLIANZ FUNDS
(the "Company") and BISYS FUND SERVICES LIMITED PARTNERSHIP D/B/A BISYS FUND
SERVICES ("Distributor").
WHEREAS, the Company is an open-end management investment company,
organized as a Delaware business trust and registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, it is intended that Distributor act as the distributor of the
shares of beneficial interest ("Shares") of each of the investment portfolios of
the Company (such portfolios being referred to individually as a "Fund" and
collectively as the "Funds").
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Distributor.
------------------------
1.1 Distributor will act as agent for the distribution of the
Shares covered by the registration statement and prospectus of the Company then
in effect under the Securities Act of 1933, as amended (the "Securities Act").
As used in this Agreement, the term "registration statement" shall mean Parts A
(the prospectus), B (the Statement of Additional Information) and C of each
registration statement that is filed on Form N-1A, or any successor thereto,
with the Commission, together with any amendments thereto. The term "prospectus"
shall mean each form of prospectus and Statement of Additional Information used
by the Funds for delivery to shareholders and prospective shareholders after the
effective dates of the above referenced registration statements, together with
any amendments and supplements thereto.
1.2 Distributor agrees to use appropriate efforts to solicit
orders for the sale of the Shares and will undertake such advertising and
promotion as it believes reasonable in connection with such solicitation. The
Company understands that Distributor is now and may in the future be the
distributor of the shares of several investment companies or series (together,
"Investment Companies") including Companies having investment objectives similar
to those of the Company. The Company further understands that investors and
potential investors in the Company may invest in shares of such other Investment
Companies. The Company agrees that Distributor's duties to such Investment
Companies shall not be deemed in conflict with its duties to the Company under
this paragraph 1.2.
Distributor shall, at its own expense, finance appropriate
activities which it deems reasonable, which are primarily intended to result in
the sale of the Shares, including, but not limited to, advertising, compensation
of underwriters, dealers and sales personnel, the printing and
<PAGE> 2
mailing of prospectuses to other than current Shareholders, and the printing and
mailing of sales literature.
1.3 In its capacity as distributor of the Shares, all activities
of Distributor and its partners, agents, and employees shall comply with all
applicable laws, rules and regulations, including, without limitation, the 1940
Act, all rules and regulations promulgated by the Commission thereunder and all
rules and regulations adopted by any securities association registered under the
Securities Exchange Act of 1934.
1.4 Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Company.
1.5 Distributor will transmit any orders received by it for
purchase or redemption of the Shares to the transfer agent and custodian for the
Funds.
1.6 Whenever in their judgment such action is warranted by
unusual market, economic or political conditions, or by abnormal circumstances
of any kind, the Company's officers may decline to accept any orders for, or
make any sales of, the Shares until such time as those officers deem it
advisable to accept such orders and to make such sales.
1.7 Distributor will act only on its own behalf as principal if
it chooses to enter into selling agreements with selected dealers or others.
1.8 The Company agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.
1.9 The Company shall furnish from time to time, for use in
connection with the sale of the Shares, such information with respect to the
Funds and the Shares as Distributor may reasonably request; and the Company
warrants that the statements contained in any such information shall fairly show
or represent what they purport to show or represent. The Company shall also
furnish Distributor upon request with: (a) unaudited semi-annual financial
statements of the Funds prepared by the Company in accordance with Generally
Accepted Accounting Principles, consistently applied, (b) a monthly itemized
list of the securities in the Funds, (c) monthly balance sheets as soon as
practicable after the end of each month, and (d) from time to time such
additional information regarding the financial condition of the Funds as
Distributor may reasonably request.
1.10 The Company represents to Distributor that, with respect to
the Shares, all registration statements and prospectuses filed by the Company
with the Commission under the Securities Act have been carefully prepared in
conformity with requirements of said Act and rules and regulations of the
Commission thereunder. The registration statement and prospectus contain all
statements required to be stated therein in conformity with said Act and the
rules and regulations
2
<PAGE> 3
of said Commission and all statements of fact contained in any such registration
statement and prospectus are true and correct in all material respects.
Furthermore, neither any registration statement nor any prospectus includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
to a purchaser of the Shares. The Company may, but shall not be obligated to,
propose from time to time such amendment or amendments to any registration
statement and such supplement or supplements to any prospectus as, in the light
of future developments, may, in the opinion of the Company's counsel, be
necessary or advisable. If the Company shall not propose such amendment or
amendments and/or supplement or supplements within fifteen days after receipt by
the Company of a written request from Distributor to do so, Distributor may, at
its option, terminate this Agreement. The Company shall not file any amendment
to any registration statement or supplement to any prospectus without giving
Distributor reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit the Company's right
to file at any time such amendments to any registration statement and/or
supplements to any prospectus, of whatever character, as the Company may deem
advisable, such right being in all respects absolute and unconditional.
1.11 The Company authorizes Distributor and dealers selected by
Distributor to use any prospectus in the form furnished from time to time in
connection with the sale of the Shares. The Company agrees to indemnify, defend
and hold Distributor, its several partners and employees, and any person who
controls Distributor within the meaning of Section 15 of the Securities Act free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which
Distributor, its partners and employees, or any such controlling person, may
incur under the Securities Act or under common law or otherwise, arising out of
or based upon any untrue statement, or alleged untrue statement, of a material
fact contained in any registration statement or any prospectus or arising out of
or based upon any omission, or alleged omission, to state a material fact
required to be stated in either any registration statement or any prospectus or
necessary to make the statements in either thereof not misleading; provided,
however, that the Company's agreement to indemnify Distributor, its partners or
employees, and any such controlling person shall not be deemed to cover any
claims, demands, liabilities or expenses arising out of any statements or
representations as are contained in any prospectus and in such financial and
other statements as are furnished in writing to the Company by Distributor and
used in the answers to the registration statement or in the corresponding
statements made in the prospectus, or arising out of or based upon any omission
or alleged omission to state a material fact in connection with the giving of
such information required to be stated in such answers or necessary to make the
answers not misleading; and further provided that the Company's agreement to
indemnify Distributor and the Company's representations and warranties
hereinbefore set forth in paragraph 1.10 shall not be deemed to cover any
liability to the Company or its Shareholders to which Distributor would
otherwise be subject by reason of willful misfeasance, bad faith or negligence
in the performance of its duties, or by reason of Distributor's reckless
disregard of its obligations and duties under this Agreement. The Company's
agreement to indemnify Distributor, its partners and employees and any such
controlling person, as aforesaid, is expressly conditioned upon the Company
being notified
3
<PAGE> 4
of any action brought against Distributor, its partners or employees, or any
such controlling person, such notification to be given by letter or by telegram
addressed to the Company at its principal office in Columbus, Ohio and sent to
the Company by the person against whom such action is brought, within 10 days
after the summons or other first legal process shall have been served. The
failure to so notify the Company of any such action shall not relieve the
Company from any liability which the Company may have to the person against whom
such action is brought by reason of any such untrue, or allegedly untrue,
statement or omission, or alleged omission, otherwise than on account of the
Company's indemnity agreement contained in this paragraph 1.11. The Company will
be entitled to assume the defense of any suit brought to enforce any such claim,
demand or liability, but, in such case, such defense shall be conducted by
counsel of good standing chosen by the Company and approved by Distributor,
which approval shall not be unreasonably withheld. In the event the Company
elects to assume the defense of any such suit and retain counsel of good
standing approved by Distributor, the defendant or defendants in such suit shall
bear the fees and expenses of any additional counsel retained by any of them;
but in case the Company does not elect to assume the defense of any such suit,
or in case Distributor reasonably does not approve of counsel chosen by the
Company, the Company will reimburse Distributor, its partners and employees, or
the controlling person or persons named as defendant or defendants in such suit,
for the fees and expenses of any counsel retained by Distributor or them. The
Company's indemnification agreement contained in this paragraph 1.11 and the
Company's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of Distributor, its partners and employees, or any controlling
person, and shall survive the delivery of any Shares.
This Agreement of indemnity will inure exclusively to
Distributor's benefit, to the benefit of its several partners and employees, and
their respective estates, and to the benefit of the controlling persons and
their successors. The Company agrees promptly to notify Distributor of the
commencement of any litigation or proceedings against the Company or any of its
officers or Directors in connection with the issue and sale of any Shares.
1.12 Distributor agrees to indemnify, defend and hold the
Company, its several officers and Trustees/Directors (hereinafter referred to as
"Directors") and any person who controls the Company within the meaning of
Section 15 of the Securities Act free and harmless from and against any and all
claims, demands, liabilities and expenses (including the costs of investigating
or defending such claims, demands, or liabilities and any counsel fees incurred
in connection therewith) which the Company, its officers or Directors or any
such controlling person, may incur under the Securities Act or under common law
or otherwise, but only to the extent that such liability or expense incurred by
the Company, its officers or Directors or such controlling person resulting from
such claims or demands, shall arise out of or be based upon any untrue, or
alleged untrue, statement of a material fact contained in information furnished
in writing by Distributor to the Company and used in the answers to any of the
items of the registration statement or in the corresponding statements made in
the prospectus, or shall arise out of or be based upon any omission, or alleged
omission, to state a material fact in connection with such information furnished
in writing by Distributor to the Company required to be stated in such answers
or necessary to make such
4
<PAGE> 5
information not misleading. Distributor's agreement to indemnify the Company,
its officers and Directors, and any such controlling person, as aforesaid, is
expressly conditioned upon Distributor being notified of any action brought
against the Company, its officers or Directors, or any such controlling person,
such notification to be given by letter or telegram addressed to Distributor at
its principal office in Columbus, Ohio, and sent to Distributor by the person
against whom such action is brought, within 10 days after the summons or other
first legal process shall have been served. Distributor shall have the right of
first control of the defense of such action, with counsel of its own choosing,
satisfactory to the Company, if such action is based solely upon such alleged
misstatement or omission on Distributor's part, and in any other event the
Company, its officers or Directors or such controlling person shall each have
the right to participate in the defense or preparation of the defense of any
such action. The failure to so notify Distributor of any such action shall not
relieve Distributor from any liability which Distributor may have to the
Company, its officers or Directors, or to such controlling person by reason of
any such untrue or alleged untrue statement, or omission or alleged omission,
otherwise than on account of Distributor's indemnity agreement contained in this
paragraph 1.12.
1.13 No Shares shall be offered by either Distributor or the
Company under any of the provisions of this Agreement and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Company if and so
long as the effectiveness of the registration statement then in effect or any
necessary amendments thereto shall be suspended under any of the provisions of
the Securities Act or if and so long as a current prospectus as required by
Section 10(b)(2) of said Act is not on file with the Commission; provided,
however, that nothing contained in this paragraph 1.13 shall in any way restrict
or have an application to or bearing upon the Company's obligation to repurchase
Shares from any Shareholder in accordance with the provisions of the Company's
prospectus, Declaration of Trust/Articles of Incorporation, or Bylaws.
1.14 The Company agrees to advise Distributor as soon as
reasonably practical by a notice in writing delivered to Distributor or its
counsel:
(a) of any request by the Commission for amendments
to the registration statement or prospectus then
in effect or for additional information;
(b) in the event of the issuance by the Commission
of any stop order suspending the effectiveness
of the registration statement or prospectus then
in effect or the initiation by service of
process on the Company of any proceeding for
that purpose;
(c) of the happening of any event that makes untrue
any statement of a material fact made in the
registration statement or prospectus then in
effect or which requires the making of a change
in such registration statement or prospectus in
order to make the statements therein not
misleading; and
5
<PAGE> 6
(d) of all action of the Commission with respect to
any amendment to any registration statement or
prospectus which may from time to time be filed
with the Commission.
For purposes of this section, informal requests by or acts
of the Staff of the Commission shall not be deemed actions of or requests by the
Commission.
1.15 Distributor agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Company
all records and other information relative to the Company and its prior, present
or potential Shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except, after prior notification to and approval in writing by the Company,
which approval shall not be unreasonably withheld and may not be withheld where
Distributor may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Company.
1.16 This Agreement shall be governed by the laws of the State
of Ohio.
1.17 In the event Distributor purchases the initial shares of
the Company for purposes of satisfying the minimum net worth requirements set
forth in Section 14 (a) of the 1940 Act, and a notice of termination is
subsequently given or this Agreement is otherwise terminated pursuant to Section
6 herein for any reason prior to the time that organizational expenses incurred
by the Company have been fully amortized, then the Company shall either (i)
cause the successor distributor of the shares (the "Successor Distributor") to
pay to Distributor, within ten (10) days prior to the termination of this
Agreement, an amount of cash that is sufficient to purchase the initial shares
that are held by Distributor or (ii) enable Distributor to redeem the initial
shares of the Company that it holds by causing the Successor Distributor to
contribute to the Company, within ten (10) days prior to the termination of this
Agreement, any unamortized organizational costs in the same proportion as the
number of initial shares being redeemed bears to the number of initial shares
outstanding at the time of such contribution. In the latter case, Distributor
shall be entitled to redeem any or all of the initial shares that it holds and
receive redemption proceeds without any reduction in the amount of such
proceeds, prior to the termination of this Agreement.
1.18 Distributor represents that (i) it is and will be at all
times relevant to this Agreement a member in good standing of the National
Association of Securities Dealers, Inc. and (ii) it is and will be at all times
relevant to this Agremeent a broker-dealer properly registered and qualified
under all applicable federal, state and local laws to engage in the business and
transactions described in this Agreement. Distributor further represents that
(i) the execution, delivery and performance of this Agreement are within BISYS'
powers and (ii) this Agreement has been duly authorized by Distributor and, when
executed and delivered by Distributor, will constitute a legal, valid and
binding obligation of Distributor, enforceable against Distributor in accordance
with its terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting the rights and remedies of
creditors and secured parties.
6
<PAGE> 7
2. Fee.
----
Distributor shall be entitled to receive from the Company (i)
sales charges payable by Company Shareholders in accordance with each of the
Company's prospectuses, and (ii) distribution and/or service fees, in accordance
with distribution and shareholder service plans and any other service plans that
are adopted by the Company. The distribution and/or service fees shall be
accrued daily and shall be paid on the first business day of each month, or at
such time(s) as the Distributor shall reasonably request.
3. Sale and Payment.
-----------------
Shares of a Fund may be subject to a sales load and may be
subject to the imposition of a distribution fee pursuant to the Distribution and
Shareholder Service Plan referred to above. To the extent that Shares of a Fund
are sold at an offering price which includes a sales load or at net asset value
subject to a contingent deferred sales load with respect to certain redemptions
(either within a single class of Shares or pursuant to two or more classes of
Shares), such Shares shall hereinafter be referred to collectively as "Load
Shares" (in the case of Shares that are sold with a front-end sales load or
Shares that are sold subject to a contingent deferred sales load), "Front-End
Load Shares" or "CDSL Shares" and individually as a "Load Share," a "Front-End
Load Share" or a "CDSL Share." A Fund that contains Front-End Load Shares shall
hereinafter be referred to collectively as "Load Funds" or "Front-End Load
Funds" and individually as a "Load Fund" or a "Front-end Load Fund." A Fund that
contains CDSL Shares shall hereinafter be referred to collectively as "Load
Funds" or "CDSL Funds" and individually as a "Load Fund" or a "CDSL Fund." Under
this Agreement, the following provisions shall apply with respect to the sale
of, and payment for, Load Shares.
3.1 Distributor shall have the right to purchase Load Shares at
their net asset value and to sell such Load Shares to the public against orders
therefor at the applicable public offering price, as defined in Section 4
hereof. Distributor shall also have the right to sell Load Shares to dealers
against orders therefor at the public offering price less a concession
determined by Distributor, which concession shall not exceed the amount of the
sales charge or underwriting discount, if any, referred to in Section 4 below.
3.2 Prior to the time of delivery of any Load Shares by a Load
Fund to, or on the order of, Distributor, Distributor shall pay or cause to be
paid to the Load Fund or to its order an amount in Boston or New York clearing
house funds equal to the applicable net asset value of such Shares. Distributor
may retain so much of any sales charge or underwriting discount as is not
allowed by Distributor as a concession to dealers.
7
<PAGE> 8
4. Public Offering Price.
----------------------
The public offering price of a Load Share shall be the net asset
value of such Load Share, plus any applicable sales charge, all as set forth in
the current prospectus of the Load Fund. The net asset value of Shares shall be
determined in accordance with the provisions of the Declaration or
Trust/Articles of Incorporation and Bylaws of the Company and the then-current
prospectus of the Load Fund.
5. Issuance of Shares.
-------------------
The Company reserves the right to issue, transfer or sell Load
Shares at net asset value (a) in connection with the merger or consolidation of
the Company or the Load Fund(s) with any other investment company or the
acquisition by the Company or the Load Fund(s) of all or substantially all of
the assets or of the outstanding Shares of any other investment company; (b) in
connection with a pro rata distribution directly to the holders of Shares in the
nature of a stock dividend or split; (c) upon the exercise of subscription
rights granted to the holders of Shares on a pro rata basis; (d) in connection
with the issuance of Load Shares pursuant to any exchange and reinvestment
privileges described in any then-current prospectus of the Load Fund; and (e)
otherwise in accordance with any then-current prospectus of the Load Fund.
6. Term, Duration and Termination.
-------------------------------
This Agreement shall become effective as of the date first
written above and, unless sooner terminated as provided herein, shall continue
for a two-year period following the effective date of this Agreement.
Thereafter, if not terminated, this Agreement shall continue with respect to a
particular Fund automatically for successive one-year terms, provided that such
continuance is specifically approved at least annually by (a) by the vote of a
majority of those members of the Company's Directors who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
for the purpose of voting on such approval and (b) by the vote of the Company's
Directors or the vote of a majority of the outstanding voting securities of such
Fund. This Agreement is terminable without penalty, on not less than sixty days'
prior written notice, by the Company's Directors, by vote of a majority of the
outstanding voting securities of the Company or by the Distributor. This
Agreement will also terminate automatically in the event of its assignment. (As
used in this Agreement, the terms "majority of the outstanding voting
securities," "interested persons" and "assignment" shall have the same meanings
as ascribed to such terms in the 1940 Act.)
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first written
above.
USALLIANZ FUNDS
By:
---------------------------------
Title:
------------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By:
---------------------------------
Title:
------------------------------
9
<PAGE> 1
CUSTODY AGREEMENT
AGREEMENT dated as of October 6, 1999, between USAllianz Funds, a
business trust organized under the laws of the State of Delaware, having its
principal office and place of business at 55 Greens Farm Road, Westport,
Connecticut 06881 (the "Fund"), and THE NORTHERN TRUST COMPANY (the
"Custodian"), an Illinois company with its principal place of business at 50
South LaSalle Street, Chicago, Illinois 60675.
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set
forth, the Fund and the Custodian agree as follows:
1. Definitions.
------------
Whenever used in this Agreement or in any Schedules to this Agreement,
the following words and phrases, unless the context otherwise requires, shall
have the following meanings:
(a) "Articles of Incorporation " shall mean the Declaration of Trust of
the Fund, including all amendments thereto.
(b) "Authorized Person" shall be deemed to include the Chairman of the
Board of Directors, the President, and any Vice President, the
Secretary, the Treasurer or any other person, whether or not any such
person is an officer or employee of the Fund, duly authorized by the
Board of Directors to give Instructions on behalf of the Fund and
listed in the certification annexed hereto as Schedule A or such other
certification as may be received by the Custodian from time to time
pursuant to Section 18(a).
(c) "Board of Directors" shall mean the Board of Directors or Trustees
of the Fund.
(d) "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its
successor or successors and its nominee or nominees.
(e) "Delegate of the Fund" shall mean and include any entity to whom
the Board of Directors of the Fund has delegated responsibility under
Rule 17f-5 of the 1940 Act.
1
<PAGE> 2
(f) "Depository" shall mean The Depository Trust Company, a clearing
agency registered with the Securities and Exchange Commission under
Section 17(a) of the Securities Exchange Act of 1934, as amended, its
successor or successors and its nominee or nominees, the use of which
is hereby specifically authorized. The term "Depository" shall further
mean and include any other person named in an Instruction and approved
by the Fund to act as a depository in the manner required by Rule 17f-4
of the 1940 Act, its successor or successors and its nominee or
nominees.
(g) "Instruction" shall mean written (including telecopied, telexed, or
electronically transmitted in a form that can be converted to print) or
oral instructions actually received by the Custodian which the
Custodian reasonably believes were given by an Authorized Person. An
Instruction shall also include any instrument in writing actually
received by the Custodian which the Custodian reasonably believes to be
genuine and to be signed by any two officers of the Fund, whether or
not such officers are Authorized Persons. Except as otherwise provided
in this Agreement, "Instructions" may include instructions given on a
standing basis.
(h) "1940 Act" shall mean the Investment Company Act of 1940, and the
Rules and Regulations thereunder, all as amended from time to time.
(i) "Portfolio" refers to each of the separate and distinct investment
portfolios of the Fund which the Fund and the Custodian shall have
agreed in writing shall be subject to this Agreement, as identified in
Schedule B hereto.
(j) "Prospectus" shall include each current prospectus and statement of
additional information of the Fund with respect to a Portfolio.
(k) "Rule 17f-5" shall mean Rule 17f-5 under the 1940 Act.
(l) "Shares" refers to the shares of the Fund.
(m) "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and other
securities, commodity interests and investments from time to time owned
by the Fund and held in a Portfolio.
(n) "Sub-Custodian" shall mean and include (i) any branch of the
Custodian, (ii) any "eligible foreign custodian," as that term is
defined in Rule 17f-5 under the 1940 Act, approved by the Fund or a
Delegate of the Fund in the manner required by Rule 17f-5, and (iii)
any securities depository or clearing agency, incorporated or organized
under the laws of a country other than the United States, which
securities depository or clearing agency has been approved by the Fund
or a Delegate of the Fund in the manner required by Rule 17f-5;
provided,
2
<PAGE> 3
that the Custodian or a Sub-Custodian has entered into an agreement
with such securities depository or clearing agency.
(o) "Transfer Agent" shall mean the person which performs as the
transfer agent, dividend disbursing agent and shareholder servicing
agent for the Fund.
2. Appointment of Custodian.
-------------------------
(a) The Fund hereby constitutes and appoints the Custodian as custodian
of all the Securities and moneys owned by or in the possession of a
Portfolio during the period of this Agreement.
(b) The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
3. Appointment and Removal of Sub-Custodians.
------------------------------------------
(a) The Custodian may appoint one or more Sub-Custodians to act as
Depository or Depositories or as sub-custodian or sub-custodians of
Securities and moneys at any time held in any Portfolio, upon the terms
and conditions specified in this Agreement. The Custodian shall oversee
the maintenance by any Sub-Custodian of any Securities or moneys of any
Portfolio.
(b) The Agreement between the Custodian and each Sub-Custodian
described in clause (ii) or (iii) of Section 1(n) and acting hereunder
shall contain any provisions necessary to comply with Rule 17f-5 under
the 1940 Act.
(c) Prior to the Custodian's use of any Sub-Custodian described in
clause (ii) or (iii) of Paragraph 1(n), the Fund or a Delegate of the
Fund must approve such Sub-Custodian in the manner required by Rule
17f-5 and provide the Custodian with satisfactory evidence of such
approval.
(d) The Custodian shall promptly take such steps as may be required to
remove any Sub-Custodian that has ceased to be an "eligible foreign
custodian" or has otherwise ceased to meet the requirements under Rule
17f-5. If the Custodian intends to remove any Sub-Custodian previously
approved by the Fund or a Delegate of the Fund pursuant to paragraph
3(c), and the Custodian proposes to replace such Sub-Custodian with a
Sub-Custodian that has not yet been approved by the Fund or a Delegate
of the Fund, it will so notify the Fund or a Delegate of the Fund and
provide it with information reasonably necessary to determine such
proposed Sub-Custodian's eligibility under Rule 17f-5, including a copy
of the proposed agreement with such Sub-Custodian. The Fund shall at
the meeting of the Board of Directors next following receipt of such
notice and information, or a Delegate of the Fund shall promptly after
receipt of such notice and information, determine whether to approve
the proposed Sub-Custodian and will promptly
3
<PAGE> 4
thereafter give written notice of the approval or disapproval of the
proposed action.
(e) The Custodian hereby warrants to the Fund that in its opinion,
after due inquiry, the established procedures to be followed by each
Sub-Custodian (that is not a foreign securities depository or clearing
agency) in connection with the safekeeping of property of a Portfolio
pursuant to this Agreement afford reasonable care for the safekeeping
of such property based on the standards applicable in the relevant
market.
3A. Delegation of Foreign Custody Management.
-----------------------------------------
(a) The Fund hereby delegates to Custodian the responsibilities set
forth in subparagraph (b) below of this Section 3A, in accordance with Rule
17f-5 with respect to foreign custody arrangements for the Fund's existing and
future investment portfolios, except that the Custodian shall not have such
responsibility with respect to central depositories and clearing agencies or
with respect to custody arrangements in the countries listed on Schedule I,
attached hereto, as that Schedule may be amended from time to time by notice to
the Fund.
(b) With respect to each arrangement with any foreign custodian
regarding the assets of any investment portfolio of the Fund for which Custodian
has responsibility under this Section 3A (a"Foreign Custodian"), Custodian
shall:
(i) determine that the Fund's assets will be subject to
reasonable care, based on the standards applicable to
custodians in the relevant market, if maintained with the
Foreign Custodian, after considering all factors relevant to
the safekeeping of such assets;
(ii) determine that the written contract with such Foreign
Custodian governing the foreign custody arrangements complies
with the requirements of Rule 17f-5 and will provide
reasonable care for the Fund's assets;
(iii) establish a system to monitor the appropriateness of
maintaining the Fund's assets with such Foreign Custodian and
the contract governing the Fund's foreign custody
arrangements;
(iv) provide to the Fund's Board of Directors, at least
annually, written reports notifying the Board of the placement
of the Fund's assets with a particular Foreign Custodian and
periodic reports of any material changes to the Fund's foreign
custodian arrangements; and
4
<PAGE> 5
(v) withdraw the Fund's assets from any Foreign Custodian as
soon as reasonably practicable, if the foreign custody
arrangement no longer meets the requirement of Rule 17f-5.
4. Use of Sub-Custodians.
----------------------
With respect to property of a Portfolio which is maintained by the
Custodian in the custody of a Sub-Custodian pursuant to Section 3:
(a) The Custodian will identify on its books as belonging to the
particular Portfolio any property held by such Sub-Custodian.
(b) In the event that a Sub-Custodian permits any of the Securities
placed in its care to be held in an eligible foreign securities
depository, such Sub-Custodian will be required by its agreement with
the Custodian to identify on its books such Securities as being held
for the account of the Custodian as a custodian for its customers.
(c) Any Securities held by a Sub-Custodian will be subject only to the
instructions of the Custodian or its agents; and any Securities held in
an eligible foreign securities depository for the account of a
Sub-Custodian will be subject only to the instructions of such
Sub-Custodian.
(d) The Custodian will only deposit property of a Portfolio in an
account with a Sub-Custodian which includes exclusively the assets held
by the Custodian for its customers, and will cause such account to be
designated by such Sub-Custodian as a special custody account for the
exclusive benefit of customers of the Custodian.
5. Compensation.
-------------
(a) The Fund will compensate the Custodian for its services rendered
under this Agreement in accordance with the fees set forth in the Fee
Schedule annexed hereto as Schedule C and incorporated herein. Such Fee
Schedule does not include out-of-pocket disbursements of the Custodian
for which the Custodian shall be entitled to bill separately; provided
that out-of-pocket disbursements may include only the items specified
in Schedule C.
(b) If the Fund requests that the Custodian act as Custodian for any
Portfolio hereafter established, at the time the Custodian commences
serving as such for said Portfolio, the compensation for such services
shall be reflected in a fee schedule for that Portfolio, dated and
signed by an officer of each party hereto, which shall be attached to
or otherwise reflected in Schedule C of this Agreement.
5
<PAGE> 6
(c) Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule C, or replacing Schedule C with, a
revised Fee Schedule, dated and signed by an officer of each party
hereto.
(d) The Custodian will bill the Fund for its services to each Portfolio
hereunder as soon as practicable after the end of each calendar
quarter, and said billings will be detailed in accordance with the Fee
Schedule for the Fund. The Fund will promptly pay to the Custodian the
amount of such billing. The Custodian shall have a claim of payment
against the property in each Portfolio for any compensation or expense
amount owing to the Custodian in connection with such Portfolio from
time to time under this Agreement.
(e) The Custodian (not the Fund) will be responsible for the payment of
the compensation of each Sub-Custodian.
6. Custody of Cash and Securities
------------------------------
(a) RECEIPT AND HOLDING OF ASSETS. The Fund will deliver or cause to be
delivered to the Custodian and any Sub-Custodians all Securities and
moneys of any Portfolio at any time during the period of this Agreement
and shall specify the Portfolio to which the Securities and moneys are
to be specifically allocated. The Custodian will not be responsible for
such Securities and moneys until actually received by it or by a
Sub-Custodian. The Fund may, from time to time in its sole discretion,
provide the Custodian with Instructions as to the manner in which and
in what amounts Securities, and moneys of a Portfolio are to be held on
behalf of such Portfolio in the Book-Entry System or a Depository.
Securities and moneys of a Portfolio held in the Book-Entry System or a
Depository will be held in accounts which include only assets of
Custodian that are held for its customers.
(b) ACCOUNTS AND DISBURSEMENTS. The Custodian shall establish and
maintain a separate account for each Portfolio and shall credit to the
separate account all moneys received by it or a Sub-Custodian for the
account of such Portfolio and shall disburse, or cause a Sub-Custodian
to disburse, the same only:
1. In payment for Securities purchased for the Portfolio, as
provided in Section 7 hereof;
2. In payment of dividends or distributions with respect to
the Shares of such Portfolio, as provided in Section 11
hereof;
3. In payment of original issue or other taxes with respect to
the Shares of such Portfolio, as provided in Section 12(c)
hereof;
4. In payment for Shares which have been redeemed by such
Portfolio, as provided in Section 12 hereof;
6
<PAGE> 7
5. In payment of fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to the Fund, as
provided in Sections 5 and 16(h) hereof;
6. Pursuant to Instructions setting forth the name of the
Portfolio and the name and address of the person to whom the
payment is to be made, the amount to be paid and the purpose
for which payment is to be made.
(c) FAIL FLOAT. In the event that any payment made for a Portfolio
under this Section 6 exceeds the funds available in that Portfolio's
account, the Custodian or relevant Sub-Custodian, as the case may be,
may, in its discretion, advance the Fund on behalf of that Portfolio an
amount equal to such excess and such advance shall be deemed an
overdraft from the Custodian or such Sub-Custodian to that Portfolio
payable on demand, bearing interest at the rate of interest customarily
charged by the Custodian or such Sub-Custodian on similar overdrafts.
(d) CONFIRMATION AND STATEMENTS. At least monthly, the Custodian shall
furnish the Fund with a detailed statement of the Securities and moneys
held by it and all Sub-Custodians for each Portfolio. Where securities
purchased for a Portfolio are in a fungible bulk of securities
registered in the name of the Custodian (or its nominee) or shown on
the Custodian's account on the books of a Depository, the Book-Entry
System or a Sub-Custodian, the Custodian shall maintain such records as
are necessary to enable it to identify the quantity of those securities
held for such Portfolio. In the absence of the filing in writing with
the Custodian by the Fund of exceptions or objections to any such
statement within 60 days after the date that a material defect is
reasonably discoverable, the Fund shall be deemed to have approved such
statement; and in such case or upon written approval of the Fund of any
such statement the Custodian shall, to the extent permitted by law and
provided the Custodian has met the standard of care in Section 16
hereof, be released, relieved and discharged with respect to all
matters and things set forth in such statement as though such statement
had been settled by the decree of a court of competent jurisdiction in
an action in which the Fund and all persons having any equity interest
in the Fund were parties.
(e) REGISTRATION OF SECURITIES AND PHYSICAL SEPARATION. All Securities
held for a Portfolio which are issued or issuable only in bearer form,
except such Securities as are held in the Book-Entry System, shall be
held by the Custodian or a Sub-Custodian in that form; all other
Securities held for a Portfolio may be registered in the name of that
Portfolio, in the name of any duly appointed registered nominee of the
Custodian or a Sub-Custodian as the Custodian or such Sub-Custodian may
from time to time determine, or in the name of the Book-Entry System or
a Depository or their successor or successors, or their nominee or
nominees. The Fund reserves the right to instruct the Custodian as to
the method of registration and safekeeping of the Securities. The Fund
agrees to furnish to
7
<PAGE> 8
the Custodian appropriate instruments to enable the Custodian or any
Sub-Custodian to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee or in the name of the
Book-Entry System or a Depository, any Securities which the Custodian
of a Sub-Custodian may hold for the account of a Portfolio and which
may from time to time be registered in the name of a Portfolio. The
Custodian shall hold all such Securities specifically allocated to a
Portfolio which are not held in the Book-Entry System or a Depository
in a separate account for such Portfolio in the name of such Portfolio
physically segregated at all times from those of any other person or
persons.
(f) SEGREGATED ACCOUNTS. Upon receipt of an Instruction, the Custodian
will establish segregated accounts on behalf of a Portfolio to hold
liquid or other assets as it shall be directed by such Instruction and
shall increase or decrease the assets in such segregated accounts only
as it shall be directed by subsequent Instruction.
(g) COLLECTION OF INCOME AND OTHER MATTERS AFFECTING SECURITIES. Except
as otherwise provided in an Instruction, the Custodian, by itself or
through the use of the Book-Entry System or a Depository with respect
to Securities therein maintained, shall, or shall instruct the relevant
Sub-Custodian to:
1. Collect all income due or payable with respect to
Securities in accordance with this Agreement;
2. Present for payment and collect the amount payable upon all
Securities which may mature or be called, redeemed or retired,
or otherwise become payable;
3. Surrender Securities in temporary form for derivative
Securities;
4. Execute any necessary declarations or certificates of
ownership under the federal income tax laws or the laws or
regulations of any other taxing authority now or hereafter in
effect; and
5. Hold directly, or through the Book-Entry System or a
Depository with respect to Securities therein deposited, for
the account of each Portfolio all rights and similar
Securities issued with respect to any Securities held by the
Custodian or relevant Sub-Custodian for each Portfolio.
(h) DELIVERY OF SECURITIES AND EVIDENCE OF AUTHORITY. Upon receipt of
an Instruction, the Custodian, directly or through the use of the
Book-Entry System or a Depository, shall, or shall instruct the
relevant Sub-Custodian to:
1. Execute and deliver or cause to be executed and delivered
to such persons as may be designated in such Instructions,
proxies, consents,
8
<PAGE> 9
authorizations, and any other instruments whereby the
authority of the Fund as owner of any Securities may be
exercised;
2. Deliver or cause to be delivered any Securities held for a
Portfolio in exchange for other Securities or cash issued or
paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
3. Deliver or cause to be delivered any Securities held for a
Portfolio to any protective committee, reorganization
committee or other person in connection with the
reorganization, refinancing, merger, consolidation or
recapitalization or sale of assets of any corporation, and
receive and hold under the terms of this Agreement in the
separate account for each such Portfolio certificates of
deposit, interim receipts or other instruments or documents as
may be issued to it to evidence such delivery;
4. Make or cause to be made such transfers or exchanges of the
assets specifically allocated to the separate account of a
Portfolio and take such other steps as shall be stated in
Written Instructions to be for the purpose of effectuating any
duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund;
5. Deliver Securities upon sale of such Securities for the
account of a Portfolio pursuant to Section 7;
6. Deliver Securities upon the receipt of payment in
connection with any repurchase agreement related to such
Securities entered into on behalf of a Portfolio;
7. Deliver Securities of a Portfolio to the issuer thereof or
its agent when such Securities are called, redeemed, retired
or otherwise become payable; provided, however, that in any
such case the cash or other consideration is to be delivered
to the Custodian or Sub-Custodian, as the case may be;
8. Deliver Securities for delivery in connection with any
loans of securities made by a Portfolio but only against
receipt of adequate collateral as agreed upon from time to
time by the Custodian and the Fund which may be in the form of
cash or obligations issued by the United States Government,
its agencies or instrumentalities;
9. Deliver Securities for delivery as security in connection
with any borrowings by a Portfolio requiring a pledge of
Portfolio assets, but only against receipt of the amounts
borrowed;
9
<PAGE> 10
10. Deliver Securities to the Transfer Agent or its designee
or to the holders of Shares in connection with distributions
in kind, in satisfaction of requests by holders of Shares for
repurchase or redemption;
11. Deliver Securities for any other proper business purpose,
but only upon receipt of, in addition to written Instructions,
a copy of a resolution or other authorization of the Fund
certified by the Secretary of the Fund, specifying the
Securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to
be a proper business purpose, and naming the person or persons
to whom delivery of such Securities shall be made.
(i) ENDORSEMENT AND COLLECTION OF CHECKS, ETC. The Custodian is hereby
authorized to endorse and collect all checks, drafts or other orders
for the payment of money received by the Custodian for the account of a
Portfolio.
(j) EXECUTION OF REQUIRED DOCUMENTS. The Custodian is hereby authorized
to execute any and all applications or other documents required by a
regulatory agency or similar entity as a condition of making
investments in the foreign market under such entity's jurisdiction.
7. Purchase and Sale of Securities.
--------------------------------
(a) Promptly after the purchase of Securities, the Fund or its designee
shall deliver to the Custodian an Instruction specifying with respect
to each such purchase: (1) the name of the Portfolio to which such
Securities are to be specifically allocated; (2) the name of the issuer
and the title of the Securities; (3) the number of shares or the
principal amount purchased and accrued interest, if any; (4) the date
of purchase and settlement; (5) the purchase price per unit; (6) the
total amount payable upon such purchase; and (7) the name of the person
from whom or the broker through whom the purchase was made, if any. The
Custodian or specified Sub-Custodian shall receive the Securities
purchased by or for a Portfolio and upon receipt thereof (or upon
receipt of advice from a Depository or the Book-Entry System that the
Securities have been transferred to the Custodian's account) shall pay
to the broker or other person specified by the Fund or its designee out
of the moneys held for the account of such Portfolio the total amount
payable upon such purchase, provided that the same conforms to the
total amount payable as set forth in such Instruction.
(b) Promptly after the sale of Securities, the Fund or its designee
shall deliver to the Custodian an Instruction specifying with respect
to each such sale: (1) the name of the Portfolio to which the
Securities sold were specifically allocated; (2) the name of the issuer
and the title of the Securities; (3) the number of shares or principal
amount sold, and accrued interest, if any; (4) the date of sale; (5)
the sale
10
<PAGE> 11
price per unit; (6) the total amount payable to the Portfolio upon such
sale; and (7) the name of the broker through whom or the person to whom
the sale was made. The Custodian or relevant Sub-Custodian shall
deliver or cause to be delivered the Securities to the broker or other
person designated by the Fund upon receipt of the total amount payable
to such Portfolio upon such sale, provided that the same conforms to
the total amount payable to such Portfolio as set forth in such
Instruction. Subject to the foregoing, the Custodian or relevant
Sub-Custodian may accept payment in such form as shall be satisfactory
to it, and may deliver Securities and arrange for payment in accordance
with the customs prevailing among dealers in Securities.
(c) Notwithstanding (a) and (b) above, cash in any of the Portfolios
may be invested by the Custodian for short term purposes pursuant to
standing Instructions from the Fund.
8. Lending of Securities.
----------------------
If the Fund and the Custodian enter into a separate written agreement
authorizing the Custodian to lend Securities, the Custodian may lend
Securities pursuant to such agreement. Such agreement must be approved
by the Fund in the manner required by any applicable law, regulation or
administrative pronouncement, and may provide for the payment of
additional reasonable compensation to the Custodian.
9. Investment in Futures and Options
---------------------------------
The Custodian shall pursuant to Instructions (which may be standing
instructions) (i) transfer initial margin to a safekeeping bank or,
with respect to options, broker; (ii) pay or demand variation margin to
or from a designated futures commission merchant or other broker based
on daily marking to market calculations and in accordance with accepted
industry practices; and (iii) subject to the Custodian's consent, enter
into separate procedural, safekeeping or other agreements with
safekeeping banks, futures commission merchants and other brokers
pursuant to which such banks and, in the case of options, brokers, will
act as custodian for initial margin deposits in transactions involving
futures contracts and options. The Custodian shall have no custodial or
investment responsibility for any assets transferred to a safekeeping
bank, futures commission merchant or broker pursuant to this paragraph.
11
<PAGE> 12
10. Provisional Credits and Debits.
-------------------------------
(a) The Custodian is authorized, but shall not be obligated, to credit
the account of a Portfolio provisionally on payable date with interest,
dividends, distributions, redemptions or other amounts due. Otherwise,
such amounts will be credited to the Portfolio on the date such amounts
are actually received and reconciled to the Portfolio. In cases where
the Custodian has credited a Portfolio with such amounts prior to
actual collection and reconciliation, the Fund acknowledges that the
Custodian shall be entitled to recover any such credit on demand from
the Fund and further agrees that the Custodian may reverse such credit
if and to the extent that Custodian does not receive such amounts in
the ordinary course of business.
(b) If the Portfolio is maintained as a global custody account it shall
participate in the Custodian's contractual settlement date processing
service ("CSDP") unless the Custodian directs the Fund, or the Fund
informs the Custodian, otherwise. Pursuant to CSDP the Custodian shall
be authorized, but not obligated, to automatically credit or debit the
Portfolio provisionally on contractual settlement date with cash or
securities in connection with any sale, exchange or purchase of
securities. Otherwise, such cash or securities shall be credited to the
Portfolio on the day such cash or securities are actually received by
the Custodian and reconciled to the Portfolio. In cases where the
Custodian credits or debits the Portfolio with cash or securities prior
to actual receipt and reconciliation, the Custodian may reverse such
credit or debit as of contractual settlement date if and to the extent
that any securities delivered by the Custodian are returned by the
recipient, or if the related transaction fails to settle (or fails, due
to market change or other reasons, to settle on terms which provide the
Custodian full reimbursement of any provisional credit the Custodian
has granted) within a period of time judged reasonable by the Custodian
under the circumstances. The Fund agrees that it will not make any
claim or pursue any legal action against the Custodian for loss or
other detriment allegedly arising or resulting from the Custodian's
good faith determination to effect, not effect or reverse any
provisional credit or debit to the Portfolio.
The Fund acknowledges and agrees that funds debited from the Portfolio
on contractual settlement date including, without limitation, funds
provided for the purchase of any securities under circumstances where
settlement is delayed or otherwise does not take place in a timely
manner for any reason, shall be held pending actual settlement of the
related purchase transaction in a non-interest bearing deposit at the
Custodian's London Branch; that such funds shall be available for use
in the Custodian's general operations; and that the Custodian's
maintenance and use of such funds in such circumstances are, without
limitation, in consideration of the Custodian's providing CSDP.
12
<PAGE> 13
(c) The Fund recognizes that any decision to effect a provisional
credit or an advancement of the Custodian's own funds under this
agreement will be an accommodation granted entirely at the Custodian's
option and in light of the particular circumstances, which
circumstances may involve conditions in different countries, markets
and classes of assets at different times. The Fund shall make the
Custodian whole for any loss which it may incur from granting such
accommodations and acknowledges that the Custodian shall be entitled to
recover any relevant amounts from the Fund on demand. All amounts thus
due to the Custodian shall be paid by the Fund from the account of the
relevant Portfolio unless otherwise paid on a timely basis and in that
connection the Fund acknowledges that the Custodian has a continuing
lien on all assets of such Portfolio to secure such payments and agrees
that the Custodian may apply or set off against such amounts any
amounts credited by or due from the Custodian to the Fund. If funds in
the Portfolio are insufficient to make any such payment the Fund shall
promptly deliver to the Custodian the amount of such deficiency in
immediately available funds when and as specified by the Custodian's
written or oral notification to the Fund.
(d) In connection with the Custodian's global custody service the Fund
will maintain deposits at the Custodian's London Branch. The Fund
acknowledges and agrees that such deposits are payable only in the
currency in which an applicable deposit is denominated; that such
deposits are payable only on the Fund's demand at the Custodian's
London Branch; that such deposits are not payable at any of the
Custodian's offices in the United States; and that the Custodian will
not in any manner directly or indirectly promise or guarantee any such
payment in the United States.
The Fund further acknowledges and agrees that such deposits are subject
to cross-border risk, and therefore the Custodian will have no
obligation to make payment of deposits if and to the extent that the
Custodian is prevented from doing so by reason of applicable law or
regulation or any Sovereign Risk event affecting the London Branch or
the currency in which the applicable deposit is denominated. "Sovereign
Risk" for this purpose means nationalization, expropriation,
devaluation, revaluation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de facto
or de jure; or enactment, promulgation, imposition or enforcement by
any such governmental authority of currency restrictions, exchange
controls, taxes, levies or other charges affecting the property rights
of persons who are not residents of the affected jurisdiction; or acts
of war, terrorism, insurrection or revolution; or any other act or
event beyond the Custodian's control.
THE FUND ACKNOWLEDGES AND AGREES THAT DEPOSIT ACCOUNTS MAINTAINED AT
FOREIGN BRANCHES OF UNITED STATES BANKS (INCLUDING, IF APPLICABLE,
ACCOUNTS IN WHICH CUSTOMER FUNDS FOR THE PURCHASE OF SECURITIES ARE
HELD ON AND
13
<PAGE> 14
AFTER CONTRACTUAL SETTLEMENT DATE), ARE NOT INSURED BY THE U.S. FEDERAL
DEPOSIT INSURANCE CORPORATION; MAY NOT BE GUARANTEED BY ANY LOCAL OR
FOREIGN GOVERNMENTAL AUTHORITY; ARE UNSECURED; AND IN A LIQUIDATION MAY
BE SUBORDINATED IN PRIORITY OF PAYMENT TO DOMESTIC (U.S.- DOMICILED)
DEPOSITS. THEREFORE, BENEFICIAL OWNERS OF SUCH FOREIGN BRANCH DEPOSITS
MAY BE UNSECURED CREDITORS OF THE NORTHERN TRUST COMPANY.
Deposit account balances that are owned by United States residents are
expected to be maintained in an aggregate amount of at least $100,000
or the equivalent in other currencies.
11. Payment of Dividends or Distributions.
--------------------------------------
(a) In the event that the Board of Directors of the Fund (or a
committee thereof) authorizes the declaration of dividends or
distributions with respect to a Portfolio, an Authorized Person shall
provide the Custodian with Instructions specifying the record date, the
date of payment of such distribution and the total amount payable to
the Transfer Agent or its designee on such payment date.
(b) Upon the payment date specified in such Instructions, the Custodian
shall pay the total amount payable to the Transfer Agent or its
designee out of the moneys specifically allocated to and held for the
account of the appropriate Portfolio.
12. Sale and Redemption of Shares.
------------------------------
(a) Whenever the Fund shall sell any Shares, the Fund shall deliver or
cause to be delivered to the Custodian an Instruction specifying the
name of the Portfolio whose Shares were sold and the amount to be
received by the Custodian for the sale of such Shares.
(b) Upon receipt of such amount from the Transfer Agent or its
designee, the Custodian shall credit such money to the separate account
of the Portfolio specified in the Instruction described in paragraph
(a) above.
(c) Upon issuance of any Shares in accordance with the foregoing
provisions of this Section 12, the Custodian shall pay all original
issue or other taxes required to be paid in connection with such
issuance upon the receipt of an Instruction specifying the amount to be
paid.
(d) Except as provided hereafter, whenever any Shares are redeemed, the
Fund shall deliver or cause to be delivered to the Custodian an
Instruction
14
<PAGE> 15
specifying the name of the Portfolio whose Shares were redeemed and the
total amount to be paid for the Shares redeemed.
(e) Upon receipt of an Instruction described in paragraph (d) above,
the Custodian shall pay to the Transfer Agent (or such other person as
the Transfer Agent directs) the total amount specified in such
Instruction. Such payment shall be made from the separate account of
the Portfolio specified in such Instruction.
13. Indebtedness.
-------------
(a) The Fund or its designee will cause to be delivered to the
Custodian by any bank (excluding the Custodian) from which the Fund
borrows money, using Securities as collateral, a notice or undertaking
in the form currently employed by any such bank setting forth the
amount which such bank will loan to the Fund against delivery of a
stated amount of collateral. The Fund shall promptly deliver to the
Custodian an Instruction stating with respect to each such borrowing:
(1) the name of the Portfolio for which the borrowing is to be made;
(2) the name of the bank; (3) the amount and terms of the borrowing,
which may be set forth by incorporating by reference an attached
promissory note, duly endorsed by the Fund, or other loan agreement;
(4) the time and date, if known, on which the loan is to be entered
into (the "borrowing date"); (5) the date on which the loan becomes due
and payable; (6) the total amount payable to the Fund for the separate
account of the Portfolio on the borrowing date; (7) the market value of
Securities to be delivered as collateral for such loan, including the
name of the issuer, the title and the number of shares or the principal
amount of any particular Securities; (8) whether the Custodian is to
deliver such collateral through the Book-Entry System or a Depository;
and (9) a statement that such loan is in conformance with the 1940 Act
and the Prospectus.
(b) Upon receipt of the Instruction referred to in paragraph (a) above,
the Custodian shall deliver on the borrowing date the specified
collateral and the executed promissory note, if any, against delivery
by the lending bank of the total amount of the loan payable, provided
that the same conforms to the total amount payable as set forth in the
Instruction. The Custodian may, at the option of the lending bank, keep
such collateral in its possession, but such collateral shall be subject
to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. The Custodian shall deliver as
additional collateral in the manner directed by the Fund from time to
time such Securities specifically allocated to such Portfolio as may be
specified in the Instruction to collateralize further any transaction
described in this Section 13. The Fund shall cause all Securities
released from collateral status to be returned directly to the
Custodian, and the Custodian shall receive from time to time such
return of collateral as may be tendered to it. In the event that the
Fund fails to specify in such Instruction all of the information
required by this Section 13, the Custodian shall not be under
15
<PAGE> 16
any obligation to deliver any Securities. Collateral returned to the
Custodian shall be held hereunder as it was prior to being used as
collateral.
14. Corporate Action.
-----------------
Whenever the Custodian or any Sub-Custodian receives information
concerning Securities held for a Portfolio which requires discretionary
action by the beneficial owner of the Securities (other than a proxy),
such as subscription rights, bond issues, stock repurchase plans and
rights offerings, or legal notices or other material intended to be
transmitted to Securities holders ("Corporate Actions"), the Custodian
will give the Fund or its designee notice of such Corporate Actions to
the extent that the Custodian's central corporate actions department
has actual knowledge of a Corporate Action in time to notify the Fund.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action
which bears an expiration date is received, the Custodian will endeavor
to obtain an Instruction relating to such Corporate Action from an
Authorized Person, but if such Instruction is not received in time for
the Custodian to take timely action, or actual notice of such Corporate
Action was received too late to seek such an Instruction, the Custodian
is authorized to sell, or cause a Sub-Custodian to sell, such rights
entitlement or fractional interest and to credit the applicable account
with the proceeds and to take any other action it deems, in good faith,
to be appropriate, in which case, provided it has met the standard of
care in Section 16 hereof, it shall be held harmless by the particular
Portfolio involved for any such action.
The Custodian will deliver proxies to the Fund or its designated agent
pursuant to special arrangements which may have been agreed to in
writing between the parties hereto. Such proxies shall be executed in
the appropriate nominee name relating to Securities registered in the
name of such nominee but without indicating the manner in which such
proxies are to be voted; and where bearer Securities are involved,
proxies will be delivered in accordance with an applicable Instruction,
if any.
15. Persons Having Access to the Portfolios.
----------------------------------------
(a) Neither the Fund nor any officer, director, employee or agent of
the Fund, the Fund's investment adviser, or any sub-investment adviser,
shall have physical access to the assets of any Portfolio held by the
Custodian or any Sub-Custodian or be authorized or permitted to
withdraw any investments of a Portfolio, nor shall the Custodian or any
Sub-Custodian deliver any assets of a Portfolio to any such person. No
officer, director, employee or agent of the Custodian who holds any
similar position with the Fund's investment adviser, with any
sub-investment adviser of the Fund or with the Fund shall have access
to the assets of any Portfolio.
16
<PAGE> 17
(b) Nothing in this Section 15 shall prohibit any Authorized Person
from giving Instructions to the Custodian so long as such Instructions
do not result in delivery of or access to assets of a Portfolio
prohibited by paragraph (a) of this Section 15.
(c) The Custodian represents that it maintains a system that is
reasonably designed to prevent unauthorized persons from having access
to the assets that it holds (by any means) for its customers.
16. Concerning the Custodian.
-------------------------
(a) SCOPE OF SERVICES. The Custodian shall be obligated to perform only
such services as are set forth in this Agreement or expressly contained
in an Instruction given to the Custodian which is not contrary to the
provisions of this Agreement.
(b) STANDARD OF CARE.
1. The Custodian will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of
property of the Portfolios. The Custodian shall be liable to,
and shall indemnify and hold harmless the Fund from and
against any loss which shall occur as the result of the
failure of the Custodian or a Sub-Custodian (other than a
foreign securities depository or clearing agency) to exercise
reasonable care with respect to their respective obligations
under this Agreement and the safekeeping of such property. The
determination of whether the Custodian or Sub-Custodian has
exercised reasonable care in connection with their obligations
under this Agreement shall be made in light of prevailing
standards applicable to professional custodians in the
jurisdiction in which such custodial services are performed.
In the event of any loss to the Fund by reason of the failure
of the Custodian or a Sub-Custodian (other than a foreign
securities depository or clearing agency) to exercise
reasonable care, the Custodian shall be liable to the Fund
only to the extent of the Fund's direct damages and expenses,
which damages, for purposes of property only, shall be
determined based on the market value of the property which is
the subject of the loss at the date of discovery of such loss
and without reference to any special condition or
circumstances.
2. The Custodian will not be responsible for any act,
omission, or default of, or for the solvency of, any foreign
securities depository or clearing agency approved by the Board
of Directors or a Delegate of the Fund pursuant to Section
(1)(n) or Section 3 hereof.
3. The Custodian will not be responsible for any act,
omission, or default of, or for the solvency of, any broker or
agent (not referred to in
17
<PAGE> 18
paragraph (b)(2) above) which it or a Sub-Custodian appoints
and uses unless such appointment and use is made or done
negligently or in bad faith. In the event such an appointment
and use is made or done negligently or in bad faith, the
Custodian shall be liable to the Fund only for direct damages
and expenses (determined in the manner described in paragraph
(b)(1) above) resulting from such appointment and use and, in
the case of any loss due to an act, omission or default of
such agent or broker, only to the extent that such loss occurs
as a result of the failure of the agent or broker to exercise
reasonable care ("reasonable care" for this purpose to be
determined in light of the prevailing standards applicable to
agents or brokers, as appropriate, in the jurisdiction where
the services are performed).
4. The Custodian shall be entitled to rely, and may act, upon
the advice of counsel (who may be counsel for the Fund) on all
matters and shall be without liability for any action
reasonably taken or omitted in good faith and without
negligence pursuant to such advice.
5. The Custodian shall be entitled to rely upon any
Instruction it receives pursuant to the applicable Sections of
this Agreement that it reasonably believes to be genuine and
to be from an Authorized Person. In the event that the
Custodian receives oral Instructions, the Fund or its designee
shall cause to be delivered to the Custodian, by the close of
business on the same day that such oral Instructions were
given to the Custodian, written Instructions confirming such
oral Instructions, whether by hand delivery, telex or
otherwise. The Fund agrees that the fact that no such
confirming written Instructions are received by the Custodian
shall in no way affect the validity of the transactions or
enforceability of the transactions hereby authorized by the
Fund. The Fund agrees that the Custodian shall incur no
liability to the Fund in connection with (i) acting upon oral
Instructions given to the Custodian hereunder, provided such
instructions reasonably appear to have been received from an
Authorized Person or (ii) deciding not to act solely upon oral
Instructions, provided that the Custodian first contacts the
giver of such oral Instructions and requests written
confirmation immediately following any such decision not to
act.
6. The Custodian shall supply the Fund or its designee with
such daily information regarding the cash and Securities
positions and activity of each Portfolio as the Custodian and
the Fund or its designee shall from time to time agree. It is
understood that such information will not be audited by the
Custodian and the Custodian represents that such information
will be the best information then available to the Custodian.
The Custodian shall have no responsibility whatsoever for the
pricing of Securities, accruing for income, valuing the effect
of Corporate Actions, or
18
<PAGE> 19
for the failure of the Fund or its designee to reconcile
differences between the information supplied by the Custodian
and information obtained by the Fund or its designee from
other sources, including but not limited to pricing vendors
and the Fund's investment adviser. Subject to the foregoing,
to the extent that any miscalculation by the Fund or its
designee of a Portfolio's net asset value is attributable to
the willful misfeasance, bad faith or negligence of the
Custodian (including any Sub-Custodian other than a foreign
securities depository or clearing agency) in supplying or
omitting to supply the Fund or its designee with information
as aforesaid, the Custodian shall be liable to the Fund for
any resulting loss (subject to such de minimis rule of change
in value as the Board of Directors may from time to time
adopt).
(c) LIMIT OF DUTIES. Without limiting the generality of the foregoing,
the Custodian shall be under no duty or obligation to inquire into, and
shall not be liable for:
1. The validity of the issue of any Securities purchased by
any Portfolio, the legality of the purchase thereof, or the
propriety of the amount specified by the Fund or its designee
for payment therefor;
2. The legality of the sale of any Securities by any Portfolio
or the propriety of the amount of consideration for which the
same are sold;
3. The legality of the issue or sale of any Shares, or the
sufficiency of the amount to be received therefor;
4. The legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor;
5. The legality of the declaration or payment of any dividend
or distribution by the Fund; or
6. The legality of any borrowing.
(d) The Custodian need not maintain any insurance for the exclusive
benefit of the Fund, but hereby warrants that as of the date of this
Agreement it is maintaining a bankers Blanket Bond and hereby agrees to
notify the Fund in the event that such bond is canceled or otherwise
lapses.
(e) Consistent with and without limiting the language contained in
Section 16(a), it is specifically acknowledged that the Custodian shall
have no duty or responsibility to:
19
<PAGE> 20
1. Question any Instruction or make any suggestions to the
Fund or an Authorized Person regarding any Instruction;
2. Supervise or make recommendations with respect to
investments or the retention of Securities;
3. Subject to Section 16(b)(3) hereof, evaluate or report to
the Fund or an Authorized Person regarding the financial
condition of any broker, agent or other party to which
Securities are delivered or payments are made pursuant to this
Agreement; or
4. Review or reconcile trade confirmations received from
brokers.
(f) AMOUNTS DUE FROM OR TO TRANSFER AGENT. The Custodian shall not be
under any duty or obligation to take action to effect collection of any
amount due to any Portfolio from the Transfer Agent or its designee nor
to take any action to effect payment or distribution by the Transfer
Agent or its designee of any amount paid by the Custodian to the
Transfer Agent in accordance with this Agreement.
(g) NO DUTY TO ASCERTAIN AUTHORITY. The Custodian shall not be under
any duty or obligation to ascertain whether any Securities at any time
delivered to or held by it for the Fund and specifically allocated to a
Portfolio are such as may properly be held by the Fund under the
provisions of the Articles of Incorporation and the Prospectus.
(h) INDEMNIFICATION. The Fund agrees to indemnify and hold the
Custodian harmless from all loss, cost, taxes, charges, assessments,
claims, and liabilities (including, without limitation, liabilities
arising under the Securities Act of 1933, the Securities Exchange Act
of 1934 and the 1940 Act and state or foreign securities laws) and
expenses (including reasonable attorneys fees and disbursements)
arising directly or indirectly from any action taken or omitted by the
Custodian (i) at the request or on the direction of or in reliance on
the advice of the Fund or in reasonable reliance upon the Prospectus or
(ii) upon an Instruction; provided, that the foregoing indemnity shall
not apply to any loss, cost, tax, charge, assessment, claim, liability
or expense to the extent the same is attributable to the Custodian's or
any Sub-Custodian's (other than a foreign securities depository or
clearing agency) negligence, willful misconduct, bad faith or reckless
disregard of duties and obligations under this Agreement or any other
agreement relating to the custody of Fund property.
(i) The Fund agrees to hold the Custodian harmless from any liability
or loss resulting from the imposition or assessment of any taxes or
other governmental charges on a Portfolio.
20
<PAGE> 21
(j) Without limiting the foregoing, the Custodian shall not be liable
for any loss which results from:
1. the general risk of investing;
2. subject to Section 16(b) hereof, investing or holding
property in a particular country including, but not limited
to, losses resulting from nationalization, expropriation or
other governmental actions; regulation of the banking or
securities industry; currency restrictions, devaluations or
fluctuations; and market conditions which prevent the orderly
execution of securities transactions or affect the value of
property held pursuant to this Agreement; or
3. consequential, special or punitive damages for any act or
failure to act under any provision of this Agreement, even if
advised of the possibility thereof.
(k) FORCE MAJEURE. No party shall be liable to the other for any delay
in performance, or non- performance, of any obligation hereunder to the
extent that the same is due to forces beyond its reasonable control,
including but not limited to delays, errors or interruptions caused by
the other party or third parties, any industrial, juridical,
governmental, civil or military action, acts of terrorism, insurrection
or revolution, nuclear fusion, fission or radiation, failure or
fluctuation in electrical power, heat, light, air conditioning or
telecommunications equipment, or acts of God.
(1) INSPECTION OF BOOKS AND RECORDS. The Custodian shall create and
maintain all records relating to its activities and obligations under
this Agreement in such manner as will meet the obligations of the Fund
under the 1940 Act, with particular attention to Section 31 thereof and
Rules 31a-1 and 31a-2 thereunder, and under applicable federal and
state laws. All such records shall be the property of the Fund and
shall at all times during regular business hours of the Custodian be
open for inspection by duly authorized officers, employees and agents
of the Fund and by the appropriate employees of the Securities and
Exchange Commission. The Custodian shall, at the Fund's request, supply
the Fund with a tabulation of Securities and shall, when requested to
do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.
(m) ACCOUNTING CONTROL REPORTS. The Custodian shall provide the Fund
with any report obtained by the Custodian on the system of internal
accounting control of the Book-Entry System, each Depository, and each
Sub-Custodian and with an annual report on its own systems of internal
accounting control.
21
<PAGE> 22
17. Term and Termination.
---------------------
(a) This Agreement shall become effective on the date first set forth
above (the "Effective Date") and shall continue in effect thereafter
until terminated in accordance with Section 17(b).
(b) Either of the parties hereto may terminate this Agreement with
respect to any Portfolio by giving to the other party a notice in
writing specifying the date of such termination, which, in case the
Fund is the terminating party, shall be not less than 60 days after the
date of Custodian receives such notice or, in case the Custodian is the
terminating party, shall be not less than 90 days after the date the
Fund receives such notice. In the event such notice is given by the
Fund, it shall be accompanied by a certified resolution of the Board of
Directors, electing to terminate this Agreement with respect to any
Portfolio and designating a successor custodian or custodians.
In the event such notice is given by the Custodian, the Fund shall, on
or before the termination date, deliver to the Custodian a certified
resolution of the Board of Directors, designating a successor custodian
or custodians. In the absence of such designation by the Fund, the
Custodian may designate a successor custodian, which shall be a person
qualified to so act under the 1940 Act. If the Fund fails to designate
a successor custodian with respect to any Portfolio, the Fund shall
upon the date specified in the notice of termination of this Agreement
and upon the delivery by the Custodian of all Securities (other than
Securities held in the Book-Entry System which cannot be delivered to
the Fund) and moneys of such Portfolio, be deemed to be its own
custodian and the Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty with
respect to Securities held in the Book-Entry System which cannot be
delivered to the Fund.
(c) Upon the date set forth in such notice under paragraph (b) of this
Section 17, this Agreement shall terminate to the extent specified in
such notice, and the Custodian shall upon receipt of a notice of
acceptance by the successor custodian on that date deliver directly to
the successor custodian all Securities and moneys then held by the
Custodian and specifically allocated to the Portfolio or Portfolios
specified, after deducting all fees, expenses and other amounts for the
payment or reimbursement of which it shall then be entitled with
respect to such Portfolio or Portfolios.
18. Miscellaneous.
--------------
(a) Annexed hereto as Schedule A is a certification signed by two of
the present officers of the Fund setting forth the names of the present
Authorized Persons. The Fund agrees to furnish to the Custodian a new
certification in similar form in the event that any such present
Authorized Person ceases to be
22
<PAGE> 23
such an Authorized Person or in the event that other or additional
Authorized Persons are elected or appointed. Until such new
certification is received by the Custodian, the Custodian shall be
fully protected in acting under the provisions of this Agreement upon
Instructions which Custodian reasonably believes were given by an
Authorized Person, as identified in the last delivered certification.
Unless such certification specifically limits the authority of an
Authorized Person to specific matters or requires that the approval of
another Authorized Person is required, Custodian shall be under no duty
to inquire into the right of such person, acting alone, to give any
instructions whatsoever under this Agreement.
(b) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Custodian, shall be sufficiently
given if addressed to the Custodian and mailed or delivered to it at
its offices at its address stated on the first page hereof or at such
other place as the Custodian may from time to time designate in
writing.
(c) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Fund, shall be sufficiently given
if addressed to the Fund and mailed or delivered to it at its offices
at its address shown on the first page hereof or at such other place as
the Fund may from time to time designate in writing.
(d) Except as expressly provided herein, Agreement may not be amended
or modified in any manner except by a written agreement executed by
both parties with the same formality as this Agreement.
(e) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Fund
without the written consent of the Custodian, or by the Custodian
without the written consent of the Fund, and any attempted assignment
without such written consent shall be null and void.
(f) This Agreement shall be construed in accordance with the laws of
the State of Illinois.
(g) The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
23
<PAGE> 24
(h) This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts
shall, together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective representatives duly authorized as
of the day and year first above written.
USAllianz Funds
By: /s/ David P. Marks
---------------------------------------
Name: David P. Marks
Title: Chairman and President
The undersigned, Paige Hodgin, does hereby certify that he/she is the duly
elected, qualified and acting Assistant Secretary of USAllianz Funds (the
"Fund") and further certifies that the person whose signature appears above is a
duly elected, qualified and acting officer of the Fund with full power and
authority to execute this Custody Agreement on behalf of the Fund and to take
such other actions and execute such other documents as may be necessary to
effectuate this Agreement.
/s/ Paige Hodgin
- ----------------------
Assistant Secretary
USAllianz Funds
THE NORTHERN TRUST COMPANY
By: /s/ Michael J. Nutt
---------------------------------------
Name: Michael J. Nutt
Title: Vice President
24
<PAGE> 25
SCHEDULE A
CERTIFICATION OF AUTHORIZED PERSONS
Pursuant to paragraphs 1(b) and 18(a) of the Agreement, the undersigned
officers of USAllianz Funds hereby certify that the person(s) whose name(s) and
signature(s) appear below have been duly authorized by the Board of Directors to
give Instructions on behalf of the Fund.
NAME SIGNATURE
-------------------------- ---------------------------
-------------------------- ---------------------------
-------------------------- ---------------------------
-------------------------- ---------------------------
-------------------------- ---------------------------
-------------------------- ---------------------------
Certified as of the ____ day of _____________, 19__:
OFFICER: OFFICER:
- ------------------------------- --------------------------------
(Signature) (Signature)
- ------------------------------- --------------------------------
(Name) (Name)
- ------------------------------- --------------------------------
(Title) (Title)
25
<PAGE> 26
SCHEDULE I
(COUNTRIES FOR WHICH CUSTODIAN SHALL NOT HAVE RESPONSIBILITY UNDER
SECTION 3A FOR MANAGING FOREIGN CUSTODY ARRANGEMENTS)
Russia
Lithuania
Malta
Croatia
26
<PAGE> 1
SERVICES AGREEMENT
------------------
This AGREEMENT is made as of this 6th day of October, 1999, by and
between USALLIANZ FUNDS, a Delaware business trust (the "Company"), and BISYS
FUND SERVICES OHIO, INC. ("BISYS"), an Ohio corporation.
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of shares of beneficial interest ("Shares");
and
WHEREAS, the Company desires BISYS to provide, and BISYS is willing to
provide, administration, transfer agency and fund accounting services (the
"Services") to such series of the Company that are currently in existence and
which may hereafter be created (the "Portfolios") on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the covenants
herein set forth, the Company and BISYS hereby agree as follows:
ARTICLE 1. Retention of BISYS. The Company hereby appoints BISYS,
subject to the supervision, direction and control of the Company's Board of
Trustees, to furnish the Portfolios with the Services that are more particularly
set forth in Article 2 herein. BISYS hereby accepts such appointment and agrees
to perform said Services for the compensation provided for in Article 4 and
Schedule A hereto.
BISYS shall, for all purposes herein, be deemed to be an independent
contractor and, unless otherwise expressly provided or authorized, shall have no
authority to act for or represent the Company in any way and shall not be deemed
an agent of the Company.
ARTICLE 2. Services.
A. Administration Services.
------------------------
BISYS shall perform or supervise the performance by others of
the Services described herein in connection with the operations of the
Portfolios, and, on behalf of the Company, will investigate, assist in the
selection of and conduct relations with custodians, depositories, accountants,
legal counsel, underwriters, brokers and dealers, corporate fiduciaries,
insurers, banks and persons in any other capacity deemed to be necessary or
desirable for the Portfolios' operations. BISYS shall provide the Trustees of
the Company with such reports regarding the Portfolios' investment performance
as they may reasonably request but shall have no responsibility for supervising
the performance by any investment adviser or subadviser of its responsibilities.
BISYS shall provide the Company with regulatory reporting, all
necessary office space, equipment, personnel, and facilities (including
facilities for Shareholders' and Trustees'
<PAGE> 2
meetings) for handling the affairs of the Portfolios and such other services as
BISYS shall, from time to time, determine to be necessary to perform its
obligations under this Agreement. In addition, at the request of the Company's
Board of Trustees, BISYS shall make reports to the Trustees concerning the
performance of its obligations hereunder.
Without limiting the generality of the foregoing, BISYS shall:
(i) Calculate contractual Company expenses and control
all disbursements for the Company, and as appropriate
compute the Company's yields, total return, expense
ratios, portfolio turnover rate and, if required,
portfolio average dollar-weighted maturity;
(ii) Assist Company counsel with the preparation of
prospectuses, statements of additional information,
registration statements and proxy materials;
(iii) Prepare such reports, applications and documents
(including reports regarding the sale and redemption
of Shares as may be required in order to comply with
Federal and state securities law) as may be necessary
or desirable to register the Company's Shares with
state securities authorities, monitor the sale of
Company Shares for compliance with state securities
laws, and file with the appropriate state securities
authorities the registration statements and reports
for the Company and the Company's Shares and all
amendments thereto, as may be necessary or convenient
to register and keep effective the Company and the
Company's Shares with state securities authorities to
enable the Company to make a continuous offering of
its Shares;
(iv) Develop and prepare, with the assistance of the
Company's investment adviser, communications to
Shareholders, including the annual report to
Shareholders, coordinate the mailing of prospectuses,
notices, proxy statements, proxies and other reports
to Company Shareholders, and supervise and facilitate
the proxy solicitation process for all shareholder
meetings, including the tabulation of shareholder
votes;
(v) Administer contracts on behalf of the Company with,
among others, the Company's investment adviser,
distributor, custodian, transfer agent and fund
accountant;
(vi) Supervise the Company's transfer agent with respect
to the payment of dividends and other distributions
to Shareholders;
(vii) Calculate performance data of the Portfolios for
dissemination to information services covering the
investment company industry;
2
<PAGE> 3
(viii) Coordinate and supervise the preparation and filing
of the Company's tax returns;
(ix) Examine and review the operations and performance of
the various organizations providing services to the
Company or any Portfolio of the Company, including,
without limitation, the Company's investment adviser,
distributor, custodian, fund accountant, transfer
agent, outside legal counsel and independent public
accountants, and at the request of the Trustees,
report to the Board on the performance of
organizations;
(x) Assist with the layout and printing of publicly
disseminated prospectuses and assist with and
coordinate layout and printing of the Company's
semi-annual and annual reports to Shareholders;
(xi) Assist with the design, development, and operation of
the Portfolios, including new classes, investment
objectives, policies and structure;
(xii) Provide individuals reasonably acceptable to the
Company's Trustees to serve as officers of the
Company, who will be responsible for the management
of certain of the Company's affairs as determined by
the Company's Trustees;
(xiii) Advise the Company and its Trustees on matters
concerning the Company and its affairs;
(xiv) Obtain and keep in effect fidelity bonds and trustees
and officers/errors and omissions insurance policies
for the Company in accordance with the requirements
of Rules 17g-1 and 17d-1(7) under the 1940 Act as
such bonds and policies are approved by the Company's
Trustees;
(xv) Monitor and advise the Company and its Portfolios on
their regulated investment company status under the
Internal Revenue Code of 1986, as amended;
(xvi) Perform all administrative services and functions of
the Company and each Portfolio to the extent
administrative services and functions are not
provided to the Company or such Portfolio pursuant to
the Company's or such Portfolio's investment advisory
agreement, distribution agreement, custodian
agreement, transfer agent agreement and fund
accounting agreement;
(xvii) Furnish advice and recommendations with respect to
other aspects of the business and affairs of the
Portfolios as the Company and BISYS shall determine
desirable;
3
<PAGE> 4
(xviii) Prepare and file with the SEC the semi-annual report
for the Company on Form NSAR and all required notices
pursuant to Rule 24f-2; and
BISYS shall perform such other administration services for the Company
that are mutually agreed upon by the parties from time to time, which may result
in an additional charge, the amount of which shall be agreed upon between the
parties. In performing its duties under this Agreement, BISYS will act in
conformity with the Company's Declaration of Trust, By-Laws, prospectuses and
statements of additional information as in effect from time to time and will
conform to and comply with the requirements of the 1940 Act and all applicable
federal and state laws and regulations.
B. Fund Accounting Services.
-------------------------
BISYS shall perform the fund accounting services described in
this Article 2 in connection with the operations of the Company and each of the
Portfolios. Such services shall include the following:
(a) Maintenance of Books and Records. BISYS will keep and
maintain the following books and records of each
Portfolio pursuant to Rule 31a1 under the Investment
Company Act of 1940 (the "Rule"):
(i) Journals containing an itemized daily record
in detail of all purchases and sales of
securities, all receipts and disbursements
of cash and all other debits and credits, as
required by subsection (b)(1) of the Rule;
(ii) General and auxiliary ledgers reflecting all
asset, liability, reserve, capital, income
and expense accounts, including interest
accrued and interest received, as required
by subsection (b)(2)(i) of the Rule;
(iii) Separate ledger accounts required by
subsection (b)(2)(ii) and (iii) of the Rule;
and
(iv) A monthly trial balance of all ledger
accounts (except shareholder accounts) as
required by subsection (b)(8) of the Rule.
(b) Performance of Daily Accounting Services. In addition
to the maintenance of the books and records specified
above, BISYS shall perform the following accounting
services daily for each Portfolio:
(i) Calculate the net asset value per share
utilizing prices obtained from the sources
described in subsection 1(b)(ii) below;
4
<PAGE> 5
(ii) Obtain security prices from independent
pricing services, or if such quotes are
unavailable, then obtain such prices from
each Portfolio's investment adviser or its
designee, as approved by the Company's Board
of Trustees ("Trustees");
(iii) Verify and reconcile with the Company's
custodian all daily trade activity;
(iv) Compute, as appropriate, each Portfolio's
7-day yields, 7-day effective yields, 30-day
yields, and weighted average portfolio
maturity;
(v) Review daily the net asset value calculation
and dividend factor (if any) for each
Portfolio prior to release to shareholders,
check and confirm the net asset values and
dividend factors for reasonableness and
deviations, and distribute net asset values
and yields to NASDAQ;
(vi) Report to the Company the daily market
pricing of securities in any money market
Portfolios, with the comparison to the
amortized cost basis;
(vii) Determine, where applicable, unrealized
appreciation and depreciation on securities
held in the Portfolios;
(viii) Amortize premiums and accrete discounts on
securities purchased at a price other than
face value, in accordance with the pricing
policies that are established for the
Company;
(ix) Update fund accounting system to reflect
rate changes, as received from a Portfolio's
investment adviser, on variable interest
rate instruments;
(x) Post Portfolio transactions to appropriate
categories;
(xi) Accrue expenses of each Portfolio according
to instructions received from the Company's
Administrator;
(xii) Determine the outstanding receivables and
payables for all (1) security trades, (2)
Portfolio share transactions and (3) income
and expense accounts;
5
<PAGE> 6
(xiii) Provide accounting reports in connection
with the Company's regular annual audit and
other audits and examinations by regulatory
agencies; and
(xiv) Provide such periodic reports as the parties
shall agree upon.
(c) Special Reports and Services.
(i) BISYS may provide additional special reports
upon the request of the Company or a
Portfolio's investment adviser, which may
result in an additional charge, the amount
of which shall be agreed upon between the
parties.
(ii) BISYS may provide such other similar
services with respect to a Portfolio as may
be reasonably requested by the Company,
which may result in an additional charge,
the amount of which shall be agreed upon
between the parties.
(d) Additional Accounting Services. BISYS shall also
perform the following additional accounting services
for each Portfolio:
(i) Provide monthly a download (and hard copy
thereof) of the financial statements
described below, upon request of the
Company. The download will include the
following items:
Statement of Assets and Liabilities,
Statement of Operations,
Statement of Changes in Net Assets, and
Condensed Financial Information.
(ii) Provide accounting information for the
following:
(A) the Company's semi-annual reports
with the Securities and Exchange
Commission ("SEC") on Form N-SAR;
(B) the Company's annual, semi-annual
and quarterly (if any) shareholder
reports;
(C) registration statements on Form
N-1A and other filings relating to
the registration of shares;
(D) BISYS's monitoring of each
Portfolio's status as a regulated
investment company under Subchapter
M of the Internal Revenue Code, as
amended;
(E) annual audit by the Company's
auditors; and
(F) examinations performed by the SEC.
6
<PAGE> 7
C. Transfer Agency Services.
-------------------------
BISYS shall perform for the Company the transfer agent
services set forth herein. BISYS also agrees to perform for the Company such
special services incidental to the performance of the services enumerated herein
as agreed to by the parties from time to time. BISYS shall perform such
additional services as are provided on an amendment to this agreement hereof, in
consideration of such fees as the parties hereto may agree.
1. Shareholder Transactions
------------------------
a. Process shareholder purchase and redemption
orders.
b. Set up account information, including
address, dividend option, taxpayer
identification numbers and wire
instructions.
c. Issue confirmations in compliance with Rule
10b-10 under the Securities Exchange Act of
1934, as amended.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the
purchase of new shares, through dividend
reimbursement.
2. Shareholder Information Services
--------------------------------
a. Make information available to shareholder
servicing unit and other remote access units
regarding trade date, share price, current
holdings, yields, and dividend information.
b. Produce detailed history of transactions
through duplicate or special order
statements upon request.
c. Provide mailing labels for distribution of
financial reports, prospectuses, proxy
statements or marketing material to current
shareholders.
3. Compliance Reporting
--------------------
a. Provide reports to the Securities and
Exchange Commission, the National
Association of Securities Dealers and the
States in which each Portfolio is
registered.
7
<PAGE> 8
b. Prepare and distribute appropriate Internal
Revenue Service forms for corresponding
Portfolio and shareholder income and capital
gains.
c. Issue tax withholding reports to the
Internal Revenue Service.
4. Dealer/Load Processing (if applicable)
--------------------------------------
a. Provide reports for tracking rights of
accumulation and purchases made under a
Letter of Intent.
b. Account for separation of shareholder
investments from transaction sale charges
for purchase of Portfolio shares.
c. Calculate fees due under 12b-1 plans for
distribution and marketing expenses.
d. Track sales and commission statistics by
dealer and provide for payment of
commissions on direct shareholder purchases
in a load Portfolio.
5. Shareholder Account Maintenance
-------------------------------
a. Maintain all shareholder records for each
account in each Portfolio.
b. Issue customer statements on scheduled
cycle, providing duplicate second and third
party copies if required.
c. Record shareholder account information
changes.
d. Maintain account documentation files for
each shareholder.
6. Reports
-------
BISYS will furnish to the Company and to its
properly-authorized auditors, investment advisers,
examiners, distributors, dealers, underwriters,
salesmen, insurance companies and others designated
by the Company in writing, the reports that are set
forth below and such additional reports, if any, that
are subsequently agreed upon by the parties pursuant
to an amendment hereto. The Company agrees to examine
each such report or copy promptly and will report or
cause to be reported any errors or discrepancies
therein.
a. Daily Shareholder Activity Journal
8
<PAGE> 9
b. Daily Fund Activity Summary Report
(i) Beginning Balance
(ii) Dealer Transactions
(iii) Shareholder Transactions
(iv) Reinvested Dividends
(v) Exchanges
(vi) Adjustments
(vii) Ending Balance
c. Daily Wire and Check Register
d. Monthly Dealer Processing Reports
e. Monthly Dividend Reports
f. Sales Data Reports for Blue Sky Registration
g. Annual report by independent public
accountants concerning BISYS' shareholder
system and internal accounting control
systems to be filed with the Securities
Exchange Act of 1934, as amended
h. Such special reports and additional
information that the parties may agree upon,
from time to time
ARTICLE 3. Allocation of Charges and Expenses.
(A) BISYS. BISYS shall furnish at its own expense the executive,
supervisory and clerical personnel necessary to perform its obligations under
this Agreement. BISYS shall also provide the items which it is obligated to
provide under this Agreement, and shall pay all compensation, if any, of
officers of the Company as well as all Trustees of the Company who are
affiliated persons of BISYS or any other organization affiliated with BISYS;
provided, however, that unless otherwise specifically provided, BISYS shall not
be obligated to pay the compensation of any employee of the Company retained by
the Trustees of the Company to perform services on behalf of the Company.
(B) The Company. The Company assumes and shall pay or cause to be paid
all other expenses of the Company not otherwise allocated herein, including,
without limitation, organization
9
<PAGE> 10
costs, taxes, expenses for legal and auditing services, the expenses of
preparing (including typesetting), printing and mailing reports, prospectuses,
statements of additional information, proxy solicitation material and notices to
existing Shareholders, all expenses incurred in connection with issuing and
redeeming Shares, the costs of custodial services, the cost of initial and
ongoing registration of the Shares under Federal and state securities laws, fees
and out-of-pocket expenses of Trustees who are not affiliated persons of BISYS
or the investment adviser to the Company or any other organization affiliated
with BISYS or the investment adviser, insurance, interest, brokerage costs,
litigation and other extraordinary or nonrecurring expenses, and all fees and
charges of investment advisers to the Company.
ARTICLE 4. Compensation of BISYS.
(A) Service Fees. For the services to be rendered, the facilities
furnished and the expenses assumed by BISYS pursuant to this Agreement, the
Company shall pay to BISYS during the term of this Agreement compensation in
accordance with, and in the manner set forth in the Schedule A attached hereto.
Such compensation shall be calculated and accrued daily, and paid to BISYS
monthly.
(B) Reimbursement of Expenses. In addition to paying BISYS the fees
described in paragraph (A) of this Article 4, the Company agrees to reimburse
BISYS for BISYS' reasonable out-of-pocket expenses in providing services
hereunder, including without limitation, the following:
(i) All freight and other delivery and bonding charges
incurred by BISYS in delivering materials to and from
the Company;
(ii) All direct telephone, telephone transmission and
telecopy or other electronic transmission expenses
incurred by BISYS in communication with the Company,
or others as required for BISYS to perform the
services to be provided hereunder;
(iii) The cost of obtaining security market quotes pursuant
to Article 2(B)(b)(ii) above;
(iv) The cost of microfilm or microfiche of records or
other materials;
(v) All systems-related expenses associated with the
provision of special reports and services under this
Agreement;
(vi) All travel and lodging expenses incurred by officers
and employees of BISYS in connection with attendance
at Company Board meetings;
(vii) Any expenses BISYS shall incur at the written
direction of an officer of the Company; and
10
<PAGE> 11
(vii) Any additional expenses reasonably incurred by BISYS
and approved in advance by the Company in the
performance of its duties and obligations under this
Agreement.
(C) Survival of Compensation Rights.
All rights of compensation under this Agreement for services
performed as of the termination date shall survive the termination of this
Agreement.
ARTICLE 5. Limitation of Liability of BISYS. The duties of BISYS shall
be confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against BISYS hereunder. BISYS shall not be liable
for any error of judgment or mistake of law or for any loss arising out of any
act or omission in carrying out its duties hereunder, except a loss resulting
from willful misfeasance, bad faith or negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties
hereunder, except as may otherwise be provided under provisions of applicable
law which cannot be waived or modified hereby. (As used in this Article 5, the
term "BISYS" shall include directors, officers, employees and other agents of
BISYS as well as BISYS itself.) Any person, even though also an officer,
director, employee or agent of BISYS, who may be or become an officer, Trustee,
employee or agent of the Company, shall be deemed, when rendering services to
the Company or to any Portfolio, or acting on any business of the Company or of
any Portfolio (other than services or business in connection with BISYS's duties
hereunder) to be rendering such services to or acting solely for the Company or
the Portfolio and not as an officer, director, employee or agent or one under
the control or direction of BISYS even though paid by BISYS.
So long as BISYS acts in good faith and with due diligence and without
negligence, the Company assumes full responsibility and shall indemnify BISYS
and hold it harmless from and against any and all actions, suits and claims,
whether groundless or otherwise, and from and against any and all losses,
damages, costs, charges, reasonable counsel fees and disbursements, payments,
expenses and liabilities (including reasonable investigation expenses) arising
directly or indirectly out of BISYS's actions taken or nonactions with respect
to the performance of services hereunder. The indemnity and defense provisions
set forth herein shall indefinitely survive the termination of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Company may be asked to indemnify or hold
BISYS harmless, the Company shall be fully and promptly advised of all pertinent
facts concerning the situation in question, and it is further understood that
BISYS will use all reasonable care to identify and notify the Company promptly
concerning any situation which presents or appears likely to present the
probability of such a claim for indemnification against the Company, but failure
to do so in good faith shall not affect BISYS's indemnification rights
hereunder.
11
<PAGE> 12
The Company shall be entitled to participate at its own expense or, if
it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity provision. If the Company elects to assume the defense
of any such claim, the defense shall be conducted by counsel chosen by the
Company and satisfactory to BISYS, whose approval shall not be unreasonably
withheld. In the event that the Company elects to assume the defense of any suit
and retain counsel, BISYS shall bear the fees and expenses of any additional
counsel retained by it. If the Company does not elect to assume the defense of a
suit, it will reimburse BISYS for the reasonable fees and expenses of any
counsel retained by BISYS.
BISYS may apply to the Company at any time for instructions and may
consult counsel for the Company or its own counsel and with accountants and
other experts with respect to any matter arising in connection with BISYS's
duties, and BISYS shall not be liable or accountable for any reasonable action
taken or omitted by it in good faith in accordance with such instruction or with
the opinion of such counsel, accountants or other experts.
Also, BISYS shall be protected in acting in good faith upon any
document which it reasonably believes to be genuine and to have been signed or
presented by the proper person or persons.
ARTICLE 6. Duration of this Agreement. The duration of this Agreement
shall be as specified in Schedule B hereto.
ARTICLE 7. Assignment. This Agreement shall not be assignable by either
party without the written consent of the other party; provided, however, that
BISYS may, at its expense, subcontract with any entity or person concerning the
provision of the services contemplated hereunder. BISYS shall not, however, be
relieved of any of its obligations under this Agreement by the appointment of
such subcontractor and provided further, that BISYS shall be responsible, to the
extent provided in Article 5 hereof, for all acts of such subcontractor as if
such acts were its own. This Agreement shall be binding upon, and shall inure to
the benefit of, the parties hereto and their respective successors and permitted
assigns.
ARTICLE 8. Amendments. No provision of this Agreement may be changed,
waived, discharged or terminated, except by an instrument in writing signed by
the party against whom an enforcement of the change, waiver, discharge or
termination is sought.
ARTICLE 9. Certain Records. BISYS shall maintain customary records in
connection with its duties as specified in this Agreement. Any records required
to be maintained and preserved pursuant to applicable statutes, rules and
regulations, including without limitation Rules 31a-1 and 31a-2 under the 1940
Act, which are prepared or maintained by BISYS on behalf of the Company shall be
prepared and maintained at the expense of BISYS, but shall be the property of
the Company and will be made available to or surrendered promptly to the Company
on request.
12
<PAGE> 13
In case of any request or demand for the inspection of such records by
another party, BISYS shall notify the Company and follow the Company's
instructions as to permitting or refusing such inspection; provided that BISYS
may exhibit such records to any person in any case where it is advised by its
counsel that it may be held liable for failure to do so, unless (in cases
involving potential exposure only to civil liability) the Company has agreed to
indemnify BISYS against such liability.
ARTICLE 10. Definitions of Certain Terms. The terms "interested person"
and "affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
ARTICLE 11. Notice. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the following addresses: if to the Company, at 55 Greens Farms
Road, Westport, Connecticut 06881, Attention: President; if to BISYS, 3435
Stelzer Road, Columbus, Ohio 43119, Attention: William J. Tomko; or at such
other addresses as such party may from time to time specify in writing to the
other party pursuant to this Section.
ARTICLE 12. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Ohio and the applicable provisions of
the 1940 Act. To the extent that the applicable laws of the State of Ohio, or
any of the provisions herein, conflict with the applicable provisions of the
1940 Act, the latter shall control.
ARTICLE 13. Multiple Originals. This Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
ARTICLE 14. Confidentiality. BISYS agrees on behalf of itself and its
employees to treat confidentially and as the proprietary information of the
Company, all records and other information relative to the Company and prior,
present or potential Shareholders, and not to use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder, except, after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld and may not be
withheld where BISYS may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Company.
ARTICLE 15. Uncontrollable Events. BISYS assumes no responsibility
hereunder, and shall not be liable for any damage, loss of data, delay or any
other loss whatsoever caused by events beyond it reasonable control. BISYS
shall, however, be obligated to design and institute reasonable procedures to
prevent or limit any such damages, loss of data, delay or other loss.
13
<PAGE> 14
ARTICLE 16. Legal Advice. BISYS shall notify the Company at any time
BISYS believes that it is in need of the advice of counsel (other than counsel
in the regular employ of BISYS or any affiliated companies) with regard to
BISYS's responsibilities and duties pursuant to this Agreement. After so
notifying the Company, BISYS, at its discretion, shall be entitled to seek,
receive and act upon advice of qualified legal counsel of its choosing, such
advice to be at the expense of the Company unless relating to a matter involving
BISYS's willful misfeasance, bad faith, negligence or reckless disregard with
respect to BISYS's responsibilities and duties hereunder and BISYS shall in no
event be liable to the Company or any Portfolio or any shareholder or beneficial
owner of the Company for any action reasonably taken pursuant to such advice.
ARTICLE 17. Representations of the Company. The Company certifies to
BISYS that: (a) as of the close of business on the effective date of this
Agreement, each Portfolio which is in existence as of such effective date has
authorized unlimited shares; and (b) this Agreement has been duly authorized by
the Company and, when executed and delivered by the Company, will constitute a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to equitable principles and
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
ARTICLE 18. Representations of BISYS. BISYS represents and warrants
that: (a) it has been in, and shall continue to be in, substantial compliance
with all applicable provisions of law in connection with the performance of its
duties under this Agreement; (b) the various procedures and systems which BISYS
has implemented with regard to safekeeping from loss or damage attributable to
fire, theft or any other cause of the blank checks, records, and other data of
the Company and BISYS's records, data, equipment, facilities and other property
used in the performance of its obligations hereunder are adequate and that it
will make such changes therein from time to time as are required for the secure
performance of its obligations hereunder; and (c) this Agreement has been duly
authorized by BISYS, and when executed and delivered by BISYS, will constitute a
legal, valid and binding obligation of BISYS, enforceable against BISYS in
accordance with its terms, subject to equitable principles and bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
ARTICLE 19. Insurance. BISYS shall notify the Company should BISYS's
insurance coverage with respect to professional liability or errors and
omissions coverage be canceled or reduced. Such notification shall include the
date of change and the reasons therefor. BISYS shall notify the Company of any
material claims against BISYS with respect to services performed under this
Agreement, whether or not they may be covered by insurance, and shall notify the
Company from time to time as may be appropriate of the total outstanding claims
made by BISYS under its insurance coverage.
ARTICLE 20. Bank Accounts. The Company and the Portfolios shall
establish and maintain such bank accounts with such bank or banks as are
selected by the Company, as are necessary in order that BISYS may perform the
services required to be performed hereunder. To the
14
<PAGE> 15
extent that the performance of such services shall require BISYS directly to
disburse amounts for payment of dividends, redemption proceeds or other
purposes, the Company and Portfolios shall provide such bank or banks with all
instructions and authorizations necessary for BISYS to effect such
disbursements.
ARTICLE 21. Information Furnished by the Company. The Company has
furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Company and of any
amendments thereto, certified by the proper official of the
state in which such Declaration has been filed.
(b) Copies of the following documents:
1. The Company's Bylaws and any amendments thereto;
2. Certified copies of resolutions of the Board of
Trustees covering the approval of this Agreement and
the authorization of a specified officer of the
Company to execute and deliver this Agreement and
authorization for specified officers of the Company
to instruct BISYS hereunder.
(c) A list of all officers of the Company, together with specimen
signatures of those officers, who are authorized to instruct
BISYS in all matters.
(d) Two copies of the Prospectuses and Statement of Additional
Information for each Portfolio.
(e) A certificate as to shares of beneficial interest of the
Company authorized, issued and outstanding as of the effective
date of BISYS's appointment under this Agreement (or as of the
date on which BISYS's services are commenced, whichever is the
later date) and as to receipt of full consideration by the
Company for all shares outstanding, such statement to be
certified by the Treasurer of the Company.
ARTICLE 22. Information Furnished by BISYS. BISYS has furnished to the
Company the following:
(a) BISYS's Articles of Incorporation.
(b) BISYS's Bylaws and any amendments thereto.
(c) Certified copies of actions of BISYS covering the following
matters:
1. Approval of this Agreement, and authorization of a
specified officer of BISYS to execute and deliver
this Agreement; and
15
<PAGE> 16
2. Authorization of BISYS to act as fund administrator,
fund accountant and transfer agent for the Company.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
USALLIANZ FUNDS
By: /s/ David P. Marks
-------------------------------
Title: President
----------------------------
BISYS FUND SERVICES OHIO, INC.
By: /s/ William J. Tomko
-------------------------------
Title: President
----------------------------
16
<PAGE> 17
SCHEDULE A
TO THE SERVICES AGREEMENT
BETWEEN
USALLIANZ FUNDS
AND
BISYS FUND SERVICES OHIO, INC.
PORTFOLIOS:
This Agreement shall apply to all Portfolios of the Company, either now
or hereafter created. The current Portfolios are set forth below:
FEES:
Pursuant to Article 4, in consideration of services rendered and
expenses assumed pursuant to this Agreement, the Company will pay BISYS on the
first business day of each month, or at such time(s) as BISYS shall request and
the parties hereto shall agree, the fees set forth below:
Asset-Based Fees:
-----------------
Subject to the annual minimum fee set forth below, the Company
shall pay to BISYS a fee computed daily at the annual rate of:
Ten one-hundredths of one percent (.10%) of the
Company's average daily net assets up to and
including $5 billion;
Seven one-hundredths of one percent (.07%) of the
next $5 billion of the Company's average daily net
assets; and
Five one-hundredths of one percent (.05%) of the
Company's average daily net assets over $10 billion.
The above referenced fee schedule shall be subject to (i) an annual per
Portfolio minimum fee of $85,000 and (ii) an annual fund complex (i.e., all
investment companies advised by Allianz of America, Inc., or its affiliates for
which BISYS performs services of the nature contemplated by this Agreement)
minimum fee of $250,000.
A-1
<PAGE> 18
Annual Per Account Fee:
-----------------------
The Company shall also pay to BISYS a fee of $20 per
shareholder account.
Additional Fee for Separate Classes of Shares:
----------------------------------------------
To the extent the Company maintains two or more classes of
shares, BISYS shall be entitled to receive an additional
annual fee for each class of shares that is in addition to the
initial class of shares. Such fee shall be equal to $37,500
per class.
Out-of-pocket Expenses:
-----------------------
BISYS shall be entitled to be reimbursed for the out-of-pocket
expenses set forth in Article 4 of this Agreement.
A-2
<PAGE> 19
SCHEDULE B
TO THE SERVICES AGREEMENT
BETWEEN
USALLIANZ FUNDS
AND
BISYS FUND SERVICES OHIO, INC.
DURATION AND TERMINATION
------------------------
Pursuant to Article 6, the term of this Agreement shall commence on
October 6, 1999 and shall remain in effect through October 5, 2002 (the "Initial
Term"). Thereafter, unless otherwise terminated as provided herein, this
Agreement shall be renewed automatically for successive three-year periods
("Rollover Periods"). This Agreement may be terminated without penalty (i) by
provision of a notice of nonrenewal in the manner set forth below, (ii) by
mutual agreement of the parties or (iii) for "cause," as defined below, upon the
provision of 60 days advance written notice by the party alleging cause. Written
notice of nonrenewal must be provided at least 60 days prior to the expiration
of the Initial Term or any Rollover Period in order to avoid automatic renewal.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence or reckless disregard on the part of
the party to be terminated with respect to its obligations and duties set forth
herein; (b) a final, unappealable judicial, regulatory or administrative ruling
or order in which the party to be terminated has been found guilty of criminal
or unethical behavior in the conduct of its business; or (c) financial
difficulties on the part of the party to be terminated which are evidenced by
the authorization or commencement of, or involvement by way of pleading, answer,
consent or acquiescence in, a voluntary or involuntary case under Title 11 of
the United States Code, as from time to time is in effect, or any applicable
law, other than said Title 11, of any jurisdiction relating to the liquidation
or reorganization of debtors or to the modification or alteration of the rights
of creditors.
Notwithstanding the foregoing, after such termination for so long as
BISYS, with the written consent of the Company, in fact continues to perform any
one or more of the services contemplated by this Agreement or any schedule or
exhibit hereto, the provisions of this Agreement, including without limitation
the provisions dealing with indemnification, shall continue in full force and
effect. Compensation due BISYS and unpaid by the Company upon such termination
shall be immediately due and payable upon and notwithstanding such termination.
BISYS shall be entitled to collect from the Company, in addition to the
compensation described in Schedule A, the amount of all of BISYS's reasonable
cash disbursements for services in connection with BISYS's activities in
effecting such termination, including without limitation, the delivery to the
Company and/or its
B-1
<PAGE> 20
designees of the Company's property, records, instruments and documents, or any
copies thereof.
If, for any reason other than nonrenewal, mutual agreement of the
parties or "cause," BISYS is replaced as the service provider under this
Agreement, or if a third party is added to perform all or a part of the Services
provided by BISYS under this Agreement (excluding any subcontractor appointed by
BISYS as provided in Article 7 herein), then the Company shall make a one-time
cash payment, in consideration of the fee structure and services to be provided
under this Agreement and not as a penalty, to BISYS equal to the balance due
BISYS for the lesser of (A) the next 12 months or (B) the remainder of the
then-current term of this Agreement, assuming for purposes of calculation of the
payment that such balance shall be based upon the average amount of Company
assets and the average number of Company shareholder accounts for the twelve
months prior to the date BISYS is replaced or a third party is added.
In the event the Company is merged into another legal entity in part or
in whole pursuant to any form of business reorganization or is liquidated in
part or in whole prior to the expiration of the then-current term of this
Agreement, the parties acknowledge and agree that the liquidated damages
provision set forth above shall be applicable in those instances in which BISYS
is not retained to provide Services consistent with this Agreement, including
the level of assets subject to such Services. The one-time cash payment
referenced above shall be due and payable on the day prior to the first day in
which BISYS is replaced or a third party is added.
The parties further acknowledge and agree that, in the event BISYS is
replaced, or a third party is added, as set forth above, (i) a determination of
actual damages incurred by BISYS would be extremely difficult, and (ii) the
liquidated damages provision contained herein is intended to adequately
compensate BISYS for damages incurred and is not intended to constitute any form
of penalty.
B-2
<PAGE> 1
[BISYS LOGO]
BISYS FUND SERVICES LIMITED PARTNERSHIP, DISTRIBUTOR
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
SHAREHOLDER SERVICES AGREEMENT
Ladies and Gentlemen:
As the principal underwriter of the shares ("Shares") of each investment company
portfolio (individually a "Fund"; collectively, the "Funds")of USAllianz Funds,
a Delaware business trust(the "Trust"), BISYS Fund Services Limited Partnership
("BISYS") hereby agrees that you, the undersigned broker-dealer, shall provide
the distribution assistance and shareholder services that are more fully
described below.
1. We represent and warrant to you that the shareholder services described
herein have been authorized pursuant to a Distribution Plan and
Multiple Class Plan (collectively the "Plans") adopted by the
shareholders ("Shareholders") of each Fund. The Distribution Plan has
been adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "1940 Act"). It is intended that you shall
provide such shareholder services to your customers ("Customers") who
may, from time to time, beneficially own a Fund's Shares.
2. You represent and warrant to us that (i) you are and will be at all
times relevant to this Agreement a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"), and (ii)
you are and will be at all times relevant to this Agreement a
broker-dealer properly registered and qualified under all applicable
federal, state and local laws to engage in the business and
transactions described in this Agreement. You agree to comply with all
applicable laws, including federal and state securities laws, the Rules
and Regulations of the Securities and Exchange Commission and the Rules
of Fair Practice of the NASD. We have furnished you with a list of the
states or other jurisdictions in which Shares of the Funds have been
registered for sale under, or are otherwise qualified for sale pursuant
to, the respective securities laws of such states and jurisdictions.
You agree that you will not offer a Fund's Shares to persons in any
jurisdiction in which such Shares are not registered or otherwise
qualified for sale. You further agree that you will maintain all
records required by applicable law or otherwise reasonably requested by
us relating to Fund transactions that you have executed.
3. You agree to provide various types of distribution assistance and
Shareholder support services with respect to a Fund's Shares. Such
distribution assistance and Shareholder support services may include
those items that are enumerated in Schedule A attached hereto and such
other similar services that we may reasonably request to the extent you
are permitted to do so under applicable statutes, rules and
regulations.
4. For all purposes of this Agreement, you shall be deemed to be an
independent contractor, and shall have no authority to act as agent for
us or for the Trust in any matter or in any respect. No person is
authorized to make any representations concerning us, the Trust, or a
Fund's Shares except those representations contained in the Fund's
then-current Prospectus and the Trust's Statement of Additional
Information and in such printed information as we or the Trust may
subsequently prepare. You are specifically authorized to distribute to
Customers a Fund's Prospectus (including any supplements to such
Prospectus), the Trust's Statement of Additional Information and sales
material received from us. No person is authorized to distribute any
other sales material relating to the Trust without our prior written
approval. You further agree to deliver to Customers, upon our request,
copies of amended Prospectuses and Statements of Additional
Information.
<PAGE> 2
5. You and your employees will, upon request, be available during normal
business hours to consult with us concerning the performance of your
responsibilities under this Agreement. You will provide to us and the
Trust's Board of Trustees a written report of all expenditures under
this Agreement, including a discussion of the purposes for which such
expenditures were made. In addition, you will furnish to us or to the
Trust such information as we or the Trust may reasonably request
(including, without limitation, periodic certifications confirming the
rendering of distribution assistance and support services with respect
to Shares described herein), and will otherwise cooperate with us and
the Trust in the preparation of reports to the Trust's Board of
Trustees concerning this Agreement and the monies paid or payable by us
under this Agreement, as well as any other reports or filings that may
be required by law.
6. The minimum dollar purchase of a Fund's Shares (including Shares being
acquired by Customers pursuant to the exchange privileges described in
the Fund's Prospectus) shall be the applicable minimum amount set forth
in the Prospectus of such Fund, and no order for less than such amount
shall be accepted by you. The procedures relating to the handling of
orders shall be subject to instructions which we shall forward to you
from time to time. All orders for a Fund's Shares are subject to
acceptance or rejection by the Trust in its sole discretion, and the
Trust may, in its discretion and without notice, suspend or withdraw
the sale of a Fund's Shares, including the sale of such Shares to you
for the account of any Customer or Customers. You acknowledge that it
is your responsibility to date and time stamp all orders received by
you and to transmit such orders promptly to us. You further acknowledge
that any failure to promptly transmit such orders to us that causes a
purchaser of Shares to be disadvantaged, based upon the pricing
requirements of Rule 22c-1 under the 1940 Act, shall be your sole
responsibility. We reserve the right to cancel this Agreement at any
time without notice if any Shares shall be offered for sale by you at
less than the then-current offering price determined by or for the
applicable Fund.
7. For the services provided under this Agreement, you shall receive a fee
calculated at the applicable annual rate set forth on Schedule B hereto
with respect to the average daily net asset value of each Fund's Shares
which are owned of record by you as nominee for Customers or which are
owned by Customers whose records, as maintained by such Fund or its
agent, designate you as the Customer's dealer of record, which fee will
be computed daily and paid monthly. The fee will not be paid with
respect to (i) Shares of a Fund sold by you and redeemed or repurchased
by the Trust or by us within seven business days of receipt of
confirmation of such sale, or (ii) a Customer if the amount of such fee
on an annual basis with respect to such Customer shall be less than
$1.00. The fee rate stated on Schedule B hereto may be prospectively
increased or decreased by us in our sole discretion, at any time upon
notice to you. Such fee shall be subject to the limitations on the
payment of asset-based sales charges that are set forth in Rule 2830 of
the NASD Conduct Rules.
8. Neither of us shall be liable to the other except for (a) acts or
failures to act which constitute a lack of good faith or negligence and
(b) obligations expressly assumed under this Agreement. In addition,
you agree to indemnify us and hold us harmless from any claims or
assertions relating to the lawfulness of your participation in this
Agreement and the transactions contemplated hereby or relating to any
activities of any persons or entities affiliated with your organization
which are performed in connection with the discharge of your
responsibilities under this Agreement. If such claims are asserted, you
shall have the right to manage your own defense, including the
selection and engagement of legal counsel, and all costs of such
defense shall be borne by you.
2
<PAGE> 3
9. This Agreement will automatically terminate in the event of its
assignment. This Agreement may be terminated by either of us, without
penalty, upon ten days' prior written notice to the other party. This
Agreement may also be terminated at any time without penalty by the
vote of a majority of the Disinterested Trustees of a Fund or by a vote
of a majority of the outstanding voting securities of a Fund on ten
days' written notice.
10. All communications to us shall be sent to the address set forth on page
1 hereof or at such other address as we may designate in writing. Any
notice to you shall be duly given if mailed or telecopied to you at the
address set forth below or at such other address as you may provide in
writing.
------------------------------
------------------------------
------------------------------
11. You represent and warrant that all requisite corporate proceedings have
been undertaken to authorize you to enter into this Agreement and to
perform the services contemplated herein. You further represent and
warrant that the individual that has signed this Agreement below is a
duly elected officer that has been empowered to act for and on behalf
of your organization with respect to the execution of this Agreement.
12. This Agreement supersedes any other agreement between us with respect
to the offer and sale of Shares and relating to any other matters
discussed herein. All covenants, agreements, representations and
warranties made herein shall be deemed to have been material and relied
on by each party. The invalidity or unenforceability of any term or
provision hereof shall not affect the validity or enforceability of any
other term or provision thereof. This Agreement may be executed in any
number of counterparts, which together shall constitute one instrument,
and shall be governed by and construed in accordance with the laws
(other than the conflict of laws rules) of the State of Ohio and shall
bind and inure to the benefit of the parties hereto and their
respective successors and assigns.
If the foregoing corresponds with your understanding of our agreement, please
sign this document and the accompanying copies thereof in the appropriate space
below and return the same to us, whereupon this Agreement shall be binding upon
each of us, effective as of the date of execution.
BISYS FUND SERVICES LIMITED PARTNERSHIP The foregoing Agreement is hereby
BY: BISYS FUND SERVICES, INC., GENERAL accepted:
PARTNER
---------------------------------
Company Name
By By
------------------------------------ ------------------------------
Name Date Name Date
----------------------- -------------------------
Title Title
3
<PAGE> 4
Dated: As of ___________
Schedule A
to the
Shareholder Services Agreement
Shareholder Services
-------------------------------
In accordance with Section 3 of the Shareholder Services Agreement, you agree to
provide various types of distribution assistance and shareholder support
services that we may reasonably request with respect to Fund Shares that are
beneficially owned by your Customers. Such distribution assistance and
shareholder support services may include the following.
Distribution Assistance
- -----------------------
Any activity which is principally intended to result in the marketing or sale of
Shares. Additionally, activities related to the distribution of Shares and
provision of service to Fund Shareholders, including (i) advertising by radio,
television, newspapers, magazines, brochures, sales literature, direct mail or
any other form of advertising; (ii) costs of printing prospectuses and other
materials to be given or sent to Customers; and (iii) such other similar
services as the Trustees of the Trust determine to be reasonably calculated to
result in the sale of Shares.
Shareholder Support Services
- ----------------------------
Personal service and/or maintenance of Shareholder accounts, which may include
among other things: providing necessary personnel and facilities to establish
and maintain certain Shareholder accounts and records; assisting in processing
purchase and redemption transactions; arranging for the wiring of funds;
transmitting and receiving funds in connection with Customer orders to purchase
or redeem Shares; verifying and guaranteeing Customer signatures in connection
with redemption orders, transfers among and changes in Customer designating
accounts; providing periodic statements showing a Customer's account balance
and, to the extent practicable, integrating such information with other Customer
transactions; furnishing periodic and annual statements and confirmations of all
purchase and redemptions of Shares in a Customer's account; transmitting proxy
statements, annual reports, and updating prospectuses and other communications
from the Funds to Customers; and providing such other services as the Funds or a
Customer reasonably may request, to the extent permitted by applicable statute,
rule or regulation.
A-1
<PAGE> 5
Dated: As of ___________
Schedule B
to the
Shareholder Services Agreement
Compensation
-------------------------------
Annual rate of up to 25 one-hundredths of one percent (.25%) of the average
daily net asset value of each Fund's Class A Shares held of record by you from
time to time on behalf of Customers.*
Annual rate of up to 75 one-hundredths of one percent (.75%) 12b-1 fees, and up
to 25 one-hundredths of one percent (.25%) Shareholder Servicing fees of the
average daily net asset value of each Fund's Class B Shares held of record by
you from time to time on behalf of Customers.*
- ------------------
* All fees are computed daily and paid monthly.
B-1
<PAGE> 1
EXPENSE LIMITATION AGREEMENT
FOR
USALLIANZ FUNDS
THIS AGREEMENT, dated as of October __ 1999, is made and entered
into by and between USAllianz Funds, a Delaware business trust (the "Trust"), on
behalf of its portfolios: Diversified Assets Fund, Fixed Income Fund, Global
Opportunities Fund, Growth Fund and Money Market Fund (individually, the "Fund";
collectively, the "Funds"), and Allianz of America, Inc. (the "Adviser").
WHEREAS, the Adviser has been appointed the investment adviser of
the Funds pursuant to an Investment Advisory Agreement dated October __, 1999,
between the Trust, on behalf of the Funds, and the Adviser (the "Advisory
Agreement"); and
WHEREAS, the Trust and the Adviser desire to enter into the
arrangements described herein relating to certain expenses of the Funds;
NOW, THEREFORE, the Trust and the Adviser hereby agree as follows:
1. Until further notice from the Adviser to the Trust, the Adviser
agrees, subject to Section 2 hereof, to reduce the fees payable to it under the
Advisory Agreement (but not below zero) to the extent necessary to limit the
operating expenses of the Funds (exclusive of brokerage costs, interest, taxes
and dividend and extraordinary expenses), for the period from the commencement
of operations to September 30, 2000, to an annual rate (as a percentage of the
Fund's average daily net assets) as set forth on EXHIBIT A attached hereto.
2. The Funds agree to pay to the Adviser the amount of fees
(including any amounts foregone through limitation or reimbursed pursuant to
Section 1 hereof) that, but for Section 1 hereof, would have been payable by the
Funds to the Adviser pursuant to the Advisory Agreement (the "Deferred Fees"),
subject to the limitations provided in this Section. Such repayment shall be
made monthly, but only if the operating expenses of each Fund (exclusive of
brokerage costs, interest, taxes and dividend and extraordinary expenses),
without regard to such repayment, are at an annual rate (as a percentage of the
average daily net assets of the Fund) are equal to or less than the rate set
forth on EXHIBIT A attached hereto. Furthermore, the amount of Deferred Fees
paid by the Funds in any month shall be limited so that the sum of (a) the
amount of such payment and (b) the other operating expenses of each Fund
(exclusive of brokerage costs, interest, taxes and extraordinary expenses) do
not exceed the applicable foregoing annual percentage rates.
Deferred Fees with respect to any fiscal year of any Fund
shall not be payable by the Fund to the extent that the amounts payable by the
Fund pursuant to the immediately preceding two sentences during the period
ending two years after the end of such fiscal year are not sufficient to pay
such Deferred Fees. In no event will any Fund be obligated to pay any fees
waived or deferred by the Adviser with respect to any other series of the Trust.
3. The Adviser may by notice of writing to the Trust terminate, in
whole or in part, its obligation under Section 1 to reduce its fees with respect
to the Funds in any period following the date specified in such notice (or
change the percentage specified in Section 1), but no such
<PAGE> 2
change shall affect the obligation (including the amount of the obligation) of
any Fund to repay amounts of Deferred Fees with respect to periods prior to the
date specified in such notice.
IN WITNESS WHEREOF, the parties hereto have executed this Expense
Limitation Agreement as of the date first above written.
USALLIANZ FUNDS ALLIANZ OF AMERICA, INC.
By:________________________________ By:_______________________________
Name: Name:
Title Title
2
<PAGE> 3
EXHIBIT A
Fund Limit
- ------------------------------------------------- -----------------
Diversified Assets Fund
Class A................................ 1.20%
Class B................................ 1.95%
Class Y................................ 0.95%
Fixed Income Fund
Class A................................ 1.05%
Class B................................ 1.80%
Class Y................................ 0.80%
Global Opportunities Fund
Class A................................ 1.85%
Class B................................ 2.60%
Class Y................................ 1.60%
Growth Fund
Class A................................ 1.28%
Class B................................ 2.03%
Class Y................................ 1.03%
Money Market Fund
Class A................................ 0.88%
Class B................................ 1.63%
Class Y................................ 0.63%
A-1
<PAGE> 1
DICKSTEIN SHAPIRO MORIN & OSHINSKY LLP
2101 L STREET, N.W.
WASHINGTON, D.C. 20037-1526
October 26, 1999
USAllianz Funds
55 Greens Farms Road
Westport, CT 06881
Re: Registration Statement on Form N-1A
(Registration No. 333-83421)
Ladies and Gentlemen:
We have acted as counsel to USAllianz Funds, a Delaware business
trust (the "Trust") in connection with the registration statement on Form N-1A
(Registration No. 333-83421) (the "Registration Statement") under the Securities
Act of 1933, as amended, relating to the registration for sale of an indefinite
number of shares of beneficial interest of the Trust (the "Shares").
We have reviewed the actions taken by the Trustees of the Trust to
organize the Trust and to authorize the issuance and sale of the Shares. In this
connection we have examined the Agreement and Declaration of Trust and By-Laws
of the Trust, the Registration Statement, including the prospectus and statement
of additional information forming a part thereof, certificates of officers of
the Trust and of public officials as to matters of fact, and such other
documents and instruments, certified or otherwise identified to our
satisfaction, and such questions of law and fact, as we have considered
necessary or appropriate for the purpose of rendering the opinions expressed
herein. In such examination we have assumed, without independent verification,
the genuineness of all signatures (whether original or photostatic), the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as certified or
photostatic copies. As to all questions of fact material to such opinions, we
have relied upon the representations contained in the certificates referred to
above. We have assumed, without independent verification, the accuracy of the
relevant facts stated therein.
Based upon the foregoing and subject to the qualifications set
forth herein, we hereby advise you that, in our opinion:
1. The Trust is authorized to issue an unlimited number of shares
of beneficial interest; the Shares have been duly and validly authorized by all
action of the Trustees of the Trust, and no action of the shareholders of the
Trust is required in such connection.
2. When issued and paid for as described in the Registration
Statement, the Shares will be fully paid and nonassessable by the Trust.
<PAGE> 2
USAllianz Funds
October 26, 1999
Page 2
No opinion is expressed herein as to the laws of any jurisdiction
other than the federal laws of the United States of America and, to the extent
required by the foregoing opinion, the Delaware Business Trust Act.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement. In giving such consent, we do not thereby admit that
we come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations
promulgated thereunder.
Very truly yours,
/s/ Dickstein Shapiro Morin & Oshinsky LLP
DICKSTEIN SHAPIRO MORIN & OSHINSKY LLP
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees of the USAllianz Funds:
We consent to the references to our name under the heading "Independent
Auditors" and "Financial Statements" in the Statement of Additional Information
and to the inclusion of our report dated October 25, 1999 included in
Pre-Effective Amendment No. 2 to File No. 33-83421.
October 26, 1999
Columbus, Ohio
<PAGE> 1
DISTRIBUTION PLAN
FOR THE
USALLIANZ FUNDS
This DISTRIBUTION PLAN (the "Plan") has been adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act")
by USALLIANZ FUNDS, a Delaware business trust (the "Trust"), individually and/or
on behalf of its portfolios as set forth on EXHIBIT A attached hereto (each a
"Fund").
SECTION 1. This Plan is adopted pursuant to Rule 12b-1 under the
1940 Act so as to allow the Trust to make payments as contemplated herein in
conjunction with the distribution of shares of each Fund as set forth on EXHIBIT
A attached hereto ("Shares").
SECTION 2. This Plan is designed to finance any activity which is
principally intended to result in the marketing or sale of Shares including,
without limitation, expenditures consisting of payments to a principal
underwriter of the Fund ("Distributor") or others for services provided or to be
provided. Amounts received by the Distributor and others may, additionally, be
used to cover certain other costs and expenses related to the distribution of
Shares and provision of service to Fund shareholders, including (i) advertising
by radio, television, newspapers, magazines, brochures, sales literature, direct
mail or any other form of advertising; (ii) expenses of sales employees or
agents of the Distributor, including salary, commissions, travel and related
expenses; (iii) costs of printing prospectuses and other materials to be given
or sent to prospective investors; and (iv) such other similar services as the
Trustees determine to be reasonably calculated to result in the sale of Shares.
SECTION 3. The maximum amount which each Fund may pay directly or
reimburse to the Distributor or others pursuant to Section 2 hereto shall be
such amount, expressed as a percentage of the Fund's average daily net assets
attributable to Shares of the Fund as set forth on EXHIBIT A attached hereto.
Appropriate adjustments shall be made to the payments made pursuant to Section 2
to the extent necessary to ensure that no payment is made with respect to the
Shares of the Fund in excess of the applicable limit imposed on asset based,
front end and deferred sales charges under subsection (d) of Rule 2830 of the
Conduct Rules of the National Association of Securities Dealers, Inc.
SECTION 4. This Plan shall not take effect until it has been
approved together with any related agreements by votes of a majority of both (a)
the Board of Trustees of the Trust and (b) those Trustees of the Trust who are
not "interested persons" of the Trust (as defined in the 1940 Act) and who have
no direct or indirect financial interest in the operation of this Plan or any
related agreement ("Plan Trustees"), cast in person at a meeting called for the
purpose of voting on this Plan or such agreements.
SECTION 5. Unless sooner terminated pursuant to Section 7, this
Plan shall continue in effect for a period of one year from the date it takes
effect and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4.
<PAGE> 2
SECTION 6. Any person authorized to direct the disposition of
monies paid or payable by the Trust on behalf of each Fund pursuant to this Plan
or any related agreement shall provide to the Trust's Board of Trustees and the
Board shall review at least quarterly a written report of the amounts so
expended and the purposes for which such expenditures were made.
SECTION 7. This Plan may be terminated at any time with respect to
any Fund by vote of a majority of the Plan Trustees or by vote of a majority of
such Fund's outstanding Shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be
in writing and shall provide: (a) that such agreement may be terminated at any
time, without payment of any penalty, by vote of a majority of the Plan Trustees
or by a vote of a majority of such Fund's outstanding Shares on not more than
sixty days written notice to any other party to the agreement; and (b) that such
agreement shall terminate automatically in the event of its assignment.
SECTION 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 3 hereof unless such
amendment is approved by a vote of at least a majority (as defined in the 1940
Act) of each Fund's outstanding Shares, and no material amendment to this Plan
shall be made unless approved in the manner provided for in Section 4 hereof.
SECTION 10. While this Plan shall be in effect, the selection and
nomination of the Trustees of the Trust shall be committed to the discretion of
the Trustees who are not "interested persons" of the Trust.
Effective Date: October 27, 1999
2
<PAGE> 3
EXHIBIT A
USALLIANZ FUNDS
Portfolios
- ----------
Diversified Assets Fund
Fixed Income Fund
Global Opportunities Fund
Growth Fund
Money Market Fund
Classes of Shares and Fees
- --------------------------
Class A - 0.25% per annum of the Fund's average daily net assets attributable to
Class A Shares of the Fund
Class B - 0.75% per annum of the Fund's average daily net assets attributable to
Class B Shares of the Fund
<PAGE> 1
MULTIPLE CLASS PLAN
FOR THE
USALLIANZ FUNDS
I. INTRODUCTION
As required by Rule 18f-3 under the Investment Company Act of
1940, as amended (the "1940 Act"), this Plan describes the multi-class system
for USALLIANZ FUNDS, a Delaware business trust (the "Trust"), including the
separate class arrangements for shareholder services and/or distribution of
shares, the method for allocating expenses to classes and any related conversion
features or exchange privileges applicable to the classes.
Upon the effective date of this Plan, the Trust elects to offer
multiple classes of shares, as described herein, pursuant to Rule 18f-3 and this
Plan.
II. The Multi-Class System
The following portfolios of the Trust shall offer three classes of
shares, Class A, Class B and Class Y: Diversified Assets Fund, Fixed Income
Fund, Growth Fund, Money Market Fund and Global Opportunities Fund ("Multi-Class
Funds"). Shares of each class of Multi-Class Fund shall represent an equal pro
rata interest in that Fund and, generally, shall have identical voting,
dividend, liquidation, and other rights, preferences, powers, restrictions,
limitations, qualifications and terms and conditions, except that: (a) each
class shall have a different designation; (b) each class of shares shall bear
any Class Expenses (as defined below); (c) each class shall have exclusive
voting rights on any matter submitted to shareholders that relates solely to its
distribution arrangement; and (d) each class shall have separate voting rights
on any matter submitted to shareholders in which the interests of one class
differ from the interests of any other class. In addition, Class A, Class B and
Class Y shares shall have the features described in Sections A, B, C and D,
below.
A. Sales Charge Structure
1. CLASS A SHARES. Class A shares of each Multi-Class Fund shall
be offered at the then-current net asset value plus a front-end sales charge in
such amount as is disclosed in the current prospectus for that Fund, including
any prospectus supplements, and shall be subject to such reductions and waivers
as are determined or approved by the Trust's Board of Trustees. Class A shares
shall generally not be subject to a contingent deferred sales charge provided,
however, that such a charge may be imposed in such cases as the Board may
approve and as disclosed in a future prospectus or prospectus supplement for a
Fund.
2. CLASS B SHARES. Class B shares of each Multi-Class Fund shall
be offered at the then-current net asset value without a front-end sales charge,
but may be subject to a contingent deferred sales charge in such amount as is
disclosed in the current prospectus for that Fund, including any prospectus
supplements, and shall be subject to such reductions and waivers as are
determined or approved by the Trust's Board of Trustees.
<PAGE> 2
3. CLASS Y SHARES. Class Y shares of each Multi-Class Fund shall
be offered at the then-current net asset value without a front-end sales charge
or contingent deferred sales charge.
B. Service and Distribution Plans
The Trust has adopted a distribution plan pursuant to Rule 12b-1
(the "Distribution Plan") and shareholder services agreements with respect to
Class A and Class B shares of each Multi-Class Fund, containing the following
terms:
1. CLASS A SHARES. Class A shares of each Fund shall compensate
the distributor and other dealers and investment representatives for costs and
expenses incurred in connection with the sale and distribution of shares of the
Trust, as provided in the Distribution Plan, subject to an annual limit of 0.25%
of the average daily net assets of a Fund attributable to its Class A shares.
2. CLASS B SHARES. Class B shares of each Fund shall compensate
the distributor and other dealers and investment representatives for costs and
expenses incurred in connection with the sale and distribution of shares of the
Trust, as provided in the Distribution Plan, subject to an annual limit of 0.75%
of the average daily net assets of a Fund attributable to its Class B shares.
Class B shares of each Fund shall pay service organizations for personal service
and/or the maintenance of shareholder accounts, as provided in the shareholder
services agreements, a fee at an annual rate of up to 0.25% of the average daily
net assets of a Fund attributable to its Class B shares.
3. CLASS Y SHARES. No Distribution Plan or shareholder services
agreement has been adopted for Class Y shares of each Multi-Class Fund.
C. Allocation of Income and Expenses
1. ALLOCATION METHOD
The gross income, realized and unrealized capital gains and
losses and expenses (other than Class Expenses, as defined below) of each Fund
shall be allocated to each class on the basis of its net asset value relative to
the net asset value of the Fund. Expenses to be so allocated also include
expenses of the Trust that are allocated to a Fund and are not attributable to a
particular Fund or class of a Fund ("Trust Expenses") and expenses of the
particular Fund that are not attributable to a particular class of the Fund
("Fund Expenses"). Trust Expenses include, but are not limited to, Trustees'
fees, insurance costs and certain legal fees. Fund Expenses include, but are not
limited to, certain registration fees, advisory fees, custodial fees, and other
expenses relating to the management of the Fund's assets.
2. CLASS EXPENSES
Expenses attributable to a particular class ("Class Expenses")
shall be limited to: (a) payments pursuant to the Distribution Plan and
shareholder servicing agreement by that class; (b) transfer agent fees
attributable to that class; (c) printing and postage expenses related to
preparing and distributing material such as shareholder reports, prospectuses
and proxy materials to current shareholders of that class; (d) registration fees
for shares of that class; (e) the
2
<PAGE> 3
expense of administrative personnel and services as required to support the
shareholders of that class; (f) litigation or other legal expenses relating
solely to that class; and (g) Trustees' fees incurred as a result of issues
relating to that class. Expenses described in (a) of this paragraph must be
allocated to the class for which they are incurred. All other expenses described
in this paragraph may be allocated as Class Expenses, but only if the Trust's
President and Treasurer have determined, subject to Board approval or
ratification, which of such categories of expenses will be treated as Class
Expenses, consistent with applicable legal principles under the 1940 Act and the
Internal Revenue Code of 1986, as amended.
In the event a particular expense is no longer
reasonably allocable by class or to a particular class, it shall be treated as a
Trust Expense or Fund Expense, and in the event a Trust Expense or Fund Expense
becomes allocable at a different level, including as a Class Expense, it shall
be so allocated, subject to compliance with Rule 18f-3 and to approval or
ratification by the Board of Trustees.
The initial determination of expenses that will be
allocated as Class Expenses and any subsequent changes thereto shall be reviewed
by the Board of Trustees and approved by such Board and by a majority of the
Trustees who are not "interested persons" of the Trust, as defined in the 1940
Act.
3. WAIVERS OR REIMBURSEMENTS OF EXPENSES
Expenses may be waived or reimbursed by the adviser, the
Distributor or any other provider of services to a Fund or the Trust without the
prior approval of the Board of Trustees, subject to compliance with Rule 18f-3
of the 1940 Act.
D. EXCHANGE AND CONVERSION PRIVILEGES
Shareholders of a Multi-Class Fund may exchange shares of a
particular class for shares of the same class in another Multi-Class Fund at
relative net asset value and with no sales charge, provided the shares to be
acquired in the exchange are qualified for sale in the shareholder's state of
residence and subject to the applicable requirements as to minimum investment
amount.
Class B shares automatically convert to Class A shares without any
sales charges or fees after eight (8) years from the month of purchase.
E. BOARD REVIEW
1. INITIAL APPROVAL
The Board of Trustees, including a majority of the Trustees who
are not "interested persons" (as defined in the 1940 Act) of the Trust or a Fund
("Independent Trustees"), at a meeting held October 6, 1999, initially approved
the Plan based on a determination that the Plan, including the expense
allocation, is in the best interests of each class and Fund individually and of
the Trust. Their determination was based on their review of information
furnished to them which they deemed reasonably necessary and sufficient to
evaluate the Plan.
3
<PAGE> 4
2. APPROVAL OF AMENDMENTS
The Plan may not be amended materially unless the Board of
Trustees, including a majority of the Independent Trustees, have found that the
proposed amendment, including any proposed related expense allocation, is in the
best interests of each class and Fund individually and of the Trust. Such
finding shall be based on information requested by the Board and furnished to
them which the Board deems reasonably necessary to evaluate the proposed
amendment.
3. PERIODIC REVIEW
The Board shall review reports of expense allocations and such
other information as they request at such times, or pursuant to such schedule,
as they may determine consistent with applicable legal requirements.
F. CONTRACTS
Any agreement related to the Multi-Class System shall require the
parties thereto to furnish to the Board of Trustees, upon their request, such
information as is reasonably necessary to permit the Trustees to evaluate the
Plan or any proposed amendment.
Effective Date: October 27, 1999
4
<PAGE> 1
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints David P. Marks, Ronald Clark, Gary Brown, Edward Ghigliotty, Chris
Pinkerton, Brian Welker, Gregory T. Maddox, Irimga McKay, Charles Booth, Gary
Tenkman, Lisa Harley, Alaina Metz and Paige Hodgin and each of them, their true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for them and in their names, place and stead, in any and all
capacities, to sign any and all documents to be filed with the Securities and
Exchange Commission by USAllianz Funds pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by
means of the Securities and Exchange Commission's electronic disclosure system
known as EDGAR or otherwise; and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to sign and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as each of them might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
SIGNATURE TITLE DATE
- -------------------------- ------------------------- ---------------
Trustee October 26, 1999
- --------------------------
Harrison Conrad
/s/ Roger Gelfenbein Trustee October 24, 1999
- --------------------------
Roger Gelfenbein
Trustee and President October 26, 1999
- -------------------------- (Chief Executive Officer)
David P. Marks
Trustee October 26, 1999
- --------------------------
Arthur C. Reeds III
Treasurer October 26, 1999
- -------------------------- (Chief Financial Officer)
Gary Tenkman
