<PAGE> 1
1933 Act Registration No. 2-78440
1940 Act Registration No. 811-3517
As filed with the Securities and Exchange Commission on February __, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 /x/
Post-Effective Amendment No. 29 /x/
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 30 /x/
(Check appropriate box or boxes)
----------
THE PILOT FUNDS
(Exact name of Registrant as specified in charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code
800-717-4568
----------
Copy to:
George O. Martinez, Esq. Phil Newman, Esq.
BISYS Fund Services, Inc. Goodwin, Procter & Hoar
3435 Stelzer Road Exchange Place
Columbus, Ohio 43219 Boston, Massachusetts 02109
(Name and Address of Agent for Service of Process)
----------
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on _____________________ pursuant to paragraph (b)
/x/ 60 days, after filing pursuant to paragraph (a)
/ / on _____________________ pursuant to paragraph (a), of Rule 485
/ / 75 days after filing pursuant to paragraph (a) (2).
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES UNDER THE SECURITIES
ACT OF 1933 PURSUANT TO RULE 24f-2. REGISTRANT FILED A RULE 24f-2 NOTICE FOR THE
FISCAL YEAR ENDED AUGUST 31, 1995 ON OCTOBER 30, 1995.
THE TOTAL NUMBER OF PAGES IS _____. THE EXHIBIT INDEX IS ON PAGE ____.
<PAGE> 2
THE PILOT FUNDS
(Pilot International Equity Fund)
----------
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER IN PART A PROSPECTUS CAPTION
--------------------- ------------------
<S> <C>
1. Cover Page...................................... Cover Page
2. Synopsis........................................ Not Applicable
3. Condensed Financial Information................. Financial Highlights
4. General Description of Registrant............... Cover Page; Investment Objectives, Risk Factors; The Pilot
Family of Funds
5. Management of the Fund.......................... The Business of the Fund - Fund Management
5A. Management's Discussion of Fund Performance..... Not Applicable
6. Capital Stock and Other Securities.............. Investing in The Pilot Funds - Dividends and Distributions;
The Pilot Family of Funds; The Business of the Fund - Tax
Implications
7. Purchase of Securities Being Offered............ Investing in The Pilot Funds - How to Buy Shares; Investing
in The Pilot Funds - Explanation of Sales Price; Investing
in The Pilot Funds - Exchange Privileges
8. Redemption or Repurchase........................ Investing in The Pilot Funds - How to Sell Shares; Investing
in The Pilot Funds - Exchange Privilege
9. Pending Legal Proceedings....................... Not Applicable
</TABLE>
2
<PAGE> 3
- -----FINANCIAL
DIRECTION
LOGO
May [ ], 1996
The
Pilot
Funds
Prospectus enclosed
PILOT INTERNATIONAL
EQUITY FUND
Class A Shares and
Class B Shares
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
EXPENSE SUMMARY.................................................................................... 2
FINANCIAL HIGHLIGHTS............................................................................... 3
INVESTMENT OBJECTIVE AND RISK FACTORS.............................................................. 5
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES................................................ 5
U.S. Government Securities.................................................................... 5
U.S. and Foreign Bank Obligations............................................................. 5
Forward Commitments and When-Issued Securities................................................ 5
Common and Preferred Stocks................................................................... 6
Convertible Securities........................................................................ 6
Small Capitalization Companies................................................................ 6
Foreign Securities............................................................................ 6
Investing in Emerging Markets................................................................. 6
American/European Depository Receipts......................................................... 7
Forward Foreign Currency Exchange Contracts................................................... 7
Currency Swaps................................................................................ 7
Repurchase Agreements......................................................................... 7
Lending of Portfolio Securities............................................................... 8
Options Transactions.......................................................................... 8
Futures Contracts and Options on Futures Contracts............................................ 8
Other Information............................................................................. 9
INVESTMENT LIMITATIONS............................................................................. 9
INVESTING IN THE PILOT FUNDS....................................................................... 9
HOW TO BUY SHARES.................................................................................. 12
HOW TO SELL SHARES................................................................................. 15
TRANSACTION RULES.................................................................................. 16
SHAREHOLDER SERVICES............................................................................... 19
Tax Sheltered Retirement Plans................................................................ 19
Exchange Privileges Among The Pilot Funds..................................................... 19
Automatic Investment Plan..................................................................... 19
Automatic Withdrawal Plan..................................................................... 20
Front-End Sales Charge Reductions............................................................. 20
Right of Accumulation......................................................................... 20
Example....................................................................................... 20
Statement of Intention........................................................................ 20
Quantity Discounts............................................................................ 21
Cross-Reinvestment Privilege.................................................................. 21
Reinstatement Privilege....................................................................... 21
DIVIDENDS AND DISTRIBUTIONS........................................................................ 22
Where do your dividends and distributions come from?.......................................... 22
What are your dividend and distribution options?.............................................. 22
When are dividends and distributions declared and paid?....................................... 22
DISTRIBUTION ARRANGEMENTS.......................................................................... 22
THE PILOT FAMILY OF FUNDS.......................................................................... 23
THE BUSINESS OF THE FUND........................................................................... 24
FUND MANAGEMENT.................................................................................... 24
TAX IMPLICATIONS................................................................................... 26
MEASURING PERFORMANCE.............................................................................. 27
</TABLE>
<PAGE> 5
THE PILOT FUNDS
LOGO
PROSPECTUS FOR CLASS A SHARES AND CLASS B SHARES
OF THE
PILOT INTERNATIONAL EQUITY FUND
May , 1996
- --------------------------------------------------------------------------------
The Pilot Funds is an open-end, management investment company (a "mutual fund")
consisting of multiple portfolios (the "Funds"). This prospectus relates solely
to the offering of Class A and Class B Shares of the Pilot International Equity
Fund, formerly known as the Pilot Kleinwort Benson International Equity Fund
(the "Fund"). Boatmen's Trust Company ("Boatmen's") serves as the Fund's
investment adviser. Kleinwort Benson Investment Management Americas Inc.
("Kleinwort Benson") serves as the Fund's investment manager. Pilot Funds
Distributors, Inc. serves as the Fund's distributor, and its parent, Concord
Holding Corporation, serves as the Fund's administrator.
The investment objective of the Fund is to provide long-term capital growth by
investing primarily in equity securities of companies domiciled in countries
outside the United States and listed on major stock exchanges primarily in
Europe and the Pacific Basin. The Fund may invest up to 35% of its total assets
in issuers domiciled in developing countries.
FUND SHARES ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, BOATMEN'S TRUST COMPANY OR ANY OF ITS AFFILIATES AND ARE NOT FEDERALLY
INSURED BY, GUARANTEED BY OR OBLIGATIONS OF, OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THE FUND INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. IN ADDITION, THE AMOUNT OF
DIVIDENDS PAID BY THE FUND WILL VARY. BOATMEN'S TRUST COMPANY SERVES AS
INVESTMENT ADVISER TO THE FUND, IS PAID A FEE FOR ITS SERVICES, AND IS NOT
AFFILIATED WITH PILOT FUNDS DISTRIBUTORS INC., THE FUND'S DISTRIBUTOR.
This Prospectus describes concisely the information about the Fund that you
should know before investing. Please read it carefully and keep it for future
reference.
More information about the Fund is contained in a Statement of Additional
Information that has been filed with the Securities and Exchange Commission. The
Statement of Additional Information can be obtained free upon request by calling
800/71-PILOT, by calling your service organization or by writing Pilot Funds
Distributors, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-3035. The Statement
of Additional Information, as it may be revised from time to time, is dated May
[ ], 1996 and is incorporated by reference into (considered a part of) the
Prospectus.
LIKE ALL MUTUAL FUNDS, 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.
- --------------------------------------------------------------------------------
1
<PAGE> 6
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of a Fund.
ANNUAL FUND OPERATING EXPENSES are paid out of the Fund's assets and include
fees for portfolio management, maintenance of shareholder accounts, general Fund
administration, accounting and other services.
Below is information regarding the Fund's shareholder transaction expenses and
the operating expenses which the Fund expects to incur during the current fiscal
year on its Class A and Class B Shares. Examples based on this information are
also provided.
<TABLE>
<CAPTION>
CLASS A CLASS B
------- -------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases (as a percentage of offering
price)..................................................................... 4.50%(1) None
Sales Charge Imposed on Reinvested Dividends.................................. None None
Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, whichever is lower)................................... None 4.50%(2)
Exchange Fee.................................................................. None None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets):
Management Fee(3)............................................................. 0.80% 0.80%
Rule 12b-1/Distribution Payments.............................................. 0.25% 1.00%
Other Expenses................................................................ 0.37% 0.37%(4)
------- -------
Total Fund Operating Expenses(3).............................................. 1.42% 2.17%
</TABLE>
- ---------------
(1) Reduced sales charges may be available. See "Shareholder
Services -- Front-End Sales Charge Reductions."
(2) This amount applies to redemptions during the first year. The charge
decreases .50% annually to 2.50% for redemptions made during the fifth year
and then decreases .75% to 1.75% for redemptions made during the sixth year.
No deferred sales charge is charged for redemptions made after the sixth
year. See "How to Buy Shares -- Explanation of Sales Price."
(3) This expense information is provided to help you understand the expenses you
would bear either directly (as with the transaction expenses) or indirectly
(as with the annual operating expenses) as a shareholder of the Fund. You
should note that any fees that are charged by the Fund's Adviser, its
affiliates or any other institutions directly to their customer accounts for
services related to an investment in the Fund are in addition to and not
reflected in the fees and expenses described above.
(4) Other Expenses for the Class B Shares are based on estimated amounts for the
current fiscal year.
Because of the Distribution Payments paid by the Fund as shown in the above
table, long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc.
Example: Assume that the annual return on the Fund is 5%, and that its operating
expenses are as described above. For every $1,000 you invested in a particular
Fund, after the periods shown below, you would have paid this much in expenses
during such periods:
<TABLE>
<CAPTION>
1 3 5 10
YEAR AFTER YEARS AFTER YEARS AFTER YEARS AFTER
PURCHASE PURCHASE PURCHASE PURCHASE
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Class A Shares(1)..................................... $ 59 $ 88 $ 119 $ 208
Class B Shares
Assuming complete redemption at end of period(2).... $ 67 $ 103 $ 141 $ 250
Assuming no redemption.............................. $ 22 $ 68 $ 116 $ 250
</TABLE>
- ---------------
(1) Assumes deduction at time of purchase of maximum applicable front-end sales
charge.
(2) Assumes deduction of maximum applicable contingent deferred sales charge.
The Example shown above should not be considered a representation of future
investment returns or operating expenses. The Fund is new and actual investment
returns and operating expenses may be more or less than those shown.
2
<PAGE> 7
PILOT INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following data with respect to a Share of the Pilot International Equity
Fund, formerly known as the Pilot Kleinwort Benson International Equity Fund,
outstanding during the period ended August 31, 1995 has been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
incorporated by reference and attached to the Statement of Additional
Information, and should be read in conjunction with the financial statements and
related notes incorporated by reference and attached to the Statement of
Additional Information. This annual report also contains performance information
and is available upon request and without charge by writing to the address on
the front of this Prospectus. Prior to a tax-free reorganization effective July
12, 1993, the Pilot Kleinwort Benson International Equity Fund was a separate
portfolio of Kleinwort Benson Investment Strategies and known as the Kleinwort
Benson International Equity Fund. The following financial highlights also
present historical information of the Kleinwort Benson International Equity Fund
prior to July 12, 1993. The Kleinwort Benson International Equity Fund was
advised solely by Kleinwort Benson Investment Management Americas Inc., formerly
Kleinwort Benson International Investment Limited for those periods.
The following data with respect to a Share of the Kleinwort Benson International
Equity Fund of Kleinwort Benson Investment Strategies outstanding for each of
the seven years in the period ended December 31, 1992 have been audited by Ernst
& Young LLP, independent auditors, as indicated in their report incorporated by
reference and attached to the Statement of Additional Information, and should be
read in conjunction with the financial statements and related notes incorporated
by reference and attached to the Statement of Additional Information.
The Pilot Shares were first issued by the Pilot Kleinwort Benson International
Equity Fund during July, 1993. Accordingly, there are no financial highlights
with respect to the Fund for such shares for periods prior to such dates. In
this regard, Class B Shares were first issued by the Pilot International Equity
Fund during , 1996. Therefore, financial highlights are not presented for
such shares. The financial highlights presented below for periods prior to July
12, 1993 represent historical information for shares of the Kleinwort Benson
International Equity Fund which became Pilot Administration Shares pursuant to a
tax-free reorganization effected on July 12, 1993. Effective August 21, 1995 the
Administration Shares of the Fund were redesignated as the Class A Shares of the
Fund. The Class A Shares will be subject to additional fees (Distribution Plan
Fees), as well as a front-end sales load of up to 4.5% of the offering price.
- --------------------------------------------------------------------------------
3
<PAGE> 8
PILOT INTERNATIONAL EQUITY FUND
------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF
THE PERIODS INDICATED
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------------------------------------
NET REALIZED NET REALIZED
AND AND UNREALIZED TOTAL
UNREALIZED GAIN (LOSS) ON INCOME
NET ASSET NET GAIN (LOSS) FOREIGN (LOSS)
VALUE AT INVESTMENT ON CURRENCY FROM
BEGINNING INCOME INVESTMENT RELATED INVESTMENT
OF PERIOD (LOSS) TRANSACTIONS TRANSACTIONS(C) OPERATIONS
--------- ---------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED AUGUST 31,
- ------------------------------------------------------
1995--Pilot Shares.................................... $ 16.34 $ 0.13(i) $(0.22)(i) $ 0.39(i) $ 0.30
1995--Class A Shares(j)............................... 16.29 0.08(i) (0.22)(i) 0.39(i) 0.25
1994--Pilot Shares.................................... 14.14 0.11(i) 1.65(i) 0.59(i) 2.35
1994--Administration Shares........................... 14.13 0.07(i) 1.65(i) 0.59(i) 2.31
FOR THE EIGHT MONTHS ENDED AUGUST 31,
- ------------------------------------------------------
1993--Pilot Shares(d)................................. 13.15 (0.01)(i) 1.10(i) (0.10)(i) 0.99
1993--Administration Shares........................... 11.85 0.02(i) 2.51(i) (0.25)(i) 2.28
FOR THE YEARS ENDED DECEMBER 31,(A)(B)
- ------------------------------------------------------
1992--Administration Shares........................... 12.29 0.04(i) (0.46)(i) -- (0.42)
1991--Administration Shares........................... 12.65 0.06 1.36 -- 1.42
1990--Administration Shares........................... 15.58 0.12 (2.40) -- (2.28)
1989--Administration Shares........................... 14.66 0.07 3.22 -- 3.29
1988--Administration Shares........................... 13.21 (0.01) 2.73 -- 2.72
1987--Administration Shares........................... 22.92 -- 2.11 -- 2.11
1986--Administration Shares........................... 17.95 0.02 9.13 -- 9.15
1985--Administration Shares........................... 11.87 0.02 6.28 -- 6.30
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
--------------------------
NET REALIZED
GAIN ON
INVESTMENTS
AND
FOREIGN
NET CURRENCY
INVESTMENT RELATED
INCOME TRANSACTIONS
---------- ------------
<S> <C> <C>
FOR THE YEAR ENDED AUGUST 31,
- ------------------------------------------------------
1995--Pilot Shares.................................... $(0.11) $ (0.29)
1995--Class A Shares(j)............................... (0.11) (0.29)
1994--Pilot Shares.................................... -- (0.15)
1994--Administration Shares........................... -- (0.15)
FOR THE EIGHT MONTHS ENDED AUGUST 31,
- ------------------------------------------------------
1993--Pilot Shares(d)................................. -- --
1993--Administration Shares........................... -- --
FOR THE YEARS ENDED DECEMBER 31,(A)(B)
- ------------------------------------------------------
1992--Administration Shares........................... (0.02) --
1991--Administration Shares........................... (0.08) (1.70)
1990--Administration Shares........................... (0.14) (0.51)
1989--Administration Shares........................... (0.22) (2.15)
1988--Administration Shares........................... -- (1.27)
1987--Administration Shares........................... -- (11.82)
1986--Administration Shares........................... -- (4.18)
1985--Administration Shares........................... (0.06) (0.16)
<CAPTION>
RATIO OF
NET RATIO OF NET
ASSET EXPENSES INVESTMENT
VALUE TO INCOME NET ASSETS
AT PORTFOLIO AVERAGE (LOSS) AT END OF
END OF TOTAL TURNOVER NET TO AVERAGE PERIOD
PERIOD RETURN(e) RATE ASSETS NET ASSETS (IN 000'S)
------- --------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED AUGUST 31,
- ------------------------------------------------------
1995--Pilot Shares....................................$16.24 2.08% 35.91% 1.18% 0.82% $363,212
1995--Class A Shares(j)............................... 16.14 1.77 35.91 1.42 0.50 27,625
1994--Pilot Shares.................................... 16.34 16.75 35.40 1.12 0.75 307,561
1994--Administration Shares........................... 16.29 16.48 35.40 1.37 0.48 44,990
FOR THE EIGHT MONTHS ENDED AUGUST 31,
- ------------------------------------------------------
1993--Pilot Shares(d)................................. 14.14 7.53 (f) 26.65 (f)(h) 1.31(g) (0.56)(g) 195,548
1993--Administration Shares........................... 14.13 19.24 (f) 26.65 (f)(h) 2.17(g) 0.25(g) 55,816
FOR THE YEARS ENDED DECEMBER 31,(A)(B)
- ------------------------------------------------------
1992--Administration Shares........................... 11.85 (3.42) 58.55 1.78 0.35 56,358
1991--Administration Shares........................... 12.29 11.81 51.88 1.79 0.45 65,939
1990--Administration Shares........................... 12.65 (14.77) 52.00 1.82 0.76 72,007
1989--Administration Shares........................... 15.58 22.99 61.54 2.00 0.39 80,224
1988--Administration Shares........................... 14.66 21.03 54.84 2.31 (0.07) 59,864
1987--Administration Shares........................... 13.21 9.28 58.98 1.72 0.01 53,800
1986--Administration Shares........................... 22.92 52.62 76.35 1.49 0.10 92,592
1985--Administration Shares........................... 17.95 54.03 73.32 1.94 0.15 41,290
</TABLE>
- ------------
(a) Prior to a tax-free organization into Pilot Administration shares
effective July 12, 1993, the Pilot Kleinwort Benson International Equity
Portfolio was a separate portfolio of Kleinwort Benson Investment
Strategies known as Kleinwort Benson International Equity Fund. The
predecessor portfolio was advised by Kleinwort Benson International
Investment Limited and had a December 31 fiscal year-end.
(b) Prior to July 12, 1993, the Pilot Administration shares were not subject
to an Administration plan.
(c) For years preceding the fiscal year ended August 31, 1993, net realized
and unrealized gain (losses) from foreign currency related transactions
were included in net realized and unrealized gain (losses) from
investments. Effective January 1, 1993, realized and unrealized gain
(losses) from Foreign currency related transactions are disclosed
separately from net realized and unrealized gain (losses) from
investments.
(d) Pilot shares were initially issued on July 26, 1993.
(e) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return would be reduced if sales charges were taken f
or the Pilot Administration shares.
(f) Not annualized
(g) Annualized
(h) Calculated on a portfolio-wide level and excludes the transfer of assets
effective on August 6, 1993.
(i) Calculated based on the average shares outstanding methodology.
(j) Effective August 21, 1995 the Administration Class Shares were
redesignated as the Class A Shares.
4
<PAGE> 9
THE PILOT INTERNATIONAL EQUITY FUND USES A VARIETY OF DIFFERENT INVESTMENTS AND
INVESTMENT TECHNIQUES IN SEEKING TO ACHIEVE THE FUND'S INVESTMENT OBJECTIVE. THE
FUND DOES NOT USE ALL OF THE INVESTMENTS AND INVESTMENT TECHNIQUES DESCRIBED IN
THE FOLLOWING SECTIONS. THE FUND IS NOT DESIGNED TO BE A COMPLETE INVESTMENT
PROGRAM BUT CAN BE APPROPRIATE AS PART OF A COMPLETE INVESTMENT STRATEGY. YOU
SHOULD CONSIDER WHETHER THE FUND MEETS YOUR INVESTMENT GOAL. ALTHOUGH THE FUND
ATTEMPTS TO ATTAIN ITS INVESTMENT OBJECTIVE, THERE CAN BE NO ASSURANCE IT WILL
BE SUCCESSFUL.
SHAREHOLDER APPROVAL IS NOT REQUIRED TO CHANGE THE INVESTMENT OBJECTIVE OF THE
FUND. HOWEVER, SHAREHOLDERS WILL BE GIVEN AT LEAST 30 DAYS' PRIOR WRITTEN NOTICE
IN THE EVENT OF A CHANGE IN THE FUND'S OBJECTIVE. UNLESS OTHERWISE STATED, EACH
INVESTMENT POLICY DESCRIBED BELOW MAY BE CHANGED AT ANY TIME BY THE PILOT FUNDS'
BOARD OF TRUSTEES WITHOUT SHAREHOLDER APPROVAL.
INVESTMENT OBJECTIVE AND RISK FACTORS
The investment objective of the Fund is to provide long-term capital growth by
investing primarily in equity securities of companies domiciled in countries
outside the United States and listed on major stock exchanges primarily in
Europe and the Pacific Basin. Under normal circumstances, the Fund will invest
at least 65% of its total assets in foreign equity securities, including
securities convertible into equity securities and in securities which are listed
on major stock exchanges. The Fund may purchase the stock of small and large
capitalization companies.
The Fund may invest up to 35% of its total assets in securities of issuers
domiciled in developing countries. These countries are generally located in
Eastern Europe, the Asia-Pacific region, Latin and South America, Africa and,
subject to approval by the Board of Trustees, Russia and the Middle East. Debt
securities, if any, purchased by the Fund will be rated in the top two
categories by a nationally recognized statistical rating organization ("NRSRO")
or, if unrated, determined by Kleinwort Benson to be of comparable quality. For
temporary defensive purposes, the Fund may invest up to 100% of its assets in
debt and equity securities of U.S. issuers. Debt securities in which the Fund
may invest include short-term and intermediate-term obligations of corporations,
foreign governments and international organizations (such as the International
Bank for Reconstruction and Development (the "World Bank")), including money
market instruments.
Investments and investment techniques in which the Fund may invest include
common stocks (including securities convertible into common stocks) of foreign
issuers and rights to purchase common stock, options and futures contracts on
securities, securities indexes and foreign currencies, securities lending and
repurchase agreements. These and other securities in which the Fund may invest
are further described below.
DESCRIPTION OF SECURITIES
AND INVESTMENT TECHNIQUES
- --U.S. Government Securities. The Fund may purchase obligations of the U.S.
Government. These obligations are issued or guaranteed as to principal or
interest by the U.S. Government, its agencies, authorities or instrumentalities
("U.S. Government Securities"). Some U.S. Government securities, such as
Treasury bills, notes and bonds, which differ only in their interest rates,
maturities and times of issuance, are supported by the full faith and credit of
the United States. Others, such as obligations issued or guaranteed by U.S.
Government agencies, authorities or instrumentalities, are supported by (a) the
full faith and credit of the U.S. Government (such as securities of the Small
Business Administration), (b) the right of the issuer to borrow from the
Treasury (such as securities of the Federal Home Loan Banks), (c) the
discretionary authority of the U.S. Government to purchase the agency's
obligations (such as securities of the Federal National Mortgage Association),
or (d) only the credit of the issuer. No assurance can be given that the U.S.
Government will continue to provide financial support to U.S. Government
agencies, authorities or instrumentalities.
- --U.S. and Foreign Bank Obligations. The Fund may invest in domestic bank
obligations of banks that have total assets in excess of $1 billion and are
subject to U.S. Government regulation, and in certificates of deposit issued by
Federal Deposit Insurance Corporation (FDIC) members that have total assets less
than $1 billion, provided that the principal amounts of such certificates are
fully covered by FDIC insurance. The Fund may invest in U.S. dollar-denominated
foreign bank obligations of foreign banks that have total assets in excess of
$10 billion, are among the 75 largest foreign banks in total assets, have
branches or agencies in the U.S. and meet other criteria established by the
Fund's Trustees. The Fund may also invest in other bank obligations.
- --Forward Commitments and When-Issued Securities. The Fund may purchase
when-issued securities and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. The Fund is
required to hold and maintain in a segregated account with the Funds' custodian
or subcustodian until the settlement date, cash, U.S. Government securities or
other high grade liquid debt obligations in an amount sufficient
5
<PAGE> 10
to meet the purchase price. Alternatively, the Fund may enter into offsetting
contracts for the forward sale of other securities that it owns. Securities
purchased or sold on a when-issued or forward commitment basis involve a risk of
loss if the value of the security to be purchased decreases prior to the
settlement date or if the value of the security to be sold increases prior to
the settlement date. Although the Fund would generally purchase securities on a
when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, the Fund may dispose of a when-issued security or
forward commitment prior to settlement if Boatmen's, or Kleinwort Benson, deems
it appropriate to do so and such disposition may give rise to a capital gain and
loss.
- --Common and Preferred Stocks. Common stocks are generally more volatile than
other securities. Preferred stocks share some of the characteristics of both
debt and equity and are generally preferred over common stocks with respect to
dividends and in liquidation.
- --Convertible Securities. The Fund may invest in convertible securities, which
may offer higher income than the common stocks into which they may be converted.
All convertible securities purchased by the Fund will be rated in the top two
categories by an NRSRO or, if unrated, determined by Kleinwort Benson to be of
comparable quality. Convertible securities (which may be current or zero coupon
securities) are bonds, notes, debentures, preferred stocks or other securities
which may be converted or exchanged at a stated or determinable exchange ratio
into shares of common stock. Prior to their conversion, convertible securities
have general characteristics similar to non-convertible securities. While
convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality, they may reflect changes in the
value of the underlying common stock. Convertible securities generally entail
less credit risk than the issuer's common stock because they rank senior to
common stock.
- --Small Capitalization Companies. The Fund may invest in smaller, lesser-known
companies which Kleinwort Benson believes offer greater growth potential than
larger, more mature, better-known firms. Investing in the securities of such
companies, however, may also involve greater risk and the possibility of greater
portfolio price volatility. Among the reasons for the greater price volatility
of these small company and unseasoned stocks are the less certain growth
prospects of smaller firms, the lower degree of liquidity in the markets for
such stocks, and the greater sensitivity of small companies to changing economic
conditions. For example, these companies are associated with higher investment
risk than that normally associated with larger firms due to the greater business
risks of small size and limited product lines, markets, distribution channels
and financial and managerial resources.
- --Foreign Securities. The Fund may invest in foreign securities which are
denominated in foreign currencies. Investment in foreign securities may present
a greater degree of risk than investment in domestic securities because of less
publicly-available financial and other information, less securities regulation,
different accounting standards, lower trading volume and market volatility,
difficulties in enforcing obligations, potential imposition of foreign
withholding and other taxes (including withholding on dividends or interest paid
to the Fund), war, expropriation or other adverse governmental or economic
actions. Furthermore, the settlement period of securities transactions may be
longer in foreign markets than in domestic markets, delivery of securities
without payment therefor may be required and transactions may involve
non-negotiable brokerage commissions. Purchases of foreign securities by the
Fund will usually be made in foreign currencies and, as a result, the Fund may
incur currency conversion costs and may be affected favorably or unfavorably by
changes in the value of foreign currencies against the U.S. dollar. In addition,
the Fund's performance may be favorably or unfavorably affected by changes in
exchange rates or exchange rate controls, which may include suspension of the
ability to transfer currency from a given country. These risks generally are of
greater concern in developing countries.
The Fund may acquire U.S. dollar denominated obligations of the World Bank.
Obligations of the World Bank are supported by subscribed but unpaid commitments
of its member countries; there is no assurance that these commitments will be
fulfilled in the future.
- --Investing in Emerging Markets. The Fund may also invest up to 35% of its total
assets in one or more countries with emerging economies. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America,
Africa and, subject to approval by the Board of Trustees, Russia and the Middle
East. Political and economic structures in many of such countries may be
undergoing significant evolution and rapid development, and such countries may
lack the social, political and economic stability characteristic of more
developed countries. Certain of such countries may have in the past failed to
recognize private property rights and have at times nationalized or expropriated
the assets of private companies. As a result, the risks described above,
including the risks of nationalization or expropriation of assets, may be
heightened. In addition, unanticipated political or social developments may
affect the values of the Fund's investments in those countries and the
availability to the Fund of additional investments in those
6
<PAGE> 11
countries. The small size and inexperience of the securities markets in certain
of such countries and the limited volume of trading in securities in those
countries may make the Fund's investment in such countries illiquid and more
volatile than investments in most other non-major U.S. markets, and the Fund may
be required to establish special custodial or other arrangements before making
certain investments in those countries. There may be little financial or
accounting information available with respect to issuers located in certain of
such countries, and it may be difficult as a result to assess the value of
prospects of an investment in such issuers.
- --American/European Depository Receipts. The Fund may invest indirectly in the
securities of foreign issuers through sponsored or unsponsored ADRs and EDRs or
other securities representing securities of companies based in countries other
than the United States. Transactions in these securities may not necessarily be
settled in the same currency as the underlying securities which they represent.
Ownership of unsponsored ADRs and EDRs may not entitle the Fund to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs or EDRs. Generally, ADRs, in registered form, are designed for
use in the U.S. securities markets, and EDRs, in bearer form, are designed for
use in European securities markets. ADRs and EDRs also involve certain risks of
other investments in foreign securities.
- --Forward Foreign Currency Exchange Contracts. The Fund may enter into forward
foreign currency exchange contracts ("forward contracts") for hedging and to
seek to increase total return and to purchase or sell currency in connection
with purchases and sales of foreign securities. A forward contract is
individually negotiated and privately traded by currency traders and their
customers. A forward contract involves an obligation to purchase or sell a
specific currency for an agreed price at a future date, which may be any fixed
number of days from the date of the contract. A forward contract may be for a
single price or for a range of prices. The Fund may be required to segregate
assets, consisting of cash, U.S. Government securities or other high grade
liquid debt obligations to cover forward contracts that require it to purchase
foreign currency.
The purpose of entering into these contracts is to minimize the risk to the Fund
from adverse changes in the relationship between the U.S. dollar and foreign
currencies. At the same time, such contracts may limit potential gain from a
positive change in the relationship between the U.S. dollar and foreign
currencies. When Kleinwort Benson believes that the currency of a specific
country may deteriorate against another currency, it may enter into a forward
contract to sell the less attractive currency and buy the more attractive one
("cross-hedging"). The amount in question could be less than or equal to the
value of the Fund's securities denominated in the less attractive currency. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors, including the imposition of exchange controls,
suspension of settlements, or the inability to deliver or receive a specified
currency. Unanticipated changes in currency prices may result in poorer overall
performance for the Fund than that performance it would have had had it not
engaged in forward contracts.
- --Currency Swaps. The Fund may enter into currency swaps for hedging purposes
and to seek to increase total return. Currency swaps involve the exchange of
rights to make or receive payments in specified currencies. Since currency swaps
are individually negotiated, the Fund expects to achieve an acceptable degree of
correlation between its portfolio investments and its currency swap positions.
Currency swaps usually involve the delivery of the entire principal value of one
designated currency in exchange for the other designated currency. Therefore,
the entire principal value of a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations.
The use of currency swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If Kleinwort Benson is incorrect in its
forecasts of market values and currency exchange rates, the investment
performance of the Fund would be less favorable than it would be if this
investment technique were not used.
- --Repurchase Agreements. The Fund may enter into repurchase agreements with
banks and selected broker-dealers. A repurchase agreement is an agreement under
which the Fund purchases securities and the seller agrees to repurchase the
securities within a particular time at a specified price. The repurchase price
will exceed the original purchase price, the difference being income to the
Fund, and will be unrelated to the interest rate on the purchased securities.
The Fund's custodian or subcustodian will maintain custody of the purchased
securities for the duration of the agreement. The value of the purchased
securities, including accrued interest, will at all times exceed the value of
the repurchase agreement. In the event of bankruptcy of the seller or failure of
the seller to repurchase the securities as agreed, the Fund could suffer losses,
including loss of interest on or principal of the security and costs associated
with delay and enforcement of the repurchase agreement.
7
<PAGE> 12
- --Lending of Portfolio Securities. The Fund may seek to increase its total
return by lending portfolio securities. Under present regulatory policies, such
loans may be made to institutions, such as broker-dealers, and are required to
be secured continuously by collateral in cash, U.S. Government securities or
other high grade liquid debt obligations maintained on a current basis at an
amount at least equal to the market value of the securities loaned. As with
other extensions of credit there are risks of delay in recovering, or even loss
of rights in, the collateral should the borrower of the securities fail
financially. However, the loans will be made only to firms deemed by Boatmen's
or Kleinwort Benson to be of good standing, and when, in the judgment of
Boatmen's or Kleinwort Benson, the consideration which may be earned currently
from securities loans of this type justifies the attendant risk. If securities
loans are made, it is intended that the value of the securities loaned would not
exceed 30% of the value of the total assets of the Fund.
- --Options Transactions. The Fund may purchase and sell (write) call and put
options on securities. Such options are agreements by the Fund in exchange for a
premium to sell or purchase securities at a specified price if the option is
exercised on or before a set date. Put options on securities will be written
only when the underlying securities are ones which the Fund could otherwise
purchase. Risks associated with writing covered options include the possible
inability to effect closing transactions at favorable prices and an appreciation
limit on the securities set aside for settlement. Call options will be sold
(written) only when the underlying securities are ones which the Fund holds.
The Fund may purchase and sell (write) call and put options on securities to
hedge against the risk of unfavorable price movements adversely affecting the
value of the securities the Fund holds or intends to buy.
The Fund may also purchase and sell (write) call and put options on securities
indexes to hedge against the risk of unfavorable price movements in securities.
Options on securities indexes are similar to options on securities except that
the holder of an option on an index has the right, in return for the premium
paid, to buy from (in the case of a call) or sell (in the case of a put) the
writer of the option the cash value of the index (rather than the security
underlying the option) at a specified exercise price at any time during the term
of the option.
The Fund may also purchase and sell options on currencies to seek to increase
total return and to protect against declines in the dollar value of foreign
portfolio securities and against increases in the U.S. dollar cost of foreign
securities to be acquired. As with other kinds of option transactions, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received. The Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations; however, in the event of
exchange rate movements adverse to the Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. Options on foreign
currencies to be written or purchased by the Fund will be traded on U.S. and
foreign exchanges or over-the-counter.
The Fund is required to segregate assets, consisting of cash, U.S. Government
securities or other high grade liquid debt obligations in an amount equal to the
value of its obligations unless offsetting positions are maintained.
- --Futures Contracts and Options on Futures Contracts. For bona fide hedging or
other permissible risk management purposes, such as protecting the price or
interest rate of a security it holds or intends to buy the Fund may enter into
futures contracts on securities and securities indexes and may purchase and sell
(write) call and put options on these futures contracts. The Fund may also enter
into futures contracts on currencies and may enter into futures contracts and
related options for purposes of seeking to increase total return, consistent
with the regulations of the Commodities Futures Trading Commission.
Hedging and other risk-management transactions are undertaken to reduce or
eliminate any of several kinds of price fluctuation risk. For example, put
options on securities futures might be purchased to protect against declines in
the market values of debt securities occasioned by higher interest rates and
securities-index futures might be sold to protect against a general decline in
the value of securities of the type that comprise the index. Currency futures
might be sold to protect against declines in the value of currencies in which
portfolio securities are denominated. If these hedging transactions are
successful, the futures or options positions taken by the Fund will rise in
value by an amount which approximately offsets the decline in the value of the
portion of a portfolio that is being hedged. Such decline in value might be
caused by a decline in the market value of portfolio securities.
The Fund may lose the expected benefit of futures transactions if securities
prices move in an unanticipated manner. Such unanticipated changes may also
result in poorer overall performance for the Fund than the performance it would
have had had it not entered into any futures transactions. In addition, changes
in the value of the Fund's futures and options positions may not prove to be
perfectly or even highly correlated with changes in the value of its portfolio
securities. This could limit the Fund's
8
<PAGE> 13
ability to hedge effectively against interest rate or market risk or both and
give rise to additional risks. There is no assurance of market liquidity for
purposes of closing out positions in futures contracts and options on futures
contracts; if such positions cannot be closed, the Fund may incur losses in
excess of its initial margin deposits.
The Fund will incur brokerage costs and will be required to post and maintain
"margin" as a good-faith deposit against performance of its obligations under
futures contracts and options thereon. In addition, the Fund is required to
segregate assets, consisting of cash, U.S. Government securities or other high
grade liquid debt obligations in an amount equal to the value of the instruments
underlying futures contracts and options thereon.
- --Other Information. The Funds have adopted certain procedures under the 1940
Act which enable the Fund to purchase certain instruments during the existence
of an underwriting or selling syndicate of which The Boatmen's National Bank of
St. Louis or Kleinwort Benson, is a member relating to the instruments. These
procedures establish, among other things, certain limitations on the amount of
securities which may be purchased in any single offering and on the amount of
the Fund's assets which may be invested in any single offering. Accordingly, in
view of such entities' active role in the underwriting of securities, the Fund's
ability to purchase securities in the primary market may from time to time be
limited.
The Fund changes its portfolio securities for investment consideration and not
for trading purposes.
INVESTMENT LIMITATIONS
Certain of the investment policies of the Fund may not be changed without a vote
of holders of a majority of the Fund's outstanding shares. Policies requiring
such a vote to effect a change are known as "fundamental". Some of the
fundamental limitations are summarized below, and all of the Fund's fundamental
limitations are set out in greater detail in the Statement of Additional
Information, which is available upon request.
1. The Fund may not invest 25% or more of its total assets in one or more
issuers conducting their principal business activities in the same industry
(with certain limited exceptions, including investments in U.S. Government
securities or tax-exempt obligations of state and municipal governments and
their agencies and authorities). For purposes of this restriction, foreign
governments are considered to be separate industries.
2. The Fund may not invest (with certain limited exceptions, including U.S.
Government securities) more than 5% of the value of the Fund's total assets in
the securities of a single issuer, except that up to 25% of each Fund's total
assets can be invested without regard to such 5% limitation (such 5% limitation
shall not apply to repurchase agreements collateralized by U.S. Government
securities).
3. The Fund may not borrow money except as a temporary measure and then only in
amounts not exceeding 5% of the value of the Fund's total assets or from banks
or in connection with reverse repurchase agreements provided that immediately
after such borrowing, all borrowings of the Fund do not exceed one-third of the
Fund's total assets and no purchases of portfolio instruments will be made while
such Fund has borrowings outstanding in an amount exceeding 5% of its total
assets.
4. The Fund may not make loans, except to the extent that the lending of
portfolio securities and purchase of debt obligations in accordance with the
Fund's investment objective and policies and the entry into repurchase
agreements with banks, brokers, dealers and other financial institutions may be
deemed to be loans.
The Fund has no current intention (which may be changed without shareholder
approval) of purchasing restricted securities, except those securities which can
be offered and sold to "qualified institutional buyers" pursuant to Rule 144A
and which the Funds' Trustees determine are traded in a liquid market. The Fund
may invest up to 15% of the value of its net assets in illiquid securities,
including restricted securities. Risks associated with investing in restricted
securities include the risk that the lack of an active secondary market and
resale restrictions may result in the inability of the Fund to sell a security
at a fair price and may substantially delay the sale of a security that the Fund
seeks to sell. Issuers whose securities are publicly traded are also not subject
to the same disclosure and other legal requirements as are applicable to issuers
with publicly traded securities.
INVESTING IN THE PILOT FUNDS
Getting Your Investment Started
Investing in the Pilot Funds is quick and convenient. Fund Shares may be
purchased either through the account you maintain with participating banks,
trust companies and other institutions (Service Organizations) or through
Boatmen's Investment Services, Inc. Fund shares are distributed by Pilot Funds
Distributors, Inc. (the "Distributor"). The Distributor is located at 3435
Stelzer Road, Columbus, Ohio 43219-3035.
You may choose to invest your Boatmen's Investment Services account where an
Account Representative can advise you in selecting among the Pilot Funds.
Whether
9
<PAGE> 14
you currently have a Boatmen's Investment Services account or wish to open one,
your Pilot Funds investment can be executed within a few minutes by telephone
or, if you prefer, during a consultation with an Investment Officer of Boatmen's
Investment Services. Call Boatmen's Investment Services at 800/469-5999 to speak
with an Account Representative, to place a Pilot Funds transaction or to arrange
a consultation scheduled at your convenience.
Clients of Boatmen's Investment Services and other Service Organizations may
purchase shares through their accounts at their Service Organization and should
contact such Service Organization directly for appropriate purchase
instructions. Share purchases (and redemptions) made through Boatmen's
Investment Services or another Service Organization are effected only on days
the particular institution and the Fund involved are open for business. When
shares are purchased through Boatmen's Investment Services or another Service
Organization, a fee may be charged by those institutions for providing
administrative services in connection with your investment.
Payments for Fund shares must normally be in U.S. dollars and in order to avoid
fees and delays should be drawn on a U.S. bank. Please remember that The Pilot
Funds retains the right to reject any purchase order.
Your Alternative Purchase Options
Your purchases of Fund shares are subject to either a front-end or back-end
sales charge. You may elect to have the sales charge deducted at the time of
your investment -- on the "front-end" -- or choose to defer the sales charge
until your investment is redeemed -- on the "back-end". This back-end sales
charge declines over time and is known as a "contingent deferred sales charge."
If you decide to pay the sales charge at the time you make your investment, your
purchase will be made in Class A Shares, whereas if you prefer to pay the sales
charge when you redeem your investment, your purchase will be made in Class B
Shares. Once you have held Class B Shares for six years, you do not pay the
contingent deferred sales charge when you redeem those shares.
Characteristics of Class A Shares and Class B Shares
Class A Shares and Class B Shares differ primarily in their sales charge
structures and distribution arrangements, including ongoing distribution fees.
The classes may also have differing transfer agency and other fees, although the
Fund currently does not intend to allocate such fees on a class basis. You
should understand that the purpose and function of the sales charge structures
and distribution arrangements for both Class A Shares and Class B Shares are the
same.
Class A Shares: Class A Shares are sold at their net asset value plus a
front-end sales charge of up to 4.50%. (See "How to Buy Shares -- Explanation of
Sales Price".) This front-end sales charge may be reduced or waived in some
cases. (See "Front-End Sales Charge Reductions.") Class A Shares are subject to
ongoing distribution fees at an annual rate of up to 0.25% of the Fund's average
daily net assets attributable to its Class A Shares.
Class B Shares: Class B Shares are sold at net asset value without an initial
sales charge. Normally, however, a deferred sales charge is paid if the shares
are redeemed within six years of investment. (See "How to Buy Shares
- -- Explanation of Sales Price".) Class B Shares are subject to ongoing
distribution fees at an annual rate of up to 1.00% of a Fund's average daily net
assets attributable to its Class B Shares. These ongoing fees, which are higher
than those charged on Class A Shares, will cause Class B Shares to have a higher
expense ratio and pay lower dividends than Class A Shares.
Eight years after purchase, Class B Shares will convert automatically to Class A
Shares. The conversion relieves a shareholder of Class B Shares of the higher
ongoing expenses charged to those shares, after enough time has passed to allow
the Distributor to recover approximately the amount it would have received if a
front-end sales charge had been charged.
The conversion from Class B Shares to Class A Shares takes place at net asset
value, so you receive dollar-for-dollar the same value of Class A Shares as you
had of Class B Shares. The conversion occurs eight years after the beginning of
the calendar month in which the shares are purchased. As a result of the
conversion, the converted shares are relieved of the distribution fees borne by
Class B Shares, although they are subject to the distribution fees borne by
Class A Shares.
Class B Shares of a Fund acquired through a reinvestment of dividends or
distributions from that Fund (as discussed under "Dividends and Distributions")
are also converted at the earlier of two dates -- eight years after the
beginning of the calendar month in which the reinvestment occurred or the date
of conversion of the most recently purchased Class B Shares that were not
acquired through reinvestment of dividends or distributions. For example, if you
make a one-time purchase of Class B Shares of a particular Fund, and
subsequently acquire additional Class B Shares of that Fund only through
reinvestment of dividends and/or distributions from that Fund, all of your Class
B Shares in that Fund, including those acquired through reinvestment, will
convert to Class A Shares of that Fund on the same date.
10
<PAGE> 15
Considerations In Choosing Between Class A And Class B Shares
The decision as to which share class may be more beneficial for you depends, in
part, on the amount and intended length of your investment. Due to the lower
ongoing distribution fees on Class A Shares, the dividends for those shares will
be higher than the Class B Shares. However, since a front-end sales charge is
deducted from your purchase at the time of your investment, not all of your
purchase amount will purchase shares. Thus, the same initial investment will
purchase more Class B Shares than Class A Shares of the same Fund. In addition,
Class B Shares are subject to a contingent deferred sales charge.
Since large investors may qualify for a reduced front-end sales charge (see
"Front-End Sales Charge Reductions"), such investors should consider making
their purchase in Class A Shares.
Because of these possible front-end sales charge reductions, purchases in excess
of $100,000 may be more advantageous to you if made in Class A Shares rather
than Class B Shares. In any event The Pilot Funds will not accept any order of
$250,000 or more for Class B Shares. In addition, regardless of whether you
qualify for a reduced front-end sales charge, if you expect to hold your
investment for an extended period of time, you might still consider purchasing
Class A Shares because the accumulated higher ongoing expenses, together with
the contingent deferred sales charge, of the Class B Shares will exceed the
amount of the front-end sales charge and ongoing distribution fees related to
Class A Shares.
On the other hand, you might decide, because you would be subject to higher
front-end charges, or for other reasons, that it would be more advantageous for
you to have all of your purchase amount invested immediately in Fund shares,
even though you would also be subject to higher ongoing distribution fees. These
higher ongoing fees might be offset by any return you receive from the
additional shares you originally purchased as a result of not having to pay a
front-end sales charge. You should note however, that a Fund's future returns
cannot be predicted, and that there is no assurance that such returns, if any,
would compensate for those higher ongoing expenses. You should also remember
that you would be subject to any applicable contingent deferred sales charge
during the first six years of your investment in Class B Shares.
If You Have Questions
If you are investing in The Pilot Funds through an account with Boatmen's
Investment Services or another Service Organization, you may choose to speak
with your assigned Account Representative or contact person at such
organization. If you are a direct investor with The Pilot Funds and need
assistance with your account, a Pilot Funds service representative is available
to answer your questions by calling the appropriate toll-free numbers listed
below.
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
CALL FOR INFORMATION
- --------------- -----------------------------------
<S> <C>
800/71-PILOT Regarding the Fund's investment
8:00 am to objectives and policies or for
7:00 pm information about opening an
Central time account (including information
regarding the Fund's alternative
purchase options). Information on
changing your Pilot Fund's
services, and Statements of
Additional Information, are also
available at this number.
- -----------------------------------------------------
800/227-3654 To obtain your account balance or
8:00 am to to request a telephone transaction.
5:00 pm
Central time
</TABLE>
- ---------------------------------------------------------------
You should note that neither The Pilot Funds nor its service contractors will be
responsible for any loss or expense for acting upon telephone instructions that
are believed to be genuine. In attempting to confirm that telephone instructions
are genuine, The Pilot Funds will use procedures considered reasonable.
The Pilot Funds will send you the following statements and reports to provide
you with current information on the status of your account:
<TABLE>
<S> <C>
Confirmation Statements After every transaction that
affects your account balance or
your account registration.
Account Statements Either monthly, quarterly or
annually depending on the Fund in
which you invest or the type of
account you hold.
Financial Reports Every six months. To reduce The
Pilot Funds' expenses, only one
copy of most Fund reports will be
mailed to your household, even if
you have more than one account in
a fund.
</TABLE>
11
<PAGE> 16
HOW TO BUY SHARES
This section provides you with pertinent information on how to buy Fund shares.
Further information can be found under "Transaction Rules". Before investing you
will need to decide whether to purchase Class A Shares (which are sold with a
front-end sales charge) or Class B Shares (which are sold without a front-end
sales charge but are subject to a contingent deferred sales charge). See "Your
Alternative Purchase Options".
<TABLE>
<CAPTION>
MINIMUM INVESTMENT
----------------------
TO OPEN ADDITIONAL
ACCOUNT INVESTMENTS
------- -----------
<S> <C> <C>
Regular Account................... $1,000 $ 100
Automatic Investment Plan......... $ 100 $ 100
Employee* -- Regular Accounts..... $ 500 $ 100
Employee* -- Automatic Investment
Plan............................ $ 100 $ 50
Tax-Sheltered Retirement Plans.... $ 500 $ 50
Exchange Transactions............. $1,000 $ 500
</TABLE>
- ------------
*Applies to employees of the Adviser and its affiliates.
OPENING AND ADDING TO YOUR PILOT FUNDS ACCOUNT
As described above under "Getting Your Investment Started," you may purchase
Fund shares through Boatmen's Investment Services, Inc. or another Service
Organization. Direct investments in The Pilot Funds may also be made in a number
of different ways, as shown in the following chart. Simply choose the method
that is most convenient for you. Any questions you have can be answered by
calling the appropriate toll-free number indicated above under "If You Have
Questions".
12
<PAGE> 17
[CAPTION]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TO ADD TO AN ACCOUNT
TO OPEN AN ACCOUNT HELD DIRECTLY WITH THE
DIRECTLY WITH THE PILOT FUNDS PILOT FUNDS
------------------------------------- -------------------------------------
<S> <C> <C>
By Mail to: -- Complete an Account Application -- Make your check payable to the
The Pilot Funds and mail it, along with a check particular Fund in which you are
c/o BISYS Fund Services payable to the Fund in which you investing and mail it to the
Dept. L-1709 are investing, to the address on address on the left.
Columbus, OH 43260-1709 the left.
-- Please include your account number
on your check.
-- Or use the convenient form
attached to your regular Fund
statement.
- ------------------------------------------------------------------------------------------------------------
In Person to: -- Deliver the Account Application -- Deliver your check payable to the
BISYS Fund Services and your check payable to the Fund in particular Fund in which you are
3435 Stelzer Road which you are investing to the investing to the address on the
Columbus, OH 43219-3035 address on the left. left.
-- Please include your account number
on your check.
- ------------------------------------------------------------------------------------------------------------
By Wire to: -- Ask your bank to send immediately -- Ask your bank to wire immediately
State Street Bank and Trust available funds by wire. available funds as described at
Co. left, except that the wire should
Boston, MA -- The wire should say that you are note that it is to make a
ABA No. 011000028 opening a new Fund account (if an subsequent purchase rather than to
Re: Pilot Account Application Form is not open a new account.
International Equity Fund received for a new account within
DDA No. 9904-885-2 30 days after the wire is received, -- Please include your Fund account
For further credit to: dividends and redemption proceeds number.
Account Name and Number from the account will be subject to
back-up withholding). The wire
should say that the purchase is to
be in your name.
-- Include your name, address and
taxpayer identification number.
Indicate the name of the Fund in
which you are investing. Investors
should also indicate share class
selection.
Consult your bank for information on remitting funds by wire and associated
bank charges
- ------------------------------------------------------------------------------------------------------------
Automatic Investment (allows -- You must first complete an Account -- Call 800/71-PILOT to find out how
regular investment without Application and select the to set up this service.
ongoing paperwork) Automatic Investment Plan option.
-- Additional purchases will then
-- Call 800/71-PILOT for more automatically be made as directed
information. by you.
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE> 18
Explanation of Sales Price
The public offering price for each class of shares is based upon net asset value
per share plus, in the case of Class A Shares, a front-end sales charge. Net
asset value per share for each class of the Fund will be determined by adding
the value of the Fund's investments, cash and other assets attributable to the
class, subtracting the Fund's liabilities attributable to that class, and then
dividing the result by the number of shares in the class that are outstanding.
The assets of the Fund are valued at market value or, if market quotes cannot be
readily obtained, fair value is used as determined by the Board of Trustees.
Debt securities held by the Fund that have sixty days or less until they mature
are valued at amortized cost, which generally approximates market value.
The per share net asset values of Class A Shares and Class B Shares will diverge
due to the different distribution expenses borne by the classes. More
information about valuation can be found in the Fund's Statement of Additional
Information, which is available upon request.
Net asset value is computed as of 3:00 P.M., Central time, on all days the New
York Stock Exchange (the "Exchange") is open for trading, which is Monday
through Friday except for holidays (scheduled Exchange holidays for 1996 are New
Years Day (observed), President's Day, Good Friday, Memorial Day, Independence
Day (observed), Labor Day, Thanksgiving Day and Christmas Day (observed)). On
those days when the Exchange closes early as a result of such day being a
partial holiday or otherwise, the right is reserved to advance the time on that
day by which purchase and redemption requests must be received.
CLASS A SHARES: THE FRONT-END SALES CHARGE OPTION. The front-end sales charge
for Class A Shares of the Fund begins at 4.50% and may decrease as the amount
you invest in Class A Shares increases, as shown in the following chart:
<TABLE>
<CAPTION>
PER SHARE
AS A PERCENTAGE OF DEALERS
-------------------------- REALLOWANCE AS A
NET ASSET PERCENTAGE OF
AMOUNT OF TRANSACTION OFFERING PRICE VALUE OFFERING PRICE
- --------------------------- -------------- ---------- ----------------
<S> <C> <C> <C>
Less than $100,000......... 4.50 4.71 4.00
$100,000 to $249,999....... 3.75 3.90 3.25
$250,000 to $499,999....... 3.00 3.09 2.50
$500,000 to $999,999....... 2.00 2.04 1.75
$1,000,000 to $2,499,999... 1.00 1.01 0.90
$2,500,000 and over........ 0.00 0.00 0.00
</TABLE>
It is possible that the dealers reallowance shown in the table above may change
over time. Further reductions in the sales charges shown above are also
possible -- please see "Sales Charge Reductions".
CLASS B SHARES: THE CONTINGENT DEFERRED SALES CHARGE OPTION. Although you pay no
front-end sales charge on Class B Shares, if you redeem those shares within six
years after the date you purchased them, the shares will be subject to a
contingent deferred sales charge at the rates set forth in the chart below. The
sales charge is charged on the lesser of the net asset value on the redemption
date or the original cost of the shares being redeemed. As a result, no sales
charge is charged on any increase in the principal value of your shares.
The amount of any contingent deferred sales charge will be different depending
on the number of years that elapse between the time you pay for Class B Shares
and the time those shares are redeemed. Solely for purposes of determining the
number of years from the time of payment for your share purchase, all payments
during a month will be aggregated and deemed to have been made on the first day
of the month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
(AS A PERCENTAGE OF
NUMBER OF YEARS DOLLAR AMOUNT SUBJECT
ELAPSED SINCE PURCHASE TO THE CHARGE)
----------------------- ---------------------
<S> <C>
One............................................ 4.50%
Two............................................ 4.00%
Three.......................................... 3.50%
Four........................................... 3.00%
Five........................................... 2.50%
Six............................................ 1.75%
After Six Years................................ 0.00%
</TABLE>
When you sell your Class B Shares, your order is processed to minimize the
amount of the contingent deferred sales charge that will be charged. Class B
Shares are redeemed first from those shares that are not subject to a contingent
deferred sales charge (i.e., shares held longer than six years and shares that
were acquired through reinvestment of dividends or distributions or that qualify
for other deferred sales charge waivers) and after that from the Class B Shares
you have held the longest.
For example, assume you purchased 100 Class B Shares at $10 a share (for a total
cost of $1,000), three years later the shares have a net asset value of $12 per
share and during that time you acquired 10 additional shares through dividend
reinvestment. If you then make your first redemption of 50 shares (resulting in
proceeds of $600, 50 shares X $12 per share), the first 10 shares redeemed will
not be subject to the contingent deferred sales charge because they were
acquired through reinvestment of dividends. With respect to the remaining 40
shares redeemed, the contingent deferred sales charge is charged at $10 per
share (because the original purchase price of $10 per share is lower than the
current net asset value of $12 per share). Therefore, only $400 of the $600 you
received from selling your shares will be subject to the contingent deferred
sales charge, at a rate of 3.50%, the applicable rate in the third year after
purchase. The proceeds from the contingent deferred sales charge that
14
<PAGE> 19
you may pay upon redemption go to the Distributor, which may use such amounts to
defray the expenses associated with the distribution-related services involved
in selling Class B Shares. The contingent deferred sales charge, along with the
ongoing distribution fees paid with respect to Class B Shares, enables those
shares to be purchased without the imposition of a front-end sales charge.
From time to time, the Fund's distributor will make or allow additional payments
or promotional incentives in the form of cash or other compensation such as
trips to sales seminars, tickets to sporting and other entertainment events and
gifts of merchandise to firms that sell shares of the Fund.
HOW TO SELL SHARES
The Pilot Funds makes it easy to sell, or "redeem" your shares. If you purchased
your shares through an account at Boatmen's Investment Services, Inc. or another
Service Organization, you may redeem shares in accordance with the instructions
pertaining to that account. If you purchased your shares through an account at
Boatmen's Investment Services, Inc. or another Service Organization and you
appear on The Pilot Funds' books as the shareholder of record, you may redeem
shares by mail, phone or hand delivery as described below; however, you must
contact Boatmen's Investment Services, Inc. or your other Service Organization
if you wish to redeem your shares by another method. If you purchased your
shares directly from The Pilot Funds, you have the ability to redeem shares by
any of the methods described below. Requests must be signed by you and by each
other owner of the account (for joint accounts). Except for a contingent
deferred sales charge that may be charged on Class B Shares, The Pilot Funds
imposes no charges when you redeem shares.
15
<PAGE> 20
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HOW TO REDEEM SHARES ADDITIONAL LIMITATIONS
------------------------------------- -------------------------------------
<S> <C> <C>
By Mail to: -- Send a signed request (each owner, -- Requests greater than $50,000 per
The Pilot Funds including each joint owner, must day must be signature guaranteed.
c/o BISYS Fund Services sign) to the Transfer Agent at the
Dept. L-1709 address on the left. -- You should refer to "Transaction
Columbus, OH 43260-1709 Rules" below for additional
-- Be sure to include both the name limitations.
of the particular Fund whose shares
you are selling and your account
number.
- ------------------------------------------------------------------------------------------------------------
By Wire: -- After you have signed up for wire -- The Transfer Agent may act upon
redemption privileges on the such a request from any person
Account Application, you may representing himself or herself to
instruct the Transfer Agent to wire be you and reasonably believed by
your redemption proceeds to your the Transfer Agent to be genuine.
bank account by sending a request
in writing or by phone -- The transaction amount must be a
(800/227-3654). $1,000 minimum.
-- This privilege may be subject to
limits regarding frequency and
overall amount.
- ------------------------------------------------------------------------------------------------------------
In Person to: -- Deliver your written request -- Requests must be signed by each
BISYS Fund Services directly to the Transfer Agent at the owner, including each joint owner.
3435 Stelzer Road address on the left.
Columbus, OH 43219-3035 -- Requests greater than $50,000 per
day must be signature guaranteed.
- ------------------------------------------------------------------------------------------------------------
Systematic Withdrawal -- Withdrawals begin after you have -- Your account must have a total net
(permits automatic signed up for this service (either asset value of at least $5,000.
withdrawal of pre-arranged on the account application or in a
amount) subsequent letter to the Transfer -- The transaction amount must be at
Agent). least $50 minimum.
-- Call 800/71-PILOT for more
information.
Consult your bank for information on remitting funds by wire and associated
bank charges
</TABLE>
- --------------------------------------------------------------------------------
Redemption requests are processed when received in proper form by The Pilot
Funds at the net asset value per share next determined after such receipt
(subject to the contingent deferred sales charge for Class B Shares).
TRANSACTION RULES
THE PURCHASE PROCEDURES differ depending on whether you place your order
directly with The Pilot Funds or use Boatmen's Investment Services or another
Service Organization.
Purchases and sales should be made for long-term investment purposes only and
not for short-term trading. The Funds and its Service Organizations each reserve
the right to restrict purchases of Shares (including exchanges) when a pattern
of frequent purchases and sales made in response to short-term fluctuations in
the Fund's share price appears evident. Additionally, the Fund reserves the
right to reject any purchase order (including exchanges) that is not received in
"good order."
IF YOU PLACE AN ORDER FOR FUND SHARES in proper form, it will be processed upon
receipt by the Transfer Agent where Boatmen's Investment Services or another
Service Organization undertakes to pay for the order in immediately available
funds wired to the Transfer Agent by the close of business the next Business
Day. If the Transfer Agent receives your order and, where required, payment by 3
p.m., Central time, your shares will be purchased at the public offering price
calculated on that day. Otherwise, your shares will be purchased at the public
offering price determined as of 3 p.m., Central time, on the next Business Day.
16
<PAGE> 21
IF YOU PLACE AN ORDER FOR FUND SHARES THROUGH BOATMEN'S INVESTMENT SERVICES OR
ANOTHER SERVICE ORGANIZATION, and you place your order in proper form on any
Business Day in accordance with their procedures, your purchase will be
processed at the public offering price calculated at 3 p.m., Central time on
that day, if Boatmen's Investment Services or your other Service Organization
then sends your order to the Transfer Agent before the end of its Business Day
(which is normally 4 p.m., Central time.) Boatmen's Investment Services or your
other Service Organization must promise to send to the Transfer Agent
immediately available funds in the amount of the purchase price within three
business days.
WIRE PURCHASES AND REDEMPTIONS. If you purchase shares by wire, you must file an
Account Application before any of those Shares can be redeemed. You should
contact your bank (which will need to be a commercial bank that is a member of
the Federal Reserve System) for information about sending and receiving funds by
wire, including any charges by your bank for these services. The Pilot Funds may
decide at any time to no longer permit wire redemptions.
MISCELLANEOUS PURCHASE INFORMATION. You must specify at the time of investment
whether you are purchasing Class A or Class B Shares. Federal regulations
require that you provide a certified taxpayer identification number whenever you
open or reopen an account. Share certificates will not be issued. If your check
does not clear, a fee may be imposed by the Transfer Agent. If shares are
purchased with a check that does not clear, the purchase will be cancelled and
the purchaser will be subject to any losses or fees incurred in the transaction.
MISCELLANEOUS REDEMPTION INFORMATION. The Pilot Funds usually makes payments for
the shares that you redeem within three business days after it receives your
request in proper form. SHARES PURCHASED BY CHECK FOR WHICH A REDEMPTION REQUEST
HAS BEEN RECEIVED WILL NOT BE REDEEMED UNLESS THE CHECK USED FOR INVESTMENT HAS
CLEARED, WHICH MAY TAKE UP TO SEVEN BUSINESS DAYS OR MORE. If the purchaser
purchases shares by Federal Funds wire the purchaser may avoid this delay.
Redemption requests by telephone prior to the expiration of the seven-day period
will not be accepted.
When redeeming shares in the Fund, you should indicate whether you are redeeming
Class A or Class B Shares. If you own Class A and Class B Shares of the Fund,
Class A Shares will be redeemed first unless you request otherwise.
Certain types of redemption requests will need to include a signature guarantee
for each name in which the account is registered. Signature guarantees must
accompany redemption requests for: (i) an amount in excess of $50,000 per day,
(ii) any amount if the redemption proceeds are to be sent elsewhere than the
address of record on The Pilot Funds' books, or (iii) an amount of $50,000 or
less if the address of record has been on The Pilot Funds' books for less than
sixty days, although the Transfer Agent reserves the right to require signature
guarantees on all redemptions. Signature guarantees are designed to protect both
you and The Pilot Funds from fraud. To obtain a signature guarantee you should
visit a bank, trust company, credit union, savings association, broker-dealer or
other member of a national securities exchange, or other eligible guarantor
institution. (Notaries public cannot provide signature guarantees.) Guarantees
must be signed by an authorized person at one of these institutions, and be
accompanied by the words "Signature Guarantee".
If you experience difficulty in contacting the Transfer Agent to redeem shares
by phone, for example because of unusual market activity, you are urged to
consider redeeming your shares by mail or in person.
THE VALUE OF SHARES THAT ARE REDEEMED IN THE FUND may be more or less than their
original cost, depending on the Fund's current net asset value. In addition, if
you are redeeming Class B Shares you may be subject to a contingent deferred
sales charge, which will be deducted from the proceeds of your redemption.
THE FUND MAY SUSPEND THE RIGHT OF A SHAREHOLDER TO REDEEM SHARES and may suspend
the date of payments by the Fund (a) for any period during which the New York
Stock Exchange is closed, other than the customary weekends or holidays, or if
trading in the markets the Fund normally utilizes is closed or is restricted as
determined by the Securities and Exchange Commission ("SEC"), (b) during any
emergency, as determined by the SEC, as a result of which it is not reasonably
practicable for the Fund to dispose of instruments owned by it or fairly to
determine the value of its net assets, or (c) for such other period as the SEC
may by order permit for the protection of the Shareholders of the Fund.
The Fund reserves the right to adopt by action of the Trustees a policy pursuant
to which it may without Shareholder approval redeem upon not less than 60 days'
notice (a) Shares in an account which have a value below $500, or such other
amount as the Trustees may designate at the time the policy is adopted
(provided, however, that the Fund will not redeem Shares when, due to a change
in the net asset value of the Shares, the value of a Shareholder's account drops
below such designated minimum amount; and provided further that during the
notice period Shareholders will have the opportunity to bring the value of their
accounts up to the designated amount) or (b) all of the Fund's Shares if such
Shares have
17
<PAGE> 22
an aggregate value below a designated amount and if the Trustees determine that
it is not practical, efficient or advisable to continue the operation of the
Fund and that any applicable requirements of the 1940 Act have been complied
with. As of the date of this Prospectus, no such policy has been adopted. While,
as indicated above, the Trustees have the authority to adopt, and thereafter to
change from time to time, such a policy, they will not do so without providing
at least 60 days' notice to the Shareholders.
In unusual circumstances The Pilot Funds may make payment in readily marketable
portfolio securities at their market value equal to the redemption price.
In order to maximize earnings on the Fund, the Fund tries to be invested as
completely as is practicable. Accordingly, orders for Class A and Class B Shares
received by a Service Organization by 3:00 p.m., Central time, on Business Days
are executed at the net asset value next calculated after receipt of the order,
plus a sales load, if any. Different Service Organizations may establish
different times by which purchase orders must be received by them in order to
ensure timely transmittal of purchase orders to the Transfer Agent and payments
to the Custodian or the Funds.
The purchase price must be paid by a Service Organization by wiring Federal
Funds to the Custodian or by forwarding a check to Pilot International Equity
Fund, c/o BISYS Fund Services, Dept. L-1709, Columbus, OH 43260-1709. Payment
must be received within three business days of receipt of the purchase order.
Boatmen's Investment Services and other participating Service Organizations have
undertaken to arrange for the timely transmittal of purchase orders to the
Transfer Agent and of payments to the Custodian or the Funds. Purchases may be
made through a customer's account at Boatmen's, its affiliates or other Service
Organizations.
Additional purchases may be made at any time through Service Organizations or
directly with the Fund's Transfer Agent, c/o The Pilot Funds, Pilot
International Equity Fund, Dept. L-1709, Columbus, OH 43260-1709.
In certain situations or for certain individuals or entities, the front-end
sales charge for Class A Shares of the Fund may be waived either because of the
nature of the investor or the reduced sales efforts required to attract such
investments. No sales charge is charged on reinvested dividends or
distributions. Likewise, there is no front-end sales charge on (1) any purchase
by Boatmen's, Concord, any of their affiliates or their respective officers,
partners, directors or employees (including retired employees), any Trustee or
officer of The Pilot Funds and designated family members of any of the above
individuals, (2) any purchase by any registered representative or full-time
employee of broker-dealers or Service Organizations having agreements with the
Distributor pertaining to the sale and/or servicing of Fund shares (and their
spouses and minor children) to the extent permitted by such organizations, (3)
any purchase by any state, county or city, or any instrumentality, department,
authority or agency thereof, which is prohibited by applicable investment laws
from paying a sales load or commission, (4) any purchase by a registered
investment adviser who is purchasing shares for its own account or for accounts
for which it is authorized to make investment decisions (i.e., a discretionary
account), (5) any shares issued in connection with reorganizations with or
acquisitions of the assets of other organizations, (6) under certain
circumstances, any purchase of shares pursuant to the Reinstatement Privilege
described below under "Shareholder Services", (7) under certain circumstances,
any purchase of shares as a result of the Cross-Reinvestment Privilege described
below under "Shareholder Services", (8) any purchase of Fund shares with the
proceeds from a recent redemption of shares of any other non-money market
investment portfolio of another investment company, provided that any purchase
must be made within 60 days of such redemption and that a copy of the account
statement showing such redemption must accompany the purchase request, (9) any
purchase of shares offered through a registered broker-dealer as part of a wrap
product, and (10) exchanges where the shares being exchanged are non-money
market fund shares that came from the distribution of assets held in a qualified
trust agency or custodian account maintained with the trust department of
Boatmen's or its affiliates.
In order to receive the sales charge waiver, a purchaser must certify its
eligibility for a waiver to their Service Organization on its application form
and must certify on such form that it will notify the Service Organization if,
at the time of additional purchases, it is no longer eligible for a waiver. The
Transfer Agent and Service Organizations reserve the right to request additional
certification or information from a purchaser in order to verify that such
purchaser is eligible for a waiver. From time to time, the Fund's distributor or
a Service Organization may make expense reimbursements for special training of
registered representatives in group meetings or to help pay the expenses of
sales contests. In some instances, promotional incentives to dealers may be
offered only to certain dealers who have sold or may sell significant amounts of
Fund shares.
CERTAIN TYPES OF REDEMPTIONS MAY ALSO QUALIFY FOR AN EXEMPTION FROM THE
CONTINGENT DEFERRED SALES CHARE. To receive one of the first three exemptions
listed below, you must explain the status of your redemption at the time you
redeem your shares. The contingent deferred sales charge
18
<PAGE> 23
with respect to Class B Shares is not charged on (1) exchanges described under
"Exchange Privileges"; (2) redemptions in connection with minimum required
distributions from IRA, 403(b)(7) and Qualified Plan accounts due to the
shareholder reaching age 70 1/2; (3) redemptions in connection with a
shareholder's death or disability (as defined in the Internal Revenue Code); and
(4) involuntary redemptions as a result of an account's net asset value
remaining below $1,000 after thirty days' written notice. In addition, no
contingent deferred sales charge is charged on shares acquired through the
reinvestment of dividends or distributions.
SHAREHOLDER SERVICES
The Pilot Funds provides a variety of ways to make managing your investments
more convenient. Some of these methods require you to request them on your
Account Application or you may request them after opening an account by sending
a signature guaranteed letter of instruction to the Transfer Agent.
Tax Sheltered Retirement Plans
The Fund will offer Class A and Class B Shares for purchase by retirement plans,
including Individual Retirement Account Plans for individuals and their non-
employed spouses.
Detailed information concerning these plans and copies of the plans will be
available from Service Organizations. This information should be read carefully,
and consultation with an attorney or tax adviser is advisable. The information
will set forth the service fee charged for retirement plans and describe the
federal income tax consequences of establishing a plan. Under all plans,
dividends and distributions will be automatically reinvested in additional
shares of the same fund or, if so directed by the shareholder, in cash, in
shares of another fund or in Administration or Investor Shares of a Money Market
Fund for the Class A and Class B Shares, respectively. An initial investment
minimum of $500 applies to purchases in connection with tax-sheltered retirement
plans.
EXCHANGE PRIVILEGES AMONG THE PILOT FUNDS
You may sell your Fund shares and buy other shares of The Pilot Funds by calling
the Transfer Agent at 800/227-3654 or sending a written exchange request to the
Transfer Agent at The Pilot Funds, Pilot International Equity Fund, c/o BISYS
Fund Services, Dept. L-1709, Columbus, OH 43260-1709. Specifically, Class A
Shares of the Fund may be exchanged for Class A Shares of any other fund of the
Pilot Family of Funds. Class A Shares purchased with a front-end sales charge
may be exchanged without the need to pay any additional front-end charge on the
shares acquired through the exchange. Class B Shares may be exchanged without
the payment of any contingent deferred sales charge at the time the exchange is
made. In determining the holding period for calculating the contingent deferred
sales charge payable on redemption of Class B Shares, the holding period of the
shares originally held will be added to the holding period of the shares
acquired through exchange.
If you have a qualified trust, agency or custodian account with the trust
department of Boatmen's or its affiliates, and your shares are to be held in
that account, you may also exchange your current Class A Shares in the Fund for
Pilot Shares in the same Fund. Conversely, Pilot Shares may be exchanged for
Class A Shares of the Fund in connection with the distribution of assets held in
such a qualified trust, agency or custodian account. These exchanges are made
without a sales charge at the net asset value of the respective share classes.
Exchanges may have tax consequences for you. Consult your tax adviser for
further information.
If you are opening a new account in a different Fund by exchange, the shares
being exchanged must be at least equal in value to the minimum investment for
the Fund in which the account is being opened. The particular class of shares
you are exchanging into must be registered for sale in your state.
Additional information regarding exchanges can be obtained by reading the
Statement of Additional Information. The Exchange Privilege may be modified or
terminated at any time. At least 60 days' notice will be given to shareholders
of any material modification or termination of the Exchange Privilege except
where notice is not required by the SEC.
AUTOMATIC INVESTMENT PLAN
(requires your request)
One easy way to pursue your financial goals is to invest money regularly. The
Pilot Funds offers the Automatic Investment Plan--a convenient service that lets
you transfer money from your bank account into your Fund account automatically,
on a schedule of your choice.
At your option, your bank account will be debited in a particular amount that
you have specified, and Fund shares will be automatically purchased at regular
intervals. Your bank account must be a checking, NOW or bank money market
account maintained at a domestic financial institution which is an Automatic
Clearing House member. Your institution must also permit automated withdrawals
(which may be subject to a fee by that institution). A minimum initial
investment of $100 is required for
19
<PAGE> 24
Automatic Investment Plans and the minimum amount required for subsequent
investments is $100. The minimum amount required for initial and subsequent
investments as part of the Plan for employees of Boatmen's or its affiliates is
$50.
The Automatic Investment Plan is one means by which you may use "DOLLAR COST
AVERAGING" in making investments. Dollar Cost Averaging can be useful in
investing in portfolios such as the Fund whose price per share fluctuates.
Instead of trying to time market performance, a fixed dollar amount is invested
in Fund shares at predetermined intervals. This may help you to reduce your
average cost per share because the agreed upon fixed investment amount allows
more shares to be purchased during periods of lower share prices and fewer
shares during periods of higher prices. In order to be effective, Dollar Cost
Averaging should usually be followed on a sustained, constant basis. You should
be aware, however, that shares bought using Dollar Cost Averaging are made
without regard to their price on the day of investment or to market trends.
While regular investment plans do not guarantee a profit and will not protect
you against loss in a declining market, they can be a good way to invest for
retirement, a home, educational expenses and other long-term financial goals.
You may cancel your Automatic investments or change the amount of purchase at
any time by mailing written notification to the Transfer Agent at Department
L-1709 Columbus, OH 43260-1709. You may also implement the Dollar Cost Averaging
method on your own initiative. The Pilot Funds may modify or terminate the
Automatic Investment Plan at any time or charge a service fee, although no such
fee currently is contemplated.
AUTOMATIC WITHDRAWAL PLAN
(requires your request)
The Pilot Funds offers a convenient way of withdrawing funds from your
investment portfolio. You may request regular monthly, quarterly, semi-annual or
annual withdrawals in any amount above $50 provided the Fund account you are
withdrawing from has a minimum current balance of at least $5,000. There is no
minimum withdrawal amount required for automatic withdrawals by employees of
Boatmen's or its affiliates. The automatic withdrawal will be made on the first
or fifteenth day of the month. Purchases of additional shares concurrently with
withdrawals are ordinarily not advantageous for share classes that charge a
sales charge. Use of the Plan may also be disadvantageous for Class B Shares
during the first six years a share is held, due to the potential need to pay a
contingent deferred sales charge.
FRONT-END SALES CHARGE REDUCTIONS
YOU MAY BE ENTITLED TO LOWER SALES LOAD CHARGES ON CLASS A SHARES OF THE FUND
THROUGH RIGHT OF ACCUMULATION, STATEMENT OF INTENTION AND QUANTITY DISCOUNTS.
Right of Accumulation. When buying Class A Shares, your current aggregate
investment determines the amount of any sales load that you pay. If your current
aggregate investment plus the purchase price of the new investment in Class A
Shares accumulates to the requisite amount or beyond, the sales percentage
charged to you on subsequent investments is decreased. Your current aggregate
investment is the accumulated combination of your immediate investment along
with the Class A Shares that you beneficially own in the Fund alone or in
combination with Class A Shares of other funds of the Pilot Family of Funds
(excluding Administration Shares of the Money Market Funds not acquired by
exchange from other funds.) Class A Shares purchased without the imposition of a
sales charge may not be aggregated with Class A Shares purchased subject to a
sales charge. Class A Shares of the Fund and Class A shares of other funds of
the Pilot Family of Funds purchased (i) by an individual, his spouse and his
children, and (ii) by a trustee, guardian or other fiduciary of a single trust
estate or a single fiduciary account, will be combined for the purpose of
determining whether a purchase will qualify for such right of accumulation and,
if qualifying, the applicable sales level.
EXAMPLE
If a Class A Shareholder owns Class A Shares with a current market value of
$75,000 and purchases additional Class A Shares with a purchase price of
$25,000, the sales load for the $25,000 purchase would be the rate applicable to
a single purchase of $100,000.
To qualify for a reduced sales load charge, you or your Service Organization
must notify the Transfer Agent at the time of investment. The reduced sales
charge is subject to confirmation of your holdings through a check of
appropriate records.
Statement of Intention. This Statement provides the means for you to receive a
reduced sales load on all of your investments in Class A Shares, whether they
are of the Fund alone or in combination with Class A Shares of the Funds
(excluding the Money Market Funds). The Statement of Intention is your
commitment to acquire an aggregate investment for $100,000 or more within a
13-month period. You should read the Statement of Intention, which you can
obtain by calling 800/71-PILOT, as you will be bound by its terms.
20
<PAGE> 25
While signing a Statement of Intention does not bind you to purchase, or The
Pilot Funds to sell, the full amount indicated at the sales load in effect at
the time of signing, you must complete the intended purchase to obtain the
reduced sales load.
When you sign a Statement of Intention, the Transfer Agent is authorized to hold
in escrow a sufficient number of shares which can be redeemed to make up any
difference in the sales load on the amount actually invested. After the terms of
the Statement of Intention are fulfilled, the escrow will be released.
Within a 13-month period beginning up to 90 days prior to the date of its
execution, the Class A Shares you purchase may be used as a credit toward the
completion of the Statement of Intention. The investments you make during the
period receive the discounted sales charge based on the full amount of your
investment commitment. A shareholder may include the value of all Pilot Fund
Class A Shares on which a sales load has previously been paid as an
"accumulation credit" toward the completion of the Statement, but a price
readjustment will be made to reflect any reduced sales load applicable to shares
purchased only during the 90-day period prior to the submission of your
Statement of Intention.
If your aggregate investment exceeds the amount indicated in your Statement, an
adjustment will be made to reflect any further reduced sales load applicable to
your excess investment. The adjustment will be in the form of additional Class A
Shares credited to your account at the then current offering price applicable to
a single purchase of the total amount of the total purchase.
Quantity Discounts. As you can see by looking at the table in the section
entitled "Class A Shares: The Front-End Sales Charge Option", larger purchases
in Class A Shares may result in lower front-end sales charges to you. If
requested, purchases by you, your spouse and your minor children will be
combined when computing the applicable front-end sales charge.
CROSS-REINVESTMENT PRIVILEGE
You may want to have your dividends, capital gains distributions, or both,
received from a Fund automatically invested in shares of any other Fund or any
of The Pilot Funds' other investment portfolios. Investments will be made at a
price equal to the net asset value of the acquired shares determined after
receipt of the distribution proceeds by the Transfer Agent. No sales load will
be charged on such investments. In order to qualify for the Cross-Reinvestment
Privilege, the value of your account in the acquired fund must equal or exceed
the acquired fund's minimum initial investment requirement. There are no
subsequent investment requirements for amounts to which dividends and capital
gains distributions are directed nor are service fees currently charged for
effecting these transactions. The election to cross-reinvest dividends or
distributions will not affect the tax treatment of such dividends and capital
gains distributions, which will be treated as received by you and then used to
purchase shares of the acquired fund.
REINSTATEMENT PRIVILEGE
If you are a Class A shareholder in the Fund, you may reinvest all or any
portion of your redemption proceeds (plus that amount necessary to acquire a
fractional share to round off your purchase to the nearest full share) in Class
A Shares of any other Fund without paying a sales load. Shares so acquired will
be purchased at a price equal to the net asset value next determined after the
Transfer Agent receives a written purchase order indicating that the Shares are
eligible for reinstatement at net asset value by a Shareholder's Service
Organization and payment. If you wish to use this privilege, you must submit a
written reinstatement request to the Transfer Agent stating that you are
eligible to use the privilege. The reinstatement request and payment must be
received within 90 days of the trade date of the redemption and the shares must
have been held for at least 30 days before the redemption. The reinstatement
privilege may be exercised once annually by a Class A Shareholder, except that
there is no such limit as to the availability of this privilege in connection
with transactions the sole purpose of which is to reinvest the proceeds at net
asset value in a tax-sheltered retirement plan.
A reinstating Shareholder may realize a gain or loss for federal tax purposes as
a result of such redemption. If the redemption occurs within ninety (90) days
after the original purchase of Class A Shares, any sales load paid on the
original purchase cannot be taken into account by a Class A Shareholder
reinstating at net asset value for purposes of determining gain or loss realized
on the redemption, but instead will be added to the tax basis of the Class A
Shares received in the reinstatement, provided that Shares of the Fund into
which the reinstatement is made are subject to a sales load on initial
purchases. To the extent that any loss is realized and the Class A Shares of the
Funds are purchased within thirty (30) days before or after the redemption, some
or all of the loss will not be allowed as a deduction depending upon the number
of Class A Shares purchased. Shareholders should consult their own tax advisers
concerning the tax consequences of reinstatement.
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<PAGE> 26
DIVIDENDS AND DISTRIBUTIONS
Where do your dividends and distributions come from?
The Fund's net investment income consists of the excess of (i) certain accrued
interest, (ii) accretion of discount (including both original issue and market
discount, if any, on certain portfolio securities) and (iii) any income of the
Fund from sources other than capital gains, over (iv) the amortization of market
premium on certain portfolio securities and (v) the estimated expenses of the
Fund, including a proportionate share of the general expenses of the Fund.
What are your dividend and distribution options?
A shareholder may elect on his or her application form to have dividends,
capital gains distributions or both either paid in cash or reinvested in shares
of the same fund or one of the other funds, as described under "Shareholder
Services--Cross-Reinvestment Privilege." Such reinvestments will be made at the
net asset value per share. This election may be changed upon written notice to
the Service Organization at any time prior to the record date for a particular
dividend or distribution. If no election is made, all dividends and capital gain
distributions will be reinvested in the same Fund. The election to reinvest
dividends and distributions paid by the Fund in additional Shares of the Fund or
any other fund of the Pilot Family of Funds will not affect the tax treatment of
such dividends and distributions, which will be treated as received by the
shareholder and then used to purchase shares of the Fund or another fund of the
Funds. Any election to reinvest in additional Shares or to receive cash will be
administered by the Shareholder's Service Organization in a manner arranged for
the Fund.
When are dividends and distributions declared and paid?
The Fund intends to declare and pay dividends from net investment income at
least annually.
DISTRIBUTION ARRANGEMENTS
The Pilot Funds has adopted Distribution Plans for its Class A and Class B
Shares.
UNDER THESE PLANS THE DISTRIBUTOR RECEIVES PAYMENTS FOR DISTRIBUTION AND SUPPORT
SERVICES. The Distribution Plan for Class A Shares authorizes payments to the
Distributor and Service Organizations for personal services provided to Class A
shareholders and/or the maintenance of shareholder accounts. Payments under the
Distribution Plan for Class B Shares will also be used to pay for sales
commissions and other fees payable to the Distributor and to Service
Organizations and other broker-dealers who sell Class B Shares, and may include
interest on such amounts that are not initially repaid by The Pilot Funds.
PAYMENTS UNDER THE DISTRIBUTION PLAN FOR CLASS A SHARES MAY NOT EXCEED 0.25% (on
an annual basis) of the average daily net asset value of the shares to which
such Plan relates. If more money is due the Distributor than it can collect in
any month because of this limitation, the unpaid amount may be carried forward
until it can be paid. Similarly, if in any month the Distributor does not expend
the entire amount to which it would otherwise be entitled, this amount may be
used as a credit and drawn upon to permit the payment of expenses in the future.
Neither of these amounts, however, is payable beyond the fiscal year in which
they accrue.
DISTRIBUTION PAYMENTS UNDER THE DISTRIBUTION PLAN FOR CLASS B SHARES MAY NOT
EXCEED 1.00% (on an annual basis) of the average daily net asset value of the
Class B Shares. Not more than 0.25% of such value will be used to compensate
Service Organizations for personal services provided to Class B shareholders
and/or the maintenance of shareholder accounts. Not more than 0.75% of such
value will be paid to the Distributor as reimbursement for commissions and
transaction fees of up to 4.00% (which amount may change over time) of the net
asset value per share of the Class B Shares purchased by clients of the
Distributor, Service Organizations and other broker-dealers who sell such Shares
as well as expenses related to other promotional and distribution activities.
The distribution payments under this Plan have been structured to provide you
the option of purchasing Fund shares without the need to pay a front-end sales
charge. The purpose and function of the contingent deferred sales charge and
distribution fee for Class B Shares is the same as the front-end sales charge
and distribution fee for Class A Shares. In both cases the sales charge and
distribution fee are used to pay and provide compensation for the distribution
of Fund shares.
Actual distribution expenses paid by the Distributor with respect to Class B
Shares for any given year may exceed the distribution fees and contingent
deferred sales charges received with respect to those Shares. These excess
expenses may be reimbursed by a Fund or its Class B shareholders out of
contingent deferred sales charges and distribution payments in future years as
long as the Distribution Plan for Class B Shares is in effect.
Distribution payments under the Plans are subject to the requirements of a rule
under the Investment Company Act of 1940 known as Rule 12b-1. The distribution
fee and any sales charge applicable to a particular class will not be used to
assist the distribution of any other class.
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<PAGE> 27
The Distributor, at its expense, may also provide additional compensation to
dealers in connection with sales of Shares of any of the Funds and other Funds
of the Group. Compensation may include financial assistance to dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns regarding one or more Funds of
the Group, and/or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell a significant amount of such shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to exotic locations within or outside of the
United States for meetings or seminars of a business nature. The Distributor, at
its expense, currently conducts an annual sales contest for dealers in
connection with their sales of Shares of the Funds. Dealers may not use sales of
a Fund's Shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc.
IF YOU ARE A CLIENT OF BOATMEN'S INVESTMENT SERVICES, INC. OR ANOTHER SERVICE
ORGANIZATION, YOU SHOULD NOTE that they may charge you a separate fee for
administrative services in connection with investments in Fund shares and may
impose minimum customer account and other requirements. These fees and
requirements would be in addition to those imposed by the Funds under the Plans
or otherwise. if you are investing through Boatmen's Investment Services, Inc.
or another Service Organization, please refer to their program materials for any
additional special provisions or conditions that may be different from those
described in this Prospectus (for example, some or all of the services and
privileges described may not be available to you). Boatmen's Investment
Services, Inc. and the other Service Organizations have the responsibility of
transmitting purchase orders and required funds, and of crediting their
customers' accounts following redemptions, in a timely manner in accordance with
their customer agreements and this Prospectus.
Investors may note that federal banking laws currently limit the securities
activities of banks. It is possible that a bank might be prohibited from acting
as a Service Organization in the future. If this were to happen, the bank's
shareholder clients would be permitted by the Fund to remain shareholders. The
Fund's method of operations might, however, change and such shareholders might
not be able to avail themselves of the services provided by their banks. No
adverse financial consequences are expected to occur to these shareholders from
any such event.
THE PILOT FAMILY OF FUNDS
The Pilot Funds was organized on July 15, 1992 as a Massachusetts business trust
under the name Centerland Fund. On June 1, 1994, its name was changed to The
Pilot Funds. The Pilot Funds is a mutual fund of the type known as an "open-end
management investment company." A mutual fund permits an investor to pool his or
her assets with those of others in order to achieve economies of scale, take
advantage of professional money managers and enjoy other advantages
traditionally reserved for large investors. The Trustees of the Funds are
responsible for the overall management and supervision of its affairs. The
Agreement and Declaration of Trust permits the Board of Trustees of The Pilot
Funds to create separate series or portfolios of shares. To date, twelve
portfolios have been established. The Agreement and Declaration of Trust also
permits the Board of Trustees to classify or reclassify any series or portfolio
of shares into one or more classes and to establish additional portfolios in the
future. The Trustees have authorized the issuance of an unlimited number of
shares available to selected investors, in each of three share classes (Class A
Shares, which are referred to as the Administration Shares in the Money Market
portfolios, Class B Shares, which are referred to as Investor Shares in the
Money Market portfolios, and Pilot Shares) in the Funds. Information regarding
The Pilot Funds' other portfolios may be obtained by contacting The Pilot Funds
or the Distributor.
Class A and Class B Shares of the Fund are described in this prospectus. Each
Class A Share, Class B Share and Pilot Share of the Fund represents an equal
proportionate interest in the assets belonging to the Fund. It is contemplated
that most Shares will be held in accounts of which the record owner is a bank or
other institution acting as nominee for its customers who are beneficial owners
of the Shares. Pilot Shares may be purchased for accounts held in the name of an
institution that is not compensated by the Funds for services provided to the
institution's customers. Class A and Class B Shares may be purchased for
accounts held in the name of an institution that provides certain account
administration services to its customers, including maintenance of account
records and processing orders to purchase, redeem and exchange Class A and Class
B Shares. Please refer to the Statement of Additional Information for the Class
A and Class B Shares for a more complete description of such services. Shares of
each class may be exchanged only for Shares of the same class in another fund.
Except as described herein, the three classes of Shares are identical. Certain
aspects of the Shares may be altered, after advance notice to Shareholders, if
it is deemed necessary in order to satisfy certain tax regulatory requirements.
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<PAGE> 28
When issued, Shares will be fully paid and nonassessable. In the event of
liquidation, Shareholders are entitled to share pro rata in the net assets of
the applicable fund available for distribution to Shareholders. Shares entitle
their holders to one vote per Share, are freely transferable and have no
preemptive, subscription or conversion rights.
SHAREHOLDERS ARE ENTITLED TO ONE VOTE FOR EACH FULL SHARE HELD AND PROPORTIONATE
FRACTIONAL VOTES FOR FRACTIONAL SHARES HELD. Shares of all the Pilot Funds
portfolios vote together and not by class, unless otherwise required by law or
permitted by the Board of Trustees. All shareholders of a particular fund will
vote together as a single class on matters relating to the fund's investment
advisory agreement and fundamental investment policies. Only Class A
shareholders, however, will vote relating to the Distribution Plan for Class A
Shares and only Class B Shareholders will vote on matters relating to the
Distribution Plan for Class B Shares.
THE PILOT FUNDS IS NOT REQUIRED TO AND DOES NOT CURRENTLY EXPECT TO HOLD ANNUAL
MEETINGS OF SHAREHOLDERS, ALTHOUGH SPECIAL MEETINGS MAY BE CALLED FOR PURPOSES
SUCH AS ELECTING OR REMOVING TRUSTEES OR OTHER PURPOSES.
THE BUSINESS OF THE FUND
FUND MANAGEMENT
THE BUSINESS AFFAIRS OF THE PILOT FUNDS ARE MANAGED UNDER THE GENERAL
SUPERVISION OF THE BOARD OF TRUSTEES.
SERVICE PROVIDERS
Adviser: BOATMEN'S TRUST COMPANY (referred to as "Boatmen's" or the "Adviser")
manages the investment portfolio of the Fund, selecting the investments and
making purchase and sale orders. Its principal offices are located at 100 North
Broadway, St. Louis, Missouri 63178-4737. The mailing address is P.O. Box 14737
at that address.
Investment Manager: KLEINWORT BENSON INVESTMENT MANAGEMENT AMERICAS INC.
(referred to as "Kleinwort Benson"), formerly Kleinwort Benson International
Investment Limited, serves as investment manager to the Fund. It is located at
200 Park Avenue, New York, New York 10166.
Administrator: CONCORD HOLDING CORPORATION (referred to as "Concord"), is
responsible for coordinating the Fund's efforts and generally overseeing the
operation of the Fund's business. Concord's principal offices are located at
3435 Stelzer Road, Columbus, Ohio 43219-3035. Concord is a wholly-owned
subsidiary of The BISYS Group, Inc.
Distributor: Each Fund's shares are sold on a continuous basis by the
Distributor, PILOT FUNDS DISTRIBUTORS, INC. (referred to as the "Distributor"),
a registered broker-dealer and a wholly-owned subsidiary of Concord that is
located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
Custodian: STATE STREET BANK AND TRUST COMPANY (referred to as "State Street")
is responsible for holding the investments purchased by each Fund. State Street
is located at 225 Franklin Street, Boston, Massachusetts 02110.
Transfer Agent: BISYS FUND SERVICES, INC. (referred to as the "Transfer Agent")
is the transfer and dividend disbursing agent of the Fund. It maintains the
account records of all shareholders and administers the distribution of all
income earned as a result of investing in the Fund. The Transfer Agent is
located at 3435 Stelzer Road, Columbus, OH 43219-3035.
MORE ABOUT BOATMEN'S. Founded in 1889, Boatmen's a trust company, organized
under the laws of Missouri, provides a broad range of trust and investment
services for individuals, privately and publicly held business, governmental
units, pension and profit sharing plans and other institutions and
organizations. As of June 30, 1995, Boatmen's and its affiliates managed nearly
$83 billion in assets ($45 billion over which they had investment discretion and
$38 billion over which they did not have investment discretion).
Boatmen's Bancshares, Inc., Boatmen's parent, is a registered bank holding
company which owns substantially all of the outstanding capital stock of
numerous commercial banks located in Arkansas, Illinois, Iowa, Kansas, Missouri,
New Mexico, Oklahoma, Tennessee and Texas, a mortgage banking company, a credit
life insurance company, a federal savings bank in Arkansas and a limited service
bank in Delaware.
Under its Advisory Agreement with the Funds on behalf of each of the Funds,
Boatmen's supervises the activities of Kleinwort Benson, the investment manager.
Boatmen's pays all costs incurred by it in connection with the performance of
its duties under the Advisory Agreement other than the cost (including taxes and
brokerage commissions, if any) of securities purchased for the Fund.
Boatmen's has designated the following portfolio manager as being primarily
responsible for the management of the Fund. Michael E. Kenneally, CFA is a
Senior Vice President and Director of Research. In addition to his
responsibilities in connection with the management of the international
portfolios, including the Fund, Mr. Kenneally is responsible for all fundamental
and quantitative research
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<PAGE> 29
as well as the management of all small capitalization and growth-style
portfolios.
MORE ABOUT KLEINWORT BENSON. Kleinwort Benson is the SEC registered investment
management subsidiary of the London-based Kleinwort Benson Group plc, a holding
company for a merchant banking group whose origins date back to 1792. Kleinwort
Benson has offices in London, Hong Kong and Tokyo and may utilize the general
expertise of Kleinwort Benson Group plc and its affiliates in respect of, for
example, economic analyses and predictions and market developments and trends.
Since it commenced operations in 1980, Kleinwort Benson has managed investment
accounts, primarily for institutions in North America, comprised of equity,
fixed income and balanced portfolios. These portfolios as a general rule consist
principally of foreign securities. As of September 30, 1994, Kleinwort Benson
had approximately $3.6 billion of assets under management.
MORE ABOUT CONCORD. Concord is a Delaware corporation that was organized in 1987
to provide administrative services to mutual funds. Concord currently functions
as administrator for over $30 billion in mutual fund assets. Under its
Administration Agreement with the Fund, Concord provides a wide range of such
services to the Funds, including maintaining the Funds' offices, providing
statistical and research data, coordinating the preparation of reports to
shareholders, calculating or providing for the calculation of the net asset
values of Fund shares and dividends and capital gain distributions to
shareholders, and performing other administrative functions necessary for the
smooth operation of the Funds. The Funds bear all fees and expenses charged by
State Street for these services. Certain officers of The Pilot Funds, namely
Messrs. Martin Dean, Lester J. Lay, George O. Martinez and William J. Tomko and
Ms. Susan L. West, officers of The Pilot Funds, are also employees and/or
officers of Concord, the Distributor or an affiliate.
EXPENSES. In order to support the services described above, as well as other
matters essential to the operation of the Fund, the Fund incurs certain
expenses. Expenses are paid out of a Fund's assets, and thus are reflected in
the Fund's dividends and net asset value, but they are not billed directly to
you or deducted from your account.
As compensation for the services rendered to the Fund by Boatmen's as investment
adviser, and the assumption by Boatmen's of the expenses related thereto,
Boatmen's is entitled to a fee computed daily and payable monthly at an annual
rate equal to .80 of 1% of the average daily net assets of the Fund. For the
period from September 1, 1994 through August 31, 1995, Boatmen's was paid at the
above rate. For the fiscal years ended August 31, 1994 and 1995, Boatmen's
received $2,422,559 and $2,828,628 in advisory fees, respectively.
Effective June 1, 1995, pursuant to approval from shareholders received at a
Special Meeting held on May 24, 1995, as compensation for the services rendered
by Kleinwort Benson as investment manager to the Fund, Kleinwort Benson is
entitled to a fee, paid by Boatmen's directly out of Boatmen's advisory fee,
computed daily and payable monthly at an annual rate equal to .40 of 1% up to
$325,000,000 and .25 of 1% of such assets in excess of $325,000,000, on an
annualized basis. Prior to June 1, 1995, Kleinwort Benson was entitled to a fee,
computed daily and payable monthly at an annual rate equal to .80 of 1% of such
assets up to $65,000,000, .40 of 1% of such assets in excess of $65,000,000 and
less than $325,000,000, and .25 of 1% of such assets in excess of $325,000,000.
For the period from August 31, 1993 through August 31, 1994, the compensation
received by Kleinwort Benson constituted .48 of 1% of the Fund's average daily
net assets. For the fiscal year ended August 31, 1995, the fee paid by Boatmen's
to Kleinwort Benson America was $1,535,377, which equaled .43 of 1% of the
Fund's average daily net assets. Under the terms of the Investment Management
Agreement among the Funds, Kleinwort Benson and Boatmen's, Kleinwort Benson,
subject to the general supervision of the Funds' Board of Trustees and
Boatmen's, manages the investment operations of the Fund and the composition of
the Fund's assets, including the purchase, retention and disposition thereof.
With respect to the Fund, all investment decisions are made by a committee
consisting of personnel of Kleinwort Benson. No one person is responsible for
recommendations to that committee.
For its services as administrator, Concord is entitled to an administration fee
from The Pilot Funds which is calculated based on the net assets of all of the
investment portfolios of The Pilot Funds combined. Under the Administration
Agreement, each Fund pays its pro-rata share of an annual fee to Concord,
computed daily and payable monthly, of .115 of 1% of The Pilot Funds' average
net assets up to $1.5 billion, .110 of 1% of The Pilot Funds' average net assets
on the next $1.5 billion and .1075 of 1% of The Pilot Funds' average net assets
in excess of $3 billion. These amounts may be reduced pursuant to fee waivers by
Concord. Any such fee waivers may be terminated by Concord at any time. For the
fiscal year ended August 31, 1994 and 1995, the Fund paid administration fees to
Concord in the amount of $295,477 and $386,949, respectively.
The Funds are responsible for all expenses incurred by the Fund, other than
those expressly borne by Boatmen's, Kleinwort Benson, Concord or the Transfer
Agent under
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the Advisory, Investment Management, Administration or Transfer Agency
Agreements. Such expenses include, the fees payable to Boatmen's, Concord and
the Transfer Agent, the fees and expenses of the Fund's custodian, brokerage
fees and commissions, any portfolio losses, state and federal registration fees
for qualifying Fund Shares under federal or state securities laws, organization
expenses, membership fees in investment-company organizations, taxes, interest,
costs of liability insurance, fidelity bonds, indemnification or contribution,
any costs, expenses or losses arising out of any liability of, or claim for
damages or other relief asserted against, the Funds for violation of any law,
legal and auditing and tax fees and expenses, expenses of preparing and setting
in type prospectuses, statements of additional information, proxy material,
reports and notices and the printing and distributing of the same to the Fund's
Shareholders and regulatory authorities, compensation and expenses of its
Trustees and extraordinary expenses incurred by the Funds. The fees payable to
Kleinwort Benson are paid by Boatmen's directly out of Boatmen's advisory fee.
FEE WAIVERS. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Boatmen's and the Fund's other service providers, as well as
by certain mandatory expense limits imposed by some state securities regulators.
However, as to any amounts voluntarily waived or reimbursed, the service
providers retain the ability to be reimbursed by the Fund for such amounts prior
to fiscal year end. These waivers and reimbursements would increase the yield to
investors when made but would decrease yields if the Fund were required to
reimburse a service provider.
TAX IMPLICATIONS
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the important
tax considerations generally affecting the Funds and their shareholders. You
should consult your tax adviser with specific reference to your own tax
situation.
YOU WILL BE ADVISED AT LEAST ANNUALLY REGARDING THE FEDERAL INCOME TAX TREATMENT
OF DIVIDENDS AND DISTRIBUTIONS MADE TO YOU.
The Fund intends to elect to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code, as amended, (the "Code"). As a
regulated investment company, the Fund must satisfy certain requirements
relating to the sources of its income, diversification of its assets and
distribution of its income to shareholders. In addition, as a regulated
investment company, the Fund generally will not incur a federal income or excise
tax on any investment company taxableincome and net capital gains that are
distributed to its Shareholders in accordance with certain timing requirements
of the Code.
Dividends of investment company taxable income, which generally includes the
excess of net short-term capital gains over net long-term capital losses,
dividends and interest (including original issue discount and market discount),
less expenses, will be taxable to Shareholders as ordinary income. If a portion
of the income of the Fund consists of dividends paid by U.S. corporations, a
portion of the dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of the excess of net long-term
capital gains over net short-term capital losses, if any, which are designated
as "capital gains dividends" by the Fund will be taxable as long-term capital
gains regardless of how long the Shareholders have held their Shares. These tax
consequences will apply regardless of whether distributions are received in cash
or reinvested in Shares. Distributions declared in October, November or December
with a record date in such month and paid in January of the following year are
taxable to Shareholders as if received on December 31 of the year declared.
Shareholders will be informed about the amount and character of distributions
received from the Fund for federal income tax purposes, including any
distributions that may constitute a return of capital.
Investments in zero coupon securities and other original issue discount
obligations will result in income to the Fund each year equal to a portion of
the excess of the face value of the securities over their issue price, even
though the Fund receives no cash interest payments from the securities.
Any gain or loss realized by a Shareholder upon the sale or other disposition of
Shares, or upon receipt of a distribution in complete liquidation of the Fund,
generally will be a capital gain or loss which will be long-term or short-term,
generally depending upon the Shareholder's holding period for the Shares.
Individuals and certain other classes of Shareholders may be subject to 31%
withholding of federal income tax on taxable distributions if they fail to
furnish the Fund with their correct taxpayer identification number and certain
certifications regarding their tax status or if they are otherwise subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against a Shareholder's U.S. federal income tax
liability.
If the Fund invests in foreign securities it may be subject to foreign
withholding taxes on income earned on such securities and may be unable to pass
through to Shareholders the ability to claim foreign tax credits and
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<PAGE> 31
deductions with respect to such taxes. Certain gains and losses which are
attributable to fluctuations in the value of foreign currency are treated as
ordinary income and losses. These gains and losses may increase or decrease the
amount of the Fund's investment company taxable income to be distributed to
Shareholders as ordinary income.
In addition to federal taxes, a Shareholder may be subject to state and local
taxes on payments received from the Fund. A state tax exemption may be available
in some states to the extent distributions of the Fund are derived from interest
on certain direct U.S. Government obligations or on obligations of the
particular state.
Shareholders should consult their own tax advisers concerning these matters.
Further information relating to tax consequences is contained in the Statement
of Additional Information.
MEASURING PERFORMANCE
Performance information provides you with a method of measuring and monitoring
your investments. The Fund may quote its performance in advertisements or
shareholder communications. The performance for each class of shares of a Fund
is calculated separately from the performance of the Fund's other classes of
shares.
Understanding performance measures:
TOTAL RETURN for the Fund may be calculated on an AVERAGE ANNUAL TOTAL RETURN
basis or an AGGREGATE TOTAL RETURN BASIS. Average annual return reflects the
average annual percentage change in value of an investment over the measuring
period. Aggregate total return reflects the total percentage change in value of
an investment over the measuring period. Both measures assume the reinvestment
of dividends and distributions.
The Fund may provide quotes of total returns and yields WITHOUT REFLECTING A
SALES LOAD, which quotations will, of course, be higher than quotations that do
reflect such a sales charge.
Performance comparisons:
The Fund may compare its total returns to that of mutual funds with similar
investment objectives and to bond, stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor mutual fund performance.
Total return data as reported in national financial publications such as Money,
Forbes, Barron's, The Wall Street Journal and The New York Times, as well as in
publications of a local or regional nature, may be used for comparison.
Total returns for the Fund may be compared to indices such as the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Lehman Brothers
Bond Index, the Merrill Lynch Bond Index, the Wilshire 5000 Equity Index or the
Consumer Price Index.
INVESTMENT RESULTS OF THE FUND ARE BASED ON HISTORICAL PERFORMANCE AND
PERFORMANCE QUOTATIONS WILL FLUCTUATE. YOU SHOULD NOT CONSIDER QUOTATIONS TO BE
REPRESENTATIVE OF FUTURE PERFORMANCE. YOU SHOULD ALSO REMEMBER THAT PERFORMANCE
IS GENERALLY A FUNCTION OF THE KIND AND QUALITY OF INVESTMENTS HELD IN A
PORTFOLIO, PORTFOLIO MATURITY, OPERATING EXPENSES AND MARKET CONDITIONS. FEES
THAT BOATMEN'S INVESTMENT SERVICES OR ANOTHER SERVICE ORGANIZATION MAY CHARGE
DIRECTLY TO ITS CUSTOMER ACCOUNTS IN CONNECTION WITH AN INVESTMENT IN THE FUNDS
WILL NOT BE INCLUDED IN THE FUND'S CALCULATIONS OF TOTAL RETURN. INQUIRIES
REGARDING THE FUND MAY BE DIRECTED TO THE DISTRIBUTOR AT 3435 STELZER ROAD,
COLUMBUS, OHIO 43219-3035.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUND INCORPORATED IN THIS PROSPECTUS BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN
WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE.
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PILIEA1596P
<PAGE> 33
THE PILOT FUNDS
----------
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
ITEM NUMBER IN PART B INFORMATION CAPTION
--------------------- -------------------
<S> <C>
10. Cover Page...................................... Cover Page
11. Table of Contents............................... Table of Contents
12. General Information and History................. Organization and Capitalization
13. Investment Objectives and Policies.............. Investment Policies and Practices of the Fund; Investment
Restrictions
14. Management of the Fund.......................... Trustees and Officers
15. Control Persons and Principal Holders
of Securities................................... Trustees and Officers; Organization and Capitalization
16. Investment Advisory and Other Services.......... Investment Adviser, Administrator, Distributor and Transfer
Agent; Matters Relating to Class A Shares and Class B
Shares; Portfolio Transactions; Custodian and Subcustodian;
Independent Accountants and Counsel
17. Brokerage Allocation............................ Portfolio Transactions
18. Capital Stock and Other Securities.............. Organization and Capitalization; Matters Relating to Class A
Shares and Class B Shares
19. Purchase, Redemption and Pricing of
Securities Being Offered........................ Net Asset Value; Matters Relating to Class A Shares and
Class B Shares; Additional Purchase and Redemption
Information
20. Tax Status...................................... Tax Information
21. Underwriters.................................... Investment Adviser, Administrator, Distributor and Transfer
Agent
22. Calculation of Performance Data................. Calculation of Performance Quotations
23. Financial Statements............................ Financial Statements
</TABLE>
3
<PAGE> 34
THE PILOT FUNDS
3435 Stelzer Road
Columbus, Ohio 43219-3035
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
MAY [ ], 1996
PILOT SHARES, CLASS A SHARES AND CLASS B SHARES
- --------------------------------------------------------------------------------
The Pilot Funds (the "Funds" or the "Trust") is an open-end, management
investment company (or mutual fund) consisting of twelve portfolios, one of
which portfolios (the "Fund") is offered hereby. The Fund is:
Pilot International Equity Fund (formerly Pilot Kleinwort
Benson International Equity Fund)
Boatmen's Trust Company ("Boatmen's") serves as the investment adviser
to the Fund. Kleinwort Benson Investment Management Americas Inc., formerly
Kleinwort Benson International Investment Limited, ("Kleinwort Benson") serves
as the investment manager to the Pilot International Equity Fund. Pilot Funds
Distributors, Inc. ("PFD") serves as the Fund's distributor, and its parent,
Concord Holding Corporation ("Concord"), serves as the Fund's administrator.
This Statement of Additional Information is not a Prospectus, should
be read in conjunction with the Fund's current Prospectuses with respect to
Pilot Shares, Class A Shares and Class B Shares of the Fund and is incorporated
by reference in its entirety into such Prospectuses. Because this Statement of
Additional Information is not itself a Prospectus, no investment in Pilot
Shares, Class A Shares or Class B Shares of the Fund should be made solely upon
the information contained herein. Copies of the Prospectuses may be obtained
without charge by writing to Pilot Funds Distributors, Inc., 3435 Stelzer Road,
Columbus, Ohio 43219-3035.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
INVESTMENT POLICIES AND PRACTICES OF THE FUND.....................................................................4
U.S. Government Securities...............................................................................4
Custodial Receipts.......................................................................................4
Corporate Debt Securities................................................................................4
U.S. and Foreign Bank Obligations........................................................................5
Forward Commitments and When-Issued Securities...........................................................5
REITs....................................................................................................6
Convertible Securities...................................................................................6
Foreign Securities.......................................................................................7
Forward Foreign Currency Exchange Contracts..............................................................8
Currency Swaps...........................................................................................8
Repurchase Agreements....................................................................................9
Lending of Portfolio Securities.........................................................................10
Other Investment Companies..............................................................................10
Options on Securities and Indexes.......................................................................10
Options on Currencies...................................................................................11
Futures Contracts on Securities and Indexes.............................................................12
Futures Contracts on Foreign Currencies.................................................................13
Options on Futures Contracts............................................................................13
Limitations on Use of Futures Transactions and Risk Considerations......................................14
Restricted and Other Illiquid Securities................................................................14
Risks of Specialized Investment Techniques Abroad.......................................................15
Combined Transactions...................................................................................15
Use of Segregated and Other Special Accounts............................................................15
Other Information.......................................................................................16
INVESTMENT RESTRICTIONS..........................................................................................16
Other Investment Policies...............................................................................18
TRUSTEES AND OFFICERS............................................................................................20
INVESTMENT ADVISER, MANAGER, ADMINISTRATOR,
DISTRIBUTOR AND TRANSFER AGENT.................................................................................23
The Adviser and Manager.................................................................................23
The Administrator, Distributor and Transfer Agent.......................................................26
PORTFOLIO TRANSACTIONS...........................................................................................28
NET ASSET VALUE..................................................................................................30
MATTERS RELATING TO CLASS A SHARES AND CLASS B SHARES............................................................31
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................33
Supplementary Redemption Information....................................................................34
Exchange Privilege......................................................................................35
Right of Accumulation and Statement of Information......................................................36
Miscellaneous...........................................................................................37
In Kind Purchases.......................................................................................37
Redemptions in Kind.....................................................................................37
</TABLE>
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<PAGE> 36
<TABLE>
<S> <C>
CALCULATION OF PERFORMANCE QUOTATIONS............................................................................38
TAX INFORMATION..................................................................................................40
State and Local.........................................................................................44
ORGANIZATION AND CAPITALIZATION..................................................................................44
Shareholder and Trustee Liability.......................................................................45
CUSTODIAN AND SUBCUSTODIANS......................................................................................45
INDEPENDENT ACCOUNTANTS AND COUNSEL..............................................................................46
MISCELLANEOUS....................................................................................................46
FINANCIAL STATEMENTS.............................................................................................46
APPENDIX.........................................................................................................47
DESCRIPTION OF COMMERCIAL PAPER RATINGS..........................................................................50
</TABLE>
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<PAGE> 37
INVESTMENT POLICIES AND PRACTICES OF THE FUND
The following discussion elaborates on the description of the Fund's
investment policies and practices contained in the Prospectus. Except as set
forth below, the investment policies and limitations described in this
Statement of Additional Information are not fundamental and may be changed
without Shareholder consent.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. Government securities. Securities
guaranteed as to principal or interest by the U.S. Government, its agencies,
authorities or instrumentalities are deemed to include (a) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. Government, its agencies, authorities or
instrumentalities and (b) participations in loans made to foreign governments
or their agencies that are so guaranteed. The secondary market for certain of
these participations is limited. If such participations are illiquid they will
not be purchased.
U.S. Government securities include principal and interest components of
securities issued or guaranteed by the U.S. Treasury if the components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program. Securities issued or guaranteed as to principal
or interest by the U.S. Government, its agencies, authorities or
instrumentalities may also be acquired in the form of custodial receipts. These
receipts evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies,
authorities or instrumentalities.
CUSTODIAL RECEIPTS
The Fund may also acquire custodial receipts that evidence ownership
of future interest payments, principal payments or both on certain U.S.
Government notes or bonds. Such notes and bonds are held in custody by a bank
on behalf of the owners. These custodial receipts are known by various names,
including "Treasury Receipts," "Treasury Investors Growth Receipts" and
"Certificates of Accrual on Treasury Securities." Although custodial receipts
are not considered U.S. Government securities, they are indirectly issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities. Custodial receipts will be treated as
illiquid securities.
CORPORATE DEBT SECURITIES
The Fund may invest in short-term and intermediate-term corporate debt
securities of both foreign and domestic issuers of all types and maturities,
such as bonds, debentures, notes, equipment lease certificates, equipment trust
certificates, conditional sales contracts and commercial paper. Corporate debt
securities may involve equity features, such as conversion or exchange rights
or warrants for the acquisition of stock of the same or a different issuer;
participation based on revenue, sales or profits; or the purchase of common
stock or warrants in a unit transaction (where corporate debt obligations and
common stock are offered as a unit).
Corporate debt securities purchased by the Fund, if any, will be rated
in the top two categories by a Nationally Recognized Statistical Rating
Organization ("NRSRO"). Corporate debt securities that are not rated may be
purchased by the Fund if they are determined to be of comparable quality by or
under the direction of the Board of Trustees of the Funds. Consistent with
prudent investment management, if the rating of any corporate debt security
held by the Fund
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<PAGE> 38
falls below such ratings then consideration shall be given as to whether it
should be sold. A description of these ratings is attached in an Appendix to
this Statement of Additional Information.
U.S. AND FOREIGN BANK OBLIGATIONS
These obligations include negotiable certificates of deposit, banker's
acceptances and fixed time deposits. The Fund limits its investments in
domestic bank obligations to banks having total assets in excess of $1 billion
and subject to regulation by the U.S. Government. The Fund may also invest in
certificates of deposit issued by members of the Federal Deposit Insurance
Corporation ("FDIC") having total assets of less than $1 billion, provided that
the Fund will at no time own more than $100,000 principal amount of
certificates of deposit (or any higher principal amount which in the future may
be fully covered by FDIC insurance) of any one of those issuers. Fixed time
deposits are obligations which are payable at a stated maturity date and bear a
fixed rate of interest. Generally, fixed time deposits may be withdrawn on
demand by the Fund, but they may be subject to early withdrawal penalties which
vary depending upon market conditions and the remaining maturity of the
obligation. Although fixed time deposits do not have a market, there are no
contractual restrictions on the Fund's right to transfer a beneficial interest
in the deposit to a third party.
The Fund will limit its investment in securities of foreign banks in
accordance with Section 12 of the Investment Company Act of 1940 (the "1940
Act"), the applicable rules thereunder and interpretations thereof of the staff
of the Securities and Exchange Commission (the "SEC").
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES
The Fund may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis. These transactions involve a
commitment by the Fund to purchase or sell securities at a future date. The
price of the underlying securities (usually expressed in terms of yield) and
the date on which the securities will be delivered and paid for (the settlement
date) are fixed at the time the transaction is negotiated. When-issued
purchases and forward commitment transactions are negotiated directly with the
other party, and such commitments are not traded on exchanges.
The Fund will purchase securities on a when-issued basis or purchase
or sell securities on a forward commitment basis only with the intention of
completing the transaction and actually purchasing or selling the securities.
If deemed advisable as a matter of investment strategy, however, the Fund may
dispose of or renegotiate a commitment after entering into it. The Fund also
may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. The Fund may realize a capital
gain or loss in connection with these transactions.
When the Fund purchases securities on a when-issued or forward
commitment basis, the Fund's custodian or subcustodian will maintain in a
segregated account cash, U.S. Government securities or other high grade liquid
debt obligations having a value (determined daily) at least equal to the amount
of the Fund's purchase commitments. In the case of a forward commitment to sell
portfolio securities subject to such commitment, the custodian or subcustodian
will hold the portfolio securities themselves in a segregated account while the
commitment is outstanding. These procedures are designed to ensure that the
Fund will maintain sufficient assets at all times to cover its obligations
under when-issued purchases and forward commitments.
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<PAGE> 39
REITs
Securities issued by real estate investment trusts (REITs) bear
certain unique risks. These include the same market risks as those affecting
the real estate industry, such as fluctuations in interest rates and changes in
tax laws. REITs' underlying assets are illiquid and often not diversified, and
REITs are highly dependent upon management skill. REITs also are subject to
heavy cash flow dependency, defaults by borrowers, self-liquidation and the
possibility of failing to qualify for special tax treatment and other
regulatory exemptions. For so long as it remains a restriction of the
Wisconsin Securities Department, the Funds may not purchase securities issued
by REITs in excess of 10% of the Fund's total assets.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities, such as bonds, notes,
debentures, preferred stocks and other securities that may be converted into
common stock. All convertible securities purchased by the Fund will be rated in
the top two categories by an NRSRO or, if unrated, determined by Kleinwort
Benson to be of comparable quality. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest include
fixed-income and zero coupon debt securities, and preferred stock that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The exchange ratio for any particular
convertible security may be adjusted from time to time due to stock splits,
dividends, spin-offs, other corporate distributions or scheduled changes in the
exchange ratio. Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities generally,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion or exchange feature, the market value of
convertible securities typically changes as the market value of the underlying
common stock changes, and, therefore, also tends to follow movements in the
general market for equity securities. A unique feature of convertible
securities is that as the market price of the underlying common stock declines,
convertible securities tend to trade increasingly on a yield basis, and so may
not experience market value declines to the same extent as the underlying
common stock. When the market price of the underlying common stock increases,
the price of a convertible security tends to rise as a reflection of the value
of the underlying common stock, although typically not as much as the price of
the underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income or, in the case of zero coupon securities,
accretion of income with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features. Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer, although convertible
bonds, as corporate debt obligations, are senior in right of payment to all
equity securities, and convertible preferred stock is senior to common stock,
of the same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations
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<PAGE> 40
that pay current income or as zero coupon notes and bonds, including Liquid
Yield Option Notes ("LYONs"). Zero coupon securities pay no cash income and are
sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. Zero
coupon convertible securities offer the opportunity for capital appreciation
because increases (or decreases) in the market value of such securities closely
follow the movements in the market value of the underlying common stock. Zero
coupon convertible securities generally are expected to be less volatile than
the underlying common stocks because they usually are issued with short
maturities (15 years or less) and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
FOREIGN SECURITIES
The Fund may invest in foreign securities. Because foreign companies
generally are not subject to uniform accounting and auditing and financial
reporting standards, practices and requirements comparable to those applicable
to domestic companies, there may be less publicly available information about a
foreign company than about a domestic company. Many foreign stock markets,
while growing in volume of trading activity, have substantially less volume
than the New York Stock Exchange (the "Exchange"), and securities of some
foreign companies are less liquid and more volatile than securities of domestic
companies. Similarly, volume and liquidity in most foreign bond markets is less
than in United States markets and at times, volatility of price can be greater
than in United States markets. Further, foreign markets have different
clearance and settlement procedures and in certain markets there have been
times when settlements have not kept pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. Also, delivery of securities before
payment may be required in some countries. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, in possible liability to the
purchaser. Fixed commissions on some foreign stock exchanges are generally
higher than negotiated commissions on U.S. exchanges, although the Fund will
endeavor to achieve the most favorable net results on its portfolio
transactions. Further, the Fund may encounter difficulties or be unable to
pursue legal remedies and obtain judgments in foreign courts. There is
generally less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies in foreign countries
than in the United States. Communications between the United States and foreign
countries may be less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments, which
could affect United States investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the
United States economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. The management of the Fund seeks to mitigate the risks
associated with the foregoing considerations through diversification and
continuous professional management.
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FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may invest in forward foreign currency exchange contracts
("forward contracts") for hedging and to seek to increase total return. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
The maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month, and forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit. Closing purchase transactions with respect to forward contracts
are usually effected with the currency trader who is a party to the original
forward contract.
The Fund may also enter into a forward contract to sell a currency
that is linked to a currency that Kleinwort Benson believes to be less
attractive and buy a currency that Kleinwort Benson believes to be more
attractive (or a currency that is linked to currency that Kleinwort Benson
believes to be more attractive). The amount in question would not exceed the
value of the Fund's securities denominated in the less attractive currency. For
example, if the Austrian Schilling is linked to the German Deutsche Mark (the
"D-mark"), the Fund holds securities denominated in Austrian Schillings and
Kleinwort Benson believes that the value of Schillings will decline against the
British Pound, the Fund may enter into a contract to sell D-marks and buy
Pounds. This practice is referred to as "proxy hedging." Proxy hedging involves
the risk that the amount of currencies involved may not equal the value of the
Fund's securities denominated in the currency expected to deteriorate and
improperly anticipated currency movements could result in losses to the Fund.
Further, there is the risk that the linkage between various currencies may
change or be eliminated.
The reasons forward contracts would be used are described under
"Futures Contracts on Foreign Currencies" below. The Fund's activities
involving forward contracts may be limited by the requirements of Subchapter M
of the Internal Revenue Code for qualification as a regulated investment
company.
CURRENCY SWAPS
The Fund may enter into currency swaps for hedging purposes and to
seek to increase total return. Inasmuch as swaps are entered into for good
faith hedging purposes or are offset by a segregated account as described
below, the Fund and Kleinwort Benson believe that swaps do not constitute
senior securities as defined in the 1940 Act and, accordingly, will not treat
them as being subject to the Fund's borrowing restrictions. The net amount of
the excess, if any, of the Fund's obligations over its entitlements with
respect to each currency swap will be accrued on a daily basis and an amount of
cash or liquid high grade debt securities (i.e., securities rated in one of the
top three ratings categories by an NRSRO or, if unrated, deemed by Kleinwort
Benson to be of comparable credit quality) having an aggregate net asset value
at least equal to such accrued excess will be maintained in a segregated
account by the Fund's custodian. The Fund will not enter into any currency swap
unless the credit quality of the unsecured senior debt or the claims-paying
ability of the other party thereto is considered to be investment grade by
Kleinwort Benson.
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If there is a default by the other party to such a transaction, the Fund will
have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals
and as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid in comparison with the markets for other
similar instruments which are traded in the interbank market. However, the
staff of the SEC takes the position that currency swaps are illiquid
investments that are subject to the Fund's 15% limitation on such investments.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with selected
brokers-dealers, banks or other financial institutions. A repurchase agreement
is an arrangement under which the purchaser (I.E., the Fund) purchases a U.S.
Government or other high quality short-term debt obligation (the "Obligation")
and the seller agrees at the time of sale to repurchase the Obligation at a
specified time and price.
Custody of the Obligation will be maintained by the Fund's custodian
or subcustodian. The repurchase price may be higher than the purchase price,
the difference being income to the Fund, or the purchase and repurchase prices
may be the same, with interest at a stated rate due to the Fund together with
the repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the Obligation subject to the repurchase
agreement.
Repurchase agreements pose certain risks for all entities, including
the Fund, that utilize them. Such risks are not unique to the Fund but are
inherent in repurchase agreements. The Fund seeks to minimize such risks by,
among others, the means indicated below, but because of the inherent legal
uncertainties involved in repurchase agreements, such risks cannot be
eliminated.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the Fund to the seller of the Obligation. It is not clear whether for
other purposes a court would consider the Obligation purchased by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller.
If in the event of bankruptcy or insolvency proceedings against the
seller of the Obligation, a court holds that the Fund does not have a perfected
security interest in the Obligation, the Fund may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of
the seller. As an unsecured creditor, the Fund would be at risk of losing some
or all of the principal and income involved in the transaction. To minimize
this risk, the Fund utilizes custodians and subcustodians that Kleinwort Benson
believes follow customary securities industry practice with respect to
repurchase agreements, and Kleinwort Benson analyzes the creditworthiness of
the obligor, in this case the seller of the Obligation. But because of the
legal uncertainties, this risk, like others associated with repurchase
agreements, cannot be eliminated.
Also, in the event of commencement of bankruptcy or insolvency
proceedings with respect to the seller of the Obligation before repurchase of
the Obligation under a repurchase agreement, the Fund may encounter delay and
incur costs before being able to sell the security. Such a delay may involve
loss of interest or a decline in price of the Obligation.
Apart from risks associated with bankruptcy or insolvency proceedings,
there is also the risk that the seller may fail to repurchase the security.
However, if the market value of the Obligation subject to the repurchase
agreement becomes less than the repurchase price (including accrued
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<PAGE> 43
interest), the Fund will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement equals or exceeds the repurchase price.
Certain repurchase agreements which provide for settlement in more
than seven days can be liquidated before the nominal fixed term on seven days
or less notice. Such repurchase agreements will be regarded as illiquid
instruments.
The Fund may also enter into repurchase agreements with any party
deemed creditworthy by Kleinwort Benson, including foreign banks and
broker-dealers, if the transaction is entered into for investment purposes and
the counterparty's creditworthiness is at least equal to that of issuers of
securities which the Fund may purchase.
LENDING OF PORTFOLIO SECURITIES
The Fund may seek to increase its income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as broker-dealers, and are required to be secured
continuously by collateral in cash, U.S. Government securities or other high
grade liquid debt obligations maintained on a current basis at an amount at
least equal to the market value of the securities loaned. Such loans will be
terminable at any time.
OTHER INVESTMENT COMPANIES
In seeking to attain their investment objectives, the Funds may invest
in securities issued by other investment companies within the limits prescribed
by the 1940 Act. Each Fund currently intends to limit its investments so that,
as determined immediately after a securities purchase is made: (a) not more
than 5% of the value of its total assets will be invested in the securities of
any one investment company; (b) not more than 10% of the value of its total
assets will be invested in the aggregate in securities of investment companies
as a group; and (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund or by the Trust as a whole. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory
and other expenses that a Fund bears in connection with its own operations. The
Investment Adviser has agreed to remit to the respective investing fund fees
payable to it under its respective investment advisory agreement with an
affiliated money market fund to the extent such fees are based upon the
investing fund's assets invested in shares of the affiliated money market fund.
OPTIONS ON SECURITIES AND INDEXES
The Fund also may purchase and sell options on securities that the
Fund may buy and on securities indexes.
The Fund may purchase and sell over-the-counter options to the extent
consistent with the Fund's limitation on investments in restricted securities.
Trading in over-the-counter options is subject to the risk that the other party
will be unable or unwilling to close-out options purchased or sold by the Fund.
An option on a security (or index) is a contract that gives the holder
of the option, in return for a premium paid, the right to buy from (in the case
of a call) or sell to (in the case of a put) the seller ("writer") of the
option the security underlying the option (or the cash value of the index) at a
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<PAGE> 44
specified exercise price at any time during the term of the option. The writer
of an option on a security has the obligation upon exercise of the option to
deliver the underlying security upon payment of the exercise price or to pay
the exercise price upon delivery of the underlying security. Upon exercise, the
writer of an option on an index is obligated to pay the difference between the
closing price of the index and the exercise price of the option, expressed in
dollars, times a specified multiple (the "multiplier"). (An index is designed
to reflect specified facets of a particular financial or securities market, a
specified group of financial instruments or securities, or certain economic
indicators.)
If an option written by the Fund expires, the Fund realizes a capital
gain equal to the premium received at the time the option was written. If an
option purchased by the Fund expires unexercised, the Fund realizes a capital
loss equal to the premium paid. Prior to the earlier of exercise or expiration,
an option may be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security or index, exercise price
and expiration). There can be no assurance, however, that a closing purchase or
sale transaction can be effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the premium received
from writing the option and will realize a capital loss if it is more. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund will realize a capital gain, or if it is less,
the Fund will realize a capital loss. The principal factors affecting the
market value of a put or a call option include supply and demand, interest
rates, the current market price of the underlying security or index in relation
to the exercise price of the option, the volatility of the underlying security
or index, and the time remaining until the expiration date.
There are several risks associated with transactions in options on
securities and on indexes. For example, there are significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objectives. There can be no assurance that a liquid market will exist when
the Fund seeks to close out an option position. If the Fund were unable to
close out an option it had purchased on a security, it would have to exercise
the option to realize any profit or the option may expire worthless. If the
Fund were unable to close out a covered call option it had written on a
security, it would not be able to sell the underlying security unless the
option expired without exercise. As a writer of a covered call option, the Fund
forgoes, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call. If trading were suspended in an
option purchased by the Fund, the Fund would not be able to close out the
option. If restrictions on exercise were imposed, the Fund might be unable to
exercise an option it had purchased. Except to the extent that a call option on
an index written by the Fund is covered by an option on the same index
purchased by the Fund, movements in the index may result in a loss to the Fund;
however, such losses may be mitigated by changes in the value of the Fund's
securities during the period the option was outstanding.
OPTIONS ON CURRENCIES
The Fund may purchase and sell options on currencies to hedge the
value of securities the Fund holds or intends to buy. Options on foreign
currencies may be traded on U.S. and foreign exchanges or over-the-counter.
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<PAGE> 45
FUTURES CONTRACTS ON SECURITIES AND INDEXES
The Fund may enter into futures contracts on securities and futures
contracts based on securities indexes, which futures are traded on exchanges
that are licensed and regulated by the Commodity Futures Trading Commission
("CFTC") or, consistent with CFTC regulations, on foreign exchanges. The Fund
will do so to hedge against anticipated changes in securities values that would
otherwise have an adverse effect upon the value of portfolio securities or upon
securities to be acquired and to increase total return. Futures contracts and
related options entered into by the Fund will be entered into consistent with
CFTC regulations.
The Fund may take a "short" position in the futures markets by selling
contracts for the future delivery of securities in order to hedge against an
anticipated decline in stock prices. Such futures contracts may include
contracts for the future delivery of securities held by the Fund or securities
with price-fluctuation characteristics similar to those of its portfolio
securities. If, in the opinion of Kleinwort Benson, there is a sufficient
degree of correlation between price trends for the Fund's securities and
futures contracts based on indexes, the Fund may also enter into such futures
contracts as part of its hedging strategy. When hedging of this character is
successful, any depreciation in the value of the Fund's securities will
substantially be offset by appreciation in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
purchase of particular securities in the future, but expects the price then
available in the securities market to be less favorable than prices that are
currently available in the futures markets. The Fund expects that, in the
normal course, it will terminate the long futures position when it makes the
anticipated purchase; under unusual market conditions, however, a long futures
position may be terminated without the corresponding purchase of securities.
Futures contracts involve brokerage costs, which may be less than 1%
of the contract price, and require parties to the contract to make "margin"
deposits to secure performance of the contract. The Fund will be required to
deposit as margin into a segregated custodial account (held subject to the
claims of the Fund's futures broker) an amount of cash or liquid securities
equal to approximately 2% to 5% of the value of each futures contract. This
initial margin is in the nature of a performance bond or good faith deposit on
the contract. The Fund's position in the futures market will be
marked-to-market on a daily basis; the Fund may subsequently be required to
make "variation" margin payments depending upon whether its futures position
declines or rises in value. Positions taken in the futures markets are not
usually held until the expiration of the contract but, instead, are normally
liquidated through offsetting transactions, which may result in a profit or a
loss. Nevertheless, the Fund may instead make or take delivery of the
underlying securities whenever it appears economically advantageous for it to
do so. A clearing corporation associated with the exchange on which futures
contracts are traded assumes responsibility for closing out contracts and
guarantees that, if the contract is still open, the sale or purchase of
securities will be performed on the settlement date.
Futures contracts on securities indexes do not require the physical
delivery of securities, but merely provide for profits and losses resulting
from changes in the market value of a contract to be credited or debited at the
close of each trading day to the respective accounts of the parties to the
contract. On the contract's expiration date a final cash settlement occurs and
the futures positions are simply closed out. Changes in the market value of a
particular futures contract reflect changes in the value of the securities
comprising the index on which the futures contract is based. Futures contracts
based on securities indexes currently are actively traded on the Chicago Board
of Trade, the Chicago Mercantile Exchange, the New York Futures Exchange and
the Kansas City Board of Trade.
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<PAGE> 46
FUTURES CONTRACTS ON FOREIGN CURRENCIES
A foreign currency futures contract is a standardized contract for the
future delivery of a specified amount of a foreign currency at a future date at
a price established when the position is taken. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the Chicago Mercantile Exchange.
The Fund may enter into foreign currency futures contracts in several
circumstances. First, when the Fund enters into a contract for the purchase or
sale of a foreign security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of interest payments on such a
security which it holds, the Fund may desire to "lock in" the U.S. dollar price
of the security or the U.S. dollar equivalent of such interest payments, as the
case may be. By entering into a futures contract for the purchase or sale, for
a fixed amount of U.S. dollars, of the amount of foreign currency involved in
the underlying transactions, the Fund will attempt to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the obligation is purchased or sold, or on which the interest
payment is declared, and the date on which such payments are made or received.
Second, when Kleinwort Benson believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar (or sometimes against another currency), the Fund may enter into a
futures contract to sell, for a fixed dollar or other currency amount, foreign
currency approximating the value of some or all of the securities held by the
Fund which are denominated in that currency. The precise matching of the
futures contract amounts and the value of the securities involved will not
generally be possible because the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date on which the contract is entered into and the
date it expires.
Under normal circumstances, consideration of the prospect for changes
in currency exchange rates will be incorporated into the Fund's long-term
investment strategies. However, Kleinwort Benson believes that it is important
for the Fund to have the flexibility to enter into foreign currency futures
contracts when it determines that the best interest of the Fund will be served.
OPTIONS ON FUTURES CONTRACTS
The Fund may also purchase and sell (write) call and put options on
futures contracts, which options are traded on exchanges that are licensed and
regulated by the CFTC, or, consistent with CFTC regulations, on foreign
exchanges or in the over-the-counter market or privately negotiated. A "call"
option on a futures contract gives the purchaser the right, in return for the
premium paid, to buy a futures contract (assume a long position) at a specified
exercise price, by exercising the option at any time before the option expires.
A "put" option gives the purchaser the right, in return for the premium paid,
to sell a futures contract (assume a "short" position), for a specified
exercise price, by exercising the option at any time before the option expires.
Upon the exercise of a call, the writer of the option is obligated to
SELL the futures contract (to deliver a "long" position to the option holder)
at the option exercise price, which will presumably be LOWER than the then
current market price of the contract in the futures market. Upon exercise of a
put, the writer of the option is obligated to PURCHASE the futures contract
(deliver a "short" position to the option holder) at the option exercise price,
which will presumably be HIGHER than the then current market price of the
contract in the futures market. When a person exercises an option
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<PAGE> 47
and assumes a long futures position, in the case of a call, or a short futures
position, in the case of a put, his gain will be credited to his futures margin
account, while the loss suffered by the writer of the option will be debited to
his account. However, as with the trading of futures contracts, most
participants in the options markets do not seek to realize their gains or
losses by exercising their option rights. Instead, the holder of an option will
usually realize a gain or loss by buying or selling an offsetting option at a
market price that will reflect an increase or a decrease from the premium
originally paid.
Options on futures contracts can be used by the Fund to hedge the same
risks as might be addressed by the direct purchase or sale of the underlying
futures contracts. If the Fund purchases an option on a futures contract, it
may obtain benefits similar to those that would result if it held the futures
position itself. But, in contrast to a futures transaction in which only
transaction costs are involved, benefits received in an option transaction in
the event of a favorable market movement will be reduced by the amount of the
premium paid as well as by transaction costs. In the event of an adverse market
movement, however, in contrast to the full market risk of a futures position,
the Fund will not be subject to a risk of loss on the option transaction beyond
the amount of the premium it paid plus its transaction costs. Consequently, the
Fund may benefit from an increase in the value of its portfolio that would have
been more completely offset if the hedge had been effected through the use of a
futures contract.
If the Fund writes options on futures contracts, it will receive a
premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Fund will gain the amount of the
premium, which may partially offset unfavorable changes in the value of its
portfolio securities held in, or to be acquired for, the Fund. If the option is
exercised, the Fund will incur a loss in the option transaction, which will be
reduced by the amount of the premium it has received. Such loss may partially
offset favorable changes in the value of its portfolio securities.
LIMITATIONS ON USE OF FUTURES TRANSACTIONS AND RISK CONSIDERATIONS
The Fund will incur brokerage fees in connection with its futures
transactions, and will be required to deposit and maintain funds with its
broker as margin to guarantee performance of its futures obligations. In
addition, while futures contracts will be traded to reduce certain risks,
futures trading itself entails certain other risks. Thus, while the Fund may
benefit from the use of such contracts, unanticipated changes in securities or
currency values may result in a poorer overall performance from the Fund than
if it had not entered into any futures contracts. Some futures contracts may
not have a broad and liquid market, in which case the contracts may not be able
to be closed at a fair price and the Fund may lose in excess of the initial
margin deposit. Moreover, in the event of an imperfect correlation between the
futures contract and the portfolio position that is intended to be protected,
the desired protection may not be obtained and the Fund may be exposed to risk
of loss.
Tax-related requirements may limit the extent to which the Fund may
engage in futures and related options transactions.(SEE "TAX INFORMATION.")
RESTRICTED AND OTHER ILLIQUID SECURITIES
The Fund may purchase securities that are not registered under the
Securities Act of 1933 or have some other legal or contractual restriction on
resale in the principal market where the security is traded ("restricted
securities"), but can be offered and sold to "qualified institutional buyers"
under Rule 144A under the Securities Act of 1933. However, the Fund will not
invest
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<PAGE> 48
more than 15% of the value of its net assets in illiquid securities, including
restricted securities, unless the Funds' Board of Trustees determines, based
upon a continuing review of the trading markets for the specific Rule 144A
security, that such restricted security is liquid. The Trustees may adopt
guidelines and delegate to Kleinwort Benson the daily function of determining
and monitoring liquidity of securities. The Trustees, however, will retain
sufficient oversight and be ultimately responsible for the determinations.
Because it is not possible to predict with assurance exactly how this market
for restricted securities sold and offered under Rule 144A will develop, the
Trustees will carefully monitor the Fund's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.
RISKS OF SPECIALIZED INVESTMENT TECHNIQUES ABROAD
The above described specialized investment techniques, when engaged in
abroad, may not be regulated as effectively as when engaged in the United
States; may not involve a clearing mechanism and related guarantees; and are
subject to the risk of governmental actions affecting trading in, or the prices
of, foreign securities. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic factors;
(ii) lesser availability than in the United States of data on which to make
trading decisions; (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States; (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States; and (v) lesser
trading volume.
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple foreign currency
transactions (including forward foreign currency exchange contracts) and any
combination of futures, options and foreign currency transactions ("component"
transactions), instead of a single transaction, as part of a single hedging
strategy when, in the opinion of Kleinwort Benson, it is in the best interest
of the Fund to do so and where underlying hedging strategies are permitted by
the Fund's investment policies. A combined transaction, while part of a single
hedging strategy, may contain elements of risk that are present in each of its
component transactions. (See above for the risk characteristics of certain
transactions.)
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Options, futures and forward foreign currency contracts that obligate
the Fund to provide cash, securities or currencies to complete such
transactions will result in that Fund either segregating assets in an account
with, or on the books of, the Funds' custodian, or otherwise "covering" the
transaction as described below. For example, a call option written by the Fund
will require the Fund to hold the securities subject to the call (or securities
convertible into the needed securities without additional consideration) or
liquid assets sufficient to meet the obligation by purchasing and delivering
the securities if the call is exercised. A call option written on an index will
require the Fund to have portfolio securities that correlate with the index. A
put option written by the Fund also will require the Fund to have available
assets sufficient to purchase the securities the Fund would be obligated to buy
if the put is exercised.
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<PAGE> 49
A forward foreign currency contract that obligates the Fund to provide
currencies will require the Fund to hold currencies or liquid securities
denominated in a foreign currency which will equal the Fund's obligations. Such
a contract requiring the purchase of currencies also requires segregation.
Unless a segregated account consists of the securities, cash or
currencies that are the subject of the obligation, the Fund will hold cash,
U.S. Government securities and other high grade liquid debt obligations in a
segregated account. These assets cannot be transferred while the obligation is
outstanding unless replaced with other suitable assets. In the case of an
index-based transaction, the Fund could own securities substantially
replicating the movement of the particular index.
In the case of a futures contract, the Fund must deposit initial
margin and variation margin, as often as daily if the position moves adversely,
sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Similarly, options on futures contracts require the Fund to
deposit margin to the extent necessary to meet the Fund's commitments.
In lieu of such assets, such transactions may be covered by other
means consistent with applicable regulatory policies. The Fund may enter into
offsetting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options and
hedging transactions. For example, the Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a
put option sold by the Fund. Moreover, instead of segregating assets if the
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Of course, the offsetting transaction must
terminate at the time of or after the primary transaction.
OTHER INFORMATION
Kleinwort Benson Investment Management Americas Inc. is a
wholly-owned, independent subsidiary of Kleinwort Benson Group plc. The Fund
may hold securities of companies with respect to which Kleinwort Benson Group
plc or its affiliates (including, without limitation, Kleinwort Benson Limited)
(collectively, the "Kleinwort Benson Group") provides investment banking,
financial advisory or other services, has other confidential relationships,
maintains a position or makes a market or otherwise may have an interest. For
good commercial and legal reasons, nonpublic information (a) which becomes
available to any member of the Kleinwort Benson Group through its relationships
or for any other reason cannot be passed on to Kleinwort Benson Investment
Management Americas Inc. or to the Funds or used for the benefit of the Fund;
and (b) which becomes available to Kleinwort Benson Investment Management
Americas Inc. for any reason cannot be passed on to the Funds or used for the
benefit of the Fund.
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions which
may not be changed with respect to the Fund without the approval of the holders
of a majority of the Fund's outstanding voting Shares.
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<PAGE> 50
As used in this Statement of Additional Information, with respect to
matters required by the provisions of the 1940 Act to be submitted to
Shareholders, the term "majority of the outstanding Shares" of either the Funds
or the Fund means the vote of the lesser of: (i) 67% or more of the Shares of
the Funds or Fund present at a meeting, if the holders of more than 50% of the
outstanding Shares of the Funds or Fund are present or represented by proxy, or
(ii) more than 50% of the outstanding Shares of the Funds or Fund.
As a matter of fundamental policy, the Fund may not:
(1) Purchase securities of any issuer if immediately after such purchase the
value of the Fund's investments in issuers conducting their principal
business activity in any one industry would exceed 25% of the value of the
Fund's total assets, provided that: (a) the gas, electric, water and
telephone businesses will be considered separate industries; (b) the
personal credit and business credit businesses will be considered separate
industries; (c) wholly- owned finance companies will be considered to be in
the industry of their parents if their activities are primarily related to
financing the activity of their parents; (d) foreign governments will be
considered separate industries; and (e) there is no limitation with respect
to or arising out of investments in obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities or tax-exempt
obligations of state and municipal governments and their agencies and
authorities.
(2) Make loans, except to the extent that the lending of portfolio
securities and purchase of debt obligations in accordance with the Fund's
investment objective and policies and the entry into repurchase agreements
with banks, brokers, dealers and other financial institutions may be deemed
to be loans.
(3) Borrow money, except: (a) as a temporary measure, and then only in
amounts not exceeding 5% of the value of the Fund's total assets, (b) from
banks, or (c) in connection with reverse repurchase agreements, provided
that immediately after any such borrowing all borrowings of the Fund do not
exceed one-third of the Fund's total assets. While the Fund has borrowings
outstanding in an amount exceeding 5% of its total assets the Funds will not
make any purchases of portfolio instruments for the Fund. The Funds may not
borrow money from Boatmen's Bancshares, Inc. or any majority-owned
subsidiary thereof.
(4) Purchase or sell real estate (except securities secured by real estate or
interests therein, securities issued by real estate investment trusts
and securities of companies that deal in real estate or mortgages),
commodities or commodity contracts relating to physical commodities or oil
and gas interests (although the Fund may invest in companies that own or
invest in such interests) except that the Fund may invest up to 10% of its
net assets in gold bullion, or invest in companies for the purpose of
exercising control or management. The Funds reserve freedom of action to
hold and to sell real estate acquired as a result of the Funds' ownership of
securities. (5) Act as an underwriter of securities (except as the Funds may
be deemed to be an underwriter under the Securities Act of 1933) in
connection with the purchase and sale of instruments or make short sales of
securities unless the Fund contemporaneously owns or has the right to obtain
at no added cost securities identical to those sold short. (6) Mortgage,
pledge or hypothecate more than one-third of the Fund's assets, except to
secure permitted borrowings.
(5) Act as an underwriter of securities (except as the Funds may be deemed to
be an underwriter under the Securities Act of 1933) in connection with the
purchase and sale of instruments or make short sales of securities unless
the fund contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short.
(6) Mortgage, pledge or hypothecate more than one-third of the Fund's assests,
except to secure permitted borrowings.
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<PAGE> 51
(7) Purchase the securities of any issuer other than the U.S.
Government, its agencies or instrumentalities, if immediately after such
purchase, more than 5% of the value of the Fund's total assets would be
invested in any one issuer except that: (a) up to 25% of the value of its
total assets may be invested without regard to such 5% limitation, and
(b) such 5% limitation shall not apply to repurchase agreements
collateralized by obligations of the U.S. Government, its agencies or
instrumentalities. For purposes of this restriction, a guaranty of an
instrument will be considered a separate security (subject to certain
exclusions allowed under the 1940 Act).
(8) Issue senior securities, except: (a) as appropriate to evidence
indebtedness that it is permitted to incur and (b) for Shares of the
separate classes or series of the Funds, provided that collateral
arrangements with respect to currency-related contracts, futures
contracts, options or other permitted investments, including deposits of
initial and variation margin, are not considered to be the issuance of
senior securities for the purpose of this restriction.
OTHER INVESTMENT POLICIES
As a matter of non-fundamental policy, which may be changed by the
Trustees without Shareholder approval, the Fund may not:
(a) Invest in any securities that would cause more than 15% of its
net assets at the time of such investment to be invested in securities
that are not readily marketable or restricted securities (for these
purposes restricted security means a security with a legal or contractual
restriction on resale in the principal market in which the security is
traded but does not include liquid Rule 144A securities), including
repurchase agreements maturing in more than seven days, and any other
assets for which a BONA FIDE market does not exist at the time of
purchase or subsequent valuation;
(b) Purchase securities of any one issuer if as a result more than 10%
of the voting securities of such issuer would be held by the Fund;
(c) Purchase securities issued by any other open-end investment
company, except in the open market where no commission or profit to a
sponsor or dealer results from the purchase other than customary
brokerage commissions or except when such purchase is part of a
merger or consolidation or except shares of no-load "money market"
investment companies advised by one of the Funds' investment advisers or
an affiliate thereof;
(d) Write put and call options, unless each option is "covered," the
underlying securities are ones that the Fund is permitted to
purchase, each option is traded in a liquid market and the aggregate
value of the securities underlying thecalls or obligations underlying the
puts determined as of the date an option is sold shall not exceed 25% of
the Fund's net assets;
(e) Purchase futures contracts or options on futures contracts for
non-hedging purposes if immediately after the purchase the value of
the aggregate initial margin with respect to all futures contracts (both
for receipt and delivery) entered into on behalf of the Fund (including
foreign currency futures contracts) and premiums paid for options on
futures contracts, will exceed 5% of the fair market value of its total
assets;
(f) Purchase warrants if as a result warrants taken at the lower of cost or
market value would represent more than 5% of the value of the Fund's net
assets or more than 2% of its net
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<PAGE> 52
assets in warrants that are not listed on the New York or American
Stock Exchanges or on an exchange with comparable listing requirements
(for this purpose, warrants attached to securities will be deemed to have
no value);
(g) Borrow for investment leverage purposes, except in connection
with permitted reverse repurchase agreements, but solely for
extraordinary or emergency purposes and to facilitate management of the
Funds' portfolio by enabling the Funds to meet redemption requests when the
liquidation of portfolio instruments is deemed to be disadvantageous or not
possible. In the event the net assets of the Fund fall below 300% of its
borrowings, the Funds will promptly reduce the borrowings of the Fund in
accordance with the 1940 Act;
(h) Purchase securities on margin or make short sales unless, by virtue of
the ownership of other securities, it has the right to obtain
securities equivalent in kind and amount to the securities sold and, if the
right is conditional, the sale is made upon the same conditions, except in
connection with arbitrage transactions and except that the Fund may obtain
such short-term credits as are necessary for the clearance of
transactions, and provided that the Fund may make initial and variation
margin payments in connection with transactions in futures contracts and
options on futures contracts.
With regard to restriction (g) above, the Fund may have to sell a
portion of its investments at a time when it may be disadvantageous to
do so. With respect to fundamental investment restriction (4), investment in
real estate limited partnerships is prohibited.
In addition to the above restrictions, so long as it remains a policy
of the Ohio Division of Securities, the Fund may not purchase or retain the
securities of an issuer if, to the Fund's knowledge, those officers, directors
or Trustees of the Funds or its investment advisers who individually own
beneficially more than 0.5% of the outstanding securities of such issuer
together own beneficially more than 5% of such outstanding securities.
Moreover, so long as it remains a restriction of the Ohio Division of
Securities, the Fund will not purchase securities of any issuer with a record
of less than three years' continuous operations, including predecessors, except
U.S. Government securities and obligations issued or guaranteed by any foreign
government or its agencies or instrumentalities, if such purchase would cause
the investments of the Fund in all such issuers to exceed 15% of the Fund's
total assets. In addition, for so long as it remains a restriction of the Ohio
Division of Securities, the Fund will treat securities eligible for resale
under Rule 144A as subject to the Funds' restriction on investing in restricted
securities.
In addition, so long as it remains a restriction of the Arkansas or
Wisconsin Securities Department, the Fund will not purchase securities of any
issuers with a record of less than three years continuous operations, including
predecessors, except U.S. Government securities, securities of such issuers
which are rated by at least one nationally recognized statistical rating
organization, municipal obligations and obligations issued or guaranteed by any
foreign government or its agencies or instrumentalities, if such purchase would
cause the investments of the Fund in all such issuers to exceed 5% of the total
assets of the Fund taken at market value. Further, as long as it remains a
restriction of the Wisconsin Securities Department, the Fund will invest not
more than 10% of its total assets in restricted securities. Also, for so long
as it remains a restriction of the Wisconsin Securities Department, the Funds
may not purchase securities issued by REITs in excess of 10% of the Fund's
total assets.
For so long as it remains a restriction of the Arkansas Securities
Department, the Fund will not purchase puts, calls, straddles, spreads or any
combination thereof if the value of the Fund's aggregate investment in such
securities exceeds 5% of its total assets.
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<PAGE> 53
Also, with respect to investments in investment company securities,
the Fund will comply with Section 12(d) of the 1940 Act and the rules
thereunder.
For purposes of the foregoing fundamental and non-fundamental
limitations, any limitation that involves a maximum percentage shall not be
considered violated unless an excess over the percentage occurs immediately
after, and is caused by, an acquisition or encumbrance of securities or assets
of, or borrowings on behalf of, the Fund.
TRUSTEES AND OFFICERS
Information pertaining to the Trustees and officers of the Funds is
set forth below. Trustees and officers deemed to be "interested persons" of the
Funds for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION(S) WITH FUNDS DURING PAST 5 YEARS
- ----------------- ----------------------- -------------------
<S> <C> <C>
J. Hord Armstrong, III (54) Trustee Chairman and CEO,
8000 Maryland Avenue D&K Wholesale Drug,
Suite 1190 Inc., a distributor of
St. Louis, Missouri 63105 pharmaceutical products,
since 1987.
David Holford Benson* (57) Trustee Chairman, Kleinwort
Kleinwort Benson Limited Charter Investment Trust
P.O. Box 560 plc. since March 1992.
20 Fenchurch Street Non-Executive Director
London EC3 P3DB of Kleinwort Benson
Group plc. (formerly
Vice Chairman).
Lee F. Fetter (42) Chairman Chief Operating and
660 S. Euclid, Box 8003 Financial Officer of
St. Louis, Missouri 63110 Washington University
School of Medicine since
1983.
Henry O. Johnston (58) Trustee President of Fordyce
9650 Clayton Road Four, Incorporated, a
St. Louis, Missouri 63124 corporation engaged
in the acquisition and
management of personal
investments.
</TABLE>
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<PAGE> 54
<TABLE>
<CAPTION>
<S> <C> <C>
L. White Matthews, III (49) Trustee Executive Vice President
Eighth and Eaton Avenues of Finance since 1987,
Bethlehem, Pennsylvania 18018 Union Pacific Corporation,
a company engaged
in transportation,
exploration and refining
of hydrocarbons, mining
and real estate.
Nicholas G. Penniman, IV (57) Trustee Publisher, St. Louis Post-
900 N. Tucker Boulevard Dispatch since 1986.
St. Louis, Missouri 63101 Senior Vice President
of Pulitzer Publishing
Company since 1986.
Susan L. West* (36) President Chief Operating Officer,
125 West 55th Street July 1993 to date; prior
New York, New York 10019 thereto, Executive Vice
President of Concord
Holding Corporation.
William J. Tomko (37) Vice President Vice President, BISYS
3435 Stelzer Road Fund Services, Inc.
Columbus, Ohio 43219
Martin R. Dean (32) Treasurer Manager, Mutual Fund
3435 Stelzer Road Accounting, BISYS Fund
Columbus, Ohio 43219 Services, Inc. since May
1994. Prior thereto,
Senior Manager, KPMG
Peat Marwick.
</TABLE>
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<PAGE> 55
<TABLE>
<CAPTION>
<S> <C> <C>
George O. Martinez (36) Secretary Senior Vice President
3435 Stelzer Road and Director of Legal and
Columbus, Ohio 43219 Compliance Services of
BISYS Fund Services, Inc.
since April 1995. Prior
thereto, Vice President
and Associate General
Counsel of Alliance
Capital Management, L.P.
Sheldon A. Jones (57) Assistant Secretary Partner of the law firm of
Ten Post Office Square South Dechert Price & Rhoads.
Boston, Massachusetts 02109
</TABLE>
The Agreement and Declaration of Trust of the Funds (the "Trust
Agreement") provides that, subject to its provisions, the business of the Funds
shall be managed by the Trustees. The Trust Agreement provides that: (a) the
Trustees may enter into agreements with other persons to provide for the
performance and assumption of various services and duties, including, subject
to their general supervision, advisory and administration services and duties,
and also including distribution, custodian, transfer and dividend disbursing
agency, Shareholder servicing and accounting services and duties, (b) a Trustee
shall be liable for his own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office, and for
nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law, and (c) subject to the preceding clause, the Trustees are not
responsible or liable for any neglect or wrongdoing of any officer or any
person referred to in clause (a).
Certain of the Trustees and officers and the organizations with which
they are associated have had in the past, and/or may have in the future,
transactions with Boatmen's, its parent, Boatmen's Bancshares Inc, Kleinwort
Benson, Concord and their respective affiliates. The Funds have been advised by
such Trustees and officers that all such transactions have been and are
expected to be ordinary transactions, and that the terms of such transactions,
including all loans and loan commitments by such persons, have been and are
expected to be substantially the same as the prevailing terms of comparable
transactions with other customers.
Each officer holds comparable positions with certain other investment
companies for which Concord and its affiliates serve as administrator and/or
distributor.
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<PAGE> 56
The following table provides information relating to the aggregate
compensation received by the Trustees from the Registrant for the fiscal year
ended August 31, 1995.
<TABLE>
<CAPTION>
COMPENSATION TABLE
(1) (2) (3) (4) (5)
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED ANNUAL FROM REGISTRANT
COMPENSATION BENEFITS UPON BENEFITS UPON FUND COMPLEX
NAME OF PERSON FROM REGISTRANT RETIREMENT RETIREMENT PAID TO PERSONS
-------------- --------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
J. Hord Armstrong, III $14,000 0 0 $14,000
David Holford Benson* $0 0 0 $0
Lee F. Fetter (Chairman) $11,500 0 0 $11,500
Henry O. Johnston* $13,750 0 0 $13,750
L. White Matthews, III $13,750 0 0 $13,750
Nicholas G. Penniman, IV $13,750 0 0 $13,750
<FN>
* "Interested person" of the Funds for purposes of the 1940 Act.
</TABLE>
Each of the Trustees who is not an "interested person" of the Funds
for purposes of the 1940 Act (the "non-interested Trustees") is compensated by
the Funds for his services as such. The compensation paid to the non-interested
Trustees other than the Chairman is $7,000 per year and $750 for each meeting
attended by such Trustee. The compensation paid to the Chairman is $9,500 and
$750 for each Trustee meeting attended. Each of the non-interested Trustees is
entitled to reimbursement for out-of-pocket expenses. Compensation paid to the
Trustees who are considered interested persons is paid directly by the
investment adviser. Trustees' fees during the period ended August 31, 1995
distributed to or accrued for the account of the non-interested Trustees (four
persons) amounted to approximately $53,000, which amount represented the total
compensation paid by the Funds to the Trustees during that year.
INVESTMENT ADVISER, MANAGER, ADMINISTRATOR,
DISTRIBUTOR AND TRANSFER AGENT
THE ADVISER AND MANAGER
Boatmen's Trust Company, a subsidiary of Boatmen's Bancshares, Inc.,
P.O. Box 14737, 100 North Broadway, St. Louis, Missouri 63178-4737, acts as
investment adviser to the Fund pursuant to an Investment Advisory Agreement
(the "Advisory Agreement") between the Fund and Boatmen's. As adviser,
Boatmen's is responsible for the management of the Fund's assets pursuant to an
Advisory Agreement between the Fund and Boatmen's.
Kleinwort Benson Investment Management Americas, Inc., 200 Park
Avenue, New York, New York 10166, serves as investment manager to the Fund
pursuant to an Investment Management Agreement among Kleinwort Benson,
Boatmen's and the Fund. As investment manager, Kleinwort Benson manages the
investment operations of the Fund and the composition of the Fund's assets,
including the purchase, retention and sale thereof.
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<PAGE> 57
The Fund has no present intention of purchasing any securities issued
by Boatmen's, Boatmen's Bancshares, Inc. or any of its affiliates. Mr.
Henry O. Johnston, a Trustee of the Funds, owns shares amounting to less
than one-tenth of one percent (.001%) of the outstanding shares of common
stock of Boatmen's Bancshares, Inc.
Under its Advisory Agreement with the Fund, Boatmen's provides
guidelines for Kleinwort Benson, the investment manager, with regard to
investment strategy and the allocation of assets among countries and
currencies, monitors compliance with such guidelines, reviews selection and
monitors performance of foreign subcustodians, periodically reviews pricing of
portfolio securities, and makes periodic reports to the Funds' Board of
Trustees.
The Advisory Agreement provides that, subject to Section 36 of the
1940 Act, Boatmen's will not be liable for any error of judgment or mistake of
law or for any loss suffered by the Funds, except liability to the Funds or its
Shareholders to which Boatmen's would otherwise be subject by reason of its
willful misfeasance, bad faith or gross negligence in the performance of, or
its reckless disregard of, its obligations and duties under the Agreement. The
Agreement provides that the Funds will indemnify Boatmen's against certain
liabilities, including liabilities under the Federal securities laws, or, in
lieu thereof, contribute to resulting losses.
As compensation for the services rendered to the Fund by Boatmen's as
investment adviser, and the assumption by Boatmen's of the expenses related
thereto, Boatmen's is entitled to a fee, computed daily and payable monthly, at
an annual rate equal to .80 of 1% of the average daily net assets of the Fund.
While this fee is higher than the advisory fee paid by most mutual funds, it is
believed to be comparable to advisory fees paid by many funds having similar
objectives and policies. For the period from July 12, 1993 through August 31,
1993, Boatmen's received a fee of $158,136 for services rendered to Fund under
the Advisory Agreement, for the period September 1, 1993 to August 31, 1994,
received a fee of $2,422,559 for such services, and for the period September 1,
1994 through August 31, 1995, received a fee of $2,828,628 for such services.
In connection with the foregoing services, Boatmen's bears all costs
incurred by it in connection with the performance of its duties, other than the
cost (including taxes and brokerage commission, if any) of securities purchased
for the Fund.
Kleinwort Benson's fee is paid by Boatmen's directly out of Boatmen's
advisory fee. The Fund is responsible for all expenses incurred by the Fund,
other than those expressly borne by Boatmen's, Kleinwort Benson, Concord
Holding Corporation, PFD, Concord and Concord Financial Services, Inc. under
the Advisory, Investment Management, Distribution, Administration or Transfer
Agency Agreements. Such expenses include, without limitation, the fees payable
to Boatmen's, Concord and Concord Financial Services, Inc., fees and expenses
incurred in connection with membership in investment company organizations, the
fees and expenses of the Fund's custodian and fund accounting agent, brokerage
fees and commissions, any portfolio losses, filing fees for the registration or
qualification of the Fund's Shares under federal or state securities laws,
expenses of the organization of the Fund, taxes, interest, costs of liability
insurance, fidelity bonds, indemnification or contribution, any costs, expenses
or losses arising out of any liability of, or claim for damages or other relief
asserted against, the Fund for violation of any law, legal and auditing and
tax fees and expenses, expenses of preparing and setting in type prospectuses,
statements of additional information, proxy material, reports and notices and
the printing and distributing of the same to the Fund's Shareholders and
regulatory authorities, compensation and expenses of its Trustees and
extraordinary expenses incurred by the Fund. If, however, in any fiscal year,
the sum of the Fund's expenses (excluding taxes, interest, brokerage and
extraordinary expenses such as for litigation) exceeds the expense limitations
applicable to the Fund imposed by state securities administrators, as such
limitations may be lowered or raised from time to time, the Fund's agreements
with Boatmen's and Kleinwort Benson provide that the Fund is entitled to be
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<PAGE> 58
reimbursed on a pro rata basis based on Boatmen's and Kleinwort Benson's
respective share of the fees paid by the Funds to Boatmen's for investment
advisory services, to the extent required by these expense limitations. As of
the date hereof, the most restrictive expense limitation imposed by state
securities administrators of which the Fund is aware provides that annual
expenses (as defined) may not exceed 2 1/2% of the first $30,000,000 of the
Fund's average net assets, plus 2% of the next $70,000,000 of such assets, plus
1-1/2% of such assets in excess of $100,000,000, provided that (under the
Missouri expense limitation) the aggregate annual expenses of every type paid
or incurred by the Fund or its Shareholders, must be substantially comparable
with the aggregate annual operating and advisory expenses incurred by other
investment companies with similar objectives and operating policies.
The Advisory Agreement between Boatmen's and the Fund was approved by
the sole holder of outstanding Shares of the Fund, The Goldman Sachs Group,
L.P., on July 12, 1993. The Advisory Agreement for the Fund was last approved
by the Trustees, including the "non-interested" Trustees, on August 21, 1995.
The Advisory Agreement will remain in effect until May 31, 1997 and will
continue in effect thereafter only if such continuance is specifically approved
at least annually: (1) by the vote of a majority of the outstanding Shares of
the Fund (as defined under "Investment Restrictions") or by the Trustees of the
Funds, and by the vote of a majority of the "non-interested" Trustees. The
Advisory Agreement will terminate automatically if assigned (as defined in the
1940 Act), and is terminable at any time without penalty by the Trustees of the
Funds or by vote of a majority of the outstanding Shares of the Fund (as
defined under "Investment Restrictions") on 60 days' written notice to
Boatmen's, and by Boatmen's on 60 days' written notice to the Funds.
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company
continuously engaged in the issuance of its shares, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks
generally from acting as investment adviser, transfer agent or custodian to
such an investment company, or from purchasing shares of such a company as
agent for and upon the order of customers. Boatmen's is a state-chartered trust
company. Boatmen's believes that it may perform the services contemplated by
its agreement with the Funds without violation of such banking laws or
regulations, which are applicable to it. It should be noted, however, that
future changes in either Federal or state statutes and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future judicial or administrative decisions or interpretations of
current and future statutes and regulations, could prevent Boatmen's from
continuing to perform such services for the Funds.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of Boatmen's in connection with the provision of
services on behalf of the Funds, the Funds might be required to alter
materially or discontinue its arrangements with Boatmen's and change its method
of operations. It is not anticipated, however, that any change in the Funds'
method of operations would affect the net asset value per share of the Fund or
result in a financial loss to any shareholder. Moreover, if current
restrictions preventing a bank from legally sponsoring, organizing, controlling
or distributing shares of an open-end investment company were relaxed, the
Funds expect that Boatmen's would consider the possibility of offering to
provide some or all of the services now provided by Concord and PFD. It is not
possible, of course, to predict whether or in what form such restrictions might
be relaxed or the terms upon which Boatmen's might offer to provide services
for consideration by the Trustees.
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<PAGE> 59
The terms of the Investment Management Agreement among Kleinwort
Benson, Boatmen's and the Fund provide that Kleinwort Benson, subject to
supervision of the Funds' Board of Trustees and Boatmen's, manages the
investment operations of the Fund and the composition of the Fund's assets,
including the purchase, retention and disposition thereof. The Investment
Management Agreement provides that, subject to Section 36 of the 1940 Act,
Kleinwort Benson will not be liable for any error of judgment or mistake of law
or for any loss suffered by the Fund, except liability to the Fund or its
Shareholders to which Kleinwort Benson would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of, or
its reckless disregard of, its obligations and duties under the Agreement. The
Agreement provides that the Fund will indemnify Kleinwort Benson against
certain liabilities, including liabilities under the Federal securities laws,
or, in lieu thereof, contribute to resulting losses.
At its regular meeting held on August 21, 1995, the Board of Trustees
of The Pilot Funds approved a new investment management agreement between
Kleinwort Benson Investment Management Americas Inc., Boatmen's Trust Company
and the Pilot Kleinwort Benson International Equity Fund. This action was
necessary because of the anticipated acquisition of Kleinwort Benson by
Dresdner Bank AG ("Dresdner") which would, pursuant to the terms of the current
agreement, result in a termination of that agreement as required by the
Investment Company Act of 1940.
As compensation for Kleinwort Benson's services, Kleinwort Benson is
entitled to a fee paid by Boatmen's directly out of Boatmen's advisory fee
computed daily and payable monthly, at an annual rate equal to, effective June
1, 1995, .40 of 1% up to $325,000,000 and .25 of 1% of such assets in excess of
$325,000,000, on an annualized basis. Prior to June 1, 1995, Kleinwort Benson
was entitled to a fee, computed daily and payable monthly at an annual rate
equal to .80 of 1% of the Fund up to $65,000,000, .40 of 1% of such assets in
excess of $65,000,000 and .25 of 1% of such assets in excess of $325,000,000.
For the period from July 12, 1993 through August 31, 1993, the investment
management fee paid by Boatmen's to Kleinwort Benson was $114,903, which
equaled .58 of 1% of the Fund's average daily net assets. For the fiscal year
ended August 31, 1994, the fee paid by Boatmen's to Kleinwort Benson was
$1,465,815 which equaled .48 of 1% of the Fund's average daily net assets. For
the fiscal year ended August 31, 1995, the fee paid by Boatmen's to Kleinwort
Benson was $1,535,377, which equaled .43 of 1% of the Fund's average daily net
assets. The rate used to determine fees payable pursuant to the new Investment
Management Agreement is identical to the rate in the existing Investment
Management Agreement. All fees and expenses are accrued daily and deducted
before declaration of dividends to shareholders.
THE ADMINISTRATOR, DISTRIBUTOR AND TRANSFER AGENT
Concord Holding Corporation ("Concord"), with principal offices at
3435 Stelzer Road, Columbus, Ohio 43219-3035, was organized in June of 1987.
Concord also serves as administrator to several other investment companies.
Concord provides administrative services for the Fund as described in
its Prospectus pursuant to an Administration Agreement dated as of March 31,
1994. The Agreement will continue in effect with respect to the Fund until May
31, 1996 and thereafter will be automatically extended as to the Fund for
successive periods of three years, provided that such continuance is
specifically approved: (a) by a vote of a majority of those members of the
Board of Trustees of the Funds who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the Board of Trustees of the
Funds or by vote of a majority of the outstanding voting securities of the
Fund. The Agreement is terminable by the Board of Trustees of the Funds with
regard to the Fund, without the payment
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<PAGE> 60
of any penalty, at any time if for cause. "Cause" shall mean a material breach
by Concord of its obligations under the Agreement which shall not have been
cured within 60 days after the date on which Concord shall have received
written notice setting forth in detail the facts alleged to give rise to the
breach.
For its services under the Administration Agreement, Concord is
entitled to receive an administration fee from the Funds, which is calculated
based on the net assets of all Funds combined. Under the Administration
Agreement, each Fund pays its pro rata share of an annual fee to Concord,
computed daily and payable monthly, of .115 of 1% of the Funds' average net
assets up to $1.5 billion, .110 of 1% of the Funds' average net assets on the
next $1.5 billion, and .1075 of 1% of the Funds' average net assets in excess
of $3 billion. From time to time, Concord may waive fees or reimburse the Funds
for expenses, either voluntarily or as required by certain state securities
laws. For the period March 31, 1994 to August 31, 1994, the Funds paid Concord
$295,477 for the performance of administrative services during such period. For
the fiscal year September 1, 1994 through August 31, 1995, the Fund paid
Concord $386,949 for the performance of administrative services during such
period.
Prior to March 31, 1994, Goldman Sachs Asset Management ("GSAM"), a
separate operating division of Goldman, Sachs & Co. served as administrator to
the Funds. For the fiscal period from July 12, 1993 through August 31, 1993 the
Fund paid GSAM, pursuant to the Administration Agreement then in effect,
$19,767 for the performance of administrative services rendered during such
period.
Concord will bear all expenses in connection with the performance of
its services under the Administration Agreement for the Funds with the
exception of fees charged by State Street Bank and Trust Company for certain
fund accounting services which are borne by the Funds.
The Administration Agreement provides that Concord shall not be liable
for any error of judgment or mistake of law or any loss suffered by the Fund in
connection with the matters to which the Agreement relates except a loss
resulting from willful misfeasance, bad faith or negligence in the performance
of Concord's duties or from the reckless disregard by Concord of its
obligations and duties thereunder.
Pilot Funds Distributors, Inc. ("PFD"), a wholly-owned subsidiary of
Concord, located at 3435 Stelzer Road, Columbus, Ohio 43219-3035, acts as the
exclusive distributor of the shares of the Fund pursuant to a Distribution
Agreement with the Funds dated as of March 31, 1994. Shares are sold on a
continuous basis by PFD as agent, although PFD is not obligated to sell any
particular amount of shares.
The Distribution Agreement with PFD will continue in effect with
respect to the Fund until May 31, 1996 and thereafter will be automatically
extended for successive terms of one year, provided that such continuance is
specifically approved: (a) by a majority of those members of the Board of
Trustees who are not interested persons of the Funds and who have no direct or
indirect financial interest in the operation of any plan that has been adopted
by the Funds pursuant to Rule 12b-1 under the 1940 Act ("Plan") or in any
agreement entered into in connection with such plans ("Disinterested
Trustees"), pursuant to a vote cast in person at a meeting called for the
purpose of voting on such approval, and (b) by the Board of Trustees of the
Funds or by vote of a majority of the outstanding voting securities of the
respective Fund. The Agreement is terminable by the Fund at any time with
regard to any class of its shares, without the payment of any penalty, by vote
of a majority of the Disinterested Trustees or by vote of a majority of the
outstanding voting securities
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<PAGE> 61
of such class on 60 days' written notice to PFD, or by PFD at any time, without
payment of any penalty, on 60 days' written notice to the Fund.
BISYS Fund Services, Inc. (the "Transfer Agent") is the transfer and
dividend disbursing agent of the Fund. It maintains the account records of all
shareholders and administers the distribution of all income earned as a result
of investing in the Fund. The Transfer Agent is located at 3435 Stelzer Road,
Columbus, Ohio 43219. For the fiscal year September 1, 1994 through August 31,
1995, Concord Financial Services, Inc., the Fund's former transfer agent,
received a fee of $51,775 in the capacity of transfer agent.
PORTFOLIO TRANSACTIONS
Kleinwort Benson is responsible for decisions to buy and sell
securities for the Fund, the selection of brokers and dealers to effect the
transactions and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a securities exchange are effected through brokers
who charge a negotiated commission for their services. Orders may be directed
to any broker including, to the extent and in the manner permitted by
applicable law.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without
stated commissions, although the price of a security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price that includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount.
In placing orders for portfolio securities of the Fund, Kleinwort
Benson is required to give primary consideration to obtaining the most
favorable price and efficient execution. This means that Kleinwort Benson will
seek to execute each transaction at a price and commission, if any, which
provide the most favorable total cost or proceeds reasonably attainable in the
circumstances. In seeking such execution, Kleinwort Benson will use its best
judgment in evaluating the terms of a transaction, and will give consideration
to various relevant factors, including, without limitation, the size and type
of the transaction, the nature and character of the market for the security,
the confidentiality, speed and certainty of effective execution required for
the transaction, the general execution and operational capabilities of the
broker-dealer, the reputation, reliability, experience and financial condition
of the firm, the value and quality of the services rendered by the firm in this
and other transactions, and the reasonableness of the spread or commission, if
any.
While Kleinwort Benson generally seeks reasonably competitive spreads
or commissions, the Fund will not necessarily be paying the lowest spread or
commission available. Within the framework of this policy, Kleinwort Benson
will consider research and investment services provided by brokers or dealers
who effect or are parties to portfolio transactions of the Fund, Kleinwort
Benson, or its other clients. Such research and investment services are those
which brokerage houses customarily provide to institutional investors and
include statistical and economic data and research reports on particular
companies and industries. Such services are used by Kleinwort Benson in
connection with all of its investment activities, and some of such services
obtained in connection with the execution of transactions for the Fund may be
used in managing other investment accounts. Conversely, brokers furnishing such
services may be selected for the execution of transactions of such other
accounts, whose aggregate assets are far larger than those of the Fund; and the
services furnished by such brokers may be used by Kleinwort Benson in providing
investment management services for the Funds.
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Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Trustees of the Funds.
In certain instances there may be securities which are suitable for
one or more of the other clients of Kleinwort Benson. Investment decisions for
the Fund and for Kleinwort Benson's other clients are made with a view toward
achieving their respective investment objectives. It may happen that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more client when one or more other clients
are selling that same security. Some simultaneous transactions are inevitable
when several clients receive investment advice from the same investment
adviser, particularly when the same security is suitable for the investment
objectives of more than one client. When two or more clients are simultaneously
engaged in the purchase or sale of the same security, the securities are
allocated among clients in a manner believed to be equitable to each. It is
recognized that in some cases this system could have a detrimental effect on
the price or volume of the security in a particular transaction as far as the
Fund is concerned. The Fund believes that over time its ability to participate
in volume transactions will produce superior executions for the Fund.
The anticipated annual portfolio turnover rate of the Fund is expected
to be less than 100%. The Portfolio turnover rate for the Fund for the fiscal
years ended August 31, 1994 and August 31, 1995 was 35.4% and 35.9%,
respectively. The Fund will not engage in purchasing securities for short-term
trading purposes.
For the fiscal years ended August 31, 1994 and August 31, 1995, the
brokerage commissions paid by the Fund were as follows:
<TABLE>
<CAPTION>
TOTAL TOTAL AMOUNT BROKERAGE
TOTAL BROKERAGE OF TRANSACTIONS COMMISSIONS
BROKERAGE COMMISSIONS ON WHICH PAID TO
COMMISSIONS PAID TO COMMISSIONS BROKERS PROVIDING
PAID AFFILIATED PERSONS WERE PAID RESEARCH
-------------- ------------------ ------------------- -----------------
<S> <C> <C> <C> <C>
Fiscal
Year from
September 1,
1994 through
August 31,
1995 $781,228 $0 (1) $291,172,320 (2) $0
Fiscal
Year from
September 1,
1993 through
August 31,
1994 $1,484,166 $0 (1) $154,608,502 (2) $0
</TABLE>
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<PAGE> 63
(1) Percentage of total commissions paid.
(2) Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
During the fiscal year ended August 31, 1994, the Fund did not acquire
or sell securities issued by its regular broker-dealers.
NET ASSET VALUE
The net asset value per Share of the Fund is determined by the Fund's
custodian at 3:00 p.m., Central time (4:00 p.m., Eastern time), on each
Business Day as defined in the Prospectus. In the event that the New York Stock
Exchange or the national securities exchange on which stock options are traded
adopt different trading hours on either a permanent or temporary basis, the
Trustees of the Funds will reconsider the time at which net asset value is
computed. In addition, the Fund may compute its net asset value as of any time
permitted pursuant to any exemption, order or statement of the SEC or its
staff.
Portfolio securities of the Fund are valued as follows: (a) securities
that are traded on any U.S. or foreign stock exchange or the National
Association of Securities Dealers NASDAQ System ("NASDAQ") are valued at the
last sale price on that exchange or NASDAQ prior to the Fund's valuation time;
if no sale occurs, securities traded on a U.S. exchange or NASDAQ are valued at
the mean between the closing bid and closing asked price and securities traded
on a foreign exchange will be valued at the official bid price; (b)
over-the-counter stocks not quoted on NASDAQ are valued at the last sale price
prior to the Fund's valuation time or, if no sale occurs, at the mean between
the last bid and asked price; (c) debt securities are valued by a pricing
service selected by Kleinwort Benson and approved by the Trustees of the Funds,
which prices reflect broker/dealer supplied valuations and electronic data
processing techniques if those prices are deemed by Kleinwort Benson to be
representative of market values at the Fund's valuation time; (d) options and
futures contracts are valued at the last sale price on the market prior to the
Fund's valuation time where any such option or futures contract is principally
traded; (e) forward foreign currency exchange contracts are valued at their
respective current fair market values, supplied by a dealer in such contracts
prior to the Fund's valuation time, determined on the basis of prices supplied
by a dealer in such contracts; and (f) all other securities and other assets,
including debt securities, for which prices are supplied by a pricing agent but
are not deemed by Kleinwort Benson to be representative of market values, but
excluding money market instruments with a remaining maturity of sixty days or
less and including restricted securities and securities for which no market
quotation is available, are valued at fair value as determined in good faith
pursuant to procedures established by the Trustees of the Funds, including use
of a valuation committee. Money market instruments held by the Fund with a
remaining maturity of sixty days or less will be valued by the amortized cost
method.
Fund securities traded on more than one United States national
securities exchange or foreign securities exchange are valued at the last sale
price on each business day prior to the Fund's valuation time on the exchange
representing the principal market for such securities. The value of all assets
and liabilities expressed in foreign currencies will be converted into U.S.
dollar values at the rates of such currencies against U.S. dollars last quoted
by any major bank between the buying and selling rates of such currencies
against U.S. dollars last quoted by any major bank. If such quotations are not
available, the rate of exchange will be determined in good faith by or under
procedures established by the Trustees of the Funds.
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Trading in securities on European and Far Eastern securities exchanges
and on over-the-counter markets is normally completed well before the close of
business on each business day of the Funds. In addition, European or Far
Eastern securities trading generally or in a particular country or countries
may not take place on all business days in the United States. Furthermore,
trading takes place in various foreign markets on days which are not business
days in the United States and days on which the Fund's net asset value is not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the Fund's valuation
time will not be reflected in the Fund's calculation of net asset values unless
Kleinwort Benson deems that the particular event would materially affect net
asset value, in which case an adjustment will be made.
The proceeds received by the Fund and each additional portfolio
established by the Trustees of the Funds for each issue or sale of its shares,
and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically
allocated to such Fund and constitute the underlying assets of that Fund. The
underlying assets of such Fund will be segregated on the books of account, and
will be charged with the liabilities of such Fund and a share of the general
liabilities of the Funds. Expenses with respect to the Fund are generally
allocated in proportion to the net asset values of the respective portfolios
except where allocations of direct expenses can otherwise be fairly made. In
addition, certain distribution, administration and service fees will be borne
exclusively by the class to which they relate.
MATTERS RELATING TO CLASS A SHARES AND CLASS B SHARES
As distributor, the Distributor pays the cost of printing and
distributing prospectuses to persons who are not shareholders of the Fund
(excluding preparation and printing expenses necessary for the continued
registration of the Fund's shares) and of printing and distributing all sales
literature. The Distributor is entitled to the payment of a front-end sales
charge on the sale of Class A Shares of the Fund as described in the Prospectus
for such Shares. The Distributor is also entitled to the payment of a
contingent deferred sales charge upon redemption of Class B Shares of the Fund
as described in the Prospectus for such Shares.
The Distributor is also entitled to payment by the Trust for
distribution in addition to the sales charges described in the Prospectuses.
Under the Trust's Distribution Plan for Class A Shares, the Trust pays fees for
the provision of services by Service Organizations (which may include the
Distributor itself), persons ("Clients") for whom the Service Organization is
the dealer of record or holder of record or with whom the Service Organization
has a servicing relationship. Under the Trust's Distribution Plan for Class B
Shares of the Fund, the Trust may pay the Distributor for (a) expenses incurred
in connection with advertising and marketing shares of the Fund, including but
not limited to any advertising or marketing via radio, television, newspapers,
magazines, telemarketing or direct mail solicitations; (b) fees for services
rendered with respect to Class B Shares similar to those services described
above with respect to Class A Shares; (c) expenses incurred in preparing,
printing and distributing Prospectuses (except those used for regulatory
purposes or for distribution to existing shareholders) and in implementing and
operating the Distribution Plan; and (d) interest on amounts expended by the
Distributor that are not immediately repaid by the Trust (to the extent
approved by the Board of Trustees and permitted by published positions of the
Securities and Exchange Commission).
Services provided by Service Organizations pursuant to the
Distribution Plans may include, among other things: (i) establishing and
maintaining accounts and records relating to Clients that beneficially own
Class A or Class B Shares; (ii) processing dividend and distribution payments
on
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<PAGE> 65
behalf of Clients; (iii) providing information periodically to Clients
regarding their Share positions; (iv) arranging for bank wires; (v) responding
to Client inquiries concerning their investments in Shares; (vi) providing the
information to the Fund necessary for accounting or subaccounting; (vii) if
required by law, forwarding shareholder communications from the Fund (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to Clients; (viii) assisting in
processing exchange and redemption requests from Clients; (ix) assisting
Clients in changing dividend options, account designations and addresses; and
(x) providing other similar services.
The Distribution Plan for Class A Shares provides that the Distributor
is entitled to receive distribution payments on a monthly basis at an annual
rate not exceeding .25% of the average daily net assets during such month of
the outstanding Shares to which a particular Plan relates. If in any month the
Distributor expends or is due more monies than can be immediately paid due to
this percentage limitation, the unpaid amount is carried forward from month to
month while the Distribution Plan is in effect until such time, if ever, when
it can be paid in accordance with such percentage limitation. Conversely, if in
any month the Distributor does not expend the entire amount then available
under a Plan, and assuming that no unpaid amounts have been carried forward and
remain unpaid, then the amount not expended will be a credit to be drawn upon
by the Distributor to permit future payment. However, any unpaid amounts or
credits due under a Distribution Plan may not be "carried forward" beyond the
end of the fiscal year in which such amounts or credits due are accrued.
The Distribution Plan for Class B Shares provides that the Distributor
is entitled to receive distribution payments on a monthly basis at an annual
rate not exceeding 1.00% of the average daily net assets during such month of
the outstanding Shares to which such Plan relates. Not more than 0.25% of such
net assets will be used to compensate Service Organizations for personal
services provided to Class B Shareholders and/or the maintenance of such
shareholders' accounts and not more than .75% of such net assets will be used
for promotional and other primary distribution activities.
Payments made out of or charged against the assets of a particular
class of Shares of a particular Fund must be in payment for expenses incurred
on behalf of that class. (The Distribution Plans permit, however, joint
distribution financing by the Fund or other investment portfolios or companies
that are affiliated persons of the Fund, affiliated persons of such a person,
or affiliated persons of the Distributor, in accordance with applicable
regulations of the Securities and Exchange Commission.)
` Payments for distribution expenses under a particular Distribution Plan are
subject to Rule 12b-1 (the "Rule") under the 1940 Act. Payments under the
Distribution Plans are also subject to the conditions imposed by Rule 18f-3
under the 1940 Act and a Rule 18f-3 Multiple Class Plan which has been adopted
by the Trustees of the Trust for the benefit of the Fund. The Rule defines
distribution expenses to include the cost of "any activity which is primarily
intended to result in the sale of [Trust] shares." The Rule provides, among
other things, that an investment company may bear such expenses only pursuant
to a plan adopted in accordance with the Rule. In accordance with the Rule, the
Plans provide that a report of the amounts expended under the respective Plans,
and the purposes for which such expenditures were incurred, will be made to the
Board of Trustees for its review at least quarterly. The Distribution Plans for
Class A Shares and Class B Shares provide that they may not be amended to
increase materially the costs which Class A or Class B Shares of the Fund may
bear for distribution pursuant to the respective Distribution Plans without
shareholder approval, and both Plans provide that any other type of material
amendment must be approved by a majority of the Board of Trustees, and by a
majority of the Trustees who are neither
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<PAGE> 66
"interested persons" (as defined in the 1940 Act) of the Trust nor have any
direct or indirect financial interest in the operation of the Plan being
amended or in any related agreements, by vote cast in person at a meeting
called for the purpose of considering such amendments (the "Disinterested
Trustees"). In addition, as long as the Distribution Plans for the respective
Share classes are in effect, the nomination of the Trustees who are not
interested persons of the Trust (as defined in the 1940 Act) must be committed
to the non-interested Trustees.
The Board of Trustees of the Trust has concluded that there is a
reasonable likelihood that the Plan will benefit the Fund and Class A and Class
B Shareholders, respectively. The Plan is subject to annual re-approval by a
majority of the Disinterested Trustees of the Trust and are terminable at any
time with respect to any Fund by a vote of a majority of such Trustees or, with
respect to the Distribution Plan, by vote of the holders of a majority of the
applicable Shares of the Fund involved. Any agreement entered into pursuant to
the respective Distribution Plan with a Service Organization is terminable with
respect to any Fund without penalty, at any time, by vote of a majority of the
Disinterested Trustees, by vote of the holders of a majority of the applicable
Shares of such Fund, by the Distributor or by the Service Organization. An
agreement will also terminate automatically in the event of its assignment.
Banks may act as Service Organizations and receive payments under the
Distribution Plan as described. The Glass-Steagall Act and other applicable
laws, among other things, prohibit banks from engaging in the business of
underwriting securities. If a bank were prohibited from acting as a Service
Organization, changes in the operation of the Funds might occur and a
shareholder serviced by such bank might no longer be able to avail himself or
herself of any automatic investment or other services than being provided by
the bank. It is not expected that shareholders would suffer any adverse
financial consequences as a result of these occurrences.
The Trust understands that Boatmen's and its affiliates and/or some
Service Organizations may charge their clients a direct fee for services in
connection with their investments in the Fund. These fees would be in addition
to any amounts which might be received under the Plan. Small, inactive
long-term accounts involving such additional charges may not be in the best
interest of shareholders.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
As described in the Prospectuses for such Shares, Class A Shares and
Class B Shares may be purchased directly from the Distributor or by Clients of
certain financial institutions such as broker-dealers that have entered into
selling and/or servicing agreements with the Distributor ("Service
Organizations"). Pilot Shares may be purchased by Boatmen's and its affiliates
acting on behalf of themselves and persons maintaining qualified accounts at
such institutions, as described in the Prospectus for such Shares. Individuals
may not purchase Pilot Shares directly. Boatmen's and its affiliates and
Service Organizations may impose minimum customer account and other
requirements in addition to those imposed by the Trust and described in the
Prospectuses. Depending on the terms of the particular account, these entities
may charge their customers fees for automatic investment, redemption and other
services. Such fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income. Boatmen's and its affiliates and Service Organizations are
responsible for providing information concerning these services and any charges
to any customer who must authorize the purchase of shares prior to such
purchase.
Purchase orders will be effected only on business days. Persons
wishing to purchase shares through their accounts at a Service Organization
(for Class A Shares and Class B Shares, or at
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<PAGE> 67
Boatmen's or its affiliates (for Pilot Shares), should contact such entity
directly for appropriate instructions.
An investor desiring to purchase Class A Shares or Class B Shares
directly from the Trust by wire should request his or her bank to transmit
immediately available funds by wire State Street Bank and Trust Company,
Boston, MA, ABA # 011000028, Re: PFTC, f/b/o Pilot Funds Incoming Wire Account
DDA No. 52165420, for purchase of shares in the investor's name. It is
important that the wire include the investor's name, address, and taxpayer
identification number, indicate whether a new account is being established or a
subsequent payment is being made to an established account and indicate the
name of the Fund and the class of shares being purchased. If a subsequent
payment is being made, the investor's Fund account number should be included.
An investor in Class A Shares or Class B Shares must have completed and
forwarded to the Transfer Agent an Account Application including any required
signature guarantees, before any redemptions of shares purchased by wire may be
processed.
Class A Shares of the Fund are sold with a front-end sales charge. As
described in the Prospectus for Class A Shares of the Fund, a front-end sales
charge will not be imposed on certain types of transactions and/or investors
(provided the status of the investment is explained at the time of investment).
These exemptions to the imposition of a front-end sales charge are due to the
nature of the investors and/or the reduced sales efforts that will be needed in
obtaining such investments.
Class B Shares of the Fund are sold without a front-end sales charge,
but are subject to a contingent deferred sales charge. As described in the
Prospectus for Class B Shares, the contingent deferred sales charge is not
charged on certain types of redemptions. You must explain the status of your
redemption at the time you redeem your shares in order to receive the sales
charge exemption.
Boatmen's and/or the Distributor may charge certain fees for acting as
Custodian for IRAs or 401k retirement plans, payment of which could require the
liquidation of shares. Consult the appropriate form for a description of these
fees. Purchases for IRA accounts or 401k retirement plans will be effective
only when payments received by the Transfer Agent are converted into federal
funds. Purchases for these plans may not be made in advance of receipt of
funds.
SUPPLEMENTARY REDEMPTION INFORMATION
An investor whose shares are purchased through accounts at Boatmen's
or its affiliates or a Service Organization may redeem all or part of his or
her shares in accordance with instructions pertaining to such accounts. Shares
in the Fund for which orders placed by Boatmen's or its affiliates, a Service
Organization or individual investor for wire redemption are received on a
business day before the close of regular trading hours on the New York Stock
Exchange (currently 3:00 p.m. Central time) will be redeemed as of the close of
regular trading on such Exchange and the proceeds of redemption (less any
applicable contingent deferred sales charge) will normally be wired in federal
funds on the next business day to the commercial bank specified by the
individual investor on the Account Application (or other bank of record on the
investor's file with the Transfer Agent), or to the Service Organization
through which the investment was made. To qualify to use the wire redemption
privilege with the Trust, the payment for shares must be drawn on, and
redemption proceeds paid to, the same bank and account as designated on the
Account Application (or other bank of record as described above). If the
proceeds of a particular redemption are to be wired to another bank, the
request must be in writing and signature guaranteed. Shares in the Fund for
which orders for wire redemption are received by the Trust after the close of
regular
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<PAGE> 68
trading hours on the New York Stock Exchange or on a non-business day will be
redeemed as of the close of regular trading on such Exchange on the next day on
which shares of the Fund are priced and the proceeds (less any applicable
contingent deferred sales charge) will normally be wired in federal funds on the
next business day thereafter. Redemption proceeds (less any applicable
contingent deferred sales charge) will be wired to a correspondent member bank
if the investor's designated bank is not a member of the Federal Reserve System.
Immediate notification by the correspondent bank to the investor's bank is
necessary to avoid a delay in crediting the funds to the investor's bank
account. Proceeds of less than $1,000 will be mailed to the investor's address.
To change the commercial bank or account designated to receive
redemption proceeds from Class A Shares or Class B Shares a written request
must be sent to The Pilot Funds, c/o BISYS Fund Services, Inc., 3435 Stelzer
Road, Columbus, Ohio 43219. Such request must be signed by each shareholder,
with each signature guaranteed as described in the Fund's Prospectuses.
Guarantees must be signed by an authorized signatory and "signature guaranteed"
must appear with the signature.
For processing redemptions or to change wiring instructions with the
Trust, the Transfer Agent may request further documentation from corporations,
executors, administrators, trustees or guardians. The Transfer Agent will
accept other suitable verification arrangements from foreign investors, such as
consular verification.
EXCHANGE PRIVILEGE
The Trust offers an exchange privilege whereby investors may exchange
all or part of their Class A Shares for Class A Shares of other investment
portfolios of the Trust; Class B Shares for Class B Shares of other investment
portfolios of the Trust; and Pilot Shares for Pilot Shares of the other
investment portfolios of the Trust. By use of this exchange privilege, the
investor authorizes the Transfer Agent to act on telephonic or written exchange
instructions from any person representing himself or herself to be the investor
and believed by the Transfer Agent to be genuine. The Transfer Agent's records
of such instructions are binding. The exchange privilege may be modified or
terminated at any time upon notice to shareholders. For federal income tax
purposes, exchange transactions are treated as sales on which a purchaser will
realize a capital gain or loss depending on whether the value of the shares
exchanged is more or less than his or her basis in such shares at the time of
the transaction.
Exchange transactions described in Paragraphs A, B and C below will be
made on the basis of the relative net asset values per share of the investment
portfolios involved in the transaction. Paragraphs A, B and C relate only to
whether a front-end sales charge will be imposed, not to whether a particular
exchange transaction is permissible or impermissible.
(a) Class A Shares, as well as additional shares acquired through
reinvestment of dividends or distributions on such shares, may be
exchanged without a front-end sales charge for Class A Shares of any
non-money market investment portfolio of the Trust.
(b) Shares of any investment portfolio of the Trust acquired by a previous
exchange transaction involving shares on which a front-end sales
charge has directly or indirectly been paid (e.g., Class A Shares
issued in connection with an exchange transaction involving Class A
Shares), as well as additional shares acquired through reinvestment of
dividends or distributions on such shares, may be exchanged without a
front-end sales charge for Class A Shares of any other non-money
market investment portfolio of the Trust. To accomplish
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<PAGE> 69
an exchange transaction under the provisions of this Paragraph,
investors must notify the Transfer Agent of their prior ownership of
shares and their account number.
(c) Class A Shares of any non-money market portfolio acquired in
connection with the distribution of assets held in a qualified trust,
agency or custodial account maintained with Boatmen's or its
affiliates may be exchanged without a front-end sales charge for Class
A Shares of any non-money market investment portfolio of the Trust.
Class B Shares acquired pursuant to an exchange transaction will
continue to be subject to a contingent deferred sales charge. However, Class B
Shares may be exchanged for other Class B Shares without the payment of a
contingent deferred sales charge at the time of exchange. In determining the
holding period for calculating the contingent deferred sales charge payable on
redemption of Class B Shares, the holding period of the shares originally held
will be added to the holding period of the shares acquired through exchange.
In addition, as described in the Prospectuses, under certain
circumstances exchange transactions between Class A Shares and Pilot Shares in
the Fund may be permitted without the payment of a front-end sales charge.
Except as stated above, a front-end sales charge will be imposed when
shares of any investment portfolio of the Trust that were purchased or
otherwise acquired without a front-end sales charge are exchanged for shares of
a non-money market investment portfolio of the Trust subject to such a
front-end charge.
Exchange requests received on a business day prior to the time shares
of the investment portfolios involved in the request are priced will be
processed on the date of receipt. "Processing" a request means that shares in
the investment portfolios from which the shareholder is withdrawing an
investment will be redeemed at the net asset value per share next determined on
the date of receipt. Shares of the new investment portfolio into which the
shareholder is investing will also normally be purchased at the net asset value
per share next determined coincident to or after the time of redemption.
Exchange requests received on a business day after the time shares of the
investment portfolios involved in the request are priced will be processed on
the next business day in the manner described above.
RIGHT OF ACCUMULATION AND STATEMENT OF INTENTION
For the purpose of applying the Right of Accumulation or Statement of
Intention privileges available to certain Class A Share investors in the Fund
as described in the Prospectus, the scale of sales charges applies to purchases
of Class A Shares made by any "purchaser," which term includes an individual
and/or spouse purchasing securities for his, her or their own account or for
the account of any minor children; or a trustee or other fiduciary account
(including a pension, profit-sharing or other employee benefit trust created
pursuant to a plan qualified under Section 401 of the Internal Revenue Code)
although more than one beneficiary is involved; or "a qualified group" which
has been organized for the purpose of buying redeemable securities of a
registered investment company at a discount, provided that the purchases are
made through a central administrator or a single dealer, or by other means
which result in economy of sales effort or expense. A "qualified group" must
have more than 10 members, must be available to arrange for group meetings
between representatives of the Fund and the members, and must be able to
arrange for mailings to members at reduced or no cost to the Distributor.
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MISCELLANEOUS
Certificates for shares will not be issued.
With respect to the Fund, a "business day" is a day on which the New
York Stock Exchange is open for trading, and includes Martin Luther King, Jr.
Day, Columbus Day and Veterans Day. The scheduled 1996 holidays on which the
New York Stock Exchange is closed are: New Year's Day (observed), President's
Day, Good Friday, Memorial Day, Independence Day (observed), Labor Day,
Thanksgiving Day and Christmas Day (observed).
The Trust may suspend the right of redemption or postpone the date of
payment for shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities Exchange Commission; (b) the Exchange is closed for other than
customary weekend and holiday closings; (c) the Securities and Exchange
Commission has by order permitted such suspension; or (d) an emergency exists
as determined by the Securities and Exchange Commission. (The Trust may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)
The Trust may redeem shares involuntarily to reimburse a Fund for any
loss sustained by reason of the failure of a shareholder to make full payment
for shares purchased by the shareholder or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
Fund shares as provided in the Funds' Prospectuses from time to time.
IN KIND PURCHASES
Payment for shares of a Fund may, in the discretion of Boatmen's, be
made in the form of securities that are permissible investments for the Fund as
described in the Prospectuses. For further information about this form of
payment, contact Boatmen's. In connection with an in-kind securities payment, a
Fund will require, among other things, that the securities be valued on the day
of purchase in accordance with the pricing methods used by the Fund and that
the Fund receive satisfactory assurances that it will have good and marketable
title to the securities received by it; that the securities be in proper form
for transfer to the Fund; and that adequate information be provided concerning
the basis and other tax matters relating to the securities.
REDEMPTIONS IN KIND
If the Board of Trustees determines that conditions exist which make
payment of redemptions proceeds wholly in cash unwise or undesirable, the Trust
may make payment wholly or partly in securities or other property. Such
redemptions will only be made in "readily marketable" securities. In such an
event, a shareholder would incur transaction costs in selling the securities or
other property. Each Fund may commit that it will pay all redemption requests
by a shareholder of
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<PAGE> 71
record in cash, limited in amount with respect to each shareholder during any
ninety-day period to the lesser of $250,000 or 1% of the net asset value of the
Fund at the beginning of such period.
CALCULATION OF PERFORMANCE QUOTATIONS
From time to time, quotations of the Fund's performance may be
included in advertisements, sales literature or reports to Shareholders or
prospective investors. These performance figures may be calculated in the
following manner:
A. AVERAGE ANNUAL TOTAL RETURN is the average annual compounded rate of
return for the periods of one year and the life of the Fund, ended on
the last day of a recent calendar quarter. Average annual total
return quotations reflect changes in the price of the Fund's Shares
and assume that all dividends and capital gains distributions during
the respective periods were reinvested in the Fund's Shares. Average
annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment over such
periods according to the following formula (average annual total
return is then expressed as a percentage):
T = (ERV/P)1/n - 1 Where:
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical
$1,000 investment made at the beginning of the
applicable period.
A. CUMULATIVE TOTAL RETURN is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period.
Cumulative total return quotations reflect changes in the price of a
Fund's Shares and assume that all dividends and capital gains
distributions during the period were reinvested in Shares of the
applicable Fund. Cumulative total return is calculated by finding the
cumulative rates of a return of a hypothetical investment over such
periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where:
C = cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical
$1,000 investment made at the beginning of the
applicable period.
A. TOTAL RETURN is the rate of return on an investment for a specified
period of time calculated in the same manner as Cumulative Total
Return.
A. YIELD is the net annualized yield based on a specified 30-day (or one
month) period assuming semi-annual compounding of income. Yield is
calculated by dividing the net investment income per Share earned
during the period by the maximum offering price per Share on the last
day of the period, according to the following formula:
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YIELD = 2[(a-b + 1)6 - 1]
---
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of Shares outstanding
during the period that
were entitled to receive dividends.
d = the maximum offering price per Share on the last day
of the period.
Unlike bank deposits or other investments that pay a fixed yield or
return for a stated period of time, the return for the Fund will fluctuate from
time to time and does not provide a basis for determining future returns.
Return is a function of portfolio quality, composition, maturity and market
conditions, as well as the expenses allocated to the Fund. The return of the
Fund may not be readily comparable to other investment alternatives because of
differences in the foregoing variables and the methods used to value portfolio
securities, compute expenses and calculate return.
Average annual total return, cumulative total return, total return and
yield are calculated separately for Pilot Shares and Class A Shares. Pilot
Shares, Class A and Class B Shares are subject to different fees and expenses
and may have different performance for the same period. Performance information
is not available for Class B Shares which did not commence operations until
, 1996.
For periods prior to July 12, 1993 the performance information for the
Pilot International Equity Fund is actually the performance for the Kleinwort
Benson International Equity Fund of Kleinwort Benson Investment Strategies, all
of the assets of which were acquired by the Pilot International Equity Fund in
exchange for Class A Shares in a reorganization effective July 12, 1993. The
Pilot International Equity Fund did not commence operations until that date.
The Kleinwort Benson International Equity Fund was advised solely by Kleinwort
Benson prior to that date.
The average annual total return for share classes outstanding August
31, 1995 of the Pilot International Equity Fund with respect to Pilot Shares
and Class A Shares for the one, five and ten-year periods ended August 31,
1995, assuming such Shares had been outstanding and subject to maximum service
fees and that the maximum sales charge had been assessed is shown below:
For the period prior to July 12, 1993, the information reflects the
performance of the Kleinwort Benson International Equity Fund.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS
-------- ---------- ---------
<S> <C> <C> <C>
Pilot International Equity Fund
Pilot Shares 2.08% 4.10% 15.65%
Class A Shares -2.81% 2.89% 14.83%
</TABLE>
The average annual total return for share classes outstanding August
31, 1995 of the Fund with respect to Pilot Shares and Class A Shares for the
one, five and ten-year periods ended August
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<PAGE> 73
31, 1995, assuming such Shares had been outstanding and subject to maximum
service fees and that no sales charge had been assessed is shown below:
For the period prior to July 12, 1993, the information reflects the
performance of the Kleinwort Benson International Equity Fund.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS
-------- ---------- ---------
<S> <C> <C> <C>
Pilot International Equity Fund
Pilot Shares 2.08% 4.10% 15.65%
Class A Shares 1.77% 3.83% 15.36%
</TABLE>
From time to time, the Funds may publish an indication of one or more
Funds' past performance as measured by independent sources, such as Lipper
Analytical Services, Incorporated, Weisenberger Investment Companies Service,
Donoghue's Money Fund Report, Barron's, Business Week, Changing Times,
Financial World, Forbes, Money, Personal Investor, Sylvia Porter's Personal
Finance and The Wall Street Journal.
TAX INFORMATION
The Fund intends to elect to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). Such qualification does not involve supervision of management or
investment practices by any governmental agency or bureau.
In order to qualify as a regulated investment company, the Fund must,
among other things: (a) derive at least 90% of its annual gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock or securities or foreign currencies, or
other income (such as gains from options, futures or forward contracts) derived
with respect to its business of investing in such stock, securities or
currencies; (b) derive less than 30% of its annual gross income from the sale
or other disposition of: (i) stock or securities, (ii) options, futures or
forward contracts (other than options, futures or forward contracts on foreign
currencies), or (iii) foreign currencies (or foreign currency options, futures
or forward contracts) not directly related to the Fund's principal business of
investing in stock or securities (or options and futures with respect to stocks
or securities), held less than three months (the "30% Limitation"); and (c)
diversify its holdings so that, at the end of each quarter of its taxable year:
(i) at least 50% of the market value of the Fund's total assets is represented
by cash and cash items (including receivables), U.S. Government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and not greater than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of the Fund's total assets is
invested in the securities (other than U.S. Government securities and
securities of other regulated investment companies) of any one issuer.
The Fund, as a regulated investment company, generally should not be
subject to federal income tax on its investment company taxable income (which
includes, among other items, dividends, interest and net short-term capital
gains in excess of net long-term capital losses) and net capital gains (the
excess of net long-term capital gains over net short-term capital losses) which
are distributed to Shareholders in any taxable year, provided that the Fund
distributes at least 90% of its investment
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company taxable income and its net tax-exempt interest income, if any, each
taxable year. In order to avoid a 4% federal excise tax, the Fund must
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not taking into account any capital
gains or losses) for such year, at least 98% of the excess of its capital gains
over its capital losses (adjusted for certain ordinary losses) computed on the
basis of the one-year period ending on October 31 of such year, and any
ordinary income and capital gains for previous years that were not distributed
during those years. A distribution will be treated as having been paid on
December 31 of the current calendar year if it is declared by the Fund in
October, November or December with a record date in such a month and paid
during January of the following calendar year. Such distributions will be
taxable to Shareholders in the calendar year in which the distributions are
declared.
Dividends paid out of the Fund's investment company taxable income
will be treated as ordinary income in the hands of Shareholders. If a portion
of the Fund's income consists of dividends paid by U.S. corporations, a portion
of the dividends paid by the Fund may qualify for the corporate
dividends-received deduction. Distributions of net capital gains, if any, which
are designated as capital gain dividends are taxable to Shareholders as
long-term capital gain, regardless of the length of time the Shares of the Fund
have been held by such Shareholders, and are not eligible for the corporate
dividends-received deduction. Net capital gains for a taxable year are computed
by taking into account any capital loss carry-forward of the Fund.
Distributions of investment company taxable income and net capital
gains will be taxable as described above, whether received in additional Shares
or in cash. Shareholders electing to receive distributions in the form of
additional Shares will have a cost basis in each Share so received equal to the
net asset value of such Share on the reinvestment date.
Investments by the Fund in zero coupon securities will result in
income to the Fund equal to a portion of the excess of the face value of the
securities over their issue price (the "original issue discount") each year
that the securities are held, even though the Fund receives no cash interest
payments. This income is included in determining the amount of income which
the Fund must distribute to maintain its status as a regulated investment
company and to avoid the payment of federal income tax and the 4% excise tax.
Gain derived by the Fund from the disposition of any market discount
bonds (I.E., bonds purchased other than at original issue, where the face value
of the bonds exceeds their purchase price), including tax-exempt market
discount bonds, held by the Fund will be taxed as ordinary income to the extent
of the accrued market discount on the bonds, unless the Fund elects to include
the market discount in income as it accrues.
The taxation of equity options and over-the-counter options on debt
securities is governed by Code Section 1234. Pursuant to Code Section 1234, the
premium received by the Fund for selling a put or call option is not included
in income at the time of receipt. If the option expires, the premium is
short-term capital gain to the Fund. If the Fund enters into a closing
transaction, the difference between the amount paid to close out its position
and the premium received is short-term capital gain or loss. If a call option
written by the Fund is exercised, thereby requiring the Fund to sell the
underlying security, the premium will increase the amount realized upon the
sale of such security and any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term depending upon the holding period of
the security. With respect to a put or call option that is purchased by the
Fund, if the option is sold, any resulting gain or loss will be a capital gain
or loss, and will be long-term or short-term, depending upon the holding period
of the option. If the option expires, the resulting loss is a capital loss and
is long-term or short-term, depending upon the holding period of the option. If
the option is exercised, the cost of the
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option, in the case of a call option, is added to the basis of the purchased
security and, in the case of a put option, reduces the amount realized on the
underlying security in determining gain or loss.
Certain options, futures contracts and forward contracts in which the
Fund may invest are "section 1256 contracts." Gains or losses on section 1256
contracts generally are considered 60% long-term and 40% short-term capital
gains or losses; however, foreign currency gains or losses (as discussed below)
arising from certain section 1256 contracts may be treated as ordinary income
or loss. Also, section 1256 contracts held by the Fund at the end of each
taxable year (and, generally, for purposes of the 4% excise tax, on October 31
of each year) are "marked-to-market" (that is, treated as sold at fair market
value), resulting in unrealized gains or losses being treated as though they
were realized.
Generally, the hedging transactions undertaken by the Fund may result
in "straddles" for U.S. federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by the Fund. In addition,
losses realized by the Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences to the Fund of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Fund which is taxed as
ordinary income when distributed to its Shareholders.
The Fund may make one or more of the elections available under the
Code which are applicable to straddles. If the Fund makes any of the elections,
the amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
may operate to accelerate the recognition of gains or losses from the affected
straddle position.
Because the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which may be distributed to
Shareholders, and which will be taxed to them as ordinary income or long-term
capital gain, may be increased or decreased as compared to a fund that did not
engage in such hedging transactions.
The 30% Limitation and the diversification requirements applicable to
the Fund's assets may limit the extent to which the Fund will be able to engage
in transactions in options, futures contracts and forward contracts.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables, or pays such liabilities, generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain futures
contracts, forward contracts and options, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition
of the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of the
Fund's investment company taxable income to be distributed to its Shareholders
as ordinary income.
If the Fund invests in stock of certain foreign investment companies,
the Fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The
distribution or gain so allocated to any taxable year of the Fund, other than
the taxable year of the excess distribution or disposition, would be taxed to
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the Fund at the highest ordinary income rate in effect for such year, and the
tax would be further increased by an interest charge to reflect the value of
the tax deferral deemed to have resulted from the ownership of the foreign
company's stock. Any amount of distribution or gain allocated to the taxable
year of the distribution or disposition would be included in the Fund's
investment company taxable income and, accordingly, would not be taxable to the
Fund to the extent distributed by the Fund as a dividend to its Shareholders.
The Fund may be able to make an election, in lieu of being taxable in
the manner described above, to include annually in income its pro rata share of
the ordinary earnings and net capital gain of the foreign investment company,
regardless of whether it actually received any distributions from the foreign
company. These amounts would be included in the Fund's investment company
taxable income and net capital gain which, to the extent distributed by the
Fund as ordinary or capital gain dividends, as the case may be, would not be
taxable to the Fund. In order to make this election, the Fund would be required
to obtain certain annual information from the foreign investment companies in
which it invests, which in many cases may be difficult to obtain.
Alternatively, the Fund may be able to elect to mark to market its foreign
investment company stock, resulting in the stock being treated as sold at fair
market value on the last business day of each taxable year. Any resulting gain
would be reported as ordinary income, and any resulting loss would not be
recognized.
Any gain or loss realized by a Shareholder upon the sale or other
disposition of Shares, or upon receipt of a distribution in complete
liquidation of the Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the Shareholder's holding
period for the Shares. Any loss realized on a sale or exchange will be
disallowed to the extent the Shares disposed of are replaced (including Shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the Shares. In
such a case, the basis of the Shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a Shareholder on a disposition of Shares
held by the Shareholder for six months or less will be treated as a long-term
capital loss to the extent of any distributions of net capital gains received
by the Shareholder with respect to such Shares.
The Fund may be subject to foreign withholding taxes on its
investments in certain securities of foreign entities. These taxes may be
reduced under the terms of applicable tax treaties, and the Fund intends to
satisfy any procedural requirements to qualify for benefits under these
treaties. In the event that more than 50% of the value of its total assets at
the close of a taxable year is composed of stock or securities of foreign
corporations, a Fund may make an election under Code Section 853 to permit its
Shareholders (subject to limitations) to claim a credit or deduction on their
federal income tax returns for their pro rata portion of qualified taxes paid
by that Fund in foreign countries. In the event such an election is made,
Shareholders would be required to include their pro rata portion of such taxes
in gross income and may be entitled to claim a foreign tax credit or deduction
for the taxes, subject to certain limitations under the Code. Shareholders who
are precluded from taking such credits or deductions will nevertheless be taxed
on their pro rata share of the foreign taxes included in their gross income,
unless they are otherwise exempt from federal income taxes.
The Fund will be required to report to the Internal Revenue Service
(the "IRS") all taxable distributions (except in the case of certain exempt
Shareholders). Under the backup withholding provisions of Code Section 3406,
all such distributions may be subject to withholding of federal income tax at
the rate of 31%. This tax generally would be withheld if: (a) the payee fails
to furnish the Fund with the payee's taxpayer identification number ("TIN")
under penalties of perjury, (b) the IRS notifies the Fund that the TIN
furnished by the payee is incorrect, (c) the IRS notifies the Fund that the
payee has failed to properly report interest or dividend income to the IRS, or
(d) when required to do so, the payee fails to certify under penalties of
perjury that it is not subject to backup withholding. An individual's TIN
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is his or her social security number. The Funds may refuse to accept an
application that does not contain any required TIN or certification that the
number provided is correct. If the withholding provisions are applicable, any
distributions, whether taken in cash or reinvested in Shares, will be reduced
by the amounts required to be withheld. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the Shareholder's U.S.
federal income tax liability. Investors may wish to consult their tax advisors
about the applicability of the backup withholding provisions.
All distributions, whether received in Shares or cash, must be
reported by each Shareholder on his or her federal income tax return. Each
Shareholder should consult his or her own tax adviser to determine the state
and local tax consequences of an investment in the Fund.
The foregoing discussion relates solely to U.S. federal income tax law
as it applies to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, trusts and estates). Each Shareholder who is not a
U.S. person should consult his or her tax adviser regarding the U.S. and non-
U.S. tax consequences of ownership of Shares of the Fund, including the
possibility that such a Shareholder may be subject to a U.S. withholding tax at
a rate of 30% (or a lower rate under an applicable U.S. income tax treaty) on
certain distributions.
STATE AND LOCAL
The Fund may be subject to state or local taxes in jurisdictions in
which the Fund may be deemed to be doing business. In addition, in those states
or localities which have income tax laws, the treatment of the Fund and its
Shareholders under such laws may differ from their treatment under Federal
income tax laws. Also, an investment in the Fund may have different tax
consequences for Shareholders than would a direct investment in the securities
held by the Fund. Shareholders should consult their own tax advisers concerning
these matters. For example, in such states or localities, it may be appropriate
for Shareholders to review with their tax advisers the state income tax
consequences of investment by the Fund in securities issued or guaranteed as to
principal and interest by the U.S. Government or its various agencies or
instrumentalities, portfolio repurchase agreements, and securities loans.
ORGANIZATION AND CAPITALIZATION
The Pilot Funds is a Massachusetts business trust established under the
laws of the Commonwealth of Massachusetts by an Agreement and Declaration of
Trust dated July 15, 1982, as amended (the "Declaration of Trust") under the
name Centerland Fund. On June 1, 1994, the name of the Funds was changed to The
Pilot Funds. Each Shareholder is deemed to have expressly assented and agreed to
the terms of the Declaration of Trust and is deemed to be a party thereto. The
authorized capital of the Funds consists of an unlimited number of units of
beneficial interest which are referred to as "Shares" in this Statement of
Additional Information. The Trustees have authority under the Declaration of
Trust to create and classify Shares of beneficial interest in separate series
("Funds") without further action by Shareholders. The Trustees have established
twelve Funds, one of which is offered herein and known as the Pilot
International Equity Fund. Each Share of the Fund has a par value of $.001. It
represents an equal proportionate interest in the Fund with each other Share,
and is entitled to such distributions out of the income belonging to the Fund as
are declared by the Trustees. Upon the liquidation of the Fund, Shareholders
thereof are entitled to share pro rata in the net assets belonging to the Fund
available for distribution. The Declaration of Trust further authorizes the
Trustees to classify or reclassify any series or Fund of Shares into one or more
classes. The Trustees have authorized the issuance of three classes of Fund:
Pilot Shares, Class A Shares and Class B Shares. Each Pilot Share, Class A Share
and Class B Share is entitled to one vote per Share; however, separate votes
will be taken by the Fund or one of its classes on matters affecting only the
Fund or that particular class or as otherwise required by law. Fractional Shares
are entitled to proportionate
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fractional votes. Shares have neither cumulative voting rights nor any
preemptive, subscription, or conversion rights (the right of redemption is
described under "Transaction Rules" and "How to Sell Shares" in the
Prospectus). Shares when issued as described herein are fully paid and
nonassessable, except as expressly set forth below. For information relating to
possible mandatory redemption of Shares at the option of the Funds, see
"Transaction Rules" and "How to Sell Shares" in the Prospectus. The Trust
Agreement provides for Shareholder voting only for the election or removal of
one or more Trustees, if a meeting is called for that purpose, and for certain
other designated matters. Each Trustee serves until the next meeting of
Shareholders, if any, called for the purpose of considering the election or
reelection of the Trustee or successor thereto, and until the election and
qualification of his successor, if any, elected at that meeting, or until the
Trustee sooner dies, resigns, retires or is removed by the Shareholders or
two-thirds of the Trustees.
As of the date of this Statement of Additional Information, the
Trustees and officers of the Funds owned beneficially less than 1% of the
outstanding shares of the Fund.
SHAREHOLDER AND TRUSTEE LIABILITY
The Pilot Funds is an entity of the type commonly known as a
"Massachusetts business trust," which is the form in which many mutual funds
are organized. Shareholders of such a trust may, under certain circumstances,
be held personally liable as partners for the obligations of the trust. The
Declaration of Trust contains an express disclaimer of Shareholder liability
for acts or obligations of the Funds. Notice of such disclaimer will normally
be given in each agreement, obligation or instrument entered into or executed
by the Funds or the Trustees. The Declaration of Trust provides for
indemnification by the relevant Fund for any loss suffered by a Shareholder as
a result of an obligation of the Fund. The Declaration of Trust also provides
that the Funds shall, upon request, assume the defense of any claim made
against a Shareholder for any act or obligation of the Funds, and satisfy any
judgment thereon. Thus, the risk of a Shareholder incurring financial loss on
account of Shareholder liability is limited to circumstances in which the Fund
is unable to meet its obligations. The Trustees believe that, in view of the
above, the risk of personal liability of Shareholders is not material.
The Declaration of Trust provides that the Trustees of the Funds shall
not be liable for any action taken by them in good faith, and that they shall
be fully protected in relying in good faith upon the records of the Funds and
upon reports made to the Funds by persons selected in good faith by the
Trustees as qualified to make such reports. The Declaration of Trust further
provides that the Trustees will not be liable for errors of judgment or
mistakes of fact or law. The Declaration of Trust provides that the Funds will
indemnify Trustees and officers of the Funds against liabilities and expenses
reasonably incurred in connection with litigation in which they may be involved
because of their positions with the Funds, unless it is determined, in the
manner provided in the Declaration of Funds, that they have not acted in good
faith in the reasonable belief that, in the case of conduct in their official
capacity with the Funds, their conduct was in the best interests of the Funds
and that, in all other cases, their conduct was at least not opposed to the
best interest of the Funds (and that, in the case of any criminal proceeding,
they had no reasonable cause to believe that the conduct was unlawful).
However, nothing in the Declaration of Trust or the By-Laws protects or
indemnifies Trustees or officers against any liability to which they would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of their
office.
CUSTODIAN AND SUBCUSTODIANS
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110 is the custodian of the Fund's assets and
also maintains the Funds' accounting records. State Street has established a
network of foreign subcustodians to hold certain foreign securities
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<PAGE> 79
purchased by the Fund, and The Northern Trust Company, 50 South LaSalle Street,
Chicago, Illinois 60675, as subcustodian to hold cash and handle certain wire
receipts and transfers of funds.
INDEPENDENT ACCOUNTANTS AND COUNSEL
Arthur Andersen LLP, independent public accountants, One International
Place, Boston, Massachusetts 02110, have been selected as auditors of the Fund.
In addition to providing audit services, Arthur Andersen LLP prepares the
Funds' federal and state tax returns and provides consultation and assistance
on accounting, internal control and related matters. The financial statements
and related report of Arthur Andersen LLP contained in the 1995 Annual Report
of the Funds and the financial statements and related report of Ernst & Young
LLP, independent auditors, contained in the 1992 Annual Report of Kleinwort
Benson Investment Strategies relating to its Kleinwort Benson International
Equity Fund series, are hereby incorporated by reference.
Goodwin, Procter & Hoar, Exchange Place, Boston, Massachusetts 02109,
serves as general counsel to the Funds.
MISCELLANEOUS
The following table indicates each additional person known by the Fund
to own beneficially 5% or more of the Class A Shares as of December 12, 1995.
<TABLE>
<CAPTION>
PERCENT OF TOTAL OUTSTANDING
NAME AND ADDRESS NUMBER OF SHARES SHARES OF CLASS
- ---------------- ---------------- ----------------------------
<S> <C> <C>
Blush & Co. 139,154 8%
P. O. Box 976
New York, NY 10268
Fox & Co. 100,851 6%
P. O. Box 976
New York, NY 10268
</TABLE>
FINANCIAL STATEMENTS
The financial statements and related report of Arthur Andersen LLP
contained in the 1995 Annual Report of the Funds are hereby incorporated by
reference and attached hereto.
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APPENDIX
DESCRIPTION OF SECURITIES RATINGS
MOODY'S INVESTORS SERVICE, INC.
AAA: Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which made the long-term risks appear somewhat larger than with Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
BAA: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Moody's applies numerical modifiers, 1, 2, and 3 in the Aa, A and Baa
categories. The modifier 1 indicates that the security ranks in the higher end
of the applicable category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of the category.
Moody's ratings for state and municipal and other short-term
obligations will be designated Moody's Investment Grade ("MIG"). The
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors of the
first importance in long-term borrowing risk are of lesser importance in the
short run. Symbols used will be as follows:
MIG-1--Notes bearing this designation are of the best quality
enjoying strong protection from established cash flows of funds for
their servicing or from established and broad-based access to the
market for refinancing, or both.
MIG-2--Notes bearing this designation are of favorable
quality, with all security elements accounted for, but lacking the
undeniable strength of the preceding grade. Market access for
refinancing, in particular, is likely to be less well established.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG to reflect such
characteristics as payment upon periodic demand rather than fixed maturity
dates and payment relying on external liquidity. Additionally, investors should
be alert to the fact that the source of payment may be limited to the external
liquidity with no or limited legal recourse to the
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issuer in the event the demand is not met. VMIG-1, VMIG-2 and VMIG-3 ratings
carry the same definitions as MIG-1, MIG-2 and MIG-3, respectively.
STANDARD & POOR'S CORPORATION
AAA: Debt rated AAA has the highest rating assigned by Standard &
Poor's. This rating indicates an extremely strong capacity to pay interest and
repay principal.
AA: Debt rated AA also has a very strong capacity to pay interest and
repay principal, and in the majority of instances it differs from AAA issues
only in small degree. The ratings in AA may be modified by the addition of a
plus ("+") or minus ("-") sign to show relative standing within the major
rating categories.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Municipal notes issued since July 29, 1984 are rated "SP-1," "SP-2,"
and "SP-3." The designation SP-1 indicates a very strong capacity to pay
principal and interest. A plus ("+") sign is added to those issues determined
to possess overwhelming safe characteristics. An SP-2 designation indicates a
satisfactory capacity to pay principal and interest, while an SP-3 designation
indicates speculative capacity to pay principal and interest.
DUFF & PHELPS
AAA: Instruments rated AAA are of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA+, AA, AA-: Instruments bearing these designations are of high
credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions.
A+, A, A-: Protection factors for instruments bearing these
designations are average but adequate. However, risk factors are more variable
and greater in period of economic stress.
BBB+, BBB, BBB-: Protection factors for instruments bearing these
designations are below average but still considered sufficient for prudent
investment. There is considerable variability in risk during economic cycles.
Preferred stocks are rated on the same scale as bonds but the
preferred rating gives weight to its more junior position in the capital
structure. Structured Financings are also rated on this scale.
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FITCH INVESTORS SERVICE, INC.
AAA: Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA: Bonds rated AA are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because
bonds rated in the "AAA" and "AA" categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."
A: Bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB: Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefor impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Plus ("+") and minus ("-") signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used within the "AAA" category. Ratings are
placed on FitchAlert to notify investors of an occurrence that is likely to
result in a rating change and the likely direction of such change. These are
designated as "Positive," indicating a potential upgrade, "Negative," for
potential downgrade, or "Evaluating," where ratings may be raised or lowered.
FitchAlert is relatively short-term and should be resolved within 12 months.
IBCA, INC.
AAA: Obligations rated AAA are obligations for which there is the
lowest expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial such that adverse changes in business,
economic, or financial conditions are likely to increase investment risk
significantly.
AA: Obligations rated AA are obligations for which there is a very low
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic, or financial
conditions may increase investment risk albeit not very significantly.
A: Obligations rated A are obligations for which there is a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is strong, although adverse changes in business, economic, or
financial conditions may lead to increased investment risk.
BBB: Obligations rated BBB are obligations for which there is
currently a low expectation of investment risk. Capacity for timely repayment
of principal and interest is adequate, although adverse changes in business,
economic or financial conditions are more likely to lead to increased
investment risk than for obligations in higher categories.
"+" or "-" may be appended to denote relative status within major
rating categories. Rating Watch highlights an emerging situation which may
materially affect the profile of a rated corporation.
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<PAGE> 83
DESCRIPTION OF COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICES, INC.
P-1: Issuers have a superior capacity for repayment of short-term
promissory obligations. Prime-1 or P-1 repayment capacity will normally be
evidenced by the following characteristics:
Leading market positions in well established industries.
High rates of return on funds employed.
Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
Well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2: Issuers have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
P-3: Issuers have an acceptable ability for repayment of senior
short-term obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection measurements and may
require relatively high financial leverage. Adequate alternate liquidity is
maintained.
STANDARD & POOR'S CORPORATION
A-1: Standard & Poor's Commercial Paper ratings are current
assessments of the likelihood of timely payment of debts having an original
maturity of no more than 365 days. The A-1 designation indicates the degree of
safety regarding timely payment is very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus ("+")
sign designation.
A-2: Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated "A-1."
DUFF & PHELPS
DUFF 1 plus: These instruments bear the highest certainty of timely
payment. Short-term liquidity including internal operating factors and/or ready
access to alternative sources of funds, is clearly outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
DUFF 1: These instruments bear very high certainty of timely payment.
Liquidity factors are excellent and supported by strong fundamental protection
factors. Risk factors are minor.
DUFF 1 MINUS: These instruments bear high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
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<PAGE> 84
DUFF 2: These instruments bear good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing internal
funds needs may enlarge total financing requirements, access to capital markets
is good. Risk factors are small.
DUFF 3: These instruments bear satisfactory liquidity and other
protection factors which qualify an issue as to investment grade. Risk factors
are larger and subject to more variation. Nevertheless, timely payment is
expected.
No ratings are issued for companies whose paper is not deemed to be of
investment grade.
FITCH INVESTORS SERVICE, INC.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of assurance for timely
payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2: Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of safety
is not as great as for issues assigned "F-1+" and "F-1" ratings.
F-3: Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near-term adverse changes could cause these securities to be
rated below investment grade.
LOC: The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
IBCA, INC.
A1+: Obligations supported by the highest capacity for timely
repayment.
A1: Obligations supported by a very strong capacity for timely
repayment.
A2: Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic, or financial conditions.
B1: Obligations supported by an adequate capacity for timely
repayment. Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher categories.
"+" or "-" may be appended to denote relative status within major
rating categories. Rating Watch highlights an emerging situation which may
materially affect the profile of a rated corporation.
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<PAGE> 85
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
The Financial Statements filed as part of this Registration Statement
are as follows:
Included in the Prospectus:
- Financial Highlights
Included in the Statements of Additional Information:
- Portfolio of Investments for the fiscal year ended August
31, 1995
- Statements of Assets and Liabilities for the fiscal year
ended August 31, 1995
- Statements of Operations for the fiscal year ended August
31, 1995
- Statements of Changes in Net Assets for the fiscal year
ended August 31, 1995
- Notes to Financial Statements for the fiscal year ended
August 31, 1995
(b) EXHIBITS
The following exhibits are incorporated herein by reference unless
otherwise noted or are not required to be filed:
1(a). Agreement and Declaration of Trust, dated July 15, 1982, filed as
Exhibit 1 to Registrar's Registration Statement on Form N-1A.
1(b). Amendment to Agreement and Declaration of Trust, dated August 4,
1982 - filed herewith.
1(c). Amendment to Agreement and Declaration of Trust, dated October
27, 1989, filed as Exhibit
1(b) to Post-Effective Amendment No. 10 to Registrant's Registration
Statement on Form N-1A.
1(d). Amendment to Agreement and Declaration of Trust, dated January 2,
1991 - filed herewith.
1(e). Amendment to Agreement and Declaration of Trust to Establish and
Designate Shares of the Short-Term Tax-Exempt Portfolio, filed as
Exhibit 1(f) to Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A.
1(f). Amendment to Agreement and Declaration of Trust to Permit
Trustees to Establish a Mandatory Retirement Age for Trustees, dated
July 2, 1991 - filed herewith.
1(g). Amendment to Agreement and Declaration of Trust to Establish and
Designate Units of the Taxable Bond Portfolio, Intermediate-Term
Tax-Exempt Portfolio, Tax-Exempt Portfolio, Equity Income Portfolio and
International Equity Portfolio - filed herewith.
4
<PAGE> 86
1(h). Amendment to Agreement and Declaration of Trust to Redesignate Units of
the Taxable Bond Portfolio, Intermediate-Term Tax-Exempt Portfolio, Tax-Exempt
Portfolio, filed as Exhibit 1(h) to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A.
1(i). Amendment to Agreement and Declaration of Trust to Establish and Designate
Shares of the Short-Term Tax-Exempt Diversified Portfolio, filed as Exhibit 1(i)
to Post-Effective Amendment No. 18 to Registrant's Registration Statement on
Form N-1A.
1(j). Amendment to Agreement and Declaration of Trust to Redesignate Shares of
the International Equity Portfolio, filed as Exhibit 1(j) to Post-Effective
Amendment No. 19 to Registrant's Registration Statement on Form N-1A.
1(k). Amendment to Agreement and Declaration of Trust, dated May 27, 1994, to
Change the Name of the Trust and to Redesignate Shares and Classes, filed as
Exhibit 1(k) to Post-Effective Amendment No. 22 to Registrant's Registration
Statement on Form N-1A.
1(m). Redesignation of Series, Designation of New Series and Designation of New
Classes, Filed as Exhibit 1(m) to Post-Effective Amendment No. 23 to
Registrant's Registration Statement on Form N-1A.
1(n) Amendment to Agreement and Declaration of Trust to Redesignate Shares of
the Pilot Short-Term Tax-Exempt Fund to be known as Shares of the Pilot
Missouri Short-Term Tax-Exempt Fund - filed herewith.
1(o). Amendment to Agreement and Declaration of Trust to designate Shares of
Small Capitalization Equity Fund - filed herewith.
2(a). By-Laws, filed as Exhibit 2 to Registrant's Registration Statement on Form
N-1A.
2(b). Amendment to Section 6.3 of the By-Laws, filed as Exhibit 2(a) to
Post-Effective Amendment No. 3 to Registrant's Registration Statement on Form
N-1A.
2(c). Amendment to Section 3.7 of the By-Laws, filed as Exhibit 2(b) to
Post-Effective Amendment No. 8 to Registrant's Registration Statement on Form
N-1A.
2(d). Amendment to the By-Laws adding Section 3.10 - filed herewith.
3. Not applicable.
5(a). Investment Advisory Agreement dated June 1, 1994 between Registrant, on
behalf of the Short-Term Diversified Assets Portfolio, and Boatmen's Trust
Company, filed as Exhibit 5(a) to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A.
5(b). Investment Advisory Agreement dated June 1, 1994 between Registrant, on
behalf of the Short-Term U.S. Treasury Portfolio, and Boatmen's Trust Company,
filed as Exhibit 5(b) to Post-Effective Amendment No. 22 to Registrant's
Registration Statement on Form N-1A.
5(c). Advisory Agreement between Registrant, on behalf of the Centerland
Kleinwort Benson International Equity Portfolio, and Boatmen's Trust Company,
filed as Exhibit 5(h) to Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A.
5(d). Investment Management Agreement among Registrant, on behalf of the
Centerland Kleinwort Benson International Equity Portfolio, Boatmen's Trust
Company and Kleinwort Benson International Investment Limited, filed as Exhibit
5(i) to Post-Effective Amendment No. 21 to Registrant's Registration Statement
on Form N-1A.
5(e). Investment Advisory Agreement between Registrant on behalf of the Pilot
Small Capitalization Equity Fund, and Boatmen's Trust Company - to be filed by
Amendment.
6. Distribution Agreement dated as of March 31, 1994 between Registrant and
Concord Financial Group, Inc., filed as Exhibit 6 to Post-Effective Amendment
No. 22 to Registrant's Registration Statement on Form N-1A.
5
<PAGE> 87
7. Not Applicable.
8(a). Custodian Agreement dated November 24, 1982 between Registrant and State
Street Bank and Trust Company, filed as Exhibit 8 to Post-effective Amendment
No. 3 to Registrant's Registration Statement on Form N-1A.
8(b). Letter agreement dated November 24, 1982 between Registrant and State
Street bank and Trust Company pertaining to fees payable by Registrant pursuant
to the Custodian Agreement, filed as Exhibit 8(a) to Post-Effective Amendment
No. 1 to Registrant's Registration Statement on Form N-1A.
8(c). Letter Agreement dated April 4, 1983 between Registrant and State Street
Bank & Trust Company pertaining to the latter's designation of Bank of America,
N.t. and S.A. as its sub-custodian and certain other matters, filed as Exhibit
8(b) to Post-Effective Amendment No. 1 to Registrant's Statement on Form N-1A.
8(d). Form of Amendment No. 1 dated January 1, 1985 to the Custodian Agreement
between Registrant and State Street Bank and Trust Company, filed as Exhibit
8(d) to Post-Effective Amendment No. 6 to Registrant's Registration Statement on
Form N-1A.
8(e). Form of Amendment No. 2 dated March 21, 1985 to the Custodian Agreement
between Registrant and State Street Bank and Trust Company, filed as Exhibit
8(e) to Post-Effective Amendment No. 6 to Registrant's Registration Statement on
Form N-1A.
8(f). Letter Agreement dated August 19, 1986 between Registrant and State Street
Bank and Trust Company pertaining to fees payable by Registrant pursuant to the
Custodian Agreement between Registrant and State Street Bank and Trust Company,
filed as Exhibit 8(e) to Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A.
8(g). Writing Agreement dated June 20, 1987 among State Street Bank and Trust
Company, the Northern Trust Company, and Goldman, Sachs & Co., filed as Exhibit
8(f) to Post-Effective Amendment No. 8 to Registrant's Registration Statement on
Form N-1A.
8(h). Form of Letter Agreement between Registrant and State Street Bank and
Trust Company pertaining to the latter's designation of Security Pacific
National Bank as its subcustodian and certain other matters, filed as Exhibit
8(g) to Post-Effective Amendment No. 9 to Registrant's Registration Statement on
Form N-1A.
8(i). Amendment dated October 20, 1988 to the Custodian Agreement between
Registrant and State Street Bank and Trust Company relating to the use of
securities depositories, filed as Exhibit 8(h) to Post-Effective Amendment No.
10 to Registrant's Registration Statement on Form N-1A.
8(j). Amendment dated December 6, 1988 to the Custodian Agreement between
Registrant and State Street Bank and Trust Company pertaining to the appointment
of foreign sub-custodians and certain other matters, filed as Exhibit 8(i) to
Post-Effective Amendment No. 10 to Registrant's Registration Statement on Form
N-1A.
8(k). Amendment dated April 19, 1989 to the Custodian Agreement between
Registrant and State Street Bank and Trust Company relating to so-called "street
delivery" custom, filed as Exhibit 8(j) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A.
8(l). Amendment dated September 1, 1989 to the Custodian Agreement between
Registrant and State Street Bank and Trust Company relating to the
indemnification of The Northern Trust Company, filed as Exhibit 8(k) to
Post-Effective Amendment No. 10 to Registrant's Registration Statement on Form
N-1A.
8(m). Amendment dated September 1, 1989 to the Wiring Agreement among State
Street Bank and Trust Company, Goldman, Sachs & Co. and The Northern Trust
Company, filed as Exhibit 8(l) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A.
6
<PAGE> 88
8(n). Subcustody Contracts on behalf of the Short-Term Tax-Exempt Portfolio
between (a) State Street Bank and Trust Company and Manufacturers Hanover Trust
Company; and (b) State Street Bank and Trust Company and Security Pacific
National Bank, filed as Exhibit 8 to Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A.
9(a). Sub-Administration Agreement dated March 31, 1994 between Concord Holding
Corporation and Goldman, Sachs & Co., filed as Exhibit 9(b) to Post-Effective
Amendment No. 22 to Registrant's Registration Statement on Form N-1A.
9(b). Transfer Agency Agreement dated as of June 1, 1994 between Registrant and
Concord Financial Services, Inc., filed as Exhibit 9(c) to Post-Effective
Amendment No. 22 to Registrant's Registration Statement on Form N-1A.
9(d). Administration Plan of Registrant with respect to the Administration Class
of shares dated May 19, 1991, as revised October 13, 1992, as further revised
March 4, 1994 to be effective March 31, 1994, filed as Exhibit 9(e) to
Post-Effective Amendment No. 22 to Registrant's Registration Statement on Form
N-1A.
9(e). Form of Agreement between Registrant and Service Organizations with
respect to the Administration Plan, filed as Exhibit 9(f) to Post-Effective
Amendment No. 22 to Registrant's Registration Statement on Form N-1A.
9(f). Form of Agreement and Plan of Reorganization between Registrant, Kleinwort
Benson Investment Strategies Fund and Kleinwort Benson International Investment
Limited, filed as Exhibit 9(e) to Post-Effective Amendment No. 19 to
Registrant's Registration Statement on Form N-1A.
10(a). Opinion of Dechert Price & Rhoads, Counsel to Registrant, filed with
Registrant's Notice pursuant to Rule 24f-2 on October 30, 1995.
10(b). Opinion of Goodwin, Procter & Hoar - Filed herewith.
11. Consents of Arthur Andersen LLP and Ernst & Young LLP - Filed herewith.
12. Not Applicable.
13. Not Applicable.
15(a). Service Plan of Registrant with respect to the Service Class of Shares
dated May 1, 1991, as revised effective July 1, 1993, as further revised March
4, 1994 to be effective March 31, 1994, filed as Exhibit 15(a) to Post-Effective
Amendment No. 22 to Registrant's Registration Statement on Form N-1A.
15(b). Form of Agreement between Registrant and Service Organizations with
respect to the Service Plan, filed as Exhibit 15(b) to Post-Effective Amendment
No. 22 to Registrant's Registration Statement on Form N-1A.
15(c). Distribution Plan for Class A Shares adopted July 25, 1994, filed as
Exhibit 15(c) to Post-Effective Amendment No. 22 to Registrant's Registration
Statement on Form N-1A.
15(d). Agreement between Concord Financial Group, Inc. and Service Organizations
with respect to the Distribution Plan for Class A Shares, filed as Exhibit 15(d)
to Post-Effective Amendment No. 22 to Registrant's Registration Statement on
Form N-1A.
15(e). Distribution Plan for Class B Shares adopted July 25, 1994, filed as
Exhibit 15(e) to Post-Effective Amendment No. 22 to Registrant's Registration
Statement on Form N-1A.
15(f). Form of Agreement between Concord Financial Group, Inc. and Service
Organizations with respect to the Distribution Plan for Class B Shares, filed as
Exhibit 15(f) to Post-Effective Amendment No. 22 to Registrant's Registration
Statement on Form N-1A.
17. Financial Data Schedule for Registrant's fiscal year ended August 31, 1995,
filed as Exhibit 17 to Post-Effective Amendment No. 28 to Registrant's
Registration Statement on Form N-1A.
18. Rule 18f-3 Multiple Class Plan - filed as Exhibit 6(b) to Post-Effective
Amendment No. 25 to Registrant's Registration Statement on Form N-1A.
7
<PAGE> 89
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF DECEMBER 14, 1995
<TABLE>
<CAPTION>
Fund Name Total Active Shareholders
--------- -------------------------
<S> <C>
Municipal Bond
Pilot Shares 21
Class A Shares 27
Class B Shares 19
Intermediate Municipal Bond
Pilot Shares 3
Class A Shares 6
Class B Shares N/A
U.S. Government Securities
Pilot Shares 4
Class A Shares 14
Class B Shares 18
Intermediate U.S. Government Securities
Pilot Shares 13
Class A Shares 27
Class B Shares N/A
Equity Income
Pilot Shares 3
Class A Shares 53
Class B Shares 74
Growth & Income
Pilot Shares 15
Class A Shares 181
Class B Shares 90
Pilot Short Term Diversified Assets Fund
Pilot Shares 5
Administrative Shares 420
Investor Shares 272
Pilot Short Term U.S. Treasury Fund
Pilot Shares 6
Administration Shares 351
Investor Shares 645
Pilot Missouri Tax Exempt Fund
Pilot Shares 352
Administration Shares 15
Investor Shares 48
Pilot Short Term Tax Exempt Diversified Fund
Pilot Shares 1
Administration Shares 23
Investor Shares 1
</TABLE>
8
<PAGE> 90
<TABLE>
<S> <C>
Pilot International Equity Fund
Pilot Shares 17
Class A Shares 1,160
Total: 3,884
</TABLE>
ITEM 27. INDEMNIFICATION.
Article VI of the Registrant's Agreement and Declaration of Trust provides
for indemnification of the Registrant's Trustees and officers under certain
circumstances. A copy of such Agreement and Declaration of Trust was filed as
Exhibit 1 to Registrant's Statement on Form N-1A.
Paragraph 8 of each Investment Advisory Agreement between the Registrant
and Boatmen's Trust Company (other than the Advisory Agreement with respect to
the Pilot International Equity Fund) provides for indemnification of Boatmen's
Trust Company or, in lieu thereof, contribution by the Registrant, under certain
circumstances. Copies of the Advisory Agreements for the Short-Term Diversified
Assets, Short-Term U.S. Treasury, Short-Term Tax Exempt Diversified, and
Short-Term Tax Exempt were filed as Exhibits 5(a), 5(b), 5(c), 5(d), to
Post-Effective Amendment No. 22 to the Registrant's Registration Statement on
Form N-1A. A copy of the Investment Advisory Agreement for the Growth and
Income, Equity Income, Intermediate U.S. Government Securities, U.S. Government
Securities, Intermediate Municipal Bond and Municpal Bond Portfolios are to be
filed in a Post-Effective Amendment to the Registrant's Registration Statement
on Form N-1A.
Paragraph 7 of the Advisory Agreement between the Registrant and Boatmen's
Trust Company with respect to the Pilot Kleinwort Benson International Equity
Fund provides for indemnification of Boatmen's Trust Company or, in lieu
thereof, contribution by the Registrant, under certain circumstances. A copy of
the Advisory Agreement was filed as Exhibit 5(h) to Post-Effective Amendment No.
21 to the Registrant's Registration Statement on Form N-1A.
Kleinwort Benson International Equity Fund, Boatmen's Trust Company and
Kleinwort Benson Investment Management Americas Inc. (formerly Kleinwort Benson
International Investment Limited) provides for indemnification of Kleinwort
Benson Investment Management Americas Inc. or, in lieu thereof, contribution by
the Registrant, under certain circumstances. A copy of the Investment Management
Agreement was filed as Exhibit 5(i) to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A.
Article V, Section 3, of the Distribution Agreement between Registrant and
Pilot Funds Distributors, Inc. or its affiliate Concord Financial Group, Inc.
provides for the indemnification of Pilot Funds Distributors, Inc. or its
affiliate Concord Financial Group under certain circumstances. A copy of the
Distribution Agreement was filed as Exhibit 6 to Post-Effective Amendment No. 22
to Registrant's Registration Statement on Form N-1A.
Investment Company Professional Liability Policy purchased jointly by
Registrant, Concord Holding Corporation and Pilot Funds Distributors, Inc. or
its affiliate Concord Financial Group, Inc. insure such entities and their
respective trustees, directors, officers and employees, subject to the policies'
coverage limits and exclusions and varying deductibles, against loss under
certain circumstances.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securites and Exchange Commission
such indeminification is against public policy as experessed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS.
The business and other connections of the directors and officers of
Kleinwort Benson Investment Management Americas Inc. formerly Kleinwort Benson
International Investment Limited ("KBI") are listed in the Form ADV of Kleinwort
Benson Investment Management Americas, Inc. as currently on file with the
Commission (File No. 801-15027), the text of which is hereby incorporated by
reference.
9
<PAGE> 91
The business and other connections of the directors and certain senior
executive officers of Boatmen's Trust Company are:
<TABLE>
<CAPTION>
POSITION WITH
BOATMEN'S TRUST
NAME COMPANY POSITION AND NAME OF OTHER BUSINESS
- ---- ------- -----------------------------------
<S> <C> <C>
Howard F. Baer Director Retired
32 North Kings Highway, Suite 504
St. Louis, Missouri 63108
Clarence C. Barksdale Director Vice Chairman
Washington University
7425 Forsyth Boulevard
Campus Box 1227
St. Louis, Missouri 63105
Gerald D. Blatherwick Director Retired
26 Fordyce Lane
St. Louis, Missouri 63124
Stephen F. Brauer Director President
Hunter Engineering Company
11250 Hunter Drive
Bridgeton, Missouri 63004
Mary L. Burke, Ph.D. Director Head of School
Whitfield School
175 South Mason Road
St. Louis, Missouri 63141
George K. Conant Director Tri-Star Supply, Inc.
10435 Baur Boulevard
St. Louis, Missouri 63132
Andrew B. Craig, III Director Chairman and Chief Executive Officer
Boatmen's Bancshares, Inc.
One Boatmen's Plaza
St. Louis, Missouri 63101
Donald Danforth, Jr. Director President
Danforth Agri-Resources Inc.
700 Corporate Park Drive, Suite 330
St. Louis, Missouri 63105-4209
Martin E. Galt, III Director and Chairman of the Board, President, and
President Chief Executive Officer
Boatmen's Trust Company
100 North Broadway
St. Louis, Missouri 63102
A. William Hager Director Chairman of the Board
Hager Hinge Company
139 Victor Street
St. Louis, Missouri 63104
Samuel B. Hayes, III Director President, Boatmen's Bancshares, Inc.
The Boatmen's National Bank of St. Louis
One Boatmen's Plaza
St. Louis, Missouri 63101
</TABLE>
10
<PAGE> 92
<TABLE>
<CAPTION>
<S> <C> <C>
Robert E. Kresko Director Pierre Laclede Center
7701 Forsyth, Suite 680
St. Louis, Missouri 63105
John Peters McCarthy Director Retired
6 Robin Hill Lane
St. Louis, Missouri 63124
James S. McDonnell, III Director Retired
40 Glens Eagles Drive
St. Louis, Missouri 63124
John B. McKinney Director President, Chief Executive Officer
Laclede Steel Company
One Metropolitan Square, 15th Floor
St. Louis, Missouri 63102
Reuben M. Morriss, III Director Retired
10048 Litzsinger Road
St. Louis, Missouri 63124
William C. Nelson Director Chairman, President and Chief Executive Officer
Boatmen's First National Bank of Kansas City
10th & Baltimore
P.O. Box 419038
Kansas City, Missouri 64183
William A. Peck, M.D. Director Executive Vice Chancellor and Dean
Washington University School of Medicine
660 South Euclid Avenue, Box 8106
St. Louis, Missouri 63110
W. R. Persons Director 200 South Bemiston Avenue
Suite 308
St. Louis, Missouri 63105
Jerry E. Ritter Director Executive Vice President, Chief Financial Officer
and Chief Administrative Officer
Anheuser-Busch Companies, Inc.
One Busch Place
St. Louis, Missouri 63118
Louis S. Sachs Director Chairman
Sachs Properties, Inc.
P.O. Box 7104
St. Louis, Missouri 63177
Hugh Scott, III Director Chairman and Chief Executive Officer
Western Diesel Services, Inc.
101 South Hauley, Suite 1910
St. Louis, Missouri 63105
Richard W. Shomaker Director Retired
14181 Woods Mill Cove
Chesterfield, Missouri 63017
Brice R. Smith, Jr. Director Chairman of the Board
Sverdrup Corporation
13723 Riverport Drive
Maryland Heights, Missouri 63043
</TABLE>
11
<PAGE> 93
<TABLE>
<S> <C> <C>
William D. Stamper Director President
William D. Stamper Company
7777 Bonhomme, Suite 1006
St. Louis, Missouri 63105
Janet M. Weakley Director President
Janet McAfee Inc. Real Estate
9889 Clayton Road
St. Louis, Missouri 63124
Gordon E. Wells Director Retired
3121 West 67th Terrace
Shawnee Mission, Kansas 66208
Eugene F. Williams, Jr. Director Retired
515 Olive Street, Suite 1505
St. Louis, Missouri 63101
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Pilot Funds Distributors, Inc., which is located at 3435 Stelzer Road,
Columbus, Ohio 43219-3035, will act as exclusive distributor for the
Registrant. The distributor is registered with the Securities and
Exchange Commission as a broker-dealer and is a member of the National
Association of Securities Dealers.
(b) To the best of Registrant's knowledge, the directors and officers of
PFD are as follows:
<TABLE>
<CAPTION>
NAMES POSITIONS AND OFFICES WITH POSITIONS AND
PRINCIPAL BUSINESS ADDRESSES CONCORD FINANCIAL GROUP, INC. OFFICES WITH REGISTRANT
- ---------------------------- ----------------------------- -----------------------
<S> <C> <C>
Richard E. Stierwalt Chairman and None
125 West 55th Street Chief Executive Officer
New York, New York 10019
William B. Blundin Director and Vice Chairman None
125 West 55th Street
New York, New York 10019
Richard E. Dickinson Director None
235 Montgomery Street
San Francisco, CA 94104
Standish O'Grady Director None
One Bush Street
San Francisco, CA 94104
Timothy M. Spicer Managing Director None
235 Montgomery Street
San Francisco, CA 94104
Mary Mugurdichian Managing Director None
125 West 55th Street
New York, NY 10019
Susan L. West Chief Operating Officer President
125 West 55th Street
New York, New York 10019
Ann Bergin Vice President Vice President
125 West 55th Street
New York, New York 10019
</TABLE>
12
<PAGE> 94
<TABLE>
<S> <C> <C>
Irimga McKay Senior Vice President None
1230 Columbia Street
Fifth Floor, Suite 500
San Diego, CA 92101
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
(1) Concord Holding Corporation, 3435 Stelzer Road, Columbus, Ohio
43219-3035 (Registrant's Declaration of Trust, By-Laws and minute
books and records relating to the Administrator).
(2) Pilot Funds Distributors, Inc., 3435 Stelzer Road, Columbus, Ohio
43219-3035 (records relating to the Distributor).
(3) Boatmen's Trust Company, 100 North Broadway, St. Louis, Missouri
63102 (records relating to Adviser and Subadviser).
(4) Kleinwort Benson Investment Management Americas Inc. 200 Park
Avenue, New York, New York 10166 (records relating to Investment
Manager).
(5) State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts 02171 (records relating to Custodian and Fund
Accounting Agent).
(6) BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to Transfer Agent).
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
Item 32. Undertakings
Registrant hereby undertakes to furnish each person to whom a prospectus for
the Registrant is delivered with a copy of the most recent annual report
to shareholders for the series of the Registrant offered by that
prospectus upon request and without charge.
13
<PAGE> 95
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 its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Columbus and
State of Ohio on the 21st day of February, 1996.
THE PILOT FUNDS
By: /s/ William J. Tomko
--------------------------
William J. Tomko, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ William J. Tomko President February 21, 1996
- ------------------------------------
William J. Tomko (Principal Executive Officer)
/s/ Martin R. Dean Treasurer February 21, 1996
Martin R. Dean (Principal Accounting Officer and
Principal Financial Officer)
J. HORD ARMSTRONG, III* Trustee February 21, 1996
- ---------------------------------------
J. Hord Armstrong, III
DAVID HOLFORD BENSON* Trustee February 21, 1996
- ---------------------------------------
David Holford Benson
LEE F. FETTER* Trustee February 21, 1996
- ------------------------------------
Lee F. Fetter
HENRY O. JOHNSTON* Trustee February 21, 1996
- ------------------------------------
Henry O. Johnston
L. WHITE MATTHEWS, III* Trustee February 21, 1996
- ---------------------------------------
L. White Matthews, III
NICHOLAS G. PENNIMAN* Trustee February 21, 1996
- ---------------------------------------
Nicholas G. Penniman
/s/ William J. Tomko
- -----------------
William J. Tomko, Attorney-in-fact
</TABLE>
14
<PAGE> 96
EXHIBITS
Exhibit 1(b) Amendment to Agreement and Declaration of Trust
dated August 4, 1982
Exhibit 1(d) Amendment to Agreement and Declaration of Trust
dated January 2, 1991
Exhibit 1(f) Amendment to Agreement and Declaration of Trust
to Permit Trustees to Establish a Mandatory
Retirement Age for Trustees dated July 2, 1991
Exhibit 1(g) Amendment to Agreement and Declaration of Trust
to Establish and Designate Units of the Taxable
Bond Portfolio, Intermediate Term Tax-Exempt
Portfolio, Tax-Exempt Portfolio, Equity Income
Portfolio and International Equity Portfolio
Exhibt 1(n) Amendment to Agreement and Declaration of Trust
to Redesignate Shares of the Pilot Short-Term
Tax-Exempt Fund to be known as Shares of the
Pilot Missouri Short-Term Tax-Exempt Fund
Exhibit 1(o) Amendment to Agreement and Declaration of Trust
to designate Shares of Small Capitalization
Equity Fund
Exhibit 2(d) Amendment to the By-Laws adding Section 3.10
Exhibit 10(b) Opinion of Goodwin, Procter & Hoar
Exhibit 11 Consents of Arthur Andersen LLP and Ernst &
Young LLP
Exhibit 17 Financial Data Schedule
15
<PAGE> 1
Exhibit 1(b)
CENTERLAND FUND
AMENDMENT NO. 1 TO AGREEMENT AND DECLARATION OF TRUST
WHEREAS, Section 7.3 of the Agreement and Declaration of Trust dated
July 15, 1982 (the "Declaration") of Centerland Fund (the "Trust") provides
that the Declaration may be amended to cure, correct or supplement any
provision thereof which is internally inconsistent by an instrument in writing
signed by a majority of the then Trustees (or by an officer of the Trust
pursuant to the vote of a majority of such Trustees) without the necessity of a
vote of Unitholders; and
WHEREAS, Section 5.2 of the Declaration of Trust provides that until
units are issued, the Trustees may exercise all rights of Unitholders; and
WHEREAS, there are presently no units issued; and
WHEREAS, a majority of the Trustees of the Trust have adopted the
following resolutions:
RESOLVED, that the last sentence of sub-section (d)
of Section 4.2 of the Agreement and Declaration of Trust of
this Trust dated July 15, 1982 be amended to read: "The
liquidation of any particular Series may be authorized either
by vote of a majority of the Trustees then in office or by a
majority of the outstanding voting securities, as defined in
the 1940 Act, (Units) of that Series."
RESOLVED, that clause (b) in the second sentence
of Section 7.3 of the Agreement and Declaration of Trust of
this Trust dated July 15, 1982 be amended to read:
"(b) abolishing or liquidating a Series of Units,".
RESOLVED, that the President or any Vice President
of this Trust is authorized to execute an instrument in
writing effecting the aforesaid amendments and to cause the
same to be filed wherever in the discretion of such officer
such filing is appropriate.
<PAGE> 2
NOW, THEREFORE, the undersigned Frederick T. Kelsey, the duly elected,
appointed and serving President of Centerland Fund, hereby amends the
Declaration by amending the last sentence of subsection (d) of Section 4.2 and
clause (b) in the second sentence of Section 7.3 respectively to read as
provided in the first two of the aforesaid resolutions.
Dated this 4th day of August 1982.
/s/ Frederick T. Kelsey
-----------------------------
Frederick T. Kelsey
-2-
<PAGE> 1
EXHIBIT 1(d)
CENTERLAND FUND
AMENDMENT NO. 3 TO AGREEMENT AND DECLARATION OF TRUST
WHEREAS, by instrument entitled "Centerland Fund," an Agreement and
Declaration of Trust dated July 15, 1982 (the "Declaration of Trust"),
Centerland Fund (the "Trust") was formed to carry on the business of an
investment company having various series;
WHEREAS, as provided in Section 7.3 of the Declaration of Trust, its
provisions may be amended at any time by an instrument in writing signed by an
officer of the Trust pursuant to the vote of a majority of the Trustees (when
authorized to do so by the vote of Unitholders holding a majority of the Units
entitled to vote);
WHEREAS, on October 17, 1990, the Trustees approved a proxy statement
wherein was contained the following instruments; and
WHEREAS, on November 30, 1990, the Unitholders of each of the existing
portfolios ("Series") heretofore established and designated and now existing,
approved the following amendments:
Now, therefore, the Declaration of Trust is hereby amended as follows,
effective immediately upon the filing of this instrument at the office of the
Secretary of the Commonwealth of Massachusetts as required by Chapter 182,
Section 2 of the Massachusetts General Laws, as amended.
1. Section 1.2 of the Declaration of Trust is amended by revising
paragraphs (c) and (d) thereof and by adding new paragraph (j) thereto, said
paragraphs (c), (d) and (j) to read as follows:
(c) "Units" refers to the transferable units of interest
into which the beneficial interest in the Trust or any Portfolio of the
Trust or any Class within any Portfolio (as the context may require)
shall be divided from time to time; and the word "Unit" shall be
synonymous with the word "share" in any context in which such latter
word has a generally understood meaning (as, for example, in the phrase
"share dividend");
(d) "Portfolio" refers to each Series of Units that has been
or may be established and designated under or in accordance with the
provisions of Article IV:
(j) "Class" refers to any class of Units within a Portfolio,
which Class is or has been established within such Portfolio under or in
accordance with the provisions of Article IV.
<PAGE> 2
2. Section 3.2 of the Declaration of Trust, describing Powers of
Trustees, is amended by adding the following new paragraph (n) after existing
paragraph (m) to read as follows:
(n) Service and Administration Plans. To adopt on behalf of
the Trust, any Portfolio or Class of any Portfolio (i) a plan to assist
institutional Unit owners of record in the administration of the
accounts of their customers who are beneficial owners of such Units
("Administration Plan") and agreements related thereto and to make
payments pursuant to said Administration Plan and/or (ii) a plan to
assist institutional Unit owners of record in providing support
services to their customers who are beneficial owners of such units
("Service Plan") and agreements related thereto and to make payments
pursuant to said Service Plan. Any Administration Plan or Service
Plan and agreements related thereto may be so adopted pursuant to the
terms of Rule 12b-1 or any other applicable rule under the 1940 Act.
3. The introductory paragraph and paragraphs (a), (c) and (d) and
the final paragraph of Section 3.3 dealing with Certain Contracts are amended
to read as follows:
Section 3.3 Certain Contracts. Subject to compliance with the
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time and without limiting the
generality of their powers and authority otherwise set forth herein, enter into
one or more contracts with any one or more corporations, trusts, associations,
partnerships, limited partnerships, other types of organizations, or
individuals, ("Contracting Party") to provide for the performance and
assumption of some or all of the following services, duties and
responsibilities to, for or of the Trust, any Portfolio, any Class and/or the
Trustees, and to provide for the performance and assumption of such other
services, duties and responsibilities in addition to those set forth below as
the Trustees may determine appropriate:
(a) Advisory. Subject to the general supervision of the
Trustees and in conformity with the stated policy of the Trustees
with respect to the investments of the Trust or of the assets
belonging to any Portfolio of the Trust (as that phrase is used in
subsection (a) of Section 4.2), to manage such investments and assets,
make investment decisions with respect thereto, and to place purchase
and sale orders for portfolio transactions relating to such
investments and assets;
* * * * * * *
- 2 -
<PAGE> 3
(c) Distribution. To distribute the Units of the Trust, to be
Principal Underwriter of such Units, and/or to act as agent of the
Trust, in the sale of Units and the acceptance or rejection of orders
for the purchase of Units, and to provide distribution services and
support services pursuant to Administration Plans and Service Plans,
respectively;
(d) Custodian and Depository. To act as depository for and to
maintain custody of the property of the Trust and each Portfolio and
accounting records in connection therewith;
* * * * * * *
The fact that:
(i) any of the Unitholders, Trustees or officers of the
Trust is a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or agent of or
for any Contracting Party, or of or for any parent or affiliate of any
Contracting Party or that the Contracting Party or any parent or
affiliate thereof is a Unitholder or has an interest in the Trust, or
that
(ii) any Contracting Party may have a contract
providing for the rendering of any similar services to one or more other
corporations, trusts, associations, partnerships, limited partnerships
or other organizations, or has other business or interests,
shall not affect the validity of any contract for the performance and assumption
of services, duties and responsibilities to, for or of the Trust, any Portfolio
or Class of Units and/or the Trustees or disqualify any Unitholder, Trustee or
officer of the Trust from voting upon or executing the same or create any
liability or accountability to the Trust, any Portfolio or Class of Units or its
Unitholders, provided that in the case of any relationship or interest referred
to in the preceding clause (i) on the part of any Trustee or officer of the
Trust either (x) the material facts as to such relationship or interest have
been disclosed to or are known by the Trustees not having any such relationship
or interest and the contract involved is approved in good faith by a majority of
such Trustees not having any such relationship or interest (even though such
unrelated or disinterested Trustees are less than a quorum of all of the
Trustees), (y) the material facts as to such relationship or interest and as to
the contract have been disclosed to or are known by the Unitholders entitled to
vote thereon and the
- 3 -
<PAGE> 4
contract involved is specifically approved in good faith by vote of the
Unitholders, or (z) the specific contract involved is fair to the Trust as of
the time it is authorized, approved or ratified by the Trustees or by the
Unitholders.
4. Section 3.4 of the Declaration of Trust is amended in its
entirety to read as follows:
Section 3.4 Payment of Trust Expenses and Compensation of
Trustees. The Trustees are authorized to pay or to cause to be paid out
of the principal or income of the Trust, or partly out of principal and
partly out of income, and to charge or allocate the same to, between or
among such one or more of the Portfolios (or Classes thereof) that may
be established and designated pursuant to Article IV, as the Trustees
deem fair, all expenses, fees, charges, taxes and liabilities incurred
or arising in connection with the Trust, or in connection with the
management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the
Trust's officers, employees, investment adviser, administrator,
distributor, principal underwriter, auditor, counsel, depository,
custodian, transfer agent, dividend disbursing agent, accounting agent,
Unitholder servicing agent, and such other agents, consultants, and
independent contractors and such other expenses and charges as the
Trustees may deem necessary or proper to incur. Allocation of expenses
among separate Portfolios or among separate Classes within any Portfolio
shall be made in an equitable and nondiscriminatory manner, with each
Class bearing only expenses relating to its Units and an allocable share
of Portfolio expenses in accordance with such policies as may be
established by the Trustees from time to time and as are not
inconsistent with the provisions of this Declaration of Trust or of any
applicable document filed by the Trust with the Securities and Exchange
Commission under the 1940 Act or with the Internal Revenue Service under
the Internal Revenue Code of 1986, as amended. Without limiting the
generality of any other provision hereof, the Trustees shall be entitled
to reasonable compensation from the Trust for their services as Trustees
and may fix the amount of such compensation.
5. Sections 4.1, 4.2 and 4.3 of the Declaration of Trust amended
in their entirety to read as follows:
Section 4.1 Description of Units. The beneficial interest in the
Trust shall be divided into Units, each Unit having a par value of .001
representing interests in such one or more Portfolios (including without
limitation the Portfolios specifically established and designated in
Section 4.2) as the
- 4 -
<PAGE> 5
Trustees from time to time deem necessary or desirable. The Trustees shall have
authority to establish and designate such Portfolios and to fix and determine
the relative rights and preferences as between the different Units (and Classes
thereof) as to right of redemption and the price, obligations to make certain
payments as provided in an Administration Plan or Service Plan that may be
applicable to the different Units (and Classes thereof), terms and manner of
redemption, special and relative rights as to dividends and other distributions
and on liquidation, sinking or purchase fund provisions, reinvestment, exchange
or conversion rights, and conditions under which the several Portfolios and
Classes shall have separate voting rights or no voting rights.
The number of authorized Units of the Trust and of each Portfolio (and
of each Class thereof) that may be issued is unlimited, and the Trustees may
issue Units of any Portfolio (or of any Class thereof) for such consideration
and on such terms as they may determine (or for no consideration if pursuant to
a Unit dividend or split-up), all without action or approval of the
Unitholders. All Units when so issued on the terms determined by the Trustees
shall be fully paid and non-assessable (but may be subject to mandatory
contribution back to the Trust as provided in subsection (h) of Section 4.2).
The Trustees may classify or reclassify any unissued Units or any Units
previously issued and reacquired of any Portfolio or Class thereof into one or
more other Portfolios (or Classes within the same or one or more other
Portfolios) that may be established and designated from time to time. The
Trustees may hold as treasury Units (of the same or some other Portfolio or
Class thereof), reissue for such consideration and on such terms as they may
determine, or cancel, at their discretion from time to time, any Units of any
Portfolio (or Class thereof) reacquired by the Trust.
The Trustees may from time to time close the transfer books or
establish record dates and times for the purposes of determining the holders of
Units entitled to be treated as such, to the extent provided or referred to in
Section 5.3.
The establishment and designation of any Portfolio or Class in addition
to those established and designated in Section 4.2 shall be effective (i) upon
the execution by a majority of the then Trustees of an instrument setting forth
such establishment and designation and the relative rights, payment obligations
with respect to Administration and Service Plan(s), if any, and preferences of
such Portfolio or Class, (ii) upon the execution of an instrument in writing by
an officer of the Trust pursuant to the vote of a majority of the Trustees, or
(iii) as otherwise provided in either such instrument. At any time that there
are no Units outstanding of any particular Portfolio or Class previously
established and designated the Trustees may, by an
- 5 -
<PAGE> 6
instrument executed by a majority of their number, abolish that Portfolio or
Class and the establishment and designation thereof. Each instrument referred to
in this paragraph shall have the status of an amendment to this Declaration of
Trust.
Any Trustee, officer or other agent of the Trust, and any organization
in which any such person is interested may acquire, own, hold and dispose of
Units of any Portfolio or Class of the Trust to the same extent as if such
person were not a Trustee, officer or other agent of the Trust; and the Trust
may issue and sell or cause to be issued and sold and may purchase Units of any
Portfolio or Class from any such person or any such organization subject only to
the general limitations, restrictions or other provisions applicable to the sale
or purchase of Units of such Portfolio or Class generally.
Section 4.2 Establishment and Designation of Portfolios. Without
limiting the authority of the Trustees set forth in Section 4.1 to establish and
designate any further Portfolios, it is hereby confirmed that the Trustees have
heretofore established and designated, and there are presently outstanding Units
of, the following two Portfolios: -- the Short-Term Diversified Assets Portfolio
and the Short-Term U.S. Treasury Portfolio (each heretofore sometimes referred
to as a "Series," but herein and hereafter called a "Portfolio" and collectively
herein the "Existing Portfolios"). The Units of the Existing Portfolios and such
Classes thereof and any Unit of any further Portfolios and Classes thereof that
may from time be established and designated by the Trustee shall (unless the
Trustees otherwise determine with respect to some further Portfolio or Class at
the time of establishing and designating the same) have the following relative
rights and preferences:
(a) Asset Belonging to Portfolios. All consideration received by the
Trust for the issue or sale of Units of a particular Portfolio, together with
all assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may be
shall be held by the Trustees in trust for the benefit of the holders of Units
of that Portfolio and shall irrevocably belong to the Portfolio for all
purposes, subject only to the rights of creditors, and shall be so recorded
upon the books of account of the Trust. Such consideration, assets, income,
earnings, profits, and proceeds thereof, including any proceeds derived from
the sale, exchange or liquidation of such assets and any funds or payments
derived from any reinvestment of such proceeds, in whatever form the same may
be, together with any General Items allocated to that Portfolio as provided in
the following sentence, are herein referred to as
- 6 -
<PAGE> 7
"assets belonging to" that Portfolio. In the event that there are any assets,
income, earnings, profits,and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular Portfolio
(collectively "General Items"), the Trustees shall allocate such General items
to and among any one or more of the Portfolios established and designated from
time to time in such manner and on such basis as they, in their sole
discretion, deem fair and equitable; and any General Items so allocated to a
particular Portfolio belong to that Portfolio. Each such allocation by the
Trustees shall be conclusive and binding upon the Unitholders of all Portfolios
for all purposes.
(b) Liabilities Belonging to Portfolios and Classes. The assets
belonging to each particular Portfolio shall be charged with the liabilities of
the Trust in respect of that Portfolio and all expenses, costs, charges and
reserves attributable to that Portfolio, and any general liabilities, expenses,
costs, charges or reserves of the Trust which are not readily identifiable as
belonging to any particular Portfolio shall be allocated and charged by the
Trustees to and among any one or more of the Portfolios established and
designated from time to time in such manner and on such basis as the Trustees
in their sole discretion deem fair and equitable.
Notwithstanding the provisions of the preceding paragraph, (i) Units of
any Class of each Portfolio shall bear the expense of payments under any
agreements entered into by or on behalf of the Trust with organizations that
provide for services to beneficial owners of Units of that Class, and (ii)
Units of any Class of each Portfolio shall bear the expense of payments under
any agreements relating to the provision of distribution assistance or services
under any distribution plan with respect to existing or prospective beneficial
owners of the Unites of that Class. Expenses described in the preceding
sentence are sometimes referred to herein as "Special Class Expenses."
The liabilities, expenses, costs, charges and reserves allocated and so
charged to a Portfolio or Class are herein referred to as "liabilities
belonging to" that Portfolio or Class. Each allocation of liabilities,
expenses, costs, charges and reserves by the Trustees shall be conclusive and
binding upon the holders of all Units of all Portfolios and of all Classes.
Any creditor of any Portfolio may look only to the assets belonging to
that Portfolio to satisfy such creditor's claim.
The Trustees shall have full discretion, to the extent not inconsistent
with the 1940 Act, to determine which items shall be treated as income and
which items as capital; and each such
- 7 -
<PAGE> 8
determination and allocation shall be conclusive and binding upon the
Unitholders.
(c) Dividends. Dividends and distributions on Units of a particular
Portfolio or Class may be paid with such frequency as the Trustees may
determine, which may be daily or otherwise, pursuant to a standing resolution
or resolutions adopted only once or with such frequency as the Trustees may
determine, to the holders of Units of that Portfolio or Class, from such of the
income and capital gains, accrued or realized, from the assets belonging to
that Portfolio (which shall be allocated among Units of all Classes of the
Portfolio on a pro rata basis), as the Trustees may determine, after providing
for actual and accrued liabilities belonging to that Portfolio and/or to any
Class thereof (including without limitation the allocation to a Class of
Special Class Expenses relating to that Class). All dividends and
distributions on Units of a particular Class of a Portfolio shall be
distributed pro rata to the holders of that Class of that Portfolio in
proportion to the number of Units of that Class of that Portfolio held by such
holders at the date and time of record established for the payment of such
dividends or distributions, except that in connection with any dividend or
distribution program or procedure the Trustees may determine that no dividend
or distribution shall be payable on Units as to which the Unitholder's purchase
order and/or payment have not been received by the time or times established by
the Trustees under such program or procedure. Such dividends and distributions
may be made in cash or Units of the same Class or a combination thereof as
determined by the Trustees or pursuant to any program that the Trustees may
have in effect at the time for the election by each Unitholder of the mode of
the making of such dividend or distribution to that Unitholder. Any such
dividend or distribution paid in Units will be paid at the net asset value
thereof as determined in accordance with subsection (h) of Section 4.2.
The Trust intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1954, as amended, or any successor or comparable
statute thereto, and regulations promulgated thereunder. Inasmuch as the
computation of net income and gains for Federal income tax purposes may vary
from the computation thereof on the books of the Trust, the Board of Trustees
shall have the power, in its sole discretion, to distribute in any fiscal year
as dividends, including dividends designated in whole or in part as capital
gains distributions, amounts sufficient, in the opinion of the Board of
Trustees, to enable the Trust to qualify as a regulated investment company and
to avoid liability of the Trust for Federal income tax in respect of that year.
However, nothing in the foregoing shall limit the authority of the Board of
Trustees to make distributions greater than or less than the amount necessary
to qualify as a regulated
- 8 -
<PAGE> 9
investment company and to avoid liability of the Trust for such tax.
(d) Liquidation. In the event of the liquidation or dissolution of
the Trust or of any Portfolio thereof, the Unitholders of each affected
Portfolio and each Class thereof shall be entitled to receive, when and as
declared by the Trustees, the excess of the assets belonging to that Portfolio
over the liabilities belonging to that Portfolio and Class thereof (reduced as
to Units of a Class by any applicable Special Class Expenses, which shall be
allocated as provided in Subsection (b) above). The assets so distributable to
the Unitholders of any particular Class of a particular Portfolio shall be
distributed among such Unitholders in proportion to the number of Units of that
Class of that Portfolio held by them and recorded on the books of the Trust.
The liquidation of any particular Portfolio or Class may be authorized by vote
of a majority of the Trustees then in office subject to the approval of a
majority of the outstanding voting securities, as defined in the 1940 Act,
(Units) of that Portfolio or Class.
(e) Voting. On each matter submitted to a vote of the Unitholders,
each holder of a Unit shall be entitled to one vote for each such Unit standing
in his name on the books of the Trust irrespective of the Portfolio or Class
thereof and all Units of all Portfolios and Classes shall vote as a single
class ("Single Class Voting"); provided, however, that (a) as to any matter
with respect to which a separate vote of any Portfolio or Class is required by
the 1940 Act or would be required under the Massachusetts Business Corporation
Law if the Trust were a Massachusetts business corporation, or is required by a
Plan applicable to such Class, such requirements as to a separate vote by that
Portfolio or Class shall apply in lieu of Single Class Voting as described
above; (b) in the event that the separate vote requirements referred to in (a)
above apply with respect to more than one Portfolio or Class, then subject to
(c) below, the Units of all such applicable Portfolios or Classes shall vote as
a single class; (c) as to any matter which does not affect the interest of a
particular Portfolio or Class, only the holders of Units of the one or more
affected Portfolios or Classes shall be entitled to vote; and (d) the
provisions of the following paragraph shall apply.
On any matter that pertains to any Agreement or to any special Class
Expenses with respect to any Portfolio which matter is submitted to a vote of
Unitholders, only Units of the affected class of that Portfolio shall be
entitled to vote (except where otherwise required by law or permitted by the
Board of Trustees acting in its sole discretion) even though the matter is
submitted to a vote of the Unitholders of any other Class or Portfolio.
- 9 -
<PAGE> 10
(f) Redemption by Unitholder. Each holder of Units of a particular
Class of a particular Portfolio shall have the right at such times as may be
permitted by the Trust, but no less frequently than once each week, to require
the Trust to redeem all or any part of his Units of that Class of that
Portfolio at a redemption price equal to the net asset value per Unit of that
Class of that Portfolio next determined in accordance with subsection (h) of
this Section 4.2 after the Units are properly tendered for redemption. Payment
of the redemption price shall be in cash; provided, however, that if the
Trustees determine, which determination shall be conclusive, that conditions
exist which make payment wholly in cash unwise or undesirable, the Trust may
make payment wholly or partly in securities or other assets belonging to the
Portfolio of which the Units being redeemed are part at the value of such
securities or assets used in such determination of net asset value.
Notwithstanding the foregoing, the Trust may postpone payment of the
redemption price and may suspend the right of the holders of Units of any
Portfolio to require the Trust to redeem Units of that Portfolio during any
period or at any time when and to the extent permissible under the 1940 Act.
(g) Redemption by Trust. Each Unit of each Class of each Portfolio
that has been established and designated is subject to redemption by the Trust
at the redemption price which would be applicable if such Unit was then being
redeemed by the Unitholder pursuant to subsection (f) of this Section 4.2 at
any time, if the Trustees determine in their sole discretion that failure to so
redeem may have materially adverse consequences to the holders of that Class or
of that Portfolio, and upon such redemption the holders of the Units so
redeemed shall have no further right with respect thereto other than to receive
payment of such redemption price. In addition, the Trustees, in their sole
discretion, may cause the Trust to redeem all of the Units of one or more
Portfolio or Class held by (a) any Unitholder if the value of such Units is
less than the minimum amount established from time to time by the Trustees or
(b) all Unitholders of a Class or Portfolio if the value of such Units held by
all Unitholders is less than the minimum amount established from time to time
by the Trustees.
(h) Net Asset Value. The net asset value per Unit of any Portfolio
(or Class thereof) shall be the quotient obtained by dividing the value of the
net assets of that Portfolio or Class (being the value of the assets belonging
to that Portfolio less the liabilities belonging to that Portfolio or Class,
including without limitation any Special Class Expenses allocable to that
Class) by the total number of Units of that Portfolio (or Class thereof)
outstanding, all determined in accordance with the
- 10 -
<PAGE> 11
methods and procedures, including without limitation those with respect to
rounding, established by the Trustees from time to time.
The Trustees may determine to maintain the net asset value per Unit of
any Portfolio or Class at a designated constant dollar amount and in connection
therewith may adopt procedures not inconsistent with the 1940 Act for the
continuing declarations of income attributable to that Portfolio or Class as
dividends payable in additional Units of the Portfolio or Class at the
designated constant dollar amount and for the handling of any losses
attributable to that Portfolio or Class. Such procedures may provide that in the
event of any loss each Unitholder shall be deemed to have contributed to the
capital of the Trust attributable to that Portfolio or Class his pro rata
portion of the total number of Units required to be cancelled in order to permit
the net asset value per Unit of that Portfolio or Class to be maintained, after
reflecting such loss, at the designated constant dollar amount. Each Unitholder
of the Trust shall be deemed to have agreed, by his investment in the Trust, to
make the contribution referred to in the preceding sentence in the event of any
such loss.
(i) Transfer. All Units of each particular Portfolio shall be
transferable, but transfers of Units of a particular Portfolio will be recorded
on the Unit transfer records of the Trust applicable to that Portfolio only at
such times as Unitholders shall have the right to require the Trust to redeem
Units of that Portfolio and at such other times as may be permitted by the
Trustees.
(j) Equality. All Units of each particular Class of each
particular Portfolio that has been established and designated shall represent
an equal proportionate interest in the assets belonging that Portfolio (subject
to the liabilities belonging to that particular Class of that particular
Portfolio), and each Unit of any particular Class of a particular Portfolio
shall be equal to each other Unit of that particular Class of that particular
Portfolio; but the provisions of this sentence shall not restrict any
distinctions permissible under subsection (c) of this Section 4.2 that may
exist with respect to dividends and distributions on Units of the same
Portfolio (or Class thereof). The Trustees may from time to time divide or
combine the Units of any particular Portfolio into a greater or lesser number
of Units of that Portfolio without thereby changing the proportionate
beneficial interest in the assets belonging to that Portfolio or in any way
affecting the rights of Units of any other Portfolio.
(h) Fractions. Any fractional Unit of any Class of any Portfolio,
if any such fractional Unit is outstanding, shall carry proportionately all the
rights and obligations of a whole
- 11 -
<PAGE> 12
Unit of that Class of that Portfolio, including with respect to voting, receipt
of dividends and distributions, redemption of Units, and liquidation of the
Trust or of that Portfolio.
Section 4.3 Ownership of Units. The ownership of Units shall be
recorded on the books of the Trust or of a transfer or similar agent for the
Trust, which books shall be maintained separately for the Units of each
Portfolio and each separate Class thereof that has been established and
designated. No certificates certifying the ownership of Units need be issued
except as the Trustees may otherwise determine from time to time. The Trustees
may make such rules as they consider appropriate for the issuance of Unit
certificates, the use of facsimile signatures, the transfer of Units and
similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent, as the case may be, shall be conclusive as to who
are the Unitholders and as to the number of Units of each Portfolio held from
time to time by each such Unitholder.
6. Sections 5.1 and 5.2 of the Declaration of Trust are amended to
read as follows:
Section 5.1 Voting Powers. The Unitholders shall have power to vote
only (i) for the election or removal of Trustees as provided in Section 3.1,
(ii) with respect to any contract with a Contracting Party as provided in
Section 3.3 as to which Unitholder approval is required by the 1940 Act, (iii)
with respect to any termination or reorganization of the Trust or any Portfolio
to the extent and as provided in Section 7.1 and 7.2., (iv) with respect to any
amendment of this Declaration of Trust to the extent and as provided in Section
7.3, (v) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust, or any Portfolio or Class thereof or the Unitholders (provided,
however, that a Unitholder of a particular Portfolio or Class thereof shall not
be entitled to maintain a derivative or class action on behalf of any other
Portfolio or Class (or Unitholder of any other Portfolio or Class of the
Trust), and (vi) with respect to such additional matters relating to the Trust
as may be required by the 1940 Act, this Declaration of Trust, the By-Laws, a
Service Plan or any registration statement of the Trust filed with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. There shall be no cumulative voting in the
election of any Trustee or Trustees. Units may be voted in person or by proxy.
A proxy with respect to Units held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the
proxy the Trust receives a specific written notice to the contrary from any one
of them. A proxy purporting to be executed
- 12 -
<PAGE> 13
by or on behalf of a Unitholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of proving invalidity shall rest on the
challenger. Until Units are issued, the Trustees may exercise all rights of
Unitholders and may take any actions required by law, this Declaration of Trust
or the By-Laws to be taken by Unitholders.
Section 5.2 Meetings. Meetings of the Unitholders including
meetings involving only the holders of Units of one or more but less than all
Portfolios or Classes thereof) may be called by the Trustees from time to time
to be held at such place within or without The Commonwealth of Massachusetts,
and on such date, as may be designated in the call thereof for the purpose of
taking action upon any matter permitting or requiring the vote or authority of
the Unitholders as provided in Section 5.1. Written notice of any such meeting
shall be given or caused to be given by the Trustees by mailing such notice at
least seven days before such meeting, postage prepaid, stating the time, place
and purpose of the meeting to each Unitholder entitled to vote at such meeting
at the Unitholder's address as it appears on the records of the Trust. If the
Trustees shall fail to call or give notice of any meeting of Unitholders
(including a meeting involving only the holders of Units of one or more but
less than all Portfolios or Classes thereof) for a period of 75 days after
written request by Unitholders holding at least a majority of the Units then
outstanding of any Portfolio or Class entitled to vote upon any matter
requiring action by the Unitholders as provided herein that a meeting be called
to consider such matter, then Unitholders holding at least a majority of the
Units then outstanding of such Portfolio or Class may call and give notice of
such meeting, and thereupon the meeting shall be held in the manner provided
for herein in case of call thereof by the Trustees.
Section 5.5 Action by Written Consent. Subject to the provisions of
the 1940 Act and other applicable law, any action taken by Unitholders may be
taken without a meeting if holders of a majority of units entitled to vote on
the matter (or such larger proportion thereof as shall be required by the 1940
Act or by any express provision of this Declaration of Trust or the By-Laws)
consent to the action in writing and such written consents are filed with the
records of the meetings of Unitholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Unitholders.
7. Sections 7.1 and 7.2 of the Declaration of Trust are amended to
read as follows:
Section 7.1 Duration and Termination of Trust. Unless terminated as
provided herein, the Trust shall continue without limitation of time. The Trust
may be terminated at any time by a
- 13 -
<PAGE> 14
majority of the Trustees then in office subject to a favorable vote of a
majority of the outstanding voting securities, as defined in the 1940 Act,
(Units) of each Portfolio voting separately by Portfolio.
Upon termination, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or anticipated as may
be determined by the Trustees, the Trust shall in accordance with such
procedures as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, securities or other property, or any combination
thereof and distribute the proceeds to the Unitholders, in conformity with the
provisions of subsection (d) of Section 4.2.
Section 7.2. Reorganization. The Trustees may sell,convey and
transfer the assets of the Trust, or the assets belonging to any one or more
Portfolios, to another trust, partnership, association or corporation organized
under the laws of any state of the United States, or to the Trust to be held as
assets belonging to another Portfolio of the Trust, in exchange for cash,
shares or other securities (including, in the case of a transfer to another
Portfolio of the Trust, Units of such other Portfolio) with such transfer being
made subject to, or with the assumption by the transferee of, the liabilities
belonging to each Portfolio the assets of which are so transferred; provided,
however, that no assets belonging to any particular Portfolio shall be so
transferred unless the terms of such transfer shall have first been approved at
a meeting called for the purpose by the affirmative vote of the holders of a
majority of the outstanding voting securities, as defined in the 1940 Act,
(Units) of that Portfolio. Following such transfer, the Trustees shall
distribute such cash, shares or other securities (giving due effect to the
assets and liabilities belonging to and any other differences among the various
Portfolios the assets belonging to which have so been transferred) among the
Unitholders of the Portfolio the assets belonging to which have been so
transferred; and if all of the assets of the Trust have been so transferred,
the Trust shall be terminated.
- 14 -
<PAGE> 15
8. Section 7.3 of the Declaration of Trust, dealing with
amendments to the Declaration of Trust, is amended by adding the following new
sentence at the end thereof:
By vote of a majority of the Trustees at any time, without the
necessity of authorization by Unitholders, the Trustees may
cause this Declaration of Trust to be restated in its entirety
to reflect all previous amendments made pursuant to this
Section 7.3. Such restatement may include such editorial
changes, not making any substantive change, as the Trustees may
determine to be appropriate.
In witness whereof I set my hand this 2nd day of January 1991.
/s/ SIGNATURE
- -----------------------------------------
Title: President
----------------------------------
Dated: 1/2/91
-------------------
- 15 -
<PAGE> 1
Exhibit 1(f)
CENTERLAND FUND
Officer's Certificate
Pursuant to Article VII, Section 7.3 of the Agreement and Declaration
of Trust of Centerland Fund (the "Trust"), dated August 4, 1982, as amended,
the undersigned hereby certifies that she is a duly elected and qualified
officer of the Trust, and that the Trustees and Unitholders of the Trust at
meetings held on January 18, 1991 and April 24, 1991, respectively, approved
the Amendment to the Agreement and Declaration of Trust to permit the Trustees
to establish a mandatory retirement age for Trustees.
Dated: July 2, 1991
/s/ Michelle Lenzmeier
------------------------------------
Michelle S. Lenzmeier, Secretary
<PAGE> 1
Exhibit 1(g)
CENTERLAND FUND
REDESIGNATION OF SERIES AND CLASSES AND FURTHER DESIGNATION OF
SERIES AND CLASSES
WHEREAS, Section 4.1 of the Agreement and Declaration of Trust dated
July 15, 1982, as amended, (the "Declaration") of Centerland Fund (the
"Trust") provides that the Declaration may be amended to establish and
designate new series and classes of units of beneficial interest by an
instrument in writing executed by a majority of the Trustees of the Trust and
setting forth such establishment and designation and the relative rights and
preferences of such series and Section 7.3 of the Declaration permits the
Trustees to redesignate outstanding series; and
NOW THEREFORE, the undersigned, being a majority of the Trustees of the
Trust, (1) hereby redesignate the outstanding units of beneficial interest
known as "Short-Term Diversified Assets Units" to be known as "Shares of the
Short-Term Diversified Assets Portfolio"; (2) hereby redesignate the
outstanding units of beneficial interest known as "Short-Term U.S. Treasury
Units" to be known as "Shares of the Short-Term U.S. Treasury Portfolio";
(3) hereby redesignate the outstanding units of beneficial interest known as
units of the "Short-Term Tax-Exempt Portfolio" to be known as "Shares of the
Short-Term Tax-Exempt Portfolio"; (4) hereby designate and establish five
additional series of units of beneficial interest to be known respectively as
"Shares of the Taxable Bond Portfolio," "Shares of the Intermediate-Term
Tax-Exempt Bond Portfolio," "Shares of the Tax-Exempt Bond Portfolio," "Shares
of the Equity Income Portfolio," and "Shares of the International Equity
Portfolio," such new series to have the relative rights and preferences set
forth in Subsections (a) through (k) of Section 4.2 of the Declaration, (5)
hereby redesignate the outstanding classes of units of each of the Short-Term
Diversified Assets Portfolio, Short-Term U.S. Treasury Portfolio and Short-Term
Tax-Exempt Portfolio known as "Administration Units" to be known as
"Administration Shares" of each respective Portfolio, (6) hereby redesignate the
outstanding classes of units of each of the Short-Term Diversified Assets
Portfolio, Short-Term U.S. Treasury Portfolio, and Short-Term Tax-Exempt
Portfolio known as "Service Units" to be known as "Service Shares" of each
respective Portfolio, (7) hereby designate and establish two additional classes
of units of each of such five newly designated series to be known as
"Administration Shares" and "Service Shares," of each respective Portfolio, each
such new Class to bear the expenses incurred pursuant to Administration Plans
and Service Plans, as the case may be, adopted for such class and other expenses
attributable to it, and otherwise to have the relative rights and preferences
set forth in Subsections (a) through (k) of Section 4.2 of the Declaration, and
(8) hereby determine pursuant to Section 7.3 of the Declaration that the
foregoing amendments shall be effective upon filing of this instrument with the
office of the Secretary of the Commonwealth of Massachusetts.
WITNESS our hands this 13th day of January, 1992:
/s/ J. Hord Armstrong, III /s/ Henry O. Johnson
- --------------------------------- ---------------------------------
J. Hord Armstrong, III Henry O. Johnson
/s/ Taylor S. Desloge /s/ Frederick T. Kelsey
- --------------------------------- ---------------------------------
Taylor S. Desloge Frederick T. Kelsey
/s/ Lee F. Fetter /s/ L. White Matthews, III
- --------------------------------- ---------------------------------
Lee F. Fetter L. White Matthews, III
/s/ David L. Gardner /s/ Nicholas G. Penniman, IV
- --------------------------------- ---------------------------------
David L. Gardner Nicholas G. Penniman, IV
/s/ Stephen Brent Wells
---------------------------------
Stephen Brent Wells
Then personally appeared the above-mentioned Trustees and acknowledge
this instrument to be their free act and deed this 13th day of January 1992.
/s/ Michelle S. Lenzmeier,
-----------------------------------------
Michelle S. Lenzmeier,
Secretary of the Trust
<PAGE> 1
Exhibit 1(n)
THE PILOT FUNDS
REDESIGNATION OF SERIES
WHEREAS, Section 7.3 of the Agreement and Declaration of Trust dated
July 15, 1982, as amended, (the "Declaration") of The Pilot Funds, formerly
Centerland Fund (the "Trust") provides that the Declaration may be amended to
redesignate a series by an instrument in writing executed by a majority of the
Trustees of the Trust and setting forth such amendment;
NOW THEREFORE, the undersigned, being a majority of the Trustees of the
Trust, (i) hereby redesignate the "Shares of the Pilot Short-Term Tax-Exempt
Fund" to be known as "Shares of the Pilot Missouri Short-Term Tax-Exempt Fund."
The foregoing redesignation and amendment shall be effective upon
filing of this instrument with the office of the Secretary of State of the
Commonwealth of Massachusetts.
WITNESS our hands this 6th day of June, 1995.
/s/ J. Hord Armstrong, III /s/ Lee F. Fetter
- ------------------------------ ------------------------------
J. Hord Armstrong, III Lee F. Fetter
/s/ Henry O. Johnston
- ------------------------------ ------------------------------
David Holford Benson Henry O. Johnston
/s/ L. White Matthews, III /s/ Nicholas G. Penniman, IV
- ------------------------------ ------------------------------
L. White Matthews, III Nicholas G. Penniman, IV
<PAGE> 1
Exhibit 1(o)
THE PILOT FUNDS
DESIGNATION OF SERIES AND
DESIGNATION OF NEW CLASSES
WHEREAS, Section 4.1 of the Agreement and Declaration of Trust dated
July 15, 1982, as amended, (the "Declaration") of The Pilot Funds, (the
"Trust") provides that the Declaration may be amended to establish and
designate new series of units of beneficial interest and classes of units by an
instrument in writing executed by a majority of the Trustees of the Trust and
setting forth such establishment and designation and the relative rights and
preferences of such series and classes;
NOW THEREFORE, the undersigned, being a majority of the Trustees of the
Trust, (1) hereby amend the Declaration by designating and establishing one
additional series of units to be known as the (i) "Shares of the Pilot Small
Capitalization Equity Fund," such new series to have the relative rights and
preferences set forth in Subsections (a) through (k) of Section 4.2 of the
Declaration; (2) hereby amend the Declaration by designating and establishing
three classes of the authorized but unissued units of the Fund above designated
and established, to be known as Pilot Shares, Class A and Class B, each such
new class to bear the expenses incurred pursuant to the Distribution Plan, if
any, adopted for such class and other expenses attributable to it and otherwise
to have the relative rights and preferences set forth in Subsections (a)
through (k) of Section 4.2 of the Declaration; and (3) hereby determine
pursuant to Section 7.3 of the Declaration that the foregoing amendment shall
be effective upon filing with the office of the Secretary of State of the
Commonwealth of Massachusetts.
WITNESS our hands this 12th day of October, 1995.
/s/ J. Hord Armstrong, III /s/ Lee F. Fetter
- ------------------------------- -------------------------------
J. Hord Armstrong, III Lee F. Fetter
/s/ Henry O. Johnston /s/Nicholas G. Penniman, IV
- ------------------------------- -------------------------------
Henry O. Johnston Nicholas G. Penniman, IV
/s/ L. White Matthews, III /s/ David Holford Benson
- ------------------------------- -------------------------------
L. White Matthews, III David Holford Benson
<PAGE> 1
Exhibit 2(d)
AMENDMENT OF BY-LAWS
RESOLVED, that Article III of the By-Laws be, and it hereby is, amended
changing the caption thereof to read "OFFICERS, AGENTS AND EMPLOYEES" and by
adding a new Section 3.10 to read as follows:
SECTION 3.10. HONORARY TRUSTEES. The Board of Trustees may
from time to time designate and appoint one or more qualified persons to
the position of "honorary Trustee". Each honorary Trustee shall serve
for such term as shall be specified in the resolution of the Board of
Trustees appointing him or until his earlier resignation or removal. An
honorary Trustee may be removed from such position with or without cause
by the vote of a majority of the Board of Trustees given at any regular
or special meeting. An honorary Trustee may be invited to attend all
meetings of the Board of Trustees but shall not be present at any
portion of a meeting from which the honorary Trustee shall have been
excluded by vote of the Trustees. An honorary Trustee shall not be a
"Trustee" or "Officer" within the meaning of the Trust's Agreement and
Declaration of Trust, as amended, or of these By-Laws, shall not be
deemed to be a member of an "advisory board" within the meaning of the
1940 Act, shall not hold himself out as any of the foregoing, and shall
not be liable to any person for any act of the Trust. Notice of special
meetings may be given to an honorary Trustee but the failure to give
such notice shall not affect the validity of any meeting or the action
taken thereat. An honorary Trustee shall not have the powers of a
Trustee, may not vote at meetings of the Board of Trustees and shall not
take part in the operation or governance of the Trust. An honorary
Trustee shall receive compensation in the same amount and in the same
manner as that provided to a Trustee of the Trust and may be reimbursed
for expenses incurred in attending meetings of the Board of Trustees or
otherwise.
APPOINTMENT OF HONORARY TRUSTEE
RESOLVED, that Frederick T. Kelsey be, and he hereby is, appointed an honorary
Trustee of the Trust, effective as of April 29, 1994 to serve pursuant to the
provisions of the Trust's Agreement and Declaration of Trust, as amended, until
April 29, 1995.
<PAGE> 1
EXHIBIT 10(b)
GOODWIN, PROCTER & HOAR
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 523-1231
CABLE - GOODPROCT, BOSTON
February 21, 1996
The Pilot Funds
3435 Stelzer Road
Columbus, OH 43219
Ladies and Gentlemen:
Reference is made to Post-Effective Amendment No. 29 (the "Amendment")
to the Registration Statement on Form N-1A (Registration No. 2-78440) filed
with the Securities and Exchange Commission with respect to the proposed sale
of an indefinite number of shares of beneficial interest, $.001 per share par
value, of the Class B Shares (the "Shares") of the Pilot International Equity
Fund, a series of The Pilot Funds, a Massachusetts business trust (the
"Trust").
In rendering the opinion set forth below, we have examined such records,
documents and other instruments and have made such other examinations and
inquiries as we have deemed necessary to enable us to express the opinion set
forth herein.
Based upon and subject to the foregoing, we are of the opinion that the
Shares, when issued and sold in accordance with the terms of the Prospectus and
Statement of Additional Information relating to the Shares in effect at the
time of such issuance and sale, will be validly issued, fully paid and
non-assessable by the Trust.
We hereby consent to the filing of this opinion as an Exhibit to the
Amendment and to the reference to this firm in the Statement of Additional
Information under the heading "Independent Accountants and Counsel."
Very truly yours,
GOODWIN, PROCTER & HOAR
<PAGE> 1
EXHIBIT 11
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Pilot Funds:
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated October 16, 1995
incorporated by reference in Post-Effective Amendment No. 29 and Amendment No.
30 to Registration Statement File Nos. 2-78440 and 811-3517, respectively.
/S/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 13, 1996
<PAGE> 2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Pilot International
Equity Fund Financial Highlights" in the Prospectus for Class A Shares and Class
B Shares and "Independent Accountants and Counsel" in the Statement of
Additional Information of The Pilot Funds and to the incorporation by reference
therein of our report on the financial statements and financial highlights of
Kleinwort Benson International Equity Fund (a series of Kleinwort Benson
Investment Strategies) dated January 29, 1993, included in this Post-Effective
Amendment No. 29 to Registration Statement No. 2-78440 of The Pilot Funds.
/s/ Ernst & Young LLP
--------------------------------
ERNST & YOUNG LLP
Boston Massachusets
February 15, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 1
<NAME> INTERNATIONAL EQUITY FUND - CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 342898695
<INVESTMENTS-AT-VALUE> 382,841,119
<RECEIVABLES> 9,233,498
<ASSETS-OTHER> 761,645
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 392,836,262
<PAYABLE-FOR-SECURITIES> 1,340,545
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 659,205
<TOTAL-LIABILITIES> 1,999,750
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 331,792,681
<SHARES-COMMON-STOCK> 24,082,556
<SHARES-COMMON-PRIOR> 21,581,171
<ACCUMULATED-NII-CURRENT> 2,488,507
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,516,175
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47,039,149
<NET-ASSETS> 390,836,512
<DIVIDEND-INCOME> 5,915,820
<INTEREST-INCOME> 1,022,408
<OTHER-INCOME> 0
<EXPENSES-NET> 4,178,075
<NET-INVESTMENT-INCOME> 2,760,153
<REALIZED-GAINS-CURRENT> 10,827,946
<APPREC-INCREASE-CURRENT> (5,389,060)
<NET-CHANGE-FROM-OPS> 8,199,039
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,414,168
<DISTRIBUTIONS-OF-GAINS> 6,384,762
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,081
<NUMBER-OF-SHARES-REDEEMED> 4,070
<SHARES-REINVESTED> 490
<NET-CHANGE-IN-ASSETS> 38,285,311
<ACCUMULATED-NII-PRIOR> 1,691,656
<ACCUMULATED-GAINS-PRIOR> 4,920,638
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,828,628
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 27,624,698
<AVERAGE-NET-ASSETS> 27,625
<PER-SHARE-NAV-BEGIN> 16.29
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> 0.11
<PER-SHARE-DISTRIBUTIONS> 0.29
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.14
<EXPENSE-RATIO> 1.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 2
<NAME> INTERNATIONAL EQUITY FUND -- PILOT SHARES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 342898695
<INVESTMENTS-AT-VALUE> 382,841,119
<RECEIVABLES> 9,233,498
<ASSETS-OTHER> 761,645
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 392,836,262
<PAYABLE-FOR-SECURITIES> 1,340,545
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 659,205
<TOTAL-LIABILITIES> 1,999,750
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 331,792,681
<SHARES-COMMON-STOCK> 24,082,556
<SHARES-COMMON-PRIOR> 21,581,171
<ACCUMULATED-NII-CURRENT> 2,488,507
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,516,175
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47,039,149
<NET-ASSETS> 390,836,512
<DIVIDEND-INCOME> 5,915,820
<INTEREST-INCOME> 1,022,408
<OTHER-INCOME> 0
<EXPENSES-NET> 4,178,075
<NET-INVESTMENT-INCOME> 2,760,153
<REALIZED-GAINS-CURRENT> 10,827,946
<APPREC-INCREASE-CURRENT> (5,389,060)
<NET-CHANGE-FROM-OPS> 8,199,039
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,414,168
<DISTRIBUTIONS-OF-GAINS> 6,384,762
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,081
<NUMBER-OF-SHARES-REDEEMED> 4,070
<SHARES-REINVESTED> 490
<NET-CHANGE-IN-ASSETS> 38,285,311
<ACCUMULATED-NII-PRIOR> 1,691,656
<ACCUMULATED-GAINS-PRIOR> 4,920,638
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,828,628
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,760,153
<AVERAGE-NET-ASSETS> 363,211,814
<PER-SHARE-NAV-BEGIN> 16.34
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> 0.11
<PER-SHARE-DISTRIBUTIONS> 0.29
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.24
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
