<PAGE> 1
As Filed With the Securities and Exchange Commission
February 28, 1997
Registration No. 2-28097
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
Registration Statement Under the Securities Act of 1933_
Pre-Effective Amendment No._
Post-Effective Amendment No. 46 x
-
and/or
Registration Statement Under the Investment Company Act of 1940_
Amendment No. 32 x
-
(Check appropriate box or boxes)
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THE ENTERPRISE GROUP OF FUNDS, INC.
(Exact Name of Registrant)
Suite 450
3343 Peachtree Road
Atlanta, Georgia 30326
(Address of Principal Executive Office)
Registrant's Telephone Number: (404) 261-1116
Catherine R. McClellan
Suite 450
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326-1022
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)
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on pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)
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X on May 1, 1997 pursuant to paragraph (a) of Rule 485
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DECLARATION PURSUANT TO RULE 24f-2(a)(l)
The Registrant has registered an indefinite number of shares of Common Stock,
$0.10 par value of the Registrant under the Securities Act of 1933 pursuant to
Rule 24f-2. The Rule 24f-2 Notice for the Registrant's fiscal year ended
December 31, 1996 was filed with the Securities and Exchange Commission on
February 24, 1997.
<PAGE> 2
Cross Reference Sheet
<TABLE>
<CAPTION>
Form N-lA
Item
- ----------
Prospectus Caption
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Part A
------
<S> <C> <C>
1. Cover Page........................................................... The Enterprise Group of Funds, Inc.
2. Synopsis............................................................. Prospectus Summary
3. Condensed Financial Information...................................... Condensed Financial Information
4. General Description of Registrant.................................... The Enterprise Group of Funds, Inc.;
General Information - Organization of the Fund
5. Management of the Fund............................................... Management of the Fund
5A. Management's Discussion of Fund Performance.......................... Refer to Annual Report
6. Capital Stock and Other Securities................................... General Information - Capital Stock
7. Purchase of Securities Being Offered................................. How To Purchase Portfolio Shares
8. Redemption or Repurchase............................................. How to Redeem Portfolio Shares
9. Legal Proceedings.................................................... Not Applicable
<CAPTION>
Statement of Additional
Part B Information Caption
------ -------------------
<S> <C> <C>
10. Cover Page........................................................... Cover Page
11. Table of Contents.................................................... Table of Contents
12. General Information and History...................................... General Information and History
13. Investment Objectives and Policies................................... Investment Objectives and Investment Restrictions
14. Management of the Registrant......................................... Management of the Fund
15. Control Persons and Principal of Securities.......................... Management of the Fund
16. Investment Advisory and Other Services............................... Investment Advisory and Other Services
17. Brokerage Allocation and other Practices............................. Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities................................... Not Applicable
19. Purchase, Redemption and Pricing of Securities
Being Offered........................................................ Purchase, Redemption and Pricing of Securities
Being Offered
20. Tax Status........................................................... Not Applicable
21. Underwriters......................................................... Purchase, Redemption and Pricing of Securities
Being Offered
22. Calculation of Yield Quotations of Money Market Funds................ Performance Comparisons
23. Financial Statements................................................. Financial Statements
</TABLE>
Part C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Post-Effective Amendment.
<PAGE> 3
THE ENTERPRISE GROUP OF FUNDS, INC.
Atlanta Financial Center
3343 Peachtree Road, N.E., Suite 450
Atlanta, Georgia 30326
For Shareholder Information Call 1-800-368-3527
PROSPECTUS DATED MAY 1, 1997
The Enterprise Group of Funds, Inc. (the "Fund") is a series of mutual funds
that seeks to provide investors a broad range of investment alternatives through
its 13 separate Portfolios. Each Portfolio is managed as if it were a separate
mutual fund issuing its own shares. The Fund's principal investment adviser,
Enterprise Capital Management, Inc., selects, separate sub-advisers referred to
as "Portfolio Managers" that provide investment advice for the Portfolios and
that are selected on the basis of able investment performance in their
respective areas of responsibility.
Equity Portfolios Income Portfolios
- ----------------- -----------------
Growth Portfolio Government Securities Portfolio
Growth and Income Portfolio High-Yield Bond Portfolio
Equity Portfolio Tax-Exempt Income Portfolio
Equity Income Portfolio
Capital Appreciation Portfolio Flexible Portfolio
------------------
Small Company Growth Portfolio Managed Portfolio
Small Company Value Portfolio
International Growth Portfolio Money Market Portfolio
----------------------
Money Market Portfolio
This Prospectus explains concisely what you should know about the Fund and its
Portfolios before you consider investing. Please read this Prospectus and retain
it for future reference. Additional information, contained in a "Statement of
Additional Information," dated May 1, 1997 has been filed with the Securities
and Exchange Commission and is available upon request without charge by writing
or calling the Fund. It is incorporated by reference into this Prospectus (which
means that it is legally part of it).
LIKE ALL MUTUAL FUND SHARES, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THE MONEY MARKET PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THE HIGH-YIELD BOND PORTFOLIO INVESTS SIGNIFICANTLY IN LOWER RATED BONDS,
COMMONLY REFERRED TO AS "JUNK BONDS." BONDS OF THIS TYPE ARE CONSIDERED TO BE
SPECULATIVE WITH REGARD TO THE PAYMENT OF INTEREST AND RETURN OF PRINCIPAL AND
HAVE SPECIAL RISKS. THEY MAY NOT BE SUITABLE FOR ALL INVESTORS. PLEASE READ THE
RISK INFORMATION CAREFULLY.
PLEASE NOTE THAT THESE FUNDS ARE NOT BANK DEPOSITS; ARE NOT FEDERALLY INSURED;
ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY; AND ARE NOT GUARANTEED TO
ACHIEVE THEIR GOAL(S).
<PAGE> 4
<TABLE>
<CAPTION>
- --------------------------------- -------------- -------------- -------------- -------------- -------------- --------------
GROWTH AND CAPITAL SMALL COMPANY
SUMMARY OF FUND EXPENSES GROWTH INCOME EQUITY EQUITY INCOME APPRECIATION GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
================================= ============== ============== ============== ============== ============== ==============
CLASS OF SHARES: A B C A B C A B C A B C A B C A B C
================================= -------------- -------------- -------------- -------------- -------------- --------------
SHAREHOLDER TRANSACTION EXPENSES
================================= -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Initial Sales Load
Imposed on Purchase (as
a % of offering price) 4.75 None None 4.75 None None 4.75 None None 4.75 None None 4.75 None None 4.75 None None
- --------------------------------- -------------- -------------- -------------- -------------- -------------- --------------
Maximum Deferred Sales Load(1) None 5.00 1.00 None 5.00 1.00 None 5.00 1.00 None 5.00 1.00 None 5.00 1.00 None 5.00 1.00
- --------------------------------- -------------- -------------- -------------- -------------- -------------- --------------
Maximum Sales Load Imposed On
Reinvested Dividends None None None None None None None None None None None None None None None None None None
- --------------------------------- -------------- -------------- -------------- -------------- -------------- --------------
Exchange Fee None None None None None None None None None None None None None None None None None None
================================= ============== ============== ============== ============== ============== ==============
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS)
================================= -------------- -------------- -------------- -------------- -------------- --------------
Management Fee(2) 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.85 0.85 0.85
- --------------------------------- -------------- -------------- -------------- -------------- -------------- --------------
12b-1 Fee (including service fees
of .25%)(3) 0.45 1.00 1.00 0.45 1.00 1.00 0.45 1.00 1.00 0.45 1.00 1.00 0.45 1.00 1.00 0.45 1.00 1.00
- --------------------------------- -------------- -------------- -------------- -------------- -------------- --------------
Other Expenses 0.33 0.35 0.35 0.30 0.30 0.30 0.40 0.40 0.40 0.30 0.30 0.30 0.55 0.55 0.55 0.55 0.55 0.55
================================= ============== ============== ============== ============== ============== ==============
TOTAL FUND OPERATING EXPENSES(4) 1.53 2.10 2.10 1.50 2.05 2.05 1.60 2.15 2.15 1.50 2.05 2.05 1.75 2.30 2.30 1.85 2.40 2.40
================================= ============== ============== ============== ============== ============== ==============
</TABLE>
Example 1: You would pay the following expense over the indicated periods in
each of the Funds on a $1,000 investment assuming (a) payment of the maximum
sales charge, (b) a 5% annual return, and (c) retention of shares at the end of
the time period. 10-year figures for Class B shares assume conversion to Class
A shares after eight years.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1
Year 62.00 21.00 21.00 62.00 21.00 21.00 63.00 22.00 22.00 62.00 21.00 21.00 63.00 22.00 22.00 65.00 24.00 24.00
- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
3
Years 94.00 66.00 66.00 93.00 64.00 64.00 96.00 67.00 67.00 93.00 64.00 64.00 96.00 67.00 67.00 103.00 75.00 75.00
- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
5
Years 127.00 113.00 113.00 125.00 110.00 110.00 130.00 115.00 115.00 125.00 110.00 110.00 130.00 115.00 115.00 143.00 128.00 128.00
- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
10
years 221.00 229.00 243.00 218.00 224.00 238.00 228.00 234.00 248.00 218.00 238.00 238.00 228.00 234.00 247.00 254.00 260.00 274.00
- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
Example 2: You would pay the following expenses over the indicated periods in
each of the Funds on a $1,000 investment assuming (a) payment of the maximum
sales charge, (b) a 5% annual return, and (c) redemption at the end of the time
period. 10-year figures for Class B shares assume conversion to Class A shares
after eight years.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1
Year 62.00 71.00 31.00 62.00 71.00 31.00 63.00 72.00 32.00 62.00 71.00 31.00 63.00 72.00 32.00 65.00 74.00 34.00
- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
3
Years 94.00 106.00 66.00 93.00 104.00 64.00 96.00 107.00 67.00 93.00 104.00 64.00 96.00 107.00 67.00 103.00 115.00 75.00
- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
5
Years 127.00 133.00 113.00 125.00 130.00 110.00 130.00 135.00 115.00 138.00 143.00 110.00 130.00 135.00 115.00 143.00 148.00 128.00
- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
10
years 221.00 229.00 243.00 218.00 224.00 238.00 228.00 234.00 248.00 218.00 224.00 238.00 228.00 234.00 247.00 254.00 260.00 274.00
- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
THE EXAMPLES SHOULD NOT BE CONSIDERED INDICATIONS OF PAST OR FUTURE EXPENSES OR
PERFORMANCE, AND ACTUAL EXPENSES OR PERFORMANCE MAY VARY FROM THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the various
costs and expenses that an investor in the Portfolio will bear directly or
indirectly.
(1) Certain purchases of Class A shares $1 million or more are not subject to
front-end sales charges, but a contingent deferred sales charge ("CDSC") is
imposed on the proceeds of such shares equal to 1% if the shares are redeemed
within the first 24 months after the end of their purchase.
(2) These fees may higher than that of other Funds. However, the Board of
Directors has determined that such fees are reasonable in light of the services,
investment decisions and investment techniques employed.
(3) Includes a service fee of .25% of average net assets. See "Distributor's
Agreement and Plan of Distribution." Long-term shareholders of a 12b-1 Fund
may over time pay more in 12b-1 fees than the economic equivalent of the
maximum front-end sales charges permitted by the National Association of
Securities Dealers, Inc.
(4) The expense information set out above reflects a revised commitment of
Enterprise Capital Management, Inc. effective January 1, 1996, to reimburse to
the Fund's Portfolios a portion of the fees due it under the Investment
Adviser's Agreement. That commitment provides that the Fund's total operating
expenses for the Portfolios, on an annual basis, will not exceed the amounts set
forth in the above table. By reason of the expense reimbursement commitment
applicable in 1996, the actual expenses incurred by Class A and B shares of the
Portfolio for 1996 were, on an annualized basis, Growth - 1.5%, 2.10%; Growth
and Income - 1.5.%, 2.05%; Capital Appreciation - 1.60%, 2.14%; Small Company -
1.75%, 2.30%; International Growth - 2.0%, 2.55%; Government Securities - 1.30%,
1.85%; High-Yield Bond - 1.30%, 1.85%; Tax-Exempt Income - 1.25%, 1.80%;
Managed - 1.57%, 2.13%; and Money Market - 1.0%, 1.55%. Absent this
reimbursement of fees, the ratio of expenses to average net assets for the Class
A and B Portfolios for 1996 would have been as follows: Growth - 1.5%, 2.10%;
Growth and Income - 1.68%, 2.23%; Capital Appreciation - 1.6%, 2.14%; Small
Company - 2.38%, 2.92%, International Growth - 2.19%, 2.75%; Government
Securities - 1.4%, 1.96%; High-Yield Bond - 1.50%, 2.05%; Tax-Exempt Bond -
1.40%, 1.96%; Managed - 1.57%, 2.13; and Money Market - 1.18%, 1.73%. Class C
shares of the Funds were initially offered on 5/1/97. Accordingly, expenses
for Class C shares of the Funds represent estimates of what these expenses are
expected to be for the 1997 fiscal year. See "management of the Fund,"
"Distributor's Agreement and Plan of Distribution," and "Brokerage
Transactions" for further information concerning expenses. For a separate $10
charge, redemptions for a maximum of $250,000 will be wired at your request.
For redemption information; please refer to page ________ of the Prospectus.
For accounts with a balance of $1,000 or less, as of July 31, a $25 fee per
account registration per Portfolio for maintenance will apply, excluding
Automatic Bank Draft Plan, Automatic Investment Plan, Retirement Plan and
Savings Plan Accounts.
<PAGE> 5
<TABLE>
<CAPTION>
SMALL COMPANY INTERNATIONAL GROWTH GOVERNMENT SEC. HIGH-YIELD BOND
VALUE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------- -------------------------- -------------------------- --------------------------
A B C A B C A B C A B C
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
4.75 None None 4.75 None None 4.75 None None 4.75 None None
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
None 5.00 1.00 None 5.00 1.00 None 5.00 1.00 None 5.00 1.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
None None None None None None None None None None None None
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
None None None None None None None None None None None None
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.75 ,75 0.75 0.85 0.85 0.75 0.60 0.60 0.60 0.60 0.60 0.60
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.45 1.00 1.00 0.45 1.00 1.00 0.45 1.00 1.00 0.45 1.00 1.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.55 0.55 0.55 0.70 0.70 0.70 0.25 0.25 0.25 0.25 0.25 0.25
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
1.75 2.30 2.30 2.00 2.55 2.55 1.30 1.85 1.85 1.30 1.85 1.85
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
64.00 23.00 23.00 67.00 26.00 26.00 60.00 19.00 19.00 60.00 19.00 19.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
100.00 72.00 72.00 107.00 79.00 79.00 87.00 58.00 58.00 87.00 58.00 58.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
138.00 123.00 123.00 150.00 136.00 136.00 115.00 100.00 100.00 115.00 100.00 100.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
244.00 250.00 264.00 269.00 275.00 289.00 197.00 230.00 217.00 197.00 203.00 217.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
64.00 73.00 33.00 67.00 76.00 36.00 60.00 69.00 29.00 60.00 69.00 29.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
100.00 112.00 72.00 107.00 119.00 79.00 87.00 98.00 58.00 87.00 98.00 58.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
138.00 143.00 123.00 115.00 156.00 136.00 115.00 120.00 100.00 115.00 120.00 100.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
244.00 250.00 264.00 218.00 275.00 289.00 197.00 203.00 217.00 197.00 203.00 217.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<CAPTION>
TAX-EXEMPT MANAGED MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------- -------------------------- -------------------------
A B C A B C A B C
- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------ ------ ------ ------ ------ ------ ------ ------ ------
4.75 None None 4.75 None None None None None
- ------ ------ ------ ------ ------ ------ ------ ------ ------
None 5.00 1.00 None 5.00 1.00 None 5.00 1.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------
- ------ ------ ------ ------ ------ ------ ------ ------ ------
None None None None None None None None None
- ------ ------ ------ ------ ------ ------ ------ ------ ------
None None None None None None None None None
====== ====== ====== ====== ====== ====== ====== ====== ======
- ------ ------ ------ ------ ------ ------ ------ ------ ------
0.50 0.50 0.50 0.75 0.75 0.75 0.35 0.35 0.35
- ------ ------ ------ ------ ------ ------ ------ ------ ------
0.45 1.00 1.00 0.45 1.00 1.00 0.45 0.85 0.85
- ------ ------ ------ ------ ------ ------ ------ ------ ------
0.30 0.30 0.30 0.55 0.55 0.55 0.35 0.35 0.35
- ------ ------ ------ ------ ------ ------ ------ ------ ------
1.25 1.80 1.80 1.75 2.30 2.30 1.05 1.55 1.55
- ------ ------ ------ ------ ------ ------ ------ ------ ------
- ------ ------ ------ ------ ------ ------ ------ ------ ------
60.00 18.00 18.00 63.00 22.00 22.00 10.00 16.00 16.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------
85.00 57.00 57.00 95.00 67.00 67.00 32.00 49.00 49.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------
113.00 97.00 97.00 129.00 114.00 114.00 55.00 84.00 84.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------
191.00 197.00 212.00 225.00 232.00 246.00 122.00 170.00 185.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------
- ------ ------ ------ ------ ------ ------ ------ ------ ------
60.00 68.00 28.00 63.00 72.00 32.00 10.00 66.00 26.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------
85.00 97.00 57.00 95.00 107.00 67.00 32.00 89.00 49.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------
113.00 117.00 97.00 129.00 134.00 114.00 55.00 104.00 84.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------
191.00 197.00 212.00 225.00 232.00 246.00 122.00 170.00 185.00
- ------ ------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
<PAGE> 6
THE ENTERPRISE GROUP OF FUNDS, INC.
PROSPECTUS SUMMARY
Set forth below are the 13 Portfolios of the Fund, their Portfolio Managers and
investment objectives. The Fund is a diversified, open-end management investment
company. Enterprise Capital Management, Inc. serves as investment adviser. The
Fund consists of common stock divided into 13 Portfolios consisting of four
separate classes for each Portfolio. Shares are freely transferable within each
class.
<TABLE>
<CAPTION>
PORTFOLIO MANAGER INVESTMENT OBJECTIVES
- ----------------- ---------------------
<S> <C>
EQUITY PORTFOLIOS
Growth Portfolio Capital appreciation, primarily from investments in common stocks.
Montag & Caldwell, Inc.
Atlanta, Georgia
Growth & Income Portfolio Total return in excess of the total return of the Lipper
Retirement System Investors Inc. Growth and Income Mutual Funds Average measured over a
New York, New York period of three to five years, by investing primarily in a
broadly diversified group of large capitalization stocks.
Equity Portfolio Long term capital appreciation, primarily from investments in
OpCap Advisors securities of companies that are believed by the Portfolio
New York, New York Manager to be undervalued.
Equity Income Portfolio A combination of growth and income to achieve an
1740 Advisers, Inc. above average and consistent total return, primarily from
New York, New York investments in dividend-paying common stocks.
Capital Appreciation Portfolio Maximum capital appreciation, primarily through
Provident Investment investment in common stock of companies that demonstrate
Counsel, Inc. accelerating earnings momentum and consistently strong
Pasadena, California financial characteristics.
Small Company Growth Portfolio Capital appreciation by investing primarily in common stocks of
Pilgrim Baxter & Associates small capitalization companies believed by the Portfolio
Wayne, Pennsylvania Manager to have an outlook for strong earnings growth and
potential for significant capital appreciation.
Small Company Value Portfolio Maximum capital appreciation, primarily through
GAMCO Investors, Inc. investment in the equity securities of companies that have a
Rye, New York market capitalization of no more than $1 billion.
International Growth Portfolio Capital appreciation, primarily through a diversified portfolio
Brinson Partners, Inc. of non-U.S. equity securities.
Chicago, Illinois
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
INCOME PORTFOLIOS
Government Securities Portfolio Current income and safety of principal, primarily from
TCW Funds Management, Inc. securities that are obligations of the U.S. Government, or its
Los Angeles, California agencies, or its instrumentalities.
High-Yield Bond Portfolio Maximum current income, primarily from debt securities that
Caywood-Scholl Capital are rated Ba or lower by Moody's Investors Service, Inc. or
Management BB or lower by Standard & Poor's Corporation.
San Diego, California
Tax-Exempt Income Portfolio A high level of current income exempt from federal income
Morgan Stanley Asset tax, with consideration given to preservation of principal,
Management, Inc. primarily from investment in a diversified portfolio of long-
New York, New York term investment grade municipal bonds.
FLEXIBLE PORTFOLIO
Managed Portfolio Growth of capital over time through investment in a portfolio
OpCap Advisors consisting of common stocks, bonds and cash equivalents, the
New York, New York percentages of which will vary based on the Portfolio
Manager's assessments of relative investment values.
MONEY MARKET PORTFOLIO
Money Market Portfolio The highest possible level of current income consistent with
Enterprise Capital preservation of capital and liquidity of investing in
Management, Inc. obligations maturing in one year or less from the time of
Atlanta, Georgia purchase.
</TABLE>
INVESTMENT RISK FACTORS
The risk characteristics of each Portfolio are different. In general, investors
should consider the following risks: An investment in any of the Portfolios
carries the risk that the net asset value of the Portfolio shares will fluctuate
in response to market conditions. Further, an investment in any of the Income
Portfolios carries the risk that the issuers of securities in the Income
Portfolios may default on the payment of principal and interest. An investment
in the High-Yield Bond Portfolio carries an increased risk that issuers of
securities in which the High-Yield Bond Portfolio invests may default in the
payment of principal and interest as compared to the risk of such defaults in
the other Income Portfolios. In addition, an investment in the High-Yield Bond
Portfolio may be subject to certain other risks relating to the market price,
relative liquidity in the secondary market and sensitivity to interest rates and
economic changes of the noninvestment grade securities in which the High-Yield
Bond Portfolio invests that are higher than may be associated with higher rated,
investment grade securities. The Small Company Growth and Small Company Value
Portfolios carry an increased risk that smaller capitalization companies may
experience higher growth rates and higher failure rates than do larger
companies. The limited volume and frequency of trading of small capitalization
companies may subject their stocks to greater price deviations than stocks of
larger companies. The International Growth Portfolio carries additional risks
associated with possibly less stable foreign securities and currencies. Because
of the short-term nature of the Money Market Portfolio's investments, an
investment in shares of the Money Market Portfolio is subject to relatively
little market risk and financial risk, but is subject to a high level of current
income volatility. In addition, the Money Market Portfolio uses the amortized
cost method to value its portfolio securities and seeks to maintain a constant
net asset value of $1.00 per share. There is no assurance that this Portfolio
will be able to maintain this constant net asset value. See "Certain Investment
Techniques and Associated Risks."
<PAGE> 8
PURCHASE ALTERNATIVES
Each Portfolio offers four Classes of shares: shares of each Class are generally
offered at the net asset value next determined after receipt of your purchase
order plus (i) an initial ("front-end") sales charge (Class A shares) or (ii) a
deferred sales charge (Class B and C shares). The following is a brief
description of the three Classes of shares offered by each Portfolio. Class Y
shares for institutional investors is contained in a separate prospectus. For
more complete descriptions of each Class of shares, see "How to Purchase
Shares."
CLASS A SHARES: Class A shares are sold with an initial sales charges of up
to 4.75% of the offering price (for all Portfolios other
than Money Market) and are subject to an ongoing distribution
fee of 0.45% (0.30% for Money Market) of the Portfolio's
average daily net assets. The initial sales charge may be
waived or reduced in certain circumstances. Shares purchased
pursuant to waiver of the initial sales charge are subject to
a CDSC if redeemed within two years of purchase in certain
circumstances.
CLASS B SHARES: Class B shares do not incur an initial sales charge when
purchased but are subject to an ongoing service fee of
0.25% and an ongoing distribution fee of 0.75% (0.60% for
Money Market) of the Portfolio's average daily net assets,
and a CDSC if they are redeemed within six years of purchase.
Class B shares automatically convert to Class A shares (which
are subject to lower ongoing expenses) eight years after
purchase. Class B shares are available only to investors
purchasing less than $250,000 in the aggregate.
CLASS C SHARES: Class C shares are sold at net asset value per share without
an initial sales charge but are subject to an ongoing
service fee of 0.25% and an ongoing distribution fee of 0.75%
(0.60% for Money Market) of the portfolio's average daily net
assets. If Class C shares are redeemed within 12 months of
their purchase, a contingent deferred sales charge of 1.0%
will be deducted from the redemption proceeds.
SHAREHOLDER SERVICES
Automatic Reinvestment Plan
Automatic Bank Draft Plan
Automatic Investment Plan
Letter of Intent
Right of Accumulation
Check Writing (Class A Money Market Portfolio Shares Only)
Bank Purchase and Redemption Plan
Systematic Withdrawal Plan
Retirement Plans
24-Hour Account Information
For more complete information about these plans and services,
see "Shareholder Services" or
call The Enterprise Group of Funds at
(800) 432-4320.
<PAGE> 9
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGH THE PERIODS INDICATED)
The financial highlights which follow are part of the Fund's financial
statements and are included in Fund's Annual Report to Shareholders. The Fund's
1996 Annual Report to Shareholders is incorporated by reference into the
Statement of Additional Information. Annual reports may be obtained without
charge by calling the Fund at 800-368-3527. The Report contains information
about the performances of the Portfolios.
(Registrant undertakes to submit Financial Highlights as part of a 485(b) filing
on or before April 30,1997.)
<PAGE> 10
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
The following descriptions of the Portfolios are intended to help you select the
Portfolio which is appropriate for your investment objective. You may wish to
pursue your objectives by investing in more than one Portfolio.
The investment objectives of each Portfolio may not be changed without approval
of a majority of the outstanding voting securities of that Portfolio.
Equity Portfolios
Under normal market conditions, at least 65% of the net asset value of the eight
Equity Portfolios will be invested in common equity securities. The remainder of
the Equity Portfolios' assets may be invested in repurchase agreements, bankers
acceptances, bank certificates of deposit, commercial paper and similar money
market instruments, convertible bonds, convertible preferred stock, preferred
stock, corporate bonds, U.S. Treasuries, notes and bonds, American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs"), foreign stocks, rights
and warrants.
The Growth, Growth and Income, Equity, Equity Income, Capital Appreciation,
Small Company Growth and Small Company Value Portfolios invest in securities
that are traded on national securities exchanges and in the over-the-counter
market. Each of these Portfolios may invest up to 10% of its assets in
securities of foreign issuers and up to 10% of its assets in illiquid, including
restricted, securities. As noted below, the International Growth Portfolio
invests principally in the securities of foreign issuers listed on recognized
foreign exchanges, but may also invest in securities traded on the
over-the-counter market.
Growth Portfolio
The objective of the Growth Portfolio is appreciation of capital primarily
through investments in common stocks. The Portfolio's common stock selection
emphasizes those companies having growth characteristics, but the Portfolio's
investment policy recognizes that securities of other companies may be
attractive for capital appreciation purposes by virtue of special developments
or depression in price believed to be temporary. The potential for appreciation
of capital is the basis for investment decisions; any income is incidental.
Growth and Income
The objective of the Growth and Income Portfolio is to achieve a total return in
excess of the total return of the Lipper Growth and Income Mutual Funds Average,
measured over a period of three to five years, by investing primarily in a
broadly diversified group of large capitalization companies. The Fund seeks this
objective primarily through capital appreciation with income as a secondary
consideration. The Fund will invest in securities of companies which the
Portfolio Manager believes to be financially sound and will consider such
factors as the sales, growth and profitability prospects for the economic sector
and markets in which the company operates and for the services of products it
provides; the financial condition of the company; its ability to meet its
liabilities and to provide income in the form of dividends; the prevailing price
of the security; how that price compares to historical price levels of the
security, to current price levels in the general market, and to the prices of
competing companies; projected earnings estimates and earnings growth rate of
the company, and the relation of those figures to the current price.
Under normal circumstances, the Growth and Income Portfolio expects to be as
fully invested as practicable in equity-based securities, primarily common
stocks, and will be at least 65% so invested. Equity-based securities may
include securities convertible into common stocks and warrants to purchase
common stocks.
In general, the Portfolio will invest in stocks of companies with market
capitalizations in excess of $750 million. Although there is no assurance that
the Portfolio will meet its objective, the securities held in the Growth and
Income Portfolio will generally reflect the price volatility of the broad
equity market (i.e., the Standard & Poor's 500 Index).
<PAGE> 11
Equity Portfolio
The investment objective of the Equity Portfolio is long term capital
appreciation through investment in securities (primarily equity securities) of
companies that are believed by the Portfolio Manager to be undervalued in the
marketplace in relation to factors such as the companies' assets or earnings. It
is the Portfolio Manager's intention to invest in securities of companies which
in the Portfolio Manager's opinion possess one or more of the following
characteristics: undervalued assets, valuable consumer or commercial franchises,
securities valuation below peer companies, substantial and growing cash flow
and/or a favorable price to book value relationship. Investment policies aimed
at achieving the Portfolio's objective are set in a flexible framework of
securities selection which primarily includes equity securities, such as common
stocks, preferred stocks, convertible securities, rights and warrants in
proportions which vary from time-to-time. Under normal circumstances at least
65% of the Portfolio's assets will be invested in equity securities. The
Portfolio will invest primarily in stocks listed on the New York Stock Exchange.
In addition, it may also purchase securities listed on other domestic securities
exchanges, securities traded in the domestic over-the-counter market and foreign
securities provided that they are listed on a domestic or foreign securities
exchange or represented by American Depository Receipts listed on a domestic
securities exchange or traded in the United States over-the-counter market.
Equity Income Portfolio
The objective of the Equity Income Portfolio is a combination of growth and
income to achieve an above average and consistent total return, primarily from
investments in dividend-paying common stocks.
The Portfolio's principal criterion in stock selection is above average yield,
and it uses this criterion as a discipline to enhance stability and reduce
market risk. Subject to this primary criterion, the Portfolio invests in stocks
that have relatively low price to earnings ratios or relatively low price to
book value ratios.
Capital Appreciation Portfolio
The objective of the Capital Appreciation Portfolio is maximum capital
appreciation, primarily through investments in common stocks of companies that
demonstrate accelerating earnings momentum and consistently strong financial
characteristics.
The Portfolio invests primarily in common stocks of companies which meet the
Portfolio Manager's criteria of: (a) steadily increasing earnings; and (b) a
three-year average performance record of sales, earnings, dividend growth,
pretax margins, return on equity and reinvestment rate at an aggregate average
of 1.5 times the average performance of the Standard & Poor's 500 common stocks
("S&P 500") for the same period. The Portfolio attempts to invest in a range of
small, medium and large companies designed to achieve an average capitalization
of the companies in which it invests that is less than the average
capitalization of the S&P 500. The potential for maximum capital appreciation is
the basis for investment decisions; any income is incidental.
Small Company Growth Portfolio
The Small Company Growth Portfolio seeks capital appreciation and invests
primarily in common stocks of small capitalization companies believed by the
Portfolio Manager to have an outlook for strong earnings growth and potential
for significant capital appreciation. The Portfolio will normally be as fully
invested as practicable in common stocks and securities convertible into common
stocks, but also may invest up to 5% of its assets in warrants and rights to
purchase common stocks. In the option of the Portfolio Manager, there may be
times when the shareholder's best interests are best served and the investment
objective is more likely to be achieved by having varying amounts of the
Portfolio's assets in convertible securities. Under normal market conditions,
the Portfolio will invest at least 65% of its total assets in common stocks and
convertible securities of small capitalization companies (market capitalization
or annual revenues of up to $1 billion). At certain times that percentage may be
substantially higher. Securities will be sold when the Portfolio Manager
believes that anticipated appreciation no longer probable, alternative
investments offer superior appreciation prospects, or the risk of a decline in
market price is too great. Because of its policy with respect to the sales of
investments, the
<PAGE> 12
Portfolio may from time to time realize short-term gains or losses. The
Portfolio will likely have somewhat greater volatility than the stock market in
general, a measured by the S&P 500 Index. The securities of the Small Company
Growth Fund generally will have a higher degree of risk and price volatility
than larger growth funds and a lower income return than those funds.
For temporary defensive purposes, the Portfolio may invest up to 100% of its
total assets in cash equivalents. The Portfolio may also pursue certain
additional investment policies and strategies including: foreign securities;
investing foreign currency transactions; investing in repurchase agreements; and
acquiring when-issue securities.
Small Company Value Portfolio
The objective of the Small Company Value Portfolio is maximum capital
appreciation, primarily through investment of at least 65% of Portfolio assets
in the common equity securities of companies (based on the total outstanding
common shares at the time of investment) which have a market capitalization of
no more than $1 billion (hereinafter referred to as "small cap companies").
The Portfolio intends to invest the remaining 35% of its total assets in the
same manner but reserves the right to use some or all of the 35% to invest in
equity securities of companies (based on the total outstanding common shares at
the time of investment) which have a market capitalization of more than $1
billion.
In pursuing its objective, the Portfolio's strategy will be to invest in stocks
of companies with value that may not be fully reflected by current stock price.
Since small companies tend to be less actively followed by stock analysts, the
market may overlook favorable trends and then adjust its valuation more quickly
once investor interest has surfaced. The Portfolio Manager seeks out companies
in the public market that are selling at a discount to their private market
value (PMV) measured using proprietary research techniques in areas of core
competencies. The Portfolio Manager then determines whether there is an emerging
catalyst that will focus investor attention on the underlying assets of the
company. Smaller companies may be subject to a valuation catalyst such as
increased investor attention, takeover efforts or a change in management.
International Growth Portfolio
The objective of the International Growth Portfolio is capital appreciation,
primarily through a diversified portfolio of non-U.S. equity securities.
It is a fundamental policy of the Portfolio that it will invest at least 80% of
the value of its assets (except when maintaining a temporary defensive position)
in equity securities of companies domiciled outside the United States. That
portion of the Portfolio not invested in equity securities is, in normal
circumstances, invested in U.S. and foreign government securities, high grade
commercial paper, certificates of deposit, foreign currency, banker acceptances,
cash and cash equivalents, time deposits, repurchase agreements and similar
money market instruments, both foreign and domestic. The Portfolio may invest in
convertible debt securities of foreign issuers which are convertible into equity
securities at such time as a market for equity securities is established in the
country involved.
The Portfolio Manager's investment perspective for the Portfolio is to invest in
the equity securities of non-U.S. markets and companies which are believed to be
undervalued based upon internal research and proprietary valuation systems. This
international equity strategy reflects the Portfolio Manager's decisions
concerning the relative attractiveness of asset classes, the individual
international equity markets, industries across and within those markets, other
common risk factors within those markets and individual international companies.
The Portfolio Manager initially identifies those securities which it believes to
be undervalued in relation to the issuer's assets, cash flow, earnings and
revenues. The relative performance of foreign currencies is an important factor
in the Portfolio's performance. The Portfolio Manager may manage the Portfolio's
exposure to various currencies to take advantage of different yield, risk and
return characteristics. The Portfolio Manager's proprietary valuation model
determines which securities are potential candidates for inclusion in the
Portfolio.
The benchmark for the fund is the Morgan Stanley Capital International Non-U.S.
Equity (Free) Index (the "Benchmark"). The Benchmark is a market driven, broad
based index which includes non-U.S. equity markets in terms of capitalization
and performance. The Benchmark is designed to provide a representative total
return for
<PAGE> 13
all major stock exchanges located outside the U.S. From time to time, the
Portfolio Manager may substitute securities in an equivalent index when it
believes that such securities in the index more accurately reflect the relevant
international market.
As a general matter, the Advisor will purchase for the Fund only securities
contained in the underlying index relevant to the Benchmark. Brinson Partners
will attempt to enhance the long-term risk and return performance of the Fund
relative to the Benchmark by deviating from the normal Benchmark mix of country
allocation and currencies in reaction to discrepancies between current market
prices and fundamental values. The active management process is intended to
produce a superior performance relative to the Benchmark index.
The Portfolio Manager will purchase securities of companies domiciled in a
minimum of 8 to 12 countries outside the United States.
INCOME PORTFOLIOS
Investors should refer to the Appendix to the Statement of Additional
Information for a description of the Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's ("S&P") ratings mentioned below.
Government Securities Portfolio
The objective of the Government Securities Portfolio is current income and
safety of principal primarily from securities that are obligations of the U.S.
Government, its agencies and instrumentalities ("U.S. Government Securities").
It is a fundamental policy of the Portfolio that under normal conditions at
least 80% of the value of its net assets will be invested in U.S. Government
Securities. Securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities are generally considered to be of the same or
higher credit quality as privately issued securities rated Aaa by Moody's or AAA
by S&P.
U.S. Government Securities consist of direct obligations of the U.S. Treasury
(such as treasury bills, treasury notes and treasury bonds) and securities
issued or guaranteed by agencies and instrumentalities of the United States
Government. Those securities issued by agencies or instrumentalities may or may
not be backed by the full faith and credit of the United States. An example of
full faith and credit securities are securities issued by the Government
National Mortgage Association ("GNMA Certificates"). Examples of agencies or
instrumentalities whose securities are not backed by the full faith and credit
of the United States are the Federal Farm Credit System, the Federal Home Loan
Banks, the Tennessee Valley Authority, the United States Postal Service and the
Export-Import Bank. The Portfolio may concentrate from time to time in different
securities described above in order to obtain the highest level of current
income and safety of principal.
The remainder of the Portfolio's assets may be invested in repurchase
agreements, bankers acceptances, bank certificates of deposit, commercial paper
and similar money market instruments, corporate bonds and other mortgage-related
securities (including collateralized mortgage obligations or "CMOs") rated Aaa
by Moody's or AAA by S&P at the time of the investment or determined by the
Portfolio Manager to be of comparable credit quality at the time of investment
to such rated securities. In making such investments, the Portfolio Manager
seeks income but gives careful attention to security of principal and considers
such factors as marketability and diversification. For a discussion of CMOs and
related risks, see "Certain Investment Techniques and Associated Risks," at page
16.
As described in "Certain Investment Techniques and Associated Risks," at page
16, the Portfolio may write and sell covered call option contracts on securities
that it owns (in an effort to enhance income through hedging and other
investment techniques) to the extent of 20% of the value of its net assets at
the time such option contracts are written.
<PAGE> 14
High-Yield Bond Portfolio
The objective of the High-Yield Bond Portfolio is maximum current income,
primarily from debt securities that are rated Ba or lower by Moody's or BB or
lower by Standard & Poor's.
It is a fundamental policy of the Portfolio that it will invest at least 80% of
the value of its total assets (except when maintaining a temporary defensive
position) in high-yielding, income-producing corporate bonds that are rated B3
or better by Moody's or B- or better by S&P. The corporate bonds in which the
Portfolio invests are high-yielding but normally carry a greater credit risk
than bonds with higher ratings. In addition, such bonds, commonly referred to as
"junk bonds", may involve greater volatility of price than higher-rated bonds.
For a discussion of High-Yield Securities and related risks, see "Certain
Investment Techniques and Associated Risks" at page 16.
The Portfolio's investments are selected by the Portfolio Manager after careful
examination of the economic outlook to determine those industries that appear
favorable for investments. Industries going through a perceived decline
generally are not candidates for selection. After the industries are selected,
bonds of issuers within those industries are selected based on their
creditworthiness, their yields in relation to their credit and the relative
strength of their common stock prices. Companies near or in bankruptcy are not
considered for investment. The Portfolio does not purchase bonds which are rated
Ca or lower by Moody's or CC or lower by S&P or which, if unrated, in the
judgment of the Portfolio Manager have characteristics of such lower-grade
bonds. Should an investment purchased with the above-described credit quality
requisites be downgraded to Ca or lower or CC or lower, the Portfolio Manager
shall have discretion to hold or liquidate the security.
Subject to the restrictions described above, under normal circumstances, up to
20% of the Portfolio's assets may include: (1) bonds rated Caa by Moody's or CCC
by S&P; (2) unrated debt securities which, in the judgment of the Portfolio
Manager have characteristics similar to those described above; (3) convertible
debt securities; (4) puts, calls and futures as hedging devices; (5) foreign
issuer debt securities; and (6) short-term money market instruments, including
certificates of deposit, commercial paper, U.S. Government Securities and other
income-producing cash equivalents. For a discussion on puts, calls, and futures
and their related risks, see "Certain Investment Techniques and Associated
Risks," at page 16 .
Tax-Exempt Income Portfolio
The objective of the Tax-Exempt Income Portfolio is a high level of current
income not includable in gross income for federal income tax purposes, with
consideration given to preservation of principal, primarily from investments in
a diversified portfolio of long-term investment grade municipal bonds.
It is a fundamental policy of the Portfolio that it will invest at least 80% of
its net assets (except when maintaining a temporary defensive position) in
Municipal Securities (or futures contracts or options on futures with respect
thereto) which, at the time of investment, are investment grade or in Municipal
Securities which are not rated if, based upon credit analysis by the Portfolio
Manager, it is believed that such securities are of comparable quality to such
rated bonds.
The Portfolio invests primarily in investment grade "Municipal Securities" the
interest on which, in the opinion of counsel for issuers or the Portfolio, is
not includable in gross income for federal income tax purposes. Municipal
Securities are notes and bonds issued by or on behalf of states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities. These securities are
traded primarily in the over-the-counter market. Such securities may have fixed,
variable or floating rates of interest. See the Appendix to this Prospectus for
a further description of Municipal Securities.
Investment grade securities are: bonds rated within the three highest ratings by
Moody's (Aaa, Aa, A) or S&P (AAA, AA, A); notes given one of the three highest
ratings by Moody's (MIGl, MIG2, MIG3) for notes; commercial paper rated P-l by
Moody's or A-1 by S&P; and variable rate securities rated VMIGl or VMIG2 by
Moody's.
<PAGE> 15
While there are no maturity restrictions on the Municipal Securities in which
the Portfolio invests, the average maturity is expected to range between 10 and
25 years. The Portfolio Manager will actively manage the Portfolio, adjusting
the average Portfolio maturity and utilizing futures contracts and options on
futures as a defensive measure according to its judgment of anticipated interest
rates. During periods of rising interest rates and falling prices, a shorter
weighted average maturity may be adopted to cushion the effect of bond price
declines on the Portfolio's net asset value. When rates are falling and prices
are rising, a longer weighted average maturity rate may be adopted. For a
discussion on futures and their related risks, see "Certain Investment
Techniques and Associated Risks," at page 16.
The Portfolio may also invest up to 20% of its net assets in cash, cash
equivalents and debt securities, the interest from which may be subject to
federal income tax. Investments in taxable securities will be limited to
investment grade corporate debt securities and U.S. Government Securities.
The Portfolio will not invest more than 20% of its net assets in Municipal
Securities the interest on which is subject to federal alternative minimum tax.
FLEXIBLE PORTFOLIO
Managed Portfolio
The objective of the Managed Portfolio is growth of capital over time through
investment in a portfolio consisting of common stocks, bonds and cash
equivalents, the percentages of which will vary based on the Portfolio Manager's
assessments of the relative outlook for such investments. In seeking to achieve
its investment objective, the types of equity securities in which the Portfolio
may invest will be the same as those in which the Equity Portfolios invest. Debt
securities are expected to be predominantly investment grade intermediate to
long term U.S. Government and corporate debt, although the Portfolio will also
invest in high quality short term money market and cash equivalent securities
and may invest almost all of its assets in such securities when the Manager
deems it advisable in order to preserve capital. In addition, the Portfolio may
also purchase foreign securities provided that they are listed on a domestic or
foreign securities exchange or are represented by American Depository Receipts
listed on a domestic securities exchange or traded in the United States
over-the-counter market.
The allocation of the Portfolio's assets among the different types of permitted
investments will vary from time to time based upon the Portfolio Manager's
evaluation of economic and market trends and its perception of the relative
values available from such types of securities at any given time. There is
neither a minimum nor a maximum percentage of the Portfolio's assets that may,
at any given time, be invested in any of the types of investments identified
above. Consequently, while the Portfolio will earn income to the extent it is
invested in bonds or cash equivalents, the Portfolio does not have any specific
income objective.
MONEY MARKET PORTFOLIO
The investment objective of the Money Market Portfolio is to provide the highest
possible level of current income, consistent with preservation of capital and
liquidity. Securities in which the Portfolio will invest may not yield as high a
level of current income as securities of lower quality and longer maturity which
generally have less liquidity and greater market risk. The Money Market
Portfolio seeks to achieve its objective by investing in a diversified portfolio
of high quality money market instruments, comprised of U.S. dollar-denominated
instruments which present minimal credit risks and are of eligible quality which
consist of the following:
1. obligations issued or guaranteed as to principal and interest by the
United States Government or any agency or authority controlled or
supervised by and acting as an instrumentality of the U.S. Government
pursuant to authority granted by Congress;
2. commercial paper, negotiable certificates of deposit, letters of
credit, time deposits and bankers' acceptances, of U.S. or foreign
banks, and U.S. or foreign savings and loans associations, which at the
date of investment have capital, surplus and undistributed profits as
of the date of their most recent published financial statements of
$500,000,000 or greater;
<PAGE> 16
3. short-term corporate debt instruments (commercial paper or variable
amount master demand notes) rated "A-1" or "A-2" by S&P or "Prime 1" or
"Prime 2" by Moody's, or, if not rated, issued by a company rated at
least "A" by S&P or Moody's and about which the Board of Directors of
the Fund has ratified the Portfolio Manager's independent determination
that the instrument presents minimal credit risks and is of high
quality; however, investments in securities of all issuers having the
second highest rating (A-2/P-2) assigned shall be limited to no more
than five percent of the Portfolio's assets at the time of purchase,
with the investment of any one such issuer being limited to not more
than one percent of Portfolio assets at the time of purchase;
4. corporate obligations limited to non-convertible corporate debt
securities having one year or less remaining to maturity and which are
rated "AA" or better by S&P or "Aa" or better by Moody's; and
5. repurchase agreements with respect to any of the foregoing obligations.
The Money Market Portfolio will limit its investment in the securities of any
one issuer to no more than five percent of Portfolio assets, measured at the
time of purchase.
In addition, the Money Market Portfolio will not purchase any security,
including any repurchase agreement maturing in more than seven days, which is
subject to legal or contractual delays on resale or which is not readily
marketable if more than 10% of the net assets of the Money Market Portfolio,
taken at market value would be invested in such securities.
After purchase by the Money Market Portfolio, a security may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Money Market Portfolio. Neither event will require a sale of such security by
the Money Market Portfolio. The Portfolio Manager will consider such event in
its determination of whether the Money Market Portfolio should continue to hold
the security provided that the security presents minimal credit risks and that
holding the security is in the best interests of the Portfolio. To the extent
Moody's or S&P may change their rating systems generally (as described in the
Appendix to the Statement of Additional Information) the Money Market Portfolio
will attempt to use comparable ratings as standards for investments in
accordance with investment policies contained herein and in the Fund's Statement
of Additional Information.
The dollar weighted average maturity of the Money Market Portfolio will be 90
days or less.
All investments of the Money Market Portfolio will be limited to instruments
which the Board of Directors determines are of eligible quality, which, if
instruments of foreign issuers, are United States dollar-denominated instruments
presenting minimal credit risk, and all of which are either:
1. of those rated in the two highest rating categories by any nationally
recognized statistical rating organization (NRSRO), or
2. if the instrument is not rated, of comparable quality as determined by
the Board of Directors.
Generally, instruments with NRSRO ratings in the two highest grades are
considered "high quality." All of the money market investments will mature in
397 days or less. The Money Market Portfolio will use the amortized cost method
of securities valuation, as described more fully in the Statement of Additional
Information.
CERTAIN INVESTMENT TECHNIQUES AND ASSOCIATED RISKS
Following is a description of certain investment techniques employed by the
Portfolios, and certain types of securities invested in by the Portfolios and
associated risks. Unless otherwise indicated, all of the Portfolios may use the
indicated techniques and invest in the indicated securities.
GENERAL RISKS ASSOCIATED WITH EQUITY PORTFOLIOS
The Equity Portfolios seek to reduce risk of loss of principal due to changes in
the value of individual stocks by investing in a diversified portfolio of common
stocks and through the use of options on stocks. Such investment
<PAGE> 17
techniques do not, however, eliminate all risks. Investors should expect the
value of the Equity Portfolios and the net asset value of their shares to
fluctuate based on market conditions.
Smaller capitalization companies may experience higher growth rates and higher
failure rates than do larger capitalization companies due to the risk related to
markets, market share, product performance and financial resources. The limited
volume and frequency of trading of small capitalization companies may subject
their stocks to greater price deviations than stocks of larger companies.
The International Growth Portfolio carries additional risks associated with
possibly less stable foreign securities and currencies. For a discussion on
these risks, please refer to "Foreign Currency and Values" at page 30.
GENERAL RISKS ASSOCIATED WITH INCOME PORTFOLIOS
Although the Income Portfolios seek to reduce credit risks, i.e., failure of
obligors to pay interest and principal, through careful selection of
investments, and they seek to reduce market risks resulting from fluctuations in
the principal value of debt obligations due to changes in prevailing interest
rates by careful timing of maturities of investments, such risks cannot be
eliminated, and these factors will affect the net asset value of shares in the
Income Portfolios. The value of debt obligations has an inverse relationship
with prevailing interest rates.
GENERAL RISKS ASSOCIATED WITH FLEXIBLE PORTFOLIO
The foregoing types of risks associated with equity and income portfolios also
apply to flexible portfolios.
U.S. GOVERNMENT SECURITIES
Although the payment of interest and principal on a security may be guaranteed
by the United States Government or one of its agencies or instrumentalities, the
value of such fixed income securities and, consequently, the yield on and net
asset value of shares of the Government Securities Portfolio are not guaranteed
by the U.S. Government. The net asset value fluctuates in response to changes in
interest rates and market valuation. During periods of declining interest rates,
prepayment of mortgages underlying mortgage-backed securities can be expected to
accelerate. As a result, the Government Securities Portfolio's ability to
maintain positions in high-yielding, mortgage-backed securities, such as GNMA
Certificates, will be affected by reductions in the principal amounts of such
securities resulting from such prepayments, and its ability to reinvest the
returns of principal at comparable yields is subject to generally prevailing
interest rates at the time.
MORTGAGE-RELATED SECURITIES AND ASSET-BACKED SECURITIES
Up to 20% of the net assets of the Government Securities Portfolio may be
invested in assets other than U.S. Government Securities, including
collateralized mortgage related securities ("CMOs") and asset backed securities.
These securities are considered to be volatile. CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-related securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the type of CMOs in which
the Government Securities Portfolio invests, the investment may be subject to a
greater or lesser risk of prepayment than other types of mortgage-related
securities.
While there are many versions of CMOs and asset backed securities, some include
"Interest Only" or "IO" - where all interest payments go to one class of
holders, "Principal Only" or "PO" - where all of the principal goes to a second
class of holders, "Floaters" - where the coupon rate floats in the same
direction as interest rates and "Inverse Floaters" - where the coupon rate
floats in the opposite direction as interest rates. All these securities are
volatile; they also have particular risks in differing interest rate
environments as described below.
The yield to maturity on an IO class is extremely sensitive to the rate of
principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on yield to maturity and, therefore, the market value of the IO. As
interest rates rise and fall, the value of IOs tends to move in the same
direction as interest rates. Accordingly, investment in IOs can theoretically be
expected to contribute to stabilizing a Portfolio's net asset value. However, if
the underlying mortgage assets experience greater than anticipated prepayments
of principal, the Portfolio may fail to fully
<PAGE> 18
recoup its initial investment in these securities even if the securities are
rated AAA or the equivalent. Conversely, while the yield to maturity on a PO
class is also extremely sensitive to rate of principal payments (including
prepayments) on the related underlying mortgage assets, a slow rate of principal
payments may have a material adverse effect on yield to maturity and therefore
the market value of the PO. As interest rates rise and fall, the value of POs
tends to move in the opposite direction from interest rates. This is typical of
most debt instruments. See "General Risks Associated With Income Portfolios" on
page 16.
Floaters and Inverse Floaters ("Floaters") are extremely sensitive to the rise
and fall in interest rates. The coupon rate on these securities is based on
various benchmarks, such as LIBOR ("London Inter-Bank Offered Rate") and the
11th District cost of funds (the base rate). The coupon rate on Floaters can be
affected by a variety of terms. Floaters can be reset at fixed intervals over
the life of the Floater, float with a spread to the base rate or be a certain
percentage rate minus a certain base rate. Some Floaters have floors below which
the interest rate cannot be reset and/or ceilings above which the interest rate
cannot be reset. The coupon rate and/or market value of Floaters tend to move in
the same direction as the base rate while the coupon rate and/or market value of
Inverse Floaters tend to move in the opposite direction from the base rate.
The market value of all CMOs and other asset backed securities are determined by
supply and demand in the bid/ask market, interest rate movements, the yield
curve, forward rates, prepayment assumptions and credit of the underlying
issuer. Further, the price actually received on a sale may be different from
bids when the security is being priced.
CMOs and asset-backed securities trade over a bid and ask market through several
large market makers. Due to the complexity and concentration of derivative
securities, the liquidity and, consequently, the volatility of these securities
can be sharply influenced by market demand.
Asset-backed and mortgage-related securities may not be readily marketable. To
the extent any of these securities are not readily marketable in the judgment of
the Portfolio Manager (subject to the oversight of the Board of Directors), the
investment restriction limiting the Portfolio's investment in illiquid
instruments to not more than 10% of the value of its net assets will apply.
However, IOs and POs issued by the U.S. Government, its agencies and
instrumentalities, and backed by fixed-rate mortgages may be excluded from this
limit, if, in the judgment of the Portfolio Manager (subject to the oversight of
the Board of Directors) such IOs and POs are readily marketable. The Government
Securities Portfolio does not intend to invest in residual interests, privately
issued securities or subordinated classes of underlying mortgages.
HIGH-YIELD SECURITIES
Notwithstanding the investment policies and restrictions applicable to the
High-Yield Bond and Managed Portfolios which were designed to reduce risks
associated with such investments, high-yield securities may carry higher levels
of risk than many other types of income producing securities. These risks are of
three basic types: the risk that the issuer of the high-yield bond will default
in the payment of principal and interest; the risk that the value of the bond
will decline due to rising interest rates, economic conditions, or public
perception; and the risk that the investor in such bonds may not be able to
readily sell such bonds. Each of the major categories of risk are impacted by
various factors, as discussed below:
High-Yield Bond Market
The high-yield bond market is relatively new and has grown in the context of a
long economic expansion. Any downturn in the economy may have a negative impact
on the perceived ability of the issuer to make principal and interest payments
which may adversely affect the value of outstanding high-yield securities and
reduce market liquidity.
Sensitivity to Interest Rate and Economic Changes
In general, the market prices of bonds bear an inverse relationship to interest
rates; as interest rates increase, the prices of bonds decrease. The same
relationship may hold for high-yield bonds, but in the past high-yield bonds
have been somewhat less sensitive to interest rate changes than treasury and
investment grade bonds. While the price of high-yield bonds may not decline as
much, relatively, as the prices of treasury or investment grade bonds
<PAGE> 19
decline in an environment of rising interest rates, the market price, or value,
of a high-yield bond will be expected to decrease in periods of increasing
interest rates, negatively impacting the net asset value of the High-Yield Bond
Portfolio. High-yield bond prices may not increase as much, relatively, as the
prices of treasury or investment grade bonds in periods of decreasing interest
rates. Payments of principal and interest on bonds are dependent upon the
issuer's ability to pay. Because of the generally lower creditworthiness of
issuers of high-yield bonds, changes in the economic environment generally, or
in an issuer's particular industry or business, may severely impact the ability
of the issuer to make principal and interest payments and may depress the price
of high-yield securities more significantly than such changes would impact
higher rated, investment grade securities.
Payment Expectations
Many high-yield bonds contain redemption or call provisions which might be
expected to be exercised in periods of decreasing interest rates. Should bonds
in which the High-Yield Bond Portfolio has invested be redeemed or called during
such an interest rate environment, the Portfolio would have to sell such
securities without reference to their investment merit and reinvest the proceeds
received in lower yielding securities, resulting in a decreased return for
investors in the High-Yield Bond Portfolio. In addition, such redemptions or
calls may reduce the High-Yield Bond Portfolio's asset base over which the
Portfolio's investment expenses may be spread.
Liquidity and Valuation
Because of periods of relative illiquidity, many high-yield bonds may be thinly
traded. As a result, the ability to accurately value high-yield bonds and
determine the net asset value of the High-Yield Bond Portfolio, as well as the
Portfolio's ability to sell such securities, may be limited. Public perception
of and adverse publicity concerning high-yield securities may have a significant
negative impact on the value and liquidity of high-yield securities, even though
not based on fundamental investment analysis.
Tax Considerations
To the extent that the High-Yield Bond Portfolio invests in securities
structured as zero coupon bonds, the Portfolio will be required to report
interest income even though no cash interest payment is received until maturity
of the bond. Investors in the High-Yield Bond Portfolio would be taxed on this
interest income even though no cash distribution of such interest is received in
the year in which such income is taxed.
Portfolio Composition
As of December 31, 1996, the High-Yield Bond Portfolio consisted of securities
classified as follows:
<TABLE>
<CAPTION>
CATEGORY PERCENTAGE OF PORTFOLIO
-------- -----------------------
<S> <C>
BB 14.1%
B 80.8%
CCC 00.2%
Non-rated 04.9%
</TABLE>
*Equivalent ratings for these securities would have been CCC to BBB.
DEFENSIVE TACTICS
Any or all of the Portfolios may at times for defensive purposes, at the
determination of the Portfolio Manager, temporarily place all or a portion of
their assets in cash, short-term commercial paper (i.e. short-term unsecured
promissory notes issued by corporations to finance short-term credit needs),
United States Government Securities, high quality debt securities (including
"Eurodollar" and "Yankee Dollar" obligations, i.e., U.S. issuer borrowings
payable overseas in U.S. funds and obligations of foreign issuers payable in
U.S. funds), non-convertible preferred stocks and obligations of banks when in
the judgment of the Portfolio Manager such investments are appropriate in light
of economic or market conditions. The Money Market Portfolio may at times for
defensive purposes, at the determination of the Portfolio Manager, temporarily
place all or a portion of its assets in cash, when in the judgment of the
Portfolio Manager such an investment is appropriate in light of economic or
market conditions. The International Growth Portfolio may invest in all of the
above, both foreign and domestic,
<PAGE> 20
including foreign currency, foreign time deposits, and foreign bank acceptances.
When a Portfolio takes a defensive position, it may not be following the
fundamental investment policy of the Portfolio.
HEDGING TRANSACTIONS
Except as otherwise indicated, the Portfolio Managers, other than for the Money
Market Portfolio, may engage in the following hedging transactions to seek to
hedge all or a portion of a Portfolio's assets against market value changes
resulting from changes in equity values, interest rates and currency
fluctuations. Hedging is a means of offsetting, or neutralizing, the price
movement of an investment by making another investment, the price of which
should tend to move in the opposite direction from the original investment.
The Portfolios will not engage in hedging transactions for speculative purposes
but only as a hedge against changes resulting from market conditions in the
values of securities owned or expected to be owned by the Portfolios. Unless
otherwise indicated, a Portfolio will not enter into a hedging transaction
(except for closing transactions) if, immediately thereafter, the sum of the
amount of the initial deposits and premiums on open contracts and options would
exceed 5% of the Portfolio's total assets taken at current value.
CERTAIN SECURITIES
The Portfolios may invest in the following described securities, except as
otherwise indicated. These securities are commonly referred to as derivatives. A
Portfolio's investment in such securities, in the aggregate, may not exceed 5%
of net assets at the time of investment; provided, however, that the
International Growth Portfolio, the High-Yield Bond Portfolio, and the
Government Securities Portfolio may invest up to 20% of their net assets in such
securities.
Call Options
The Portfolios, other than the Money Market Portfolio, may write (sell) call
options that are listed on national securities exchanges or are available in the
over-the-counter market through primary broker-dealers. Call options are
short-term contracts with a duration of nine months or less. Such Portfolios of
the Fund may only write call options which are "covered," meaning that the
Portfolio either owns the underlying security or has an absolute and immediate
right to acquire that security, without additional cash consideration, upon
conversion or exchange of other securities currently held in the Portfolio. In
addition, no Portfolio will, prior to the expiration of a call option, permit
the call to become uncovered. If a Portfolio writes a call option, the purchaser
of the option has the right to buy (and the Portfolio has the obligation to
sell) the underlying security at the exercise price throughout the term of the
option. The amount paid to the Portfolio by the purchaser of the option is the
"premium." The Portfolio's obligation to deliver the underlying security against
payment of the exercise price would terminate either upon expiration of the
option or earlier if the Portfolio were to effect a "closing purchase
transaction" through the purchase of an equivalent option on an exchange. The
Portfolio would not be able to effect a closing purchase transaction after it
had received notice of exercise. The International Growth Portfolio may purchase
and write covered call options on foreign and U.S. securities and indices and
enter into related closing transactions.
Generally, such a Portfolio intends to write listed covered calls when it
anticipates that the rate of return from so doing is attractive, taking into
consideration the premium income to be received, the risks of a decline in
securities prices during the term of the option, the probability that closing
purchase transactions will be available if a sale of the securities is desired
prior to the exercise, or expiration of the options, and the cost of entering
into such transactions. A principal reason for writing calls on a securities
portfolio is to attempt to realize, through the receipt of premium income, a
greater return than would be earned on the securities alone. A covered call
writer such as a Portfolio, which owns the underlying security, has, in return
for the premium, given up the opportunity for profit from a price increase in
the underlying security above the exercise price, but it has retained the risk
of loss should the price of the security decline.
The writing of covered call options involves certain risks. A principal risk
arises because exchange and over-the-counter markets for options may be limited;
it is impossible to predict the amount of trading interest which may exist in
such options, and there can be no assurance that viable exchange and
over-the-counter markets will develop or continue. The Portfolios will write
covered call options only if there appears to be a liquid
<PAGE> 21
secondary market for such options. If, however, an option is written and a
liquid secondary market does not exist, it may be impossible to effect a closing
purchase transaction in the option. In that event, the Portfolio may not be able
to sell the underlying security until the option expires or the option is
exercised, even though it may be advantageous to sell the underlying security
before that time.
Puts
The Portfolios, except the Government Securities Portfolio and the Money Market
Portfolio, may purchase put options ("Puts") which relate to (i) securities
(whether or not they hold such securities); (ii) Index Options (described below
whether or not they hold such Options); or (iii) broadly-based stock indexes.
The Portfolios, except the Government Securities Portfolio and Money Market
Portfolio, may write covered put options. The Portfolio will receive premium
income from writing covered put options, although it may be required, when the
put is exercised, to purchase securities at higher prices than the current
market price. The High-Yield Bond Portfolio may invest up to 10% of the value of
the Portfolio in Puts.
Entering Into Futures Contracts
All Portfolios may, other than the Money Market Portfolio, enter into contracts
for the future acquisition or delivery of securities ("Futures Contracts")
including index contracts and foreign currencies, and may also purchase and sell
call options on Futures Contracts. These Portfolios may use this investment
technique to hedge against anticipated future adverse price changes which
otherwise might either adversely affect the value of the Portfolio's securities
or currencies held in the Portfolio, or to hedge anticipated future price
changes which adversely affect the prices of stocks, long-term bonds or
currencies which the Portfolio intends to purchase at a later date.
Alternatively, the Portfolios may enter into Futures Contracts in order to hedge
against a change in interest rates which will result in the premature call at
par value of certain securities which the Portfolio has purchased at a premium.
If stock, bond or currency prices or interest rates move in an unexpected
manner, the Portfolio would not achieve the anticipated benefits of Futures
Contracts.
The use of Futures Contracts involves special considerations or risks not
associated with the primary activities engaged in by any Portfolios. Risks of
entering into Futures Contracts include: (1) the risk that the price of the
Futures Contracts may not move in the same direction as the price of the
securities in the various markets; (2) the risk that there will be no liquid
secondary market when the Portfolio attempts to enter into a closing position;
(3) the risk that the Portfolio will lose an amount in excess of the initial
margin deposit; and (4) the fact that the success or failure of these
transactions for the Portfolio depends on the ability of the Portfolio Manager
to predict movements in stock, bond, currency prices and interest rates.
Index Options
All the Equity Portfolios may invest in options on stock indexes. These options
are based on indexes of stock prices that change in value according to the
market value of the stocks they include. Some stock index options are based on a
broad market index, such as the New York Stock Exchange Composite Index or the
Standard & Poor's 500. Other index options are based on a market segment or on
stocks in a single industry. Stock index options are traded primarily on
securities exchanges.
Because the value of an index option depends primarily on movements in the value
of the index rather than in the price of a single security, whether a Portfolio
will realize a gain or loss from purchasing or writing an option on a stock
index depends on movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment
rather than changes in the price of a particular security. Consequently,
successful use of stock index options by a Portfolio will depend on that
Portfolio Manager's ability to predict movements in the direction of the stock
market generally or in a particular industry. This requires different skills and
techniques than predicting changes in the value of individual securities.
Interest Rate Swaps
In order to attempt to protect the Portfolio investments from interest rate
fluctuations, the Portfolios may engage in interest rate swaps. The Portfolios
tend to use interest rate swaps as a hedge and not as a speculative
<PAGE> 22
investment. Interest rate swaps involve the exchange of the Portfolio with
another party of their respective rights to receive interest (e.g., an exchange
of fixed rate payments for floating rate payments). For example, if the
Portfolio holds an interest-paying security whose interest rate is reset once a
year, it may swap the right to receive interest at a rate that is reset daily.
Such a swap position would offset changes in the value of the underlying
security because of subsequent changes in interest rates. This would protect the
Portfolio from a decline in the value of the underlying security due to rising
rates, but would also limit its ability to benefit from falling interest rates.
The Portfolio will enter into interest rate swaps only on a net basis (i.e., the
two payments streams will be netted out, with Portfolio receiving or paying as
the case may be, only the net amount of the two payments). The net amount of the
excess, if any, of the Portfolio's obligations over its entitlements with
respect to each interest rate swap will be accrued on a daily basis, and an
amount of cash or liquid high grade debt securities having an aggregate net
asset value at least equal to the accrued excess, will be maintained in a
segregated account by the Portfolio's custodian bank.
The use of interest rate swaps involves investment techniques and risks
different from those associated with ordinary portfolio security transactions.
If the Portfolio Manager is incorrect in its forecasts of market values,
interest rates and other applicable factors, the investment performance of the
Portfolio will be less favorable than it would have been if this investment
technique were never used. Interest rate swaps do not involve the delivery of
securities or other underlying assets or principal. Thus, if the other party to
an interest rate swap defaults, the Portfolio's risk of loss consists of the net
amount of interest payments that the Portfolio is contractually entitled to
receive.
FOREIGN CURRENCY VALUES AND TRANSACTIONS
Investments in foreign securities will usually involve currencies of foreign
countries, and the value of the assets of the International Growth Portfolio
(and of the other Portfolios that may invest in foreign securities to a much
lesser extent) as measured in United States dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and the International Growth Portfolio may incur costs in
connection with conversions between various currencies.
The normal currency allocation of the International Growth Portfolio is
identical to the currency mix of the Benchmark. The Portfolio expects to
maintain this normal currency exposure when global currency markets are fairly
priced relative to each other and relative to associated risks. The Portfolio
may actively deviate from such normal currency allocations to take advantage of
or to protect the Portfolio from risk and return characteristics of the
currencies and short-term interest rates when those prices deviate significantly
from fundamental value. Deviations from the Benchmark are determined by the
Portfolio Manager based upon its research.
To manage exposure to currency fluctuations, the Portfolio may alter equity or
money market exposures (in its normal asset allocation mix as previously
identified), enter into forward currency exchange contracts, buy or sell
options, futures or options on futures relating to foreign currencies and may
purchase securities indexed to currency baskets. The Portfolio will also use
these currency exchange techniques in the normal course of business to hedge
against adverse changes in exchange rates in connection with purchases and sales
of securities. Some of these strategies may require the Portfolio to set aside
liquid assets in a segregated custodial account to cover its obligations. These
techniques are further described below.
The Portfolio may conduct its foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market or through entering into contracts to purchase or sell foreign currencies
at a future date (i.e., "forward foreign currency" contract or "forward"
contract). A forward contract involves an obligation to purchase or sell a
specific currency amount 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. The Portfolio will convert currency on a spot basis from
time to time and investors should be aware of the potential costs of currency
conversion.
When the Portfolio Manager believes that the currency of a particular country
may suffer a significant decline against the U.S. dollar or against another
currency, the Portfolio may enter into a currency contract to sell, for a
<PAGE> 23
fixed amount of U.S. dollars or other appropriate currency, the amount of
foreign currency approximating the value of some or all of the Portfolio's
securities denominated in such foreign currency.
At the maturity of a forward contract, the Portfolio may either sell a portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by repurchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. The Portfolio may realize a gain or loss from currency
transactions.
The Portfolio also may purchase and write put and call options on foreign
currencies (traded on U.S. and foreign exchanges or over-the-counter markets) to
manage the Portfolio's exposure to changes in currency exchange rates. Call
options on foreign currency written by the Portfolio will be "covered", which
means that the Fund will own an equal amount of the underlying foreign currency.
With respect to put options on foreign currency written by the Portfolio, the
Portfolio will establish a segregated account with its custodian bank consisting
of cash, U.S. government securities or other high grade liquid debt securities
in an amount equal to the amount the Portfolio would be required to pay upon
exercise of the put.
CERTAIN OTHER SECURITIES
Except as otherwise indicated, the Portfolios may purchase the following
securities, the purchase of which involves certain risks described below. Unless
otherwise indicated, a Portfolio will not purchase a category of such securities
if the value of such category, taken at current value, would exceed 5% of the
Portfolio's total assets.
Master Demand Notes
All Portfolios may purchase variable amount master demand notes. Variable amount
master demand notes are demand obligations that permit the investment of
fluctuating amounts at varying market rates of interest pursuant to arrangements
between the issuer and a commercial bank acting as agent for the payees of such
notes whereby both parties have the right to vary the amount of the outstanding
indebtedness on the notes. Since there is no secondary market for these notes,
the appropriate Portfolio Managers, subject to the overall review of the Fund's
Directors and Enterprise Capital Management, Inc., the adviser, monitor the
financial condition of the issuers to insure that they are able to repay the
notes.
Repurchase Agreements
All Portfolios may enter into repurchase agreements having maturities of seven
days or less. When a Portfolio acquires securities from a bank or broker-dealer,
it may simultaneously enter into a repurchase agreement with the same seller
pursuant to which the seller agrees at the time of sale to repurchase the
security at a mutually agreed upon time and price. In such instances, the Fund's
Custodian has possession of the security or collateral for the seller's
obligation. If the seller should default on its obligation to repurchase the
securities, the Portfolio may experience delays, difficulties or other costs
when selling the securities held as collateral and may incur a loss if the value
of the collateral declines. The appropriate Portfolio Managers, subject to the
overall review by the Fund's Directors and Enterprise Capital, monitor the value
of the collateral as to repurchase agreements, and they monitor the
creditworthiness of the seller and must find it satisfactory before engaging in
repurchase agreements. The Portfolios enter into repurchase agreements only with
Federal Reserve member banks that have net worth of at least $100,000,000 and
outstanding commercial paper of the two highest rating categories assigned by
Moody's or S&P or with broker-dealers that are registered with the Securities
and Exchange Commission, are members of the National Association of Securities
Dealers, Inc. ("NASD") and have similarly rated commercial paper outstanding.
Any repurchase agreements entered into by the Portfolios will be fully
collateralized and marked to market daily, other than those entered into by the
Money Market Portfolio, which are valued on an amortized cost basis.
<PAGE> 24
Restricted or Illiquid Securities
All of the Portfolios may invest up to 10% of the assets of the Portfolios in
restricted securities (privately placed equity or debt securities) or other
securities which are not readily marketable.
Foreign Securities
As noted above, under normal circumstances the International Growth Portfolio
will invest primarily in foreign securities. All other Portfolios, except the
Government Securities Portfolio, the Tax-Exempt Income Portfolio and the Money
Market Portfolio, may, subject to the 10% limitation, invest in foreign
securities as well as both sponsored and unsponsored American Depository
Receipts ("ADRs"), and European Depository Receipts ("EDRs") which are
securities of U.S. issuers backed by securities of foreign issuers. There may be
less information available about unsponsored ADRs and EDRs, and therefore, they
may carry higher credit risks. The Portfolios may also invest in securities of
foreign branches of domestic banks and domestic branches of foreign banks.
Investments in foreign equity and debt securities involve risks different from
those encountered when investing in securities of domestic issuers. The
appropriate Portfolio Managers and Enterprise Capital, subject to the overall
review of the Fund's Directors, evaluate the risks and opportunities when
investing in foreign securities. Such risks include trade balances and
imbalances and related economic policies; currency exchange rate fluctuations;
foreign exchange control policies; expropriation or confiscatory taxation;
limitations on the removal of funds or other assets; political or social
instability; the diverse structure and liquidity of securities markets in
various countries and regions; policies of governments with respect to possible
nationalization of their own industries; and other specific local, political and
economic considerations.
Forward Commitments
Securities may be purchased on a "when issued" or on a "forward delivery" basis,
which means it may take as long as 120 days before such obligations are
delivered to a Portfolio. The purpose of such investments is to attempt to
obtain higher rates of return or lower purchase costs than would be available
for securities purchased for immediate delivery. Securities purchased on a when
issued or forward delivery basis involve a risk that the value of the security
to be purchased may decline prior to the settlement date. In addition, if the
dealer through which the trade is made fails to consummate the transaction, the
Portfolio may lose an advantageous yield or price. The Fund does not accrue
income prior to delivery of the securities in the case of forward commitment
purchases. The 5% limitation does not apply to the International Growth,
Government Securities and Tax-Exempt Income Portfolios which will have a 20%
limitation.
PORTFOLIO TURNOVER
In carrying out the investment policies described in this Prospectus, each
Portfolio expects to engage in a substantial number of securities portfolio
transactions, and the rate of portfolio turnover will not be a limiting factor
when a Portfolio Manager deems it appropriate to purchase or sell securities for
a Portfolio. However, no Portfolio's annual portfolio turnover rate (other than
the Money Market Portfolio for which, due to the short-term nature of its
investment, a portfolio turnover rate is not applicable) is expected to exceed
100%.
A portfolio turnover rate is, in summary, the percentage computed by dividing
the lesser of a Portfolio's purchases or sales proceeds of securities by the
average investments of the Portfolio. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs which
are borne directly by a Portfolio. Each Portfolio intends to elect and to comply
with the various provisions of the Internal Revenue Code so as to qualify as a
"regulated investment company" thereunder. See "Taxes" at page 45. Among such
requirements is a limitation that less than 30% of the Portfolio's gross income
in each taxable year may be derived from gains (without deduction for losses)
from the sale or other disposition of stock or other securities held for less
than three months. Accordingly, the ability of each Portfolio to effect certain
transactions may be limited.
INVESTMENT RESTRICTIONS
Except as indicated, each of the Portfolios has adopted certain investment
restrictions and limitations for the purpose of reducing their exposure in
specific situations.
<PAGE> 25
No Portfolio will: (1) as to 75% of the assets of each Portfolio, invest more
than 5% of the value of its total assets in the securities of any single issuer
(other than cash items and U.S. government securities, as defined in the
Investment Company Act of 1940) if such purchase would cause more than 5% of the
value of its assets to be invested in the securities of such issuer if such
purchase would cause more than 5% of the value of its assets to be invested in
securities of such issuer (this limitation does not apply to U.S. Government
Securities as well as its agencies and instrumentalities); (2) purchase more
than 10% of the voting securities of any issuer; (3) invest more than 5% of its
total assets in the securities of companies that have a continuous operating
history of less than three years (the High-Yield Bond and Tax-Exempt Income
Portfolios are not subject to this restriction); (4) except as to the Money
Market Portfolio, as described below, invest more than 25% of its total assets
in any one industry, provided that: (i) this limitation does not apply to
investments in U.S. Government Securities as well as its agencies and
instrumentalities, general obligation bonds, or Municipal Securities other than
industrial development bonds issued by non-governmental users; and (ii) utility
companies will be divided according to their services (for example, gas, gas
transmission, electric, electric and gas, and telephone will each be considered
as a separate industry); (5) borrow money, except from a bank and only for
temporary or emergency purposes, and such borrowings will not exceed 5% of the
lower of the value or cost of the Portfolio's total assets; or (6) pledge,
mortgage or hypothecate its assets to an extent greater than 5% of the value of
its total assets. For purposes of restrictions (1) and (2), each Portfolio will
regard the entity which has ultimate responsibility for the payment of interest
and principal as the issuer. Notwithstanding restriction (4), the Money Market
Portfolio may invest in excess of 25% of its total assets in U.S. Government
Securities as well as its agencies and instrumentalities, and certain bank
instruments issued by domestic banks. See "Investment Restrictions" in the
Statement of Additional Information.
These investment limitations, and other limitations that are fundamental
policies, that are described in greater detail in the Statement of Additional
Information, may be changed only with the approval of the holders of a majority
of the shares of a Portfolio.
In addition, management of the Fund has adopted the following restrictions which
apply to all of the Portfolios and may be changed only by the Board of Directors
of the Fund. No Portfolio will: (A) lend its assets to any person or individual,
except by the purchase of bonds or other debt obligations customarily sold to
institutional investors; (B) invest more than 5% of the value of its net assets,
valued at the lower of cost or market, in warrants (Included within that amount,
but not to exceed 2% of the value of the Portfolio's net assets, may be warrants
which are not listed on the New York or American Stock Exchange. Warrants
acquired by a Portfolio in units or attached to securities may be deemed to be
without value.), (C) invest in oil, gas, or other mineral leases, or (D) engage
in arbitrage transactions.
If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in the investment's percentage of the value of a
Portfolio's total assets resulting from a change in portfolio value or assets
will not constitute a violation of the percentage restrictions.
The Managed Portfolio will not invest more than 15% of the value of its total
assets in real estate investment trusts, commonly referred to as "REITS". The
Managed Portfolio will not invest more than 5% of the value of its total assets
in high-yield securities.
In order to qualify for federal income tax treatment as a regulated investment
company for a taxable year, each Portfolio must, among other things, (a) derive
at least 90% of its gross income during such taxable year from qualifying income
(i.e., dividends, interest, payments with respect to loans of stock and
securities, and gains from the sale or other disposition of stock or securities
or options thereon); (b) derive less than 30% of its gross income during such
taxable year from the sale or other disposition of stock or securities (or
options thereon) held less than three months; and (c) diversify its holdings so
that, at the end of each fiscal quarter of such taxable year, (i) at least 50%
of the market value of its total assets is represented by cash, cash items, U.S.
Government Securities, securities of other regulated investment companies, and
other securities limited, in the case of other securities for purposes of this
calculation, in respect of any one issuer, to an amount not greater than 5% of
the value of its total assets or 10% of the voting securities of the issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government Securities). Under current law,
compliance with the "30% test" described in clause (b) above may, in particular,
limit a Portfolio's ability to utilize options in connection with its investment
strategy.
<PAGE> 26
HOW TO PURCHASE PORTFOLIO SHARES
Enterprise Fund Distributors, Inc. ("the Distributor"), is the principal
underwriter for shares of the Fund. The Distributor, whose address is Atlanta
Financial Center, 3343 Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326,
is a subsidiary of Enterprise Capital Management, Inc. Purchases can be made
through most investment dealers who, as part of the service they provide, must
transmit orders promptly. The Funds offer four separate Classes of shares: Class
A, B, C and Y shares, each with a different combination of sales charges,
ongoing fees and other features. The offering of Class A, B, C and Y shares
presents the investor with the opportunity to choose the sales charge and
distribution fee arrangement which is most beneficial, depending on the amount
of purchase, the length of time the investor expects to hold the shares, and
other circumstances.
Each class of shares of a Portfolio represent an identical interest in the
investment portfolio of that Portfolio and has the same rights, except that (i)
the Class A, B and C shares bear the expenses related to distribution and
servicing of such shares, (ii) the Class A, B and C shares have exclusive voting
rights with respect to matters related to distribution and servicing
expenditures, and (iii) and only Class B shares have a conversion feature. The
four Classes also have separate exchange privileges. (See "How to Exchange
Shares Among the Portfolios." The income attributable to each class and the
dividends payable on the shares of each class will be reduced by the amount of
the distribution fee or service fee, if any, payable by that class. The
distribution related fees paid with respect to any class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements for
each class of shares of a Portfolio. A more detailed description of each class
is set forth below.
<TABLE>
<CAPTION>
ANNUAL 12B-1
DISTRIBUTION AND
SALES CHARGE SERVICE FEE OTHER INFORMATION
<S> <C> <C> <C>
CLASS A Maximum 4.75% 0.45% distribution Initial sales
initial sales fee (0.30% for charge may be
charge (except Money Market) waived or reduced
Money Market) in certain
circumstances. $1
million purchases,
pursuant to waiver
of sales charge,
are subject to a
CDSC if redeemed
within two years.
CLASS B CDSC for a period 0.75% distribution Shares convert to
of six years equal fee (0.60% for Class A Shares
to 5.00% during the Money Market) and approximately eight
first year and 0.25% service fee years after
declining to 0.00% purchase.
after the sixth Available only to
year. investors
purchasing less
than $250,000 in
the aggregate.
CLASS C CDSC for a period 0.75% distribution Available only to
of one year equal fee (0.60% for Investors purchasing
to 1.00% Money Market) and less than $1,000,000
0.25% service fee in the aggregate.
</TABLE>
<PAGE> 27
In deciding which class of shares to purchase, you should consider, investment
goals, present and anticipated, purchase amounts, time horizons and
temperaments. In addition, consideration should be given to: (1) the length of
time you expect to hold your shares, (2) the amount of any applicable sales
charge (whether imposed at the time of purchase or upon redemption), (3) whether
you qualify for the reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among different classes of shares and (5) the fact
that Class B shares automatically convert to Class A shares approximately eight
years after purchase. In addition, you should review certain eligibility
requirements that may apply to purchasing a particular class of shares. (See,
"Buying Class A Shares," "Buying Class B Shares" and "Buying Class C Shares:
below.)
Initial investments per Class per Portfolio are subject to a minimum of $1,000,
with subsequent investments made in amounts of $50 or more through the Fund's
Transfer Agent or through dealers, subject to the following exceptions: (a) a
lower initial minimum of $250 is accepted in connection with the Retirement
Plans, with a minimum subsequent investment of $25; and (b) a lower initial
minimum of $100 is accepted in connection with the Automatic Bank Draft Plan,
with a minimum $25 for subsequent investments.
All purchases made by check should be in U.S. dollars and made payable to The
Enterprise Group of Funds, Inc., or in the case of a retirement account, the
custodian or trustee. Third party checks will not be accepted. When purchases
are made by check or periodic account investment, redemptions will not be
allowed until the investment being redeemed has been in the account for 15
calendar days.
Class A shares may be sold at net asset value, subject to appropriate
documentation, through a dealer where the amount invested represents redemption
proceeds from a registered open-end management investment company not
distributed by Enterprise Fund Distributors, Inc. or its affiliates if: (i) the
redeemed shares were subject to an initial sales charge or a deferred sales
charge (whether or not actually imposed); (ii) such redemption has occurred no
more than 90 days prior to purchase of Class A shares of the Fund; and (iii) the
Fund, Enterprise Fund Distributors, Inc. or its affiliates have not agreed with
such company or its affiliates, formally or informally, to sell Class A shares
at net asset value or provide any other incentive with respect to such
redemption and sale. Enterprise Distributors may in its discretion compensate
firms for sales of Class A shares under this privilege at a commission rate of
.50% of the amount of Class A shares purchased.
For accounts with balances under $1,000 as of July 31, an annual service charge
of $25 per account registration per Portfolio will apply, excluding Automatic
Bank Draft Plan Accounts, Automatic Investment Plan Accounts, Retirement
Accounts and Savings Plan Accounts.
From time to time, the Fund temporarily may suspend the offering of shares of
one or more of its Classes or Portfolios to new investors. During the period of
such suspension, persons who are already shareholders of any such Class or
Portfolio normally will be permitted to continue to purchase additional shares
and to have dividends reinvested.
Portfolio shares are purchased at the net asset value (plus, with the exception
of the Money Market Portfolio Class A Shares, the applicable sales charge) next
determined after the application for purchase of shares is received by the
Enterprise Shareholder Services Division of the Fund's Transfer Agent, National
Financial Data Services, Inc. (the "Transfer Agent"). The Distributor or the
Fund may reject any orders.
BUYING CLASS A. Class A Portfolio shares are offered to the public at the net
asset value next computed after receipt of the purchase order plus a maximum
sales charge as to all Portfolios, other than the Money Market Portfolio Class A
Shares, which carries no sales charge, of 4.75% of the offering price (4.99% of
the amount invested) on a single purchase of up to $100,000. The sales charge is
reduced on single purchases of $100,000 or more pursuant to the following table:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
SALES CHARGE
SALES CHARGE AS A DEALER DISCOUNT OR AGENCY
AS A PERCENTAGE FEE
PERCENTAGE OF OF AMOUNT AS A PERCENTAGE OF
OFFERING PRICE INVESTED OFFERING PRICE*
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $99,999 4.75% 4.99% 4.00%
- ----------------------------------------------------------------------------------------
$100,000 up to $249,999 3.75% 3.90% 3.00%
- ----------------------------------------------------------------------------------------
$250,000 up to $499,999 2.50% 2.56% 2.00%
- ----------------------------------------------------------------------------------------
$500,000 up to $999,999 2.00% 2.04% 1.50%
- ----------------------------------------------------------------------------------------
$1,000,000 and up None None See Below
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 28
*From time to time upon written notice to all of its dealers, Enterprise
Distributors may hold special promotions for specified periods during which
Enterprise Distributors may reallow dealers up to the full sales charges shown
above. During such periods, dealers may be deemed to have certain additional
responsibilities under the securities laws. In addition, Enterprise Distributors
may sponsor sales contests and provide to all qualifying dealers, from its own
profits and resources, additional compensation in the form of trips or
merchandise.
Purchases of $1 million or more of Class A shares have no initial sales charge
but are subject to a contingent deferred sales charge ("CDSC") if held for less
than two years. Enterprise Fund Distributors, Inc. will pay authorized dealers
an amount equal to 1% of the first $4.99 million of such purchases, plus .75 of
1% of amounts from $5-19.99 million, plus .50 of 1% of amounts in excess of $20
million. A CDSC of 1% will be imposed on the proceeds of the redemption of
shares if they are redeemed within 24 months of the end of the calendar month of
their purchase, in an amount of the lesser of (A) the net asset value of shares
at the time of purchase or (B) the net value of the shares at the time of
redemption. The CDSC will be deducted from the redemption proceeds otherwise
payable to the shareholder and will be retained by Enterprise Distributors.
In determining the amount of purchase of Class A shares, the aggregate dollars
being invested in all Portfolios excluding all dollars that have never been
subject to a sales charge at one time or pursuant to a Letter of Intent by the
investor, are aggregated to determine the applicable sales charge.
No sales charge applies to the reinvestment of dividends or capital gains
distributions, except for dividends earned on the Money Market Portfolio and
subsequently invested in a Portfolio other than the Money Market Portfolio.
No sales charge applies to purchases of Class A shares by any of the following:
(a) selling brokers, their employees and their registered representatives; (b)
employees, clients or direct referrals of any Portfolio Manager or of Evaluation
Associates, Inc. ("EAI"); (c) directors, former directors, employees or retirees
of the Fund or of The Mutual Life Insurance Company of New York ("MONY") and its
subsidiaries and employees of Computer Science Corporation; (d) immediate family
and employee benefit plans of any of the foregoing; (e) certain employee benefit
plans qualified under Sections 401 and 403 of the Internal Revenue Code,
including salary reduction plans qualified under Section 401(k) of the Code,
subject to minimum requirements with respect to number of participants or plan
assets which may be established by the Distributor; (f) MONY and its
subsidiaries; (g) clients of fee-based financial planners; and (h) financial
institutions and financial institutions' trust departments for funds over which
they exercise exclusive discretionary investment authority and which are held in
fiduciary, agency, advisory, custodial or similar capacity.
In addition, members of certain associations, fraternal groups, franchise
organizations and unions may enter into an agreement with the distributor which
allows members to purchase shares of the Fund Class A shares at a sales load
equal to 75% of the percentages in the above table, subject to minimum
requirements, with respect to number of participants or plan assets which may be
established by the Distributor. The Dealer Discount will also be adjusted in
like manner.
An investor seeking a reduction in sales charge with respect to a waiver of
sales charge by reason of being a member of the above-described groups, must
describe the basis for the requested reduction or waiver in documents
accompanying any new investment. The Fund may terminate, or amend the terms of,
offering shares of the Fund at net asset value or at a reduced sales charge at
any time.
BUYING CLASS B SHARES. Purchases of Class B shares will be processed at the net
asset value next determined after receipt of your purchase order for less than
$250,000. While not subject to a front-end sales charge, Class B shares may be
subject to a CDSC upon redemption. If Class B shares of any Fund are redeemed
within six years after the date on which a purchase order for Class B shares was
accepted, a CDSC will be imposed by applying the appropriate percentage
indicated below to the lesser of: (1) the net asset value of such shares at the
time of purchase or (2) the net asset value of such shares at the time of
redemption. The CDSC will be deducted from the redemption proceeds otherwise
payable to the shareholder and will be retained by Enterprise Distributors. The
CDSC to be imposed on such share redemptions will be assessed according to the
following schedule:
<PAGE> 29
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
YEARS SINCE PURCHASE ORDER OF LESS THAN $250,000 WAS APPLICABLE CLASS B CONTINGENT
ACCEPTED DEFERRED SALES CHARGE
- ---------------------------------------------------------------------------------------
<S> <C>
Up to one year 5.00%
- ---------------------------------------------------------------------------------------
One year or more but less than 2 years 4.00%
- ---------------------------------------------------------------------------------------
Two years or more but less than 3 years 4.00%
- ---------------------------------------------------------------------------------------
Three years or more but less than 4 years 3.00%
- ---------------------------------------------------------------------------------------
Four years or more but less than 5 years 2.00%
- ---------------------------------------------------------------------------------------
Five years or more but less than 6 years 1.00%
- ---------------------------------------------------------------------------------------
Six or more years None
- ---------------------------------------------------------------------------------------
</TABLE>
CONVERSION OF CLASS B SHARES. Class B shares will automatically convert to Class
A shares of the same Portfolio eight years after the end of the calendar month
in which the purchase order for Class B shares was accepted, on the basis of the
relative net asset values of the two classes and subject to the following terms:
Class B shares acquired through the reinvestment of dividends and distributions
("reinvested Class B shares") will be converted to Class A shares on a pro-rata
basis only when Class B shares not acquired through reinvestment of dividends or
distributions ("purchased Class B shares") are converted. The portion of
reinvested Class B shares to be converted will be determined by the ratio that
the purchased Class B shares eligible for conversion bear to the total amount of
purchased Class B shares eligible in the shareholder's account. For the purposes
of calculating the holding period, Class B shares will be deemed to have been
issued on the sooner of: (a) the date on which the issuance of Class B shares
occurred, or (b) for Class B shares obtained by an exchange or series of
exchanges, the date on which the issuance of the original Class B shares
occurred. This conversion to Class A shares will relieve Class B shares that
have been outstanding for at least eight years (a period of time sufficient for
Enterprise Distributors to have been compensated for distribution expenses
related to such Class B shares) from the higher ongoing distribution fee paid by
Class B shares. Only Class B shares have this conversion feature. Conversion of
Class B shares to Class A shares is contingent on the continuing availability of
a private letter revenue ruling from the Internal Revenue Service affirming that
such conversion does not constitute a taxable event for the shareholder under
the Internal Revenue Code. If such revenue ruling or an opinion of counsel is no
longer available, conversion of Class B shares to Class A shares would have to
be suspended, and Class B shares would continue to be subject to the Class B
distribution fee until redeemed.
BUYING CLASS C SHARES. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C Shares are redeemed within
12 months of their purchase, a contingent deferred sales charge of 1.0% will be
deducted from the redemption proceeds. That sales charge will not apply to
shares purchased by the reinvestment of dividends or capital gains
distributions. The charge will be assessed on the lesser of the net asset value
of the shares at the time of redemption or the original purchase price. The
contingent deferred sales charge is not imposed on the amount of your account
value represented by the increase in net asset value over the initial purchase
price (including increased due to the reinvestment of dividends and capital
gains distributions). The Class C contingent deferred sales charge is paid to
the Distributor to reimburse its expenses of providing distribution-related
services to the Fund in connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares acquired
by reinvestment of dividends and capital gains distributions, (2) shares held
for over 12 months, and (3) shares held the longest during the 12 month period.
REINVESTMENT PRIVILEGE. Class A share investors are accorded a one-time
privilege of reinvesting within 180 days of redemption free of sales charge
proceeds of shares redeemed. A shareholder of the Fund who redeems Class B and
incurs a contingent deferred sales charge ("CDSC") may utilize a one-time
privilege to reinvest up to the full amount redeemed at net asset value at the
time of the reinvestment in Class A or Class B shares of the Fund within 180
days of redemption. The amount of any CDSC also will be reinvested. The
reinvested shares will retain their original cost and purchase date for the
purposes of the CDSC. If a loss is realized on the redemption, the reinvestment
may be subject to the "wash sale" rules if made within 30 days of the
redemption, resulting in postponement of the recognition of such loss for
federal income tax purposes. The reinvestment privilege may be terminated or
modified at any time.
<PAGE> 30
EXEMPTIONS FROM CLASS A, B AND C CDSC. No CDSC will be imposed when a
shareholder redeems Class A, B or C shares in the following instances: (a)
shares or amounts representing increases in the value of an account above the
net cost of the investment due to increases in the net asset value per share;
(b) shares acquired through reinvestment of income dividends or capital gains
distributions; (c) shares acquired by exchange from any Enterprise Portfolio,
other than the Class A Money Market Fund where the exchanged shares would not
have been subject to a CDSC upon redemption; and (d) Class A shares purchased in
the amount of $1 million or more if held for more than twenty-four (24) months,
Class B shares held for more than six years and Class C shares held for more
than one year.
The CDSC does not apply to purchases of Class A shares at net asset value
described under "Net Asset Value Purchases" above and will be waived in the case
of redemptions of Class A, B or C shares in connection with (i) distributions to
participants or beneficiaries of plans qualified under Section 401(a) of the
Internal Revenue Code ("IRC") or from custodial accounts under the IRC Section
403(b)(7), individual retirement accounts under IRC Section 408(a), deferred
compensation plans under IRC section 457 and other employee benefit plans
("plans"), and returns of excess contributions made to these plans, (ii)
withdrawals under an automatic withdrawal plan where the annual withdrawal does
not exceed 10% of the value of the account (only for Class B shares); and (iii)
liquidation of a shareholder's account if the aggregate net asset value of
shares held in the account is less than the required minimum. A shareholder will
be credited with any CDSC paid in connection with the redemption of any Class A,
B shares if within 180 days after such redemption, the proceeds are invested in
the same Class of shares in the same and/or another Enterprise Portfolio.
In determining whether the Class A, B or C CDSC is payable, it will be assumed
that shares are not subject to a CDSC are redeemed first and that other shares
are then redeemed in the order purchased. No CDSC will be imposed on exchanges
to purchase shares of another Enterprise Portfolio although a CDSC will be
imposed on shares of the acquired Enterprise Portfolio purchased by exchange of
shares subject to a CDSC. The imposition of an assessment of a CDSC will occur
as of the date of the initial investment.
SPECIAL FIDUCIARY RELATIONSHIPS. The CDSC will not apply with respect to
purchase of Class A shares for which the selling dealer is not permitted to
receive a sales load or redemption fee imposed on a shareholder with whom such
dealer has a fiduciary relationship in accordance with provisions of the
Employee Retirement Income Security Act and regulations thereunder. If such
dealer agrees to the reimbursement provision described below, no sales charge
will be imposed on sales of $1,000,000 or more and Enterprise Distributors will
pay to the selling dealer a commission described above in "How to Buy Class A
Shares."
For the period of 13 months from the date of the sales referred to in the above
paragraph, the distribution fee payable by a Fund to Enterprise Distributors
pursuant to the Fund's Distribution Plan in connection with such shares will be
retained by Enterprise Distributors. In the event of a redemption of any such
shares within 24 months of purchase, the selling dealer will reimburse
Enterprise Distributors for the amount of commission paid less the amount of the
distribution fee with respect to such shares.
OTHER DEALER COMPENSATION. Enterprise Distributors will provide additional
compensation to dealers in connection with sales of shares of the Funds and
other mutual funds distributed by Enterprise Distributors ("Enterprise Funds")
including promotional gifts (which may include gift certificates, dinners and
other items), financial assistance to dealers in connection with conferences,
sales or training programs for their employees, seminars for the public and
advertising campaigns. In some instances, these incentives may be made available
only to dealers whose representatives have sold or are expected to sell
significant amounts of shares.
How the Net Asset Value is Computed. The net asset value per share for each
Class of each Portfolio of the Fund is determined by dividing the total value of
the Portfolio's investments and other assets, less any liabilities, by the total
number of outstanding shares of the Portfolio for each Class. Net asset value
per share is determined at the close of trading on each day the New York Stock
Exchange is open for trading (currently 4:00 p.m., New York time) except that
net asset value per share of the International Growth Portfolio may not, in
certain circumstances, be determined on days when the New York Stock Exchange is
open for trading but one or more foreign stock exchanges are not open for
trading. The net asset value per share is effective as of the time of
computation. In determining net asset value, the price carried by the composite
tape of all national exchanges after 4:00 p.m. New York time is used.
<PAGE> 31
Domestic equity securities are valued at the last sale price or, in the absence
of any sale on that date, the closing bid price. Domestic equity securities
without last trade information are valued at the last bid price. Domestic equity
securities, for which market quotations are not readily available, and other
assets are valued at fair value as determined in good faith by the Board of
Directors. Debt securities and foreign securities are valued on the basis of
independent pricing services approved by the Board of Directors, and such
pricing services generally follow the same procedures in valuing foreign equity
securities as are described above as to domestic equity securities.
Securities held by the Money Market Portfolio are valued on an amortized cost
basis. The Securities and Exchange Commission's rules relating to the amortized
cost method involve valuing a security at its cost and amortizing any discount
or premium over the period until maturity, without taking into account the
impact of fluctuating interest rates on the market value of the security unless
the deviation from net asset value as calculated by using available market
quotations exceeds 1/2 of 1%. At that point, the Board of Directors will
promptly decide what action, if any, will be initiated. The Money Market
Portfolio seeks to maintain a constant net asset value of $1.00 but there can be
no assurance that the Money Market Portfolio will be able to maintain a stable
net asset value. The Money Market Portfolio will not maintain a dollar weighted
average portfolio maturity which exceeds 90 days.
Although the legal rights of each class of shares are substantially identical,
the different expenses borne by each class will result in different net asset
values and dividends for each class. It is expected, however, that the net asset
values of the three classes will tend to converge immediately after the
recording of dividends, which will differ by approximately the amount of the
distribution and service related expense accrual differential among the classes.
Share Certificates. The Fund does not ordinarily issue certificates representing
shares of the Portfolios. Instead, shares are held on deposit for shareholders
by the Fund's Transfer Agent, which sends a statement of shares owned in each
Portfolio to shareholders following each transaction in the shareholder's
account. Certificates for full shares only (other than the Money Market
Portfolio) are available at no charge at any time upon written request to the
Transfer Agent. Special shareholder services such as telephone redemptions,
exchanges, electronic funds transfers and wire orders are not available as to
certificated shares.
SHAREHOLDER SERVICES
For the convenience of investors, the following plans are available:
1. Automatic Reinvestment Plan. Dividends and capital gains distributions
may be automatically reinvested in the same Class of shares or, at the
investor's election, may be paid out in cash. No sales charge is
applied upon reinvestment of dividends or capital gains. This does not
apply to Money Market Portfolio dividends invested in another
Portfolio.
2. Automatic Bank Draft Plan. An investor's bank account may be debited
monthly for automatic investment into one or more of the Portfolios for
each Class.
3. Automatic Investment Plan. An investor may debit any Portfolio
Account of a Class on a monthly basis for automatic investments into
one or more of the other Portfolios of the same Class. The Portfolio
from which the investment will be made is subject to the $1,000
minimum. The investor may then choose to have $50 or more transferred
to either an established Enterprise portfolio, or they may open a new
account subject to an initial minimum investment of $100.
4. Letter of Intent Investments. Any investor may execute a Letter of
Intent covering purchases of Class A shares of $100,000 or more, at the
public offering price, of Fund shares to be made within a period of 13
months. A reduced sales charge will be applicable to the total dollar
amount purchased in the 13-month period provided at least $100,000 is
purchased. The minimum initial investment under a Letter of Intent is
5% of the amount indicated in the Letter of Intent. Class A shares
purchased with the first 5% of such amount will be held in escrow
(while remaining registered in the name of the investor) to secure
payment of the higher sales charge applicable to the shares actually
purchased if the full amount indicated is not purchased, and such
escrowed shares will be involuntarily redeemed to pay the additional
<PAGE> 32
sales charge, if necessary. When the full amount indicated has been
purchased, the escrow will be released.
Class A investors wishing to enter into a Letter of Intent in
conjunction with their investment in shares of the Portfolios should
complete the appropriate portion of the new account application.
5. Right of Accumulation Discount. Investors who make an additional
purchase of Class A shares of the Fund which, when combined with the
value of their existing aggregate holdings of Class A shares of the
Portfolios of the Fund, each calculated at the then applicable net
asset value per share, at the time of the additional purchase, equals
$100,000 or more, will be entitled to the reduced sales charge shown
under "How to Purchase Portfolio Shares" above on the full amount of
each additional purchase. For purposes of determining the discount,
holdings of Fund shares of the investor's spouse, immediate family or
accounts controlled by the investor whether as a single investor or
trustee of a plan will be aggregated upon notification of applicable
accounts from the investor.
6. Check Writing. Investors in the Money Market Portfolio Class A Shares
with opening balances in excess of $5,000 may redeem shares by check (a
Redemption Check), as described under "Redemptions" below.
7. Bank Purchase and Redemption Plan. Any investor may initiate an ACH
(Automatic Clearing House) Purchase or Redemption directly to a bank
account when proper instructions have been established on the account.
8. Systematic Withdrawal Plan. The owner of $5,000 or more of a class of a
Portfolio's shares at the offering price (net asset value plus, in the
case of Class A shares, the initial sales charge) may provide for the
payment from the owner's account of any requested dollar amount to be
paid to the owner or a designated payee each monthly, quarterly,
semiannually or annually. The $5,000 minimum account size is not
applicable to Individual Retirement Accounts. The minimum periodic
payment is $100. The maximum annual rate at which Class B shares may be
redeemed under a systematic withdrawal plan is 10% of the net asset
value of the account. Shares are redeemed on the fifteenth day of the
month or the preceding business day if the fifteenth is a Saturday or
Sunday. Any income or capital gain dividends will be automatically
reinvested at net asset value. A sufficient number of full and
fractional shares will be redeemed to make the designated payment.
Depending upon the size of the payments requested and fluctuations in
the net asset value of the shares redeemed, redemptions for the purpose
of making such payments may reduce or even exhaust the account.
The purchase of Class A shares while participating in a systematic
withdrawal plan will ordinarily be disadvantageous to the investor
because the investor is redeeming shares upon which a sales charge may
have already been paid. Therefore, a Fund will not knowingly permit
additional investments of less than $2,000 if the investor is at the
same time making systematic withdrawals. Enterprise will waive the
contingent deferred sales charge on redemptions of Class B shares made
pursuant to a systematic withdrawal plan. The right is reserved to
amend the systematic withdrawal plan on 30 days' notice. The plan may
be terminated at any time by the investor or the Funds.
9. Retirement Plans. Shareholders may adopt Profit Sharing Plan, Money
Purchase Plan, IRA and other retirement plans funded by Portfolio
shares and other investment which plans have been approved by the
Internal Revenue Service.
The costs of these plans (exclusive of the retirement plans on which a
$10 annual custodial fee is charged) are paid by the Distributor,
except for the normal cost of issuing shares, which is paid by the
Portfolios of the Fund. Additional information concerning these plans
is available from the Distributor upon request.
<PAGE> 33
HOW TO EXCHANGE SHARES AMONG THE PORTFOLIOS
An exchange represents the sales of shares of one fund and the purchase of
shares of another, which may produce a gain or loss for tax purposes.
Shares of a Portfolio which are not subject to a CDSC exchange will be processed
at the net asset value next determined after the Transfer Agent receives your
exchange request. Shares of a Portfolio which are subject to a CDSC will be
exchangeable on the basis of the relative net asset value per share without
payment of any CDSC which might otherwise be due upon redemption of the shares
of the Portfolio. For purposes of computing the CDSC that may be payable upon a
disposition of the shares acquired in the exchange, the holding period for the
previously owned shares of the Portfolio is "tacked" to the holding period for
the newly acquired shares of other Enterprise Portfolios. The exchange feature
may be modified or discontinued at any time, upon notice to shareholders in
accordance with applicable rules adopted by the Securities and Exchange
Commission ("SEC"). Your exchange may be processed only if the shares of the
fund to be acquired are eligible for sale in your state and if the exchange
privilege may be legally offered in your state.
EXCHANGES OF CLASS A SHARES. You may exchange your Class A shares for Class A
shares of any Enterprise Portfolio. Class A shares of any Enterprise Portfolio
cannot be exchanged for Class B, C or Y shares of any Enterprise Portfolio.
EXCHANGES OF CLASS B SHARES. Class B shares of all Enterprise Portfolios are
exchangeable for Class B shares of any other Enterprise Portfolio. Class B
shares of any Enterprise Portfolio cannot be exchanged for Class A, C or Y
shares of any Enterprise Portfolio.
EXCHANGE OF CLASS C SHARES. Class C shares of all Enterprise Portfolios are
exchangeable for Class C shares of any other Enterprise Portfolio. Class C
shares of any Enterprise Portfolio cannot be exchanged for Class A, B or Y.
Exchanges may be directed by:
1. calling: Enterprise Shareholder Services 1-800-368-3527
2. writing: Enterprise Shareholder Services
P.O. Box 419731
Kansas City, MO 64141-6731
The minimum initial investment rules applicable to a Portfolio apply to any
exchange where the exchange results in a new account being opened in such
Portfolio. Exchanges into existing accounts are not subject to a minimum amount.
Original investments in the Money Market Portfolio which are transferred to
other Portfolios are not considered Portfolio exchanges but purchases.
<PAGE> 34
To exchange by letter, state the name of the Portfolio you are exchanging from,
the account name(s) and address, the account number, the dollar amount or number
of shares to be exchanged, and the Portfolio into which you are exchanging. Sign
your name(s) exactly as it appears on your account statement.
The Fund reserves the right not to allow the exercise of the exchange privilege
in less than two-week intervals. The Fund reserves the right to restrict the
exchange from any Portfolio until funds have been held in that Portfolio for at
least seven days. The Fund further reserves the right to discontinue or modify
the exchange privilege on a prospective basis at any time, including a
modification of the amount or terms of a service fee.
In addition, with regard to exchange requests made by market timers on behalf of
clients, the Fund reserves the right to delay settlement up to seven days if it
is determined by the Portfolio Manager that immediate settlement would harm the
Portfolio.
Before engaging in an exchange transaction, a shareholder should read carefully
the parts of this Prospectus describing the Portfolio into which the exchange
will occur. See "Investment Objectives and Policies of the Portfolios."
Shareholders must elect to authorize the Fund's transfer agent to act upon
telephone exchange requests. Shareholders are subject to risk should they elect
to exchange by telephone in that neither the Fund nor the Transfer Agent will be
liable for properly acting upon telephone instructions believed to be genuine.
The Fund employs reasonable procedures to confirm that instructions communicated
by telephone are genuine, and should the Fund or its transfer agent fail to
institute such procedures, it may be liable for any losses due to unauthorized
or fraudulent instructions. Telephone exchanges are activated by instructions
received from a shareholder or any person claiming to act as the shareholder's
representative who can provide the Transfer Agent with account registration
information.
Exchanges are taxable as redemptions on which gains or losses may be recognized.
HOW TO REDEEM PORTFOLIO SHARES
Any shareholder may require the Fund to redeem his or her shares in any
Portfolio. The redemption price will be the net asset value per share next
determined after receipt of all required information.
REDEMPTIONS
Redemptions may be made: (1) by telephone; (2) in writing; (3) by wire, if the
appropriate request forms have been submitted; or (4) as to the Class A Money
Market Portfolio, by check writing. Payment for shares redeemed will be made
within seven days after the request has been properly made and received. Shares
purchased by check may not be redeemed until such shares have been on the Fund's
books for at least 15 calendar days.
Telephone Redemptions. The Fund accepts telephone requests for redemptions from
shareholders who have authorized this service. Telephone requests for redemption
may be made by calling the Transfer Agent at 1-800-368-3527. Anyone making a
telephone redemption request must furnish: (1) the name and address of record of
the registered owner(s); (2) the account number; (3) the amount to be withdrawn;
and (4) the name of the person making the request. Checks for telephone
redemptions will be issued only to the registered shareowner(s) and mailed to
the last address of record or exchanged into any other Portfolio. All telephone
redemption instructions are recorded and are limited to requests of $50,000 or
less. Shareholders also have the option to have redemption proceeds transferred
directly to a bank account through the Automatic Clearing House (ACH) system.
All applicable bank information must be established on the account before this
type of redemption is initiated. Shareholders are subject to risk should they
elect to redeem by telephone in that neither the Fund nor the Transfer Agent
will be liable for properly acting upon telephone instructions believed to be
genuine. Should the Fund or its transfer agent fail to utilize reasonable
procedures, it may be liable for any losses due to unauthorized or fraudulent
instructions.
Written Redemptions. Redemption requests may be made in writing, accompanied by
any issued share certificates, to:
Enterprise Shareholder Services
P.O. Box 419731
Kansas City, MO 64141-6731
<PAGE> 35
Such written redemption requests and any share certificates or a stock power
must be endorsed by the investor. A signature guarantee is required if the
redemption proceeds exceed $50,000 or the proceeds are to be sent to an address
other than the address of record or to a person other than the registered
holder. A signature guarantee may be secured from a member firm of a domestic
securities exchange or by a commercial bank, savings and loan association,
credit union or trust company. Further documentation may be requested, and a
signature guarantee is always required, from corporations, executors,
administrators, trustees or guardians.
Wire Redemptions. For a separate $10 charge, redemptions for a maximum of
$250,000 will be wired at your request. On written requests, funds may be wired
to any bank. On a telephone request, funds may be wired only to the bank
previously designated by you in writing. If a shareholder has given
authorization for expedited wire redemption, shares can be redeemed and the
proceeds sent by federal wire transfer to a single, previously designated bank
account. Requests received prior to 4:00 p.m. (New York time) by the Fund's
Transfer Agent, will result in shares being redeemed at the next determined net
asset value, and the proceeds normally will be sent to the designated bank
account the following business day. Delivery of the proceeds of a wire
redemption request may be delayed by the Fund for up to seven days if the Fund
deems it appropriate under the then current market conditions. Once
authorization is on file, the Transfer Agent will honor requests by any
authorized person at 1-800-368-3527. This privilege may not be used to redeem
shares in certificated form. To change the name of the single designated bank
account to receive wire redemption proceeds, it is necessary to send a written
request with signature(s) guaranteed to the Transfer Agent.
Check Writing. A check redemption feature is available on the Money Market
Portfolio Class A shares in accounts with opening balances of more than $5,000.
Redemption Checks may be made payable to the order of any person in any amount
from $500 to $100,000. Up to five Redemption Checks per month may be written
without charge. Each additional Redemption Check over five in any given month
will be subject to a $5 fee. Redemption Checks are free and may be obtained by
contacting Enterprise Shareholder Services, at the telephone number or address
set forth above. A $25 fee will be imposed on any account for stopping payment
of a Redemption Check upon request by the shareholder. It is not possible to use
a Redemption Check to close out an account since additional shares accrue daily.
Redemptions by check writing may be subject to a contingent deferred sales
charge as described below. The amount of the check will be honored in full only
if there are sufficient funds available in the account to cover the fee amount
of the check plus applicable contingent deferred sales charge, if any.
CONTINGENT DEFERRED SALES CHARGE -- LARGE ORDER NAV PURCHASE PRIVILEGE
A contingent deferred sales charge of 1% may be imposed upon redemption of Class
A shares that are purchased in an amount in excess of $1,000,000 if they are
redeemed within two years of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived in the event of: (a)
redemptions by a participant-directed qualified retirement plan described in
Code Section 401(a) or a participant-directed non-qualified deferred
compensation plan described in Code Section 457; (b) redemption of shares of a
shareholder (including a registered joint owner) who has died; (c) redemption of
shares of a shareholder (including a registered joint owner) who after purchase
of the shares being redeemed becomes totally disabled (as evidenced by a
determination by the federal Social Security Administration); and (d)
redemptions under the Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B AND C SHARES
A contingent deferred sales charge may be imposed upon redemption of Class B and
C shares. There is no such charge upon redemption of any share appreciation or
reinvested dividends on Class B and C shares. Appreciation is the difference
between the share cost of the lot (net asset value at time of purchase) and the
current price at the time of redemption multiplied by the number of shares
redeemed. Redemption must occur to realize appreciation.
<PAGE> 36
The contingent deferred sales charge will be waived: (a) in the event of total
disability (as evidenced by a determination of the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of shares being redeemed; (b) in the event of the
death of the shareholder (including registered joint owner); (c) for redemptions
made pursuant to a systematic withdrawal plan (see "Special Features --
Systematic Withdrawal Plan" above); and (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59-1/2 and required minimum
distributions after age 70-1/2.
The CDSC charge B shares is computed at the following rates applied to the value
of the shares redeemed excluding amounts not subject to the charge.
<TABLE>
<CAPTION>
YEAR OF CONTINGENT
REDEMPTION DEFERRED
AFTER SALES
PURCHASE CHARGE
<S> <C>
First 5%
Second 4%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
</TABLE>
The following example will illustrate the operation of the contingent deferred
sales charge. Assume that an investor takes a single purchase of $10,000 of the
Fund's Class B shares and that 16 months later the value of the shares has grown
by $1,000 through reinvested dividends and by an additional $1,000 in
appreciation to a total of $12,000. If the investor were then to redeem the
$6,000 in share value, the contingent deferred sales charge would be payable
only with respect to $5,000 because neither the $500 of reinvested dividends nor
the $500 of share appreciation is subject to the charge. The charge would be at
the rate of 4% ($200) because it was in the second year after the purchase was
made.
The rate of the contingent deferred sales charge under the schedule above is
determined by the length of the period of ownership. Investments are tracked on
a daily basis. The period of ownership for this purpose begins the first day in
which the order for the investment is received. For example, an investment made
in June, 1996 will be eligible for the 4% charge if redeemed on or after June 1,
1997. In the event no specific order is requested, the redemption will be made
first from Class B shares representing dividends and then from the earliest
purchase of Class B shares.
REDEMPTIONS--GENERAL
The Fund's Articles of Incorporation provide that it may redeem its shares in
cash or with a pro rata portion of the assets of the appropriate Portfolio. To
date, all redemptions have been made in cash, and the Fund anticipates that all
redemptions will be made in cash in the future, but it reserves the right to
provide redemptions in assets of a Portfolio should considerations and the size
of the Portfolio require that method of redemption. The Fund has elected to
commit itself to pay in cash all requests for redemption by any shareholder of
record, limited in amount with respect to each shareholder during any 90-day
period to the lesser of: (i) $250,000 or (ii) 1% of the net asset value of the
Portfolio at the beginning of such period.
The Fund reserves the right to redeem an account at its option upon not less
than 45 days' written notice if an account's net asset value is $500 or less and
remains so during the notice period.
DISTRIBUTION PLANS
Class A, Class B and Class C and shares of each Portfolio have adopted a
separate Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Under the Plans, Class A, Class B and Class C
shares of each of the
<PAGE> 37
Funds are authorized to pay Enterprise Distributors a distribution fee for
expenses incurred in connection with the distribution of shares of the Portfolio
and a service fee for shareholder servicing.
CLASS A SHARES. Class A shares of each Portfolio pay Enterprise Distributors a
distribution fee at the annual rates of .45% of each Portfolio's average daily
net assets with the exception of the Money Market Portfolio which pays .30% of
the average daily net assets.
CLASS B SHARES. Class B shares of each Portfolio pay Enterprise Distributors a
distribution fee at the annual rate of .75% of each Portfolio's average daily
net assets with the exception of the Money Market Portfolio which pays a
distribution fee of .60% of average daily net assets. Class B shares of each
Portfolio will also pay a service fee at the annual rate of .25% of each
Portfolio's average daily net assets.
CLASS C SHARES. Class C shares of each Portfolio pay Enterprise Distributors a
distribution fee at the annual rate of .75% of each Portfolio's average daily
net assets with the exception of the Money Market Portfolio which pay a
distribution fee of .60% of average daily net assets. Class C shares of each
Portfolio will also pay a service fee at the annual rate of .25% of each
Portfolio's average daily net assets.
USE OF DISTRIBUTION AND SERVICE FEES. All or a portion of the distribution fees
paid by either Class A, B or C shares may be used by Enterprise Distributors to
pay costs of printing reports and prospectuses for potential investors and the
costs of other distribution expenses. All or a portion of the service fees paid
by the Class A, Class B or Class C Plan may be paid to broker-dealers or others
for the provision of personal continuing services to shareholders, including
such matters as responding to shareholder inquiries concerning the status of
their accounts and assistance in account maintenance matters such as changes in
address. Payments under the Plans are not limited to amounts actually paid or
expenses actually incurred by Enterprise Distributors but cannot exceed the
maximum rate set by the Plans or by the Board. It is, therefore, possible that
Enterprise Distributors may realize a profit in a particular year as a result of
these payments. The Plans have the effect of increasing the Fund's expenses from
what they would otherwise be. The Board reviews the Fund's distribution and
service fee payments and may reduce or eliminate the fee at any time without
further obligation of the Portfolio except for the reimbursement of certain
expenses as provided under the Plan for Class B shares. The SAI contains more
information about the Adviser's Agreement and the Plans.
In addition to distribution and service fees paid the Fund under Class A, Class
B and Class C Plans, Enterprise Capital (or one of its affiliates) may make
payments to dealers (including MONY Securities Corp.) and other persons which
distribute shares of the Funds (including Class Y shares). Such payments may be
calculated by reference to the net asset value of shares sold by such persons or
otherwise.
PERFORMANCE COMPARISONS
Investors may look to mutual fund reporting services such as Lipper Analytical
Services, Inc., CDA Investment Technologies, Wiesenberger Dealer Services,
Computer Directions Adviser Services, Inc., Moody's Bond Survey Index, Nelson's
Investment Manager Data Base, Morningstar, Inc., Salomon Brothers Corporate Bond
Rate-of-Return Index, Shearson Lehman Municipal Bond Index, Bond-20 Bond Index
and mortgage trade and other publications to compare the performance of each
Portfolio with other mutual funds in that Portfolio's category. Comparative
performance information from these sources may be used by the Fund in
advertising.
From time to time, articles about the Fund regarding its performance or ranking
may appear in national publications such as Kiplinger's Personal Finance
Magazine, Money Magazine, Financial World, Morningstar, Dalbar, Value Line
Mutual Fund Survey, Personal Investors, Forbes, Fortune, Business Week, Wall
Street Journal, Donaghue Mutual Funds and Barron's. Some of these publications
may publish their own rankings or performance reviews of mutual funds, including
the Fund. Reference to or reprints of such articles may be used in the Fund's
promotional literature.
From time to time, the Fund may advertise a Portfolio's "yield" and "total
return." Total return and yield are calculated separately for Class A, Class B,
Class C and Class Y shares. For Portfolios other than the Money Market
Portfolio, the yield for any 30-day (or one month) period is computed by
dividing the net investment income per share earned during such Period by the
maximum public offering price per share on the last day of the period, and then
annualizing such 30-day (or one month) yield in accordance with a formula
prescribed by the Securities and Exchange Commission which provides for
compounding on a semiannual basis.
<PAGE> 38
Current annualized yield quotations for the Money Market Portfolio are based on
the Portfolio's net investment income per share for a seven-day period and
exclude any realized or unrealized gains or losses on portfolio securities. The
yield is computed by determining the net change in value for a hypothetical
account having a balance of one share at the beginning of the period, excluding
any realized or unrealized gains or losses, and dividing by the price per share
at the beginning of the period (expected to remain constant at $1). The net
change is then annualized by multiplying it by 365/7, with the current yield
figure carried to the nearest one-hundredth of one percent. The effective yield
of the Money Market Portfolio for a seven-day period is computed by expressing
the unannualized return for that period on a compounded, annualized basis.
A Portfolio may also advertise in items of sales literature an "actual
distribution rate" which is computed in the same manner as yield except that
actual income dividends declared per share during the period in question are
substituted for net investment income per share.
Advertisements of the Portfolio's total return disclose the Portfolio's average
annual compounded total return for its most recently completed fiscal year and
the appropriate periods since the Portfolio's inception. The Portfolio's total
return for each such period is computed by finding, through the use of a formula
prescribed by the Securities and Exchange Commission, the average annual
compounded rates of return over the period that would equate an assumed initial
amount invested to the value of the investment at the end of the period. For
purposes of computing total return, income dividends and capital gains
distributions paid on shares of the Portfolio are assumed to have been
reinvested when received and the front end sales charge applicable to sales of
Portfolio shares (other than the Money Market Portfolio) is assumed to have been
paid.
Any distribution rate, yield or total rate of return figure should not be
considered as representative of the performance of a Portfolio in the future. In
addition, the Income Portfolios' performance figures are not directly comparable
to those of bank deposits and other similar investments, which maintain a fixed
principal value and pay a fixed yield on the principal amount. These Portfolios'
net asset values are not fixed. They vary based not only upon the type, quality
and maturities of the securities held in the Portfolio, but also on the changes
in the current value of such securities and on changes in the Portfolios'
expenses. For narrative discussions of the Fund's performance including graphs
comparing Portfolios to various securities indexes, please request a copy of an
Annual Report to Shareholders from the Fund.
The Money Market Portfolio's actual yields will fluctuate, and are not
necessarily indicative of future actual yields. Actual yields are dependent on
such variables as portfolio quality, average portfolio maturity, the type of
instruments in which investments are made, changes in interest rates on money
market instruments, portfolio expenses and other factors.
MANAGEMENT OF THE FUND
DIRECTORS
The Board of Directors of the Fund is responsible for the management of the
business of the Fund under the laws of Maryland, and it is primarily responsible
for reviewing the activities of Enterprise Capital, the various Portfolio
Managers and the Distributor under the Investment Advisory and Portfolio Manager
Agreements and the Distributor's Agreement and Plan of Distribution which relate
to the operations of the Fund and its Portfolios. Information concerning the
Directors, including their names, positions, terms of office and principal
occupations during the past five years, is contained in the Statement of
Additional Information.
INVESTMENT ADVISER ARRANGEMENTS
The Fund has entered into an Investment Adviser's Agreement with Enterprise
Capital Management, Inc. ("Enterprise Capital") which, in turn, has Portfolio
Management agreements with each of the Portfolio Managers discussed below.
Enterprise Capital acts as the Portfolio Manager for the Money Market Portfolio.
It is Enterprise Capital's responsibility to select, subject to the Board of
Directors' review and approval, Portfolio Managers who have distinguished
themselves by able performance in their respective areas of responsibility and
to review their continued performance. Enterprise Capital is assisted in this
duty by Evaluation Associates, Inc., which has had 25 years of experience in
evaluating investment advisers for individuals and institutional investors.
<PAGE> 39
Enterprise Capital and the Fund have received an exemptive order from the
Securities and Exchange Commission which permits Enterprise, subject to, among
other things, initial shareholder authority, to thereafter enter into or amend
Portfolio Manager Agreements without obtaining shareholder approval each time.
On April xx, 1997, shareholders voted affirmatively to give the Fund this
ongoing authority. With Board approval, Enterprise Capital is permitted to
employ new Portfolio Managers for the Portfolios, change the terms of the
Portfolio Manager Agreements or enter into a new Agreement with that Portfolio
Manager. Shareholders of a Portfolio continue to have the right to terminate the
Portfolio Manager's Agreement for the Portfolio at any time by a vote of the
majority of the outstanding voting securities of the Portfolio. Shareholders
will be notified of any Portfolio Manager changes or other material amendments
to Portfolio Manager Agreements that occur under these arrangements.
Enterprise Capital is also responsible for conducting all operations of the Fund
except those operations contracted to the Transfer Agent and
Custodian.Enterprise Capital is a subsidiary of The Mutual Life Insurance
Company of New York ("MONY"), one of the nation's largest insurance companies.
Enterprise Capital, which was incorporated in 1986, served as principal
investment adviser to Alpha Fund, Inc., the predecessor of the Fund's Growth
Portfolio. Enterprise Capital's address is Atlanta Financial Center, 3343
Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326.
PORTFOLIO MANAGERS
The following sets forth certain information about each of the Portfolio
Managers, the annual rate of compensation as a percentage of the Portfolio's net
assets paid to Enterprise Capital ("Management Fee") and the portion of the
Management Fee that Enterprise Capital pays to the respective Portfolio
Managers. Typical minimum investment requirements for the Portfolio Managers
range from $1,000,000 to $50,000,000. Due to these high minimums, this level of
professional management was previously reserved for institutional investors and
high net worth individuals. Collectively, the Portfolio Managers manage assets
in excess of $232 billion.
GROWTH PORTFOLIO - The Portfolio Manager of the Growth Portfolio is Montag &
Caldwell, Inc. ("Montag & Caldwell"). It has served as investment adviser to
Alpha Fund, Inc., the predecessor of the Growth Portfolio, since the Fund was
organized in 1968. Ronald E. Canakaris, President and Chief Investment Officer,
is responsible for the day to day investment management of the Portfolio and has
more than 33 years experience in the investment industry. Montag & Caldwell and
its predecessors have been engaged in the business of providing investment
counseling to individuals and institutions since 1945. It is controlled by
Allegheny Corporation, a holding company owning 100% of the stock of Montag &
Caldwell. Total assets under management for all clients at December 31, 1996,
approximated $8.5 billion. Usual investment minimum: $20 million. Representative
clients include: Alexander & Alexander Services; American Business Products; and
Wake Forest University. Its address is 1100 Atlanta Financial Center, 3343
Peachtree Road, N.E., Atlanta, Georgia 30326. The Management Fee paid by the
Growth Portfolio is .75% of net assets, and the Portfolio Manager receives 40%
of that fee for assets under management up to $100,000,000; 33% for assets from
$100,000,000 to $200,000,000; and 27% for assets greater than $200,000,000.
GROWTH AND INCOME PORTFOLIO The Portfolio Manager of the Growth and Income
Portfolio is Retirement System Investors Inc. which is a subsidiary of
Retirement Group Inc. Its address is 317 Madison Ave., New York, New York 10122.
James P. Coughlin, President and Chief Investment Officer, is responsible for
the day to day management of the Portfolio and has more than XX years experience
in the investment industry. Total assets under management for Retirement
Investors Inc. was $XX million as of December 31, 1996. Usual investment minimum
is $XX million. The Management Fee is .75%, and the Portfolio Manager receives
40% of that fee for assets under management up to $100,000,000 million; 33% of
that fee on the next $100,000,000; and 27% of that fee thereafter.
EQUITY PORTFOLIO--The Portfolio Manager of the Equity Portfolio is OpCap
Advisors which is a subsidiary of Oppenheimer Capital, a general partnership.
The Portfolio Manager and its affiliates have operated as investment advisers to
both mutual funds and other clients since l968, and had approximately $48.3
billion under management as of December 31, 1996. Eileen Rominger, Senior Vice
President of Oppenheimer Capital, is responsible for the day-to-day management
of the Portfolio. Ms. Rominger has more than 18 years experience in the
investment industry. The annual Management Fee is .75% of average daily net
assets
<PAGE> 40
and the Portfolio Manager receives 40% of average daily net assets up to
$100,000,000 and 30% thereafter. Usual investment minimum is $10 million.
Representative clients include Pacific Telesis Group, Caterpillar, Inc. and New
York State Electric & Gas. OpCap's address is One World Financial Center, New
York, New York 10281.
EQUITY INCOME PORTFOLIO - The Portfolio Manager of the Equity Income Portfolio
is 1740 Advisers, Inc. ("1740 Advisers"). It is a subsidiary of MONY. Its
address is 1740 Broadway, New York, New York 10019. John V. Rock, President and
Director, is responsible for the day to day investment management of the
Portfolio and has more than 33 years experience in the investment industry.
Total assets under management (for the Equity Income Portfolio and all other
accounts managed) at December 31, 1996, were approximately $1.2 billion. Usual
investment minimum: $20 million. The Management Fee paid by the Equity Income
Portfolio is .75% of net assets, and the Portfolio Manager receives 40% of that
fee for assets under management up to $100,000,000 and 30% thereafter.
CAPITAL APPRECIATION PORTFOLIO - The Portfolio Manager of the Capital
Appreciation Portfolio is Provident Investment Counsel, Inc. ("PIC"). PIC traces
its origins to an investment partnership formed in 1951. PIC is a wholly owned
subsidiary of United Asset Management, Inc. Jeffrey J. Miller is a Managing
Director of the firm and is responsible for the day to day management of the
Portfolio. He has more than 24 years experience in the investment industry.
Representative clients include: Bell Atlantic, McGraw-Hill and International
Paper Co. Its address is 300 North Lake Avenue, Pasadena, California 91101. As
of December 31, 1996, total assets under management for all clients were $18
billion. Usual investment minimum: $5 million. The Management Fee is .75% and
the Portfolio Manager receives 66% of that fee for assets under management up to
$100 million; .60% for assets under management for the next $100 million; and
.40% for assets thereafter.
SMALL COMPANY GROWTH PORTFOLIO The Portfolio Manager of the Small Company Growth
Portfolio is Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter"). Its offices
are at 1255 Drummers Lane, Suite 300, Wayne, Pennsylvania 19087. Pilgrim Baxter
is a wholly owned subsidiary of United Asset Management, Inc. Gary Pilgrim,
Chief Investment Officer of the firm, is responsible for the day to day
management of the Portfolio. He has more than 29 years experience in the
investment industry. As of December 31, 1996, total assets under management for
all clients was $14.7 billion. Usual investment minimum: $20 million. The
Management Fee is 1.00% and the Portfolio Manager receives 65% of that fee for
assets under management up to $50,000,000 million; and 55% for assets under
management for the next $50,000,000 million; and 45% for assets thereafter.
SMALL COMPANY VALUE PORTFOLIO - The Portfolio Manager of the Small Company Value
Portfolio is GAMCO Investors, Inc. ("GAMCO"). Its offices are located at One
Corporate Center, Rye, New York 10580. GAMCO is a majority owned subsidiary of
Gabelli Funds, Inc. GAMCO's predecessor, Gabelli & Company, Inc., was founded in
1977 by Mario J. Gabelli who has served as its chief investment officer since
inception. He will be responsible for the day-to-day management of the Portfolio
and has more than 26 years of experience in the investment industry. As of
December 31, 1996, total assets under management for all clients were $5.2
billion. Usual investment minimum is $1 million. The Management Fee is .75% and
the Portfolio Manager receives 53% of that fee for assets under management up to
$1,000,000,000 and 40% for assets in excess of $1,000,000,000.
INTERNATIONAL GROWTH PORTFOLIO - The Portfolio Manager of the International
Growth Portfolio is Brinson Partners, Inc. ("Brinson"). Day to day management of
this Portfolio is performed by a committee. Brinson Partners is a wholly owned
subsidiary of Swiss Bank Corporation. As of December 31, 1996, Brinson's assets
under management for all clients approximated $71.6 billion. Usual investment
minimum: $25 million. Brinson's address is 209 South LaSalle Street, Chicago,
Illinois 60604. The Management Fee is .85%, and the Portfolio Manager receives
53% of that fee for assets under management up to $100 million; 41% of that fee
for assets under management from $100 million to $200 million; 38% of that fee
for assets from $200 million to $500 million; and 29% of that fee for assets
greater than $500 million.
GOVERNMENT SECURITIES PORTFOLIO - The Portfolio Manager of the Government
Securities Portfolio is TCW Funds Management, Inc. The firm, founded in 1971, is
a wholly-owned subsidiary of TCW Management Company, a Nevada corporation, whose
direct and indirect subsidiaries, including Trust Company of the West and TCW
Asset Management Company, provide a variety of trust, investment management and
investment advisory services.
<PAGE> 41
Philip A. Barach, Managing Director, and Jeffrey E. Gundlach, Managing Director,
are responsible for the day to day investment management of the Portfolio and
have more than 33 years combined experience in the investment industry. As of
December 31, 1996 TCW and its affiliated companies had approximately $54 billion
under management or committed for management in various fiduciary and advisory
capacities. Usual investment minimum: $35 million. The firm's address is 865
South Figueroa Street, Suite 1800, Los Angeles, California 90017. The
Management Fee is .60% and the Portfolio Manager receives 50% of that fee
for assets under management up to $50,000,000 and 42% of that fee for assets
under management greater than $50,000,000.
HIGH-YIELD BOND PORTFOLIO - The Portfolio Manager of the High-Yield Bond
Portfolio is Caywood-Scholl Capital Management ("Caywood-Scholl"). This firm
was formed in April 1986 and the following individuals own its stock: James
Caywood, Eric Scholl and Salim Shah. Mr. Caywood, Managing Director and Chief
Executive Officer, is responsible for the day to day management of the
Portfolio. He has more than 28 years of investment industry experience.
Caywood-Scholl provides investment advice exclusively with respect to high
yield, low grade fixed income instruments. As of December 31, 1996, assets
under management for all clients approximated $732 million. Usual investment
minimum: $1 million. The address of Caywood-Scholl Capital Management is 4350
Executive Drive, Suite 125, San Diego, California 92121. The Management Fee is
.60%, and the Portfolio Manager receives 50% of that fee for assets up to
$100,000,000 and 42% of that fee for assets above $100,000,000.
TAX-EXEMPT INCOME PORTFOLIO - The Portfolio Manager of the Tax-Exempt Income
Portfolio is Morgan Stanley Asset Management, Inc. ("Morgan Stanley"), which was
founded in 1975 and serves as investment manager to a variety of institutional
investors. Gerald P. Barth, Vice President, is responsible for the day to day
management of the Portfolio and has more than 13 years industry experience.
Morgan Stanley is a wholly-owned subsidiary of Morgan Stanley Group, Inc., which
is a publicly owned investment banking firm. As of December 31, 1996, Morgan
Stanley managed approximately $72.6 billion of assets for its various clients.
Usual investment minimum: $25 million.. Its address is 1221 Avenue of the
Americas, New York, New York 10020. The Management Fee is .50%, and the
Portfolio Manager receives 50% of that fee for assets under management up to
$50,000,000 and 30% of that fee for assets above $50,000,000.
MANAGED PORTFOLIO - The Portfolio Manager of the Managed Portfolio is OpCap
Advisors, a majority owned subsidiary of Oppenheimer Capital, a general
partnership. The investments of the Managed Portfolio are managed by Richard J.
Glasebrook II, Managing Director of Oppenheimer Capital. He has more than 32
years of investment industry experience. As of March 31, 1996, Oppenheimer
Capital and its affiliates had over $48.3 billion under management. Its usual
investment minimum is $10 million. Its address is One World Financial Center,
New York, New York 10281. The Management Fee is .75% and the Portfolio Manager
receives 53% of that fee for assets up to $100,000,000 and 40% of that fee for
assets in excess of $100,000,000. This fee is higher than that of other flexible
funds.
MONEY MARKET PORTFOLIO - The Portfolio Manager of the Money Market Portfolio is
Enterprise Capital, a wholly-owned subsidiary of MONY. Its address is Atlanta
Financial Center, 3343 Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326.
Enterprise Capital utilizes the services of The Mutual Life Insurance Company of
New York employees for certain services relating to management of the Portfolio.
Day-to-day management of the Portfolio is performed by a committee. MONY's
address is 1740 Broadway, New York, New York 10019. Enterprise Capital began
operating as Portfolio Manager on May 1, 1992. Total money market assets in the
Portfolio at December 31, 1996, approximated $60.4 million. The Management Fee
is .35%.
PAYMENT OF EXPENSES
The Investment Advisory Agreement obligates Enterprise Capital to provide
investment advisory services to the Portfolios of the Fund and to furnish the
Fund with certain administrative, clerical, bookkeeping and statistical
services, office space and facilities and for paying the compensation of the
officers of the Fund. Each Portfolio pays all other expenses incurred in its
operation, and a portion of the Fund's general administrative expenses is
allocated to each Portfolio either on the basis of its asset size, on the basis
of special needs of such Portfolio, or equally, as is deemed appropriate. These
expenses include expenses such as: custodial, transfer agent, brokerage,
auditing and legal services, the printing of Prospectuses sent to existing
shareholders, expenses relating to
<PAGE> 42
bookkeeping and recording and determining the net asset value of shares, and the
expenses of qualification of a Portfolio's shares under the federal and state
securities laws. The Fund's Board of Directors annually reviews allocation of
expenses among the Portfolios.
Enterprise Capital has advised the Fund that it will reimburse such portion of
the fees due to it under the Investment Adviser's Agreement as is necessary to
assure, for the period commencing January 1, 1997 and ending no earlier than
December 31, 1997, that expenses incurred by the Portfolios will not exceed the
following percentages of average annual assets (annualized for periods of less
than a fiscal year): Growth (A) 1.60%; (B) 2.15% (C) 2.15% Equity Income (A)
1.5%; (B) 2.05% (C) 2.05% Capital Appreciation (A) 1.75%; (B) 2.30% (C) 2.30%
Small Company Value (A) 1.75%; (B) 2.30%; (C) 2.30%; International Growth (A)
2.0%; (B) 2.55%; (C) 2.55% Government Securities (A) 1.3%; (B) 1.85% (C) 1.85%
High-Yield Bond (A) 1.3%; (B) 1.85% (C) 1.85% Tax-Exempt Income (A) 1.25%; (B)
1.80% (C) 1.80% Managed (A) 1.75%; (B) 2.30%; (C) 2.30% and Money Market
(A) 1.0%; (B) 1.55% (C) 1.55%. The Portfolio Managers have advised the Fund
that they may assist in a portion of the above-referenced reimbursement from
time to time.
Enterprise Capital and the Fund entered into five agreements pursuant to which
Enterprise Capital advanced on behalf of the Fund $33,748 to cover the costs of
expanding the series to include a Small Company Value Portfolio $43,278 of
expanding the series to include a Managed Portfolio; and $43,000 for each of the
following: Equity Portfolio, Growth & Income Portfolio and Small Company Growth
Portfolio and completing the appropriate registrations under the Investment
Company Act of 1940, the Securities Act of 1933, and certain state securities
laws. The agreements provide that these amounts will be repaid by each
Portfolio, in five equal annual increments without interest, commencing at the
end of the first fiscal year at which each such Portfolio have total net assets
of $5 million or more. The Small Company Portfolio and Managed Portfolio have
commenced such payments.
TAXES
Each Portfolio of the Fund has qualified and intends to continue to qualify as a
"regulated investment company" in 1995 under the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"). For purposes of the Code, each
Portfolio is regarded as a separate regulated investment company. If any
Portfolio qualifies as a "regulated investment company" and complies with
provisions of the Code which require regulated investment companies to
distribute substantially all of their net income (both ordinary income and
capital gain), the Portfolios will be relieved of federal income tax on the
amounts distributed.
Dividends declared out of a Portfolio's net investment income, taking account of
its realized short-term capital gains to the extent that they exceed its
realized short-term capital losses but not taking account its realized long-term
capital gains and losses, are taxable to its shareholders as ordinary income,
whether such dividends are received in cash or additional shares. If, for any
taxable year, a Portfolio complies with certain requirements, some or all of the
dividends (excluding capital gain dividends, as defined in the Code) received by
the Portfolio's corporate shareholders may qualify for the 70% dividends
received deduction available to corporations.
Distributions declared out of a Portfolio's realized net capital gain (realized
net long-term capital gains in excess of realized net short-term capital losses)
and designated by the Portfolio as a capital gain dividend in a written notice
to the shareholders are taxable to such shareholders as long-term capital gain
without regard to the length of time a shareholder has held stock of the
Portfolio and regardless of whether paid in cash or additional shares.
The Portfolios may be required to withhold for federal income taxes 31%
("Back-Up Withholding") of the distributions and the proceeds of redemptions
payable to shareholders who fail to comply with regulations requiring that they
provide a correct social security or taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to back-up Withholding. Corporate shareholders and
certain other shareholders specified in the Code are exempt from Back-Up
Withholding.
Distributions from retirement plans are also subject to 20% federal withholding
if the shareholder fails to provide a tax identification number to the trustee
or custodian and funds are not rolled over.
<PAGE> 43
No gain or loss will be recognized by Class B shareholders upon the conversion
of Class B shares into Class A shares.
TAX-EXEMPT INCOME PORTFOLIO
Dividends derived from interest on Municipal Securities and designated by the
Portfolio as exempt interest dividends by written notice to the shareholders,
under existing law, are not subject to federal income tax. Dividends derived
from net long-term capital gains realized by the Portfolio are taxable to
shareholders as a capital gain upon distribution. Any short-term capital gains
or any taxable interest income realized by the Portfolio will be distributed as
a taxable ordinary income dividend distribution. These rules apply whether such
distribution is made in cash or in additional shares. The percentage of income
that is tax-exempt is applied uniformly to all distributions made by the
Portfolio during each year. As with shares in all Portfolios, a sale, exchange
or redemption of shares in the Tax-Exempt Income Portfolio is a taxable event
and may result in capital gain or loss. In addition, generally any capital loss
realized from shares held for six months or less is disallowed to the extent of
tax-exempt dividend income received.
The Tax-Exempt Income Portfolio declares and pays dividends monthly on the last
business day of the month. When a shareholder redeems shares of the Portfolio on
other than a dividend payment date, a portion of the shareholder's redemption
proceeds will represent accrued tax-exempt income which will be treated as part
of the amount realized for purposes of capital gains computations for federal
and state or local income tax purposes and will not be tax-exempt.
The Tax Reform Act of 1986 makes income from certain "private activity" bonds
issued after August 7, 1986, an item of tax preference for the alternative
minimum tax at a maximum rate of 28% for individuals and 20% for corporations.
If the Portfolio invests in private activity bonds, shareholders may be subject
to the alternative minimum tax on that part of such Portfolio distributions
derived from interest income on those bonds. The Tax-Exempt Income Portfolio
does not intend to invest more than 20% of its assets in private activity bonds.
In higher income brackets, up to 85% of an individual's Social Security benefits
may be subject to federal income tax. Along with other factors, total tax-exempt
income, including any tax-exempt dividend income from the Portfolio, is taken
into account in determining that portion of Social Security benefits which is
taxed.
The treatment for state and local tax purpose of distributions from the
Tax-Exempt Income Portfolio representing Municipal Securities interests will
vary according to the laws of state and local taxing authorities.
FOREIGN INCOME TAXES
Investment income received by the International Growth Portfolio from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries which entitle the Portfolio to a reduced rate of tax or exemption from
tax on such income. It is impossible to determine the effective rate of foreign
tax in advance since the amount of these Portfolio's assets to be invested
within various countries is not known. The Portfolio intends to operate so as to
obtain treaty-reduced rates of tax where applicable.
To the extent that this Portfolio is liable for foreign income taxes withheld at
the source, the Portfolio also intends to operate so as to meet the requirements
of the Code to "pass through" to the Portfolio's shareholders credits for
foreign income taxes paid, but there can be no assurance that the Portfolio will
be able to do so.
EXCISE TAX
The Federal tax laws impose a four percent nondeductible excise tax on each
regulated investment company with respect to the amount, if any, by which such
company does not meet distribution requirements specified in such tax laws. Each
Portfolio of the Fund intends to comply with such distribution requirements and
thus does not expect to incur the four percent nondeductible excise tax.
<PAGE> 44
GENERAL
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury Regulations in effect, as currently interpreted by the
Courts and by the Internal Revenue Service in published revenue rulings and in
private letter rulings and is only applicable to U.S. persons. These
interpretations can be changed at any time. For the complete provisions,
reference should be made to the pertinent Code sections and the Treasury
Regulations promulgated thereunder. The above discussion covers only federal
income tax considerations with respect to the Portfolios and their shareholders.
State and local tax laws vary greatly, especially with regard to the treatment
of exempt-interest dividends. Shareholders should consult their own tax advisers
for more information regarding the federal, state, and local tax treatment of
each Portfolio's shareholders.
Statements indicating the tax status of distributions to each shareholder will
be mailed to each shareholder annually.
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute substantially all of the net investment
income and realized net capital gains, if any, of each Portfolio. The per share
dividends and distribution on each class of shares of a Portfolio will be
reduced as a result of any service fees applicable to that class. For dividend
purposes, net investment income of each Portfolio will consist of substantially
all dividends received, interest accrued, net short-term capital gains realized
by such Portfolio less the estimated expenses of such Portfolio.
Unless shareholders request otherwise, by notifying the Fund's Transfer Agent,
dividends and capital gains distributions will be automatically reinvested in
shares of the respective Portfolio at net asset value; such reinvestments
automatically occur on the payment date of such dividends and capital gains
distributions. At the election of any shareholder, dividends or capital gains
distributions, or both, will be distributed in cash to such shareholders.
However, if it is determined that the U.S. Postal Service cannot properly
deliver Fund mailings to the shareholder, the respective Portfolios will
terminate the shareholder's election to receive dividends and other
distributions in cash. Thereafter, the shareholder's subsequent dividends and
other distributions will be automatically reinvested in additional shares of the
respective Portfolios until the shareholder notifies the Transfer Agent or the
Portfolio in writing of his or her correct address and requests in writing that
the election to receive dividends and other distributions in each be reinstated.
Distributions of capital gains from each of the Portfolios, other than the Money
Market Portfolio, are made annually. Dividends from investment income of the
Equity Portfolios (except the Equity Income Portfolio) and Managed Portfolio are
declared and paid annually. Dividends on the Equity Income Portfolio are paid
semiannually. Dividends from investment income of the Income Portfolios are
declared daily and paid monthly. Dividends from investment income and any net
realized capital gains of the Money Market Portfolio are declared daily and
reinvested monthly in additional shares of the Money Market Portfolio at net
asset value.
BROKERAGE TRANSACTIONS
Each Portfolio Manager selects the brokerage firms which complete portfolio
transactions for that Portfolio, subject to the overall direction and review of
Enterprise Capital and the Board of Directors of the Fund.
The initial criterion which must be met by any Portfolio Manager in selecting
brokers and dealers to effect securities transactions for a Portfolio is whether
such brokers and dealers can obtain the most favorable combination of price and
execution for the transaction. This does not mean that the execution decision
must be based solely on whether the lowest possible commission costs may be
obtained. In seeking to achieve the best combination of price and execution, the
Portfolio Managers evaluate the overall quality and reliability of
broker-dealers and the service they provide, including their general execution
capability, reliability and integrity, willingness to take positions in
securities, general operational capabilities and financial condition. All
brokerage transactions shall comply with Investment Company Act Rule 17e-1.
Subject to this primary objective, the Portfolio Managers may select for
brokerage transactions those firms which furnish brokerage and research services
to the Fund, Enterprise Capital, and the respective Portfolio Managers, or those
firms who agree to pay certain of the Fund's expenses, including certain
custodial and transfer agent
<PAGE> 45
services, and, consistent with the National Association of Securities Dealers,
Inc. Rules of Fair Practice, those firms which have been active in selling
shares of the Fund.
GENERAL INFORMATION
ORGANIZATION OF FUND
The Fund was incorporated January 2, 1968, as Alpha Fund, Inc., and its name was
changed to The Enterprise Group of Funds, Inc. on September 14, 1987, and it
expanded into a series fund and Alpha Fund became the Growth Portfolio of the
Fund. The Money Market Portfolio was added commencing May 1, 1990; the Small
Company Value Portfolio was added commencing October 1, 1993; the Managed
Portfolio was added commencing October 3, 1994; and the Growth and Income
Portfolio, Equity Portfolio and Small Company Growth Portfolio were added on May
1, 1997. Class A, B and Y shares were established May 1, 1995. Class C shares
were established on May 1, 1997. The Fund is a Maryland corporation. Each
Portfolio of the Fund is diversified, as that term is defined in the Investment
Company Act of 1940.
OTHER CLASSES OF SHARES
Each Portfolio currently offers four classes of shares, Class A, Class B, Class
C and Class Y, and may in the future offer additional classes. Class A, Class B
and Class C shares are the only classes of shares offered by this Prospectus.
Class Y shares are only available to certain institutional purchasers of $1
million or more and to The Mutual of New York Employee 401(k) Plan and the
Enterprise Capital Management, Inc. 401(k) Plan. Institutional investors
eligible to purchase Class Y shares include banks, savings institutions, trust
companies, insurance companies, investment companies as defined by the
Investment Company Act of 1940, pension or profit sharing trusts, certain wrap
account clients of broker/dealers, former shareholders of Retirement System Fund
Inc. or other financial institutional buyer. Wrap account clients of
broker/dealers and former Retirement System Fund Inc. shareholders are offered
Class Y shares at a lower minimum purchase amount.
CAPITAL STOCK
The authorized capital stock of the Fund consists of Common Stock, par value
$0.10 per share. The shares of Common Stock are divided into thirteen series
with each series representing a separate Portfolio. The Board of Directors may
determine the number of authorized shares for each series and to create new
series of Common Stock. It is anticipated that new classes will be authorized by
the Board from time to time as new Portfolios with separate investment
objectives and policies are established.
Each class of shares is entitled to participate in dividends and distributions
declared by the respective Portfolios and in net assets of such Portfolios upon
liquidation or dissolution remaining after satisfaction of outstanding
liabilities, except that each Class will bear its own distribution and
shareholder servicing charges. The shares of each Portfolio, when issued, will
be fully paid and nonassessable, have no preference, preemptive, conversion,
exchange or similar rights, and will be freely transferable. Holders of shares
of any Portfolio are entitled to redeem their shares as set forth under "How to
Redeem Fund Shares."
VOTING RIGHTS
Shares of each Portfolio are entitled to one vote per share and fractional votes
for fractional shares. The Fund's shareholders have the right to vote on the
election of Directors of the Fund and on any and all other matters on which, by
law or the provisions of the Fund's bylaws, they may be entitled to vote.
Each series (i.e., Portfolio) of the Fund is further divided into four classes
of shares: Class A, Class B, Class C and Class Y. Class A, Class B, Class C and
Class Y shares represent interests in the same assets of a Portfolio and are
identical in all respects, except that Class A and Class B, and Class C shares
bear certain expenses related to distribution and servicing of such shares.
On matters relating to all Portfolios or Classes of shares and affecting all
Portfolios or Class of shares in the same manner, shareholders of all Portfolios
or Classes of shares are entitled to vote. On any matters affecting only one
Portfolio, only the shareholders of that Portfolio are entitled to vote. On
matters relating to all the Portfolios but
<PAGE> 46
affecting the Portfolios differently, separate votes by Portfolio are required.
Each class has exclusive voting rights with respect to matters related to
distribution and servicing expenditures, as applicable.
The Fund and its Portfolios are not required by Maryland law to hold annual
meetings of shareholders under normal circumstances. The Board of Directors or
the shareholders may call special meetings of the shareholders for action by
shareholder vote, including the removal of any or all of the Directors, as may
be required by either the Articles of Incorporation or bylaws of the Fund, or
the Investment Company Act of 1940. Shareholders possess certain rights related
to shareholder communications which, if exercised, could facilitate the calling
by shareholders of a special meeting.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank & Trust Company of Boston, Massachusetts acts as Custodian of
the Fund's assets.
National Financial Data Services, Inc. acts as the Fund's Transfer Agent and
Dividend Disbursing Agent. National Financial Data Services, Inc. is a joint
venture of State Street Bank & Trust Company of Boston, Massachusetts and DST
Systems, Inc. of Kansas City, Missouri.
REPORTS TO SHAREHOLDERS.
The Fund sends to all its shareholders annual and semiannual reports, including
a list of investment securities held in the Portfolios.
<PAGE> 47
APPENDIX
DESCRIPTION OF MUNICIPAL SECURITIES
Municipal Securities are notes and bonds issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, the interest
on which is exempt from federal income taxes and, in certain instances,
applicable state or local income taxes. These securities are traded primarily in
the over-the-counter market.
Municipal Securities are issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, schools,
streets, water and sewer works and gas and electric utilities. Municipal
Securities may also be issued in connection with the refunding of outstanding
Municipal Securities obligations, obtaining funds to lend to other public
institutions and for general operating expenses. Industrial Development Bonds
("IDBs") are issued by or on behalf of public authorities to obtain funds to
provide privately operated facilities for business and manufacturing, housing,
sports, pollution control, and for airport, mass transit, port and parking
facilities and are considered tax-exempt bonds if the interest thereon is exempt
from federal income taxes.
The two principal classifications of tax-exempt bonds are "general obligation"
and "revenue." General obligation bonds are secured by the issuer's pledge of
its full faith and credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source. Although IDBs are
issued by municipal authorities, they are generally secured only by the revenues
derived from payment of the industrial user. The payment of principal and
interest on IDBs is dependent solely upon the ability of the user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment.
Tax-exempt notes are of short maturity, generally less than three years. They
include such securities as Project Notes, Tax Anticipation Notes, Revenue
Anticipation Notes, Bond Anticipation Notes and Construction Loan Notes.
Tax-exempt commercial paper consists of short term obligations generally having
a maturity of less than nine months.
New issues of Municipal Securities are normally offered on a when-issued basis,
which means that delivery and payment for these securities normally takes place
15 to 45 days after the date of commitment to purchase.
Yields of Municipal Securities depend upon a number of factors, including
economic, money and capital market conditions, the volume of Municipal
Securities available, conditions within the Municipal Securities market, and the
maturity, rating and size of individual offerings. Changes in market values of
Municipal Securities may vary inversely in relation to changes in interest
rates. The magnitude of changes in market values in response to changes in
market rates of interest typically varies in proportion to the quality and
maturity of obligations. In general, among Municipal Securities of comparable
quality, the longer the maturity, the higher the yield, and the greater
potential for price fluctuations.
FLOATING RATE AND VARIABLE RATE SECURITIES
The Tax-Exempt Income Portfolio may invest in floating rate and variable rate
tax-exempt securities. These securities are normally IDBs or revenue bonds that
provide that the rate of interest is set as a specific percentage of a
designated base rate, such as rates of treasury bills or bonds or the prime rate
at a major commercial bank and provide that the holders of the securities can
demand payment of the obligation on short notice at par plus accrued interest,
which amount may be more or less than the amount initially paid for the bonds.
Floating rate securities have an interest rate which changes whenever there is a
change in the designated base interest rate, while variable rate securities
provide for a specific periodic adjustment in the interest rate. Frequently such
securities are secured by letters of credit or other credit support arrangements
provided by banks. The quality of the underlying credit or of the bank, as the
case may be, must be equivalent to the long-term bond or commercial paper rating
stated above.
<PAGE> 48
INVESTMENT ADVISER
Enterprise Capital Management, Inc.
Atlanta Financial Center
3343 Peachtree Road, N.E.
Suite 450
Atlanta, Georgia 30326
Telephone:
1-800-432-4320 (Toll Free)
DISTRIBUTOR
Enterprise Fund Distributors, Inc.
Atlanta Financial Center
3343 Peachtree Road, N.E.
Suite 450
Atlanta, Georgia 30326
Telephone:
1-800-432-4320 (Toll Free)
CUSTODIAN
State Street Bank and Trust Company
Boston, Massachusetts
TRANSFER AGENT
National Financial Data Services, Inc.
1004 Baltimore Ave., 2nd Floor
Kansas City, MO 64105-2112
Telephone:
1-800-368-3527 (Toll Free)
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Atlanta, Georgia 30309
MEMBER - INVESTMENT COMPANY INSTITUTE
<PAGE> 49
TABLE OF CONTENTS
Expense Information
Prospectus summary
Condensed financial information
Investment objectives and policies of the Portfolios
Certain investment techniques and associated risks
Investment restrictions
How to purchase Portfolio shares
Shareholder services
How to exchange shares among the Portfolios
How to redeem Portfolio shares
Distributor's Agreement and Plan of Distribution
Performance comparisons
Management of the Fund
Taxes
Dividends and distribution
Brokerage transactions
General information
Appendix
<PAGE> 50
MAY 1, 1997
GROWTH PORTFOLIO
GROWTH AND INCOME PORTFOLIO
EQUITY PORTFOLIO
EQUITY INCOME PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO
SMALL COMPANY GROWTH PORTFOLIO
SMALL COMPANY VALUE PORTFOLIO
INTERNATIONAL GROWTH PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
HIGH-YIELD BOND PORTFOLIO
TAX-EXEMPT INCOME PORTFOLIO
MANAGED PORTFOLIO
MONEY MARKET PORTFOLIO
[LOGO]
-4-
<PAGE> 51
ENTERPRISE GROUP OF FUNDS [LOGO]
Atlanta Financial Center
3343 Peachtree Road, Suite 450
Atlanta, Georgia 30326-1022
STATEMENT OF ADDITIONAL INFORMATION
EQUITY PORTFOLIOS:
Growth Portfolio
Growth and Income Portfolio
Equity Portfolio
Equity Income Portfolio
Capital Appreciation Portfolio
Small Company Growth Portfolio
Small Company Value Portfolio
International Growth Portfolio
INCOME PORTFOLIOS:
Government Securities Portfolio
High-Yield Bond Portfolio
Tax-Exempt Income Portfolio
FLEXIBLE PORTFOLIO:
Managed Portfolio
MONEY MARKET PORTFOLIO:
Money Market Portfolio
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Fund's Prospectus.
A copy of the Prospectus may be obtained by writing to the Fund at 3343
Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326, or by calling the Fund
at the following numbers:
1-800-432-4320
1-800-368-3527 (SHAREHOLDER SERVICES)
-5-
<PAGE> 52
The date of the Prospectus to which this Statement of Additional
Information relates is May 1, 1997.
The date of this Statement of Additional Information is May 1, 1997.
-6-
<PAGE> 53
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
General Information and History
(See Prospectus - General Information)
Investment Objectives and Policies
(See Prospectus - Investment Objectives and
Policies of the Portfolios)
Management of the Fund
(See Prospectus - Management of the Fund)
Investment Advisory and Other Services
Investment Advisory Agreement
Portfolio Managers
Distributor's Agreement and Plan of Distribution
Miscellaneous
(See Prospectus - Management of the Fund)
Purchase, Redemption and Pricing of Securities
Being Offered
Services for Investors
(See Prospectus - How to Purchase Portfolio
Shares; How to Redeem Portfolio Shares)
Redemptions in Kind
Determination of Net Asset Value
Portfolio Transactions and Brokerage
Performance Comparisons
Custodian
Independent Accountants
Taxes
Financial Statements
Appendix
</TABLE>
-7-
<PAGE> 54
GENERAL INFORMATION AND HISTORY
The Enterprise Group of Funds, Inc. (the "Fund") was incorporated
January 2, 1968 as Alpha Fund, Inc. Its name was changed to The Enterprise Group
of Funds, Inc. on September 14, 1987, and at that same time: (i) the Fund's
Board of Directors was authorized to establish any number of series of common
stock of the Fund, each of which series would represent stock in a separate
Portfolio; (ii) each outstanding share of the common stock of Alpha Fund, Inc.
became one share of the newly established Growth Portfolio; and (iii) the Fund
was reincorporated as a Maryland corporation with the shares of the Common Stock
of the Fund divided into nine classes consisting of a separate class for each
Portfolio. On May 31, 1989, the Fund's GNMA and Corporate Portfolios were
combined with the Government Securities Portfolio reducing the number of Fund
Portfolios to eight. Effective May 1, 1990, the Fund added its Money Market
Portfolio. Effective April 21, 1993, the Fund liquidated the Precious Metals
Portfolio. Effective October 1, 1993, the Fund added its Small Company Value
Portfolio and effective October 3, 1994, the Fund added its Managed Portfolio.
Effective May 1, 1995, the Fund added Class B and Class Y shares. Effective May
1, 1997 the Fund added Class C Shares and the Equity, Equity Income and Small
Company Growth Portfolios.
INVESTMENT POLICIES AND TECHNIQUES
INTERNATIONAL GROWTH PORTFOLIO - Capital appreciation, primarily
through a diversified portfolio of non-U.S. equity securities.
The International Growth Portfolio Manager believes that, over the long
term, investing across international equity markets based upon discrepancies
between market prices and fundamental values may achieve a positive enhancement
for the Portfolio's investment performance relative to the returns from the
Benchmark.
Fundamental value is considered to be the current value of long-term,
sustainable future cash flows derived from a given asset class or security. In
determining fundamental value, the Portfolio Manager examines the relative price
to value of the investment opportunity based upon the prospects for relative
economic growth among countries, regions or geographic areas; expected levels of
inflation; government policies influencing business conditions; and the outlook
for currency relationships. Investment decisions are based on comparisons of
current market prices to fundamental values.
Although it may invest anywhere in the world, it is expected that the
Portfolio will primarily invest in the equity markets included in the Morgan
Stanley Capital International Non-U.S. Equity (Free) Index which currently are
Japan, the United Kingdom, Germany, France, Canada, Italy, the Netherlands,
Australia, Switzerland, Spain, Hong Kong, Belgium, Singapore, Malaysia, Sweden,
Denmark, Norway, New Zealand, Austria, Finland and Ireland. The composition of
the Index may change over time, according to criteria established by Morgan
Stanley.
The "Asset Allocation Mix," set forth below, represents the asset
allocation mix based on the Benchmark as of December 31, 1996, and may shift
over time as the Benchmark index weights change.
-8-
<PAGE> 55
<TABLE>
<CAPTION>
Asset Class Asset Allocation Mix Asset Class Strategy Ranges
- ----------- -------------------- ---------------------------
<S> <C> <C>
Non-U.S. Equities 100% 80-100%
Cash and Cash 0% 0-20%
Equivalents 100%
</TABLE>
The "asset class strategy ranges" indicated above are the ranges within
which the Fund expects to make its active asset allocations to specific asset
classes. Under all but unusual market conditions, the Portfolio expects to
adhere to the strategy ranges set forth above. However, the Portfolio's strategy
ranges may be exceeded by the Portfolio under unusual market conditions.
The investment policies of the Portfolios along with a description of
the securities in which the Portfolios invest, certain risks connected with
investments in the Portfolios, and a description of investment techniques used
by the Portfolios are set forth in the Prospectus.
1.c INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions which cannot
be changed as to any individual Portfolio without approval by the holders of a
majority of the outstanding shares of the relevant Portfolio. (As used - in this
Statement of Additional Information, "a majority of the outstanding shares of
the relevant Portfolio" means the lessor of (i) 67% of the shares of the
relevant Portfolio represented at a meeting at which more than 50% of the
outstanding shares of that Portfolio are represented in person or by proxy or
(ii) more than 50% of the outstanding shares of the relevant Portfolio.) Except
as otherwise set forth, none of the Portfolios may:
1. As to 75% of the assets of any Portfolio, purchase the securities of
any issuer if such purchase would cause more than 5% of the value of its assets
to be invested in the securities of such issuer (except U.S. Government
securities or those of its agencies or instrumentalities), or purchase more than
10% of the outstanding securities, or more than 10% of the outstanding voting
securities, of any issuer.
2. Purchase securities of any company with a record of less than three
years continuous operation (including that of predecessors) if such securities
would cause the Portfolio's investment in such companies taken at cost to exceed
5% of the value of the Portfolio's total assets. (The High Yield Bond and
Tax-Exempt Income Portfolios are not subject to this restriction.)
3. Purchase securities on margin, but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities and may make initial and maintenance margin deposits in connection
with options and futures contracts as permitted by its investment program.
-9-
<PAGE> 56
4. Make short sales of securities, unless at the time of such sale, it
owns, or has the right to acquire at no additional cost to the Portfolio as the
result of the ownership of convertible or exchange securities, an equal amount
of such securities, and it will retain such securities so long as it is in a
short portion as to them. In no event will a Portfolio make short sales of
securities in such a manner that the value of its net assets used to cover such
sales would exceed 15% of the value of its net assets at any time. The short
sales of the type described above, which are called "sales against the box," may
be used by a Portfolio when management believes that they will protect profits
or limit losses in investments and would be used chiefly in deferring a tax gain
or loss.
5. Borrow money, except that a Portfolio may borrow from banks as a
temporary measure for emergency purposes and not for investment, in which case
such borrowings may not be in excess of the lesser of: (a) 5% of its total
assets taken at cost; or (b) 5% of the value of its assets at the time that the
loan is made. A Portfolio will not purchase securities while borrowings are
outstanding. A Portfolio will not pledge, mortgage or hypothecate its assets
taken at market value to an extent greater than the lesser of 10% of the value
of its net assets or 15% of the value of its total assets taken at cost.
6. Purchase or retain the securities of any issuer if those officers
and directors of the Fund or of its investment advisor holding individually more
than 1/2 of 1% of the securities of such issuer together own more than 5% of the
securities of such issuer.
7. Purchase the securities of any other investment company except in
the open market in a transaction involving no commission or profit to a sponsor
or dealer (other than the customary sales load or broker's commission) or as a
part of a merger, consolidation, acquisition or reorganization.
8. Invest in real estate; this restriction does not prohibit the Fund
from investing in the securities of real estate investment trusts.
9. Invest for the purpose of exercising control of management of any
company.
10.Underwrite securities issued by others except to the extent that
the disposal of an investment position may qualify the Portfolio or the Fund as
an underwriter as that term is defined under the Securities Act of 1933, as
amended,
11.Except for the Money Market Portfolio, make any investment which
would cause more than 25% of the total assets of the Portfolio to be invested in
securities issued by companies principally engaged in any one industry;
provided, however, that: (i) this limitation does not apply to investments in
U.S. Government Securities as well as its agencies and instrumentalities,
general obligation bonds, municipal securities other than industrial development
bonds issued by non-governmental users, and (ii) utility companies will be
divided according to their services (for example, gas, gas transmission,
electric, electric and gas, and telephone will each be considered a separate
industry). The Money Market Portfolio may invest more that 25% of
-10-
<PAGE> 57
its total assets in U.S. Government Securities as well as its agencies and
instrumentalities and certain bank instruments issued by domestic banks. The
instruments in which the Money Market Portfolio may invest in excess of 25%, in
the aggregate, of its total assets are letters of credit and guarantees,
negotiable certificates of deposit, time deposits, commercial paper and bankers
acceptances meeting the investment criteria for the Money Market Portfolio.
12. Participate with others in any trading account. This restriction
does not prohibit the Fund or any Portfolio from combining portfolio orders with
those of other Portfolios or other clients of the investment adviser or
Portfolio Managers when to do so would permit the Fund and one or more
Portfolios to obtain a large-volume discount from ordinary brokerage commissions
when negotiated rates are available. (See "Portfolio Transactions and Brokerage"
below.)
13. Invest more than 10% of the value of its assets in securities which
are subject to legal or contractual restrictions on resale or are otherwise not
readily saleable.
In addition, management of the Fund has adopted the following
restrictions which apply to all of the Portfolios and may be changed only by the
Board of Directors of the Fund. No Portfolio will: (i) lend its assets to any
person or individual, except by the purchase of bonds or other debt obligations
customarily sold to institutional investors, (ii) invest more than 5% of the
value of its net assets, valued at the lower of cost or market, in warrants
(Included in that amount, but not to exceed 2% of the value of the Portfolio's
net assets, may be warrants which are not listed on the New York or American
Stock Exchanges. Warrants acquired by a Portfolio in units or attached to
securities may be deemed to be without value.), or (iii) invest in oil, gas, or
other mineral leases or engage in arbitrage transactions.
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<PAGE> 58
MANAGEMENT OF THE FUND
The directors and officers of the Fund, and their principal occupations
during the past five years, are set forth below. Directors who are "interested
persons", as defined in the 1940 Act, are denoted by an asterisk. As to their
duties relative to the Fund, the address of each is Atlanta Financial Center,
3343 Peachtree Road, N.E., Ste. 450, Atlanta, GA 30326.
<TABLE>
<CAPTION>
NAME, AGE AND POSITION WITH THE FUND PRINCIPAL OCCUPATION
- ------------------------------------ --------------------
PAST FIVE YEARS
---------------
<S> <C>
Arthur T. Dietz (73) President, ATD Advisory Services,
Director Inc. since 1996; President and Chief
Member of the Audit Committee Chief Executive Officer, Strategic Portfolio
Management, Inc., 1987-1996; Mills B. Lane
Professor of Finance and Banking, Emory
University, 1954-1988; Trustee, Enterprise
Accumulation Trust; Director, Medical Synergies, Inc.
*Samuel J. Foti (45) President and Chief Operating Officer, MONY since 1994;
Director Executive Vice President, MONY (1991-1994); Trustee,
MONY since 1993; Senior Vice President and Chief
Marketing Officer, MONY (1989 - 1991); Trustee,
Enterprise Accumulation Trust.
Arthur Howell (78) Of Counsel, law firm of Alston Director & Bird,
Atlanta, Georgia; President Chairman of the
Audit Committee and Chairman of the Board,
Summit Industries, Inc.; Secretary of the
Executive Committee, Crescent Banking Co.,
Inc.; Trustee, Enterprise Accumulation Trust.
William A. Mitchell, Jr.(59) President, Carter & Associates (real estate
Director development), Atlanta, Georgia; Trustee, Enterprise
Accumulation Trust.
Lonnie H. Pope (63) President and Chief Executive Officer of AFF, Inc.
Director (creator and manufacturer of aromatics, flavors and
Member of the Audit Committee fragrances), Marietta, Georgia; Trustee, Enterprise
Accumulation Trust.
</TABLE>
-12-
<PAGE> 59
<TABLE>
<S> <C>
*Michael I. Roth (51) Chairman and Chief Executive Officer, MONY since 1993;
Director President and Chief Executive officer, MONY (1991-1993);
Executive Vice President and Chief Financial
Officer, MONY (1989-1991); Executive Vice
President and Chief Financial Officer,
Primerica Corporation (1987); Executive Vice
President, Primerica Corporation (1982-1987); Trustee,
Enterprise Accumulation Trust; Director, American
Council of Life Insurance (ACLI).
*Victor Ugolyn (49) Chairman, President and Chief Executive Officer,
Director The Enterprise Group of Funds, Inc. since 1991;
Chairman, President and Chief Executive
Officer, Enterprise Capital and Enterprise
Fund Distributors, Inc. since 1991;
Chairman, President and Chief Executive
Officer, Enterprise Accumulation Trust; Vice
Chairman and Chief Marketing Officer, Value
Line Securities, Inc. (1986-1991).
Catherine R. McClellan (41) Secretary, Enterprise Accumulation Trust;
Secretary Senior Vice President, Secretary and Chief Counsel,
Enterprise Capital Management, Inc.; Senior
Vice President, Secretary and Chief Counsel,
Enterprise Fund Distributors, Inc.
Herbert M. Williamson (46) Assistant Secretary and Treasurer, Enterprise
Treasurer Accumulation Trust, Enterprise Capital Management, Inc.
and Enterprise Fund Distributors, Inc.
Phillip G. Goff (33) Vice President and Chief Financial Officer,
Enterprise Accumulation Trust, Enterprise
Capital Management, Inc. and Enterprise Fund
Distributors, Inc. 1995 - present; Audit
Manager, Coopers & Lybrand, L.L.P., 1986 - 1995.
</TABLE>
-13-
<PAGE> 60
- - Messrs. Foti, Roth and Ugolyn are "interested persons" of the Fund, of
Enterprise Capital Management, Inc. (the Fund's investment adviser),
and of Enterprise Fund Distributors, Inc. (the distributor of the
Fund's Shares), as that term is defined in the Investment Company Act
of 1940.
At December 31, 1996, the officers and directors of the Fund as a group owned
less than one percent of the shares of each Portfolio.
The Fund pays fees to those directors who are not "interested persons" of the
Fund at the rate of $10,000 per director per year plus $1,000 for each special
or committee meeting attended. The Fund pays no salaries, fees or compensation
to any of its officers, since these expenses are borne by the Fund's investment
adviser, Enterprise Capital Management, Inc. No fees were paid to the
"interested" directors of the Fund.
The following sets forth compensation paid to each of the Directors during 1996:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
NAME AGGREGATE PENSION OR ESTIMATED TOTAL
COMPENSA- RETIREMENT ANNUAL COMPENSATION
TION FROM BENEFITS BENEFITS FROM REGISTRANT
REGISTRANT ACCRUED AS UPON AND FUND COMPLEX
PART OF RETIREMENT PAID TO
FUND DIRECTORS*
EXPENSES
<S> <C> <C> <C> <C>
Arthur T. Dietz $14,500 None None $23,350
Arthur Howell $14,500 None None $23,350
William A. Mitchell, Jr. $13,000 None None $21,250
Lonnie H. Pope $14,500 None None $23,350
</TABLE>
* Each Director received fees for services as a Trustee of Enterprise
Accumulation Trust.
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<PAGE> 61
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
The Fund has entered into an Investment Advisory Agreement (the
"Adviser's Agreement") with Enterprise Capital Management, Inc. ("Enterprise
Capital") which, in turn, has entered into Portfolio Manager's Agreements with
each of the Portfolio Managers as discussed in the Prospectus. Enterprise
Capital functions as the adviser to the Money Market Portfolio. Enterprise
Capital is a subsidiary of The Mutual Life Insurance Company of New York
("MONY"), one of the nation's largest insurance companies. Enterprise Capital
was incorporated in 1986. Enterprise Capital's address is Suite 450, 3343
Peachtree Road, Atlanta, Georgia 30326. Victor Ugolyn, who is President of the
Fund, is also Chairman of the Board and President of Enterprise Capital.
The Adviser's Agreement obligates Enterprise Capital to provide
investment advisory services to the Portfolios of the Fund, to furnish the fund
with certain administrative, clerical, bookkeeping and statistical services,
office space and facilities, and to pay the compensation of the officers of the
Fund. Each Portfolio pays all other expenses incurred in its operation, and a
portion of the Fund's general administrative expenses are allocated to the
Portfolios either on the basis of their asset size, on the basis of special
needs of any Portfolio, or equally as is deemed appropriate. The Fund's Board of
Directors annually reviews allocation of expenses among the Portfolios.
The Adviser's Agreement authorizes Enterprise Capital to enter into
subadvisory agreements with various investment advisers as Portfolio Managers
for the Portfolios of the Fund. The Portfolio Manager's Agreements are
substantially the same in all material respects except for the names of the
Portfolio Managers and the rates of compensation, which consist of a portion of
the management fee that is paid by the Fund to Enterprise Capital and which
Enterprise Capital pays to the Portfolio Managers.
Enterprise Capital is the Portfolio Manager of the Money Market
Portfolio. It utilizes the services of The Mutual Life Insurance Company of New
York employees for certain services relating to management of the Portfolio.
These services include but are not limited to the initial credit review of
approved issuers and trading. All such services are provided on a cost
reimbursement basis.
Expenses that are borne directly by the Portfolios incurring such costs
include redemption expenses, expenses of portfolio transactions, shareholder
servicing costs, mailing costs, expenses of registering the shares under federal
and state securities laws, accounting and pricing costs (including the daily
calculation of net asset value and daily dividends), interest, certain taxes,
legal services, auditing services, charges of the custodian and transfer agent,
and other expenses attributable to an individual account. Expenses which are
generally allocated either on the basis of size or equally among the respective
Portfolios include director fees, legal expenses, state franchise taxes, costs
of printing of proxies, prospectuses, registration statements and shareholder
reports, printing and issuance of stock certificates and other
-15-
<PAGE> 62
expenses properly payable by the Fund that are allocable to the respective
Portfolios. Litigation costs, if any, may be directly allocable to the
Portfolios or allocated on the basis of the size of the respective Portfolios.
The Board of Directors has determined that this is an appropriate method of
allocation of expenses.
Enterprise Capital has advised the Fund that it will reimburse such
portion of the fees due to it under the Adviser's Agreement as is necessary to
assure, for the period commencing January 1, 1997 and ending no earlier than
December 31, 1997 that expenses incurred by the Portfolios will not exceed the
percentages of average annual assets (annualized for periods of less than a
fiscal year) As described in the Expense Table to the Prospectus. This
commitment was also in effect from January 1, 1989 through December 31, 1996.
The table below sets forth the 1996 breakdown by Portfolio of (1) the
investment advisory fee paid to Enterprise Capital, (2) the percentage of the
Management Fee to be paid by Enterprise Capital to the Portfolio Manager, (3)
the portfolio management fee paid by Enterprise Capital to the Portfolio
Manager, (4) the net advisory fee left to Enterprise Capital after payment of
the portfolio management fee, and (5) the amount of the expense reimbursement
paid by Enterprise Capital to the Portfolio to assure that expenses incurred by
the Portfolio did not exceed 2.0% of average annual net assets for the Equity
Portfolios and 1.3% of average annual net assets for the Income Portfolios. To
the extent that the Management Fee equals or exceeds .75% of the average daily
net asset values of a Portfolio, such fee is higher than the fee charged to most
investment companies. However, the Board of Directors has determined that such
fees are reasonable in light of the services, investment decisions and
investment techniques employed by the Portfolios.
<TABLE>
<CAPTION>
PORTFOLIO (1) (2) (3) (4) (5)
- ---------
<S> <C> <C> <C> <C> <C>
Growth $1,282,393 40%(1) 474,978 807,415 37,407(2)
Equity Income 523,261 40% 209,391 313,870 126,447
Capital Appreciation 935,780 66%(3) 611,348 316,432 21,601(2)
Small Company Value 153,784 40%(4) 72,105 81,679 128,396
International Growth 353,427 50% 187,181 166,246 80,932
Government Securities 490,882 50%(5) 229,645 261,237 94,868
High-Yield Bond 339,960 50% 170,056 169,904 114,041
Tax-Exempt Income 162,828 50% 81,452 81,376 51,959
Managed 1,164,633 53% 568,181 596,452 ----
Money Market 160,844 -- --- 160,844 82,594
</TABLE>
-16-
<PAGE> 63
(1) 33% of assets $100,000,001 - $200,000,000
(2) Reflects total expenses before reduction for brokerage commission credits
which are reflected as expense reimbursement.
(3) 60% of assets in excess of $100,000,001 - $200,000,000
(4) 42% of assets in excess of $500,000,001
(5.)53% of assets in excess of $20,000,001
PORTFOLIO MANAGERS
Montag & Caldwell, Inc.
Montag & Caldwell was established in 1945 as an investment adviser.
TCW Funds Management, Inc.
TCW Funds Management, Inc. was established for the sole purpose of
managing investment portfolios. The 1997 Money Market Directory of Pension Funds
and their Investment Managers ranks TCW as the 13th largest investment
counselling firm in the United States of the 1,261 firms surveyed.
Additional information concerning the Portfolio Managers and their
annual rate of compensation is set forth in the Prospectus.
DISTRIBUTOR'S AGREEMENT AND PLAN OF DISTRIBUTION
The Distributor's Agreements and Plans of Distribution (the "12b-1
Plans") between the Fund and Enterprise Fund Distributors, Inc. ("Enterprise
Distributors"), pursuant to which Enterprise Distributors serves as principal
underwriter of the Fund's shares, is described in the Prospectus. The 12b-1
Plans provide for the payment by the Fund to Enterprise Distributors of a daily
distribution fee.
-17-
<PAGE> 64
TOTAL CONTINGENT DEFERRED SALES CHARGES
<TABLE>
<CAPTION>
DISTRIBUTION COMMISSION & CDSC CDSC PAID TO MARKETING & TRAVEL,
FEES PAID TO SALES FEES COLLECTED & DEALERS ADVERTISING TELEPHONE &
EFD PAID TO EFD PAID TO EFD FEES PAID OTHER
AUTHORIZED
FEES PAID
<S> <C> <C> <C> <C> <C> <C>
1996 $3,696,663 $692,305 $ 6,916 $1,725,493 $1,045,791 $328,418
1995 $2,487,595 $505,970 $ 3,074 $1,255,109 $ 585,683 $301,269
1994 $2,232,408 $627,245 $23,779 $2,322,408 $ 866,155 $535,608
</TABLE>
MISCELLANEOUS
The terms of each of the Investment Adviser's Agreement, the
Distributor's Agreements and Plans of Distribution, the Transfer Agent
Agreement, the Accounting Agreement and the Portfolio Manager's Agreements
(collectively, the "Agreements") provide that each such Agreement: (i) will
automatically terminate upon "assignment," as such term is defined in the
Investment Company Act of 1940 (the "1940 Act"); (ii) must be approved annually
by the Fund's Board of Directors or by vote of a majority of the outstanding
voting securities; and (iii) must be approved annually in person by vote of a
majority of the directors of the Fund who are not parties to such contract or
"interested persons" (as such term is defined in the 1940 Act) of such party.
Each Agreement further provides that it can be terminated without penalty by
either party thereto upon 60 days written notice to the other party. The
Distributor's Agreement and Plan of Distribution were most recently approved by
the shareholders at the Special Meeting of Shareholders held April 26, 1995. The
Investment Adviser's Agreement was most recently approved by the shareholders at
the Annual Meeting of Shareholders held July 25, 1988. The Fund's Board of
Directors most recently approved continuance of the Investment Adviser's
Agreement and the Portfolio Manager's Agreements on February 20, 1997.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
Information concerning purchase and redemption of shares of the Fund's
Portfolios, as well as information concerning computation of net asset value per
share is set forth in the Fund's Prospectus.
SERVICES FOR INVESTORS
For the convenience of investors, the following plans are available.
Investors should realize that none of these plans can guarantee profit or insure
against loss. The costs of these shareholder plans (exclusive of the employee
benefit plans) are paid by Enterprise Distributors, except for the normal cost
of issuing shares, which is paid by the Fund.
-18-
<PAGE> 65
AUTOMATIC REINVESTMENT PLAN. All shareholders, unless they request otherwise,
are enrolled in the Automatic Reinvestment Plan under which dividends and
capital gains distributions on their shares are automatically reinvested in
shares of the same Class of Portfolio(s) at the net asset value per share
computed on the record date of such dividends and capital gains distributions.
The Automatic Reinvestment Plan may be terminated by participants or by the Fund
at any time. No sales charge is applied upon reinvestment of dividends or
capital gains.
AUTOMATIC BANK DRAFT PLAN. An Automatic Bank Draft Plan is available for
investors who wish to purchase shares of one or more of the Portfolios in
amounts of $25 or more on a regular basis by having the amount of the investment
automatically deducted from the investor's checking account. The minimum initial
investment for this Plan is $100. Forms authorizing this service are available
from the Fund.
AUTOMATIC INVESTMENT PLAN. An investor may debit any Class of a Portfolio
Account on a monthly basis for automatic investments into one or more of the
other Portfolios of the same Class. The Portfolio from which the investment will
be made is subject to the $1,000 minimum. The investor may then choose to have
$50 or more transferred to either an established Enterprise Portfolio, or they
may open a new account subject to an initial minimum investment of $100.
LETTER OF INTENT INVESTMENTS. Any investor may execute a Letter of Intent
covering purchases of Class A shares of $100,000 or more, at the public offering
price, of Fund shares to be made within a period of 13 months. A reduced sales
charge will be applicable to the total dollar amount of Class A shares purchased
in the 13-month period provided at least $100,000 is purchased. The minimum
initial investment under a Letter of Intent is 5% of the amount indicated in the
Letter of Intent. Shares purchased with the first 5% of such amount will be held
in escrow (while remaining registered in the name of the investor) to secure
payment of the higher sales charge applicable to the shares actually purchased
if the full amount indicated is not purchased, and such escrowed shares will be
involuntarily redeemed to pay the additional sales charge, if necessary. When
the full amount indicated has been purchased, the escrow will be released.
Investors wishing to enter into a Letter of Intent in conjunction with
their investment in Class A shares of the Portfolios should complete the
appropriate portion of the new account application.
RIGHT OF ACCUMULATION DISCOUNT. Investors who make an additional purchase of
Class A shares of the Fund which, when combined with the value of their existing
aggregate holdings of shares of the Portfolios of the Fund, each calculated at
the then applicable net asset value per share, at the time of the additional
purchase, equals $100,000 or more, will be entitled to the reduced sales charge
shown under "How to Purchase Portfolio Shares" in the Prospectus on the full
amount of each additional purchase. For purposes of determining the discount,
holdings of Fund shares of the investor's spouse, immediate family or accounts
controlled by the investor, whether as a single investor or trustee of, or
participant in, pooled and similar accounts, will be aggregated.
-19-
<PAGE> 66
CHECKWRITING. A check redemption feature is available on the Money Market
Portfolio Class A shares with opening balances of $5,000 or more. Redemption
checks may be made payable to the order of any person in any amount from $500
to $100,000. Up to five redemption checks per month may be written without
charge. Each additional redemption check over five in a given month will be
subject to a $5 fee. Redemption checks are free and may be obtained from the
Transfer Agent or by contacting Enterprise Capital Management. A $25 fee will
be imposed on any account for stopping payment of a redemption check upon
request of the shareholder. It is not possible to use a redemption check to
close out an account since additional shares accrue daily.
SYSTEMATIC WITHDRAWAL PLAN. Investors may elect a Systematic Withdrawal Plan
under which a fixed sum will be paid monthly, quarterly, or annually. There is
no minimum withdrawal payment required. Shares in the Plan are held on deposit
in noncertificate form and any capital gain distributions and dividends from
investment income are invested in additional shares of the Portfolio(s)at net
asset value. Shares in the Plan account are then redeemed at net asset value to
make each withdrawal payment. Redemptions for the purpose of withdrawals are
made on or about the 15th day of the month of payment at that day's closing net
asset value, and checks are mailed within five days of the redemption date. Such
distributions are subject to applicable taxation.
Because withdrawal payments may include a return of principal,
redemptions for the purpose of making such payments may reduce or even use up
the investment, depending upon the size of the payments and the fluctuations of
the market price of the underlying portfolio securities. For this reason, the
payments cannot be considered as a yield of income on the investment.
RETIREMENT PLANS. The Fund offers various Retirement Plans: IRA (for all
individuals with employment income); 403(b)(7) (for employees of certain
tax-exempt organizations and schools); and corporate pension and profit sharing
(including a 401(k) option) plans. For full details as to these plans, you
should request a copy of the plan document from Enterprise Distributors. After
reading the plan, you may wish to consult a competent financial or tax adviser
if you are uncertain that the plan is appropriate for your needs.
REDEMPTIONS IN KIND
The Fund's Articles of Incorporation provide that it may redeem its
shares in cash or with a pro rata portion of the assets of the Fund. To date,
all redemptions have been made in cash, and the Fund anticipates that all
redemptions will be made in cash in the future. In order to meet the
requirements of certain state laws, the Fund has elected, pursuant to Rule 18f-1
under the 1940 Act, to commit itself to pay in cash all requests for redemption
by any shareholder of record, limited in amount with respect to each shareholder
during any 90-day period to the lesser of: (i) $250,000; or (ii) 1% of the net
asset value of the Fund at the beginning of such period. If shares are redeemed
through a distribution of portfolio securities, the recipient would incur
brokerage commissions upon the sale of such securities.
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<PAGE> 67
DETERMINATION OF NET ASSET VALUE
The net asset value of each Portfolio's shares is determined once daily
as of the close of the New York Stock Exchange (usually 4 p.m. Eastern time) on
each day on which the Exchange is open for trading. The net asset value of a
share is computed by dividing the value of the net asset of the Portfolio by the
total number of shares outstanding.
Money Market Portfolio
The net asset value of the Money Market Portfolio is computed by
dividing the total value of the Portfolio's assets, less liabilities (including
dividends payable), by the number of shares outstanding. The assets are
determined by valuing the portfolio securities at amortized cost, pursuant to
Rule 2a-7. The amortized cost method of valuation involves valuing a security at
cost at the time of purchase and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument.
The purpose of the amortized cost method of valuation is to attempt to
maintain a constant net asset value per share of $1.00. While this method
provides certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Portfolio
would receive if it sold its portfolio securities. Under the direction of the
Board of Directors, certain procedures have been adopted to monitor and
stabilize the price per share. Calculations are made to compare the value of the
portfolio securities, valued at amortized cost, with market values. Market
valuations are obtained by using actual quotations provided by market makers,
estimates of market value, or values obtained from yield data relating to
classes of money market instruments published by reputable sources at the bid
prices for those instruments. If a deviation of 1/2 of 1% or more between the
$1.00 per share net asset value and the net asset value calculated by reference
to market valuations has occurred, or if there are any other deviations which
the Board of Directors believes will result in dilution or other unfair results
material to shareholders, the Board of Directors will consider what action, if
any, should be initiated.
The market value of debt securities usually reflects yields generally
available on securities of similar quality. When yields decline, the market
value of a portfolio holding higher yielding securities can be expected to
increase; when yields increase, the market value of a portfolio invested at
lower yields can be expected to decline. In addition, if the Portfolio has net
redemptions at a time when interest rates have increased, the Portfolio may be
forced to sell portfolio securities prior to maturity at a price below the
Portfolio's carrying value. Also, rather than market value, any yield quoted may
be different from the yield that would result if the entire Portfolio were
valued at market value, since the amortized cost method does not take market
fluctuations into consideration.
-21-
<PAGE> 68
Other Portfolios
The net asset value of Portfolios other than the Money Market Portfolio
is computed by dividing the total value of the series' securities and other
assets, less liabilities, by the number of series shares then outstanding.
Securities other than money market instruments maturing in 60 days or less which
are traded on a national exchange are valued at the last sale price as of the
close of business on the day the securities are being valued, or, lacking any
sales, at the last bid price. Securities other than money market instruments
maturing in 60 days or less traded in the over-the-counter market are valued at
the last bid price or at yield equivalent as obtained from one or more dealers
that make markets in the securities. Securities which are traded both in the
over-the-counter market and on a national exchange are valued according to the
broadest and most representative market, and it is expected that for debt
securities this ordinarily will be the over-the-counter market. Securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the supervision of the Board of
Directors. Money market instruments with maturities of 60 days or less are
valued using the amortized cost method of valuation.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The portfolio transactions and brokerage policies of the Fund are set
forth in the Prospectus. In the last three fiscal years ended December 31, the
Fund has paid the following aggregate amounts for brokerage commissions on
transactions in portfolio securities: 1994 - $601,596; 1995 - $489,729; 1996 -
$762,622.
-22-
<PAGE> 69
PERFORMANCE COMPARISONS
From time to time the Fund may advertise a Portfolio's "yield" as
"total return." See the Prospectus under "Performance Comparisons" for an
explanation of the method of calculation of "yield" or "total return."
From time to time, a portfolio's performance and performance of
comparable investments may be compared to that of the Consumer Price Index or
various unmanaged indexes such as the Dow Jones Industrial Average, the Standard
& Poor's 500 Stock Index, the Lehman Brothers Government/Corporate Bond Index,
the Salomon Brothers Low Grade Index, the Lehman Brothers Government Bond Index,
Lehman Brothers Mortgage Backed Index, Lehman Brothers Municipal Bond Index,
Morgan Stanley Goldmine Index, the Salomon Brothers Analytical Record of Yield
and Yield Spreads, and the Salomon Brothers World Money Market Index; and it may
also be compared to the performance of other appropriate fixed income or equity
mutual funds or mutual fund indexes as reported by Lipper Analytical Services,
Inc. ("Lipper") or CDA Investment Technologies, Inc. ("CDA"). Lipper and CDA are
widely recognized independent mutual fund reporting services. Lipper and CDA
performance calculations are based upon changes in net asset value with all
dividends reinvested and do not include the effect of any sales charges. Also, a
portfolio's performance may be compared to the historical returns of various
investments, performances indexes of those investments or economic indicators,
included but not limited to stocks, bonds, certificates of deposit, money market
deposit accounts, money market funds and US Treasury Bills. Certain of these
alternative investments may offer fixed rates of return and guaranteed principal
and may be insured. Betas utilized will be calculated by CDA Investment
Technologies, Inc.
The Fund's performance may be compared in advertising to the
performance of other mutual funds in general or the performance of particular
types of mutual funds, especially those with similar objectives. Lipper
Analytical Services, Inc. ("Lipper"), an independent mutual fund performance
rating service headquartered in Summit, New Jersey, provides rankings which may
be used from time to time.
The Fund may be compared in advertising to Certificates of Deposit
("CDs") or other investments issued by banks. The Fund differs from bank
investments in that bank products offer fixed or variable rates; principal is
fixed and may be insured. Money markets seek to maintain a stable net asset
value and yield fluctuates. Further, the Fund may offer greater liquidity or
higher potential returns than CDs.
From time to time, the Fund may provide hypothetical illustrations
based on past performance for a particular time period. Performance information
for any Portfolio reflects only the performance of a hypothetical investment in
the Portfolio during a particular time period on which the calculations are
based. Performance information should be considered in light of the Portfolio's
investment objectives and policies, characteristics and qualities of the
Portfolio and the market conditions during the given time period, and should not
be considered as a representation of what may be achieved in the future.
-23-
<PAGE> 70
The Fund may advertise examples of the effects of periodic investment
plans, including the principal of dollar cost averaging. Dollar cost averaging
programs provide an opportunity to invest a fixed dollar amount in a fund at
periodic intervals, thereby purchasing fewer shares when the price is high and
more shares when the price is low. While such a strategy does not assure a
profit guard against loss in a declining market, the investor's cost per share
can be lower if fixed numbers of shares had been purchased at periodic
intervals. In evaluating such a plan, consideration should be given to the
shareholder's ability to continue purchasing shares through periods of low price
levels.
CUSTODIAN
State Street Bank and Trust Company of Boston, Massachusetts, has been
retained to act as custodian of the assets of the Fund.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. whose address is 1100 Campanile Building,
Atlanta, Georgia, 30309, has been retained to serve as the Fund's independent
accountants.
TAXES
See the Prospectus for information concerning taxes.
-24-
<PAGE> 71
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Annual
Report
Page
Number
------
<S> <C>
Financial Statements
Portfolios of Investment Securities,
December 1, 1996.............................................4
Statement of Assets and Liabilities,
December 31, 1996...........................................52
Statements of Operations for the
Year Ended December 31, 1996................................54
Statements of Changes in Net Assets
for Each of the Two Years Ended
December 31, 1995 and 1996..................................56
Financial Highlights..........................................................60
Notes to Financial Statements.................................................74
Report of Independent Accountants.............................................83
</TABLE>
-25-
<PAGE> 72
APPENDIX
RATINGS OF CORPORATE DEBT SECURITIES
MOODY'S INVESTORS SERVICE, INC.(1)
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements: their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterize bonds in
this case.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments of or maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.
- --------------------------------
(1) Moody's applies numerical modifiers, 1, 2 and 3 in generic rating
classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
-26-
<PAGE> 73
STANDARD & POOR'S CORPORATION(2)
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest-rated issues only in a small degree.
A - Bonds rated A have 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 bonds in higher-rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit 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
bonds in this category than for bonds in higher-rated categories.
BB,B,CCC,CC - Bonds rated BB, B, CCC, and CC are regarded, on balance, as
predominately speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
- --------------------------------
(2) Plus (+) or Minus (-): The ratings from AA to BB may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
PART B, ITEM 23
(Registrant will submit Part B, Item No. 23 with its 485(b) on or before April
30, 1997.)
-27-
<PAGE> 74
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
The audited financial statements as to the Fund are
in the 1996 Annual Report to Shareholders, a copy of
which will be filed pursuant to a Post-Effective
Amendment on or before April 30, 1997.
Portfolio of Assets and Liabilities, December 31,
1996
Statement of Assets and Liabilities, December 31,
1996
Statement of Operations for the Year Ended December
31, 1996
Statement of Changes in Net Assets for each of the
Two Years Ended December 31, 1995 and 1996
(b) Exhibits:
(1) Registrant's charter: Filed with Amendment
No. 39, dated April 28, 1994, and
incorporated herewith; Amendment to Charter
dated April 26, 1995 filed with Amendment
No. 43 dated April 26, 1995, and
incorporated herewith.
(2) By-Laws: Filed with Amendment No. 39, dated
April 28, 1994, and incorporated herewith;
Amendment to By-Laws, dated November 17,
1994 filed with Amendment No. 43 dated April
26, 1995, and incorporated herewith.
(3) Not applicable.
(4) Specimen share certificate: Filed with
Amendment No. 29, dated November 27, 1987
and incorporated herewith.
(5) Investment Advisory Agreement: Filed with
Amendment No. 39, dated April 28, 1994, and
incorporated herewith.
(6) (i) General Distributor's Agreement:
Filed with Amendment No. 39, and
dated April 28, 1994, and
incorporated herewith; Addendum to
Distributor's Agreement, filed
April 26, 1995, and incorporated
herewith.
(ii) Prototype Soliciting Broker/Dealer
Agreement: Filed with Amendment No.
39, dated April 28, 1994, and
incorporated herewith; Addendum to
the Soliciting Broker/Dealer
Agreement, filed with Amendment
No. 43 dated April 26, 1995
and incorporated herewith.
(7) Not applicable.
(8) Form of Custodian Contract: Filed with
Amendment No. 39, dated April 28, 1994, and
incorporated herewith.
(9) Not applicable.
(10) Opinion of Counsel: Filed herewith as
Exhibit 10.
(11) Consent of Coopers & Lybrand, L.L.P.: Filed
herewith as Exhibit 11.
<PAGE> 75
(12) All financial statements required to be
filed under Item 23 are included in the 1996
Annual Report to Shareholders and will be
filed pursuant to a Post-Effective Amendment
on or before April 30, 1997..
(13) Not applicable.
(14) Not applicable.
(15) Distribution Agreements: Filed with
Amendment No. 43, dated April 26, 1995 and
incorporated herewith.
(16) Computation of performance: Included in Part
A herein and incorporated by reference.
(17) All financial statements required to be
filed under Item 23 are included in the 1996
Annual Report to Shareholders.
(18) All financial statements required to be
filed under Item 23 are included in the 1996
Annual Report to Shareholders and will be
filed pursuant to a Post-Effective Amendment
on or before April 30, 1997..
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
Number of Record
Holders
as of the date of this
Statement of Additional
Title of Class Information
-------------- -----------------------
<S> <C>
Shares of Beneficial Interest 85,143
</TABLE>
ITEM 27. INDEMNIFICATION
Reference is made to the provisions of Article Sixth of
Registrant's Articles of Incorporation filed as Exhibit
24(b)(1) to this Registration Statement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of Registrant pursuant to the
foregoing provision or otherwise, Registrant has been advised
that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in
the Securities Act of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment of Registrant of expenses
incurred or paid by a director, officer or controlling person
of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or
controlling person, Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
ITEM 28. (a) Business and Other Connections of Investment Adviser
<PAGE> 76
Enterprise Capital Management, Inc. is the investment
adviser of the Registrant.
(b) Business and Other Connections of Officers and
Directors of Investment Adviser
For information as the business, profession, vocation
or employment of a substantial nature of each of the
officers and directors of Enterprise Capital
Management, Inc. reference is made to Part B of this
Registration Statement and to the registration of
Form ADV of Enterprise Capital Management, Inc. filed
under the Investment Adviser Act of 1940, which is
incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Enterprise Fund Distributors, Inc. is the general
distributor of Registrant's shares.
(b) The information contained in the registration on
Form BD of Enterprise Fund Distributors, Inc., filed
under the Securities Exchange Act of 1934, is
incorporated herein by reference.
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
<TABLE>
<CAPTION>
Entity Function Address
- ------ -------- -------
<S> <C> <C>
The Enterprise Group Registrant Atlanta Financial Center
of Funds, Inc. 3343 Peachtree Road, N.E., Suite 450
Atlanta, GA 30326-1022
Enterprise Capital Investment Same as above.
Management, Inc. Adviser
Enterprise Fund Distributor Same as above.
Distributors, Inc.
</TABLE>
THE RECORDS OF THE PORTFOLIO MANAGERS ARE KEPT AT THE FOLLOWING LOCATIONS:
Growth Portfolio Montag & Caldwell, Inc.
Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, GA 30326-1450
Growth & Income Retirement Systems Investors, Inc.
Portfolio 317 Madison
New York, NY 10122
Equity Portfolio OpCap Advisors
One World Financial Center
New York, NY 10281
Equity and Income 1740 Advisers, Inc.
Portfolio 1740 Broadway
New York, NY 10019
Capital Appreciation Provident Investment Counsel
Portfolio 300 North Lake Avenue
Pasadena, CA 91101
<PAGE> 77
Small Company Growth Pilgrim Baxter Associates, Ltd..
Portfolio 1255 Drummers Lane
Ste. 300
Wayne, PA 19087
Small Company Value GAMCO Investments, Inc.
Portfolio One Corporate Center
Rye, New York 10580
International Growth Brinson Partners, Inc.
Portfolio 209 South LaSalle Street
Chicago, IL 609604
Government Securities TCW Funds Management, Inc.
Portfolio 865 South Figueroa Street, Suite 1800
Los Angeles, CA 90017
High-Yield Bond Caywood-Scholl Capital Management
Portfolio 4350 Executive Drive, Suite 125
San Diego, CA 92121
Tax-Exempt Income Morgan Stanley Asset Management, Inc.
Portfolio 1221 Avenue of the Americas
New York, NY 10020
Managed Portfolio OpCap Advisors
One World Financial Center
New York, New York 10281
Money Market Portfolio Enterprise Capital Management, Inc.
Atlanta Financial Center
3343 Peachtree Road, N.E., Suite 450
Atlanta, GA 30326
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
The registrant undertakes to file a Post-Effective Amendment,
using financials which need not be certified within four to six months following
the effective date of this Post-Effective Amendment.
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia on the 27th day of February, 1997.
THE ENTERPRISE GROUP OF FUNDS, INC.
By: /s/ Victor Ugolyn
--------------------------------------------------------------
Victor Ugolyn, Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement of the Registrant has
been signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ Victor Ugolyn Chairman, President and February 27, 1997
- -------------------------------- Chief Executive Officer
Victor Ugolyn
/s/ Phillip G. Goff Principal Financial and February 27, 1997
- -------------------------------- Accounting Officer
Phillip G. Goff
/s/ Arthur T. Dietz Director February 27, 1997
- --------------------------------
Arthur T. Dietz
/s/ Samuel J. Foti Director February 27, 1997
- --------------------------------
Samuel J. Foti
/s/ Arthur Howell Director February 27, 1997
- --------------------------------
Arthur Howell
/s/ Lonnie H. Pope Director February 27, 1997
- --------------------------------
Lonnie H. Pope
/s/ William A. Mitchell, Jr. Director February 27, 1997
- --------------------------------
William A. Mitchell, Jr.
/s/ Michael I. Roth Director February 27, 1997
- --------------------------------
Michael I. Roth
</TABLE>
<PAGE> 79
INDEX TO EXHIBITS
10 Opinion of Counsel
11 Consent of Independent Accountants
<PAGE> 80
As Filed With the Securities and Exchange Commission
February 28, 1997
Registration No. 2-28097
------------------------
----------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM N-1A
Registration Statement Under the Securities Act of 1933 ___
Pre-Effective Amendment No. ___
Post-Effective Amendment No. 46 x
---
and/or
Registration Statement Under the Investment Company Act of 1940
Amendment No. 32 x
---
(Check appropriate box or boxes)
--------------------------------
THE ENTERPRISE GROUP OF FUNDS, INC.
(Exact Name of Registrant)
Suite 450
3343 Peachtree Road
Atlanta, Georgia 30326
(Address of Principal Executive Office)
Registrant's Telephone Number: (404) 261-1116
Catherine R. McClellan
Suite 450
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326-1022
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)
----
on _______ pursuant to paragraph (b)
----
60 days after filing pursuant to paragraph (a)
----
X on May 1, 1997 pursuant to paragraph (a) of Rule 485
----
DECLARATION PURSUANT TO RULE 24f-2(a)(l)
The Registrant has registered an indefinite number of shares of Common Stock,
$0.10 par value of the Registrant under the Securities Act of 1933 pursuant to
Rule 24f-2. The Rule 24f-2 Notice for the Registrant's fiscal year ended
December 31, 1996 was filed with the Securities and Exchange Commission on
February 24, 1997.
<PAGE> 81
Cross Reference Sheet
<TABLE>
<CAPTION>
Form N-lA
Item
----
Prospectus Caption
------------------
Part A
------
<S> <C> <C>
1. Cover Page .......................................... The Enterprise Group of Funds, Inc.
2. Synopsis ............................................ Prospectus Summary
3. Condensed Financial Information ..................... Condensed Financial Information
4. General Description of Registrant ................... The Enterprise Group of Funds, Inc.;
General Information - Organization
of the Fund
5. Management of the Fund .............................. Management of the Fund
5A. Management's Discussion
of Fund Performance ................................. Refer to Annual Report
6. Capital Stock and Other Securities .................. General Information - Capital Stock
7. Purchase of Securities Being Offered ................ How To Purchase Portfolio Shares
8. Redemption or Repurchase ............................ How to Redeem Portfolio Shares
9. Legal Proceedings ................................... Not Applicable
Statement of Additional
Part B Information Caption
------ -------------------
10. Cover Page .......................................... Cover Page
11. Table of Contents ................................... Table of Contents
12. General Information and History ..................... General Information and History
13. Investment Objectives and Policies .................. Investment Objectives and
Investment Restrictions
14. Management of the Registrant ........................ Management of the Fund
15. Control Persons and Principal
of Securities ..................................... Management of the Fund
16. Investment Advisory and
Other Services .................................... Investment Advisory and Other Services
17. Brokerage Allocation and other
Practices ........................................... Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities .................. Not Applicable
19. Purchase, Redemption and Pricing of
Securities Being Offered ............................ Purchase, Redemption and Pricing of
Securities Being Offered
20. Tax Status .......................................... Not Applicable
21. Underwriters ........................................ Purchase, Redemption and Pricing
of Securities Being Offered
22. Calculation of Yield Quotations of
Money Market Funds .................................. Performance Comparisons
23. Financial Statements ................................ Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Post-Effective Amendment.
<PAGE> 82
THE ENTERPRISE GROUP OF FUNDS, INC.
Atlanta Financial Center
3343 Peachtree Road, N.E., Suite 450
Atlanta, Georgia 30326
For Shareholder Information Call 1-800-368-3527
PROSPECTUS DATED MAY 1, 1997
The Enterprise Group of Funds, Inc. (the "Fund") is a series of mutual funds
that seeks to provide investors a broad range of investment alternatives through
its 13 separate Portfolios. Each Portfolio is managed as if it were a separate
mutual fund issuing its own shares. The Fund's principal investment adviser,
Enterprise Capital Management, Inc., selects separate sub-advisers referred to
as "Portfolio Managers" that provide investment advice for the Portfolios and
that are selected on the basis of able investment performance in their
respective areas of responsibility.
<TABLE>
<S> <C>
Equity Portfolios Income Portfolios
- ----------------- -----------------
Growth Portfolio Government Securities Portfolio
Growth and Income Portfolio High-Yield Bond Portfolio
Equity Portfolio Tax-Exempt Income Portfolio
Equity Income Portfolio
Capital Appreciation Portfolio Flexible Portfolio
Small Company Growth Portfolio ------------------
Small Company Value Portfolio Managed Portfolio
International Growth Portfolio
Money Market Portfolio
----------------------
Money Market Portfolio
</TABLE>
This Prospectus explains concisely what you should know about the Fund and its
Portfolios before you consider investing. Please read this Prospectus and retain
it for future reference. Additional information, contained in a "Statement of
Additional Information," dated May 1, 1997 has been filed with the Securities
and Exchange Commission and is available upon request without charge by writing
or calling the Fund. It is incorporated by reference into this Prospectus (which
means that it is legally part of it).
LIKE ALL MUTUAL FUND SHARES, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THE MONEY MARKET PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THE HIGH-YIELD BOND PORTFOLIO INVESTS SIGNIFICANTLY IN LOWER RATED BONDS,
COMMONLY REFERRED TO AS "JUNK BONDS." BONDS OF THIS TYPE ARE CONSIDERED TO
BE SPECULATIVE WITH REGARD TO THE PAYMENT OF INTEREST AND RETURN OF
PRINCIPAL AND HAVE SPECIAL RISKS. THEY MAY NOT BE SUITABLE FOR ALL
INVESTORS. PLEASE READ THE RISK INFORMATION CAREFULLY
PLEASE NOTE THAT THESE FUNDS ARE NOT BANK DEPOSITS; ARE NOT FEDERALLY INSURED;
ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY; AND ARE NOT GUARANTEED TO
ACHIEVE THEIR GOAL(S).
<PAGE> 83
<TABLE>
<CAPTION>
SUMMARY OF FUND EXPENSES GROWTH GROWTH AND INCOME EQUITY EQUITY INCOME CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CLASS OF SHARES: Y Y Y Y Y
SHAREHOLDER TRANSACTION EXPENSES
Maximum Initial Sales Load Imposed on
Purchase (as a % of offering price) None None None None None
Maximum Deferred Sales Load None None None None None
Maximum Sales Load Imposed on
Reinvested dividends None None None None None
Exchange Fee None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS)
Management Fee** 0.75 0.75 0.75 0.75 0.75
12b-1 None None None None None
Other Expenses 0.40 0.30 0.40 0.30 0.55
TOTAL FUND OPERATING EXPENSES*** 1.15 1.05 1.15 1.05 1.30
==== ==== ==== ==== ====
<CAPTION>
SUMMARY OF FUND EXPENSES SMALL COMPANY SMALL COMPANY
GROWTH PORTFOLIO VALUE PORTFOLIO
---------------- ---------------
<S> <C> <C>
CLASS OF SHARES: Y Y
SHAREHOLDER TRANSACTION EXPENSES
Maximum Initial Sales Load Imposed on
Purchase (as a % of offering price) None None
Maximum Deferred Sales Load None None
Maximum Sales Load Imposed on
Reinvested dividends None None
Exchange Fee None None
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS)
Management Fee** 1.00 0.75
12b-1 None None
Other Expenses 0.40 0.55
TOTAL FUND OPERATING EXPENSES*** 1.40 1.30
==== ====
</TABLE>
Example 1 You would pay the following expenses over the indicated periods in
each of the Funds on a $1,000 investment assuming (a) payment of the maximum
sales charge (none), (b) a 5% annual return, and (c) redemption at the end of
the time period.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year 12.00 11.00 12.00 11.00 13.00 14.00 13.00
3 Years 37.00 33.00 37.00 33.00 41.00 44.00 41.00
5 Years 63.00 58.00 63.00 58.00 71.00 77.00 71.00
10 Years 140.00 128.00 114.00 128.00 157.00 168.00 157.00
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED INDICATIONS OF PAST OR OF FUTURE EXPENSES
OR PERFORMANCE, AND ACTUAL EXPENSES OR PERFORMANCE MAY VARY FROM THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the various
costs and expenses that an investor in the Portfolios will bear directly or
indirectly.
**These fees may be higher than that of other funds. However, the Board of
Directors has determined that such fees are reasonable in light of the services,
investment decisions and investment techniques employed.
***The expense information set out above reflects a revised commitment of
Enterprise Capital Management, Inc. effective January 1, 1997, to reimburse to
the fund's Portfolios a portion of the fees due it under the investment
Adviser's Agreement. That commitment provides that the Fund's total operating
expenses for the Portfolios, on an annual basis, will not exceed the amounts set
forthin the above table. By reason of the expense reimbursement commitment
applicable in 1996, the actual expenses incurred by Class Y shares of the
Portfolio for 1996 were, on an annualized basis, Small Company - 1.30;
International Growth -1.55; and Managed - 1.12. Absent this reimbursement of
fees, the ratio of expenses to average net assets for the Portfolio for 1996
would have been as follows: Small Company - 1.92; International Growth - 1.75;
and Managed -1.12. Accordingly, expenses for Class Y shares of the funds
represent estimates of what these expenses are expected to be for the 1997
fiscal year. See "Management of the Fund" and "Brokerage Transactions" for
further information concerning expenses.
For accounts with a balance of $1,000 or less, as of July 31, a $25 fee per
account registration per Portfolio for maintenance will apply, excluding
Automatic Bank Draft Plan Accounts, Automatic Investment Plan Accounts, and
Retirement Plans.
<PAGE> 84
<TABLE>
<CAPTION>
SUMMARY OF FUND EXPENSES INTERNATIONAL GROWTH GOVERNMENT SECURITIES HIGH-YIELD BOND TAX-EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CLASS OF SHARES: Y Y Y Y
SHAREHOLDER TRANSACTION EXPENSES
Maximum Initial Sales Load Imposed on
Purchase (as a % of offering price) None None None None
Maximum Deferred Sales Load None None None None
Maximum Sales Load Imposed on
Reinvested dividends None None None None
Exchange Fee None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS)
Management Fee** 0.85 0.60 0.60 0.50
12b-1 None None None None
Other Expenses 0.70 0.25 0.25 0.30
TOTAL FUND OPERATING EXPENSES*** 1.55 0.85 0.85 0.80
==== ==== ==== ====
<CAPTION>
SUMMARY OF FUND EXPENSES MANAGED MONEY MARKET
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
CLASS OF SHARES: Y Y
SHAREHOLDER TRANSACTION EXPENSES
Maximum Initial Sales Load Imposed on
Purchase (as a % of offering price)
None
Maximum Deferred Sales Load None None
Maximum Sales Load Imposed on
Reinvested dividends None None
Exchange Fee None None
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS)
Management Fee** 0.75 0.35
12b-1 None None
Other Expenses 0.55 0.35
TOTAL FUND OPERATING EXPENSES*** 1.30 0.70
==== ====
</TABLE>
Example 2 You would pay the following expenses over the indicated periods in
each of the Funds on a $1,000 investment assuming (a) payment of the maximum
sales charge (none) 5% annual return, and (c) redemption at the end of the time
period.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1 Year 16.00 9.00 9.00 8.00 13.00 7.00
3 Years 49.00 27.00 27.00 26.00 41.00 22.00
5 Years 84.00 47.00 47.00 44.00 71.00 39.00
10 Years 185.00 105.00 105.00 99.00 157.00 87.00
</TABLE>
<PAGE> 85
THE ENTERPRISE GROUP OF FUNDS, INC.
PROSPECTUS SUMMARY
Set forth below are the 13 Portfolios of the Fund, their Portfolio Managers and
investment objectives. The Fund is a diversified, open-end management investment
company. Enterprise Capital Management, Inc. serves as investment adviser. The
Fund consists of common stock divided into thirteen Portfolios consisting of
four separate Classes for each Portfolio. Shares are freely transferable within
each Class.
<TABLE>
<CAPTION>
PORTFOLIO MANAGER INVESTMENT OBJECTIVES
- ----------------- ---------------------
<S> <C>
EQUITY PORTFOLIOS
Growth Portfolio Capital appreciation, primarily from investments in common stocks.
Montag & Caldwell, Inc.
Atlanta, Georgia
Growth & Income Portfolio Total return in excess of the total return of the Lipper
Retirement System Investors Inc. Growth and Income Mutual Funds Average measured over a
New York, New York period of three to five years, by investing primarily in a
broadly diversified group of large capitalization stocks.
Equity Portfolio Long term capital appreciation, primarily from investments in
OpCap Advisors securities of companies that are believed by the Portfolio New
York, New York Manager to be undervalued in the marketplace in relation to
factors such as the companies' assets or earnings.
Equity Income Portfolio A combination of growth and income to achieve an 1740
Advisers, Inc. above average and consistent total return, primarily from New
York, New York investments in dividend paying common stocks.
Capital Appreciation Portfolio Maximum capital appreciation, primarily through
Provident Investment investment in common stock of companies that demonstrate
Counsel, Inc. accelerating earnings momentum and consistently strong
Pasadena, California financial characteristics.
Small Company Growth Portfolio Capital appreciation by investing primarily in common stocks of
Pilgrim Baxter & Associates small capitalization companies believed by the Portfolio Manager
Wayne, Pennsylvania to have an outlook for strong earnings growth and potential for
significant capital appreciation.
Small Company Value Portfolio Maximum capital appreciation, primarily through
GAMCO Investors, Inc. investment in the equity securities of companies that have a
Rye, New York market capitalization of no more than $1 billion.
International Growth Portfolio Capital appreciation, primarily through a diversified portfolio
Brinson Partners, Inc. of non-U.S. equity securities.
Chicago, Illinois
INCOME PORTFOLIOS
Government Securities Portfolio Current income and safety of principal, primarily from
TCW Funds Management, Inc. securities that are obligations of the U.S. Government, or its
Los Angeles, California agencies, or its instrumentalities.
High-Yield Bond Portfolio Maximum current income, primarily from debt securities
that Caywood-Scholl Capital are rated Ba or lower by Moody's Investors Service, Inc. or
Management BB or lower by Standard & Poor's Corporation.
San Diego, California
</TABLE>
<PAGE> 86
<TABLE>
<S> <C>
Tax-Exempt Income Portfolio A high level of current income exempt from federal income
Morgan Stanley Asset tax, with consideration given to preservation of principal,
Management, Inc. primarily from investment in a diversified portfolio of long-
New York, New York term investment grade municipal bonds.
FLEXIBLE PORTFOLIO
Managed Portfolio Growth of capital over time through investment in a portfolio
OpCap Advisors consisting of common stocks, bonds and cash equivalents, the New
York, New York percentages of which will vary based on the Portfolio
Manager's assessments of relative investment values.
MONEY MARKET PORTFOLIO
Money Market Portfolio The highest possible level of current income consistent with
Enterprise Capital preservation of capital and liquidity of investing in
Management, Inc. obligations maturing in one year or less from the time of
Atlanta, Georgia purchase.
</TABLE>
INVESTMENT RISK FACTORS
The risk characteristics of each Portfolio are different. In general, investors
should consider the following risks: An investment in any of the Portfolios
carries the risk that the net asset value of the Portfolio shares will fluctuate
in response to market conditions. Further, an investment in any of the Income
Portfolios carries the risk that the issuers of securities in the Income
Portfolios may default on the payment of principal and interest. An investment
in the High-Yield Bond Portfolio carries an increased risk that issuers of
securities in which the High-Yield Bond Portfolio invests may default in the
payment of principal and interest as compared to the risk of such defaults in
the other Income Portfolios. In addition, an investment in the High-Yield Bond
Portfolio may be subject to certain other risks relating to the market price,
relative liquidity in the secondary market and sensitivity to interest rate and
economic changes of the noninvestment grade securities in which the High-Yield
Bond Portfolio invests that are higher than may be associated with higher rated,
investment grade securities. The Small Company Growth and Small Company Value
Portfolios carry an increased risk that smaller capitalization companies may
experience higher growth rates and higher failure rates than do larger
companies. The limited volume and frequency of trading of small capitalization
companies may subject their stocks to greater price deviations than stocks of
larger companies. The International Growth Portfolio carries additional risks
associated with possibly less stable foreign securities and currencies. Because
of the short-term nature of the Money Market Portfolio's investments, an
investment in shares of the Money Market Portfolio is subject to relatively
little market risk and financial risk, but is subject to a high level of current
income volatility. In addition, the Money Market Portfolio uses the amortized
cost method to value its portfolio securities and seeks to maintain a constant
net asset value of $1.00 per share. There is no assurance that this Portfolio
will be able to maintain this constant net asset value. See "Certain Investment
Techniques and Associated Risks."
PURCHASE ALTERNATIVES
Each Portfolio offers four Classes of shares: shares of each Class are generally
offered at the net asset value next determined after receipt of your purchase
order plus (i) an initial ("front-end") sales charge (Class A shares) or (ii) a
deferred sales charge (Class B and C shares). The following is a brief
description of the Y Class of shares offered. Class A, Class B, Class C Shares
are contained in a separate prospectus. For more complete descriptions of each
Class of shares, see "How to Purchase Shares."
- 8 -
<PAGE> 87
CLASS Y SHARES: Class Y shares do not incur an initial sales charge when
purchased. Class Y shares are not subject to any ongoing
distribution fees or service fees. Class Y shares are subject
to an investment of $1,000,000. Institutional investors
eligible to purchases Class Y shares include banks, savings
institutions, trust companies, insurance companies, investment
companies as defined by the Investment Company Act of 1940,
pension or profit sharing trusts, certain wrap account clients
of broker/dealers former shareholders of Retirement System
Fund, Inc. ("RSF") whose shares were merged into the
Enterprise Group of Funds, Inc. or other financial
institutional buyer. Wrap account clients of broker/dealers
and former RSI shareholders are offered Class Y shares at a
lower minimum purchase amount.
FINANCIAL HIGHLIGHTS
- 9 -
<PAGE> 88
(FOR A SHARE OUTSTANDING THROUGH THE PERIODS INDICATED)
The financial highlights which follow are part of the Fund's financial
statements and are included in Fund's Annual Report to Shareholders. The Fund's
1996 Annual Report to Shareholders is incorporated by reference into the
Statement of Additional Information. Annual reports may be obtained without
charge by calling the Fund at 800-368-3527. The Report contains information
about the performances of the Portfolios.
(Registrant undertakes to submit Financial Highlights as part of a
post-effective amendment 485(b) filing on or before April 30, 1997.)
- 10 -
<PAGE> 89
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
The following descriptions of the Portfolios are intended to help you select the
Portfolio which is appropriate for your investment objective. You may wish to
pursue your objectives by investing in more than one Portfolio.
The investment objectives of each Portfolio may not be changed without approval
of a majority of the outstanding voting securities of that Portfolio.
Equity Portfolios
Under normal market conditions, at least 65% of the net asset value of the eight
Equity Portfolios will be invested in common equity securities. The remainder of
the Equity Portfolios' assets may be invested in repurchase agreements, bankers
acceptances, bank certificates of deposit, commercial paper and similar money
market instruments, convertible bonds, convertible preferred stock, preferred
stock, corporate bonds, U.S. Treasuries, notes and bonds, American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs"), foreign stocks, rights
and warrants.
The Growth, Growth and Income, Equity Income, Capital Appreciation, Small
Company Growth and Small Company Value Portfolios invest in securities that are
traded on national securities exchanges and in the over-the-counter market. Each
of these Portfolios may invest up to 10% of its assets in securities of foreign
issuers and up to 10% of its assets in illiquid, including restricted,
securities. As noted below, the International Growth Portfolio invests
principally in the securities of foreign issuers listed on recognized foreign
exchanges, but may also invest in securities traded on the over-the-counter
market.
Growth Portfolio
The objective of the Growth Portfolio is appreciation of capital primarily
through investments in common stocks. The Portfolio's common stock selection
emphasizes those companies having growth characteristics, but the Portfolio's
investment policy recognizes that securities of other companies may be
attractive for capital appreciation purposes by virtue of special developments
or depression in price believed to be temporary. The potential for appreciation
of capital is the basis for investment decisions; any income is incidental.
Growth and Income
The objective of the Growth and Income Portfolio is to achieve a total return in
excess of the total return of the Lipper Growth and Income Mutual Funds Average,
measured over a period of three to five years, by investing primarily in a
broadly diversified group of large capitalization companies. The Fund seeks this
objective primarily through capital appreciation with income as a secondary
consideration. The Fund will invest in securities of companies which the
Portfolio Manager believes to be financially sound and will consider such
factors as the sales, growth and profitability prospects for the economic sector
and markets in which the company operates and for the services of products it
provides; the financial condition of the company; its ability to meet its
liabilities and to provide income in the form of dividends; the prevailing price
of the security; how that price compares to historical price levels of the
security, to current price levels in the general market, and to the prices of
competing companies; projected earnings estimates and earnings growth rate of
the company, and the relation of those figures to the current price.
Under normal circumstances, the Growth and Income Portfolio expects to be as
fully invested as practicable in equity-based securities, primarily common
stocks, and will be at least 65% so invested. Equity-based securities may
include securities convertible into common stocks and warrants to purchase
common stocks.
In general, the Portfolio will invest in stocks of companies with market
capitalizations in excess of $750 million. Although there is no assurance that
the Portfolio will meet its objective, the securities held in the
- 11 -
<PAGE> 90
Growth and Income Portfolio will generally reflect the price volatility of the
broad equity market (i.e., the Standard & Poor's 500 Index).
Equity Portfolio
The investment objective of the Equity Portfolio is long term capital
appreciation through investment in securities (primarily equity securities) of
companies that are believed by the Portfolio Manager to be undervalued in the
marketplace in relation to factors such as the companies' assets or earnings. It
is the Portfolio Manager's intention to invest in securities of companies which
in the Portfolio Manager's opinion possess one or more of the following
characteristics: undervalued assets, valuable consumer or commercial franchises,
securities valuation below peer companies, substantial and growing cash flow
and/or a favorable price to book value relationship. Investment policies aimed
at achieving the Portfolio's objective are set in a flexible framework of
securities selection which primarily includes equity securities, such as common
stocks, preferred stocks, convertible securities, rights and warrants in
proportions which vary from time-to-time. Under normal circumstances at least
65% of the Portfolio's assets will be invested in equity securities. The
Portfolio will invest primarily in stocks listed on the New York Stock Exchange.
In addition, it may also purchase securities listed on other domestic securities
exchanges, securities traded in the domestic over-the-counter market and foreign
securities provided that they are listed on a domestic or foreign securities
exchange or represented by American Depository Receipts listed on a domestic
securities exchange or traded in the United States over-the-counter market.
Equity Income Portfolio
The objective of the Equity Income Portfolio is a combination of growth and
income to achieve an above average and consistent total return, primarily from
investments in dividend-paying common stocks.
The Portfolio's principal criterion in stock selection is above average yield,
and it uses this criterion as a discipline to enhance stability and reduce
market risk. Subject to this primary criterion, the Portfolio invests in stocks
that have relatively low price to earnings ratios or relatively low price to
book value ratios.
Capital Appreciation Portfolio
The objective of the Capital Appreciation Portfolio is maximum capital
appreciation, primarily through investments in common stocks of companies that
demonstrate accelerating earnings momentum and consistently strong financial
characteristics.
The Portfolio invests primarily in common stocks of companies which meet the
Portfolio Manager's criteria of: (a) steadily increasing earnings; and (b) a
three-year average performance record of sales, earnings, dividend growth,
pretax margins, return on equity and reinvestment rate at an aggregate average
of 1.5 times the average performance of the Standard & Poor's 500 common stocks
("S&P 500") for the same period. The Portfolio attempts to invest in a range of
small, medium and large companies designed to achieve an average capitalization
of the companies in which it invests that is less than the average
capitalization of the S&P 500. The potential for maximum capital appreciation is
the basis for investment decisions; any income is incidental.
Small Company Growth Portfolio
The Small Company Growth Portfolio seeks capital appreciation and invests
primarily in common stocks of small capitalization companies believed by the
Portfolio Manager to have an outlook for strong earnings growth and potential
for significant capital appreciation. The Portfolio will normally be as fully
invested as practicable in common stocks and securities convertible into common
stocks, but also may invest up to 5% of its assets in warrants and rights to
purchase common stocks. In the option of the Portfolio Manager, there may be
times when the shareholder's best interests are best served and the investment
objective is more likely to be achieved by
- 12 -
<PAGE> 91
having varying amounts of the Portfolio's assets in convertible securities.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in common stocks and convertible securities of small capitalization
companies (market capitalization or annual revenues of up to $1 billion). At
certain times that percentage may be substantially higher. Securities will be
sold when the Portfolio Manager believes that anticipated appreciation no longer
probable, alternative investments offer superior appreciation prospects, or the
risk of a decline in market price is too great. Because of its policy with
respect to the sales of investments, the Portfolio may from time to time realize
short-term gains or losses. The Portfolio will likely have somewhat greater
volatility than the stock market in general, a measured by the S&P 500 Index.
The securities of the Small Company Growth Fund generally will have a higher
degree of risk and price volatility than larger growth funds and a lower income
return than those funds.
For temporary defensive purposes, the Portfolio may invest up to 100% of its
total assets in cash equivalents. The Portfolio may also pursue certain
additional investment policies and strategies including: foreign securities;
investing foreign currency transactions; investing in repurchase agreements; and
acquiring when-issue securities.
Small Company Value Portfolio
The objective of the Small Company Value Portfolio is maximum capital
appreciation, primarily through investment of at least 65% of Portfolio assets
in the common equity securities of companies (based on the total outstanding
common shares at the time of investment) which have a market capitalization of
no more than $1 billion (hereinafter referred to as "small cap companies").
The Portfolio intends to invest the remaining 35% of its total assets in the
same manner but reserves the right to use some or all of the 35% to invest in
equity securities of companies (based on the total outstanding common shares at
the time of investment) which have a market capitalization of more than $1
billion.
In pursuing its objective, the Portfolio's strategy will be to invest in stocks
of companies with value that may not be fully reflected by current stock price.
Since small companies tend to be less actively followed by stock analysts, the
market may overlook favorable trends and then adjust its valuation more quickly
once investor interest has surfaced. The Portfolio Manager seeks out companies
in the public market that are selling at a discount to their private market
value (PMV) measured using proprietary research techniques in areas of core
competencies. The Portfolio Manager then determines whether there is an emerging
catalyst that will focus investor attention on the underlying assets of the
company. Smaller companies may be subject to a valuation catalyst such as
increased investor attention, takeover efforts or a change in management.
International Growth Portfolio
The objective of the International Growth Portfolio is capital appreciation,
primarily through a diversified portfolio of non-U.S. equity securities.
It is a fundamental policy of the Portfolio that it will invest at least 80% of
the value of its assets (except when maintaining a temporary defensive position)
in equity securities of companies domiciled outside the United States. That
portion of the Portfolio not invested in equity securities is, in normal
circumstances, invested in U.S. and foreign government securities, high grade
commercial paper, certificates of deposit, foreign currency, banker acceptances,
cash and cash equivalents, time deposits, repurchase agreements and similar
money market instruments, both foreign and domestic. The Portfolio may invest in
convertible debt securities of foreign issuers which are convertible into equity
securities at such time as a market for equity securities is established in the
country involved.
The Portfolio Manager's investment perspective for the Portfolio is to invest in
the equity securities of non-U.S. markets and companies which are believed to be
undervalued based upon internal research and proprietary valuation systems. This
international equity strategy reflects the Portfolio Manager's decisions
concerning the
- 13 -
<PAGE> 92
relative attractiveness of asset classes, the individual international equity
markets, industries across and within those markets, other common risk factors
within those markets and individual international companies. The Portfolio
Manager initially identifies those securities which it believes to be
undervalued in relation to the issuer's assets, cash flow, earnings and
revenues. The relative performance of foreign currencies is an important factor
in the Portfolio's performance. The Portfolio Manager may manage the Portfolio's
exposure to various currencies to take advantage of different yield, risk and
return characteristics. The Portfolio Manager's proprietary valuation model
determines which securities are potential candidates for inclusion in the
Portfolio.
The benchmark for the fund is the Morgan Stanley Capital International Non-U.S.
Equity (Free) Index (the "Benchmark"). The Benchmark is a market driven broad
based index which includes non-U.S. equity markets in terms of capitalization
and performance. The Benchmark is designed to provide a representative total
return for all major stock exchanges located outside the U.S. From time to time,
the Portfolio Manager may substitute securities in an equivalent index when it
believes that such securities in the index more accurately reflect the relevant
international market.
As a general matter, the Advisor will purchase for the Fund only securities
contained in the underlying index relevant to the Benchmark. Brinson Partners
will attempt to enhance the long-term risk and return performance of the Fund
relative to the Benchmark by deviating from the normal Benchmark mix of country
allocation and currencies in reaction to discrepancies between current market
prices and fundamental values. The active management process is intended to
produce a superior performance relative to the Benchmark index.
The Portfolio Manager will purchase securities of companies domiciled in a
minimum of 8 to 12 countries outside the United States.
INCOME PORTFOLIOS
Investors should refer to the Appendix to the Statement of Additional
Information for a description of the Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's ("S&P") ratings mentioned below.
Government Securities Portfolio
The objective of the Government Securities Portfolio is current income and
safety of principal primarily from securities that are obligations of the U.S.
Government, its agencies and instrumentalities ("U.S. Government Securities").
It is a fundamental policy of the Portfolio that under normal conditions at
least 80% of the value of its net assets will be invested in U.S. Government
Securities. Securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities are generally considered to be of the same or
higher credit quality as privately issued securities rated Aaa by Moody's or AAA
by S&P.
U.S. Government Securities consist of direct obligations of the U.S. Treasury
(such as treasury bills, treasury notes and treasury bonds) and securities
issued or guaranteed by agencies and instrumentalities of the United States
Government. Those securities issued by agencies or instrumentalities may or may
not be backed by the full faith and credit of the United States. Examples of
full faith and credit securities are securities issued by the Government
National Mortgage Association ("GNMA Certificates"). Examples of agencies or
instrumentalities whose securities are not backed by the full faith and credit
of the United States are the Federal Farm Credit System, the Federal Home Loan
Banks, the Tennessee Valley Authority, the United States Postal Service and the
Export-Import Bank. The Portfolio may concentrate from time to time in different
securities described above in order to obtain the highest level of current
income and safety of principal.
The remainder of the Portfolio's assets may be invested in repurchase
agreements, bankers acceptances, bank certificates of deposit, commercial paper
and similar money market instruments, corporate bonds and other mortgage-related
securities (including collateralized mortgage obligations or "CMOs") rated Aaa
by Moody's or
- 14 -
<PAGE> 93
AAA by S&P at the time of the investment or determined by the Portfolio Manager
to be of comparable credit quality at the time of investment to such rated
securities. In making such investments, the Portfolio Manager seeks income but
gives careful attention to security of principal and considers such factors as
marketability and diversification. For a discussion of CMOs and related risks,
see "Certain Investment Techniques and Associated Risks," at page 16.
As described in "Certain Investment Techniques and Associated Risks," at page
16, the Portfolio may write and sell covered call option contracts on securities
that it owns (in an effort to enhance income through hedging and other
investment techniques) to the extent of 20% of the value of its net assets at
the time such option contracts are written.
High-Yield Bond Portfolio
The objective of the High-Yield Bond Portfolio is maximum current income,
primarily from debt securities that are rated Ba or lower by Moody's or BB or
lower by Standard & Poor's.
It is a fundamental policy of the Portfolio that it will invest at least 80% of
the value of its total assets (except when maintaining a temporary defensive
position) in high-yielding, income-producing corporate bonds that are rated B3
or better by Moody's or B- or better by S&P. The corporate bonds in which the
Portfolio invests are high-yielding but normally carry a greater credit risk
than bonds with higher ratings. In addition, such bonds, commonly referred to as
"junk bonds", may involve greater volatility of price than higher-rated bonds.
For a discussion of High-Yield Securities and related risks, see "Certain
Investment Techniques and Associated Risks" at page 16.
The Portfolio's investments are selected by the Portfolio Manager after careful
examination of the economic outlook to determine those industries that appear
favorable for investments. Industries going through a perceived decline
generally are not candidates for selection. After the industries are selected,
bonds of issuers within those industries are selected based on their
creditworthiness, their yields in relation to their credit and the relative
strength of their common stock prices. Companies near or in bankruptcy are not
considered for investment. The Portfolio does not purchase bonds which are rated
Ca or lower by Moody's or CC or lower by S&P or which, if unrated, in the
judgment of the Portfolio Manager have characteristics of such lower-grade
bonds. Should an investment purchased with the above-described credit quality
requisites be downgraded to Ca or lower or CC or lower, the Portfolio Manager
shall have discretion to hold or liquidate the security.
Subject to the restrictions described above, under normal circumstances, up to
20% of the Portfolio's assets may include: (1) bonds rated Caa by Moody's or CCC
by S&P; (2) unrated debt securities which, in the judgment of the Portfolio
Manager have characteristics similar to those described above; (3) convertible
debt securities; (4) puts, calls and futures as hedging devices; (5) foreign
issuer debt securities; and (6) short-term money market instruments, including
certificates of deposit, commercial paper, U.S. Government Securities and other
income-producing cash equivalents. For a discussion on puts, calls, and futures
and their related risks, see "Certain Investment Techniques and Associated
Risks," at page 16 .
Tax-Exempt Income Portfolio
The objective of the Tax-Exempt Income Portfolio is a high level of current
income not includable in gross income for federal income tax purposes, with
consideration given to preservation of principal, primarily from investments in
a diversified portfolio of long-term investment grade municipal bonds.
- 15 -
<PAGE> 94
It is a fundamental policy of the Portfolio that it will invest at least 80% of
its net assets (except when maintaining a temporary defensive position) in
Municipal Securities (or futures contracts or options on futures with respect
thereto) which, at the time of investment, are investment grade or in Municipal
Securities which are not rated if, based upon credit analysis by the Portfolio
Manager, it is believed that such securities are of comparable quality to such
rated bonds.
The Portfolio invests primarily in investment grade "Municipal Securities" the
interest on which, in the opinion of counsel for issuers or the Portfolio, is
not includable in gross income for federal income tax purposes. Municipal
Securities are notes and bonds issued by or on behalf of states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities. These securities are
traded primarily in the over-the-counter market. Such securities may have fixed,
variable or floating rates of interest. See the Appendix to this Prospectus for
a further description of Municipal Securities.
Investment grade securities are: bonds rated within the three highest ratings by
Moody's (Aaa, Aa, A) or S&P (AAA, AA, A); notes given one of the three highest
ratings by Moody's (MIGl, MIG2, MIG3) for notes; commercial paper rated P-l by
Moody's or A-1 by S&P; and variable rate securities rated VMIGl or VMIG2 by
Moody's.
While there are no maturity restrictions on the Municipal Securities in which
the Portfolio invests, the average maturity is expected to range between 10 and
25 years. The Portfolio Manager will actively manage the Portfolio, adjusting
the average Portfolio maturity and utilizing futures contracts and options on
futures as a defensive measure according to its judgment of anticipated interest
rates. During periods of rising interest rates and falling prices, a shorter
weighted average maturity may be adopted to cushion the effect of bond price
declines on the Portfolio's net asset value. When rates are falling and prices
are rising, a longer weighted average maturity rate may be adopted. For a
discussion on futures and their related risks, see "Certain Investment
Techniques and Associated Risks," at page 16.
The Portfolio may also invest up to 20% of its net assets in cash, cash
equivalents and debt securities, the interest from which may be subject to
federal income tax. Investments in taxable securities will be limited to
investment grade corporate debt securities and U.S. Government Securities.
The Portfolio will not invest more than 20% of its net assets in Municipal
Securities the interest on which is subject to federal alternative minimum tax.
FLEXIBLE PORTFOLIO
Managed Portfolio
The objective of the Managed Portfolio is growth of capital over time through
investment in a portfolio consisting of common stocks, bonds and cash
equivalents, the percentages of which will vary based on the Portfolio Manager's
assessments of the relative outlook for such investments. In seeking to achieve
its investment objective, the types of equity securities in which the Portfolio
may invest will be the same as those in which the Equity Portfolios invest. Debt
securities are expected to be predominantly investment grade intermediate to
long term U.S. Government and corporate debt, although the Portfolio will also
invest in high quality short term money market and cash equivalent securities
and may invest almost all of its assets in such securities when the Manager
deems it advisable in order to preserve capital. In addition, the Portfolio may
also purchase foreign securities provided that they are listed on a domestic or
foreign securities exchange or are represented by American Depository Receipts
listed on a domestic securities exchange or traded in the United States
over-the-counter market.
The allocation of the Portfolio's assets among the different types of permitted
investments will vary from time to time based upon the Portfolio Manager's
evaluation of economic and market trends and its perception of the relative
values available from such types of securities at any given time. There is
neither a minimum nor a
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maximum percentage of the Portfolio's assets that may, at any given time, be
invested in any of the types of investments identified above. Consequently,
while the Portfolio will earn income to the extent it is invested in bonds or
cash equivalents, the Portfolio does not have any specific income objective.
MONEY MARKET PORTFOLIO
The investment objective of the Money Market Portfolio is to provide the highest
possible level of current income, consistent with preservation of capital and
liquidity. Securities in which the Portfolio will invest may not yield as high a
level of current income as securities of lower quality and longer maturity which
generally have less liquidity and greater market risk. The Money Market
Portfolio seeks to achieve its objective by investing in a diversified portfolio
of high quality money market instruments, comprised of U.S. dollar-denominated
instruments which present minimal credit risks and are of eligible quality which
consist of the following:
1. obligations issued or guaranteed as to principal and interest by the
United States Government or any agency or authority controlled or
supervised by and acting as an instrumentality of the U.S. Government
pursuant to authority granted by Congress;
2. commercial paper, negotiable certificates of deposit, letters of
credit, time deposits and bankers' acceptances, of U.S. or foreign
banks, and U.S. or foreign savings and loans associations, which at the
date of investment have capital, surplus and undistributed profits as
of the date of their most recent published financial statements of
$500,000,000 or greater;
3. short-term corporate debt instruments (commercial paper or variable
amount master demand notes) rated "A-1" or "A-2" by S&P or "Prime 1" or
"Prime 2" by Moody's, or, if not rated, issued by a company rated at
least "A" by S&P or Moody's and about which the Board of Directors of
the Fund has ratified the Portfolio Manager's independent determination
that the instrument presents minimal credit risks and is of high
quality; however, investments in securities of all issuers having the
second highest overall rating (A-2/P-2) assigned shall be limited to no
more than five percent of the Portfolio's assets at the time of
purchase, with the investment of any one such issuer being limited to
not more than one percent of Portfolio assets at the time of purchase;
4. corporate obligations limited to non-convertible corporate debt
securities having one year or less remaining to maturity and which are
rated "AA" or better by S&P or "Aa" or better by Moody's; and
5. repurchase agreements with respect to any of the foregoing obligations.
The Money Market Portfolio will limit its investment in the securities of any
one issuer to no more than five percent of Portfolio assets, measured at the
time of purchase.
In addition, the Money Market Portfolio will not purchase any security,
including any repurchase agreement maturing in more than seven days, which is
subject to legal or contractual delays on resale or which is not readily
marketable if more than 10% of the net assets of the Money Market Portfolio,
taken at market value would be invested in such securities.
After purchase by the Money Market Portfolio, a security may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Money Market Portfolio. Neither event will require a sale of such security by
the Money Market Portfolio. The Portfolio Manager will consider such event in
its determination of whether the Money Market Portfolio should continue to hold
the security provided that the security presents minimal credit risks and that
holding the security is in the best interests of the Portfolio. To the extent
Moody's or S&P may change their rating systems generally (as described in the
Appendix to the Statement of Additional Information) the Money Market Portfolio
will attempt to use comparable ratings as standards for investments in
accordance with investment policies contained herein and in the Fund's Statement
of Additional Information.
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<PAGE> 96
The dollar weighted average maturity of the Money Market Portfolio will be 90
days or less.
All investments of the Money Market Portfolio will be limited to instruments
which the Board of Directors determines are of eligible quality, which, if
instruments of foreign issuers, are United States dollar-denominated instruments
presenting minimal credit risk, and all of which are either:
1. of those rated in the two highest rating categories by any nationally
recognized statistical rating organization (NRSRO), or
2. if the instrument is not rated, of comparable quality as determined by
the Board of Directors.
Generally, instruments with NRSRO ratings in the two highest grades are
considered "high quality." All of the money market investments will mature in
397 days or less. The Money Market Portfolio will use the amortized cost method
of securities valuation, as described more fully in the Statement of Additional
Information.
CERTAIN INVESTMENT TECHNIQUES AND ASSOCIATED RISKS
Following is a description of certain investment techniques employed by the
Portfolios, and certain types of securities invested in by the Portfolios and
associated risks. Unless otherwise indicated, all of the Portfolios may use the
indicated techniques and invest in the indicated securities.
GENERAL RISKS ASSOCIATED WITH EQUITY PORTFOLIOS
The Equity Portfolios seek to reduce risk of loss of principal due to changes in
the value of individual stocks by investing in a diversified portfolio of common
stocks and through the use of options on stocks. Such investment techniques do
not, however, eliminate all risks. Investors should expect the value of the
Equity Portfolios and the net asset value of their shares to fluctuate based on
market conditions.
Smaller capitalization companies may experience higher growth rates and higher
failure rates than do larger capitalization companies due to the risk related to
markets, market share, product performance and financial resources. The limited
volume and frequency of trading of small capitalization companies may subject
their stocks to greater price deviations than stocks of larger companies.
The International Growth Portfolio carries additional risks associated with
possibly less stable foreign securities and currencies. For a discussion on
these risks, please refer to "Foreign Currency and Values" at page 30.
GENERAL RISKS ASSOCIATED WITH INCOME PORTFOLIOS
Although the Income Portfolios seek to reduce credit risks, i.e., failure of
obligors to pay interest and principal, through careful selection of
investments, and they seek to reduce market risks resulting from fluctuations in
the principal value of debt obligations due to changes in prevailing interest
rates by careful timing of maturities of investments, such risks cannot be
eliminated, and these factors will affect the net asset value of shares in the
Income Portfolios. The value of debt obligations has an inverse relationship
with prevailing interest rates.
GENERAL RISKS ASSOCIATED WITH FLEXIBLE PORTFOLIO
The foregoing types of risks associated with equity and income portfolios also
apply to flexible portfolios.
U.S. GOVERNMENT SECURITIES
Although the payment of interest and principal on a security may be guaranteed
by the United States Government or one of its agencies or instrumentalities, the
value of such fixed income securities and, consequently, the yield
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<PAGE> 97
on and net asset value of shares of the Government Securities Portfolio are not
guaranteed by the U.S. Government. The net asset value fluctuates in response to
changes in interest rates and market valuation. During periods of declining
interest rates, prepayment of mortgages underlying mortgage-backed securities
can be expected to accelerate. As a result, the Government Securities
Portfolio's ability to maintain positions in high-yielding, mortgage-backed
securities, such as GNMA Certificates, will be affected by reductions in the
principal amounts of such securities resulting from such prepayments, and its
ability to reinvest the returns of principal at comparable yields is subject to
generally prevailing interest rates at the time.
MORTGAGE-RELATED SECURITIES AND ASSET-BACKED SECURITIES
Up to 20% of the net assets of the Government Securities Portfolio may be
invested in assets other than U.S. Government Securities, including
collateralized mortgage related securities ("CMOs") and asset backed securities.
These securities are considered to be volatile. CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-related securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the type of CMOs in which
the Government Securities Portfolio invests, the investment may be subject to a
greater or lesser risk of prepayment than other types of mortgage-related
securities.
While there are many versions of CMOs and asset backed securities, some include
"Interest Only" or "IO" - where all interest payments go to one class of
holders, "Principal Only" or "PO" - where all of the principal goes to a second
class of holders, "Floaters" - where the coupon rate floats in the same
direction as interest rates and "Inverse Floaters" - where the coupon rate
floats in the opposite direction as interest rates. All these securities are
volatile; they also have particular risks in differing interest rate
environments as described below.
The yield to maturity on an IO class is extremely sensitive to the rate of
principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on yield to maturity and, therefore, the market value of the IO. As
interest rates rise and fall, the value of IOs tends to move in the same
direction as interest rates. Accordingly, investment in IOs can theoretically be
expected to contribute to stabilizing a Portfolio's net asset value. However, if
the underlying mortgage assets experience greater than anticipated prepayments
of principal, the Portfolio may fail to fully recoup its initial investment in
these securities even if the securities are rated AAA or the equivalent.
Conversely, while the yield to maturity on a PO class is also extremely
sensitive to rate of principal payments (including prepayments) on the related
underlying mortgage assets, a slow rate of principal payments may have a
material adverse effect on yield to maturity and therefore the market value of
the PO. As interest rates rise and fall, the value of POs tends to move in the
opposite direction from interest rates. This is typical of most debt
instruments. See "General Risks Associated With Income Portfolios" on page 16.
Floaters and Inverse Floaters ("Floaters") are extremely sensitive to the rise
and fall in interest rates. The coupon rate on these securities is based on
various benchmarks, such as LIBOR ("London Inter-Bank Offered Rate") and the
11th District cost of funds (the base rate). The coupon rate on Floaters can be
affected by a variety of terms. Floaters can be reset at fixed intervals over
the life of the Floater, float with a spread to the base rate, or be a certain
percentage rate minus a certain base rate. Some Floaters have floors below which
the interest rate cannot be reset and/or ceilings above which the interest rate
cannot be reset. The coupon rate and/or market value of Floaters tend to move in
the same direction as the base rate while the coupon rate and/or market value of
Inverse Floaters tend to move in the opposite direction from the base rate.
The market value of all CMOs and other asset backed securities are determined by
supply and demand in the bid/ask market, interest rate movements, the yield
curve, forward rates, prepayment assumptions and credit of the underlying
issuer. Further, the price actually received on a sale may be different from
bids when security is being priced.
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<PAGE> 98
CMOs and asset-backed securities trade over a bid and ask market through several
large market makers. Due to the complexity and concentration of derivative
securities, the liquidity and, consequently, the volatility of these securities
can be sharply influenced by market demand.
Asset-backed and mortgage-related securities may not be readily marketable. To
the extent any of these securities are not readily marketable in the judgment of
the Portfolio Manager (subject to the oversight of the Board of Directors), the
investment restriction limiting the Portfolio's investment in illiquid
instruments to not more than 10% of the value of its net assets will apply.
However, IOs and POs issued by the U.S. Government, its agencies and
instrumentalities, and backed by fixed-rate mortgages may be excluded from this
limit, if, in the judgment of the Portfolio Manager (subject to the oversight of
the Board of Directors) such IOs and POs are readily marketable. The Government
Securities Portfolio does not intend to invest in residual interests, privately
issued securities or subordinated classes of underlying mortgages.
HIGH-YIELD SECURITIES
Notwithstanding the investment policies and restrictions applicable to the
High-Yield Bond and Managed Portfolios which were designed to reduce risks
associated with such investments, high-yield securities may carry higher levels
of risk than many other types of income producing securities. These risks are of
three basic types: the risk that the issuer of the high-yield bond will default
in the payment of principal and interest; the risk that the value of the bond
will decline due to rising interest rates, economic conditions, or public
perception; and the risk that the investor in such bonds may not be able to
readily sell such bonds. Each of the major categories of risk are impacted by
various factors, as discussed below:
High-Yield Bond Market
The high-yield bond market is relatively new and has grown in the context of a
long economic expansion. Any downturn in the economy may have a negative impact
on the perceived ability of the issuer to make principal and interest payments
which may adversely affect the value of outstanding high-yield securities and
reduce market liquidity.
Sensitivity to Interest Rate and Economic Changes
In general, the market prices of bonds bear an inverse relationship to interest
rates; as interest rates increase, the prices of bonds decrease. The same
relationship may hold for high-yield bonds, but in the past high-yield bonds
have been somewhat less sensitive to interest rate changes than treasury and
investment grade bonds. While the price of high-yield bonds may not decline as
much, relatively, as the prices of treasury or investment grade bonds decline in
an environment of rising interest rates, the market price, or value, of a
high-yield bond will be expected to decrease in periods of increasing interest
rates, negatively impacting the net asset value of the High-Yield Bond
Portfolio. High-yield bond prices may not increase as much, relatively, as the
prices of treasury or investment grade bonds in periods of decreasing interest
rates. Payments of principal and interest on bonds are dependent upon the
issuer's ability to pay. Because of the generally lower creditworthiness of
issuers of high-yield bonds, changes in the economic environment generally, or
in an issuer's particular industry or business, may severely impact the ability
of the issuer to make principal and interest payments and may depress the price
of high-yield securities more significantly than such changes would impact
higher rated, investment grade securities.
Payment Expectations
Many high-yield bonds contain redemption or call provisions which might be
expected to be exercised in periods of decreasing interest rates. Should bonds
in which the High-Yield Bond Portfolio has invested be redeemed or called during
such an interest rate environment, the Portfolio would have to sell such
securities without reference to their investment merit and reinvest the proceeds
received in lower yielding securities, resulting in a decreased return for
investors in the High-Yield Bond Portfolio. In addition, such redemptions or
calls may reduce the High-Yield Bond Portfolio's asset base over which the
Portfolio's investment expenses may be spread.
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Liquidity and Valuation
Because of periods of relative illiquidity, many high-yield bonds may be thinly
traded. As a result, the ability to accurately value high-yield bonds and
determine the net asset value of the High-Yield Bond Portfolio, as well as the
Portfolio's ability to sell such securities, may be limited. Public perception
of and adverse publicity concerning high-yield securities may have a significant
negative impact on the value and liquidity of high-yield securities, even though
not based on fundamental investment analysis.
Tax Considerations
To the extent that the High-Yield Bond Portfolio invests in securities
structured as zero coupon bonds, the Portfolio will be required to report
interest income even though no cash interest payment is received until maturity
of the bond. Investors in the High-Yield Bond Portfolio would be taxed on this
interest income even though no cash distribution of such interest is received in
the year in which such income is taxed.
Portfolio Composition
As of December 31, 1996, the High-Yield Bond Portfolio consisted of securities
classified as follows:
<TABLE>
<CAPTION>
CATEGORY PERCENTAGE OF PORTFOLIO
-------- -----------------------
<S> <C>
BB 14.1%
B 80.8%
CCC 0.2%
Non-rated* 4.9%
</TABLE>
*Equivalent ratings for these securities would have been CCC to B3.
DEFENSIVE TACTICS
Any or all of the Portfolios may at times for defensive purposes, at the
determination of the Portfolio Manager, temporarily place all or a portion of
their assets in cash, short-term commercial paper (i.e. short-term unsecured
promissory notes issued by corporations to finance short-term credit needs),
United States Government Securities, high quality debt securities (including
"Eurodollar" and "Yankee Dollar" obligations, i.e., U.S. issuer borrowings
payable overseas in U.S. funds and obligations of foreign issuers payable in
U.S. funds), non-convertible preferred stocks and obligations of banks when in
the judgment of the Portfolio Manager such investments are appropriate in light
of economic or market conditions. The Money Market Portfolio may at times for
defensive purposes, at the determination of the Portfolio Manager, temporarily
place all or a portion of its assets in cash, when in the judgment of the
Portfolio Manager such an investment is appropriate in light of economic or
market conditions. The International Growth Portfolio may invest in all of the
above, both foreign and domestic, including foreign currency, foreign time
deposits, and foreign bank acceptances. When a Portfolio takes a defensive
position, it may not be following the fundamental investment policy of the
Portfolio.
HEDGING TRANSACTIONS
Except as otherwise indicated, the Portfolio Managers, other than for the Money
Market Portfolio, may engage in the following hedging transactions to seek to
hedge all or a portion of a Portfolio's assets against market value changes
resulting from changes in equity values, interest rates and currency
fluctuations. Hedging is a means of offsetting, or neutralizing, the price
movement of an investment by making another investment, the price of which
should tend to move in the opposite direction from the original investment.
The Portfolios will not engage in hedging transactions for speculative purposes
but only as a hedge against changes resulting from market conditions in the
values of securities owned or expected to be owned by the
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<PAGE> 100
Portfolios. Unless otherwise indicated, a Portfolio will not enter into a
hedging transaction (except for closing transactions) if, immediately
thereafter, the sum of the amount of the initial deposits and premiums on open
contracts and options would exceed 5% of the Portfolio's total assets taken at
current value.
CERTAIN SECURITIES
The Portfolios may invest in the following described securities, except as
otherwise indicated. These securities are commonly referred to as derivatives. A
Portfolio's investment in such securities, in the aggregate, may not exceed 5%
of net assets at the time of investment; provided, however, that the
International Growth Portfolio, the High-Yield Bond Portfolio, and the
Government Securities Portfolio may invest up to 20% of their net assets in such
securities.
Call Options
The Portfolios, other than the Money Market Portfolio, may write (sell) call
options that are listed on national securities exchanges or are available in the
over-the-counter market through primary broker-dealers. Call options are
short-term contracts with a duration of nine months or less. Such Portfolios of
the Fund may only write call options which are "covered," meaning that the
Portfolio either owns the underlying security or has an absolute and immediate
right to acquire that security, without additional cash consideration, upon
conversion or exchange of other securities currently held in the Portfolio. In
addition, no Portfolio will, prior to the expiration of a call option, permit
the call to become uncovered. If a Portfolio writes a call option, the purchaser
of the option has the right to buy (and the Portfolio has the obligation to
sell) the underlying security at the exercise price throughout the term of the
option. The amount paid to the Portfolio by the purchaser of the option is the
"premium." The Portfolio's obligation to deliver the underlying security against
payment of the exercise price would terminate either upon expiration of the
option or earlier if the Portfolio were to effect a "closing purchase
transaction" through the purchase of an equivalent option on an exchange. The
Portfolio would not be able to effect a closing purchase transaction after it
had received notice of exercise. The International Growth Portfolio may purchase
and write covered call options on foreign and U.S. securities and indices and
enter into related closing transactions.
Generally, such a Portfolio intends to write listed covered calls when it
anticipates that the rate of return from so doing is attractive, taking into
consideration the premium income to be received, the risks of a decline in
securities prices during the term of the option, the probability that closing
purchase transactions will be available if a sale of the securities is desired
prior to the exercise, or expiration of the options, and the cost of entering
into such transactions. A principal reason for writing calls on a securities
portfolio is to attempt to realize, through the receipt of premium income, a
greater return than would be earned on the securities alone. A covered call
writer such as a Portfolio, which owns the underlying security, has, in return
for the premium, given up the opportunity for profit from a price increase in
the underlying security above the exercise price, but it has retained the risk
of loss should the price of the security decline.
The writing of covered call options involves certain risks. A principal risk
arises because exchange and over-the-counter markets for options may be limited;
it is impossible to predict the amount of trading interest which may exist in
such options, and there can be no assurance that viable exchange and
over-the-counter markets will develop or continue. The Portfolios will write
covered call options only if there appears to be a liquid secondary market for
such options. If, however, an option is written and a liquid secondary market
does not exist, it may be impossible to effect a closing purchase transaction in
the option. In that event, the Portfolio may not be able to sell the underlying
security until the option expires or the option is exercised, even though it may
be advantageous to sell the underlying security before that time.
Puts
The Portfolios, except the Government Securities Portfolio and the Money Market
Portfolio, may purchase put options ("Puts") which relate to (i) securities
(whether or not they hold such securities); (ii) Index Options
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<PAGE> 101
(described below whether or not they hold such Options); or (iii) broadly-based
stock indexes. The Portfolios, except the Government Securities Portfolio and
Money Market Portfolio, may write covered put options. The Portfolio will
receive premium income from writing covered put options, although it may be
required, when the put is exercised, to purchase securities at higher prices
than the current market price. The High-Yield Bond Portfolio may invest up to
10% of the value of the Portfolio in Puts.
Entering Into Futures Contracts
All Portfolios may, other than the Money Market Portfolio, enter into contracts
for the future acquisition or delivery of securities ("Futures Contracts")
including index contracts and foreign currencies, and may also purchase and sell
call options on Futures Contracts. These Portfolios may use this investment
technique to hedge against anticipated future adverse price changes which
otherwise might either adversely affect the value of the Portfolio's securities
or currencies held in the Portfolio, or to hedge anticipated future price
changes which adversely affect the prices of stocks, long-term bonds or
currencies which the Portfolio intends to purchase at a later date.
Alternatively, the Portfolios may enter into Futures Contracts in order to hedge
against a change in interest rates which will result in the premature call at
par value of certain securities which the Portfolio has purchased at a premium.
If stock, bond or currency prices or interest rates move in an unexpected
manner, the Portfolio would not achieve the anticipated benefits of Futures
Contracts.
The use of Futures Contracts involves special considerations or risks not
associated with the primary activities engaged in by any Portfolios. Risks of
entering into Futures Contracts include: (1) the risk that the price of the
Futures Contracts may not move in the same direction as the price of the
securities in the various markets; (2) the risk that there will be no liquid
secondary market when the Portfolio attempts to enter into a closing position;
(3) the risk that the Portfolio will lose an amount in excess of the initial
margin deposit; and (4) the fact that the success or failure of these
transactions for the Portfolio depends on the ability of the Portfolio Manager
to predict movements in stock, bond, and currency prices and interest rates.
Index Options
All the Equity Portfolios may invest in options on stock indexes. These options
are based on indexes of stock prices that change in value according to the
market value of the stocks they include. Some stock index options are based on a
broad market index, such as the New York Stock Exchange Composite Index or the
Standard & Poor's 500. Other index options are based on a market segment or on
stocks in a single industry. Stock index options are traded primarily on
securities exchanges.
Because the value of an index option depends primarily on movements in the value
of the index rather than in the price of a single security, whether a Portfolio
will realize a gain or loss from purchasing or writing an option on a stock
index depends on movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment
rather than changes in the price of a particular security. Consequently,
successful use of stock index options by a Portfolio will depend on that
Portfolio Manager's ability to predict movements in the direction of the stock
market generally or in a particular industry. This requires different skills and
techniques than predicting changes in the value of individual securities.
Interest Rate Swaps
In order to attempt to protect the Portfolio investments from interest rate
fluctuations, the Portfolios may engage in interest rate swaps. The Portfolios
tend to use interest rate swaps as a hedge and not as a speculative investment.
Interest rate swaps involve the exchange of the Portfolio with another party of
their respective rights to receive interest (e.g., an exchange of fixed rate
payments for floating rate payments). For example, if the Portfolio holds an
interest-paying security whose interest rate is reset once a year, it may swap
the right to receive interest at a rate that is reset daily. Such a swap
position would offset changes in the value of the underlying security because of
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<PAGE> 102
subsequent changes in interest rates. This would protect the Portfolio from a
decline in the value of the underlying security due to rising rates, but would
also limit its ability to benefit from falling interest rates.
The Portfolio will enter into interest rate swaps only on a net basis (i.e., the
two payments streams will be netted out, with Portfolio receiving or paying as
the case may be, only the net amount of the two payments). The net amount of the
excess, if any, of the Portfolio's obligations over its entitlements with
respect to each interest rate swap will be accrued on a daily basis, and an
amount of cash or liquid high grade debt securities having an aggregate net
asset value at least equal to the accrued excess, will be maintained in a
segregated account by the Portfolio's custodian bank.
The use of interest rate swaps involves investment techniques and risks
different from those associated with ordinary portfolio security transactions.
If the Portfolio Manager is incorrect in its forecasts of market values,
interest rates and other applicable factors, the investment performance of the
Portfolio will be less favorable than it would have been if this investment
technique were never used. Interest rate swaps do not involve the delivery of
securities or other underlying assets or principal. Thus, if the other party to
an interest rate swap defaults, the Portfolio's risk of loss consists of the net
amount of interest payments that the Portfolio is contractually entitled to
receive.
FOREIGN CURRENCY VALUES AND TRANSACTIONS
Investments in foreign securities will usually involve currencies of foreign
countries, and the value of the assets of the International Growth Portfolio
(and of the other Portfolios that may invest in foreign securities to a much
lesser extent) as measured in United States dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and the International Growth Portfolio may incur costs in
connection with conversions between various currencies.
The normal currency allocation of the International Growth Portfolio is
identical to the currency mix of the Benchmark. The Portfolio expects to
maintain this normal currency exposure when global currency markets are fairly
priced relative to each other and relative to associated risks. The Portfolio
may actively deviate from such normal currency allocations to take advantage of
or to protect the Portfolio from risk and return characteristics of the
currencies and short-term interest rates when those prices deviate significantly
from fundamental value. Deviations from the Benchmark are determined by the
Portfolio Manager based upon its research.
To manage exposure to currency fluctuations, the Portfolio may alter equity or
money market exposures (in its normal asset allocation mix as previously
identified), enter into forward currency exchange contracts, buy or sell
options, futures or options on futures relating to foreign currencies and may
purchase securities indexed to currency baskets. The Portfolio will also use
these currency exchange techniques in the normal course of business to hedge
against adverse changes in exchange rates in connection with purchases and sales
of securities. Some of these strategies may require the Portfolio to set aside
liquid assets in a segregated custodial account to cover its obligations. These
techniques are further described below.
The Portfolio may conduct its foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market or through entering into contracts to purchase or sell foreign currencies
at a future date (i.e., "forward foreign currency" contract or "forward"
contract). A forward contract involves an obligation to purchase or sell a
specific currency amount 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. The Portfolio will convert currency on a spot basis from
time to time and investors should be aware of the potential costs of currency
conversion.
When the Portfolio Manager believes that the currency of a particular country
may suffer a significant decline against the U.S. dollar or against another
currency, the Portfolio may enter into a currency contract to sell, for a fixed
amount of U.S. dollars or other appropriate currency, the amount of foreign
currency approximating the value of some or all of the Portfolio's securities
denominated in such foreign currency.
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At the maturity of a forward contract, the Portfolio may either sell a portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by repurchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. The Portfolio may realize a gain or loss from currency
transactions.
The Portfolio also may purchase and write put and call options on foreign
currencies (traded on U.S. and foreign exchanges or over-the-counter markets) to
manage the Portfolio's exposure to changes in currency exchange rates. Call
options on foreign currency written by the Portfolio will be "covered", which
means that the Fund will own an equal amount of the underlying foreign currency.
With respect to put options on foreign currency written by the Portfolio, the
Portfolio will establish a segregated account with its custodian bank consisting
of cash, U.S. government securities or other high grade liquid debt securities
in an amount equal to the amount the Portfolio would be required to pay upon
exercise of the put.
CERTAIN OTHER SECURITIES
Except as otherwise indicated, the Portfolios may purchase the following
securities, the purchase of which involves certain risks described below. Unless
otherwise indicated, a Portfolio will not purchase a category of such securities
if the value of such category, taken at current value, would exceed 5% of the
Portfolio's total assets.
Master Demand Notes
All Portfolios may purchase variable amount master demand notes. Variable amount
master demand notes are demand obligations that permit the investment of
fluctuating amounts at varying market rates of interest pursuant to arrangements
between the issuer and a commercial bank acting as agent for the payees of such
notes whereby both parties have the right to vary the amount of the outstanding
indebtedness on the notes. Since there is no secondary market for these notes,
the appropriate Portfolio Managers, subject to the overall review of the Fund's
Directors and Enterprise Capital Management, Inc., the adviser, monitor the
financial condition of the issuers to insure that they are able to repay the
notes.
Repurchase Agreements
All Portfolios may enter into repurchase agreements having maturities of seven
days or less. When a Portfolio acquires securities from a bank or broker-dealer,
it may simultaneously enter into a repurchase agreement with the same seller
pursuant to which the seller agrees at the time of sale to repurchase the
security at a mutually agreed upon time and price. In such instances, the Fund's
Custodian has possession of the security or collateral for the seller's
obligation. If the seller should default on its obligation to repurchase the
securities, the Portfolio may experience delays, difficulties or other costs
when selling the securities held as collateral and may incur a loss if the value
of the collateral declines. The appropriate Portfolio Managers, subject to the
overall review by the Fund's Directors and Enterprise Capital, monitor the value
of the collateral as to repurchase agreements, and they monitor the
creditworthiness of the seller and must find it satisfactory before engaging in
repurchase agreements. The Portfolios enter into repurchase agreements only with
Federal Reserve member banks that have net worth of at least $100,000,000 and
outstanding commercial paper of the two highest rating categories assigned by
Moody's or S&P or with broker-dealers that are registered with the Securities
and Exchange Commission, are members of the National Association of Securities
Dealers, Inc. ("NASD") and have similarly rated commercial paper outstanding.
Any repurchase agreements entered into by the Portfolios will be fully
collateralized and marked to market daily, other than those entered into by the
Money Market Portfolio, which are valued on an amortized cost basis.
Restricted or Illiquid Securities
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<PAGE> 104
All of the Portfolios may invest up to 10% of the assets of the Portfolios in
restricted securities (privately placed equity or debt securities) or other
securities which are not readily marketable.
Foreign Securities
As noted above, under normal circumstances the International Growth Portfolio
will invest primarily in foreign securities. All other Portfolios, except the
Government Securities Portfolio, the Tax-Exempt Income Portfolio and the Money
Market Portfolio, may, subject to the 10% limitation, invest in foreign
securities as well as both sponsored and unsponsored American Depository
Receipts ("ADRs"), and European Depository Receipts ("EDRs") which are
securities of U.S. issuers backed by securities of foreign issuers. There may be
less information available about unsponsored ADRs and EDRs, and therefore, they
may carry higher credit risks. The Portfolios may also invest in securities of
foreign branches of domestic banks and domestic branches of foreign banks.
Investments in foreign equity and debt securities involve risks different from
those encountered when investing in securities of domestic issuers. The
appropriate Portfolio Managers and Enterprise Capital, subject to the overall
review of the Fund's Directors, evaluate the risks and opportunities when
investing in foreign securities. Such risks include trade balances and
imbalances and related economic policies; currency exchange rate fluctuations;
foreign exchange control policies; expropriation or confiscatory taxation;
limitations on the removal of funds or other assets; political or social
instability; the diverse structure and liquidity of securities markets in
various countries and regions; policies of governments with respect to possible
nationalization of their own industries; and other specific local, political and
economic considerations.
Forward Commitments
Securities may be purchased on a "when issued" or on a "forward delivery" basis,
which means it may take as long as 120 days before such obligations are
delivered to a Portfolio. The purpose of such investments is to attempt to
obtain higher rates of return or lower purchase costs than would be available
for securities purchased for immediate delivery. Securities purchased on a when
issued or forward delivery basis involve a risk that the value of the security
to be purchased may decline prior to the settlement date. In addition, if the
dealer through which the trade is made fails to consummate the transaction, the
Portfolio may lose an advantageous yield or price. The Fund does not accrue
income prior to delivery of the securities in the case of forward commitment
purchases. The 5% limitation does not apply to the International Growth,
Government Securities and Tax-Exempt Income Portfolios which will have a 20%
limitation.
PORTFOLIO TURNOVER
In carrying out the investment policies described in this Prospectus, each
Portfolio expects to engage in a substantial number of securities portfolio
transactions, and the rate of portfolio turnover will not be a limiting factor
when a Portfolio Manager deems it appropriate to purchase or sell securities for
a Portfolio. However, no Portfolio's annual portfolio turnover rate (other than
the High-Yield Bond Portfolio and the Money Market Portfolio for which, due to
the short-term nature of its investment, a portfolio turnover rate is not
applicable) is expected to exceed 100%.
A portfolio turnover rate is, in summary, the percentage computed by dividing
the lesser of a Portfolio's purchases or sales proceeds of securities by the
average investments of the Portfolio. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs which
are borne directly by a Portfolio. Each Portfolio intends to elect and to comply
with the various provisions of the Internal Revenue Code so as to qualify as a
"regulated investment company" thereunder. See "Taxes" at page 45. Among such
requirements is a limitation that less than 30% of the Portfolio's gross income
in each taxable year may be derived
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<PAGE> 105
from gains (without deduction for losses) from the sale or other disposition of
stock or other securities held for less than three months. Accordingly, the
ability of each Portfolio to effect certain transactions may be limited.
INVESTMENT RESTRICTIONS
Except as indicated, each of the Portfolios has adopted certain investment
restrictions and limitations for the purpose of reducing their exposure in
specific situations.
No Portfolio will: (1) as to 75% of the assets of each Portfolio, invest more
than 5% of the value of its total assets in the securities of any single issuer
(other than cash items and U.S. government securities, as defined in the
Investment Company Act of 1940) if such purchase would cause more than 5% of the
value of its assets to be invested in securities of such issuer (this limitation
does not apply to U.S. Government Securities as well as its agencies and
instrumentalities); (2) purchase more than 10% of the voting securities of any
issuer; (3) invest more than 5% of its total assets in the securities of
companies that have a continuous operating history of less than three
years (the High-Yield Bond and Tax-Exempt Income Portfolios are not subject to
this restriction); (4) except as to the Money Market Portfolio, as described
below, invest more than 25% of its total assets in any one industry, provided
that: (i) this limitation does not apply to investments in U.S. Government
Securities as well as its agencies and instrumentalities, general obligation
bonds, or Municipal Securities other than industrial development bonds issued by
non-governmental users; and (ii) utility companies will be divided according to
their services (for example, gas, gas transmission, electric, electric and gas,
and telephone will each be considered as a separate industry); (5) borrow money,
except from a bank and only for temporary or emergency purposes, and such
borrowings will not exceed 5% of the lower of the value or cost of the
Portfolio's total assets; or (6) pledge, mortgage or hypothecate its assets to
an extent greater than 5% of the value of its total assets. For purposes of
restrictions (1) and (2), each Portfolio will regard the entity which has
ultimate responsibility for the payment of interest and principal as the issuer.
Notwithstanding restriction (4), the Money Market Portfolio may invest in excess
of 25% of its total assets in U.S. Government Securities as well as its agencies
and instrumentalities, and certain bank instruments issued by domestic banks.
See "Investment Restrictions" in the Statement of Additional Information.
These investment limitations, and other limitations that are fundamental
policies, that are described in greater detail in the Statement of Additional
Information, may be changed only with the approval of the holders of a majority
of the shares of a Portfolio.
In addition, management of the Fund has adopted the following restrictions which
apply to all of the Portfolios and may be changed only by the Board of Directors
of the Fund. No Portfolio will: (A) lend its assets to any person or individual,
except by the purchase of bonds or other debt obligations customarily sold to
institutional investors; (B) invest more than 5% of the value of its net assets,
valued at the lower of cost or market, in warrants (Included within that amount,
but not to exceed 2% of the value of the Portfolio's net assets, may be warrants
which are not listed on the New York or American Stock Exchange. Warrants
acquired by a Portfolio in units or attached to securities may be deemed to be
without value.), (C) invest in oil, gas, or other mineral leases, or (D) engage
in arbitrage transactions.
If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in the investment's percentage of the value of a
Portfolio's total assets resulting from a change in portfolio value or assets
will not constitute a violation of the percentage restrictions.
The Managed Portfolio will not invest more than 15% of the value of its total
assets in real estate investment trusts, commonly referred to as "REITS". The
Managed Portfolio will not invest more than 5% of the value of its total assets
in high-yield securities.
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<PAGE> 106
In order to qualify for federal income tax treatment as a regulated investment
company for a taxable year, each Portfolio must, among other things, (a) derive
at least 90% of its gross income during such taxable year from qualifying income
(i.e., dividends, interest, payments with respect to loans of stock and
securities, and gains from the sale or other disposition of stock or securities
or options thereon); (b) derive less than 30% of its gross income during such
taxable year from the sale or other disposition of stock or securities (or
options thereon) held less than three months; and (c) diversify its holdings so
that, at the end of each fiscal quarter of such taxable year, (i) at least 50%
of the market value of its total assets is represented by cash, cash items, U.S.
Government Securities, securities of other regulated investment companies, and
other securities limited, in the case of other securities for purposes of this
calculation, in respect of any one issuer, to an amount not greater than 5% of
the value of its total assets or 10% of the voting securities of the issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government Securities). Under current law,
compliance with the "30% test" described in clause (b) above may, in particular,
limit a Portfolio's ability to utilize options in connection with its investment
strategy.
HOW TO PURCHASE PORTFOLIO SHARES
Enterprise Fund Distributors, Inc. ("the Distributor"), is the principal
underwriter for shares of the Fund. The Distributor, whose address is Atlanta
Financial Center, 3343 Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326,
is a subsidiary of Enterprise Capital Management, Inc. Purchases can be made
through most invest dealers who, as part of the service they provide, must
transmit orders promptly. The Funds offer four separate Classes of shares:
Class A, B, C and Y shares, each with a different combination of sales charges,
ongoing feesanothefeatures.
The four Classes also have separate exchange privileges. (See "How to Exchange
Shares Among the Portfolios." The income attributable to each class and the
dividends payable on the shares of each class will be reduced by the amount of
the distribution fee or service fee, if any, payable by that class.
Class Y shares do not bear a sales charge or distribution fee. There is a
redemption charge of .75% for any redemption of shares held less that 90 days.
Institutional investors eligible to purchase Class Y shares include banks,
savings institutions, trust companies, insurance companies, investment companies
as defined by the Investment Company Act of 1940, pension or profit sharing
trust, certain wrap account clients of broker/dealers, former shareholders of
Retirement Systems Investors, Inc. ("RSI") or other financial institutional
buyer. Wrap account clients of broker/dealers and former RSI shareholders are
offered Class Y at a lower minimum purchase amount.
All purchases made by check should be in U.S. dollars and made payable to The
Enterprise Group of Funds, Inc., or in the case of a retirement account, the
custodian or trustee. Third party checks will not be accepted. When purchases
are made by check or periodic account investment, redemptions will not be
allowed until the investment being redeemed has been in the account for 15
calendar days.
For accounts with balances under $1,000 as of July 31, an annual service charge
of $25 per account registration per Portfolio will apply.
From time to time, the Fund temporarily may suspend the offering of shares of
one or more of its Classes or Portfolios to new investors. During the period of
such suspension, persons who are already shareholders of any such Class or
Portfolio normally will be permitted to continue to purchase additional shares
and to have dividends reinvested.
Portfolio shares are purchased at the net asset value next determined after the
application for purchase of shares is received by the Enterprise Shareholder
Services Division of the Fund's Transfer Agent, National Financial Data
Services, Inc. (the "Transfer Agent"). The Distributor or the Fund may reject
any orders.
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<PAGE> 107
DEALER COMPENSATION. Enterprise Distributors will provide additional
compensation to dealers in connection with sales of shares of the Funds and
other mutual funds distributed by Enterprise Distributors ("Enterprise Funds")
including promotional gifts (which may include gift certificates, dinners and
other items), financial assistance to dealers in connection with conferences,
sales or training programs for their employees, seminars for the public and
advertising campaigns. In some instances, these incentives may be made available
only to dealers whose representatives have sold or are expected to sell
significant amounts of shares.
In addition to distribution and service fees paid the Fund under Class A, Class
B and Class C Plans, Enterprise Capital (or one of its affiliates) may make
payments to dealers (including MONY Securities Corp.) and other persons which
distribute shares of the Funds (including Class Y shares). Such payments may be
calculated by reference to the net asset value of shares sold by such persons or
otherwise.
How the Net Asset Value is Computed. The net asset value per share for each
Class of each Portfolio of the Fund is determined by dividing the total value of
the Portfolio's investments and other assets, less any liabilities, by the total
number of outstanding shares of the Portfolio for each Class. Net asset value
per share is determined at the close of trading on each day the New York Stock
Exchange is open for trading (currently 4:00 p.m., New York time) except that
net asset value per share of the International Growth Portfolio may not, in
certain circumstances, be determined on days when the New York Stock Exchange is
open for trading but one or more foreign stock exchanges are not open for
trading. The net asset value per share is effective as of the time of
computation. In determining net asset value, the price carried by the composite
tape of all national exchanges after 4:00 p.m. New York time is used.
Domestic equity securities are valued at the last sale price or, in the absence
of any sale on that date, the closing bid price. Domestic equity securities
without last trade information are valued at the last bid price. Domestic equity
securities, for which market quotations are not readily available, and other
assets are valued at fair value as determined in good faith by the Board of
Directors. Debt securities and foreign securities are valued on the basis of
independent pricing services approved by the Board of Directors, and such
pricing services generally follow the same procedures in valuing foreign equity
securities as are described above as to domestic equity securities.
Securities held by the Money Market Portfolio are valued on an amortized cost
basis. The Securities and Exchange Commission's rules relating to the amortized
cost method involve valuing a security at its cost and amortizing any discount
or premium over the period until maturity, without taking into account the
impact of fluctuating interest rates on the market value of the security unless
the deviation from net asset value as calculated by using available market
quotations exceeds 1/2 of 1%. At that point, the Board of Directors will
promptly decide what action, if any, will be initiated. The Money Market
Portfolio seeks to maintain a constant net asset value of $1.00 but there can be
no assurance that the Money Market Portfolio will be able to maintain a stable
net asset value. The Money Market Portfolio will not maintain a dollar weighted
average portfolio maturity which exceeds 90 days.
Although the legal rights of each class of shares are substantially identical,
the different expenses borne by each class will result in different net asset
values and dividends for each class. It is expected, however, that the net asset
values of the three classes will tend to converge immediately after the
recording of dividends, which will differ by approximately the amount of the
distribution and service related expense accrual differential among the classes.
Share Certificates. The Fund does not ordinarily issue certificates representing
shares of the Portfolios. Instead, shares are held on deposit for shareholders
by the Fund's Transfer Agent, which sends a statement of shares owned in each
Portfolio to shareholders following each transaction in the shareholder's
account. Certificates for full shares only (other than the Money Market
Portfolio) are available at no charge at any time upon written request to the
Transfer Agent. Special shareholder services such as telephone redemptions,
exchanges, electronic funds transfers and wire orders are not available as to
certificated shares.
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<PAGE> 108
SHAREHOLDER SERVICES
For the convenience of investors, the following plans are available:
1. Automatic Reinvestment Plan. Dividends and capital gains distributions
may be automatically reinvested in the same Class of shares or, at the
investor's election, may be paid out in cash. No sales charge is
applied upon reinvestment of dividends or capital gains.
2. Automatic Investment Plan. An investor may debit any Portfolio Account
of a Class on a monthly basis for automatic investments into one or
more of the other Portfolios of the same Class. The Portfolio from
which the investment will be made is subject to the $1,000 minimum. The
investor may then choose to have $50 or more transferred to either an
established Enterprise portfolio, or they may open a new account
subject to an initial minimum investment of $100.
3. Bank Purchase and Redemption Plan. Any investor may initiate an ACH
(Automatic Clearing House) Purchase or Redemption directly to a bank
account when proper instructions have been established on the account.
4. Retirement Plans. Shareholders may adopt Profit Sharing Plan, Money
Purchase Plan and other retirement plans funded by Portfolio shares and
other investment which plans have been approved by the Internal Revenue
Service.
The costs of these plans (exclusive of the retirement plans on which a
$10 annual custodial fee is charged) are paid by the Distributor,
except for the normal cost of issuing shares, which is paid by the
Portfolios of the Fund. Additional information concerning these plans
is available from the Distributor upon request.
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<PAGE> 109
HOW TO EXCHANGE SHARES AMONG THE PORTFOLIOS
An exchange represents the sales of shares of one fund and the purchase of
shares of another, which may produce a gain or loss for tax purposes. Class Y
shares may be exchanged for Class Y shares of any Portfolio. Class Y shares
cannot be exchanged for Class A, B or C shares.
Shares of a Portfolio will be processed at the net asset value next determined
after the Transfer Agent receives your exchange request. The exchange feature
may be modified or discontinued at any time, upon notice to shareholders.
Exchanges may be directed by:
1. calling: Enterprise Shareholder Services 1-800-368-3527
2. writing: Enterprise Shareholder Services
P.O. Box 419731
Kansas City, MO 64141-6731
To exchange by letter, state the name of the Portfolio you are exchanging from,
the account name(s) and address, the account number, the dollar amount or number
of shares to be exchanged, and the Portfolio into which you are exchanging. Sign
your name(s) exactly as it appears on your account statement.
The minimum initial investment rules applicable to a Portfolio apply to any
exchange where the exchange results in a new account being opened in such
Portfolio. Exchanges into existing accounts are not subject to a minimum amount.
Original investments in the Money Market Portfolio which are transferred to
other Portfolios are not considered Portfolio exchanges but purchases.
The Fund reserves the right not to allow the exercise of the exchange privilege
in less than two-week intervals. The Fund reserves the right to restrict the
exchange from any Portfolio until funds have been held in that Portfolio for at
least seven days. The Fund further reserves the right to discontinue or modify
the exchange privilege on a prospective basis at any time, including a
modification of the amount or terms of a service fee.
In addition, with regard to exchange requests made by market timers on behalf of
clients, the Fund reserves the right to delay settlement up to seven days if it
is determined by the Portfolio Manager that immediate settlement would harm the
Portfolio.
Before engaging in an exchange transaction, a shareholder should read carefully
the parts of this Prospectus describing the Portfolio into which the exchange
will occur. See "Investment Objectives and Policies of the Portfolios."
Shareholders must elect to authorize the Fund's transfer agent to act upon
telephone exchange requests. Shareholders are subject to risk should they elect
to exchange by telephone in that neither the Fund nor the Transfer Agent will be
liable for properly acting upon telephone instructions believed to be genuine.
The Fund employs reasonable procedures to confirm that instructions communicated
by telephone are genuine, and should the Fund or its transfer agent fail to
institute such procedures, it may be liable for any losses due to unauthorized
or fraudulent instructions. Telephone exchanges are activated by instructions
received from a shareholder or any person claiming to act as the shareholder's
representative who can provide the Transfer Agent with account registration
information.
Exchanges are taxable as redemptions on which gains or losses may be recognized.
HOW TO REDEEM PORTFOLIO SHARES
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<PAGE> 110
Any shareholder may require the Fund to redeem his or her shares in any
Portfolio. The redemption price will be the net asset value per share next
determined after receipt of all required information.
REDEMPTIONS
Redemptions may be made: (1) by telephone; (2) in writing; or (3) by wire, if
the appropriate request forms have been submitted. Payment for shares redeemed
will be made within seven days after the request has been properly made and
received. Shares purchased by check may not be redeemed until such shares have
been on the Fund's books for at least 15 calendar days.
Telephone Redemptions. The Fund accepts telephone requests for redemptions from
shareholders who have authorized this service. Telephone requests for redemption
may be made by calling the Transfer Agent at 1-800-368-3527. Anyone making a
telephone redemption request must furnish: (1) the name and address of record of
the registered owner(s); (2) the account number; (3) the amount to be withdrawn;
and (4) the name of the person making the request. Checks for telephone
redemptions will be issued only to the registered shareowner(s) and mailed to
the last address of record or exchanged into any other Portfolio. All telephone
redemption instructions are recorded and are limited to requests of $50,000 or
less. Shareholders also have the option to have redemption proceeds transferred
directly to a bank account through the Automatic Clearing House (ACH) system.
All applicable bank information must be established on the account before this
type of redemption is initiated. Shareholders are subject to risk should they
elect to redeem by telephone in that neither the Fund nor the Transfer Agent
will be liable for properly acting upon telephone instructions believed to be
genuine. Should the Fund or its transfer agent fail to utilize reasonable
procedures, it may be liable for any losses due to unauthorized or fraudulent
instructions.
Written Redemptions. Redemption requests may be made in writing, accompanied by
any issued share certificates, to:
Enterprise Shareholder Services
P.O. Box 419731
Kansas City, MO 64141-6731
Such written redemption requests and any share certificates or a stock power
must be endorsed by the investor. A signature guarantee is required if the
redemption proceeds exceed $50,000 or the proceeds are to be sent to an address
other than the address of record or to a person other than the registered
holder. A signature guarantee may be secured from a member firm of a domestic
securities exchange or by a commercial bank, savings and loan association,
credit union or trust company. Further documentation may be requested, and a
signature guarantee is always required, from corporations, executors,
administrators, trustees or guardians.
Wire Redemptions. For a separate $10 charge, redemptions for a maximum of
$250,000 will be wired at your request. On written requests, funds may be wired
to any bank. On a telephone request, funds may be wired only to the bank
previously designated by you in writing. If a shareholder has given
authorization for expedited wire redemption, shares can be redeemed and the
proceeds sent by federal wire transfer to a single, previously designated bank
account. Requests received prior to 4:00 p.m. (New York time) by the Fund's
Transfer Agent, will result in shares being redeemed at the next determined net
asset value, and the proceeds normally will be sent to the designated bank
account the following business day. Delivery of the proceeds of a wire
redemption request may be delayed by the Fund for up to seven days if the Fund
deems it appropriate under the then current market conditions. Once
authorization is on file, the Transfer Agent will honor requests by any
authorized person at 1-800-368-3527. This privilege may not be used to redeem
shares in certificated form. To change the name of the single designated bank
account to receive wire redemption proceeds, it is necessary to send a written
request with signature(s) guaranteed to the Transfer Agent.
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<PAGE> 111
REDEMPTIONS--GENERAL
The Fund may redeem its shares in cash or with a pro rata portion of the assets
of the appropriate Portfolio. To date, all redemptions have been made in cash,
and the Fund anticipates that all redemptions will be made in cash in the
future, but it reserves the right to provide redemptions in assets of a
Portfolio should considerations and the size of the Portfolio require that
method of redemption. The Fund has elected to commit itself to pay in cash all
requests for redemption by any shareholder of record, limited in amount with
respect to each shareholder during any 90-day period to the lesser of: (i)
$250,000 or (ii) 1% of the net asset value of the Portfolio at the beginning of
such period.
The Fund reserves the right to redeem an account at its option upon not less
than 45 days' written notice if an account's net asset value is $500 or less and
remains so during the notice period.
PERFORMANCE COMPARISONS
Investors may look to mutual fund reporting services such as Lipper Analytical
Services, Inc., CDA Investment Technologies, Wiesenberger Dealer Services,
Computer Directions Adviser Services, Inc., Moody's Bond Survey Index, Nelson's
Investment Manager Data Base, Morningstar, Inc., Salomon Brothers Corporate Bond
Rate-of-Return Index, Shearson Lehman Municipal Bond Index, Bond-20 Bond Index
and mortgage trade and other publications to compare the performance of each
Portfolio with other mutual funds in that Portfolio's category. Comparative
performance information from these sources may be used by the Fund in
advertising.
From time to time, articles about the Fund regarding its performance or ranking
may appear in national publications such as Kiplinger's Personal Finance
Magazine, Money Magazine, Financial World, Morningstar, Dalbar, Value Line
Mutual Fund Survey, Personal Investors, Forbes, Fortune, Business Week, Wall
Street Journal, Donaghue and Barron's. Some of these publications may publish
their own rankings or performance reviews of mutual funds, including the Fund.
Reference to or reprints of such articles may be used in the Fund's promotional
literature.
From time to time, the Fund may advertise a Portfolio's "yield" and "total
return." Total return and yield are calculated separately for Class A, Class B,
Class C and Class Y shares. For Portfolios other than the Money Market
Portfolio, the yield for any 30-day (or one month) period is computed by
dividing the net investment income per share earned during such Period by the
maximum public offering price per share on the last day of the period, and then
annualizing such 30-day (or one month) yield in accordance with a formula
prescribed by the Securities and Exchange Commission which provides for
compounding on a semiannual basis.
Current annualized yield quotations for the Money Market Portfolio are based on
the Portfolio's net investment income per share for a seven-day period and
exclude any realized or unrealized gains or losses on portfolio securities. The
yield is computed by determining the net change in value for a hypothetical
account having a balance of one share at the beginning of the period, excluding
any realized or unrealized gains or losses, and dividing by the price per share
at the beginning of the period (expected to remain constant at $1). The net
change is then annualized by multiplying it by 365/7, with the current yield
figure carried to the nearest one-hundredth of one percent. The effective yield
of the Money Market Portfolio for a seven-day period is computed by expressing
the unannualized return for that period on a compounded, annualized basis.
A Portfolio may also advertise in items of sales literature an "actual
distribution rate" which is computed in the same manner as yield except that
actual income dividends declared per share during the period in question are
substituted for net investment income per share.
Advertisements of the Portfolio's total return disclose the Portfolio's average
annual compounded total return for its most recently completed fiscal year and
the appropriate periods since the Portfolio's inception. The Portfolio's total
return for each such period is computed by finding, through the use of a formula
prescribed by the Securities
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and Exchange Commission, the average annual compounded rates of return over the
period that would equate an assumed initial amount invested to the value of the
investment at the end of the period. For purposes of computing total return,
income dividends and capital gains distributions paid on shares of the Portfolio
are assumed to have been reinvested when received and the front end sales charge
applicable to sales of Portfolio shares (other than the Money Market Portfolio)
is assumed to have been paid.
Any distribution rate, yield or total rate of return figure should not be
considered as representative of the performance of a Portfolio in the future. In
addition, the Income Portfolios' performance figures are not directly comparable
to those of bank deposits and other similar investments, which maintain a fixed
principal value and pay a fixed yield on the principal amount. These Portfolios'
net asset values are not fixed. They vary based not only upon the type, quality
and maturities of the securities held in the Portfolio, but also on the changes
in the current value of such securities and on changes in the Portfolios'
expenses. For narrative discussions of the Fund's performance including graphs
comparing Portfolios to various securities indexes, please request a copy of an
Annual Report to Shareholders from the Fund.
The Money Market Portfolio's actual yields will fluctuate, and are not
necessarily indicative of future actual yields. Actual yields are dependent on
such variables as portfolio quality, average portfolio maturity, the type of
instruments in which investments are made, changes in interest rates on money
market instruments, portfolio expenses and other factors.
MANAGEMENT OF THE FUND
DIRECTORS
The Board of Directors of the Fund is responsible for the management of the
business of the Fund under the laws of Maryland, and it is primarily responsible
for reviewing the activities of Enterprise Capital, the various Portfolio
Managers and the Distributor under the Investment Advisory and Portfolio Manager
Agreements and the Distributor's Agreement and Plan of Distribution which relate
to the operations of the Fund and its Portfolios. Information concerning the
Directors, including their names, positions, terms of office and principal
occupations during the past five years, is contained in the Statement of
Additional Information.
INVESTMENT ADVISER ARRANGEMENTS
The Fund has entered into an Investment Adviser's Agreement with Enterprise
Capital Management, Inc. ("Enterprise Capital") which, in turn, has Portfolio
Management agreements with each of the Portfolio Managers discussed below.
Enterprise Capital acts as the Portfolio Manager for the Money Market Portfolio.
It is Enterprise Capital's responsibility to select, subject to the Board of
Directors' review and approval, Portfolio Managers who have distinguished
themselves by able performance in their respective areas of responsibility and
to review their continued performance. Enterprise Capital is assisted in this
duty by Evaluation Associates, Inc., which has had 25 years of experience in
evaluating investment advisers for individuals and institutional investors.
Enterprise Capital and the Fund have received an exemptive order from the
Securities and Exchange Commission which permits Enterprise, subject to, among
other things, initial shareholder authority, to thereafter enter into or amend
Portfolio Manager Agreements without obtaining shareholder approval each time.
On April xx, 1997, shareholders voted affirmatively to give the Fund this
ongoing authority. With Board approval, Enterprise Capital is permitted to
employ new Portfolio Managers for the Portfolios, change the terms of the
Portfolio Manager Agreements or enter into a new Agreement with that Portfolio
Manager. Shareholders of a Portfolio continue to have the right to terminate the
Portfolio Manager's Agreement for the Portfolio at any time by a vote of the
majority of the outstanding voting securities of the Portfolio. Shareholders
will be notified of any Portfolio Manager changes or other material amendments
to Portfolio Manager Agreements that occur under these arrangements.
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Enterprise Capital is also responsible for conducting all operations of the Fund
except those operations contracted to the Transfer Agent and
Custodian.Enterprise Capital is a subsidiary of The Mutual Life Insurance
Company of New York ("MONY"), one of the nation's largest insurance companies.
Enterprise Capital, which was incorporated in 1986, served as principal
investment adviser to Alpha Fund, Inc., the predecessor of the Fund's Growth
Portfolio. Enterprise Capital's address is Atlanta Financial Center, 3343
Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326.
PORTFOLIO MANAGERS
The following sets forth certain information about each of the Portfolio
Managers, the annual rate of compensation as a percentage of the Portfolio's net
assets paid to Enterprise Capital ("Management Fee") and the portion of the
Management Fee that Enterprise Capital pays to the respective Portfolio
Managers. Typical minimum investment requirements for the Portfolio Managers
range from $1,000,000 to $50,000,000. Due to these high minimums, this level of
professional management was previously reserved for institutional investors and
high net worth individuals. Collectively, the Portfolio Managers manage assets
in excess of $232 billion.
GROWTH PORTFOLIO - The Portfolio Manager of the Growth Portfolio is Montag &
Caldwell, Inc. ("Montag & Caldwell"). It has served as investment adviser to
Alpha Fund, Inc., the predecessor of the Growth Portfolio, since the Fund was
organized in 1968. Ronald E. Canakaris, President and Chief Investment Officer,
is responsible for the day to day investment management of the Portfolio and has
more than 33 years experience in the investment industry. Montag & Caldwell and
its predecessors have been engaged in the business of providing investment
counseling to individuals and institutions since 1945. It is controlled by
Allegheny Corporation, a holding company owning 100% of the stock of Montag &
Caldwell. Total assets under management for all clients at December 31, 1996,
approximated $8.5 billion. Usual investment minimum: $20 million. Representative
clients include: Alexander & Alexander Services; American Business Products; and
Wake Forest University. Its address is 1100 Atlanta Financial Center, 3343
Peachtree Road, N.E., Atlanta, Georgia 30326. The Management Fee paid by the
Growth Portfolio is .75% of net assets, and the Portfolio Manager receives 40%
of that fee for assets under management up to $100,000,000; 33% for assets from
$100,000,000 to $200,000,000; and 27% for assets greater than $200,000,000.
GROWTH AND INCOME PORTFOLIO The Portfolio Manager of the Growth and Income
Portfolio is Retirement System Investors Inc. which is a subsidiary of
Retirement Group Inc. Its address is 317 Madison Ave., New York, New York 10122.
James P. Coughlin, President and Chief Investment Officer, is responsible for
the day to day management of the Portfolio and has more than 30 years experience
in the investment industry. Total assets under management for Retirement
Investors Inc. was $558 million as of December 31, 1996. The Management Fee is
.75%, and the Portfolio Manager receives 40% of that fee for assets under
management up to $100,000,000 million; 33% of that fee on the next $100,000,000;
and 27% of that fee thereafter.
EQUITY PORTFOLIO--The Portfolio Manager of the Equity Portfolio is OpCap
Advisors which is a subsidiary of Oppenheimer Capital, a general partnership.
The Portfolio Manager and its affiliates have operated as investment advisers to
both mutual funds and other clients since l968, and had approximately $48.3
billion under management as of December 31, 1996. Eileen Rominger, Senior Vice
President of Oppenheimer Capital, is responsible for the day-to-day management
of the Portfolio. Ms. Rominger has more than 18 years experience in the
investment industry. The annual Management Fee is .75% and the Portfolio
Manager receives 53% of that fee for assets under management up to
$100,000,000 and 40% of that fee thereafter. Usual investment minimum is $10
million. OpCap's address is One World Financial Center, New York, New York
10281.
EQUITY INCOME PORTFOLIO - The Portfolio Manager of the Equity Income Portfolio
is 1740 Advisers, Inc. ("1740 Advisers"). It is a subsidiary of MONY. Its
address is 1740 Broadway, New York, New York 10019. John V. Rock, President and
Director, is responsible for the day to day investment management of the
Portfolio and has more than 33 years experience in the investment industry.
Total assets under management (for the Equity
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Income Portfolio and all other accounts managed) at December 31, 1996, were
approximately $1.2 billion. Usual investment minimum: $20 million. The
Management Fee paid by the Equity Income Portfolio is .75% of net assets, and
the Portfolio Manager receives 40% of that fee for assets under management up to
$100,000,000; 33% for assets from $100,000,000 to $200,000,000; and 27% for
assets greater than $200,000,000.
CAPITAL APPRECIATION PORTFOLIO - The Portfolio Manager of the Capital
Appreciation Portfolio is Provident Investment Counsel, Inc. ("PIC"). PIC traces
its origins to an investment partnership formed in 1951. PIC is a wholly owned
subsidiary of United Asset Management, Inc. Jeffrey J. Miller is a Managing
Director of the firm and is responsible for the day to day management of the
Portfolio. He has more than 24 years experience in the investment industry.
Representative clients include: Bell Atlantic, McGraw-Hill and International
Paper Co. Its address is 300 North Lake Avenue, Pasadena, California 91101. As
of December 31, 1996, total assets under management for all clients were $18
billion. Usual investment minimum: $5 million. The Management Fee is .75% and
the Portfolio Manager receives 66% of that fee for assets under management up to
$100 million; .60% for assets under management for the next $100 million; and
.40% for assets thereafter.
SMALL COMPANY GROWTH PORTFOLIO The Portfolio Manager of the Small Company Growth
Portfolio is Pilgrim Baxter & Associates ("Pilgrim Baxter"). Its offices are at
1255 Drummers Lane, Suite 300, Wayne, Pennsylvania 19087. Pilgrim Baxter is a
wholly owned subsidiary of United Asset Management, Inc. Gary Pilgrim, Chief
Investment Officer of the firm, is responsible for the day to day management of
the Portfolio. He has more than 29 years experience in the investment industry.
As of December 31, 1996, total assets under management for all clients was $14.7
billion. Usual investment minimum: $20 million. The Management Fee is 1.00% and
the Portfolio Manager receives 65% of that fee for assets under management up to
$50,000,000 million; and 55% for assets under management for the next
$50,000,000 million; and 45% for assets thereafter.
SMALL COMPANY VALUE PORTFOLIO - The Portfolio Manager of the Small Company Value
Portfolio is GAMCO Investors, Inc. ("GAMCO"). Its offices are located at One
Corporate Center, Rye, New York 10580. GAMCO is a majority owned subsidiary of
Gabelli Funds, Inc. GAMCO's predecessor, Gabelli & Company, Inc., was founded in
1977 by Mario J. Gabelli who has served as its chief investment officer since
inception. He will be responsible for the day-to-day management of the Portfolio
and has more than 26 years of experience in the investment industry. As of
December 31, 1996, total assets under management for all clients were $5.2
billion. Usual investment minimum is $1 million. The Management Fee is .75% and
the Portfolio Manager receives 53% of that fee for assets under management up to
$1,000,000,000 and 40% for assets in excess of $1,000,000,000.
INTERNATIONAL GROWTH PORTFOLIO - The Portfolio Manager of the International
Growth Portfolio is Brinson Partners, Inc. ("Brinson"). Day to day management of
this Portfolio is performed by a committee. Brinson Partners is a wholly owned
subsidiary of Swiss Bank Corporation. As of December 31, 1996, Brinson's assets
under management for all clients approximated $71.6 billion. Usual investment
minimum: $25 million. Brinson's address is 209 South LaSalle Street, Chicago,
Illinois 60604. The Management Fee is .85%, and the Portfolio Manager receives
53% of that fee for assets under management up to $100 million; 41% of that fee
for assets under management from $100 million to $200 million; 38% of that fee
for assets from $200 million to $500 million; and 29% of that fee for assets
greater than $500 million.
GOVERNMENT SECURITIES PORTFOLIO - The Portfolio Manager of the Government
Securities Portfolio is TCW Funds Management, Inc. The firm, founded in 1971, is
a wholly-owned subsidiary of TCW Management Company, a Nevada corporation, whose
direct and indirect subsidiaries, including Trust Company of the West and TCW
Asset Management Company, provide a variety of trust, investment management and
investment advisory services. Philip A. Barach, Managing Director, and Jeffrey
E. Gundlach, Managing Director, are responsible for the day to day investment
management of the Portfolio and have more than 33 years combined experience in
the investment industry. As of December 31, 1996 TCW and its affiliated
companies had approximately $54 billion under management or committed for
management in various fiduciary and advisory capacities. Usual investment
minimum: $35 million. The firm's address is 865 South Figueroa Street, Suite
1800, Los Angeles, California 90017.
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<PAGE> 115
The Management Fee is .60% and the Portfolio Manager receives 50% of that fee
for assets under management up to $50,000,000 and 42% of that fee for assets
under management greater than $50,000,000.
HIGH-YIELD BOND PORTFOLIO - The Portfolio Manager of the High-Yield Bond
Portfolio is Caywood-Scholl Capital Management ("Caywood-Scholl"). This firm was
formed in April 1986 and the following individuals own its stock: James Caywood,
Eric Scholl and Salim Shah. Mr. Caywood, Managing Director and Chief Executive
Officer, is responsible for the day to day management of the Portfolio. He has
more than 28 years of investment industry experience. Caywood-Scholl provides
investment advice exclusively with respect to high yield, low grade fixed income
instruments. As of December 31, 1996, assets under management for all clients
approximated $732 million. Usual investment minimum: $1 million. The address of
Caywood-Scholl Capital Management is 4350 Executive Drive, Suite 125, San Diego,
California 92121. The Management Fee is .60%, and the Portfolio Manager receives
50% of that fee for assets up to $100,000,000 and 42% of that fee for assets
above $100,000,000.
TAX-EXEMPT INCOME PORTFOLIO - The Portfolio Manager of the Tax-Exempt Income
Portfolio is Morgan Stanley Asset Management, Inc. ("Morgan Stanley"), which was
founded in 1975 and serves as investment manager to a variety of institutional
investors. Gerald P. Barth, Vice President, is responsible for the day to day
management of the Portfolio and has more than 13 years industry experience.
Morgan Stanley is a wholly-owned subsidiary of Morgan Stanley Group, Inc., which
is a publicly owned investment banking firm. As of December 31, 1996, Morgan
Stanley managed approximately $72.6 billion of assets for its various clients.
Usual investment minimum: $25 million.. Its address is 1221 Avenue of the
Americas, New York, New York 10020. The Management Fee is .50%, and the
Portfolio Manager receives 50% of that fee for assets under management up to
$50,000,000 and 30% of that fee for assets above $50,000,000.
MANAGED PORTFOLIO - The Portfolio Manager of the Managed Portfolio is OpCap
Advisors, a majority owned subsidiary of Oppenheimer Capital, a general
partnership. The investments of the Managed Portfolio are managed by Richard J.
Glasebrook II, Managing Director of Oppenheimer Capital. He has more than 32
years of investment industry experience. As of March 31, 1996, Oppenheimer
Capital and its affiliates had over $48.3 billion under management. Its usual
investment minimum is $10 million. Its address is One World Financial Center,
New York, New York 10281. The Management Fee is .75% and the Portfolio Manager
receives 53% of that fee for assets up to $100,000,000 and 40% of that fee for
assets in excess of $100,000,001.
MONEY MARKET PORTFOLIO - The Portfolio Manager of the Money Market Portfolio is
Enterprise Capital, a wholly-owned subsidiary of MONY. Its address is Atlanta
Financial Center, 3343 Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326.
Enterprise Capital utilizes the services of The Mutual Life Insurance Company of
New York employees for certain services relating to management of the Portfolio.
Day-to-day management of the Portfolio is performed by a committee. MONY's
address is 1740 Broadway, New York, New York 10019. Enterprise Capital began
operating as Portfolio Manager on May 1, 1992. Total money market assets in the
Portfolio at December 31, 1996, approximated $60.4 million. The Management Fee
is .35%.
PAYMENT OF EXPENSES
The Investment Advisory Agreement obligates Enterprise Capital to provide
investment advisory services to the Portfolios of the Fund and to furnish the
Fund with certain administrative, clerical, bookkeeping and statistical
services, office space and facilities and for paying the compensation of the
officers of the Fund. Each Portfolio pays all other expenses incurred in its
operation, and a portion of the Fund's general administrative expenses is
allocated to each Portfolio either on the basis of its asset size, on the basis
of special needs of such Portfolio, or equally, as is deemed appropriate. These
expenses include expenses such as: custodial, transfer agent, brokerage,
auditing and legal services, the printing of Prospectuses sent to existing
shareholders, expenses relating to bookkeeping and recording and determining the
net asset value of shares, and the expenses of qualification of a Portfolio's
shares under the federal and state securities laws. The Fund's Board of
Directors annually reviews allocation of expenses among the Portfolios.
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<PAGE> 116
Enterprise Capital has advised the Fund that it will reimburse such portion of
the fees due to it under the Investment Adviser's Agreement as is necessary to
assure, for the period commencing January 1, 1997 and ending no earlier than
December 31, 1997, that expenses incurred by the Portfolios will not exceed the
following percentages of average annual assets for the Y Class (annualized for
periods of less than a fiscal year): Growth 1.30%; Growth and Income 1.05%;
Equity 1.15%; Equity Income 1.05%; Capital Appreciation 1.30%; Small Company
Growth 1.40%; Small Company Value 1.30%; International Growth 1.55%; Government
Securities 0.85%; High-Yield Bond 0.85%; Tax-Exempt Income 1.30%; Managed 1.55%
and Money Market 0.55%. The Portfolio Managers have advised the Fund that they
may assist in a portion of the above-referenced reimbursement from time to time.
Enterprise Capital and the Fund entered into five agreements pursuant to which
Enterprise Capital advanced on behalf of the Fund $33,748 to cover the costs of
expanding the series to include a Small Company Value Portfolio $43,278 of
expanding the series to include a Managed Portfolio; and $43,000 for each of the
following: Equity Portfolio, Growth & Income Portfolio and Small Company Growth
Portfolio and completing the appropriate registrations under the Investment
Company Act of 1940, the Securities Act of 1933, and certain state securities
laws. The agreements provide that these amounts will be repaid by each
Portfolio, in five equal annual increments without interest, commencing at the
end of the first fiscal year at which each such Portfolio have total net assets
of $5 million or more. The Small Company Portfolio and Managed Portfolio have
commenced such payments.
TAXES
Each Portfolio of the Fund has qualified and intends to continue to qualify as a
"regulated investment company" in 1995 under the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"). For purposes of the Code, each
Portfolio is regarded as a separate regulated investment company. If any
Portfolio qualifies as a "regulated investment company" and complies with
provisions of the Code which require regulated investment companies to
distribute substantially all of their net income (both ordinary income and
capital gain), the Portfolios will be relieved of federal income tax on the
amounts distributed.
Dividends declared out of a Portfolio's net investment income, taking account of
its realized short-term capital gains to the extent that they exceed its
realized short-term capital losses but not taking account its realized long-term
capital gains and losses, are taxable to its shareholders as ordinary income,
whether such dividends are received in cash or additional shares. If, for any
taxable year, a Portfolio complies with certain requirements, some or all of the
dividends (excluding capital gain dividends, as defined in the Code) received by
the Portfolio's corporate shareholders may qualify for the 70% dividends
received deduction available to corporations.
Distributions declared out of a Portfolio's realized net capital gain (realized
net long-term capital gains in excess of realized net short-term capital losses)
and designated by the Portfolio as a capital gain dividend in a written notice
to the shareholders are taxable to such shareholders as long-term capital gain
without regard to the length of time a shareholder has held stock of the
Portfolio and regardless of whether paid in cash or additional shares.
The Portfolios may be required to withhold for federal income taxes 31%
("Back-Up Withholding") of the distributions and the proceeds of redemptions
payable to shareholders who fail to comply with regulations requiring that they
provide a correct social security or taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to back-up Withholding. Corporate shareholders and
certain other shareholders specified in the Code are exempt from Back-Up
Withholding.
Distributions from retirement plans are also subject to 20% federal withholding
if the shareholder fails to provide a tax identification number to the trustee
or custodian and funds are not rolled over.
No gain or loss will be recognized by Class B shareholders upon the conversion
of Class B shares into Class A shares.
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<PAGE> 117
TAX-EXEMPT INCOME PORTFOLIO
Dividends derived from interest on Municipal Securities and designated by the
Portfolio as exempt interest dividends by written notice to the shareholders,
under existing law, are not subject to federal income tax. Dividends derived
from net long-term capital gains realized by the Portfolio are taxable to
shareholders as a capital gain upon distribution. Any short-term capital gains
or any taxable interest income realized by the Portfolio will be distributed as
a taxable ordinary income dividend distribution. These rules apply whether such
distribution is made in cash or in additional shares. The percentage of income
that is tax-exempt is applied uniformly to all distributions made by the
Portfolio during each year. As with shares in all Portfolios, a sale, exchange
or redemption of shares in the Tax-Exempt Income Portfolio is a taxable event
and may result in capital gain or loss. In addition, generally any capital loss
realized from shares held for six months or less is disallowed to the extent of
tax-exempt dividend income received.
The Tax-Exempt Income Portfolio declares and pays dividends monthly on the last
business day of the month. When a shareholder redeems shares of the Portfolio on
other than a dividend payment date, a portion of the shareholder's redemption
proceeds will represent accrued tax-exempt income which will be treated as part
of the amount realized for purposes of capital gains computations for federal
and state or local income tax purposes and will not be tax-exempt.
The Tax Reform Act of 1986 makes income from certain "private activity" bonds
issued after August 7, 1986, an item of tax preference for the alternative
minimum tax at a maximum rate of 28% for individuals and 20% for corporations.
If the Portfolio invests in private activity bonds, shareholders may be subject
to the alternative minimum tax on that part of such Portfolio distributions
derived from interest income on those bonds. The Tax-Exempt Income Portfolio
does not intend to invest more than 20% of its assets in private activity bonds.
In higher income brackets, up to 85% of an individual's Social Security benefits
may be subject to federal income tax. Along with other factors, total tax-exempt
income, including any tax-exempt dividend income from the Portfolio, is taken
into account in determining that portion of Social Security benefits which is
taxed.
The treatment for state and local tax purpose of distributions from the
Tax-Exempt Income Portfolio representing Municipal Securities interests will
vary according to the laws of state and local taxing authorities.
FOREIGN INCOME TAXES
Investment income received by the International Growth Portfolio from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries which entitle the Portfolio to a reduced rate of tax or exemption from
tax on such income. It is impossible to determine the effective rate of foreign
tax in advance since the amount of these Portfolio's assets to be invested
within various countries is not known. The Portfolio intends to operate so as to
obtain treaty-reduced rates of tax where applicable.
To the extent that this Portfolio is liable for foreign income taxes withheld at
the source, the Portfolio also intends to operate so as to meet the requirements
of the Code to "pass through" to the Portfolio's shareholders credits for
foreign income taxes paid, but there can be no assurance that the Portfolio will
be able to do so.
EXCISE TAX
The Federal tax laws impose a four percent nondeductible excise tax on each
regulated investment company with respect to the amount, if any, by which such
company does not meet distribution requirements specified in such tax laws. Each
Portfolio of the Fund intends to comply with such distribution requirements and
thus does not expect to incur the four percent nondeductible excise tax.
GENERAL
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The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury Regulations in effect, as currently interpreted by the
Courts and by the Internal Revenue Service in published revenue rulings and in
private letter rulings and is only applicable to U.S. persons. These
interpretations can be changed at any time. For the complete provisions,
reference should be made to the pertinent Code sections and the Treasury
Regulations promulgated thereunder. The above discussion covers only federal
income tax considerations with respect to the Portfolios and their shareholders.
State and local tax laws vary greatly, especially with regard to the treatment
of exempt-interest dividends. Shareholders should consult their own tax advisers
for more information regarding the federal, state, and local tax treatment of
each Portfolio's shareholders.
Statements indicating the tax status of distributions to each shareholder will
be mailed to each shareholder annually.
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute substantially all of the net investment
income and realized net capital gains, if any, of each Portfolio. The per share
dividends and distribution on each class of shares of a Portfolio will be
reduced as a result of any service fees applicable to that class. For dividend
purposes, net investment income of each Portfolio will consist of substantially
all dividends received, interest accrued, net short-term capital gains realized
by such Portfolio less the estimated expenses of such Portfolio.
Unless shareholders request otherwise, by notifying the Fund's Transfer Agent,
dividends and capital gains distributions will be automatically reinvested in
shares of the respective Portfolio at net asset value; such reinvestments
automatically occur on the payment date of such dividends and capital gains
distributions. At the election of any shareholder, dividends or capital gains
distributions, or both, will be distributed in cash to such shareholders.
However, if it is determined that the U.S. Postal Service cannot properly
deliver Fund mailings to the shareholder, the respective Portfolios will
terminate the shareholder's election to receive dividends and other
distributions in cash. Thereafter, the shareholder's subsequent dividends and
other distributions will be automatically reinvested in additional shares of the
respective Portfolios until the shareholder notifies the Transfer Agent or the
Portfolio in writing of his or her correct address and requests in writing that
the election to receive dividends and other distributions in each be reinstated.
Distributions of capital gains from each of the Portfolios, other than the Money
Market Portfolio, are made annually. Dividends from investment income of the
Equity Portfolios (except the Equity Income Portfolio) and Managed Portfolio are
declared and paid annually. Dividends on the Equity Income Portfolio are paid
semiannually. Dividends from investment income of the Income Portfolios are
declared daily and paid monthly. Dividends from investment income and any net
realized capital gains of the Money Market Portfolio are declared daily and
reinvested monthly in additional shares of the Money Market Portfolio at net
asset value.
BROKERAGE TRANSACTIONS
Each Portfolio Manager selects the brokerage firms which complete portfolio
transactions for that Portfolio, subject to the overall direction and review of
Enterprise Capital and the Board of Directors of the Fund. The initial criterion
which must be met by any Portfolio Manager in selecting brokers and dealers to
effect securities transactions for a Portfolio is whether such brokers and
dealers can obtain the most favorable combination of price and execution for the
transaction. This does not mean that the execution decision must be based solely
on whether the lowest possible commission costs may be obtained. In seeking to
achieve the best combination of price and execution, the Portfolio Managers
evaluate the overall quality and reliability of broker-dealers and the service
they provide, including their general execution capability, reliability and
integrity, willingness to take positions in securities, general operational
capabilities and financial condition. All brokerage transactions shall comply
with Investment Company Act Rule 17e-1.
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Subject to this primary objective, the Portfolio Managers may select for
brokerage transactions those firms which furnish brokerage and research services
to the Fund, Enterprise Capital, and the respective Portfolio Managers, or those
firms who agree to pay certain of the Fund's expenses, including certain
custodial and transfer agent services, and, consistent with the National
Association of Securities Dealers, Inc. Rules of Fair Practice, those firms
which have been active in selling shares of the Fund.
GENERAL INFORMATION
ORGANIZATION OF FUND
The Fund was incorporated January 2, 1968, as Alpha Fund, Inc., and its name was
changed to The Enterprise Group of Funds, Inc. on September 14, 1987, and it
expanded into a series fund and Alpha Fund became the Growth Portfolio of the
Fund. The Money Market Portfolio was added commencing May 1, 1990; the Small
Company Value Portfolio was added commencing October 1, 1993; the Managed
Portfolio was added commencing October 3, 1994; and the Growth and Income
Portfolio, Equity Portfolio and Small Company Growth Portfolio were added on May
1, 1997. Class A, B and Y shares were established May 1, 1995. Class C shares
were established on May 1, 1997. The Fund is a Maryland corporation. Each
Portfolio of the Fund is diversified, as that term is defined in the Investment
Company Act of 1940.
OTHER CLASSES OF SHARES
Each Portfolio currently offers four classes of shares, Class A, Class B, Class
C and Class Y, and may in the future offer additional classes. Class A, Class B
and Class C shares are the only classes of shares offered by this Prospectus.
Class Y shares are only available to certain institutional purchasers of $1
million or more and to The Mutual of New York Employee 401(k) Plan and the
Enterprise Capital Management, Inc. 401(k) Plan. Institutional investors
eligible to purchase Class Y shares include banks, savings institutions, trust
companies, insurance companies, investment companies as defined by the
Investment Company Act of 1940, pension or profit sharing trusts, certain wrap
account clients of broker/dealers, former shareholders of Retirement System Fund
Inc. or other financial institutional buyer. Wrap account clients of
broker/dealers and former Retirement System Fund Inc. shareholders are offered
Class Y shares at a lower minimum purchase amount.
CAPITAL STOCK
The authorized capital stock of the Fund consists of Common Stock, par value
$0.10 per share. The shares of Common Stock are divided into 13 series with each
series representing a separate Portfolio. The Board of Directors may determine
the number of authorized shares for each series and to create new series of
Common Stock. It is anticipated that new classes will be authorized by the Board
from time to time as new Portfolios with separate investment objectives and
policies are established.
Each class of shares is entitled to participate in dividends and distributions
declared by the respective Portfolios and in net assets of such Portfolios upon
liquidation or dissolution remaining after satisfaction of outstanding
liabilities, except that each Class will bear its own distribution and
shareholder servicing charges. The shares of each Portfolio, when issued, will
be fully paid and nonassessable, have no preference, preemptive, conversion,
exchange or similar rights, and will be freely transferable. Holders of shares
of any Portfolio are entitled to redeem their shares as set forth under "How to
Redeem Fund Shares."
VOTING RIGHTS
Shares of each Portfolio are entitled to one vote per share and fractional votes
for fractional shares. The Fund's shareholders have the right to vote on the
election of Directors of the Fund and on any and all other matters on which, by
law or the provisions of the Fund's bylaws, they may be entitled to vote.
- 41 -
<PAGE> 120
Each series (i.e., Portfolio) of the Fund is further divided into four classes
of shares: Class A, Class B, Class C and Class Y. Class A, Class B, Class C and
Class Y shares represent interests in the same assets of a Portfolio and are
identical in all respects, except that Class A and Class B, and Class C shares
bear certain expenses related to distribution and servicing of such shares.
On matters relating to all Portfolios or Classes of shares and affecting all
Portfolios or Class of shares in the same manner, shareholders of all Portfolios
or Classes of shares are entitled to vote. On any matters affecting only one
Portfolio, only the shareholders of that Portfolio are entitled to vote. On
matters relating to all the Portfolios but affecting the Portfolios differently,
separate votes by Portfolio are required. Each class has exclusive voting rights
with respect to matters related to distribution and servicing expenditures, as
applicable.
The Fund and its Portfolios are not required by Maryland law to hold annual
meetings of shareholders under normal circumstances. The Board of Directors or
the shareholders may call special meetings of the shareholders for action by
shareholder vote, including the removal of any or all of the Directors, as may
be required by either the Articles of Incorporation or bylaws of the Fund, or
the Investment Company Act of 1940. Shareholders possess certain rights related
to shareholder communications which, if exercised, could facilitate the calling
by shareholders of a special meeting.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank & Trust Company of Boston, Massachusetts acts as Custodian of
the Fund's assets.
National Financial Data Services, Inc. acts as the Fund's Transfer Agent and
Dividend Disbursing Agent. National Financial Data Services, Inc. is a joint
venture of State Street Bank & Trust Company of Boston, Massachusetts and DST
Systems, Inc. of Kansas City, Missouri.
REPORTS TO SHAREHOLDERS
The Fund sends to all its shareholders annual and semiannual reports, including
a list of investment securities held in the Portfolios.
- 42 -
<PAGE> 121
APPENDIX
DESCRIPTION OF MUNICIPAL SECURITIES
Municipal Securities are notes and bonds issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, the interest
on which is exempt from federal income taxes and, in certain instances,
applicable state or local income taxes. These securities are traded primarily in
the over-the-counter market.
Municipal Securities are issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, schools,
streets, water and sewer works and gas and electric utilities. Municipal
Securities may also be issued in connection with the refunding of outstanding
Municipal Securities obligations, obtaining funds to lend to other public
institutions and for general operating expenses. Industrial Development Bonds
("IDBs") are issued by or on behalf of public authorities to obtain funds to
provide privately operated facilities for business and manufacturing, housing,
sports, pollution control, and for airport, mass transit, port and parking
facilities and are considered tax-exempt bonds if the interest thereon is exempt
from federal income taxes.
The two principal classifications of tax-exempt bonds are "general obligation"
and "revenue." General obligation bonds are secured by the issuer's pledge of
its full faith and credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source. Although IDBs are
issued by municipal authorities, they are generally secured only by the revenues
derived from payment of the industrial user. The payment of principal and
interest on IDBs is dependent solely upon the ability of the user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment.
Tax-exempt notes are of short maturity, generally less than three years. They
include such securities as Project Notes, Tax Anticipation Notes, Revenue
Anticipation Notes, Bond Anticipation Notes and Construction Loan Notes.
Tax-exempt commercial paper consists of short term obligations generally having
a maturity of less than nine months.
New issues of Municipal Securities are normally offered on a when-issued basis,
which means that delivery and payment for these securities normally takes place
15 to 45 days after the date of commitment to purchase.
Yields of Municipal Securities depend upon a number of factors, including
economic, money and capital market conditions, the volume of Municipal
Securities available, conditions within the Municipal Securities market, and the
maturity, rating and size of individual offerings. Changes in market values of
Municipal Securities may vary inversely in relation to changes in interest
rates. The magnitude of changes in market values in response to changes in
market rates of interest typically varies in proportion to the quality and
maturity of obligations. In general, among Municipal Securities of comparable
quality, the longer the maturity, the higher the yield, and the greater
potential for price fluctuations.
FLOATING RATE AND VARIABLE RATE SECURITIES
The Tax-Exempt Income Portfolio may invest in floating rate and variable rate
tax-exempt securities. These securities are normally IDBs or revenue bonds that
provide that the rate of interest is set as a specific percentage of a
designated base rate, such as rates of treasury bills or bonds or the prime rate
at a major commercial bank and provide that the holders of the securities can
demand payment of the obligation on short notice at par plus accrued interest,
which amount may be more or less than the amount initially paid for the bonds.
Floating rate securities have an interest rate which changes whenever there is a
change in the designated base interest rate, while variable rate securities
provide for a specific periodic adjustment in the interest rate. Frequently
such
- 43 -
<PAGE> 122
securities are secured by letters of credit or other credit support
arrangements provided by banks. The quality of the underlying credit or of the
bank, as the case may be, must be equivalent to the long-term bond or
commercial paper rating stated above.
- 44 -
<PAGE> 123
INVESTMENT ADVISER
Enterprise Capital Management, Inc.
Atlanta Financial Center
3343 Peachtree Road, N.E.
Suite 450
Atlanta, Georgia 30326
Telephone:
1-800-432-4320 (Toll Free)
DISTRIBUTOR
Enterprise Fund Distributors, Inc.
Atlanta Financial Center
3343 Peachtree Road, N.E.
Suite 450
Atlanta, Georgia 30326
Telephone:
1-800-432-4320 (Toll Free)
CUSTODIAN
State Street Bank and Trust Company
Boston, Massachusetts
TRANSFER AGENT
National Financial Data Services, Inc.
1004 Baltimore Ave., 2nd Floor
Kansas City, MO 64105-2112
Telephone:
1-800-368-3527 (Toll Free)
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Atlanta, Georgia 30309
MEMBER - INVESTMENT COMPANY INSTITUTE
- 45 -
<PAGE> 124
TABLE OF CONTENTS
Expense Information
Prospectus summary
Condensed financial information
Investment objectives and policies of the Portfolios
Certain investment techniques and associated risks
Investment restrictions
How to purchase Portfolio shares
Shareholder services
How to exchange shares among the Portfolios
How to redeem Portfolio shares
Distributor's Agreement and Plan of Distribution
Performance comparisons
Management of the Fund
Taxes
Dividends and distribution
Brokerage transactions
General information
Appendix
- 46 -
<PAGE> 125
MAY 1, 1997
GROWTH PORTFOLIO
GROWTH & INCOME PORTFOLIO
EQUITY PORTFOLIO
EQUITY INCOME PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO
SMALL COMPANY GROWTH PORTFOLIO
SMALL COMPANY VALUE PORTFOLIO
INTERNATIONAL GROWTH PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
HIGH-YIELD BOND PORTFOLIO
TAX-EXEMPT INCOME PORTFOLIO
MANAGED PORTFOLIO
MONEY MARKET PORTFOLIO
[LOGO]
- 47 -
<PAGE> 126
Enterprise Group [LOGO]
Atlanta Financial Center
3343 Peachtree Road, Suite 450
Atlanta, Georgia 30326-1022
STATEMENT OF ADDITIONAL INFORMATION
--------------------------
EQUITY PORTFOLIOS:
Growth Portfolio
Growth and Income Portfolio
Equity Portfolio
Equity Income Portfolio
Capital Appreciation Portfolio
Small Company Growth Portfolio
Small Company Value Portfolio
International Growth Portfolio
INCOME PORTFOLIOS:
Government Securities Portfolio
High-Yield Bond Portfolio
Tax-Exempt Income Portfolio
FLEXIBLE PORTFOLIO:
Managed Portfolio
MONEY MARKET PORTFOLIO:
Money Market Portfolio
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Fund's Prospectus.
A copy of the Prospectus may be obtained by writing to the Fund at 3343
Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326, or by calling the Fund
at the following numbers:
1-800-432-4320
1-800-368-3527 (SHAREHOLDER SERVICES)
The date of the Prospectus to which this Statement of Additional
Information relates is May 1, 1997.
- 48 -
<PAGE> 127
The date of this Statement of Additional Information is May 1, 1997.
- 49 -
<PAGE> 128
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
General Information and History
(See Prospectus - General Information)
Investment Objectives and Policies
(See Prospectus - Investment Objectives and
Policies of the Portfolios)
Management of the Fund
(See Prospectus - Management of the Fund)
Investment Advisory and Other Services
Investment Advisory Agreement
Portfolio Managers
Distributor's Agreement and Plan of Distribution
Miscellaneous
(See Prospectus - Management of the Fund)
Purchase, Redemption and Pricing of Securities
Being Offered
Services for Investors
(See Prospectus - How to Purchase Portfolio
Shares; How to Redeem Portfolio Shares)
Redemptions in Kind
Determination of Net Asset Value
Portfolio Transactions and Brokerage
Performance Comparisons
Custodian
Independent Accountants
Taxes
Financial Statements
Appendix
</TABLE>
- 50 -
<PAGE> 129
GENERAL INFORMATION AND HISTORY
The Enterprise Group of Funds, Inc. (the "Fund") was incorporated
January 2, 1968 as Alpha Fund, Inc. Its name was changed to The Enterprise Group
of Funds, Inc. on September 14, 1987, and at that same time: (i) the Fund's
Board of Directors was authorized to establish any number of series of common
stock of the Fund, each of which series would represent stock in a separate
Portfolio; (ii) each outstanding share of the common stock of Alpha Fund, Inc.
became one share of the newly established Growth Portfolio; and (iii) the Fund
was reincorporated as a Maryland corporation with the shares of the Common Stock
of the Fund divided into nine classes consisting of a separate class for each
Portfolio. On May 31, 1989, the Fund's GNMA and Corporate Portfolios were
combined with the Government Securities Portfolio reducing the number of Fund
Portfolios to eight. Effective May 1, 1990, the Fund added its Money Market
Portfolio. Effective April 21, 1993, the Fund liquidated the Precious Metals
Portfolio. Effective October 1, 1993, the Fund added its Small Company Value
Portfolio and effective October 3, 1994, the Fund added its Managed Portfolio.
Effective May 1, 1995, the Fund added Class B and Class Y shares. Effective May
1, 1997 the Fund added Class C Shares and the Equity, Equity Income and Small
Company Growth Portfolios.
INTERNATIONAL GROWTH PORTFOLIO - Capital appreciation, primarily
through a diversified portfolio of non-U.S. equity securities.
The International Growth Portfolio Manager believes that, over the long
term, investing across international equity markets based upon discrepancies
between market prices and fundamental values may achieve a positive enhancement
for the Portfolio's investment performance relative to the returns from the
Benchmark.
Fundamental value is considered to be the current value of long-term,
sustainable future cash flows derived from a given asset class or security. In
determining fundamental value, the Portfolio Manager examines the relative price
to value of the investment opportunity based upon the prospects for relative
economic growth among countries, regions or geographic areas; expected levels of
inflation; government policies influencing business conditions; and the outlook
for currency relationships. Investment decisions are based on comparisons of
current market prices to fundamental values.
Although it may invest anywhere in the world, it is expected that the
Portfolio will primarily invest in the equity markets included in the Morgan
Stanley Capital International Non-U.S. Equity (Free) Index which currently are
Japan, the United Kingdom, Germany, France, Canada, Italy, the Netherlands,
Australia, Switzerland, Spain, Hong Kong, Belgium, Singapore, Malaysia, Sweden,
Denmark, Norway, New Zealand, Austria, Finland and Ireland. The composition of
the Index may change over time, according to criteria established by Morgan
Stanley.
The "Asset Allocation Mix," set forth below, represents the asset
allocation mix based on the Benchmark as of December 31, 1996, and may shift
over time as the Benchmark index weights change.
- 51 -
<PAGE> 130
<TABLE>
<CAPTION>
Asset Class Asset Allocation Mix Asset Class Strategy Ranges
- ----------- -------------------- ---------------------------
<S> <C> <C>
Non-U.S. Equities 100% 80-100%
Cash and Cash 0% 0-20%
Equivalents 100%
</TABLE>
The "asset class strategy ranges" indicated above are the ranges within
which the Fund expects to make its active asset allocations to specific asset
classes. Under all but unusual market conditions, the Portfolio expects to
adhere to the strategy ranges set forth above. However, the Portfolio's strategy
ranges may be exceeded by the Portfolio under unusual market conditions.
The investment policies of the Portfolios along with a description of
the securities in which the Portfolios invest, certain risks connected with
investments in the Portfolios, and a description of investment techniques used
by the Portfolios are set forth in the Prospectus.
1.c INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions which cannot
be changed as to any individual Portfolio without approval by the holders of a
majority of the outstanding shares of the relevant Portfolio. (As used - in this
Statement of Additional Information, "a majority of the outstanding shares of
the relevant Portfolio" means the lessor of (i) 67% of the shares of the
relevant Portfolio represented at a meeting at which more than 50% of the
outstanding shares of that Portfolio are represented in person or by proxy or
(ii) more than 50% of the outstanding shares of the relevant Portfolio.) Except
as otherwise set forth, none of the Portfolios may:
1. As to 75% of the assets of any Portfolio, purchase the securities of
any issuer if such purchase would cause more than 5% of the value of its assets
to be invested in the securities of such issuer (except U.S. Government
securities or those of its agencies or instrumentalities), or purchase more than
10% of the outstanding securities, or more than 10% of the outstanding voting
securities, of any issuer.
2. Purchase securities of any company with a record of less than three
years continuous operation (including that of predecessors) if such securities
would cause the Portfolio's investment in such companies taken at cost to exceed
5% of the value of the Portfolio's total assets. (The High Yield Bond and
Tax-Exempt Income Portfolios are not subject to this restriction.)
3. Purchase securities on margin, but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities and may make initial and maintenance margin deposits in connection
with options and futures contracts as permitted by its investment program.
4. Make short sales of securities, unless at the time of such sale, it
owns, or has the right to acquire at no additional cost to the Portfolio as the
- 52 -
<PAGE> 131
result of the ownership of convertible or exchange securities, an equal amount
of such securities, and it will retain such securities so long as it is in a
short portion as to them. In no event will a Portfolio make short sales of
securities in such a manner that the value of its net assets used to cover such
sales would exceed 15% of the value of its net assets at any time. The short
sales of the type described above, which are called "sales against the box," may
be used by a Portfolio when management believes that they will protect profits
or limit losses in investments and would be used chiefly in deferring a tax gain
or loss.
5. Borrow money, except that a Portfolio may borrow from banks as a
temporary measure for emergency purposes and not for investment, in which case
such borrowings may not be in excess of the lesser of: (a) 5% of its total
assets taken at cost; or (b) 5% of the value of its assets at the time that the
loan is made. A Portfolio will not purchase securities while borrowings are
outstanding. A Portfolio will not pledge, mortgage or hypothecate its assets
taken at market value to an extent greater than the lesser of 10% of the value
of its net assets or 15% of the value of its total assets taken at cost.
6. Purchase or retain the securities of any issuer if those officers
and directors of the Fund or of its investment advisor holding individually more
than 1/2 of 1% of the securities of such issuer together own more than 5% of the
securities of such issuer.
7. Purchase the securities of any other investment company except in
the open market in a transaction involving no commission or profit to a sponsor
or dealer (other than the customary sales load or broker's commission) or as a
part of a merger, consolidation, acquisition or reorganization.
8. Invest in real estate; this restriction does not prohibit the Fund
from investing in the securities of real estate investment trusts.
9. Invest for the purpose of exercising control of management of any
company.
10. Underwrite securities issued by others except to the extent that
the disposal of an investment position may qualify the Portfolio or the Fund as
an underwriter as that term is defined under the Securities Act of 1933, as
amended,
11. Except for the Money Market Portfolio, make any investment which
would cause more than 25% of the total assets of the Portfolio to be invested in
securities issued by companies principally engaged in any one industry;
provided, however, that: (i) this limitation does not apply to investments in
U.S. Government Securities as well as its agencies and instrumentalities,
general obligation bonds, municipal securities other than industrial development
bonds issued by non-governmental users, and (ii) utility companies will be
divided according to their services (for example, gas, gas transmission,
electric, electric and gas, and telephone will each be considered a separate
industry). The Money Market Portfolio may invest more that 25% of its total
assets in U.S. Government Securities as well as its agencies and
instrumentalities and certain bank instruments issued by domestic banks. The
instruments in which the Money Market Portfolio may invest in excess of 25%, in
- 53 -
<PAGE> 132
the aggregate, of its total assets are letters of credit and guarantees,
negotiable certificates of deposit, time deposits, commercial paper and bankers
acceptances meeting the investment criteria for the Money Market Portfolio.
12. Participate with others in any trading account. This restriction
does not prohibit the Fund or any Portfolio from combining portfolio orders with
those of other Portfolios or other clients of the investment adviser or
Portfolio Managers when to do so would permit the Fund and one or more
Portfolios to obtain a large-volume discount from ordinary brokerage commissions
when negotiated rates are available. (See "Portfolio Transactions and Brokerage"
below.)
13. Invest more than 10% of the value of its assets in securities which
are subject to legal or contractual restrictions on resale or are otherwise not
readily saleable.
In addition, management of the Fund has adopted the following
restrictions which apply to all of the Portfolios and may be changed only by the
Board of Directors of the Fund. No Portfolio will: (i) lend its assets to any
person or individual, except by the purchase of bonds or other debt obligations
customarily sold to institutional investors, (ii) invest more than 5% of the
value of its net assets, valued at the lower of cost or market, in warrants
(Included in that amount, but not to exceed 2% of the value of the Portfolio's
net assets, may be warrants which are not listed on the New York or American
Stock Exchanges. Warrants acquired by a Portfolio in units or attached to
securities may be deemed to be without value.), or (iii) invest in oil, gas, or
other mineral leases or engage in arbitrage transactions.
- 54 -
<PAGE> 133
MANAGEMENT OF THE FUND
The directors and officers of the Fund, and their principal occupations
during the past five years, are set forth below. Directors who are "interested
persons", as defined in the 1940 Act, are denoted by an asterisk. As to their
duties relative to the Fund, the address of each is Atlanta Financial Center,
3343 Peachtree Road, N.E., Ste. 450, Atlanta, GA 30326.
<TABLE>
<CAPTION>
NAME, AGE AND POSITION WITH THE FUND PRINCIPAL OCCUPATION
- ------------------------------------ --------------------
PAST FIVE YEARS
---------------
<S> <C>
Arthur T. Dietz (73) President, ATD Advisory Services,
Director Inc. since 1996; President and Chief
Member of the Audit Committee Chief Executive Officer, Strategic Portfolio
Management, Inc., 1987-1996; Mills B. Lane
Professor of Finance and Banking, Emory University,
1954-1988; Trustee, Enterprise Accumulation
Trust; Director, Medical Synergies, Inc.
*Samuel J. Foti (45) President and Chief Operating
Director Officer, MONY since 1994; Executive Vice
President, MONY (1991-1994); Trustee, MONY
since 1993; Senior Vice President and
Chief Marketing Officer, MONY (1989 - 1991);
Trustee, Enterprise Accumulation Trust.
Arthur Howell (78) Of Counsel, law firm of Alston Director & Bird,
Atlanta, Georgia; President Chairman of the Audit
Committee and Chairman of the Board, Summit
Industries, Inc.; Secretary of the Executive
Committee, Crescent Banking Co., Inc.; Trustee,
Enterprise Accumulation Trust.
William A. Mitchell, Jr.(59) President, Carter & Associates
Director (real estate development), Atlanta, Georgia;
Trustee, Enterprise Accumulation Trust.
Lonnie H. Pope (63) President and Chief Executive
Director Officer of AFF, Inc. (creator and
Member of the Audit Committee manufacturer of aromatics, flavors and fragrances),
Marietta, Georgia; Trustee, Enterprise Accumulation
Trust.
*Michael I. Roth (51) Chairman and Chief Executive
</TABLE>
- 55 -
<PAGE> 134
<TABLE>
<S> <C>
Director Officer, MONY since 1993; President and Chief
Executive officer, MONY (1991-1993);
Executive Vice President and Chief Financial
Officer, MONY (1989-1991); Executive Vice
President and Chief Financial Officer, Primerica
Corporation (1987); Executive Vice President,
Primerica Corporation (1982-1987); Trustee,
Enterprise Accumulation Trust; Director,
American Council of Life Insurance (ACLI).
*Victor Ugolyn (49) Chairman, President and Chief
Director Executive Officer, The Enterprise Group of Funds,
Inc. since 1991; Chairman, President and Chief
Executive Officer, Enterprise Capital and
Enterprise Fund Distributors, Inc. since 1991;
Chairman, President and Chief Executive Officer,
Enterprise Accumulation Trust; Vice Chairman and
Chief Marketing Officer, Value Line Securities,
Inc. (1986-1991).
Catherine R. McClellan (41) Secretary, Enterprise
Secretary Accumulation Trust; Senior Vice President,
Secretary and Chief Counsel, Enterprise Capital
Management, Inc.; Senior Vice President, Secretary
and Chief Counsel, Enterprise Fund Distributors,
Inc.
Herbert M. Williamson (46) Assistant Secretary and
Treasurer Treasurer, Enterprise Accumulation Trust,
Enterprise Capital Management, Inc. and Enterprise
Fund Distributors, Inc.
Phillip G. Goff (33) Vice President and Chief Financial
Officer, Enterprise Accumulation
Trust, Enterprise Capital
Management, Inc. and Enterprise Fund
Distributors, Inc. 1995 - present;
Audit Manager, Coopers & Lybrand,
L.L.P., 1986 - 1995.
</TABLE>
* Messrs. Foti, Roth and Ugolyn are "interested persons" of the Fund, of
Enterprise Capital Management, Inc. (the Fund's investment adviser), and of
Enterprise Fund Distributors, Inc. (the distributor of the Fund's Shares), as
that term is defined in the Investment Company Act of 1940.
- 56 -
<PAGE> 135
At December 31, 1996, the officers and directors of the Fund as a group owned
less than one percent of the shares of each Portfolio.
The Fund pays fees to those directors who are not "interested persons" of the
Fund at the rate of $10,000 per director per year plus $1,000 for each special
or committee meeting attended. The Fund pays no salaries, fees or compensation
to any of its officers, since these expenses are borne by the Fund's investment
adviser, Enterprise Capital Management, Inc. No fees were paid to the
"interested" directors of the Fund.
The following sets forth compensation paid to each of the Directors during 1996:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
NAME AGGREGATE PENSION OR ESTIMATED TOTAL
COMPENSA- RETIREMENT ANNUAL COMPENSATION
TION FROM BENEFITS BENEFITS FROM REGISTRANT
REGISTRANT ACCRUED AS UPON AND FUND COMPLEX
PART OF RETIREMENT PAID TO
FUND DIRECTORS*
EXPENSES
<S> <C> <C> <C> <C>
Arthur T. Dietz $14,500 None None $23,350
Arthur Howell $14,500 None None $23,350
William A. Mitchell, Jr. $13,000 None None $21,250
Lonnie H. Pope $14,500 None None $23,350
</TABLE>
* Each Director received fees for services as a Trustee of Enterprise
Accumulation Trust.
- 57 -
<PAGE> 136
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
The Fund has entered into an Investment Advisory Agreement (the "Adviser's
Agreement") with Enterprise Capital Management, Inc. ("Enterprise Capital")
which, in turn, has entered into Portfolio Manager's Agreements with each of the
Portfolio Managers as discussed in the Prospectus. Enterprise Capital functions
as the adviser to the Money Market Portfolio. Enterprise Capital is a subsidiary
of The Mutual Life Insurance Company of New York ("MONY"), one of the nation's
largest insurance companies. Enterprise Capital was incorporated in 1986.
Enterprise Capital's address is Suite 450, 3343 Peachtree Road, Atlanta, Georgia
30326. Victor Ugolyn, who is President of the Fund, is also Chairman of the
Board and President of Enterprise Capital.
The Adviser's Agreement obligates Enterprise Capital to provide investment
advisory services to the Portfolios of the Fund, to furnish the fund with
certain administrative, clerical, bookkeeping and statistical services, office
space and facilities, and to pay the compensation of the officers of the Fund.
Each Portfolio pays all other expenses incurred in its operation, and a portion
of the Fund's general administrative expenses are allocated to the Portfolios
either on the basis of their asset size, on the basis of special needs of any
Portfolio, or equally as is deemed appropriate. The Fund's Board of Directors
annually reviews allocation of expenses among the Portfolios.
The Adviser's Agreement authorizes Enterprise Capital to enter into
subadvisory agreements with various investment advisers as Portfolio Managers
for the Portfolios of the Fund. The Portfolio Manager's Agreements are
substantially the same in all material respects except for the names of the
Portfolio Managers and the rates of compensation, which consist of a portion of
the management fee that is paid by the Fund to Enterprise Capital and which
Enterprise Capital pays to the Portfolio Managers.
Enterprise Capital is the Portfolio Manager of the Money Market Portfolio.
It utilizes the services of The Mutual Life Insurance Company of New York
employees for certain services relating to management of the Portfolio. These
services include but are not limited to the initial credit review of approved
issuers and trading. All such services are provided on a cost reimbursement
basis.
Expenses that are borne directly by the Portfolios incurring such costs
include redemption expenses, expenses of portfolio transactions, shareholder
servicing costs, mailing costs, expenses of registering the shares under federal
and state securities laws, accounting and pricing costs (including the daily
calculation of net asset value and daily dividends), interest, certain taxes,
legal services, auditing services, charges of the custodian and transfer agent,
and other expenses attributable to an individual account. Expenses which are
generally allocated either on the basis of size or equally among the respective
Portfolios include director fees, legal expenses, state franchise taxes, costs
of printing of proxies, prospectuses, registration statements and shareholder
reports, printing and issuance of stock certificates and other expenses properly
payable by the Fund that are allocable to the respective
- 58 -
<PAGE> 137
Portfolios. Litigation costs, if any, may be directly allocable to the
Portfolios or allocated on the basis of the size of the respective Portfolios.
The Board of Directors has determined that this is an appropriate method of
allocation of expenses.
Enterprise Capital has advised the Fund that it will reimburse such portion
of the fees due to it under the Adviser's Agreement as is necessary to assure,
for the period commencing January 1, 1997 and ending no earlier than December
31, 1997 that expenses incurred by the Portfolios will not exceed those which
appear as part of the Expense TAble, page 2, to the Prospectus. This
commitment was also in effect from January 1, 1989 through December 31, 1996.
The table below sets forth the 1996 breakdown by Portfolio of (1) the
investment advisory fee paid to Enterprise Capital, (2) the percentage of the
Management Fee to be paid by Enterprise Capital to the Portfolio Manager, (3)
the portfolio management fee paid by Enterprise Capital to the Portfolio
Manager, (4) the net advisory fee left to Enterprise Capital after payment of
the portfolio management fee, and (5) the amount of the expense reimbursement
paid by Enterprise Capital to the Portfolio to assure that expenses incurred by
the Portfolio did not exceed 2.0% of average annual net assets for the Equity
Portfolios and 1.3% of average annual net assets for the Income Portfolios. To
the extent that the Management Fee equals or exceeds .75% of the average daily
net asset values of a Portfolio, such fee is higher than the fee charged to most
investment companies. However, the Board of Directors has determined that such
fees are reasonable in light of the services, investment decisions and
investment techniques employed by the Portfolios.
<TABLE>
<CAPTION>
PORTFOLIO (1) (2) (3) (4) (5)
- ---------
<S> <C> <C> <C> <C> <C>
Growth $1,282,393 40%(1) 474,978 807,415 37,407(2)
Equity Income 523,261 40% 209,391 313,870 126,447
Capital Appreciation 935,780 66%(3) 611,348 324,432 21,601(2)
Small Company Value 153,784 40%(4) 72,105 81,679 128,396
International Growth 353,427 50% 187,181 166,246 80,932
Government Securities 490,882 50%(5) 229,645 261,237 94,868
High-Yield Bond 339,960 50% 170,056 169,904 114,041
Tax-Exempt Income 162,828 50% 81,452 81,376 51,959
Managed 1,164,633 53% 568,181 596,452 ------
Money Market 160,844 -- ------- 160,844 82,594
</TABLE>
- 59 -
<PAGE> 138
(1) 33% of assets $100,000,001 - $200,000,000
(2) Reflects total expenses before reduction for brokerage commission credits
which are reflected as expense reimbursement.
(3) 60% of assets in excess of $100,000,001 - $200,000,000
(4) 42% of assets in excess of $500,000,001
(5) 53% of assets in excess of $20,000,001
PORTFOLIO MANAGERS
Montag & Caldwell, Inc.
Montag & Caldwell was established in 1945 as an investment adviser.
TCW Funds Management, Inc.
TCW Funds Management, Inc. was established for the sole purpose of
managing investment portfolios. The 1997 Money Market Directory of Pension Funds
and their Investment Managers ranks TCW as the 13th largest investment
counselling firm in the United States of the 1,261 firms surveyed.
Additional information concerning the Portfolio Managers and their
annual rate of compensation is set forth in the Prospectus.
DISTRIBUTOR'S AGREEMENT AND PLAN OF DISTRIBUTION
The Distributor's Agreements and Plans of Distribution (the "12b-1
Plans") between the Fund and Enterprise Fund Distributors, Inc. ("Enterprise
Distributors"), pursuant to which Enterprise Distributors serves as principal
underwriter of the Fund's shares, is described in the Prospectus. The 12b-1
Plans provide for the payment by the Fund to Enterprise Distributors of a daily
distribution fee.
- 60 -
<PAGE> 139
TOTAL CONTINGENT DEFERRED SALES CHARGES
<TABLE>
<CAPTION>
DISTRIBUTION COMMISSION & CDSC CDSC PAID TO MARKETING & TRAVEL,
FEES PAID TO SALES FEES COLLECTED & DEALERS ADVERTISING TELEPHONE &
EFD PAID TO EFD PAID TO EFD FEES PAID OTHER
AUTHORIZED
FEES PAID
<S> <C> <C> <C> <C> <C> <C>
1996 $3,696,663 $692,305 $ 6,916 $1,725,493 $1,045,791 $328,418
1995 $2,487,595 $505,970 $ 3,074 $1,255,109 $ 585,683 $301,269
1994 $2,232,408 $627,245 $23,779 $2,322,408 $ 866,155 $535,608
</TABLE>
MISCELLANEOUS
The terms of each of the Investment Adviser's Agreement, the
Distributor's Agreements and Plans of Distribution, the Transfer Agent
Agreement, the Accounting Agreement and the Portfolio Manager's Agreements
(collectively, the "Agreements") provide that each such Agreement: (i) will
automatically terminate upon "assignment," as such term is defined in the
Investment Company Act of 1940 (the "1940 Act"); (ii) must be approved annually
by the Fund's Board of Directors or by vote of a majority of the outstanding
voting securities; and (iii) must be approved annually in person by vote of a
majority of the directors of the Fund who are not parties to such contract or
"interested persons" (as such term is defined in the 1940 Act) of such party.
Each Agreement further provides that it can be terminated without penalty by
either party thereto upon 60 days written notice to the other party. The
Distributor's Agreement and Plan of Distribution were most recently approved by
the shareholders at the Special Meeting of Shareholders held APRIL 26, 1995. The
Investment Adviser's Agreement was most recently approved by the shareholders at
the Annual Meeting of Shareholders held JULY 25, 1988. The Fund's Board of
Directors most recently approved continuance of the Investment Adviser's
Agreement and the Portfolio Manager's Agreements on February 20, 1997.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
Information concerning purchase and redemption of shares of the Fund's
Portfolios, as well as information concerning computation of net asset value per
share is set forth in the Fund's Prospectus.
SERVICES FOR INVESTORS
For the convenience of investors, the following plans are available.
Investors should realize that none of these plans can guarantee profit or insure
against loss. The costs of these shareholder plans (exclusive of the employee
benefit plans) are paid by Enterprise Distributors, except for the normal cost
of issuing shares, which is paid by the Fund.
AUTOMATIC REINVESTMENT PLAN. All shareholders, unless they request otherwise,
are enrolled in the Automatic Reinvestment Plan under which dividends and
capital gains distributions on their shares are automatically reinvested in
shares of the same Class of Portfolio(s) at the net asset value per share
- 61 -
<PAGE> 140
computed on the record date of such dividends and capital gains distributions.
The Automatic Reinvestment Plan may be terminated by participants or by the Fund
at any time. No sales charge is applied upon reinvestment of dividends or
capital gains.
AUTOMATIC BANK DRAFT PLAN. An Automatic Bank Draft Plan is available for
investors who wish to purchase shares of one or more of the Portfolios in
amounts of $25 or more on a regular basis by having the amount of the investment
automatically deducted from the investor's checking account. The minimum initial
investment for this Plan is $100. Forms authorizing this service are available
from the Fund.
AUTOMATIC INVESTMENT PLAN. An investor may debit any Class of a Portfolio
Account on a monthly basis for automatic investments into one or more of the
other Portfolios of the same Class. The Portfolio from which the investment will
be made is subject to the $1,000 minimum. The investor may then choose to have
$50 or more transferred to either an established Enterprise Portfolio, or they
may open a new account subject to an initial minimum investment of $100.
LETTER OF INTENT INVESTMENTS. Any investor may execute a Letter of Intent
covering purchases of Class A shares of $100,000 or more, at the public offering
price, of Fund shares to be made within a period of 13 months. A reduced sales
charge will be applicable to the total dollar amount of Class A shares purchased
in the 13-month period provided at least $100,000 is purchased. The minimum
initial investment under a Letter of Intent is 5% of the amount indicated in the
Letter of Intent. Shares purchased with the first 5% of such amount will be held
in escrow (while remaining registered in the name of the investor) to secure
payment of the higher sales charge applicable to the shares actually purchased
if the full amount indicated is not purchased, and such escrowed shares will be
involuntarily redeemed to pay the additional sales charge, if necessary. When
the full amount indicated has been purchased, the escrow will be released.
Investors wishing to enter into a Letter of Intent in conjunction with
their investment in Class A shares of the Portfolios should complete the
appropriate portion of the new account application.
RIGHT OF ACCUMULATION DISCOUNT. Investors who make an additional purchase of
Class A shares of the Fund which, when combined with the value of their existing
aggregate holdings of shares of the Portfolios of the Fund, each calculated at
the then applicable net asset value per share, at the time of the additional
purchase, equals $100,000 or more, will be entitled to the reduced sales charge
shown under "How to Purchase Portfolio Shares" in the Prospectus on the full
amount of each additional purchase. For purposes of determining the discount,
holdings of Fund shares of the investor's spouse, immediate family or accounts
controlled by the investor, whether as a single investor or trustee of, or
participant in, pooled and similar accounts, will be aggregated.
CHECKWRITING. A check redemption feature is available on the Money Market
Portfolio Class A shares with opening balances of $5,000 or more. Redemption
checks may be made payable to the order of any person in any amount from $500
to $100,000. Up to five redemption checks per month may be written without
charge. Each additional redemption check over five in a given month will be
subject to a $5
- 62 -
<PAGE> 141
fee. Redemption checks are free and may be obtained from the Transfer Agent or
by contacting Enterprise Capital Management. A $25 fee will be imposed on any
account for stopping payment of a redemption check upon request of the
shareholder. It is not possible to use a redemption check to close out an
account since additional shares accrue daily.
SYSTEMATIC WITHDRAWAL PLAN. Investors may elect a Systematic Withdrawal Plan
under which a fixed sum will be paid monthly, quarterly, or annually. There is
no minimum withdrawal payment required. Shares in the Plan are held on deposit
in noncertificate form and any capital gain distributions and dividends from
investment income are invested in additional shares of the Portfolio(s)at net
asset value. Shares in the Plan account are then redeemed at net asset value to
make each withdrawal payment. Redemptions for the purpose of withdrawals are
made on or about the 15th day of the month of payment at that day's closing net
asset value, and checks are mailed within five days of the redemption date. Such
distributions are subject to applicable taxation.
Because withdrawal payments may include a return of principal,
redemptions for the purpose of making such payments may reduce or even use up
the investment, depending upon the size of the payments and the fluctuations of
the market price of the underlying portfolio securities. For this reason, the
payments cannot be considered as a yield of income on the investment.
RETIREMENT PLANS. The Fund offers various Retirement Plans: IRA (for all
individuals with employment income); 403(b)(7) (for employees of certain
tax-exempt organizations and schools); and corporate pension and profit sharing
(including a 401(k) option) plans. For full details as to these plans, you
should request a copy of the plan document from Enterprise Distributors. After
reading the plan, you may wish to consult a competent financial or tax adviser
if you are uncertain that the plan is appropriate for your needs.
REDEMPTIONS IN KIND
The Fund's Articles of Incorporation provide that it may redeem its
shares in cash or with a pro rata portion of the assets of the Fund. To date,
all redemptions have been made in cash, and the Fund anticipates that all
redemptions will be made in cash in the future. In order to meet the
requirements of certain state laws, the Fund has elected, pursuant to Rule 18f-1
under the 1940 Act, to commit itself to pay in cash all requests for redemption
by any shareholder of record, limited in amount with respect to each shareholder
during any 90-day period to the lesser of: (i) $250,000; or (ii) 1% of the net
asset value of the Fund at the beginning of such period. If shares are redeemed
through a distribution of portfolio securities, the recipient would incur
brokerage commissions upon the sale of such securities.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Portfolio's shares is determined once daily
as of the close of the New York Stock Exchange (usually 4 p.m. Eastern time) on
each day on which the Exchange is open for trading. The net asset value of a
share is computed by dividing the value of the net asset of the Portfolio by the
total number of shares outstanding.
- 63 -
<PAGE> 142
Money Market Portfolio
The net asset value of the Money Market Portfolio is computed by
dividing the total value of the Portfolio's assets, less liabilities (including
dividends payable), by the number of shares outstanding. The assets are
determined by valuing the portfolio securities at amortized cost, pursuant to
Rule 2a-7. The amortized cost method of valuation involves valuing a security at
cost at the time of purchase and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument.
The purpose of the amortized cost method of valuation is to attempt to
maintain a constant net asset value per share of $1.00. While this method
provides certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Portfolio
would receive if it sold its portfolio securities. Under the direction of the
Board of Directors, certain procedures have been adopted to monitor and
stabilize the price per share. Calculations are made to compare the value of the
portfolio securities, valued at amortized cost, with market values. Market
valuations are obtained by using actual quotations provided by market makers,
estimates of market value, or values obtained from yield data relating to
classes of money market instruments published by reputable sources at the bid
prices for those instruments. If a deviation of 1/2 of 1% or more between the
$1.00 per share net asset value and the net asset value calculated by reference
to market valuations has occurred, or if there are any other deviations which
the Board of Directors believes will result in dilution or other unfair results
material to shareholders, the Board of Directors will consider what action, if
any, should be initiated.
The market value of debt securities usually reflects yields generally
available on securities of similar quality. When yields decline, the market
value of a portfolio holding higher yielding securities can be expected to
increase; when yields increase, the market value of a portfolio invested at
lower yields can be expected to decline. In addition, if the Portfolio has net
redemptions at a time when interest rates have increased, the Portfolio may be
forced to sell portfolio securities prior to maturity at a price below the
Portfolio's carrying value. Also, rather than market value, any yield quoted may
be different from the yield that would result if the entire Portfolio were
valued at market value, since the amortized cost method does not take market
fluctuations into consideration.
Other Portfolios
The net asset value of Portfolios other than the Money Market Portfolio
is computed by dividing the total value of the series' securities and other
assets, less liabilities, by the number of series shares then outstanding.
Securities other than money market instruments maturing in 60 days or less which
are traded on a national exchange are valued at the last sale price as of the
close of business on the day the securities are being valued, or, lacking any
sales, at the last bid price. Securities other than money market instruments
maturing in 60 days or less traded in the over-the-counter market are valued at
the last bid price or at yield equivalent as obtained from one or more dealers
that make markets in the securities. Securities which are traded
- 64 -
<PAGE> 143
both in the over-the-counter market and on a national exchange are valued
according to the broadest and most representative market, and it is expected
that for debt securities this ordinarily will be the over-the-counter market.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the supervision of
the Board of Directors. Money market instruments with maturities of 60 days or
less are valued using the amortized cost method of valuation.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The portfolio transactions and brokerage policies of the Fund are set
forth in the Prospectus. In the last three fiscal years ended December 31, the
Fund has paid the following aggregate amounts for brokerage commissions on
transactions in portfolio securities: 1994 - $601,596; 1995 - $489,729; 1996 -
$762,622.
- 65 -
<PAGE> 144
PERFORMANCE COMPARISONS
From time to time the Fund may advertise a Portfolio's "yield" as
"total return." See the Prospectus under "Performance Comparisons" for an
explanation of the method of calculation of "yield" or "total return."
From time to time, a portfolio's performance and performance of
comparable investments may be compared to that of the Consumer Price Index or
various unmanaged indexes such as the Dow Jones Industrial Average, the Standard
& Poor's 500 Stock Index, the Lehman Brothers Government/Corporate Bond Index,
the Salomon Brothers Low Grade Index, the Lehman Brothers Government Bond Index,
Lehman Brothers Mortgage Backed Index, Lehman Brothers Municipal Bond Index,
Morgan Stanley Goldmine Index, the Salomon Brothers Analytical Record of Yield
and Yield Spreads, and the Salomon Brothers World Money Market Index; and it may
also be compared to the performance of other appropriate fixed income or equity
mutual funds or mutual fund indexes as reported by Lipper Analytical Services,
Inc. ("Lipper") or CDA Investment Technologies, Inc. ("CDA"). Lipper and CDA are
widely recognized independent mutual fund reporting services. Lipper and CDA
performance calculations are based upon changes in net asset value with all
dividends reinvested and do not include the effect of any sales charges. Also, a
portfolio's performance may be compared to the historical returns of various
investments, performances indexes of those investments or economic indicators,
included but not limited to stocks, bonds, certificates of deposit, money market
deposit accounts, money market funds and US Treasury Bills. Certain of these
alternative investments may offer fixed rates of return and guaranteed principal
and may be insured. Betas utilized will be calculated by CDA Investment
Technologies, Inc.
The Fund's performance may be compared in advertising to the
performance of other mutual funds in general or the performance of particular
types of mutual funds, especially those with similar objectives. Lipper
Analytical Services, Inc. ("Lipper"), an independent mutual fund performance
rating service headquartered in Summit, New Jersey, provides rankings which may
be used from time to time.
The Fund may be compared in advertising to Certificates of Deposit
("CDs") or other investments issued by banks. The Fund differs from bank
investments in that bank products offer fixed or variable rates; principal is
fixed and may be insured. Money markets seek to maintain a stable net asset
value and yield fluctuates. Further, the Fund may offer greater liquidity or
higher potential returns than CDs.
From time to time, the Fund may provide hypothetical illustrations
based on past performance for a particular time period. Performance information
for any Portfolio reflects only the performance of a hypothetical investment in
the Portfolio during a particular time period on which the calculations are
based. Performance information should be considered in light of the Portfolio's
investment objectives and policies, characteristics and qualities of the
Portfolio and the market conditions during the given time period, and should not
be considered as a representation of what may be achieved in the future.
- 66 -
<PAGE> 145
The Fund may advertise examples of the effects of periodic investment
plans, including the principal of dollar cost averaging. Dollar cost averaging
programs provide an opportunity to invest a fixed dollar amount in a fund at
periodic intervals, thereby purchasing fewer shares when the price is high and
more shares when the price is low. While such a strategy does not assure a
profit guard against loss in a declining market, the investor's cost per share
can be lower if fixed numbers of shares had been purchased at periodic
intervals. In evaluating such a plan, consideration should be given to the
shareholder's ability to continue purchasing shares through periods of low price
levels.
CUSTODIAN
State Street Bank and Trust Company of Boston, Massachusetts, has been
retained to act as custodian of the assets of the Fund.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. whose address is 1100 Campanile Building,
Atlanta, Georgia, 30309, has been retained to serve as the Fund's independent
accountants.
TAXES
See the Prospectus for information concerning taxes.
- 67 -
<PAGE> 146
FINANCIAL STATEMENTS
--------------------
<TABLE>
<CAPTION>
Annual
Report
Page
Number
------
<S> <C>
Financial Statements
Portfolios of Investment Securities,
December 1, 1996 ......................................... 4
Statement of Assets and Liabilities,
December 31, 1996 ........................................ 52
Statements of Operations for the
Year Ended December 31, 1996 ............................. 54
Statements of Changes in Net Assets
for Each of the Two Years Ended
December 31, 1995 and 1996 ............................... 56
Financial Highlights ....................................................... 60
Notes to Financial Statements .............................................. 74
Report of Independent Accountants .......................................... 83
</TABLE>
- 68 -
<PAGE> 147
APPENDIX
RATINGS OF CORPORATE DEBT SECURITIES
MOODY'S INVESTORS SERVICE, INC.(1)
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge."
Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high grade bonds.
A - Bonds rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba - Bonds rated Ba are judged to have speculative elements: their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterize bonds in this case.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments of or
maintenance of other terms of the contract over any long period of time
may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
short-comings.
- ----------------
(1) Moody's applies numerical modifiers, 1, 2 and 3 in generic rating
classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
- 69 -
<PAGE> 148
STANDARD & POOR'S CORPORATION(2)
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest-rated issues only in a small degree.
A - Bonds rated A have 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 bonds in higher-rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit 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
bonds in this category than for bonds in higher-rated categories.
BB,B,CCC,CC - Bonds rated BB, B, CCC, and CC are regarded, on balance, as
predominately speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
- -------------------
(2) Plus (+) or Minus (-): The ratings from AA to BB may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
PART B, ITEM 23
(Registrant will submit Part b, Item No. 23 with its 48j5(b) on or before April
30, 1997.)
- 70 -
<PAGE> 149
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
The audited financial statements as to the Fund are
in the 1996 Annual Report to Shareholders, a copy
will be filed pursuant to a Post-Effective Amendment
on or before April 30, 1997.
Portfolio of Assets and Liabilities, December 31,
1996 Statement of Assets and Liabilities, December
31, 1996 Statement of Operations for the Year Ended
December 31, 1996 Statement of Changes in Net Assets
for each of the Two Years Ended December 31, 1995 and
1996
(b) Exhibits:
(1) Registrant's charter: Filed with Amendment
No. 39, dated April 28, 1994, and
incorporated herewith; Amendment to Charter
dated April 26, 1995 filed with Amendment
No. 43 dated April 26, 1995, and
incorporated herewith.
(2) By-Laws: Filed with Amendment No. 39, dated
April 28, 1994, and incorporated herewith;
Amendment to By-Laws, dated November 17,
1994 filed with Amendment No. 43 dated April
26, 1995, and incorporated herewith.
(3) Not applicable.
(4) Specimen share certificate: Filed with
Amendment No. 29, dated November 27, 1987
and incorporated herewith.
(5) Investment Advisory Agreement: Filed with
Amendment No. 39, dated April 28, 1994, and
incorporated herewith.
(6) (i) General Distributor's
Agreement: Filed with Amendment No.
39, and dated April 28, 1994, and
incorporated herewith; Addendum to
Distributor's Agreement, filed
April 26, 1995, and incorporated
herewith.
(ii) Prototype Soliciting Broker/Dealer
Agreement: Filed with Amendment No.
39, dated April 28, 1994, and
incorporated herewith; Addendum to
the Soliciting Broker/Dealer
Agreement, filed with Amendment No.
43 dated April 26, 1995 and
incorporated herewith.
<PAGE> 150
(7) Not applicable.
(8) Form of Custodian Contract: Filed with
Amendment No. 39, dated April 28, 1994, and
incorporated herewith.
(9) Not applicable.
(10) Opinion of Counsel: Filed herewith as
Exhibit 10.
(11) Consent of Coopers & Lybrand, L.L.P.: Filed
herewith as Exhibit 11.
(12) All financial statements required to be
filed under Item 23 are included in the 1996
Annual Report to Shareholders and will be
filed pursuant to a Post-Effective Amendment
on or before April 30, 1997.
(13) Not applicable.
(14) Not applicable.
(15) Distribution Agreements: Filed with
Amendment No. 43, dated April 26, 1995 and
incorporated herewith.
(16) Computation of performance: Included in Part
A herein and incorporated by reference.
(17) All financial statements required to be
filed under Item 23 are included in the 1996
Annual Report to Shareholders.
(18) All financial statements required to be
filed under Item 23 are included in the 1996
Annual Report to Shareholders and will be
filed pursuant to a Post-Effective Amendment
on or before April 30, 1997.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Number of Record
Holders
as of the date of this
Statement of
Additional
Title of Class Information
-------------- -----------
Shares of Beneficial Interest 85,143
<PAGE> 151
ITEM 27. INDEMNIFICATION
Reference is made to the provisions of Article Sixth of
Registrant's Articles of Incorporation filed as Exhibit
24(b)(1) to this Registration Statement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of Registrant pursuant to the
foregoing provision or otherwise, Registrant has been advised
that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in
the Securities Act of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment of Registrant of expenses
incurred or paid by a director, officer or controlling person
of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or
controlling person, Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
ITEM 28. (a) Business and Other Connections of Investment Adviser
Enterprise Capital Management, Inc. is the investment
adviser of the Registrant.
(b) Business and Other Connections of Officers and
Directors of Investment Adviser
For information as the business, profession, vocation
or employment of a substantial nature of each of the
officers and directors of Enterprise Capital
Management, Inc. reference is made to Part B of this
Registration Statement and to the registration of
Form ADV of Enterprise Capital Management, Inc. filed
under the Investment Adviser Act of 1940, which is
incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Enterprise Fund Distributors, Inc. is the general
distributor of Registrant's shares.
(b) The information contained in the registration on Form
BD of Enterprise Fund Distributors, Inc., filed under
the Securities Exchange Act of 1934, is incorporated
herein by reference.
<PAGE> 152
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Entity Function Address
The Enterprise Group Registrant Atlanta Financial Center
of Funds, Inc. 3343 Peachtree Road, N.E., Suite 450
Atlanta, GA 30326-1022
Enterprise Capital Investment Same as above.
Management, Inc. Adviser
Enterprise Fund Distributor Same as above.
Distributors, Inc.
THE RECORDS OF THE PORTFOLIO MANAGERS ARE KEPT AT THE FOLLOWING LOCATIONS:
Growth Portfolio Montag & Caldwell, Inc.
Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, GA 30326-1450
Growth & Income Retirement Systems Investors, Inc.
Portfolio 317 Madison
New York, NY 10122
Equity Portfolio OpCap Advisors
One World Financial Center
New York, NY 10281
Equity and Income 1740 Advisers, Inc.
Portfolio 1740 Broadway
New York, NY 10019
Capital Appreciation Provident Investment Counsel
Portfolio 300 North Lake Avenue
Pasadena, CA 91101
Small Company Growth Pilgrim Baxter Associates, Ltd.
Portfolio 1255 Drummers Lane
Ste. 300
Wayne, PA 19087
Small Company Value GAMCO Investments, Inc.
Portfolio One Corporate Center
Rye, New York 10580
International Growth Brinson Partners, Inc.
Portfolio 209 South LaSalle Street
Chicago, IL 609604
<PAGE> 153
Government Securities TCW Funds Management, Inc.
Portfolio 865 South Figueroa Street, Suite 1800
Los Angeles, CA 90017
High-Yield Bond Caywood-Scholl Capital Management
Portfolio 4350 Executive Drive, Suite 125
San Diego, CA 92121
Tax-Exempt Income Morgan Stanley Asset Management, Inc.
Portfolio 1221 Avenue of the Americas
New York, NY 10020
Managed Portfolio OpCap Advisors
One World Financial Center
New York, New York 10281
Money Market Portfolio Enterprise Capital Management, Inc.
Atlanta Financial Center
3343 Peachtree Road, N.E., Suite 450
Atlanta, GA 30326
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
The Registrant undertakes to file a Post-Effective Amendment, using
financials which need not be certified within four to six months following
the effective date of this Post-Effective Amendment.
<PAGE> 154
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia on the 27th day of February, 1997.
THE ENTERPRISE GROUP OF FUNDS, INC.
By: /s/ Victor Ugolyn
-------------------------------------------------
Victor Ugolyn, Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement of the Registrant has
been signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ Chairman, President and February 27, 1997
- --------------------------------- Chief Executive Officer
Victor Ugolyn
Principal Financial and February 27, 1997
- --------------------------------- Accounting Officer
Phillip G. Goff
/s/ Arthur T. Dietz Director February 27, 1997
- ---------------------------------
Arthur T. Dietz
/s/ Samuel J. Foti Director February 27, 1997
- ---------------------------------
Samuel J. Foti
/s/ Arthur Howell Director February 27, 1997
- ---------------------------------
Arthur Howell
/s/ Lonnie H. Pope Director February 27, 1997
- ---------------------------------
Lonnie H. Pope
/s/ William A. Mitchell, Jr. Director February 27, 1997
- ---------------------------------
William A. Mitchell, Jr.
/s/ Michael I. Roth Director February 27, 1997
- ---------------------------------
Michael I. Roth
</TABLE>
<PAGE> 155
INDEX TO EXHIBITS
10 Opinion of Counsel
11 Consent of Independent Accountants
<PAGE> 1
EXHIBIT 10
February 28, 1997
Securities and Exchange Commission
450 Fifth Street
Washington, D.C. 20549
Re: The Enterprise Group of Funds, Inc.
Registration Statement No. 2-28097
Dear Sir or Madam:
I am counsel to The Enterprise Group of Funds, Inc., (the "Fund"), and in so
acting, have reviewed Post-Effective Amendment No. 46 (the "Post Effective
Amendment") to the Fund's Registration Statement on Form N-1A, Registration File
No. 2-28097. Representatives of the Fund have advised that the Fund will file
the Post-Effective Amendment pursuant to paragraph (a) of Rule 485 ("Rule 485")
promulgated under the Securities Act of 1933. In connection therewith, the Fund
has requested that I provide this letter.
In my examination of the Post-Effective Amendment, I have assumed the conformity
to the originals of all documents submitted to me as copies.
Based upon the foregoing, I hereby advise you that:
(1) the Fund is a corporation duly incorporated and validly existing in
good standings under the laws of the State of Maryland;
(2) the Common Stock to be offered has been duly authorized and, when
sold as contemplated in the Amendments, will be validly issued, fully paid and
nonassessable; and
Very truly yours,
Catherine R. McClellan
CRM/slc
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Port-Effective Amendment No. 46 to the
registration statement under the Securities Act of 1933 (file number 2-28097) of
our report dated February 20, 1996 on our audit of the financial statements and
financial highlights of The Enterprise Group of Funds, Inc. appearing in the
Registrant's 1996 Annual Report. We also consent to the reference to our Firm
under the caption "Independent Accountants."
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
April 28, 1997
