AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 17, 2001
File Nos. 811-10275 and __________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. ___ / /
Post-Effective Amendment No. ___ / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. ___ / /
(Check appropriate box or boxes)
THE WILLAMETTE FUNDS
(Exact name of Registrant as specified in charter)
220 N.W. 2nd Avenue, Suite 940
Portland, Oregon 97209
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (503) 224-8207
Timothy C. Phillips
Willamette Asset Managers, Inc.
220 N.W. 2nd Avenue, Suite 940
Portland, Oregon 97209
(Name and address of agent for service)
Please send copies of all communications to:
Keith T. Robinson Timothy C. Phillips
Dechert Willamette Asset Managers, Inc.
1775 Eye Street, N.W. 220 N.W. 2nd Avenue, Suite 940
Washington, D.C. 20006-2401 Portland, Oregon 97209
Approximate Date of Proposed Public Offering: The Registrant hereby amends the
Registration Statement on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until
the Registration Statement shall become effective on such date as the
Commission, acting pursuant to Section 8(a), shall determine.
<PAGE>
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The Willamette Funds
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Willamette Value Fund
Willamette Small Cap Growth Fund
Willamette Technology Fund
Willamette Global Health Sciences Fund
Willamette Post-Venture Capital Fund
[LOGO]
WILLAMETTE
Asset Managers
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PROSPECTUS DATED ________, 2001
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As with all mutual funds, the Securities and Exchange
Commission has not approved the Fund's securities or
determined whether this prospectus is accurate or
complete. Anyone who tells you otherwise is
committing a crime.
--------------------------------------------------------------------------------
Questions?
Call 1-877-945-3863 or your
investment representative
----------------------------------------
<PAGE>
The Willamette Funds Table of Contents
[ICON] Fund Information
--------------------------------------------------------------------------------
Carefully review this important section,
which summarizes each Fund's investment
objectives and strategies, risks, past
performance, who may want to invest and
fees.
Objectives, Strategies, Risks and Performance 3
Willamette Value Fund 3
Willamette Small Cap Growth Fund 6
Willamette Technology Fund 9
Willamette Global Health Sciences Fund 12
Willamette Post-Venture Capital Fund 15
Fund Expenses 18
[ICON] Shareholder Information
--------------------------------------------------------------------------------
Review this section for details on how
shares are valued, how to purchase, sell
and exchange shares, related charges,
and payments of dividends and
distributions.
Pricing of Fund Shares 19
Purchasing and Adding to Your Shares 19
Selling Your Shares 22
General Policies on Selling 23
Distribution Arrangements/Sales Charges 24
Exchanging Your Shares 26
Dividends, Distributions and Taxes 27
[ICON] Fund Management
--------------------------------------------------------------------------------
Review this section for details on the
people and organizations who oversee
each Fund.
The Investment Adviser 28
Sub-Advisers 28
The Distributor and Administrator 30
[ICON] Financial Highlights
--------------------------------------------------------------------------------
Review this section for details on
selected financial highlights of the
Fund.
Financial Highlights 31
2
<PAGE>
[ICON] Willamette Value Fund
Investment Objective
The Fund's investment objective is to seek above average total return through a
combination of capital appreciation and dividend income.
Policies and Strategies
The Fund follows a "value" investment strategy that employs two portfolio
components. The first component, consisting of about one-half of the Fund's
total assets, is normally allocated by the Sub-Adviser to the ten highest
dividend-yielding stocks in the Dow Jones Industrial Average ("DJIA"). With the
second component, also consisting of about one-half of the Fund's assets, the
Sub-Adviser pursues a value strategy through active management. Thus, under
normal market conditions, the Sub-Adviser will invest this second component
primarily in equity securities that the Sub-Adviser believes have certain
characteristics of "value" stocks. These characteristics include: low price to
normalized earnings ratio, above-average dividend yield, low price relative to
net asset value, low valuation relative to the security's historic average, and
other factors.
The Sub-Adviser is subject to certain limitations with respect to investment of
each component because the Fund has elected to be a "diversified investment
company." A diversified investment company is restricted in the amount it can
invest in securities of a single issuer. Additionally, the assets allocated to
the above components will be reduced to the extent needed to maintain some
portion of the Fund's total assets in cash or cash equivalents to satisfy
redemption requests, to pay Fund expenses and for other contingencies. However,
under normal market conditions, at least 65% (and generally more substantial
portions) of the Fund's assets will be invested in accordance with the above two
components of its value strategy. The Fund's portfolio will be rebalanced
annually so that approximately one-half the Fund's assets, subject to the
foregoing limitations, will be allocated to each component. In the event of
bankruptcy, pending bankruptcy, a dividend cut, or other significant event
affecting a security in the DJIA component of the Fund's portfolio, the
Sub-Adviser may, but is not required to, replace the security with the next
highest dividend-yielding stock in the DJIA. Under abnormal market conditions,
the Fund may invest without limit in money market instruments and debt
securities rated A or better by Moody's Investors Service, Inc. ("Moody's") or
Standard and Poor's Ratings Services ("S&P"), or deemed by the Sub-Adviser to be
of comparable quality, including debt instruments of certain non-U.S. banks and
other non-U.S. issuers, which may cause the Fund to fail to achieve its
investment objective. If an instrument falls below this quality, the Fund will
sell the instrument unless the Sub-Adviser determines that a sale is not in the
Fund's best interest.
The Fund invests primarily in stock of U.S. issuers but it may also invest in
stock of foreign issuers in the form of sponsored or unsponsored depositary
receipts. The Fund may additionally invest in put and call options, futures
contracts and options on futures contracts, and in restricted or illiquid
securities. It may also lend its portfolio securities and may invest in
securities of other investment companies, which would result in some duplication
of expenses for Fund shareholders.
3
<PAGE>
Willamette Value Fund
Principal Risks of Investing in the Fund
An investment in the Fund is subject to investment risks, and you can lose money
on your investment. An investment in the Fund is not a deposit of any bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. More specifically, the Fund may be affected by the
following types of risks:
Equity Risk: The value of the equity securities held by the Fund, and thus of
the Fund's shares, can fluctuate -- at times dramatically. The prices of equity
securities are affected by various factors, including market conditions,
political and other events, and developments affecting the particular issuer or
its industry or geographic sector. The fact that the Sub-Adviser follows a
specific discipline can provide no assurance against a decline in the value of
the Fund's shares.
Market Risk: The Fund's portfolio securities can be affected by events that
affect the securities markets generally or particular segments of the market in
which the Fund has invested. Factors that are part of market risk include
interest rate fluctuations, quality of instruments in the Fund's portfolio,
national and international economic and political conditions and general market
conditions and market psychology.
Foreign Securities Risk: Investments in securities of non-U.S. issuers have
special risks. These risks include international economic and political
developments, foreign government actions including restrictions on payments to
non-domestic persons such as the Fund, less regulation, less information,
currency fluctuations and interruptions in currency flow. Investments in foreign
securities also entail higher costs. The Fund's investments in foreign
securities may be in the form of sponsored or unsponsored depositary receipts,
such as American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs") and European Depositary Receipts ("EDRs"). Ownership of unsponsored
depositary receipts may not entitle the Fund to financial and other reports from
the issuer of the underlying security, and certain costs related to the receipts
that would otherwise be borne by the issuer of a sponsored depositary receipt
may be passed through, in whole or in part, to holders of unsponsored receipts.
The Fund's fixed income investments are particularly subject to:
Interest Rate Risk: The value of the Fund's investments in debt instruments will
tend to fall if current interest rates increase and to rise if current interest
rates decline.
Credit Risk: The value of the Fund's debt instruments will generally decline if
the credit rating of the issuer declines, while their value will be favorably
affected by an increased credit rating. Also, an issuer whose credit rating has
declined may be unable to make payments of principal and/or interest.
Hedging Risks: The Fund's hedging activities, although they are designed to help
offset negative movements in the markets for the Fund's investments, will not
always be successful. Moreover, they can cause the Fund to lose money or fail to
get the benefit of a gain. Among other things, these negative effects can occur
if the market moves in a direction that the Fund's Sub-Adviser does not expect
or if the Fund cannot close out its position in a hedging instrument.
Securities Lending Risk: Although the Fund's loans of portfolio securities will
be fully collateralized and marked to market throughout the period of the loan,
the Fund may experience delays in getting the securities returned and may not
receive mark-to-market payments if the borrower enters bankruptcy or has other
financial problems.
4
<PAGE>
Willamette Value Fund
Fund Performance The bar chart and table provide an indication of
the risks of an investment in the Fund by showing
its performance from year to year and as compared
to a broad-based securities index. Past
performance does not indicate how the Fund will
perform in the future. The Fund's performance was
achieved while it was a series of another
investment company, The Coventry Group. Note in
particular that performance reflected prior to
June 5, 2000 is that of the Adviser and after June
5, 2000 is that of the Sub-Adviser, the date the
Sub-Adviser commenced management of the Fund's
portfolio. The bar chart does not reflect the
impact of the sales charges applicable to sales of
the Fund's shares, which are reflected in the
total return table.
Performance Bar Chart and Table*
Year-by-Year Total Returns as of December 31
(Both the Chart and the Table assume
reinvestment of dividends and distributions)
[Graph Omitted] Best Quarter: Q ____ %
Worst Quarter: Q ____ %
Average Annual Total Returns
(for the period ending December 31, 2000)
Inception Past Since
Date Year Inception
Willamette Value Fund: 5/26/98 % %
Dow Jones 65
Composite Average* 6/1/98 % %
* Dow Jones 65 Composite Average - a price-weighted average consisting of
the 65 stocks that make up the Dow Jones Industrial Average, the Dow Jones
Transportation Average, and the Dow Jones Utility Average.
Who May Consider investing in the Fund if you are:
Want To Invest? o investing for a long-term goal such as
retirement (five year investment
horizon);
o looking to add a growth component to
your portfolio;
o willing to accept higher risks of
investing in the stock market in
exchange for potentially higher long
term returns.
This Fund will not be appropriate for someone:
o seeking monthly income;
o pursuing a short-term goal or
investing emergency reserves;
o seeking safety of principal.
5
<PAGE>
[ICON] Willamette Small Cap Growth Fund
Investment Objective
The Fund's investment objective is to provide long term capital appreciation.
Policies and Strategies
The Fund, under normal market conditions, will invest primarily (at least 65% of
the value of its total assets) in equity securities of small domestic and
foreign issuers. The Fund currently considers "small" issuers to be those with
market capitalization of $1.5 billion or less at the time of purchase by the
Fund. The Fund may continue to hold companies in its portfolio even after their
market capitalizations exceed $1.5 billion. The Sub-Adviser will select
investments it believes have potential for rapid growth in earnings or revenues
due to expanded operations, new products, new technologies, new channels of
distribution, revitalized management or general industry conditions. Current
income will not be a factor in selecting investments for the Fund.
The Fund will invest primarily in stock of U.S. issuers but it may also invest
in stock of foreign issuers. The Fund may invest up to 15% of its assets in
foreign securities that are not listed on a securities exchange and foreign debt
securities that are not US dollar-denominated. The Fund may invest in U.S. and
foreign government obligations and money market instruments; under abnormal
market conditions, the Fund may invest without limit in these securities, which
may cause the Fund to fail to achieve its investment objective. The Fund has not
established minimum quality standards for its investments in debt securities.
The Fund may additionally invest in put and call options, futures contracts and
options on futures contracts, and restricted or illiquid securities. It may also
lend its portfolio securities and may invest in securities of other investment
companies, which results in some duplication of expenses for Fund shareholders.
Principal Risks of Investing in the Fund
An investment in the Fund is subject to investment risks, and you can lose money
on your investment. An investment in the Fund is not a deposit of any bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. More specifically, the Fund may be affected by the
following types of risks:
Equity Risk: The value of the equity securities held by the Fund, and thus of
the Fund's shares, can fluctuate -- at times dramatically. The prices of equity
securities are affected by various factors, including market conditions,
political and other events, and developments affecting the particular issuer or
its industry or geographic sector. The fact that the Sub-Adviser follows a
specific discipline can provide no assurance against a decline in the value of
the Fund's shares.
Risks of Development Stage and Small Cap Stocks: Stocks of development stage and
small capitalization companies involve substantial risk. These stocks
historically have experienced greater price volatility than stocks of more
established and larger capitalization companies, and they may be expected to do
so in the future. Start-up and other small companies may have less-experienced
management, limited product lines, unproven track records or inadequate capital
reserves. Their securities may carry increased market, liquidity, information
and other risks. Key information about the company may be inaccurate or
unavailable.
6
<PAGE>
Willamette Small Cap Growth Fund
Principal Risks of Investing in the Fund
continued
Market Risk: The Fund's portfolio securities can be affected by events that
affect the securities markets generally or particular segments of the market in
which the Fund has invested. Factors that are part of market risk include
interest rate fluctuations, quality of instruments in the Fund's portfolio,
national and international economic and political conditions and general market
conditions and market psychology.
Foreign Securities Risk: Investments in securities of non-U.S. issuers have
special risks. These risks include international economic and political
developments, foreign government actions including restrictions on payments to
non-domestic persons such as the Fund, less regulation, less information,
currency fluctuations and interruptions in currency flow. Investments in foreign
securities also entail higher costs. The Fund's investments in foreign
securities may be in the form of sponsored or unsponsored depositary receipts,
such as American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs") and European Depositary Receipts ("EDRs"). Ownership of unsponsored
depositary receipts may not entitle the Fund to financial and other reports from
the issuer of the underlying security, and certain costs related to the receipts
that would otherwise be borne by the issuer of a sponsored depositary receipt
may be passed through, in whole or in part, to holders of unsponsored receipts.
The Fund's fixed income investments are particularly subject to:
Interest Rate Risk: The value of the Fund's investments in debt instruments will
tend to fall if current interest rates increase and to rise if current interest
rates decline.
Credit Risk: The value of the Fund's debt instruments will generally decline if
the credit rating of the issuer declines, while their value will be favorably
affected by an increased credit rating. Also, an issuer whose credit rating has
declined may be unable to make payments of principal and/or interest.
Risks of Lower Rated Securities: The Fund has not established minimum quality
standards for its investments in debt securities and it may invest in "junk"
bonds. Securities rated BBB or Baa by Standard and Poor's Ratings Services
("S&P") or Moody's Investors Service, Inc. ("Moody's") may have speculative
characteristics, and securities rated BB or Ba and unrated securities are
subject to higher risk of non-payment of principal or interest, or both, that
higher rated securities.
Hedging Risks: The Fund's hedging activities, although they are designed to help
offset negative movements in the markets for the Fund's investments, will not
always be successful. Moreover, they can cause the Fund to lose money or fail to
get the benefit of a gain. Among other things, these negative effects can occur
if the market moves in a direction that the Fund's Sub-Adviser does not expect
or if the Fund cannot close out its position in a hedging instrument.
Securities Lending Risk: Although the Fund's loans of portfolio securities will
be fully collateralized and marked to market throughout the period of the loan,
the Fund may experience delays in getting the securities returned and may not
receive mark-to-market payments if the borrower enters bankruptcy or has other
financial problems.
7
<PAGE>
Willamette Small Cap Growth Fund
Fund Performance The bar chart and table provide an indication of
the risks of an investment in the Fund by showing
its performance for its first complete calendar
year and as compared to a broad-based securities
index. Past performance does not indicate how the
Fund will perform in the future. The Fund's
performance was achieved while it was a series of
another investment company, The Coventry Group.
The bar chart does not reflect the impact of the
sales charges applicable to sales of the Fund's
shares, which are reflected in the total return
table.
Performance Bar Chart and Table*
Total Returns for the Calendar Year ended December 31, 2000
(Both the Chart and the Table assume
reinvestment of dividends and distributions.)
[Graph Omitted] Best Quarter: Q__ ____ ____%
Worst Quarter: Q__ ____ ____%
Average Annual Total Returns
(for the period ending December 31, 2000)
Inception Past Since
Date Year Inception
Willamette Value Fund: 4/01/99 ____% ____%
Russell 2000(R) Index* ____% ____%
* Russell 2000(R) Index- The Russell 2000(R) Index is a capitalization-
weighted index of domestic equities traded on the NYSE, AMEX and NASDAQ
Stock Market, Inc. ("NASDAQ"). The index represents the bottom 2,000
companies of the 3,000 U.S. stocks with the largest market capitalizations
Who May Consider investing in the Fund if you are:
Want To Invest? o investing for a long-term goal such as
retirement (five year investment
horizon);
o looking to add a growth component to
your portfolio;
o willing to accept higher risks of
investing in stock of smaller issuers.
This Fund will not be appropriate for someone:
o seeking monthly income;
o pursuing a short-term goal or
investing emergency reserves;
o seeking safety of principal.
8
<PAGE>
[ICON] Willamette Technology Fund
Investment Objective
The Fund's investment objective is to provide long term growth of capital.
Policies and Strategies
The Fund, under normal market conditions, will invest primarily (at least 65% of
the value of its total assets) in common stocks of companies that the Fund's
Sub-Adviser believes either have, or will develop, products, processes or
services that will provide or will benefit significantly from technological
innovations, advances and improvements. These may include:
o Inexpensive computing power, such as personal computers;
o Improved methods of communications, such as satellite transmission;
and
o Technology-related services, such as internet-related marketing
services.
The prime emphasis of the Fund is to identify companies that the Sub-Adviser
believes are positioned to benefit from technological advances in areas such as
semi-conductors, computers, software, communications and online services.
Companies in which the Fund invests may include development stage companies
(companies that do not have significant revenues) and small capitalization
companies.
The Sub-Adviser will select companies that it believes exhibit strong management
teams, a strong competitive position, above average growth in revenues and a
sound balance sheet.
Up to 25% of the Fund's total assets may be invested in securities of foreign
issuers that are either listed on a United States stock exchange or are
represented by American Depositary Receipts.
To generate additional income, the Fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
The Fund may invest in U.S. government obligations and money market instruments;
under abnormal market conditions, the Fund may invest without limit in these
securities, which may cause the Fund to fail to achieve its investment
objective.
9
<PAGE>
Willamette Technology Fund
Principal Risks of Investing in the Fund
An investment in the Fund is subject to investment risks, and you can lose money
on your investment. An investment in the Fund is not a deposit of any bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other governmental agency. More specifically, the Fund may be affected by the
following types of risks:
Equity Risk: The value of the equity securities held by the Fund, and thus of
the Fund's shares, can fluctuate -- at times dramatically. The prices of equity
securities are affected by various factors, including market conditions,
political and other events, and developments affecting the particular issuer or
its industry or geographic sector. The fact that the Sub-Adviser follows a
specific discipline can provide no assurance against a decline in the value of
the Fund's shares.
Risks of the Technology Sector: Because the Fund invests primarily in
technology-related stocks, it is particularly susceptible to risks associated
with the technology industry. Competitive pressures may have a significant
effect on the financial condition of companies in that industry.
Risks of Non-Diversification: The Fund is non-diversified. This means that it
may invest a larger portion of its assets in a limited number of companies than
a diversified fund. Because a relatively high percentage of the Fund's assets
may be invested in the securities of a limited number of issuers that will be in
the same or related economic sectors, the Fund's portfolio may be more
susceptible to any single economic, technological or regulatory occurrence than
the portfolio of a diversified fund.
Risks of Development Stage and Small Cap Stocks: Stocks of development stage and
small capitalization companies involve substantial risk. These stocks
historically have experienced greater price volatility than stocks of more
established and larger capitalization companies, and they may be expected to do
so in the future. Start-up and other small companies may have less-experienced
management, limited product lines, unproven track records or inadequate capital
reserves. Their securities may carry increased market, liquidity, information
and other risks. Key information about the company may be inaccurate or
unavailable.
Foreign Securities Risk: Investments in securities of non-U.S. issuers have
special risks. These risks include international economic and political
developments, foreign government actions including restrictions on payments to
non-domestic persons such as the Fund, less regulation, less information,
currency fluctuations and interruptions in currency flow. Investments in foreign
securities also entail higher costs. The Fund's investments in foreign
securities may be in the form of sponsored or unsponsored American Depositary
Receipts ("ADRs"). Ownership of unsponsored depositary receipts may not entitle
the Fund to financial and other reports from the issuer of the underlying
security, and certain costs related to the receipts that would otherwise be
borne by the issuer of a sponsored depositary receipt may be passed through, in
whole or in part, to holders of unsponsored receipts.
Securities Lending Risk: Although the Fund's loans of portfolio securities will
be fully collateralized and marked to market throughout the period of the loan,
the Fund may experience delays in getting the securities returned and may not
receive mark-to-market payments if the borrower enters bankruptcy or has other
financial problems.
New Fund Risk: There can be no assurance that the Fund will grow to an
economically viable size, in which case Fund management may determine to
liquidate the Fund at a time that may not be opportune for shareholders.
10
<PAGE>
Willamette Technology Fund
Fund Performance Because the Fund commenced operations on March 1,
2000, it does not have a record of performance for
a calendar year. Performance information for
another fund managed by the Sub-Adviser in a
manner substantially identical to the Fund is
included in Appendix A.
Who May Consider investing in the Fund if you are:
Want To Invest? o investing for a long-term goal such as
retirement (five year investment
horizon);
o looking to add a growth component to
your portfolio;
o willing to accept higher risks of
investing in a non-diversified
portfolio of technology and small cap
issuers.
This Fund will not be appropriate for someone:
o seeking monthly income;
o pursuing a short-term goal or
investing emergency reserves;
o seeking safety of principal.
11
<PAGE>
[ICON] Willamette Global Health Sciences Fund
Investment Objective
The Fund's investment objective is to provide long term growth of capital.
Policies And Strategies
The Fund, under normal market conditions, will invest primarily (at least 65% of
the value of its total assets) in equity and debt securities of U.S. and foreign
health sciences companies. Health sciences companies are enterprises that are
principally engaged in research and development, production, or distribution of
products or services related to health care, medicine and life sciences. The
Fund's investments will include companies from at least three different
countries, including the U.S., and there are no limits on the amount the Fund
may invest in foreign securities. The Fund may invest in companies of any size,
including large, medium and small capitalization companies and development stage
companies.
The Fund's investments, normally at least 80% of its assets, will be principally
in equity securities of health sciences companies. Equity securities include
common and preferred stocks, rights and warrants, and securities exchangeable
for or convertible into common stocks. The Fund may invest up to 20% of its
assets in debt securities, including debt securities rated below investment
grade ("junk bonds").
To generate additional income, the Fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
The Fund may invest in U.S. government obligations, money market instruments and
repurchase agreements; under abnormal market conditions, the Fund may invest
without limit in these securities, which may cause the Fund to fail to achieve
its investment objective.
12
<PAGE>
Willamette Global Health Sciences Fund
Principal Risks of Investing in the Fund
An investment in the Fund is subject to investment risks, and you can lose money
on your investment. More specifically, the Fund may be affected by the following
types of risks:
Equity Security Risk: The value of the equity securities held by the Fund, and
thus of the Fund's shares, can fluctuate -- at times dramatically. The prices of
equity securities are affected by various factors, including market conditions,
political and other events, and developments affecting the particular issuer or
its industry or geographic sector. The fact that the Sub-Adviser follows a
specific discipline can provide no assurance against a decline in the value of
the Fund's shares.
Risks of Health Sciences Companies: Because the Fund invests primarily in stocks
of health sciences companies, it is particularly susceptible to risks associated
with these industries. The Fund's performance will depend on the performance of
securities of these industries, which may differ from general stock market
performance. Many products and services in these industries may become rapidly
obsolete due to technological and scientific advances. In addition, governmental
regulation may have a material effect on the demand for products and services in
these industries, and new or amended regulations can adversely affect the issuer
or the market value of its securities. Finally, lawsuits or legal proceedings
against these companies can adversely affect the value of their securities.
Risks of Non-Diversification: The Fund is non-diversified. This means that it
may invest a larger portion of its assets in a limited number of companies than
a diversified fund. Because a relatively high percentage of the Fund's assets
may be invested in the securities of a limited number of issuers that will be in
the same or related economic sectors, the Fund's portfolio may be more
susceptible to any single economic, technological, regulatory or legal
occurrence than the portfolio of a diversified fund.
Risks of Development Stage and Small Cap Stocks: Stocks of development stage and
small capitalization companies involve substantial risk. These stocks
historically have experienced greater price volatility than stocks of more
established and larger capitalization companies, and they may be expected to do
so in the future. Start-up and other small companies may have less-experienced
management, limited product lines, unproven track records or inadequate capital
reserves. Their securities may carry increased market, liquidity, information
and other risks. Key information about the company may be inaccurate or
unavailable.
Foreign Securities Risk: Investments in securities of non-U.S. issuers have
special risks. These risks include international economic and political
developments, foreign government actions including restrictions on payments to
non-domestic persons such as the Fund, less regulation, less information,
currency fluctuations and interruptions in currency flow. Investments in foreign
securities also entail higher costs. The Fund's investments in foreign
securities may include investments in the form of sponsored or unsponsored
American Depositary Receipts ("ADRs"). Ownership of unsponsored depositary
receipts may not entitle the Fund to financial and other reports from the issuer
of the underlying security, and certain costs related to the receipts that would
otherwise be borne by the issuer of a sponsored depositary receipt may be passed
through, in whole or in part, to holders of unsponsored receipts.
Securities Lending Risk: Although the Fund's loans of portfolio securities will
be fully collateralized and marked to market throughout the period of the loan,
the Fund may experience delays in getting the securities returned and may not
receive mark-to-market payments if the borrower enters bankruptcy or has other
financial problems.
New Fund Risk: There can be no assurance that the Fund will grow to an
economically viable size, in which case Fund management may determine to
liquidate the Fund at a time that may not be opportune for shareholders.
13
<PAGE>
Willamette Global Health Sciences Fund
Fund Performance Because the Fund commenced operations on June 12,
2000, it does not have a record of performance for
a calendar year.
Who May Consider investing in the Fund if you are:
Want To Invest? o investing for a long-term goal such as
retirement (five year investment
horizon);
o looking to add a growth component to
your portfolio; and
o willing to accept higher risks of
investing in a non-diversified
portfolio of health sciences issuers.
This Fund will not be appropriate for someone:
o seeking monthly income;
o pursuing a short-term goal or
investing emergency reserves;
o seeking safety of principal.
14
<PAGE>
[ICON] Willamette Post-Venture Capital Fund
Investment Objective
The Fund's investment objective is to provide long term growth of capital.
Policies and Strategies
Under normal market conditions, the Fund will invest at least 65% of assets in
equity securities of post-venture-capital companies from at least three
countries, including the U.S. Currently, the Fund intends to invest at least 35%
of total assets in companies located or conducting a majority of their business
outside the U.S. The Fund may invest in companies of any size and will diversify
its investments across companies, industries and countries.
The Sub-Adviser considers a post-venture-capital company as one that has
received venture-capital financing either:
o during the early stages of the company's existence or the early
stages of the development of a new product or service, or
o as part of a restructuring or recapitalization of the company.
In either case, one or more of the following will have occurred within 10 years
prior to the Fund's purchase of the company's securities:
o the investment of venture-capital financing,
o distribution of the company's securities to venture-capital
investors, or
o an initial public offering.
The Fund may invest up to 10% of its assets in private-equity portfolios that
invest in venture-capital companies, without limit in special-situation
companies, and without limit in foreign securities ("Private Funds"). The fund
also may engage in other investment practices.
To generate additional income, the Fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.
The Fund may invest in U.S. government obligations and money market instruments;
under abnormal market conditions, the Fund may invest without limit in these
securities, which may cause the Fund to fail to achieve its investment
objective.
15
<PAGE>
Willamette Post-Venture Capital Fund
Principal Risks of Investing in the Fund
An investment in the Fund is subject to investment risks, and you can lose money
on your investment. More specifically, the Fund may be affected by the following
types of risks:
Equity Risk: The value of the equity securities held by the Fund, and thus of
the Fund's shares, can fluctuate -- at times dramatically. The prices of equity
securities are affected by various factors, including market conditions,
political and other events, and developments affecting the particular issuer or
its industry or geographic sector. The fact that the Sub-Adviser follows a
specific discipline can provide no assurance against a decline in the value of
the Fund's shares.
Special-Situation Companies Risk: "Special situations" are unusual developments
that affect a company's market value. Examples include mergers, acquisitions and
reorganizations. Securities of special-situation companies may decline in value
if the anticipated benefits of the special situation do not materialize.
Risks of Development Stage and Small Cap Stocks: Stocks of development stage and
small capitalization companies involve substantial risk. These stocks
historically have experienced greater price volatility than stocks of more
established and larger capitalization companies, and they may be expected to do
so in the future. Start-up and other small companies may have less-experienced
management, limited product lines, unproven track records or inadequate capital
reserves. Their securities may carry increased market, liquidity, information
and other risks. Key information about the company may be inaccurate or
unavailable.
Foreign Securities Risk: Investments in securities of non-U.S. issuers have
special risks. These risks include international economic and political
developments, foreign government actions including restrictions on payments to
non-domestic persons such as the Fund, less regulation, less information,
currency fluctuations and interruptions in currency flow. Investments in foreign
securities also entail higher costs. The Fund's investments in foreign
securities may be in the form of sponsored or unsponsored American Depositary
Receipts ("ADRs"). Ownership of unsponsored depositary receipts may not entitle
the Fund to financial and other reports from the issuer of the underlying
security, and certain costs related to the receipts that would otherwise be
borne by the issuer of a sponsored depositary receipt may be passed through, in
whole or in part, to holders of unsponsored receipts.
Securities Lending Risk: Although the Fund's loans of portfolio securities will
be fully collateralized and marked to market throughout the period of the loan,
the Fund may experience delays in getting the securities returned and may not
receive mark-to-market payments if the borrower enters bankruptcy or has other
financial problems.
New Fund Risk: There can be no assurance that the Fund will grow to an
economically viable size, in which case Fund management may determine to
liquidate the Fund at a time that may not be opportune for shareholders.
Liquidity Risk: The ability of the Fund to dispose of interests in Private Funds
is very limited. Interests in the Private Funds are subject to substantial
restrictions on transfer and, in some instances, may be non-transferable for a
period of years. There is generally no market for such interests. Interests may
be difficult or impossible to sell at prices comparable to the market prices of
similar securities that are publicly traded and limited liquidity could create
substantial losses for the Fund.
16
<PAGE>
Willamette Post-Venture Capital Fund
Fund Performance Because the Fund had not commenced operations
prior to the date of this prospectus, it does not
have a record of performance.
Who May Consider investing in the Fund if you are:
Want To Invest? o investing for a long-term goal such as
retirement (five year investment
horizon);
o looking to add a growth component to
your portfolio;
o willing to accept higher risks of
losing money in exchange for
attractive potential long term
returns;
o looking to diversify your portfolio
internationally.
This Fund will not be appropriate for someone:
o seeking monthly income;
o pursuing a short-term goal or
investing emergency reserves;
o seeking safety of principal;
o looking to limit your exposure to
foreign securities.
17
<PAGE>
[ICON] Risk/Return Summary & Fund Expenses
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of each of the Funds.
Fee Table
<TABLE>
<CAPTION>
Willamette
Willamette Global Willamette
Willamette Small Cap Willamette Health Post-Venture
Value Growth Technology Sciences Capital
Fund Fund Fund Fund Fund
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shareholder Fees
(fees paid by you directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a % of offering price) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1)
Maximum Deferred Sales Charge (Load)
(as a % of offering or sales price, whichever is less) None None None None None
Annual Fund Operating Expenses
(expenses paid from Fund assets)
Management fees 1.00%(2) 1.20%(2) 1.20%(2)(4) 1.20%(2)(4) 1.20%(2)(4)
Distribution (12b-1) and service fees 0.50% 0.50% 0.50% 0.50% 0.50%
Other expenses ____% ____% ____% ____%(3) ____%(3)
Total Annual Fund Operating Expenses ____% ____% ____% ____% ____%
</TABLE>
----------
(1) Lower sales charges are available depending upon the amount invested. See
"Distribution Arrangements."
(2) The Adviser pays fees of the Sub-Adviser out of its Management Fee from
the Fund.
(3) Other expenses are based on estimated amounts for the current fiscal year.
(4) The Adviser plans to waive 0.20% of its Management Fee with respect to the
Funds but may terminate this waiver at any time.
Example: This Example is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The Example assumes:
o $10,000 investment
o 5% annual return at the end of each period o redemption at the end
of each period o no changes in the Fund's operating expenses
Although your actual costs may be higher or lower, based on these assumptions,
your cost would be:
<TABLE>
<CAPTION>
Willamette
Willamette Global Willamette
Willamette Small Cap Willamette Health Post-Venture
Value Growth Technology Sciences Capital
Fund Fund Fund Fund Fund
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One Year After Purchase $_______ $_______ $_______ $_______ $_______
Three Years After Purchase $_______ $_______ $_______ $_______ $_______
Five Years After Purchase $_______ $_______ $_______ N/A N/A
Ten Years After Purchase $_______ $_______ $_______ N/A N/A
</TABLE>
----------
(1) The Securities and Exchange Commission requires that these Funds estimate
expenses for one and three years only.
18
<PAGE>
[ICON] Shareholder Information
Pricing of Fund Shares
--------------------------------------------------------------------------------
How NAV is Calculated
The NAV is calculated by adding the total value of a Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:
NAV =
Total Assets - Liabilities
--------------------------
Number of Shares
Outstanding
You can find the Fund's NAV daily in The Wall Street Journal and other
newspapers.
--------------------------------------------------------------------------------
Per share net asset value (NAV) for each Fund is determined and its shares are
priced at the close of regular trading on the New York Stock Exchange, normally
at 4:00 p.m. Eastern time on days the Exchange is open ("Business Days"). If
portfolio investments of a Fund are traded in markets on days that are not
Business Days of the Fund, the Fund's NAV may vary on days when investors cannot
purchase, redeem or exchange shares.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is accepted by the Fund plus any applicable sales
charge as noted in the section on "Distribution Arrangements/Sales Charges."
This is what is known as the offering price.
Each Fund's securities are generally valued at current market prices. If market
quotations are not available, prices will be based on fair value as determined
by the Fund's Trustees.
--------------------------------------------------------------------------------
Purchasing and Adding to Your Shares
You may purchase a Fund through the Distributor or through investment
representatives, who may charge additional fees and may require higher minimum
investments or impose other limitations on buying and selling shares. If you
purchase shares through an investment representative, that party is responsible
for transmitting orders by close of business and may have an earlier cut-off
time for purchase and sale requests. Consult your investment representative for
specific information.
Minimum Minimum
Initial Subsequent
Account Type Investment Investment
Regular $1,000 $100
(non-retirement)
--------------------------------------------------------------------------------
Retirement $ 250 $ -
--------------------------------------------------------------------------------
Automatic
Investment Plan $ 250 $ 25
--------------------------------------------------------------------------------
All purchases must be in U.S. dollars. A fee will be charged for any checks that
do not clear. Third-party checks are not accepted.
A Fund may waive its minimum purchase requirement and the Distributor may reject
a purchase order if it considers it in the best interest of the Fund and its
shareholders.
19
<PAGE>
Shareholder Information
Purchasing and Adding To Your Shares
continued
Instructions for Opening or Adding to an Account
By Regular Mail
Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "Willamette Funds."
3. Mail to: The Willamette Funds, P.O. Box 182301, Columbus, OH 43218-2301
Subsequent:
1. Use the investment slip attached to your account statement. Or, if
unavailable,
2. Include the following information on a piece of paper:
o Fund name;
o Amount invested;
o Account name;
o Account number.
Include your account number on your check.
3. Mail to: The Willamette Funds, P.O. Box 182301, Columbus, OH 43218-2301.
By Overnight Service
See instructions 1-2 above for subsequent investments.
3. Send to: The Willamette Funds,
Attn: Shareholder Services, 3435 Stelzer Road, Columbus, OH 43219
By Wire Transfer
Note: Your bank may charge a wire transfer fee.
Prior to wiring funds and in order to ensure that wire orders are invested
promptly, investors must call the Fund at (877) 945-3863 to obtain instructions
regarding the bank account number to which the funds should be wired and other
pertinent information.
You can add to your account by using the convenient options described below.
Each Fund reserves the right to change or eliminate these privileges at any time
with 60 days notice.
Questions?
Call 1-800-258-9232 or your
investment representative
------------------------------
20
<PAGE>
Shareholder Information
Purchasing and Adding to Your Shares
continued
Automatic Investment Plan
You can make automatic investments in a Fund from your bank account. Automatic
investments can be as little as $25, once you've invested the $250 minimum
required to open the account.
To invest regularly from your bank account:
[] Complete the Automatic Investment Plan portion on your Account
Application.
Make sure you note:
o Your bank name, address and ABA number;
o Your checking or savings account number;
o The amount you wish to invest automatically (minimum $25);
o How often you want to invest (every month, twice a month, 4 times a
year or once a year);
o Attach a voided personal check or savings deposit slip.
--------------------------------------------------------------------------------
Dividends and Distributions
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested dividends and
distributions. Capital gains are distributed at least annually.
Distributions are made on a per share basis regardless of how long you've owned
your shares. Therefore, if you invest shortly before the distribution date, some
of your investment will be returned to you in the form of a distribution.
--------------------------------------------------------------------------------
21
<PAGE>
Shareholder Information
Selling Your Shares
--------------------------------------------
Instructions For Selling Shares Withdrawing Money from Your Fund Investment
You may sell your shares at As a mutual fund shareholder, you are
any time. Your sales price technically selling shares when you request
will be the next NAV after a withdrawal in cash. This is also known as
your sell order is received by redeeming shares or a redemption of shares.
the Fund, its transfer agent, --------------------------------------------
or your investment
representative. Normally you
will receive your proceeds
within a week after your
request is received. See the
section "General Policies on
Selling Shares".
By telephone (unless you have declined telephone sales privileges)
1. Call (877) 945-3863 with instructions as to how you wish to receive
your funds (mail, check or wire). Note: IRA redemptions must be
requested by mail.
By mail
1. Call (877) 945-3863 to request redemption forms or write a letter of
instruction indicating: o your Fund and account number; o amount you
wish to redeem; o address where your check should be sent; o account
owner(s) signature.
2. Mail to: The Willamette Funds, P.O. Box 182301, Columbus, OH
43218-2301
Wire transfer
You must indicate this option on your application.
A Fund may charge a wire transfer fee.
Note: Your financial institution may also charge a separate fee.
Call (877) 945-3863 to request a wire transfer.
If you call by 4 p.m. Eastern time, your payment will normally be wired to your
bank on the next business day.
Automatic Withdrawal Plan
You can receive automatic payments from your account on a monthly, quarterly,
semi annual, or annual basis. The minimum withdrawal is $100. To activate this
feature:
o Make sure you've checked the appropriate box on the Account
Application. Or call (877) 945-3863;
o A minimum balance of $12,000 is required;
o Include a voided personal check;
o If the value of your account falls below $500, you may be asked to
add sufficient funds to bring the account back to $500, or the Fund
may close your account and mail the proceeds to you.
22
<PAGE>
Shareholder Information
General Policies on Selling Shares
Redemptions in Writing Required
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee which include each of
the following:
o Redemptions Over $50,000;
o Your account registration or the name(s) in your account has changed
within the last 10 business days;
o The check is not being mailed to the address on your account;
o The check is not being made payable to the owner of the account;
o The redemption proceeds are being transferred to another Fund
account with a different registration.
A signature guarantee can be obtained from a financial institution, such as a
bank, broker-dealer, credit union, clearing agency, or savings association.
Verifying Telephone Redemptions
Each Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders. If appropriate precautions have not been taken, the
Transfer Agent may be liable for losses due to unauthorized transactions.
Redemptions Within 10 Business Days of Initial Investment
When you have made your initial investment by check, you cannot redeem any
portion of it until the Transfer Agent is satisfied that the check has cleared
(which may require up to 10 business days). You can avoid this delay by
purchasing shares with a certified check or wire transfer.
Refusal of Redemption Request
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
Redemption in Kind
The Funds reserve the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect a Fund's
operations (for example, more than 1% of the Fund's net assets). If a Fund deems
it advisable for the benefit of all shareholders, redemption in kind will
consist of securities equal in market value to your shares. When you convert
these securities to cash, you will pay brokerage charges.
Closing of Small Accounts
If your account falls below $500, a Fund may ask you to increase your balance.
If it is still below $500 after 60 days, the Fund may close your account and
send you the proceeds at the current NAV.
Undeliverable Redemption Checks
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2) remain
uncashed for six months, your account will be changed automatically so that all
future distributions are reinvested in your account. Checks that remain uncashed
for six months will be canceled and the money reinvested in the Fund.
23
<PAGE>
Shareholder Information
Distribution Arrangements/Sales Charges
This section describes the sales charges and fees you will pay as an investor in
the Funds and ways to qualify for reduced sales charges.
--------------------------------------------------------------------------------
Sales Charge (Load) Front-end sales charge; reduced sales
charges available.
--------------------------------------------------------------------------------
Distribution (12b-1) Subject to annual distribution (12b-1)
and shareholder servicing fees of and Service Fees up to .50%
of the Fund's total assets.
--------------------------------------------------------------------------------
Calculation of Sales Charges
Shares of a Fund are sold at its public offering price. This price includes the
initial sales charge. Therefore, part of the money you invest will be used to
pay the sales charge. The remainder is invested in Fund shares. The sales charge
decreases with larger purchases. There is no sales charge on reinvested
dividends and distributions.
<TABLE>
<CAPTION>
Amount of Sales
Charge Reallowed to
Dealers as a
Sales Charge Sales Charge Percentage of your
Your as a % of as a % of Public Offering
Investment Offering Price Your Investment Price**
<S> <C> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
----------------------------------------------------------------------------------------------------------
$50,000 but less than $100,000 5.00% 5.26% 4.25%
----------------------------------------------------------------------------------------------------------
$100,000 but less than $250,000 4.00% 4.17% 3.60%
----------------------------------------------------------------------------------------------------------
$250,000 but less than $500,000 3.00% 3.09% 2.70%
----------------------------------------------------------------------------------------------------------
$500,000 but less than $750,000 2.50% 2.56% 2.25%
----------------------------------------------------------------------------------------------------------
$750,000 but less than $1,000,000 1.25% 1.27% 1.10%
----------------------------------------------------------------------------------------------------------
$1,000,000 and above* 0.00% 0.00% 0.00%
----------------------------------------------------------------------------------------------------------
</TABLE>
* In the case of investments of $1 million or more, a 0.25% redemption fee will
be assessed on shares redeemed within 12 months of purchase (excluding shares
purchased with reinvested dividends and/or distributions).
** The Distributor may reallow up to 100% of the sales charge to Phillips &
Company Securities, Inc., an affiliate of the Adviser. The staff of the
Securities and Exchange Commission has indicated that dealers who receive more
than 90% of the sales charge may be considered underwriters. The Distributor, at
its expense, may provide additional compensation to dealers in connection with
sales of Shares of the Fund.
24
<PAGE>
Shareholder Information
Distribution Arrangements/Sales Charges
continued
Sales Charge Reductions
Reduced sales charges are available to shareholders with investments of $100,000
or more. In addition, you may qualify for reduced sales charges under the
following circumstances.
Letter of Intent: You inform the Fund in writing that you intend to purchase
enough shares over a 13-month period to qualify for a reduced sales charge. You
must include a minimum of 5% of the total amount you intend to purchase with
your letter of intent.
Rights of Accumulation: When the value of shares you already own plus the amount
you intend to invest reaches the amount needed to qualify for reduced sales
charges, your added investment will qualify for the reduced sales charge.
Combination Privilege: Combine accounts of multiple Funds or accounts of
immediate family household members (spouse and children under 21) to achieve
reduced sales charges.
Sales Charge Waivers
The sales charge will not apply to purchases of Shares by: (a) trust, investment
management and other fiduciary accounts managed by the Adviser pursuant to a
written agreement; (b) any person purchasing Shares with the proceeds of a
distribution from a trust, investment management or other fiduciary account
managed by the Adviser pursuant to a written agreement; (c) BISYS Fund Services
("BISYS") or any of its affiliates; (d) Trustees or officers of the Fund; (e)
directors or officers of BISYS, the Adviser or affiliates or bona fide full-time
employees of the foregoing who have acted as such for not less than 90 days
(including members of their immediate families and their retirement accounts or
plans) for which there is a written service agreement between any Fund and the
plan sponsor, so long as such Shares are purchased through the Fund; or (g) any
person purchasing shares within an approved asset allocation program sponsored
by a financial services organization. The sales charge also does not apply to
shares sold to representatives of selling brokers and members of their immediate
families that have signed a selling group agreement with the Fund. In addition,
the sales charge does not apply to sales to bank trust departments, acting on
behalf of one or more clients, of Shares having an aggregate value equal to or
exceeding $200,000. Finally, up to 50% of applicable sales charges may be waived
for customers of Phillips & Co. Securities, Inc. and Willamette Securities,
Inc., both broker-dealer affiliates of the Adviser.
Distribution (12b-1) and Service Fees
Each Fund is permitted to pay annually up to 0.50% of its average daily net
assets in 12b-1 fees. 12b-1 fees compensate the Distributor and other dealers
and investment representatives for services and expenses relating to the sale
and distribution of a Fund's shares and/or for providing shareholder services.
12b-1 fees are paid from Fund assets on an ongoing basis, and will increase the
cost of your investment.
The Distributor may use up to .25% of the 12b-1 fee for shareholder servicing.
Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of 12b-1
distribution and service fees.
25
<PAGE>
Shareholder Information
Exchanging Your Shares
You can exchange your shares in a Fund for shares of another Willamette Fund,
usually without paying additional sales charges. No transaction fees are charged
for exchanges.
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable.
Instructions for Exchanging Shares
Exchanges may be made by sending a written request to The Willamette Funds, P.O.
Box 182301, Columbus, OH 43218-2301 or by calling (877) 945-3863. Please provide
the following information:
o Your name and telephone number;
o The exact name on your account and account number;
o Taxpayer identification number (usually your Social Security
number);
o Dollar value or number of shares to be exchanged;
o The name of the Fund from which the exchange is to be made;
o The name of the Fund into which the exchange is being made.
See "Selling your Shares" for important information about telephone
transactions.
Notes on Exchanges
o To prevent disruption in the management of each Fund, due to market
timing strategies, exchange activity may be limited to 4 exchanges
within a calendar year.
o The registration and tax identification numbers of the two accounts
must be identical.
o The exchange privilege may be changed or eliminated at any time upon
a 60-day notice to shareholders.
Individual Retirement Account ("IRA")
An IRA enables individuals, even if they participate in an employer-sponsored
retirement plan, to establish their own retirement programs. IRA contributions
may be tax-deductible and earnings are tax-deferred. Under the Tax Reform Act of
1986, the tax deductibility of IRA contributions is restricted or eliminated for
individuals who participate in certain employer pension plans and whose annual
income exceeds certain limits. Existing IRAs and future contributions up to the
IRA maximums, whether deductible or not, still earn income on a tax-deferred
basis.
All IRA distribution requests must be made in writing to BISYS. Any additional
deposits to an IRA must distinguish the type and year of the contribution.
For more information on an IRA call The Willamette Funds at (877) 945-3863.
Shareholders are advised to consult a tax adviser regarding IRA contribution and
withdrawal requirements and restrictions.
26
<PAGE>
Shareholder Information
Dividends, Distributions and Taxes
Any income a Fund receives in the form of dividends is paid out, less expenses,
to its shareholders. Income dividends are declared, and usually paid, annually.
Capital gains for that Fund are distributed at least annually.
Dividends and distributions from a Fund will be automatically paid in additional
shares of that Fund unless the shareholder elects to receive either of these
amounts in cash. This election is made in the Application Form, and any change
must be made in writing to the Fund at P.O. Box 182301, Columbus, Ohio
43218-2301 and will be effective for payments having a record date after the
Fund's receipt of this notice. If payments made in cash are returned marked
"Undeliverable" or remain uncashed for six months, the cash election will be
automatically changed to provide for automatic reinvestment. Undeliverable or
returned checks will be cancelled and the amounts payable on those checks will
be reinvested in additional shares of the applicable Fund at the net asset value
on the date of cancellation.
Dividends and distributions are treated in the same manner for federal income
tax purposes whether you receive them in cash or in additional shares.
Dividends are taxable as ordinary income. If the Fund designates a distribution
as a long-term capital gains distribution, it will be taxable to you at your
long-term capital gains rate, regardless of how long you have owned your Fund
shares.
Some dividends are taxable in the calendar year in which they are declared, even
though your account statement may reflect them as being distributed in the
following year.
You will be notified in January each year about the federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
An exchange of Fund shares is considered a sale, and any related gains may be
subject to applicable taxes.
Foreign shareholders may be subject to special withholding requirements. There
is a tax penalty on certain pre-retirement distributions from retirement
accounts. Consult your tax adviser about the federal, state and local tax
consequences in your particular circumstances.
Each Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with IRS
rules or shareholders that are subject to back-up withholding. To avoid
withholding, make sure you provide your correct Tax Identification Number
(Social Security Number for most investors) on your account application.
27
<PAGE>
[ICON] Fund Management
The Investment Adviser
Willamette Asset Managers, Inc., 220 NW 2nd Avenue, Suite 950, Portland, Oregon
97209, is the investment adviser for the Fund. The Adviser is an affiliate of
two registered broker-dealers -- Phillips & Company Securities Inc. and
Willamette Securities, Inc. The Adviser is responsible for general management of
each Fund. Each Fund pays fees to the Adviser at an annual rate of 1.20% of the
Fund's average daily net assets except the Willamette Value Fund, for which the
Fund pays fees to the Adviser of an annual rate of 1.00% of the Fund's average
daily net assets. The Adviser pays fees of the Sub-Adviser out of its fees from
the Fund, at no additional cost to the Fund.
The Sub-Advisers
Willamette Value Fund
The Bank of New York, One Wall Street, New York, New York 10286, provides
portfolio management services to the Willamette Value Fund, as Sub-Adviser. The
Sub-Adviser, founded by Alexander Hamilton in 1784, is one of the largest U.S.
commercial banks, with assets over $___ billion as of December 31, 2000. As of
that date, the Sub-Adviser provided administrative or advisory services for
approximately $__ billion in assets.
Portfolio managers for the DJIA portion of the Fund's portfolio are Kurt Zyla
and Tracy Hemmi. Charles Foley and Henry Wilmerding are portfolio managers for
the actively managed portion of the Fund's portfolio.
Mr. Zyla is responsible for all aspects of the Sub-Adviser's passive investment
management group. His additional responsibilities include equity derivative
product strategy, analysis and trading for the Sub-Adviser's Investment and
Trust sectors. Prior to joining the Sub-Adviser in 1989, he worked in the
Specialty Chemicals division of Engelhard Corporation, in the areas of technical
sales and product management. Mr. Zyla has a B.S. in chemical engineering from
New Jersey Institute of Technology and an MBA from New York University's Stern
School of Business.
Ms. Hemmi joined the Sub-Adviser's Index Fund Management department in July
1999. She is responsible for the day-to-day management and trading of equity
index portfolios for the Sub-Adviser's Investment and Trust sectors. Prior to
joining the Sub-Adviser, she worked as the index portfolio manager at Key Asset
Management, and as a financial analyst and funds management trader for KeyCorp.
Ms. Hemmi holds a B.A. in Economics from the University of Rochester and an
M.B.A. from Case Western Reserve University's Weatherhead School of Management.
Mr. Foley has been a Senior Vice President of the Sub-Adviser since June 1,
2000, and is President and Portfolio Manager of its subsidiary, Estabrook
Capital Management LLC, with which he has been associated since 1970. From 1966
to 1970, he was with Brown Brothers Harriman & Co. in their Investment and Bond
Department. Mr. Foley holds a B.A. from Manhattan College and an M.B.A. from
Columbia University Graduate School of Business. He holds a Chartered Financial
Analyst designation and is a member of the New York Society of Security
Analysts.
Mr. Wilmerding has been a Vice President of the Sub-Adviser since June 1, 2000
and is currently a Director and Portfolio Manager of the Sub-Adviser's
subsidiary, Estabrook Capital Management, which he joined in 1995. Mr.
Wilmerding began his career in 1992 in the Investment Advisory Department of
Brown Brothers Harriman & Co. He holds a B.A. from Colby College and an M.B.A.
from Columbia University Graduate School of Business.
28
<PAGE>
Fund Management
Willamette Small Cap Growth Fund
The Bank of New York also serves as Sub-Adviser for the Willamette Small Cap
Growth Fund.
John C. Lui, Vice President of the Sub-Adviser, is responsible for day-to-day
management of the Fund. Mr. Lui has been employed by the Sub-Adviser for the
past four years as an institutional equity manager, and is responsible for
managing various investments in equity securities on behalf of the Sub-Adviser's
institutional clients. He also serves as portfolio manager to the Small Cap
Growth Fund, a series of BNY Hamilton Funds. From 1993 to 1995, Mr. Lui was
employed by Barclays Global Asset Management, where he managed global equity and
bond portfolios.
Willamette Technology Fund
U.S. Bank National Association, 601 Second Avenue South, Minneapolis, Minnesota
55480 acting through its First American Asset Management division, provides
portfolio management services to the Fund, as Sub-Adviser. The Sub-Adviser
provides investment management services to individuals and institutions,
including corporations, foundations, pensions and retirements plans, and other
registered investment companies. As of December 31, 2000, the Sub-Adviser had
more than $___ billion in assets under management, including investment company
assets of approximately $___ billion.
A team of persons associated with the Sub-Adviser is responsible for day-to-day
management of the Fund.
Willamette Global Health Sciences Fund
Credit Suisse Asset Management, LLC (CSAM), One Citicorp Center, 153 East 53rd
Street, New York, NY 10022, acts as Sub-Adviser to the Global Health Sciences
Fund. The Sub-Adviser also acts as investment adviser to the Warburg Pincus
Family of Funds. The Sub-Adviser is a member company of Credit Suisse Asset
Management, the institutional asset management and mutual fund arm of Credit
Suisse Group (Credit Suisse), one of the world's leading banks. As of December
31, 2000 The Credit Suisse Asset Management companies managed more than $___
billion in the U.S. and $___ billion globally. They have offices in 14
countries, including SEC-registered offices in New York and London.
Portfolio Managers for the Fund are Susan Black and Peter T. Wen.
Susan Black, Managing Director, is the senior manager of large-capitalization
U.S. growth equity portfolios. She joined Warburg Pincus Asset Management, Inc.
(WPAM) in 1985 and came to CSAM in 1999 when Credit Suisse acquired WPAM. Ms.
Black served as WPAM's director of research from 1988 through 1994. Previously,
she was a partner and portfolio manager at Century Capital Associates; an equity
analyst at Drexel Burnham Lambert and Donaldson, Lufkin & Jenrette; and an
equity analyst and then director of research at Argus Research. Ms. Black holds
a B.A. in Economics from Mount Holyoke College. She is a Chartered Financial
Analyst.
Peter T. Wen, Vice President, is an analyst focusing on health care companies in
large-capitalization U.S. equity portfolios. He joined CSAM in 1999 from Lynch &
Mayer, where he was a health care analyst. Previously, he was a principal at
SPEC, an information systems consulting firm. Mr. Wen holds a B.A. in Biology
from Harvard College and an M.B.A. in Finance from the University of
Pennsylvania's Wharton School. He is fluent in Mandarin Chinese.
29
<PAGE>
Fund Management
Willamette Post-Venture Capital Fund
Credit Suisse Asset Management, LLC also serves as Sub-Adviser to the Willamette
Post-Venture Capital Fund.
A team of persons associated with the Sub-Adviser is responsible for day-to-day
management of the Fund.
Manager of Managers
The Willamette Funds ("Trust") has filed an application for an order of the
Securities and Exchange Commission granting exemptions from certain provisions
of the Investment Company Act of 1940, as amended, to permit the Funds to be
managed under a "manager of managers" structure. If the Securities Exchange
Commission grants the requested exemptive order, the Adviser will, subject to
the supervision and approval of the Trust's Board of Trustees, be permitted to
hire, terminate or replace investment sub-advisers for each of the Funds without
shareholder approval. However, if the Funds hire a new sub-adviser, they will
provide written information concerning the new sub-adviser to shareholders of
the Fund concerned. The purpose of the "manager of managers" structure is to
give the Adviser the means to more directly monitor the management of the Funds
and to give the Adviser greater flexibility to react to poor investment
performance by an investment sub-adviser and other service issues at less cost
to shareholders. There is no guarantee that the Trust will obtain this order
from the Securities and Exchange Commission.
The Distributor and Administrator
BISYS Fund Services is each Fund's distributor and BISYS Fund Services Ohio,
Inc. is each Fund's administrator. The address of each is 3435 Stelzer Road,
Columbus, OH 43219.
The Statement of Additional Information has more detailed information about the
Fund's service providers.
Capital Structure
The Willamette Funds was organized as a Delaware business trust on ________,
2001 and overall responsibility for the management of the Funds is vested in the
Board of Trustees.
30
<PAGE>
[ICON] Financial Highlights
Willamette Value Fund
The Financial Highlights table is intended to help you understand the Fund's
financial performance since its inception on May 26, 1998. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have realized on an investment
in a Fund (assuming reinvestment of all dividends and distributions, if any).
The information through March 31, 2000 has been audited by Ernst & Young LLP,
whose report, along with the Fund's financial statements, are included in the
annual report of the Fund, which is available upon request.
<TABLE>
<CAPTION>
Six Months
Ended Year Ended Period Ended
September 30, March 31 March 31
2000 2000 1999 (a)
------------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.65 $ 10.11 $ 10.00
------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income -- 0.01 --
Net realized and unrealized gain (loss) on investments (0.48) (0.10) 0.11
------------------------------------------------------------------------------------------------------
Total from investment activities (0.48) (0.09) 0.11
------------------------------------------------------------------------------------------------------
Distributions
Net investment income (0.01) --** --
In excess of net investment income -- (0.01) --
Net realized gains -- (0.36) --
------------------------------------------------------------------------------------------------------
Total Distributions (0.01) (0.37) --
------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.16 $ 9.65 $ 10.11
------------------------------------------------------------------------------------------------------
Total return (excludes sales charge) (4.96)%(b) (0.98)% 1.11%(b)
Ratios/Supplementary Data:
Net assets, end of period (000) $13,600 $15,872 $14,965
Ratio of net expenses to average net assets 2.90%(c) 2.75% 2.90%(c)
Ratio of net investment income to average net assets 0.06%(c) 0.03% 0.02%(c)
Ratio of gross expenses to average net assets* 2.90%(c) 3.02% 3.20%(c)
Portfolio turnover 39.87% 79.63% 0.39%
------------------------------------------------------------------------------------------------------
</TABLE>
* During the period, certain fees were voluntarily reimbursed. If such
voluntary fee reimbursements had not occurred, the ratio would have been
as indicated.
** Amount is less than $0.005
(a) For the period from May 26, 1998 (commencement of operations) to March 31,
1999
(b) Not annualized.
(c) Annualized.
31
<PAGE>
Financial Highlights
Willamette Small Cap Growth Fund
The Financial Highlights table is intended to help you understand the Fund's
financial performance since its inception on April 1, 1999. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have realized on an investment
in the Fund (assuming reinvestment of all dividends and distributions, if any).
The information through March 31, 2000 has been audited by Ernst & Young LLP,
whose report, along with the Fund's financial statements, are included in the
annual report of the Fund, which is available upon request.
<TABLE>
<CAPTION>
Six Months
Ended Period Ended
September 30, March 31,
2000 2000 (a)
------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period $ 19.94 $ 10.00
------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income (0.17) (0.25)
Net realized and unrealized gain from investments 0.65 10.38
------------------------------------------------------------------------------------------------------
Total from investment activities 0.48 10.13
------------------------------------------------------------------------------------------------------
Distributions
Net realized gains -- (0.19)
------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 20.42 $ 19.94
Total return (excludes sales charge) (b) 2.46%(b) 101.67%
Ratios/Supplementary Data:
Net Assets, end of period (000) $41,486 $38,634
Ratio of net expenses to average net assets (c) 2.55%(c) 2.82%
Ratio of net investment loss to average net assets (c) (1.95)%(c) (2.26)%
Ratio of gross expenses to average net assets* (c) 2.55%(c) 2.93%
Portfolio turnover 24.53% 55.15%
------------------------------------------------------------------------------------------------------
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
(a) For the period from April 1, 1999 (commencement of operations) to March
31, 2000.
(b) Not annualized.
(c) Annualized.
32
<PAGE>
Financial Highlights
Willamette Technology Fund
The Financial Highlights table is intended to help you understand the Fund's
financial performance since its inception on March 1, 2000. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have realized on an investment
in the Fund (assuming reinvestment of all dividends and distributions, if any).
The information through March 31, 2000 has been audited by Ernst & Young LLP,
whose report, along with the Fund's financial statements, are included in the
annual report of the Fund, which is available upon request.
<TABLE>
<CAPTION>
Six Months
Ended Period Ended
September 30, March 31,
2000 2000 (a)
------------- ------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period $ 8.95 $ 10.00
------------------------------------------------------------------------------------------------------
Investment Activities
Net investment loss (0.08) (0.01)
Net realized and unrealized loss on investments (1.77) (1.04)
------------------------------------------------------------------------------------------------------
Total from investment activities (1.85) (1.05)
------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 7.10 $8.95
------------------------------------------------------------------------------------------------------
Total return (excludes sales charge) (20.67)%(b) (10.50)%(b)
Ratios/Supplementary Data:
Net Assets, end of period (000) $35,650 $32,719
Ratio of net expenses to average net assets 2.64%(c) 2.77%(c)
Ratio of net investment loss to average net assets (2.30)%(c) (1.51)%(c)
Ratio of gross expenses to average net assets* 2.64%(c) 2.97%(c)
Portfolio turnover 73.90% 11.14%
------------------------------------------------------------------------------------------------------
</TABLE>
(*) During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
(a) For the period from March 1, 2000 (commencement of operations) to March
31, 2000.
(b) Not annualized.
(c) Annualized.
33
<PAGE>
Financial Highlights
Willamette Global Health Sciences Fund
The Financial Highlights table is intended to help you understand the Fund's
financial performance since its inception on June 12, 2000. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have realized on an investment
in the Fund (assuming reinvestment of all dividends and distributions, if any).
Period
Ended
September 30,
2000
-------------
(Unaudited)
Net Asset Value, Beginning of Period $ 10.00
--------------------------------------------------------------------------------
Investment Activities
Net investment loss (0.06)
Net realized/unrealized gains on investments and
foreign currency transactions 2.83
--------------------------------------------------------------------------------
Total from investment activities 2.77
--------------------------------------------------------------------------------
Net Asset Value, End of Period $ 12.77
--------------------------------------------------------------------------------
Total return (excludes sales charge) 27.70%(b)
Ratios/Supplementary Data:
Net Assets, end of period (000) $26,238
Ratio of net expenses to average net assets 2.84%(c)
Ratio of net investment income to average net assets (2.20)%(c)
Ratio of gross expenses to average net assets* 2.95%(c)
Portfolio turnover 23.28%
--------------------------------------------------------------------------------
(*) During the period, certain fees were voluntarily reimbursed. If such
voluntary fee reimbursements had not occurred, the ratio would have been
as indicated.
(a) For the period from June 12, 2000 (commencement of operations) through the
indicated period.
(b) Not annualized.
(c) Annualized.
Willamette Post-Venture Capital Fund
The Fund had not commenced operations on the date of this prospectus, and thus
does not present per share financial highlight information.
34
<PAGE>
Financial Highlights
Appendix A
Related Performance
The Fund's investment objectives and policies are substantially similar to those
of First American Technology Fund ("FATF"), a series of First American
Investment Funds, Inc., which, like the Fund, is managed by an investment team
of the Sub-Adviser. The following chart compares the performance of FATF, from
its inception on April 30, 1994 through December 31, 2000, with that of the S&P
Technology Composite Index, an index of technology stocks. Note that these
performance results are those of FATF. They are not results of the Fund and
should not be interpreted as indicative of the future performance of the Fund or
of the Fund's team of managers. Not only will there be differences in market
conditions and investment opportunities for the Fund going forward, but the
level of the Fund's expenses is likely to be different.
The following figures represent total returns for Class A shares of FATF for the
periods indicated. They reflect the reinvestment of all dividends and capital
gains distributions at net asset value and the deduction of a front end sales
charge of 5.25%. They also reflect total operating expenses of 1.15%, which are
lower than expenses projected for the Fund and which reflect waivers of certain
fees. Returns for FATF would be reduced if there were no fee waivers and if a
front-end sales charge were deducted. (Note that the Fund imposes a front-end
sales charge and is expected to have higher expenses.)
Since
Inception
1 Year(2) 3 Year 5 Year 4/30/94
First American Technology Fund _____% _____% _____% _____%
--------------------------------------------------------------------------------
S&P Technology Composite Index(2) _____% _____% _____% _____%
--------------------------------------------------------------------------------
(1) Returns were primarily achieved buying IPO and technology related stocks
in a period favorable for these investments. Of course, such favorable
returns involve accepting the risks of volatility, and there is no
assurance that future investment in IPOs and technology stocks will have
the same effect on future performance or be available to the Fund.
(2) An unmanaged index composed of technology stocks in the S&P 500 (an
unmanaged index of large capitalization stocks). For more information
about a Fund, the following documents are available free upon request:
35
<PAGE>
For more information about a Fund, the following documents are available free
upon request:
Annual/Semi-Annual Reports:
A Fund's reports to shareholders will contain additional information on the
Fund's investments. In the annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.
Statement of Additional Information (SAI):
The SAI provides more detailed information about each Fund, including its
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
You can receive free copies of reports and the SAI, or request other information
and discuss your questions about the Funds by contacting a broker that sells the
Funds, or contact the Funds at:
The Willamette Funds
P.O. Box 182301
Columbus, Ohio 43218-2301
Telephone: 1-877-945-3863
------------------------------
You can review the Funds' reports and SAIs at the Public Reference Room of the
Securities and Exchange Commission. You can receive text-only copies:
o For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-0102 or calling 1-202-942-8090, or by email to
[email protected].
o Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. _________.
WIL 3/1/2000
<PAGE>
WILLAMETTE VALUE FUND
WILLAMETTE SMALL CAP GROWTH FUND
WILLAMETTE GLOBAL HEALTH SCIENCES FUND
WILLAMETTE TECHNOLOGY FUND
WILLAMETTE POST-VENTURE CAPITAL FUND
Investment Portfolios of
The Willamette Funds
Statement of Additional Information
, 2001
This Statement of Additional Information is not a prospectus, but should
be read in conjunction with the prospectus for the Willamette Value Fund,
Willamette Small Cap Growth Fund, Willamette Global Health Sciences Fund,
Willamette Technology Fund and Willamette Post-Venture Capital Fund ("Funds"),
dated , 2001 ("Prospectus"). Each Fund is a separate investment portfolio of The
Willamette Funds (the "Trust"), an open-end management investment company. This
Statement of Additional Information is incorporated in its entirety into the
Prospectus. Copies of the Prospectus may be obtained by writing the Funds at
3435 Stelzer Road, Columbus, Ohio 43219, or by telephoning toll free (877)
945-3863.
<PAGE>
TABLE OF CONTENTS
Page
----
THE WILLAMETTE FUNDS.....................................................
INVESTMENT OBJECTIVE AND POLICIES........................................
Additional Information on Portfolio Instruments.................
Investment Restrictions.........................................
Portfolio Turnover..............................................
NET ASSET VALUE .......................................................
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...........................
Matters Affecting Redemption....................................
MANAGEMENT OF THE TRUST..................................................
Trustees and Officers...........................................
Control Persons and Principal Holders of Securities.............
Investment Adviser and Sub-Advisers.............................
Code of Ethics..................................................
Portfolio Transactions..........................................
Banking Laws....................................................
Administrator...................................................
Distributor.....................................................
Custodian.......................................................
Transfer Agency and Fund Accounting Services....................
Independent Auditors............................................
Legal Counsel...................................................
ADDITIONAL INFORMATION...................................................
Description of Shares...........................................
Vote of a Majority of the Outstanding Shares....................
Additional Tax Information......................................
Yields and Total Returns........................................
Performance Comparisons.........................................
Principal Shareholders..........................................
Miscellaneous...................................................
FINANCIAL STATEMENTS.....................................................
APPENDIX ....................................................... A-1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE WILLAMETTE FUNDS
The Willamette Funds (the "Trust") is an open-end management investment
company which issues its Shares in separate series. Each series of Shares
relates to a separate portfolio of assets. This Statement of Additional
Information deals with the portfolios called Willamette Value Fund ("Value
Fund"), Willamette Small Cap Growth Fund ("Growth Fund"), Willamette Global
Health Sciences Fund ("Health Sciences Fund"), Willamette Technology Fund
("Technology Fund") and Willamette Post-Venture Capital Fund ("VC Fund")
(collectively, "Funds").
Each of the Funds (except the VC Fund) is the successor to a fund with the
same name, investment objective and polices that was a series of another
registered investment company, The Coventry Group. On March ___, 2001, the
shareholders of each of the predecessor funds approved their reorganization into
the corresponding Fund, effective April 1, 2001. VC Fund is a newly organized
fund. Unless otherwise noted, all historical fees and expenses set forth herein
relating to a Fund relate to those paid by the predecessor fund.
Willamette Asset Managers, Inc. ("Adviser") serves as investment adviser
to each of the Funds. The Bank of New York ("BONY") manages the assets of Value
Fund and Growth Fund. U.S. Bank National Association ("U.S. Bank"), through its
First American Asset Management Division, manages the assets of Technology Fund.
Credit Suisse Asset Management, LLC ("CSAM") manages the assets of Health
Sciences Fund and VC Fund (BONY, U.S. Bank and CSAM are each a "Sub-Adviser").
Much of the information contained in this Statement of Additional Information
expands upon subjects discussed in the Prospectus of the Funds. Capitalized
terms not defined herein are defined in the Prospectus. No investment in Shares
of the Funds should be made without first reading the Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
Additional Information on Portfolio Instruments
The following policies supplement the investment objective and policies of
the Funds as set forth in the Prospectus.
Common Stocks. The Funds may invest in common stocks, which include the
common stock of any class or series of domestic or foreign corporations or any
similar equity interest, such as a trust or partnership interest. These
investments may or may not pay dividends and may or may not carry voting rights.
Common stock occupies the most junior position in a company's capital structure.
The Funds may also invest in warrants and rights related to common stocks.
Convertible Securities. The Funds may invest in convertible securities,
including debt securities or preferred stock that may be converted into common
stock or that carry the right to purchase common stock. Convertible securities
entitle the holder to exchange the securities for a specified number of shares
of common stock, usually of the same company, at specified prices within a
certain period of time. They also entitle the holder to receive interest or
dividends until the holder elects to exercise the conversion privilege.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holder's claims on assets and earnings are generally subordinate to the
claims of other creditors, and senior to the claims of preferred and common
stockholders. In the case of convertible preferred stock, the holder's claims on
assets and earnings are subordinate to the claims of all creditors and are
senior to the claims of common stockholders. As a result of their ranking in a
company's capitalization, convertible securities that are rated by nationally
recognized statistical rating organizations are generally rated below other
obligations of the company and many convertible securities are not rated. The
Fund does not have any rating criteria applicable to its investments in any
securities, convertible or otherwise.
Preferred Stock. The Funds may invest in preferred stock. Preferred stock,
unlike common stock, offers a stated dividend rate payable from the issuer's
earnings. Preferred stock dividends may be cumulative or non-cumulative,
participating, or auction rate. If interest rates rise, the fixed dividend on
preferred stocks may be less attractive, causing the price of the
1
<PAGE>
preferred stocks to decline. Preferred stock may have mandatory sinking fund
provisions, as well as call/redemption provisions prior to maturity, a negative
feature when interest rates decline.
Warrants. The Funds may invest in warrants (the VC Fund will limit such
investment to 5% of its net assets). A Fund may purchase warrants issued by
domestic and foreign companies to purchase newly created equity securities
consisting of common and preferred stock. Warrants are securities that give the
holder the right, but not the obligation to purchase equity issues of the
company issuing the warrants, or a related company, at a fixed price either on a
date certain or during a set period. The equity security underlying a warrant is
authorized at the time the warrant is issued or is issued together with the
warrant.
Investing in warrants can provide a greater potential for profit or loss
than an equivalent investment in the underlying security, and, thus, can be a
speculative investment. At the time of issue, the cost of a warrant is
substantially less than the cost of the underlying security itself, and price
movements in the underlying security are generally magnified in the price
movements of the warrant. This leveraging effect enables the investor to gain
exposure to the underlying security with a relatively low capital investment.
This leveraging increases an investor's risk, however, in the event of a decline
in the value of the underlying security and can result in a complete loss of the
amount invested in the warrant. In addition, the price of a warrant tends to be
more volatile than, and may not correlate exactly to, the price of the
underlying security. If the market price of the underlying security is below the
exercise price of the warrant on its expiration date, the warrant will generally
expire without value. The value of a warrant may decline because of a decline in
the value of the underlying security, the passage of time, changes in interest
rates or in the dividend or other policies of the company whose equity underlies
the warrant or a change in the perception as to the future price of the
underlying security, or any combination thereof. Warrants generally pay no
dividends and confer no voting or other rights other than to purchase the
underlying security.
United States Government Obligations. The Funds may invest in obligations
issued or guaranteed by the United States Government, or by its agencies or
instrumentalities. Obligations issued or guaranteed by federal agencies or
instrumentalities may or may not be backed by the "full faith and credit" of the
United States. Securities that are backed by the full faith and credit of the
United States include Treasury bills, Treasury notes, Treasury bonds, and
obligations of the Government National Mortgage Association, the Farmers Home
Administration, and the Export-Import Bank. In the case of securities not backed
by the full faith and credit of the United States, the Funds must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert a claim against the United States itself
in the event the agency or instrumentality does not meet its commitments.
Securities that are not backed by the full faith and credit of the United States
include, but are not limited to, obligations of the Tennessee Valley Authority,
the Federal National Mortgage Association and the United States Postal Service,
each of which has the right to borrow from the United States Treasury to meet
its obligations, and obligations of the Federal Farm Credit System and the
Federal Home Loan Banks, both of whose obligations may be satisfied only by the
individual credits of each issuing agency.
Foreign Government Obligations. The Funds may invest in short-term
obligations of foreign sovereign governments or of their agencies,
instrumentalities, authorities or political subdivisions. These securities may
be denominated in United States dollars or in another currency. See "Foreign
Investment Risk."
Bank Obligations. Each Fund may invest in bank obligations such as
bankers' acceptances, certificates of deposit, and time deposits.
Growth Fund will invest in obligations only of banks with more than $2
billion in total assets that are (i) organized under the laws of the United
States or any state, (ii) foreign branches of these banks or of foreign banks of
equivalent size ("Euros") and (iii) United States branches of foreign banks of
equivalent size ("Yankees"). Growth Fund will not invest in obligations for
which the Sub-Adviser, or any of its affiliated persons, is the ultimate obligor
or accepting bank. Growth Fund may also invest in obligations of international
banking institutions designated or supported by national governments to promote
economic reconstruction, development or trade between nations (e.g., the
European Investment Bank, the Inter-American Development Bank, or the World
Bank).
Value Fund and Technology Fund may invest only in Bank Instruments that
are either issued by an institution having capital, surplus and undivided
profits over $100 million, or insured by the Bank Insurance Fund ("BIF") or the
Savings Association Insurance Fund ("SAIF"). Health Sciences Fund may invest
only in bank obligations that are of high quality. In
2
<PAGE>
addition to domestic instruments such as bankers' acceptances and certificates
of deposit, Bank Instruments may include Eurodollar Certificates of Deposit
("ECDs"), Yankee Certificates of Deposit ("Yankee CDs") and Eurodollar Time
Deposits ("ETDs").
Bankers' acceptances are negotiable drafts or bills of exchange typically
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. Bankers' acceptances
invested in by Value Fund will be those guaranteed by domestic and foreign banks
having, at the time of investment, capital, surplus, and undivided profits in
excess of $100,000,000 (as of the date of their most recently published
financial statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return.
Commercial Paper. Commercial paper consists of unsecured promissory notes,
including Master Notes, issued by corporations. Issues of commercial paper
normally have maturities of less than nine months and fixed rates of return.
Master Notes, however, are obligations that provide for a periodic adjustment in
the interest rate paid and permit daily changes in the amount borrowed.
For Growth Fund and Technology Fund, Master Notes are governed by
agreements between the issuer and the respective Sub-Adviser acting as agent,
for no additional fee, in its capacity as Sub-Adviser to a Fund and as fiduciary
for other clients for whom it exercises investment discretion. The monies loaned
to the borrower come from accounts maintained with or managed by a Sub-Adviser
or its affiliates pursuant to arrangements with such accounts. Interest and
principal payments are credited to such accounts. A Sub-Adviser, acting as a
fiduciary on behalf of its clients, has the right to increase or decrease the
amount provided to the borrower under an obligation. The borrower has the right
to pay without penalty all or any part of the principal amount then outstanding
on an obligation together with interest to the date of payment. Since these
obligations typically provide that the interest rate is tied to the Treasury
bill auction rate, the rate on Master Notes is subject to change. Repayment of
Master Notes to participating accounts depends on the ability of the borrower to
pay the accrued interest and principal of the obligation on demand which is
continuously monitored by the Sub-Adviser.
Master Notes typically are not rated by credit rating agencies.
Value Fund may purchase commercial paper consisting of issues rated at the
time of purchase within the three highest rating categories by a nationally
recognized statistical rating organization (an "NRSRO"). Value Fund may also
invest in commercial paper that is not rated but is determined by the Adviser,
under guidelines established by the Trust's Board of Trustees, to be of
comparable quality. Growth Fund has not established minimum rating requirements
for the Fund's investments. Technology Fund may purchase commercial paper rated
at the time of purchase within the two highest rating categories by an NRSRO, or
deemed by U.S. Bank to be of comparable quality. Health Sciences Fund may
purchase commercial paper rated no lower than A-2 by Standard & Poor's Ratings
Services ("S&P") or Prime-2 by Moody's Investors Service, Inc. ("Moody's") or
the equivalent from another major rating service or, if unrated, of an issuer
having an outstanding, unsecured debt issue then rated within the highest three
rating categories. VC Fund may purchase commercial paper consisting of issues
rated at the time of purchase within the four highest rating categories by an
NRSRO. VC Fund may also invest in commercial paper that is not rated but is
determined by CSAM, under guidelines established by the Trust's Board of
Trustees, to be of comparable quality.
Other Fixed Income Securities. Other fixed income securities in which
Health Sciences Fund, Technology Fund and VC Fund may invest include
nonconvertible preferred stocks and nonconvertible corporate debt securities.
For Technology Fund, investments in nonconvertible preferred stocks and
nonconvertible corporate debt securities will be limited to securities which are
rated at the time of purchase not less than BBB by S&P or Baa by Moody's (or
equivalent short-term ratings), or which have been assigned an equivalent rating
by another nationally recognized statistical rating organization, or which are
of comparable quality in the judgment of the Sub-Adviser. Obligations rated BBB,
Baa or their equivalent, although investment grade, have speculative
characteristics and carry a somewhat higher risk of default that obligations
rated in the higher investment grade categories.
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Technology Fund may invest in short-term investments (including repurchase
agreements "collateralized fully," as provided in Rule 2a-7 under the Investment
Company Act of 1940 ("1940 Act"); interest-bearing or discounted commercial
paper, including dollar denominated commercial paper of foreign issuers; and any
other taxable and tax-exempt money market instruments, including variable rate
demand notes, that are "Eligible Securities" as defined in Rule 2a-7), on a
joint basis with other funds advised by U.S. Bank to the extent permitted by an
exemptive order issued by the Securities and Exchange Commission ("Commission").
Variable Amount Master Demand Notes. Variable amount master demand notes
are unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic readjustments in the interest rate according to the terms
of the instrument. They are also referred to as variable rate demand notes.
Because master demand notes are direct lending arrangements between a Fund and
the issuer, they are not normally traded. Although there is no secondary market
in the notes, a Fund may demand payment of principal and accrued interest at any
time or during specified periods not exceeding one year, depending upon the
instrument involved, and may resell the note at any time to a third party. The
Adviser or Sub-Adviser will consider the earning power, cash flow, and other
liquidity ratios of the issuers of such notes and will continuously monitor
their financial status and ability to meet payment on demand.
Variable and Floating Rate Notes. A variable rate note is one whose terms
provide for the readjustment of its interest rate on set dates and which, upon
such readjustment, can reasonably be expected to have a market value that
approximates its par value. A floating rate note is one whose terms provide for
the readjustment of its interest rate whenever a specified interest rate changes
and which, at any time, can reasonably be expected to have a market value that
approximates its par value. Such notes are frequently not rated by credit rating
agencies. For Health Sciences Fund, Technology Fund and VC Fund, these notes
must satisfy the same quality standards as commercial paper investments. Growth
Fund has no minimum rating requirements. Unrated variable and floating rate
notes purchased by Value Fund will be determined by the Adviser under guidelines
approved by the Trust's Board of Trustees to be of comparable quality at the
time of purchase to rated instruments eligible for purchase under the Fund's
investment policies. In making such determinations, the Adviser will consider
the earning power, cash flow and other liquidity ratios of the issuers of such
notes (such issuers include financial, merchandising, bank holding and other
companies) and will continuously monitor their financial condition. Although
there may be no active secondary market with respect to a particular variable or
floating rate note purchased by a Fund, a Fund may resell the note at any time
to a third party. The absence of an active secondary market, however, could make
it difficult for a Fund to dispose of a variable or floating rate note in the
event the issuer of the note defaulted on its payment obligations and a Fund
could, as a result or for other reasons, suffer a loss to the extent of the
default. Variable or floating rate notes may be secured by bank letters of
credit.
Foreign Investments. The Funds may invest in certain obligations or
securities of foreign issuers. Certain of these investments may be in the form
of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs"), other similar depositary receipts, Yankee
Obligations, and U.S. dollar-denominated securities issued by foreign branches
of U.S. and foreign banks. Growth Fund has a limit of up to 15% of its foreign
investments in securities that are not listed on a securities exchange or, in
the case of debt securities, that are not United States dollar-denominated.
Foreign investments may subject a Fund to investment risks that differ in some
respects from those related to investment in obligations of U.S. domestic
issuers. Such risks include future adverse political and economic developments,
possible seizure, nationalization, or expropriation of foreign investments, less
stringent disclosure requirements, the possible establishment of exchange
controls or taxation at the source or other taxes, and the adoption of other
foreign governmental restrictions. Growth Fund will not invest in foreign
commercial paper that is subject to foreign withholding tax at the time of
purchase.
Additional risks include less publicly available information, less
government supervision and regulation of foreign securities exchanges, brokers
and issuers, the risk that companies may not be subject to the accounting,
auditing and financial reporting standards and requirements of U.S. companies,
the risk that foreign securities markets may have less volume and that therefore
many securities traded in these markets may be less liquid and their prices more
volatile than U.S. securities, and the risk that custodian and brokerage costs
may be higher. Foreign issuers of securities or obligations are often subject to
accounting treatment and engage in business practices different from those
respecting domestic issuers of similar securities or obligations. Foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements than those applicable to domestic branches of U.S. banks.
Certain of these investments may subject the Funds to currency fluctuation
risks.
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Depositary Receipts. A Fund's investments may include securities of
foreign issuers in the form of sponsored or unsponsored ADRs, GDRs and EDRs.
ADRs are depositary receipts typically issued by a United State bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs and GDRs are typically issued by foreign banks or trust
companies, although they also may be issued by United States banks or trust
companies, and evidence ownership of underlying securities issued by either a
foreign or a United States corporation. Generally, depositary receipts in
registered form are designed for use in the United States securities market and
depositary receipts in bearer form are designed for use in securities markets
outside the United States. Depositary receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. Ownership of unsponsored depositary receipts may not entitle
the Fund to financial or other reports from the issuer of the underlying
security, to which it would be entitled as the owner of sponsored depositary
receipts.
Euro Conversion. The introduction of a single European currency, the euro,
on January 1, 1999 for participating European nations in the Economic and
Monetary Union has created certain uncertainties and the transition period
relating to adoption of the euro is not scheduled to end until end July 1, 2002.
These uncertainties include: (i) how the payment and operational systems of
banks and other financial institutions will function; (ii) the need to create
suitable clearing and settlement systems for the euro; (iii) how the euro will
fluctuate against other currencies; and (iv) whether the interest rate, tax and
labor systems of the participating countries will converge over time.
Additionally, changes in participants or in membership in the European Monetary
Union, such as admission of new members from Eastern Europe, could affect the
euro adversely. These and other factors could cause market disruptions and
affect adversely the value of foreign securities and currencies held by a Fund.
Emerging Markets. Each Fund may invest in securities of issuers located
in "emerging markets" (less developed countries located outside of the U.S.).
Investing in emerging markets involves not only the risks described above with
respect to investing in foreign securities, but also other risks, including
exposure to economic structures that are generally less diverse and mature than,
and to political systems that can be expected to have less stability than, those
of developed countries. For example, many investments in emerging markets
experienced significant declines in value due to political and currency
volatility in emerging markets countries during the latter part of 1997 and the
first half of 1998. Other characteristics of emerging markets that may affect
investment include certain national policies that may restrict investment by
foreigners in issuers or industries deemed sensitive to relevant national
interests and the absence of developed structures governing private and foreign
investments and private property. The typically small size of the markets of
securities of issuers located in emerging markets and the possibility of a low
or nonexistent volume of trading in those securities may also result in a lack
of liquidity and in price volatility of those securities.
Brady Bonds. Health Sciences Fund and VC Fund may invest in "Brady Bonds,"
which are issued by certain Latin American countries in connection with
restructurings of their debt. The Brady Bonds are issued in exchange for cash
and certain of the country's outstanding commercial bank loans. Brady Bonds do
not have a long payment history and, due to the loan default record for Latin
American public and private entities, may be considered speculative investments.
They may be collateralized or uncollateralized and are issued in various
currencies. They are actively traded in the over-the-counter secondary market
for debt of Latin American issuers.
When-Issued and Delayed Delivery Securities. Growth Fund, Health Sciences
Fund, Technology Fund and VC Fund may purchase securities on a when-issued or
delayed delivery basis. Delivery of and payment for these securities may take as
long as a month or more after the date of the purchase commitment. The value of
these securities is subject to market fluctuation during this period and no
interest or income accrues to a Fund until settlement. The Funds will maintain
with the custodian a separate account with a segregated portfolio of liquid
assets consisting of cash, U.S. Government securities or other liquid high-grade
debt securities in an amount at least equal to these commitments. When entering
into a when-issued or delayed delivery transaction, a Fund will rely on the
other party to consummate the transaction; if the other party fails to do so,
the Fund may be disadvantaged. It is the current policy of the Funds not to
enter into when- issued commitments exceeding in the aggregate 25% of the market
value of a Fund's total assets (20% of the market value of total assets for the
VC Fund), less liabilities other than the obligations created by these
commitments.
Lower Rated or Unrated Securities. Securities rated Baa by Moody's or BBB
by S&P, or deemed of comparable quality by the Sub-Adviser, may have speculative
characteristics. Securities rated below investment grade, i.e., below Baa or
BBB, or deemed of comparable quality by the Sub-Adviser, have higher yields but
also involve greater risks than higher rated securities.
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Growth Fund and Health Sciences Fund have no minimum quality requirements for
their debt obligations, although Health Sciences Fund's investments in debt
securities including debt securities rated below investment grade are limited to
20% of its assets. The VC Fund may invest up to 5% of its total assets in debt
securities (including convertible debt securities) rated below investment grade
and as low as C by Moody's or D by S&P, or in unrated securities considered to
be of equivalent quality. Debt securities held by a Private Fund (as defined
below) in which the VC Fund invests will tend to be rated below investment grade
and may be rated as low as C by Moody's or D by S&P. Under guidelines used by
rating agencies, securities rated below investment grade, or deemed of
comparable quality, have large uncertainties or major risk exposures in the
event of adverse conditions, which features outweigh any quality and protective
characteristics. Securities with the lowest ratings are considered to have
extremely poor prospects of ever attaining any real investment standing, to have
a current identifiable vulnerability to default, to be unlikely to have the
capacity to pay interest and repay principal when due in the event of adverse
business, financial or economic conditions, and/or to be in default or not
current in the payment of interest or principal. Such securities are considered
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. Accordingly, it is
possible that these types of factors could, in certain instances, reduce the
value of such securities held by the Fund with a commensurate effect on the
value of its shares.
The secondary market for lower rated securities is not as liquid as that
for higher rated securities. This market is concentrated in relatively few
market makers and participants in the market are mostly institutional investors,
including insurance companies, banks, other financial institutions and
investment companies. In addition, the trading market for lower rated securities
is generally lower than that for higher-rated securities, and the secondary
markets could contract under adverse market or economic conditions independent
of any specific adverse changes in the condition of a particular issuer. These
factors may have an adverse effect on the Fund's ability to dispose of these
securities and may limit its ability to obtain accurate market quotations for
purposes of determining the value of its assets. If the Fund is not able to
obtain precise or accurate market quotations for a particular security, it will
become more difficult for the Fund's Trustees to value its portfolio, requiring
them to rely more on judgment. Less liquid secondary markets may also affect the
Fund's ability to sell securities at their fair value. In addition, the Fund may
invest up to 15% of its net assets, measured at the time of investment, in
illiquid securities, which may be more difficult to value and to sell at fair
value. If the secondary markets for high yield debt securities are affected by
adverse economic conditions, the proportion of the Fund's assets invested in
illiquid securities may increase.
In the case of corporate debt securities, while the market values of
securities rated below investment grade and comparable unrated securities tend
to react less to fluctuations in interest rate levels than do those of
higher-rated securities, the market values of certain of these securities also
tend to be more sensitive to individual corporate developments and changes in
economic conditions than higher-rated securities. Price volatility in these
securities will be reflected in the Fund's share value. In addition, such
securities generally present a higher degree of credit risk. Issuers of these
securities often are highly leveraged and may not have more traditional methods
of financing available to them, so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such issuers
is significantly greater than with investment grade securities because such
securities generally are unsecured and frequently are subordinated to the prior
payment of senior indebtedness.
A description of the quality ratings of prominent NSRSOs is contained in
Appendix A.
Zero Coupon Securities. Health Sciences Fund and VC Fund may invest in
"zero coupon" U.S. Treasury, foreign government and U.S. and foreign corporate
convertible and nonconvertible debt securities, which are bills, notes and bonds
that have been stripped of their unmatured interest coupons and custodial
receipts or certificates of participation representing interests in such
stripped debt obligations and coupons. A zero coupon security pays no interest
to its holder prior to maturity. Accordingly, such securities usually trade at a
deep discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities that make current distributions of
interest. Each Fund anticipates that it will not normally hold zero coupon
securities to maturity. Redemption of shares of the Fund that require it to sell
zero coupon securities prior to maturity may result in capital gains or losses
that may be substantial. Federal tax law requires that a holder of a zero coupon
security accrue a portion of the discount at which the security was purchased as
income each year, even though the holder receives no interest payment on the
security during the year. Such accrued discount will be includible in
determining the amount of dividends the Fund must pay each year and, in order to
generate cash necessary to pay such dividends, the Fund may liquidate portfolio
securities at a time when it would not otherwise have done so.
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Hedging. Hedging is a means of transferring risk that an investor does not
wish to assume during an uncertain market environment. The Funds are permitted
to enter into these transactions solely: (a) to hedge against changes in the
market value of portfolio securities and against changes in the market value of
securities intended to be purchased or (b) to close out or offset existing
positions.
Hedging activity in a Fund may include selling futures contracts on
stock indexes, options on stock index futures traded on a national exchange or
board of trade and options on securities and on stock indexes traded on national
securities exchanges or through private transactions directly with a
broker-dealer. A Fund may also hedge a portion of its portfolio by selling stock
index futures contracts or purchasing puts on these contracts to limit exposure
to an actual or anticipated market decline. A Fund may hedge against fluctations
in currency exchange rates, in connection with its investments in foreign
securities, by purchasing foreign forward currency exchange contracts. All
hedging transactions must be appropriate for reduction of risk; they cannot be
for speculation.
Under regulations promulgated under the Commodity Exchange Act, an
investment company registered under the 1940 Act is exempt from the definition
of "commodity pool operator", and, therefore, is not subject to regulation under
the Commodity Exchange Act, provided that the entity agrees to restrict its
investments in commodity futures and commodity options contracts to: (i) bona
fide hedging transactions within the meaning of the Commodity Futures Trading
Commission's regulations, without any limitation on quantity, and (ii) other
futures and options transactions in which the aggregate initial margin and
premiums do not exceed 5% of the liquidation value of the entity's portfolio
after taking into account unrealized profits and unrealized losses on any such
contracts. The Fund will use commodity futures and commodity options contracts
only in a manner consistent with these requirements.
Forward Foreign Currency Exchange Contracts. A Fund may enter into forward
foreign currency exchange contracts in connection with its investments in
foreign securities. A forward contract may be used by a Fund only to hedge
against possible variations in exchange rates of currencies in countries in
which it may invest. A forward foreign currency exchange contract ("forward
contract") involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. Forward
contracts are traded in the interbank market directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades.
Futures Contracts. Each Fund may invest in futures contracts and options
thereon (stock index futures contracts, interest rate futures contracts or
currency futures contracts or options) to hedge or manage risks associated with
the Fund's securities investments. To enter into a futures contract, an amount
of cash and cash equivalents, equal to the market value of the futures contract,
is deposited in a segregated account with the Fund's Custodian and/or in a
margin account with a broker to collateralize the position and thereby ensure
that the use of such futures is unleveraged. Positions in futures contracts may
be closed out only on an exchange that provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund had insufficient
cash, it might have to sell portfolio securities to meet daily margin
requirements at a time when it would be disadvantageous to do so. In addition, a
Fund might be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on a Fund's ability to hedge or manage risks
effectively.
Successful use of futures by a Fund is also subject to the Adviser's or
Sub-Adviser's ability to predict movements correctly in the direction of the
market. There is typically an imperfect correlation between movements in the
price of the future and movements in the price of the securities that are the
subject of the hedge. In addition, the price of futures may not correlate
perfectly with movement in the cash market due to certain market distortions.
Due to the possibility of price distortion in the futures market and because of
the imperfect correlation between the movements in the cash market and movements
in the price of futures, a correct forecast of general market trends or interest
rate movements by the Adviser or Sub-Adviser may still not result in a
successful hedging transaction over a short time frame.
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The trading of futures contracts is also subject to the risk of trading
halts, suspension, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruption of normal trading activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
The purchase and sale of futures contracts or related options will not be
a primary investment technique of the Funds. A Fund will not purchase or sell
futures contracts (or related options thereon) if, immediately after the
transaction, the aggregate initial margin deposits and premiums paid by the Fund
on its open futures and options positions that do not constitute bona fide
hedging transactions, as defined by applicable rules, exceed 5% of the
liquidation value of the Fund after taking into account any unrealized profits
and unrealized losses on any such futures or related options contracts into
which it has entered.
Interest Rate Futures. A Fund may purchase an interest rate futures
contract as a hedge against changes in interest rates. An interest rate futures
contract provides for the future sale by one party and the purchase by the other
party of a certain amount of a specific interest rate sensitive financial
instrument (debt security) at a specified price, date, time and place.
Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). Thus, if a Fund holds long-term debt
obligations and the Sub-Adviser anticipates a rise in long-term interest rates,
the Fund could, instead of selling its debt obligations, enter into an interest
rate futures contract for the sale of similar long-term securities. If interest
rates rise, the value of the futures contract would also rise, helping to offset
the price decline of the obligations held by the Fund. A Fund might also
purchase futures contracts as a proxy for underlying securities that it cannot
presently buy.
Stock Index Futures. A Fund may purchase and sell stock index futures
contracts as a hedge against changes resulting from market conditions in the
values of securities that are held in its portfolio or that it intends to
purchase or when such purchase or sale is economically appropriate for the
reduction of risks inherent in the ongoing management of the Fund. 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 times 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. When the contract
is executed, each party deposits with a broker, or in a segregated custodial
account, a specified percentage of the contract amount, called the initial
margin, and during the term of the contract, the amount of the deposit is
adjusted based on the current value of the futures contract by payments of
variation margin to or from the broker or segregated account. In the case of
options on stock index futures, the holder of the option pays a premium and
receives the right, upon exercise of the option at a specified price during the
option period, to assume the option writer's position in a stock index futures
margin account; if exercised on the last trading day, cash in an amount equal to
the difference between the option exercise price and the closing level of the
relevant index on the expiration date is delivered.
A Fund may hedge a portion of its portfolio by selling stock index futures
contracts or purchasing puts on these contracts to limit exposure to an actual
or anticipated market decline. This provides an alternative to liquidation of
securities positions. Conversely, during a market advance or when the investment
adviser anticipates an advance, a Fund may hedge a portion of its portfolio by
purchasing stock index futures, or options on these futures. This affords a
hedge against a Fund not participating in a market advance when it is not fully
invested and serves as a temporary substitute for the purchase of individual
securities which may later be purchased in a more advantageous manner. When a
Fund purchases stock index futures contracts, it will deposit, and
mark-to-market daily, an amount of liquid assets consisting of cash, U.S.
Government securities, or other liquid securities equal to the market value of
the futures contracts in a segregated account with its custodian. Alternatively,
a Fund may cover such positions by purchasing offsetting positions, or by using
a combination of offsetting positions and cash or liquid securities.
A Fund's successful use of stock index futures contracts depends upon the
Adviser's or Sub-Adviser's ability to predict the direction of the market and is
subject to various additional risks. The correlation between movement in the
price of the stock index future and the price of the securities being hedged is
imperfect and the risk from imperfect correlation increases as the composition
of a Fund's portfolio diverges from the composition of the relevant index. In
addition, if a Fund purchases futures to hedge against market advances before it
can invest in common stock in an advantageous manner and the market declines,
there may be a loss on the futures contracts. In addition, the ability of a Fund
to close out a futures position or an option on futures depends on a liquid
secondary market. There is no assurance that liquid secondary markets will exist
for any particular futures contract or option on a futures contract at any
particular time. The risk of loss to a Fund is theoretically unlimited when the
Fund sells an uncovered futures contract because there is an obligation to make
delivery unless the contract is closed out, regardless of
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fluctuations in the price of the underlying security. A Fund's ability to engage
in hedging activities may be limited by certain federal income tax
considerations.
Foreign Currency Futures Transactions. Unlike forward foreign currency
exchange contracts, foreign currency futures contracts and options on foreign
currency futures contract are standardized as to amount and delivery period and
may be traded on boards of trade and commodities exchanges or directly with a
dealer which makes a market in such contracts and options. It is anticipated
that such contracts may provide greater liquidity and lower cost than forward
foreign currency exchange contracts. As part of their financial futures
transactions, the Funds may use foreign currency futures contracts and options
on such futures contracts. Through the purchase or sale of such contracts, the
Funds may be able to achieve many of the same objectives as through investing in
forward foreign currency exchange.
Foreign Currency Options. A foreign currency option provides the option
buyer with the right to buy or sell a stated amount of foreign currency at the
exercise price at a specified date or during the option period. A call option
gives its owner the right, but not the obligation, to buy the currency, while a
put option gives its owner the right, but not the obligation, to sell the
currency. The option seller (writer) is obligated to fulfill the terms of the
option sold if it is exercised. However, either seller or buyer may close its
position during the option period in the secondary market for such options at
any time prior to expiration.
A foreign currency call option rises in value if the underlying currency
appreciates. Conversely, a foreign currency put option rises in value if the
underlying currency depreciates. While purchasing a foreign currency option may
protect a Fund against an adverse movement in the value of a foreign currency,
it would not limit the gain which might result from a favorable movement in the
value of the currency. For example, if a Fund were holding securities
denominated in an appreciating foreign currency and had purchased a foreign
currency put to hedge against a decline in the value of the currency, it would
not have to exercise its put. In such an event, however, the amount of the
Fund's gain would be offset in part by the premium paid for the option.
Similarly, if a Fund entered into a contract to purchase a security denominated
in a foreign currency and purchased a foreign currency call to hedge against a
rise in the value of the currency between the date of purchase and the
settlement date, the Fund would not need to exercise its call if the currency
instead depreciated in value. In such a case, the Fund would acquire the amount
of foreign currency needed for settlement in the spot market at a lower price
than the exercise price of the option.
Options on Securities. A Fund may purchase put options only on equity
securities held in its portfolio and write call options and put options on
stocks only if they are covered, as described below, and such call options must
remain covered so long as the Fund is obligated as a writer. Option transactions
can be executed either on a national exchange or through a private transaction
with a broker-dealer (an "over-the-counter" transaction). Each Fund may write
(sell) "covered" call options and purchase options to close out options
previously written by it.
A call option gives the holder (buyer) the "right to purchase" a security
at a specified price (the exercise price) at any time until a certain date (the
expiration date). So long as the obligation of the writer of a call option
continues, he may be assigned an exercise notice by the broker-dealer through
whom such option was sold, requiring him to deliver the underlying security
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the writer effects
a closing purchase transaction by repurchasing an option identical to that
previously sold. To secure his obligation to deliver the underlying security in
the case of a call option, a writer is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options
Clearing Corporation.
The purpose of writing covered call options is to generate additional
premium income for a Fund. This premium income will serve to enhance a Fund's
total return and will reduce the effect of any price decline of the security
involved in the option. Covered call options will generally be written on
securities which, in the opinion of the Adviser or Sub-Adviser, are not expected
to make any major price moves in the near future but which, over the long term,
are deemed to be attractive investments for the particular Fund.
A Fund may only write call options that are "covered", meaning that it
either owns the underlying security or has an absolute and immediate right to
acquire that security, without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian), upon
conversion or exchange of other securities currently held in its portfolio. In
addition, a Fund will not permit the call to become uncovered prior to the
expiration of the option or termination through a closing purchase transaction
as described below. If a Fund writes a call option, the purchaser of the option
has the right to buy
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(and a Fund has the obligation to sell) the underlying security at the exercise
price throughout the term of the option. The initial amount paid to a Fund by
the purchaser of the option is the "premium". A Fund's obligation to deliver the
underlying security against payment of the exercise price will terminate either
upon expiration of the option or earlier if the Fund is able to effect a
"closing purchase transaction" through the purchase of an equivalent option.
There can be no assurance that a closing purchase transaction can be effected at
any particular time or at all. A Fund would not be able to effect a closing
purchase transaction after it had received notice of exercise. A Fund will
normally not write a covered call option if, as a result, the aggregate market
value of all portfolio securities covering all call options would exceed 15% of
the market value of its net assets (25% of the market value of total Fund assets
in the case of the VC Fund).
Fund securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with a Fund's
investment objective. The writing of covered call options is a conservative
investment technique believed to involve relatively little risk (in contrast to
the writing of naked or uncovered options, which the Funds will not do), but
capable of enhancing a Fund's total return. When writing a covered call option,
a Fund, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security above the exercise price, but retains
the risk of loss should the price of the security decline. Unlike one who owns
securities not subject to an option, a Fund has no control over when it may be
required to sell the underlying securities, since it may be assigned an exercise
notice at any time prior to the expiration of its obligation as a writer. If a
call option which a Fund has written expires, the Fund will realize a gain in
the amount of the premium; however, such gain may be offset by a decline in the
market value of the underlying security during the option period. If the call
option is exercised, the Fund will realize a gain or loss from the sale of the
underlying security. The security covering the call will be maintained in a
segregated account of the Funds' Custodian.
The premium received is the market value of an option. The premium a Fund
will receive from writing a call option will reflect, among other things, the
current market price of the underlying security, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security, and the length of the option period. Once the decision to
write a call option has been made, the Adviser or Sub-Adviser, in determining
whether a particular call option should be written on a particular security,
will consider the reasonableness of the anticipated premium and the likelihood
that a liquid secondary market will exist for such option. The premium received
by a Fund for writing covered call options will be recorded as a liability in
the Fund's statement of assets and liabilities. This liability will be adjusted
daily to the option's current market value, which will be the latest sale price
at the time at which the net asset value per share of the Fund is computed
(close of the New York Stock Exchange), or, in the absence of such sale, the
latest asked price. The liability will be extinguished upon expiration of the
option, the purchase of an identical option in a closing transaction, or
delivery of the underlying security upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security from being called, or
to permit the sale of the underlying security. Furthermore, effecting a closing
transaction will permit a Fund to write another call option on the underlying
security with either a different exercise price or expiration date or both. If a
Fund desires to sell a particular security from its portfolio on which it has
written a call option, it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security. There is, of course, no assurance
that a Fund will be able to effect such closing transactions at a favorable
price. If a Fund cannot enter into such a transaction, it may be required to
hold a security that it might otherwise have sold, in which case it would
continue to be at market risk on the security. A Fund will pay transaction costs
in connection with the writing of options to close out previously written
options. Such transaction costs are normally higher than those applicable to
purchases and sales of portfolio securities.
Call options written by a Fund will normally have expiration dates of less
than nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
at the time the options are written. From time to time, a Fund may purchase an
underlying security for delivery in accordance with an exercise notice of a call
option assigned to it, rather than delivering such security from its portfolio.
In such cases, additional costs will be incurred.
A Fund will realize a profit or loss from a closing purchase transaction
if the cost of the transaction is less or more than the premium received from
the writing of the option. Because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying security owned
by a Fund.
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In order to write a call option, a Fund is required to comply with the
rules of The Options Clearing Corporation and the various exchanges with respect
to collateral requirements. A Fund may not purchase call options on individual
stocks except in connection with a closing purchase transaction. It is possible
that the cost of effecting a closing transaction may be greater than the premium
received by a Fund for writing the option.
A Fund may also purchase put options so long as they are listed on an
exchange. If a Fund purchases a put option, it has the option to sell the
subject security at a specified price at any time during the term of the option.
Purchasing put options may be used as a portfolio investment strategy when
the Adviser or Sub-Adviser perceives significant short-term risk but substantial
long-term appreciation for the underlying security. The put option acts as an
insurance policy, as it protects against significant downward price movement
while it allows full participation in any upward movement. If a Fund is holding
a stock that the Adviser or Sub-Adviser feels has strong fundamentals, but for
some reason may be weak in the near term, it may purchase a listed put on such
security, thereby giving itself the right to sell such security at a certain
strike price throughout the term of the option. Consequently, a Fund will
exercise the put only if the price of such security falls below the strike price
of the put. The difference between the put's strike price and the market price
of the underlying security on the date a Fund exercises the put, less
transaction costs, will be the amount by which the Fund will be able to hedge
against a decline in the underlying security. If, during the period of the
option the market price for the underlying security remains at or above the
put's strike price, the put will expire worthless, representing a loss of the
price a Fund paid for the put, plus transaction costs. If the price of the
underlying security increases, the profit a Fund realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
for which the put may be sold.
A Fund may write put options on a fully covered basis on a stock the
Fund intends to purchase. If a Fund writes a put option, the purchaser of the
option has the right to sell (and the Fund has the obligation to buy) the
underlying security at the exercise price throughout the term of the option. The
initial amount paid to a Fund by the purchaser of the option is the "premium". A
Fund's obligation to purchase the underlying security against payment of the
exercise price will terminate either upon expiration of the option or earlier if
the Fund is able to effect a "closing purchase transaction" through the purchase
of an equivalent option. There can be no assurance that a closing purchase
transaction can be effected at any particular time or at all. In all cases where
a put option is written, a Fund will segregate or put into escrow with its
custodian, or pledge to a broker as collateral any combination of "qualified
securities" (which consists of cash, U.S. Government securities or other liquid
securities) with a market value at the time the option is written of not less
than 100% of the exercise price of the put option multiplied by the number of
options contracts written times the option multiplier.
A Fund may purchase a call option in a stock it intends to purchase at
some point in the future. The purchase of a call option is viewed as an
alternative to the purchase of the actual stock. The number of option contracts
purchased multiplied by the exercise price times the option multiplier will not
be any greater than the number of shares that would have been purchased had the
underlying security been purchased. If a Fund purchases a call option, it has
the right but not the obligation to purchase (and the seller has the obligation
to sell) the underlying security at the exercise price throughout the term of
the option. The initial amount paid by a Fund to the seller of the call option
is known as the "premium". If during the period of the option the market price
of the underlying security remains at or below the exercise price, a Fund will
be able to purchase the security at the lower market price. The profit or loss a
Fund may realize on the eventual sale of a security purchased by means of the
exercise of a call option will be reduced by the premium paid for the call
option.
Stock Index Options. Except as described below, a Fund will write call
options on indexes only if on such date it holds a portfolio of stocks at least
equal to the value of the index times the multiplier times the number of
contracts. When a Fund writes a call option on a broadly-based stock market
index, it will segregate or put into escrow with its custodian, or pledge to a
broker as collateral for the option, any combination of "qualified securities"
(which consists of cash, U.S. Government securities or other liquid securities)
with a market value at the time the option is written of not less than 100% of
the current index value times the multiplier times the number of contracts.
If a Fund has written an option on an industry or market segment index, it
will segregate or put into escrow with its custodian, or pledge to a broker as
collateral for the option, one or more "qualified securities", all of which are
stocks of issuers
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in such industry or market segment, with a market value at the
time the option is written of not less than 100% of the current index value
times the multiplier times the number of contracts.
If at the close of business on any business day the market value of such
qualified securities so segregated, escrowed, or pledged falls below 100% of the
current index value times the multiplier times the number of contracts, a Fund
will so segregate, escrow or pledge an amount in cash, Treasury bills or other
liquid securities equal in value to the difference. In addition, when a Fund
writes a call on an index that is in-the-money at the time the call is written,
it will segregate with its custodian or pledge to the broker as collateral cash,
U.S. Government or other liquid securities equal in value to the amount by which
the call is in-the-money times the multiplier times the number of contracts. Any
amount segregated pursuant to the foregoing sentence may be applied to a Fund's
obligation to segregate additional amounts in the event that the market value of
the qualified securities falls below 100% of the current index value times the
multiplier times the number of contracts. However, if a Fund holds a call on the
same index as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written or greater than the
exercise price of the call written if the difference is maintained in cash,
short-term U.S. Government securities, or other liquid securities in a
segregated account with its custodian, it will not be subject to the
requirements described in this paragraph.
Risks of Transactions in Stock Options. Purchase and sales of options
involves the risk that there will be no market in which to effect a closing
transaction. An option position may be closed out only on an exchange that
provides a secondary market for an option of the same series or if the
transaction was an over-the-counter transaction, through the original
broker-dealer. Although the Fund will generally buy and sell options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time, and for some options no secondary market on an exchange
may exist. If the Fund, as a covered call or put option writer, is unable to
effect a closing purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it delivers or
purchases the underlying security upon exercise.
Risks of Options on Indexes. A Fund's purchase and sale of options on
indexes will be subject to risks described above under "Risks of Transactions in
Stock Options". In addition, the distinctive characteristic of options on
indexes creates certain risks that are not present with stock options.
Since the value of an index option depends upon the movements in the level
of the index, rather than the price of a particular stock, whether a Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of stock prices in the stock market generally or in
an industry or market segment rather than movements in the price of a particular
stock. Accordingly, successful use by a Fund of options on indexes would be
subject to the Adviser's or Sub-Adviser's ability to correctly predict movements
in the direction of the stock market generally or of a particular industry. This
requires skills and techniques different than predicting changes in the price of
individual stocks.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, a Fund would not be able to
close out options that it had purchased or written and, if restrictions on
exercise were imposed, might not be able to close out options that it had
purchased or written and, if restrictions on exercise were imposed, might not be
able to exercise an option that it was holding, which could result in
substantial losses to the Fund. It is the policy of each Fund to purchase or
write options only on indexes that include a number of stocks sufficient to
minimize the likelihood of a trading halt in the index, for example, the S&P 100
or S&P 500 index option.
Trading in index options commenced in April 1993 with the S&P 100 option
(formerly called the CBOE 100). Since that time, a number of additional index
option contracts have been introduced, including options on industry indexes.
Although the markets for certain index option contracts have developed rapidly,
the markets for other index options are still relatively illiquid. The ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop in all index option contracts. Fund will not purchase
or sell index option contracts unless and until, in the Adviser's or
Sub-Adviser's opinion, the market for such options has developed sufficiently
that the risk in connection with these transactions is no greater than the risk
in connection with options on stock.
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Swaps. The VC Fund may enter into swaps relating to indexes, currencies,
interest rates, equity and debt interests of foreign issuers, although swaps are
not expected to be used to a significant extent. A swap transaction is an
agreement between the Fund and a counterparty to act in accordance with the
terms of the swap contract. Index swaps involve the exchange by the Fund with
another party of the respective amounts payable with respect to a notional
principal amount related to one or more indexes. Currency swaps involve the
exchange of cash flows on a notional amount of two or more currencies based on
their relative future values. An equity swap is an agreement to exchange streams
of payments computed by reference to a notional amount based on the performance
of a basket of stocks or a single stock. The Fund may enter into these
transactions to preserve a return or spread on a particular investment or
portion of its assets, to protect against currency fluctuations, as a duration
management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund may also
use these transactions for speculative purposes, such as to obtain the price
performance of a security without actually purchasing the security in
circumstances, for example, the subject security is illiquid, is unavailable for
direct investment or available only on less attractive terms. Swaps have risks
associated with them including possible default by the counterparty to the
transaction, illiquidity and, where swaps are used as hedges, the risk that the
use of a swap could result in losses greater than if the swap had not been
employed.
The Fund will usually enter into swaps on a net basis (i.e. the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the agreement, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments). Swaps do not involve the delivery
of securities, other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps is limited to the net amount of payments that the
Fund is contractually obligated to make. If the counterparty to a swap defaults,
the Fund's risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. Where swaps are entered into for good faith
hedging purposes, the Sub-Advisor believes such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to the Fund's borrowing restrictions. Where swaps are entered into
for other than hedging purposes, the Fund will segregate an amount of cash or
liquid securities having a value equal to the accrued excess of its obligations
over entitlements with respect to each swap on a daily basis.
REIT Securities. Health Sciences Fund and VC Fund may invest in securities
of real estate investment trusts ("REITs"). REITs are publicly traded
corporations or trusts that specialize in acquiring, holding and managing
residential, commercial or industrial real estate. A REIT is not taxed at the
entity level on income distributed to its shareholders or unitholders if it
distributes to shareholders or unitholders at least 95% of its taxable income
for each taxable year and complies with regulatory requirements relating to its
organization, ownership, assets and income.
REITs generally can be classified as Equity REITs, Mortgage REITs and
Hybrid REITs. An Equity REIT invests the majority of its assets directly in real
property and derives its income primarily from rents and from capital gains on
real estate appreciation which are realized through property sales. A Mortgage
REIT invests the majority of its assets in real estate mortgage loans and
services its income primarily from interest payments. A Hybrid REIT combines the
characteristics of an Equity REIT and a Mortgage REIT. Although the Fund can
invest in all three kinds of REITs, its emphasis is expected to be on
investments in Equity REITs.
Investments in the real estate industry involve particular risks. The real
estate industry has been subject to substantial fluctuations and declines on a
local, regional and national basis in the past and may continue to be in the
future. Real property values, and income from real property continue to be in
the future. Real property values and income from real property may decline due
to general and local economic conditions, overbuilding and increased
competition, increases in property taxes and operating expenses, changes in
zoning laws, casualty or condemnation losses, regulatory limitations on rents,
changes in neighborhoods and in demographics, increases in market interest
rates, or other factors. Factors such as these may adversely affect companies
which own and operate real estate directly, companies which lend to such
companies, and companies which service the real estate industry.
Direct investments in REITs also involve risks. Equity REITs will be
affected by changes in the values of and income from the properties they own,
while Mortgage REITs may be affected by the credit quality of the mortgage loans
they hold. In addition, REITs are dependent on specialized management skills and
on their ability to generate cash flow for operating purposes and to make
distributions to shareholders or unitholders. REITs may have limited
diversification and are subject to risks associated with obtaining financing for
real property, as well as to the risk of self-liquidation. REITs also can be
adversely
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affected by their failure to qualify for tax-free pass-through
treatment of their income under the Internal Revenue Code of 1986, as amended,
or their failure to maintain an exemption from registration under the 1940 Act.
By investing in REITs indirectly through the Fund, a shareholder bears not only
a proportionate share of the expenses of the Fund, but also may indirectly bear
similar expenses of some of the REITs in which it invests.
Structured Securities. Health Sciences Fund and VC Fund may purchase any
type of publicly traded or privately negotiated fixed income security, including
mortgage-backed securities; structured notes, bonds or debentures; and
assignments of and participations in loans.
Mortgage-Backed Securities. Health Sciences Fund and VC Fund may invest in
mortgage-backed securities, such as those issued by the Government National
Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA"),
Federal Home Loan Mortgage Corporation ("FHLMC") or certain foreign issuers.
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property. The
mortgages backing these securities include, among other mortgage instruments,
conventional 30-year fixed-rate mortgages, 15-year fixed-rate mortgages,
graduated payment mortgages and adjustable rate mortgages. The government or the
issuing agency typically guarantees the payment of interest and principal of
these securities. However, the guarantees do not extend to the securities' yield
or value, which are likely to vary inversely with fluctuations in interest
rates, nor do the guarantees extend to the yield or value of the Fund's shares.
These securities generally are "pass-through" instruments, through which the
holders receive a share of all interest and principal payments from the
mortgages underlying the securities, net of certain fees.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. The occurrence of mortgage prepayments is affected by various
factors, including the level of interest rates, general economic conditions, the
location, scheduled maturity and age of the mortgage and other social and
demographic conditions. Because prepayment rates of individual pools vary
widely, it is not possible to predict accurately the average life of a
particular pool. For pools of fixed-rate 30-year mortgages in a stable interest
rate environment, a common industry practice in the U.S. has been to assume that
prepayments will result in a 12-year average life, although it may vary
depending on numerous factors. At present, pools, particularly those with loans
with other maturities or different characteristics, are priced on an assumption
of average life determined for each pool. In periods of falling interest rates,
the rate of prepayment tends to increase, thereby shortening the actual average
life of a pool of mortgage-related securities. Conversely, in periods of rising
rates the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. However, these effects may not be present, or may
differ in degree, if the mortgage loans in the pools have adjustable interest
rates or other special payment terms, such as a prepayment charge. Actual
prepayment experience may cause the yield of mortgage-backed securities to
differ from the assumed average life yield. Reinvestment of prepayments may
occur at higher or lower interest rates than the original investment, thus
affecting the Fund's yield.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA, and
due to any yield retained by the issuer. Actual yield to the holder may vary
from the coupon rate, even if adjustable, if the mortgage-backed securities are
purchased or traded in the secondary market at a premium or discount. In
addition, there is normally some delay between the time the issuer receives
mortgage payments from the servicer and the time the issuer makes the payments
on the mortgage-backed securities, and this delay reduces the effective yield to
the holder of such securities.
Asset-Backed Securities. Health Sciences Fund and VC Fund may invest in
asset-backed securities, which represent participations in, or are secured by
and payable from, assets such as motor vehicle installment sales, installment
loan contracts, leases of various types of real and personal property and
receivables from revolving credit (credit card) agreements. Such assets are
securitized through the use of trusts and special purpose corporations. Payments
or distributions of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit or a pool insurance
policy issued by a financial institution unaffiliated with the trust or
corporation.
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Asset-backed securities present certain risks that are not presented by
other securities in which the Fund may invest. Automobile receivables generally
are secured by automobiles. Most issuers of automobile receivables permit the
loan servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on these securities. Credit card receivables are
generally unsecured, and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. In addition, there is no assurance that the security interest in
the collateral can be realized.
Structured Notes, Bonds and Debentures. Health Sciences Fund and VC Fund
may invest in structured notes, bonds and debentures. Typically, the value of
the principal and/or interest on these instruments is determined by reference to
changes in the value of specific currencies, interest rates, commodities,
indexes or other financial indicators (the "Reference") or the relevant change
in two or more References. The interest rate or the principal amount payable
upon maturity or redemption may be increased or decreased depending upon changes
in the applicable Reference. The terms of the structured securities may provide
that in certain circumstances no principal is due at maturity and, therefore,
may result in the loss of a Fund's entire investment. The value of structured
securities may move in the same or the opposite direction as the value of the
Reference, so that appreciation of the Reference may produce an increase or
decrease in the interest rate or value of the security at maturity. In addition,
the change in interest rate or the value of the security at maturity may be a
multiple of the change in the value of the Reference so that the security may be
more or less volatile than the Reference, depending on the multiple.
Consequently, structured securities may entail a greater degree of market risk
and volatility than other types of debt obligations.
Assignments and Participations. Health Sciences Fund and VC Fund may
invest in assignments of and participations in loans issued by banks and other
financial institutions.
When the Fund purchases assignments from lending financial institutions,
the Fund will acquire direct rights against the borrower on the loan. However,
since assignments are generally arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations acquired
by the Fund as the purchaser of an assignment may differ from, and be more
limited than, those held by the assigning lender.
Participations in loans will typically result in the Fund having a
contractual relationship with the lending financial institution, not the
borrower. The Fund would have the right to receive payments of principal,
interest and any fees to which it is entitled only from the lender of the
payments from the borrower. In connection with purchasing a participation, the
Fund generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the loan, nor any rights of set-off
against the borrower, and the Fund may not benefit directly from any collateral
supporting the loan in which it has purchased a participation. As a result, the
Fund purchasing a participation will assume the credit risk of both the borrower
and the lender selling the participation. In the event of the insolvency of the
lender selling the participation, the Fund may be treated as a general creditor
of the lender and may not benefit from any set-off between the lender and the
borrower.
The Fund may have difficulty disposing of assignments and participations
because there is no liquid market for such securities. The lack of a liquid
secondary market will have an adverse impact on the value of such securities and
on the Fund's ability to dispose of particular assignments or participations
when necessary to meet the Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the borrower.
The lack of a liquid market for assignments and participations also may make it
more difficult for the Fund to assign a value to these securities for purposes
of valuing the Fund's portfolio and calculating its net asset value.
The Fund may invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between a foreign government (a "Borrower") and one
or more financial institutions ("Lenders"). The majority of the Fund's
investments in Loans are expected to be in the form of participations in Loans
("Participations") and assignments of portions of Loans from third parties
("Assignments"). Participations typically will result in the Fund having a
contractual relationship only with the Lender, not with the Borrower. The Fund
will have the right to receive payments of principal, interest and any fees to
which it is entitled only from the Lender selling the Participation and only
upon receipt by the Lender of the payments from the Borrower. In
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connection with purchasing Participations, the Fund generally will have no right
to enforce compliance by the Borrower with the terms of the loan agreement
relating to the Loan, nor any rights of set-off against the Borrower, and the
Fund may not directly benefit from any collateral supporting the Loan in which
it has purchased the Participation. As a result, the Fund will assume the credit
risk of both the Borrower and the Lender that is selling the Participation. In
the event of the insolvency of the Lender selling a Participation, the Fund may
be treated as a general creditor of the Lender and may not benefit from any
set-off between the Lender and the Borrower. The Fund will acquire
Participations only if the Lender interpositioned between the Fund and the
Borrower is determined by CSAM to be creditworthy.
When the Fund purchases Assignments from Lenders, the Fund will acquire
direct rights against the Borrower on the Loan. However, since Assignments are
generally arranged through private negotiations between potential assignees and
potential assignors, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender.
There are risks involved in investing in Participations and Assignments.
The Fund may have difficulty disposing of them because there is no liquid market
for such securities. The lack of a liquid secondary market will have an adverse
impact on the value of such securities and on the Fund's ability to dispose of
particular Participations or Assignments when necessary to meet the Fund's
liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the Borrower. The lack of a liquid
market for Participations and Assignments also may make it more difficult for
the Fund to assign a value to these securities for purposes of valuing the
Fund's portfolio and calculating its net asset value.
Restricted and Illiquid Securities. A Fund may acquire, in privately
negotiated transactions, securities that cannot be offered for public sale in
the United States without first being registered under the Securities Act of
1933 ("Securities Act"). Restricted securities are subject to restrictions on
resale under federal securities law. Because of these restrictions, a Fund may
not be able to readily resell these securities at a price equal to what it might
obtain for similar securities with a more liquid market. A Fund's valuation of
these securities will reflect this restricted liquidity. Under criteria
established by the Funds' Trustees, certain restricted securities sold pursuant
to Rule 144A under the Securities Act may be determined to be liquid. To the
extent that restricted securities are not determined to be liquid, each Fund
will limit its purchase, together with other illiquid securities including
non-negotiable time deposits, Private Funds (in the case of VC Fund) and
repurchase agreements providing for settlement in more than seven days after
notice, to no more than 15% of its net assets.
Restricted securities in which a Fund may invest may include commercial
paper issued in reliance on the exemption from registration afforded by Section
4(2) of the Securities Act. Section 4(2) commercial paper is restricted as to
disposition under federal securities law, and is generally sold to institutional
investors, such as the Funds, who agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) commercial paper is
normally resold to other institutional investors like the Funds through or with
the assistance of the issuer or investment dealers who make a market in Section
4(2) commercial paper, thus providing liquidity. The Adviser believes that
Section 4(2) commercial paper and possibly certain other restricted securities
which meet the criteria for liquidity established by the Trustees of the Funds
are quite liquid. The Funds intend, therefore, to treat the restricted
securities which meet the criteria for liquidity established by the Trustees,
including Section 4(2) commercial paper, as determined by the Adviser, as liquid
and not subject to the investment limitations applicable to illiquid securities.
Securities of Other Investment Companies. The Funds may invest in
securities issued by the other investment companies. Each Fund intends to limit
its investments in accordance with applicable law. Among other things, such law
would limit these investments so that, as determined immediately after a
securities purchase is made by a Fund: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group; and (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned by the Fund together with
all other investment companies that have the same investment adviser. Under
certain sets of conditions, different sets of restrictions may be applicable. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of that company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that a Fund bears directly in connection with its own operations.
Investment companies in which a Fund may invest
16
<PAGE>
may also impose a sales or distribution charge in connection with the purchase
or redemption of their Shares and other types of commissions or charges. Such
charges will be payable by the Fund and, therefore, will be borne directly by
Shareholders.
Investment companies in which Technology Fund may invest include money
market funds advised by U.S. Bank, subject to certain restrictions contained in
an exemptive order issued by the Commission.
Repurchase Agreements. Securities held by a Fund may be subject to
repurchase agreements. These transactions permit a Fund to earn income for
periods as short as overnight. The Fund could receive less than the repurchase
price on any sale of such securities. Under the terms of a repurchase agreement,
a Fund would acquire securities from member banks of the Federal Deposit
Insurance Corporation and registered broker-dealers and other financial
institutions which the Adviser or Sub-Adviser deems creditworthy under
guidelines approved by the Trust's Board of Trustees, subject to the seller's
agreement to repurchase such securities at a mutually agreed-upon date and
price. The repurchase price would generally equal the price paid by a Fund plus
interest negotiated on the basis of current short-term rates, which may be more
or less than the rate on the underlying portfolio securities. The seller under a
repurchase agreement will be required to maintain continually the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest). If the seller were to default on its repurchase
obligation or become insolvent, the Fund holding such obligation would suffer a
loss to the extent that the proceeds from a sale of the underlying portfolio
securities were less than the repurchase price under the agreement, or to the
extent that the disposition of such securities by the Fund were delayed pending
court action. Additionally, there is no controlling legal precedent confirming
that a Fund would be entitled, as against a claim by such seller or its receiver
or trustee in bankruptcy, to retain the underlying securities, although the
Board of Trustees of the Trust believes that, under the regular procedures
normally in effect for custody of the Funds' securities subject to repurchase
agreements and under federal laws, a court of competent jurisdiction would rule
in favor of the Trust if presented with the question. Securities subject to
repurchase agreements will be held by the Funds' custodian or another qualified
custodian or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by a Fund under the 1940 Act.
Reverse Repurchase Agreements. Growth Fund, Health Sciences Fund and VC
Fund are each permitted to enter into reverse repurchase agreements. In a
reverse repurchase agreement, a Fund sells a security and agrees to repurchase
it at a mutually agreed upon date and at a price reflecting the interest rate
effective for the term of the agreement. This may also be viewed as the
borrowing of money by the Fund. The Funds will not invest the proceeds of a
reverse repurchase agreement for a period which exceeds the duration of the
reverse repurchase agreement. No Fund may enter into reverse repurchase
agreements exceeding in the aggregate one-third of the market value of its total
assets, less liabilities other than the obligations created by reverse
repurchase agreements. Each Fund will segregate assets consisting of cash or
liquid securities in an amount at least equal to its repurchase obligations
under its reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of
the securities retained by a Fund may decline below the price of the securities
it has sold but is obligated to repurchase under the agreement. In the event the
buyer of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, a Fund's use of proceeds from the agreement may be restricted
pending a determination by the other party or its trustee or receiver whether to
enforce the Fund's obligation to repurchase the securities.
Loans of Portfolio Securities. Each Fund may lend securities if such loans
are secured continuously by liquid assets consisting of cash, U.S. Government
securities or other liquid debt securities or by a letter of credit in favor of
the Fund at least equal at all times to 100% of the market value of the
securities loaned, plus accrued interest. While such securities are on loan, the
borrower will pay the Fund any income accruing thereon. Loans will be subject to
termination by the Fund in the normal settlement time, currently three Business
Days after notice, or by the borrower on one day's notice (as used herein,
"Business Day" shall denote any day on which the New York Stock Exchange and the
custodian are both open for business). Any gain or loss in the market price of
the borrowed securities that occurs during the term of the loan inures to the
lending Fund and its shareholders. The Funds may pay reasonable finders' and
custodial fees, including fees to a Sub-Adviser or its affiliate, in connection
with loans. In addition, the Funds will consider all facts and circumstances
including the creditworthiness of the borrowing financial institution, and the
Funds will not lend their securities to any director, officer, employee, or
affiliate of the Adviser, a Sub-Adviser, the Administrator or the Distributor,
unless permitted by applicable law. Loans of portfolio securities involve risks,
such as delays or an inability to regain the securities or collateral
adjustments in the event the borrower defaults or enters into bankruptcy.
17
<PAGE>
Short Sales Against The Box. Health Sciences Fund and VC Fund may engage
in short sales against the box. In a short sale, a Fund sells a borrowed
security and has a corresponding obligation to the lender to return the
identical security. The seller does not immediately deliver the securities sold
and is said to have a short position in those securities until delivery occurs.
A Fund may engage in a short sale if at the time of the short sale the Fund owns
or has the right to obtain without additional cost an equal amount of the
security being sold short. This investment technique is known as a short sale
"against the box." It may be entered into by a Fund to, for example, lock in a
sale price for a security the Fund does not wish to sell immediately. If a Fund
engages in a short sale, the collateral for the short position will be
segregated in an account with the Fund's custodian or qualified sub-custodian.
The VC Fund does not expect to engage in short sales against the box to a
significant extent and no more than 10% of the Health Sciences Fund's net assets
(taken at current value) may be held as collateral for short sales against the
box at any one time.
A Fund may make a short sale as a hedge, when it believes that the price
of a security may decline, causing a decline in the value of a security owned by
the Fund (or a security convertible or exchangeable for such security). In such
case, any future losses in the Fund's long position should be offset by a gain
in the short position and, conversely, any gain in the long position should be
reduced by a loss in the short position. The extent to which such gains or
losses are reduced will depend upon the amount of the security sold short
relative to the amount the Fund owns. There will be certain additional
transaction costs associated with short sales against the box, but a Fund will
endeavor to offset these costs with the income from the investment of the cash
proceeds of short sales.
If a Fund effects a short sale of securities at a time when it has an
unrealized gain on the securities, it may be required to recognize that gain as
if it had actually sold the securities (as a "constructive sale") on the date it
effects the short sale. However, such constructive sale treatment may not apply
if the Fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale and if certain other conditions
are satisfied. Uncertainty regarding the tax consequences of effecting short
sales may limit the extent to which the Fund may effect short sales.
Short Sales (excluding Short Sales "Against the Box"). The Health Sciences
Fund and VC Fund may from time to time sell securities short. A short sale is a
transaction in which a Fund sells securities it does not own in anticipation of
a decline in the market price of the securities. The current market value of the
securities sold short (excluding short sales "against the box") will not exceed
10% of a Fund's assets.
To deliver the securities to the buyer, a Fund must arrange through a
broker to borrow the securities and, in so doing, the Fund becomes obligated to
replace the securities borrowed at their market price at the time of
replacement, whatever that price may be. A Fund will make a profit or incur a
loss as a result of a short sale depending on whether the price of the
securities decreases or increases between the date of the short sale and the
date on which the Fund purchases the security to replace the borrowed securities
that have been sold. The amount of any loss would be increased (and any gain
decreased) by any premium or interest a Fund is required to pay in connection
with a short sale.
A Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by cash or liquid securities deposited as
collateral with the broker. In addition, a Fund will place in a segregated
account with its custodian or a qualified subcustodian an amount of cash or
liquid securities equal to the difference, if any, between (i) the market value
of the securities sold at the time they were sold short and (ii) any cash or
liquid securities deposited as collateral with the broker in connection with the
short sale (not including the proceeds of the short sale). Until it replaces the
borrowed securities, a Fund will maintain the segregated account daily at a
level so that (a) the amount deposited in the account plus the amount deposited
with the broker (not including the proceeds from the short sale) will equal the
current market value of the securities sold short and (b) the amount deposited
in the account plus the amount deposited with the broker (not including the
proceeds from the short sale) will not be less than the market value of the
securities at the time they were sold short.
Affiliated Transactions. The Funds are authorized to execute portfolio
transactions through, and to pay commissions to, Phillips & Company Securities,
Inc. ("Phillips"), and Williamette Securities, Inc. ("WSI") broker-dealers
affiliated with the Adviser, and Piper Jaffray Inc. and U.S. Bancorp Securities,
broker-dealers affiliates of the Sub-Adviser, U.S. Bank National Association,
and to purchase securities in underwritings in which these broker-dealers are
members of the underwriting
18
<PAGE>
syndicate. A Fund will not acquire portfolio securities issued by, or enter into
repurchase agreements or reverse repurchase agreements with, the Adviser, a
Sub-Adviser, the Distributor or their affiliates.
Additional Information About Health Sciences Fund
The Fund's investment objective is long-term growth of capital. The Fund
is a non-diversified management investment company. The Fund intends to invest
at least 80% of its total assets in equity securities of health sciences
companies, and under normal market conditions will invest at least 65% of its
assets in equity and debt securities of health sciences companies. Equity
securities are common stocks, preferred stocks, warrants and securities
convertible into or exchangeable for common stocks. Health sciences companies
are companies that are principally engaged in the research, development,
production or distribution of products or services related to health care,
medicine or the life sciences (collectively termed "health sciences"). A company
is considered to be "principally engaged" in health sciences when at least 50%
of its assets are committed to, or at least 50% of its revenues or operating
profits are derived from, the activities described in the previous sentence. A
company will also be considered "principally engaged" in health sciences if, in
the judgment of the Sub-Adviser, the company has the potential for capital
appreciation primarily as a result of particular products, technology, patents
or other market advantages in a health sciences business and (a) the company
holds itself out to the public as being primarily engaged in a health sciences
business, and (b) a substantial percentage of the company's expenses are related
to a health sciences business and these expenses exceed revenues from non-health
sciences businesses.
Because the Fund will focus its investments in securities of companies
that are principally engaged in the health sciences, the value of its shares
will be especially affected by factors relating to the health sciences,
resulting in greater volatility in share price than may be the case with funds
that invest in a wider range of industries.
Companies engaged in biotechnology, drugs and medical devices are
affected by, among other things, limited patent duration, intense competition,
obsolescence brought about by rapid technological change and regulatory
requirements. In addition, many health sciences companies are smaller and less
seasoned, suffer from inexperienced management, offer limited product lines (or
may not yet offer products), and may have persistent losses or erratic revenue
patterns. Securities of these smaller companies may have more limited
marketability and, thus, may be more volatile. Because small companies normally
have fewer shares outstanding than larger companies, it may be more difficult
for the Fund to buy or sell significant amounts of such shares without an
unfavorable impact on prevailing prices. There is also typically less publicly
available information concerning smaller companies than for larger, more
established ones.
Other health sciences companies, including pharmaceutical companies,
companies undertaking research and development, and operators of health care
facilities and their suppliers are subject to government regulation, product or
service approval and, with respect to medical devices, the receipt of necessary
reimbursement codes, which could have a significant effect on the price and
availability of such products and services, and may adversely affect the
revenues of these companies. These companies are also susceptible to product
liability claims and competition from manufacturers and distributors of generic
products. Companies engaged in the ownership or management of health care
facilities receive a substantial portion of their revenues from federal and
state governments through Medicare and Medicaid payments. These sources of
revenue are subject to extensive regulation and government appropriations to
fund these expenditures are under intense scrutiny. Numerous federal and state
legislative initiatives are being considered that seek to control health care
costs and, consequently, could affect the profitability and stock prices of
companies engaged in the health sciences.
Health sciences companies are generally subject to greater governmental
regulation than other industries at both the state and federal levels. Changes
in governmental policies may have a material effect on the demand for or costs
of certain products and services. A health sciences company must receive
government approval before introducing new drugs and medical devices or
procedures. This process may delay the introduction of these products and
services to the marketplace, resulting in increased development costs, delayed
cost-recovery and loss of competitive advantage to the extent that rival
companies have developed competing products or procedures, adversely affecting
the company's revenues and profitability. Expansion of facilities by health care
providers is subject to "determinations of need" by the appropriate government
authorities. This process not only increases the time and cost involved in these
expansions, but also makes expansion plans uncertain, limiting the revenue and
profitability growth potential of health care facilities operators, and
negatively affecting the price of their securities.
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<PAGE>
Certain health sciences companies depend on the exclusive rights or
patents for the products they develop and distribute. Patents have a limited
duration and, upon expiration, other companies may market substantially similar
"generic" products which have cost less to develop and may cause the original
developer of the product to lose market share and/or reduce the price charged
for the product, resulting in lower profits for the original developer.
Because the products and services of health sciences companies affect the
health and well-being of many individuals, these companies are especially
susceptible to product liability lawsuits. The share price of a health sciences
company can drop dramatically not only as a reaction to an adverse judicial
ruling, but also from the adverse publicity accompanying threatened litigation.
Additional Information About VC Fund
Private Fund Investments. Up to 10% of the Fund's net assets may be
invested in U.S. or foreign private limited partnerships or other investment
funds ("Private Funds") that themselves invest in equity or debt securities of
(a) companies in the venture capital or post-venture capital stages of
development or (b) companies engaged in special situations or changes in
corporate control, including buyouts. In selecting Private Funds for investment,
CSAM attempts to invest in a mix of Private Funds that will provide an above
average internal rate of return (i.e., the discount rate at which the present
value of an investment's future cash inflows (dividend income and capital gains)
are equal to the cost of the investment). CSAM believes that the Fund's
investments in Private Funds offer individual investors a unique opportunity to
participate in venture capital and other private investment funds, providing
access to investment opportunities typically available only to large
institutions and accredited investors. Although the Fund's investments in
Private Funds are limited to a maximum of 10% of the Fund's assets (measured at
the time the investments are made), these investments are highly speculative and
volatile and may produce gains or losses in this portion of the Fund's portfolio
that exceed those of the Fund's other holdings and of more mature companies
generally.
Because Private Funds are investment companies for certain purposes of the
1940 Act, the Fund's ability to invest in them will be limited. In addition,
Fund shareholders will remain subject to the Fund's expenses while also bearing
their pro rata share of the operating expenses of the Private Funds. The ability
of the Fund to dispose of interests in Private Funds is very limited and will
involve certain risks. In valuing the Fund's holdings of interests in Private
Funds, the Fund will be relying on the most recent reports provided by the
Private Funds themselves prior to calculation of the Fund's net asset value.
These reports, which are provided on an infrequent basis, often depend on the
subjective valuations of the managers of the Private Funds and, in addition,
would not generally reflect positive or negative subsequent developments
affecting companies held by the Private Fund. Debt securities held by a Private
Fund will tend to be rated below investment grade and may be rated as low as C
by Moody's or D by S&P. Securities in these rating categories are in payment
default or have extremely poor prospects of attaining any investment standing.
Although investments in Private Funds offer the opportunity for
significant capital gains, these investments involve a high degree of business
and financial risk that can result in substantial losses in the portion of a
Fund's portfolio invested in these investments. Among these are the risks
associated with investment in companies in an early stage of development or with
little or no operating history, companies operating at a loss or with
substantial variation in operation results from period to period, companies with
the need for substantial additional capital to support expansion or to maintain
a competitive position, or companies with significant financial leverage. Such
companies may also face intense competition from others including those with
greater financial resources or more extensive development, manufacturing,
distribution or other attributes, over which the Fund will have no control.
Interests in the Private Funds in which a Fund may invest will be subject
to substantial restrictions on transfer and, in some instances, may be
non-transferable for a period of years. Private Funds may participate in only a
limited number of investments and, as a consequence, the return of a particular
Private Fund may be substantially adversely affected by the unfavorable
performance of even a single investment. Certain of the Private Funds in which
the Fund may invest may pay their investment managers a fee based on the
performance of the Fund, which may create an incentive for the manager to make
investments that are riskier or more speculative than would be the case if the
manager was paid a fixed fee. Private Funds are not registered under the 1940
Act and, consequently, are not subject to the restrictions on affiliated
transactions and other protections applicable to registered investment
companies. The valuation of companies held by Private Funds, the
20
<PAGE>
securities of which are generally unlisted and illiquid, may be very difficult
and will often depend on the subjective valuation of the managers of the Private
Funds, which may prove to be inaccurate. Inaccurate valuations of a Private
Fund's portfolio holdings may affect the Fund's net asset value calculations.
Private Funds in which the Fund invests will not borrow to increase the amount
of assets available for investment or otherwise engage in leverage.
The Fund may also hold non-publicly traded equity securities of companies
in the venture capital and post-venture capital stages of development, such as
those of closely-held companies or private placements of public companies. The
portion of the Fund's assets invested in these non-publicly traded securities
will vary over time depending on investment opportunities and other factors. The
Fund's illiquid assets, including Private Funds and other non-publicly traded
securities, may not exceed 15% of the Fund's net assets.
Other Strategies. The Fund will invest in securities of post-venture
capital companies that are traded on a national securities exchange or in an
organized OTC market, such as The Nasdaq Stock Market, Inc., JASDAQ, EASDAQ and
AIM. The Fund may invest, directly or through Private Funds, in securities of
issuers engaged at the time of purchase in "special situations," such as a
restructuring or recapitalization; an acquisition, consolidation, merger or
tender offer; a change in corporate control or investment by a venture
capitalist. For temporary defensive purposes, such as during times of
international political or economic uncertainty, all of the Fund's investments
may be made temporarily in the U.S.
Investment Restrictions
The following policies are fundamental investment restrictions
("Fundamental Restrictions") of each Fund and may not be changed without
approval by vote of a majority of the outstanding shares of the Fund. For this
purpose, such a majority vote means the lesser of (1) 67% or more of the voting
securities present at an annual or special meeting of Shareholders, if holders
of more than 50% of the outstanding voting securities of a Fund are present of
represented by proxy or (2) more than 50% of the outstanding voting securities
of the Fund.
Value Fund, Growth Fund and VC Fund have each elected to qualify as a
diversified series of the Trust. Health Sciences Fund and Technology Fund have
each elected to be non-diversified series of the Trust. Both Health Sciences
Fund and Technology Fund intend, however, to conduct their operations so as to
qualify as regulated investment companies under the Internal Revenue Code of
1986, as amended. Additionally, none of the Funds may:
(1) borrow money, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
(3) concentrate its investments in a particular industry, as that
term is used in the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time, provided
that Health Sciences Fund will concentrate its investments in
health sciences-related industries and Technology Fund will
concentrate its investments in technology-related industries.
(4) engage in the business of underwriting securities issued by
others, except to the extent that a Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that each Fund reserves freedom of action to hold and
to sell real estate acquired as a result of the Fund's
ownership of securities;
(6) purchase physical commodities or contracts relating to physical
commodities; or
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<PAGE>
(7) make loans to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests
in indebtedness in accordance with a Fund's investment
objective and policies may be deemed to be loans.
Portfolio Turnover
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of the Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The calculation excludes
all securities whose remaining maturities at the time of acquisition were one
year or less.
NET ASSET VALUE
The net asset value of Shares of each Fund is determined and the Shares
are priced as of the Valuation Time on each Business Day of the Company. A
"Business Day" constitutes any day on which the New York Stock Exchange (the
"NYSE") is open for trading and any other day except days on which there are not
sufficient changes in the value of a Fund's portfolio securities that the Fund's
net asset value might be materially affected and days during which no Shares are
tendered for redemption and no orders to purchase Shares are received.
Currently, the NYSE is closed on 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. If portfolio investments of a Fund are
traded in markets on days that are not Business Days of the Fund, the Fund's net
asset value may vary on days when investors cannot purchase, redeem or exchange
Shares.
Portfolio equity securities for which market quotations are readily
available are valued based upon their last sales prices in their principal
market. Lacking any sales, these securities are valued at the most recent bid
price. Debt securities with remaining maturities of 60 days or less will be
valued at their amortized cost. Other debt securities are generally valued by
pricing agents based on valuations supplied by broker-dealers or calculated by
electronic methods. Other securities and assets for which quotations are not
readily available, including restricted securities, securities purchased in
private transactions and Private Funds (with respect to the VC Fund), are valued
at their fair value in the best judgment of the Adviser or Sub-Adviser under the
supervision of the Trust's Board of Trustees.
Among the factors that will be considered, if they apply, in valuing
portfolio securities held by a Fund are the existence of restrictions upon the
sale of the security by the Fund, the absence of a market for the security, the
extent of any discount in acquiring the security, the estimated time during
which the security will not be freely marketable, the expenses of registering or
otherwise qualifying the security for public sale, underwriting commissions if
underwriting would be required to effect a sale, the current yields on
comparable securities for debt obligations traded independently of any equity
equivalent, changes in the financial condition and prospects of the issuer, and
any other factors affecting fair value. In making valuations, opinions of
counsel may be relied upon as to whether or not securities are restricted
securities and as to the legal requirements for public sale.
The VC Fund's investments in Private Funds will be valued initially at
cost and, thereafter, in accordance with periodic reports received by CSAM from
the Private Funds (generally quarterly). Because the issuers of securities held
by Private Funds are generally not subject to the reporting requirements of the
federal securities laws, interim changes in the value of investments in Private
Funds will not generally be reflected in the Fund's net asset value. However,
CSAM will report to the Board of the Trust information about certain holdings of
Private Funds that, in its judgment, could have a material impact on the
valuation of a Private Fund. The Board of the Trust will take these reports into
account in valuing Private Funds.
As noted, the Trust may use a pricing service to value certain portfolio
securities where the prices provided are believed to reflect the fair market
value of such securities. A pricing service would normally consider such factors
as yield, risk, quality, maturity, type of issue, trading characteristics,
special circumstances and other factors it deems relevant in determining
valuations of normal institutional trading units of debt securities and would
not rely exclusively on quoted prices. The methods used by the pricing service
and the valuations so established will be reviewed by the Trust under the
general supervision of the Trust's Board of Trustees. Several pricing services
are available, one or more of which may be used by the Adviser or Sub-Adviser
from time to time.
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<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Matters Affecting Redemption
Fund Shares are sold on a continuous basis by BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services (the "Distributor" or "BISYS"), and the
Distributor has agreed to use appropriate efforts to solicit all purchase
orders.
The Trust may suspend the right of redemption or postpone the date of
payment for Shares with respect to a Fund during any period when (a) trading on
the New York Stock Exchange is restricted by applicable rules and regulations of
the Commission, (b) the Exchange is closed for other than customary weekend and
holiday closings, (c) the Commission has by order permitted such suspension for
the protection of security holders of the Trust or a Fund, or (d) the Commission
has determined that an emergency exists as a result of which (i) disposal by the
Trust or a Fund of securities owned by it is not reasonably practical, or (ii)
it is not reasonably practical for the Trust or a Fund to determine the fair
value of its net assets.
The Trust may redeem Shares of a Fund involuntarily if redemption appears
appropriate in light of the Trust's responsibilities under the 1940 Act. See
"SHAREHOLDER INFORMATION" in the Prospectus.
MANAGEMENT OF THE TRUST
Trustees and Officers
Overall responsibility for management of the Trust rests with its Board
of Trustees, which is elected by the Shareholders of the Trust. The Trustees
elect the officers of the Trust to supervise actively its day-to-day operations.
The names of the Trustees and officers of the Trust, their addresses, ages and
principal occupations during the past five years are as follows:
<TABLE>
Position(s)
Held With Principal Occupation
Name, Address and Age the Trust During Past 5 Years**
--------------------- --------- ---------------------
<S> <C> <C>
Timothy C. Phillips (Age 34)* Trustee, Chairman, CEO of Phillips & Co.
220 NW 2nd, Suite 950 President, Treasurer Securities, Inc. and
Portland, OR 97209 and Secretary Willamette Securities, Inc.
since February 1992 and January,
1999, respectively
[THE FOLLOWING IS SUBJECT
TO COMPLETION]
S. Christopher Clark (Age 34)* ** Executive VP (1993) and
220 NW 2nd, Suite 950 Managing Director (1997) for
Portland, OR 97209 Phillips & Co. Securities, Inc. and
Managing Director of
Willamette Securities, Inc. (1999)
James T. Smith (Age 34 )* ** Compliance Officer (1995) and CFO
220 NW 2nd, Suite 950 (1997) for Phillips & Co.
Portland, OR 97209 Securities, Inc. and COO (1999) for
Willamette Securities, Inc. Joined
Phillips & Co. in 10/94 and
Willamette Securities, Inc. in 1/99.
From 10/92 to 09/94 was the Sup. of
payroll & billing services for
Interim Services, Inc.
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
**
Charlie Mohr (Age 53) Group President of Outsourcing
396A Sound Beach Ave (1998) for BISYS. From 9/91 to 9/94
Old Greenwich, CT 06870 was the Investment Adviser for Sun
America Asset Mgmt. and from 1/96 to
1/98 was the Investment Adviser for
Systematic Mgmt.
**
Andy Gerlicher (Age 48) Attorney (2000) for Schwabe
600 SW Columbia, Suite 3210 Williamson & Wyatt. From 5/99 to
Bend, OR 97702 5/00 was a banker for Key Bank,
N.A. From 4/96 to 4/99 was the
Trust Co. President for West Coast
Trust Co. From 9/85 to 3/96 was the
S.V.P., General Counsel for First
Interstate Bank.
</TABLE>
* Messrs. Phillips, Clark and Smith are each considered to be an "interested
person" of the Trust as defined in the 1940 Act.
** (To be completed by amendment prior to effectiveness)
As of the date of this Statement of Additional Information, the Trust's
officers and Trustees, as a group, own less than 1% of each Fund's outstanding
Shares.
The officers of the Trust receive no compensation directly from the Trust
for performing the duties of their offices. BISYS Fund Services Ohio, Inc.
receives fees from the Funds for acting as administrator and fund accountant,
the Distributor receives fees pursuant to the Service and Distribution Plan and
BISYS Fund Services, Inc. receives fees for transfer agent services.
Trustee Compensation Table
[to be provided]
Trustees of the Trust not affiliated with the Adviser or Distributor
receive from the Trust an annual fee of $_____, plus $_____ for each regular
meeting of the Board of Trustees attended and $_____ for each special meeting of
the Board attended in person and $___ for other special meetings of the Board
attended by telephone, and are reimbursed for all out-of-pocket expenses
relating to attendance at such meetings. Trustees who are affiliated with the
Distributor do not receive compensation from the Trust.
Because these Funds had not commenced operations as of the date of this
Statement of Additional Information, the Trustees have not received compensation
from the Funds yet.
Investment Adviser and Sub-Advisers
Willamette Asset Managers, Inc., 220 NW 2nd Avenue, Suite 950, Portland,
Oregon 97209, acts as investment adviser to the Funds pursuant to Investment
Advisory Agreements dated. Each Fund pays the Adviser fees for its services
under these agreements. The fees, which are computed daily and paid monthly, are
at the following annual rates for each Fund, calculated as a percentage of the
particular Fund's average daily net assets: Value Fund, 1.00%; Growth Fund,
1.20%; Health Sciences Fund, 1.20%; Technology Fund, 1.20%; and VC Fund, 1.20%.
The Adviser may periodically waive all or a portion of its advisory fee to
increase the net income of a Fund available for distribution as dividends or to
limit a Fund's total operating expenses.
For each of the Funds, the Adviser has retained a Sub-Adviser to provide
portfolio management services. The Adviser pays the fees of each Sub-Adviser, at
no additional cost to a Fund.
24
<PAGE>
Unless sooner terminated, each Advisory Agreement will continue in effect
for and initial period of up to two years, and from year to year thereafter, if
such continuance is approved at least annually by the Trust's board of Trustees
or by vote of a majority of the outstanding Shares of the applicable Fund (as
defined under "Investment Restrictions," above), and a majority of the Trustees
who are not parties to the Advisory Agreement or interested persons (as defined
in the 1940 Act) of any party to the Advisory Agreement by votes cast in person
at a meeting called for such purpose. Each Advisory Agreement is terminable at
any time on 60 days' written notice without penalty by the Trustees, by vote of
a majority of the outstanding Shares of the particular Fund, or by the Adviser.
Each Advisory Agreement also terminates automatically in the event of any
assignment, as defined in the 1940 Act.
Each Advisory Agreement provides that the Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the
applicable Fund in connection with the performance of the Advisory Agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the Adviser in the
performance of its duties, or from reckless disregard by thee Adviser of its
duties and obligations thereunder.
The Bank of New York (BONY), One Wall Street, New York, New York 10286,
provides portfolio management services, as Sub-Adviser, to Value Fund and Growth
Fund pursuant to Sub-Investment Advisory Agreements with the Trust and the
Adviser, dated as of. For its services to Value Fund, the Adviser pays BONY a
fee, calculated daily and paid monthly, at an annual rate equal to the following
amounts based on Value Fund's average daily net assets: (a) for that portion of
Value Fund's portfolio, generally about 50% of Value Fund's assets, that is
invested in the ten highest dividend yielding stocks in the Dow Jones Industrial
Average, the annual fee rate is equal to the following percentages of Value
Fund's average daily net assets: 0.10% on assets up to $50,000,000; 0.07% on
assets from $50,000,000 to $100,000,000; 0.05% on assets in excess of
$100,000,000, with a minimum annual fee of $10,000 for this portion of Value
Fund's portfolio; (b) for that portion of Value Fund's portfolio, generally
about 50% of Value Fund's assets, that is actively managed, the annual fee rate
is equal to 0.45%, with a minimum annual fee of $10,000 for this portion of
Value Fund's portfolio. The Adviser pays BONY a fee computed daily and paid
monthly at an annual rate calculated as a percentage of Growth Fund's average
daily net assets, of 0.45%.
U.S. Bank National Association (U.S. Bank), 601 Second Avenue South,
Minneapolis, Minnesota 55480, serves as Sub-Adviser to Technology Fund pursuant
to a Sub-Investment Advisory Agreement dated as of __________________. For its
services to Technology Fund, the Adviser pays U.S. Bank a fee computed daily and
paid monthly at an annual rate of 0.50% calculated as a percentage of the Fund's
average daily net assets.
Credit Suisse Asset Management, LLC (Credit Suisse), One Citicorp Center,
153 East 53rd Street, New York, NY 10022, acts as Sub-Adviser to Health Sciences
Fund and VC Fund pursuant to Sub-Investment Advisory Agreements dated ,
respectively. Credit Suisse also acts as investment adviser to the Warburg
Pincus Family of Funds. Credit Suisse is a member company of Credit Suisse Asset
Management (CSAM), the institutional asset management and mutual fund arm of
Credit Suisse Trust, one of the world's leading banks. The CSAM companies manage
more than $58 billion in the U.S. and $186 billion globally. They have offices
in 14 countries, including SEC-registered offices in New York and London. CSAM's
other offices, including those in Budapest, Frankfurt, Milan, Moscow, Paris,
Prague, Sydney, Tokyo, Warsaw and Zurich, are not SEC-registered. For its
services to Health Sciences Fund, the adviser pays Credit Suisse a fee at an
assessed rate, calculated as a percentage of Health Sciences Fund's average
daily net assets, of 0.55%
Each Sub-Investment Advisory Agreement will continue in effect, unless
sooner terminated, for two years from its effective date, and has provisions for
continuation and termination similar to those of the Investment Advisory
Agreements. Each Sub-Investment Advisory Agreement may also be terminated by the
Adviser.
The Advisory Agreement for each Fund and Sub-Investment Advisory Agreement
for each applicable Fund were approved by the Trust's Board of Trustees on , and
each Fund's initial shareholder on ____________________.
Investment advisory fees earned by the Adviser for services to Value Fund
for the fiscal years ended March 31, 1999 and March 31, 2000 totaled $90,925 and
$174,029, respectively, and the Adviser waived advisory fees in the amount of
$27,500 and $47,091, respectively, for those years. For its services to Growth
Fund, which commenced operations on April 1, 1999, the
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<PAGE>
Adviser earned fees of $259,469, during the fiscal year ended March 31, 2000 and
the Adviser waived fees in the amount of $23,161 for that period. For its
services to Technology Fund, which commenced operations on March 1, 2000, the
Adviser earned fees of $33,800 for the fiscal year ended March 31, 2000 and
waived fees totaling $5,633. The Adviser earned no fees from Health Sciences
Fund or VC Fund as of March 31, 2000, since those Funds had not commenced
operations as of that date.
BONY commenced its services as Sub-Adviser as of June 5, 2000, so BONY
received no Sub-Advisory fees from Value Fund during the fiscal year ended March
31, 2000. For its services to Growth Fund, which commenced operations on April
1, 1999, BONY received fees of $106,339 for its services to Growth Fund for the
fiscal year ended March 31, 2000.
For its services to Technology Fund, which commenced operations on March
1, 2000, U.S. Bank received fees totaling $11,736 for the fiscal year ended
March 31, 2000.
Code of Ethics
The Willamette Funds, the Adviser, each Sub-Adviser and the Distributor
have each adopted a Code of Ethics, pursuant to Rule 17j-1 under the Investment
Company Act of 1940, applicable to securities trading activities of its
personnel. Each Code permits covered personnel to trade in securities in which a
Fund may invest, subject to certain restrictions and reporting requirements.
Portfolio Transactions
Pursuant to the Advisory Agreements and the Sub-Investment Advisory
Agreements, the Adviser and each Sub-Adviser determine, subject to the general
supervision of the Board of Trustees of the Trust and in accordance with each
Fund's investment objective and restrictions, which securities are to be
purchased and sold by the Funds, and which brokers are to be eligible to execute
the Funds' portfolio transactions. Certain purchases and sales of portfolio
securities with respect to the Funds are principal transactions in which
portfolio securities are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from underwriters of
portfolio securities generally include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market makers
may include the spread between the bid and asked price. Transactions on stock
exchanges involve the payment of negotiated brokerage commissions. Transactions
in the over-the-counter market are generally principal transactions with
dealers. With respect to the over-the-counter market, the Adviser and
Sub-Advisers, where possible, will deal directly with dealers who make a market
in the securities involved except in those circumstances where better price and
execution are available elsewhere.
Investment decisions for the Funds are made independently from those for
other accounts managed by the Adviser and the Sub-Advisers. Any such account may
also invest in the same securities as a Fund. When a purchase or sale of the
same security is made at substantially the same time on behalf of a Fund and
another account, the transaction will be averaged as to price, and available
investments will be allocated as to amount in a manner which the Adviser or a
Sub-Adviser believes to be equitable to the applicable Fund and such other
account. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtained by a Fund.
To the extent permitted by law, the Adviser or a Sub-Adviser may aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for the other accounts in order to obtain best execution.
For the fiscal year ended March 31, 2000, Value Fund, Growth Fund and
Technology Fund paid brokerage Commissions of $34,586; $3,436; and $1,996,
respectively. Health Sciences Fund had not commenced operations as of March 31,
2000.
Administrator
BISYS Fund Services Ohio, Inc. serves as administrator ("Administrator")
to the Funds pursuant to a Management and Administration Agreement dated
__________________ (the "Administration Agreement"). The Administrator assists
in supervising all operations of the Funds (other than those performed by the
Adviser and Sub-Advisers under the Advisory Agreements and Sub-Investment
Advisory Agreements, the Custodian under the Custodian Agreement, BISYS Fund
Services Ohio, Inc. under the Funding Accounting Agreement, and BISYS Fund
Services, Inc. under the Transfer Agency Agreement).
26
<PAGE>
The Administrator is a broker-dealer registered with the Commission, and is a
member of the National Association of Securities Dealers, Inc. The Administrator
provides financial services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities; furnish statistical and research data, clerical,
certain bookkeeping services and stationery and office supplies; prepare the
periodic reports to the Commission on Form N-SAR or any replacement forms
therefor; compile data for, prepare for execution by the Funds and file all of
the Funds' federal and state tax returns and required tax filings other than
those required to be made by the Funds' Custodian and Transfer Agent; prepare
compliance filings pursuant to state securities laws with the advice of the
Trust's counsel; assist to the extent requested by the Funds with the Funds'
preparation of their Annual and Semi-Annual Reports to Shareholders and their
Registration Statement; compile data for, prepare and file timely Notices to the
Commission required pursuant to Rule 24f-2 under the 1940 Act; keep and maintain
the financial accounts and records of the Funds, including calculation of daily
expense accruals; and generally assist in all aspects of the Funds' operations
other than those performed by the Adviser, under the Advisory Agreements, by the
Sub-Advisers under the Sub-Investment Advisory Agreements, by the Custodian
under the Custodian Agreement or by BISYS Fund Services, Inc. under the Transfer
Agency Agreement or BISYS Fund Services Ohio, Inc. under the Fund Accounting
Agreement. Under the Administration Agreement, the Administrator may delegate
all or any part of its responsibilities thereunder.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement, (1)
twenty one-hundredths of one percent (0.20%) of the Funds' average daily net
assets or (2) such other fee as may be agreed upon in writing by the Trust and
the Administrator. The Administrator may periodically waive all or a portion of
its fee with respect to each Fund in order to increase the net income of the
Fund available for distribution as dividends.
For the Fiscal year ended March 31, 2000, the Administrator was paid
administrative fees of $34,806; $43,240 and $5,633 for services to Value Fund,
Growth Fund and Technology Fund, respectively. Health Sciences Fund had not
commenced operations as of March 31, 2000.
Unless sooner terminated as provided therein, the Administration Agreement
will continue in effect for an initial three-year term. The Administration
Agreement thereafter shall be renewed automatically for successive three-year
terms, unless written notice not to renew is given by the non-renewing party to
the other party at least 60 days prior to the expiration of the then-current
term. The Administration Agreement is terminable with respect to a particular
Fund only upon mutual agreement of the parties to the Administration Agreement
and for cause (as defined in the Administration Agreement) by the party alleging
cause, on not less than 60 days' notice by the Trust's Board of Trustees or by
the Administrator.
The Administration Agreement provides that the Administrator shall not be
liable for any error of judgment or mistake of law or any loss suffered by a
Fund in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or from the reckless disregard by
the Administrator of its obligations and duties thereunder.
Distributor
BISYS serves as distributor to the Funds pursuant to the Distribution
Agreement dated , _________________ (the "Distribution Agreement"). Unless
otherwise terminated, the Distribution Agreement will continue in effect with
respect to a Fund for an initial term of two years, and thereafter, if such
continuance is approved at least annually (i) by the Trust's Board of Trustees
or by the vote of a majority of the outstanding Shares of the Fund and (ii) by
the vote of a majority of the Trustees of the Trust who are not parties to the
Distribution Agreement or interested persons (as defined in the 1940 Act) of any
party to the Distribution Agreement, cast in person at a meeting called for the
purpose of voting on such approval. The Distribution Agreement will terminate
automatically in the event of any assignment, as defined in the 1940 Act.
In its capacity as Distributor, BISYS solicits orders for the sale of
Shares, advertises and pays the costs of advertising, office space and the
personnel involved in such activities. The Distributor receives no compensation
under the Distribution Agreement with the Trust, but may receive compensation
from each Fund under the Service and Distribution Plan described below.
27
<PAGE>
As described in the Prospectus, the Trust has adopted a Service and
Distribution Plan for each Fund (the "Plan") pursuant to Rule 12b-1 under the
1940 Act under which each Fund is authorized to compensate the Distributor for
payments it makes to banks, other institutions and broker-dealers, and for
expenses the Distributor and any of its affiliates or subsidiaries incur (with
all of the foregoing organizations being referred to as "Participating
Organizations") for providing administration, distribution or shareholder
service assistance. Payments to such Participating Organizations may be made
pursuant to agreements entered into with the Distributor. The Plan authorizes
each Fund to make payments to the Distributor in an amount not to exceed, on an
annual basis, 0.50% of the Fund's average daily net assets. Each Fund is
authorized to pay a Shareholder Service Fee of up to 0.25% of its average daily
net assets. As required by Rule 12b-1, the Plan was approved by the Board of
Trustees, including a majority of the Trustees who are not interested persons of
the Funds and who have no direct or indirect financial interest in the operation
of the Plan ("Independent Trustees") at the organizational meeting held on . The
Plan may be terminated with respect to a Fund by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding Shares of the
Fund. The Trustees review quarterly a written report of such costs and the
purposes for which such costs have been incurred. The Plan may be amended by
vote of the Trustees including a majority of the Independent Trustees, cast in
person at a meeting called for that purpose.
However, any change in the Plan that would materially increase the
distribution cost to a Fund requires approval by that Fund's Shareholders. For
so long as the Plan is in effect, selection and nomination of the Independent
Trustees shall be committed to the discretion of such Independent Trustees. All
agreements with any person relating to the implementation of the Plan may be
terminated at any time on 60 days' written notice without payment of any
penalty, by vote of a majority of the Independent Trustees or, with respect to a
Fund, by vote of a majority of the outstanding Shares of that Fund. The Plan
will continue in effect with respect to a Fund for successive one-year periods,
provided that each such continuance is specifically approved (i) by the vote of
a majority of the Independent Trustees, and (ii) by the vote of a majority of
the entire Board of Trustees cast in person at a meeting called for that
purpose. The Board of Trustees has a duty to request and evaluate such
information as may be reasonably necessary for it to make an informed
determination of whether the Plan should be implemented or continued. In
addition, for each Fund, the Trustees, in approving the Plan, must determine
that there is a reasonable likelihood that the Plan will benefit the Fund and
its Shareholders.
For the fiscal year ended March 31, 2000, the Distributor received
$87,014, $108,101 and $14,083 pursuant to the Plan for Value Fund, Growth Fund
and Technology Fund, respectively, all of which was paid to Phillips & Company
Securities Inc., an affiliated broker-dealer of the Adviser. As of March 31,
2000, Health Sciences Fund had not yet commenced operations.
The Board of Trustees of the Trust believes that the Plan is in the best
interests of each Fund since it encourages Fund growth. As the Fund grows in
size, certain expenses, and, therefore, total expenses per Share, may be reduced
and overall performance per Share may be improved.
Custodian
Union Bank of California, 475 Sansome Street, San Francisco, California
94111, serves as the Funds' custodian.
Transfer Agency and Fund Accounting Services
BISYS Fund Services, Inc. serves as Transfer Agent and Dividend Disbursing
Agent ("Transfer Agent") for the Funds, pursuant to the Transfer Agency
Agreement dated ___________________ . Pursuant to such Agreement, the Transfer
Agent, among other things, performs the following services in connection with
the Funds' Shareholders of record: maintenance of shareholder records for each
of the Funds' Shareholders of record; processing shareholder purchase and
redemption orders; processing transfers and exchanges of Shares of the Funds on
the shareholder files and records; processing dividend payments and
reinvestments; and assistance in the mailing of shareholder reports and proxy
solicitation materials. For such services the Transfer Agent receives a fee
based, in part, on the number of shareholders of record. In addition, BISYS Fund
Services Ohio, Inc. ("Fund Accountant") provides certain fund accounting
services to the Funds pursuant to the Fund Accounting Agreement dated . The Fund
Accountant receives a fee from each Fund for such services in an amount computed
daily and paid periodically at an annual rate of three one-hundredths of one
percent (.03%) of each Fund's average daily net assets subject to a minimum of
$35,000 per year. In addition, the Fund Accountant shall be reimbursed for
reasonable out-of-pocket expenses. Under such Agreement, the Fund Accountant
maintains the accounting books and the records for each Fund, including journals
containing
28
<PAGE>
an itemized daily record of all purchases and sales of portfolio securities, all
receipts and disbursements of cash and all other debits and credits, general and
auxiliary ledgers reflecting all asset, liability, reserve, capital, income and
expense accounts, including interest accrued and interest received, and other
required separate ledger accounts; maintains a monthly trial balance of all
ledger accounts; performs certain accounting services for the Funds, including
calculation of the net asset value per Share, calculation of the dividend and
capital gain distributions, if any, and of yield, reconciliation of cash
movements with the Custodian, affirmation to the Custodian of all portfolio
trades and cash settlements, verification and reconciliation with the Custodian
of all daily trade activity; provides certain reports; obtains dealer
quotations, prices from a pricing service or matrix prices on all portfolio
securities in order to mark the portfolio to the market; and prepares an interim
balance sheet, statement of income and expense, and statement of changes in net
assets for each Fund.
During the fiscal year ended March 31, 2000 Value Fund, Growth Fund and
Technology Fund paid the Fund Accountant $37,821, $39,964 and $3,253,
respectively pursuant to the Fund Accounting Agreement. During the fiscal year
ended March 31, 2000, Value Fund, Growth Fund and Technology Fund paid the
Transfer Agent $87,790, $74,354 and $7,360, respectively, pursuant to the
Transfer Agency Agreement. As of March 31, 2000, Health Sciences Fund had not
yet commenced operations.
Independent Auditors
Ernst & Young LLP, 10 West Broad Street, Suite 2300, Columbus, Ohio 43215,
has been selected as independent auditors for the Funds. Ernst & Young LLP
performs an annual audit of each Fund's financial statements and provides other
services related to filings with respect to securities regulations. Reports of
their activities are provided to the Trust's Board of Trustees.
Legal Counsel
Dechert, 1775 Eye Street, N.W., Washington, D.C. 20006, is counsel to the
Trust.
ADDITIONAL INFORMATION
Description of Shares
The Trust is a Delaware business trust, organized on January ______, 2001.
Each of the Funds (except the VC Fund) is the successor to a fund of the same
name that was a series of another registered investment company, The Coventry
Group. On March ___, 2001, the shareholders of each of the predecessor funds
approved their reorganization into the corresponding Fund, effective April 1,
2001. VC Fund is a newly organized fund.
The Trust's Declaration of Trust is on file with the Secretary of State of
Delaware. The Declaration of Trust authorizes the Board of Trustees to issue an
unlimited number of Shares, which are Shares of beneficial interest, with a par
value of $0.01 per share. The Trust consists of several funds organized as
separate series of Shares. The Trust's Declaration of Trust authorizes the Board
of Trustees to divide or redivide any unissued Shares of the Trust into one or
more additional series by setting or changing in any one or more respects their
respective preferences, conversion or other rights, voting power, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption, and to establish separate classes of Shares.
Shares have no subscription or preemptive rights and only such conversion
or exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectus and this Statement of
Additional Information, the shares will be fully paid and non-assessable. In the
event of a liquidation or dissolution of the Trust, Shareholders of each Fund
are entitled to receive the assets available for distribution belonging to that
fund, and a proportionate distribution, based upon the relative asset values of
the respective funds, of any general assets not belonging to any particular fund
which are available for distribution, subject to any differential class
expenses.
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 the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding Shares of
each Fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding Shares of a Fund will be required in
connection with a matter, a Fund will be deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are identical,
or that the matter
29
<PAGE>
does not affect any interest of the Fund. Under Rule 18f-2, the approval of an
investment advisory agreement or any change in investment policy would be
effectively acted upon with respect to a Fund only if approved by a majority of
the outstanding Shares of that Fund. However, Rule 18f-2 also provides that the
ratification of independent public accountants (for Funds having the same
independent accountants), the approval of principal underwriting contracts, and
the election of Trustees may be effectively acted upon by Shareholders of the
Trust voting without regard to individual Funds.
Vote of a Majority of the Outstanding Shares
As used in the Prospectus and this Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of a Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more
of the votes of Shareholders of a Fund present at a meeting at which the holders
of more than 50% of the votes attributable to Shareholders of record of the Fund
are represented in person or by proxy, or (b) the holders of more than 50% of
the outstanding votes of Shareholders of the Fund.
Additional Tax Information
Taxation 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 each 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 (other than U.S. Government securities or
the securities of other regulated investment companies) of any one issuer, or of
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses or related trades or
businesses; and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and any net
tax-exempt interest income each taxable year.
As a regulated investment company, a 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, a 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 were 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 to Shareholders of record on a date in such a
month and paid by the Fund during January of the following calendar year. Such
distributions will be treated as received by 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.
Distributions. Dividends paid out of a Fund's investment company taxable
income generally will be taxable to a U.S. Shareholder as ordinary income. A
portion of each Fund's income may consist of dividends paid by U.S. corporations
and, accordingly, a portion of the dividends paid by a Fund may be eligible for
the corporate dividends-received deduction. Properly designated distributions of
net capital gains, if any, generally are taxable to Shareholders as long-term
capital gains, regardless of
30
<PAGE>
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 particular 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.
Distributions by a Fund reduce the net asset value of the Fund's shares.
Should a taxable distribution reduce the net asset value below a Shareholder's
cost basis, the distribution nevertheless would be taxable to the Shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by a Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
Discount Securities. Investments by a Fund in securities that are issued
at a discount 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 a 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.
Some of the debt securities may be purchased by a Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
Generally, the gain realized on the disposition of any debt security acquired
after April 30, 1993 having market discount will be treated as ordinary income
to the extent it does not exceed the accrued market discount on such debt
security.
Options and Hedging Transactions. 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 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 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 short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option is added to the basis of the
purchased security.
Certain options 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 Fund
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 a Fund of engaging in hedging transactions
are not entirely clear. Hedging transactions may increase the amount of
short-term capital gain realized by a Fund which is taxed as ordinary income
when distributed to Shareholders.
A 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
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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 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 transactions 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 sales 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 a Fund held the security used to close the short sale. In addition, a
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 a 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.
The diversification requirements applicable to each Fund's assets may
limit the extent to which a Fund will be able to engage in transactions in
options and other hedging transactions.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency, and the time the Fund actually collects such
receivables or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain options and futures contracts,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses, may increase or
decrease the amount of a Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.
Each Fund may invest in shares of foreign corporations (including through
ADRs) which may be classified under the Code as passive foreign investment
companies ("PFICs"). In general, a foreign corporation is classified as a PFIC
if at least one-half of its assets constitute investment-type assets, or 75% or
more of its gross income is investment-type income. If a Fund receives a
so-called "excess distribution" with respect to PFIC stock, the Fund itself may
be subject to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to Shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which a Fund held the PFIC shares. The Fund
itself will be subject to tax on the portion, if any, of an excess distribution
that is so allocated to prior Fund taxable years and an interest factor will be
added to the tax, as if the tax had been payable in such prior taxable years.
Certain distributions from a PFIC as well as gain from the sale of PFIC shares
are treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
A Fund may be eligible to elect alternative tax treatment with respect to
PFIC shares. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross income
its share of the earnings of a PFIC on a current basis, regardless of whether
distributions are received from the PFIC in a given year. If this election were
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<PAGE>
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election would involve
marking to market a Fund's PFIC shares at the end of each taxable year, with the
result that unrealized gains are treated as though they were realized and
reported as ordinary income. Any mark-to-market losses and any loss from an
actual disposition of PFIC shares would be deductible as ordinary losses to the
extent of any net mark-to-market gains included in income in prior years.
Fund Taxes on Swaps. As a result of entering into index swaps, the VC Fund
may make or receive periodic net payments. They may also make or receive a
payment when a swap is terminated prior to maturity through an assignment of the
swap or other closing transaction. Periodic net payments will constitute
ordinary income or deductions, while termination of a swap will result in
capital gain or loss (which will be a long-term capital gain or loss if the Fund
has been a party to the swap for more than one year).
Sale of Shares. Upon the sale or other disposition of Fund Shares, or upon
receipt of a distribution in complete liquidation of a Fund, a Shareholder
generally will realize a taxable capital gain or loss which may be eligible for
reduced capital gains tax rates, 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.
In some cases, Shareholders will not be permitted to take sales charges
into account for purposes of determining the amount of gain or loss realized on
the disposition of their Shares. This prohibition generally applies where (1)
the Shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the Shareholder subsequently acquires
Shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of Shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the Shares
exchanged all or a portion of the sales charge incurred in acquiring those
Shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired Shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
Foreign Withholding Taxes. Income received by a Fund from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries.
Backup Withholding. A Fund may be required to withhold U.S. federal income
tax at the rate of 31% of all reportable payments, including dividends, capital
gain distributions and redemptions 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.
Foreign Shareholders. 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.
Other Taxation. The Trust is organized as a Delaware business trust and,
under current law, neither the Trust nor any fund is liable for any income or
franchise tax in the State of Delaware, provided that each fund continues to
qualify as a regulated investment company under Subchapter M of the Code.
Fund Shareholders may be subject to state and local taxes on their Fund
distributions. In many states, Fund distributions which are derived from
interest on certain U.S. Government obligations may be exempt from taxation.
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<PAGE>
Yields and Total Returns
Yield Calculations. Yields on Fund Shares will be computed by dividing the
net investment income per share (as described below) earned by a Fund during a
30-day (or one month) period by the maximum offering price per share on the last
day of the period and annualizing the result on a semi-annual basis by adding
one to the quotient, raising the sum to the power of six, subtracting one from
the result and then doubling the difference. The net investment income per share
earned during the period is based on the average daily number of Shares
outstanding during the period entitled to receive dividends and includes
dividends and interest earned during the period minus expenses accrued for the
period, net of reimbursements. This calculation can be expressed as follows:
a-b
Yield = 2 [(------- +1)exp(6)-1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Shares outstanding
during the period that were entitled to receive
dividends.
d = maximum offering price per Share on the last day of
the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is held by the Fund. Interest earned on any
debt obligations held by a Fund is calculated by computing the yield to maturity
of each obligation held by the Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
Business Day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market values of such debt obligations.
Undeclared earned income will be subtracted from the net asset value per
share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
During any given 30-day period, the Adviser, a Sub-Adviser, the
Administrator or Distributor may voluntarily waive all or a portion of their
fees with respect to a Fund. Such waiver would cause the yield of that Fund to
be higher than it would otherwise be in the absence of such a waiver.
Total Return Calculations. Average annual total return is a measure of the
change in value of an investment in a Fund over the period covered, which
assumes any dividends or capital gains distributions are reinvested in Shares
immediately rather than paid to the investor in cash. A Fund computes the
average annual total return by determining the average annual compounded rates
of return during specified periods that equate the initial amount invested to
the ending redeemable value of such investment. This is done by dividing the
ending redeemable value of a hypothetical $1,000 initial payment by $1,000 and
raising the quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one from
the result. This calculation can be expressed as follows:
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<PAGE>
Average Annual ERV
Total Return = [(------)exp (1/n)-1]
P
Where: ERV = ending redeemable value at the end of the period covered
by the computation of a hypothetical $1,000 payment made
at the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms of
years.
A Fund computes its aggregate total return by determining the aggregate
compounded rate of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
Aggregate Total ERV
Return = [(------]-1]
P
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
With respect to the Value Fund: (1) the total return for the Fund for the
one-year period ended September 30, 2000 was _____% assuming the imposition of
the maximum front-end sales charge and was _____% assuming that the maximum
front-end sales charge had not been imposed; (2) the average annual total return
for the Fund for the period from May 26, 1998 (commencement of operations)
through September 30, 2000 was _____% assuming the imposition of the maximum
front-end sales charge of _____% and was _____% assuming that the maximum
front-end sales charge had not been imposed; and (3) the aggregate total return
for the Fund for the period from May 26, 1998 (commencement of operations)
through September 30, 2000 was _____% assuming the imposition of the maximum
front-end sales charge of _____% and was _____% assuming that the maximum
front-end sales charge had not been imposed.
With respect to the Growth Fund: (1) the total return for the Fund for the
one-year period ended September 30, 2000 was ___% assuming the imposition of the
maximum front-end sales charge and was ___% assuming that the maximum front-end
sales charge had not been imposed; (2) the average annual total return for the
Fund for the period from April 1, 1999 (commencement of operations) through
September 30, 2000 was _____% assuming the imposition of the maximum front-end
sales charge and assuming that the maximum front-end sales charge had not been
imposed; and (3) the aggregate total return for the Fund for the period from
April 1, 1999 (commencement of operations) through September 30, 2000 was ___%
assuming the imposition of the maximum front-end sales charge and was ___%
assuming that the maximum front-end sales charge had not been imposed.
With respect to the Technology Fund, the total return for the Fund for the
period from March 1, 2000 (commencement of operations) through September 30,
2000 was _____% ) assuming the imposition of the maximum front-end sales charge
and was _____% assuming that the maximum front-end sales charge had not been
imposed.
With respect to the Global Health Sciences Fund, the total return for the
Fund for the period from June 12, 2000 (commencement of operations) through
September 30, 2000 was (_____%) assuming the imposition of the maximum front-end
sales charge and was (_____)% assuming that the maximum front-end sales charge
had not been imposed.
Performance Comparisons
Investors may judge a Fund's performance by comparing it to the
performance of other mutual funds or mutual fund portfolios with comparable
investment objectives and policies through various mutual fund or market
indices, such as those prepared by Dow Jones & Co., Inc. and Standard & Poor's
Ratings Services, and to data prepared by Lipper Analytical Services, Inc., a
widely recognized independent service which monitors the performance of mutual
funds or Ibbotson Associates, Inc. Comparisons may also be made to indices or
data published in IBC/Donaghue's MONEY FUND REPORT, a nationally-recognized
money market fund reporting service, Money Magazine, Forbes, Barron's, The Wall
Street Journal, The
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<PAGE>
New York Times, Business Week, and U.S.A. Today. In addition to performance
information, general information about the Funds that appears in a publication,
such as those mentioned above, may be included in advertisements and in reports
to Shareholders. The Funds may also include in advertisements and reports to
Shareholders information comparing the performance of the Adviser or the
Sub-Adviser to other investment advisers; such comparisons may be published by
or included in Nelsons Directory of Investment Managers, Roger's, Casey/PIPER
Manager Database, CDA/Cadence, or Chase Global Data and Research.
Current yields or performance will fluctuate from time to time and are not
necessarily representative of future results. Accordingly, a Fund's yield or
performance may not be directly comparable to bank deposits or other investments
that pay a fixed return for a stated period of time. Yield and performance are
functions of the quality, composition and maturity of a Fund's portfolio, as
well as expenses allocated to a Fund. Fees imposed upon customer accounts by
third parties for cash management services will reduce a Fund's effective yield
to customers.
From time to time, the Funds may include general comparative information,
such as statistical data regarding inflation, securities indices or the features
or performance of alternative investments, in advertisements, sales literature
and reports to shareholders. The Funds may also include calculations, such as
hypothetical compounding examples, which describe hypothetical investment
results in such communications. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of a Fund.
Miscellaneous
The Funds may include information in their Annual Reports and Semi-Annual
Reports to Shareholders that (1) describes general economic trends, (2)
describes general trends within the financial services industry or the mutual
fund industry, (3) describes past or anticipated portfolio holdings for the
Funds or (4) describes investment management strategies for the Funds. Such
information is provided to inform Shareholders of the activities of the Funds
for the most recent fiscal year or half-year and to provide the views of the
Adviser, the Sub-Advisers, and/or Trust officers regarding expected trends and
strategies.
The financial statements of the Funds appearing in the Annual Report to
Shareholders of The Coventry Group for the period ended March 31, 2000 and in
the Semi-Annual Report to Shareholders of The Coventry Group for the period
ended September 30, 2000 are incorporated herein by reference. No reports have
yet been prepared for Health Sciences Fund.
Individual Trustees are elected by the Shareholders and, subject to
removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of Shareholders at which Trustees are elected.
Such meetings are not required to be held at any specific intervals.
Shareholders owning not less than 10% of the outstanding Shares of the Trust
entitled to vote may cause the Trustees to call a special meeting, including for
the purpose of considering the removal of one or more Trustees. Any Trustee may
be removed at any meeting of Shareholders by vote of two-thirds of the Trust's
outstanding shares. The Declaration of Trust provides that the Trustees will
assist shareholder communications to the extent required by Section 16(c) of the
1940 Act in the event that a Shareholder request to hold a special meeting is
made.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of any prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized to
give any information or make any representation other than those contained in
the Prospectus and this Statement of Additional Information.
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<PAGE>
APPENDIX A
The nationally recognized statistical rating organizations (individually,
an "NRSRO") that may be utilized by the Adviser with regard to portfolio
investments for the Funds include Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's Ratings Services ("S&P") and Duff & Phelps, Inc. ("D&F").
Set forth below is a description of the relevant ratings of each such NRSRO. The
description of each NRSRO's ratings is as of the date of this Statement of
Additional Information, and may subsequently change.
LONG TERM DEBT RATINGS (may be assigned, for example, to corporate and
municipal bonds)
Description Of Moody's Debt Ratings
Excerpts from Moody's description of its bond ratings are listed as
follows:
Aaa -- judged to be the best quality and they carry the smallest
degree of investment risk;
Aa -- judged to be of high quality by all standards -- together with
the Aaa group, they comprise what are generally known as high grade
bonds;
A -- possess many favorable investment attributes and are to be
considered as "upper medium" grade obligations;
Baa -- considered to be 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;
Ba -- judged to have speculative element, their future cannot be
considered as well assured;
B -- generally lack characteristics of the desirable investment;
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 -- speculative in a high degree, often in default;
C -- lowest rated class of bonds, regarded as having extremely poor
prospects.
Moody's also supplies numerical indicators 1, 2 and 3 to rating
categories. The modifier 1 indicates that the security is in the higher
end of its rating category; the modifier 2 indicates a mid-range ranking;
and modifier 3 indicates a ranking toward the lower end of the category.
A-1
<PAGE>
Description of S&P'S Debt Ratings
Excerpts from S&P's description of its bond ratings are listed as follows:
AAA -- highest grade obligations, in which capacity to pay interest
and repay principal is extremely strong;
AA -- has a very strong capacity to pay interest and repay
principal, and differs from AAA issues only in a small degree;
A -- has a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in
higher rated categories;
BBB -- 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 in higher rated
categories. This group is the lowest which qualifies for commercial
bank investment.
BB, B, CCC, CC, C -- predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with
terms of the obligations; BB indicates the highest grade and C the
lowest within the speculative rating categories.
D -- interest or principal payments are in default.
S&P applies indicators "+," no character, and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
Description of Moody's Ratings of Short-term Municipal Obligations:
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or MIG or VMIG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable rate demand obligations) are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payments
relying on external liquidity. Ratings categories for securities in these groups
are as follows:
MIG 1/VMIG 1 -- denotes best quality, there is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing;
MIG 2/VMIG 2 -- denotes high quality, margins of protection are ample
although not as large as in the preceding group;
MIG 3/VMIG 3 -- denotes high quality, all security elements are counted
for but there is lacking the undeniable strength of the preceding grades;
MIG 4/VMIG 4 -- denotes adequate quality, protection commonly regarded as
required of an investment security is present, but there is specific risk;
SQ -- denotes speculative quality; instruments in this category lack
margins of protection.
Description of Moody's Commercial Paper Ratings:
Excerpts from Moody's commercial paper ratings are listed as follows:
A-2
<PAGE>
Prime-1 -- issuers (or supporting institutions) have a superior ability
for repayment of senior short-term promissory obligations;
Prime-2 -- issuers (or supporting institutions) have a strong ability for
repayment of senior short-term promissory obligations;
Prime-3 -- issuers (or supporting institutions) have an acceptable ability
for repayment of senior short-term promissory obligations;
Not Prime -- issuers do not fall within any of the Prime categories.
Description of S&P'S Ratings for Corporate and Municipal Bonds:
Investment grade ratings:
AAA -- the highest rating assigned by S&P, capacity to pay interest
and repay principal is extremely strong;
AA -- has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in a small degree;
A -- has 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 -- 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 in higher rated
categories.
Speculative grade ratings:
BB, B, CCC, CC, C -- debt rated in these categories is regarded as
having predominantly speculative characteristics with respect to
capacity to pay interest and repay principal -while such debt will
likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions;
CI -- reserved for income bonds on which no interest is being paid;
D -- in default, and payment of interest and/or repayment of
principal is in arrears. 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 relative standing
within the major rating categories.
Description of S&P'S Ratings for Municipal Notes and Short-term Municipal Demand
Obligations:
Rating categories are as follows:
SP-1 -- has a very strong or strong capacity to pay principal and
interest -- those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation;
SP-2 -- has a satisfactory capacity to pay principal and interest;
SP-3 -- issues carrying this designation have a speculative capacity
to pay principal and interest.
A-3
<PAGE>
Description of S&P'S Ratings for Short-term Corporate Demand Obligations and
Commercial Paper:
An S&P commercial paper rating is a current assessment of the likelihood
of timely repayment of debt having an original maturity of no more than 365
days. Excerpts from S&P's description of its commercial paper ratings are listed
as follows:
A-1 -- the degree of safety regarding timely payment is strong --
those issues determined to possess extremely strong safety
characteristics will be denoted with a plus (+) designation;
A-2 -- capacity for timely payment is satisfactory -- however, the
relative degree of safety is not as high as for issues designated
"A-1;"
A-3 -- has adequate capacity for timely payment -- however, is more
vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations;
B -- regarded as having only speculative capacity for timely
payment;
C -- a doubtful capacity for payment;
D -- in payment default -- the "D" rating category is used when
interest payments or principal payments are not made on the date
due, even if the applicable grade period has not expired, unless S&P
believes that such payments will be made during such grace period.
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. Exhibits
(a)(1) Certificate of Trust of The Willamette Funds (the
"Registrant")
(a)(2) Form of Declaration of Trust of Registrant
(b) Form of By-laws of Registrant
(c) Not Applicable
(d)(1) Form of Investment Advisory Agreement with Willamette
Asset Managers, Inc. for the Willamette Value Fund
(d)(2) Form of Investment Advisory Agreement with Willamette
Asset Managers, Inc. for the Willamette Small Cap
Growth Fund
(d)(3) Form of Investment Advisory Agreement with Willamette
Asset Managers, Inc. for the Willamette Global Health
Sciences Fund
(d)(4) Form of Investment Advisory Agreement with Willamette
Asset Managers, Inc. for the Willamette Technology
Fund
(d)(5) Form of Investment Advisory Agreement with Willamette
Asset Managers, for the Willamette Post-Venture
Capital Fund
(d)(6) Form of Sub-Investment Advisory Agreement with Bank
of New York for the Willamette Value Fund
(d)(7) Form of Sub-Investment Advisory Agreement with Bank
of New York for the Willamette Small Cap Growth Fund
(d)(8) Form of Sub-Investment Advisory Agreement with U.S.
Bank National Association for the Willamette
Technology Fund
(d)(9) Form of Sub-Investment Advisory Agreement with Credit
Suisse Asset Management, LLC for the Willamette
Health Sciences Fund
(d)(9)(a) Form of Letter Agreement with Credit Suisse Asset
Management, LLC for the Willamette Global Health
Sciences Fund
(d)(10) Form of Sub-Investment Advisory Agreement with Credit
Suisse Asset Management, LLC for the Willamette
Post-Venture Capital Fund
(e) Form of Distribution Agreement with BISYS Fund
Services Limited Partnership
(f) Not Applicable
(g)(1) Form of Custody Agreement with Union Bank of
California
(g)(1)(a) Form of Annex to Custody Agreement with Union Bank of
California
(h)(1) Form of Transfer Agency Agreement with BISYS Fund
Services, Inc.
(h)(2) Form of Administration Agreement with BISYS Fund
Services Ohio, Inc.
(h)(3) Form of Fund Accounting Agreement with BISYS Fund
Services Ohio, Inc.
(i) Opinion and Consent of Dechert (1)
(j) Consent of Ernst & Young, LLP (1)
(k) Not Applicable
(l) Not Applicable
(m) Form of Distribution and Shareholder Servicing Plan
(n) Not Applicable
(o)(1) Code of Ethics of Registrant (1)
(o)(2) Code of Ethics of Willamette Asset Managers, Inc. (2)
(o)(3) Code of Ethics of BISYS Fund Services (2)
(o)(4) Code of Ethics of The Bank of New York (3)
(o)(5) Code of Ethics of U.S. Bank National Association (2)
(o)(6) Code of Ethics of Credit Suisse Asset Management, LLC
(3)
(p) Powers of Attorney (1)
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<PAGE>
1. To be filed by amendment
2. Incorporated by reference to Post-Effective Amendment No. 67 of The
Coventry Group Registration Statement (File No. 33-44964) filed
electronically with the Securities and Exchange Commission on April 14,
2000.
3. Incorporated by reference to Post-Effective Amendment No. 69 of The
Coventry Group Registration Statement (File No. 33-44964) filed
electronically with the Securities and Exchange Commission on June 5,
2000.
ITEM 24. Persons Controlled By or Under Common Control With Registrant.
Not Applicable.
ITEM 25. Indemnification
(a) Subject to the exceptions and limitations contained in Section 3(b) of
Article VII of Registrant's Declaration of Trust:
(i) every Person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as a "Covered Person") shall be indemnified
by the Trust to the fullest extent permitted by law against all
liabilities and against all expenses reasonably incurred or paid by him or
her in connection with any claim, action, suit or proceeding in which he
or she becomes involved as a party or otherwise by virtue of his or her
being or having been a Trustee or officer and against amounts paid or
incurred by him or her in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal,
administrative, investigative or other, including appeals), threatened,
pending or completed, while in office or thereafter, and the words
"liability" and "expenses" shall include, without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and
all other liabilities whatsoever.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought to be liable to the Trust or its Shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, (A) by the court or other
body approving the settlement; (B) by at least a majority of those
Trustees who are neither Interested Persons of the Trust nor are parties
to the matter based upon a review of readily available facts (as opposed
to a full trial-type inquiry); or (C) by written opinion of independent
legal counsel based upon a review of readily available facts (as opposed
to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may
now or hereafter be entitled, shall continue as to a person who has ceased
to be a Covered Person and shall inure to the
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<PAGE>
benefit of the heirs, executors and administrators of such a person.
Nothing contained herein shall affect any rights to indemnification to
which Trust personnel, other than Covered Persons, and other persons may
be entitled by contract or otherwise under law.
Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character
described in Section 3(a) of this Article shall be paid by the Trust or
Series prior to final disposition thereof upon receipt of an undertaking
by or on behalf of such Covered Person that such amount will be paid over
by him or her to the Trust, unless it is ultimately determined that he or
she is entitled to indemnification under this Section 3; provided,
however, that either (i) such Covered Person shall have provided
appropriate security for such undertaking, or (ii) the Trust is insured
against losses arising out of any such advance payments, or (iii) either a
majority of the Trustees who are neither Interested Persons of the Trust
nor parties to the matter, or independent legal counsel in a written
opinion, shall have determined, based upon a review of readily available
facts (as opposed to a trial-type inquiry or full investigation), that
there is reason to believe that such Covered Person will be found entitled
to indemnification under Section 3.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer, or controlling person of the Registrant in
connection with the successful defense of any action, suit or proceeding)
is asserted by such trustee, officer or controlling person in connection
with the securities being registered, the 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 expresed in
the Act, and will be governed by the final adjudication of such issue.
ITEM 26. Business and Other Connections of Investment Advisor
The desciptions of the Adviser and Sub-Advisers under the caption of "Fund
Management" in the Prospectus and under the caption "Management of the Trust" in
the Statement of Additional Information constituting Parts A and B,
respectively, of this Registration Statement are incorporated by reference
herein.
<TABLE>
<CAPTION>
Name & Address Position with WAM Principal Occupation for past 5 yrs.
-------------- ----------------- ------------------------------------
<S> <C> <C>
Timothy C. Phillips CEO CEO of Phillips and Co. Securities,
220 NW 2nd, Suite 950 Inc. (02/92 to Present), CEO of Willamette
Portland, OR 97209 Securities, Inc. (01/99 to Present)
CEO of Willamette Asset Managers, Inc.
(04/98 to Present)
S. Christopher Clark Managing Director President/Managing Director of Phillips
220 NW 2nd, Suite 950 and Co. Securities, Inc. (08/93 to Present)
Portland, OR 97209 Managing Director of Willamette Securities,
Inc. (01/99 to Present)
James T. Smith CFO CFO of Phillips and Co. Securities, Inc.
220 NW 2nd, Suite 950 (09/94 to Present), CFO of Willamette
Portland, OR 97209 Securities, Inc. (01/99 to Present)
CFO of Willamette Asset Managers, Inc.
(04/98 to Present)
</TABLE>
* The business address of Phillips & Co. Securities, Inc. is 220 N.W. 2nd #950,
Portland, Oregon 97209. The business address for Willamette Securities, Inc. is
700 N.E. Multnomah, Suite 500, Portland, Oregon 97232.
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<PAGE>
Business and Other Connections of Bank of New York
--------------------------------------------------
Name Title/Company
---- -------------
Richard Barth.......... Retired; Formerly Chairman and Chief Executive Officer
of Ciba-Geigy Corporation (diversified chemical
products)
Frank J. Biondi, Jr.... Chairman and Chief Executive Office of Universal
Studios (diversified entertainment operator)
Harold E. Sells........ Retired; Formerly Chairman and Chief Executive Officer
of Woolworth Corporation (retailing)
William R. Chaney...... Chairman and Chief Executive Officer of Tiffany & Co.,
(international designers, manufacturers and
distributors of jewelry and fine goods)
Ralph E. Gomory........ President of Alfred P. Sloan Foundation, Inc. (private
foundation)
Richard J. Kogan....... President and Chief Executive Officer of
Schering-Plough Corporation (manufacturer of
pharmaceutical and consumer products)
John A. Luke, Jr....... Chairman, President and Chief Executive Officer of
Westvaco Corporation (manufacturer of paper,
packaging, and specialty chemicals)
John C. Malone......... President and Chief Executive Officer of
Tele-Communications, Inc., (cable television multiple
system operator)
Donald L. Miller....... Chief Executive Officer and Publisher of Our World
News, LLC (media)
H. Barclay Morley...... Retired; Formerly Chairman and Chief Executive Officer
of Stauffer Chemical Company (chemicals)
Catherine A. Rein...... Senior Executive Vice President of Metropolitan Life
Insurance Company (insurance and financial services)
Business of Other Connections of U.S. Bank National Association
---------------------------------------------------------------
Name Title/Company
---- -------------
John F. Grundhofer..... Chairman and Chief Executive Officer of U.S. Bancorp
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<PAGE>
Robert L. Dryden....... President and Chief Executive Officer of ConneXt, Inc.
Edward J. Phillips..... Chairman and Chief Executive Officer of Phillips
Beverage Company
Linda L. Ahlers........ President of Dayton's, Marshall Field's, Hudson's
Joshua Green III....... Chairman and Chief Executive Officer of Joshua Green
Corporation
Paul A. Redmond........ Retired Chairman and Chief Executive Officer of Avista
Corp.
Harry L. Bettis........ Rancher
Delbert W. Johnson..... Vice President of Safeguard Scientifics, Inc.
Richard G. Reiten...... President and Chief Executive Officer of Northwest
Natural Gas Company
Arthur D. Collins...... President and Chief Operating Officer of Medtronic,
Inc.
Joel W. Johnson........ Chairman, President and Chief Executive Officer of
Hormen Foods Corporation
S. Walter Richey....... Former Chairman and Chief Executive Officer of
Meritex, Inc.
Peter H. Coors......... Vice President and Chief Executive Officer of Coors
Brewing Company
Jerry W. Levin......... Chairman and Chief Executive Officer of Sunbeam
Corporation
Warren R. Staley....... President and Chief Executive Officer of Cargill, Inc.
Business of Other Connections of Credit Suisse Asset Management, LLC (CSAM)
---------------------------------------------------------------------------
Name Title/Company
---- -------------
William W. Priest, Jr.. Chief Executive Officer, Chairman of Management
Committee and Managing Director, CSAM
Laurence R. Smith...... Chief Investment Officer, Member of Management
Committee and Managing Director, CSAM
C-5
<PAGE>
Eugene L. Podsiadlo.... Head of Retail Distribution, Member of Management
Committee and Managing Director, CSAM.
Timothy T. Taussig..... Head of Institutional Distribution, Member of
Management Committee and Managing Director, CSAM
Elizabeth B. Dater..... Member of Management Committee and Managing Director,
CSAM
Sheila N. Scott........ Member of Management Committee and Managing Director,
CSAM
ITEM 27. Principal Underwriters
Shares of the Funds are distributed by BISYS Fund Services, Limited
Partnership
(a) BISYS, Limited Partnership ("BISYS") acts as distributor for
Registrant. BISYS Fund Services also distributes the securities of Alpine
Equity Trust, American Independence Funds Trust, American Performance
Funds, AmSouth Funds, The BB&T Mutual Funds Group, The Coventry Group, The
Eureka Funds, Fifth Third Funds, Governor Funds, Hirtle Callaghan Trust,
HSBC Funds Trust and HSBC Mutual Funds Trust, The Infinity Mutual Funds,
Inc., Magna Funds, Mercantile Mutual Funds, Inc., Metamarkets.com, Myers
Investment Trust, MMA Praxis Mutual Funds, M.S.D.&T. Funds, Pacific
Capital Funds, Republic Advisor Funds Trust, Republic Funds Trust, Summit
Investment Trust, USAllianz Funds, USAllianz Funds Variable Insurance
Products Trust, Variable Insurance Funds, The Victory Portfolios, The
Victory Variable Insurance Funds, Vintage Mutual Funds, Inc.
(b) Directors officers, or partners of the Distributor are as
follows:
--------------------------------------------------------------------------------
Name Position with Underwriter Position with Fund
--------------------------------------------------------------------------------
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, NJ 07424
--------------------------------------------------------------------------------
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, OH 43219
--------------------------------------------------------------------------------
Other BISYS distributors
In addition to the following officers of the BISYS related distributors listed
below, each distributor has additional officers listed to the right (business
address for each person and distributor unless noted otherwise is 3435 Stelzer
Road, Columbus, OH 43219 and unless noted otherwise each person holds no
position with the Fund):
Lynn Mangum Director
Dennis Sheehan Director
Kevin Dell Vice President/Secretary
William Tomko Sr. Vice President
Robert Tuch Assistant Secretary
C-6
<PAGE>
* Barr Rosenberg Funds Distributor, Inc. Irimga McKay - President
Barr Rosenberg Funds Greg Maddox - Vice President (1)
BNY Hamilton Distributors, Inc. William J. Tomko - President (2)
BNY Hamilton Funds, Inc. Richard Baxt - Sr. Vice President (3)
* Centura Funds Distributor, Inc. Walter B. Grimm - President
Centura Funds William J. Tomko - Sr. Vice President
CFD Funds Distributor, Inc. Richard Baxt - President
Chase Funds
Concord Financial Group, Inc. Walter B. Grimm - President
ProFunds
*Evergreen Distributor, Inc. D'Ray Moore - President
Evergreen Funds
* Performance Funds Distributor, Inc. Walter B. Grimm - President (4)
Performance Funds William J. Tomko - Sr. Vice President
The One Group Services Company Mark Redman - President (5)
The One Group of Funds William J. Tomko - Sr. Vice President
(2)
Vista Funds Distributors, Inc. Richard Baxt - President
Chase Vista Funds Lee Schultheis - Sr. Vice President
William J. Tomko - Sr. Vice President
Kent Funds Distributors, Inc.
Mentor Distributors, LLC D'Ray Moore - President
*IBJ Funds Distributor, Inc. Walter B. Grimm - Senior Vice
President
* address is 90 Park Avenue, NY, NY
(1) Serves as Assistant Treasurer to Centura Funds
(2) Serves as President to BNY Hamilton Funds and Treasurer to One Group of
Funds
(3) Serves as Vice President to BNY Hamilton Funds
(4) Serves as President to Performance Funds
(5) Serves as President to One Group of Funds
(c) Not applicable
ITEM 28. Location of Accounts and Records
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31 (a) of the Investment Company Act of
1940 and rules promulgated thereunder are in the possession of Willamette
Asset Managers, Inc. 220 NW 2nd Avenue, Suite 950, Portland Oregon 97209,
(records relating to its function as Adviser); The Bank of New York, 1
Wall Street, New York, New York 10286 (records
C-7
<PAGE>
relating to its functions as Sub-Adviser to Willamette Value Fund and
Willamette Growth Fund); U.S. Bank National Association, 601 Second Avenue
South, Minneapolis, Minnesota 55402, (records relating to its functions as
Sub-Adviser to Willamette Technology Fund); Credit Suisse Asset
Management, LLC, One Citicorp Center, 153 East 53rd Street, New York, New
York 10022 (records relating to its function as Sub-Adviser to Willamette
Global Health Sciences Fund and Willamette Post-Venture Capital Fund);
BISYS Fund Services, Limited Partnership, 3435 Stelzer Road, Columbus,
Ohio 43219 (records relating to its functions as General Manager,
Administrator and Distributor); and BISYS Fund Services Ohio, Inc., 3435
Stelzer Road, Columbus, Ohio 43219 (records relating to its functions as
Transfer Agent).
ITEM 29. Management Services
Not Applicable.
ITEM 30. Undertakings
Not Applicable.
C-8
<PAGE>
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 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Portland, and the State of Oregon, on the 17th day of
January, 2001.
THE WILLAMETTE FUNDS
By: /s/ Timothy C. Phillips
-------------------------------
Timothy C. Phillips
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signatures Title Date
---------- ----- ----
By: /s/ Timothy C. Phillips President, Trustee January 17, 2001
------------------------ and Chairman, Treasurer,
Timothy C. Phillips Secretary
C-9
<PAGE>
EXHIBIT INDEX
Exhibits
(a)(1) Certificate of Trust of Willamette Funds (the "Registrant")
(a)(2) Declaration of Trust of Registrant
(b) By-laws of Registrant
(c) Not Applicable
(d)(1) Form of Investment Advisory Agreement with Willamette Asset
Managers, Inc for the Willamette Value Fund
(d)(2) Form of Investment Advisory Agreement with Willamette Asset
Managers, Inc for the Willamette Small Cap Growth Fund
(d)(3) Form of Investment Advisory Agreement with Willamette Asset
Managers, Inc for the Willamette Global Health Sciences Fund
(d)(4) Form of Investment Advisory Agreement with Willamette Asset
Managers, Inc for the Willamette Technology Fund
(d)(5) Form of Investment Advisory Agreement with Willamette Asset
Managers, Inc. for the Willamette Post-Venture Capital Fund.
(d)(6) Form of Sub-Investment Advisory Agreement with Bank of New York for
the Willamette Value Fund
(d)(7) Form of Sub-Investment Advisory Agreement with Bank of New York for
the Willamette Small Cap Growth Fund
(d)(8) Form of Sub-Investment Advisory Agreement with U.S. Bank National
Association for the Willamette Technology Fund
(d)(9) Form of Sub-Investment Advisory Agreement with Credit Suisse Asset
Management, LLC for the Willamette Health Sciences Fund
(d)(9)(a) Form of Letter Agreement with Credit Suisse Asset Management, LLC
for the Willamette Health Sciences Fund
(d)(10) Form of Sub-Investment Advisory Agreement with Credit Suisse Asset
Management, LLC for the Willamette Post-Venture Capital Fund
(e) Form of Distribution Agreement with BISYS Fund Services Limited
Partnership
(f) Not Applicable
(g)(1) Form of Custody Agreement with Union Bank of California
(g)(1)(a) Form of Annex to Custody Agreement with Union Bank of California
(h)(1) Form of Transfer Agency Agreement with BISYS Fund Services, Inc.
(h)(2) Form of Administration Agreement with BISYS Fund Services Ohio,
Inc.
(h)(3) Form of Fund Accounting Agreement with BISYS Fund Services Ohio,
Inc.
(m) Form of Distribution and Shareholder Servicing Plan