As filed with the Securities and
Exchange
Commission on
September 3,
1999
(File Nos. 333-[ ]
and 811-[ ]).
SECURITIES AND
EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933 [X] and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
[X]
LELAND FUNDS, INC.
(Exact Name of Registrant as Specified
in Charter)
c/o ASB Capital Management,
Inc.
1101 Pennsylvania Avenue,
N.W. Suite 300
Washington, D.C. 20004
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(800) 544-8850
Walter R. Fatzinger, Jr.,
Director Leland
Funds, Inc.
c/o ASB Capital
Management, Inc. 1101
Pennsylvania Avenue,
N.W.
Suite 300
Washington, D.C.
20004
(Name and Address of Agent for
Service)
Copies to:
Thomas H. McCormick,
Esquire Cecelia A.
Calaby, Esquire
Shaw
Pittman
2300 N
Street,
N.W.
Washington
, D.C.
20037
Approximate date of proposed public offering:
As soon as practicable after the effective
date of this Registration Statement.
Pursuant to Regulation 270.24f-2 under the
Investment
Company Act of 1940, the Registrant hereby
elects to register an indefinite amount of
units of its beneficial interests.
Registrant hereby amends this Registration
Statement on such date or dates as may
be necessary to delay its effective
date until Registrant files a further
amendment that
specifically states that this Registration
Statement shall thereafter become effective in
accordance with Section 8(a) of the
Securities Act of 1933, or until this
Registration Statement becomes effective on
such date as the Commission, acting pursuant
to Section 8(a) of the Securities Act of 1933,
may determine.
LELAND FUNDS, INC.
CROSS REFERENCE SHEET
This Registration Statement contains the
Prospectus and Statement of Additional
Information to be used with the five series that
comprise Leland Funds, Inc. (the "Registrant").
ITEMS REQUIRED BY FORM N-1A:
PART A:
ITEM 1 FRONT AND BACK COVER PAGES: Front and
Back Cover Pages
ITEM 2 RISK/RETURN SUMMARY: INVESTMENTS, RISKS
AND PERFORMANCES: The Funds' Investment
Objectives and Principal Strategies;
Principal Risks of
Investing in the Funds
ITEM 3 RISK/RETURN SUMMARY: FEE TABLE: Fees and
Expenses of the Funds
ITEM 4 INVESTMENT OBJECTIVES, PRINCIPAL
INVESTMENT STRATEGIES, AND RELATED RISKS:
Investment
Objectives, Policies and Risks (See
Individual Fund Descriptions); General
Investment Risks; Investment Practices
and Related Risks
ITEM 5 MANAGEMENT'S DISCUSSION OF FUND
PERFORMANCE: Not Applicable
ITEM 6 MANAGEMENT, ORGANIZATION AND CAPITAL
STRUCTURE:
Organization and Management of the Funds
ITEM 7 SHAREHOLDER INFORMATION: How to Buy and
Sell Shares; Other Shareholder
Services and Account Policies;
Dividends and Capital Gains
Distributions; Taxes
ITEM 8 DISTRIBUTION ARRANGEMENTS: How to Buy
and Sell Shares
ITEM 9 FINANCIAL HIGHLIGHTS INFORMATION: Not
Applicable
PART B:
ITEM 10COVER PAGE AND TABLE OF CONTENTS: Cover
Page; Table of Contents
ITEM 11FUND HISTORY: Organization of the Funds
ITEM 12DESCRIPTION OF THE FUND AND ITS
INVESTMENTS AND RISKS: Investment
Objectives, Policies and
Restrictions
ITEM 13MANAGEMENT OF THE FUND: Management of the
Funds
ITEM 14CONTROL PERSONS AND PRINCIPAL HOLDERS OF
SECURITIES: Not Applicable
ITEM 15INVESTMENT ADVISORY AND OTHER SERVICES:
Investment Advisory and Other
Services; Independent Auditors and
Reports to Shareholders
ITEM 16BROKERAGE ALLOCATION AND OTHER
PRACTICES: Brokerage Allocation
ITEM 17CAPITAL STOCK AND OTHER SECURITIES:
Description of Capital Shares
ITEM 18PURCHASE, REDEMPTION AND PRICING
OF SHARES: Computation of Net Asset
Value; Additional Purchase and
Redemption Information
ITEM 19TAXATION OF THE FUND: Dividends,
Capital Gains Distributions and Tax
Status
ITEM 20UNDERWRITERS: Investment Advisory and
Other Services ITEM 21CALCULATION OF
PERFORMANCE DATA: Performance
Calculations
ITEM 22FINANCIAL STATEMENTS: Not Applicable
[Front Cover]
LELAND FUNDS, INC.
Leland Equity Fund
Leland Bond
Fund
Leland Intermediate Bond Fund
Leland Two-Year
Government Bond Fund
Leland Short-Term
Investment Fund
Class I and
Class N
PROSPECTUS
[prospectus
date]
As with any mutual fund, the Securities
and Exchange Commission (the "SEC") has not
approved or disapproved the Funds'
shares or determined whether this prospectus
is
adequate or complete. Any representation to the
contrary is a criminal offense.
Fund shares are not deposits of Chevy Chase
Bank, F.S.B. ("Chevy Chase Bank") or any of its
affiliates. Fund shares are not insured or
guaranteed by the Federal Deposit Insurance
Corporation ("FDIC") or any other
government agency. Although the Leland Short-
Term Investment Fund seeks to preserve the
value of your investment at $1.00 per share,
it is possible to lose money by investing in
this
Fund. An investment in a Fund involves
certain risks,
including possible loss of principal.
TABLE OF CONTENTS
AN INTRODUCTION TO THE FUNDS 3
The Equity and Bond Funds 3
The Money Market Fund 3
OVERVIEW OF THE FUNDS 3
The Funds' Investment Objectives and
Principal Strategies 3
Principal Risks of Investing in the Funds 4
FEES AND EXPENSES OF THE FUNDS 6
Shareholder Transaction Fees 6
Annual Fund Operating Expenses 7
Example 8
INVESTMENT OBJECTIVES, POLICIES AND RISKS. 9
The Funds 10
General Investment Risks 15
Investment Practices and Related Risks 16
ORGANIZATION AND MANAGEMENT OF THE FUNDS 18
Investment Adviser 18
Administrator 18
Distributor. 18
Shareholder Servicing Plan. 18
SHAREHOLDER INFORMATION. 18
How to Buy and Sell Shares. 18
Other Shareholder Services and Account Policies 20
Dividends and Capital Gains Distributions 22
Taxes 22
Where to go for Additional Information about the Funds
Back Cover
Obtaining Information from the Securities
and Exchange Commission Back Cover
AN INTRODUCTION TO THE FUNDS
THE EQUITY AND BOND FUNDS
The Leland Equity Fund, the Leland Bond Fund, the Leland
Intermediate Bond Fund and the Leland Two-Year
Government Bond Fund are actively managed funds.
Actively managed funds are managed by investment
advisers who buy and sell securities based on
research and analysis in an attempt to outperform
a particular benchmark or a combination of
benchmarks.
THE MONEY MARKET FUND
The Leland Short-Term Investment Fund is a
money market fund. Money market funds invest in
short-term, high-grade securities, such as
commercial paper, bankers' acceptances, repurchase
agreements, government securities and
certificates of deposit ("CDs"). Money market
funds limit the average maturity of their
portfolio to 90 days or less. They seek to
generate monthly income and to maintain a
constant net asset value of $1.00 per share.
Only the interest rate of a money market fund
increases or decreases.
OVERVIEW OF THE FUNDS
Each Leland fund (each a "Fund" and,
collectively, the "Funds") is a separate
portfolio of Leland Funds, Inc., ("Leland"), an
open-end management investment company, and has
its own investment objectives which it pursues
through separate investment policies. The
difference in objectives and policies among the
Funds affects the degree of risk and potential
return of each Fund.
THE FUNDS' INVESTMENT OBJECTIVES AND PRINCIPAL
STRATEGIES
THE EQUITY AND BOND FUNDS
FUND OBJECTIVE
PRINCIPAL STRATEGY
LELAND EQUITY FUND Seeks to achieve a We invest
primarily in
total return that equity
securities of large-
exceeds that of and medium-
capitalization
the S&P 500 Stock companies. We
invest in a
Index over a full well-diversified
portfolio
market cycle. of stocks that
we believe
are undervalued
but have good
prospects for
improving their
future earnings
and
profitability.
LELAND BOND FUND Seeks to achieve a We invest
primarily in
total return government
notes and bonds,
exceeding the Lehman mortgage-backed
securities
Brothers Aggregate issued by a U.S.
Government
Bond Index over an Agency or
government-
interest rate cycle. sponsored
enterprises, and
also investment
quality
corporate bonds.
We use interest
rate
anticipation,
yield curve
positioning and
sector rotation
when making our
investments.
LELAND INTERMEDIATE Seeks to provide a We invest
primarily in
BOND FUND reasonable rate of intermediate-
term government
return and notes and
bonds, mortgage-
relative stability backed
securities issued by
of principal a U.S.
Government Agency or
through investment government-
sponsored
in fixed income enterprise,
and also
securities of investment-
grade corporate
short- to bonds. We
maintain the
intermediate-term average
maturity of our
maturities. Also portfolio
between 3 and 8
seeks to years.
outperform the
Lehman Brothers
Government/
Intermediate
Corporate Bond
Index over an
interest rate
cycle.
LELAND TWO-YEAR Seeks to provide We invest in
U.S. Treasury,
GOVERNMENT BOND relatively stable Agency and
government-
FUND income, liquidity sponsored
enterprise
and safety of securities that
carry a
principal by maximum maturity
of 2 years.
investing in
obligations
directly issued or
guarant
eed by
the
U.S.
Governm
ent.
Also
seeks
to
outperf
orm
over
time a
blended
index
of the
Salomon
Brother
s 13
Year
Governm
ent
Index
and the
IBC
Money
Fund
Average
Index
(or any
success
or
index)
with
minimal
princip
al
fluctua
tion.
THE MONEY MARKET FUND
FUND OBJECTIVE PRINCIPAL
STRATEGY
LELAND SHORT-TERM Seeks to provide We invest in
high-quality,
INVESTMENT FUND high current short-term
securities with
income, safety of maturities of 1
year or
principal and less. We
maintain an
liquidity. average dollar-
weighted
portfolio
maturity of 90
days or less.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
This section summarizes important risks that are common to
all of the Funds described in this Prospectus and important
risks that relate specifically to particular Funds. Both
are important to your investment choice. Additional
information about these and other risks is included in the
individual Fund Descriptions later in this Prospectus and
under "General Investment Risks" beginning on page __.
COMMON RISKS FOR THE FUNDS
RISKS THAT APPLY * There can be no assurance that a Fund
will
TO ALL FUNDS achieve its investment objective(s). You
could lose
your investment in a Fund, or a Fund
could underperform its benchmark or
other securities.
* To the extent a Fund uses derivatives
such as futures and options, it is
exposed to the risks of additional
volatility and losses.
* An investment in a Fund is not a
deposit of
Chevy Chase Bank and is not insured or
guaranteed by the FDIC or any other
government agency.
* The Funds are subject to the Year
2000 Risk, which is the risk that the
inability of some computers to properly
process and calculate daterelated
information and data on and after
January 1, 2000 could disrupt a
company's operations, including those of
the Funds. Because the Year 2000 Risk
affects virtually all organizations, the
issuers in which securities the Funds
invest also could be adversely impacted
and the Funds' returns could be reduced.
FUND INVESTING IN * The Equity Fund's total return, like
stock
EQUITY SECURITIES prices generally, will fluctuate within a
wide range,
so you could lose money over short or
even long
Leland Equity periods. Stock markets tend to move in
cycles, with
Fund periods of rising prices and periods of
falling
(the "Equity prices.
Fund")
* The Equity Fund is also subject to
investment style risk, which is the risk
that returns from stocks comprising the
Fund's portfolio will trail returns from
other asset classes or the overall stock
market. For example, large-
capitalization stocks, such as those in
which the Equity Fund invests, tend to go
through cycles of performing better -- or
worse -- than the stock market in
general. These periods have, in the past,
lasted for as long as several years. In
addition, medium-capitalization stocks,
in which the Equity Fund also invests,
historically have been more volatile in
price than the largecapitalization stocks
that dominate the S&P 500 Stock Index,
and perform differently than the overall
stock market.
FUNDS INVESTING IN * Each Bond Fund is subject to interest
rate risk, DEBT SECURITIES which is the risk that bond
prices overall will
decline over short or even long periods
due to rising
Leland Bond Fund interest rates. Interest rate risk is
generally
Leland higher for long-term bonds, and lower for
shorter-
Intermediate Bond term bonds.
Fund
Leland Two-Year * Each Bond Fund is subject to call
risk, which is
Government the risk that an issuer of a bond will
redeem the
Bond Fund bond before its maturity date. A Fund
which
(the "Bond invested in the redeemed bond may have
to reinvest
Funds") the proceeds from the issuer at lower
market rates.
* Each Bond Fund is subject to income
risk, which
is the risk that falling interest rates
will cause a Fund's income to decline.
Income risk is generally higher for short-
term bonds, and lower for long-term
bonds.
* Each Bond Fund is subject to credit
risk, which
is the risk that a bond issuer will fail
to pay interest and principal in a timely
manner, reducing the Fund's return.
* Each Bond Fund is subject to
prepayment risk,
which is the risk that during periods of
falling interest rates, a mortgage-backed
bond issuer will repay a higher-yielding
bond before its maturity
date. Forced to invest the unanticipated proceeds at lower
rates, a Bond Fund would experience a decline in income and
lose the opportunity for additional price appreciation
associated with falling rates.
* Each Bond Fund is subject to extension
risk,
which is the risk that during periods of
rising interest rates, issuers may pay
off certain types of mortgage-backed
securities more slowly than originally
anticipated, which causes the value of
these securities to fall.
* Each Bond Fund is subject to event
risk, which
is the risk that corporate issuers may
undergo restructurings, such as mergers,
leveraged buyouts, takeovers, or similar
events, which may be financed by
increased debt. As a result of the added
debt, the credit quality and market value
of a company's bonds may decline
significantly.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS (CONT'D)
THE EQUITY AND BOND FUNDS
FUND SPECIFIC RISKS
LELAND EQUITY FUND * This Fund is primarily subject to the
equity
securities risks described in the "Common
Risks for the Funds" section above.
* Investing in stocks that appear
undervalued
carries the risk that the market will not
recognize a security's intrinsic value
for a long time, or that a stock judged
to be undervalued may actually be
appropriately priced.
LELAND BOND FUND * This Fund is primarily subject to
the debt
securities risks described in the "Common
Risks for the Funds" section above.
* The U.S. Government does not guarantee
the
market value or current yield of its
obligations.
Not all U.S. Government obligations are
backed by the full faith and credit of
the U.S. Government.
LELAND * This Fund is primarily subject to
the debt
INTERMEDIATE BOND securities risks described in the "Common
Risks for
FUND the Funds" section above.
* The U.S. Government does not guarantee
the market value or current yield of its
obligations.
Not all U.S. Government obligations are backed by the full
faith and credit of the U.S. Government.
LELAND TWO-YEAR * The U.S. Government does not
guarantee the
GOVERNMENT BOND market value or current yield of its
obligations.
FUND Not all U.S. Government obligations are
backed by the
full faith and credit of the U.S.
Government.
THE MONEY MARKET FUND
FUND SPECIFIC RISKS
LELAND SHORT-TERM * An investment in this Fund is not a
deposit of
INVESTMENT FUND Chevy Chase Bank or its affiliates and is
not insured
or guaranteed by the FDIC or any other
government agency.
* Although this Fund seeks to preserve
the value
of your investment at $1.00 per share, it
is possible to lose money by investing in
this Fund.
FEES AND EXPENSES OF THE FUNDS
This information is designed to help you understand the fees
and expenses that you may pay if you buy and hold
shares of
the Funds.
SHAREHOLDER TRANSACTION FEES (Fees Paid Directly
from Your Investment)
Leland Leland
THE EQUITY AND Leland
Intermed Two-Year
BOND FUNDS Equity Leland iate Governme
Fund Bond Bond nt Bond
Fund Fund Fund
Cla Cla Cla Cla Cla
Cla Cla Cla ss ss ss
ss ss ss ss
ss
N I N I N
I N I
Maximum Sales Non Non Non Non Non
Non Non Non
Charge (Load) e e e e e
e e e
Imposed on
Purchases (as a
percentage of
offering price)
Maximum Deferred Non Non Non Non Non
Non Non Non
Sales Charge e e e e e
e e e
(Load) (as a
percentage of ___)
Maximum Sales Non Non Non Non Non
Non Non Non
Charge (Load) e e e e e
e e e
Imposed on
Reinvested
Dividends (as a
percentage of ___)
Redemption Fee (as [ [ [ [ [
[ [ [
a percentage of ]% ]% ]% ]% ]%
]% ]% ]%
amount redeemed)
Exchange Fee [ [ [ [ [
[ [ [
]% ]% ]% ]% ]%
]% ]% ]%
Maximum Account [ [ [ [ [
[ [ [
Fee ]% ]% ]% ]% ]%
]% ]% ]%
Leland
Short-
THE MONEY MARKET Term
FUND Investme
n
t
F
u
n
d
C
l
a
C
l
a
s
s ss
N I
Maximum Sales Non Non
Charge (Load) e e
Imposed on
Purchases (as a
percentage of
offering price)
Maximum Deferred Non Non
Sales Charge e e
(Load) (as a
percentage of ___)
Maximum Sales Non Non
Charge (Load) e e
Imposed on
Reinvested
Dividends (as a
percentage of ___)
Redemption Fee
(as [ [
a percentage of ]% ]%
amount redeemed)
Exchange Fee [ [
]% ]%
Maximum Account [ [
Fee ]% ]%
FEES AND EXPENSES OF THE FUNDS (CONT'D)
ANNUAL FUND OPERATING EXPENSES (Expenses Deducted
from Fund Assets)
Leland Leland THE EQUITY AND
Leland Intermed Two-Year
BOND FUNDS Equity Leland iate
Governme
Fund Bond Bond
nt Bond
Fund Fund
Fund
Cla Cla Cla Cla Cla
Cla Cla Cla ss ss
ss ss ss ss ss
ss
N I N I N
I N I
Management Fees [ [ [ [ [
[ [ [
]% ]% ]% ]% ]%
]% ]% ]%
Distribution (12b- [ [ [ [ [
[ [ [
1) Fees ]% ]% ]% ]% ]%
]% ]% ]%
Service Fees [ [ [ [ [ [ [ [
]% ]% ]% ]% ]%
]% ]% ]%
Other Expenses/1/ [ [ [ [ [ [ [ [
]% ]% ]% ]% ]%
]% ]% ]%
Total Operating [ [ [ [ [ [ [ [
Expenses ]% ]% ]% ]% ]%
]% ]% ]%
Leland
Short-
THE MONEY MARKET Term
FUND Investme
n
t
F
u
n
d
C
l
a
C
l
a
s
s
s
s
N I
Management Fees [ [
]% ]%
Distribution
(12b- [ [
1) Fees ]% ]%
Service Fees [ [
]% ]%
Other
Expenses/1/ [ [
]% ]%
Total Operating [ [
Expenses ]% ]%
/1/ "Other Expenses" are based on estimated
amounts for the current fiscal year.
FEES AND EXPENSES OF THE FUNDS (CONT'D)
EXAMPLE
This Example is intended to help you compare
the cost of investing in a Fund with the
cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in
a 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 the operating expenses of the relevant
Fund remain the same. Although your actual
costs may be higher or lower, based on these
assumptions your costs would be:
Leland Leland
THE EQUITY AND Leland
Intermed Two-Year
BOND FUNDS Equity Leland iate Governme
Fund Bond Bond nt Bond
Fund Fund Fund
Cla Cla Cla Cla Cla
Cla Cla Cla ss ss ss
ss ss ss ss ss
N I N I N
I N I
1 YEAR [ [ [ [ [ [ [ [
] ] ] ] ] ] ] ]
3 YEARS [ [ [ [ [ [ [ [
] ] ] ] ] ] ] ]
L
e
l
a
n
d
S
h
o
r
t-
THE MONEY MARKET Term
FUND Investme
n
t
F
u
n
d
C
l
a
C
l
a
s
s
s
s
N
I
1 YEAR [ [
] ]
3 YEARS [ [
] ]
You would pay the following expenses if you did not
redeem
your shares:
Leland Leland
THE EQUITY AND Leland
Intermed Two-Year
BOND FUNDS Equity Leland iate Governme
Fund Bond Bond nt Bond
Fund Fund Fund
Cla Cla Cla Cla Cla
Cla Cla Cla ss ss ss
ss ss ss ss
ss
N I N I N
I N I
1 YEAR [ [ [ [ [
[ [ [
] ] ] ] ]
] ] ]
3 YEARS [ [ [ [ [
[ [ [
] ] ] ] ]
] ] ]
Leland
Short-
THE MONEY MARKET Term
FUND Investme
nt Fund
Cla Cla
ss ss
N I
1 YEAR [ [
] ]
3 YEARS [ [
] ]
The Example does not reflect sales charges
(loads) on reinvested dividends and other
distributions. If these sales charges
(loads) were included, your costs would be
higher.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The summary information on the previous pages is
designed to provide you with an overview of
each Fund. The sections that follow provide
more detailed information about the
investments and management of each Fund.
IMPORTANT INFORMATION YOU SHOULD LOOK FOR:
INVESTMENT OBJECTIVE AND INVESTMENT POLICIES
What is the Fund trying to achieve? How do we
intend to invest your money? What makes a
Fund different from the other Funds offered in
this Prospectus?
PERMITTED INVESTMENTS
A summary of the Fund's key permitted
investments and
practices.
IMPORTANT RISK FACTORS
What are the key risk factors for the Fund?
They include the factors in "General
Investment Risks" section together with any
special risk factors for each Fund.
LELAND EQUITY FUND
INVESTMENT OBJECTIVE
The Leland Equity Fund seeks to achieve a total
return that exceeds that of the S&P 500 Stock
Index over a full market cycle.
INVESTMENT POLICIES
We seek to outperform the S&P 500 Stock Index
by investing in a well-diversified portfolio
of undervalued stocks with good prospects for
improving fundamentals. We use a relative
value investment style in our selection of
specific stocks. We look for stocks that
we determine are undervalued relative to
their economic market sector or to their own
historical valuations, but where we see strong
potential for improvement in their future
earnings and profitability. We invest
primarily in large- and midcapitalization
equity issues.
PERMITTED INVESTMENTS
Under normal market conditions, we invest:
* in an actively managed, broadly-diversified
portfolio
of equity securities and securities convertible
into common stock; and
* in approximately 75 individual stocks
spread across multiple industry groups and
sectors of the economy.
We may also invest in commercial paper, obligations
of the U.S. Government or other assets (including
the Leland ShortTerm Investment Fund) pending the
selection and purchase of suitable investments.
We may use options and futures contracts to
manage risk.
The total market value of the underlying
securities of all futures and/or options
positions will not exceed 20% of the Fund's
market value.
IMPORTANT RISK FACTORS
This Fund is primarily subject to the equity
securities risks described in the "Common Risks
for the Funds" section.
You should consider the "Common Risks for the
Funds" section on page __, the "General
Investment Risks" section beginning on page __
and the specific risks listed here. They are
all important to your investment choice.
PORTFOLIO MANAGER
* Harriet A. Foster
Ms. Foster will manage the Leland Equity
Fund upon inception. Ms. Foster is a
Managing Director at ASB Capital
Management, Inc. ("ASBCM"). She has been
with ASBCM since 1982 and has over 17
years of investment management experience.
LELAND BOND FUND
INVESTMENT OBJECTIVE
The Leland Bond Fund seeks to achieve a
total return exceeding the Lehman Brothers
Aggregate Bond Index over an interest rate
cycle.
INVESTMENT POLICIES
We invest in marketable debt securities with
no restrictions on maturity. We seek to
outperform the Lehman Brothers Aggregate
Bond Index through our active
management approach, which includes interest
rate anticipation, yield curve positioning
and sector rotation among U.S. Government,
corporate and mortgage-backed securities.
PERMITTED INVESTMENTS
Under normal market conditions, we invest:
* in an actively managed portfolio
consisting primarily
of intermediate-term and longer-term U.S.
Government notes and bonds, mortgage-backed
securities issued by a U.S. Government Agency
or government-sponsored enterprise and
investment-grade corporate bonds;
* up to 100% of our total assets in U.S.
Government notes
and bonds;
* up to 60% of our total assets in
mortgage-backed securities and up to 20% in
asset-backed securities;
* up to 60% of our total assets in
corporate bonds, including below investment-
grade corporate bonds; and
* up to 15% of our total assets in below
investment-grade
corporate bonds.
We may also invest in commercial paper,
obligations of the U.S. Government or other assets
(including the Leland ShortTerm Investment Fund)
pending the selection and purchase of suitable
investments.
We may use options and futures contracts to
manage risk. The total market value of the
underlying securities of all futures and/or
options positions will not exceed 20% of the
Fund's market value.
IMPORTANT RISK FACTORS
Mortgage-backed securities may not be guaranteed by
the U.S. Treasury. Mortgage- and asset-backed
securities are subject
to prepayment risk, which can reduce the rate of
return on such securities. Securities that are
not the obligations of the U.S. Government are
subject to credit risk.
The U.S. Government does not guarantee the market
value or current yield of its obligations. Not
all U.S. Government obligations are backed by the
full faith and credit of the U.S. Government.
You should consider the "Common Risks for the
Funds" section on page __, the "General Investment
Risks" section beginning on page __ and the
specific risks listed here. They are all
important to your investment choice.
PORTFOLIO MANAGER
* Robert A. Wasilewski
Mr. Wasilewksi will manage the Leland Bond
Fund upon inception. Mr. Wasilewski is the
Director of the Fixed Income Group at ASBCM.
He has been with ASBCM since 1986 and has
over 14 years of investment management
experience.
LELAND INTERMEDIATE BOND FUND
INVESTMENT OBJECTIVE
The Leland Intermediate Bond Fund seeks to provide
a reasonable rate of return and relative stability
of principal through investment in fixed income
securities
of short- to intermediate-term maturities. This
Fund
also seeks to outperform the Lehman Brothers
Government/
Intermediate Corporate Bond Index over an
interest rate cycle.
INVESTMENT POLICIES
We invest primarily in intermediate-term US
Government securities and investment-grade
corporate bonds. Our portfolio's average
maturity generally is maintained between 3 and 8
years.
PERMITTED INVESTMENTS
Under normal market conditions, we invest:
* in an actively managed portfolio consisting
primarily
of intermediate-term U.S. Government notes
and bonds, mortgage-backed securities issued
by a U.S. Government
Agency or government-sponsored enterprise and
investmentgrade corporate bonds;
* up to 100% of our total assets in U.S.
Government notes
and bonds;
* up to 30% of our total assets in
mortgage-backed securities and up to 20% in
asset-backed securities;
* up to 70% of our total assets in
corporate bonds, including below investment-
grade corporate bonds; and
* up to 15% of our total assets in below
investment-grade
corporate bonds.
We may use options and futures contracts to
manage risk. The total market value of the
underlying securities of all futures and/or
options positions will not exceed 20% of the
Fund's market value.
IMPORTANT RISK FACTORS
Mortgage-backed securities may not be guaranteed
by the U.S. Treasury. Mortgage- and asset-backed
securities are subject to prepayment risk, which
can reduce the rate of return on such securities.
Securities that are not the obligations of the
U.S. Government are subject to credit risk.
The U.S. Government does not guarantee the market
value or current yield of its obligations. Not
all U.S. Government
obligations are backed by the full faith and
credit of the U.S. Government.
You should consider the "Common Risks for the
Funds" section on page __, the "General
Investment Risks" section beginning on page __
and the specific risks listed here. They are
all important to your investment choice.
PORTFOLIO MANAGER
* Andrew Palmer
Mr. Palmer will manage the Leland
Intermediate Bond Fund upon inception. Mr.
Palmer is a Managing Director at ASBCM. He
has been with ASBCM since 1985 and has over
14 years of investment management experience.
LELAND TWO-YEAR GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE
The Leland Two-Year Government Bond Fund seeks
to provide relatively stable income, liquidity
and safety of principal by investing in
obligations directly issued or guaranteed
(either implicitly or explicitly) by the U.S.
Government. This Fund also seeks to outperform
over time a blended index of the Salomon
Brothers 1-3 Year Government Index and the IBC
Money Fund Average Index (or any equivalent or
successor index) with minimal principal
fluctuation.
INVESTMENT POLICIES
We invest in U.S. Treasury, Agency and
government-sponsored enterprise securities that
carry a maximum maturity of 2 years.
PERMITTED INVESTMENTS
Under normal market conditions, we invest:
* in an actively managed portfolio
consisting of U.S. Treasury, Agency and
government-sponsored enterprise securities
with a maximum maturity of 2 years;
* up to 100% of our total assets in U.S.
Treasury
securities;
* up to 100% of our total assets in U.S.
Agency and
government-sponsored enterprise securities.
IMPORTANT RISK FACTORS
Mortgage-backed securities may not be guaranteed
by the U.S. Treasury. Mortgage- and asset-backed
securities are subject to prepayment risk,
which can reduce the rate of return on such
securities. Securities that are not the
obligations of the U.S. Government are subject
to credit risk.
The U.S. Government does not guarantee the
market value or current yield of its
obligations. Not all U.S. Government
obligations are backed by the full faith and
credit of the U.S. Government.
You should consider the "Common Risks for the
Funds" section on page __, the "General
Investment Risks" section beginning on page __
and the specific risks listed here. They are
all important to your investment choice.
PORTFOLIO MANAGER
* Elizabeth O'Donoghue
Ms. O'Donoghue will manage the Leland Two-
Year Government Bond Fund upon inception.
Ms. O'Donoghue is a Vice President at
ASBCM. She has been with ASBCM since 1981
and has over 18 years of investment
management
experience.
LELAND SHORT-TERM INVESTMENT FUND
INVESTMENT OBJECTIVE
The Leland Short-Term Investment Fund (the
"Money Market Fund") seeks to provide high
current income, safety of principal and
liquidity.
INVESTMENT POLICIES
We invest in high-quality, short-term
money market
instruments. Our asset maturities are limited
to 13 months or less, and we maintain
an average dollar-weighted
portfolio maturity of 90 days or less. The
average maturity for our assets is typically
between 15 and 45 days. PERMITTED INVESTMENTS
Under normal market conditions, we invest:
* up to 90% of our total assets in commercial
paper;
* up to 50% of our total assets in CDs;
* up to 50% of our total assets in bankers'
acceptances;
and
* up to 100% of our total assets in
repurchase
agreements.
IMPORTANT RISK FACTORS
Although we seek to maintain a $1.00 per share
net asset value, there is no guarantee that we
will be able to do so. Fluctuations in share
value may cause a loss or gain in principal.
Generally, short-term funds do not earn as high
a level of income as funds that invest in
longer-term
instruments.
You should consider the "Common Risks for the
Funds" section on page __, the "General
Investment Risks" section beginning on page __
and the specific risks listed here. They are all
important to your investment choice.
PORTFOLIO MANAGER
* Toan Nguyen
Mr. Nguyen will manage the Leland Short-Term
Investment Fund upon inception. Mr. Nguyen
is a Vice President at ASBCM. He has been
with ASBCM since 1987 and has over 4 years of
investment management experience.
GENERAL INVESTMENT RISKS
Understanding the risks involved in mutual fund
investing will help you make an informed
decision that takes into
account your risk tolerance and preferences.
You should carefully consider the risks common
to investing in all mutual funds, including
the Leland Funds. Certain common risks are
identified in the "Principal Risks of Investing
in the Funds" summary on page ___. Other risks
of mutual fund investing include the following:
* Unlike bank deposits such as CDs or savings
accounts,
mutual funds are not insured by the FDIC.
* We cannot guarantee that we will meet our
investment
objectives.
* We do not guarantee the performance of a
Fund, nor can
we assure you that the market value of your
investment will not decline. We will not "make
good" any investment loss you may suffer, nor
can anyone we contract with to provide certain
services, such as selling agents or investment
advisers, offer or promise to make good any such
losses.
* Share prices -- and therefore the value
of your investment -- will increase and
decrease with changes in the value of the
underlying securities and other investments.
* Investing in any mutual fund, including those
deemed conservative, involves risk, including
the possible loss of any money you invest.
* An investment in a single Fund, by itself,
does not
constitute a complete investment plan.
* The Funds may invest a portion of their assets
in U.S. Government obligations. It is important
to recognize that the U.S. Government does not
guarantee the market value or current yield of
those obligations. Not all U.S. Government
obligations are backed by the full faith and
credit of the U.S. Treasury, and the U.S.
Government's guarantee does not extend to the
Funds themselves.
* The Funds may use certain derivative
instruments, such
as options or futures contracts. The term
"derivatives"
covers a wide number of investments, but in
general it refers to any financial instrument
whose value is derived, at least in part, from
the price of another security or a specified
index, asset or rate. Some derivatives may be
more sensitive to interest rate changes or
market moves, and some may be susceptible to
changes in yields or values due to their
structure or contract terms.
* The Funds may temporarily hold assets in cash
or in money market instruments, including
U.S. Government obligations, shares of other
mutual funds and repurchase agreements, or make
other short-term investments, either to maintain
liquidity or for short-term defensive purposes
when we believe it is in the best interests of
shareholders to do so. This practice is
expected to have limited, if any, effect on Fund
objectives over the long term.
* The Leland Bond Fund and the Leland
Intermediate Bond
Fund invest a portion of their assets in mortgage-
backed
securities issued by GNMA, FNMA and FHLMC.
Each are mortgage-backed securities
representing partial ownership of a pool of
residential mortgage loans. A "pool" or group
of such mortgages is assembled and, after being
approved by the issuing entity, is offered to
investors through securities dealers. Mortgage-
backed securities are subject to
prepayment risk, which can alter the maturity
of the securities and also reduce the rate of
return on such investments. Collateralized
mortgage obligations ("CMOs") represent
principal-only and interest-only portions of
such securities that are subject to increased
interest-rate and credit risk.
Investment practices and risk levels are
carefully
monitored. Every attempt is made to ensure that
the risk
exposure for each Fund remains within the parameters
of its objective.
What follows is a general list of the types of
risks (some
of which are described above) that may apply to
a given Fund and a table showing some of
the additional investment practices that
each Fund may use and the risks associated with
them. Additional information about these
practices is available in the Statement of
Additional Information.
CALL RISK--The risk that an issuer of a bond
will redeem the bond before its maturity
date. A bond investor may have to reinvest
the proceeds from the issuer at lower market
rates.
COUNTER-PARTY RISK--The risk that the other
party in a repurchase agreement or other
transaction will not fulfill its contract
obligation.
CREDIT RISK--The risk that the issuer of a
debt security will be unable to make
interest payments or repay principal on
schedule. If an issuer does default, the
affected security could lose all of its
value, or be renegotiated at a lower
interest rate or principal
amount. Affected securities might also lose
liquidity. Credit risk also includes the
risk that a party in a transaction may
not be able to complete the transaction as
agreed.
EXPERIENCE RISK--The risk presented by
a new or innovative security. The risk
is that insufficient experience exists to
forecast how the security's value might be
affected by various economic conditions.
INFORMATION RISK--The risk that
information about a security is either
unavailable, incomplete or is
inaccurate.
INTEREST RATE RISK--The risk that changes
in interest rates can reduce the value of
an existing security. Generally, when
interest rates increase, the value of a debt
security decreases. The effect is usually
more pronounced for securities with longer
maturities.
GENERAL INVESTMENT RISKS (CONT'D)
LEVERAGE RISK--The risk that a Fund's
borrowings, or leverage, can magnify the
potential for gain or loss on amounts the
Fund has invested. With leverage, an increase
in the Fund's consolidated asset value
would cause a sharper increase in its net
asset value, while a decrease in its
consolidated asset value would cause a
sharper decline in its net asset value.
Leverage is a speculative investment
technique which could increase the other
risks associated with investing in a Fund.
LIQUIDITY RISK--The risk that a security cannot
be sold,
or cannot be sold without adversely affecting
the price.
MARKET RISK--The risk that the value of a
stock, bond or other security will be
reduced by market activity. This is a basic
risk associated with all securities.
PREPAYMENT RISK--The risk that consumers
will pre-pay mortgage loans, which can
alter the maturity of a mortgage-backed
security, increase interest-rate risk, and
reduce rates of return.
YEAR 2000 RISK--The Funds' principal
service providers have advised the Funds
that they are working on the necessary
changes to their computer systems to avoid
any system failure based on an inability to
distinguish the year 2000 from the year
1900, and that they expect their systems to
be adapted in time. There can, of course, be
no assurance of success. In addition, the
companies or entities in which the Funds
invest also could be adversely impacted by
the Year 2000 issue. The extent of such
impact cannot be predicted.
INVESTMENT PRACTICES AND RELATED RISKS
The following table lists some of the
additional investment practices of the Funds,
including some not disclosed in the "Investment
Objective" and "Investment Policies" sections
for each Fund above. The risks indicated
after the description of the practice are NOT
the only potential risks associated with that
practice, but are among the more prominent.
Market risk is assumed for each. See the
"Investment Objective" and "Investment
Policies" for each Fund or the Statement of
Additional Information for more information on
these practices.
THESE INVESTMENT PRACTICES AND RISKS ARE COMMON
TO ALL THE FUNDS:
INVESTMENT PRACTICE RISK
FLOATING AND VARIABLE RATE DEBT
Instruments with interest rates that Interest Rate and
Credit Risk are adjusted either on a schedule or
when an index or benchmark changes.
REPURCHASE AGREEMENTS
A transaction in which the seller of Credit and
Counter-Party Risk
a security agrees to buy back a
security at an agreed upon time and
price, usually with interest.
OTHER MUTUAL FUNDS
The temporary investment in shares
Market Risk of another mutual fund. A
pro rata
portion of the other fund's
expenses, in addition to the
expenses paid by the Funds, will be
borne by Fund shareholders.
PRIVATELY ISSUED SECURITIES
Securities that are not publicly
Liquidity Risk traded but which
may or may not be resold in
accordance with Rule 144A
of the Securities Act of 1933.
LOANS OF PORTFOLIO SECURITIES
The practice of loaning securities Credit, Counter-Party
and Leverage
to brokers, dealers and financial Risk
institutions to increase return on
those securities. Loans may be made up
to 1940 Act limits (currently 33 1/3% of
total assets).
BORROWING POLICIES
The ability to borrow from banks for
Leverage Risk temporary purposes to meet
shareholder redemptions.
ILLIQUID SECURITIES
A security that cannot be readily
Liquidity Risk
sold, or cannot be readily sold
without negatively affecting its
fair price. Limited to 15% of total
assets (10% for money market funds).
INVESTMENT PRACTICES AND RELATED RISKS (CONT'D)
THESE INVESTMENT PRACTICES AND RISKS ARE COMMON TO THE
EQUITY FUND:
INVESTMENT PRACTICE RISK
OPTIONS
The right or obligation to receive Credit, Information
and Liquidity
or deliver a security or cash Risk
payment depending on the security's
price or the performance of an index or
benchmark. Types of options used may include:
options on securities, options on stock index,
stock index futures and options on stock index
futures to protect liquidity and portfolio
value.
THESE INVESTMENT PRACTICES AND RISKS ARE COMMON
TO THE BOND FUNDS:
INVESTMENT PRACTICE RISK
BONDS
A bond is an interest-bearing Call Risk
security issued by a company or
governmental unit. The issuer of a bond has a contractual
obligation to pay interest at a stated rate on specific dates
and to repay principal (the bond's face value) periodically
or on a specified maturity date. An issuer may have the
right to redeem or "call" a bond before maturity.
FORWARD COMMITMENTS, WHEN-ISSUED SECURITIES
DELAYED DELIVERY TRANSACTIONS Interest Rate,
Leverage, Credit and
Securities bought or sold for Experience Risk
delivery at a later date or bought
or sold for a fixed price at a fixed
date.
MORTGAGE- AND ASSET-BACKED
SECURITIES Interest Rate,
Credit, Prepayment
Securities consisting of an and Experience Risk
undivided fractional interests in
pools of consumer loans, such as mortgage
loans, car loans, credit card debt, or
receivables held in trust.
STRIPPED OBLIGATIONS
Securities that give ownership to
Interest Rate Risk
either future payments of interest
or a future payment of principal, but
not both. These securities tend to
have greater interest rate
sensitivity than conventional debt
obligations. Each Fund may invest up
to 5% of assets in interestonly or
principal-only obligations, or a
combination thereof.
LOAN PARTICIPATIONS
Debt obligations that represent a Credit Risk
portion of a larger loan made by a
bank. Generally sold
without guarantee or
recourse, some
participations sell
at a discount because
of the borrower's
credit problems.
Limited to 5% of
total assets.
ORGANIZATION AND MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER
Leland's portfolios are managed by ASB Capital
Management, Inc. (the "Investment Adviser"),
1101 Pennsylvania Avenue, N.W., Suite 300,
Washington, D.C. 20004, an investment adviser
registered under the Investment Advisers Act
of 1940, as amended. The Investment Adviser
oversees the investment programs for the
Funds, places orders for the Funds'
purchases and sales of portfolio securities
and maintains records relating to such purchases
and sales.
The Investment Adviser is a wholly owned
subsidiary of Chevy Chase Bank.
The Equity Fund and Bond Funds are managed
by teams of market sector specialists and
analysts. The Investment Adviser believes
that its approach of bringing together and
leveraging the experience and knowledge of the
team members benefits Fund investors.
For its services, the Investment Adviser
receives an annual fee of [ ]% of each Fund's
average daily net assets.
ADMINISTRATOR
As administrator, [ ] (the
"Administrator") provides certain
administrative and management services to the
Funds. The Investment Adviser, and not the
Funds, compensates the Administrator for
providing these services. The
Administrator has entered into an agreement with
[ ] (the "Distributor") whereby the
Distributor performs certain administrative
services for the Funds. The Administrator
pays the Distributor's fees for providing these
services.
DISTRIBUTOR
The Distributor acts as distributor of the
Funds' shares.
SHAREHOLDER SERVICING PLAN
We have a shareholder servicing plan for each
Fund. Under this plan, we have engaged various
shareholder servicing agents to process purchase
and redemption requests, to service shareholder
accounts and to provide other related services.
SHAREHOLDER INFORMATION
HOW TO BUY AND SELL SHARES
BUYING SHARES
For your convenience, we offer several ways to
start and add to Fund investments.
Opening Your Account Through a Financial
Professional
If you work with a financial professional, he
or she is prepared to handle your planning and
transaction needs. Your financial professional
will be able to assist you in establishing
your fund account, executing transactions, and
monitoring your investment. If you do not hold
your Fund investment in the name of your
financial professional and you prefer to place
a transaction order yourself, please use the
instructions below for investing directly.
You may also purchase shares through certain
authorized brokers that have entered into
selling group agreements with the Distributor.
Brokers may charge a fee for their
services at the time of purchase or redemption.
Additional information about these brokers and
their fees is included under "Customers of
Selected Brokers" below.
Opening Your Account Directly
You may establish accounts without the
help of an intermediary as follows:
* Choose the Fund in which you wish to
invest.
Determine the amount you are investing. The
minimum amount
for initial investments is $[ ] for the Class
N shares ($[ ] for additional
investments) and $[ ] for the Class I
shares ($[ ] for additional investments). Each Fund
reserves the right at any time to waive,
increase or decrease the minimum requirements
applicable to initial or subsequent
investments. Minimum subsequent investment
requirements do not apply to investors
purchasing shares through the Fund's automatic
dividend reinvestment plan. In addition,
minimum initial investments may vary for
investors purchasing shares through a
broker-dealer or other
intermediary having a service agreement with the
Investment Adviser and maintaining an omnibus
account with the Fund. See "Customers of
Selected Brokers" below for more
information.
* Complete the account application
accompanying this
Prospectus.
Please apply at this time for any account
privileges you may want to use in the future,
to avoid the delays associated with adding them
later on.
* Mail your completed application to:
Leland Funds, Inc.
c/o ASB Capital Management, Inc.
1101 Pennsylvania Avenue, N.W.,
Suite 300
Washington, D.C. 20004
For answers to any questions, please speak
with a Leland Representative at [phone
number].
We reserve the right to reject any purchase of
shares at our sole discretion. We also reserve
the right to cancel any purchase order for
which payment has not been received by the
third business day following the order.
Confirmation statements showing transactions in
your account and a summary of the status of the
account serve as evidence of ownership of
shares of the Fund. We will forward a
confirmation statement to you on receipt of a
proper order.
Buying Shares by Mail
You may buy shares of a Fund by mailing a
check with your completed account application
to Leland at Leland Funds, Inc., c/o ASB
Capital Management, Inc., 1101 Pennsylvania
Avenue, N.W., Suite 300, Washington, D.C. 20004. Checks
should be made payable to [insert name of the
Fund].
If you have established an account and
would like to purchase additional Fund
shares, make out a check for the investment
amount payable to [insert name of the Fund].
Mail the check with a competed investment slip
to Leland at Leland Funds, Inc., c/o ASB
Capital Management, Inc., 1101 Pennsylvania
Avenue, N.W., Suite 300, Washington, D.C.
20004. If you do not have an investment slip,
write your
account number on the check.
Buying Shares by Telephone
You may purchase shares of a Fund by calling
your Leland Representative at [phone number].
Please make sure you
have established an account with Leland by
mailing an application as explained above.
Customers of Selected Brokers
Shares may be purchased and redeemed
through certain authorized broker-dealers that
have entered into a selling agreement with
the Funds' Distributor ("Selected Brokers").
Selected Brokers may receive payments as a
processing agent from the Transfer Agent. In
addition, Selected Brokers may charge their
customers a fee for their services, no part of
which is received by any Fund or Leland.
Investors who purchase shares through a Selected
Broker will be subject to the procedures of
their Selected Broker, which may include
charges, limitations, investment minimums,
cutoff times and restrictions in addition to,
or different from, those generally applicable
to Leland customers. Any such charges would
reduce the return on an investment in a Fund.
Investors should acquaint themselves with
their Selected Broker's procedures and should
read this Prospectus in conjunction with any
material and information provided by their
Selected Broker. Investors who purchase a
Fund's shares though a Selected Broker may or
may not be the shareholder of record.
Selected Brokers are responsible for promptly transmitting
purchase, redemption and other
requests to a Fund.
Certain shareholder services, such as periodic
investment programs, may not be available to
customers of Selected Brokers or may differ
in scope from programs available to Leland
customers. Shareholders should contact
their Selected Broker for further
information. Each Fund may confirm purchases
and redemptions of a Selected Broker's
customers directly to the Selected Broker,
which in turn will provide its customers
with confirmation and periodic statements.
The Funds are not responsible for the failure
of any Selected Broker to carry out its
obligations to its customer.
SELLING SHARES
Redemption
To sell (redeem) shares of a Fund, you may use
any of the methods outlined above under
"Buying Shares." Shareholders who have
invested through a Selected Broker should
redeem their shares through their Selected
Broker. Shares of the Fund are redeemed at
the next net asset value per share calculated
after receipt by the Fund of a redemption
request in proper form. See "Pricing
Your Shares -- NAV
Calculations" below.
Redemption payments will be made wholly in
cash unless Leland's Board of Directors
believes that unusual conditions exist which
would make such payment detrimental to the best
interests of Leland. Under such circumstances,
payment of the redemption price could be made
in whole or in part in portfolio securities.
You would incur brokerage costs to sell such
securities.
Redeeming Shares by Mail
You may redeem shares by writing a letter of
instruction, signed by each registered owner
or their duly-authorized agent, that includes
the following information:
* The name of the registered owner(s) of the
account
* The name of the Fund
* The account number
* The number of shares or the dollar amount
you want to
sell
* The recipient's name and address or wire
information (if different from those of the
account registration)
Please indicate whether you want cash proceeds
sent by check or by wire. Make sure the
letter is signed by all registered owners or
by their authorized parties. Mail the letter
to the Fund.
Signature Guarantees
Certain requests must include a signature
guarantee, which is designed to protect you
and the Fund from fraudulent activities. Your
request must be made in writing and include a
signature guarantee if any of the following
situations
applies:
* You wish to redeem more than $50,000 worth
of shares.
* The check is being mailed to an address
different from
the one on your account (address of record).
* The check is being made payable to someone
other than
the account owner.
* You are instructing us to change your
bank account
information.
Redeeming Shares by Telephone
You may redeem shares by calling your Leland
Representative at [telephone number]. Customers
of Leland automatically have the privilege of
purchasing or redeeming shares of a Fund by
telephone unless a signature guarantee is
required as explained above.
Leland will employ reasonable procedures to
verify the genuineness of telephone redemption
requests. These procedures may include requiring
certain personal identification information and
recording telephone orders. If such procedures
are not followed, Leland may be liable for any
losses due to unauthorized or fraudulent
instructions. Neither Leland nor any Fund will
be liable for following instructions
communicated by telephone that are reasonably
believed to be genuine. You should verify the
accuracy of your account statements immediately
after you receive them and contact your Leland
Representative if you question any activity in
the account.
Each Fund reserves the right to refuse to
honor requests made by telephone if that Fund
believes them not to be genuine. Each Fund
also may limit the amount involved or the
number of such requests. During periods of
drastic economic or market change, telephone
redemption privileges may be difficult to
implement. Each Fund reserves the right to
terminate or modify this privilege at any time.
OTHER SHAREHOLDER SERVICES AND ACCOUNT POLICIES
Business Hours
The Equity and Bond Funds' regular business
days and hours are the same as those of the
New York Stock Exchange (the "NYSE"). NYSE
holidays include New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
When any holiday falls on a weekend, the NYSE
typically is closed on the weekday immediately
before or after such holiday.
The Money Market Fund is open for business
each day Chevy Chase Bank is open for business
and is closed generally on federal bank
holidays.
Pricing Your Shares -- NAV Calculations
The price at which shares of each Fund are
purchased and redeemed is equal to the net
asset value per share ("NAV") of a Fund as
determined on the effective day of a purchase or
redemption. The NAV per share is computed by
dividing the total current value of the
assets of a Fund, less its liabilities, by
the total number of shares outstanding at the
time of such computation.
The Equity and Bond Funds. The Equity and
Bond Funds calculate their NAVs every business
day as of the close of trading on the NYSE
(normally 4:00 p.m. Eastern time). If the
markets close early, the Funds may close early
and may value their shares at an earlier
time under these circumstances. Shares of
the Funds will not be priced on days on
which the NYSE is closed for trading. A
Fund's securities are typically priced using
market quotes or pricing services. When these
methods are not available or do not represent a
security's value at the time of pricing, the
security is valued in accordance with the
Fund's fair valuation procedures.
The Money Market Fund. NAV for the shares of
the Money Market Fund is determined as of
[5:00] p.m. (Eastern time) on each day this
Fund is open for business. If the market for
the instruments and securities the Money
Market Fund invests in close early, this Fund
may close early and may value its shares at
earlier times under these circumstances.
Expenses and fees, including advisory fees,
are accrued daily and are taken into
account for the purpose of determining the
NAV of the Money Market Fund's shares.
Timing of Orders
Each Fund accepts orders until the close of
trading on the NYSE every business day
(normally 4:00 p.m. Eastern time). Orders
received in the proper form before the close
of trading on the NYSE are executed the same day
at the Fund's NAV for that day. Orders
received after the close of trading on the
NYSE are executed the following day at that
day's NAV. We have the right to suspend
redemption of shares of the Funds and to postpone
payment of proceeds for up to seven days or as
permitted by law.
We may suspend the right of redemption or
postpone the date of payment for more than
seven days after shares are tendered for
redemption for any period during which:
* The New York Stock Exchange is closed
(other than a
customary weekend or holiday closing) or the SEC
determines that trading thereon is restricted;
* An emergency (as determined by the SEC)
exists as a
result of which disposal by the Fund of
securities it owns is not reasonably
practicable, or as a result of which it is not
reasonably practical for the Fund fairly to
determine the value of its net assets; or
* The SEC, by order, permits such suspension
for the
protection of stockholders.
Timing of Settlements
When you buy shares of a Fund, you will become the
owner of record when the Fund receives your
payment, generally the day following execution.
When you sell shares, cash proceeds are generally
available the day following execution and will be
forwarded according to your instructions.
When you sell shares that you recently purchased
by check, your order will be executed at the
Fund's next NAV but the proceeds will not be
available until your check clears. This may take
up to 15 days from the purchase date. Upon
execution of the redemption order, a confirmation
statement will be forwarded to you indicating
the number of shares sold and the proceeds
thereof.
Accounts with Below-Minimum Balances
If your account balance falls below the minimum
($[ ] for Class N shares and $[ ] for Class I
shares) as a result of selling shares (and not
because of Fund performance), each Fund reserves
the right to request that you buy more shares or
close your account. If your account balance is
still below the minimum 90 days after
notification, we reserve the right to close out
your account and send the proceeds to the address
of record.
Automatic Reinvestment
We will reinvest each income dividend and
capital gain distribution declared by a Fund
in full and fractional shares of the Fund of
the same class, unless you or your duly
authorized agent elect to receive all such
payments, or only the dividend or distribution
portions, in cash. We will base such
reinvestment on the Fund's NAV as determined on
the ex-dividend date. You or your authorized
agent may request changes in the manner in
which dividend and
distribution payments are made through written
notice to the Fund. This request will be effective
as to any payment if it is received prior to the
record date used for determining your payment.
Any dividend and distribution election will
remain in effect until you notify the Fund in
writing to the
contrary.
Exchange Privilege
You may exchange shares of either class of a
Fund into shares of the same class of any
other Fund offered by Leland, without a
sales charge or other fee (except redemption
fee, if any), by contacting the Fund. You may
also exchange Class N shares of a Fund into Class
I shares of the Fund or any other Fund offered
by Leland. Exchange purchases are subject to the
minimum investment requirements of the class
purchased. In order to keep Fund expenses low for
all shareholders, the Funds will not allow
frequent exchanges, purchases or sales of Fund
shares. If a shareholder exhibits a pattern of
frequent trading, the Fund reserves the right to
refuse to accept further purchase or exchange
orders from that shareholder. An exchange will be
treated as a redemption and purchase for tax
purposes.
Shares will be exchanged at next net asset value
per share determined after receipt by the Fund of:
* A written request for exchange, signed
by each
registered owner or his or her duly-authorized
agent exactly as the shares are registered, which
clearly identifies the exact names in which the
account is registered, the account number and the
number of shares or the dollar amount to be
exchanged.
Exchanges will not become effective until all
documents in the form required have been
received by the Fund. If you have any questions,
please contact the Fund.
Please be sure to read carefully the prospectus of
any other Fund into which you wish to exchange
shares.
Account Statements
Shareholder accounts are opened in accordance
with your registration instructions. Transactions
in the account, such
as additional investments and dividend
reinvestments, will be reflected on regular
confirmation statements.
Reports to Shareholders
Each Fund's fiscal year ends on December 31.
Each Fund will issue to its stockholders semi-
annual and annual reports. In addition,
stockholders will receive quarterly statements
of the status of their accounts reflecting all
transactions having taken place within that
quarter. In order to reduce duplicate mailings
and printing costs, Leland will provide one
annual and semi-annual report and annual
prospectus per household. Information regarding
the tax status of income dividends and capital
gains distributions will be mailed to
shareholders on or before January 31st of each
year. Account tax information will also be sent
to the IRS.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Funds pay dividends periodically and make
capital gains distributions annually. The
Leland Equity Fund pays any dividends
[period]. The Bond Funds and the Money
Market
Fund pay any dividends [period].
Distributions paid by a Fund are automatically
reinvested to purchase new shares of the
Funds. The new shares are purchased at
NAV, generally on the day distributions are
paid.
TAXES
The following discussion regarding taxes is
based on laws that were in effect as of the
date of this Prospectus. The discussion
summarizes only some of the important tax
considerations that affect the Funds and
you as a shareholder. It is not intended as
a substitute for careful tax planning. You
should consult your tax advisor about your
specific tax situation. Federal income tax
considerations are discussed further in the
Statement of Additional Information.
Distributions of tax-exempt interest income
earned by any Fund are expected to be exempt
from federal income taxation, except for the
possible application of the alternative
minimum tax. Dividends paid out of a Fund's
net investment income (including dividends and
taxable interest) and net short-term capital
gains will be taxable to you as ordinary
income. If a portion of a Fund's income
consists of dividends paid by U.S.
corporations, a portion of the dividends
paid by that Fund may be eligible for
the dividends-received deduction for
corporate shareholders. Distributions of net
long-term capital gains earned by a Fund
are taxable to you as long-term capital
gains, regardless of how long you have held your
Fund shares. Fund distributions are taxable to
you in the same manner whether received in cash
or reinvested in additional Fund shares.
If you buy shares of a Fund shortly before any
distribution, your distribution from the Fund
will, in effect, be a taxable return of
part of your investment. Similarly, if you
buy shares of a Fund that holds appreciated
securities in its portfolio, you will receive a
taxable return of part of your investment is
and when the Fund sells the
appreciated securities and realizes the gain.
Some of the Funds have built up, or have the
potential to build up, high levels of unrealized
appreciation.
A distribution will be treated as paid to you on
December 31 of the current calendar year if it
is declared by a Fund in October, November or
December with a record date in such a month
and paid by a Fund during January of the
following calendar year.
Each year, each Fund in which you have invested
will notify you of the tax status of dividends
and other distributions.
Upon the sale or other disposition of your Fund
shares, you may realize a capital gain or loss
which will be long-term or short-term,
generally depending upon how long you held
your shares.
The Funds may be required to withhold U.S.
federal income tax at the rate of 31% of all
taxable distributions payable to you if you
fail to provide the Funds in which you invest
with your correct taxpayer identification
number or to make required certifications, or if
you have been notified by the IRS that you
are subject to backup withholding. Backup
withholding is not an additional tax. Any
amounts withheld may be credited against
your U.S. federal income tax liability.
Except in the case of the Money Market
Fund, your redemptions (including redemptions
in-kind) and exchanges of Fund shares will
ordinarily result in a taxable capital gain or
loss, depending on the amount you receive for
your shares (or are deemed to receive in the
case of exchanges) and the amount you paid (or
are deemed to have paid) for them. As
long as the Money Market Fund continually
maintains a $1.00 NAV, you ordinarily will not
recognize taxable gain or loss on the redemption
or exchange of such Fund shares.
Fund distributions also may be subject to
state, local and foreign taxes. In many states,
Fund distributions which are derived from
interest on certain U.S. Government obligations
are exempt from taxation. You should consult
your own tax adviser regarding the
particular tax consequences of an investment
in the Funds.
[Inside Back Cover]
"STANDARD & POOR'S," "S&P," "S&P 500,"
"STANDARD & POOR'S 500" AND "500" ARE
TRADEMARKS OF THE MCGRAW-HILL COMPANIES, INC.
"LEHMAN BROTHERS AGGREGATE BOND INDEX" AND
"LEHMAN BROTHERS GOVERNMENT/INTERMEDIATE
CORPORATE BOND INDEX" ARE TRADEMARKS OF
LEHMAN BROTHERS. "SALOMON BROTHERS 1-3 YEAR
GOVERNMENT INDEX" IS A TRADEMARK OF SALOMON
SMITH BARNEY INC. "IBC MONEY FUND AVERAGE
INDEX" IS A TRADEMARK OF IBC FINANCIAL DATA,
INC.
NO FUND IS SPONSORED, ENDORSED, SOLD OR
PROMOTED BY ANY OF THE MCGRAW-HILL COMPANIES,
LEHMAN BROTHERS, SALOMON SMITH BARNEY INC. OR
IBC FINANCIAL DATA, INC., AND NONE OF THESE
COMPANIES MAKES ANY REPRESENTATION
REGARDING THE
ADVISABILITY OF INVESTING IN ANY FUND.
MORE COMPLETE INFORMATION MAY BE FOUND IN
THE STATEMENT OF ADDITIONAL INFORMATION (SEE
BACK COVER).
[Back Cover]
LELAND FUNDS, INC.
WHERE TO GO FOR ADDITIONAL INFORMATION ABOUT THE
FUNDS.
If you would like additional information about
any Fund, the following information documents
are available to you:
Statement of Additional Information
Additional information about each Fund's
structure and operations can be found in
the Statement of Additional Information. The
information presented in the Statement of
Additional Information is incorporated by
reference into this Prospectus and is legally
considered to be part of this Prospectus.
You may request free copies of these materials,
along with other information about the Funds
and make shareholder inquiries by contacting:
ASB Capital Management, Inc.
1101 Pennsylvania
Avenue, N.W. Suite
300
Washington, D.C. 20004
Telephone: (800) 544-8850
OBTAINING INFORMATION FROM THE SECURITIES
AND EXCHANGE COMMISSION.
Reports and other information about each Fund
(including the Funds' Statement of Additional
Information) may also be obtained from the
Securities and Exchange Commission:
1. By going to the Commission's Public
Reference Room
in Washington, D.C., where you can
review and copy the information.
Information on the operation of the
Public Reference Room may be
obtained by calling the Commission at
(800) SEC-0880.
2. By accessing the Commission's
Internet site at
http://www.sec.gov where you can
view, download and print the
information.
3. By writing to the Public Reference
Section of the
Securities and Exchange Commission,
Washington, D.C. 20549-6009, where,
upon payment of a duplicating
fee, copies of the information will be
sent to you.
SEC File Number 811-[ ]
LELAND FUNDS, INC.
Leland Equity Fund
Leland Bond
Fund
Leland Intermediate
Bond Fund Leland Two-
Year Government Bond
Fund
Leland Short-
Term Investment
Fund Class I
and Class N
STATEMENT OF ADDITIONAL
INFORMATI
ON [date]
This Statement of Additional Information (the
"SAI") is not a prospectus. It should be
read in conjunction with the prospectus dated
[ ] (the "Prospectus") for Leland Equity Fund,
Leland Bond Fund, Leland Intermediate Bond
Fund, Leland Two-Year Government Bond Fund and
Leland Short-Term Investment Fund (each a
"Fund" and, collectively, the "Funds"), each
of which is a separate portfolio of Leland
Funds, Inc. ("Leland").
To obtain a free copy of the Prospectus,
please write to Leland Funds, Inc., c/o ASB
Capital Management, Inc., 1101 Pennsylvania
Avenue, N.W., Suite 300, Washington, D.C.
20004, or call 1-800-544-8850.
TABLE OF CONTENTS
ORGANIZATION OF THE FUNDS
1 INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
1
The Equity Fund
2
The Bond Funds 7
The Money Market Fund 14
MANAGEMENT OF THE FUNDS 18
INVESTMENT ADVISORY AND OTHER SERVICES 18
Investment Adviser 18
Administrator 19
Distributor 19
Shareholder Servicing 19
Transfer Agent and Custodian. 20
Other Expenses. 20
BROKERAGE ALLOCATION 20
DESCRIPTION OF CAPITAL SHARES 21
COMPUTATION OF NET ASSET VALUE 21
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS 23
Dividends and Capital Gains Distributions 23
Tax Status of the Funds 23
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS 24
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 25
Shares of the Funds Sold on a Continuous Basis
by the Distributor 25
PERFORMANCE CALCULATIONS 25
Average Annual Total Return 25
Cumulative Total Return 25
Yield Calculations 25
Effective Yield 25
APPENDIX A-1
RATINGS OF FIXED INCOME SECURITIES A-1
ORGANIZATION OF THE FUNDS
Leland is registered under the Investment Company
Act of
1940, as amended (the "1940 Act"), as
an open-end diversified management
investment company. Leland was formed
under Maryland law on August 24, 1999 as a
Maryland corporation. Because Leland offers
multiple portfolios, it is known as a
"series company." Each Fund is a separate
portfolio of assets and has its own
investment objective which it pursues through
separate investment policies, as described
below and in the Prospectus. Leland's
investment adviser is ASB Capital Management,
Inc. ("ASBCM" or the "Investment Adviser"),
an investment adviser registered under the
Investment Advisers Act of 1940, as amended.
Each Fund issues shares of beneficial interest
in Leland. The Board of Directors of Leland may
increase the number of authorized shares or
create additional series or classes of Leland
or portfolio shares without shareholder
approval. Shares are fully paid and
nonassessable when issued, are transferable
without restriction, and have no preemptive or
conversion rights. Shares of Leland have equal
rights with respect to voting, except that the
holders of shares of each Fund will have the
exclusive right to vote on matters affecting
only the rights of the holders of that Fund.
For example, holders of a Fund will have the
exclusive right to vote on any investment
management agreement or investment restriction
that relates only to that Fund. Shareholders of
the Funds do not have cumulative voting
rights, and
therefore the holders of more than 50% of the
outstanding shares of Leland voting together
for the election of directors may elect all
of the members of Leland's Board of Directors.
In such event, the remaining holders cannot
elect any members of the Board of Directors.
Leland's Board of Directors may authorize the
issuance of additional shares, and may, from
time to time, classify or
reclassify issued or any unissued shares to
create one or more new classes or series in
addition to those already authorized by
setting or changing in any one or more
respects the designations, preferences,
conversion or other rights, voting powers,
restrictions, limitations as to dividends,
qualifications, or terms or conditions of
redemption of such shares; provided, however,
that any such classification or
reclassification shall not substantially
adversely affect the rights of holders of issued
shares. Any such classification or
reclassification will comply with the provisions
of the 1940 Act. The Directors also have the
authority to terminate a series or class thereof
by written notice to shareholders without
shareholder approval.
Leland's Articles of Incorporation (the
"Articles of Incorporation") permit the
Directors to issue an unlimited number of
full and fractional shares, par value $.001, of
the Funds. Each Fund share is entitled to
participate pro rata in the dividends and
distributions of that Fund.
Leland will not normally hold annual
shareholders' meetings. Under Maryland law and
Leland's Bylaws, an annual meeting is not
required to be held in any year in which the
election of directors is not required to be
acted upon under the 1940 Act. Leland's
Bylaws provide that special meetings of
shareholders, unless otherwise provided by law
or by the Articles of Incorporation, may be
called for any purpose or purposes by a
majority of the Board of Directors, the
Chairman of the Board, the President, or the
written request of the holders of at least 10%
of the outstanding shares of beneficial
interests of Leland entitled to be voted at
such meeting to the extent permitted by Maryland
law.
Each Director serves until the next election
of directors and until the election and
qualification of his or her successor or
until such Director sooner dies, resigns,
retires or is removed by the affirmative vote
of a majority of the outstanding voting
securities of Leland. In accordance with
the 1940 Act, (i) Leland will hold a
shareholder meeting for the election of
directors at such time as less than a
majority of the Directors have been elected
by shareholders, and (ii) if, as a result of
a vacancy in the Board of Directors, less than
two-thirds of the Directors have been elected
by the shareholders, that vacancy will be
filled only by a vote of the shareholders.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The following supplements the discussion in the
Prospectus of the Funds' investment
objectives, strategies, policies and risks.
These investment strategies and policies may be
changed without shareholder approval unless
otherwise noted. Capitalized terms not otherwise
defined in this SAI have the same meanings as in
the Prospectus.
Whenever an investment policy or restriction
of any Fund described in the Prospectus or in
this SAI states a maximum percentage of assets
that may be invested in a security or other
asset, or describes a policy regarding
quality standards, that percentage limitation
or standard will, unless otherwise indicated,
apply to that Fund only at the time a
transaction takes place. Thus, if a
percentage limitation is adhered to at the time
of investment, a later increase or decrease
in the percentage that results from
circumstances not involving any affirmative
action by a Fund will not be considered a
violation.
Descriptions in this SAI of a particular investment
practice or technique in which any Fund may engage
or a financial instrument which any Fund may
purchase are meant to describe the spectrum of
investments that the Investment Adviser, in its
discretion, might, but is not required to, use
in managing each Fund's portfolio assets. The
Investment Adviser may, in its discretion, at any
time employ such practice, technique or instrument
for one or more Funds but not for all Funds advised
by it. Furthermore, it is possible that certain
types of financial instruments or investment
techniques described herein may not be
available,
permissible, economically feasible or effective for
their intended purposes in some or all markets, in
which case a Fund would not use them. Certain
practices, techniques or instruments may not be
principal activities of a Fund but, to the extent
employed, could from time to time have a material
impact on that Fund's performance.
In the discussion that follows, the "Equity Fund"
refers to the Leland Equity Fund. The "Bond
Funds" refer to the Leland Bond, the Leland
Intermediate Bond and the Leland TwoYear Government
Bond Funds. The "Money Market Fund" refers to the
Leland Short-Term Investment Fund.
THE EQUITY FUND
INVESTMENT POLICIES
Fundamental Investment Policies
The Equity Fund has adopted the following
investment restrictions, all of which are
fundamental policies; that is, they may not be
changed, without approval by the holders of a
majority (as defined in the 1940 Act) of the
outstanding voting securities of the Equity Fund.
The Equity Fund may not:
(1) purchase the securities of issuers conducting
their principal business activity in the same
industry if,
immediately after the purchase and as a result
thereof, the value of the Equity Fund's investments
in that industry would equal 25% of the current value
of the Fund's total assets, provided that there is no
limitation with respect to investment in securities
issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(2) purchase securities of any issuer if, as a
result, with respect to 75% of the Equity Fund's
total assets, more than 5% of the value of its
total assets would be invested in the securities
of any one issuer or, with respect to 100% of
its assets, the Equity Fund's ownership would be
more than 10% of the outstanding voting
securities of such issuer. This policy does not
restrict the Equity Fund's ability to invest in
securities issued or guaranteed by the U.S.
Government, its agencies and
instrumentalities; or to invest substantially
all of its assets in the portfolio of one or
more open-end management investment companies
pursuant to Section 12 of the 1940 Act and the
rules thereunder.
(3) borrow money except to the extent permitted by
the 1940 Act, and the rules, regulations and
exemptions thereunder;
(4) issue senior securities except to the extent
permitted
by the 1940 Act, and the rules, regulations and
exemptions thereunder;
(5) make loans to other parties if, as a
result, the aggregate value of such loans would
exceed one-third of the Equity Fund's total
assets. For the purposes of this limitation,
entering into repurchase agreements, lending
securities and acquiring any debt securities are
not deemed to be the making of loans;
(6) underwrite securities of other issuers, except
to the extent that the purchase of permitted
investments directly from the issuer thereof or
from an underwriter for an issuer and the later
disposition of such securities in accordance
with the Equity Fund's investment program may be
deemed to be an underwriting;
(7) purchase or sell real estate unless acquired
as a
result of ownership of securities or other
instruments (but this shall not prevent the
Equity Fund from investing in securities or
other instruments backed by real estate or
securities of companies engaged in the real
estate business); nor
(8) purchase or sell physical commodities unless
acquired
as a result of ownership of securities or other
instruments (but this shall not prevent the
Equity Fund from purchasing or selling options
and futures contracts, or from investing in
securities or other instruments backed by
physical commodities).
Non-Fundamental Investment Policies
The Equity Fund has adopted the following non-
fundamental policies which may be changed by a vote
of a majority of the Directors of Leland at any
time without approval of the Equity Fund's
shareholders.
(1) The Equity Fund may invest in shares of other
open-end management investment companies,
subject to the limitations of the 1940 Act,
the rules thereunder, and any orders obtained
thereunder now or in the future. Other
investment companies in which the Equity Fund
invests can be expected to charge fees for
operating expenses, such as investment advisory
and administration fees, that would be in
addition to those charged by the Equity Fund.
(2) The Equity Fund may not invest or hold more
than 15% of the Equity Fund's net assets in
illiquid securities. For this purpose, illiquid
securities include, among others, (a) securities
that are illiquid by virtue of the absence of a
readily available market or legal or
contractual restrictions on resale, (b) fixed
time deposits that are subject to withdrawal
penalties and that have maturities of more than
seven days, and (c) repurchase agreements not
terminable within seven days.
(3) The Equity Fund may invest in futures or
options contracts regulated by the CFTC for (i)
bona fide hedging purposes within the meaning of
the rules of the CFTC and (ii) for other
purposes if, as a result, no more than 5% of the
Equity Fund's net assets would be invested in
initial margin and premiums (excluding amounts
"in-the-money") required to establish the
contracts.
The Equity Fund (i) will not hedge more than
[50%] of
its total assets by selling futures contracts,
buying put options, and writing call options (so
called "short positions"), (ii) will not buy
futures contracts or
write put options whose underlying value exceeds
20% of the Equity Fund's total assets, and
(iii) will not buy call options with a value
exceeding [5%] of the Equity Fund's total
assets.
(4) The Equity Fund may lend securities from its
portfolio
to brokers, dealers and financial institutions,
in amounts not to exceed (in the aggregate)
up to the limits established by and under
the 1940 Act, including any exemptive relief
obtained thereunder, which limits are currently
generally one-third of the Equity Fund's total
assets. Any such loans of portfolio securities will
be fully collateralized based on values that are
marked to market daily. The Equity Fund will not
enter into any portfolio security lending arrangement
having a duration of longer than one year.
(5) The Equity Fund may not make investments for
the
purpose of exercising control or management.
(6) The Equity Fund may not purchase securities on
margin (except for short-term credits necessary
for the clearance of transactions).
(7) The Equity Fund may not sell securities short,
unless
it owns or has the right to obtain securities
equivalent in kind and amount to the securities
sold short (short sales "against the box"), and
provided that transactions in futures contracts
and options are not deemed to constitute selling
securities short.
(8) The Equity Fund may not purchase interests,
leases, or limited partnership interests in oil,
gas, or other mineral exploration or development
programs.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES AND
ASSOCIATED RISKS
Set forth below are descriptions of certain
investments and additional investment policies for
the Equity Fund.
Bank Obligations
The Equity Fund may invest in bank obligations,
including certificates of deposit, time deposits,
bankers' acceptances
and other short-term obligations of domestic
banks, foreign subsidiaries of domestic banks,
foreign branches of domestic banks, and domestic
and foreign branches of foreign banks, domestic
savings and loan associations and other
banking institutions. With respect to such
securities issued by foreign branches of
domestic banks, foreign subsidiaries of domestic
banks, and domestic and foreign branches of
foreign banks, the Equity Fund may be
subject to additional investment risks that
are different in some respects from those
incurred by an equity fund which invests only in
debt obligations of U.S. domestic issuers. Such
risks include possible future political and
economic developments, the possible imposition
of foreign withholding taxes on interest income
payable on the securities, the possible
establishment of exchange controls or the
adoption of other foreign governmental
restrictions which might adversely affect the
payment of principal and interest on these
securities and the possible seizure or
nationalization of foreign deposits. In
addition, foreign branches of U.S. banks and
foreign banks may be subject to less stringent
reserve requirements and to different
accounting, auditing, reporting and
recordkeeping standards than those applicable
to domestic branches of U.S. banks.
Certificates of deposit are negotiable
certificates evidencing the obligation of a bank
to repay funds deposited with it for a specified
period of time.
Time deposits are non-negotiable deposits
maintained in a banking institution for a
specified period of time at a stated
interest rate. Time deposits which may be held
by the Equity Fund will not benefit from
insurance from the Bank Insurance Fund or
the Savings Association Insurance Fund
administered by the Federal Deposit
Insurance Corporation ("FDIC"). Bankers'
acceptances are credit
instruments evidencing the obligation of a bank
to pay a draft drawn on it by a customer.
These instruments reflect the obligation both of
the bank and of the drawer to pay the face amount
of the instrument upon maturity. The other short
term obligations may include uninsured, direct
obligations, bearing fixed, floating- or variable-
interest rates.
Commercial Paper
The Equity Fund may invest in commercial paper
(including variable amount master demand notes)
which refers to shortterm, unsecured promissory
notes issued by corporations to finance short-
term credit needs. Commercial paper is
usually sold on a discount basis and has a
maturity at the time of issuance not exceeding
nine months. Variable amount master demand notes
are demand obligations which permit the
investment of fluctuating amounts at varying
market rates of interest pursuant to arrangements
between the issuer and a commercial bank acting
as agent for the payee of such notes whereby
both parties have the right to vary the amount
of the outstanding indebtedness on the notes.
Investments by the Equity Fund in commercial
paper (including variable rate demand notes and
variable rate master demand notes issued by
domestic and foreign bank holding companies,
corporations and financial institutions, as well
as similar instruments issued by government
agencies and instrumentalities) will consist of
issues that are rated in one of the two highest
rating categories by a Nationally
Recognized Ratings
Organization ("NRRO"). Commercial paper may
include variableand floating-rate instruments.
Convertible Securities
The Equity Fund may invest in convertible
securities that provide current income and are
issued by companies with the characteristics
described above for the Equity Fund and that have
a strong earnings and credit record. The Equity
Fund may purchase convertible securities that
are fixed-income debt securities or preferred
stocks, and which may be converted at a
stated price within a specified period of time
into a certain quantity of the common stock of
the same issuer. Convertible securities, while
usually subordinate to similar nonconvertible
securities, are senior to common stocks in an issuer's
capital structure. Convertible
securities offer flexibility by providing the
investor with a steady income stream (which
generally yield a lower amount than similar
nonconvertible securities and a higher amount
than common stocks) as well as the
opportunity to take advantage of increases in
the price of the issuer's common stock through
the conversion feature. Fluctuations in the
convertible security's price can reflect
changes in the market value of the common
stock or changes in market
interest rates. At most, 5% of the Equity Fund's net
assets will be invested, at the time of purchase, in
convertible securities that are not rated in the four
highest rating categories by one or more NRROs, such
as Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"), or unrated but
determined by the Investment Adviser to be of
comparable quality.
Derivative Securities: Futures and Options Contracts
Futures and options contracts are types of
"derivative securities" in which the Equity Fund may
invest. Derivative securities are securities which
derive their value, at least in part, from the price of
another security or asset, or the level of an index or
a rate. As is described in more detail below, the
Equity Fund often invests in these securities as a
"hedge" against fluctuations in the value of the
other securities in the Equity Fund's portfolio,
although the Equity Fund may also invest in certain
derivative securities for investment purposes only.
While derivative securities are useful for hedging
and investment, they also carry additional risks.
A hedging
policy may fail if the correlation between the value of
the derivative securities and the other investments
in the Equity Fund's portfolio does not follow
the Investment Adviser's
expectations. If the Investment Adviser's
expectations are not met, it is possible that the
hedging strategy will not only fail to protect the
value of the Equity Fund's investments, but the
Equity Fund may also lose money on the derivative
security itself. Also, derivative securities are more
likely to experience periods when they will not be
readily tradable. If, as a result of such
illiquidity, the Equity Fund cannot settle a
future or option contract at the time the
Investment Adviser determines is optimal, the Equity
Fund may lose money on the investment. Additional
risks of derivative
securities
include: the risk of the disruption of the Equity
Fund's ability to trade in derivative securities
because of regulatory compliance problems or
regulatory changes; credit risk of counterparties to
derivative contracts; and market risk (i.e., exposure
to adverse price changes).
The Equity Fund has the following non-fundamental
investment policies with regard to investing in
derivative securities:
* The Equity Fund may invest in futures or
options
contracts regulated by the Commodities Futures Trading
Commission ("CFTC") for (i) bona fide hedging purposes
within the meaning of the rules of the CFTC and (ii)
for other purposes if, as a result, no more than 5% of
the Equity Fund's net assets would be invested in
initial margin and premiums (excluding amounts "in-the-
money") required to establish the contracts.
* The Equity Fund (i) will not hedge more than
[50%] of
its total assets by selling futures contracts,
buying put options, and writing call options
(so called "short positions"), (ii) will not
buy futures contracts or write put options whose
underlying value exceeds 20% of the Equity
Fund's total assets, and (iii) will not buy call
options with a value exceeding [5%] of the
Equity Fund's total assets.
The Investment Adviser uses a variety of internal
risk management procedures to ensure that
derivatives use is
consistent with the Equity Fund's investment
objectives, does not expose the Equity Fund to undue
risk and is closely monitored. These procedures
include providing periodic
reports to the Board of Directors concerning the
use of derivatives.
The use of derivatives by the Equity Fund also is
subject to broadly applicable investment policies.
For example, the Equity Fund may not invest more
than a specified percentage of its assets in
"illiquid securities," including those derivatives
that do not have active secondary markets. Nor may
the Equity Fund use certain derivatives
without
establishing adequate "cover" in compliance with
the U.S. Securities and Exchange Commission
("SEC") rules limiting the use of leverage.
Futures Contracts. The Equity Fund may trade
futures contracts and options on futures
contracts. A futures transaction involves a firm
agreement to buy or sell a commodity or
financial instrument at a particular price on a
specified future date. Futures contracts are
standardized and exchange-traded, where the
exchange serves as the ultimate counterparty for
all contracts. Consequently, the only credit
risk on futures contracts is
the
creditworthiness of the exchange.
The purchaser or seller of a futures contract
is not required to deliver or pay for the
underlying instrument unless the contract is
held until the delivery date. However, both the
purchaser and seller are required to deposit
"initial margin" with a futures broker when the
parties enter into the contract. Initial margin
deposits are typically equal to a percentage of the
contract's value. If the value of either party's
position declines, that party will be required to
make additional "variation margin" payments to
settle the change in value on a daily basis. The
party that has a gain may be entitled to receive all
or a portion of this amount. Initial and
variation margin payments do not constitute
purchasing securities on margin for purposes of the
Equity Fund's investment limitations. In the event
of the bankruptcy of the broker that holds the
margin on behalf of the Equity Fund, the Equity Fund
may not receive a full refund of its margin.
Although the Equity Fund intends to purchase or sell
futures contracts only if there is an active
market for such contracts, a liquid market may
not exist for a particular contract at a particular
time. Many futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once
the daily limit has been reached in a particular
contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for
specified periods during the trading day. Futures
contracts prices could move to the limit for
several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of
futures positions and potentially subject the
Equity Fund to substantial losses. If it is not
possible, or the Equity Fund determines not to
close a futures position in anticipation of
adverse price movements, the Equity Fund may be
required to pay additional variation margin until
the position is closed.
Options Trading. The Equity Fund may purchase
or sell options on individual securities or
options on indices of securities. The purchaser of
an option risks a total loss
of the premium paid for the option if the price
of the underlying security does
not increase or decrease
sufficiently to justify the exercise of such
option. The
seller of an option, on the other hand, will
recognize the premium as income if the option
expires unrecognized but
foregoes any capital appreciation in excess of the
exercise price in the case of a call option and may
be required to pay a price in excess of current
market value in the case of a put option.
A call option for a particular security gives the
purchaser of the option the right to buy, and a
writer the obligation to sell, the underlying
security at the stated exercise price at any time
prior to the expiration of the option, regardless
of the market price of the security. The premium
paid to the writer is in consideration for
undertaking the obligation under the option
contract. A put option for a particular security
gives the purchaser the right to sell, and the
writer the option to buy, the security at the stated
exercise price at any time prior to the expiration
date of the option, regardless of the market price
of the security.
The Equity Fund will write call options only if
they are
"covered." In the case of a call option on a
security or
currency, the option is "covered" if the Equity
Fund owns the instrument underlying the call or has
an absolute and immediate right to acquire
that instrument without
additional cash consideration (or, if additional
cash consideration is required, cash, U.S. Government
securities or other liquid high grade debt
obligations, in such amount are held in a
segregated account by the Equity Fund's custodian)
upon conversion or exchange of other securities held
by it. For a call option on an index, the option
is covered if the Equity Fund
maintains with its custodian a
diversified portfolio of securities comprising the
index or liquid assets equal to the contract value.
A call option is also covered if the Equity Fund
holds an offsetting call on the same instrument or
index as the call written. The Equity Fund will
write put options only if they are "secured" by
liquid assets maintained in a segregated account
by the Equity Fund's custodian in an amount not
less than the exercise price of the option at all
times during the option period.
The Equity Fund may buy put and call options and
write
covered call and secured put options. Options
trading is a highly specialized activity which
entails greater than ordinary investment risk.
Options may be more volatile than the underlying
instruments, and therefore, on a percentage basis,
an investment in options may be subject to greater
fluctuation than an investment in the underlying
instruments themselves. Purchasing options
is a specialized investment
technique that entails a substantial risk of a
complete loss of the amounts paid as premiums to the
writer of the option. If the Investment Adviser is
incorrect in its forecast of market value or
other factors when writing options, the Equity Fund
would be in a worse position than it would have been
had if it had not written the option. If the
Equity Fund wishes to sell an underlying instrument
(in the case of a covered call option) or liquidate
assets in a segregated account (in the case of a
secured put option), the Equity Fund must
purchase an offsetting option if available,
thereby incurring additional transactions costs.
Below is a description of some of the types of
options in which the Equity Fund may invest.
A stock index option is an option contract whose
value is based on the value of a stock index at some
future point in time.
Stock indexes fluctuate with changes in the market
values of the stocks included in the index. The
effectiveness of purchasing or writing stock index
options will depend upon the extent to which price
movements in the Equity Fund's investment
portfolio correlate with price movements of the
stock index selected. Accordingly,
successful use by the Equity Fund of options on
stock indexes will be subject to the Investment
Adviser's ability to correctly analyze movements in
the direction of the stock market
generally or of particular industry or market
segments. When the Equity Fund writes an option on a
stock index, the Equity Fund will place in a
segregated account with the Equity Fund's
custodian cash or liquid securities in an amount
at least equal to the market value of the
underlying stock index and will maintain the account
while the option is open or otherwise will cover the
transaction.
The Equity Fund may invest in stock index futures
contracts and options on stock index futures
contracts. A stock index futures contract is an
agreement in which one party agrees to deliver to
the other an amount of cash equal to a specific
dollar amount multiplied by the difference between
the value of a specific stock index at the close of
the last trading day of the contract and the price
at which the agreement is made. Stock index
futures contracts may be purchased to protect the
Equity Fund against an increase in the prices of
stocks that the Equity Fund intends to purchase.
The purchase of options on stock index futures
contracts are similar to other options
contracts as
described above, where the Equity Fund pays a
premium for the option to purchase or sell a
stock index futures contract for a specified
price at a specified date. With options on stock
index futures contracts, the Equity Fund risks the
loss of the premium paid for the option. The
Equity Fund may also invest in interest-rate
futures
contracts and options on interest-rate futures
contracts. These securities are similar to stock
index futures
contracts and options on stock index futures
contracts, except they derive their price from an
underlying interest rate rather than a stock index.
Interest-rate and index swaps involve the exchange
by the Equity
Fund with another party of their
respective
commitments to pay or receive interest (for
example, an exchange of floating-rate payments for
fixed-rate payments). Index swaps involve the
exchange by the Equity Fund with another party of
cash flows based upon the performance of an index of
securities. Interest-rate swaps involve the
exchange by the Equity Fund with another party of
cash flows based upon the performance of a specified
interest rate. In each case, the exchange
commitments can involve payments to be made in
the same currency or in different currencies. The
Equity Fund will usually enter into swaps on a
net basis. In so doing, the two payment streams are
netted out, with the Equity Fund receiving or
paying, as the case may be, only the net amount of
the two payments. If the Equity Fund enters into
a swap, it will maintain a segregated account on a
gross basis, unless the contract provides for a
segregated account on a net basis. The risk of
loss with respect to swaps generally is limited to
the net amount of payments that the Equity Fund is
contractually obligated to make.
There is also a risk of a default by the other party
to a swap, in which case the Equity Fund may not
receive net
amount of payments that the Equity Fund
contractually is entitled to receive.
Future Developments. The Equity Fund may take
advantage of opportunities in the areas of options
and futures contracts and options on futures
contracts and any other derivative investments which
are not presently contemplated for use by the
Equity Fund or which are not currently available
but which may be developed, to the extent such
opportunities are both consistent with the Equity
Fund's investment objective and legally permissible
for the Equity Fund. Before entering into such
transactions or making any such investment, the
Equity Fund would provide appropriate disclosure
in its Prospectus or this SAI.
Forward Commitments, When-Issued Purchases and
DelayedDelivery Transactions
The Equity Fund may purchase or sell securities on a
whenissued or delayed-delivery basis and make
contracts to purchase or sell securities for a
fixed price at a future date beyond customary
settlement time. Securities purchased or sold on
a when-issued, delayed-delivery or forward
commitment basis involve a risk of loss if the value
of the security to be purchased declines, or the
value of the security to be sold increases, before
the settlement date.
The Equity Fund will segregate cash, U.S.
Government obligations or other high-quality debt
instruments in an amount at least equal in
value to the Equity Fund's commitments to
purchase when-issued securities. If the value of
these assets declines, the Equity Fund will
segregate additional liquid assets on a daily basis
so that the value of the segregated assets is equal
to the amount of such commitments.
Illiquid Securities
The Equity Fund may invest in securities not
registered under the 1933 Act and other securities
subject to legal or other restrictions on resale.
Illiquid securities may be difficult to sell
promptly at an acceptable price. Delay or difficulty
in selling securities may result in a loss or be
costly to the Equity Fund.
Loans of Portfolio Securities
The Equity Fund may lend its portfolio
securities to brokers, dealers and financial
institutions, provided: (1)
the loan is secured continuously by collateral
consisting of U.S. Government securities or cash or
letters of credit maintained on a daily marked-to-
market basis in an amount at least equal to the
current market value of the securities loaned; (2)
the Equity Fund may at any time call the loan and
obtain the return of the securities loaned within
five business days; (3) the Equity Fund will receive
any interest or dividends paid on the loaned
securities; and (4) the aggregate market value of
securities loaned will not at any time exceed the
limits established by the 1940 Act.
The Equity Fund will earn income for lending its
securities because cash collateral pursuant to
these loans will be invested in short-term
money market instruments. In
connection with lending securities, the Equity Fund
may pay reasonable finders, administrative and
custodial fees. The
Equity Fund will not enter into any security
lending
arrangement having a duration longer than one year. Loans
of securities involve a risk that the borrower may
fail to return the securities or may fail to
provide additional collateral. In
either case, the Equity Fund
could
experience delays in recovering securities or
collateral or could lose all or part of the
value of the loaned securities. Although voting
rights, or rights to consent, attendant to
securities on loan pass to the borrower, such loans
may be called at any time and will be called so that
the securities may be voted by the Equity Fund if a
material event affecting the investment is to occur.
The Equity Fund may pay a portion of the
interest or fees earned from securities lending
to a borrower or placing broker. Borrowers
and placing brokers may not be affiliated,
directly or indirectly, with ASBCM or any of its
affiliates.
Money Market Instruments and Temporary Investments
The Equity Fund may invest in the following types
of high quality
money market instruments that have remaining
maturities not exceeding one year: (i) U.S.
Government obligations; (ii) negotiable
certificates of deposit, bankers' acceptances
and fixed time deposits and other obligations of
domestic banks (including foreign branches) that
have more than $1 billion in total assets at the
time of investment and are members of the Federal
Reserve System or are examined by the Comptroller of
the Currency or whose deposits are insured by the
FDIC; (iii) commercial paper rated at the date of
purchase "Prime-1" by Moody's or "A-1" or "A-1--" by
S&P, or, if unrated, of comparable quality as
determined by the Investment Adviser; and (iv)
repurchase agreements. The Equity Fund also may
invest in short-term U.S. dollar-denominated
obligations of foreign
banks
(including U.S. branches) that at the time of
investment: (i) have more than $10 billion, or the
equivalent in other currencies, in total assets;
(ii) are among the 75 largest foreign banks in the
world as determined on the basis of assets; (iii)
have branches or agencies in the United States;
and (iv) in the opinion of the Investment Adviser,
are of comparable quality to obligations of U.S.
banks which may be purchased by the Equity Fund.
Letters of Credit. Certain of the debt
obligations
(including certificates of participation, commercial
paper and other short-term obligations) which the
Equity Fund may purchase may be backed by an
unconditional and irrevocable letter of credit of a
bank, savings and loan association or insurance
company which assumes the obligation for payment of
principal and interest in the event of default by
the issuer. Only banks, savings and loan
associations and insurance companies which, in the
opinion of the Investment Adviser, are of
comparable quality to issuers of other permitted
investments of the Equity Fund may be used for
letter of credit-backed investments.
Repurchase Agreements. The Equity Fund may
enter into repurchase agreements, wherein the
seller of a security to the Equity Fund agrees to
repurchase that security from the Equity Fund at a
mutually agreed upon time and price. The Equity
Fund may enter into repurchase agreements only with
respect to securities that could otherwise be
purchased by the Equity Fund. All repurchase
agreements will be fully collateralized at 102%
based on values that are marked to market daily.
The maturities of the underlying securities in a
repurchase agreement transaction may be greater
than twelve months, although the maximum term of a
repurchase
agreement will always be less than twelve months.
If the seller defaults and the value of the
underlying securities has declined, the Equity Fund
may incur a loss. In addition, if bankruptcy
proceedings are commenced with respect to the seller
of the security, the Equity Fund's disposition of the
security may be delayed or limited.
The Equity Fund may not enter into a repurchase
agreement with a maturity of more than seven days,
if, as a result, more than 15% of the Equity Fund's
total net assets would be invested in repurchase
agreements with maturities of more than seven
days, restricted securities and illiquid
securities. The Equity Fund may not enter into a
repurchase agreement with a maturity of more than
seven days, if, as a result, more than 15% of the
market value of the Equity Fund's total net
assets would be invested in repurchase agreements with maturities
of more than seven days,
restricted securities and illiquid securities. The
Equity Fund will only enter into repurchase
agreements with primary broker/dealers and
commercial banks that meet guidelines established
by the Board of Directors and that are not
affiliated with the Investment Adviser. The Equity
Fund may participate in pooled repurchase agreement
transactions with other funds advised by the
Investment Adviser.
Other Investment Companies
The Equity Fund may invest in shares of other
open-end management investment companies, up to the
limits prescribed in Section 12(d) of the 1940 Act.
Under the 1940 Act, the Equity Fund's investment
in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total
voting stock of any one investment company, (ii) 5%
of the Equity Fund's net assets with respect to
any one investment company and (iii) 10% of the
Equity Fund's net assets in aggregate. Other
investment companies in which the Equity Fund
invests can be expected to charge fees for operating expenses such as
investment advisory and
administration fees, that would be in addition to
those charged by the Equity Fund.
Privately Issued Securities
The Equity Fund may invest in privately issued
securities, including those which may be resold only
in accordance with Rule 144A under the Securities
Act of 1933 ("Rule 144A Securities"). Rule
144A Securities are
restricted
securities that are not publicly traded.
Accordingly, the liquidity of the market for
specific Rule 144A Securities may vary. Delay or
difficulty in selling such securities may result in
a loss to the Equity Fund. Privately issued or Rule
144A securities that are determined by the
Investment Adviser to be "illiquid" are subject to
the Equity Fund's policy of not investing more than
15% of its net assets in illiquid securities.
The Investment Adviser, under guidelines
approved by Board of Directors of Leland, will
evaluate the liquidity characteristics of each
Rule 144A Security proposed for purchase by the
Equity Fund on a caseby-case basis and will consider
the following factors, among others, in their
evaluation: (1) the frequency of trades and quotes
for the Rule 144A Security; (2) the number of dealers
willing to purchase or sell the Rule 144A Security
and the number of other potential
purchasers; (3) dealer undertakings to make a
market in the Rule 144A Security; and (4) the nature
of the Rule 144A Security and the nature of the
marketplace trades (e.g., the time needed to dispose
of
the Rule 144A Security, the method of soliciting
offers and the mechanics of transfer).
Unrated Investments
The Equity Fund may purchase instruments that are
not rated if, in the opinion of the Investment
Adviser, such obligations are of investment
quality comparable to other rated investments that
are permitted to be purchased by the Equity Fund.
After purchase by the Equity Fund, a security may
cease to be rated or its rating may be reduced below
the minimum required for purchase by the Equity
Fund. Neither event will require a sale of such
security by the Equity Fund. To the extent the
ratings given by Moody's or S&P may change as a
result of changes in such organizations or their
rating systems, the Equity Fund will attempt
to use
comparable ratings as standards for
investments in
accordance with the investment policies contained
in its Prospectus and in this SAI. The ratings of
Moody's and S&P are more fully described in the SAI
Appendix.
U.S. Government Obligations
The Equity Fund may invest in obligations
issued or
guaranteed by the U.S. Government, its
agencies or
instrumentalities ("U.S. Government obligations").
Payment of principal and interest on U.S. Government
obligations (i) may be backed by the full faith and
credit of the United States (as with U.S.
Treasury bills and GNMA certificates) or (ii) may be
backed solely by the issuing or guaranteeing agency
or instrumentality itself (as with FNMA notes). In
the latter case investors must look principally
to the agency or instrumentality issuing or
guaranteeing the
obligation for ultimate repayment, which
agency or
instrumentality may be privately owned. There can
be no assurance that the U.S. Government will
provide financial support to its agencies or
instrumentalities where it is not obligated to do so.
In addition, U.S. Government obligations are
subject to fluctuations in market value due to
fluctuations in market interest rates. As a general
matter, the value of debt instruments, including
U.S. Government obligations, declines when market
interest rates increase and rises when market
interest rates decrease. Certain types of U.S.
Government obligations are subject to fluctuations in
yield or value due to their structure or contract
terms.
Warrants
The Equity Fund may each invest up to 5% of its net
assets at the time of purchase in warrants (other
than those that have been acquired in units
or attached to other securities), and not more
than 2% of its net assets in warrants which are
not listed on the New York or American Stock
Exchange. Warrants represent rights to purchase
securities at a specific price valid for a specific
period of time. The prices of warrants do not
necessarily
correlate with the prices of the underlying
securities. The Equity Fund may only purchase
warrants on securities in which the Equity Fund may
invest directly.
Nationally Recognized Statistical Ratings
Organizations
The ratings of Moody's Investors Service, Inc.,
Standard & Poor's Ratings Group, Division of McGraw
Hill, Duff & Phelps Credit Rating Co., Fitch
Investors Service, Inc. Thomson Bank Watch and
IBCA Inc. represent their opinions as to the
quality of debt securities. It should be
emphasized, however, that ratings are general and not
absolute standards of quality, and debt securities
with the same maturity, interest rate and rating
may have different yields while debt securities of
the same maturity and interest rate with different
ratings may have the same yield. Subsequent to
purchase by the Equity Fund, an issue of debt
securities may cease to be rated or its rating may
be reduced below the minimum rating required for
purchase by the Equity Fund. The Investment Adviser
will consider such an event in determining
whether the Equity Fund should continue to hold the
obligation.
THE BOND FUNDS
INVESTMENT POLICIES
Fundamental Investment Policies
Each Bond Fund has adopted the following
investment restrictions, all of which are
fundamental policies; that is, they may not be
changed without approval by the vote of the holders
of a majority (as defined in the 1940 Act) of the
outstanding voting securities of such Bond Fund.
The Bond Funds may not:
(1) purchase the securities of issuers conducting
their principal business activity in the same
industry if,
immediately after the purchase and as a result
thereof, the value of a Bond Fund's investments in
that industry would equal 25% of the current value of
such Bond Fund's total assets, provided that there is
no limitation with respect to investment in
securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
(2) purchase securities of any issuer if, as a
result, with respect to 75% of a Bond Fund's
total assets, more than 5% of the value of its
total assets would be invested in the securities
of any one issuer or, with respect to 100% of
its assets, such Bond Fund's ownership would be
more than 10% of the outstanding voting
securities of such issuer. This policy does not
restrict a Bond Fund's ability to invest in
securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities;
(3) borrow money except to the extent permitted by
the 1940 Act, and the rules, regulations and
exemptions thereunder;
(4) issue senior securities except to the extent
permitted
by the 1940 Act, and the rules, regulations and
exemptions thereunder;
(5) make loans to other parties if, as a
result, the aggregate value of such loans would
exceed one-third of a Bond Fund's total
assets. For the purposes of this limitation,
entering into repurchase agreements, lending
securities and acquiring any debt securities are
not deemed to be the making of loans;
(6) underwrite securities of other issuers, except
to the extent that the purchase of permitted
investments directly from the issuer thereof or
from an underwriter for an issuer and the later
disposition of such securities in accordance
with a Bond Fund's investment program may be
deemed to be an underwriting;
(7) purchase or sell real estate unless acquired
as a
result of ownership of securities or other
instruments (but this shall not prevent the
Bond Funds from investing in securities or
other instruments backed by real estate or
securities of companies engaged in the real
estate business); nor
(8) purchase or sell physical commodities unless
acquired
as a result of ownership of securities or other
instruments (but this shall not prevent the
Bond Funds from purchasing or selling options
and futures contracts or from investing in
securities or other instruments backed by
physical commodities).
Non-Fundamental Investment Policies
Each Bond Fund has adopted the following non-
fundamental policies which may be changed by a
majority vote of Leland's Board of Directors at any
time and without approval of such Bond Fund's
shareholders.
(1) Each Bond Fund may invest in shares of other
open-end management investment companies,
subject to the limitations of the 1940 Act,
the rules thereunder, and any orders obtained
thereunder now or in the future. Other
investment companies in which the Bond Funds
invest can be expected to charge fees for
operating expenses, such as investment advisory
and administration fees, that would be in
addition to those charged by a Bond Fund.
(2) Each Bond Fund may not invest or hold more than
15% of
the Bond Fund's net assets in illiquid
securities. For this purpose, illiquid
securities include, among others, (a)
securities that are illiquid by virtue of the
absence of a readily available market or
legal or contractual restrictions on resale,
(b) fixed time deposits that are subject to
withdrawal penalties and that have maturities
of more than seven days, and (c) repurchase
agreements not terminable within seven days.
(3) Each Bond Fund may invest in futures or
options contracts regulated by the CFTC for (i)
bona fide hedging purposes within the meaning
of the rules of the CFTC and (ii) for other
purposes if, as a result, no more than 5% of
the Bond Fund's net assets would be invested in
initial margin and premiums (excluding amounts
"in-the-money") required to establish the
contracts.
Each Bond Fund (i) will not hedge more than
[50%] of
the Bond Fund's total assets by selling
futures
contracts, buying put options, and writing call
options (so called "short positions"), (ii)
will not buy futures contracts or write put
options whose underlying value exceeds 20% of
the Bond Fund's total assets, and (iii) will
not buy call options with a value exceeding [5%]
of the Bond Fund's total assets.
(4) Each Bond Fund may lend securities from its
portfolio
to brokers, dealers and financial institutions,
in amounts not to exceed (in the aggregate) one-
third of the Bond
Fund's total assets. Any such loans of portfolio
securities will be fully collateralized based on
values that are marked to market daily. The Bond
Funds will not enter into any portfolio security
lending arrangement having a duration of longer than
one year.
(5) Each Bond Fund may not make investments for the
purpose
of exercising control or management.
(6) Each Bond Fund may not purchase securities
on margin (except for short-term credits
necessary for the clearance of transactions).
(7) Each Bond Fund may not sell securities short,
unless it owns or has the right to obtain
securities equivalent in kind and amount to the
securities sold short (short sales "against
the box"), and provided that transactions in
futures contracts and options are not deemed to
constitute selling securities short.
(8) Each Bond Fund may not purchase interests,
leases, or limited partnership interests in
oil, gas, or other mineral exploration or
development programs.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES AND
ASSOCIATED RISKS
Set forth below are descriptions of certain
investments and additional investment policies for
the Bond Funds.
Bank Obligations
The Bond Funds may invest in bank obligations,
including certificates of deposit, time deposits,
bankers' acceptances
and other short-term obligations of domestic
banks, foreign subsidiaries of domestic banks,
foreign branches of domestic banks, and
domestic and foreign branches of foreign banks,
domestic savings and loan associations and
other banking institutions. With respect to
such securities issued by foreign branches of
domestic banks, foreign subsidiaries of
domestic banks, and domestic and foreign
branches of foreign banks, a Bond Fund may be
subject to additional investment risks that
are different in some respects from those
incurred by a bond fund which invests
only in debt obligations of U.S. domestic
issuers. Such risks include possible future
political and economic developments, the
possible imposition of foreign withholding taxes
on interest income payable on the securities,
the possible establishment of exchange
controls or the adoption of other foreign
governmental restrictions which might adversely
affect the payment of principal and interest
on these securities and the possible seizure or
nationalization of foreign deposits. In
addition, foreign branches of U.S. banks and
foreign banks may be subject to less stringent
reserve requirements and to different
accounting, auditing, reporting and
recordkeeping standards than those applicable
to domestic branches of U.S. banks.
Certificates of deposit are negotiable
certificates evidencing the obligation of a bank
to repay funds deposited with it for a specified
period of time.
Time deposits are non-negotiable deposits
maintained in a banking institution for a
specified period of time at a stated
interest rate. Time deposits which may be held
by a Bond Fund will not benefit from
insurance from the Bank Insurance Fund or
the Savings Association Insurance Fund
administered by the Federal Deposit Insurance
Corporation ("FDIC"). Bankers' acceptances
are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it
by a customer. These instruments reflect the
obligation
both of the bank and of the drawer to pay the
face amount of the instrument upon maturity.
The other short-term obligations may
include uninsured, direct obligations, bearing
fixed, floating- or variable-interest rates.
Bonds
Certain of the debt instruments purchased by the
Bond Funds may be bonds. The Bond Funds invest
no more than 15% in bonds that are below
investment grade. A bond is an interestbearing
security issued by a company or governmental
unit. The issuer of a bond has a contractual
obligation to pay interest at a stated rate
on specific dates and to repay principal (the
bond's face value) periodically or on a
specified maturity date.
An issuer may have the right to redeem or
"call" a bond before maturity, in which case
the investor may have to reinvest the
proceeds at lower market rates. The value of
fixed-rate bonds will tend to fall when interest
rates rise and rise when interest rates fall.
The value of "floatingrate" or "variable-rate"
bonds, on the other hand, fluctuate much less in
response to market interest rate movements than
the value of fixed rate bonds.
Bonds may be senior or subordinated
obligations. Senior obligations generally
have the first claim on a corporation's
earnings and assets and, in the event of
liquidation, are paid before subordinated debt.
Bonds may be unsecured (backed only by
the issuer's general
creditworthiness) or secured (also backed by
specified collateral).
Commercial Paper
The Bond Funds may invest in commercial paper
(including variable amount master demand notes)
which refers to shortterm, unsecured promissory
notes issued by corporations to finance short-
term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at
the time of issuance not exceeding nine months.
Variable amount master demand notes are
demand obligations which permit the
investment of fluctuating amounts at varying
market rates of interest pursuant to arrangements
between the issuer and a commercial bank acting
as agent for the payee of such notes whereby
both parties have the right to vary the amount
of the outstanding indebtedness on the notes.
Investments by the Bond Funds in commercial
paper (including variable rate demand notes and
variable rate master demand notes issued by
domestic and foreign bank holding companies,
corporations and financial institutions, as well
as similar instruments issued by government
agencies and instrumentalities) will consist of
issues that are rated in one of the two highest
rating categories by a Nationally
Recognized Ratings
Organization ("NRRO"). Commercial paper may
include variableand floating-rate instruments.
Convertible Securities
The Bond Funds may invest in convertible
securities. A convertible security is
generally a debt obligation or preferred
stock that may be converted within a specified
period of time into a certain amount of common
stock of the same or a different user. A
convertible security provides a fixed-income
stream and the opportunity, through its
conversion feature, to participate in
the capital
appreciation resulting from a market price
advance in its underlying common stock. As
with a straight fixed-income security, a
convertible security tends to increase in market
value when interest rates decline and decrease
in value when interest rates rise. Like a
common stock, the value of a convertible
security also tends to increase as the market
value of the underlying stock rises, and
it tends to decrease as the market value
of the underlying stock declines. Because
its value can be influenced by both
interest rate and market movements, a
convertible security is not as sensitive to
interest rats as a similar fixedincome
security, nor is it as sensitive to changes in
share price as its underlying stock.
The creditworthiness of the issuer of a
convertible security may be important in
determining the security's true value. This is
because the holder of a convertible security
will have recourse only to the issuer. In
addition, a convertible security may be
subject to redemption by the issuer, but only
after a specified date and under
circumstances established at the time the
security is issued.
While the Bond Funds use the same criteria
to rate a convertible debt security that it
uses to rate a more conventional debt
security, a convertible preferred stock is
treated like a preferred stock for a Bond
Fund's financial reporting, credit rating,
and investment limitation
purposes. A preferred stock is subordinated
to all debt obligations in the event of
insolvency, and an issuer's failure to make a
dividend payment is generally not an event of
default entitling the preferred shareholder
to take action. A preferred stock generally has
no maturity date, so that its market value is
dependent on the issuer's business prospects
for an indefinite period of time. In
addition, distributions from preferred stock
are dividends, rather than interest payments,
and are usually treated as such for corporate
tax purposes.
Derivative Securities
The Bond Funds may invest in various instruments
that may be considered "derivatives," including
structured notes, bonds or other instruments
with interest rates that are determined by
reference to changes in the value of other
interest rates, indices or financial indicators
("References") or the relative change in two or
more References. Some derivative securities
represent relatively recent innovations in the
bond markets, and the trading market for these
instruments is less developed than the markets
for traditional types of debt instruments. It is
uncertain how these instruments will perform under different
economic and interest rate
scenarios. Because certain of these
instruments are
leveraged, their market values may be more
volatile than other types of bonds and may
present greater potential for capital gain or
loss. Derivative securities and their
underlying instruments may experience
periods of
illiquidity, which could cause a Bond Fund
to hold a security it might otherwise sell or
could force the sale of a security at
inopportune times or for prices that do not
reflect current market value. The possibility of
default by the issuer or the issuer's credit
provider may be greater for these structured
and derivative instruments than for other
types of instruments. As new types of
derivative securities are developed and
offered to investors, the Investment Adviser
will, consistent with the Bond Funds'
investment objectives, policies and quality
standards,
consider making investments in such new types
of derivative securities.
Floating- and Variable-Rate Obligations
The Bond Funds may purchase floating- and
variable-rate obligations such as demand notes
and bonds. Variable-rate demand notes
include master demand notes that are
obligations that permit a Bond Fund to invest
fluctuating amounts, which may change daily
without penalty, pursuant to direct
arrangements between the Bond Fund, as lender,
and the borrower. The interest rate on a
floating-rate demand obligation is based on a
known lending rate, such as a bank's prime
rate, and is adjusted automatically each time
such rate is adjusted. The interest rate on a
variable-rate demand obligation is adjusted
automatically at specified intervals. The
issuer of such obligations ordinarily has a
right, after a given period, to prepay in its
discretion the outstanding principal amount of
the obligations plus accrued interest upon a
specified number of days' notice to the
holders of such obligations. Frequently, such
obligations are secured by letters of credit
or other credit support arrangements provided
by banks.
There generally is no established secondary
market for these obligations because they are
direct lending arrangements between the
lender and borrower. Accordingly, where these
obligations are not secured by letters of
credit or other credit support arrangements,
a Bond Fund's right to redeem is dependent on
the ability of the borrower to pay principal and
interest on demand. Such obligations frequently
are not rated by credit rating agencies and
each Bond Fund may invest in obligations
which are not so rated only if the Investment
Adviser determines that at the time of
investment the obligations are of comparable
quality to the other obligations in which
such Bond Fund may invest. The
Investment Adviser, on behalf of each Bond
Fund, considers on an ongoing basis the
creditworthiness of the issuers of the
floating- and variable-rate demand obligations
in such Bond Fund's portfolio. No Bond Fund
will invest more than 15% of the value of
its total net assets in floating-or variable-
rate demand obligations whose demand feature is
not exercisable within seven days. Such
obligations may be treated as liquid, if an
active secondary market exists. Floating- and
variable-rate instruments are subject to
interest- rate risk and credit risk.
The floating- and variable-rate instruments
that the Bond Funds may purchase include
certificates of participation in such
instruments.
Foreign Obligations and Securities
Each Bond Fund may invest up to 25% of its
assets in highquality, short-term debt
obligations of foreign branches of U.S. banks,
U.S. branches of foreign banks and short-term
debt obligations of foreign governmental
agencies that are denominated in and pay
interest in U.S. dollars. Investments in
foreign obligations involve certain
considerations that are not typically
associated with investing in domestic
obligations. There may be less publicly available
information about a foreign issuer than about
a domestic issuer and the available
information may be less reliable. In addition,
with respect to certain foreign countries,
taxes may be withheld at the source under
foreign tax laws, and there is a possibility of
expropriation or confiscatory
taxation, political or social instability or
diplomatic developments that could adversely
affect investments in, the liquidity of, and
the ability to enforce contractual
obligations with respect to, securities of
issuers located in those countries. The Bond
Funds may invest in securities denominated in
currencies other than the U.S. dollar and may
temporarily hold funds in bank deposits or
other money market investments denominated
in foreign currencies. Therefore, the Bond
Funds may be affected favorably or
unfavorably by exchange control regulations or
changes in the exchange rate between such
currencies and the dollar. Changes in foreign
currency exchange rates influence values within
a Bond Fund from the perspective of U.S.
investors. The rate of exchange between the
U.S. dollar and other currencies is
determined by the forces of supply and demand
in the foreign exchange markets. These forces
are affected by the international balance of
payments and other economic and financial
conditions, government intervention,
speculation and other factors.
Forward Commitment, When-Issued and
Delayed-Delivery Transactions
The Bond Funds may purchase or sell securities
on a whenissued or delayed-delivery basis
and make contracts to purchase or sell
securities for a fixed price at a future date
beyond customary settlement time. Delivery and
payment on such transaction normally take
place within 120 days after the date of
the commitment to purchase. Securities
purchased or sold on a when-issued, delayed-
delivery or forward commitment basis involve a
risk of loss if the value of the security to
be purchased declines, or the value of the
security to be sold increases, before the
settlement date. The Bond Funds will establish a
segregated account in which they will
maintain cash, U.S. Government obligations or
other high-quality debt instruments in an amount
at least equal in value to each such Bond
Fund's commitments to purchase when-issued
securities. If the value of these assets
declines, a Bond Fund will place additional
liquid assets in the account on a daily basis so
that the value of the assets in the account
is equal to the amount of such commitments.
Illiquid Securities
The Bond Funds may invest in securities not
registered under the Securities Act of 1933, as
amended (the "1933 Act") and other securities
subject to legal or other restrictions on
resale. Because such securities may be less
liquid than other investments, they may be
difficult to sell promptly at an acceptable price.
Delay or difficulty in selling
securities may result in a loss or be costly to
a Bond Fund. Each Bond Fund may invest up to
15% of its net assets in illiquid securities.
Loans of Portfolio Securities
Each Bond Fund may lend its portfolio securities
to brokers, dealers and financial institutions,
provided: (1) the loan is secured
continuously by collateral consisting of U.S.
Government securities or cash or letters
of credit
maintained on a daily marked-to-market basis in
an amount at least equal to the current market
value of the securities loaned; (2) such Bond
Fund may at any time call the loan and obtain
the return of the securities loaned within
five business days; (3) such Bond Fund will
receive any interest
or dividends paid on the loaned securities;
and (4) the aggregate market value of
securities loaned will not at any time exceed
the limits established by the 1940 Act.
A Bond Fund will earn income for lending its
securities because cash collateral pursuant to
these loans will be invested in short-term
money market instruments. In
connection with lending securities, a Bond
Fund may pay reasonable finders,
administrative and custodial fees. A Bond Fund will not
enter into any security lending
arrangement having a duration longer than one
year. Loans of securities involve a risk that
the borrower may fail to return the
securities or may fail to provide additional
collateral. In either case, a Bond Fund could
experience delays in recovering securities or
collateral or could lose all or part of the
value of the loaned securities. Although voting
rights, or rights to consent, attendant to
securities on loan pass to the borrower, such
loans may be called at any time and will be
called so that the securities may be voted by
a Bond Fund if a material event affecting
the investment is to occur. A Bond Fund may pay
a portion of the interest or fee earned from
securities lending to a borrower or a placing
broker. Borrowers and placing brokers may not
be affiliated, directly or indirectly with
ASBCM or any of its affiliates.
Mortgage-Related Securities
The Bond Funds may invest in mortgage-related
securities. Mortgage pass-through securities are
securities representing interests in "pools" of
mortgages in which payments of both interest
and principal on the securities are made
monthly, in effect "passing through" monthly
payments made by the individual borrowers on
the residential mortgage loans which underlie
the securities (net of fees paid to the issuer
or guarantor of the securities). Payment of
principal and interest on some mortgage pass-
through securities (but not the market value
of the securities themselves) may be
guaranteed by the full faith and credit
of the U.S. Government or its agencies or
instrumentalities. Mortgage pass-through
securities created by non- government issuers
(such as commercial banks, savings and loan
institutions, private mortgage insurance
companies, mortgage bankers and other
secondary market issuers) may be supported by
various forms of insurance or guarantees,
including individual loan, title, pool and
hazard insurance, and letters of credit, which
may be issued by governmental entities,
private insurers or the mortgage poolers.
Prepayment Risk. The stated maturities of
mortgage-related securities may be shortened
by unscheduled prepayments of principal on the
underlying mortgages. Therefore, it is not
possible to predict accurately the average
maturity of a particular mortgage-related
security. Variations in the maturities of
mortgage-related securities will affect the
yield of a Bond Fund. Early repayment of
principal on mortgage-related securities may
expose a Bond Fund to a lower rate of
return upon reinvestment of principal. Also, if
a security subject to prepayment has been
purchased at a premium, in the event of
prepayment the value of the premium would be
lost. Like other fixed-income securities,
when interest rates rise, the
value of a mortgage-related
security generally will decline; however,
when interest rates decline, the value of
mortgage-related securities with prepayment
features may not increase as much as other fixed
income securities.
Collateralized Mortgage Obligations ("CMOs") and
Adjustable Rate Mortgages ("ARMs"). The Bond
Funds may also invest in investment grade CMOs.
CMOs may be collateralized by whole mortgage
loans but are more typically collateralized
by portfolios of mortgage pass-through
securities guaranteed by the Government
National Mortgage Association ("GNMA"), the
Federal Home Loan Mortgage Corporation
("FHLMC") or Federal National Mortgage
Association ("FNMA"). CMOs are structured into
multiple classes, with each class bearing a
different stated maturity. Payments
of principal, including
prepayments, are first returned to investors
holding the shortest maturity class;
investors holding the longer maturity
classes receive principal only after the
first class has been retired. As new types of
mortgage-related securities are developed and
offered to investors, the Investment Adviser
will, consistent with the Bond Funds'
investment objectives, policies and quality
standards,
consider making investments in such new types
of mortgagerelated securities.
The Bond Funds each may invest in ARMs issued
or guaranteed by the GNMA, FNMA or the FHLMC.
The full and timely payment of principal and
interest on GNMA ARMs is guaranteed by GNMA and
backed by the full faith and credit of
the U.S. Government. FNMA also guarantees full
and timely payment of both interest and
principal, while FHLMC guarantees full and
timely payment of interest and ultimate
payment of
principal. FNMA and FHLMC ARMs are not backed
by the full faith and credit of the United
States. However, because FNMA and FHLMC are
government-sponsored enterprises, these
securities are generally considered to be
high quality investments that present minimal
credit risks. The yields provided by these
ARMs have historically exceeded the yields on
other types of U.S. Government securities with
comparable maturities, although there can be no
assurance that this historical performance
will continue.
The mortgages underlying ARMs guaranteed
by GNMA are
typically insured or guaranteed by the
Federal Housing Administration, the Veterans
Administration or the Farmers Home
Administration, while those underlying ARMs
issued by FNMA or FHLMC are typically
conventional residential mortgages which are
not so insured or guaranteed, but which conform to specific
underwriting, size and maturity
standards. The interest rates on the mortgages
underlying
the ARMs and some of the CMOs in which the
Bond Funds may invest generally are
readjusted at periodic intervals ranging
from one year or less to several years in
response to changes in a predetermined commonly-
recognized interest rate index. The adjustable
rate feature should reduce, but will not
eliminate, price fluctuations in such
securities, particularly when market interest
rates fluctuate. The net asset value of a
Bond Fund's shares may fluctuate to the extent
interest rates on underlying mortgages differ
from prevailing market interest rates during
interim periods between interest rate reset
dates. Accordingly, investors could experience
some loss if they redeem their shares of a Bond
Fund or if the Bond Funds sells these
portfolio securities before the interest
rates on the underlying mortgages are
adjusted to reflect prevailing market interest
rates. The holder of ARMs and CMOs are also
subject to prepayment risk.
The Bond Funds will not invest in CMOs that, at
the time of purchase, are "high-risk mortgage
securities" as defined in
the then current Federal Financial Institutions
Examination Council Supervisory Policy
Statement on Securities
Activities. High-risk mortgage securities
are generally those with long durations or
those which are likely to be more sensitive to
interest-rate fluctuations.
Mortgage Pass-Throughs or Participation
Certificates ("PCs"). The Bond Funds also may
invest in mortgage passthrough securities, also
known as mortgage PCs. PCs
represent a direct ownership interest in a pool
of mortgage loans. The issuer or servicer of
PCs collects the monthly payments from the
homeowners whose loans are in a given pool and
"passes through" the cash flow to investors in
monthly payments which represent both interest
and repayment of principal. PCs are subject to
prepayment risk.
Most PCs are issued and/or guaranteed by GNMA,
FNMA or FHLMC and carry an implied AAA credit
rating. The remainder are privately issued and
generally rated AAA or AA. The payments of
principal and interest on PCs are considered
secure; however, the cash flow on these
investments may vary from month to month,
depending on the actual prepayment rate of the
underlying mortgage loans. At issuance, the
stated maturity PCs is generally 30 years,
although an increasing number may have 15-,
seven- or five-year stated maturities.
Most PCs are backed by fixed-rate mortgage
loans; however, ARMs are also pooled to create
the securities. Most ARMs have caps and
floors limiting the extent of interest-rate
changes, and these option-like characteristics
require that pass-throughs backed by ARMs have
higher yields than pure floating-rate debt
securities. The market for ARMS is largely
an institutional market.
Asset-Backed Securities
The Bond Funds may invest in various types of
asset-backed securities. Asset-backed
securities are securities that represent an
interest in an underlying security. The asset
backed securities in which the Bond Funds invest
may consist of undivided fractional interests in
pools of consumer loans or receivables held in
trust. Examples include certificates for
automobile receivables (CARS) and credit card
receivables (CARDS). Payments of principal and
interest on these asset-backed securities are
"passed through" on a monthly or other
periodic basis to certificate holders and are
typically supported by some form of credit
enhancement, such as a surety bond, limited
guaranty, or subordination. The extent of credit
enhancement varies, but usually amounts to only
a fraction of the asset-backed security's par
value until exhausted. Ultimately, asset-
backed securities are dependent upon payment
of the consumer loans or receivables by
individuals, and the certificate holder
frequently has no recourse to the entity
that originated the loans or receivables.
The actual maturity and realized yield will
vary based upon the prepayment experience of
the underlying asset pool and prevailing
interest rates at the time of prepayment.
Asset-backed securities are relatively new
instruments and may be subject to greater risk
of default during periods of economic downturn
than other instruments. Also, the secondary
market for certain asset-backed securities
may not be as liquid as the market for other
types of securities, which could result in a
Bond Fund experiencing difficulty in valuing
or liquidating such securities. The Bond
Funds may also invest in securities backed by
pools of mortgages. The investments are
described
under the heading "Mortgage-Related Securities."
Other Investment Companies
The Bond Funds may invest in shares of
other open-end management investment companies,
up to the limits prescribed in Section 12(d) of
the 1940 Act. Under the 1940 Act, a Bond Fund's
investment in such securities currently is
limited to, subject to certain exceptions,
(i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Bond
Fund's net assets with respect to any one
investment company and (iii) 10% of such Bond
Fund's net assets in aggregate. Other
investment companies in which the Bond Funds
invest can be expected to charge fees for
operating expenses, such as investment
advisory and administration fees, that would be
in addition to those charged by the Bond Funds.
Repurchase Agreements
Each Bond Fund may enter into repurchase
agreements, wherein the seller of a security to
a Bond Fund agrees to repurchase that security
from a Bond Fund at a mutually agreed upon
time and price. A Bond Fund may enter into
repurchase agreements only with respect to
securities that could otherwise be purchased
by such Bond Fund. All repurchase agreements
will be fully collateralized at 102% based on
values that are marked to market daily. The
maturities of the underlying
securities in a repurchase agreement
transaction may be greater than twelve months,
although the maximum term of a repurchase
agreement will always be less than twelve
months. If the seller defaults and the value of
the underlying securities has declined, a
Bond Fund may incur a loss. In addition, if
bankruptcy proceedings are commenced with
respect to the seller of the security, such
Bond Fund's disposition of the security may be
delayed or limited.
A Bond Fund may not enter into a repurchase
agreement with a maturity of more than seven
days, if, as a result, more than 15% of the
market value of such Bond Fund's total net
assets would be invested in repurchase
agreements with maturities of more than seven
days, restricted securities and illiquid
securities. A Bond Fund will only enter into
repurchase agreements with primary
broker/dealers and commercial banks that meet
guidelines established by the Board of Directors
and that are not affiliated with the Investment
Adviser. The Bond Funds may participate in
pooled repurchase agreement transactions with
other funds advised by ASBCM.
Stripped Securities
The Bond Funds may purchase Treasury receipts,
securities of government - sponsored
enterprises (GSEs), and other "stripped"
securities that evidence ownership in either
the future interest payments or the future
principal payments on U.S. Government and
other obligations. The stripped securities
the Bond Funds may purchase are issued by the
U.S. Government (or a U.S. Government
agency or
instrumentality) or by private issuers such
as banks, corporations and other institutions
at a discount to their face value. The Bond
Funds will not purchase stripped mortgage-
backed securities ("SMBS"). The stripped
securities purchased by the Bond Funds generally
are structured to make a lump-sum payment at
maturity and do not make periodic payments
of principal or interest. Hence, the duration
of
these securities tends to be longer and they
are therefore more sensitive to interest rate
fluctuations than similar securities that
offer periodic payments over time. The
stripped securities purchased by the Bond
Funds are not
subject to prepayment or extension risk.
The Bond Funds may purchase participations in
trusts that hold U.S. Treasury securities
(such as TIGRs and CATS) or other obligations
where the trust participations evidence
ownership in either the future interest
payments or the
future principal payments on the
obligations. These
participations are normally issued at a
discount to their "face value," and can
exhibit greater price volatility than ordinary
debt securities because of the way in which
their principal and interest
are returned to investors.
Investments by the Bond Funds in such
participations will not exceed 5% of the value
of the Bond Funds' total assets.
Reverse Repurchase Agreements
The Bond Funds intend to limit their
borrowings (including reverse repurchase
agreements) during the current fiscal year to
not more than 10% of net assets. At the time a
Bond Fund enters into a reverse repurchase
agreement (an
agreement under which a Bond Fund sells
their portfolio securities and agrees to
repurchase them at an agreed-upon date and
price), it will place in a segregated
custodial account liquid assets such as U.S.
Government securities or other liquid high-
grade debt securities having a value equal to
or greater than the repurchase price (including
accrued interest) and will subsequently
monitor the account to ensure that such
value is maintained. Reverse repurchase
agreements involve the risk that the market
value of the
securities sold by the Bond Funds may decline
below the
price at which the Bond Funds are obligated to
repurchase the securities. Reverse repurchase
agreements are considered to be borrowings under
the 1940 Act.
Municipal Bonds
The Bond Funds may invest in municipal
bonds. The two
principal classifications of municipal bonds
are "general obligation" and "revenue" bonds.
Municipal bonds are debt obligations issued
to obtain funds for various public
purposes. Industrial development bonds are a
specific type of revenue bond backed by the
credit and security of a private user.
Certain types of industrial development bonds
are issued by or on behalf of public
authorities to obtain funds to provide
privately-operated facilities. The Bond Funds
may not invest 20% or more of their respective
assets in industrial development bonds.
From time to time, proposals have been
introduced before Congress for the purpose of
restricting or eliminating the
federal income tax exemption for interest
on municipal obligations. For example, under
federal tax legislation enacted in 1986,
interest on certain private activity bonds must
be included in an investor's alternative
minimum taxable income, and corporate investors
must treat all taxexempt interest as an item
of tax preference. Moreover the
Bond Funds cannot predict what legislation, if
any, may be proposed in the state legislature
regarding the state income tax status of
interest on such obligations, or which
proposals, if any, might be enacted. Such
proposals, while pending or if enacted, might
materially and adversely affect the
availability of municipal obligations
generally for
investment by the Bond Funds and the liquidity
and value of the Bond Funds' portfolios. In
such an event, the Bond Funds would re-evaluate
their investment objectives and policies and
consider possible changes in their structure or
possible dissolution.
Certain of the municipal obligations held by the
Bond Funds may be insured as to the timely
payment of principal and interest. The
insurance policies usually are obtained by the
issuer of the municipal obligation at the
time of its original issuance. In the event
that the issuer defaults on interest or
principal payment, the insurer will be notified
and will be required to make payment to the
bondholders. There is, however, no guarantee
that the insurer will meet its obligations.
In addition, such insurance does not
protect against market fluctuations caused by
changes in interest rates and other factors.
Municipal Notes
The Bond Funds may invest in municipal notes.
Municipal notes include, but are not limited
to, tax anticipation notes ("TANs"), bond
anticipation notes ("BANs"), revenue
anticipation notes ("RANs") and construction
loan notes. Notes sold as interim
financing in anticipation of
collection of taxes, a bond sale or
receipt of other revenues are usually general
obligations of the issuer.
TANs. An uncertainty in a municipal issuer's
capacity to
raise taxes as a result of such events as a
decline in its tax base or a rise in
delinquencies could adversely affect the
issuer's ability to meet its obligations on
outstanding TANs. Furthermore, some
municipal issuers mix various tax
proceeds into a general fund that is used
to meet obligations other than those of the
outstanding TANs. Use
of such a general fund to meet various
obligations could affect the likelihood of
making payments on TANs.
BANs. The ability of a municipal issuer
to meet its
obligations on its BANs is primarily
dependent on the issuer's adequate access to
the longer term municipal bond market and the
likelihood that the proceeds of such bond
sales will be used to pay the principal of, and
interest on, BANs.
RANs. A decline in the receipt of certain
revenues, such as anticipated revenues from
another level of government, could adversely
affect an issuer's ability to meet its
obligations on outstanding RANs. In addition,
the possibility that the revenues would, when
received, be used to meet other obligations
could affect the ability of the issuer to pay
the principal of, and interest on, RANs.
The values of outstanding municipal securities
will vary as a result of changing market
evaluations of the ability of their issuers
to meet the interest and principal payments
(i.e., credit risk). Such values also will
change in response to changes in the interest
rates payable on new issues of municipal
securities (i.e., market risk). Changes in the
value of municipal securities held in the Bond
Funds' portfolios arising from these or other
factors will cause changes in the net asset
value per share of the Bond Funds.
U.S. Government Obligations
The Bond Funds may invest in obligations
issued or
guaranteed by the U.S. Government, its
agencies or
instrumentalities ("U.S. Government
Obligations"). Payment of principal and
interest on U.S. Government Obligations (i) may
be backed by the full faith and credit of the
United States (as with U.S. Treasury bills and
GNMA certificates) or (ii) may be backed solely
by the issuing or guaranteeing agency or
instrumentality itself (as with FNMA notes). In
the latter case investors must look
principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate
repayment, which agency or
instrumentality may be privately owned. There
can be no assurance that the U.S. Government
will provide financial support to its agencies
or instrumentalities where it is not obligated
to do so. In addition, U.S. Government
Obligations are subject to fluctuations in
market value due to
fluctuations in market interest rates. As a
general matter, the value of debt
instruments, including U.S. Government
Obligations, declines when market interest
rates increase and rises when market interest
rates decrease. Certain types of U.S.
Government Obligations are subject to
fluctuations in yield or value due to their
structure or contract terms.
Zero Coupon Bonds
The Bond Funds may invest in zero coupon bonds.
Zero coupon bonds are securities that make
no periodic interest
payments, but are instead sold at discounts from
face value. The buyer of such a bond receives
the rate of return by the gradual appreciation
of the security, which is redeemed at face
value on a specified maturity date. Because zero
coupon bonds bear no interest, they are more
sensitive to interestrate changes and are
therefore more volatile. When interest rates
rise, the discount to face value of the
security deepens and the securities decrease
more rapidly in value, when interest rates
fall, zero coupon securities rise more rapidly
in value because the bonds carry fixed
interest rates that become more attractive in a
falling interest rate environment.
Nationally Recognized Ratings Organizations
The ratings of Moody's, S&P, Division of McGraw
Hill, Duff & Phelps Credit Rating Co., Fitch
Investors Service, Inc. Thomson Bank Watch and
IBCA Inc. represent their opinions as to the
quality of debt securities. It should be
emphasized, however, that ratings are general
and not absolute standards of quality, and
debt securities with the same maturity,
interest rate and rating may have different
yields while debt securities of the same
maturity and interest rate with different
ratings may have the same yield. Subsequent
to purchase by the Bond Funds, an issue of debt
securities may cease to be rated or its
rating may be reduced below the minimum rating
required for purchase by the Bond Funds. The
Investment Adviser will consider such an
event in
determining whether the Bond Fund involved
should continue to hold the obligation.
THE MONEY MARKET FUND
INVESTMENT POLICIES
Fundamental Investment Policies
The Money Market Fund has adopted the
following investment restrictions, all of which
are fundamental policies; that is, they may
not be changed without approval by the vote of
the holders of a majority (as defined in the
1940 Act) of
the outstanding voting securities of the Money Market
Fund.
The Money Market Fund may not:
(1) purchase the securities of issuers conducting
their principal business activity in the same
industry if, immediately after the purchase and
as a result thereof, the value of the Money
Market Fund's investments in that industry
would equal 25% of the current value of the
Money Market Fund's total assets, provided that
there is no limitation with respect to
investment in (i) securities issued or
guaranteed by the U.S. Government, its agencies
or instrumentalities, (ii) municipal securities,
(iii) foreign government securities, and (iv)
obligations of domestic or foreign banks. For
purposes of this policy, (i) "Mortgage Related
Securities," as they are defined in the
Securities Exchange Act of 1934, as amended
(the "1934 Act") are treated as securities of
an issuer in the industry of the primary type of
asset backing the security; (ii) financial
services companies are classified according to
the end users of their services (for example,
automobile finance, bank finance, and
diversified finance); and (iii) utility
companies are classified according to their
services (for example, gas, gas transmission,
electric and gas, electric and telephone). In
certain circumstances, the guarantor of a
guaranteed security may also be considered to be
an issuer in connection with such guarantee,
except that a guarantee of a security shall not
be deemed to be a security issued by the
guarantor when the value of all securities
issued and guaranteed by the guarantor, and
owned by the Money Market Fund, does not exceed
10% of the value of the Money Market Fund's
total assets;
(2) purchase securities of any issuer if, as a
result,
with respect to 75% of the Money Market
Fund's total assets, more than 5% of the
value of its total assets would be
invested in the securities of any one
issuer or, with respect to 100% of its
assets, the Money Market Fund's
ownership would be more than 10% of the
outstanding voting securities of such
issuer. This policy does not restrict
the Money Market Fund's ability to
invest in securities issued or guaranteed
by the U.S. Government, its
agencies and instrumentalities;
(3) borrow money except to the extent
permitted by the
1940 Act, and the rules, regulations and
exemptions thereunder;
(4) issue senior securities except to
the extent
permitted by the 1940 Act, and the rules,
regulations and exemptions thereunder;
(5) make loans to other parties if, as a
result, the
aggregate value of such loans would exceed
one-third of the Money Market Fund's total
assets. For the purposes of this
limitation, entering into repurchase
agreements, lending securities and
acquiring any debt securities are not
deemed to be the making of loans;
(6) underwrite securities of other
issuers, except to
the extent that the purchase of permitted
investments directly from the issuer
thereof or from an underwriter for an
issuer and the later disposition of
such securities in accordance with the
Money Market Fund's investment program may
be deemed to be an underwriting;
(7) purchase or sell real estate unless
acquired as a result of ownership of
securities or other instruments (but this shall
not prevent the Money Market Fund from investing
in securities or other instruments backed by
real estate or securities of companies engaged
in the real estate business); nor
(8) purchase or sell physical commodities
unless acquired as a result of ownership of
securities or other instruments (but this shall
not prevent the Money Market Fund from
purchasing or selling options and futures
contracts or from investing in securities or
other instruments backed by physical
commodities).
Non-Fundamental Investment Policies
The Money Market Fund has adopted the
following nonfundamental policies which may be
changed by a majority vote of the Board of
Directors at any time and without approval of such
Fund's shareholders.
(1) The Money Market Fund may invest in
shares of other open-end management investment
companies, subject to the limitations of
the 1940 Act, the rules thereunder, and any
orders obtained thereunder now or in the
future. Other investment companies in which the
Money Market Fund invests can be expected to
charge fees for operating expenses, such
as investment advisory and administration
fees, that would be in addition to those
charged by the Money Market Fund.
(2) The Money Market Fund may not invest or hold
more than 10% of the Money Market Fund's net
assets in illiquid
securities. For this purpose, illiquid securities
include, among others, (a) securities that are
illiquid by virtue of the absence of a readily
available market or legal or contractual
restrictions on resale, (b) fixed time deposits that
are subject to withdrawal penalties and that have
maturities of more than seven days, and (c)
repurchase agreements not terminable within seven
days.
(3) The Money Market Fund may lend securities
from its portfolio to brokers, dealers and
financial institutions, in amounts not to exceed
(in the aggregate) one-third of the Money
Market Fund's total assets. Any such loans of
portfolio securities will be fully
collateralized based on values that are marked
to market daily. The Money Market Fund will not
enter into any portfolio security lending
arrangement having a duration of longer than one
year.
(4) The Money Market Fund may not make investments
for the
purpose of exercising control or management.
(5) The Money Market Fund may not purchase
securities on margin (except for short-term
credits necessary for the clearance of
transactions).
(6) The Money Market Fund may not sell securities
short, unless it owns or has the right to
obtain securities equivalent in kind and amount
to the securities sold short (short sales
"against the box"), and provided that
transactions in futures contracts and options
are not deemed to constitute selling securities
short.
(7) The Money Market Fund may not purchase
interests,
leases, or limited partnership interests in
oil, gas, or other mineral exploration or
development programs.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES AND
ASSOCIATED RISKS
Set forth below are descriptions of certain
investments and additional investment policies
for the Money Market Fund.
Bank Obligations
The Money Market Fund may invest in bank
obligations, including certificates of deposit,
time deposits, bankers' acceptances and other
short-term obligations of domestic and foreign
banks, foreign subsidiaries of domestic
banks, foreign branches of domestic and foreign
banks, and domestic and foreign branches of
foreign banks, domestic savings banks and
associations and other banking institutions.
With respect to such securities issued by
foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic
and foreign branches of foreign banks, the
Money Market Fund may be subject to additional
investment risks that are different in some
respects from those incurred by a fund which
invests only in debt obligations of U.S. domestic
issuers. Such risks include possible future
political and economic developments, the
possible imposition of foreign withholding
taxes on interest income payable on the
securities, the possible establishment of
exchange controls or the adoption of other
foreign governmental restrictions which might
adversely affect the payment of principal and
interest on these securities and the possible
seizure or nationalization of foreign deposits.
In addition, foreign branches of U.S. banks
and foreign banks may be subject to less
stringent reserve requirements and to
different accounting, auditing, reporting and
recordkeeping standards than those applicable to
domestic branches of U.S. banks.
Certificates of deposit are negotiable
certificates evidencing the obligation of a bank
to repay funds deposited with it for a specified
period of time.
Time deposits are non-negotiable deposits
maintained in a banking institution for a
specified period of time at a stated
interest rate. Time deposits which may be held
by the Money Market Fund will not benefit from
insurance from the Bank Insurance Fund or the
Savings Association Insurance Fund administered
by the Federal Deposit Insurance
Corporation ("FDIC"). Bankers' acceptances
are credit instruments evidencing the
obligation of a bank to pay a draft drawn on
it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to
pay the face amount of the instrument upon
maturity. The other shortterm obligations may
include uninsured, direct obligations, bearing
fixed, floating- or variable-interest rates.
Commercial Paper
The Money Market Fund may invest in
commercial paper. Commercial paper includes
short-term unsecured promissory notes, variable
rate demand notes and variable rate master
demand notes issued by domestic and foreign
bank holding companies, corporations and
financial institutions as well as similar
taxable instruments issued by government agencies
and instrumentalities.
Derivative Securities
The internal investment policies of the Investment
Adviser prohibit the Money Market Fund's purchase of
many types of floating-rate derivative securities
that are considered potentially volatile. The
following types of derivative securities ARE NOT
permitted investments for the Money Market Fund:
* capped floaters (on which interest is not paid
when
market rates move above a certain level);
* leveraged floaters (whose interest rate
reset provisions are based on a formula that
magnifies changes in interest rates);
* range floaters (which do not pay any
interest if market interest rates move outside
of a specified range);
* dual index floaters (whose interest rate
reset provisions are tied to more than one
index so that a change in the relationship
between these indices may result in the value
of the instrument falling below face value);
and
* inverse floaters (which reset in the
opposite direction of their index).
Floating- and Variable-Rate Obligations
The Money Market Fund may purchase floating- and
variable-
rate obligations such as demand notes and
bonds. These
obligations may have stated maturities in excess
of thirteen months, but they permit the
holder to demand payment of principal at any
time, or at specified intervals not
exceeding thirteen months. Variable- rate
demand notes include master demand notes that
are obligations that permit the Money Market
Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to
direct arrangements between the Money Market
Fund, as lender, and the borrower. The
interest rates on these notes fluctuates from
time to time, but the Money Market Fund may only
invest in floating- or variable-rate securities
that bear interest at a rate that resets
quarterly or more frequently and that resets
based on standard money market rate indices.
The issuer of such obligations ordinarily has
a corresponding right, after a given period, to
prepay in its discretion the outstanding
principal amount of the obligations plus accrued
interest upon a specified number of days'
notice to the holders of such obligations.
Because these obligations are direct lending
arrangements between the lender and borrower, it
is not contemplated that such instruments
generally will be traded, and there
generally is no established secondary market
for these obligations, although they are
redeemable at face value. Accordingly, where
these obligations are not secured by letters
of credit or other credit support arrangements,
the Money Market Fund's right to redeem is
dependent on the ability of the borrower to
pay principal and interest on demand. Such
obligations frequently are not rated by credit
rating agencies and the Money Market Fund may
invest in obligations which are not so rated
only if the Investment Adviser determines
that at the time of investment the
obligations are of comparable quality to
the other
obligations in which the Money Market Fund may
invest. The Investment Adviser, on behalf of
the Money Market, considers on an ongoing basis
the creditworthiness of the issuers of the
floating- and variable-rate demand obligations
in such Fund's portfolio. The Money Market
Fund will not invest
more than 10% of the value of its total net
assets in floating- or variable-rate demand
obligations whose demand feature is not
exercisable within seven days. Such
obligations may be treated as liquid,
provided that an active secondary market
exists.
Foreign Obligations
The Money Market Fund may invest up to 25% of
its assets in high-quality, short-term
(thirteen months or less) debt obligations
of foreign branches of U.S. banks or U.S.
branches of foreign banks that are denominated
in and pay interest in U.S. dollars.
Investments in foreign obligations involve certain
considerations that are not typically
associated with investing in domestic
obligations. There may be less publicly
available information about a foreign issuer
than about a domestic issuer. Foreign issuers
also are not subject to the same uniform
accounting, auditing and financial reporting
standards or governmental supervision as
domestic issuers. In addition, with respect
to certain foreign countries, taxes may be
withheld at the source under foreign income
tax laws and there is a possibility of
expropriation or confiscatory taxation,
political or social instability, or diplomatic
developments that could affect adversely
investments in, the liquidity of, and the
ability to enforce contractual obligations
with respect to, securities of issuers
located in those countries.
Forward Commitments, When-Issued Purchases
and DelayedDelivery Transactions
The Money Market Fund may purchase or sell
securities on a when-issued or delayed-delivery
basis and make contracts to purchase or sell
securities for a fixed price at a future date
beyond customary settlement time. Securities
purchased or sold on a when-issued, delayed-
delivery or forward commitment basis involve a
risk of loss if the value of the security to
be purchased declines, or the value of the
security to be sold increases, before the
settlement date.
The Money Market Fund will segregate cash,
U.S. Government obligations or other high-
quality debt instruments in an amount at
least equal in value to the Money Market Fund's
commitments to purchase when-issued
securities. If the value of these assets
declines, the Money Market Fund will segregate
additional liquid assets on a daily basis so
that the value of the segregated assets is equal
to the amount of such commitments.
Letters of Credit
Certain of the debt obligations (including
certificates of participation, commercial paper
and other short-term
obligations) which the Money Market Fund may
purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings
and loan association or insurance company which
assumes the obligation for payment of principal
and interest in the event of default by the
issuer. Only banks, savings and loan
associations and insurance companies which, in
the opinion of ASBCM, are of comparable
quality to issuers of other permitted
investments of the Money Market Fund may be
used for letter of credit-backed investments.
Other Investment Companies
The Money Market Fund may invest in shares of
other open-end
management investment companies, up to the
limits prescribed in Section 12(d) of the 1940
Act. Under the 1940 Act, the Money Market
Fund's investment in such securities currently
is limited to, subject to certain exceptions,
(i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net
assets with respect to any one investment
company and (iii) 10% of such Fund's net
assets in
aggregate. Other investment companies in which
the Money Market Fund invests can be expected
to charge fees for operating expenses such as
investment advisory and
administration fees, that would be in
addition to those charged by the Money Market
Fund.
Ratings of Securities
Any security that the Money Market Fund
purchases must present minimal credit risks
and be of "high quality" or "highest quality."
"High quality" means to be rated in the top two
rating categories and "highest quality" means to
be rated only in the top rating category, by
the requisite Nationally Recognized Ratings
Organization ("NRRO") or, if unrated,
determined to be of comparable quality to
such rated securities by the Investment Adviser,
under guidelines adopted by the Board of
Directors.
The ratings of Moody's, S&P, Duff & Phelps
Credit Rating Co., Fitch Investors Service,
Inc., Thomson Bank Watch and IBCA Inc.
represent their opinions as to the quality of
debt securities. It should be emphasized,
however, that ratings are general and not
absolute standards of quality, and debt
securities with the same maturity, interest rate
and rating may have different yields while
debt securities of the same maturity and
interest rate with different ratings may have
the same yield. Subsequent to purchase by the
Money Market Fund, an issue of debt securities
may cease to be rated or its rating may be
reduced below the minimum rating required for
purchase by the Money Market Fund. The
Investment Adviser will consider such an event
in determining whether the Money Market
Fund should continue to hold the
obligation.
Repurchase Agreements
The Money Market Fund may enter into
repurchase agreements wherein the seller of a
security to the Money Market Fund agrees to
repurchase that security from the Fund at a
mutually agreed upon time and price. The Money
Market Fund may enter into repurchase
agreements only with respect to securities
that could otherwise be purchased by the Fund.
All repurchase agreements will be fully
collateralized at at least 102% based on values
that are marked to market daily. The maturities
of the underlying securities in a repurchase
agreement transaction may be greater than
twelve months, although the maximum term of a
repurchase agreement will always be less
than twelve months. If the seller defaults and
the value of the underlying securities has
declined, the Money Market Fund may incur a
loss. In addition, if bankruptcy proceedings
are commenced with respect to the seller of
the security, the Money Market Fund's
disposition of the security may be delayed or
limited.
The Money Market Fund may not enter into a
repurchase agreement with a maturity of more
than seven days, if, as a result, more than
10% of the market value of such Fund's total
net assets would be invested in repurchase
agreements with maturities of more than
seven days, restricted
securities and illiquid securities. The Money
Market Fund will only enter into repurchase
agreements with primary broker/dealers and
commercial banks that meet guidelines
established by the Board of Directors and
that are not affiliated with the Investment
Adviser. The Money Market Fund may
participate in pooled repurchase agreement
transactions with other funds advised by ASBCM.
Unrated and Downgraded Investments
The Money Market Fund may purchase instruments
that are not rated if, in the opinion of the
Investment Adviser, such obligations are of
comparable quality to other rated
investments that are permitted to be purchased
by the Money Market Fund. The Money Market
Fund may purchase unrated instruments only if
they are purchased in accordance with the
Money Market Fund's procedures adopted by
Leland's Board of Directors in accordance with
Rule 2a-7 under the 1940 Act. After purchase
by the Money Market Fund, a security may cease
to be rated or its rating may be reduced below
the minimum required for purchase by the Fund.
In the event that a portfolio security ceases
to be an "Eligible Security" or no longer
"presents minimal credit risks," immediate sale
of such security is not required, provided that
the Board of Directors has determined that
disposal of the portfolio security would not
be in the best interests of the Money Market
Fund.
U.S. Government and U.S. Treasury Obligations
The Money Market Fund may invest in obligations
of agencies and instrumentalities of the
U.S. Government ("U.S. Government
obligations"). Payment of principal and
interest on U.S. Government obligations (i) may
be backed by the full faith and credit of the
United States (as with U.S. Treasury bills and
GNMA certificates) or (ii) may be backed solely
by the issuing or guaranteeing agency or
instrumentality itself (as with FNMA notes). In
the latter case investors must look principally
to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate
repayment, which agency or instrumentality may
be privately owned. There can be no assurance
that the U.S. Government will provide
financial support to its agencies or
instrumentalities where it is not obligated to
do so. In addition, U.S. Government obligations
are subject to fluctuations in market value due
to fluctuations in market interest rates. As
a general matter, the value of debt
instruments, including U.S. Government
obligations, declines when market interest
rates increase and rises when market interest
rates decrease. Certain types of U.S.
Government obligations are subject to
fluctuations in yield or value due to their
structure or contract terms.
MANAGEMENT OF THE FUNDS
The business of the Funds is managed by
Leland's Board of Directors which elects
officers responsible for the day to day
operations of the Funds and for the execution
of the policies formulated by the Board of
Directors.
The following table sets forth the principal
occupation or employment of the members of the
Board of Directors and principal officers of
Leland.
Name (Age) and Address Position(s) Held with Principal
Occupation(s)
Leland During
Past 5 Years
Walter R. Fatzinger, Director 1999 -
Present:
Jr., (57)* President,
ASB Capital
Management, Inc. Leland Funds, Inc.
c/o ASB Capital 1994 -
1999:
Management, Inc. President
- - - Greater
1101 Pennsylvania Washington
Region,
Avenue, N.W. First
National Bank of
Suite 300 Maryland;
Executive
Washington, D.C. 20004 Vice
President -
Institutio
nal Bank,
First
National
Bank of
Maryland
Leslie A. Nicholson, Director 1996 -
Present:
(59)* Executive
Vice
President
and General Leland Funds, Inc.
Counsel, Chevy Chase
c/o ASB Capital Bank
Management, Inc.
1101 Pennsylvania 1994 -
1996:
Avenue, N.W. Partner,
Shaw Pittman
Suite 300 law firm
Washington, D.C. 20004
* An "interested person" of Leland as defined in the 1940
Act.
Leland makes no payments to any of its officers for
services. However, each of Leland's Directors
who are not "interested persons" (the
"Disinterested Directors") are paid by Leland
an annual fee of $[ ] and fees of $[ ] for
each meeting they attend (other than those held
by telephone conference call). Each Director is
reimbursed by Leland for any expenses incurred
by reason of attending such meetings or in
connection with services performed for the
Funds.
The following table sets forth information regarding
compensation of Directors by Leland and by the
fund complex of which the Funds are a part. In
the column headed "Total Compensation from
Leland and Fund Complex Paid to
Directors," the number in parentheses indicates
the total number of boards in the fund complex
on which the Director served as of [date].
Compensation Table
Pension or
Total
Name of Aggregate Retirement Estimated
Compensation
Person Compensation Benefits Annual
from Leland
(Position) from Leland* Accrued as Benefits Upon
and Fund
Part of Fund Retirement*
Complex Paid Expenses*
to Directors*
Walter R. N/A N/A N/A
N/A
Fatzinger,
Jr.
(Director)
Leslie A. N/A N/A N/A
N/A
Nicholson
(Director)
* Based on estimated amounts for the current fiscal year.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER.
ASB Capital Management, Inc., a Maryland
corporation, is the investment adviser to the
Funds (as previously defined, the "Investment
Adviser"). Pursuant to the Investment Management
Agreement with Leland on behalf of the Funds,
the Investment Adviser manages each Fund's
investments in accordance with its stated
policies and restrictions, subject to oversight
by Leland's Board of Directors.
The Investment Adviser is a wholly owned
subsidiary of Chevy Chase Bank, F.S.B. ("Chevy
Chase Bank"). Personnel of the Investment
Adviser may invest in securities for their own
account pursuant to a code of ethics that sets
forth all employees' fiduciary
responsibilities regarding the
Funds, establishes procedures for personal
investing and restricts certain transactions.
The Investment Management Agreement, which is
dated [ ], 1999, will continue in effect for
an initial two-year term, and thereafter from
year to year so long as continuation is
specifically approved at least annually by
a vote of Leland's Board of Directors by vote
of the shareholders of the Funds, and in either
case by a majority of Disinterested Directors
who have no direct or indirect financial
interest in the Agreement. The agreement may be
terminated as to a Fund at any time upon 60
days' prior written notice, without penalty, by
either party, or by a majority vote of the
outstanding shares of that Fund, and will
terminate automatically upon assignment.
The Investment Management Agreement
provides that the Investment Adviser will
not be liable for any error of judgment or
of law, or for any loss suffered by a Fund in
connection with the matters to which such
agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross
negligence on the Investment Adviser's part in
the performance of its obligations and duties,
or by reason of its reckless disregard of its
obligations and duties under such agreement.
The services of the Investment Adviser to the
Funds under the Investment Management Agreement
are not exclusive and it is free to render
similar services to others.
For the investment management services
furnished to the Funds, each Fund pays the
Investment Adviser an annual investment
management fee, accrued daily and payable
monthly, of [ ]% of that Fund's average daily
net assets.
The Investment Adviser and its affiliates may,
from time to time, voluntarily waive or
reimburse all or a part of a Fund's
operating expenses. Expense reimbursements by
the Investment Adviser or its affiliates will
increase a Fund's total return. [Description
of any such waiver/reimbursement to be added by
amendment.]
ADMINISTRATOR
Pursuant to an Administration Agreement with
Leland and the Investment Adviser, [ ] (the
"Administrator") provides administrative
services to the Funds. Administrative
services furnished by the Administrator
include, among
others, maintaining and preserving the records
of the Funds, including financial and
corporate records, computing net asset value,
dividends, performance data and financial
information regarding the Funds,
preparing reports,
overseeing the preparation and filing with the
SEC and state securities regulators of
registration statements, notices, reports and
other material required to be filed under
applicable laws, developing and implementing
procedures for monitoring compliance with
regulatory requirements, providing routine
accounting services, providing office
facilities and clerical support as well as
providing general oversight of other service
providers. [Description
of
compensation of Administrator to be added by
amendment.]
The Administration Agreement, which is dated [
], 1999, will continue in effect for an
initial two-year term, and thereafter from
year to year so long as such continuation is
specifically approved at least annually by
a vote of Leland's Board of Directors,
including a majority
of
Disinterested Directors who have no direct
or indirect financial interest in the
Agreement. Leland or
the
Administrator may terminate the Administration
Agreement on 60 days' prior written notice
without penalty. Termination by Leland may be
by vote of Leland's Board of Directors, or a
majority of the Disinterested Directors who have
no direct or indirect financial interest in the
Agreement, or by a majority of the
outstanding voting securities of the Funds.
The Administration Agreement provides that the
Administrator will not be liable for any error
of judgment or of law, or for any loss
suffered by a Fund in connection with the
matters to which such agreement relates,
except a loss resulting from willful
misfeasance, bad faith or gross negligence
on the Administrator's part in the performance
of its obligations and duties, or by reason of
its reckless disregard of its obligations
and duties under
such
agreement.
DISTRIBUTOR
The distributor of the Funds is [ ],
[address] (the "Distributor"). Pursuant to a
Distribution Agreement between Leland and the
Distributor, the Distributor has the
exclusive right to distribute shares of the
Funds. The Distributor may enter into dealer or
agency agreements with affiliates of the
Investment Adviser and other firms for the sale
of Funds shares. [Description of fees, if any,
paid to the Distributor to be added by
amendment.] From time to time and out of its
own resources, the Investment Adviser or its
affiliates may pay fees to broker-dealers or
other persons for distribution or other
services related to the Funds.
The Distribution Agreement with the
Distributor will continue in effect only if
such continuance is specifically approved at
least annually by a vote of Leland's Board of
Directors, including a majority of the
Disinterested Directors who have no direct or
indirect financial interest in the Agreement.
The Agreement was approved by Leland's Board
of Directors, including a majority
of the
Disinterested Directors who have no direct
or indirect financial interest in the
Agreement. The Funds may terminate the
Distribution Agreement on 60 days' prior written
notice without penalty. Termination by a Fund
may be by vote of Leland's Board
of Directors, or a majority of
the
Disinterested Directors who have no direct
or indirect
financial interest in the Agreement. The Agreement
terminates automatically in the event of its
"assignment" as defined in the 1940 Act.
SHAREHOLDER SERVICING
Leland's Board of Directors has approved a
Shareholder Servicing Plan ("Servicing Plan")
pursuant to which each Fund may pay banks,
broker-dealers or other financial
institutions that have entered into a
shareholder services agreement with Leland
("Servicing Agents") in connection with
shareholder support services that they provide.
Payments under the Servicing Plan will be
calculated daily and paid monthly at an annual
rate that may not exceed [ ]% of the average
daily net assets of the applicable Fund. The
shareholder services provided by the
Servicing Agents pursuant to the Servicing
Plan may include, among other services,
providing general shareholder liaison
services (including responding to shareholder
inquiries), providing information on
shareholder investments, establishing and
maintaining shareholder accounts and records,
and providing such other similar services as
may be reasonably requested.
The Servicing Plan was approved by
Leland's Board of Directors, including a
majority of the Disinterested Directors who
have no direct or indirect financial interest
in the Plan or the Shareholder Services
Agreement (described below). The Servicing Plan
continues in effect as long as such
continuance is specifically so approved at
least annually. The Servicing Plan may be
terminated by Leland with respect to a
Fund by a vote of a majority of the
Disinterested Directors who have no direct
or indirect financial interest in the Plan or
any agreements relating thereto.
Leland may enter into agreements with
other service organizations, including
broker-dealers and banks whose clients are
shareholders of the Funds, to act as Servicing
Agents and to perform shareholder support
services with respect to such clients pursuant
to the Servicing Plan.
Such Shareholder Services Agreements will
continue in effect only if such continuance is
specifically approved at least annually by a vote of
Leland's Board of Directors,
including a majority of the Disinterested
Directors who have no direct or indirect
financial interest in the Agreement. A Fund may
terminate the Shareholder Services Agreement on
60 days' prior written notice without penalty.
Termination by a Fund may be by vote of
Leland's Board of Directors, or a majority of
the Disinterested Directors who have no direct
or indirect financial interest in the
Agreement. The Agreement terminates
automatically in the event of its
"assignment" as defined in the 1940 Act.
Conflict of interest restrictions may apply to
the receipt by Servicing Agents of
compensation from Leland in connection with
the investment of fiduciary assets in Fund
shares. Servicing Agents, including banks
regulated by the Comptroller of the Currency,
the Federal Reserve Board or the FDIC, and
investment advisers and other money managers
are urged to consult their legal advisers
before investing such assets in Fund shares.
TRANSFER AGENT AND CUSTODIAN
[ ] (the "Transfer Agent"), [address], serves
as transfer and dividend disbursing agent
for the Funds. For the services provided
under the Transfer Agency and Dividend
Disbursing Agency Agreement, which include
furnishing periodic
and year-end shareholder statements
and
confirmations of purchases and sales,
reporting share ownership, aggregating,
processing and recording purchases and
redemptions of shares, processing
dividend and
distribution payments, forwarding shareholder
communications such as proxies, shareholder
reports, dividend notices and prospectuses to
beneficial owners, receiving, tabulating and
transmitting proxies executed by beneficial
owners and sending year-end tax reporting to
shareholders and the Internal Revenue
Service, the Transfer Agent receives an annual
fee, payable monthly, of [ ]% of each Fund's
average daily net assets. The Transfer
Agent is permitted to subcontract any or all
of its functions with respect to all or any
portion of the Funds' shareholders to one or
more qualified sub-transfer agents or
processing agents, which may be affiliates of
the Transfer Agent, the Distributor, or
broker-dealers authorized to sell shares of
the Funds pursuant to a selling agreement
with the Distributor. The Transfer Agent is
permitted to compensate those agents for their
services; however, that compensation may not
increase the aggregate amount of payments by
the Funds to the Transfer Agent.
Pursuant to a Custodian Agreement, [ ] (the
"Custodian"), [address], acts as the custodian
of the Funds' assets. The Custodian, among
other things, maintains a custody account or
accounts in the name of each Fund, receives and
delivers all assets for each Fund upon
purchase and upon sale or maturity, collects
all income and other payments
and
distributions with respect to the assets of each
Fund, and pays expenses of each Fund.
OTHER EXPENSES
Each Fund pays the expenses of its operations,
including the costs of shareholder and board
meetings; the fees and expenses of blue
sky and pricing services, independent
auditors, counsel, the Custodian and the
Transfer Agent; reports
and notices to shareholders; the costs of
calculating net asset value; brokerage
commissions or
transaction costs; taxes; interest;
insurance premiums; Investment Company
Institute dues; and the fees and expenses of
qualifying that Fund and its shares for
distribution under federal and state securities
laws. In addition, each Fund pays for
typesetting, printing and mailing proxy
material, prospectuses, statements of
additional information, notices and reports to
existing shareholders, and the fees of the
Disinterested Directors. Each Fund is also
liable for such nonrecurring expenses as may
arise, including costs of any litigation to
which Leland may be a party, and any
obligation it may have to indemnify Leland's
officers and Directors with respect to any
litigation. Leland's expenses generally are
allocated among the Funds on the basis of
relative net assets at the time of allocation,
except that expenses directly attributable to a
particular Fund are charged to that Fund.
BROKERAGE ALLOCATION
The Investment Adviser places orders for the
purchase and sale of assets with brokers and
dealers selected by and in
the discretion of the Investment Adviser. In
placing orders for the Funds' portfolio
transactions, the Investment Adviser seeks
"best execution" (i.e., prompt and efficient
execution at the most favorable prices).
Consistent with the policy of "best execution,"
orders for portfolio transactions are placed
with broker-dealer firms giving consideration to
the quality, quantity and nature of the firms'
professional services which include execution,
clearance procedures, reliability and other
factors. In selecting among the firms believed
to meet the criteria for handling a particular
transaction, the Investment Adviser may give
consideration to those firms that provide
market, statistical and other research
information to Leland and the Investment
Adviser. In addition, the Funds may pay higher
than the lowest available commission rates
when the
Investment Adviser believes it is reasonable to
do so in light of the value of the brokerage
and research services provided by the broker
effecting the transaction, viewed in terms of
either the particular transaction or the
Investment Adviser's overall responsibilities
with respect to accounts as to which it
exercises investment discretion. Any research
benefits derived are available for all clients.
Because statistical and other research
information is only supplementary to the
Investment Adviser's research efforts and still
must be analyzed and reviewed by its staff, the
receipt of research information is not
expected to
significantly reduce its expenses. In no event
will a brokerdealer that is affiliated with
the Investment Adviser receive brokerage
commissions in recognition of research services
provided to the Investment Adviser.
The Investment Adviser intends to employ
broker-dealer affiliates of the Investment
Adviser (collectively "Affiliated Brokers") to
effect portfolio transactions for the Funds,
provided certain conditions are satisfied.
Payment of brokerage commissions to Affiliated
Brokers is subject to Section 17(e) of the
1940 Act and Rule 17e-1 thereunder, which
require, among other things, that
commissions for transactions on securities
exchanges paid by a registered investment
company to a broker which is an affiliated
person of such investment company, or an
affiliated person of another person so
affiliated, not exceed the usual and customary
brokers' commissions for such transactions.
Leland's Board of Directors, including a
majority of Disinterested Directors, has adopted
procedures to ensure that commissions paid
to affiliates of the Investment Adviser by
the Funds satisfy the standards of Section
17(e) and Rule 17e-1. Certain transactions may
be effected for a Funds by a broker-dealer
affiliate of the Investment Adviser at no net
cost to that Fund; however, the broker-dealer may
be compensated by another broker-dealer in
connection with such transaction for the order
flow to the second broker-dealer. Receipt of
such compensation will be subject to the Funds'
procedures pursuant to Section 17(e) and Rule
17e-1.
The investment decisions for each Fund will
be reached independently from those for other
accounts, if any, managed by the Investment
Adviser. On occasions when the Investment Adviser
deems the purchase or sale of securities to be
in the best interest of one or more clients of
the Investment Adviser, the Investment Adviser,
to the extent permitted by applicable laws and
regulations, may, but shall be under no
obligation to, aggregate the securities to be
so sold or purchased in order to obtain the
most favorable price or
lower brokerage commissions and efficient
execution. In such event, allocation of the
securities so purchased or sold, as well as the
expenses incurred in the transaction, will be
made by the Investment Adviser, in accordance
with its policy for aggregation of orders, as in
effect from time to time. In some cases this
procedure may affect the size or price of the
position obtainable for a Fund.
Purchases and sales of equity securities on
exchanges are generally effected through
brokers who charge commissions. In transactions
on stock exchanges in the United States, these
commissions generally are negotiated. In all
cases, a Fund will attempt to negotiate best
execution.
Purchases and sales of fixed income portfolio
securities are generally effected as
principal transactions. These securities are
normally purchased directly from the issuer or
from an underwriter or market maker for the
securities. There usually are no brokerage
commissions paid for such purchases.
Purchases from underwriters of portfolio
securities include a commission or concession
paid by the issuer to the underwriter, and
purchases from dealers serving as market makers
include the spread between the bid and ask
prices. In the case of securities traded in the
overthe-counter markets, there is
generally no stated commission, but the
price usually includes an undisclosed
commission or markup.
DESCRIPTION OF CAPITAL SHARES
All shares of the Funds have equal voting rights
and will be voted in the aggregate, and not by
series, except where voting by series is
required by law or where the matter involved
affects only one series. There are no conversion
or preemptive rights in connection with any
shares. All shares of the Funds when duly
issued will be fully paid and nonassessable. The
rights of the holders of shares of each Fund may
not be modified except by vote of the majority
of the outstanding shares of such Fund.
Certificates are not issued unless requested and
are never issued for fractional shares.
Fractional shares are liquidated when an account
is closed.
Shares of each Fund have non-cumulative voting
rights, which means that the holders of more
than 50% of all series of Leland's shares
voting for the election of the Directors can
elect 100% of Leland's Directors if they wish to
do so. In such event, the holders of the
remaining less than 50% of Leland shares voting
for the election of Directors will not be able
to elect any person to the Board of Directors.
Leland is not required to hold a meeting of
stockholders in any year in which the 1940
Act does not require a shareholder vote on a
particular matter, such as election of Directors.
Leland will hold a meeting of its shareholders
for the purpose of voting on the question of
removal of one or more Directors if requested in
writing by the holders of at least 10% of
Leland's outstanding voting securities, and will
assist in communicating with its
shareholders as required by Section 16(c) of the
1940 Act.
Shareholders are entitled to one vote for each
full share held and fractional votes for
fractional shares held. Unless otherwise
provided by law or its Articles of Incorporation
or Bylaws, Leland generally may take or
authorize any extraordinary action upon the
favorable vote of the holders
of more than 50% of its outstanding shares or
may take or
authorize any routine action upon approval of a
majority of
the votes cast.
Rule 18f-2 under the 1940 Act provides that
any matter required to be submitted to the
holders of the outstanding voting securities of
an investment company such as Leland shall
not be deemed to have been effectively acted
upon unless approved by a majority of the
outstanding voting securities, as defined in
the 1940 Act, of the series or
class of the Funds affected by the matter. Under
Rule 18f-2, a series or class is presumed to
be affected by a matter, unless the interests
of each series or class in the matter are
identical or the matter does not affect any
interest of
such series or class. Under Rule 18f-2 the
approval of an
investment advisory agreement or any change in a
fundamental investment policy would be
effectively acted upon with respect to a
Fund only if approved by a majority of its
outstanding voting securities, as defined in the
1940 Act. However, the rule also provides
that the ratification of
independent public accountants, the approval
of principal underwriting contracts and the
election of directors may be
effectively acted upon by the shareholders of
Leland voting without regard to a Fund.
Each share of each Class of a Fund
represents an equal proportional interest in
the Fund with each other share of
the same Class and is entitled to such
dividends and distributions out of the
income earned on the assets allocable to the
Class as are declared in the discretion of
the Board of Directors. In the event of the
liquidation or
dissolution of the Funds, shareholders of
a Fund are entitled to receive the assets
attributable to the Fund that are available for
distribution, and a distribution of any
general assets not attributable to a particular
Fund that are available for distribution, in
such manner and on such general basis as the
Board of Directors may determine.
COMPUTATION OF NET ASSET VALUE
The price of a Fund's shares on any given day
is its net asset value ("NAV") per share. NAV
is calculated by Leland for each Fund on each
day that the New York Stock Exchange (the
"NYSE") is open for trading. Each Fund
calculates its NAV every business day as of
the close of trading on the NYSE (normally
4:00 p.m. Eastern Time). If the markets
close early, the Funds may close early and may
value their shares at an earlier time under
these circumstances. Shares of the Funds will
not be priced on days on which the NYSE is
closed for trading. Currently, the NYSE is
closed on
weekends and New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
When any holiday falls on a weekend, the
NYSE typically is closed on the weekday
immediately before or
after such holiday.
Securities owned by a Fund for which market
quotations are readily available are valued at
current market value. Each Fund values its
securities as follows. A security listed or
traded on an exchange is valued at its last
sale price (prior to the time as of which
assets are valued) on the exchange where it
is principally traded. Lacking any such sales
on the day of valuation, the security is valued
at the mean of the last bid and asked prices.
All other securities
for which over-the-counter market quotations
are readily available generally are valued at
the mean of the current bid and asked prices.
When market quotations are not readily
available, securities are valued at fair value
as determined in good faith by the Board. Debt
securities may be valued on the basis of
valuations furnished by pricing services that
utilize electronic data processing techniques
to determine valuations for normal
institutional-size trading units of debt
securities, without regard to sale or bid
prices, when such valuations are believed to
more accurately reflect the fair market value
of such securities. Debt obligations with
remaining maturities of 60 days or less
generally are valued at amortized cost. The
amortized cost method involves valuing a
security at its cost and amortizing any
discount or premium over the period until
maturity, regardless of the impact of
fluctuating interest rates on the market value
of the security.
Net asset value per share for the shares of the
Money Market Fund is determined as of [5:00]
p.m. on each day such Fund is open for
business. The Money Market Fund is open for
business each day Chevy Chase Bank is open for
business and is generally closed on federal
bank holidays. If the markets for the
instruments and securities the Money Market
Fund invests in close early, the Money Market
Fund may close early and may value its shares
at earlier times under these circumstances.
Expenses and fees, including advisory fees, are
accrued daily and are taken into account for the
purpose of determining the net asset value of
the Money Market Fund's shares.
The Money Market Fund uses the amortized cost
method to determine the value of its portfolio
securities pursuant to Rule 2a-7 under the
1940 Act. The amortized cost method involves
valuing a security at its cost and amortizing
any discount or premium over the period
until maturity, regardless of the impact of
fluctuating interest rates on the market
value of the security. While this method
provides certainty in valuation, it may result
in periods during which the value, as
determined by amortized cost, is higher or
lower than the price that the Money Market Fund
would receive if the security were sold.
During these periods the yield to a shareholder
may differ somewhat from that which could be
obtained from a similar fund that uses a method
of valuation based upon market prices. Thus,
during periods of declining interest rates, if
the use of the amortized cost method resulted
in a lower value of the Money Market Fund's
portfolio on a particular day, a prospective
investor in the Money Market Fund would be able
to obtain a somewhat higher yield than would
result from investment in a fund using solely
market values, and existing Money Market Fund
shareholders would receive correspondingly less
income. The converse would apply during periods
of rising interest rates.
Rule 2a-7 provides that in order to value
its portfolio using the amortized cost
method, a Fund must maintain a dollar-
weighted average portfolio maturity of 90
days or less, purchase securities having
remaining maturities (as defined in Rule 2a-7)
of thirteen months or less and invest only in
those high-quality securities that are
determined by the Board of Directors to present
minimal credit risks. The maturity of an
instrument is generally deemed to be the
period remaining until the date when the
principal amount thereof is due or the date on
which the instrument is to be redeemed.
However, Rule 2a-7 provides that the maturity
of
an instrument may be deemed shorter in the case
of certain instruments, including certain
variable and floating rate instruments subject
to demand features. Pursuant to Rule 2a7, the
Board is required to establish procedures
designed to stabilize, to the extent reasonably
possible, a Fund's price per share as
computed for the purpose of sales and
redemptions at $1.00. Such procedures include
review of the Fund's portfolio holdings by the
Board of Directors, at such intervals as it may
deem appropriate, to determine whether the
Fund's net asset value calculated by using
available market quotations deviates from $1.00
per share based on amortized cost. The extent
of any deviation will be examined by the Board
of Directors. If such deviation exceeds 1/2 of
1%, the Board will promptly consider what
action, if any, will be initiated. In the event
the Board determines that a deviation exists
that may result in material dilution or other
unfair results to investors or existing
shareholders, the Board will take such
corrective action as it regards as necessary
and appropriate, including the sale of
portfolio instruments prior to maturity to
realize capital gains or losses or to shorten
average portfolio maturity, withholding
dividends or establishing a net asset value
per share by using available market
quotations. It is the intention of the Money
Market Fund to maintain a per share net asset
value of $1.00, but there can be no assurance
that the Money Market Fund will do so.
Instruments having variable or floating
interest rates or demand features may be
deemed to have remaining maturities as
follows: (a) a government security with a
variable rate of interest
readjusted no less frequently than every
thirteen months may be deemed to have a
maturity equal to the period remaining until
the next readjustment of the interest rate;
(b) an instrument with a variable rate of
interest, the principal amount of which is
scheduled on the face of the instrument to
be paid in thirteen months or less, may be
deemed to have a maturity equal to the period
remaining until the next readjustment of the
interest rate; (c) an instrument with a
variable rate of interest that is subject to a
demand feature may be deemed to have a maturity
equal to the longer of the period remaining
until the next readjustment of the interest
rate or the period remaining until the
principal amount can be recovered through
demand; (d) an instrument with a floating rate
of interest that is subject to a demand feature
may be deemed to have a maturity equal to the
period remaining until the principal amount can
be recovered through demand; and (e) a
repurchase agreement may be deemed to have a
maturity equal to the period remaining
until the date on which the repurchase of
the underlying securities is scheduled to occur
or, where no date is specified but the
agreement is subject to demand, the notice
period applicable to a demand for the repurchase
of the securities.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX
STATUS
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Funds pay dividends periodically and make
capital gains distributions annually. The
Leland Equity Fund pays any dividends
[period]. The Bond Funds and the Money
Market Fund pay any dividends [period].
Distributions paid by a Fund are automatically
reinvested to purchase new shares of the
Funds. The new shares are
purchased at NAV, generally on the day
distributions are paid.
TAX STATUS OF THE FUNDS
Each Fund intends to qualify annually and to
elect to be treated as a regulated investment
company under the Internal Revenue Code of 1986,
as amended (the "Code"). To qualify as a
regulated investment company, each Fund must,
among other things, (a) derive in each taxable
year at least 90% of its gross income from
dividends, interest, payments with respect to
securities loans and gains from the sale
or other disposition of stock, securities or
foreign currencies or other income derived
with respect to its business of investing
in such stock, securities or currencies;
(b) diversify its holdings so that, at the end
of each quarter of the taxable year, (i) at
least 50% of the market value of the Fund's
assets is represented by cash and cash items
(including receivables), U.S. Government
securities, the securities of other regulated
investment companies and other securities, with
such other securities of any one issuer
limited for the purposes of this calculation to
an amount not greater than 5% of the value of
the Fund's total assets and not greater
than 10% of the outstanding voting
securities of such issuer, and (ii) not more
than 25% of the value of its total assets is
invested in the securities of any one issuer
(other than U.S. Government securities or the
securities of other regulated investment
companies); and (c) distribute at least 90% of
its investment company taxable income (which
includes, among other items,
dividends, interest and the excess of net short-
term capital gains over net long-term capital
losses) and its net taxexempt interest income
each taxable year, if any.
As a regulated investment company, each Fund
generally will not be subject to U.S. federal
income tax on its investment company taxable
income and net capital gains (the excess of net
long-term capital gains over net short-term
capital losses), if any, that it distributes to
shareholders. Each Fund intends to distribute
to its shareholders, at least annually,
substantially all of its investment
company taxable income and net
capital gains. Amounts not
distributed on a timely basis in accordance with
a calendar year distribution requirement are
subject to a nondeductible 4% excise tax. To
prevent imposition of the excise tax, each Fund
must distribute during each calendar year an
amount equal to the sum of (1) at least 98% of
its ordinary income (not taking into account
any capital gains or losses) for the calendar
year, (2) at least 98% of its capital gains in
excess of its capital losses (adjusted for
certain ordinary losses, as prescribed by the
Code) for the one-year period ending on
October 31 of the calendar year, and (3) any
ordinary income and capital gains for previous
years that was not distributed during those
years. A distribution will be treated as paid
on December 31 of the current calendar year if
it is declared by a Fund in October, November
or December with a record date in such a month
and paid by the Fund during January of the
following calendar year. Such distributions
will be taxable to shareholders in the
calendar year in which the distributions
are declared, rather than the calendar year in
which the distributions are received. To
prevent application of the excise tax, each
Fund intends to make its distributions in
accordance with the calendar year distribution
requirement.
Dividends paid out of a Fund's investment
company taxable
income will be taxable to a U.S. shareholder
as ordinary income. If a portion of a
Fund's income consists of dividends paid by
U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for
the corporate dividends-received deduction.
Distributions of net capital gains, if any,
designated as capital gain dividends are
taxable as long-term capital gains, regardless
of how long the shareholder has held the
Fund's shares, and are not eligible for the
dividends-received deduction. Shareholders
receiving distributions in the form of
additional shares, rather than cash, generally
will have a cost basis in each such share
equal to the net asset value of a share of the
Fund on the reinvestment date. Shareholders will
be notified annually as to the U.S. federal tax
status of distributions, and shareholders
receiving distributions in the form of
additional shares will receive a report as to
the net asset value of those shares.
Investments by a Fund in zero coupon securities
will result in income to the Fund equal to a
portion of the excess of the face value of the
securities over their issue price (the "original
issue discount") each year that the securities
are held, even though the Fund receives no
cash interest payments. This income is included
in determining the amount of income which the
Fund must distribute to maintain its status
as a regulated investment company and to avoid
the payment of federal income tax and the 4%
excise tax.
Gain derived by a Fund from the disposition of
any market discount bonds (i.e., bonds
purchased other than at original issue, where
the face value of the bonds exceeds their
purchase price) held by the Fund will be taxed
as ordinary income to the extent of the
accrued market discount on the bonds, unless
the Fund elects to include the market discount
in income as it accrues.
The taxation of equity options and over-the-
counter options on debt securities is
governed by Code section 1234. Pursuant to
Code section 1234, the premium received by a
Fund for selling a put or call option is not
included in income at the time of receipt. If
the option expires, the premium is short-term
capital gain to the Fund. If the Fund enters
into a closing transaction, the difference
between the amount paid to close out its
position and the premium received is short-
term capital gain or loss. If a call option
written by a Fund is exercised, thereby
requiring the Fund to sell the underlying
security, the premium will increase the
amount realized upon the sale of such security
and any resulting gain or loss will be a
capital gain or loss, and will be long-term or
short-term depending upon the holding period of
the security. With respect to a put or call
option that is purchased by a Fund, if the
option is sold, any resulting gain or loss
will be a capital gain or loss, and will be
long-term or short-term, depending upon the
holding period of the option. If the option
expires, the resulting loss is a capital loss
and is long-term or shortterm, depending upon
the holding period of the option. If the
option is exercised, the cost of the option, in
the case of a call option, is added to the
basis of the purchased security and, in the
case of a put option, reduces the amount
realized on the underlying security in
determining gain or loss.
Certain options and futures contracts in which
a Fund may invest are "section 1256
contracts." Gains or losses on section 1256
contracts generally are considered 60% long-
term and 40% short-term capital gains or
losses; however, foreign currency gains or
losses (as discussed below) arising from
certain section 1256 contracts may be treated
as ordinary income or loss. Also, section
1256 contracts held by a Portfolio at the end
of each taxable year (and, generally, for
purposes of the 4% excise tax, on October 31 of
each year) are "marked-to-market" (that is,
treated as sold at fair market value),
resulting in unrealized gains or losses being
treated as though they were realized.
Generally, the hedging transactions undertaken
by a Fund may result in "straddles" for U.S.
federal income tax purposes. The straddle
rules may affect the character of gains (or
losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are
part of a straddle may be deferred under the
straddle rules, rather than being taken into
account in calculating the taxable income
for the taxable year in which the losses are
realized. Because only a few regulations
implementing the straddle rules have been
promulgated, the tax consequences to the Funds
of engaging in hedging transactions are not
entirely clear. Hedging transactions may
increase the amount of short-term capital gain
realized by the Funds which is taxed as ordinary
income when distributed to shareholders.
Each Fund may make one or more of the
elections available under the Code which are
applicable to straddles. If a Fund makes any of
the elections, the amount, character and timing
of the recognition of gains or losses from
the affected straddle positions will be
determined under rules that vary according to
the election(s) made. The rules applicable
under certain of the elections may operate to
accelerate the recognition of gains or losses
from the affected straddle positions.
Because the straddle rules may affect the
character of gains or losses, defer losses
and/or accelerate the recognition of gains or
losses from the affected straddle positions,
the amount which may be distributed to
shareholders, and which will be taxed to
them as ordinary income or long-term capital
gain, may be increased or decreased as compared
to a fund that did not engage in such hedging
transactions.
Notwithstanding any of the foregoing, a Fund
may recognize gain (but not loss) from a
constructive sale of certain "appreciated
financial positions" if the Fund enters into a
short sale, offsetting notional principal
contract or
forward contract transaction with respect to the
appreciated position or substantially
identical property. Appreciated financial
positions subject to this constructive
sale treatment are interests (including
options and forward contracts and short
sales) in stock, partnership interests,
certain actively traded trust instruments and
certain debt instruments. Constructive sale
treatment does not apply to certain
transactions closed in the 90-day period
ending with the 30th day after the close of
the taxable year, if certain conditions are met.
Unless certain constructive sale rules
(discussed more fully above) apply, a Fund will
not realize gain or loss on a short sale of
a security until it closes the transaction by
delivering the borrowed security to the lender.
Pursuant to Code Section 1233, all or a portion
of any gain arising from a short sale may be
treated as short-term capital gain, regardless
of the period for which the Fund held the
security used to close the short sale. In
addition, the
Fund's holding period of any security which is
substantially identical to that which is sold
short may be reduced or eliminated as a
result of the short sale. Recent
legislation, however, alters this treatment
by treating certain short sales against the
box and other transactions as a constructive
sale of the underlying security held by the
Fund, thereby requiring current recognition of
gain, as described more fully above. Similarly,
if a Fund enters into a short sale of property
that becomes substantially
worthless, the Fund will recognize gain at
that time as though it had closed the
short sale. Future Treasury regulations may
apply similar treatment to other
transactions with respect to property
that becomes substantially worthless.
Upon the sale or other disposition of shares of
a Fund, a shareholder may realize a capital
gain or loss which will be long-term or short-
term, generally depending upon the
shareholder's holding period for the
shares. Any loss realized on a sale or
exchange will be disallowed to the extent the
shares disposed of are replaced (including
shares acquired pursuant to a dividend
reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days
after disposition of the shares. In such a
case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any
loss realized by a shareholder on a
disposition of Fund shares held by the
shareholder for six months or less will be
treated as a long-term capital loss to the
extent of any distributions of net capital
gains received by the shareholder with respect
to such shares.
Each Fund may be required to withhold U.S.
federal income tax at the rate of 31% of all
taxable distributions payable to shareholders
who fail to provide the Fund with their
correct taxpayer identification number or to
make required certifications, or who have been
notified by the IRS that they are subject
to backup withholding. Corporate
shareholders and certain other shareholders
specified in the Code generally are exempt
from such backup withholding. Backup
withholding is not an additional tax. Any
amounts withheld may be credited against the
shareholder's U.S. federal income tax
liability.
Fund shareholders may be subject to state, local
and foreign taxes on their Fund
distributions. In many states, Fund
distributions which are derived from interest
on certain U.S. Government obligations are
exempt from taxation. The tax consequences to
a foreign shareholder of an investment in a
Fund may be different from those described
herein. Foreign shareholders are advised to
consult their own tax advisers with respect to
the particular tax consequences to them of an
investment in a Fund. Shareholders are advised
to consult their own tax advisers with
respect to the
particular tax consequences to them of an
investment in a Fund.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS
Leland's independent auditors, [ ], [address],
audit and report on the Funds' annual
financial statements, review certain regulatory
reports and the Funds' federal income tax
returns, and perform other professional
accounting, auditing, tax and advisory services
when engaged to do so by Leland. Shareholders
will receive annual audited financial
statements and semi-annual unaudited financial
statements.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
SHARES OF THE FUNDS ARE SOLD ON A CONTINUOUS
BASIS BY THE DISTRIBUTOR
If Leland's Board of Directors determines
that existing conditions make cash payments
undesirable, redemption payments may be made
in whole or in part in securities or other
property, valued for this purpose as they are
valued in computing the relevant Fund's NAV per
share. Shareholders receiving securities or
other property on redemption may realize a
gain or loss for tax purposes, and will incur
any costs of sale, as well as the associated
inconveniences. An in-kind distribution of
portfolio securities will be less liquid than
cash. The shareholder may have difficulty in
finding a buyer for portfolio securities
received in payment for redeemed shares.
Portfolio securities may decline in value
between the time of receipt by the shareholder
and conversion to cash. A redemption in-
kind of a Fund's portfolio securities could
result in a less diversified portfolio of
investments for that Fund and could affect
adversely the liquidity of that Fund's
portfolio.
Leland may suspend redemption rights and
postpone payments at times when trading on the
NYSE is restricted, the NYSE is closed for any
reason other than its customary weekend or
holiday closings, emergency circumstances as
determined by the SEC exist, or for such
other circumstances as the SEC may permit.
PERFORMANCE CALCULATIONS
The Funds may advertise certain yield and
total return information. Quotations of yield
and total return reflect only the performance
of a hypothetical investment in a Fund or class
of shares during the particular time period
shown. Yield and total return vary based on
changes in the market conditions and the
level of a Fund's expenses, and no reported
performance figure should be considered an
indication of performance which may be
expected in the future.
In connection with communicating its
performance to current or prospective
shareholders, these figures may also be
compared to the performance of other mutual
funds tracked by mutual fund rating services
or to unmanaged indices which may assume
reinvestment of dividends but generally do not
reflect deductions for administrative and
management costs.
Performance information for a Fund or Class of
shares in a Fund may be useful in reviewing
the performance of such Fund or Class of shares
and for providing a basis for comparison with
investment alternatives. The performance of a
Fund and the performance of a Class of shares in
a Fund, however, may not be comparable to
the performance from investment alternatives
because of differences in the foregoing
variables and differences in the methods
used to value portfolio securities, compute
expenses and calculate performance.
Performance information may be advertised
for nonstandardized periods, including year-
to-date and other periods less than a year.
AVERAGE ANNUAL TOTAL RETURN
The Funds may advertise certain total return
information. As and to the extent required by
the SEC, an average annual compound rate of
return ("T") is computed by using the
redeemable value at the end of a specified
period ("ERV") of a hypothetical initial
investment ("P") over a period of years
("n") according to the following
formula:
P(1+T)/n/=ERV.
CUMULATIVE TOTAL RETURN
In addition to the above performance
information, each Fund may also advertise the
cumulative total return of the Fund. Cumulative
total return is based on the overall percentage
change in value of a hypothetical investment
in the Fund, assuming all Fund dividends and
capital gain distributions are reinvested,
without reflecting the effect of any sales
charge that would be paid by an investor,
and is not annualized.
YIELD CALCULATIONS
The Funds may, from time to time, include their
yields, taxequivalent yields (if applicable)
and effective yields in advertisements or
reports to shareholders or prospective
investors. Quotations of yield for the Funds
are based on the investment income per share
earned during a particular seven-day or thirty-
day period, less expenses accrued during a
period ("net investment income") and are
computed by dividing net investment income by
the offering price per share on the last
date of the period, according to the
following formula:
YIELD = 2[(a - b + 1)/6/ -1]
Cd
where a = dividends and interest earned during
the period, b = expenses accrued for the
period (net of any reimbursements), c =
the average daily number of shares
outstanding during the period that were entitled
to receive dividends, and d = the maximum
offering price per share on the last day of
the period.
EFFECTIVE YIELD
Effective yields for the Funds are based on the
change in the value of a hypothetical
investment (exclusive of capital changes) over a
particular seven-day (or thirty-day) period,
less a pro-rata share of each Fund's expenses
accrued over that period (the "base period"),
and stated as a percentage of the investment at
the start of the base period (the "base period
return"). The base period return is then
annualized multiplying by 365/7 (or 365/30 for
thirty-day yield), with the resulting yield
figure carried to at least the nearest
hundredth of one percent. "Effective yield"
for the Funds assumes that all dividends
received during the period have been
reinvested. Calculation of "effective yield"
begins with the same "base period return" used
in the calculation of yield, which is then
annualized to reflect weekly compounding
pursuant to the following formula:
Effective Seven-Day Yield = [(Base
Period Return +1)365/7]-1
From time to time and only to the extent the
comparison is
appropriate for a Fund or a Class of shares,
Leland may quote the performance or price-
earning ratio of a Fund or Class in
advertising and other types of literature
as compared to the performance of the S&P Index,
the Dow Jones Industrial Average, the Lehman
Brothers 20+ Treasury Index, the Lehman
Brothers 5-7 Year Treasury Index, Donoghue's
Money Fund Averages, Real Estate Investment
Averages (as reported by the National
Association of Real Estate Investment
Trusts), Gold Investment Averages (provided by
World Gold Council), Bank Averages (which are
calculated from figures supplied by the
U.S. League of Savings Institutions based on
effective annual rates of interest on both
passbook and certificate accounts), average
annualized certificate of deposit rates (from
the Federal Reserve G-13 Statistical Releases
or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer
Price Index (as published by the U.S. Bureau of
Labor Statistics), other managed or unmanaged
indices or performance data of bonds, municipal
securities, stocks or government securities
(including data provided by Ibbotson
Associates), or by other services,
companies, publications or persons who
monitor mutual funds on overall performance
or other criteria. The S&P Index and the Dow
Jones Industrial Average are unmanaged indices
of selected common stock prices. The
performance of the Funds or a Class also may be
compared to that of other mutual funds having
similar objectives. This comparative
performance could be expressed as a ranking
prepared by Lipper Analytical Services, Inc.,
CDA Investment Technologies, Inc., Bloomberg
Financial Markets or
Morningstar, Inc., independent services which
monitor the performance of mutual funds. The
Funds' performance will be calculated by
relating net asset value per share at the
beginning of a stated period to the net asset
value of the investment, assuming reinvestment
of all gains distributions and dividends paid,
at the end of the period. The Funds'
comparative performance will be based on a
comparison of yields, as described above, or
total return, as reported by Lipper, Survey
Publications, Donoghue or Morningstar, Inc.
Any such comparisons may be useful to investors
who wish to compare past performance of the
Funds or a Class with that of competitors. Of
course, past performance cannot be a
guarantee of future results. Leland also may
include, from time to time, a reference to
certain marketing approaches of the
Distributor, including, for example, a reference
to a potential shareholder being contacted by
a selected broker or dealer. General mutual
fund statistics provided by the Investment
Company Institute may also be used.
Leland also may use the following
information in
advertisements and other types of literature,
only to the extent the information is
appropriate for the Fund: (i) the Consumer
Price Index may be used to assess the real rate
of return from an investment in a Fund; (ii)
other government statistics, including, but
not limited to, The Survey of Current
Business, may be used to illustrate
investment attributes of a Fund or the
general economic, business, investment, or
financial environment in which a Fund
operates; (iii) the effect of tax-deferred
compounding on the investment returns of a
Fund, or on returns in general, may be
illustrated by graphs, charts, etc., where
such graphs or charts would compare, at various
points in time, the return from an
investment in a Fund (or returns in general)
on a tax-deferred basis (assuming reinvestment
of capital gains and dividends and assuming one
or more tax rates) with the return on a
taxable basis; and (iv) the
sectors or industries in which a Fund
invests may be compared to relevant indices of
stocks or surveys (e.g., S&P Industry Surveys)
to evaluate a Fund's historical
performance or current or potential value with
respect to the particular industry or sector.
In addition, Leland also may use, in
advertisements and other types of
literature, information and statements
showing that bank savings accounts offer a
guaranteed return of principal and a fixed
rate of interest, but no
opportunity for capital growth. Leland also may
include in advertising and other types of
literature information and other data from
reports and studies prepared by the Tax
Foundation, including information regarding
federal and state tax levels and the related
"Tax Freedom Day."
Leland also may discuss in advertising and
other types of literature that a Fund has
been assigned a rating by an NRSRO, such as
Standard & Poor's Corporation. Such rating
would assess the creditworthiness of the
investments held by the Fund. The assigned
rating would not be a recommendation to
purchase, sell or hold the Fund's shares since
the rating would not comment on the market
price of the Fund's shares or the suitability
of the Fund for a particular investor. In
addition, the assigned rating would be subject
to change, suspension or withdrawal as a
result of changes in, or unavailability of,
information relating to the Fund or its
investments. Leland may compare the Fund's
performance with other investments which are
assigned ratings by NRSROs. Any such
comparisons may be useful to investors who
wish to compare the Fund's past performance
with other rated investments.
Leland also may discuss in advertising and
other types of literature the features, terms
and conditions of Chevy Chase Bank accounts
through which investments in the Funds may be
made via a "sweep" arrangement (the "Sweep
Accounts"). Such advertisements and other
literature may include, without limitation,
discussions of such terms and conditions as the
minimum deposit required to open a Sweep
Account, a description of the yield earned
on shares of the Funds through a Sweep
Account, a description of any monthly or other
service charge on a Sweep Account and any
minimum required balance to waive such
service charges, any
overdraft protection plan offered in connection
with a Sweep Account, a description of any
ATM or check privileges offered in
connection with a Sweep Account and any other
terms, conditions, features or plans offered in
connection with a Sweep Account. Such
advertising or other literature may also
include a discussion of the advantages of
establishing and maintaining a Sweep
Account, and may include statements from
customers as to the reasons why such customers
have established and maintained a Sweep Account.
Leland may disclose in advertising and
other types of
literature that investors can open and
maintain Sweep Accounts over the Internet or
through other electronic channels
(collectively, "Electronic Channels").
Such advertising and other literature may
discuss the investment options available to
investors, including the types of accounts
and any applicable fees. Advertising and
other literature may disclose that Chevy Chase
Bank may maintain Web sites, pages or other
information sites accessible through
Electronic Channels (an "Information Site") and
may describe the contents and features of the
Information Site and instruct investors on how
to access the Information Site
and open a Sweep Account. Advertising and
other literature may also disclose the
procedures employed by Chevy Chase Bank to
secure information provided by investors,
including disclosure and discussion of the
tools and services for accessing Electronic
Channels. Such advertising or other literature
may include discussions of the advantages of
establishing and maintaining a Sweep
Account through Electronic Channels and
testimonials from Chevy Chase Bank customers or
employees and may also include descriptions of
locations where product demonstrations may
occur.
Leland also may disclose in sales
literature the distribution rate on the
shares of a Fund. Distribution rate, which
may be annualized, is the amount determined by
dividing the dollar amount per share of the
most recent dividend by the most recent NAV
or maximum offering price per share as of a
date specified in the sales literature.
Distribution rate will be accompanied by the
standard 30-day yield as required by the SEC.
APPENDIX
RATINGS OF FIXED INCOME SECURITIES
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
("MOODY'S") CORPORATE RATINGS
Aaa Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge."
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 that are rated Aa are judged to be of high quality
by all
standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation 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.
A Bonds that are rated A possess many favorable investment
attributes
and are to be considered as upper medium grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds that are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor
poorly secured.
Interest payments and principal security appear adequate for
the
present but certain protective elements may be lacking
or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Ba Bonds that are rated Ba are judged to have speculative
elements;
their future cannot be considered as well assured.
Often the protection of interest and principal payments
may be very moderate, and therefore not well
safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in
this class.
B Bonds that are rated B generally lack characteristics
of desirable
investments. Assurance of interest and principal
payments or of maintenance of other terms of the
contract over any long period of
time may be small.
Caa Bonds that are rated Caa are of poor standing. Such
issues may be in default or there may be present
elements of danger with respect to principal or
interest.
Ca Bonds that are rated Ca represent obligations which are
speculative
in a high degree. Such issues are often in default or have
other
marked shortcomings.
C Bonds that are rated C are the lowest rated class of
bonds, and
issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment
standing.
NOTE: Moody's may apply numerical modifiers 1, 2 and 3 in
each generic rating classification from Aa
through B in its corporate bond rating system.
The modifier I indicates that the security
ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic
rating category.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The term "commercial paper" as used by
Moody's means promissory obligations not having
an original maturity in excess of nine months.
Moody's makes no representations as to whether
such commercial paper is by any other definition
"commercial paper" or is exempt from registration
under the Securities Act of 1933, as amended.
Moody's commercial paper ratings are opinions of
the ability of issuers to repay punctually
promissory obligations not having an original
maturity in excess of nine months. Moody's
makes no representation that such obligations
are exempt from registration under the
Securities Act of 1933, nor does it represent
that any specific note is a valid obligation
of a rated issuer or issued in conformity with
any applicable law. Moody's employs the
following three designations, all judged to be
investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated Prime-1 (or related
supporting institutions) have a superior
capacity for repayment of short-term
promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the
following characteristics:
* Leading market positions in well established
industries
* High rates of return on funds employed
* Conservative capitalization structures
with moderate
reliance on debt and ample asset protection
* Broad margins in earnings coverage of
fixed financial
charges and high internal cash generation
* Well established access to a range of
financial markets
and assured sources of alternate liquidity
Issuers rated Prime-2 (or related
supporting institutions) have a strong capacity
for repayment of shortterm promissory
obligations. This will normally be evidenced
by many of the characteristics cited above but
to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more
subject to variation. Capitalization
characteristics, while still appropriate,
may be more affected by external conditions.
Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related
supporting institutions) have an acceptable
capacity for repayment of short-term
promissory obligations. The effect of industry
characteristics and market composition may be more
pronounced. Variability in earnings and
profitability may result in changes in level
of debt protection measurements and the
requirement for relatively high financial
leverage. Adequate alternate liquidity is
maintained.
Issuers rated Not Prime do not fall within
any of the Prime rating categories.
If an issuer represents to Moody's
that its
commercial paper obligations are supported by
the credit of another entity or entities,
then the name or names of such supporting
entity or entities are listed within
parentheses beneath the name of the issuer, or
there is a footnote referring the reader to
another page for the name or names of the
supporting entity or entities. In assigning
ratings to such issuers, Moody's evaluates
the financial strength of the indicated
affiliated corporations, commercial banks,
insurance companies, foreign governments or
other entities, but only as one factor in
the total rating assessment. Moody's makes no
representation and gives no opinion on the
legal validity or enforceability of any
support arrangement. You are cautioned to
review with your counsel any questions
regarding particular support arrangements.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
Because of the fundamental differences
between preferred stocks and bonds, a variation
of the bond rating symbols is being used in
the quality ranking of preferred stocks. The
symbols, presented below, are designed to avoid
comparison with bond quality in absolute
terms. It should always be borne in mind that
preferred stocks occupy a junior position to
bonds within a particular capital structure
and that these securities are rated within the
universe of preferred stocks.
Preferred stock rating symbols and their
definitions are as follows:
aaa An issue that is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates good
asset protection and the least risk of dividend
impairment within the universe of preferred stocks.
aa An issue that is rated "aa" is considered a high-grade
preferred
stock. This rating indicates that there is reasonable
assurance that earnings and asset protection will remain
relatively well maintained in the foreseeable future.
a An issue that is rated "a" is considered to be an upper-
medium grade
preferred stock. While risks are judged to be somewhat
greater than in the "aaa" and "aa" classifications,
earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa An issue that is rated "baa" is considered to be medium
grade, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present
but may be questionable over any great length of time.
ba An issue that is rated "ba" is considered to have
speculative
elements and its future cannot be considered well
assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred
stocks in this class.
b An issue that is rated "b" generally lacks the
characteristics of
a desirable investment. Assurance of dividend payments
and maintenance of other terms of the issue over any
long period of time may be small.
caa An issue that is rated "caa" is likely to be in arrears
on dividend payments. This rating designation does not
purport to indicate the future status of payments.
ca An issue that is rated "ca" is speculative in a high
degree and
is likely to be in arrears on dividends with little
likelihood of
eventual payment.
c This is the lowest rated class of preferred or
preference stock.
Issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment
standing.
NOTE: Moody's may apply numerical modifiers 1, 2 and 3 in
each rating classification from "aa" through
"b" in its preferred stock rating system.
The modifier 1 indicates that the security
ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates
that the issue ranks in the lower end of its
generic rating category.
DESCRIPTION OF STANDARD & POOR'S ("STANDARD
& POOR'S") CORPORATE DEBT RATINGS
A Standard & Poor's corporate or municipal
rating is a current assessment of the
creditworthiness of an obligor with respect
to a specific obligation. This assessment may
take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to
purchase, sell or hold a security, inasmuch
as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information
furnished by the issuer or obtained by
Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not
perform an audit in connection with any rating
and may, on occasion, rely on unaudited
financial information. The ratings may be
changed, suspended or withdrawn as a result of
changes in, or unavailability of, such
information or for other reasons.
The ratings are based, in varying degrees, on
the following considerations: (1) likelihood
of default-capacity and willingness of the
obligor as to the timely payment of interest
and repayment of principal in accordance with
the terms of the obligation; (2) nature of and
provisions of the
obligation; and (3) protection afforded by,
and relative position of, the obligation in
the event of bankruptcy, reorganization or
other arrangement under the laws of
bankruptcy and other laws affecting creditors'
rights.
AAA Debt rated AAA has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest
and repay
principal and differs from the highest-rated issues only
in small degree.
A Debt rated A has a strong capacity to pay interest and
repay
principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and
economic conditions than debt in higher-rated
categories.
BBB Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category
than for debt in higher-rated categories.
Debt rated BB, B, CCC, CC and C are regarded as having
predominantly speculative characteristics with respect
to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the
highest degree of speculation. While such debt will
likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB Debt rated BB has less near-term vulnerability to
default than other
speculative grade debt. However, it faces major ongoing
uncertainties or exposure to adverse business, financial
or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payment.
The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual
or implied BBB-rating.
B Debt rated B has a greater vulnerability to default
but
presently has the capacity to meet interest payments
and principal repayments. Adverse business, financial
or economic conditions would likely impair capacity or
willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BB or
BB-rating.
CCC Debt rated CCC has a current identifiable vulnerability
to default, and is dependent upon favorable business,
financial and economic conditions to meet timely
payments of interest and repayments of principal. In the
event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay
interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is
assigned an actual or implied B or B-rating.
CC The rating CC is typically applied to debt subordinated
to senior
debt which is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt
subordinated to senior
debt which is assigned an actual or implied CCC-debt
rating. The C rating may be used to cover a situation
where a bankruptcy petition has been filed but debt
service payments are continued.
CI The rating CI is reserved for income bonds on which no
interest is
being paid.
D Debt rated D is in default. The D rating is assigned
on the day an
interest or principal payment is missed. The D rating
also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
Plus (+) or minus (-): The ratings from AA to CCC may be
modified by the addition of a plus or minus
sign to show relative standing within the
major ratings categories.
Provisional Ratings
The letter "p" indicates that the rating is
provisional. A provisional rating assumes the
successful completion of the project being
financed by the debt being rated and indicates
that payment of debt service requirements is
largely or entirely dependent upon the
successful and timely completion of the
project. This rating, however, while
addressing credit quality subsequent to
completion of the project, makes no comment
on the likelihood or risk of default upon
failure of such completion. The investor
should exercise judgment with respect to such
likelihood and risk.
L The letter "L" indicates that the rating pertains to
the principal
amount of those bonds to the extent that the
underlying deposit collateral is insured by the Federal
Savings & Loan Insurance Corp. or the Federal Deposit
Insurance Corp. and interest is adequately
collateralized.
* Continuance of the rating is contingent upon Standard &
Poor's
receipt of an executed copy of the escrow agreement or
closing documentation confirming investments and cash
flows.
NR Indicates that no rating has been requested, that there
is
insufficient information on which to base a rating or
that Standard & Poor's does not rate a particular type
of obligation as a matter of policy.
Debt obligations of issuers outside the United
States and its territories are rated on the
same basis as domestic corporate and municipal
issues. The ratings measure the
creditworthiness of the obligor but do not
take into account currency exchange and related
uncertainties.
Bond Investment Quality Standards
Under present commercial bank regulations
issued by the Comptroller of the Currency,
bonds rated in the top four categories
("AAA," "AA," "A," "BBB," commonly known as
"investment grade" ratings) are generally
regarded as eligible for bank investment.
In addition, the laws of various states
governing legal investments impose certain
rating or other standards for obligations
eligible for investment by savings banks,
trust companies, insurance companies and
fiduciaries generally.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL
PAPER RATINGS
A Standard & Poor's commercial paper rating is
a current assessment of the likelihood of
timely payment of debt having an original
maturity of no more than 365 days. Ratings
are graded into four categories, ranging from
"A" for the highest quality obligations to "D"
for the lowest. The four categories are as
follows:
A Issues assigned this highest rating are regarded as
having the
greatest capacity for timely payment. Issues in this
category are delineated with the numbers 1, 2 and 3 to
indicate the relative degree of safety.
A-1 This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very
strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a plus (+) sign
designation.
A-2 Capacity for timely payment on issues with this
designation is strong. However, the relative degree of
safety is not as high as for issues designated "A-l."
A-3 Issues carrying this designation have a
satisfactory capacity for timely payment. They are
however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations
carrying the higher designations.
B Issues rated "B" are regarded as having only
adequate capacity
for timely payment. However, such capacity may be
damaged by changing conditions or short-term
adversities.
C This rating is assigned to short-term debt obligations
with a
doubtful capacity for payment.
D This rating indicates that the issue is either in
default or is
expected to be in default upon maturity.
The commercial paper rating is not a recommendation to
purchase or sell a security. The ratings
are based on current information furnished to
Standard & Poor's by the issuer or obtained
from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn
as a result of changes in or unavailability of
such information.
DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK
RATINGS
A Standard & Poor's preferred stock
rating is an
assessment of the capacity and willingness of
an issuer to pay preferred stock dividends
and any applicable sinking fund obligations.
A preferred stock rating differs from a bond
rating inasmuch as it is assigned to an equity
issue, which issue is intrinsically
different from, and subordinated to, a debt
issue. Therefore, to reflect this difference,
the preferred stock rating symbol will normally
not be higher than the bond rating symbol
assigned to, or that would be assigned to,
the senior debt of the same issuer.
The preferred stock ratings are based on
the following considerations:
I.Likelihood of payment -- capacity and
willingness of the issuer to meet the
timely payment of preferred stock
dividends and any applicable sinking
fund requirements in accordance with
the terms of the obligation.
II. Nature of, and provisions of, the
issue.
III. Relative position of the issue in
the event of bankruptcy,
reorganization, or other arrangements
affecting creditors' rights.
AAA This is the highest rating that may be assigned by
Standard & Poor's to a preferred stock issue and
indicates an extremely strong capacity to pay the
preferred stock obligations.
AA A preferred stock issue rated "AA" also qualifies as a
high-quality
fixed income security. The capacity to pay preferred
stock obligations is very strong, although not as
overwhelming as for issues rated "AAA."
A An issue rated "A" is backed by a sound capacity to pay
the
preferred stock obligations, although it is somewhat
more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an
adequate capacity to pay the preferred stock
obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a
weakened capacity to make payments for a preferred stock
in this category than for issues in the "A" category.
BB, Preferred stock rated "BB," "B," and "CCC" are regarded,
on balance, BBB as predominantly B, speculative with respect
to the issuer's
, C capacity to pay preferred stock obligations. "BB"
indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will
likely have some quality and protection characteristics,
these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue
in arrears
on dividends or sinking fund payments but that is
currently paying.
C A preferred stock rated "C" is a non-paying issue. D A
preferred
stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.
NR indicates that no rating has been requested, that
there is insufficient information on which
to base a rating, or that S&P does not rate
a particular type of obligation as a matter
of policy.
Plus (+) or minus (-): To provide
more detailed
indications of preferred stock quality, the
ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show
relative standing within the major rating
categories.
The preferred stock ratings are not a
recommendation to purchase or sell a security,
inasmuch as market price is not considered in
arriving at the rating. Preferred stock
ratings are wholly unrelated to Standard Poor's
earnings and dividend rankings for common
stocks.
The ratings are based on current information
furnished to Standard & Poor's by the issuer,
and obtained by Standard & Poor's from other
sources it considers reliable. The ratings may
be changed, suspended, or withdrawn as a
result of changes in, or unavailability of,
such information.
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
(a) ARTICLES OF INCORPORATION: To be filed by
amendment.
(b) BY-LAWS: To be filed by amendment.
(c) INSTRUMENTS DEFINING RIGHTS OF SECURITY
HOLDERS: To be filed by amendment.
(d) INVESTMENT ADVISORY CONTRACTS: To be
filed by
amendment.
(e) UNDERWRITING CONTRACTS: To be filed by
amendment.
(f) BONUS OR PROFIT SHARING CONTRACTS: Not
applicable. (g) CUSTODIAN AGREEMENTS: To be
filed by amendment.
(h) OTHER MATERIAL CONTRACTS: To be filed
by amendment. (i) LEGAL OPINION: To be
filed by amendment.
(j) OTHER OPINIONS: Not applicable.
(k) OMITTED FINANCIAL STATEMENTS: Not
applicable.
(l) INITIAL CAPITAL AGREEMENTS: Not
applicable. (m) RULE 12B-1 PLAN:
Not applicable.
(n) FINANCIAL DATA SCHEDULE: Not
applicable. (o) RULE 18F-3 PLAN: To
be filed by amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON
CONTROL WITH THE FUND
Not applicable.
ITEM 25. INDEMNIFICATION
Section 2-418 of the General Corporation Law
of Maryland empowers a corporation to
indemnify directors and officers of the
corporation under various circumstances as
provided in such statute. A director or
officer who has been successful on the merits
or otherwise, in the defense of any proceeding,
must be indemnified against reasonable expenses
incurred by such person in connection with the
proceeding. Reasonable expenses may be paid
or reimbursed by the corporation in advance
of the final disposition of the proceeding,
after a determination that the facts then known
to those making the determination would
not preclude
indemnification under the statute, and following
receipt by the corporation of a written
affirmation by the person that his or her
standard of conduct necessary for
indemnification has been met and upon delivery
of a written undertaking by or on behalf of
the person to repay the amount advanced if it
is ultimately determined that the standard of
conduct has not been met.
Article VI of the Bylaws of
Registrant contains
indemnification provisions conforming to the
above statute and to the provisions of
Section 17 of the 1940 Act, as amended.
The Registrant and the directors and officers
of Registrant obtained coverage under an
Errors and Omissions insurance policy. The
terms and conditions of the policy coverage
conforms generally to the standard
coverage available throughout the investment
company industry. The coverage also applies
to Registrant's investment manager and its
members and employees.
Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may
be permitted to directors, officers and
controlling persons of Registrant pursuant to
the provisions of Maryland law and Registrant's
Articles of Incorporation and Bylaws, or
otherwise, Registrant has been advised that in
the opinion of the Securities and Exchange
Commission such indemnification is against
public policy as expressed in said Act, and is,
therefore, unenforceable. In the event that
a claim for indemnification against such
liabilities (other than the payment by
Registrant of
expenses incurred or paid by a director,
officer or
controlling person of Registrant in the
successful defense of any action, suit or
proceeding) is asserted by such director,
officer or controlling person in connection
with the securities being registered, Registrant
will, unless in the opinion of its counsel the
matter has been settled by controlling
precedent, submit to a court of appropriate
jurisdiction the question 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
Information required by this item relative to
ASB Capital Management, Inc., Investment
Adviser to each of Registrant's separate series
to be added by amendment.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) To be identified by amendment.
(b) To be added by amendment.
(c) To be added by amendment.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents
required to be maintained pursuant to Section
31(a) of the 1940 Act and the Rules thereunder
are maintained at the offices of the
Registrant and the offices of the Registrant's
Investment Adviser, 1101 Pennsylvania
Avenue, N.W., Suite 300, Washington, D.C.
20004.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable.
SIGNATURES
Pursuant to the requirements of the
Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly
caused this Registration Statement on Form N-1A
to be signed on its behalf by the undersigned,
duly authorized, in the City of Washington, the
District of Columbia, on the 3rd day of
September, 1999.
LELAND FUNDS, INC.
By: /s/
Walter R.
Fatzinger, Jr.
Director
By: /s/ Leslie A.
Nicholson Director
Pursuant to the requirements of the
Securities Act of 1933, this Registration
Statement on Form N-1A has been signed below
by the following person in the capacities and
on the dates indicated.
SIGNATURE: TITLE:
DATE:
/s/ Walter R. Fatzinger, Director
September 3, 1999 Jr.
Walter R. Fatzinger, Jr.
/s/ Leslie A. Nicholson Director
September 3, 1999 Leslie A. Nicholson
EXHIBIT INDEX
