<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 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. 1
POST-EFFECTIVE AMENDMENT NO.
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
AMENDMENT NO. 1
-------------------------------
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 of 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 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
NOVEMBER 8, 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 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 the 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 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. Stocks in small and
mid-capitalization companies tend to be more volatile, have
less predictable earnings, and less liquid securities 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**(1)
<TABLE>
<S> <C>
1994 -3.22
1995 32.93
1996 21.50
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 expenses of
the classes differ.
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>
INCEPTION PAST PAST SINCE
DATE YEAR 5 YEARS INCEPTION
<S> <C> <C> <C> <C>
---------------------------------------
CLASS A SHARES
(with maximum sales charge) 4/1/93 26.04% 21.01% 18.59%
---------------------------------------
CLASS B SHARES
(with applicable CDSC) 4/1/93 25.12% 20.12% 17.71%
---------------------------------------
CLASS Y SHARES 4/1/93 26.35% 21.31% 18.88%
---------------------------------------
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.
** 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 %, % and 6.05%, respectively.
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
PERFORMANCE INFORMATION
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 and managed the same as the Fund in all material
respects, 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 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. 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, lifestyle, 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 and non-investment grade corporate bonds,
mortgage-backed securities, asset-backed securities and
municipal securities. Under normal conditions, the Fund
intends to hold 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. 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
investment 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
investment 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 investment 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**(1)
<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 expenses of
the classes differ.
Past performance is not necessarily an
indication of how the Fund will perform in
the future.
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>
INCEPTION PAST PAST SINCE
DATE YEAR 5 YEARS INCEPTION
<S> <C> <C> <C> <C>
------------------------------------------
CLASS A SHARES
(with maximum sales charge) 4/1/93 8.70% 6.81% 6.82 %
------------------------------------------
CLASS B SHARES
(with applicable CDSC) 4/1/93 7.89% 6.01% 6.03 %
------------------------------------------
CLASS Y SHARES 4/1/93 8.97% 7.07% 7.09 %
------------------------------------------
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.
** 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 %, % and -2.64%, respectively.
(1) (Both the chart and the table assume reinvestment of dividends and
distributions.)
PERFORMANCE INFORMATION
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 and managed the same as the Fund in all material
respects, 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 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.
PRINCIPAL INVESTMENT RISKS 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.
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 performance 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 (3) asset-backed securities and
(4) high yield securities. 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.
</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. Stocks in small and
mid-capitalization companies tend to be more volatile, have
less predictable earnings, and less liquid securities 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
investment 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 investment 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(1) .28% .53% .28% 1.80% 2.05% 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) N/A N/A N/A 1.15% 1.15% 1.15%
Net Expenses N/A N/A N/A 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(1) .30% .55% .30% 1.90% 2.15% 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) N/A N/A N/A 1.62% 1.62% 1.62%
Net Expenses N/A N/A N/A .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>
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) 1.94% 2.19% 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]
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:
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>
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 or 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 securities 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.
FINANCIALS: Forward-thinking, solution driven companies providing
business-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.
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 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. 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 investment 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
investment 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. The yield paid by the Fund will vary with short-term
interest rates.
- 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) (3) asset backed securities and (4)
high yield securities. Under normal conditions, the Fund intends to hold
debt securities (other than money market 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 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. Stocks in small and mid-capitalization companies
tend to be more volatile, have less predictable earnings, and less liquid
securities 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 investment 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
investment 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. This risk may be greater for those
Funds which invest in the securities of foreign issuers. 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.
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.
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.
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 portfolios, responsible for asset and liability management and
CIGNA's convertible securities portfolio. Prior to joining CIGNA, he managed
public
27
<PAGE> 29
FUND MANAGEMENT
[LOGO]
PORTFOLIO MANAGERS
CONTINUED
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.
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.
David P. Marks, Chief Investment Officer, has overall supervisory
responsibility and is currently responsible for directing all of the
Adviser's investment operations. Mr. Marks has twenty-eight years of
investment experience. Prior to joining the Adviser in 1991, Mr. Marks was a
Managing Director with CIGNA Investments responsible for the investment
advisory business that managed institutional accounts. From 1985 to 1989, he
was a Managing Director and Head of Fixed Income Investments at CIGNA,
responsible for $32 billion in public bond, private placement, municipal,
residential mortgage, leveraged, money market and agricultural investments.
From 1980 to 1985, Mr. Marks held various senior management positions,
including head of Private Placements and Venture Capital and head of
Corporate Finance. He joined Connecticut General in 1977 as a Senior Analyst
in Private Placements, after six years with Massachusetts Mutual in the
Private Placement and Venture Capital areas. He is a graduate of the
University of Connecticut, with a B.S. and an M.B.A, and of the Tuck
(Dartmouth) Executive Program. Mr. Marks is a Chartered Financial Analyst
(CFA).
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 an unregistered master trust
portfolio 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. 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% 4.07% 6.18% 5.60% 5.75% 5.54%
------------------------------------------------------
DIVERSIFIED ASSETS 4.19% 5.50% -1.60% 20.74% 10.44% 15.98% 13.87%
-------------------------------------------------------------------------------
</TABLE>
The table below provides an indication of the risks of an investment in the
Funds by showing performance of the Funds, as described above, as compared to
a broad based securities index and in the case of Diversified Assets Fund,
additionally to 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.
MASTER TRUST PORTFOLIO
AVERAGE ANNUAL RATES OF RETURN FOR PERIODS ENDING
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INCEPTION SINCE
DATE 1 YEAR 5 YEAR INCEPTION
<S> <C> <C> <C> <C>
----------------------------------------
MONEY MARKET 1/1/92* 5.54% 5.43% 4.99%
----------------------------------------
3 MONTH TREASURY BILL 5.06% 5.11% 4.61%
--------------------------------------------------------------------------------------
DIVERSIFIED ASSETS 1/1/92* 13.87% 11.62% 9.64%
----------------------------------------
LEHMAN INTERMEDIATE GOVERNMENT/ CORPORATE
BOND INDEX 8.42% 6.59% 6.99%
----------------------------------------
DIVERSIFIED ASSETS INDEX 13.36% 10.78% 9.91%
--------------------------------------------------------------------------------------
*Commencement of Operations
</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.
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<PAGE> 31
SHAREHOLDER INFORMATION
[Logo]
PRICING OF FUND SHARES
---------------------------
HOW NET ASSET VALUE IS
CALCULATED
The net asset value ("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
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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.
-----------------------------------------------------------------------------
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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
1-877-833-7113. Your account can generally be set up for electronic purchases
within 15 days.
Call 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.
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<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. 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 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
1-877-833-7113 for an enrollment form.
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<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 1-877-833-7113 with instructions as to how you wish
(unless you have declined telephone to receive your funds (mail, wire, electronic transfer).
sales privileges) (See "General Policies on Selling Shares -- Verifying
Telephone Redemptions" below)
BY MAIL 1. Call 1-877-833-7113 to request redemption forms or write
(See "Selling Your Shares -- 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 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 1-877-833-7113 to request an electronic redemption.
Your bank must participate in the
Automated Clearing House (ACH) and If you call by 4 p.m. Eastern time, the NAV of your shares
must be a U.S. bank. will normally be determined on the same day and the
proceeds credited within 8 days.
Your bank may charge for this
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 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.
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<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.
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<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 investment is
$250,000.
Distribution (12b-1) and Service Subject to annual distribution and Subject to annual distribution and
Fee shareholder servicing fees of up shareholder servicing fees of up
to 0.25% of the Fund's 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>
<S> <C> <C>
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
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>
<S> <C> <C>
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
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.
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<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.
- 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.
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<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.
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<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 A and 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 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
November 8, 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-39
APPENDIX.........................................................................B-40
</TABLE>
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<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 ("REIT") and lend portfolio securities (see "Securities of
Other Investment Companies", "Lending of Portfolio Securities", and "Real Estate
Investment Trusts").
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<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 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").
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<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 (3) asset-backed securities
and (4) high yield securities. 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).
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<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
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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
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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.
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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
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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
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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-
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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").
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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.
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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.
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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
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<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.
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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.
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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.
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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
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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 over (See below)
</TABLE>
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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 over (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
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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.
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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 redemption 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
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<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 __ 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 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.
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 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 ________, 1999, the Trustees and officers of the Trust, as a
group, owned none of the shares of any Fund of the Trust. As of ________, 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.
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
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<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 November __, 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 ________, 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.
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<PAGE> 84
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES
As used in the Funds' Prospectus and in the 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
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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.
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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
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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.
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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
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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.
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FINANCIAL STATEMENTS
The Trust's balance sheet as of [ ], 1999 has been audited by KPMG LLP
and is included herein along with the report thereon of KPMG LLP, independent
auditors of the Trust.
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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.
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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."
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"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.
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"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.
47
<PAGE> 95
"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.
48
<PAGE> 96
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.
49
<PAGE> 97
"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.
50
<PAGE> 98
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 November __,
1999*
(e) Form of Distribution Agreement dated November __, 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 November __,
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.
* To be filed by amendment.
(1) Filed with initial registration statement on July 21, 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> 99
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 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> 100
<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> 101
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> 102
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 shareholder upon request and without charge.
<PAGE> 103
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 15th 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 15, 1999
- ----------------------------- President (principal executive officer)
David P. Marks
/s/ Harrison Conrad* Trustee October 15, 1999
- -----------------------------
Harrison Conrad
Trustee October 15, 1999
- -----------------------------
Roger Gelfenbien
/s/ Arthur C. Reeds III* Trustee October 15, 1999
- -----------------------------
Arthur C. Reeds III
/s/ Gary Tenkman Treasurer (principal financial and October 15, 1999
- ----------------------------- accounting officer)
Gary Tenkman
*By:
----------------------------- October 15, 1999
Charles Booth
-------------
Attorney-in-Fact
</TABLE>
<PAGE> 104
<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 November __, 1999 ............(d)*
Form of Distribution Agreement dated November __, 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 November __, 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)(filed herewith)
</TABLE>
* To be filed by amendment.
- --------------------
(1) Filed with initial registration statement on July 21, 1999, and incorporated
herein by reference.
<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
- -------------------------- ------------------------- ---------------
/s/ Harrison Conrad Trustee October 6, 1999
- --------------------------
Harrison Conrad
Trustee October __, 1999
- --------------------------
Roger Gelfenbein
/s/ David P. Marks Trustee and President October 6, 1999
- -------------------------- (Chief Executive Officer)
David P. Marks
/s/ Arthur C. Reeds III Trustee October 6, 1999
- --------------------------
Arthur C. Reeds III
/s/ Gary Tenkman Treasurer October 6, 1999
- -------------------------- (Chief Financial Officer)
Gary Tenkman
