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Registration No. 33-________
As filed with the Securities and Exchange Commission on July 5, 1996.
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM N-14
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. _____ / /
Post-Effective Amendment No. _____ / /
THE PILOT FUNDS
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
(Address of Principal Executive Offices)
(800) 717-4568
(Registrant's Telephone Number, including Area Code)
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George O. Martinez, Esq.
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
(Name and Address of Agent for Service)
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Communications and Copies to:
Philip H. Newman, Esq. Steven R. Howard, Esq.
Goodwin, Procter & Hoar LLP Baker & McKenzie
Exchange Place 805 Third Avenue
Boston, Massachusetts 02109 New York, New York 10022
Elizabeth G. Bruce, Esq. John J. Pileggi
Boatmen's Trust Company Furman Selz LLC
The Boatmen's Tower 237 Park Avenue
1000 North Broadway Suite 910
St. Louis, Missouri 63178 New York, New York 10017
Sequential Numbering System: Page 1 of _____ pages
Exhibit Index appears on sequentially numbered page _____
Approximate Date of Proposed Public Offering: As soon as practicable
following the effective date of this Registration Statement.
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It is proposed that this filing will become effective on August 4, 1996
pursuant to Rule 488 under the Securities Act of 1933.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has previously filed a declaration registering an indefinite number of shares of
beneficial interest on Form N-1A (Registration Nos. 2-78440, 811-3517).
Accordingly, no filing fee is due in connection with this Registration
Statement. A copy of Registrant's earlier Declaration pursuant to Rule 24f-2 is
filed herewith as an exhibit. On October 20, 1995, Registrant filed the notice
required by Rule 24f-2 for its fiscal year ended August 31, 1996. Pursuant to
Rule 429, this Registration Statement relates to the above-referenced
Registration Statement on Form N1-A.
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THE PILOT FUNDS
Form N-14 Registration Statement
Cross-Reference Sheet Pursuant to
Rule 481(a) under the Securities Act of 1933
<TABLE>
<CAPTION>
Part A Caption Prospectus/Proxy Statement
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<S> <C> <C>
Item 1. Beginning of Registration Statement Cover Page; Cross-Reference Sheet
and Outside Front Cover Page of
Prospectus
Item 2. Beginning and Outside Back Cover Table of Contents
Page of Prospectus
Item 3. Synopsis Information and Risk Factors Summary; Principal Risk Factors
Item 4. Information About the Transaction Summary; Information Relating to the Proposed
Reorganizations; Comparison of Investment
Policies and Risk Factors; Comparison of the
Trusts; Information Relating to Voting Matters;
Appendix A; Appendix B
Item 5. Information About the Registrant Cover Page; Summary; Principal Risk Factors;
Comparison of Investment Policies and Risk
Factors; Comparison of the Trusts; Information
Relating to Voting Matters; Additional
Information; Appendix B
Item 6. Information About the Company Cover Page; Summary; Additional Information
Item 7. Voting Information Cover Page; Information Relating to Voting Matters
Item 8. Interest of Certain Persons and Experts Not applicable
Item 9. Additional Information Required for Not applicable
Reoffering by Persons Deemed to be
Underwriters
Part B Caption in Statement of Additional Information
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Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. Additional Information About the Statement of Additional Information for Pilot Growth and
Registrant Income Fund; Statement of Additional Information
for Pilot Short-Term Diversified Asset Fund
Item 13. Additional Information about Statement of Additional Information for FUNDS IV Trust
the Company Being Acquired
Item 14. Financial Statements Pro Forma Financial Statements; Financial Statements
of Additional Information for Pilot Growth and Income
Fund; Financial Statements for Pilot Short-Term
Diversified Assets Fund; Financial Statements for
FUNDS IV Trust
Part C Caption in Part C
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Item 15. Indemnification Indemnification
Item 16. Exhibits Exhibits
Item 17. Undertakings Undertakings
</TABLE>
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FUNDS IV TRUST
AGGRESSIVE STOCK APPRECIATION FUND
VALUE STOCK APPRECIATION FUND
STOCK APPRECIATION FUND
BOND INCOME FUND
INTERMEDIATE BOND INCOME FUND
CASH RESERVE MONEY MARKET FUND
237 Park Avenue
New York, New York 10017
July __, 1996
Dear FUNDS IV Shareholder:
A Special Meeting of Shareholders of FUNDS IV has been called for
September __, 1996 to address matters that are important to you.
As you may be aware, Boatmen's Bancshares, Inc. ("Bancshares")
completed a merger with Fourth Financial Corporation on January 31, 1996. As a
result, the new organization has since taken steps to consolidate mutual fund
investment advisory activities. Bank IV, National Association (now a
wholly-owned subsidiary of Bancshares) currently provides investment advisory
services to FUNDS IV Trust. Boatmen's Trust Company (also a wholly owned
subsidiary of Bancshares) currently provides investment advisory services to The
Pilot Funds.
As the next step in the consolidation process, you are being asked to
consider and approve a proposed Agreement and Plan of Reorganization (the
"Reorganization Agreement"). The Reorganization Agreement provides that each of
six investment portfolios of FUNDS IV Trust will transfer substantially all of
its assets and its stated liabilities to a corresponding portfolio of The Pilot
Funds. The transaction is expected to occur on or after September __, 1996. The
Trustees have approved a Plan of Liquidation for the other operating portfolio
of FUNDS IV Trust, which Plan is separately being submitted for approval by
shareholders of that Fund.
The Board of Trustees of FUNDS IV Trust has considered a variety of
factors and unanimously approved the Reorganization Agreement and transactions
contemplated thereby. The reorganizations are expected to benefit shareholders
because:
- Shareholders will have a broader array of investment options
available to them.
- Immediately following the reorganizations, shareholders will
experience lower actual total expense ratios.
- Boatmen's has made a voluntary commitment that through January
31, 1998 the actual total expense ratio for such surviving
portfolio shall be no greater than the actual total expense ratio
of the applicable series of FUNDS IV Trust as of January 31,
1996.
You should consider the following in connection with the proposed
reorganizations:
- The value of your investment will not change as a result of any
reorganization transaction.
- The reorganization transactions will be tax-free and will not
involve any sales loads, commissions or transaction charges.
- The investment policies and objectives of the corresponding
portfolio(s) of The Pilot Funds are substantially similar to the
objective(s) and policies of your current portfolio(s) of FUNDS
IV Trust, except as stated in the enclosed Combined Proxy
Statement/Prospectus.
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The Reorganization Agreement and other related matters are discussed in
detail in the enclosed Combined Proxy Statement/Prospectus, which you should
read carefully.
VOTING INSTRUCTIONS
Enclosed is a proxy card for the meeting. We urge you to read the
enclosed Combined Proxy Statement/Prospectus and to vote by completing, signing
and returning the enclosed proxy ballot form(s) in the prepaid envelope. If you
are a shareholder of more than one Funds IV Fund, you will receive a proxy card
for each of your Funds IV Funds. Please vote and return each proxy card you
receive. Every vote counts.
We are excited about the reorganization and the potential benefits it
provides to shareholders who invest with Funds IV Trust. Hopefully, you will
agree by voting "yes" and returning your proxy card as soon as possible.
Sincerely,
John J. Pileggi, President
2
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PRELIMINARY COPY
FUNDS IV TRUST
AGGRESSIVE STOCK APPRECIATION FUND
VALUE STOCK APPRECIATION FUND
STOCK APPRECIATION FUND
BOND INCOME FUND
INTERMEDIATE BOND INCOME FUND
CASH RESERVE MONEY MARKET FUND
237 Park Avenue
New York, New York 10017
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on September __, 1996
NOTICE IS HEREBY GIVEN THAT a Special Meeting of the Shareholders of
Aggressive Stock Appreciation Fund, Value Stock Appreciation Fund, Stock
Appreciation Fund, Bond Income Fund, Intermediate Bond Income Fund, and Cash
Reserve Money Market Fund, each a series of FUNDS IV Trust (each a "Funds IV
Fund") will be held at the offices of Furman Selz LLC at 237 Park Avenue, New
York, New York, Suite 910 on September __, 1996, at __:00 __.m. Eastern Time for
the following purposes:
ITEM 1. With respect to each Funds IV Fund:
To consider and act upon a proposal to approve an Agreement and Plan of
Reorganization and the transactions contemplated thereby, including (a) the
transfer of substantially all of the assets and stated liabilities of such Funds
IV Fund to a corresponding series of The Pilot Funds (each a "Pilot Fund" and
collectively, the "Pilot Funds") in exchange for shares of the Pilot Shares
class of the corresponding Pilot Fund (the "Pilot Shares"); and (b) the
distribution of the Pilot Shares so received to shareholders of such Funds IV
Fund.
ITEM 2. With respect to each Funds IV Fund:
To transact such other business as may properly come before the Special
Meeting or any adjournment(s) thereof.
The proposed reorganizations and related matters are described in the
attached Combined Proxy Statement/Prospectus. Appendix A to the Combined Proxy
Statement/Prospectus is a copy of the Agreement and Plan of Reorganization.
Copies of the Prospectuses for the relevant Pilot Funds are included with this
Combined Proxy Statement/Prospectus.
Shareholders of record of each Funds IV Fund as of the close of
business on June __, 1996 are entitled to notice of, and to vote at, the Special
Meeting or any adjournments thereof.
SHAREHOLDERS OF EACH FUNDS IV FUND ARE REQUESTED TO EXECUTE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING
SOLICITED BY FUNDS IV TRUST'S BOARD OF TRUSTEES. THIS ACTION WILL HELP ENSURE A
QUORUM AT THE SPECIAL MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY
ARE EXERCISED BY SUBMITTING TO FUNDS IV TRUST A WRITTEN NOTICE OF REVOCATION OR
A SUBSEQUENTLY EXECUTED PROXY OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN
PERSON.
By Order of the Trustees,
Joan V. Fiore
Secretary
August __, 1996 FUNDS IV TRUST
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary................................................................................................
Background.....................................................................................
Summary of the Reorganization Agreement........................................................
Federal Income Tax Consequences................................................................
Overview of the Funds IV Funds and the Pilot Funds.............................................
Principal Risk Factors.................................................................................
Information Relating to the Proposed Reorganization....................................................
Description of the Reorganization Agreement....................................................
Capitalization.................................................................................
Federal Income Tax Consequences................................................................
Comparison of Investment Policies and Risk Factors.........................................
Aggressive Stock Appreciation Fund and Pilot Growth Fund.......................................
Value Stock Appreciation Fund and Pilot Growth and Income Fund.................................
Stock Appreciation Fund and Pilot Growth and Income Fund.......................................
Bond Income Fund and Pilot Diversified Bond Income Fund........................................
Intermediate Bond Income Fund and Pilot Diversified Bond Income Fund...........................
Cash Reserve Money Market Fund and Pilot Short-Term Diversified Assets Fund....................
Comparison of the Trusts.......................................................................
Information Relating to Voting Matters.................................................................
General Information............................................................................
Solicitation of Proxies........................................................................
Appraisal Rights...............................................................................
Quorum.........................................................................................
Additional Information about Funds IV..................................................................
Financial Highlights...................................................................................
Other Business.........................................................................................
Shareholder Inquiries..................................................................................
Appendix A--Agreement and Plan of Reorganization.....................................................A-1
Appendix B--Additional Investment Restrictions.......................................................B-1
</TABLE>
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PRELIMINARY COPY
COMBINED PROXY STATEMENT/PROSPECTUS
DATED August __, 1996
FUNDS IV TRUST
237 Park Avenue
Suite 910
New York, New York 10017
(800) 557-3768
THE PILOT FUNDS
3435 Stelzer Road
Columbus, Ohio 43219
(800) 717-4568
This Combined Proxy Statement/Prospectus is furnished in connection
with the solicitation of proxies by the Board of Trustees of FUNDS IV Trust
("Funds IV Trust") in connection with a Special Meeting (the "Meeting") of
Shareholders of Aggressive Stock Appreciation Fund, Value Stock Appreciation
Fund, Stock Appreciation Fund, Bond Income Fund, Intermediate Bond Income Fund,
and Cash Reserve Money Market Fund, each a series of the Trust (each, a "Funds
IV Fund" and collectively, the "Funds IV Funds"), to be held on September __,
1996 at __:00 __.m. Eastern Time at the offices of Furman Selz LLC ("Furman
Selz"), 237 Park Avenue, New York, NY, Suite 910, at which shareholders of each
Funds IV Fund will be asked to consider and approve a proposed Agreement and
Plan of Reorganization dated __________, 1996 (the "Reorganization Agreement")
by and between Funds IV Trust and The Pilot Funds, as further described below.
Funds IV Trust and The Pilot Funds are registered, open-end, management
investment companies. Bank IV, National Association ("Bank IV") currently
provides investment advisory services to all of the Funds IV Funds, except for
Cash Reserve Money Market Fund, for which AMR Investment Services, Inc. ("AMR")
serves as investment adviser. Boatmen's Trust Company ("Boatmen's") provides
investment advisory services to The Pilot Funds. Bank IV and Boatmen's are each
wholly owned subsidiaries of Boatmen's Bancshares, Inc.
The Reorganization Agreement provides that each Funds IV Fund noted
below (each, a "Reorganizing Fund" and collectively, the "Reorganizing Funds")
will transfer substantially all its assets and its stated liabilities to the
series of The Pilot Funds (each, a "Pilot Fund" or an "Acquiring Fund" and
collectively, the "Pilot Funds" or the "Acquiring Funds") identified below
opposite its name:
REORGANIZING FUNDS CORRESPONDING ACQUIRING FUNDS
Aggressive Stock Appreciation Fund Pilot Growth Fund
Value Stock Appreciation Fund Pilot Growth and Income Fund
Stock Appreciation Fund Pilot Growth and Income Fund
Bond Income Fund Pilot Diversified Bond Income Fund
Intermediate Bond Income Fund Pilot Diversified Bond Income Fund
Cash Reserve Money Market Fund Pilot Short-Term Diversified Assets Fund
In exchange for the transfers of these assets and liabilities pursuant
to the Reorganization Agreement, The Pilot Funds will simultaneously issue
shares of each Acquiring Fund to its corresponding Reorganizing Fund according
to the pairings shown in the table above. Each Reorganizing Fund will then
distribute shares of the corresponding Acquiring Fund to its shareholders, in
liquidation of the Reorganizing Fund. As a result, upon completion of each
transaction, the Reorganizing Fund will cease to operate and its shareholders
will be shareholders of the corresponding Acquiring Fund.
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Each of the Pilot Funds, except Pilot Short-Term Diversified Assets
Fund, offers the following three classes of shares - Class A, Class B, and Pilot
Shares. Pilot Short-Term Diversified Assets Fund ("Diversified Assets Fund")
offers the following three classes of shares - Pilot Shares, Administration
Shares, and Investor Shares. Each of the Funds IV Funds currently offers only
Service Class shares. All outstanding shares of the Premium Class of the Funds
IV Funds are held by Furman Selz and will be redeemed prior to the effectiveness
of the proposed reorganization transactions (each, a "Reorganization"). As part
of each of the Reorganizations, each Funds IV Fund will receive shares of the
Pilot Shares class of its corresponding Pilot Fund. Each Reorganization is a
separate transaction and is not contingent upon any other Reorganization. For
additional information on the other classes of The Pilot Funds, see "The Pilot
Family of Funds" in the Prospectuses for Pilot Growth Fund, Pilot Growth and
Income Fund, Pilot Diversified Bond Income Fund, and Pilot Short-Term
Diversified Assets Fund.
This Combined Proxy Statement/Prospectus sets forth the information
that a Shareholder of a Funds IV Fund should know before voting on the
Reorganization Agreement (and each Reorganization), and should be retained for
future reference. The Prospectuses dated December 29, 1995 for Pilot Growth and
Income Fund, May 10, 1996 for Pilot Growth Fund and Pilot Diversified Bond
Income Fund, and December 29, 1995 for Pilot Short-Term Diversified Assets Fund
are included with this Combined Proxy Statement/Prospectus and are incorporated
herein by reference. The Statements of Additional Information relating to Pilot
Growth and Income Fund dated December 29, 1995, to Pilot Growth Fund and Pilot
Diversified Bond Income Fund dated May 10, 1996, and to Pilot Short-Term
Diversified Assets Fund dated December 29, 1995 and to this Combined Proxy
Statement/Prospectus dated August ___, 1996, and the Prospectus and
Statement of Additional Information relating to the Funds IV Funds dated January
30, 1996 are on file with the Securities and Exchange Commission (the "SEC"),
and are available without charge upon oral or written request by writing or
calling either Funds IV Trust at the address and telephone number indicated
above or Pilot Funds Distributor, Inc. at 3435 Stelzer Road, Columbus, OH 43219
(1-800-717-4568). The above mentioned Prospectuses and Statements of Additional
Information are incorporated herein by reference.
This Combined Proxy Statement/Prospectus constitutes the proxy
statement of Funds IV Fund for its meeting of shareholders and The Pilot Funds'
prospectus for shares of the Acquiring Funds that have been registered with the
SEC and are being issued in connection with the Reorganizations. This Combined
Proxy Statement/Prospectus is expected to first be sent to shareholders on or
about August ___, 1996.
THE SECURITIES OF THE PILOT FUNDS 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 COMBINED PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY
STATEMENT/PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY
REFERENCE AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FUNDS IV TRUST OR THE PILOT
FUNDS.
SHARES OF THE PILOT FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, BOATMEN'S TRUST COMPANY OR ANY OF ITS AFFILIATES.
SHARES OF THE PILOT FUNDS ARE NOT FEDERALLY INSURED BY, GUARANTEED BY,
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 RETURN AND PRINCIPAL VALUE WILL VARY AS A RESULT
OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES OF THE PILOT FUNDS, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. AN INVESTMENT IN
THE PILOT FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL
AMOUNT INVESTED. IN ADDITION, THE AMOUNT OF DIVIDENDS PAID BY A FUND WILL
INCREASE AND DECREASE. THERE IS NO ASSURANCE THAT THE PILOT SHORT- TERM
DIVERSIFIED ASSETS FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
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SUMMARY
The following is a summary of certain information relating to the
proposed Reorganizations, related transactions, and the parties thereto, and is
qualified by reference to the more complete information contained elsewhere in
this Combined Proxy Statement/Prospectus, the Prospectuses and Statements of
Additional Information of the Funds IV Funds and The Pilot Funds, and the form
of Reorganization Agreement attached to this Combined Proxy Statement/Prospectus
as Appendix A.
BACKGROUND.
On January 31, 1996, Fourth Financial Corporation ("Fourth Financial")
merged with and into a wholly owned subsidiary of Boatman's Bancshares, Inc.
("Bancshares"). As a consequence, Bank IV, National Association ("Bank IV"), the
investment adviser to various series of Funds IV Trust and a wholly owned
subsidiary of Fourth Financial, became a wholly owned subsidiary of Bancshares.
Boatmen's, the investment adviser to each of the Pilot Funds, is also a wholly
owned subsidiary of Bancshares. Since the effectiveness of the merger, and as a
result of Bank IV and Boatmen's being under the common control of Bancshares,
the portfolio managers of Funds IV Funds (except for Cash Reserve Money Market
Fund, which is advised by AMR) and the Pilot Funds have shared common investment
research and reported within a common line of supervision. After careful
consideration of the investment portfolios of the funds and their respective
performance, the multi-class structures of and distribution functions performed
for the funds, the shareholder servicing requirements of each fund, compliance
functions and other factors relating to the operation of Funds IV Trust and The
Pilot Funds, Boatmen's and Bank IV concluded that certain series of Funds IV
Trust and The Pilot Funds could achieve significant operating efficiencies and
would benefit from being managed and marketed on a coordinated basis.
Accordingly, Bank IV recommended to the Trustees of Funds IV Trust that
they approve the Reorganizations and submit the Reorganizations to the
shareholders of the Reorganizing Funds for approval. Likewise, Boatmen's
recommended to the Trustees of The Pilot Funds that they approve the
Reorganizations. At a meeting held on May 10, 1996, after due consideration of
the information presented to them concerning the Reorganization, the Trustees of
Funds IV Trust (a) determined that each Reorganization was in the best interests
of the Reorganizing Fund, and that the interests of shareholders would not be
diluted thereby, (b) approved the Reorganization Agreement and each
Reorganization, and (c) authorized the submission of each Reorganization to
shareholders of the applicable Reorganizing Fund for their approval. At a
meeting held on May 21, 1996, after consideration of information substantially
similar to that presented to the Trustees of Funds IV Trust, the Trustees of The
Pilot Funds (a) determined, on the basis of information provided by Boatmen's
that each Reorganization was in the best interests of the Acquiring Fund and
that the interests of shareholders would not be diluted thereby and (b) approved
the Reorganization Agreement and each Reorganization.
SUMMARY OF THE REORGANIZATION AGREEMENT.
Each Reorganization will be effected pursuant to an Agreement and Plan
of Reorganization (the "Reorganization Agreement"), a copy of which is included
as Appendix A. The Reorganization Agreement contemplates that the assets of each
Reorganizing Fund will be acquired by the corresponding Acquiring Fund in a
tax-free exchange for shares issued by the Acquiring Fund and the assumption by
the Acquiring Fund of the stated liabilities of the Reorganizing Fund. Each
Reorganizing Fund is shown opposite its corresponding Acquiring Fund in the
table below.
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REORGANIZING FUND ACQUIRING FUND
Aggressive Stock Appreciation Fund Pilot Growth Fund
Value Stock Appreciation Fund Pilot Growth and Income Fund
Stock Appreciation Fund Pilot Growth and Income Fund
Bond Income Fund Pilot Diversified Bond Income Fund
Intermediate Bond Income Fund Pilot Diversified Bond Income Fund
Cash Reserve Money Market Fund Pilot Short-Term Diversified Assets Fund
Immediately following such transfer and exchange, the shares of the
Acquiring Fund then held by the Reorganizing Fund will be distributed to the
Reorganizing Fund's shareholders. Upon consummation of the Reorganization, each
holder of Service Shares in the applicable Reorganizing Fund will receive full
and fractional shares of the Pilot Shares class ("Pilot Class") of the
corresponding Acquiring Fund equal in value to the value of the investor's
shares of the Reorganizing Fund immediately prior to the transaction. In this
manner, each Acquiring Fund will succeed to the assets and stated liabilities
formerly held by the corresponding Reorganizing Fund, and the Reorganizing
Fund's shareholders will become shareholders of the Acquiring Fund.
Each Reorganization is a separate and distinct transaction and is not
contingent upon the approval or effectiveness of any other Reorganization. A
Reorganization will not be effected until certain conditions are satisfied.
These conditions include: the approval of the shareholders of the Reorganizing
Fund, the receipt by Funds IV Trust and The Pilot Funds of certain opinions of
legal counsel, the receipt from the SEC of certain exemptive relief, the
redemption of all Premium Shares of the Funds IV Funds held by Furman Selz, the
accuracy of various representations and warranties made in the Reorganization
Agreement, and the parties' performance of their agreements and undertakings
made in the Reorganization Agreement. See "Information Relating to the Proposed
Reorganization."
FEDERAL INCOME TAX CONSEQUENCES. Shareholders of each Reorganizing Fund
will recognize no gain or loss for federal income tax purposes on their receipt
of shares of the corresponding Acquiring Fund. Shareholders of each Acquiring
Fund will experience no tax consequences from the Reorganizations. A
Reorganizing Fund will incur no federal tax liability as a result of the
Reorganization, and the corresponding Acquiring Fund will recognize no gain or
loss for federal tax purposes on its issuance of shares in the Reorganization.
See "Information Relating to the Proposed Reorganizations--Federal Income Tax
Consequences" for more information.
OVERVIEW OF THE FUNDS IV FUNDS AND THE PILOT FUNDS.
INVESTMENT OBJECTIVES. Each Reorganizing Fund and its corresponding
Acquiring Fund have similar investment objectives and policies and comparable
investment portfolios. The discussion below sets forth the investment objective
for each Reorganizing Fund and its corresponding Acquiring Fund.
Aggressive Stock Appreciation Fund and Pilot Growth Fund.
- Pilot Growth Fund's objective is to seek long-term capital growth by
investing primarily in equity securities.
- Aggressive Stock Appreciation Fund's objective is to aggressively
seek long-term capital appreciation through investment in a diversified
portfolio of common stock (and securities convertible into common stock) of
domestic companies.
Value Stock Appreciation Fund and Pilot Growth and Income Fund.
- Pilot Growth and Income Fund's objective is to seek capital
appreciation and current income by investing primarily in common stocks of U.S.
companies.
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- Value Stock Appreciation Fund's objective is to seek long-term
capital appreciation and dividend income through investment in a diversified
portfolio of common stock (and securities convertible into common stock) of
domestic companies.
Stock Appreciation Fund and Pilot Growth and Income Fund.
- Pilot Growth and Income Fund's objective is to seek capital
appreciation and current income by investing primarily in common stocks of U.S.
companies.
- Stock Appreciation Fund's objective is to seek long-term capital
appreciation through investment in a diversified portfolio of common stock (and
securities convertible into common stock) of domestic companies.
Bond Income Fund and Pilot Diversified Bond Income Fund.
- Pilot Diversified Bond Income Fund's investment objective is to seek
current income consistent with preservation of capital by investing primarily in
debt securities. The Fund seeks total return as a secondary objective.
- Bond Income Fund's investment objective is to provide as high a level
of current income as is consistent with managing for total return by investing
at least 65% of its total assets in fixed income securities.
Intermediate Bond Income Fund and Pilot Diversified Bond Income Fund.
- Pilot Diversified Bond Income Fund's investment objective is to seek
current income consistent with preservation of capital by investing primarily in
debt securities. The Fund seeks total return as a secondary objective.
- Intermediate Bond Income Fund's investment objective is to provide as
high a level of current income as is consistent with managing for total return
by investing at least 65% of its total assets in fixed income securities.
Cash Reserve Money Market Fund and Pilot Short-Term Diversified Assets
Fund.
- Pilot Short-Term Diversified Assets Fund's objective is to maximize
current income to the extent consistent with preservation of capital and the
maintenance of liquidity by investing exclusively in high quality money market
instruments.
- Cash Reserve Money Market Fund's objectives are current income,
liquidity and the maintenance of a stable $1.00 net asset value per share by
investing in high quality, U.S. dollar-denominated short-term obligations which
are determined by the investment adviser to present minimal credit risks.
See "Comparison of Investment Policies and Risk Factors" below, for
further information on the similarities and differences between the investment
objectives and policies of each Reorganizing Fund and its corresponding
Acquiring Fund. Additional information is also set forth in the Acquiring Fund's
Prospectuses, which are included with this Combined Prospectus/Proxy Statement,
the Reorganizing Funds' Prospectus, which are available upon request (as noted
above) and the Statements of Additional Information of the Acquiring and
Reorganizing Funds, which are also available upon request (as noted above).
CERTAIN ARRANGEMENTS WITH SERVICE PROVIDERS.
Funds IV Funds. Bank IV serves as investment adviser to each
Reorganizing Fund (except for Cash Reserve Money Market Fund for which AMR
serves as investment adviser). Bank IV and AMR are entitled
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to receive advisory fees from each Fund they advise, computed daily, at a fixed
annual rate, expressed as a percentage of average daily net assets. Bank IV also
serves as the custodian of each Funds IV Fund's assets.
Funds IV has entered into an Administrative Services Contract with
Furman Selz LLC ("Furman Selz") pursuant to which Furman Selz provides certain
management and administrative services necessary for the operation of the Funds
IV Funds. Pursuant to Services and Fund Accounting Agreements with Funds IV
Trust, Furman Selz also assists the Funds IV Funds with certain transfer and
dividend disbursing agent and fund accounting functions. In addition, the Funds
IV Funds may pay fees to various service organizations which provide them with
other administrative services, such as maintaining shareholder accounts and
records.
FUNDS IV Distributor, Inc. ("FFD"), an affiliate of Furman Selz, serves
as the distributor of shares of the Funds IV Funds. Each Fund has adopted a Rule
12b-1 Distribution Plan and Agreement pursuant to which it may reimburse FFD on
a monthly basis for costs and expenses FFD incurs in connection with the
marketing and distribution of Fund shares.
See "Management of the Funds" in the Funds IV Prospectus, which is
incorporated herein and available upon request, for more information on the
Funds' arrangements with service providers.
Pilot Funds. Boatmen's serves as investment adviser to each Acquiring
Fund and is entitled to receive advisory fees from the Fund, computed daily and
paid monthly, at a fixed annual rate, expressed as a percentage of average daily
net assets. Boatmen's also serves as the custodian of each Pilot Fund's assets.
The Pilot Funds have entered into an Administrative Agreement with
BISYS Fund Services Limited Partnership ("BISYS") pursuant to which BISYS
provides the Pilot Funds with a range of management and administrative services
necessary for the operation of the Funds. BISYS Fund Services, Inc. (the
"Transfer Agent"), an affiliate of BISYS, acts as transfer and dividend
disbursing agent and fund accountant for the Pilot Funds. The distributor for
the Pilot Funds is Pilot Funds Distributors, Inc., an affiliate of both BISYS
and the Transfer Agent. The Pilot Class is not subject to any Rule 12b-1 plan
or agreement and does not bear distribution costs.
See "The Business of the Fund - Fund Management" in the Pilot Funds'
Prospectuses, which are included with this Combined Proxy Statement/Prospectus,
for more information on the Acquiring Fund's arrangements with service
providers.
PURCHASE AND REDEMPTION PROCEDURES, DISTRIBUTIONS AND EXCHANGE PRIVILEGE.
Funds IV Funds. Shares may be purchased through an authorized broker,
investment adviser, or service organization or through participation in certain
fund or trust accounts managed by Bank IV. Orders for purchases of the Funds are
executed at the net asset value per share next determined after the order is
received by FFD subject to the requirement that orders for non-money market fund
shares must be received prior to the close of business, currently 5:00 p.m.
Eastern Time, and orders for money market fund shares must be received prior to
12:00 noon, in order to become effective that day. Subject to certain limited
exceptions, the minimum initial purchase amount is $1,000 for non-IRA accounts
and $250 for IRA accounts. The minimum subsequent investment if $50.
Shares may be redeemed in whole or in part on any business day.
Redemption will occur at the net asset value next determined after a redemption
request in good order has been received by the applicable Fund. Shares may be
redeemed through an authorized broker, investment advisor, or service
organizations, or personally by main, telephone, or, for the money market funds,
by writing a check. Funds IV reserves the right to redeem, on not less than 30
days' notice, an account reduced by a shareholder to $500 or less.
Each Fund which is not a money market or bond fund pays dividends at
least once annually. Money market and bond funds declare dividends daily and pay
them monthly. Each Fund intends to distribute, at least annually, substantially
all net capital gains, if any. Shareholders may elect to receive dividends in
additional shares or cash.
10
<PAGE> 14
Shareholders may exchange from one Funds IV Fund to another either by
mail or telephone. Funds IV may terminate or amend the terms of the exchange
privilege at any time.
The Pilot Funds. Shares of the Pilot Class ("Pilot Shares") which
Reorganizing Fund shareholders will receive in each Reorganization may be
purchased through qualified trust, agency or custodian accounts with Boatmen's
or any of its affiliates, including Bank IV (each, an "Institution"), which may
charge fees in connection with shareholder activity and account maintenance. All
share purchases are effected through a shareholder's account at an Institution
through procedures established in connection with the requirements of the
account, and confirmations of share purchases and redemptions will be sent to
the Institution involved. Institutions (or their nominees) will normally be the
holders of record of Pilot Shares acting on behalf of the shareholders they
service (each, a "Customer"), and will reflect their Customers' beneficial
ownership of shares in the account statements provided by them to their
Customers. The exercise of voting rights and the delivery to Customers of
shareholder communications from the Funds will be governed by the Customers'
account agreements with the Institutions.
For non-money market funds, Pilot Shares are sold at the net asset
value per share next determined after receipt of a purchase request in good
order from an Institution by the Pilot Fund's transfer agent; and purchase
orders received before the close of regular trading hours, currently 3:00 p.m.
Central Time, on a day when the New York Stock Exchange is open for trading (a
"Business Day") will be processed that day if payment in the proper form is made
by 3:00 p.m. on the following Business Day. For money market funds (including
Diversified Assets Fund), Pilot Shares are sold at the net asset value per share
next determined after receipt of a purchase request in good order by the
transfer agent and payment in federal funds to the Fund's custodian; and
purchase orders received by 2:00 p.m. Central Time, on a day when the New York
Stock Exchange and the custodian are open for business are effective on that day
if Federal Funds are received by the Custodian by 3:00 p.m. Central Time, that
same day. Minimum initial and subsequent purchase amounts are determined by the
Institutions.
Shares may be redeemed in whole or in part on any business day.
Redemption will occur at the net asset value determined after a redemption
request in good order from an Institution has been received by the transfer
agent. For the Diversified Assets Fund, if a redemption request is received by
2:00 p.m. Central Time, on a business day for the Fund, the shares to be
redeemed do not earn income that day, but the proceeds of redemption will be
available to the redeeming shareholder at its Institution; if a redemption
request is received after that time, the shares to be redeemed will earn income
on that day but redemption proceeds will not be available until the following
business day. Shareholders of the Diversified Assets Fund may also redeem by
check provided certain conditions are met.
Pilot Growth Fund and Pilot Growth and Income Fund declare and pay
dividends monthly. Pilot Diversified Bond Income Fund and Diversified Assets
Fund declare dividends daily and pay them monthly. All Pilot Funds declare and
pay capital gains, if any, at least once annually. Each fund intends to
distribute, at least, annually, substantially all net capital gains.
Shareholders may elect to receive dividends and capital gains in additional
shares or cash.
Shareholders may exchange from one Pilot Fund to another within the
same class of shares. The Pilot Funds retain the right to terminate or modify
the exchange privilege in accordance with relevant regulatory restrictions.
See "The Business of the Fund--Fund Management" in the Pilot Funds'
Prospectuses incorporated in and accompanying this Combined Proxy/Prospectus for
additional information on the Pilot Funds' purchase and redemption procedures
and exchange privilege.
COMPARATIVE FEE TABLES. The tables below are designed to assist an
investor in understanding the various direct and indirect costs and expenses
associated with an investment in the relevant class of shares of each
Reorganizing Fund and its corresponding Acquiring Fund; each table also includes
pro forma information for the combined Fund resulting from the Reorganization
assuming the Reorganization took place on
11
<PAGE> 15
February 29, 1996 and after adjusting such information to reflect current fees.
The expense information for each Reorganizing Fund and each Acquiring Fund is
based upon expenses for the fiscal year ended June 30, 1995 and expenses for the
fiscal year ended August 31, 1995, respectively, restated to reflect current
fees, except that for Pilot Diversified Bond Income Fund and Pilot Growth Fund,
expense information is based on estimated expenses for each Fund's first year of
operations. Pilot Growth Fund and Pilot Diversified Bond Income Fund have not
commenced operations as of the date of this Combined Proxy Statement/Prospectus.
As indicated in the tables below, immediately upon consummation of the
Reorganizations, the "Total Fund Operating Expenses" for each Pro Forma Combined
Fund are expected to be lower than the "Total Fund Operating Expenses" for the
corresponding Funds IV Funds based on the information for the respective periods
presented. In addition, Boatmen's has voluntarily agreed to limit each Combined
Fund's actual total operating expense ratio through January 31, 1998 to the
actual total operating expense ratio of the corresponding Funds IV Fund as of
January 31, 1996. Subject to the foregoing, the applicable fee waivers and
expense reimbursements may be reduced or discontinued in the future.
12
<PAGE> 16
<TABLE>
<CAPTION>
AGGRESSIVE STOCK PILOT PRO FORMA
APPRECIATION FUND GROWTH FUND COMBINED FUND
----------------- ----------- -------------
SERVICE PILOT PILOT
CLASS CLASS CLASS
------- ----- -----
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed
on Purchases........................... None None None
Maximum Sales Load Imposed on Reinvested
Dividends.............................. None None None
Contingent Deferred Sales Charge......... None None None
Redemption Fee........................... None(4) None None
Exchange Fee............................. None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees/Advisory Fees............ 0.74% 0.75% 0.75%
12b-1 Fees (after waivers)............... None(1) None None
Other Expenses (after expense
reimbursements)........................ 0.49% 0.25%(2) 0.25%
Total Operating Expenses (after fee waivers
and/or expense reimbursements)......... 1.23%(3) 1.00%(3) 1.00%
</TABLE>
- -------------------------
(1) 12b-1 Fees For Aggressive Stock Appreciation Fund have been reduced to
reflect the voluntary waiver of fees by the distributor. The Fund can
pay up to 0.25% of its average daily net assets as a 12b-1 fee to its
distributor. The fee waiver may be discontinued at any time. Absent
the waiver, 12b-1 Fees would be 0.25%.
(2) Other Expenses for Pilot Growth Fund reflect the voluntary
reimbursement of expenses by the administrator and investment adviser.
Absent the reimbursement, Other Expenses would be 0.77%.
(3) Absent the voluntary waivers and expense reimbursements explained
above, Total Operating Expenses would be 1.48% for Aggressive Stock
Appreciation Fund and 1.52% for Pilot Growth Fund. The fee waivers and
reimbursements reflected in Total Operating Expenses may be reduced
or discontinued at any time after the Reorganization, except to the
extent that Boatmen's has voluntarily agreed to limit the Combined
Fund's actual total operating expense ratio through January 31, 1998
to the actual total operating expenses of the corresponding Funds IV
Fund as of January 31, 1996.
(4) Shareholders may be charged a wire redemption fee by their bank for
receiving a wire payment.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Aggressive Stock Appreciation Fund
Service Class...................... $13 $39 $68 $149
Pilot Growth Fund
Pilot Shares....................... $10 $32 $55 $122
Pro Forma Combined Fund
Pilot Shares....................... $10 $32 $55 $122
</TABLE>
The example above should not be considered as representative of past or future
returns or expenses. Actual returns or expenses may be greater or less than
those shown.
13
<PAGE> 17
<TABLE>
<CAPTION>
PRO FORMA
VALUE STOCK PILOT GROWTH COMBINED FUND(5)
APPRECIATION FUND AND INCOME FUND --------------------------------
----------------- --------------- PILOT PILOT
SERVICE PILOT CLASS CLASS
CLASS CLASS (FUNDS SHOWN) (ALL FUNDS)
------- ----- ------------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed
on Purchases.................................. None None None None
Maximum Sales Loan Imposed on Reinvested
Dividends....................................... None None None None
Contingent Deferred Sales Charge................ None None None None
Redemption Fee.................................. None(6) None None None
Exchange Fee.................................... None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees/Advisory Fees (after
fee waivers).................................. 0.65% 0.50%(1) 0.75% 0.75%
12b-1 Fees (after waivers)...................... None(2) None None None
Other Expenses (after expense
reimbursements)............................... 0.53% 0.25%(3) 0.25% 0.20%
Total Operating Expenses (after fee waivers
and/or expense reimbursements)................ 1.18%(4) 0.75%(4) 1.00% 0.95%
</TABLE>
- -------------------------
(1) The Management Fees/Advisory Fees for Pilot Growth and Income Fund
shown reflect the fact that the adviser has currently agreed to waive a
portion of its management fee, which waiver may be discontinued at any
time. Absent the waiver, Management Fees/Advisory Fees would be 0.75%.
(2) 12b-1 Fees for Value Stock Appreciation Fund have been reduced to
reflect the voluntary waiver of fees by the distributor. The Fund can
pay up to 0.25% of its average daily net assets as a 12b-1 fee to its
distributor. The fee waiver may be discontinued at any time. Absent
the waiver, 12b-1 Fees would be 0.25%.
(3) Other Expenses for Pilot Growth and Income Fund have been reduced to
reflect the voluntary reimbursement of expenses by the administrator
and investment adviser. Absent the reimbursement, Other Expenses would
be 0.40%.
(4) Absent the voluntary waivers and expense reimbursements explained
above, Total Operating Expenses would be 1.43% for Value Stock
Appreciation Fund and 1.15% for Pilot Growth and Income Fund.
(5) The third column reflects pro forma combined expenses resulting from
the Reorganization of Value Stock Appreciation Fund and Pilot Growth
and Income Fund. Because it is contemplated that Stock Appreciation
Fund will also be reorganized into Pilot Growth and Income Fund, the
fourth column reflects pro form combined expenses in the event that
both of these Reorganizations were effected. It should be noted,
however, that each Reorganization transaction is independent and not
contingent upon the other. The fee waivers and reimbursements
reflected in Total Operating Expenses may be reduced or discontinued at
any time after the Reorganization, except to the extent that Boatmen's
has voluntarily agreed to limit the Combined Fund's actual total
operating expense ratio through January 31, 1998 to the actual total
operating expenses of the corresponding Funds IV Fund (or the lesser
of the actual total operating expenses of each Fund if both Funds IV
Funds reorganize into the Acquiring Fund) as of January 31, 1996.
(6) Shareholders may be charged a wire redemption fee by their bank for
receiving a wire payment.
14
<PAGE> 18
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Value Stock Appreciation Fund
Service Class.................. $12 $37 $65 $143
Pilot Growth and Income Fund
Pilot Shares................... $ 8 $24 $42 $ 93
Pro Forma Combined Fund
Pilot Shares (Funds Shown)..... $10 $32 $55 $122
Pro Forma Combined Fund
Pilot Shares (All Funds)....... $10 $30 $53 $117
</TABLE>
The example above should not be considered as representative of past or future
returns or expenses. Actual returns or expenses may be greater or less than
those shown.
15
<PAGE> 19
<TABLE>
<CAPTION>
PRO FORMA
STOCK PILOT GROWTH COMBINED FUND(5)
APPRECIATION FUND AND INCOME FUND ----------------------------
----------------- --------------- PILOT PILOT
SERVICE PILOT CLASS CLASS
CLASS CLASS (FUNDS SHOWN) (ALL FUNDS)
------- ----- ------------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed
on Purchases................................ None None None None
Maximum Sales Loan Imposed on Reinvested
Dividends................................... None None None None
Contingent Deferred Sales Charge.............. None None None None
Redemption Fee................................ None(6) None None None
Exchange Fee.......................,,......... None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees/Advisory Fees (after
fee waivers)................................ 0.65% 0.50%(1) 0.75% 0.75%
12b-1 Fees (after waivers).................... None(2) None None None
Other Expenses (after expense
reimbursements)............................. 0.35% 0.25%(3) 0.20% 0.20%
Total Operating Expenses (after fee waivers
and/or expense reimbursements).............. 1.00%(4) 0.75%(4) 0.95% 0.95%
</TABLE>
- --------------------
(1) The Management Fees/Advisory Fees for Pilot Growth and Income Fund
shown reflect the fact that the adviser has currently agreed to waive a
portion of its management fee, which waiver may be discontinued at any
time. Absent the waiver, Management Fees/Advisory Fees would be 0.75%.
(2) 12b-1 Fees for Stock Appreciation Fund have been reduced to reflect the
voluntary waiver of fees by the distributor. The Fund can pay up to
0.25% of its average daily net assets as a 12b-1 fee to its
distributor. The fee waiver may be discontinued at any time. Absent the
waiver, 12b-1 Fees would be 0.25%.
(3) Other Expenses for Pilot Growth and Income Fund have been reduced to
reflect the voluntary reimbursement of expenses by the Fund's
administrator and investment adviser. Absent the reimbursement, Other
Expenses would be 0.40%.
(4) Absent the voluntary waivers and expense reimbursements explained
above, Total Operating Expenses would be 1.25% for Stock Appreciation
Fund and 1.15% for Pilot Growth and Income Fund.
(5) The third column reflects pro forma combined expenses resulting from
the Reorganization of Stock Appreciation Fund and Pilot Growth and
Income Fund. Because it is contemplated that Value Stock Appreciation
Fund will also be reorganized into Pilot Growth and Income Fund, the
fourth column reflects pro form combined expenses in the event that
both of these Reorganizations were effected. It should be noted,
however, that each Reorganization transaction is independent and not
contingent upon the other. The fee waivers and reimbursements
reflected in Total Operating Expenses may be reduced or discontinued at
any time after the Reorganization, except to the extent that Boatmen's
has voluntarily agreed to limit the Combined Fund's actual total
operating expense ratio through January 31, 1998 to the actual total
operating expenses of the corresponding Funds IV Fund (or the lesser
of the actual total operating expenses of each Fund if both Funds IV
Funds reorganize into the Acquiring Fund) as of January 31, 1996.
(6) Shareholders may be charged a wire redemption fee by their bank for
receiving a wire payment.
16
<PAGE> 20
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Stock Appreciation Fund
Service Class................................ $10 $32 $55 $122
Pilot Growth and Income Fund
Pilot Shares................................. $ 8 $24 $42 $ 93
Pro Forma Combined Fund
Pilot Shares (Funds Shown)................... $10 $30 $53 $117
Pro Forma Combined Fund
Pilot Shares (All Funds)..................... $10 $30 $53 $117
</TABLE>
The example above should not be considered as representative of past or future
returns or expenses. Actual returns or expenses may be greater or less
than those shown.
17
<PAGE> 21
<TABLE>
<CAPTION>
PRO FORMA
PILOT DIVERSIFIED COMBINED FUND(5)
BOND INCOME FUND BOND INCOME FUND --------------------------
---------------- ---------------- PILOT PILOT
SERVICE PILOT CLASS CLASS
CLASS CLASS (FUNDS SHOWN) (ALL FUNDS)
------- ----- ------------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed
on Purchases................................ None None None None
Maximum Sales Loan Imposed on Reinvested
Dividends................................... None None None None
Contingent Deferred Sales Charge............ None None None None
Redemption Fee............................. None(6) None None None
Exchange Fee................................ None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees/Advisory Fees............... 0.40% 0.40%(1) 0.40%(1) 0.40%(1)
12b-1 Fees (after waivers).................. None(2) None None None
Other Expenses (after expense
reimbursements)............................. 0.56% 0.25%(3) 0.25% 0.25%
Total Operating Expenses (after fee waivers
and/or expense reimbursements)(4)........... 0.96% 0.65% 0.65% 0.65%
</TABLE>
- -------------------------
(1) The Management Fees/Advisory Fees for Pilot Diversified Bond Income
Fund shown reflect the fact that the adviser has currently agreed to
waive a portion of its management fee, which waiver may be discontinued
at any time. Absent, the waiver, Management Fees/Advisory Fees would be
0.55% for Pilot Diversified Bond Income Fund, 0.55% for Pilot
Diversified Bond Income Fund on a pro forma combined basis resulting
from the Reorganization of Pilot Diversified Bond Income Fund and Bond
Income Fund, and 0.55% for Pilot Diversified Bond Income Fund on a pro
forma combined basis resulting from the Reorganization of Pilot
Diversified Bond Income Fund, Bond Income Fund, and Intermediate Bond
Income Fund.
(2) 12b-1 Fees for Bond Income Fund have been reduced to reflect the
voluntary waiver of fees by the distributor. The Fund can pay up to
0.25% of its average daily net assets as a 12b-1 fee to its
distributor. The fee waiver may be discontinued at any time. Absent the
waiver, 12b-1 Fees would be 0.25%.
(3) Other Expenses for Pilot Diversified Bond Income Fund have been reduced
to reflect the voluntary reimbursement of expenses by the administrator
and investment adviser. Absent the reimbursement, Other Expenses would
be 0.77%.
(4) Absent the voluntary waivers and expense reimbursements explained
above, Total Operating Expenses would be 1.21% for Bond Income Fund,
1.32% for Pilot Diversified Bond Income Fund, 0.80% for Pilot
Diversified Bond Income Fund on a pro forma combined basis resulting
from the Reorganization of Pilot Diversified Bond Income Fund and Bond
Income Fund, and 0.80% for Pilot Diversified Bond Income Fund on a pro
forma combined basis resulting from the Reorganization of Pilot
Diversified Bond Income Fund, Bond Income Fund, and Intermediate Bond
Income Fund. See note (5) below.
(5) The third column reflects pro forma combined expenses resulting from
the Reorganization of Bond Income Fund and Pilot Diversified Bond
Income Fund. Because it is contemplated that Intermediate Bond Income
Fund will also be reorganized into Pilot Diversified Bond Income Fund,
the fourth column reflects pro form combined expenses in the event that
both of these Reorganizations were effected. It should be noted,
however, that each Reorganization transaction is independent and not
contingent upon the other. The fee waivers and reimbursements
reflected in Total Operating Expenses may be reduced or discontinued at
any time after the Reorganization, except to the extent that Boatmen's
has voluntarily agreed to limit the Combined Fund's actual total
operating expense ratio through January 31, 1998 to the actual total
operating expenses of the corresponding Funds IV Fund (or the lesser
of the actual total operating expenses of each Fund if both Funds IV
Funds reorganize into the Acquiring Fund) as of January 31, 1996.
(6) Shareholders may be charged a wire redemption fee by their bank for
receiving a wire payment.
18
<PAGE> 22
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Bond Income Fund
Service Class................................ $10 $31 $53 $118
Pilot Diversified Bond Income Fund
Pilot Shares................................. $ 7 $21 $36 $ 81
Pro Forma Combined Fund
Pilot Shares (Funds Shown)................... $ 7 $21 $36 $ 81
Pro Forma Combined Fund
Pilot Shares (All Funds)..................... $ 7 $21 $36 $ 81
</TABLE>
The example above should not be considered as representative of past or future
returns or expenses. Actual returns or expenses may be greater or less than
those shown.
19
<PAGE> 23
<TABLE>
<CAPTION>
PRO FORMA
INTERMEDIATE BOND PILOT DIVERSIFIED COMBINED FUND(5)
INCOME FUND BOND INCOME FUND --------------------------
----------- ---------------- PILOT PILOT
SERVICE PILOT CLASS CLASS
CLASS CLASS (FUNDS SHOWN) (ALL FUNDS)
------- ----- ------------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed
on Purchases................................ None None None None
Maximum Sales Loan Imposed on Reinvested
Dividends................................... None None None None
Contingent Deferred Sales Charge............... None None None None
Redemption Fee................................. None(6) None None None
Exchange Fee................................... None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees/Advisory Fees (after
fee waivers)................................ 0.40% 0.40%(1) 0.40%(1) 0.40%(1)
12b-1 Fees (after waivers)..................... None(2) None None None
Other Expenses (after expense
reimbursements)............................. 0.35% 0.25%(3) 0.25% 0.25%
Total Operating Expenses (after fee waivers
and/or expense reimbursements)(4)........... 0.75% 0.65% 0.65% 0.65%
</TABLE>
- -------------------------
(1) The Management Fees/Advisory Fees for Pilot Diversified Bond Income
Fund shown reflect the fact that the adviser has currently agreed to
waive a portion of its management fee, which waiver may be discontinued
at any time. Absent, the waiver, Management Fees/Advisory Fees would be
0.55% for Pilot Diversified Bond Income Fund, 0.55% for Pilot
Diversified Bond Income Fund on a pro forma combined basis resulting
from the Reorganization of Pilot Diversified Bond Income Fund and
Intermediate Bond Income Fund, and 0.55% for Pilot Diversified Bond
Income Fund on a pro forma combined basis resulting from the
Reorganization of Pilot Diversified Bond Income Fund, Bond Income
Fund, Bond Income Fund, and Intermediate Bond Income Fund.
(2) 12b-1 Fees for Intermediate Bond Income Fund have been reduced to
reflect the voluntary waiver of fees by the distributor. The Fund can
pay up to 0.25% of its average daily net assets as a 12b-1 fee to its
distributor. The fee waiver may be discontinued at any time. Absent the
waiver, 12b-1 Fees would be 0.25%.
(3) Other Expenses for Pilot Diversified Bond Income Fund have been reduced
to reflect the voluntary reimbursement of expenses by the administrator
and investment adviser. Absent the reimbursement, Other Expenses would
be 0.77%.
(4) Absent the voluntary waivers and expense reimbursements explained
above, Total Operating Expenses would be 1.00% for Intermediate Bond
Income Fund, 1.32% for Pilot Diversified Bond Income Fund, 0.80% for
Pilot Diversified Bond Income Fund on a pro forma combined basis
resulting from the Reorganization of Pilot Diversified Bond Income Fund
and Intermediate Bond Income Fund, and 0.80% for Pilot Diversified Bond
Income Fund on a pro forma combined basis resulting from the
Reorganization of Pilot Diversified Bond Income Fund, Intermediate Bond
Income Fund, and Bond Income Fund. See note (5) below.
(5) The third column reflects pro forma combined expenses resulting from
the Reorganization of Intermediate Bond Income Fund and Pilot
Diversified Bond Income Fund. Because it is contemplated that Bond
Income Fund will also be reorganized into Pilot Diversified Bond Income
Fund, the fourth column reflects pro form combined expenses in the
event that both of these Reorganizations were effected. It should be
noted, however, that each Reorganization transaction is independent and
not contingent upon the other. The fee waivers and reimbursements
reflected in Total Operating Expenses may be reduced or discontinued at
any time after the Reorganization, except to the extent that Boatmen's
has voluntarily agreed to limit the Combined Fund's actual total
operating expense ratio through January 31, 1998 ) to the actual total
operating expenses of the corresponding Funds IV Fund (or the lesser
of the actual total operating expenses of each Fund if both Funds
IV Funds reorganize into the Acquiring Fund) as of January 31, 1996.
(6) Shareholders may be charged a wire redemption fee by their bank for
receiving a wire payment.
20
<PAGE> 24
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Intermediate Bond Income Fund
Service Class................................. $8 $24 $42 $93
Pilot Diversified Bond Income Fund
Pilot Shares.................................. $7 $21 $36 $81
Pro Forma Combined Fund
Pilot Shares (Funds Shown).................... $7 $21 $36 $81
Pro Forma Combined Fund
Pilot Shares (All Funds)...................... $7 $21 $36 $81
</TABLE>
The example above should not be considered as representative of past or
future returns or expenses. Actual returns or expenses may be greater or less
than those shown.
21
<PAGE> 25
<TABLE>
<CAPTION>
CASH RESERVE PILOT SHORT-TERM PRO FORMA
MONEY MARKET FUND DIVERSIFIED ASSETS FUND COMBINED FUND
----------------- ----------------------- -------------
SERVICE PILOT PILOT
CLASS CLASS CLASS
----- ----- -----
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed
on Purchases................................ None None None
Maximum Sales Loan Imposed on Reinvested
Dividends................................... None None None
Contingent Deferred Sales Charge.............. None None None
Redemption Fee................................ None(3) None None
Exchange Fee.................................. None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees/Advisory Fees ................ 0.20% 0.15% 0.15%
12b-1 Fees (after waivers).................... None(1) None None
Other Expenses................................ 0.30% 0.13% 0.13%
Total Operating Expenses (after fee waivers).. 0.50%(2) 0.28% 0.28%
<FN>
- -------------------------
(1) 12b-1 Fees for Cash Reserve Money Market Fund have been reduced to
reflect the voluntary waiver of fees by the distributor. The Fund can
pay up to 0.25% of its average daily net assets as a 12b-1 fee to its
distributor. The fee waivers may be discontinued at any time. Absent
the waiver, 12b-1 Fees would be 0.25%.
(2) Absent the voluntary waivers explained above, Total Operating Expenses
would be 0.75% for Cash Reserve Money Market Fund.
(3) Shareholders may be charged a wire redemption fee by their bank for
receiving a wire payment.
</TABLE>
22
<PAGE> 26
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cash Reserve Money Market Fund
Service Class................................ $5 $16 $28 $63
Pilot Short-Term Diversified Assets Fund
Pilot Shares................................. $3 $ 9 $16 $36
Pro Forma Combined Fund
Pilot Shares................................. $3 $ 9 $16 $36
</TABLE>
The example above should not be considered as representative of past or future
returns or expenses. Actual returns or expenses may be greater or less than
those shown.
23
<PAGE> 27
PRINCIPAL RISK FACTORS
The investment objectives and policies of the Reorganizing and
Acquiring Funds are substantially similar. As a result, the risks associated
with an investment in each Acquiring Fund are substantially similar to those
associated with an investment in the corresponding Reorganizing Fund. These
investment risks are those typically associated with an investment in a managed
portfolio of the specific types of securities and other investments in which
each fund invests. The following highlights the principal differences between
the risk factors associated with an investment in each Reorganizing Fund as
contrasted with those associated with its corresponding Acquiring Fund and is
qualified in its entirety by the more extensive discussion of risk factors in
"Comparison of Investment Policies and Risk Factors" below and in Appendix B
and the discussion of risks in the Prospectus and Statements of Additional
Information for the Reorganizing Funds and Acquiring Funds.
The risks associated with investing in Pilot Growth Fund (and its
corresponding Reorganizing Fund, Aggressive Stock Appreciation Fund) and Pilot
Growth and Income Fund (and its corresponding Reorganizing Funds, Value Stock
Appreciation Fund and Stock Appreciation Fund) are those generally associated
with investing in a portfolio emphasizing diversified U.S. equity investments.
Stock values fluctuate in response to the activities of individual companies and
in response to general market and economic conditions. In general, equity
securities tend to fluctuate in value more than fixed income securities. In
addition, equity securities specifically selected for their ability to produce
dividends are typically less volatile than those which would be chosen for their
potential for capital appreciation; accordingly, a fund emphasizing solely
growth or capital appreciation as stock selection criteria may fluctuate in
value to a greater extent than a fund with a relatively greater emphasis on
stocks chosen for their dividend production capability. Because Pilot Growth
Fund (and Aggressive Stock Appreciation Fund) emphasizes growth potential as a
factor in selecting investments, its portfolio may be more volatile than one
with, for example, a greater emphasis on dividend income, such as Pilot Growth
and Income Fund. It should be noted that Stock Appreciation Fund seeks only
capital appreciation, while its corresponding Acquiring Fund, Pilot Growth and
Income Fund, seeks both capital appreciation and dividend income.
The value of the portfolio of Pilot Diversified Bond Income Fund (and
the portfolio of its corresponding Reorganizing Funds, Bond Income Fund and
Intermediate Bond Income Fund) can be expected to vary inversely to changes in
prevailing interest rates. In addition, fixed income securities with longer
maturities, which tend to produce higher yields, are generally subject to
greater fluctuation in value than those with shorter maturities. Because the
average maturity of Pilot Diversified Bond Income Fund (like Bond Income Fund)
will not exceed fifteen years, compared to ten years for Intermediate Bond
Income Fund, the share price of Pilot Diversified Bond Income Fund may fluctuate
more in response to interest rate changes than that of Intermediate Bond Income
Fund.
An investment in Pilot Short-Term Diversified Assets Fund (and Cash
Reserve Money Market Fund) involves risks typically associated with investing in
a portfolio of high quality, short-term money market instruments. Each Fund will
concentrate its investments in obligations of banks.
24
<PAGE> 28
INFORMATION RELATING TO THE PROPOSED REORGANIZATION
DESCRIPTION OF THE REORGANIZATION AGREEMENT. The following summary of
the Reorganization Agreement is qualified in its entirety by reference to the
Reorganization Agreement attached to this Prospectus/Proxy Statement as Appendix
A. The Reorganization Agreement provides that an Acquiring Fund will acquire all
or substantially all of the assets of the corresponding Reorganizing Fund in
exchange for shares of the corresponding Acquiring Fund and the assumption by
the Acquiring Fund of certain stated liabilities of the Reorganizing Fund on the
Closing Date (as defined in the Reorganization Agreement) or such later date as
the parties may require provided for in the Reorganization Agreement.
REORGANIZING FUND ACQUIRING FUND
Aggressive Stock Appreciation Fund Pilot Growth Fund
Value Stock Appreciation Fund Pilot Growth and Income Fund
Stock Appreciation Fund Pilot Growth and Income Fund
Bond Income Fund Pilot Diversified Bond Income Fund
Intermediate Bond Income Fund Pilot Diversified Bond Income Fund
Cash Reserve Money Market Fund Pilot Short-Term Diversified Assets Fund
The number of full and fractional shares of the Acquiring Fund to be
issued to shareholders of the corresponding Reorganizing Fund will be determined
on the basis of the relative net asset values per share and the aggregate net
assets of the Acquiring Fund computed as of the time on the Closing Date at
which the Acquiring Fund ordinarily determines it net asset values (2:00 P.M.
Central Time in the case of Diversified Assets Fund and 3:00 p.m. Central Time
for all other Acquiring Funds). The net asset value per share for the Acquiring
Fund and the Reorganizing Fund will be determined by dividing each fund's
respective assets, less liabilities, by the total number of its respective
outstanding shares. The assets of the Acquiring Fund and the Reorganizing Fund
will be valued in accordance with the current valuation practices of the
Acquiring Fund using the valuation procedures described under "Purchase of
Shares" in the current prospectuses of the Acquiring Funds, which accompany this
Prospectus/Proxy Statement.
Prior to the Closing Date, each Reorganizing Fund will endeavor to
discharge all of its known liabilities and obligations. To the extent there are
unamortized organization costs for any Reorganizing Fund, such costs will be
accrued in accordance with past practice and paid in full by the Reorganizing
Fund through the Closing Date. On the Closing Date, Boatmen's will pay any
remaining unamortized organization costs of the Reorganizing Funds. An Acquiring
Fund will assume only those liabilities, expenses, costs, charges and reserves
reflected on an unaudited statement of assets and liabilities of the
corresponding Reorganizing Fund as of the time on the Closing Date at which the
Acquiring Fund ordinarily determines its net asset values (2:00 p.m. Central
Time in the case of Diversified Assets Fund and 3:00 p.m. Central Time for all
other Acquiring Funds) prepared by Furman Selz, as administrator of the
Reorganizing Fund, in accordance with generally accepted accounting principles
consistently applied from the prior audited period. The Acquiring Fund will
assume only those liabilities of the Reorganizing Fund reflected in that
unaudited statement of assets and liabilities and will not assume any other
liabilities, whether absolute or contingent.
At or prior to the Closing Date, each Reorganizing Fund will declare
one or more dividends which, together with all previous such dividends, will
have the effect of distributing to the Reorganizing Fund's shareholders all of
the Reorganizing Fund's taxable income for the taxable year ending on or prior
to the Closing Date (computed without regard to any deduction for dividends
paid) and all of its net capital gains realized in the taxable year ending on or
prior to the Closing Date (after reductions for any capital loss carry-
forward).
As soon after the Closing Date as practicable, each Reorganizing Fund
will liquidate and distribute pro rata to its shareholders of record as of the
close of business on the Closing Date the full and fractional shares of the
corresponding Acquiring Fund received by the Reorganizing Fund. Such liquidation
and distribution will be accomplished by the establishment of accounts in the
name of the Reorganizing Fund's shareholders
25
<PAGE> 29
on the share records of the Acquiring Fund's transfer agent. Each account will
represent the respective pro rata number of full and fractional shares of the
Acquiring Fund due to such Reorganizing Fund's shareholders.
The consummation of the transaction contemplated by the Reorganization
Agreement is subject to the conditions set forth in the Reorganization
Agreement, including the condition that the parties shall have received
exemptive relief from the SEC with respect to the issues raised by Section 17(a)
of the 1940 Act and concerning the applicability of Rule 17a-8 of the 1940 Act.
On July __, 1996, an application was filed for an exemption that, if granted,
would permit the Reorganizations to be completed as described in this
Prospectus/Proxy Statement. There can be no assurance that the relief sought
will be obtained, although the type of relief sought has been obtained by others
in similar situations. The Reorganizing Fund and the Acquiring Fund do not
currently intend to proceed with the Reorganizations unless the relief requested
from the SEC has been obtained. The Reorganization Agreement may be terminated
and one or more Reorganizations abandoned prior to January 1, 1997 by mutual
consent of the Boards of Trustees of the Funds IV Trust and Pilot Funds and
after that date, by either party upon written notice to the other. In addition,
either party may terminate if any condition set forth in the Reorganization
Agreement has not been fulfilled or waived by the party entitled to its benefits
any time before the Closing Date.
The obligations of the Funds IV Trust and The Pilot Funds under the
Reorganization Agreement with respect to each Reorganization are also subject to
various other conditions provided therein, including the approval of the
Reorganization Agreement by the shareholders of such Reorganizing Fund, certain
opinions of legal counsel (including an opinion regarding the Federal income tax
consequences of the Reorganizations to be provided by Goodwin, Procter & Hoar
LLP, counsel to The Pilot Funds), the receipt from the SEC of the regulatory
relief described above, the redemption of all Premium Shares of the Funds IV
Funds held by Furman Selz, the accuracy of various representations and
warranties made therein and the parties' performance of their agreements and
undertakings made in the Reorganization Agreement.
The expenses of the transactions contemplated by the Reorganization,
including the cost of proxy solicitation, will be borne by Boatmen's. No portion
of such expenses will be paid by any Reorganizing Fund or Acquiring Fund.
Boatmen's has also undertaken in the Reorganization Agreement to bear the costs
of providing insurance for the independent Trustees of Funds IV Trust for a
period of six years following the Reorganization, which will provide coverage
for claims relating to their services as Trustees of Funds IV Trust prior to the
Reorganizations.
Approval of the Reorganization Agreement with respect to any
Reorganizing Fund will require the affirmative vote of a majority of the
outstanding voting securities, as defined in the 1940 Act, of that Reorganizing
Fund, which means the lesser of: (i) 67% or more of the voting securities of the
Reorganizing Fund present at the Meeting, if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy or (ii) more
than 50% of the outstanding voting securities of the Reorganizing Fund. If the
Reorganization Agreement is not approved by a Reorganizing Fund, the Board of
Trustees of Funds IV Trust will consider the possible courses of action,
including submission to shareholders of a proposal to liquidate the Reorganizing
Fund.
In its consideration and approval of the Reorganization at a meeting on
May 10, 1996, the Board of Trustees of Funds IV Trust considered the effect of
the recent merger of Fourth Financial with and into Bancshares and the fact that
since the merger the portfolio managers of the Reorganizing Funds and the
Acquiring Fund have shared investment research and reported within a common line
of supervision (except to the extent portfolio management is performed by AMR);
the recommendation of Bank IV and Boatmen's with respect to the proposed
Reorganization; the investment objectives, policies, and portfolios of the funds
and their respective performance, the multi-class structures of and distribution
functions performed for the funds, the shareholder servicing requirements of
each fund, compliance functions and other factors relating to the operation of
Funds IV Trust and The Pilot Funds; the fact that each Reorganization would
constitute a tax-free Reorganization; and that interests of shareholders would
not be diluted as a result of the Reorganization.
26
<PAGE> 30
The Trustees of Funds IV Trust also considered the fact that certain
undertakings had been made in connection with the merger of Fourth Financial
with and into Bancshares (and resulting change in control of Bank IV) as of
January 31, 1996, consistent with the provisions of Section 15(f) of the 1940
Act. Section 15(f) of the 1940 Act provides that when a change in the control of
an investment adviser occurs, the investment adviser or any of its affiliated
persons may receive any amount or benefit in connection therewith as long as,
among other things, no "unfair burden" is imposed on the investment company as a
result of the transaction relating to the change of control, or any express or
implied terms, conditions or understandings applicable thereto. The term "unfair
burden" as defined in the 1940 Act includes any arrangement during the two-year
period after the transaction whereby the investment adviser (or predecessor or
successor adviser), or any "interested person" of any such adviser, receives or
is entitled to receive any compensation, directly or indirectly, from the
investment company or its security holders (other than fees for bona fide
investment advisory or other services) or from any person in connection with the
purchase or sale of securities or other property to, from or on behalf of the
investment company (other than fees for bona fide principal underwriting
services).
Through January 31, 1999, (the three-year period immediately following
the merger of Fourth Financial with and into Bancshares), Bank IV has agreed to
use its best efforts to ensure that at least 75% of the Board of Trustees of The
Pilot Funds will not be "interested persons" of Bank IV or Boatmen's within the
meaning of the 1940 Act. Boatmen's has advised the Board of Trustees of Funds IV
Trust that the Board of Trustees of The Pilot Funds will continue to meet this
requirement following the Reorganizations. In addition, Boatmen's has
voluntarily agreed to limit each Combined Fund's actual total operating expense
ratio through January 31, 1998 to the actual total operating expense ratio of
the corresponding Funds IV Fund as of January 31, 1996.
After consideration of all of the foregoing factors, together with
certain other factors and information considered to be relevant, Funds IV
Trust's Board of Trustees unanimously approved the Reorganization Agreement and
directed that it be submitted to shareholders of each Reorganizing Fund for
approval. Funds IV Trust's Board of Trustees recommends that shareholders vote
"FOR" approval of the Reorganization Agreement.
Shareholders of each Reorganizing Fund must approve the Reorganization
Agreement as a condition for their Fund's Reorganization. The failure of
shareholders of any Reorganizing Fund to approve the Reorganization Agreement
will not affect the Reorganization of any other Fund. The Board of Trustees of
Funds IV Trust has not determined what action it will take in the event the
shareholders of any Reorganizing Fund fail to approve the Reorganization
Agreement or for any reason any Reorganization is not consummated. If a
Reorganization is not consummated for any reason, the Trustees may choose to
consider approval of a new investment advisory agreement with Boatmen's,
alternative dispositions of the Reorganizing Fund's assets, including the sale
of assets to, or merger with, another investment company, or the possible
liquidation of such Fund.
At a meeting held on May 21, 1995, the Board of Trustees of The Pilot
Funds considered the proposed Reorganization with respect to the Acquiring
Funds. Based upon their evaluation of the relevant information provided to them,
and in light of their fiduciary duties under federal and state law, the Board of
Trustees unanimously determined, on the basis of information provided by
Boatmen's, that the proposed reorganization was in the best interests of the
Acquiring Funds and their respective shareholders and that the interests of
existing shareholders of the Acquiring Funds would not be diluted as a result of
effecting the transaction.
Although no formal action has been taken, it is contemplated that if
(a) shareholders approve all of the Reorganizations proposed in this Combined
Proxy Statement/Prospectus, (b) the shareholders of Short-Term Treasury Income
Fund (an additional operating series of Funds IV Trust not party to any
Reorganization) approve that Fund's liquidation at a separate meeting of that
series, and (c) as currently contemplated, the liquidation is consummated prior
to the Reorganizations, then, following the Reorganizations, Funds IV Trust's
affairs will be wound up, and its existence will be terminated under state law.
27
<PAGE> 31
CAPITALIZATION. Because each Reorganizing Fund will be combined in the
Reorganization with its corresponding Acquiring Fund, the total capitalization
of the corresponding Acquiring Fund after the Reorganization is expected to be
greater than its current capitalization or that of its corresponding
Reorganizing Fund except where the Acquiring Fund has had little or no
operations prior to the Reorganization. The following table sets forth as of
February 29, 1996, (i) the capitalization of each Reorganizing Fund, (ii) the
capitalization of its corresponding Acquiring Fund, and (iii) the pro forma
capitalization of the corresponding Acquiring Fund giving effect to the
Reorganization. At the time each Reorganization is completed, the resulting
capitalization of the Acquired Fund is likely to differ from the pro forma
capitalization shown in the table because of the effects of shareholder activity
and market price fluctuations in the interim on the funds involved in the
Reorganization(s).
28
<PAGE> 32
<TABLE>
<CAPTION>
AGGRESSIVE STOCK PILOT PRO FORMA
APPRECIATION FUND GROWTH FUND COMBINED
----------------- ----------- ---------
<S> <C> <C> <C>
Total Net Assets........................ $59,081,469 $ -- $59,074,419
Service Class/Pilot Class........... $59,074,419 $ -- $59,074,419
Shares Outstanding...................... 4,819,274 -- 4,818,699
Service Class/Pilot Class........... 4,818,699 -- 4,818,699
Net Asset Value per Share
Service Class/Pilot Class........... $ 12.26 $ -- $ 12.26
<CAPTION>
PRO FORMA
VALUE STOCK PILOT GROWTH COMBINED FUND(1)
APPRECIATION FUND AND INCOME FUND (FUNDS SHOWN) (ALL FUNDS)
----------------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
Total Net Assets........................ $26,231,853 $160,278,040 $186,509,817 $351,528,095
Service Class/Pilot Class........... $26,231,777 $156,537,553 $ 1,762,540 $347,787,608
Shares Outstanding...................... 2,125,432 12,680,734 14,755,715 27,812,269
Service Class/Pilot Class........... 2,125,426 12,384,869 139,471 27,516,404
Net Asset Value Per Share
Service Class/Pilot Class........... $ 12.34 $ 12.64 $ 12.64 $ 12.64
<CAPTION>
PRO FORMA
STOCK PILOT GROWTH COMBINED FUND(2)
APPRECIATION FUND AND INCOME FUND (Funds Shown) (ALL FUNDS)
----------------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
Total Net Assets........................ $165,025,702 $160,278,040 $325,296,318 $351,528,095
Service Class/Pilot Class........... $165,018,278 $156,537,553 $321,555,831 $347,787,608
Shares Outstanding...................... 12,803,900 12,680,734 25,737,288 27,812,269
Service Class/Pilot Class........... 12,803,324 12,384,869 25,441,423 27,516,404
Net Asset Value Per Share
Service Class/Pilot Class........... $ 12.89 $ 12.64 $ 12.64 $ 12.64
<CAPTION>
PRO FORMA
BOND PILOT DIVERSIFIED COMBINED FUND(3)
INCOME FUND BOND INCOME FUND (FUNDS SHOWN) (ALL FUNDS)
----------- ----------------- ------------- -----------
<S> <C> <C> <C> <C>
Total Net Assets........................ $32,670,790 $ -- $32,664,389 $155,928,876
Service Class/Pilot Class........... $32,664,389 $ -- $32,664,389 $155,928,876
Shares Outstanding...................... 3,116,919 -- 3,116,308 15,214,591
Service Class/Pilot Class........... 3,116,308 -- 3,116,308 15,214,591
Net Asset Value Per Share
Service Class/Pilot Class........... $ 10.48 $ -- $ 10.48 $ 10.25
<CAPTION>
PRO FORMA
INTERMEDIATE PILOT DIVERSIFIED COMBINED FUND(4)
BOND INCOME FUND BOND INCOME FUND (FUNDS SHOWN) (ALL FUNDS)
---------------- ----------------- ------------- -----------
<S> <C> <C> <C> <C>
Total Net Assets........................ $123,270,751 $ -- $123,264,487 $155,928,876
Service Class/Pilot Class........... $123,264,487 $ -- $123,264,487 $155,928,876
Shares Outstanding...................... 12,028,967 -- 12,028,356 15,214,591
Service Class/Pilot Class........... 12,028,356 -- 12,028,356 15,214,591
Net Asset Value Per Share
Service Class/Pilot Class........... $ 10.25 $ -- $ 10.25 $ 10.25
</TABLE>
29
<PAGE> 33
<TABLE>
<CAPTION>
CASH RESERVE PILOT SHORT-TERM PRO FORMA
MONEY MARKET FUND DIVERSIFIED ASSETS FUND COMBINED
----------------- ----------------------- ---------
<S> <C> <C> <C>
Total Net Assets........................ $344,883,750 $1,550,166,375 $1,895,044,055
Service Class/Pilot Class........... $344,877,680 $1,276,431,740 $1,621,309,420
Shares Outstanding...................... 344,883,169 1,550,040,634 1,894,917,733
Service Class/Pilot Class........... 344,877,099 1,276,305,999 1,621,183,098
Net Asset Value Per Share
Service Class/Pilot Class........... $ 1.00 $ 1.00 $ 1.00
<FN>
- ------------------------------------------
(1) The third column reflects pro forma combined information resulting from
the Reorganization of Pilot Growth and Income Fund and Value Stock
Appreciation Fund. It is contemplated that Stock Appreciation Fund will
also be reorganized into Pilot Growth and Income Fund; the fourth
column reflects pro forma combined information in the event that both
Reorganizations take place. It should be noted, however, that each
Reorganization is independent of and not contingent on the other.
(2) The third column reflects pro forma combined information resulting from
the reorganization of Pilot Growth and Income Fund and Stock
Appreciation Fund. It is contemplated that Value Stock Appreciation
Fund will also be reorganized into Pilot Growth and Income Fund; the
fourth column reflects pro forma combined information in the event that
both Reorganizations take place. It should be noted, however, that each
Reorganization is independent of and not contingent on the other.
(3) The third column reflects pro forma combined information resulting from
the Reorganization of Pilot Diversified Bond Income Fund and Bond
Income Fund. It is contemplated that Intermediate Bond Income Fund will
also be reorganized into Pilot Diversified Bond Income Fund; the fourth
column reflects pro forma combined information in the event that both
Reorganizations take place. It should be noted, however, that each
Reorganization is independent of and not contingent on the other.
(4) The third column reflects pro forma combined information resulting from
the Reorganization of Pilot Diversified Bond Income Fund and
Intermediate Bond Income Fund. It is contemplated that Bond Income Fund
will also be reorganized into Pilot Diversified Bond Income Fund; the
fourth column reflects pro forma combined information in the event that
both Reorganizations take place. It should be noted, however, that each
Reorganization is independent of and not contingent on the other.
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES. Each reorganization transaction should
be a tax-free transaction from the standpoint of the Reorganizing and Acquiring
Fund and their shareholders, which means that: (1) no gain or loss will be
recognized by a Reorganizing Fund upon the transfer of its assets and
liabilities to an Acquiring Fund; (2) the tax basis of the assets of the
Reorganizing Fund in the hands of the Acquiring Fund will be the same as the tax
basis of such assets in the hands of the Reorganizing Fund immediately prior to
the transfer; (3) the Acquiring Fund's holding period of the assets of the
Reorganizing Fund will include the period during which such assets were held by
a Reorganizing Fund; (4) no gain or loss will be recognized by the Acquiring
Fund upon the receipt of the assets of the Reorganizing Fund in exchange for
shares of the Acquiring Fund and the assumption by the Acquiring Fund of the
liabilities and obligations of the Reorganizing Fund; (5) no gain or loss will
be recognized by the shareholders of the Reorganizing Fund upon the receipt of
shares of the Acquiring Fund in exchange for shares of the Reorganizing Fund;
(6) the basis of the shares of the Acquiring Fund received by the shareholders
of the Reorganizing Fund will be the same as the basis of the shares of the
Reorganizing Fund exchanged therefor; and (7) the holding period of the shares
of the Acquiring Fund received by the shareholders of the Reorganizing Fund will
include the holding period of the shares of the Reorganizing Fund exchanged
therefor, provided that, at the time of the exchange, the shares of the
Reorganizing Fund were held as capital assets. Pursuant to the Reorganization
Agreement, as a condition to the consummation of each Reorganization, the
Reorganizing Fund and Acquiring Fund must receive a favorable opinion of
Goodwin, Procter & Hoar LLP, counsel to The Pilot Funds, as to the foregoing tax
consequences.
Funds IV Trust and The Pilot Funds have not sought a tax ruling from
the Internal Revenue Service (the "IRS"), but intend to act in reliance upon the
opinion of counsel discussed in the previous paragraph. That opinion will not be
binding on the IRS and will not preclude the IRS from adopting a contrary
position.
30
<PAGE> 34
Shareholders should consult their own advisers concerning the potential tax
consequences to them, including those arising under state and local law.
COMPARISON OF INVESTMENT POLICIES AND RISK FACTORS
The investment objectives and policies of each Reorganizing Fund are
substantially similar to those of its corresponding Acquiring Fund. There are,
however, certain differences. The following discussion summarizes some of the
more significant similarities and differences in the investment policies and
risk factors for each Reorganizing Fund and its corresponding Acquiring Fund. A
more complete comparison of the investment restrictions and policies of the
Reorganizing and Acquiring Funds appears in Appendix B. Both the discussion
below and the information in Appendix B are qualified in its entirety by the
discussion elsewhere herein, and in the Prospectuses and Statements of
Additional Information for the Reorganizing Funds and the Acquiring Funds.
The investment objectives of each Acquiring Fund are not fundamental
and may be changed without shareholder vote although shareholders must receive
30 days notice of any change in an Acquiring Fund's investment objective. The
investment objective of each Reorganizing Fund, however, is fundamental and may
be changed only with the approval of shareholders.
Aggressive Stock Appreciation Fund and Pilot Growth Fund.
The Acquiring Fund and the Reorganizing Fund have substantially
similar objectives: Pilot Growth Fund's objective is to seek long-term capital
growth by investing primarily in equity securities; Aggressive Stock
Appreciation Fund's objective is to aggressively seek long-term capital
appreciation through investment in a diversified portfolio of common stock (and
securities convertible into common stock) of domestic companies and the fund may
also invest, to a far lesser extent, in securities of foreign companies,
primarily through securities represented by American Depositary Receipts (ADRs).
Although Pilot Growth Fund currently expects that its investment in foreign
securities will not exceed 5% of total assets, this policy is not fundamental.
On the other hand, Aggressive Stock Appreciation Fund's objective, which
focusses the Fund's investment on "domestic companies," is fundamental.
Consequently Pilot Growth Fund's policy with respect to foreign securities may
be changed without shareholder approval whereas a significant change in
Aggressive Stock Appreciation Fund's level of investment in foreign securities
would require shareholder approval. See "Risk Factors - Foreign Securities"
below for a discussion of the risks associated with foreign securities.
In terms of investment style, Pilot Growth Fund focusses on growth
stocks using a quantitatively based approach to security selection. Aggressive
Stock Appreciation Fund emphasizes growth as a selection factor and may use
various quantitative measures to assess growth potential, but retains the
flexibility to consider all available evidence in choosing securities with the
potential to appreciate in value. Aggressive Stock Appreciation Fund generally
expects its portfolio to include a broad array of large capitalization stocks
but may also hold mid cap stocks and to a lesser extent small capitalization
stocks. Pilot Growth Fund, on the other hand, has no stated policy with regard
to portfolio weighting based on market capitalization. Because of its emphasis
on growth stocks, Pilot Growth Fund may choose to purchase stocks of issuers
with smaller capitalizations, which often exhibit growth characteristics, to a
greater extent than Aggressive Stock Appreciation Fund. The share prices of
issuers with smaller capitalizations tend to be more volatile than those of
larger capitalization issuers.
Value Stock Appreciation Fund and Pilot Growth and Income Fund.
The Acquiring Fund and Reorganizing Fund have substantially similar
objectives: Pilot Growth and Income Fund's objective is to seek capital
appreciation and current income by investing primarily in common stocks of U.S.
companies; Value Stock Appreciation Fund's objective is to seek long-term
capital appreciation and dividend income through investment in a diversified
portfolio of common stock (and securities convertible into common stock) of
domestic companies and the fund may also invest, to a far lesser extent, in
securities of foreign companies, primarily through securities represented by
American Depositary Receipts (ADRs). Although Pilot Growth and Income Fund
currently intends to limit its investment in foreign securities to 5% of total
31
<PAGE> 35
assets, neither this policy nor the aspect of the Fund's objective focussing its
investment on U.S. companies is fundamental. On the other hand, Value Stock
Appreciation Fund's objective, which focusses the Fund's investment on "domestic
companies," is fundamental. Consequently Pilot Growth and Income Fund's policy
with respect to foreign securities may be changed without shareholder approval
whereas a significant change in Value Stock Appreciation Fund's level and means
of investment in foreign securities would require shareholder approval. Pilot
Growth and Income Fund has not historically invested more than 5% of its net
assets in foreign securities. See "Risk Factors - Foreign Securities" below
for a discussion of the risks associated with foreign securities.
Stock Appreciation Fund and Pilot Growth and Income Fund.
The Acquiring Fund and the Reorganizing Fund have substantially
similar objectives: Pilot Growth and Income Fund's objective is to seek capital
appreciation and current income by investing primarily in common stocks of U.S.
companies; Stock Appreciation Fund's objective is to seek long-term capital
appreciation through investment in a diversified portfolio of common stock (and
securities convertible into common stock) of domestic companies and the fund may
also invest, to a far lesser extent, in securities of foreign companies,
primarily through securities represented by American Depositary Receipts (ADRs).
Pilot Growth and Income Fund's investment portfolio may tend to fluctuate less
in value than Stock Appreciation Fund's because, in addition to purchasing
common stocks with the potential for capital growth, Pilot Growth and Income
Fund also invests in common stocks which demonstrate favorable prospects for
current dividend income. Stocks chosen for their dividend producing qualities
generally are less volatile than those favored for capital appreciation, the
primary focus of Stock Appreciation Fund's investment program.
Although Pilot Growth and Income Fund currently intends to limit its
investment in foreign securities to 5% of total assets, neither this policy nor
the aspect of the Fund's objective focussing its investment on U.S. companies is
fundamental. On the other hand, Stock Appreciation Fund's objective, which
focusses the Fund's investment on "domestic companies," is fundamental.
Consequently Pilot Growth and Income Fund's policy with respect to foreign
securities may be changed without shareholder approval whereas a significant
change in Stock Appreciation Fund's level and means of investment in foreign
securities would require shareholder approval. Pilot Growth and Income Fund has
not historically invested more than 5% of its net assets in foreign securities.
See "Risk Factors - Foreign Securities" below for a discussion of the risks
associated with foreign securities.
Bond Income Fund and Pilot Diversified Bond Income Fund.
The Acquiring Fund and the Reorganizing Fund have substantially similar
objectives: Pilot Diversified Bond Income Fund's investment objective is to seek
current income consistent with preservation of capital by investing primarily in
debt securities and seeks total return as a secondary objective; Bond Income
Fund's investment objective is to provide as high a level of current income as
is consistent with managing for total return by investing at least 65% of its
total assets in fixed income securities.
Pilot Diversified Bond Income Fund and Bond Income Fund have
substantially similar credit quality criteria. Pilot Diversified Bond Income
Fund will purchase only debt securities rated at least A or better or, if
unrated, of comparable quality; the Fund may retain a security if its rating or,
if unrated, its credit quality falls to BBB, but the value of such downgraded
assets may not exceed 35% of its total assets. For Bond Income Fund a minimum of
65% of its total assets must consist of securities rated A or better. Bond
Income Fund will seek to maintain a minimum average rating of AA with all
securities rated at least BBB or better at the time of purchase; securities
downgraded below BBB may be retained when deemed by the adviser to be in the
best interests of the Fund. The combination of these credit quality policies
has the effect of permitting the Bond Income Fund to acquire securities rated
BBB at the time of purchase but limits the Fund's holdings of such securities
(together with holdings of securities downgraded to BBB) to 35% of its total
assets.
Pilot Diversified Bond Income Fund currently intends to limit its
investment in foreign securities to 5% of total assets. Bond Income Fund has no
limitation on the amount of its investment in the debt of foreign
32
<PAGE> 36
governments and corporations. Foreign securities entail special risks which are
discussed under "Risk Factors - Foreign Securities" below.
The Funds' average maturity policies are also substantially similar.
Average maturity provides a general indication of share price sensitivity to
interest rate fluctuations. Pilot Diversified Bond Income Fund's average
maturity will be between five and fifteen years. Bond Income Fund's average
maturity generally ranges between seven and fifteen years. As a general rule,
the greater a fund's average maturity the greater the fluctuation of its net
asset value in response to interest rate changes.
Intermediate Bond Income Fund and Pilot Diversified Bond Income Fund.
The Acquiring Fund and the Reorganizing Fund have substantially similar
objectives. Pilot Diversified Bond Income Fund's investment objective is to seek
current income consistent with preservation of capital by investing primarily in
debt securities and to seek total return as a secondary objective; Intermediate
Bond Income Fund's investment objective is to provide as high a level of current
income as is consistent with managing for total return by investing at least 65%
of its total assets in fixed income securities.
Pilot Diversified Bond Income Fund and Intermediate Bond Income Fund
have substantially similar credit quality criteria. Pilot Diversified Bond
Income Fund will purchase only debt securities rated at least A or better or, if
unrated, of comparable quality; the Fund may retain a security if its rating or,
if unrated, its credit quality falls to BBB, but the value of such downgraded
assets may not exceed 35% of its total assets. Pilot Diversified Bond Income
Fund has no policy regarding average rating. For Intermediate Bond Income Fund
a minimum of 65% of its total assets must consist of securities rated A or
better. Intermediate Bond Income Fund will seek to maintain a minimum average
rating of AA with all securities rated at least BBB or better at the time of
purchase; securities downgraded below BBB may be retained when deemed by Bank IV
to be in the best interests of the Fund. The combination of these credit quality
policies has the effect of permitting the Intermediate Bond Income Fund to
acquire securities rated BBB at the time of purchase but limits the Fund's
holdings of such securities (together with holdings of securities downgraded to
BBB) to 35% of its total assets.
Pilot Diversified Bond Income Fund currently expects that its
investment in foreign securities will not exceed 5% of total assets.
Intermediate Bond Income Fund has no limitation on the amount of its investment
in the debt of foreign governments and corporations. Foreign securities entail
special risks which are discussed under "Risk Factors - Foreign Securities"
below.
Pilot Diversified Bond Income Fund's average maturity will be between
five and fifteen years. Intermediate Bond Income Fund's average maturity
generally ranges between three and ten years. Because its policy permits higher
average maturities, Pilot Diversified Bond Income Fund's share price may be
expected to fluctuate more in response to changes in interest rates than the
share price of Intermediate Bond Income Fund.
Cash Reserve Money Market Fund and Pilot Short-Term Diversified Assets
Fund
The Acquiring Fund and the Reorganizing Fund have substantially similar
objectives. Diversified Assets Fund's objective is to maximize current income to
the extent consistent with preservation of capital and the maintenance of
liquidity by investing exclusively in high quality money market instruments.
Cash Reserve Money Market Fund's objectives are current income, liquidity and
the maintenance of a stable $1.00 net asset value per share by investing in high
quality, U.S. dollar-denominated short-term obligations which are determined by
the investment adviser to present minimal credit risks. Both Funds concentrate
in (i.e., will invest more than 25% of its assets in) the banking industry. Both
Funds operate as money market mutual funds in compliance with the requirements
of Rule 2a-7 under the 1940 Act.
The Acquiring Fund and the Reorganizing Fund differ in the credit
quality standards applicable to their investments. Specifically, Diversified
Assets Fund may purchase (i) securities rated (or issued by an issuer that
33
<PAGE> 37
is rated with respect to a class of short-term debt obligations or an
appropriately comparable security within that class) in the highest short-term
rating category by at least two Nationally Recognized Statistical Rating
Organizations ("NRSROs"), (ii) securities rated by only one NRSRO and rated in
the highest category by that NRSRO, or (iii) unrated securities found to be of
quality comparable to the securities described in (i) or (ii) ("First Tier
Securities"). In addition to First Tier Securities, the Pilot Diversified Assets
Fund may purchase (i) securities rated in the top two short-term rating
categories by at least two NRSROs, but which are not rated in the highest
short-term rating category by two or more NRSROs, (ii) securities rated by one
NRSRO and rated in the second highest short-term category by that NRSRO, or
(iii) unrated securities found to be of quality comparable to the securities
described in (i) or (ii) ("Second Tier Securities"). Consistent with the
requirements of Rule 2a-7, Diversified Assets Fund may not invest more than the
greater of (i) 1% of its total assets; or (ii) one million dollars in the
securities of a single issuer which were Second Tier Securities at acquisition
and may not invest more than 5% of its total assets in securities which were
Second Tier Securities at acquisition.
Cash Reserve Money Market Fund invests only in issuers or instruments
that at the time of purchase (1) have received the highest short-term rating by
at least two NRSROs; (2) are rated by only one NRSRO and have received the
highest short-term rating by that NRSRO (and provided the purchase is approved
or ratified by the Board of Trustees); or (3) are unrated, but are determined to
be of quality comparable to the securities described in (1) and (2) by AMR
pursuant to guidelines approved by the Board. Cash Reserve Money Market Fund may
not invest in Second Tier Securities.
Diversified Assets Fund's policies with respect to the credit quality
of commercial paper it purchases are no different from those noted above for its
other investments. All commercial paper purchased by Cash Reserve Money Market
Fund must, however, meet either qualification (1) or (2) shown in the
description of that Fund's credit quality restrictions above.
The combined effect of the policies noted above is to permit the
Acquiring Fund to purchase money market instruments of lesser quality (though
still meeting the credit quality requirements of Rule 2a-7 under the Investment
Company Act of 1940, as amended, which restricts the credit quality of money
market fund investments) than the Reorganizing Fund. Lower quality instruments
typically offer higher yields but may be more volatile in price and generally
have a higher probability of default by the issuer. The Acquiring Fund has not
historically purchased Second Tier Securities in material amounts and has no
current intention to do so.
Risk Factors - Foreign Securities.
There are risks and costs involved in investing in securities of
foreign issuers (including foreign governments), which are in addition to the
usual risks inherent in U.S. investments. Investments in foreign securities may
involve higher costs than investments in U.S. securities, including higher
transaction costs as well as the imposition of additional taxes by foreign
governments. In addition, foreign investments may involve further risks
associated with the level of currency exchange rates, less complete financial
information about the issuer, less market liquidity and political instability.
Future political and economic developments, the possible imposition of
withholding taxes on interest income, the possible seizure or nationalization of
foreign holdings, the possible establishment of exchange controls or the
adoption of other governmental restrictions might adversely affect the payment
of principal and interest on foreign obligations. Additionally, foreign banks
and foreign branches of domestic banks may be subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements.
OTHER INFORMATION
General. Funds IV Trust and The Pilot Funds are each open-end
management investment companies registered under the 1940 Act. Funds IV Trust is
organized as a business trust under the laws of Delaware; The Pilot Funds is
organized as a business trust under the laws of the Commonwealth of
Massachusetts. Funds IV Trust and The Pilot Funds are governed by a Trust
Instrument and an Agreement and Declaration of Trust, respectively (each a
"Trust Agreement"), By-Laws and Boards of Trustees.
34
<PAGE> 38
Term of Trustees. The term of office of each Trustee of The Pilot Funds
or Funds IV Trust is unlimited as to duration unless the Trustees themselves
adopt a limited term. Assuming that the term remains of unlimited duration, a
person serving as a Trustee of The Pilot Funds or Funds IV Trust will continue
as Trustee until the person resigns, dies or is removed by a written instrument
signed by at least two-thirds of the Trustees, by vote of the shareholders
holding not less than two-thirds of the shares then outstanding in person or by
proxy at any meeting called for the purpose, or by a written declaration signed
by shareholders holding not less than two-thirds of the shares then outstanding.
Vacancies on either Board may be filled by a majority of the Trustees remaining
in office.
Liability of Trustees. A Trustee of The Pilot Funds or Funds IV Trust
will be personally liable only for his or her own willful malfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee. Under the Trust Agreements for The Pilot Funds
and Funds IV Trust, Trustees and officers will be indemnified for the expenses
of litigation against them unless it is determined that the person did not act
in good faith in the reasonable belief that the person's actions were in or not
opposed to the best interests of the trust or his or her conduct is determined
to constitute willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
Shareholder Liability. Although, as discussed below, the likelihood is
remote, it is possible that, under Massachusetts law, shareholders of a
Massachusetts business trust could, under certain circumstances, be held
personally liable for the obligations of The Pilot Funds. However, the Trust
Agreement of The Pilot Funds disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The Trust Agreement also provides for indemnification out of
The Pilot Funds property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
considered remote since it is limited to circumstances in which a disclaimer is
inoperative and The Pilot Funds itself would be unable to meet its obligations.
Under Delaware law, stockholders of a Delaware Business Trust such as Funds IV
Trust do not have such potential remote liability. A substantial number of
mutual funds in the United States are organized as Massachusetts business
trusts.
Voting. On each matter submitted to a vote of the shareholders of The
Pilot Funds or Funds IV Trust, each holder of a share of one of the funds is
entitled to one vote for each whole share and to a proportionate fractional vote
for each fractional share outstanding in the shareholder's name on the books of
the respective Trusts. Generally, shares of each of the Acquiring Fund and
Reorganizing Fund vote on a fund-by-fund basis on all matters except (1) matters
affecting only the interests of one or more of the funds, in which case only
shares of the affected fund or funds would be entitled to vote or (2) when the
1940 Act requires that shares of the Funds be voted in the aggregate. There are
ordinarily no meetings of shareholders of the Funds IV Trust or The Pilot Funds.
Liquidation or Dissolution. In the event of the liquidation or
dissolution of The Pilot Funds or any of the funds, the shareholders of the
funds are entitled to receive, when, and as declared by the Trustees, the excess
of the assets belonging to the funds over the liabilities belonging to the
funds. In either case, the assets so distributable to shareholders of the funds
will be distributed among the shareholders in proportion to the number of shares
of the funds held by them and recorded on the books of the Acquiring Fund. Under
the Trust Agreement of the Funds IV Trust, any proposal to liquidate or dissolve
the Reorganizing Fund requires approval of shareholders. Such action may be
taken with respect to The Pilot Funds by action of the Board of Trustees,
without shareholder approval.
Shareholder Meetings. Neither The Pilot Funds nor Funds IV Trust are
required to hold annual meetings of their shareholders. However, if the
Trustees of The Pilot Funds fail to call or give notice of any meeting of
shareholders for a period of 75 days after written request by shareholders of
a majority of the shares then outstanding and entitled to vote of any portfolio
or class entitled to vote upon a matter requiring shareholder action pursuant
to the Trust Instrument that a meeting be called to consider action on such
matter, then shareholders holding at least a majority of the shares then
outstanding and entitled to vote of such portfolio or class may call and give
notice of such meeting. In addition, special meetings of Funds IV Trust may be
called upon written request of shareholders owning at least one-tenth of the
outstanding shares entitled to vote.
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<PAGE> 39
Rights of Inspection. Shareholders of The Pilot Funds have the same
rights to inspect the records, accounts and books of The Pilot Funds as are
permitted shareholders of a Massachusetts corporation under the Massachusetts
corporation law. Currently, each shareholder of a Massachusetts corporation is
permitted to inspect the articles, bylaws, stock records, and minutes of
shareholder meetings. Under Delaware law, a shareholder is entitled to inspect
all books and records including stock records. In either jurisdiction a court
may order discovery of all information relevant to a litigation claim.
The foregoing is only a summary of certain characteristics of the
operations of The Pilot Funds and Funds IV Trust, the Trust Agreement, By-Laws
and Massachusetts law. The foregoing is not a complete description of the
documents cited. Shareholders should refer to the provisions of The Pilot Funds
Trust Agreement, By-Laws and Massachusetts law directly for a more complete
description.
INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION. This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies by Funds IV Trust's
Board of Trustees in connection with the Special Meeting. Only shareholders of
record at the close of business on ________, 1996 will be entitled to vote at
the Meeting. On that date there were outstanding and entitled to be voted the
following numbers of shares:
REORGANIZING FUND SHARES OUTSTANDING
Aggressive Stock Appreciation Fund
Value Stock Appreciation Fund
Stock Appreciation Fund
Bond Income Fund
Intermediate Bond Income Fund
Cash Reserve Money Market Fund
With respect to Fund shares held in any trust account over which Bank
IV has voting power, Bank IV has advised Funds IV Trust that (a) if such
account is subject to the Employee Retirement Income Security Act of 1974, as
amended, ("ERISA") and Bank IV is not the plan sponsor, Bank IV will pass
voting power through to the plan sponsor, (b) if such account is subject to
ERISA and Bank IV is the plan sponsor, Bank IV will pass its voting power to an
independent third party fiduciary, and (c) with respect to all other such trust
accounts, Bank IV will vote Fund shares in the same manner and proportion as
all other Fund shares are voted.
SOLICITATION OF PROXIES. Proxy solicitations will be made primarily by
mail, but proxy solicitations may also be made by telephone, telegraph or
personal solicitations conducted by officers and employees of Bank IV or their
affiliates or other representatives of the Funds (who will not be paid for their
solicitation activities). _____________ has been engaged by Bank IV to assist in
soliciting proxies, and may contact certain shareholders of the Funds by
telephone. Shareholders who are contacted by ____ may be asked to cast their
vote by telephonic proxy. Such proxies will be recorded in accordance with the
procedures set forth below. Bank IV believes these procedures are reasonably
designed to ensure that the identity of the shareholders casting the vote is
accurately determined and that the voting instructions of the shareholder are
accurately reflected.
In all cases where a telephonic proxy is solicited, the ____
representative will ask you for your full name, address, social security or
employer identification number, title (if you are authorized to act on behalf of
an entity, such as a corporation), and number of shares owned. If the
information solicited agrees with the information provided to ____ by Bank IV,
then the ____ representative will explain the process, read the Proposals listed
in the proxy card and ask for your instructions on each Proposal. The ____
representative, although he or she will answer questions about the process, will
not recommend to you how you should vote, other than to read the recommendations
set forth in this Proxy Statement. Within 72 hours, ____ will send you a letter
or mailgram to confirm your vote and asking you to call ____ immediately if your
instructions are not correctly reflected in the confirmation.
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<PAGE> 40
If you wish to participate in the Meeting and any adjournments thereof,
but do not wish to give your proxy by telephone, you may still submit the proxy
card included with this Proxy Statement or attend the Meeting in person. Any
proxy given by you, whether in writing or by telephone may be revoked at any
time before it is voted by a written instruction received by the Secretary of
Funds IV Trust by properly executing a later-dated proxy or by attending the
Special Meeting and voting in person.
The cost of the solicitation, including the Meeting and the cost of
pricing, assembling and mailing proxy materials will be borne by Boatmen's.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF. Based on holdings and
total shares outstanding as of June 28, 1996, the Trustees and officers of
Funds IV Trust owned as a group less than 1% of the outstanding voting
securities of each Reorganizing Fund. If the Reorganizations were consummated as
of February 29, 1996, the Trustees and officers of Funds IV Trust would own less
than 1% of the outstanding voting securities of each resulting pro forma
Combined Fund based on their holdings and total shares outstanding as of
June 28, 1996. Based on holdings and total shares outstanding as of
June 28, 1996, and assuming consummation of the Reorganizations shown on
February 29, 1996, the following persons would own beneficially or of record
5% or more of the outstanding shares of a Reorganizing Fund or pro forma
Combined Fund as indicated:
Aggressive Stock Appreciation Fund
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Name and Address Class and Amount of Percentage of Class Percentage of Class
Shares Owned and Owned as of Owned of
Type of Ownership June 28, 1996 Combined Fund
(pro forma - Reorg. with
Pilot Growth Fund)
- --------------------------------------------------------------------------------------------------------------------------
Fourth Financial Corporation 279,481 6.12% 5.8%
100 North Broadway Service Class
Wichita, Kansas 67202 (of record)
<CAPTION>
Value Stock Appreciation Fund
- ---------------------------------------------------------------------------------------------------------------------------------
Name and Class and Percentage of Percentage of Percentage of
Address Amount of Class Owned Class Owned of Class Owned of
Shares Owned as of Combined Fund Combined Fund
and Type of June 28, (pro forma - (pro forma -
Ownership 1996 Reorg. with Reorg. with
Pilot Growth Stock Appreciation
and Income Fund and Pilot Growth
Fund) and Income Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Explorer Retirement 202,070 9.4% 1.4% 0.7%
Explorer Pipeline Company Service Class
P.O. Box 2650 (of record)
Tulsa, OK 74101
McElroy Manufacturing MPP 143,322 6.6% 1.0% 0.5%
McElroy Manufacturing Co. Service Class
833 N. Fulton St. (of record)
Tulsa, OK 74112
Chandler (U.S.A.), Inc. 126,566 5.9% 0.9% 0.5%
P.O. Drawer 9 Service Class
Chandler, Oklahoma 74834 (of record)
<CAPTION>
Stock Appreciation Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Name and Class and Percentage of Percentage of Percentage of
Address Amount of Class Owned Class Owned of Class Owned of
Shares Owned as of Combined Fund Combined Fund
and Type of June 28, (pro forma - (pro forma -
Ownership 1996 Reorg. with Reorg. with
Pilot Growth Value Stock
and Income Appreciation
Fund) Fund and Pilot
Growth and Income
Fund
- ---------------------------------------------------------------------------------------------------------------------------------
Boatmen's Trust Company- 1,235,455 9.8% 4.8% 4.4%
Bank IV 401k Service Class
100 North Broadway (of record)
St. Louis, Missouri 63178
Fourth Financial 785,374 6.2% 3.1% 2.8%
Corporation Service Class
100 North Broadway (of record)
Wichita, Kansas 67202
</TABLE>
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<PAGE> 41
<TABLE>
<CAPTION>
Bond Income Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Name and Class and Percentage of Percentage of Percentage of
Address Amount of Class Owned Class Owned of Class Owned of
Shares Owned as of Combined Fund Combined Fund
and Type of June 28, (pro forma - (pro forma -
Ownership 1996 Reorg. with Reorg. with
Pilot Intermediate Bond
Diversified Income Fund and
Bond Income Pilot Diversified
Fund) Bond Income Fund)
- ----------------------------------------------------------------------------------------------------------------------------------
Fourth Financial Corporation 309,568 9.3% 9.9% 2.0%
100 North Broadway Service Class
Wichita, Kansas 67202 (of record)
Asbury-Salina Regional 235,255 7.1% 7.5% 1.5%
Medical Center Service Class
400 S. Santa Fe (of record)
Salina, KS 67401
Wichita Surgical Specialists 180,106 5.4% 5.8% 1.2%
MP Plan Service Class
818 N. Emporia, Suite 200 (of record)
Wichita, KS 67214
Bank IV - NCRA Savings and 176,343 5.3% 5.7% 1.2%
Retirement Trust Service Class
100 North Broadway (of record)
Wichita, KS 67202
<CAPTION>
Intermediate Bond Income Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Name and Class and Percentage of Percentage of Percentage of
Address Amount of Class Owned Class Owned of Class Owned of
Shares Owned as of Combined Fund Combined Fund
and Type of June 28, (pro forma - (pro forma -
Ownership 1996 Reorg. with Reorg. with
Pilot Bond Income Fund
Diversified and Pilot
Bond Income Diversified Bond
Fund) Income Fund)
- ----------------------------------------------------------------------------------------------------------------------------------
Boatmen's Trust Company - 662,382 5.70% 5.5% 4.4%
Bank IV 401k Service Class
100 North Broadway (of record)
St. Louis, Missouri 63178
</TABLE>
<TABLE>
<CAPTION>
Pilot Growth and Income Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Name and Class and Percentage of Percentage of Percentage of Percentage of
Address Amount of Class Owned Class Owned of Class Owned of Class Owned of
Shares Owned as of Combined Fund Combined Fund Combined Fund
and Type of June 28, (pro forma - (pro forma - (pro forma -
Ownership 1996 Reorg. with Reorg. with Reorg. with
Value Stock Stock both Funds)
Appreciation Appreciation
Fund) Fund)
- ----------------------------------------------------------------------------------------------------------------------------------
CNOM & Co c/o 10,050,779,476 72.2% 68.1% 39.1% 36.1%
Boatmen's Trust Co. Pilot Class
P.O. Box 409-F (beneficially and
St. Louis, Missouri of record)
63150-0409
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Pilot Funds. Based on holdings and total shares outstanding as of June 28,
1996, the Trustees and officers of The Pilot Funds owned as a group less than 1%
of the outstanding voting securities of each Acquiring Fund. If the
Reorganizations were consummated as of February 29, 1996, the Trustees and
officers of The Pilot Funds would own less than 1% of the outstanding voting
securities of each resulting pro forma Combined Fund based on their holdings
and total shares outstanding as of June 28, 1996. Based on holdings and total
shares outstanding as of June 28, 1996, and assuming consummation of the
Reorganizations on February 29, 1996, the following persons would own
beneficially or of record 5% or more of the outstanding shares of an Acquiring
Fund or pro forma Combined Fund (in addition to those noted above for each pro
forma Combined Fund)
<TABLE>
<CAPTION>
Pilot Short-Term Diversified Assets Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Name and Address Class and Amount of Percentage of Class Percentage of Class
Shares Owned and Owned as of Owned of
Type of Ownership June 28, 1995 Combined Fund
(pro forma)
Boatmen's Trust Co. 1,126,130,624 79.2% 59.4%
100 N Broadway Pilot Class
St. Louis, Missouri 63102 (beneficially and
of record)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 42
APPRAISAL RIGHTS. Shareholders are not entitled to any rights of share
appraisal under Funds IV Trust's Agreement or under the laws of the State of
Delaware in connection with a Reorganization. [verify] Shareholders have,
however, the right to redeem their Reorganizing Fund shares at net asset value
until the applicable Reorganization transaction with respect to their Fund, and
thereafter former Funds IV shareholders may redeem the Acquiring Fund shares
acquired by them in the Reorganization at net asset value as in effect from time
to time.
QUORUM. Shareholders of each Reorganizing Fund will vote separately to
approve or reject the Reorganization with respect to it and its corresponding
Acquiring Fund. The vote of the shareholders of each Acquiring Fund is not being
solicited because their approval or consent is not necessary for the
Reorganization to be consummated with respect to an Acquiring Fund. Each share
of each Reorganizing Fund is entitled to one vote and each fractional share
thereof is entitled to a fractional vote, on each matter submitted to a vote of
its shareholders of their fund at the Meeting; no shares have cumulative voting
rights. Shares held by two or more persons (whether joint tenants,
co-fiduciaries or otherwise) will be voted as follows unless a written
instrument or court order providing to the contrary has been filed with the
Secretary of Funds IV Trust: (1) if only one votes, his or her vote will bind
all; (2) if more than one votes, the vote of the majority will bind all; and (3)
if more than one votes and the vote is evenly divided, the shares will be voted
in accordance with the determination of a majority of such persons and any
person appointed to act by a court of competent jurisdiction, or in the absence
of such appointment, the vote will be cast proportionately.
Shares represented by duly appointed proxies in the form included with
this Combined Proxy Statement/Prospectus will be voted in accordance with the
specifications made. If no specification is made,
39
<PAGE> 43
shares will be voted in accordance with the recommendations of the Trustees of
Funds IV Trust. Proxies may be revoked at any time before they are voted by a
written revocation received by the Secretary of Funds IV Trust, by properly
executing a later-dated proxy or by attending the Meeting and voting in person.
Funds IV Trust will request broker-dealer firms, custodians, nominees and
fiduciaries to forward proxy material to the beneficial owners of the shares of
record held by such persons.
Approval of each Reorganization requires, with respect to the
Reorganizing Fund, the affirmative vote of (i) 67% or more of the shares of the
fund present at the Meeting or represented by proxy, if holders of more than 50%
of the shares of the fund outstanding on the Record Date are present, in person
or by proxy, or (ii) more than 50% of the outstanding shares of the fund on the
Record Date, whichever is less. If any other business comes before the Meeting,
the persons named as proxies intend to take such actions as they consider to be
in the best interests of the shareholders of each Reorganizing Fund.
A quorum for the transaction of business at the Meeting is constituted
with respect to a Reorganizing Fund by the presence in person or by proxy of the
holders of not less than one-third of the outstanding shares of such fund
entitled to vote at the Meeting. If, by the time scheduled for the Meeting, a
quorum of shareholders of a Reorganizing Fund is not present or if a quorum of a
fund's shareholders is present but sufficient votes in favor of the
Reorganization are not received, the persons named as proxies may propose one or
more adjournments of the Meeting with respect to that fund to permit further
solicitation of proxies from shareholders. Any such adjournment will require the
affirmative vote of a majority of the shares of the fund with respect to which
the Meeting is being adjourned present in person or represented by proxy at the
session of the Meeting to be adjourned. The persons named as proxies will vote
in favor of any such adjournment if they determine that such adjournment and
additional solicitation are reasonable and in the interests of the Reorganizing
Fund's shareholders. Notice of adjournment of the Meeting with respect to a Fund
to another time and place need not be given, if the time and place are announced
at the Meeting being adjourned and reasonable notice is given to persons present
at the Meeting and the adjourned Meeting with respect to the fund is held within
a reasonable time after the date set for the original Meeting.
In tallying shareholder votes, abstentions and broker non-votes (i.e.,
proxies sent in by brokers and other nominees which cannot be voted on a
proposal because instructions have not been received from the beneficial owners)
will be counted for purposes of determining whether a quorum is present for the
purposes of convening the Meeting. If a proposal must be approved by a
percentage of "votes cast" on the proposal, abstentions and broker non-votes
will not be counted as "votes cast" on the proposal and will have no effect on
the result of the vote. If a proposal must be approved by (i) a percentage of
voting securities present at the Meeting, or (ii) a majority of the shares
issued and outstanding (i.e. the Reorganization), abstentions and broker
non-votes will be considered to be both present and issued and outstanding and,
as a result, will have the effect of as votes against such proposal.
If the accompanying form of proxy is properly executed and returned in
time to be voted at the Meeting, the shares covered thereby will be voted in
accordance with the instructions marked thereon by the shareholder. Executed
proxies that are unmarked will be voted FOR each proposal submitted to a vote of
the shareholders.
ADDITIONAL INFORMATION
Information about The Pilot Funds is included in the Prospectuses
accompanying this Combined Proxy Statement/Prospectus. Additional information
about these Funds is included in their Statements of Additional Information
dated May 10, 1996 for Pilot Growth Fund and Pilot Diversified Bond Income
Fund, dated December 29, 1995 for Pilot Growth and Income Fund and Pilot
Short-Term Diversified Assets Fund which have been filed with the SEC. The
financial statements for Pilot Growth and Income Fund and Pilot Short-Term
Diversified Assets Fund for the year ended August 31, 1995 are incorporated by
reference in the Funds' Statements of Additional Information; the Funds'
unaudited financial statements for the six month period ended February 29, 1996
are incorporated by reference in the Statement of Additional Information for
this Combined Proxy Statement/Prospectus. Copies of the Statements of Additional
Information and financial statements may be
40
<PAGE> 44
obtained without charge by writing to Pilot Funds Distributors, Inc., 3435
Stelzer Road, Columbus, Ohio 43219, or by calling The Pilot Funds at
1-800-717-4568. The Pilot Funds are subject to the informational requirements of
the Securities Exchange Act of 1934 and the 1940 Act, as applicable, and, in
accordance with such requirements, files proxy materials, reports and other
information with the SEC. These materials can be inspected and copied at the
Public Reference Facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the offices of The Pilot Funds listed above and
at the SEC's Regional Offices at 7 World Trade Center, Suite 1300, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can also be obtained from the Public Reference Branch,
Office of Consumer Affairs and Information Services, Securities and Exchange
Commission,, Washington, D.C. 20549, at prescribed rates.
Information about Funds IV Trust is incorporated herein by reference
from its Prospectus and Combined Statement of Additional Information, each dated
January 30, 1996. The financial statements for the Reorganizing Funds for the
period ended June 30, 1995 is incorporated by reference in the Funds' Statement
of Additional Information; the Funds' unaudited financial statements for the six
month period ended December 31, 1995 are incorporated by reference into the
Statement of Additional Information to this Combined Proxy Statement/Prospectus.
Copies of the Reorganizing Funds' Prospectus, Statement of Additional
Information, and financial statements may be obtained without charge by writing
or calling Funds IV at the address and telephone number shown on the cover page
of this Combined Proxy Statement/Prospectus. Reports and other information filed
by Funds IV can be inspected and copied at the Public Reference Facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of such material can be obtained from the Public Reference Branch, office
of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549, at prescribed rates.
41
<PAGE> 45
FINANCIAL HIGHLIGHTS
FUNDS IV FINANCIAL HIGHLIGHTS. The tables set forth below present
financial information for the Service Shares of the Aggressive Stock
Appreciation Fund, Value Stock Appreciation Fund, Stock Appreciation Fund, Bond
Income Fund, Intermediate Bond Income Fund, and Cash Reserve Money Market Fund.
This information is derived from the Funds IV Trust unaudited financial
statements for the six-month period ended December 31, 1995. The data should be
read in conjunction with the unaudited financial statements and related notes,
which are included in the Statement of Additional Information related to this
Combined Proxy Statement/Prospectus. The financial highlights for the Funds IV
Trust for prior periods are contained in Funds IV Trust's Prospectus dated
January 30, 1996, and the financial statements for the Funds IV Trust for prior
periods are contained in Funds IV's Annual Report to Shareholders and are
incorporated by reference into Funds IV Trust's Combined Statement of Additional
Information dated January 30, 1996, which Prospectus and Combined Statement of
Additional Information are incorporated herein by reference.
42
<PAGE> 46
AGGRESSIVE STOCK APPRECIATION FUND
FUNDS IV Trust
Financial Highlights (unaudited)
For a share of beneficial interest outstanding throughout each period
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 30, 1995*
------------------- ------------------
SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............... $10.87 $10.87 $ 10.00 $10.00
------ ------ ------- ------
Income from Investment Operations:
Net investment income ............................ 0.02 0.02 0.10 0.10
Net realized and unrealized gain on securities ... 0.94 0.94 0.87 0.87
------ ------ ------- ------
Total from Investment Operations ................. 0.96 0.96 0.97 0.97
------ ------ ------- ------
Less Distributions From:
Net investment income ............................ (0.02) (0.02) (0.10) (0.10)
Net realized capital gains ....................... (0.14) (0.14) -- --
------ ------ ------- ------
Total Distributions .............................. (0.16) (0.16) (0.10) (0.10)
------ ------ ------- ------
Net Asset Value, End of Period ..................... $11.67 $11.67 $ 10.87 $10.87
====== ====== ======= ======
Total Return** ..................................... 8.89% 8.89% 9.81% 9.81%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) ........ $55,939 $6 $44,205 $6
Ratios of Net Expenses to Average Net Assets+ ... 1.19% 1.19% 1.23% 1.23%
Ratios of Expenses Before Effect of Waivers+ .... 1.19% 1.69% 1.23% 1.73%
Ratios of Net Investment Income to Average Net
Assets+ ....................................... 0.25% 0.25% 1.27% 1.27%
Portfolio Turnover Rate ......................... 42.91% 42.91% 72.11% 72.11%
</TABLE>
- ----------------
* Fund commenced operations on August 26, 1994.
** Total return not annualized.
+ Annualized.
43
<PAGE> 47
VALUE STOCK APPRECIATION FUND
FUNDS IV Trust
Financial Highlights (unaudited)
For a share of beneficial interest outstanding throughout each period
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 30, 1995*
------------------- ------------------
SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............... $10.93 $10.93 $ 10.00 $10.00
------ ------ ------- ------
Income from Investment Operations:
Net investment income ............................ 0.13 0.13 0.10 0.10
Net realized and unrealized gain on securities ... 1.25 1.25 0.93 0.93
------ ------ ------- ------
Total from Investment Operations ................. 1.38 1.38 1.03 1.03
------ ------ ------- ------
Less Distributions From:
Net investment income ............................ (0.13) (0.13) (0.10) (0.10)
Net realized capital gains ....................... (0.17) (0.17) -- --
------ ------ ------- ------
Total Distributions .............................. (0.30) (0.30) (0.10) (0.10)
------ ------ ------- ------
Net Asset Value, End of Period ..................... $12.01 $12.01 $ 10.93 $10.93
====== ====== ======= ======
Total Return** ..................................... 12.64% 12.64% 10.32% 10.32%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) ........ $26,100 -- $20,690 --
Ratios of Net Expenses to Average Net Assets+ ... 1.15% 1.15% 1.18% 1.18%
Ratios of Expenses Before Effect of Waivers+ .... 1.24% 1.74% 1.33% 1.83%
Ratios of Net Investment Income to Average Net
Assets+ ....................................... 2.17% 2.17% 2.52% 2.52%
Portfolio Turnover Rate ......................... 19.38% 19.38% 16.74% 16.74%
</TABLE>
- ----------------
* Fund commenced operations on February 10, 1995.
** Total return not annualized.
+ Annualized.
44
<PAGE> 48
STOCK APPRECIATION FUND
FUNDS IV Trust
Financial Highlights (unaudited)
For a share of beneficial interest outstanding throughout each period
<TABLE>
<CAPTION>
Six Months Ended Period Ended
December 31, 1995 June 30, 1995*
----------------------- -----------------------
Service Premium Service Premium
Class Class Class Class
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...................... $ 11.05 $11.05 $ 10.00 $10.00
--------- ------ -------- ------
Income from Investment Operations:
Net investment income ................................... 0.07 0.07 0.16 0.16
Net realized and unrealized gain on securities .......... 1.27 1.27 1.05 1.05
--------- ------ -------- ------
Total from Investment Operations ........................ 1.34 1.34 1.21 1.21
--------- ------ -------- ------
Less Distributions From:
Net investment income ................................... (0.07) (0.07) (0.16) (0.16)
Net realized capital gains .............................. (0.06) (0.16) - -
--------- ------ -------- ------
Total Distributions ..................................... (0.13) (0.13) (0.16) (0.16)
--------- ------ -------- ------
Net Asset Value, End of Period ............................ $ 12.26 $12.26 $ 11.05 $11.05
========= ====== ======== ======
Total Return** ............................................ 12.11% 12.11% 12.19% 12.19%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) ................ $155,768 $7 $131,239 $6
Ratios of Net Expenses to Average Net Assets+ ........... 0.98% 0.98% 1.00% 1.00%
Ratios of Expenses Before Effect of Waivers+ ............. 0.98% 1.48% 1.02% 1.52%
Ratios of Net Investment Income to Average Net Assets+ .. 1.12% 1.12% 1.89% 1.89%
Portfolio Turnover Rate ................................. 35.63% 35.63% 46.37% 46.37%
</TABLE>
- --------------
* Fund commenced operations on August 26, 1994.
** Total return not annualized.
+ Annualized.
45
<PAGE> 49
BOND INCOME FUND
FUNDS IV Trust
Financial Highlights (unaudited)(continued)
For a share of beneficial interest outstanding throughout each period
<TABLE>
<CAPTION>
Six Months Ended Period Ended
December 31, 1995 June 30, 1995*
----------------- -----------------
Service Premium Service Premium
Class Class Class Class
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......................... $ 10.35 $10.35 $ 10.00 $ 10.00
------- ------ ------- -------
Income from Investment Operations:
New investment income................................... 0.29 0.29 0.52 0.52
Net realized and unrealized gain on securities.......... 0.40 0.40 0.35 0.35
------- ------ ------- -------
Total from Investment Operations........................ 0.69 0.69 0.87 0.87
------- ------ ------- -------
Less Destributions:
Dividends from net investment income.................... (0.29) (0.29) (0.52) (0.52)
------- ------ ------- -------
Net Asset Value, End of Period............................... $ 10.75 $10.75 $ 10.35 $ 10.35
======= ====== ======= =======
Total Return**............................................... 6.80% 6.80% 9.05% 9.05%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands)................ $29,760 $6 $12,977 $6
Ratios of Net Expenses to Average Net Assets+........... 0.91% 0.91% 0.96% 0.96%
Ratios of Expenses Before Effect of Waiverst+........... 1.00% 1.50% 1.11% 1.61%
Ratios of Net Investment Income to Average Net Assets+.. 5.51% 5.51% 6.21% 6.21%
Portfolio Turnover Rate................................. 76.67% 76.67% 149.36% 149.36%
<FN>
- -----------------------
* Fund commenced operations on August 26, 1994.
** Total return not annualized.
+ Annualized.
</TABLE>
46
<PAGE> 50
INTERMEDIATE BOND INCOME FUND
FUNDS IV Trust
Financial Highlights (unaudited)(continued)
For a share of beneficial interest outstanding throughout each period
<TABLE>
<CAPTION>
Six Months Ended Period Ended
December 31, 1995 June 30, 1995*
------------------ ------------------
Service Premium Service Premium
Class Class Class Class
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......................... $ 10.19 $10.19 $ 10.00 $ 10.00
-------- ------ -------- -------
Income from Investment Operations:
New investment income................................... 0.30 0.30 0.51 0.51
Net realized and unrealized gains on securities......... 0.20 0.20 0.19 0.19
-------- ------ -------- -------
Total from Investment Operations........................ 0.50 0.50 0.70 0.70
-------- ------ -------- -------
Less Destributions:
Dividends from net investment income.................... (0.30) (0.30) (0.51) (0.51)
-------- ------ --------- -------
Net Asset Value, End of Period............................... $ 10.39 $10.39 $ 10.19 $ 10.19
======== ====== ======== =======
Total Return**............................................... 5.02% 5.02% 7.26% 7.26%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands)................ $130,365 $6 $129,317 $6
Ratios of Net Expenses to Average Net Assets+........... 0.75% 0.75% 0.75% 0.75%
Ratios of Expenses Before Effect of Waiverst+........... 0.75% 1.25% 0.77% 1.27%
Ratios of Net Investment Income to Average Net Assets+.. 5.89% 5.89% 6.10% 6.10%
Portfolio Turnover Rate................................. 71.77% 71.77% 107.54% 107.54%
<FN>
- -----------------------
* Fund commenced operations on August 26, 1994.
** Total return not annualized.
+ Annualized.
</TABLE>
47
<PAGE> 51
CASH RESERVE MONEY MARKET FUND
FUNDS IV TRUST
Financial Highlights (unaudited)
For a share of beneficial interest outstanding throughout each period
<TABLE>
<CAPTION>
Six Months Ended Period Ended
December 31, 1995 June 30, 1995*
------------------ ------------------
Service Premium Service Premium
Class Class Class Class
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------ -------- ------
Income from Investment Operations:
Net investment income................................... 0.03 0.03 0.05 0.05
-------- ------ -------- ------
Less Destributions:
Dividends from net investment income.................... (0.03) (0.03) (0.05) (0.05)
-------- ------ --------- ------
Net Asset Value, End of Period............................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ====== ======== ======
Total Return**............................................... 2.80% 2.80% 4.74% 4.74%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands)................ $291,797 $6 $274,663 $6
Ratios of Net Expenses to Average Net Assets+........... 0.49% 0.49% 0.50% 0.50%
Ratios of Expenses Before Effect of Waiverst+........... 0.49% 0.99% 0.54% 1.04%
Ratios of Net Investment Income to Average Net Assets+.. 5.51% 5.51% 5.40% 5.40%
- -----------------------
* Fund commenced operations on August 19, 1994.
** Total return not annualized.
+ Annualized.
</TABLE>
48
<PAGE> 52
THE PILOT FUNDS' FINANCIAL HIGHLIGHTS. The tables set forth below
present financial information for the Pilot Class of Pilot Growth and Income
Fund and Pilot Short-Term Diversified Assets Fund. This information is derived
from The Pilot Funds' audited financial statements for the six months ended
February 29, 1996. The data should be read in conjunction with the audited
financial statements and related notes which are incorporated by reference in
the Statement of Additional Information related to this Combined Proxy
Statement/Prospectus. Financial information for The Pilot Funds for prior
periods (i) is contained in Prospectuses dated December 29, 1995 for Pilot
Growth and Income Fund and Pilot Short-Term Diversified Assets Fund, which
accompany this Combined Proxy Statement/Prospectus and are incorporated herein
by reference, and (ii) is incorporated by reference from the Annual
Reports to Shareholders for Pilot Growth and Income Fund and Pilot Short-Term
Diversified Assets Fund into the Statements of Additional Information dated
December 29, 1995 for Pilot Growth and Income Fund and Pilot Short-Term
Diversified Assets Fund, which are incorporated herein by reference. Pilot
Growth Fund and Pilot Diversified Bond Income Fund have not commenced operations
as of the date of this Combined Proxy Statement/Prospectus; accordingly,
financial information for these funds is not included.
49
<PAGE> 53
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Pilot Growth and Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 29, 1996 PERIOD ENDED AUGUST 31, 1995
---------------------------------- -----------------------------------
PILOT CLASS A CLASS B PILOT CLASS A CLASS B
SHARES SHARES SHARES SHARES(a) SHARES(b) SHARES(c)
-------- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 11.59 $11.58 $11.59 $ 10.00 $10.44 $10.08
-------- ------ ------ -------- ------ ------
Investment Activities
Net investment income............... 0.10 0.09 0.04 0.17 0.09 0.08
Net realized and unrealized gains
from investments 1.33 1.34 1.34 1.59 1.14 1.51
-------- ------ ------ -------- ------ ------
Total from Investment Activities.... 1.43 1.43 1.38 1.76 1.23 1.59
Distributions
From net investment income.......... (0.10) (0.09) (0.04) (0.17) (0.09) (0.08)
From net realized gains............. (0.28) (0.28) (0.28) -- -- --
-------- ------ ------ -------- ------ ------
Total distributions................. (0.38) (0.37) (0.32) (0.17) (0.09) (0.08)
-------- ------ ------ -------- ------ ------
Net Asset Value, End of Period.......... $ 12.64 $12.64 $12.65 $ 11.59 $11.58 $11.59
======== ====== ====== ======== ====== ======
Total Return(d)......................... 12.44% 12.38% 11.97% 17.72% 11.78% 15.85%
Ratios/Supplemental Data:
Net Assets at end of period (000)... $156,538 $1,763 $1,978 $109,423 $ 697 $ 661
Ratio of expense to average net
assets............................ 0.74%(e) 0.99%(e) 1.74%(e) 0.75%(e) 1.00%(e) 1.75%(e)
Ratio of net investment income to
average net assets................ 1.70%(c) 1.43%(e) 0.66%(e) 1.98%(e) 1.65%(e) 0.94%(e)
Ratio of expenses to average net
assets assuming no waiver or
expense reimbursement............. 1.03%(e) 1.27%(e) 2.02%(e) 1.15%(e) 1.40%(e) 2.15%(e)
Ratio of net investment income to
average net assets assuming no
waiver or expense reimbursement... 1.41%(c) 1.15%(e) 0.38%(e) 1.58%(e) 1.25%(e) 0.54%(e)
Portfolio turnover rate(f).......... 26.13% 26.13% 26.13% 28.00% 28.00% 28.00%
</TABLE>
- -------------
(a) Pilot Shares commenced activity November 7, 1994.
(b) Class A Shares commenced activity February 7, 1995.
(c) Class B Shares commenced activity November 11, 1994.
(d) Total return excludes sales charge of Class A Shares and Class B Shares,
would have been lower had certain expenses not been reduced during the
periods presented, and is not annualized.
(e) Annualized.
(f) Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing among the classes of shares issued.
50
<PAGE> 54
Pilot Short-Term Diversified Assets Fund
- -------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Six Months Ended February 29, 1996 Year Ended August 31, 1995
------------------------------------- ----------------------------------------
Pilot Administration Investor Pilot Administration Investor
Shares Shares Shares Shares Shares Shares
---------- -------------- -------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- ---------- -------- --------
Investment Activities
Net investment income ................ 0.0274 0.0262 0.0249 0.0554 0.0529 0.0504
Net realized gains from investment
transactions ....................... -- -- -- -- -- --
---------- -------- -------- ---------- -------- --------
Total from Investment Activities ..... 0.0274 0.0262 0.0249 0.0554 0.0529 0.0504
Distributions to shareholders ............ (0.0274) (0.0262) (0.0249) (0.0554) (0.0529) (0.0504)
---------- -------- -------- ---------- -------- --------
Net Asset Value, End of Period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ========== ======== ========
Total Return(c) .......................... 2.78% 2.65% 2.52% 5.68% 5.42% 5.15%
Ratios/Supplemental Data:
Net Assets at end of period (000) .... $1,276,403 $235,433 $38,330 $1,056,624 $231,688 $33,948
Ratio of expenses to average net
assets(d) .......................... 0.26%(e) 0.51%(e) 0.76%(e) 0.23% 0.48% 0.73%
Ratio of net investment income to
average net assets(d)............... 5.51%(e) 5.26%(e) 5.01%(e) 5.56% 5.22% 5.00%
Ratio of expenses to average net assets
assuming no waiver or expense
reimbursement(d).................... 0.30%(e) 0.55%(e) 0.80%(e) 0.24% 0.49% 0.74%
Ratio of net investment income to
average net assets assuming no
waiver or expense reimbursement(d).. 5.47%(e) 5.22%(e) 4.97%(e) 5.55% 5.21% 4.99%
</TABLE>
- --------------
(a) Pilot Investor Shares commenced offering during July 1992.
(b) Prior to June 1, 1994, Goldman Sachs Asset Management served the Portfolio
as investment advisor.
(c) Total return would have been lower had certain expenses not been reduced
during the periods presented and is not annualized.
(d) Does not reflect the fee which may be charged by Boatman's directly to its
customers' accounts at an annual rate nor to exceed 0.25% of the average
daily balance of Pilot Shares in the customers' account.
(e) Annualized.
51
<PAGE> 55
OTHER BUSINESS
The Board of Trustees of Funds IV Trust knows of no other business to be
brought before the Meeting. However, if any other matters come before the
Meeting, proxies which do not contain specific restrictions to the contrary will
be voted on such matters in accordance with the judgment of the persons named in
the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to Funds IV Trust in writing at
the address on the cover page of this Combined Proxy Statement/Prospectus or by
telephoning 1-800-557-3768.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE
REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
52
<PAGE> 56
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 21st day of May, 1996, by and between FUNDS IV Trust, a Delaware
business trust, with its principal place of business at 237 Park Avenue, New
York, New York 10017 ("Funds IV Trust"), and The Pilot Funds, a Massachusetts
business trust, with its principal place of business at 3435 Stelzer Road,
Columbus, Ohio 43219 ("The Pilot Funds").
The Pilot Funds consists of twelve separate series, four of which are
the subject of this Agreement and are set forth in the table below (hereinafter,
collectively the "Acquiring Funds" or individually the "Acquiring Fund"). Funds
IV Trust consists of eleven separate series, six of which are the subject of
this Agreement and are set forth in the table below (hereinafter, collectively
the "Acquired Funds" or individually the "Acquired Fund").
This Agreement governs the proposed issuance of shares of a specific
Acquiring Fund in exchange for all of the assets of the specific Acquired Fund
set forth opposite the name of that Acquiring Fund in the table below.
Acquiring Funds of The Pilot Funds Acquired Funds of Funds IV Trust
Pilot Growth Fund Aggressive Stock Appreciation Fund
Pilot Growth and Income Fund Stock Appreciation Fund
Pilot Growth and Income Fund Value Stock Appreciation Fund
Pilot Short-Term Diversified Assets Fund Cash Reserve Money Market Fund
Pilot Diversified Bond Income Fund Bond Income Fund
Pilot Diversified Bond Income Fund Intermediate Bond Income Fund
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368 (a)(1)(C) of
the United States Internal Revenue Code of 1986, as amended (the "Code"). Each
reorganization (a "Reorganization") will consist of the transfer of all or
substantially all of the assets of an Acquired Fund in exchange solely for
shares of beneficial interest, $.001 par value per share, of the Pilot Shares
class (the "Pilot Class") of the corresponding Acquiring Fund (the "Acquiring
Funds' Shares" or an "Acquiring Fund's Shares") and the assumption by the
Acquiring Fund of certain liabilities of the corresponding Acquired Fund and the
distribution, after the closing date provided in paragraph 3.1 (the "Closing
Date"), of the Acquiring Funds' Shares to the shareholders of the corresponding
Acquired Funds in liquidation of the Acquired Funds as provided herein, all upon
the terms and conditions hereinafter set forth in this Agreement. Shareholders
of an Acquired Fund's Service Class shall receive only shares of the
corresponding Acquiring Fund's Pilot Class.
WHEREAS, The Pilot Funds and Funds IV Trust are open-end, registered
investment companies of the management type and each Acquired Fund owns
securities which generally are assets of the character in which the
corresponding Acquiring Fund is permitted to invest;
<PAGE> 57
WHEREAS, both The Pilot Funds and Funds IV Trust are authorized to
issue shares of beneficial interest;
WHEREAS, the Board of Trustees of The Pilot Funds has determined that
the exchange of all or substantially all of the assets of each Acquired Fund for
the corresponding Acquiring Fund's Shares and the assumption of the liabilities
of the corresponding Acquired Fund is in the best interests of each Acquiring
Fund's shareholders and that the interests of the existing shareholders of each
Acquiring Fund would not be diluted as a result of this transaction; and
WHEREAS, the Board of Trustees of Funds IV Trust has determined that
the exchange of all of the assets and certain of the liabilities of each
Acquired Fund for the corresponding Acquiring Fund's Shares and the assumption
of such liabilities by the corresponding Acquiring Fund is in the best interests
of each Acquired Fund's shareholders and that the interests of the existing
shareholders of each Acquired Fund would not be diluted as a result of this
transaction.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS, ASSUMPTION OF LIABILITIES AND TERMINATION
1.1 Subject to the requisite approval of the shareholders of each
Acquired Fund and to the other terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, Funds IV Trust
shall transfer to The Pilot Funds, and The Pilot Funds shall acquire from Funds
IV Trust, at the Closing Date, all or substantially all of the Assets (as such
term is hereinafter defined) (i) of the Aggressive Stock Appreciation Fund in
exchange for that number of Shares of Pilot Growth Fund determined in accordance
with Section 2.1 hereof, and the assumption by the Pilot Growth Fund of the
Liabilities (as such term is hereinafter defined) of the Aggressive Stock
Appreciation Fund, (ii) of the Stock Appreciation Fund in exchange for that
number of Shares of Pilot Growth and Income Fund determined in accordance with
Section 2.1 hereof, and the assumption by the Pilot Growth and Income Fund of
the Liabilities of the Stock Appreciation Fund, (iii) of the Value Stock
Appreciation Fund in exchange for that number of Shares of Pilot Growth and
Income Fund determined in accordance with Section 2.1 hereof, and the assumption
by Pilot Growth and Income Fund of the Liabilities of Value Stock Appreciation,
(iv) of the Cash Reserve Money Market Fund in exchange for that number of Shares
of Pilot Short-Term Diversified Assets Fund determined in accordance with
Section 2.1 hereof, and the assumption by Pilot Short-Term Diversified Assets
Fund of the Liabilities of the Cash Reserve Money Market Fund, (v) of the Bond
Income Fund in exchange for that number of Shares of Pilot Diversified Bond
Income determined in accordance with Section 2.1 hereof, and the assumption by
Pilot Diversified Bond Income Fund of the Liabilities of the Bond Income Fund,
and (vi) of the Intermediate Bond Income Fund in exchange for that number of
Shares of Pilot Diversified Bond Income determined in accordance with Section
2.1 hereof, and the assumption by Pilot Diversified Bond Income Fund of the
Liabilities of the Intermediate Bond Income Fund. Such transactions shall take
place at the closing provided for in paragraph 3.1 (the "Closing").
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Funds IV Trust will (i) pay or cause to be paid to The Pilot Funds on
behalf of the appropriate Acquiring Fund any interest received on or after the
Closing Date with respect to the Assets of each Acquired Fund and (ii) transfer
to The Pilot Funds on behalf of the appropriate Acquiring Fund any
distributions, rights, stock dividends or other property received by Funds IV
Trust after the Closing Date as distributions on or with respect to the Assets
of each Acquired Fund. Any such interest, distributions, rights, stock dividends
or other property so paid or transferred, or received directly by The Pilot
Funds, shall be allocated by The Pilot Funds to the account of the Acquiring
Fund that acquired the Assets to which such property relates.
1.2 The Assets of the Acquired Funds to be acquired by the
Acquiring Funds (the "Assets") shall consist of all property, including without
limitation, all cash, securities, commodities and futures interests and
dividends or interest receivables which are owned by the Acquired Funds on the
Closing Date, but shall not include corporate books, records or minutes of the
Acquired Funds. Funds IV Trust has provided The Pilot Funds with a list of
all the Assets of each of the Acquired Funds as of the date of execution of this
Agreement.
1.3 The Acquired Funds will endeavor to discharge all of their known
liabilities and obligations prior to the Closing Date. Each Acquiring Fund shall
assume all liabilities, expenses, costs, charges and reserves reflected on
unaudited Statements of Assets and Liabilities of the corresponding Acquired
Funds prepared by Furman Selz LLC ("Furman Selz"), as administrator of the
Acquired Funds, as of the Valuation Date (as defined in paragraph 2.1), in
accordance with generally accepted accounting principles consistently applied
from the prior audited period. The Acquiring Funds shall assume only those
liabilities of the Acquired Funds reflected in those unaudited statements of
assets and liabilities and shall not assume any other liabilities, whether
absolute or contingent (the "Liabilities").
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1.4 As provided in paragraph 3.4, as soon after the Closing Date as is
practicable (the "Liquidation Date"), Funds IV Trust will effect the liquidation
of each Acquired Fund in the manner provided in its Trust Instrument and in
accordance with applicable law, and on and after the Closing Date it shall not
conduct any business on behalf of the Acquired Funds except in connection with
their liquidation and termination. Each Acquired Fund shall distribute pro rata
to its shareholders of record determined as of the close of business on the
Closing Date (the "Acquired Fund's Shareholders") the Acquiring Fund's Shares
received by each Acquired Fund pursuant to paragraph 1.1. Shareholders of an
Acquired Fund's Service Class shall receive only shares of the corresponding
Acquiring Fund's Pilot Class. As of the date hereof all of the outstanding
shares of beneficial interest in each Acquired Fund's Premium Class are held
beneficially and of record by Furman Selz and as of the Closing Date there will
be no outstanding shares of beneficial interest in any Acquired Fund's Premium
Class. Such liquidation and distribution will be accomplished by the transfer of
the Acquiring Fund's Shares then credited to the account of such Acquired Fund
on the books of the Acquiring Fund to open accounts on the share records of the
Acquiring Fund in the name of the Acquired Fund's Shareholders and representing
the respective pro rata number and class of the Acquiring Fund's Shares due such
shareholders. All issued and outstanding shares of each Acquired Fund will
simultaneously be canceled on the books of the Acquired Fund, although after the
closing any share certificates representing interests in an Acquired Fund will
be deemed to represent the number of the applicable Acquiring Fund's Shares as
may be determined in accordance with Section 2.3. The Pilot Funds shall not
issue certificates representing the Acquiring Funds' Shares in connection with
such exchange.
1.5 Ownership of each Acquiring Fund's Shares will be shown on the
books of each Acquiring Fund's transfer agent. Shares of each Acquiring Fund
will be issued in the manner described in such Acquiring Funds' current
prospectus and statement of additional information.
1.6 Any transfer taxes payable upon issuance of each Acquiring Fund's
Shares in a name other than the registered holder of the Acquired Fund's shares
on the books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund's
Shares are to be issued and transferred.
1.7 Any reporting responsibility of the Acquired Funds is and shall
remain the responsibility of Funds IV Trust up to and including the Closing Date
and such later dates on which Funds IV Trust is dissolved and deregistered.
2. VALUATION
2.1 The value of the Assets and Liabilities of each Acquired Fund shall
be the value of such assets, less liabilities, computed on the Closing Date,
using the valuation procedures (including applicable times) set forth in The
Pilot Funds' Trust Agreement and then current prospectus or statement of
additional information applicable to the Pilot Class of the applicable Acquiring
Fund.
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2.2 The net asset value of each Acquiring Fund's Shares shall be the
net asset value per share of the Pilot Class computed on the Closing Date, using
the valuation procedures (including applicable times) set forth in The Pilot
Funds' Trust Agreement and then current prospectus or statement of additional
information applicable to the Pilot Class of such Acquiring Fund.
2.3 The number of an Acquiring Fund's Shares to be issued (including
fractional shares, if any) in exchange for the net assets of each Acquired Fund
and the assumption of its liabilities shall be determined by dividing the value
of the net assets of the Acquired Fund determined by using the same valuation
procedures referred to in paragraph 2.1 by the net asset value of an Acquiring
Fund's Share determined in accordance with paragraph 2.2.
2.4 All computations of value shall be made by BISYS Fund Services,
Inc. in accordance with its regular practices as custodian for The Pilot Funds.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be the next Friday that is a full business
day following satisfaction of all of the conditions set forth in Section 6, 7
and 8 of this Agreement (other than those conditions which may by their terms be
satisfied only at the Closing), or such later date as the parties may agree in
writing. All acts taking place at the Closing shall be deemed to take place
simultaneously on the Closing Date at 3 p.m. (Central time) for each
Reorganization, except that all acts relating to or in connection with the
Reorganization of Cash Reserve Money Market Fund and Pilot Short-Term
Diversified Assets Fund shall be deemed to take place simultaneously on the
Closing Date at 2 p.m. (Central time), all unless otherwise provided. The
Closing shall be held at such time on the Closing Date at the offices of
Goodwin, Procter & Hoar LLP in Boston, Massachusetts or at such other time(s)
and/or place as the parties may agree.
3.2 Bank IV, National Association, as custodian for Funds IV Trust (the
"Custodian"), shall deliver at the Closing a certificate of an authorized
officer stating that: (a) each Acquired Fund's portfolio securities, cash and
any other assets shall have been presented for examination to the corresponding
Acquiring Fund prior to the Closing Date and shall have been delivered in proper
form to the corresponding Acquiring Fund on the Closing Date and (b) all
necessary taxes including all applicable federal and state stock transfer
stamps, if any, shall have been paid, or provision for payment shall have been
made, in conjunction with the delivery of portfolio securities.
3.3 In the event that on the Closing Date (a) the New York Stock
Exchange or another primary trading market for portfolio securities of an
Acquiring Fund or an Acquired Fund shall be closed to trading or trading thereon
shall be restricted or (b) trading or the reporting of trading on said Exchange
or elsewhere shall be disrupted so that accurate appraisal of the value of the
net assets of an Acquiring Fund or an Acquired Fund is impracticable, the
Closing Date with respect to the Reorganization involving such Acquired Fund or
Acquiring Fund shall be postponed until the first business day after the day
when trading shall have been fully resumed and reporting shall have been
restored.
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3.4 Funds IV Trust shall cause Furman Selz, as transfer agent for Funds
IV Trust, to deliver at the Closing a certificate of an authorized officer
stating that its records contain the names and addresses of each Acquired Fund's
Shareholders and the number, class and percentage ownership of outstanding
shares owned by each such shareholder immediately prior to the Closing. The
Pilot Funds shall issue and deliver a confirmation evidencing each Acquiring
Fund's Shares to be credited on the Closing Date to the Secretary of Funds IV
Trust, or provide evidence satisfactory to Funds IV Trust that such Acquiring
Fund's Shares have been credited to each Acquired Fund's accounts on the books
of the relevant Acquiring Fund. At the Closing each party shall deliver to the
other such bills of sale, checks, assignments, share certificates, if any,
receipts or other documents as such other party or its counsel may reasonably
request.
4. REPRESENTATIONS AND WARRANTIES
4.1 Funds IV Trust, on behalf of each of the Acquired Funds, represents
and warrants to The Pilot Funds, on behalf of each of the Acquiring Funds, as
follows:
(a) Funds IV Trust is a voluntary association with
transferable shares of the type commonly referred to as a Delaware business
trust, duly organized, validly existing under the laws of the State of Delaware;
(b) Funds IV Trust is a registered investment company
classified as a management company of the open-end type, and its registration
with the Securities and Exchange Commission (the "Commission") as an investment
company under the 1940 Act is in full force and effect;
(c) The current prospectus and statement of additional
information of Funds IV Trust with respect to each of the Acquired Funds conform
in all material respects to the applicable requirements of the Securities Act of
1933, as amended (the "1933 Act"), and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
(d) Funds IV Trust is not, and the execution, delivery and
performance of this Agreement will not result, in material violation of its
Trust Instrument or By-Laws, as each may have been amended to the date hereof or
of any agreement, indenture, instrument, contract, lease or other undertaking
with respect to the Acquired Funds to which Funds IV Trust is a party or by
which it or any of its series is bound;
(e) Neither Funds IV Trust nor any of its series has any
material contracts or other commitments which will be terminated with liability
to Funds IV Trust or any series thereof prior to the Closing Date;
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(f) Except as otherwise disclosed in writing to and accepted by The
Pilot Funds, no litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or to its knowledge
threatened against Funds IV Trust or any of its series with respect to an
Acquired Fund or any of the Acquired Fund's properties or assets which if
adversely determined would materially and adversely affect its financial
condition or the conduct of its business. Funds IV Trust knows of no facts which
might form the basis for the institution of such proceedings and is not a party
to or subject to the provisions of any order, decree or judgment of any court or
governmental body which materially or adversely affects its business or its
ability to consummate the transactions herein contemplated;
(g) The Statements of Assets and Liabilities of each of the
Acquired Funds as of June 30, 1995 (collectively, the "1995 Statements") have
been audited by Price Waterhouse LLP, independent public accountants, and are
and will be in accordance with generally accepted accounting principles
consistently applied, and the 1995 Statements (copies of which have been
furnished to The Pilot Funds) fairly and accurately reflect the financial
condition of each Acquired Fund as of such dates, and there are no known
contingent liabilities of the Acquired Funds as of such dates not disclosed
therein;
(h) Since June 30, 1995 there has not been any material
adverse change with respect to the Acquired Funds' financial condition, assets,
liabilities or business other than changes occurring in the ordinary course of
business, or any incurrence by the Acquired Funds of indebtedness maturing more
than one year from the date that such indebtedness was incurred, provided that
for the purposes of this subparagraph (h), a decline in net asset value per
share of any of the Acquired Funds shall not constitute a material adverse
change;
(i) At the Closing Date, all federal and other tax returns and
reports of the Acquired Funds required by law to have been filed by such dates
shall have been filed, and all federal and other taxes shall have been paid so
far as due, or provision shall have been made for the payment thereof and, to
the best of Funds IV Trust's knowledge, no such return is currently under audit
and no assessment has been asserted with respect to such returns;
(j) For each fiscal year of its operation, each of the
Acquired Funds has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company;
(k) All issued and outstanding shares of each of the Acquired
Funds are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable with no personal liability attaching
to the ownership thereof (recognizing that, under Delaware law, each Acquired
Fund's Shareholders could, under certain circumstances, be held personally
liable for obligations of the respective Acquired Fund) by Funds IV Trust. All
of the issued and outstanding shares of each Acquired Fund will, at the time of
Closing, be held by the persons and in the amounts set forth in the records of
the transfer agent as provided in paragraph 3.4. The Acquired Funds do not have
outstanding any options, warrants or other rights to subscribe for or
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purchase any of the Acquired Funds' Shares, nor is there outstanding any
security convertible into any of the Acquired Funds' Shares;
(l) At the Closing Date, Funds IV Trust, on behalf of the
Acquired Funds, will have good and marketable title to the Assets and full
right, power and authority to sell, assign, transfer and deliver such Assets
hereunder and, upon delivery and payment for such Assets, The Pilot Funds, on
behalf of the Acquiring Funds, will acquire good and marketable title thereto,
subject to no restrictions on the full transfer thereof, including such
restrictions as might arise under the 1933 Act, other than as disclosed to the
Acquiring Funds;
(m) The execution, delivery and performance of this Agreement
has been duly authorized as of the date hereof by all necessary action on the
part of Funds IV Trust's Board of Trustees, and, subject to the receipt of any
necessary exemptive relief or no-action assurances requested from the Commission
or its Staff with respect to Section 17(a) and 17(d) of the 1940 Act and Rule
17d-1 thereunder, this Agreement will constitute a valid and binding obligation
of Funds IV Trust on behalf of each of the respective Acquired Funds,
enforceable in accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' fights and to general principles of equity;
(n) The information to be furnished by Funds IV Trust on
behalf of the Acquired Funds for use in no-action requests, applications for
orders, registration statements, proxy materials and other documents which may
be necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with federal securities and other laws and regulations thereunder
applicable thereto;
(o) The proxy statement of Funds IV Trust (the "Proxy
Statement") to be included in the Registration Statement referred to in
paragraph 5.7 (only insofar as it relates to Funds IV Trust and the Acquired
Funds) will, on the effective date of the Registration Statement and on the
Closing Date, (i) comply in all material respects with the applicable provisions
of the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934
Act"), and the 1940 Act and the regulations thereunder, and (ii) not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not materially misleading;
(p) Funds IV Trust has no authorized series other than the
Acquired Funds, the Short-Term Treasury Income Fund, the U.S. Treasury Reserve
Money Market Fund, the International Equity Fund, the Kansas Intermediate Tax
Exempt Fund and the U.S. Intermediate Tax Exempt Fund and none of the U.S.
Treasury Reserve Money Market Fund, the International Equity Fund, the Kansas
Intermediate Tax Exempt Fund or the U.S. Intermediate Tax Exempt Fund has had
any operations or has any assets;
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(q) The Acquired Funds have no authorized classes other than
the Service Class and the Premium Class and all of the issued and outstanding
shares of the Premium Classes are, as of the date of this Agreement, held by
Furman Selz.
4.2 The Pilot Funds, on behalf of each of the Acquiring Funds,
represents and warrants to Funds IV Trust, on behalf of each of the Acquired
Funds, as follows:
(a) The Pilot Funds is a voluntary association with
transferable shares of the type commonly referred to as a Massachusetts business
trust, duly organized and validly existing under the laws of the Commonwealth of
Massachusetts;
(b) The Pilot Funds is registered as an investment company
classified as a management company of the open-end type, and its registration
with the Commission as an investment company under the 1940 Act is in full force
and effect;
(c) The current prospectus and statement of additional
information of The Pilot Funds with respect to each of the Acquiring Funds
conform in all material respects to the applicable requirements of the 1933 Act
and the 1940 Act and the rules and regulations of the Commission thereunder and
do not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading;
(d) The Pilot Funds is not, and the execution, delivery and
performance of this Agreement will not result, in material violation of its
Trust Agreement or By-Laws, as each may have been amended to the date hereof or
of any agreement, indenture, instrument, contract, lease or other undertaking
with respect to the Acquiring Funds to which The Pilot Funds is a party or by
which it is bound;
(e) Except as otherwise disclosed in writing to and accepted
by Funds IV Trust, no litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or threatened
against The Pilot Funds with respect to the Acquiring Funds or any of the
Acquiring Funds' properties or assets which if adversely determined would
materially and adversely affect their financial condition or the conduct of
their business. The Pilot Funds knows of no facts which might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability to consummate
the transactions contemplated herein;
(f) The Statement of Assets and Liabilities of Pilot Growth
and Income Fund for the year ended August 31, 1995 and the Statements of
Assets and Liabilities of Pilot Short-Term Diversified Assets Fund for the
fiscal years ended August 31, 1995 and August 31, 1994, have been audited by
Arthur Andersen LLP, independent public accountants, and are in accordance with
generally accepted accounting principles consistently applied, and such
statements (copies of which have been furnished to Funds IV Trust), fairly and
accurately reflect the financial
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condition of each Acquiring Fund as of such dates, and there are no known
contingent liabilities of the Acquiring Funds as of such dates not disclosed
therein;
(g) Since August 31, 1995, there has not been any material
adverse change with respect to the Acquiring Funds' financial condition, assets,
liabilities or business other than changes occurring in the ordinary course of
business, or any incurrence by the Acquiring Funds of indebtedness maturing more
than one year from the date that such indebtedness was incurred, except as
otherwise disclosed to and accepted by Funds IV Trust, provided that for the
purposes of this subparagraph (g), a decline in net asset value per share of any
of the Acquiring Funds shall not constitute a material adverse change;
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Funds required by law to have been filed by such dates
shall have been filed, and all federal and other taxes shall have been paid so
far as due, or provision shall have been made for the payment thereof and, to
the best of The Pilot Funds' knowledge, no such return is currently under audit
and no assessment has been asserted with respect to such returns;
(i) For each of the last two fiscal years of its operation,
Pilot Short-Term Diversified Assets Fund and for the last fiscal year of its
operations, Pilot Growth and Income Fund, has met the requirements of Subchapter
M of the Code for qualification and treatment as a regulated investment company;
(j) All issued and outstanding shares of each of the Acquiring
Funds are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable with no personal liability attaching
to ownership thereof (recognizing that, under Massachusetts law, each Acquiring
Fund's Shareholders could, under certain circumstances, be held personally
liable for obligations of the respective Acquiring Fund) by The Pilot Funds. The
Acquiring Funds do not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquiring Funds' Shares, nor is there
outstanding any security convertible into any of the Acquiring Funds' Shares;
(k) The execution, delivery and performance of this Agreement
has been duly authorized as of the date hereof by all necessary action on the
part of The Pilot Funds' Board of Trustees, and, subject to receipt of any
necessary exemptive relief or no-action assurances requested from the Commission
or its Staff with respect to Section 17(a) and 17(d) of the 1940 Act and Rule
17d-1 thereunder, this Agreement will constitute a valid and binding obligation
of The Pilot Funds on behalf of each of the respective Acquiring Funds,
enforceable in accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general principles of equity;
(l) The information to be furnished by The Pilot Funds for use
in no-action requests, application for orders, registration statements, proxy
materials and other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate
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and complete in all material respects and shall comply in all material respects
with federal securities and other laws and regulations applicable thereto; and
(m) The Proxy Statement (only insofar as it relates to The
Pilot Funds and the Acquiring Funds) will, on the effective date of the
Registration Statement and on the Closing Date, (i) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act and the
1940 Act and the regulations thereunder, and (ii) not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not materially misleading.
5. COVENANTS OF THE PILOT FUNDS AND FUNDS IV TRUST
5.1 The Pilot Funds and Funds IV Trust will operate the businesses of
the Acquiring Funds and the Acquired Funds, respectively, in the ordinary course
between the date hereof and the Closing Date, it being understood that such
ordinary course of business will include the declaration and payment of
customary dividends and distributions.
5.2 Funds IV Trust will call a meeting of each of the Acquired Funds'
shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 Funds IV Trust covenants that each Acquiring Fund's Shares to be
issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this Agreement.
5.4 Funds IV Trust will assist The Pilot Funds in obtaining such
information as The Pilot Funds reasonably requests concerning the beneficial
ownership of each of the Acquired Funds' shares.
5.5 Subject to the provisions of this Agreement, The Pilot Funds and
Funds IV Trust each will take, or cause to be taken, all action, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.
5.6 As promptly as practicable, but in any case within sixty days after
the Closing Date, Funds IV Trust shall furnish The Pilot Funds, in such form as
is reasonably satisfactory to The Pilot Funds, statements of the earnings and
profits of each Acquired Fund for federal income tax purposes which will be
carried over to each respective Acquiring Fund as a result of Section 381 of the
Code, and which will be certified by Funds IV Trust's President and its
Treasurer.
5.7 Funds IV Trust will provide The Pilot Funds with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement referred to in paragraph 4.1(o), all to
be included in a Registration Statement on Form N-14 of
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The Pilot Funds (the "Registration Statement"), in compliance with the 1933 Act,
the 1934 Act and the 1940 Act, in connection with the meeting of the Acquired
Funds' Shareholders to consider approval of this Agreement and the transactions
contemplated herein.
5.8 The Pilot Funds, on behalf of each of the Acquiring Funds, agrees
to use all reasonable efforts to obtain the approvals and authorizations
required by the 1933 Act, the 1940 Act and such of the state Blue Sky or
securities laws as it may deem appropriate in order to continue its operations
after the Closing Date.
5.9 Funds IV Trust will cause the Statements of Assets and Liabilities
of each of the Acquired Funds for the period from July 1, 1995 to June 30, 1996
(the "1996 Statements") to be prepared and to be audited by Price Waterhouse
LLP, independent accountants, in accordance with generally accepted accounting
principles, applied consistently, including consistently with the 1995
Statements. Within two (2) business days after receipt thereof, Funds IV Trust
will deliver to The Pilot Funds (a) copies of the 1996 Statements, together with
the report of Price Waterhouse LLP with respect thereto and (b) a certificate
executed by its President or Vice President and its Treasurer or Assistant
Treasurer, in form and substance satisfactory to The Pilot Funds and dated as of
the date of the report with respect to the 1996 Statements, to the effect that
(i) the 1996 Statements have been prepared and have been audited by Price
Waterhouse LLP, independent accountants, in accordance with generally accepted
accounting standards, applied consistently, including consistently with the 1995
Statements, (ii) the 1996 Statements fairly and accurately reflect the financial
condition of each Acquired Fund as of June 30, 1996 and (iii) there are no known
contingent liabilities of any Acquired Fund as of such dates not disclosed
therein.
5.10 Subject to the satisfaction of the condition set forth in Section
8.7 of this Agreement, at or immediately prior to the Closing Boatmen's Trust
Company shall pay each Acquired Fund the aggregate amount of all unamortized
organizational costs and expenses of such Acquired Fund outstanding as of the
Closing Date.
5.11 From and after the date of this Agreement, Funds IV Trust will not
issue any additional shares of the Premium Class of any Acquired Fund. As
contemplated by Section 1.4, each Acquired Fund shall redeem all of its shares
of the Premium Class held by Furman Selz immediately prior to the Closing with
respect to such Acquired Fund.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF FUNDS IV TRUST
The obligations of Funds IV Trust to consummate the transactions
provided for herein shall be subject, at its election, to the performance by The
Pilot Funds of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:
6.1 All representations and warranties of The Pilot Funds contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be
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affected by the transactions contemplated by this Agreement, as of the Closing
Date with the same force and effect as if made on and as of the Closing Date;
6.2 The Pilot Funds shall have delivered to Funds IV Trust a
certificate executed in its name by its President or the President and in
Treasurer or Assistant Treasurer, in a form reasonably satisfactory to Funds IV
Trust and dated as of the Closing Date, to the effect that the representations
and warranties of The Pilot Funds made in this Agreement are true and correct at
and as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement and as to such other matters as Funds IV Trust
shall reasonably request; and
6.3 Funds IV Trust shall have received on the Closing Date a favorable
opinion from Goodwin, Procter & Hoar LLP, counsel to The Pilot Funds, dated as
of be Closing Date, in a form reasonably satisfactory to Baker & McKenzie,
counsel to Funds IV Trust, that:
(a) The Pilot Funds is a voluntary association with
transferable shares of the type commonly referred to as a Massachusetts business
trust organized pursuant to its Trust Agreement and validly existing under the
laws of the Commonwealth of Massachusetts with legal power to own all of its
properties and assets and to carry on its business, including that of each
Acquiring Fund, as presently conducted.
(b) The Agreement has been duly authorized, executed and
delivered by The Pilot Funds on behalf of the Acquiring Funds and, assuming that
the Registration Statement complies with the 1933 Act, the 1934 Act and the
rules and regulations thereunder, is a valid and binding obligation of The Pilot
Funds enforceable against The Pilot Funds in accordance with its terms, subject
as to enforcement to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights generally and to general
principles of equity.
(c) The Acquiring Funds' Shares to be issued and delivered to
Funds IV Trust, which Funds IV Trust will thereafter transfer to the
shareholders of the corresponding Acquired Funds, all as provided by the
Agreement, are duly authorized and upon such delivery will be validly issued and
outstanding and fully paid and nonassessable by The Pilot Funds, and no
shareholder of The Pilot Funds has any preemptive right to subscription or
purchase in respect thereof.
(d) The execution and delivery of the Agreement did not, and
the consummation of the transactions contemplated therein will not, violate The
Pilot Funds' Trust Agreement or By-Laws, or any material provision of any
material agreement known to such counsel to which The Pilot Funds is a party or
by which it is bound with respect to the Acquiring Funds or, to such counsel's
knowledge, result in the acceleration of any obligation or the imposition of any
penalty, under any material agreement, judgment or decree to which The Pilot
Funds is a party or by which it is bound with respect to the Acquiring Funds.
(e) No consent, approval, authorization or order of any court
or governmental authority is required for the consummation by The Pilot Funds of
the transactions contemplated
13
<PAGE> 69
in the Agreement, except such as have been obtained under the 1933 Act, the 1934
Act, and be 1940 Act, and such as may be required under state securities laws.
(f) The descriptions in the Proxy Statement of statutes, legal
and governmental proceedings and contracts and other documents, if any, only
insofar as they relate to The Pilot Funds or each Acquiring Fund, are accurate
and fairly present the information required to be shown.
(g) The Registration Statement has become effective under the
1933 Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or contemplated under the
1933 Act.
(h) To such counsel's knowledge (A) no legal or governmental
proceedings existing on or before the date of mailing the Proxy Statement, only
insofar as they relate to The Pilot Funds or the Acquiring Funds, are required
to be described in the Proxy Statement which are not described as required and
(B) there are no contracts or documents, only insofar as they relate to The
Pilot Funds or the Acquiring Funds, of a character required to be described in
the Proxy Statement to be as exhibits to the Registration Statement which are
not described or filed as required.
(i) The Pilot Funds is a duly registered investment company
and, to such counsel's knowledge, its registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(j) To such counsel's knowledge (A) no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to The Pilot Funds or
any of its properties or assets and (B) The Pilot Funds is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business.
6.4 The Trustees of Funds IV Trust who are not "interested persons"
(within the meaning of the 1940 Act) of Funds IV Trust shall have received
evidence reasonably satisfactory to them that, with respect to potential claims
relating to their service as Trustees of Funds IV Trust prior to and including
the Closing Date, they will be covered for a period of six (6) years following
the Closing Date by directors and officers insurance (or comparable
indemnification or contractual protection) substantially equivalent in scope to
the director and officers insurance coverage provided to them with respect to
such matters as of the date of this Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PILOT FUNDS
The obligations of The Pilot Funds to complete the transactions
provided for herein shall be subject, at its election, to the performance by
Funds IV Trust of all the obligations to be
14
<PAGE> 70
performed by it hereunder on or before the Closing Date and, in addition
thereto, the Following conditions:
7.1 All representations and warranties of Funds IV Trust contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date;
7.2 Funds IV Trust shall have delivered to The Pilot Funds the 1996
Statements and related report and certificate as and when contemplated by
Section 5.9 and statements of assets and liabilities of each of the Acquired
Funds together with lists of each Acquired Fund's portfolio securities showing
the tax costs of such securities by lot and the holding periods of such
securities, as of the Closing Date, certified by the Treasurer or Assistant
Treasurer of Funds IV Trust;
7.3 Funds IV Trust shall have delivered to The Pilot Funds on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to The Pilot Funds and dated as of the Closing Date, to the effect
that the representations and warranties of Funds IV Trust made in this Agreement
and in the certificate contemplated by Section 5.9 are true and correct at and
as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as The Pilot Funds
shall reasonably request;
7.4 The Pilot Funds shall have received on the Closing Date a favorable
opinion of Baker & McKenzie, counsel to Funds IV Trust, in a form satisfactory
to Goodwin, Procter & Hoar LLP, counsel to The Pilot Funds, that:
(a) Funds IV Trust is a voluntary association with
transferable shares of the type commonly referred to as a Delaware business
trust organized pursuant to its Master Trust Agreement and validly existing and
in good standing under the laws of the State of Delaware with legal power to own
all of its properties and assets and to carry on its business, including that of
each Acquired Fund, as presently conducted.
(b) The Agreement has been duly authorized, executed and
delivered by Funds IV Trust on behalf of the Acquired Funds and, assuming that
the Registration Statement complies with the 1933 Act, the 1934 Act and the
rules and regulations thereunder, is a valid and binding obligation of Funds IV
Trust enforceable against Funds IV Trust in accordance with its terms, subject
as to enforcement to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights generally and to general
principles of equity.
(c) The execution and delivery of the Agreement did not, and
the consummation of the transactions contemplated therein will not, violate
Funds IV Trust's Trust Instrument or By-Laws, as each may have been amended to
the date hereof, or any material provision of any material agreement known to
such counsel to which Funds IV Trust is a party or by which it is bound with
respect to the Acquired Funds or, to such counsel's knowledge, result in the
15
<PAGE> 71
acceleration of any obligation or the imposition of any penalty, under any
material agreement, judgment, or decree to which Funds IV Trust is a party or by
which it is bound with respect to the Acquired Funds.
(d) No consent, approval, authorization or order of any court
or governmental authority is required for the consummation by Funds IV Trust of
the transactions contemplated in the Agreement, except such as have been
obtained under the 1933 Act, the 1934 Act, and the 1940 Act, and such as may be
required under state securities laws.
(e) The descriptions in the Proxy Statement of statutes, legal
and governmental proceedings and contracts and other documents, if any, only
insofar as they relate to Funds IV Trust or each acquired Fund, are accurate and
fairly present the information required to be shown.
(f) To such counsel's knowledge (A) no legal or governmental
proceedings existing on or before the date of mailing the Proxy Statement, only
insofar as they relate to Funds IV Trust or the Acquired Funds, are required to
be described in the Proxy Statement which are not described as required and (B)
there are no contracts or documents, only insofar as they relate to Funds IV
Trust or the Acquired Funds, of a character required to be described in the
Proxy Statement or to be filed as exhibits to the Registration Statement which
are not described and filed as required.
(g) Funds IV Trust is a duly registered investment company
and, to such counsel's knowledge, its registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(h) To such counsel's knowledge (A) no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to Funds IV Trust or any
of its properties or assets and (B) Funds IV Trust is not a party to or subject
to the provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PILOT
FUNDS AND FUNDS IV TRUST
If any of the conditions set forth below have not been satisfied on or
before the Closing Date with respect to Funds IV Trust or The Pilot Funds, the
other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement; provided, however,
that if the conditions set forth below have been satisfied for one or more of
the Reorganizations contemplated herein, the parties shall be required to
consummate the Reorganizations for which such conditions have been satisfied.
8.1 The Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of Funds IV Trust's Trust
Instrument and the 1940 Act and certified copies
16
<PAGE> 72
of the resolutions evidencing such approval shall have been delivered to The
Pilot Funds. Notwithstanding anything herein to the contrary, neither The Pilot
Funds nor Funds IV Trust may waive the conditions set forth in this paragraph
8.1;
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.3 (a) The parties shall have received (i) an Order from the
Commission on an Application Pursuant to Section 17(b) of the 1940 Act for an
Order Exempting Proposed Transactions from Section 17(a) of the Act and pursuant
to Section 17(d) of the Act and Rule 17d-1 thereunder or, alternatively, (ii) an
opinion of counsel reasonably satisfactory to all parties that such an order is
not required;
(b) All consents of other parties and all other consents,
orders and permits of federal, state and local regulatory authorities (including
those of the Commission and of state Blue Sky and securities authorities,
including "no-action" positions of and exemptive orders from such federal and
state authorities) deemed necessary by The Pilot Funds or Funds IV Trust to
permit consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse effect
on the assets or properties of The Pilot Funds or Funds IV Trust, provided that
either party hereto may for itself waive any of such conditions;
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued, and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;
8.5 Except to the extent prohibited by Rule 19b-1 promulgated under the
1940 Act, each Acquired Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Acquired Fund's Shareholders all of the Acquired Fund's investment
company taxable income for all taxable years ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all of
its net capital gain realized in all taxable years ending on or prior to the
Closing Date (after reduction for any capital loss carry forward);
8.6 The parties shall have received a favorable opinion of Goodwin,
Procter & Hoar LLP, addressed to The Pilot Funds and Funds IV Trust,
substantially to the effect that for federal income tax purposes:
(a) The transfer of all or substantially all of the Acquired
Fund's assets in exchange solely for the corresponding Acquiring Fund's Shares
and the assumption by each Acquiring Fund of certain identified liabilities of
the corresponding Acquired Fund will constitute a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Code, and The Pilot Funds
17
<PAGE> 73
and Funds IV Trust are each a "party to a reorganization" within the meaning of
Section 368(b) of the Code;
(b) No gain or loss will be recognized by an Acquired Fund
upon the transfer of the Acquired Fund's Assets to the corresponding Acquiring
Fund in exchange for the Acquiring Fund's Shares and the assumption by the
Acquiring Fund of certain identified liabilities of the Acquired Fund or upon
the distribution (whether actual or constructive) of the Acquiring Fund's Shares
to the corresponding Acquired Fund's Shareholders in exchange for their shares
of the Acquired Fund;
(c) The tax basis of each Acquired Fund's assets acquired by
an Acquiring Fund will be the same as the tax basis of such assets to the
Acquired Fund immediately prior to the Reorganization, and the holding period of
the assets of each Acquired Fund in the hands of the corresponding Acquiring
Fund will include the period during which those assets were held by the Acquired
Fund;
(d) No gain or loss will be recognized by an Acquiring Fund
upon the receipt of the assets of an Acquired Fund solely in exchange for the
corresponding Acquiring Fund's Shares and the assumption by the Acquiring Fund
of certain identified liabilities of the Acquired Fund;
(e) No gain or loss will be recognized by shareholders of any
Acquired Fund upon the issuance of the corresponding Acquiring Fund's Shares to
such shareholders; and
(f) The aggregate tax basis for the Acquiring Fund's Shares
received by each shareholder of each Acquired Fund pursuant to the
Reorganization will be the same as the aggregate tax basis of the Acquired
Fund's Shares held by such shareholder immediately prior to the Reorganization,
and the holding period of the Acquiring Fund's Shares to be received by each
shareholder of each Acquired Fund will include the period during which the
Acquired Fund's Shares exchanged therefor were held by such shareholder
(provided that the Acquired Fund's Shares were held as capital assets on the
date of the Reorganization).
Notwithstanding anything herein to the contrary, neither The Pilot
Funds nor Funds IV Trust may waive the conditions set forth in this paragraph
8.6 unless the Board of Trustees of either The Pilot Funds or Funds IV Trust
(including the Trustees who are not "interested persons" thereof), shall have
determined that the waiver thereof would not materially affect the shareholders
of any Acquired Fund or Acquiring Fund.
8.7 Through the Closing Date, Funds IV Trust shall continue to amortize
all organizational costs and expenses of Funds IV Trust that have previously
been capitalized, all in accordance with past practices and in accordance with
the amortization schedule in effect on December 31, 1995.
18
<PAGE> 74
9. INDEMNIFICATION
9.1 Each Acquired Fund will indemnify and hold harmless the relevant
Acquiring Fund, its trustees and its officers (for purposes of this paragraph
9.1, the "Indemnified Parties") against any and all expenses, losses, claims,
damages and liabilities at any time imposed upon or reasonably incurred by any
one or more of the Indemnified Parities in connection with, arising out of, or
resulting from any claim, action, suit or proceeding in which any one or more of
the Indemnified Parties may be involved or with which any one or more of the
Indemnified Parties may be threatened by reason of any untrue statement or
alleged untrue statement of a material fact relating to the Acquired Fund
contained in the Registration Statement, the Prospectus or the Proxy Statement
or any amendment or supplement to any of the foregoing, or arising out of or
based upon the omission or alleged omission to state in any of the foregoing a
material fact relating to the Acquired Fund required to be stated therein or
necessary to make the statements relating to the Acquired Fund therein not
misleading, including, without limitation, any amounts paid by any one or more
of the Indemnified Parties in a reasonable compromise or settlement of any such
claim, action, suit or proceeding, or threatened claim, action, suit or
proceeding made with the consent of the Acquired Fund. The Indemnified Parties
will notify the Acquired Fund in writing within ten days after the receipt by
any one or more of the Indemnified Parties of any notice of legal process or any
suit brought against or claim made against such Indemnified Parties as to any
matters covered by this paragraph 9.1. The Acquired Fund shall be entitled to
participate as is own expense in the defense of any claim, action, suit or
proceeding covered by this paragraph 9.1, or, if it so elects, to assume at its
expense by counsel satisfactory to the Indemnified Parties the defense of any
such claim, action, suit or proceeding, and if the Acquired Fund dead to assume
such defense, the Indemnified Parties shall be entitled to participate in the
defense of any such claim, action, suit or proceeding at their expense. The
Acquired Fund's obligation under this paragraph 9.1 to indemnify and hold
harmless the Indemnified Parties shall constitute a guarantee of payment so that
the Acquired Fund will pay in the first instance any expenses, losses, claims,
damages and liabilities required to be paid by it under this paragraph 9.1
without the necessity of the Indemnified Parties' first paying the same.
9.2 Each Acquiring Fund will indemnify and hold harmless, out of its
assets but no other assets, the relevant Acquired Fund, its trustees and its
officers (for purposes of this paragraph 9.2, the "Indemnified Parties") against
any and all expenses, losses, claims, damages and liabilities at any time
imposed upon or reasonably incurred by any one or more of the Indemnified
Parities in connection with, arising out of, or resulting from any claim,
action, suit or proceeding in which any one or more of the Indemnified Parties
may be involved or with which any one or more of the Indemnified Parities may be
threatened by reason of any untrue statement or alleged untrue statement of a
material fact relating to the Acquiring Fund contained in the Registration
Statement, the Prospectus or the Proxy Statement, or any amendment or supplement
to any thereof, or arising out of, or based upon, the omission or alleged
omission to state in any of the foregoing a material fact relating to the
Acquiring Fund required to be stated therein or necessary to make the statements
relating to the Acquiring Fund therein not misleading, including without
limitation any amounts paid by any one or more of the Indemnified Parties in a
reasonable compromise or settlement of any such claim, action, suit or
proceeding, or threatened claim,
19
<PAGE> 75
action, suit or proceeding made with the consent of the Acquiring Fund. The
Indemnified Parties will notify the Acquiring Fund in writing within ten days
after the receipt by any one or more of the Indemnified Parties of any notice of
legal process or any suit brought against or claim made against such Indemnified
Party as to any matters covered by this paragraph 9.2. The Acquiring Fund shall
be entitled to participate at its own expense in the defense of any claim,
action, suit or proceeding covered by this paragraph 9.2, or, if it so elects,
to assume at its expense by counsel satisfactory to the Indemnified Parties the
defense of any such claim, action, suit or proceeding, and, if the Acquiring
Fund elects to assume such defense, the Indemnified Parties shall be entitled to
participate in the defense of any such claim, action, suit or proceeding at
their own expense. The Acquiring Fund's obligation under this paragraph 9.2 to
indemnify and hold harmless the Indemnified Parties shall constitute a guarantee
of payment so that the Acquiring Fund will pay in the first instance any
expenses, losses, claim, damages and liabilities required to be paid by it under
this paragraph 9.2 without the necessity of the Indemnified Parties' first
paying the same.
10. BROKERAGE FEES AND EXPENSES
10.1 The Pilot Funds and Funds IV Trust each represents and warrants to
the other that there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein.
10.2 Except as otherwise provided herein, all expenses of the Acquiring
Funds and the Acquired Funds contemplated by this Agreement will be borne by
Boatmen's Trust Company. Such expenses include, without limitation: (i) expenses
incurred in connection with the entering into and the carrying out of the
provisions of this Agreement; (ii) expenses associated with the preparation and
filing of the Registration Statement under the 1933 Act covering the Acquiring
Funds' Shares to be issued pursuant to the provisions of this Agreement; (iii)
registration or qualification fees and expenses of preparing and filing such
forms as are necessary under applicable state securities laws to qualify the
Acquiring Funds' Shares to be issued in connection herewith in each state in
which the Acquired Funds' Shareholders are resident as of the date of the
mailing of the Proxy Statement to such shareholders; (iv) postage in connection
with the Registration Statement/Proxy Statement; (v) printing in connection with
the Registration Statement/Proxy Statement; (vi) accounting fees in connection
with the transactions; (vii) legal fees in connection with the transactions; and
(viii) solicitation costs of the transactions.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1 The Pilot Funds and Funds IV Trust agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
11.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in correction herewith
shall survive the consummation of the transactions contemplated hereunder.
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<PAGE> 76
12. TERMINATION
12.1 On or prior to December 31, 1996, this Agreement may be terminated
by the mutual agreement of The Pilot Funds and Funds IV Trust with respect to
any one or more Reorganization(s) contemplated herein. After that date, either
Funds IV Trust or The Pilot Funds may terminate this Agreement with respect to
any one or more Reorganization(s) contemplated herein upon written notice to the
other party. In addition, either The Pilot Funds or Funds IV Trust may at its
option terminate this Agreement at or prior to the Closing Date, with respect to
any one or more Reorganization(s) contemplated herein because:
(a) of a material breach by the other of any representation,
warranty or agreement contained herein to be performed at or prior to the
Closing Date; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
12.2 In the event of any such termination, there shall be no liability
for damages on the part of either The Pilot Funds or Funds IV Trust or their
respective Directors, Trustees or officers, to the other party.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by Funds IV Trust and The Pilot Funds;
provided, however, that following the meeting of the Acquired Funds'
shareholders called by Funds IV Trust pursuant to paragraph 5.2 of this
Agreement, no such amendment may have the effect of changing the provisions for
determining the number of an Acquiring Fund's Shares to be issued to the
corresponding Acquired Fund's Shareholders under this Agreement to the detriment
of such shareholders without their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to The Pilot Funds, 3435 Stelzer
Road, Columbus, Ohio 43219 (with a copy to Goodwin, Procter & Hoar LLP, Exchange
Place, Boston, Massachusetts 02109, Attention: Philip H. Newman, Esq.), or to
Funds IV Trust, 237 Park Avenue, New York, New York 10017 (with a copy to Baker
& McKenzie, 805 Third Avenue, New York, New York 10022, Attention: Steven R.
Howard, Esq.).
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15. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
15.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
15.3 This Agreement shall be governed by and construed in accordance
with the laws of The Commonwealth of Massachusetts.
15.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
15.5 (a) It is expressly agreed that the obligations of the Acquiring
Funds hereunder shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents or employees of The Pilot Funds personally, but bind
only the trust property of The Pilot Funds and the Acquiring Funds, as provided
in the Trust Agreement of The Pilot Funds. The execution and delivery of this
Agreement have been authorized by the Trustees of The Pilot Funds and executed
by authorized officers of The Pilot Funds on behalf of the Acquiring Funds,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officers shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Acquiring Funds as provided in the
Trust Agreement of The Pilot Funds.
(b) It is expressly agreed that the obligations of the
Acquired Funds hereunder shall not be binding upon any of the trustees,
shareholders, nominees, officers, agents or employees of Funds IV Trust
personally, but bind only the trust property of Funds IV Trust and the Acquiring
Funds, as provided in the Trust Instrument of Funds IV Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of Funds IV
Trust and executed by authorized officers of Funds IV Trust on behalf of the
Acquired Funds, acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officers shall be deemed to have been
made by any of them individually or to impose any liability on any of them
personally, but shall bind only the property of the Acquired Funds as provided
in the Trust Instrument of Funds IV Trust.
(c) With respect to the obligations of The Pilot Funds on
behalf of any Acquiring Fund or of Funds IV Trust on behalf of any Acquired Fund
arising out of this Agreement, the parties hereto shall look for payment or
satisfaction of such obligation solely to
22
<PAGE> 78
the assets of property of the Acquiring Fund or Acquired Funds (as applicable)
to which such obligation relates as through such Acquiring Fund or Acquired Fund
(as applicable) had contracted separately, hereunder. No Acquired Fund shall
have any liability for the obligations of any other Acquired Fund hereunder and
no Acquiring Fund shall have any liability for the obligation of any other
Acquiring Fund hereunder.
[Remainder of Page Intentionally Left Blank]
23
<PAGE> 79
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its Chairman of the Board, President or Vice
President and its seal to be affixed thereto and attested by its Secretary or
Assistant Secretary.
Attest: THE PILOT FUNDS on behalf of each
Acquiring Fund
/s/ George O. Martinez By: /s/ William J. Tomko
- --------------------------------- -------------------------------------
Secretary Name: William J. Tomko
Title: President
Attest: FUNDS IV TRUST on behalf of each Acquired
Fund
/s/ Joan V. Fiore By: /s/ John J. Pileggi
- --------------------------------- --------------------------------------
Secretary Name: John J. Pileggi
Title: President
Agreed and Acknowledged as to Sections 5.10, 10.2 and 11.2:
BOATMEN'S TRUST COMPANY
By: /s/ David F. Toth
-------------------------
Name: David F. Toth
Title: Senior Vice President
24
<PAGE> 80
Appendix B
ADDITIONAL INVESTMENT RESTRICTIONS. Both the Reorganizing and Acquiring
Funds have investment policies restricting the scope of their investments in
addition to those discussed in the body of this Combined Proxy
Statement/Prospectus. Neither the Reorganizing Funds nor their corresponding
Acquiring Funds may change fundamental investment policies without the
affirmative vote of the holders of a majority of the outstanding shares (as
defined in the 1940 Act) of the particular Reorganizing or corresponding
Acquiring Fund. However, investment policies that are not fundamental may be
changed by the Board of Trustees without shareholder approval. The formal
investment restrictions of the Reorganizing Funds and their corresponding
Acquiring Funds are similar, but not identical. The tables below presents a
comparison of certain fundamental and non-fundamental formal investment
restrictions of the Reorganizing Fund and corresponding Acquiring Fund
participating in each Reorganization. Where two Reorganizing Funds have the same
corresponding Acquiring Fund, the comparison of restrictions appears in a single
table. Fundamental policies are followed by an (F); non-fundamental policies are
followed by an (nf).
AGGRESSIVE STOCK APPRECIATION FUND - PILOT GROWTH FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUBJECT MATTER OF RESTRICTION AGGRESSIVE STOCK APPRECIATION FUND PILOT GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real Estate The Fund may not invest in real The Fund may not purchase or sell real
property (including limited partnership estate, except that it may purchase securities
interests but excluding real estate of issuers which deal in real estate and may
investment trusts and master limited purchase securities which are secured by
partnerships). (F) interests in real estate and except that the
Fund reserves freedom of action to hold and
to sell real estate acquired as a result of its
ownership of securities. (F)
The Fund may not purchase or sell real
estate, or real estate limited partnership
interests. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
Other Investment Companies The Fund may not invest more than The Fund may not acquire any other
10% of its net assets in shares investment company or investment company
of other investment companies. (F) security except in connection with a merger,
consolidation, reorganization or acquisition of
assets or where otherwise permitted by the
1940 Act. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Underwriting The Fund may not engage in the The Fund may not act as an
business of underwriting securities of other underwriter of securities within the meaning
issuers, except to the extent that the of the Securities Act of 1933 except to the
disposal of an investment position may extent that the purchase of obligations directly
technically cause it to be considered an from the issuer thereof in accordance with the
underwriter as that term is defined under Fund's investment objective(s), policies and
the Securities Act of 1933. (F) limitations may be deemed to be underwriting
and except to the extent that it may be deemed
an underwriter in connection with the
disposition of the Fund's portfolio securities.
(F)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-1
<PAGE> 81
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUBJECT MATTER OF RESTRICTION AGGRESSIVE STOCK APPRECIATION FUND PILOT GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Senior Securities The Fund may not issue senior The Fund may not issue senior
securities, except insofar as it may be securities, except as appropriate to evidence
deemed to have issued a senior security in indebtedness which it is permitted to incur and
connection with any repurchase agreement except for shares of the separate classes or
or any permitted borrowing. (F) series of the Fund 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 purposes of this restriction. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Commodities The Fund may not invest in The Fund may not purchase or sell
commodities or commodity contracts. (F) commodity contracts. (F)
(This limitation does not prevent (This limitation does not prevent the
the Fund from engaging in transactions in Fund from purchasing and selling financial
financial futures contracts or options futures contracts, options thereon, and
thereon.) similar financial instruments to the extent
otherwise permissible.)
- ------------------------------------------------------------------------------------------------------------------------------------
Lending The Fund may not make loans, The Fund may not make loans, except
except loans of portfolio securities and that it may purchase and hold debt instruments
except that it may enter into repurchase and enter into repurchase agreements in
agreements with respect to its portfolio accordance with its investment objective(s)
securities and may purchase the types of and policies and may lend portfolio
debt instruments described in its securities. (F)
Prospectus or Statement of Additional
Information. (F) The Fund may not lend its securities
if collateral values are not continuously
The Fund may lend its portfolio maintained at no less than 100% by market to
securities in an amount up to 331/3 of its market daily. (nf)
total assets to brokers, dealers and
financial institutions, provided certain
regulatory conditions are met. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
Control The Fund may not invest in The Fund may not purchase securities
companies for the purpose of exercising of companies for the purpose of exercising
management or control. (F) control. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-2
<PAGE> 82
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUBJECT MATTER OF RESTRICTION AGGRESSIVE STOCK APPRECIATION FUND PILOT GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Borrowing The Fund may not borrow money The Fund may not borrow money,
or pledge, mortgage or hypothecate its except as a temporary measure for
assets, except that it may enter into reverse extraordinary or emergency purposes or
repurchase agreements or borrow from except in connection with reverse repurchase
banks up to 10% of the current value of its agreements and mortgage rolls; provided that
net assets for temporary or emergency the Fund maintains asset coverage of 300%
purposes and those borrowings may be for all borrowings. (F)
secured by the pledge of not more than
15% of the current value of its total net
assets (but investments may not be
purchased by the Fund while any such
borrowings exist). (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Diversification The Fund will not, with respect to The Fund may not purchase securities
75% of its total assets, invest more than of any one issuer (other than securities issued
5% of its total assets in the securities of or guaranteed by the U.S. Government, its
any one issuer (except for U.S. agencies or instrumentalists or certificates of
Government securities), or purchase more deposit for any such securities) if,
than 10% of the outstanding voting immediately after such purchase, more than
securities of any such issuer. (F) 5% of the value of the Fund's total assets
would be invested in the securities of such
issuer, or more than 10% of the issuer's
outstanding voting securities would be owned
by the Fund or the Trust; except that up to
25% of the value of the Fund's total assets
may be invested without regard to the
foregoing limitations. For purposes of this
limitation, (a) a security is considered to be
issued by the entity (or entities) whose assets
and revenues back the security, and (b) a
guarantee of a security shall not be deemed to
be a security issued by the guarantor when the
value of securities issued and guaranteed by
the guarantor, and owned by the Fund, does
not exceed 10% of the value of the Fund's
total assets. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Futures and Options The Fund may not write, purchase The Fund may not purchase, write or
or sell puts, calls or combinations thereof, sell put options, call options, straddles,
except that the Fund may purchase or sell spreads, or any combination thereof, except
puts and calls as otherwise described in the for transactions in options on securities,
Prospectus or Statement of Additional securities indices, futures contracts and
Information; however, the Fund will not options on futures contracts. (nf)
invest more than 5% of its total assets in
these classes of securities for purposes Purchased options may not exceed 5%
other than bona fide hedging. (F) of net assets; written options may not exceed
25% of net assets. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-3
<PAGE> 83
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUBJECT MATTER OF RESTRICTION AGGRESSIVE STOCK APPRECIATION FUND PILOT GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Industry Concentration The Fund may not purchase a The Fund may not purchase any
security if, as a result, more than 25% of securities which would cause 25% or more of
the value of its total assets would be the value of the Fund's total assets at the time
invested in securities of one or more of purchase to be invested in the securities of
issuers conducting their principal business one or more issuers conducting their principal
activities in the same industry, provided business activities in the same industry,
that (a) this limitation shall not apply to provided that (a) there is no limitation with
obligations issued or guaranteed by the respect to (i) instruments issued (as defined
U.S. Government or its agencies and with respect to the diversification policy) or
instrumentalities; (b) wholly owned finance guaranteed by the United States, any state,
companies will be considered to be in the territory or possession of the United States,
industries of their parents; and (c) utilities the District of Columbia or any of their
will be divided according to their services. authorities, agencies, instrumentalities or
For example, gas, gas transmission, political subdivisions and (ii) repurchase
electric and gas, electric, and telephone agreements secured by the instruments
will each be considered a separate described in clause (i); (b) wholly-owned
industry. (F) finance companies will be considered to be in
the industries of their parents if their
activities are primarily related to financing
the activities of the parents; and (c) utilities
will be divided according to their services,
for example gas, gas transmission, electric and
gas, electric and telephone will each be
considered a separate industry. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Margin and Short Sales The Fund may not purchase The Fund may not purchase securities
securities on margin, except that the Fund on margin, make short sales of securities or
may obtain such short-term credits as may maintain a short position, except that (a) this
be necessary for the clearance of purchases investment limitation shall not apply to the
and sales of securities. (F) Fund's transactions in futures contracts and
related options, and (b) the Fund may obtain
The Fund may not sell securities short-term credit as may be necessary for the
short, except to the extent that the Fund clearance of purchases and sales of portfolio
contemporaneously owns or has the right securities. (nf)
to acquire at no additional cost securities
identical to those sold short. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Oil & Gas The Fund may not invest in oil, gas The Fund may not invest in oil, gas or
and other mineral resource, exploration, mineral exploration or development programs,
development, lease or arbitrage or related leases. (nf)
transactions. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Unseasoned Issuers The Fund may not invest more than Pilot Growth Fund may not purchase
5% of the current value of its total assets securities of unseasoned issuers, at which
in the securities of companies which, time, including predecessors, at the time of
including predecessors, have a record of purchase have been in operation for less than
less than three years' continuous operation. three years if the value of the Fund's
(F) aggregate investment in such securities would
exceed 5% of its total assets. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-4
<PAGE> 84
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SUBJECT MATTER OF RESTRICTION AGGRESSIVE STOCK APPRECIATION FUND PILOT GROWTH FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Illiquid Securities/Restricted The Fund may not invest more than The Fund will not invest more than
Securities 15% of the value of its net assets in 15% of the value of its net assets in illiquid
investments which are illiquid (including securities, including restricted securities,
repurchase agreements having maturities of unless the Trust's Board of Trustees
more than seven calendar days, variable determines, based upon a continuing review of
and floating rate demand and master the trading markets for the specific Rule 144A
demand notes not requiring receipt of security, that such restricted security is liquid.
principal note amount within seven days (nf)
notice and securities of foreign issuers
which are not listed on a recognized The Fund may not purchase equity
domestic or foreign securities exchange). securities of issuers that are not readily
(F) marketable if the value of the Fund's
aggregate investment in such securities will
(The adviser will monitor the exceed 5% of its total assets. (nf)
purchase of Rule 144A securities to assure
that the total of all Rule 144A securities The Fund may not purchase securities
held by a Fund does not exceed 10% of the of issuers restricted as to disposition if the
Fund's average daily net assets. Rule value of its aggregate investment in such
144A securities which are determined to be classes of securities will exceed 10% of its
liquid based upon their trading markets total assets. (nf)
will not, however, be required to be
included among the securities considered
to be illiquid for purposes of the Fund's
fundamental policy regarding illiquid
securities.)
- -----------------------------------------------------------------------------------------------------------------------------------
Warrants The Fund may not invest more than The Fund may not invest more than
5% of its net assets in warrants which are 5% of its net assets in warrants, valued at
unattached to securities, included within lower of cost or market. In addition the Trust
that amount, no more than 2% of the value on behalf of the Fund, will not invest more
of the Fund's net assets, may be warrants than 2% of its net assets in warrants not listed
which are not listed on the New York or on the New York or American Stock
American Stock Exchanges. (F) Exchange. (nf)
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing Savings Deposits - The Fund may also make
interest-bearing savings deposits in
commercial and savings banks in amounts not
in excess of 5% of the total assets of the
Fund. (nf)
- -----------------------------------------------------------------------------------------------------------------------------------
Pledging The Fund may not borrow money -
or pledge, mortgage or hypothecate its
assets, except that the Fund may enter into
reverse repurchase agreements or borrow
from banks up to 10% of the current value
of its net assets for temporary or
emergency purposes and those borrowings
may be secured by the pledge of not more
than 15% of the current value of its total
net assets (but investments may not be
purchased by the Fund while any such
borrowings exist). (F)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-5
<PAGE> 85
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUBJECT MATTER OF RESTRICTION AGGRESSIVE STOCK APPRECIATION FUND PILOT GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Issuers Held by Directors, The Fund may not purchase or -
Officers, or Affiliates retain the securities of any issuer, if those
individual officers and Trustees of the
Trust, BANK IV or AMR, Furman Selz
LLC, or Funds IV Distributor Inc., each
owning beneficially more than 1/2 of 1% of
the securities of such issuer, together own
more than 5% of the securities of such
issuer. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Equivalents & Commercial All commercial paper purchased by Cash equivalents, such as commercial
Paper the Fund is, at the time of investment, paper and other similar obligations purchased
rated in one of the top two rating by the Fund that have an original maturity of
categories of at least one NRSRO, or, if thirteen months or less, will either have
not rated is, in the opinion of Bank IV or short-term ratings at the time of purchase in
AMR, of an investment quality comparable the top two categories by one or more
to rated commercial paper in which the NRSROs or be issued by issuers with such
Fund may invest. (nf) ratings. Unrated instruments of these types
purchased by the Fund will be determined by
the Adviser to be of comparable quality. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
Amount of Equity Securities Under normal conditions, the Fund must Under normal conditions, the Fund must
maintain 65% of its total assets in common maintain at least 65% of its total assets in
stock. (nf) common stock, warrants and options to
purchase common stock. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
Amount of Debt Securities - Under normal conditions, the Fund will not
invest more than 10% of its total assets in debt
obligations. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities-Credit Quality The Fund will only invest in debt rated in The Fund will only invest in debt rated or, if
or of quality equivalent to the top three unrated, of quality equivalent to AA or better.
rating categories. (nf) (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-6
<PAGE> 86
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUBJECT MATTER OF RESTRICTION AGGRESSIVE STOCK APPRECIATION FUND PILOT GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Domestic & Foreign Bank The Fund limits its investment in The Fund limits its investments in
Obligations United States bank obligations to domestic banks to banks having total assets in
obligations of United States banks excess of $1 billion and subject to regulation
(including foreign branches). (nf) 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. (nf)
The Fund limits its investment in
foreign bank obligations to United States The Fund limits its investments in
dollar denominated obligations of foreign foreign bank obligations (i.e., obligations of
banks (including United States branches of foreign branches and subsidiaries of domestic
foreign banks) which in the opinion of banks, and domestic and foreign branches and
BANK IV or AMR, are of an investment agencies of foreign banks) to obligations of
quality comparable to obligations of United banks which at the time of investment are
States banks which may be purchased by branches or subsidiaries of domestic banks
the Fund. There is no limitation on the which meet the criteria in the preceding
amount of the Fund's assets which may be paragraph or are branches or agencies of
invested in obligations of foreign banks foreign banks which (i) have more than $10
which meet these conditions. (nf) billion, or the equivalent in other currencies,
in total assets; (ii) in terms of assets are
among the 75 largest foreign banks in the
world; (iii) have branches or agencies in the
United States; and (iv) in the opinion of
Boatmen's, pursuant to criteria established by
the Board of Trustees of the Trust, are of an
investment quality comparable to obligations
of domestic banks which may be purchased by
the Fund. (nf)
The Fund limits its investments in
foreign bank obligations to banks, branches
and subsidiaries located in Western Europe
(United Kingdom, France, Germany,
Belgium, The Netherlands, Italy and
Switzerland), Scandinavia (Denmark and
Sweden), Australia, Japan, the Cayman
Islands, the Bahamas and Canada. (nf)
Pilot Growth Fund will limit its
investment in securities of foreign banks to
not more than 10% of total assets at the time
of investment. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-7
<PAGE> 87
VALUE STOCK APPRECIATION FUND AND STOCK APPRECIATION FUND-
PILOT GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE STOCK APPRECIATION FUND AND
SUBJECT MATTER OF RESTRICTION STOCK APPRECIATION FUND PILOT GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real Estate The Fund may not invest in real The Fund may not purchase or sell
property (including limited partnership real estate, except that it may purchase
interests but excluding real estate securities of issuers which deal in real
investment trusts and master limited estate and may purchase securities which
partnerships). (F) are secured by interests in real estate and
except that the Fund reserves freedom of
action to hold and to sell real estate
acquired as a result of its ownership of
securities. (F)
The Fund may not purchase or sell
real estate, or real estate limited partnership
interests. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
Other Investment Companies The Fund may not invest more The Fund may not acquire any other
than 10% of its net assets in shares of investment company or investment
other investment companies. (F) company security except in connection with
a merger, consolidation, reorganization or
acquisition of assets or where otherwise
permitted by the 1940 Act. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Underwriting The Fund may not engage in the The Fund may not act as an
business of underwriting securities of underwriter of securities within the meaning
other issuers, except to the extent that of the Securities Act of 1933 except to the
the disposal of an investment position extent that the purchase of obligations
may technically cause it to be considered directly from the issuer thereof in
an underwriter as that term is defined accordance with the Fund's investment
under the Securities Act of 1933. (F) objective(s), policies and limitations may be
deemed to be underwriting and except to
the extent that it may be deemed an
underwriter in connection with the
disposition of the Fund's portfolio
securities. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-8
<PAGE> 88
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE STOCK APPRECIATION FUND AND
SUBJECT MATTER OF RESTRICTION STOCK APPRECIATION FUND PILOT GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Senior Securities The Fund may not issue senior The Fund may not issue senior
securities, except insofar as it may be securities, except as appropriate to evidence
deemed to have issued a senior security indebtedness which it is permitted to incur
in connection with any repurchase and except for shares of the separate classes
agreement or any permitted borrowing. or series of the Fund provided that
(F) 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
purposes of this restriction. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-9
<PAGE> 89
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE STOCK APPRECIATION FUND AND
SUBJECT MATTER OF RESTRICTION STOCK APPRECIATION FUND PILOT GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commodities The Fund may not invest in The Fund may not purchase or sell
commodities or commodity contracts. commodity contracts. (F)
(F)
(For Pilot Growth and Income Fund,
(This limitation does not prevent this limitation does not prevent the Fund
the Fund from engaging in transactions from purchasing and selling financial
in financial futures contracts or options futures contracts, options thereon, and
thereon.) similar financial instruments to the extent
otherwise permissible.)
- ------------------------------------------------------------------------------------------------------------------------------------
Lending The Fund may not make loans, The Fund may not make loans,
except loans of portfolio securities and except that it may purchase and hold debt
except that it may enter into repurchase instruments and enter into repurchase
agreements with respect to its portfolio agreements in accordance with its
securities and may purchase the types of investment objective(s) and policies and
debt instruments described in its may lend portfolio securities. (F)
Prospectus or Statement of Additional
Information. (F) The Fund may not lend its securities
if collateral values are not continuously
The Fund may lend its portfolio maintained at no less than 100% by market
securities in an amount up to 33 1/3 of its to market daily. (nf)
total assets to brokers, dealers and
financial institutions, provided certain
regulatory conditions are met. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
Control The Fund may not invest in The Fund may not purchase
companies for the purpose of exercising securities of companies for the purpose of
management or control. (F) exercising control. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowing The Fund may not borrow money The Fund may not borrow money,
or pledge, mortgage or hypothecate its except as a temporary measure for
assets, except that it may enter into extraordinary or emergency purposes or
reverse repurchase agreements or except in connection with reverse
borrow from banks up to 10% of the repurchase agreements and mortgage rolls;
current value of its net assets for provided that the Fund maintains asset
temporary or emergency purposes and coverage of 300% for all borrowings. (F)
those borrowings may be secured by the
pledge of not more than 15% of the
current value of its total net assets (but
investments may not be purchased by the
Fund while any such borrowings exist).
(F)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-10
<PAGE> 90
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE STOCK APPRECIATION FUND AND
SUBJECT MATTER OF RESTRICTION STOCK APPRECIATION FUND PILOT GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Diversification The Fund will not, with respect to The Fund may not purchase
75% of its total assets, invest more than securities of any one issuer (other than
5% of its total assets in the securities of securities issued or guaranteed by the U.S.
any one issuer (except for U.S. Government, its agencies or
Government securities), or purchase instrumentalists or certificates of deposit for
more than 10% of the outstanding voting any such securities) if, immediately after
securities of any such issuer. (F) such purchase, more than 5% of the value
of the Fund's total assets would be invested
in the securities of such issuer, or more
than 10% of the issuer's outstanding voting
securities would be owned by the Fund or
the Trust; except that up to 25% of the
value of the Fund's total assets may be
invested without regard to the foregoing
limitations. For purposes of this limitation,
(a) a security is considered to be issued by
the entity (or entities) whose assets and
revenues back the security, and (b) a
guarantee of a security shall not be deemed
to be a security issued by the guarantor
when the value of securities issued and
guaranteed by the guarantor, and owned by
the Fund, does not exceed 10% of the value
of the Fund's total assets. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Futures and Options The Fund may not write, The Fund may not purchase, write or
purchase or sell puts, calls or sell put options, call options, straddles,
combinations thereof, except that the spreads, or any combination thereof, except
Fund may purchase or sell puts and calls for transactions in options on securities,
as otherwise described in the Prospectus securities indices, futures contracts and
or Statement of Additional Information; options on futures contracts. (nf)
however, the Fund will not invest more
than 5% of its total assets in these Purchased options may not exceed
classes of securities for purposes other 5% of net assets; written options may not
than bona fide hedging. (F) exceed 25% of net assets. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-11
<PAGE> 91
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE STOCK APPRECIATION FUND AND
SUBJECT MATTER OF RESTRICTION STOCK APPRECIATION FUND PILOT GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Industry Concentration The Fund may not purchase a The Fund may not purchase any
security if, as a result, more than 25% securities which would cause 25% or more
of the value of its total assets would be of the value of the Fund's total assets at the
invested in securities of one or more time of purchase to be invested in the
issuers conducting their principal securities of one or more issuers conducting
business activities in the same industry, their principal business activities in the
provided that (a) this limitation shall not same industry, provided that (a) there is no
apply to obligations issued or guaranteed limitation with respect to (i) instruments
by the U.S. Government or its agencies issued (as defined with respect to the
and instrumentalities; (b) wholly owned diversification policy) or guaranteed by the
finance companies will be considered to United States, any state, territory or
be in the industries of their parents; and possession of the United States, the District
(c) utilities will be divided according to of Columbia or any of their authorities,
their services. For example, gas, gas agencies, instrumentalities or political
transmission, electric and gas, electric, subdivisions and (ii) repurchase agreements
and telephone will each be considered a secured by the instruments described in
separate industry. (F) clause (i); (b) wholly-owned finance
companies will be considered to be in the
industries of their parents if their activities
are primarily related to financing the
activities of the parents; and (c) utilities will
be divided according to their services, for
example gas, gas transmission, electric and
gas, electric and telephone will each be
considered a separate industry. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Margin and Short Sales The Fund may not purchase The Fund may not purchase
securities on margin, except that the securities on margin, make short sales of
Fund may obtain such short-term credits securities or maintain a short position,
as may be necessary for the clearance of except that (a) this investment limitation
purchases and sales of securities. (F) shall not apply to the Fund's transactions in
futures contracts and related options, and
The Fund may not sell securities (b) the Fund may obtain short-term credit
short, except to the extent that the Fund as may be necessary for the clearance of
contemporaneously owns or has the right purchases and sales of portfolio securities.
to acquire at no additional cost securities (nf)
identical to those sold short. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Oil & Gas The Fund may not invest in oil, The Fund may not invest in oil, gas
gas and other mineral resource, or mineral exploration or development
exploration, development, lease or programs, or related leases. (nf)
arbitrage transactions. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Unseasoned Issuers The Fund may not invest more The Fund may not purchase securities
than 5% of the current value of its total of unseasoned issuers, at which time, including
asset in the securities of companies predecessors, at the time of purchase have
which, including predecessors, have a been in operation for less than three years.
record of less than three years' (nf)
continuous operation. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-12
<PAGE> 92
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE STOCK APPRECIATION FUND AND
SUBJECT MATTER OF RESTRICTION STOCK APPRECIATION FUND PILOT GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Illiquid Securities/Restricted The Fund may not invest more The Fund will not invest more than
Securities than 15% of the value of its net assets in 15% of the value of its net assets in illiquid
investments which are illiquid (including securities, including restricted securities,
repurchase agreements having maturities unless the Trust's Board of Trustees
of more than seven calendar days, determines, based upon a continuing review
variable and floating rate demand and of the trading markets for the specific
master demand notes not requiring Rule 144A security, that such restricted
receipt of principal note amount within security is liquid. (nf)
seven days notice and securities of
foreign issuers which are not listed on a The Fund may not purchase equity
recognized domestic or foreign securities securities of issuers that are not readily
exchange). (F) marketable if the value of the Fund's
aggregate investment in such securities will
(The adviser will monitor the exceed 5% of its total assets. (nf)
purchase of Rule 144A securities to
assure that the total of all Rule 144A The Fund may not purchase
securities held by a Fund does not securities of issuers restricted as to
exceed 10% of the Fund's average daily disposition if the value of its aggregate
net assets. Rule 144A securities which investment in such classes of securities will
are determined to be liquid based upon exceed 10% of its total assets. (nf)
their trading markets will not, however,
be required to be included among the
securities considered to be illiquid for
purposes of the Fund's fundamental
policy regarding illiquid securities.)
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants The Fund may not invest more The Fund may not invest more than
than 5% of its net assets in warrants 5% of its net assets in warrants, valued at
which are unattached to securities, lower of cost or market. In addition the
included within that amount, no more Trust on behalf of the Fund, will not invest
than 2% of the value of the Fund's net more than 2% of its net assets in warrants
assets, may be warrants which are not not listed on the New York or American
listed on the New York or American Stock Exchange. (nf)
Stock Exchanges. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing Savings - The Fund may also make
Deposits interest-bearing savings deposits in
commercial and savings banks in amounts
not in excess of 5% of the total assets of the
Fund. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-13
<PAGE> 93
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE STOCK APPRECIATION FUND AND
SUBJECT MATTER OF RESTRICTION STOCK APPRECIATION FUND PILOT GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pledging The Fund may not borrow money -
or pledge, mortgage or hypothecate its
assets, except that the Fund may enter
into reverse repurchase agreements or
borrow from banks up to 10% of the
current value of its net assets for
temporary or emergency purposes and
those borrowings may be secured by the
pledge of not more than 15% of the
current value of its total net assets (but
investments may not be purchased by the
Fund while any such borrowings exist).
(F)
- ------------------------------------------------------------------------------------------------------------------------------------
Issuers Held by Directors, The Fund may not purchase or -
Officers, or Affiliates retain the securities of any issuer, if
those individual officers and Trustees of
the Trust, BANK IV or AMR, Furman
Selz LLC, or Funds IV Distributor Inc.,
each owning beneficially more than 1/2
of 1% of the securities of such issuer,
together own more than 5% of the
securities of such issuer. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Equivalents & All commercial paper purchased Cash equivalents, such as
Commercial Paper by the Fund is, at the time of commercial paper and other similar
investment, rated in one of the top two obligations purchased by the Fund that have
rating categories of at least one NRSRO, an original maturity of thirteen months or
or, if not rated is, in the opinion of Bank less, will either have short-term ratings at
IV or AMR, of an investment quality the time of purchase in the top two
comparable to rated commercial paper in categories by one or more NRSROs or be
which the Fund may invest. (nf) issued by issuers with such ratings.
Unrated instruments of these types
purchased by the Fund will be determined
by the Adviser to be of comparable quality.
(nf)
- ------------------------------------------------------------------------------------------------------------------------------------
Amount of Debt/Equity Value Stock Appreciation Fund has no Under normal conditions the Fund must
Securities stated numerical requirements as to the maintain 65% of its assets in common
amount of debt or equity securities it stock, preferred stock and convertible
must hold. securities of U.S. companies. There is no
limit on investment in debt securities. (nf)
Under normal conditions, Stock
Appreciation Fund must maintain 65%
of its assets in common stock. There is
no other limit on investment in debt
securities. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-14
<PAGE> 94
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE STOCK APPRECIATION FUND AND
SUBJECT MATTER OF RESTRICTION STOCK APPRECIATION FUND PILOT GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit Quality of Debt/ The Fund may only purchase debt rated The Fund may only purchase debt and convertible
Convertible Securities in or of quality equivalent to the top securities rated or, if unrated, of quality
three rating categories. (nf) equivalent to investment grade. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-15
<PAGE> 95
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE STOCK APPRECIATION FUND AND
SUBJECT MATTER OF RESTRICTION STOCK APPRECIATION FUND PILOT GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Domestic & Foreign Bank The Fund limits its investment in The Fund limits its investments in
Obligations United States bank obligations to domestic banks to banks having total assets
obligations of United States banks in excess of $1 billion and subject to
(including foreign branches). (nf) 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. (nf)
The Fund limits its investment in
foreign bank obligations to United States The Fund limits its investments in
dollar denominated obligations of foreign bank obligations (i.e., obligations of
foreign banks (including United States foreign branches and subsidiaries of
branches of foreign banks) which in the domestic banks, and domestic and foreign
opinion of BANK IV or AMR, are of an branches and agencies of foreign banks) to
investment quality comparable to obligations of banks which at the time of
obligations of United States banks which investment are branches or subsidiaries of
may be purchased by the Fund. There domestic banks which meet the criteria in
is no limitation on the amount of the the preceding paragraph or are branches or
Fund's assets which may be invested in agencies of foreign banks which (i) have
obligations of foreign banks which meet more than $10 billion, or the equivalent in
these conditions. (nf) other currencies, in total assets; (ii) in terms
of assets are among the 75 largest foreign
banks in the world; (iii) have branches or
agencies in the United States; and (iv) in
the opinion of Boatmen's, pursuant to
criteria established by the Board of Trustees
of the Trust, are of an investment quality
comparable to obligations of domestic
banks which may be purchased by the
Fund. (nf)
The Fund limits its investments in
foreign bank obligations to banks, branches
and subsidiaries located in Western Europe
(United Kingdom, France, Germany,
Belgium, The Netherlands, Italy and
Switzerland), Scandinavia (Denmark and
Sweden), Australia, Japan, the Cayman
Islands, the Bahamas and Canada. (nf)
Pilot Growth and Income Fund will
limit its investment in securities of foreign
banks to not more than 20% of total assets at
the time of investment. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-16
<PAGE> 96
BOND INCOME FUND AND INTERMEDIATE BOND INCOME FUND -
DIVERSIFIED BOND INCOME FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
BOND INCOME FUND AND INTERMEDIATE
SUBJECT MATTER OF RESTRICTION BOND INCOME FUND PILOT DIVERSIFIED BOND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real Estate The Fund may not invest in real The Fund may not purchase or sell
property (including limited partnership real estate, except that the Fund may
interests but excluding real estate purchase securities of issuers which deal in
investment trusts and master limited real estate and may purchase securities
partnerships). (F) which are secured by interests in real estate
and except that the Fund reserves freedom
of action to hold and to sell real estate
acquired as a result of the Fund's
ownership of securities. (F)
The Fund may not purchase or sell
real estate, or real estate limited partnership
interests. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
Other Investment Companies The Fund may not invest more The Fund may not acquire any other
than 10% of its net assets in shares of investment company or investment
other investment companies. (F) company security except in connection with
a merger, consolidation, reorganization or
acquisition of assets or where otherwise
permitted by the 1940 Act. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Underwriting The Fund may not engage in the The Fund may not act as an
business of underwriting securities of underwriter of securities within the meaning
other issuers, except to the extent that of the Securities Act of 1933 except to the
the disposal of an investment position extent that the purchase of obligations
may technically cause it to be considered directly from the issuer thereof in
an underwriter as that term is defined accordance with the Fund's investment
under the Securities Act of 1933. (F) objective(s), policies and limitations may be
deemed to be underwriting and except to
the extent that it may be deemed an
underwriter in connection with the
disposition of the Fund's portfolio
securities. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Securities The Fund may not issue senior The Fund may not issue senior
securities, except insofar as a Fund may securities, except as appropriate to evidence
be deemed to have issued a senior indebtedness which it is permitted to incur
security in connection with any and except for shares of the separate classes
repurchase agreement or any permitted or series of the Fund provided that
borrowing. (F) 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
purposes of this restriction. (F)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-17
<PAGE> 97
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
BOND INCOME FUND AND INTERMEDIATE
SUBJECT MATTER OF RESTRICTION BOND INCOME FUND PILOT DIVERSIFIED BOND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commodities The Fund may not invest in The Fund may not purchase or sell
commodities or commodity contracts. commodity contracts. (F)
(F)
(This limitation does not prevent the
(This limitation does not prevent Fund from purchasing and selling financial
the Fund from engaging in financial futures contracts, options thereon, and
futures contracts and options thereon.) similar financial instruments to the extent
otherwise permissible).
- ------------------------------------------------------------------------------------------------------------------------------------
Lending The Fund may not make loans, The Fund may not make loans,
except loans of portfolio securities and except that the Fund may purchase and hold
except that the Fund may enter into debt instruments and enter into repurchase
repurchase agreements with respect to its agreements in accordance with its
portfolio securities and may purchase the investment objective(s) and policies and
types of debt instruments described in its may lend portfolio securities. (F)
Prospectus or the Statement of
Additional Information. (F) The Fund may not lend its securities
if collateral values are not continuously
The Fund may lend its portfolio maintained at no less than 100% by market
securities in an amount up to 331/3 of its to market daily. (nf)
total assets to brokers, dealers and
financial institutions, provided certain
regulatory conditions are met. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
Control The Fund may not invest in The Fund may not purchase
companies for the purpose of exercising securities of companies for the purpose of
control or management. (F) exercising control. (nf)
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowing The Fund may not borrow money The Fund may not borrow money,
or pledge, mortgage or hypothecate its except as a temporary measure for
assets, except that the Fund may enter extraordinary or emergency purposes or
into reverse repurchase agreements or except in connection with reverse
borrow from banks up to 10% of the repurchase agreements and mortgage rolls;
current value of its net assets for provided that the Fund maintains asset
temporary or emergency purposes and coverage of 300% for all borrowings. (F)
those borrowings may be secured by the
pledge of not more than 15% of the
current value of its total net assets (but
investments may not be purchased by the
Fund while any such borrowings exist).
(F)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-18
<PAGE> 98
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
BOND INCOME FUND AND INTERMEDIATE
SUBJECT MATTER OF RESTRICTION BOND INCOME FUND PILOT DIVERSIFIED BOND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Diversification The Fund will not, with respect to The Fund may not purchase
75% of its total assets, invest more than securities of any one issuer (other than
5% of its total assets in the securities of securities issued or guaranteed by the U.S.
any one issuer (except for U.S. Government, its agencies or
Government securities), or purchase instrumentalists or certificates of deposit for
more than 10% of the outstanding voting any such securities) if, immediately after
securities of any such issuer. (F) such purchase, more than 5% of the value
of the Fund's total assets would be invested
in the securities of such issuer, or more
than 10% of the issuer's outstanding voting
securities would be owned by the Fund or
the Trust; except that up to 25% of the
value of a Fund's total assets may be
invested without regard to the foregoing
limitations. For purposes of this limitation,
(a) a security is considered to be issued by
the entity (or entities) whose assets and
revenues back the security, and (b) a
guarantee of a security shall not be deemed
to be a security issued by the guarantor
when the value of securities issued and
guaranteed by the guarantor, and owned by
the Fund, does not exceed 10% of the value
of the Fund's total assets. (F)
- -----------------------------------------------------------------------------------------------------------------------------------
Futures and Options The Fund may not write, The Fund may not purchase, write or
purchase or sell puts, calls or sell put options, call options, straddles,
combinations thereof, except that the spreads, or any combination thereof, except
Fund may purchase or sell puts and calls for transactions in options on securities,
as otherwise described in the Prospectus securities indices, futures contracts and
or Statement of Additional Information; options on futures contracts. (nf)
however, the Fund will not invest more
than 5% of its total assets in these Purchased options may not exceed
classes of securities for purposes other 5% of net assets; written options may not
than bona fide hedging. (F) exceed 25% of net assets. (nf)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-19
<PAGE> 99
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
BOND INCOME FUND AND INTERMEDIATE
SUBJECT MATTER OF RESTRICTION BOND INCOME FUND PILOT DIVERSIFIED BOND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Industry Concentration The Fund may not purchase a The Fund may not purchase any
security if, as a result, more than 25% securities which would cause 25% or more
of the value of its total assets would be of the value of the Fund's total assets at the
invested in securities of one or more time of purchase to be invested in the
issuers conducting their principal securities of one or more issuers conducting
business activities in the same industry, their principal business activities in the
provided that (a) this limitation shall not same industry, provided that (a) there is no
apply to obligations issued or guaranteed limitation with respect to (i) instruments
by the U.S. Government or its agencies issued (as defined with respect to the
and instrumentalities; (b) wholly owned diversification policy) or guaranteed by the
finance companies will be considered to United States, any state, territory or
be in the industries of their parents; and possession of the United States, the District
(c) utilities will be divided according to of Columbia or any of their authorities,
their services. For example, gas, gas agencies, instrumentalities or political
transmission, electric and gas, electric, subdivisions and (ii) repurchase agreements
and telephone will each be considered a secured by the instruments described in
separate industry. (F) clause (i); (b) wholly-owned finance
companies will be considered to be in the
industries of their parents if their activities
are primarily related to financing the
activities of the parents; and (c) utilities will
be divided according to their services, for
example gas, gas transmission, electric and
gas, electric and telephone will each be
considered a separate industry. (F)
- -----------------------------------------------------------------------------------------------------------------------------------
Margin and Short Sales The Fund may not purchase The Fund may not purchase
securities on margin, except that the securities on margin, make short sales of
Fund may obtain such short-term credits securities or maintain a short position,
as may be necessary for the clearance of except that (a) this investment limitation
purchases and sales of securities. (F) shall not apply to the Fund's transactions in
futures contracts and related options, and
The Fund may not sell securities (b) the Fund may obtain short-term credit
short, except to the extent that the Fund as may be necessary for the clearance of
contemporaneously owns or has the right purchases and sales of portfolio securities.
to acquire at no additional cost securities (nf)
identical to those sold short. (F)
- -----------------------------------------------------------------------------------------------------------------------------------
Oil & Gas The Fund may not invest in oil, The Fund may not invest in oil, gas
gas and other mineral resource, or mineral exploration or development
exploration, development, lease or programs, or related leases. (nf)
arbitrage transactions. (F)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-20
<PAGE> 100
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Bond Income Fund and Intermediate
Subject Matter of Restriction Bond Income Fund Pilot Diversified Bond Income Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unseasoned Issuers The Fund may not invest more The Fund may not purchase
than 5% of the current value of its total securities of unseasoned issuers, at which
asset in the securities of companies time, including predecessors, at the time of
which, including predecessors, have a purchase have been in operation for less
record of less than three years' than three years if the value of the Fund's
continuous operation. (F) investment in such securities would exceed
5% of its total assets. (nf)
- -----------------------------------------------------------------------------------------------------------------------------------
Illiquid Securities/Restricted The Fund may not invest more The Fund will not invest more than
Securities than 15% of the value of its net assets in 15% of the value of its net assets in illiquid
investments which are illiquid (including securities, including restricted securities,
repurchase agreements having maturities unless the Trust's Board of Trustees
of more than seven calendar days, determines, based upon a continuing review
variable and floating rate demand and of the trading markets for the specific
master demand notes not requiring Rule 144A security, that such restricted
receipt of principal note amount within security is liquid. (nf)
seven days notice and securities of
foreign issuers which are not listed on a The Fund may not purchase equity
recognized domestic or foreign securities securities of issuers that are not readily
exchange). (F) marketable if the value of a Fund's
aggregate investment in such securities will
(The adviser will monitor the exceed 5% of its total assets. (nf)
purchase of Rule 144A securities to
assure that the total of all Rule 144A The Fund may not purchase
securities held by a Fund does not securities of issuers restricted as to
exceed 10% of the Fund's average daily disposition if the value of its aggregate
net assets. Rule 144A securities which investment in such classes of securities will
are determined to be liquid based upon exceed 10% of its total assets. (nf)
their trading markets will not, however,
be required to be included among the
securities considered to be illiquid for
purposes of the Fund's fundamental
policy regarding illiquid securities.)
- -----------------------------------------------------------------------------------------------------------------------------------
Warrants The Fund may not invest more The Fund may not invest more than
than 5% of its net assets in warrants 5% of its net assets in warrants, valued at
which are unattached to securities, lower of cost or market. In addition the
included within that amount, no more Trust on behalf of the Fund, will not invest
than 2% of the value of the Fund's net more than 2% of its net assets in warrants
assets, may be warrants which are not not listed on the New York or American
listed on the New York or American Stock Exchange. (nf)
Stock Exchanges. (F)
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing Savings - The Fund may also make
Deposits interest-bearing savings deposits in
commercial and savings banks in amounts
not in excess of 5% of the total assets of the
Fund. (nf)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-21
<PAGE> 101
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
BOND INCOME FUND AND INTERMEDIATE
SUBJECT MATTER OF RESTRICTION BOND INCOME FUND PILOT DIVERSIFIED BOND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pledging The Fund may not borrow money -
or pledge, mortgage or hypothecate its
assets, except that the Fund may enter
into reverse repurchase agreements or
borrow from banks up to 10% of the
current value of its net assets for
temporary or emergency purposes and
those borrowings may be secured by the
pledge of not more than 15% of the
current value of its total net assets (but
investments may not be purchased by the
Fund while any such borrowings exist).
(F)
- -----------------------------------------------------------------------------------------------------------------------------------
Issuers Held by Directors, The Fund may not purchase or -
Officers, or Affiliates retain the securities of any issuer, if
those individual officers and Trustees of
the Trust, BANK IV or AMR, Furman
Selz LLC, or Funds IV Distributor Inc.,
each owning beneficially more than 3/3
of 1% of the securities of such issuer,
together own more than 5% of the
securities of such issuer. (F)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-22
<PAGE> 102
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
BOND INCOME FUND AND INTERMEDIATE
SUBJECT MATTER OF RESTRICTION BOND INCOME FUND PILOT DIVERSIFIED BOND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Equivalents & All commercial paper purchased Cash equivalents, such as
Commercial Paper by the Fund is, at the time of commercial paper and other similar
investment, rated in one of the top two obligations purchased by the Fund that have
rating categories of at least one NRSRO, an original maturity of thirteen months or
or, if not rated is, in the opinion of Bank less, will either have short-term ratings at
IV or AMR, of an investment quality the time of purchase in the top two
comparable to rated commercial paper in categories by one or more NRSROs or be
which the Fund may invest. (nf) issued by issuers with such ratings.
Unrated instruments of these types
Investments in municipal purchased by the Fund will be determined
commercial paper are limited to by the Adviser to be of comparable quality.
commercial paper which is rated at the (nf)
date of purchase: (i) "P-1" by Moody's
and "A-1" or "A-1+" by S&P "P-2"
(Prime-2) or better by Moody's and
"A-2" or better by S&P or (ii) in a
comparable rating category by any two
of the NRSROs that have rated
commercial paper or (iii) in a
comparable rating category by only one
such organization if it is the only
organization that has rated the
commercial paper or (iv) if not rated, if,
in the opinion of BANK IV, of
comparable investment quality and
within the credit quality policies and
guidelines established by the Board of
Trustees. (nf)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-23
<PAGE> 103
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
BOND INCOME FUND AND INTERMEDIATE
SUBJECT MATTER OF RESTRICTION BOND INCOME FUND PILOT DIVERSIFIED BOND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Domestic & Foreign Bank The Fund limits its investment in The Fund limits its investments in
Obligations United States bank obligations to domestic banks to banks having total assets
obligations of United States banks in excess of $1 billion and subject to
(including foreign branches). (nf) 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. (nf)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-24
<PAGE> 104
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
BOND INCOME FUND AND INTERMEDIATE
SUBJECT MATTER OF RESTRICTION BOND INCOME FUND PILOT DIVERSIFIED BOND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Fund limits its investment in The Fund limits its investments in
foreign bank obligations to United States foreign bank obligations (i.e., obligations of
dollar denominated obligations of foreign branches and subsidiaries of
foreign banks (including United States domestic banks, and domestic and foreign
branches of foreign banks) which in the branches and agencies of foreign banks) to
opinion of BANK IV or AMR, are of an obligations of banks which at the time of
investment quality comparable to investment are branches or subsidiaries of
obligations of United States banks which domestic banks which meet the criteria in
may be purchased by the Fund. There the preceding paragraph or are branches or
is no limitation on the amount of the agencies of foreign banks which (i) have
Fund's assets which may be invested in more than $10 billion, or the equivalent in
obligations of foreign banks which meet other currencies, in total assets; (ii) in terms
these conditions. (nf) of assets are among the 75 largest foreign
banks in the world; (iii) have branches or
agencies in the United States; and (iv) in
the opinion of Boatmen's, pursuant to
criteria established by the Board of Trustees
of the Trust, are of an investment quality
comparable to obligations of domestic
banks which may be purchased by the
Fund. (nf)
The Fund limits its investments in
foreign bank obligations to banks, branches
and subsidiaries located in Western Europe
(United Kingdom, France, Germany,
Belgium, The Netherlands, Italy and
Switzerland), Scandinavia (Denmark and
Sweden), Australia, Japan, the Cayman
Islands, the Bahamas and Canada. (nf)
The Fund will limit its investment in
securities of foreign banks to not more than
10% of total assets at the time of
investment. (nf)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-25
<PAGE> 105
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
BOND INCOME FUND AND INTERMEDIATE
SUBJECT MATTER OF RESTRICTION BOND INCOME FUND PILOT DIVERSIFIED BOND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Municipal Notes Investments in municipal notes are -
limited to notes which are rated at the
date of purchase: (i) MIG 1 or MIG 2
by Moody's and in a comparable rating
category by at least one other nationally
recognized statistical rating organization
that has rated the notes, or (ii) in a
comparable rating category by only one
such organization, including Moody's, if
it is the only organization that has rated
the notes, or (iii) if not rated, are, in the
opinion of BANK IV, of comparable
investment quality and within the credit
quality policies and guidelines
established by the Board of Trustees.
(nf)
- -----------------------------------------------------------------------------------------------------------------------------------
Preferred Stock/Convertible Preferred Stock and convertible The Fund does not currently intend to
Securities securities are subject to a 35% of total purchase preferred stock or expect to invest
assets limitation to the extent that they more than 5% of net assets in convertible
do not qualify as fixed income securities securities. (nf)
for purposes of the requirement that at
least 65% of the Fund's total assets be
invested in fixed income securities. (nf)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-26
<PAGE> 106
<TABLE>
Cash Reserve Money Market Fund - Pilot Short-Term Diversified Assets Fund
-------------------------------------------------------------------------
<CAPTION>
SUBJECT MATTER OF RESTRICTION CASH RESERVE MONEY MARKET FUND PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Industry Concentration The Fund may not purchase a The Fund may not purchase
security if, as a result, more than 25% securities of any issuer if immediately after
of the value of its total assets would be such purchase the value of the Fund's
invested in securities of one or more investments in issuers conducting their
issuers conducting their principal principal business activity in any one
business activities in the same industry industry would exceed 25% of the value of
(except that the Fund may concentrate the Fund's total assets, provided that: (a)
its investments in obligations issued by the gas, electric, water and telephone
the banking industry), provided that (a) businesses will be considered separate
this limitation shall not apply to industries, (b) the personal credit and
obligations issued or guaranteed by the business credit businesses will be
U.S. Government or its agencies and considered separate industries, (c)
instrumentalities; (b) wholly owned wholly-owned finance companies will be
finance companies will be considered to considered to be in the industry of their
be in the industries of their parents; and parents if their activities are primarily
(c) utilities will be divided according to related to financing the activity of their
their services. For example, gas, gas parents, (d) there is no limitation with
transmission, electric and gas, electric, respect to or arising out of investments in
and telephone will each be considered a obligations issued or guaranteed by the
separate industry. (F) U.S. Government, its agencies and
instrumentalities or by banks and (e) the
Fund will invest more than 25% of the
value of its total assets in bank obligations
(whether foreign or domestic) except that if
adverse economic conditions prevail in the
banking industry the Fund may, for
defensive purposes, temporarily invest less
than 25% of the value of its total assets in
bank obligations (for the purposes of this
restriction, state and municipal governments
and their agencies or authorities are not
deemed to be industries). (F)
(For purposes of this investment
restriction, each foreign government will be
considered a separate industry.)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-27
<PAGE> 107
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SUBJECT MATTER OF RESTRICTION CASH RESERVE MONEY MARKET FUND PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lending The Fund may not make loans, The Fund may not make loans,
except loans of portfolio securities and except to the extent that the purchase of
except that the Fund may enter into debt obligations in accordance with the
repurchase agreements with respect to its Fund's investment objective and policies
portfolio securities and may purchase the and repurchase agreements with banks,
types of debt instruments described in its brokers, dealers and other financial
Prospectus or the Statement of institutions may be deemed to be loans. (F)
Additional Information. (F)
The Fund may lend its portfolio
securities in an amount up to 331/3% of
its total assets to brokers, dealers and
financial institutions, provided certain
regulatory conditions are met. (nf)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-28
<PAGE> 108
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SUBJECT MATTER OF RESTRICTION CASH RESERVE MONEY MARKET FUND PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Borrowing The Fund may not borrow money The Fund may not borrow money,
or pledge, mortgage or hypothecate its except: (a) as a temporary measure, and
assets, except that the Fund may enter then only in amounts not exceeding 5% of
into reverse repurchase agreements or the value of the Fund's total assets, or (b)
borrow from banks up to 10% of the from banks, provided that immediately after
current value of its net assets for any such borrowing all borrowings of the
temporary or emergency purposes and Fund do not exceed one-third of the Fund's
those borrowings may be secured by the total assets. While the Fund has
pledge of not more than 15% of the borrowings outstanding in an amount
current value of its total net assets (but exceeding 5% of its total assets, it will not
investments may not be purchased by the make any purchases of portfolio
Fund while any such borrowings exist). instruments. The Fund may not borrow
(F) money from Boatmen's Bancshares, Inc. or
any majority-owned subsidiary thereof. (F)
(The exceptions with regard to
borrowing are not for investment leverage
purposes, but are solely for extraordinary
or emergency purposes and to facilitate
management of the Fund by enabling the
Fund to meet redemption requests when the
liquidation of portfolio instruments is
deemed to be disadvantageous or not
possible. If, due to market fluctuations or
other reasons, the net assets of the Fund fall
below 300% of its borrowings, the Fund
will promptly reduce its borrowings in
accordance with the 1940 Act.)
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate, Oil and Gas, and The Fund may not invest in real The Fund may not purchase or sell
Commodities property (including limited partnership real estate (except securities secured by real
interests but excluding real estate estate or interests therein), commodities,
investment trusts and master limited commodity contracts or oil and gas
partnerships), commodities, commodity interests, or purchase any voting securities
contracts, or oil, gas and other mineral or invest in companies for the purpose of
resource, exploration, development, exercising control or management. (F)
lease or arbitrage transactions. (F)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-29
<PAGE> 109
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SUBJECT MATTER OF RESTRICTION CASH RESERVE MONEY MARKET FUND PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Underwriting and Short Sales The Fund may not engage in the The Fund may not act as an
business of underwriting securities of underwriter of securities (except as the
other issuers, except to the extent that Fund may be deemed to be an underwriter
the disposal of an investment position under the Securities Act of 1933 in
may technically cause it to be considered connection with the purchase and sale of
an underwriter as that term is defined instruments in accordance with its
under the Securities Act of 1933. (F) investment objective and portfolio
management policies), make short sales of
The Fund may not sell securities securities, or maintain a short position. (F)
short, except to the extent that the Fund
contemporaneously owns or has the right
to acquire at no additional cost securities
identical to those sold short. (F)
- -----------------------------------------------------------------------------------------------------------------------------------
Pledging The Fund may not borrow money The Fund may not mortgage, pledge
or pledge, mortgage or hypothecate its or hypothecate any assets, except to secure
assets, except that the Fund may enter permitted borrowings. (F)
into reverse repurchase agreements or
borrow from banks up to 10% of the
current value of its net assets for
temporary or emergency purposes and
those borrowings may be secured by the
pledge of not more than 15% of the
current value of its total net assets (but
investments may not be purchased by the
Fund while any such borrowings exist).
(F)
- -----------------------------------------------------------------------------------------------------------------------------------
Diversification The Fund will not, with respect to The Fund may not purchase the
75% of its total assets, invest more than securities of any issuer other than the U.S.
5% of its total assets in the securities of Government, its agencies or
any one issuer (except for U.S. instrumentalities, if immediately after such
Government securities), or purchase purchase, more than 5% of the value of the
more than 10% of the outstanding voting Fund's total assets would be invested in any
securities of any such issuer. (F) one issuer except that: (a) up to 25% of the
value of its total assets may be invested
(The Fund is subject to further without regard to such 5% limitation, and
diversification requirements (Rule 2a-7) (b) such 5% limitation shall not apply to
with respect to 100% of its assets. See repurchase agreements collateralized by
the separate discussion of the Fund's obligations of the U.S. Government, its
investment objective and policies.) agencies or instrumentalities. (F)
(The Fund is subject to further
diversification requirements (Rule 2a-7)
with respect to 100% of its assets. See
the separate discussion of the Fund's
investment objective and policies.)
(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).)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-30
<PAGE> 110
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SUBJECT MATTER OF RESTRICTION CASH RESERVE MONEY MARKET FUND PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Issuers Held by Directors, The Fund may not purchase or So long as it remains a policy of the
Officers, or Affiliates (OH) retain the securities of any issuer, if Ohio Division of Securities, the Fund may
those individual officers and Trustees of not purchase or retain the securities of an
the Trust, BANK IV or AMR, Furman issuer if, to the Fund's knowledge, those
Selz LLC, or Funds IV Distributor Inc., officers, directors or Trustees of the Fund
each owning beneficially more than 1/2 or its investment advisers, who individually
of 1% of the securities of such issuer, own beneficially more than 0.5% of the
together own more than 5% of the outstanding securities of such issuer
securities of such issuer. (F) together own beneficially more than 5% of
such outstanding securities. (nf)
- -----------------------------------------------------------------------------------------------------------------------------------
Unseasoned Issuers (OH) The Fund may not invest more So long as it remains a restriction of
than 5% of the current value of its total the Ohio Division of Securities, the Fund
asset in the securities of companies will not purchase securities of any issuer
which, including predecessors, have a with a record of less than three years'
record of less than three years' continuous operations, including
continuous operation. (F) 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 10%
of the Fund's total assets. (nf)
- -----------------------------------------------------------------------------------------------------------------------------------
Options The Fund may not write, The Fund will not invest in or write
purchase or sell puts, calls or puts, calls or combinations thereof (except
combinations thereof. (F) that the Fund may acquire puts in
connection with the acquisition of a debt
instrument). (nf)
- -----------------------------------------------------------------------------------------------------------------------------------
Margin The Fund may not purchase The Fund will not purchase securities
securities on margin, except that the on margin (except for delayed delivery or
Fund may obtain such short-term credits when-issued transactions or such short-term
as may be necessary for the clearance of credits as are necessary for the clearance of
purchases and sales of securities. (F) transactions). (nf)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-31
<PAGE> 111
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SUBJECT MATTER OF RESTRICTION CASH RESERVE MONEY MARKET FUND PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Illiquid Securities/Restricted The Fund may not invest more The Fund may purchase securities
Securities than 10% of the value of its net assets in that are not registered ("restricted
investments which are illiquid (including securities") under the Securities Act of
repurchase agreements having maturities 1933, including restricted securities offered
of more than seven calendar days, and sold to "qualified institutional buyers"
variable and floating rate demand and under Rule 144A under the Securities Act
master demand notes not requiring of 1933. However, the Fund will not
receipt of principal note amount within invest more than 10% of the value of its net
seven days notice and securities of assets in securities which are illiquid, which
foreign issuers which are not listed on a may include restricted securities, unless the
recognized domestic or foreign securities Board of Trustees determines, based upon a
exchange). (F) continuing review of the trading markets
for the specific restricted security, that such
(The adviser and AMR will restricted securities are liquid. (nf)
monitor the purchase of Rule 144A
securities to assure that the total of all
Rule 144A securities held by the Fund
does not exceed 10% of the Fund's
average daily net assets. Rule 144A
securities which are determined to be
liquid based upon their trading markets
will not, however, be required to be
included among the securities considered
to be illiquid for purposes of the Fund's
fundamental policy regarding illiquid
securities.)
- -----------------------------------------------------------------------------------------------------------------------------------
Senior Securities The Fund may not issue senior -
securities, except insofar as the Fund
may be deemed to have issued a senior
security in connection with any
repurchase agreement or any permitted
borrowing. (F)
- -----------------------------------------------------------------------------------------------------------------------------------
Other Investment Companies The Fund may not invest more -
than 10% of its net assets in shares of
other investment companies. (F)
- -----------------------------------------------------------------------------------------------------------------------------------
Warrants The Fund may not invest more -
than 5% of its net assets in warrants
which are unattached to securities,
included within that amount, no more
than 2% of the value of the Fund's net
assets, may be warrants which are not
listed on the New York or American
Stock Exchanges. (F)
- -----------------------------------------------------------------------------------------------------------------------------------
Loan Participations - The Fund may only purchase a participation
interest if it is issued by bank in the United
States with assets exceeding $1 billion. (nf)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-32
<PAGE> 112
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SUBJECT MATTER OF RESTRICTION CASH RESERVE MONEY MARKET FUND PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Control/Voting Securities The Fund may not invest in The Fund may not purchase any voting
companies for the purpose of exercising securities or invest in companies for the
control or management. (F) purpose of exercising control or
management. (F)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-33
<PAGE> 113
THE PILOT FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
(800) 817-4568
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO SPECIAL MEETING OF
SHAREHOLDERS OF THE FUNDS IV TRUST
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Proxy Statement/Prospectus dated August
__, 1996 for the Special Meeting of Shareholders of Aggressive Stock
Appreciation Fund, Value Stock Appreciation Fund, Stock Appreciation Fund, Bond
Income Fund, Intermediate Bond Income Fund, and Cash Reserve Money Market Fund
(collectively the "Funds IV Funds" or the "Reorganizing Funds" each a "Funds IV
Fund" or a "Reorganizing Fund"), each a series of FUNDS IV Trust ("Funds IV
Trust"), to be held on September __, 1996. Copies of the Combined Proxy
Statement/Prospectus may be obtained at no charge by calling Pilot Funds
Distributors, Inc. at 1-800-817-4568 (1-800-81-PILOT).
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Combined
Proxy Statement/Prospectus.
The audited financial statements including notes and the report of the
accountants thereon contained in the Annual Reports dated August 31, 1995 and
the audited financial statements including notes and the report of the
accountants thereon contained in the Semi-Annual Reports dated February 29,
1996, for Pilot Growth and Income Fund and Pilot Short-Term Diversified Assets
Fund are hereby incorporated herein by reference and included herewith. Pilot
Growth Fund and Pilot Diversified Bond Income Fund were not operational as of
February 29, 1996. No other parts of the Annual Reports or Semi-Annual Reports
are incorporated herein by reference.
Further information about the Reorganizing Funds is contained in and
incorporated by reference to Funds IV Trust's Statement of Additional
Information dated January 30, 1996, which is included herewith. The audited
financial statements for the Reorganizing Funds contained in their Annual
Report, dated June 30, 1995 and their unaudited financial statements contained
in their Semi-Annual Report dated December 31, 1995 are incorporated herein by
reference and included herewith. No other parts of the Annual Report or
Semi-Annual Report are incorporated herein by reference.
Further information about The Pilot Funds is contained in, and
incorporated herein by reference to, the Statements of Additional Information
for Pilot Growth Fund, Pilot Growth and Income Fund, Pilot Diversified Bond
Income Fund, and Pilot Short-Term Diversified Assets Fund (each an "Acquiring
Fund" and collectively, the "Acquiring Funds"), which are included herewith.
The date of this Statement of Additional Information is August __, 1996.
1
<PAGE> 114
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information................................................................. 3
Pro Forma Financial Statements...................................................... 4
Financial Statements for Pilot Growth and Income Fund...............................
Financial Statements for Pilot Short-Term Diversified Assets Fund...................
Financial Statements for FUNDS IV Trust.............................................
Statement of Additional Information for Pilot Growth Fund and Pilot Diversified
Bond Income Fund .................................................................
Statement of Additional Information for Pilot Growth and Income Fund................
Statement of Additional Information for Pilot Short-Term Diversified Assets Fund....
Statement of Additional Information for FUNDS IV Trust..............................
</TABLE>
2
<PAGE> 115
GENERAL INFORMATION
The shareholders of the Funds IV Funds are being asked to consider and
approve an Agreement and Plan of Reorganization (the "Reorganization Agreement")
by and between Funds IV Trust and The Pilot Funds and the transactions
contemplated thereby.
The Reorganization Agreement provides that each Reorganizing Fund will
transfer substantially all its assets and its stated liabilities corresponding
Acquiring Fund identified below opposite its name:
REORGANIZING FUNDS CORRESPONDING ACQUIRING FUNDS
- ------------------ -----------------------------
Aggressive Stock Appreciation Fund Pilot Growth Fund
Value Stock Appreciation Fund Pilot Growth and Income Fund
Stock Appreciation Fund Pilot Growth and Income Fund
Bond Income Fund Pilot Diversified Bond Income Fund
Intermediate Bond Income Fund Pilot Diversified Bond Income Fund
Cash Reserve Money Market Fund Pilot Short-Term Diversified Assets Fund
In exchange for the transfers of these assets and liabilities pursuant
to the Reorganization Agreement, The Pilot Funds will simultaneously issue
shares of each Acquiring Fund to its corresponding Reorganizing Fund according
to the pairings shown in the table above. Each Reorganizing Fund will then
distribute shares of the corresponding Acquiring Fund to its shareholders, in
liquidation of the Reorganizing Fund. As a result upon effectiveness of each
reorganization, the Reorganizing Fund will cease to exist and its shareholders
will be shareholders of the corresponding Acquiring Fund.
The Special Shareholders Meeting of Funds IV Trust to consider the
Reorganization Agreement and the related transactions will be held at the
offices of Furman Selz LLC, 237 Park Avenue, New York, New York, Suite 910, on
September __, 1996 at ______ _.m. Eastern Time.
For further information about these transactions, see the Combined Proxy
Statement/Prospectus.
3
<PAGE> 116
FUNDS IV TRUST
AGGRESSIVE STOCK APPRECIATION FUND
VALUE STOCK APPRECIATION FUND
STOCK APPRECIATION FUND
BOND INCOME FUND
INTERMEDIATE BOND INCOME FUND
CASH RESERVE MONEY MARKET FUND
THE PILOT FUNDS
PILOT GROWTH FUND
PILOT GROWTH AND INCOME FUND
PILOT DIVERSIFIED BOND INCOME FUND
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
INTRODUCTION TO PROPOSED FUND MERGERS
The accompanying unaudited Pro Forma Combined Statements of Assets and
Liabilities, Statements of Operations and Schedules of Portfolio Investments
reflect the accounts of Funds IV Trust -- including Aggressive Stock
Appreciation Fund, Value Stock Appreciation Fund, Stock Appreciation Fund, Bond
Income Fund, Intermediate Bond Income Fund and Cash Reserve Money Market Fund
- -- and The Pilot Funds -- including Pilot Growth Fund, Pilot Growth and Income
Fund, Pilot Diversified Bond Income Fund and Pilot Short-Term Diversified
Assets Fund -- as of and for the year ended February 29, 1996. These statements
have been derived from books and records utilized in calculating daily net
asset value at February 29, 1996.
<PAGE> 117
<TABLE>
Pilot Growth Fund
Pro Forma Combined Statement of Assets and Liabilities
February 29, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Funds IV Trust The Pilot Funds
Aggressive Stock Pilot Growth Pro Forma Pro Forma
Appreciation Fund Fund Adjustments Combined
----------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Investment in securities, at value (cost $49,428,753;
$49,428,753; respectively) $59,103,651 $59,103,651
Cash $ (7,050) (7,050)
Dividends receivable 59,252 59,252
Interest receivable 15,669 15,669
Deferred organization costs and other assets 18,155 18,155
- ---------------------------------------------------------------------------------------------------------------------------------
Total Assets 59,196,727 - (7,050) 59,189,677
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Advisory fees payable 34,762 34,762
Administration fees payable 6,999 6,999
Funds IV shareholder services payable 2,333 2,333
Other accrued expenses 71,164 71,164
- ---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 115,258 - - 115,258
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Net Assets $59,081,469 $ - $ (7,050) $59,074,419
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE (UNLIMITED NUMBER OF SHARES AUTHORIZED):
PILOT SHARES:
Net assets $ 59,074,419 $59,074,419
Shares of beneficial interest issued and outstanding 4,818,699 4,818,699
Net asset value $ 12.26
- ---------------------------------------------------------------------------------------------------------------------------------
SERVICE SHARES:
Net assets $59,074,419 $(59,074,419) $ -
Shares of beneficial interest issued and outstanding 4,818,699 (4,818,699) -
Net asset value $ 12.26
- ---------------------------------------------------------------------------------------------------------------------------------
PREMIUM SHARES:
Net assets $ 7,050 $ (7,050) $ -
Shares of beneficial interest issued and outstanding 575 (575) -
Net asset value $ 12.26
- ---------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $49,076,981 $ (7,050) $49,069,931
Undistributed net investment income (665,107) (665,107)
Accumulated undistributed net realized gains from
investment transactions 994,697 994,697
Net unrealized appreciation from investments 9,674,898 9,674,898
- ---------------------------------------------------------------------------------------------------------------------------------
Net Assets, February 29, 1996 $ 59,081,469 $ - $ (7,050) $59,074,419
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
See Notes to Pro Forma Combined Financial Statements.
</TABLE>
<PAGE> 118
<TABLE>
Pilot Growth Fund
Pro Forma Combined Statement of Operations
For the year ended February 29, 1996
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Funds IV Trust The Pilot Funds
Aggressive Stock Pilot Pro Forma Pro Forma
Appreciation Fund Growth Fund Adjustments Combined
----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 688,238 $ 688,238
Interest 116,722 116,722
- -------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 804,960 - - 804,960
- -------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 367,403 2,466 369,869
Administration fees 73,974 (17,261) 56,713
Shareholder servicing fees 24,658 (24,658) -
Custodian fees and expenses 14,794 (2,564) 12,230
Accounting fees 37,316 (4,241) 33,075
Audit fees 25,038 25,038
Transfer agent fees and expenses 3,568 3,568
Reports to shareholders 6,596 6,596
Registration fees 9,664 9,664
Amortization of organization expenses 4,527 4,527
Legal fees 8,409 8,409
Trustees' fees 4,290 4,290
Insurance expenses 2,629 2,629
Other expenses 4,387 4,387
- -------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 587,253 - (46,258) 565,653
- -------------------------------------------------------------------------------------------------------------------
Less: Fee waivers and expense reimbursements
by advisor, administrator, and distributor - (63,553) (88,211)
- -------------------------------------------------------------------------------------------------------------------
NET EXPENSES 587,253 - (109,811) 477,442
- -------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 217,707 - 109,811 327,518
- -------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS:
Net realized gains from investment
and futures transactions 906,293 906,293
Net change in unrealized appreciation
from investments and futures 13,688,402 13,688,402
- -------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENT 14,594,695 - - 14,594,695
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $14,812,402 $- $ 109,811 $14,922,213
===================================================================================================================
</TABLE>
- --------------------------------------------------------------
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 119
<TABLE>
PILOT GROWTH FUND
- -------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
FEBRUARY 29, 1996
(Unaudited)
- -------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Security Description Value
- -------------------------------------------------------------------------------------------------------
Funds IV Trust The Pilot Pro Forma Funds IV Trust The Pilot Pro Forma
Agressive Funds Agressive Funds
Stock Stock
Appreciation Pilot Growth Combined Appreciation Pilot Growth Combined
Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS--93.8%
CONSUMER CYCLICAL--10.1%
AUTO & TRUCKS--1.1%
20,500 20,500 Ford Motor Co. $ 640,625 $ $ 640,625
--------- ---------
HOMEBUILDERS--2.2%
69,000 69,000 Clayton Homes, Inc. 1,302,375 1,302,375
--------- ---------
MEDIA--6.8%
60,500 60,500 Bowne & Co., Inc. 1,134,375 1,134,375
80,000 80,000 Heritage Media Corp. 2,890,000 2,890,000
--------- ---------
4,024,375 4,024,375
--------- ---------
CONSUMER GOODS & STAPLES--3.9%
CONSUMER NON-DURABLE--2.6%
24,000 24,000 Nike Inc. Class B 1,557,000 1,557,000
--------- ---------
TOBACCO--1.3%
7,500 7,500 Philip Morris Cos., Inc. 742,500 742,500
--------- ---------
ENERGY--6.1%
OIL / GAS--4.0%
25,000 25,000 Amoco Corp. 1,737,500 1,737,500
14,000 14,000 Tosco Corp. 624,750 624,750
--------- ---------
2,362,250 2,362,250
--------- ---------
OIL / GAS EQUIPMENT--2.1%
46,000 46,000 Baker Hughes, Inc. 1,213,250 1,213,250
--------- ---------
FINANCE--14.9%
BANKING--6.1%
11,300 11,300 First Interstate Bancorp 1,846,138 1,846,138
</TABLE>
<PAGE> 120
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
10,500 10,500 Mellon Bank Corp. 586,687 586,687
26,000 26,000 State Street Boston Corp. 1,176,500 1,176,500
--------- ---------
3,609,325 3,609,325
--------- ---------
FINANCE-BROKERS--3.9%
34,000 34,000 Donaldson Lufkin &
Jenrette, Inc. 1,062,500 1,062,500
51,000 51,000 Lehman Brothers Holding, Inc. 1,262,250 1,262,250
--------- ---------
2,324,750 2,324,750
--------- ---------
FINANCIAL SERVICES--4.3%
18,000 18,000 American Express Co. 828,000 828,000
54,000 54,000 Federal National Mortgage
Association 1,707,750 1,707,750
--------- ---------
2,535,750 2,535,750
--------- ---------
INSURANCE--0.6%
6,800 6,800 ITT Hartford Group, Inc. 350,200 350,200
--------- ---------
HEALTH CARE--10.0%
MEDICAL SERVICES--1.9%
20,180 20,180 Columbia /HCA Healthcare Corp. 1,104,855 1,104,855
--------- ---------
PHARMACEUTICALS--8.1%
7,000 7,000 Allergan, Inc. 260,750 260,750
25,600 25,600 Amgen, Inc. 1,529,600 1,529,600
7,000 7,000 Johnson & Johnson 654,500 654,500
35,500 35,500 Merck & Co., Inc. 2,351,875 2,351,875
--------- ---------
4,796,725 4,796,725
--------- ---------
INDUSTRIAL GOODS AND SERVICES--18.5%
AEROSPACE / DEFENSE--2.6%
7,000 7,000 Lockheed Martin Corp. 533,750 533,750
18,100 18,100 Rockwell International Corp. 1,031,700 1,031,700
--------- ---------
1,565,450 1,565,450
--------- ---------
CHEMICALS--7.6%
10,000 10,000 Air Products & Chemicals, Inc. 532,500 532,500
27,400 27,400 Cabot Corp. 1,657,700 1,657,700
36,000 36,000 IMC Global, Inc. 1,485,000 1,485,000
6,150 6,150 Monsanto Co. 827,944 827,944
--------- ---------
4,503,144 4,503,144
--------- ---------
ELECTRICAL EQUIPMENT--0.9%
25,200 25,200 Baldor Electric Co. 548,100 548,100
--------- ---------
ELECTRONICS--0.2%
6,000 6,000 Teradyne, Inc. 122,250 122,250
--------- ---------
METALS, MINING, IRON--1.9%
34,000 34,000 Kennametal Inc. 1,100,750 1,100,750
--------- ---------
</TABLE>
<PAGE> 121
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
MINING--3.7%
72,000 72,000 Barrick Gold Corp. 2,178,000 2,178,000
--------- ---------
RAW MATERIALS--1.6%
16,500 16,500 Aluminum Company of America 936,375 936,375
--------- ---------
LEISURE--6.4%
ENTERTAINMENT--3.5%
31,500 31,500 Grand Casinos, Inc. 1,004,063 1,004,063
6,800 6,800 ITT Corp. 410,550 410,550
10,045 10,045 The Walt Disney Co. 657,947 657,947
--------- ---------
2,072,560 2,072,560
--------- ---------
RECREATION--1.9%
25,000 25,000 Coleman Co., Inc. 1,093,750 1,093,750
--------- ---------
TOYS--1.0%
17,812 17,812 Mattel, Inc. 592,249 592,249
--------- ---------
MANUFACTURING--2.8%
MACHINERY--2.5%
14,900 14,900 Atchinson Casting Corp. 178,800 178,800
24,700 24,700 Case Corp. 1,312,188 1,312,188
--------- ---------
1,490,988 1,490,988
--------- ---------
MANUFACTURING--0.3%
6,800 6,800 ITT Industries, Inc. 178,500 178,500
--------- ---------
MATERIALS & PROCESSING--1.1%
FOREST PRODUCTS & PAPERS--1.1%
16,000 16,000 Champion International Corp. 640,000 640,000
--------- ---------
RETAILING--4.5%
RETAIL-SPECIALTY LINE--4.5%
33,500 33,500 Corporate Express, Inc. 996,625 996,625
28,000 28,000 OfficeMax, Inc. 602,000 602,000
29,950 29,950 PetSmart, Inc. 1,040,762 1,040,762
--------- ---------
2,639,387 2,639,387
--------- ---------
TECHNOLOGY--12.6%
COMPUTER EQUIPMENT--7.1%
75,000 75,000 Comdisco, Inc. 1,537,500 1,537,500
46,000 46,000 Compaq Computer Corp. 2,328,750 2,328,750
</TABLE>
<PAGE> 122
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
3,400 3,400 Hewlett Packard Co. 342,550 342,550
--------- ---------
4,208,800 4,208,800
--------- ---------
COMPUTER SOFTWARE & SERVICES--1.3%
11,000 11,000 Computer Associates
International, Inc. 756,250 756,250
--------- ---------
TELECOMMUNICATIONS--4.2%
30,000 30,000 Equifax, Inc. 622,500 622,500
11,000 11,000 Motorola, Inc. 596,750 596,750
23,500 23,500 SBC Communications, Inc. 1,289,562 1,289,562
--------- ---------
2,508,812 2,508,812
--------- ---------
UTILITIES--2.9%
ELECTRIC--2.9%
43,000 43,000 California Energy Co., Inc. 956,750 956,750
5,500 5,500 Cilcorp, Inc. 236,500 236,500
16,000 16,000 Unicom Corp. 512,000 512,000
--------- ---------
1,705,250 1,705,250
----------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $45,729,697) 55,404,595 55,404,595
----------------------------------------------------------------------
MONEY MARKET ACCOUNT--6.2%
2,450,000 2,450,000 Federated Prime Obligation
Trust #10 2,450,000 2,450,000
1,249,056 1,249,056 Government Obligation Trust #5 1,249,056 1,249,056
----------------------------------------------------------------------
TOTAL MONEY MARKET ACCOUNTS
(COST $3,699,056) 3,699,056 3,699,056
----------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--100.0%
(COST $49,428,753) 59,103,651 59,103,651
LIABILITIES IN EXCESS
OF OTHER ASSETS--0.0% (22,182) (29,232)
---------------------------------------------------------------------
NET ASSETS--100.0% $59,081,469 $59,074,419
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 123
<TABLE>
Pilot Growth and Income Fund
Pro Forma Combined Statement of Assets and Liabilities
February 29, 1996
(Unaudited)
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Funds IV Trust Funds IV Trust The Pilot Funds
Value Stock Stock Pilot Growth and Income
Appreciation Fund Appreciation Fund Fund
----------------- ----------------- -----------------------
<S> <C> <C> <C>
ASSETS
Investment in securities, at value (cost $22,046,329;
$137,435,705; $129,847,775; $289,329,809;
respectively) $26,304,082 $164,198,903 $151,795,271
Repurchase agreements, at cost - - 9,241,000
-----------------------------------------------
26,304,082 164,198,903 161,036,271
Cash - 65,724 233
Dividends receivable 70,889 346,169 297,705
Interest receivable 2,028 27,762 1,373
Receivable for Portfolio shares sold - - 574,237
Receivable from brokers from investments sold - 516,081 -
Deferred organization costs and other assets 31,405 21,750 72,694
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 26,408,404 165,176,389 161,982,513
- -------------------------------------------------------------------------------------------------------------
LIABILITIES
Advisory fees payable 36,325 85,229 62,732
Administration fees payable 3,184 19,668 13,860
Distribution expenses payable (Class A Shares) 1,198
Distribution expenses payable (Class B Shares) 2,967
Funds IV shareholder services fees payable 1,061 6,556
Payable to brokers for investments purchased - - 1,292,275
Dividends payable - - 190,958
Payable for Portfolio shares redeemed - - 69,361
Other accrued expenses 135,981 39,234 71,122
- -------------------------------------------------------------------------------------------------------------
Total Liabilities 176,551 150,687 1,704,473
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
NET ASSETS $26,231,853 $165,025,702 $160,278,040
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE (UNLIMITED NUMBER OF SHARES AUTHORIZED):
PILOT SHARES:
Net assets $156,537,553
Shares of beneficial interest issued and outstanding 12,384,869
Net asset value $ 12.64
- -------------------------------------------------------------------------------------------------------------
SERVICE /CLASS A SHARES:
Net assets $26,231,777 $165,018,278 $ 1,762,540
Shares of beneficial interest issued and outstanding 2,125,426 12,803,324 139,471
Net asset value $ 12.34 $ 12.89 $ 12.64
- -------------------------------------------------------------------------------------------------------------
Sales charge-0.00%, 0.00%, 4.50%,
and 4.50%, respectively, of offering price $ - $ - $ 0.60
- -------------------------------------------------------------------------------------------------------------
Maximum offering price $ 12.34 $ 12.89 $ 13.24
- -------------------------------------------------------------------------------------------------------------
PREMIUM /CLASS B SHARES:
Net assets $ 76 $ 7,424 $ 1,977,947
Shares of beneficial interest issued and outstanding 6 576 156,394
Net asset value $ 12.34 $ 12.89 $ 12.65
- -------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $21,742,653 $129,674,889 $133,821,616
Undistributed net investment income 82,579 308,407 -
Accumulated undistributed net realized gains from
investment transactions 148,868 8,279,208 4,508,928
Net unrealized appreciation from investments 4,257,753 26,763,198 21,947,496
- -------------------------------------------------------------------------------------------------------------
Net Assets, February 29, 1996 $26,231,853 $165,025,702 $160,278,040
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Pro Forma Pro Forma
Adjustments Combined
<S> <C> <C>
ASSETS
Investment in securities, at value (cost $22,046,329;
$137,435,705; $289,329,809; respectively) $ 342,298,256
Repurchase agreements, at cost 9,241,000
--------------------------------
- 351,539,256
Cash $ (7,500) 58,457
Dividends receivable 714,763
Interest receivable 31,163
Receivable for Portfolio shares sold 574,237
Receivable from brokers from investments sold 516,081
Deferred organization costs and other assets 125,849
- ----------------------------------------------------------------------------------------------
TOTAL ASSETS (7,500) 353,559,806
- ----------------------------------------------------------------------------------------------
LIABILITIES
Advisory fees payable 184,286
Administration fees payable 36,712
Distribution expenses payable (Class A Shares) 1,198
Distribution expenses payable (Class B Shares) 2,967
Funds IV shareholder services fees payable 7,617
Payable to brokers for investments purchased 1,292,275
Dividends payable 190,958
Payable for Portfolio shares redeemed 69,361
Other accrued expenses 246,337
- ----------------------------------------------------------------------------------------------
Total Liabilities - 2,031,711
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
NET ASSETS $ (7,500) $351,528,095
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE (UNLIMITED NUMBER OF SHARES AUTHORIZED):
PILOT SHARES:
Net assets $ 191,250,055 $347,787,608
Shares of beneficial interest issued and outstanding 15,131,535 27,516,404
Net asset value $ 12.64
- ----------------------------------------------------------------------------------------------
SERVICE/CLASS A SHARES:
Net assets $(191,250,055) $ 1,762,540
Shares of beneficial interest issued and outstanding (14,928,750) 139,471
Net asset value $ 12.64
- ----------------------------------------------------------------------------------------------
Sales charge-0.00%, 0.00%, 4.50%,
and 4.50%, respectively, of offering price $ 0.60
- ----------------------------------------------------------------------------------------------
Maximum offering price $ 13.24
- ----------------------------------------------------------------------------------------------
PREMIUM/CLASS B SHARES:
Net assets $ (7,500) $ 1,977,947
Shares of beneficial interest issued and outstanding (582) 156,394
Net asset value $ 12.65
- ----------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $ (7,500) $285,231,658
Undistributed net investment income 390,986
Accumulated undistributed net realized gains from -
investment transactions 12,937,004
Net unrealized appreciation from investments 52,968,447
- ----------------------------------------------------------------------------------------------
Net Assets, February 29, 1996 $ (7,500) $351,528,095
- ----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 124
<TABLE>
Pilot Growth and Income Fund
Pro Forma Combined Statement of Assets and Liabilities
February 29, 1996
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Funds IV Trust The Pilot Funds
Value Stock Pilot Growth and Income Pro Forma Pro Forma
Appreciation Fund Fund Adjustments Combined
----------------- ----------------------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investment in securities, at value (cost $22,046,329;
$129,847,775; $151,894,104; respectively) $26,304,082 $151,795,271 $178,099,353
Repurchase agreements, at cost - 9,241,000 9,241,000
------------------------------------------------------------------------
26,304,082 161,036,271 - 187,340,353
Cash - 233 $ (76) 157
Dividends receivable 70,889 297,705 368,594
Interest receivable 2,028 1,373 3,401
Receivable for Portfolio shares sold - 574,237 574,237
Receivable from brokers from investments sold - - -
Deferred organization costs and other assets 31,405 72,694 104,099
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 26,408,404 161,982,513 (76) 188,390,841
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Advisory fees payable 36,325 62,732 99,057
Administration fees payable 3,184 13,860 17,044
Distribution expenses payable (Class A Shares) 1,198 1,198
Distribution expenses payable (Class B Shares) 2,967 2,967
Funds IV shareholder services payable 1,061 1,061
Payable to brokers for investments purchased - 1,292,275 1,292,275
Dividends payable - 190,958 190,958
Payable for Portfolio shares redeemed - 69,361 69,361
Other accrued expenses 135,981 71,122 207,103
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 176,551 1,704,473 - 1,881,024
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets $26,231,853 $160,278,040 $ (76) $186,509,817
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE (UNLIMITED NUMBER OF SHARES AUTHORIZED):
PILOT SHARES:
Net assets $156,537,553 $ 26,231,778 $182,769,331
Shares of beneficial interest issued and outstanding 12,384,869 2,074,981 14,459,850
Net asset value $ 12.64 $ 12.64
- ------------------------------------------------------------------------------------------------------------------------------------
SERVICE/CLASS A SHARES:
Net assets $26,231,778 $ 1,762,540 $(26,231,778) $ 1,762,540
Shares of beneficial interest issued and outstanding 2,125,426 139,471 (2,125,426) 139,471
Net asset value $ 12.34 $ 12.64 $ 12.64
- ------------------------------------------------------------------------------------------------------------------------------------
Sales charge-0.00%, 4.50%,
and 4.50%, respectively, of offering price $ - $ 0.60 $ 0.60
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum offering price $ 12.34 $ 13.24 $ 13.24
- ------------------------------------------------------------------------------------------------------------------------------------
PREMIUM/CLASS B SHARES:
Net assets $ 76 $ 1,977,947 $ (76) $ 1,977,947
Shares of beneficial interest issued and outstanding 6 156,394 (6) 156,394
Net asset value $ 12.34 $ 12.65 $ 12.65
- ------------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $21,742,653 $133,821,616 $ (76) $155,564,193
Undistributed net investment income 82,579 82,579
Accumulated undistributed net realized gains from -
investment transactions 148,868 4,508,928 4,657,796
Net unrealized appreciation from investments 4,257,753 21,947,496 26,205,249
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, February 29, 1996 $26,231,853 $160,278,040 $ (76) $186,509,817
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 125
<TABLE>
Pilot Growth and Income Fund
Pro Forma Combined Statement of Assets and Liabilities
February 29, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Funds IV Trust The Pilot Funds
Stock Pilot Growth and Income Pro Forma Pro Forma
Appreciation Fund Fund Adjustments Combined
----------------- ----------------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Investment in securities, at value (cost $137,435,705;
$129,847,775; $267,283,480; respectively) $164,198,903 $151,795,271 $315,994,174
Repurchase agreements, at cost - 9,241,000 9,241,000
------------------------------------------------------------------------
164,198,903 161,036,271 - 325,235,174
Cash 65,724 233 $ (7,424) 58,533
Dividends receivable 346,169 297,705 643,874
Interest receivable 27,762 1,373 29,135
Receivable for Portfolio shares sold - 574,237 574,237
Receivable from brokers from investments sold 516,081 - 516,081
Deferred organization costs and other assets 21,750 72,694 94,444
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 165,176,389 161,982,513 (7,424) 327,151,478
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Advisory fees payable 85,229 62,732 147,961
Administration fees payable 19,668 13,860 33,528
Distribution expenses payable (Class A Shares) 1,198 1,198
Distribution expenses payable (Class B Shares) 2,967 2,967
Funds IV shareholder services fees payable 6,556 6,556
Payable to brokers for investments purchased - 1,292,275 1,292,275
Dividends payable - 190,958 190,958
Payable for Portfolio shares redeemed - 69,361 69,361
Other accrued expenses 39,234 71,122 110,356
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 150,687 1,704,473 - 1,855,160
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets $165,025,702 $160,278,040 $ (7,424) $325,296,318
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE (UNLIMITED NUMBER OF SHARES AUTHORIZED):
PILOT SHARES:
Net assets $156,537,553 $ 165,018,278 $321,555,831
Shares of beneficial interest issued and outstanding 12,384,869 13,056,554 25,441,423
Net asset value $ 12.64 $ 12.64
- ------------------------------------------------------------------------------------------------------------------------------------
SERVICE /CLASS A SHARES:
Net assets $165,018,278 $ 1,762,540 $(165,018,278) $ 1,762,540
Shares of beneficial interest issued and outstanding 12,803,324 139,471 (12,803,324) 139,471
Net asset value $ 12.89 $ 12.64 $ 12.64
- ------------------------------------------------------------------------------------------------------------------------------------
Sales charge-0.00%, 4.50%,
and 4.50%, respectively, of offering price $ - $ 0.60 $ 0.60
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum offering price $ 12.89 $ 13.24 $ 13.24
- ------------------------------------------------------------------------------------------------------------------------------------
PREMIUM /CLASS B SHARES:
Net assets $ 7,424 $ 1,977,947 $ (7,424) $ 1,977,947
Shares of beneficial interest issued and outstanding 576 156,394 (576) 156,394
Net asset value $ 12.89 $ 12.65 $ 12.65
- ------------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $129,674,889 $133,821,616 $ (7,424) $263,489,081
Undistributed net investment income 308,407 308,407
Accumulated undistributed net realized gains from -
investment transactions 8,279,208 4,508,928 12,788,136
Net unrealized appreciation from investments 26,763,198 21,947,496 48,710,694
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, February 29, 1996 $165,025,702 $160,278,040 $ (7,424) $325,296,318
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 126
<TABLE>
Pilot Growth and Income Fund
Pro Forma Combined Statement of Operations
For the year ended February 29, 1996
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Funds IV Trust Funds IV Trust The Pilot Funds
Value Stock Stock Pilot Growth and Income Pro Forma Pro Forma
Appreciation Fund Appreciation Fund Fund Adjustments Combined
----------------- ----------------- ----------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes of $15,031) $ 572,946 $ 2,802,004 $ 2,742,940 $ - $ 6,117,890
Interest 168,595 326,201 281,311 776,107
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 741,541 3,128,205 3,024,251 - 6,893,997
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 145,204 910,706 895,128 162,448 2,113,486
Administration fees 33,508 210,163 131,420 (56,857) 318,234
Shareholder servicing fees 11,169 70,055 - (81,224) -
Distribution expenses (Class A Shares) 1,835 1,835
Distribution expenses (Class B Shares) 8,685 8,685
Custodian fees and expenses 20,558 42,032 69,323 (42,236) 89,677
Accounting fees 3,754 38,686 - (23,474) 18,966
Audit fees 6,702 26,621 52,509 85,832
Transfer agent fees and expenses 33,340 9,889 34,120 77,349
Reports to shareholders 2,307 16,590 22,880 41,777
Registration fees 9,153 30,327 49,701 89,181
Amortization of organization expenses 4,491 4,527 18,195 27,213
Legal fees 2,628 20,630 4,068 27,326
Trustees' fees 945 10,654 1,761 (11,599) 1,761
Insurance expenses 456 7,446 - 7,902
Other expenses 4,875 3,860 9,368 18,103
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 279,090 1,402,186 1,298,993 (52,942) 2,927,327
- -----------------------------------------------------------------------------------------------------------------------------------
Less: Fee waivers and expense reimbursements
by advisor, administrator, and distributor (23,774) (19,024) (404,849) 19,372 (428,275)
- -----------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 255,316 1,383,162 894,144 (33,570) 2,499,052
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 486,225 1,745,043 2,130,107 33,570 4,394,945
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS:
Net realized gains from investment
and futures transactions 521,724 11,837,933 7,042,824 19,402,481
Net change in unrealized appreciation
from investments and futures 5,462,557 38,264,383 16,667,921 60,394,861
- -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS FROM
INVESTMENTS S5,984,281 50,102,316 23,710,745 - 79,797,342
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $6,470,506 $51,847,359 $25,840,852 $ 33,570 $84,192,287
===================================================================================================================================
</TABLE>
- ----------------------------------------------------
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 127
<TABLE>
Pilot Growth and Income Fund
Pro Forma Combined Statement of Operations
For the year ended February 29, 1996
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------
Funds IV Trust The Pilot Funds
Value Stock Pilot Growth and Income Pro Forma Pro Forma
Appreciation Fund Fund Adjustments Combined
----------------- ----------------------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes of $15,031) $ 572,946 $ 2,742,940 $ - $ 3,315,886
Interest 168,595 281,311 449,906
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 741,541 3,024,251 - 3,765,792
- --------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 145,204 895,128 22,339 1,062,671
Administration fees 33,508 131,420 (7,819) 157,109
Shareholder servicing fees 11,169 - (11,169) -
Distribution expenses (Class A Shares) - 1,835 1,835
Distribution expenses (Class B Shares) - 8,685 8,685
Custodian fees and expenses 6,702 69,323 (5,808) 70,217
Accounting fees 33,340 - (2,457) 30,883
Audit fees 20,558 52,509 73,067
Transfer agent fees and expenses 3,754 34,120 37,874
Reports to shareholders 2,307 22,880 25,187
Registration fees 9,153 49,701 58,854
Amortization of organization expenses 4,491 18,195 22,686
Legal fees 2,628 4,068 6,696
Trustees' fees 945 1,761 (945) 1,761
Insurance expenses 456 - 456
Other expenses 4,875 9,368 14,243
- --------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 279,090 1,298,993 (5,859) 1,572,224
- --------------------------------------------------------------------------------------------------------------------------
Less: Fee waivers and expense reimbursements
by advisor, administrator, and distributor (23,774) (404,849) 2,144 (426,479)
- --------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 255,316 894,144 (3,715) 1,145,745
- --------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 486,225 2,130,107 3,715 2,620,047
- --------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS:
Net realized gains from investment
and futures transactions 521,724 7,042,824 7,564,548
Net change in unrealized appreciation
from investments and futures 5,462,557 16,667,921 - 22,130,478
- --------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENTS 5,984,281 23,710,745 - 29,695,026
- --------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $6,470,506 $25,840,852 $ 3,715 $32,315,073
==========================================================================================================================
</TABLE>
- -----------------------------------------------------
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 128
<TABLE>
Pilot Growth and Income Fund
Pro Forma Combined Statement of Operations
For the year ended February 29, 1996
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Funds IV Trust The Pilot Funds
Stock Pilot Growth and Income Pro Forma Pro Forma
Appreciation Fund Fund Adjustments Combined
----------------- ----------------------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes of $15,031) $ 2,802,004 $ 2,742,940 $ - $ 5,544,944
Interest 326,201 281,311 607,512
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 3,128,205 3,024,251 - 6,152,456
- ---------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 910,706 895,128 140,109 1,945,943
Administration fees 210,163 131,420 (49,038) 292,545
Shareholder servicing fees 70,055 - (70,055) -
Distribution expenses (Class A Shares) - 1,835 1,835
Distribution expenses (Class B Shares) - 8,685 8,685
Custodian fees and expenses 42,032 69,323 (36,428) 74,927
Accounting fees 38,686 - (21,016) 17,670
Audit fees 26,621 52,509 79,130
Transfer agent fees and expenses 9,889 34,120 44,009
Reports to shareholders 16,590 22,880 39,470
Registration fees 30,327 49,701 80,028
Amortization of organization expenses 4,527 18,195 22,722
Legal fees 20,630 4,068 24,698
Trustees' fees 10,654 1,761 (10,654) 1,761
Insurance expenses 7,446 7,446
Other expenses 3,860 9,368 13,228
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,402,186 1,298,993 (47,083) 2,654,096
- ---------------------------------------------------------------------------------------------------------------------------
Less: Fee waivers and expense reimbursements
by advisor, administrator, and distributor (19,024) (404,849) 17,229 (406,644)
- ---------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 1,383,162 894,144 (29,854) 2,247,452
- ---------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,745,043 2,130,107 29,854 3,905,004
- ---------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS:
Net realized gains from investment
and futures transactions 11,837,933 7,042,824 18,880,757
Net change in unrealized appreciation
from investments and futures 38,264,383 16,667,921 - 54,932,304
- ---------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENTS 50,102,316 23,710,745 - 73,813,061
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $51,847,359 $25,840,852 $ 29,854 $77,718,065
===========================================================================================================================
</TABLE>
- ----------------------------------------------------
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 129
PILOT GROWTH and INCOME FUND
<TABLE>
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(unaudited)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Shares Security Description
- ----------------------------------------------------------------------------------------------------------------
The Pilot Funds
Funds IV Trust Funds IV Trust Pilot Growth and
Value Stock Stock Income Pro Forma
Appreciation Fund Appreciation Fund Fund Combined
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS
CONSUMER CYCLICAL
AUTOMOTIVE
155,000 155,000 310,000 Ford Motor Co.
20,000 20,000 General Motors Corp.
19,020 19,020 Genuine Parts Co.
ENTERTAINMENT
26,000 26,000 ITT Corp.
40,550 40,550 The Walt Disney Co.
HOUSING & FURNISHING
70,000 70,000 Owens Corning Fiberglass Corp.
HOMEBUILDERS
75,000 75,000 Clayton Homes, Inc.
MEDIA
215,000 215,000 Tele-Communications, Inc., Class A
PUBLISHING & PRINTING
11,610 11,610 Dun & Bradstreet
21,805 21,805 John H. Harland Co.
RECREATION
32,000 32,000 Coleman Co., Inc.
RESTAURANT
9,804 9,804 McDonald's Corp.
TEXTILES
9,400 9,400 VF Corp.
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Security Description Value
- ---------------------------------------------------------------------------------------------------------------
The Pilot Funds
Funds IV Trust Funds IV Trust Pilot Growth and
Value Stock Stock Income Pro Forma
Appreciation Fund Appreciation Fund Fund Combined
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS
CONSUMER CYCLICAL
AUTOMOTIVE
Ford Motor Co. $ -- $4,843,750 $4,843,750 $ 9,687,500
General Motors Corp. 1,025,000 1,025,000
Genuine Parts Co. 813,105 813,105
---------- ---------- ---------- -----------
813,105 5,868,750 4,843,750 11,525,605
---------- ---------- ---------- -----------
ENTERTAINMENT
ITT Corp. 1,569,750 1,569,750
The Walt Disney Co. 2,656,025 2,656,025
---------- ---------- ---------- -----------
4,225,775 4,225,775
---------- ---------- ---------- -----------
HOUSING & FURNISHING
Owens Corning Fiberglass Corp. 2,843,750 2,843,750
---------- ---------- ---------- -----------
HOMEBUILDERS
Clayton Homes, Inc. 1,415,625 1,415,625
---------- ---------- ---------- -----------
MEDIA
Tele-Communications, Inc.,
Class A 4,515,000 4,515,000
---------- ---------- ---------- -----------
PUBLISHING & PRINTING
Dun & Bradstreet 734,333 734,333
John H. Harland Co. 487,887 487,887
---------- ---------- ---------- -----------
1,222,220 1,222,220
---------- ---------- ---------- -----------
RECREATION
Coleman Co., Inc. 1,400,000 1,400,000
---------- ---------- ---------- -----------
RESTAURANT
McDonald's Corp. 490,200 490,200
---------- ---------- ---------- -----------
TEXTILES
VF Corp. 505,250 505,250
---------- ---------- ---------- -----------
</TABLE>
<PAGE> 130
PILOT GROWTH and INCOME FUND
<TABLE>
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(unaudited)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Shares Security Description
- ----------------------------------------------------------------------------------------------------------------
The Pilot Funds
Funds IV Trust Funds IV Trust Pilot Growth and
Value Stock Stock Income Pro Forma
Appreciation Fund Appreciation Fund Fund Combined
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOYS
14,500 14,500 Mattel, Inc.
CONSUMER STAPLES
BEVERAGE & TOBACCO
10,345 65,000 75,345 Anheuser Busch Cos., Inc.
8,095 38,000 46,095 Coca-Cola Co.
14,000 14,000 Pepsico, Inc.
11,560 47,000 45,000 103,560 Philip Morris Cos., Inc.
23,410 23,410 UST, Inc.
FOOD PROCESSING
240,000 240,000 Archer Daniels Midland Co.
14,390 14,390 General Mills, Inc.
50,000 50,000 Sara Lee Corp.
ENERGY
INTEGRATED OIL
44,000 44,000 Amoco Corp.
20,775 20,775 Ashland, Inc.
4,713 40,000 44,713 Atlantic Richfield Co.
75,000 80,000 155,000 Chevron Corp.
8,452 39,000 47,452 Exxon Corp.
8,000 8,000 Mobil Corp.
4,635 8,000 44,000 56,635 Royal Dutch Petroleum Co. (ADR)
16,600 16,600 Tosco Corp.
FINANCE
BANKING
65,000 65,000 BankAmerica Corp.
75,000 75,000 Chemical Banking Corp.
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Security Description Value
- ---------------------------------------------------------------------------------------------------------------
The Pilot Funds
Funds IV Trust Funds IV Trust Pilot Growth and
Value Stock Stock Income Pro Forma
Appreciation Fund Appreciation Fund Fund Combined
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOYS
Mattel, Inc. 482,125 482,125
---------- ---------- ---------- -----------
CONSUMER STAPLES
BEVERAGE & TOBACCO
Anheuser Busch Cos., Inc. 696,994 4,379,375 5,076,369
Coca-Cola Co. 653,671 3,068,500 3,722,171
Pepsico, Inc. 885,500 885,500
Philip Morris Cos., Inc. 1,144,440 4,653,000 4,455,000 10,252,440
UST, Inc. 831,055 831,055
---------- ---------- ---------- -----------
3,326,160 8,607,000 8,834,375 20,767,535
---------- ---------- ---------- -----------
FOOD PROCESSING
Archer Daniels Midland Co. 4,620,000 4,620,000
General Mills, Inc. 827,425 827,425
Sara Lee Corp. 1,618,750 1,618,750
---------- ---------- ---------- -----------
827,425 1,618,750 4,620,000 7,066,175
---------- ---------- ---------- -----------
ENERGY
INTEGRATED OIL
Amoco Corp. 3,058,000 3,058,000
Ashland, Inc. 760,884 760,884
Atlantic Richfield Co. 516,074 4,380,000 4,896,074
Chevron Corp. 4,171,875 4,450,000 8,621,875
Exxon Corp. 671,934 3,100,500 3,772,434
Mobil Corp. 877,000 877,000
Royal Dutch Petroleum Co. (ADR) 638,471 1,102,000 6,061,000 7,801,471
Tosco Corp. 740,775 740,775
---------- ---------- ---------- -----------
2,587,363 13,050,150 14,891,000 30,528,513
---------- ---------- ---------- -----------
FINANCE
BANKING
BankAmerica Corp. 4,631,250 4,631,250
Chemical Banking Corp. 5,371,875 5,371,875
</TABLE>
<PAGE> 131
PILOT GROWTH and INCOME FUND
<TABLE>
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(unaudited)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Shares Security Description
- ----------------------------------------------------------------------------------------------------------------
The Pilot Funds
Funds IV Trust Funds IV Trust Pilot Growth and
Value Stock Stock Income Pro Forma
Appreciation Fund Appreciation Fund Fund Combined
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12,500 12,500 Mellon Bank Corp.
BROKERS
26,000 26,000 Donaldson Lufkin & Jenrette, Inc.
50,000 50,000 Lehman Brothers Holding, Inc.
FINANCIAL SERVICES
69,000 69,000 American Express Co.
20,000 20,000 Citicorp
52,000 52,000 Federal Home Loan Mortgage Corp.
25,640 82,000 107,640 Federal National Mortgage Association
10,160 36,000 46,160 J.P. Morgan & Co.
30,315 37,500 67,815 MBNA Corp.
HOLDING COMPANIES
70,000 70,000 Temple Inland, Inc.
INSURANCE
20,000 20,000 Aetna Life and Casualty Co.
8,438 34,100 42,538 American International Group, Inc.
7,070 7,070 Chubb Corp.
11,200 28,000 39,200 General RE Corp.
26,000 26,000 ITT Hartford Group, Inc.
50,000 50,000 Marsh & McClennan Companies, Inc.
HEALTHCARE
MEDICAL SERVICES
45,000 45,000 Columbia/HCA Healthcare Corp.
MEDICAL SUPPLIES & SERVICES
105,000 105,000 U.S. Healthcare, Inc.
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Security Description Value
- ---------------------------------------------------------------------------------------------------------------
The Pilot Funds
Funds IV Trust Funds IV Trust Pilot Growth and
Value Stock Stock Income Pro Forma
Appreciation Fund Appreciation Fund Fund Combined
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mellon Bank Corp. 698,438 698,438
---------- ---------- ---------- -----------
698,438 10,003,125 10,701,563
---------- ---------- ---------- -----------
BROKERS
Donaldson Lufkin & Jenrette, Inc. 812,500 812,500
Lehman Brothers Holding, Inc. 1,237,500 1,237,500
---------- ---------- ---------- -----------
2,050,000 2,050,000
---------- ---------- ---------- -----------
FINANCIAL SERVICES
American Express Co. 3,174,000 3,174,000
Citicorp 1,560,000 1,560,000
Federal Home Loan Mortgage
Corp. 4,290,000 4,290,000
Federal National Mortgage
Association 810,865 2,593,250 3,404,115
J.P. Morgan & Co. 831,850 2,947,500 3,779,350
MBNA Corp. 856,399 1,059,375 1,915,774
---------- ---------- ---------- -----------
2,499,114 11,334,125 4,290,000 18,123,239
---------- ---------- ---------- -----------
HOLDING COMPANIES
Temple Inland, Inc. 2,817,500 2,817,500
---------- ---------- ---------- -----------
INSURANCE
Aetna Life and Casualty Co. 1,512,500 1,512,500
American International Group, Inc. 815,322 3,294,913 4,110,235
Chubb Corp. 686,674 686,674
General RE Corp. 1,611,400 4,028,500 5,639,900
ITT Hartford Group, Inc. 1,339,000 1,339,000
Marsh & McClennan Companies, Inc. 4,856,250 4,856,250
---------- ---------- ---------- -----------
1,501,996 6,245,313 10,397,250 18,144,559
---------- ---------- ---------- -----------
HEALTHCARE
MEDICAL SERVICES
Columbia/HCA Healthcare Corp. 2,463,750 2,463,750
---------- ---------- ---------- -----------
MEDICAL SUPPLIES & SERVICES
U.S. Healthcare, Inc. 5,118,750 5,118,750
</TABLE>
<PAGE> 132
PILOT GROWTH and INCOME FUND
<TABLE>
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(unaudited)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Shares Security Description
- ----------------------------------------------------------------------------------------------------------------
The Pilot Funds
Funds IV Trust Funds IV Trust Pilot Growth and
Value Stock Stock Income Pro Forma
Appreciation Fund Appreciation Fund Fund Combined
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PERSONAL CARE
10,500 10,500 Proctor & Gamble Co.
12,300 12,300 Tambrands, Inc.
PHARMACEUTICALS
13,775 13,775 Abbott Laboratories
10,000 10,000 Amgen, Inc.
26,000 26,000 Eli Lily & Co.
12,000 12,000 Johnson & Johnson
14,545 102,000 64,576 181,121 Merck & Co., Inc.
11,500 11,500 Pfizer, Inc.
13,500 54,000 67,500 Schering-Plough Corp.
85,000 85,000 Smithkline Beecham
INDUSTRIAL GOODS & SERVICES
AEROSPACE
30,000 30,000 Boeing Co.
46,000 40,000 86,000 Lockheed Martin Corp.
16,674 51,000 100,000 167,674 Raytheon Co.
14,395 14,395 Rockwell Intl. Corp.
CHEMICALS
28,500 28,500 Cabot Corp.
22,700 22,700 Du Pont (E.I.) de Nemours & Co.
21,500 21,500 Morton International, Inc.
COMMERICAL SERVICES
145,000 145,000 WMX Technologies, Inc.
ELECTRONICS
11,030 22,000 33,030 General Electric Co.
13,695 13,695 Intel Corp.
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Security Description Value
- ---------------------------------------------------------------------------------------------------------------
The Pilot Funds
Funds IV Trust Funds IV Trust Pilot Growth and
Value Stock Stock Income Pro Forma
Appreciation Fund Appreciation Fund Fund Combined
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PERSONAL CARE
Proctor & Gamble Co. 861,000 861,000
Tambrands, Inc. 593,475 593,475
---------- ---------- ---------- -----------
593,475 861,000 1,454,475
---------- ---------- ---------- -----------
PHARMACEUTICALS
Abbott Laboratories 575,106 575,106
Amgen, Inc. 597,500 597,500
Eli Lily & Co. 1,573,000 1,573,000
Johnson & Johnson 1,122,000 1,122,000
Merck & Co., Inc. 963,606 6,757,500 4,278,160 11,999,266
Pfizer, Inc. 757,562 757,562
Schering-Plough Corp. 757,688 3,030,750 3,788,438
Smithkline Beecham 4,653,750 4,653,750
---------- ---------- ---------- -----------
1,538,712 11,565,250 11,962,660 25,066,622
---------- ---------- ---------- -----------
INDUSTRIAL GOODS & SERVICES
AEROSPACE
Boeing Co. 2,433,750 2,433,750
Lockheed Martin Corp. 3,507,500 3,050,000 6,557,500
Raytheon Co. 835,784 2,556,375 5,012,500 8,404,659
Rockwell Intl. Corp. 820,515 820,515
---------- ---------- ---------- -----------
1,656,299 8,497,625 8,062,500 18,216,424
---------- ---------- ---------- -----------
CHEMICALS
Cabot Corp. 1,724,250 1,724,250
Du Pont (E.I.) de Nemours & Co. 1,736,550 1,736,550
Morton International, Inc. 814,313 814,313
---------- ---------- ---------- -----------
4,275,113 4,275,113
---------- ---------- ---------- -----------
COMMERICAL SERVICES
WMX Technologies, Inc. 4,132,500 4,132,500
---------- ---------- ---------- -----------
ELECTRONICS
General Electric Co. 832,765 1,661,000 2,493,765
Intel Corp. 805,437 805,437
</TABLE>
<PAGE> 133
PILOT GROWTH and INCOME FUND
<TABLE>
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(unaudited)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Shares Security Description
- ----------------------------------------------------------------------------------------------------------------
The Pilot Funds
Funds IV Trust Funds IV Trust Pilot Growth and
Value Stock Stock Income Pro Forma
Appreciation Fund Appreciation Fund Fund Combined
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
18,000 18,000 Teradyne, Inc.
ELECTRICAL EQUIPMENT
45,135 45,135 Baldor Electric Co.
GLASS
10,460 10,460 PPG Industries, Inc.
MACHINERY
75,000 75,000 Case Corp.
14,500 14,500 Caterpillar, Inc.
30,000 30,000 Deere & Co.
METAL & PLASTIC
75,000 75,000 Cooper Industries, Inc.
107,000 107,000 Crown Cork & Seal, Inc.
TRANSPORTATION
17,518 17,518 Alexander & Baldwin, Inc.
10,000 10,000 Conrail, Inc.
MANUFACTURING
CONSUMER PRODUCTS
15,000 15,000 Gillette Co.
57,000 57,000 Kimberly Clark Corp.
INDUSTRIAL
26,000 26,000 ITT Industries, Inc.
HOUSEHOLD PRODUCTS
9,085 9,085 Minnesota Mining & Manufacturing Co.
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Security Description Value
- ---------------------------------------------------------------------------------------------------------------
The Pilot Funds
Funds IV Trust Funds IV Trust Pilot Growth and
Value Stock Stock Income Pro Forma
Appreciation Fund Appreciation Fund Fund Combined
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Teradyne, Inc. 366,750 366,750
---------- ---------- ---------- -----------
1,638,202 2,027,750 3,665,952
---------- ---------- ---------- -----------
ELECTRICAL EQUIPMENT
Baldor Electric Co. 981,686 981,686
---------- ---------- ---------- -----------
GLASS
PPG Industries, Inc. 485,082 485,082
---------- ---------- ---------- -----------
MACHINERY
Case Corp. 3,984,375 3,984,375
Caterpillar, Inc. 969,687 969,687
Deere & Co. 1,173,750 1,173,750
---------- ---------- ---------- -----------
6,127,812 6,127,812
---------- ---------- ---------- -----------
METAL & PLASTIC
Cooper Industries, Inc. 2,896,875 2,896,875
Crown Cork & Seal, Inc. 5,042,375 5,042,375
---------- ---------- ---------- -----------
7,939,250 7,939,250
---------- ---------- ---------- -----------
TRANSPORTATION
Alexander & Baldwin, Inc. 411,673 411,673
Conrail, Inc. 721,250 721,250
---------- ---------- ---------- -----------
411,673 721,250 1,132,923
---------- ---------- ---------- -----------
MANUFACTURING
CONSUMER PRODUCTS
Gillette Co. 811,875 811,875
Kimberly Clark Corp. 4,353,375 4,353,375
---------- ---------- ---------- -----------
811,875 4,353,375 5,165,250
---------- ---------- ---------- -----------
INDUSTRIAL
ITT Industries, Inc. 682,500 682,500
---------- ---------- ---------- -----------
HOUSEHOLD PRODUCTS
Minnesota Mining & Manufacturing
Co. 591,661 591,661
</TABLE>
<PAGE> 134
PILOT GROWTH and INCOME FUND
<TABLE>
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(unaudited)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Shares Security Description
- ----------------------------------------------------------------------------------------------------------------
The Pilot Funds
Funds IV Trust Funds IV Trust Pilot Growth and
Value Stock Stock Income Proforma
Appreciation Fund Appreciation Fund Fund Combined
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MATERIALS & PROCESSING
PAPER & FOREST PRODUCTS
8,000 20,000 28,000 Bristol-Myers Squibb Co.
15,000 15,000 Champion International Corp.
77,000 77,000 International Paper Co.
10,500 10,500 Union Camp Co.
MINING
105,000 105,000 Barrick Gold Corp.
RETAILING
56,000 56,000 Dayton Hudson Corp.
18,246 42,380 60,626 May Department Stores Co.
19,345 32,000 51,345 Wal-mart Stores, Inc.
DRUG STORES
14,000 14,000 Walgreen Co.
SPECIALTY STORES
145,000 145,000 Toys R Us
65,000 65,000 OfficeMax, Inc.
9,750 9,750 PETsMART, Inc.
TECHNOLOGY
COMPUTERS & OFFICE EQUIPMENT
100,000 100,000 Apple Computer
84,000 84,000 Comdisco, Inc.
80,000 80,000 Compaq Computer Corp.
8,500 8,500 Hewlett Packard Co.
9,000 9,000 Microsoft Corp.
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Security Description Value
- ---------------------------------------------------------------------------------------------------------------
The Pilot Funds
Funds IV Trust Funds IV Trust Pilot Growth and
Value Stock Stock Income Pro Forma
Appreciation Fund Appreciation Fund Fund Combined
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MATERIALS & PROCESSING
PAPER & FOREST PRODUCTS
Bristol-Myers Squibb Co. 681,000 1,702,500 2,383,500
Champion International Corp. 600,000 600,000
International Paper Co. 2,743,125 2,743,125
Union Camp Co. 489,563 489,563
---------- ---------- ---------- -----------
1,170,563 2,302,500 2,743,125 6,216,188
---------- ---------- ---------- -----------
MINING
Barrick Gold Corp. 3,176,250 3,176,250
---------- ---------- ---------- -----------
RETAILING
Dayton Hudson Corp. 4,165,000 4,165,000
May Department Stores Co. 850,720 1,975,968 2,826,688
Wal-mart Stores, Inc. 411,081 680,000 1,091,081
---------- ---------- ---------- -----------
1,261,801 680,000 6,140,968 8,082,769
---------- ---------- ---------- -----------
DRUG STORES
Walgreen Co. 462,000 462,000
---------- ---------- ---------- -----------
SPECIALTY STORES
Toys R Us 3,461,875 3,461,875
OfficeMax, Inc. 1,397,500 1,397,500
PETsMART, Inc. 338,812 338,812
---------- ---------- ---------- -----------
1,736,312 3,461,875 5,198,187
---------- ---------- ---------- -----------
TECHNOLOGY
COMPUTERS & OFFICE EQUIPMENT
Apple Computer 2,750,000 2,750,000
Comdisco, Inc. 1,722,000 1,722,000
Compaq Computer Corp. 4,050,000 4,050,000
Hewlett Packard Co. 856,375 856,375
Microsoft Corp. 888,188 888,188
---------- ---------- ---------- -----------
7,516,563 2,750,000 10,266,563
</TABLE>
<PAGE> 135
PILOT GROWTH and INCOME FUND
<TABLE>
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(unaudited)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Shares Security Description
- ----------------------------------------------------------------------------------------------------------------
The Pilot Funds
Funds IV Trust Funds IV Trust Pilot Growth and
Value Stock Stock Income Proforma
Appreciation Fund Appreciation Fund Fund Combined
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOFTWARE & SERVICES
117,000 117,000 Automatic Data Processing, Inc.
TELECOMMUNICATIONS
30,000 30,000 Equifax, Inc.
16,995 97,000 113,995 GTE Corp.
27,000 27,000 Motorola, Inc.
8,975 76,000 84,975 SBC Communications, Inc.
25,000 25,000 Telecommunications, Inc. Class A
UTILITIES
COMMUNICATION
40,000 92,000 132,000 AT&T Corp.
94,940 94,940 Heritage Media Corp.
170,000 170,000 MCI Communications Corp.
57,000 57,000 Motorola Inc.
ELECTRIC POWER
28,445 38,445 Central & South West Corp.
215,000 215,000 PacificCorp
125,000 130,000 255,000 Unicom Corp
GAS
16,869 16,869 Consolidated Natural Gas Co.
------------------------------------------
Total Common Stocks
------------------------------------------
U.S. TREASURY BILLS
------------------------------------------
20,000,000 20,000,000 U.S. Treasury Bills, 3/7/96
------------------------------------------
Total Treasury Bills
------------------------------------------
MONEY MARKET MUTUAL FUNDS
447,902 7,500,000 7,947,902 Federated Prime Obligation Trust
3,912,951 3,912,951 Federated Government Obligation Trust
------------------------------------------
Total Money Market Mutual Funds
------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Security Description Value
- ---------------------------------------------------------------------------------------------------------------
The Pilot Funds
Funds IV Trust Funds IV Trust Pilot Growth and
Value Stock Stock Income Pro Forma
Appreciation Fund Appreciation Fund Fund Combined
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOFTWARE & SERVICES
Automatic Data Processing, Inc. 4,533,750 4,533,750
---------- ---------- ---------- -----------
TELECOMMUNICATIONS
Equifax, Inc. 622,500 622,500
GTE Corp. 728,661 4,158,875 4,887,536
Motorola, Inc. 1,464,750 1,464,750
SBC Communications, Inc. 492,503 4,170,500 4,663,003
Telecommunications, Inc. Class A 525,000 525,000
---------- ---------- ---------- -----------
1,221,164 10,941,625 12,162,789
---------- ---------- ---------- -----------
UTILITIES
COMMUNICATION
AT&T Corp. 2,545,000 5,854,768 8,399,768
Heritage Media Corp. 3,429,707 3,429,707
MCI Communications Corp. 4,972,500 4,972,500
Motorola Inc. 3,092,250 3,092,250
---------- ---------- ---------- -----------
5,974,707 13,919,518 19,894,225
---------- ---------- ---------- -----------
ELECTRIC POWER
Central & South West Corp. 789,349 789,349
PacificCorp 4,461,250 4,461,250
Unicom Corp 4,000,000 4,160,000 8,160,000
---------- ---------- ---------- -----------
789,349 4,000,000 8,621,250 13,410,599
---------- ---------- ---------- -----------
GAS
Consolidated Natural Gas Co. 725,366 725,366
- ----------------------------------------------------------------------------------------------------------
Total Common Stocks 25,856,180 132,801,619 151,795,271 310,453,070
- ----------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS
- ----------------------------------------------------------------------------------------------------------
U.S. Treasury Bills, 3/7/96 19,984,333 19,984,333
- ----------------------------------------------------------------------------------------------------------
Total Treasury Bills 19,984,333 19,984,333
- ----------------------------------------------------------------------------------------------------------
MONEY MARKET MUTUAL FUNDS
Federated Prime Obligation Trust 447,902 7,500,000 7,947,902
Federated Government Obligation
Trust 3,912,951 3,912,951
- ----------------------------------------------------------------------------------------------------------
Total Money Market Mutual Funds 447,902 11,412,951 11,860,853
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 136
PILOT GROWTH and INCOME FUND
<TABLE>
PROFORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(unaudited)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Shares or Principal Security Description
- ----------------------------------------------------------------------------------------------------------------
The Pilot Funds
Funds IV Trust Funds IV Trust Pilot Growth and
Value Stock Stock Income Proforma
Appreciation Fund Appreciation Fund Fund Combined
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT
9,241,000 9,241,000 Repurchase agreement with State Street
Bank and Trust, 5.35%, dated 2/29/96
due 3/1/96
- ----------------------------------------------------------------------------------------------------------------
968,391 34,162,926 3,357,197 38,488,513 Total Investments--(cost $289,329,809)
Liabilities in excess of Other assets--
------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Security Description Value
- ---------------------------------------------------------------------------------------------------------------
The Pilot Funds
Funds IV Trust Funds IV Trust Pilot Growth and
Value Stock Stock Income Pro Forma
Appreciation Fund Appreciation Fund Fund Combined
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Repurchase agreement with State Street
Bank and Trust, 5.35%, dated 2/29/96
due 3/1/96 9,241,000 9,241,000
- -------------------------------------------------------------------------------------------------------------------
Total Investments--(cost $289,329,809)--100% 26,304,082 164,198,903 161,036,271 351,539,256
Liabilities in exess of other assets -- 0.0% (72,229) 826,799 (758,231) (11,161)
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS--100% $26,231,853 $165,025,702 $160,278,040 $351,528,095
- -------------------------------------------------------------------------------------------------------------------
<FN>
ADR - American Depository Receipt
* Non-income producing
- ----------
See Notes to Pro Forma Combined Financial Statements
- ----------
</TABLE>
<PAGE> 137
<TABLE>
PILOT GROWTH and INCOME FUND
- ---------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
Shares Security Description Value
- ---------------------------------------------------------------------------------------------------------------------------------
The Pilot Funds The Pilot Funds
Funds IV Trust Pilot Growth and Funds IV Trust Pilot Growth and
Value Stock Income Proforma Value Stock Income Pro Forma
Appreciation Fund Fund Combined Appreciation Fund Fund Combined
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CONSUMER CYCLICAL
AUTOMOTIVE
155,000 155,000 Ford Motor Co. $ $4,843,750 $ 4,843,750
General Motors Corp.
19,020 19,020 Genuine Parts Co. 813,105 813,105
---------- ---------- -----------
813,105 4,843,750 5,656,855
---------- ---------- -----------
HOUSING & FURNISHING
70,000 70,000 Owens Corning Fiberglass Corp. 2,843,750 2,843,750
---------- ---------- -----------
MEDIA
215,000 215,000 Tele-Communications, Inc., Class A 4,515,000 4,515,000
---------- ---------- -----------
PUBLISHING & PRINTING
11,610 11,610 Dun & Bradstreet Corp. 734,333 734,333
21,805 21,805 John H. Harland Co. 487,887 487,887
---------- ---------- -----------
1,222,220 1,222,220
---------- ---------- -----------
RESTAURANT
9,804 9,804 McDonald's Corp. 490,200 490,200
---------- ---------- -----------
TEXTILES
9,400 9,400 V F Corp. 505,250 505,250
---------- ---------- -----------
CONSUMER STAPLES
BEVERAGE & TOBACCO
10,345 65,000 75,345 Anheuser Busch Cos., Inc. 696,994 4,379,375 5,076,369
8,095 8,095 Coca-Cola Co. 653,671 653,671
11,560 45,000 56,560 Philip Morris Cos., Inc. 1,144,440 4,455,000 5,599,440
23,410 23,410 UST, Inc. 831,055 831,055
---------- ---------- -----------
3,326,160 8,834,375 12,160,535
---------- ---------- -----------
FOOD PROCESSING
240,000 240,000 Archer Daniels Midland Co. 4,620,000 4,620,000
14,390 14,390 General Mills, Inc. 827,425 827,425
---------- ---------- -----------
</TABLE>
<PAGE> 138
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
827,425 4,620,000 5,447,425
--------- ---------- ----------
ENERGY
INTEGRATED OIL
20,775 20,775 Ashland, Inc. 760,884 760,884
4,713 40,000 44,713 Atlantic Richfield Co. 516,074 4,380,000 4,896,074
80,000 80,000 Chevron Corp. 4,450,000 4,450,000
8,452 8,452 Exxon Corp. 671,934 671,934
4,635 44,000 48,635 Royal Dutch Petroleum Co. (ADR) 638,471 6,061,000 6,699,471
--------- ---------- ----------
2,587,363 14,891,000 17,478,363
--------- ---------- ----------
FINANCE
BANKING
65,000 65,000 BankAmerica Corp. 4,631,250 4,631,250
75,000 75,000 Chemical Banking Corp. 5,371,875 5,371,875
--------- ---------- ----------
10,003,125 10,003,125
--------- ---------- ----------
FINANCIAL SERVICES
52,000 52,000 Federal Home Loan Mortgage Corp. 4,290,000 4,290,000
25,640 25,640 Federal National Mortgage Association 810,865 810,865
10,160 10,160 J.P. Morgan & Co. 831,850 831,850
30,315 30,315 MBNA Corp. 856,399 856,399
--------- ---------- ----------
2,499,114 4,290,000 6,789,114
--------- ---------- ----------
HOLDING COMPANIES
70,000 70,000 Temple Inland, Inc. 2,817,500 2,817,500
--------- ---------- ----------
INSURANCE
20,000 20,000 Aetna Life and Casualty Co. 1,512,500 1,512,500
8,438 8,438 American International Group, Inc. 815,322 815,322
7,070 7,070 Chubb Corp. 686,674 686,674
28,000 28,000 General RE Corp. 4,028,500 4,028,500
50,000 50,000 Marsh & McClennan Companies, Inc. 4,856,250 4,856,250
--------- ---------- ----------
1,501,996 10,397,250 11,899,246
--------- ---------- ----------
MEDICAL SUPPLIES & SERVICES
105,000 105,000 U.S. Healthcare, Inc. 5,118,750 5,118,750
--------- ---------- ----------
PERSONAL CARE
12,300 12,300 Tambrands, Inc. 593,475 593,475
--------- ---------- ----------
593,475 593,475
--------- ---------- ----------
PHARMACEUTICALS
13,775 13,775 Abbott Laboratories 575,106 575,106
14,545 64,576 79,121 Merck & Co., Inc. 963,606 4,278,160 5,241,766
</TABLE>
<PAGE> 139
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
54,000 54,000 Schering-Plough Corp. 3,030,750 3,030,750
85,000 85,000 Smithkline Beecham 4,653,750 4,653,750
--------- ---------- ----------
1,538,712 11,962,660 13,501,372
--------- ---------- ----------
INDUSTRIAL GOODS & SERVICES
AEROSPACE
40,000 40,000 Lockheed Martin Corp. 3,050,000 3,050,000
16,674 100,000 116,674 Raytheon Co. 835,784 5,012,500 5,848,284
14,395 14,395 Rockwell Intl. Corp. 820,515 820,515
--------- ---------- ----------
1,656,299 8,062,500 9,718,799
--------- ---------- ----------
COMMERCIAL SERVICES
145,000 145,000 WMX Technologies, Inc. 4,132,500 4,132,500
--------- ---------- ----------
ELECTRONICS
11,030 11,030 General Electric Co. 832,765 832,765
13,695 13,695 Intel Corp. 805,437 805,437
--------- ---------- ----------
1,638,202 1,638,202
--------- ---------- ----------
GLASS
10,460 10,460 PPG Industries, Inc. 485,082 485,082
--------- ---------- ----------
METAL & PLASTIC
75,000 75,000 Cooper Industries, Inc. 2,896,875 2,896,875
107,000 107,000 Crown Cork & Seal, Inc. 5,042,375 5,042,375
--------- ---------- ----------
7,939,250 7,939,250
--------- ---------- ----------
TRANSPORTATION
17,518 17,518 Alexander & Baldwin, Inc. 411,673 411,673
--------- ---------- ----------
411,673 411,673
--------- ---------- ----------
MANUFACTURING
CONSUMER PRODUCTS
57,000 57,000 Kimberly Clark Corp. 4,353,375 4,353,375
--------- ---------- ----------
4,353,375 4,353,375
--------- ---------- ----------
HOUSEHOLD PRODUCTS
9,085 9,085 Minnesota Mining & Manufacturing Co. 591,661 591,661
--------- ---------- ----------
MATERIALS & PROCESSING
PAPER & FOREST PRODUCTS
8,000 8,000 Bristol-Myers Squibb Co. 681,000 681,000
77,000 77,000 International Paper Co. 2,743,125 2,743,125
10,500 10,500 Union Camp Corp. 489,563 489,563
--------- ---------- ----------
1,170,563 2,743,125 3,913,688
</TABLE>
<PAGE> 140
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
---------- ----------- -----------
RETAILING -
DEPARTMENT STORES -
56,000 56,000 Dayton Hudson Corp. 4,165,000 4,165,000
18,246 42,380 60,626 May Department Stores Co. 850,720 1,975,968 2,826,688
19,345 19,345 Wal-mart Stores, Inc. 411,081 411,081
---------- ----------- -----------
1,261,801 6,140,968 7,402,769
---------- ----------- -----------
SPECIALTY STORES -
145,000 145,000 Toys R Us 3,461,875 3,461,875
---------- ----------- -----------
3,461,875 3,461,875
---------- ----------- -----------
TECHNOLOGY -
COMPUTERS & OFFICE EQUIPMENT -
100,000 100,000 Apple Computer 2,750,000 2,750,000
---------- ----------- -----------
2,750,000 2,750,000
---------- ----------- -----------
SOFTWARE & SERVICES -
117,000 117,000 Automatic Data Processing, Inc. 4,533,750 4,533,750
---------- ----------- -----------
TELECOMMUNICATIONS -
16,995 16,995 GTE Corp. 728,661 728,661
8,975 8,975 SBC Communications, Inc. 492,503 492,503
---------- ----------- -----------
1,221,164 1,221,164
---------- ----------- -----------
UTILITIES -
92,000 92,000 AT & T Corp. 5,854,768 5,854,768
170,000 170,000 MCI Communications Corp. 4,972,500 4,972,500
57,000 57,000 Motorola Inc. 3,092,250 3,092,250
---------- ----------- -----------
13,919,518 13,919,518
---------- ----------- -----------
ELECTRIC POWER
28,445 28,445 Central & South West Corp. 789,349 789,349
215,000 215,000 PacificCorp 4,461,250 4,461,250
130,000 130,000 Unicom Corp. 4,160,000 4,160,000
---------- ----------- -----------
789,349 8,621,250 9,410,599
---------- ----------- -----------
GAS -
16,869 16,869 Consolidated Natural Gas Co. 725,366 725,366
------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 25,856,180 151,795,271 177,651,451
------------------------------------------------------------------------------------
MONEY MARKET MUTUAL FUNDS -
447,902 447,902 Federated Prime Obligation Trust 447,902 447,902
------------------------------------------------------------------------------------
Total Money Market Mutual Funds 447,902 447,902
------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
</TABLE>
<PAGE> 141
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
9,241,000 9,241,000 Repurchase agreement with State Street -
Bank and Trust, 5.35%, dated 2/29/96 -
due 3/1/96 -
9,241,000 9,241,000
- --------------------------------------------------------------------------------------------------------------------------------
968,391 3,357,197 4,325,588 Total Investments--(cost $151,894,104)--100.4% 26,304,082 161,036,271 187,340,353
Liabilities in excess of other assets--<0.4%> (72,229) (758,231) (830,536)
-------------------------------------------------------------------------------------------
NET ASSETS 100% 26,231,853 160,278,040 186,509,817
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------
See Notes to Pro Forma Combined Financial Statements.
- ---------------------
<PAGE> 142
<TABLE>
PILOT GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Security Description Value
- -----------------------------------------------------------------------------------------------------------------------------------
The Pilot Funds The Pilot Funds
Funds IV Trust Pilot Growth and Funds IV Trust Pilot Growth and
Stock Income Proforma Stock Income Pro Forma
Appreciation Fund Fund Combined Appreciation Fund Fund Combined
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSUMER CYCLICAL
AUTOMOTIVE
155,000 155,000 310,000 Ford Motor Co. $4,843,750 $4,843,750 9,687,500
20,000 20,000 General Motors Corp. 1,025,000 1,025,000
---------- ---------- ----------
5,868,750 4,843,750 10,712,500
---------- ---------- ----------
ENTERTAINMENT
26,000 26,000 ITT Corp. 1,569,750 1,569,750
40,550 40,550 The Walt Disney Co. 2,656,025 2,656,025
---------- ---------- ----------
4,225,775 4,225,775
---------- ---------- ----------
HOUSING & FURNISHING
70,000 70,000 Owens Corning Fiberglass Corp. 2,843,750 2,843,750
---------- ---------- ----------
HOMEBUILDERS
75,000 75,000 Clayton Homes, Inc. 1,415,625 1,415,625
---------- ---------- ----------
MEDIA
215,000 215,000 Tele-Communications, Inc., Class A 4,515,000 4,515,000
---------- ---------- ----------
RECREATION
32,000 32,000 Coleman Co., Inc. 1,400,000 1,400,000
---------- ---------- ----------
RESTAURANT
14,500 14,500 Mattel, Inc. 482,125 482,125
---------- ---------- ----------
CONSUMER STAPLES
BEVERAGE & TOBACCO
65,000 65,000 Anheuser Busch Cos., Inc. 4,379,375 4,379,375
38,000 38,000 Coca-Cola Co. 3,068,500 3,068,500
14,000 14,000 Pepsico, Inc. 885,500 885,500
47,000 45,000 92,000 Philip Morris Cos., Inc. 4,653,000 4,455,000 9,108,000
---------- ---------- ----------
8,607,000 8,834,375 17,441,375
---------- ---------- ----------
</TABLE>
<PAGE> 143
<TABLE>
PILOT GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Security Description Value
- ------------------------------------------------------------------------------------------------------------------------------------
The Pilot Funds The Pilot Funds
Funds IV Trust Pilot Growth and Funds IV Trust Pilot Growth and
Stock Income Proforma Stock Income Pro Forma
Appreciation Fund Fund Combined Appreciation Fund Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOOD PROCESSING
240,000 240,000 Archer Daniels Midland Co. 4,620,000 4,620,000
50,000 50,000 Sara Lee Corp. 1,618,750 1,618,750
---------- ---------- ----------
1,618,750 4,620,000 6,238,750
---------- ---------- ----------
ENERGY
INTEGRATED OIL
44,000 44,000 Amoco Corp. 3,058,000 3,058,000
40,000 40,000 Atlantic Richfield Co. 4,380,000 4,380,000
75,000 80,000 155,000 Chevron Corp. 4,171,875 4,450,000 8,621,875
39,000 39,000 Exxon Corp. 3,100,500 3,100,500
8,000 8,000 Mobil Corp. 877,000 877,000
8,000 44,000 52,000 Royal Dutch Petroleum Co. (ADR) 1,102,000 6,061,000 7,163,000
16,600 16,600 Tosco Corp. 740,775 740,775
---------- ---------- ----------
13,050,150 14,891,000 27,941,150
---------- ---------- ----------
FINANCE
BANKING
65,000 65,000 BankAmerica Corp. 4,631,250 4,631,250
75,000 75,000 Chemical Banking Corp. 5,371,875 5,371,875
12,500 12,500 Mellon Bank Corp. 698,438 698,438
---------- ---------- ----------
698,438 10,003,125 10,701,563
---------- ---------- ----------
BROKERS
26,000 26,000 Donaldson Lufkin & Jenrette, Inc. 812,500 812,500
50,000 50,000 Lehman Brothers Holding, Inc. 1,237,500 1,237,500
---------- ---------- ----------
2,050,000 2,050,000
---------- ---------- ----------
FINANCIAL SERVICES
69,000 69,000 American Express Co. 3,174,000 3,174,000
20,000 20,000 Citicorp 1,560,000 1,560,000
52,000 52,000 Federal Home Loan Mortgage Corp. 4,290,000 4,290,000
82,000 82,000 Federal National Mortgage Association 2,593,250 2,593,250
36,000 36,000 J.P. Morgan & Co. 2,947,500 2,947,500
37,500 37,500 MBNA Corp. 1,059,375 1,059,375
---------- ---------- ----------
</TABLE>
<PAGE> 144
<TABLE>
PILOT GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Security Description Value
- -----------------------------------------------------------------------------------------------------------------------------------
The Pilot Funds The Pilot Funds
Funds IV Trust Pilot Growth and Funds IV Trust Pilot Growth and
Stock Income Proforma Stock Income Pro Forma
Appreciation Fund Fund Combined Appreciation Fund Fund Combined
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
11,334,125 4,290,000 15,624,125
---------- ---------- ----------
Holding Companies
70,000 70,000 Temple Inland, Inc. 2,817,500 2,817,500
---------- ---------- ----------
INSURANCE
20,000 20,000 Aetna Life and Casualty Co. 1,512,500 1,512,500
34,100 34,100 American International Group, Inc. 3,294,913 3,294,913
11,200 28,000 39,200 General RE Corp. 1,611,400 4,028,500 5,639,900
26,000 26,000 ITT Hartford Group, Inc. 1,339,000 1,339,000
50,000 50,000 Marsh & McClennan Companies, Inc. 4,856,250 4,856,250
---------- ---------- ----------
6,245,313 10,397,250 16,642,563
---------- ---------- ----------
HEALTH CARE
MEDICAL SERVICES
45,000 45,000 Columbia/HCA Healthcare Corp. 2,463,750 2,463,750
---------- ---------- ----------
MEDICAL SUPPLIES & SERVICES
105,000 105,000 U.S. Healthcare, Inc. 5,118,750 5,118,750
---------- ---------- ----------
PERSONAL CARE
10,500 10,500 Proctor & Gamble Co. 861,000 861,000
---------- ---------- ----------
861,000 861,000
---------- ---------- ----------
PHARMACEUTICALS
Abbott Laboratories
10,000 10,000 Amgen, Inc. 597,500 597,500
26,000 26,000 Eli Lilly & Co. 1,573,000 1,573,000
12,000 12,000 Johnson & Johnson 1,122,000 1,122,000
102,000 64,576 166,576 Merck & Co., Inc. 6,757,500 4,278,160 11,035,660
11,500 11,500 Pfizer, Inc. 757,562 757,562
13,500 54,000 67,500 Schering-Plough Corp. 757,688 3,030,750 3,788,438
85,000 85,000 Smithkline Beecham 4,653,750 4,653,750
---------- ---------- ----------
11,565,250 11,962,660 23,527,910
---------- ---------- ----------
INDUSTRIAL GOODS & SERVICES
AEROSPACE
</TABLE>
<PAGE> 145
<TABLE>
PILOT GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Security Description Value
- ------------------------------------------------------------------------------------------------------------------------------------
The Pilot Funds The Pilot Funds
Funds IV Trust Pilot Growth and Funds IV Trust Pilot Growth and
Stock Income Proforma Stock Income Pro Forma
Appreciation Fund Fund Combined Appreciation Fund Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
30,000 30,000 Boeing Co. 2,433,750 2,433,750
46,000 40,000 86,000 Lockheed Martin Corp. 3,507,500 3,050,000 6,557,500
51,000 100,000 151,000 Raytheon Co. 2,556,375 5,012,500 7,568,875
--------- --------- ----------
8,497,625 8,062,500 16,560,125
--------- --------- ----------
CHEMICALS
28,500 28,500 Cabot Corp. 1,724,250 1,724,250
22,700 22,700 Du Pont (E.I.) de Nemours & Co. 1,736,550 1,736,550
21,500 21,500 Morton International, Inc. 814,313 814,313
--------- --------- ----------
4,275,113 4,275,113
--------- --------- ----------
COMMERCIAL SERVICES
145,000 145,000 WMX Technologies, Inc. 4,132,500 4,132,500
--------- --------- ----------
ELECTRONICS
22,000 22,000 General Electric Co. 1,661,000 1,661,000
18,000 18,000 Teradyne, Inc. 366,750 366,750
--------- --------- ----------
2,027,750 2,027,750
--------- --------- ----------
ELECTRICAL EQUIPMENT
45,135 45,135 Baldor Electric Co. 981,686 981,686
--------- --------- ----------
MACHINERY
75,000 75,000 Case Corp. 3,984,375 3,984,375
14,500 14,500 Caterpillar, Inc. 969,687 969,687
30,000 30,000 Deere & Co. 1,173,750 1,173,750
--------- --------- ----------
6,127,812 6,127,812
--------- --------- ----------
METAL & PLASTIC
75,000 75,000 Cooper Industries, Inc. 2,896,875 2,896,875
107,000 107,000 Crown Cork & Seal, Inc. 5,042,375 5,042,375
--------- --------- ----------
7,939,250 7,939,250
--------- --------- ----------
TRANSPORTATION
10,000 10,000 Conrail, Inc. 721,250 721,250
--------- --------- ----------
721,250 721,250
--------- --------- ----------
</TABLE>
<PAGE> 146
<TABLE>
PILOT GROWTH AND INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Security Description Value
- ----------------------------------------------------------------------------------------------------------------------------------
The Pilot Funds The Pilot Funds
Funds IV Trust Pilot Growth and Funds IV Trust Pilot Growth and
Stock Income Proforma Stock Income Pro Forma
Appreciation Fund Fund Combined Appreciation Fund Fund Combined
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MANUFACTURING
CONSUMER PRODUCTS
15,000 15,000 Gillette Co. 811,875 811,875
57,000 57,000 Kimberly Clark Corp. 4,353,375 4,353,375
--------- --------- ---------
811,875 4,353,375 5,165,250
--------- --------- ---------
INDUSTRIAL
26,000 26,000 ITT Industries, Inc. 682,500 682,500
--------- --------- ---------
MATERIALS & PROCESSING
PAPER & FOREST PRODUCTS
20,000 20,000 Bristol-Myers Squibb Co. 1,702,500 1,702,500
15,000 15,000 Champion International Corp. 600,000 600,000
77,000 77,000 International Paper Co. 2,743,125 2,743,125
--------- --------- ---------
2,302,500 2,743,125 5,045,625
--------- --------- ---------
MINING
105,000 105,000 Barrick Gold Corp. 3,176,250 3,176,250
--------- --------- ---------
RETAILING
DEPARTMENT STORES
56,000 56,000 Dayton Hudson Corp. 4,165,000 4,165,000
42,380 42,380 May Department Stores Co. 1,975,968 1,975,968
32,000 32,000 Wal-mart Stores, Inc. 680,000 680,000
--------- --------- ---------
680,000 6,140,968 6,820,968
--------- --------- ---------
DRUG STORES
14,000 14,000 Walgreen Co. 462,000 462,000
--------- --------- ---------
SPECIALTY STORES
145,000 145,000 Toys R Us 3,461,875 3,461,875
65,000 65,000 OfficeMax, Inc. 1,397,500 1,397,500
9,750 9,750 PETsMART, Inc. 338,812 338,812
--------- --------- ---------
1,736,312 3,461,875 5,198,187
--------- --------- ---------
</TABLE>
<PAGE> 147
<TABLE>
PILOT GROWTH AND INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Security Description Value
- ----------------------------------------------------------------------------------------------------------------------------------
The Pilot Funds The Pilot Funds
Funds IV Trust Pilot Growth and Funds IV Trust Pilot Growth and
Stock Income Proforma Stock Income Pro Forma
Appreciation Fund Fund Combined Appreciation Fund Fund Combined
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TECHNOLOGY
COMPUTERS & OFFICE EQUIPMENT
100,000 100,000 Apple Computer 2,750,000 2,750,000
84,000 84,000 Comdisco, Inc. 1,722,000 1,722,000
80,000 80,000 Compaq Computer Corp. 4,050,000 4,050,000
8,500 8,500 Hewlett Packard Co. 856,375 856,375
9,000 9,000 Microsoft Corp. 888,188 888,188
----------- ----------- -----------
7,516,563 2,750,000 10,266,563
----------- ----------- -----------
SOFTWARE & SERVICES
117,000 117,000 Automatic Data Processing, Inc. 4,533,750 4,533,750
----------- ----------- -----------
TELECOMMUNICATIONS
30,000 30,000 Equifax, Inc. 622,500 622,500
97,000 97,000 GTE Corp. 4,158,875 4,158,875
27,000 27,000 Motorola, Inc. 1,464,750 1,464,750
76,000 76,000 SBC Communications, Inc. 4,170,500 4,170,500
25,000 25,000 Telecommunicatons, Inc. Class A 525,000 525,000
----------- ----------- -----------
10,941,625 10,941,625
----------- ----------- -----------
UTILITIES
COMMUNICATION
40,000 92,000 132,000 AT & T Corp. 2,545,000 5,854,768 8,399,768
94,940 94,940 Heritage Media Corp. 3,429,707 3,429,707
170,000 170,000 MCI Communications Corp. 4,972,500 4,972,500
57,000 57,000 Motorola Inc. 3,092,250 3,092,250
----------- ----------- -----------
5,974,707 13,919,518 19,894,225
----------- ----------- -----------
ELECTRIC POWER
215,000 215,000 PacificCorp 4,461,250 4,461,250
125,000 130,000 255,000 Unicom Corp. 4,000,000 4,160,000 8,160,000
----------- ----------- -----------
4,000,000 8,621,250 12,621,250
----------- ----------- -----------
GAS
Consolidated Natural Gas Co.
--------------------------------------------------------------------------------------
Total Common Stocks 132,801,619 151,795,271 284,596,890
--------------------------------------------------------------------------------------
U.S. TREASURY BILLS
</TABLE>
<PAGE> 148
<TABLE>
PILOT GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares or Principal Security Description Value
- --------------------------------------------------------------------------------------------------------------------------------
The Pilot Funds The Pilot Funds
Funds IV Trust Pilot Growth and Funds IV Trust Pilot Growth and
Stock Income Proforma Stock Income Pro Forma
Appreciation Fund Fund Combined Appreciation Fund Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
20,000,000 20,000,000 U.S. Treasury Bills, 3/7/96 19,984,333 19,984,333
------------------------------------------------------------------------------------
Total U.S. Treasury Bills 19,984,333 19,984,333
------------------------------------------------------------------------------------
MONEY MARKET MUTUAL FUNDS
7,500,000 7,500,000 Federated Prime Obligation Trust 7,500,000 7,500,000
3,912,951 3,912,951 Federated Government Obligation Trust 3,912,951 3,912,951
------------------------------------------------------------------------------------
Total Money Market Mutual Funds 11,412,951 11,412,951
------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
9,241,000 9,241,000 Repurchase agreement with State Street
Bank and Trust, 5.35%, dated 2/29/96
due 3/1/96
9,241,000 9,241,000
- -----------------------------------------------------------------------------------------------------------------------------------
34,162,926 3,357,197 37,520,123 Total Investments--(cost $267,283,480)
--100.0% 164,198,903 161,036,271 325,235,174
Other assets in excess of liabilities--0.0% 826,799 (758,231) 61,144
------------------------------------------------------------------------------------
NET ASSETS--100.0% 165,025,702 160,278,040 325,296,318
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
ADR - American Depository Receipt
* Non-income producing security.
</TABLE>
- ------------------
See Notes to Pro Forma Combined Financial Statements.
- ------------------
<PAGE> 149
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
Pilot Diversified Bond Fund
Pro Forma Combined Statement of Assets and Liabilities
February 29, 1996
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Funds IV Trust Funds IV Trust The Pilot Funds
Bond Intermediate Bond Pilot Diversified Bond
Income Fund Income Fund Fund
-------------- ----------------- ----------------------
<S> <C> <C> <C>
ASSETS
Investment in securities, at value (cost $32,009,258;
$119,943,896; and $151,953,154; respectively) $ 32,483,564 $ 122,397,004 $ -
Cash 453
Dividends receivable
Interest receivable 351,026 2,015,631
Receivable for Portfolio shares sold
Receivable from brokers from investments sold
Deferred organization costs and other assets 16,691 21,303
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 32,851,734 124,433,938 -
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES
Advisory fees payable 22,869 40,100
Administration fees payable 4,134 15,038
Distribution expenses payable (Class A Shares)
Distribution expenses payable (Class B Shares)
Funds IV shareholder services payable 1,275 5,013
Payable to brokers for investments purchased
Dividends payable 131,534 567,909
Payable for Portfolio shares redeemed -
Other accrued expenses 21,132 535,127
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities 180,944 1,163,187 -
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 32,670,790 $ 123,270,751 $ -
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE (UNLIMITED NUMBER OF SHARES AUTHORIZED):
PILOT SHARES:
Net assets
Shares of beneficial interest issued and outstanding
Net asset value
- ------------------------------------------------------------------------------------------------------------------
SERVICE SHARES:
Net assets $ 32,664,389 $ 123,264,487
Shares of beneficial interest issued and outstanding 3,116,308 12,028,356
Net asset value $ 10.48 $ 10.25
- ------------------------------------------------------------------------------------------------------------------
PREMIUM SHARES:
Net assets $ 6,401 $ 6,264
Shares of beneficial interest issued and outstanding 611 $ 611
Net asset value $ 10.48 $ 10.25
- ------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
PAID-in capital 32,031,521 119,803,691
Accumulated undistributed net realized gains from -
investment and futures transactions 164,963 1,013,952
Net unrealized appreciation from investments and futures 474,306 2,453,108
- ------------------------------------------------------------------------------------------------------------------
Net Assets, February 29, 1996 $ 32,670,790 $ 123,270,751 $ -
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Pro Forma Pro Forma
Adjustments Combined
------------- -------------
<S> <C> <C>
ASSETS
Investment in securities, at value (cost $32,009,258;
$119,943,896; and $151,953,154; respectively) $154,880,568
Cash $ (12,665) (12,212)
Dividends receivable -
Interest receivable 2,366,657
Receivable for Portfolio shares sold -
Receivable from brokers from investments sold -
Deferred organization costs and other assets 37,994
- ----------------------------------------------------------------------------------------------
TOTAL ASSETS (12,665) 157,273,007
- ----------------------------------------------------------------------------------------------
LIABILITIES
Advisory fees payable 62,969
Administration fees payable 19,172
Distribution expenses payable (Class A Shares) -
Distribution expenses payable (Class B Shares) -
Funds IV shareholder services payable 6,288
Payable to brokers for investments purchased -
Dividends payable 699,443
Payable for Portfolio shares redeemed -
Other accrued expenses 556,259
- ----------------------------------------------------------------------------------------------
Total Liabilities - 1,344,131
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
NET ASSETS $ (12,665) $155,928,876
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE (UNLIMITED NUMBER OF SHARES AUTHORIZED):
PILOT SHARES:
Net assets $ 155,928,876 $ 155,928,876
Shares of beneficial interest issued and outstanding 15,214,591 15,214,591
Net asset value $ 10.25
- ----------------------------------------------------------------------------------------------
SERVICE SHARES:
Net assets $(155,928,876)
Shares of beneficial interest issued and outstanding (15,144,664)
Net asset value
- ----------------------------------------------------------------------------------------------
PREMIUM SHARES:
Net assets $ (12,665)
Shares of beneficial interest issued and outstanding (1,222)
Net asset value
- ----------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital (12,665) $151,822,547
Accumulated undistributed net realized gains from -
investment and futures transactions 1,178,915
Net unrealized appreciation from investments and futures 2,927,414
- ----------------------------------------------------------------------------------------------
Net Assets, February 29, 1996 $ (12,665) $155,928,876
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 150
- -------------------------------------------------------------------------------
<TABLE>
Pilot Diversified Bond Fund
Pro Forma Combined Statement of Assets and Liabilities
February 29, 1996
- ----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Funds IV Trust The Pilot Funds
Bond Pilot Diversified Pro Forma Pro Forma
Income Fund Bond Fund Adjustments Combined
-------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investment in securities, at value (cost $32,009,258;
$32,009,258; respectively) $32,483,564 $- $32,483,564
Cash 453 $ (6,401) (5,948)
Interest receivable 351,026 351,026
Deferred organization costs and other assets 16,691 16,691
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets 32,851,734 - (6,401) 32,845,333
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Advisory fees payable 22,869 22,869
Administration fees payable 4,134 4,134
Funds IV shareholder services payable 1,275 1,275
Dividends payable 131,534 131,534
Other accrued expenses 21,132 21,132
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 180,944 - - 180,944
============================================================================================================================
Net Assets $32,670,790 $- $ (6,401) $32,664,389
============================================================================================================================
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE (UNLIMITED NUMBER OF SHARES AUTHORIZED):
PILOT SHARES:
Net assets $ 32,664,389 $32,664,389
Shares of beneficial interest issued and outstanding 3,116,308 3,116,308
Net asset value $ 10.48
============================================================================================================================
SERVICE SHARES:
Net assets $32,664,389 $(32,664,389) $ -
Shares of beneficial interest issued and outstanding 3,116,308 (3,116,308) -
Net asset value $ 10.48
============================================================================================================================
PREMIUM SHARES:
Net assets $ 6,401 $ (6,401) $ -
Shares of beneficial interest issued and outstanding 611 (611) -
Net asset value $ 10.48
============================================================================================================================
COMPOSITION OF NET ASSETS:
Paid-in capital 32,031,521 $ (6,401) $32,025,120
Accumulated undistributed net realized gains from -
investment and futures transactions 164,963 164,963
Net unrealized appreciation from investments and futures 474,306 474,306
============================================================================================================================
Net Assets, February 29, 1996 $32,670,790 $- $ (6,401) $32,664,389
============================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 151
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Pilot Diversified Bond Fund
Pro Forma Combined Statement of Assets and Liabilities
February 29, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Funds IV Trust The Pilot Funds
Intermediate Bond Pilot Diversified Bond Pro Forma Pro Forma
Income Fund Fund Adjustments Combined
----------------- ----------------------- --------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Investment in securities, at value (cost $119,943,896;
$119,943,896; respectively) $122,397,004 $- $122,397,004
Cash $ (6,264) (6,264)
Interest receivable 2,015,631 2,015,631
Deferred organization costs and other assets 21,203 21,203
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets 124,433,938 - (6,264) 124,427,674
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Advisory fees payable 40,100 40,100
Administration fees payable 15,038 15,038
Funds IV shareholder services payable 5,013 5,013
Dividends payable 567,909 567,909
Other accrued expenses 535,127 535,127
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,163,187 - - 1,163,187
===================================================================================================================================
Net Assets $123,270,751 $- $ (6,264) $123,264,487
===================================================================================================================================
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE (UNLIMITED NUMBER OF SHARES AUTHORIZED):
PILOT SHARES:
Net assets $ 123,264,487 $123,264,487
Shares of beneficial interest issued and outstanding 12,028,356 12,028,356
Net asset value $ 10.25
===================================================================================================================================
SERVICE SHARES:
Net assets $123,264,487 $(123,264,487) $ -
Shares of beneficial interest issued and outstanding 12,028,356 (12,028,356) -
Net asset value $ 10.25
===================================================================================================================================
PREMIUM SHARES:
Net assets $ 6,264 $ (6,264) $ -
Shares of beneficial interest issued and outstanding 611 (611) -
Net asset value $ 10.25
===================================================================================================================================
COMPOSITION OF NET ASSETS:
Paid-in capital $119,803,691 $ (6,264) $119,797,427
Accumulated undistributed net realized gains from
investment and futures transactions 1,013,952 1,013,952
Net unrealized appreciation from investments and futures 2,453,108 2,453,108
===================================================================================================================================
Net Assets, February 29, 1996 $123,270,751 $- $ (6,264) $123,264,487
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 152
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
Pilot Diversified Bond Fund
Pro Forma Combined Statement of Operations
For the year ended February 29, 1996
- ------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Funds IV Trust Funds IV Trust The Pilot Funds
Bond Intermediate Bond Pilot Diversified Bond Pro Forma Pro Forma
Income Fund Income Fund Fund Adjustments Combined
-------------- ---------------- ---------------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $1,299,267 $ 8,644,207 $- $ - $ 9,943,474
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 1,299,267 8,644,207 - - 9,943,474
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 79,918 515,811 223,398 819,127
Administration fees 29,970 193,429 (52,126) 171,273
Shareholder servicing fees 9,990 64,476 (74,466) -
Custodian fees and expenses 5,994 38,685 (38,722) 5,957
Accounting fees 35,929 39,239 (21,891) 53,277
Audit fees 21,460 28,000 49,460
Transfer agent fees and expenses 825 6,215 7,040
Reports to shareholders 2,103 16,147 18,250
Registration fees 3,739 29,694 33,433
Amortization of organization expenses 4,527 4,527 9,054
Legal fees 2,562 21,829 24,391
Trustees' fees 1,520 10,594 (1,520) 10,594
Insurance expenses 998 7,629 8,627
Other expenses 1,237 4,889 6,126
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 200,772 981,164 - 34,672 1,216,608
- -----------------------------------------------------------------------------------------------------------------------------------
Less: Fee waivers and expense reimbursements
by advisor, administrator, and distributor (16,265) (15,904) (222,954) (255,123)
- -----------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 184,507 965,260 - (188,282) 961,485
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,114,760 7,678,947 - 188,282 8,981,989
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS:
Net realized gains from investment
transactions 283,991 1,229,135 1,513,126
Net change in unrealized appreciation
from investments 1,014,151 6,094,008 - 7,108,159
- -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS FROM INVESTME 1,298,142 7,323,143 - - 8,621,285
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $2,412,902 $15,002,090 $- $ 188,282 $17,603,274
====================================================================================================================================
</TABLE>
- -------------------------------------------------------------
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 153
- ------------------------------------------------------------------
<TABLE>
Pilot Diversified Bond Fund
Pro Forma Combined Statement of Operations
For the year ended February 29, 1996
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Funds IV Trust The Pilot Funds
Bond Pilot Diversified Bond Pro Forma Pro Forma
Income Fund Fund Adjustments Combined
--------------- ---------------------- ----------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $1,299,267 $- $ - $1,299,267
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 1,299,267 - - 1,299,267
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 79,918 29,969 109,887
Administration fees 29,970 (6,933) 22,977
Shareholder servicing fees 9,990 (9,990) -
Custodian fees and expenses 5,994 (5,195) 799
Accounting fees 35,929 (1,259) 34,670
Audit fees 21,460 21,460
Transfer agent fees and expenses 825 825
Reports to shareholders 2,103 2,103
Registration fees 3,739 3,739
Amortization of organization expenses 4,527 4,527
Legal fees 2,562 2,562
Trustees' fees 1,520 1,520
Insurance expenses 998 998
Other expenses 1,237 1,237
- ----------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 200,772 - 6,533 207,305
- ----------------------------------------------------------------------------------------------------------------------
Less: Fee waivers and expense reimbursements
by advisor, administrator, and distributor (16,265) (66,133) (82,378)
- ----------------------------------------------------------------------------------------------------------------------
NET EXPENSES 184,507 - (59,580) 124,927
- ----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,114,760 - 59,580 1,174,340
- ----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS:
Net realized gains from investment
transactions 283,991 283,991
Net change in unrealized appreciation
from investments 1,014,151 - 1,014,151
- ----------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENTS 1,298,142 - - 1,298,142
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $2,412,902 $- $ 59,580 $2,472,482
======================================================================================================================
</TABLE>
- ------------------------------------------------------------------
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 154
- --------------------------------------------------------------------------------
<TABLE>
Pilot Diversified Bond Fund
Pro Forma Combined Statement of Operations
For the year ended February 29, 1996
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Funds IV Trust The Pilot Funds
Bond Pilot Diversified Bond Pro Forma Pro Forma
Income Fund Fund Adjustments Combined
-------------- ---------------------- ----------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 8,644,207 $- $ - $ 8,644,207
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 8,644,207 - - 8,644,207
- -----------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 515,811 193,429 709,240
Administration fees 193,429 (45,133) 148,296
Shareholder servicing fees 64,476 (64,476) -
Custodian fees and expenses 38,685 (33,528) 5,157
Accounting fees 39,239 (24,501) 14,738
Audit fees 28,000 28,000
Transfer agent fees and expenses 6,215 6,215
Reports to shareholders 16,147 16,147
Registration fees 29,694 29,694
Amortization of organization expenses 4,527 4,527
Legal fees 21,829 21,829
Trustees' fees 10,594 10,594
Insurance expenses 7,629 7,629
Other expenses 4,889 4,889
- -----------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 981,164 - 25,791 1,006,955
- -----------------------------------------------------------------------------------------------------------------------
LESS: FEE WAIVERS AND EXPENSE REIMBURSEMENTS
BY ADVISOR, ADMINISTRATOR, AND DISTRIBUTOR (15,904) (337,489) (353,393)
- -----------------------------------------------------------------------------------------------------------------------
NET EXPENSES 965,260 - (311,699) 653,561
- -----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 7,678,947 - 311,699 7,990,646
- -----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS:
Net realized gains from investment
transactions 1,229,135 1,229,135
Net change in unrealized appreciation
from investments 6,094,008 - 6,094,008
- -----------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENTS 7,323,143 - - 7,323,143
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $15,002,090 $- $ 311,699 $15,313,789
=======================================================================================================================
</TABLE>
- ------------------------------------------------------------------
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 155
<TABLE>
PILOT DIVERSIFIED BOND FUND
- -----------------------------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(Unaudited)
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Principal
Amount
- -----------------------------------------------------------------------------------------------------
Funds IV Trust Funds IV Trust The Pilot Funds
Bond Intermediate Bond Pilot Diversified Pro Forma
Income Fund Income Fund Bond Fund Combined
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS - 36.3%
AEROSPACE / DEFENSE - 2.5%
3,500,000 3,500,000 International Lease Finance Corp.
AUTO & TRUCKS - 1.1%
1,500,000 1,500,000 Ford Motor Co.
BANKING - 2.3%
500,000 3,000,000 3,500,000 Nationsbank Corp.
CONSUMER NON-DURABLE - 2.6%
500,000 3,500,000 4,000,000 J.C. Penney & Co.
FINANCIAL SERVICES - 19.8%
500,000 3,000,000 3,500,000 Associates Corp. N.A.
500,000 3,500,000 4,000,000 AT&T Capital Corporation MTN
500,000 500,000 Capital Holding Corp.
300,000 300,000 Dean Witter Discover & Co.
2,500,000 2,500,000 Dean Witter Discover & Co.
500,000 2,000,000 2,500,000 Ford Motor-Global Bond
500,000 4,500,000 5,000,000 GE Capital Corporation MTN
3,000,000 3,000,000 General Motors Acceptance Corp.
4,000,000 4,000,000 Household Finance Corp.
500,000 4,000,000 4,500,000 National Rural Utilities
500,000 500,000 Texaco Capital
OIL / GAS - 0.5%
700,000 700,000 Shell Oil Co.
RETAIL - 2.8%
550,000 550,000 Wal-mart Stores, Inc.
500,000 3,000,000 3,500,000 Wal-mart Stores, Inc.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Maturity
Rate Date Value
- ------------------------------------------------------------------------------------------------------------------------
Funds IV Trust Funds IV Trust The Pilot Funds
Bond Intermediate Bond Pilot Diversified Pro Forma
Income Fund Income Fund Bond Fund Combined
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 36.3%
AEROSPACE / DEFENSE - 2.5%
International Lease Finance Corp. 8.26% 2/15/05 $ - $ 3,845,625 $ - $ 3,845,625
------------------------------------------------------------
AUTO & TRUCKS - 1.1%
Ford Motor Co. 9.00% 9/15/01 1,687,500 1,687,500
------------------------------------------------------------
BANKING - 2.3%
Nationsbank Corp. 7.50% 2/15/97 508,750 3,052,500 3,561,250
------------------------------------------------------------
CONSUMER NON-DURABLE - 2.6%
J.C. Penney & Co. 6.88% 6/15/99 511,875 3,583,125 4,095,000
------------------------------------------------------------
FINANCIAL SERVICES - 19.8%
Associates Corp. N.A. 7.50% 5/15/99 521,875 3,131,250 3,653,125
AT&T Capital Corporation MTN 7.59% 1/31/97 510,045 3,570,315 4,080,360
Capital Holding Corp. 8.90% 10/20/99 541,875 541,875
Dean Witter Discover & Co. 6.25% 3/15/00 300,375 300,375
Dean Witter Discover & Co. 6.75% 8/15/00 2,559,375 2,559,375
Ford Motor-Global Bond 6.25% 2/26/98 504,375 2,017,500 2,521,875
GE Capital Corporation MTN 7.85% 1/17/97 510,865 4,597,785 5,108,650
General Motors Acceptance Corp. 7.88% 2/28/97 3,071,639 3,071,639
Household Finance Corp. 6.38% 6/30/00 4,020,000 4,020,000
National Rural Utilities 6.50% 9/15/02 507,500 4,060,000 4,567,500
Texaco Capital 9.00% 11/15/96 511,875 511,875
------------------------------------------------------------
2,855,035 28,081,614 30,936,649
------------------------------------------------------------
OIL / GAS - 0.5%
Shell Oil Co. 6.70% 8/15/02 718,375 718,375
------------------------------------------------------------
RETAIL - 2.8%
Wal-mart Stores, Inc. 5.50% 3/1/98 547,250 547,250
Wal-mart Stores, Inc. 8.63% 4/1/01 554,375 3,326,250 3,880,625
------------------------------------------------------------
554,375 3,873,500 4,427,875
------------------------------------------------------------
</TABLE>
<PAGE> 156
<TABLE>
PILOT DIVERSIFIED BOND FUND
- -----------------------------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(Unaudited)
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Principal
Amount
- --------------------------------------------------------------------------------------------------
Funds IV Trust Funds IV Trust The Pilot Funds
Bond Intermediate Bond Pilot Diversified Pro Forma
Income Fund Income Fund Bond Fund Combined
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TELECOMMUNICATIONS - 4.7%
3,500,000 3,500,000 BellSouth Telecom
4,000,000 4,000,000 GTE North, Inc., Debt Series A
- -----------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
- -----------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES- 62.6%
U.S. TREASURY BONDS - 3.7%
2,750,000 2,750,000 U.S. Treasury Bonds
1,000,000 1,000,000 U.S. Treasury Bonds
1,500,000 1,500,000 U.S. Treasury Bonds
U.S. TREASURY NOTES - 58.8%
2,000,000 2,000,000 U.S. Treasury Notes
1,000,000 6,000,000 7,000,000 U.S. Treasury Notes
3,000,000 7,000,000 10,000,000 U.S. Treasury Notes
7,000,000 7,000,000 U.S. Treasury Notes
10,000,000 10,000,000 U.S. Treasury Notes
8,000,000 8,000,000 U.S. Treasury Notes
1,000,000 1,000,000 U.S. Treasury Notes
3,000,000 3,000,000 U.S. Treasury Notes
500,000 4,000,000 4,500,000 U.S. Treasury Notes
1,000,000 2,000,000 3,000,000 U.S. Treasury Notes
5,000,000 5,000,000 U.S. Treasury Notes
2,000,000 8,000,000 10,000,000 U.S. Treasury Notes
1,500,000 1,500,000 U.S. Treasury Notes
2,000,000 7,000,000 9,000,000 U.S. Treasury Notes
1,750,000 1,750,000 U.S. Treasury Notes
1,000,000 1,000,000 U.S. Treasury Notes
500,000 4,000,000 4,500,000 U.S. Treasury Notes
TOTAL U.S. TREASURY SECURITIES
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Maturity
Rate Date Value
- -----------------------------------------------------------------------------------------------------------------------
Funds IV Trust Funds IV Trust The Pilot Funds
Bond Intermediate Bond Pilot Diversified Pro Forma
Income Fund Income Fund Bond Fund Combined
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS - 4.7%
BellSouth Telecom 6.40% 6/15/04 3,486,875 $ 3,486,875
GTE North, Inc., Debt Series A 6.00% 1/15/04 3,895,000 3,895,000
-----------------------------------------------------------
7,381,875 7,381,875
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS 5,148,410 51,505,739 56,654,149
- -----------------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES- 62.6%
U.S. TREASURY BONDS - 3.7%
U.S. Treasury Bonds 7.25% 5/15/16 2,950,695 2,950,695
U.S. Treasury Bonds 8.13% 8/15/19 1,175,260 1,175,260
U.S. Treasury Bonds 7.63% 2/15/25 1,701,600 1,701,600
-----------------------------------------------------------
5,827,555 5,827,555
-----------------------------------------------------------
U.S. TREASURY NOTES - 58.8%
U.S. Treasury Notes 5.90% 7/31/97 2,014,560 2,014,560
U.S. Treasury Notes 5.13% 3/31/98 994,600 5,967,599 6,962,199
U.S. Treasury Notes 6.13% 5/15/98 3,042,480 7,099,119 10,141,599
U.S. Treasury Notes 8.88% 11/15/98 7,578,060 7,578,060
U.S. Treasury Notes 6.75% 5/31/99 10,336,200 10,336,200
U.S. Treasury Notes 7.50% 10/31/99 8,491,200 8,491,200
U.S. Treasury Notes 7.75% 12/31/99 1,071,710 1,071,710
U.S. Treasury Notes 7.13% 2/29/00 3,155,160 3,155,160
U.S. Treasury Notes 6.25% 5/31/00 510,380 4,083,040 4,593,420
U.S. Treasury Notes 5.25% 1/31/01 980,880 1,961,760 2,942,640
U.S. Treasury Notes 7.75% 2/15/01 5,430,150 5,430,150
U.S. Treasury Notes 6.38% 8/15/02 2,051,379 8,205,518 10,256,897
U.S. Treasury Notes 5.75% 8/15/03 1,477,665 1,477,665
U.S. Treasury Notes 7.88% 11/15/04 2,233,879 7,818,579 10,052,458
U.S. Treasury Notes 6.50% 5/15/05 1,792,350 1,792,350
U.S. Treasury Notes 6.50% 8/15/05 1,024,050 1,024,050
U.S. Treasury Notes 5.88% 11/15/05 490,005 3,920,040 4,410,045
-----------------------------------------------------------
20,839,098 70,891,265 91,730,363
- -----------------------------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY SECURITIES 26,666,653 70,891,265 97,557,918
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 157
<TABLE>
PILOT DIVERSIFIED BOND FUND
- ----------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(Unaudited)
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Principal
Amount
- -------------------------------------------------------------------------------------------------------------
Funds IV Trust Funds IV Trust The Pilot Funds
Bond Intermediate Bond Pilot Diversified Pro Forma
Income Fund Income Fund Bond Fund Combined
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET MUTUAL FUNDS - 0.4%
668,501 668,501 FEDERATED PRIME OBLIGATION TRUST
-----------------------------------------------
TOTAL MONEY MARKET MUTUAL FUNDS
-----------------------------------------------
TOTAL INVESTMENTS - 99.3% (COST $151,953,154)
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.7%
-----------------------------------------------
NET ASSETS - 100%
-----------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Maturity
Rate Date Value
- ------------------------------------------------------------------------------------------------------------------------------
Funds IV Trust Funds IV Trust The Pilot Funds
Bond Intermediate Bond Pilot Diversified Pro Forma
Income Fund Income Fund Bond Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MONEY MARKET MUTUAL FUNDS - 0.4%
FEDERATED PRIME OBLIGATION TRUST 668,501 $668,501
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL MONEY MARKET MUTUAL FUNDS 668,501 668,501
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.3% (COST $151,953,154) 32,483,564 122,397,004 $154,880,568
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.7% 187,226 873,747 1,048,308
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100% $32,670,790 $123,270,751 $ -- $155,928,876
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 158
PILOT DIVERSIFIED BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(Unaudited)
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
Funds IV Trust The Pilot Funds
Bond Pilot Diversified Pro Forma
Income Fund Bond Fund Combined
- --------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS - 15.8%
BANKING - 1.6%
500,000 500,000 Nationsbank Corp.
CONSUMER NON-DURABLE - 1.6%
500,000 500,000 Penney J.C. & Co.
FINANCIAL SERVICES - 8.7%
500,000 500,000 Associates Corp. N.A.
500,000 500,000 AT&T Capital Corporation MTN.
300,000 300,000 Dean Witter Discover & Co.
500,000 500,000 Ford Motor-Global Bond
500,000 500,000 GE Capital Corporation MTN
500,000 500,000 National Rural Utilities
OIL / GAS - 2.2%
700,000 700,000 Shell Oil Co.
RETAIL - 1.7%
500,000 500,000 Wal-mart Stores, Inc.
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
- --------------------------------------------------------------------------------
U.S. TREASURY - 81.6%
U.S. TREASURY BONDS - 17.8%
2,750,000 2,750,000 U.S. Treasury Bonds
1,000,000 1,000,000 U.S. Treasury Bonds
1,500,000 1,500,000 U.S. Treasury Bonds
</TABLE>
<TABLE>
<CAPTION>
Maturity
Rate Date Value
- ---------------------------------------------------------------------------------------------------------
Funds IV Trust The Pilot Funds
Bond Pilot Diversified Pro Forma
Income Fund Bond Fund Combined
- ---------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 15.8%
BANKING - 1.6%
<S> <C> <C> <C> <C> <C>
Nationsbank Corp. 7.50% 2/15/97 $ 508,750 $ - $ 508,750
----------------------------------------
CONSUMER NON-DURABLE - 1.6%
Penney J.C. & Co. 6.88% 6/15/99 511,875 511,875
----------------------------------------
FINANCIAL SERVICES - 8.7%
Associates Corp. N.A. 7.50% 5/15/99 521,875 521,875
AT&T Capital Corporation MTN. 7.59% 1/31/97 510,045 510,045
Dean Witter Discover & Co. 6.25% 3/15/00 300,375 300,375
Ford Motor-Global Bond 6.25% 2/26/98 504,375 504,375
GE Capital Corporation MTN 7.85% 1/17/97 510,865 510,865
National Rural Utilities 6.50% 9/15/02 507,500 507,500
----------------------------------------
2,855,035 2,855,035
----------------------------------------
OIL / GAS - 2.2%
Shell Oil Co. 6.70% 8/15/02 718,375 718,375
----------------------------------------
RETAIL - 1.7%
Wal-mart Stores, Inc. 8.70% 4/1/01 554,375 554,375
- ------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS 5,148,410 5,148,410
- ------------------------------------------------------------------------------------------------
U.S. TREASURY - 81.6%
U.S. TREASURY BONDS - 17.8%
U.S. Treasury Bonds 7.25% 5/15/16 2,950,695 2,950,695
U.S. Treasury Bonds 8.13% 8/15/19 1,175,260 1,175,260
U.S. Treasury Bonds 7.63% 2/15/25 1,701,600 1,701,600
----------------------------------------
5,827,555 5,827,555
----------------------------------------
</TABLE>
<PAGE> 159
PILOT DIVERSIFIED BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(Unaudited)
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
Funds IV Trust The Pilot Funds
Bond Pilot Diversified Pro Forma
Income Fund Bond Fund Combined
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY NOTES - 63.8%
2,000,000 2,000,000 U.S. Treasury Notes
1,000,000 1,000,000 U.S. Treasury Notes
3,000,000 3,000,000 U.S. Treasury Notes
1,000,000 1,000,000 U.S. Treasury Notes
3,000,000 3,000,000 U.S. Treasury Notes
500,000 500,000 U.S. Treasury Notes
1,000,000 1,000,000 U.S. Treasury Notes
2,000,000 2,000,000 U.S. Treasury Notes
1,500,000 1,500,000 U.S. Treasury Notes
2,000,000 2,000,000 U.S. Treasury Notes
1,750,000 1,750,000 U.S. Treasury Notes
1,000,000 1,000,000 U.S. Treasury Notes
500,000 50,000 U.S. Treasury Notes
- ---------------------------------------------------------------------------------------
TOTAL U.S. TREASURY
- ---------------------------------------------------------------------------------------
MONEY MARKET MUTUAL FUNDS - 2.1%
668,501 668,501 Federated Prime Obligation Trust
----------------------------------------------
TOTAL MONEY MARKET MUTUAL FUNDS
----------------------------------------------
TOTAL INVESTMENTS - 99.5% (COST $32,009,258)
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.5%
----------------------------------------------
NET ASSETS - 100%
==============================================
</TABLE>
<TABLE>
<CAPTION>
Maturity
Rate Date Value
- ---------------------------------------------------------------------------------------------------------
Funds IV Trust The Pilot Funds
Bond Pilot Diversified Pro Forma
Income Fund Bond Fund Combined
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. TREASURY NOTES - 63.8%
U.S. Treasury Notes 5.90% 7/31/97 $ 2,014,560 $ $ 2,014,560
U.S. Treasury Notes 5.13% 3/31/98 994,600 994,600
U.S. Treasury Notes 6.13% 5/15/98 3,042,480 3,042,480
U.S. Treasury Notes 7.75% 12/31/99 1,071,710 1,071,710
U.S. Treasury Notes 7.13% 2/29/00 3,155,160 3,155,160
U.S. Treasury Notes 6.25% 5/31/00 510,380 510,380
U.S. Treasury Notes 5.25% 1/31/01 980,880 980,880
U.S. Treasury Notes 6.38% 8/15/02 2,051,379 2,051,379
U.S. Treasury Notes 5.75% 8/15/03 1,477,665 1,477,665
U.S. Treasury Notes 7.88% 11/15/04 2,233,879 2,233,879
U.S. Treasury Notes 6.50% 5/15/05 1,792,350 1,792,350
U.S. Treasury Notes 6.50% 8/15/05 1,024,050 1,024,050
U.S. Treasury Notes 5.88% 11/15/05 490,005 490,005
-----------------------------------------
20,839,098 20,839,098
- -------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY 26,666,653 26,666,653
- -------------------------------------------------------------------------------------------------
MONEY MARKET MUTUAL FUNDS - 2.1
Federated Prime Obligation Trust 668,501 668,501
- -------------------------------------------------------------------------------------------------
TOTAL MONEY MARKET MUTUAL FUNDS 668,501 668,501
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.5% (COST $32,009,258) $32,483,564 $ - $32,483,564
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.5% 187,226 180,825
- -------------------------------------------------------------------------------------------------
NET ASSETS - 100% $32,670,790 $ - $32,664,389
- -------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 160
<TABLE>
PILOT DIVERSIFIED BOND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Maturity
Amount Rate Date Value
- -----------------------------------------------------------------------------------------------------------------------------------
The Pilot Funds The Pilot Funds
Funds IV Trust Pilot Funds IV Trust Pilot
Intermediate Diversified Pro Forma Intermediate Diversified Pro Forma
Bond Income Fund Bond Fund Combined Bond Income Fund Bond Fund Combined
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CORPORATE BONDS - 41.8%
AEROSPACE / DEFENSE - 3.1%
3,500,000 3,500,000 International Lease Finance Corp. 8.26% 2/15/05 $ 3,845,625 $ - $ 3,845,625
-----------------------------------
AUTO & TRUCKS - 1.4%
1,500,000 1,500,000 Ford Motor Co. 9.00% 9/15/01 1,687,500 1,687,500
-----------------------------------
BANKING - 2.5%
3,000,000 3,000,000 Nationsbank Corp. 7.50% 2/15/97 3,052,500 3,052,500
-----------------------------------
CONSUMER NON-DURABLE - 2.9%
3,500,000 3,500,000 Penney J.C. & Co. 6.88% 6/15/99 3,583,125 3,583,125
-----------------------------------
FINANCIAL SERVICES - 22.8%
Associates Corp. N.A. 7.50% 5/15/99
3,000,000 3,000,000 Associates Corp. N.A. 7.50% 5/15/99 3,131,250 3,131,250
3,500,000 3,500,000 AT&T Capital Corporation MTN. 7.59% 1/31/97 3,570,315 3,570,315
500,000 500,000 Capital Holding Corp. 8.90% 10/20/99 541,875 541,875
2,500,000 2,500,000 Dean Witter Discover & Co. 6.75% 8/15/00 2,559,375 2,559,375
2,000,000 2,000,000 Ford Motor-Global Bond 6.25% 2/26/98 2,017,500 2,017,500
4,500,000 4,500,000 GE Capital Corporation MTN 7.85% 1/17/97 4,597,785 4,597,785
3,000,000 3,000,000 General Motors Acceptance Corp. 7.88% 2/28/97 3,071,639 3,071,639
4,000,000 4,000,000 Household Finance Corp. 6.38% 6/30/00 4,020,000 4,020,000
4,000,000 4,000,000 National Rural Utilities 6.50% 9/15/02 4,060,000 4,060,000
500,000 500,000 Texaco Capital 9.00% 11/15/96 511,875 511,875
-----------------------------------
28,081,614 28,081,614
-----------------------------------
RETAIL - 3.1%
550,000 550,000 Wal-mart Stores, Inc. 5.50% 3/1/98 547,250 547,250
3,000,000 3,000,000 Wal-mart Stores, Inc. 8.60% 4/1/01 3,326,250 3,326,250
-----------------------------------
3,873,500 3,873,500
-----------------------------------
</TABLE>
<PAGE> 161
<TABLE>
PILOT DIVERSIFIED BOND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
February 29, 1996
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Maturity
Amount Rate Date Value
- ------------------------------------------------------------------------------------------------------------------------------------
Funds IV Trust The Pilot Funds Funds IV Trust The Pilot Funds
Intermediate Bond Pilot Diversified Pro Forma Intermediate Bond Pilot Diversified Pro Forma
Income Fund Bond Fund Combined Income Fund Bond Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS - 6.0%
3,500,000 3,500,000 BellSouth Telecom 6.40% 6/15/04 $ 3,486,875 $ - $ 3,486,875
4,000,000 4,000,000 GTE North, Inc., Debt Series A 6.00% 1/15/04 3,895,000 3,895,000
--------------------------------------
7,381,875 7,381,875
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS 51,505,739 51,505,739
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY - 57.5%
U.S. TREASURY NOTES
6,000,000 6,000,000 U.S. Treasury Notes 5.13% 3/31/98 5,967,599 5,967,599
7,000,000 7,000,000 U.S. Treasury Notes 6.13% 5/15/98 7,099,119 7,099,119
7,000,000 7,000,000 U.S. Treasury Notes 8.88% 11/15/98 7,578,060 7,578,060
10,000,000 10,000,000 U.S. Treasury Notes 6.75% 5/31/99 10,336,200 10,336,200
8,000,000 8,000,000 U.S. Treasury Notes 7.50% 10/31/99 8,491,200 8,491,200
4,000,000 4,000,000 U.S. Treasury Notes 6.25% 5/31/00 4,083,040 4,083,040
2,000,000 2,000,000 U.S. Treasury Notes 5.25% 1/31/01 1,961,760 1,961,760
5,000,000 5,000,000 U.S. Treasury Notes 7.75% 2/15/01 5,430,150 5,430,150
8,000,000 8,000,000 U.S. Treasury Notes 6.38% 8/15/02 8,205,518 8,205,518
7,000,000 7,000,000 U.S. Treasury Notes 7.88% 11/15/04 7,818,579 7,818,579
4,000,000 4,000,000 U.S. Treasury Notes 5.88% 11/15/05 3,920,040 3,920,040
----------------------------------------------------------------------------------------
TOTAL U.S. TREASURY 70,891,265 70,891,265
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.3% (COST $119,943,896) $122,397,004 $ - $122,397,004
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.7% 873,747 867,483
----------------------------------------------------------------------------------------
NET ASSETS - 100% $ 123,270,751 $ - $123,264,487
========================================================================================
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 162
<TABLE>
Pilot Short-Term Diversified Assets Fund
Pro Forma Combined Statement of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Funds IV Trust The Pilot Funds
Cash Reserve Pilot Short-Term
Money Market Diversified Pro Forma Pro Forma
Fund Assets Fund Adjustments Combined
-------------- ---------------- ----------- ---------
ASSETS
<S> <C> <C> <C> <C>
Investment in securities, at amortized cost $358,275,298 $1,265,521,529 $1,623,796,827
Repurchase agreements, at cost 310,316,415 310,316,415
- ---------------------------------------------------------------------------------------------------------------------------
Total 358,275,298 1,575,837,944 $1,934,113,242
Receivable from brokers for investements sold -
Cash 697,353 $ (6,070) 691,283
Interest receivable 1,781,849 5,242,638 7,024,487
Deferred organization costs and other assets 27,617 125,372 152,989
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets 360,084,764 1,581,903,307 (6,070) 1,941,982,001
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Advisory fees payable 46,187 144,619 190,806
Administration fees payable 34,640 138,859 173,499
Service fees payable (Pilot Administration Shares) 43,124 43,124
Service fees payable (Pilot Investor Shares) 15,660 15,660
Shareholder services payable (Service Shares) 11,547 11,547
Payable to brokers for investements purchased 13,819,307 24,951,172 38,770,479
Dividends payable 1,213,014 6,201,977 7,414,991
Other accrued expenses 76,319 241,521 317,840
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities 15,201,014 31,736,932 - 46,937,946
===========================================================================================================================
Net Assets $344,883,750 $1,550,166,375 $ (6,070) $1,895,044,055
===========================================================================================================================
SHARES OUTSTANDING (UNLIMITED NUMBER OF SHARES
AUTHORIZED):
Pilot Shares - 1,276,305,999 344,877,099 1,621,183,098
Pilot Administration Shares - 235,407,954 235,407,954
Pilot Investor Shares - 38,326,681 38,326,681
Service Shares 344,877,099 - (344,877,099) -
Premium Shares 6,070 - (6,070) -
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL SHARES OUTSTANDING 344,883,169 1,550,040,634 (6,070) 1,894,917,733
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Offering Price and Redemption Price
per Share $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Paid-in capital $344,883,169 $1,550,040,634 $ (6,070) $1,894,917,733
Accumulated undistributed net realized gains(losses) -
from investment transactions 581 125,741 126,322
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets, February 29, 1996 $344,883,750 $1,550,166,375 $ (6,070) $1,895,044,055
===========================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Pro Forma Combined Financial Statements
<PAGE> 163
<TABLE>
Pilot Short-Term Diversified Assets Fund
Pro Forma Combined Statement of Operations
For the period ended February 29, 1996
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Funds IV Trust The Pilot Funds
Cash Reserve Pilot Short-Term
Money Market Diversified Pro Forma Pro Forma
Fund Assets Fund Adjustments Combined
-------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $17,590,619 $81,857,795 $99,448,414
- ----------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 579,146 1,722,498 $(144,787) 2,156,858
Administration fees 434,360 1,533,491 (101,351) 1,866,500
Administration Service Fees (Pilot Administration Shares) 587,412 587,412
Investor Service Fees (Pilot Investor Shares) 174,116 174,116
Shareholder service fees (Service Shares) 144,787 (144,787) -
Custodian fees and expenses 86,872 190,103 (75,289) 201,686
Audit fees 39,297 38,366 77,663
Transfer agent fees and expenses (5,286) 15,217 9,931
Reports to shareholders 34,004 54,462 88,466
Registration fees 96,768 73,473 170,241
Amortization of organization expenses 4,721 28,719 33,440
Legal fees 50,994 92,986 143,980
Trustees' fees 21,326 31,612 52,938
Other expenses 43,552 44,660 88,212
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,530,541 4,587,115 (466,213) 5,651,443
- ----------------------------------------------------------------------------------------------------------------------------------
Less fee waived by distributor (91,401) (423,534) 46,928 (468,007)
- ----------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 1,439,140 4,163,581 (419,285) 5,183,436
- ----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 16,151,479 77,694,214 419,285 92,264,978
- ----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAINS (LOSSES) FROM INVESTMENTS 581 36,388 - 36,969
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $16,152,060 $77,730,602 $ 419,285 $94,301,947
==================================================================================================================================
</TABLE>
- ---------------------------------------------------------------
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 164
<TABLE>
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
- ------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULE OF PORTFOLIO INVESTMENTS
FEBRUARY 29, 1996
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Amount (000) Security Description Amortized Cost
- ------------------------------------------------------------------------------------------------------------------------------------
Funds IV Trust The Pilot Funds Funds IV Trust The Pilot Funds
Cash Reserve Pilot Short-Term Cash Reserve Pilot Short-Term
Money Market Diversified Pro Forma Maturity Money Market Diversified Pro forma
Fund Assets Fund Combined Rate Date Fund Assets Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BANKERS ACCEPTANCE--4.1%
$ 4,000 $ $ 4,000 Bank of Tokyo, NY 5.26% 5/17/96 $ 3,955,682 $ - $ 3,955,682
10,000 10,000 Bank of Tokyo, NY 5.54% 6/3/96 9,858,739 9,858,739
2,000 2,000 Bank of Tokyo, NY 5.26% 7/1/96 1,964,959 1,964,959
10,000 10,000 Dai-ichi Kangyo, LA 5.91% 4/15/96 9,927,750 9,927,750
5,000 5,000 Dai-ichi Kangyo, LA 5.86% 5/20/96 4,936,667 4,936,667
2,000 2,000 IBJ NY 5.88% 4/30/96 1,980,900 1,980,900
14,000 14,000 International Bank of Japan LA 5.35% 5/28/96 13,819,307 13,819,307
6,000 6,000 Mitsubishi Bank 6.04% 4/4/96 5,966,794 5,966,794
10,000 10,000 Mitsubishi Bank NY 5.80% 5/22/96 9,871,533 9,871,533
9,000 9,000 Sanwa Bank NY 5.23% 6/26/96 8,849,655 8,849,655
2,000 2,000 Sanwa Bank NY 5.25% 7/16/96 1,960,803 1,960,803
5,000 5,000 Sanwa Bank NY 5.18% 8/22/96 4,877,958 4,877,958
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL BANKERS ACCEPTANCE
79,000 79,000 77,970,747 77,970,747
- ------------------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT--5.0%
20,000 20,000 Abbey National PLC London 5.47% 4/9/96 19,999,891 19,999,891
20,000 20,000 Royal Bank of Canada 6.32% 12/13/96 19,987,190 19,987,190
35,000 35,000 Societe Generale 5.40% 4/5/96 35,000,820 35,000,820
20,000 20,000 National Westminister Bank PLC 5.50% 3/12/96 20,000,121 20,000,121
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT
95,000 95,000 94,988,022 94,988,022
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER--31.0%
3,000 3,000 AB Spintab 5.79% 4/17/96 2,977,871 2,977,871
20,000 20,000 AKZO America, Inc. 5.17% 4/22/96 19,850,645 19,850,645
15,000 15,000 Bear Stearns Co., Inc. 5.64% 3/15/96 14,967,100 14,967,100
25,000 25,000 Browning Ferris Industries, Inc. 5.21% 3/11/96 24,963,820 24,963,820
20,000 20,000 Ciesco, Inc. 5.30% 4/4/96 19,899,889 19,899,889
50,000 50,000 CIT Group Holdings, Inc. 5.15% 4/26/96 49,599,444 49,599,444
25,000 25,000 CPC International, Inc. 5.66% 4/4/96 24,866,361 24,866,361
14,000 14,000 Chrysler Financial Corp. 5.25% 5/31/96 13,816,685 13,816,685
30,000 30,000 Ciesco LP 5.19% 4/24/96 29,768,700 29,768,700
25,000 25,000 CommerzBank 5.66% 3/14/96 25,001,007 25,001,007
50,000 50,000 Eiger Capital Corp. 5.25% 4/3/96 49,759,375 49,759,375
25,000 25,000 Fleet Funding Corp. 5.25% 4/11/96 24,850,521 24,850,521
25,000 25,000 Ford Motor Credit Corp. 5.46% 3/20/96 24,927,958 24,927,958
1,900 1,900 General Electric Capital Corp. 5.45% 4/4/96 1,890,220 1,890,220
10,000 10,000 Hanson Finance UK PLC 5.65% 3/4/96 9,995,292 9,995,292
35,000 35,000 Hanson Finance UK PLC 5.20% 4/30/96 34,696,667 34,696,667
</TABLE>
<PAGE> 165
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50,000 50,000 IBM Credit Corp. 5.27% 3/6/96 49,963,403 49,963,403
25,000 25,000 Merrill Lynch & Co., Inc. 5.17% 4/26/96 24,798,944 24,798,944
50,000 50,000 Morgan Stanley Group, Inc. 5.32% 4/22/96 49,615,778 49,615,778
20,000 20,000 NBD Bancorp., Inc. 5.20% 4/2/96 19,907,484 19,907,484
4,000 4,000 NationsBank, Corp. 4.75% 8/15/96 3,980,298 3,980,298
25,000 25,000 PNC Funding Corp. 5.19% 5/3/96 25,000,735 25,000,735
16,000 16,000 PaineWebber Group 5.68% 8/23/96 15,576,111 15,576,111
26,756 26,756 Southern California Gas Co. 5.56% 5/3/96 26,495,664 26,495,664
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
33,000 557,656 590,656 32,370,667 554,799,305 587,169,972
- -----------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS--1.3%
8,000 8,000 Shawmut Bank Ct. 5.32% 5/10/96 8,000,000 8,000,000
16,000 16,000 Goldman Sachs Group 5.81% 3/4/96 16,000,000 16,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
24,000 24,000 24,000,000 24,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS--5.0%
25,000 25,000 Dean Witter Discover Co. 5.00% 4/1/96 24,981,383 24,981,383
23,000 23,000 Glaxo Welcome PLC 5.15% 4/22/96 22,828,906 22,828,906
2,300 2,300 Phillip Morris Co., Inc. 8.75% 12/1/96 2,360,954 2,360,954
45,000 45,000 USL Capital Corp. 6.02% 10/31/96 45,037,422 45,037,422
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
95,300 95,300 95,208,665 95,208,665
- -----------------------------------------------------------------------------------------------------------------------------------
MASTER NOTE--7.9%
50,000 50,000 Anchor National Life Insurance Co. 5.53% 8/1/96 50,000,000 50,000,000
35,000 35,000 Bear Sterns Co., Inc. 5.69% 5/22/96 35,000,000 35,000,000
15,000 15,000 IBM Credit Corp. 6.40% 4/29/96 15,021,799 15,021,799
50,000 50,000 NationsBank, Dallas NA 5.65% 11/1/96 50,040,147 50,040,147
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL MASTER NOTES
150,000 150,000 150,061,946 150,061,946
- -----------------------------------------------------------------------------------------------------------------------------------
TIME DEPOSITS--12.6%
DOMESTIC
50,000 50,000 UBS Finance, Inc. 5.45% 3/1/96 50,000,000 50,000,000
FOREIGN
40,000 40,000 Banque Nationale De Paris 5.20% 4/15/96 40,000,496 40,000,496
40,000 40,000 Bayerische Vereinsbank 5.45% 4/9/96 39,763,833 39,763,833
15,000 15,000 BK Brussels Lambert 5.63% 3/1/96 15,000,000 15,000,000
15,000 15,000 Fuji Bank, Ltd. 5.63% 3/1/96 15,000,000 15,000,000
15,000 15,000 Skand Ensk Banken 5.63% 3/1/96 15,000,000 15,000,000
25,000 25,000 Societe Generale 5.25% 4/5/96 25,000,000 25,000,000
14,514 14,514 Sumitomo Bank 5.63% 3/1/96 14,513,605 14,513,605
25,000 25,000 Toronto Dominion Bank 5.44% 4/29/96 25,000,000 25,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL TIME DEPOSITS
59,514 180,000 239,514 59,513,605 179,764,329 239,277,934
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--10.1%
25,000 25,000 Federal Farm Credit Banks 4.95% 3/3/97 24,951,172 24,951,172
50,000 50,000 Federal National Mortgage Association * 5.15% 3/1/96 49,947,223 49,947,223
20,000 20,000 Federal National Mortgage Association * 4.99% 3/5/96 20,000,000 20,000,000
25,000 25,000 Federal National Mortgage Association * 4.99% 3/5/96 24,990,205 24,990,205
40,700 40,700 Student Loan Marketing Association * 5.34% 3/5/96 40,810,662 40,810,662
30,000 30,000 Student Loan Marketing Association * 5.20% 3/5/96 30,000,000 30,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 166
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL U.S. GOVERNMENT OBLIGATION NOTES
190,700 190,700 190,699,262 190,699,262
- -----------------------------------------------------------------------------------------------------------------------------------
VARIABLE RATE NOTE--8.7%
15,000 15,000 American Honda Financial Corp. 5.34% 2/7/97 15,000,000 15,000,000
14,000 14,000 Banca CRT 5.68% 9/24/96 14,000,000 14,000,000
14,000 14,000 Bank of Boston 5.52% 1/24/97 14,000,000 14,000,000
3,000 3,000 Banponce Corp. 5.91% 12/18/96 3,000,000 3,000,000
13,000 13,000 Bear Stearns Co., Inc. 5.68% 1/17/97 13,000,000 13,000,000
5,410 5,410 Chemical Bank Corp. 5.58% 4/15/96 5,411,817 5,411,817
8,000 8,000 GMAC 6.03% 3/1/96 8,000,000 8,000,000
6,000 6,000 GMAC 5.48% 7/19/96 6,006,338 6,006,338
15,000 15,000 Heller Financial, Inc. 5.50% 10/25/96 15,000,000 15,000,000
14,000 14,000 Lehman Brothers Holding Corp. 5.38% 8/22/96 14,000,000 14,000,000
15,000 15,000 Merita Bank NY 5.50% 10/18/96 15,000,000 15,000,000
16,000 16,000 Merrill Lynch & Co. 5.81% 1/14/97 15,997,136 15,997,136
6,000 6,000 Morgan Stanley, Inc. 5.63% 7/2/96 6,004,988 6,004,988
15,000 15,000 Postipankki Bank Ltd. 5.81% 9/20/96 15,000,000 15,000,000
5,000 5,000 Shawmutt Bank Conn. 5.68% 3/25/96 5,000,000 5,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL VARIABLE RATE NOTES
164,410 164,410 164,420,279 164,420,279
- -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--16.4%
50,000 50,000 Repurchase agreement with Lehman Brothers,
dated 2/23/96, 5.22%, due 3/1/96, 50,000,000 50,000,000
15,683 15,683 Repurchase agreement with Lehman Brothers,
dated 2/29/96, 5.43%, due 3/1/96, 15,682,759 15,682,759
101,411 101,411 Repurchase agreement with J. P. Morgan,
dated 2/29/96, 5.42%, due 3/1/96, 101,411,039 101,411,039
118,223 118,223 Repurchase agreement with Merrill Lynch,
dated 2/29/96, 5.43%, due 3/1/96, 118,222,617 118,222,617
25,000 25,000 Repurchase agreement with State Street Bank
and Trust, dated 2/29/96, 5.35%, due 3/1/96, 25,000,000 25,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
310,317 310,317 TOTAL REPURCHASE AGREEMENTS 310,316,415 310,316,415
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -102.1%
(COST $1,934,113,242) 358,275,298 1,575,837,944 1,934,113,242
------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS - (2.1%) (13,391,548) (25,671,569) (39,069,187)
------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $344,883,750 $1,550,166,375 $1,895,044,055
------------------------------------------------------------------------------------------------------
* Variable rate security.
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
<PAGE> 167
FUNDS IV TRUST
AGGRESSIVE STOCK APPRECIATION FUND
VALUE STOCK APPRECIATION FUND
STOCK APPRECIATION FUND
BOND INCOME FUND
INTERMEDIATE BOND INCOME FUND
CASH RESERVE MONEY MARKET FUND
THE PILOT FUNDS
PILOT GROWTH FUND
PILOT GROWTH AND INCOME FUND
PILOT DIVERSIFIED BOND INCOME FUND
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
-------
1. BASIS OF COMBINATION:
--------------------
The unaudited Pro Forma Combined Statements of Assets and Liabilities,
Statements of Operations, and Schedules of Portfolio Investments reflect the
accounts of FUNDS IV Trust ("Funds IV Trust")--including Aggressive Stock
Appreciation Fund, Value Stock Appreciation Fund, Stock Appreciation Fund, Bond
Income Fund, Intermediate Bond Income Fund and Cash Reserve Money Market Fund
(collectively, the "Reorganizing Funds")--and The Pilot Funds--including Pilot
Growth Fund, Pilot Growth and Income Fund, Pilot Diversified Bond Income Fund
and Pilot Short-Term Diversified Assets Fund (collectively, the "Acquiring
Funds")--as if the proposed reorganization occurred as of and for the year
ended February 29, 1996. As of February 29, 1996, Pilot Growth and Pilot
Diversified Bond Income had not yet commenced operations. These statements have
been derived from books and records utilized in calculating daily net asset
value at February 29, 1996.
All fees and expenses, including accounting expenses, portfolio transfer taxes,
if any, or other similar expenses incurred in connection with the consummation
by the Acquiring Funds and the Reorganizing Funds of the transactions
contemplated by the proposed Agreement and Plan of Reorganization will be paid
by the party directly incurring such fees and expenses. The costs of proxy
materials and proxy solicitation, including legal expenses, will be borne by
Boatmen's Trust Company ("Boatmen's"). However, such expenses will be paid by
the party directly incurring such expenses if and to the extent that payments by
the other party of such expenses would result in the disqualification of any
Reorganizing Fund or Acquiring Fund as a regulated investment company as defined
within Section 851 of the Internal Revenue Code.
56
<PAGE> 168
<TABLE>
The pro forma combined statements give effect to the proposed transfers
of the assets and stated liabilities of each Reorganizing Fund in exchange for
shares of the corresponding Acquiring Fund as follows:
<CAPTION>
Shareholders of: Will Receive Shares of:
- ---------------- -----------------------
<S> <C>
Stock Appreciation Fund Pilot Growth Fund
Value Stock Appreciation Fund Pilot Growth and Income Fund
Stock Appreciation Fund Pilot Growth and Income Fund
Bond Income Fund Pilot Diversified Bond Income Fund
Intermediate Bond Income Fund Pilot Diversified Bond Income Fund
Cash Reserve Money Market Fund Pilot Short-Term Diversified Assets Fund
</TABLE>
Each Acquiring Fund offers three classes of shares. Pilot Growth Fund, Pilot
Growth and Income Fund and Pilot Diversified Bond Income Fund offer Pilot
Shares, Class A Shares and Class B Shares. Pilot Short-Term Diversified Assets
Fund offers Pilot Shares, Administration Shares, and Investor Shares. Each of
the Reorganizing Funds currently offers only Service Class shares. All
outstanding shares of the Premium Class of the Reorganizing Funds are held by
Furman Selz and will be redeemed prior to the effectiveness of the
reorganization transactions (each, a "Reorganization"). As part of each
Reorganization, each holder of Service Shares of the applicable Reorganizing
Fund will receive Pilot Shares of the corresponding Acquiring Fund. Each
Reorganization is a separate transaction and is not contingent upon any
other Reorganization. The Reorganization Agreement contemplates that the assets
of each Reorganizing Fund will be acquired by the corresponding Acquiring Fund
in a tax-free exchange for shares issued by the Acquiring Fund and the
assumption by the Acquiring Fund of the stated liabilities of the Reorganizing
Fund.
Under the pooling method of accounting for business combinations under generally
accepted accounting principles, the basis on the part of the Acquiring Funds, of
the assets of the Reorganizing Funds will be the historical cost basis of such
assets on the closing date of the Reorganization. For accounting purposes, the
Acquiring Funds are the survivors of each Reorganization. The Pro Forma Combined
Statements of Operations reflect the combined results of operations of the
Reorganizing Funds and the Acquiring Funds. However, should such Reorganization
be effected, the Statements of Operations of the Acquiring Funds will not be
restated for results of the corresponding Reorganizing Funds for periods prior
to the proposed Reorganization.
The Pro forma Combined Statements of Assets and Liabilities, Statements of
Operations, and Schedules of Portfolio Investments should be read in conjunction
with the historical financial statements of the Funds IV Trust and The Pilot
Funds incorporated by reference in the Statement of Additional Information.
Funds IV Trust and The Pilot Funds are registered, open-end, management
investment companies consisting of seven and twelve funds, respectively. The
Pro Forma Combined
57
<PAGE> 169
Statements of Assets and Liabilities, Statements of Operations and Schedules of
Portfolio Investments present the Reorganizing Funds and Acquiring Funds only.
2. EXPENSES
--------
Reorganizing Funds:
- ------------------
<TABLE>
Bank IV Kansas, N.A. ("Bank IV") serves as investment adviser for each
Reorganizing Fund--except for Cash Reserve Money Market Fund for which
AMR Investment Services, Inc. ("AMR") serves as investment adviser. Bank IV and
AMR are entitled to receive advisory fees from each Fund they advise, computed
and paid daily, at a fixed annual rate, expressed as a percentage of average
daily net assets as presented in the table below. Bank IV also serves as
custodian of each Reorganizing Fund's assets.
<S> <C>
Aggressive Stock Appreciation 0.745%
Value Stock Appreciation 0.65%
Stock Appreciation 0.65%
Bond Income 0.40%
Intermediate Bond Income 0.40%
Cash Reserve Money Market 0.20%
</TABLE>
Funds IV Trust has entered into an Administrative Services Contract with Furman
Selz LLC ("Furman Selz") pursuant to which Furman Selz provides certain
management and administrative services necessary for the operation of the
Reorganizing Funds. Pursuant to Services and Fund Accounting Agreements with
Funds IV, Furman Selz also assists the Reorganizing Funds with certain
transfer and dividend disbursing agent and fund accounting functions. In
addition, the Reorganizing Funds may pay fees to various service organizations
which provide them with other administrative services, such as maintaining
shareholder accounts and records. For these services, each of the Reorganizing
Funds pays Furman Selz a monthly fee, at an annual rate of 0.15% of the
corresponding Fund's average daily net assets.
Funds IV Distributor Inc. ("FFD"), and affiliate of Furman Selz, serves as the
distributor of shares of the Reorganizing Funds. Each Fund has adopted a Rule
12b-1 Distribution Plan and Agreement pursuant to which it may reimburse FFD on
a monthly basis for costs and expenses that FFD incurs in connection with the
marketing and distribution of Fund shares.
Acquiring Funds:
- ---------------
Boatmen's serves as investment adviser to each Acquiring Fund pursuant to
separate Investment Advisory Agreements and is responsible for managing the
investment operations of the Acquiring Funds. For its services, Boatmen's is
entitled to a fee, accrued daily and paid monthly, at a fixed annual rate,
expressed as a percentage of average daily net assets as presented in the table
below. Boatmen's also serves as the custodian of each Acquiring Fund's assets.
58
<PAGE> 170
Pilot Growth Fund 0.75%
Pilot Growth and Income Fund 0.75%
Pilot Diversified Bond Income Fund 0.40%
Pilot Short-Term Diversified Assets Fund 0.15%
The Acquiring Funds have entered into an Administration Agreement with BISYS
Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"), a
subsidiary of The BISYS Group, Inc. Pursuant to the terms of the Administration
Agreement, BISYS is responsible for assisting in all aspects of the
operations of each of the Funds. For its services, BISYS is entitled to a fee,
accrued daily and paid monthly, at an annual rate of 0.115% of the first $1.5
billion of the aggregate average net assets of all of the Funds constituting
The Pilot Funds, plus 0.11% of the next $1.5 billion of such net assets, plus
0.1075% of such net assets in excess of $3.0 billion.
<TABLE>
Boatmen's and BISYS have voluntarily agreed to waive a portion of their fees
and to reimburse the Acquiring Funds for certain expenses so that total expenses
do not exceed certain annual expense limitations. During the year ended February
29, 1996, Boatmen's and BISYS waived and/or reimbursed the following amounts:
<CAPTION>
Investment Administration
Advisory Fees Fees
<S> <C> <C>
Pilot Growth and Income Fund $321,041 $83,808
Pilot Short-Term Diversified Assets Fund 423,534 --
</TABLE>
59
<PAGE> 171
PRO FORMA ADJUSTMENTS AND PRO FORMA COMBINED COLUMNS
- --------------------------------------------------
The pro forma adjustments and pro forma combined columns of the statements of
operations reflect the adjustments necessary to show expenses at the rates
which would have been in effect if the Reorganizing Funds were included in the
Acquiring Funds for the year ended February 29, 1996. Investment advisory,
administration and other asset-based fees in the pro forma combined column are
calculated at the rates in effect for the Acquiring Funds based upon the
combined net assets of the Reorganizing Funds and the Acquiring Funds. All
other pro forma combined expenses are based on the combined net assets of the
funds. Certain pro forma adjustments were made to estimate the benefit of
combining operations of separate funds into one survivor fund. No other
reductions of expenses, other than incremental fee waivers, have been included.
Therefore, other expense amounts approximately equal the sum of the
Reorganizing Funds' expenses and the Acquiring Funds' expenses.
3. PORTFOLIO VALUATION:
-------------------
Acquiring Funds:
- ---------------
Pilot Growth Fund, Pilot Growth and Income Fund, and Pilot Diversified Bond
Income Fund: Portfolio securities are valued as follows: (a) securities that are
traded on any U.S. or foreign stock exchange or the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") are valued at the last
sale price on that exchange or NASDAQ prior to the Portfolio'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 Portfolio'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 Boatmen's and approved by the Trustees of the Fund;
these prices reflect broker/dealer supplied valuations and electronic data
processing techniques if those prices are deemed by Boatmen's to be
representative of market values at the Portfolio's valuation time; and (d) all
other securities and assets, for which quotations supplied are not
representative of current market values or for which quotations are not readily
available, are valued at fair value as determined in good faith pursuant to
procedures established by the Trustees of the Fund. Money market instruments
held by a Portfolio with a remaining maturity of sixty days or less are valued
at amortized cost which approximates market value.
Pilot Short-Term Diversified Assets Fund: The Portfolios use the amortized cost
method for valuing portfolio securities. Under this method, all investments
purchased at a discount or premium are valued by amortizing the difference
between the original purchase price and maturity value of the issue over the
period to maturity. In addition, the Portfolios may not (a) purchase any
instrument with a remaining maturity greater than
60
<PAGE> 172
thirteen months unless such instrument is subject to a demand feature, or (b)
maintain a dollar-weighted-average maturity which exceeds 90 days.
Reorganizing Funds:
- ------------------
Aggressive Stock Appreciation Fund, Value Stock Appreciation Fund, Stock
Appreciation Fund, Bond Income Fund, and Intermediate Bond Income Fund: The
Funds value investments at the last sales price on the securities exchange which
such securities are primarily traded. Over-the-counter securities, or exchange
traded securities for which there are no transactions, are valued at the current
bid price. Bonds and other fixed income securities may be valued on the basis of
prices provided by a pricing service approved by the Board of Trustees. In the
absence of market quotations, investments are valued at fair value as determined
in good faith by, or at the direction of the Board of Trustees. Short-term
securities which mature in 60 days or less are valued at amortized cost, if
their term to maturity at purchase was 60 days or less, or by amortizing their
value on the 61st day prior to maturity, if their original term to maturity at
purchase exceeded 60 days.
Cash Reserve Money Market Fund: Investment securities of the Fund are valued
under the amortized cost method, which approximates current market value. Under
this method, securities are valued at cost when purchased and, thereafter, a
constant proportionate amortization of any discount of premium is recorded until
maturity of the security.
4. CAPITAL SHARES:
--------------
The pro forma net asset values per share assume the issuance of Pilot Shares of
The Acquiring Funds which would have occurred at February 29, 1996 in
connection with the proposed reorganization. The pro forma number of
shares outstanding consists of the following:
61
<PAGE> 173
<TABLE>
<CAPTION>
AGGRESSIVE STOCK PILOT PRO FORMA
APPRECIATION FUND GROWTH FUND COMBINED
----------------- ----------- ---------
<S> <C> <C> <C>
Total Net Assets........................ $59,081,469 $ -- $59,074,419
Service Class/Pilot Class........... $59,074,419 $ -- $59,074,419
Shares Outstanding...................... 4,819,274 -- 4,818,699
Service Class/Pilot Class........... 4,818,699 -- 4,818,699
Net Asset Value per Share
Service Class/Pilot Class........... $ 12.26 $ -- $ 12.26
<CAPTION>
PRO FORMA
VALUE STOCK PILOT GROWTH COMBINED FUND(1)
APPRECIATION FUND AND INCOME FUND (FUNDS SHOWN) (ALL FUNDS)
----------------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
Total Net Assets........................ $26,231,853 $160,278,040 $186,509,817 $351,528,095
Service Class/Pilot Class........... $26,231,777 $156,537,553 $ 1,762,540 $347,787,608
Shares Outstanding...................... 2,125,432 12,680,734 14,755,715 27,812,269
Service Class/Pilot Class........... 2,125,426 12,384,869 139,471 27,516,404
Net Asset Value Per Share
Service Class/Pilot Class........... $ 12.34 $ 12.64 $ 12.64 $ 12.64
<CAPTION>
PRO FORMA
STOCK PILOT GROWTH COMBINED FUND(2)
APPRECIATION FUND AND INCOME FUND (Funds Shown) (ALL FUNDS)
----------------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
Total Net Assets........................ $165,025,702 $160,278,040 $325,296,318 $351,528,095
Service Class/Pilot Class........... $165,018,278 $156,537,553 $321,555,831 $347,787,608
Shares Outstanding...................... 12,803,900 12,680,734 25,737,288 27,812,269
Service Class/Pilot Class........... 12,803,324 12,384,869 25,441,423 27,516,404
Net Asset Value Per Share
Service Class/Pilot Class........... $ 12.89 $ 12.64 $ 12.64 $ 12.64
<CAPTION>
PRO FORMA
BOND PILOT DIVERSIFIED COMBINED FUND(3)
INCOME FUND BOND INCOME FUND (FUNDS SHOWN) (ALL FUNDS)
----------- ----------------- ------------- -----------
<S> <C> <C> <C> <C>
Total Net Assets........................ $32,670,790 $ -- $32,664,389 $155,928,876
Service Class/Pilot Class........... $32,664,389 $ -- $32,664,389 $155,928,876
Shares Outstanding...................... 3,116,919 -- 3,116,308 15,214,591
Service Class/Pilot Class........... 3,116,308 -- 3,116,308 15,214,591
Net Asset Value Per Share
Service Class/Pilot Class........... $ 10.48 $ -- $ 10.48 $ 10.25
<CAPTION>
PRO FORMA
INTERMEDIATE PILOT DIVERSIFIED COMBINED FUND(4)
BOND INCOME FUND BOND INCOME FUND (FUNDS SHOWN) (ALL FUNDS)
---------------- ----------------- ------------- -----------
<S> <C> <C> <C> <C>
Total Net Assets........................ $123,270,751 $ -- $123,264,487 $155,928,876
Service Class/Pilot Class........... $123,264,487 $ -- $123,264,487 $155,928,876
Shares Outstanding...................... 12,028,967 -- 12,028,356 15,214,591
Service Class/Pilot Class........... 12,028,356 -- 12,028,356 15,214,591
Net Asset Value Per Share
Service Class/Pilot Class........... $ 10.25 $ -- $ 10.25 $ 10.25
</TABLE>
<PAGE> 174
<TABLE>
<CAPTION>
CASH RESERVE PILOT SHORT-TERM PRO FORMA
MONEY MARKET FUND DIVERSIFIED ASSETS FUND COMBINED
----------------- ----------------------- ---------
<S> <C> <C> <C>
Total Net Assets........................ $344,883,750 $1,550,166,375 $1,895,044,055
Service Class/Pilot Class........... $344,877,680 $1,276,431,740 $1,621,309,420
Shares Outstanding...................... 344,883,169 1,550,040,634 1,894,917,733
Service Class/Pilot Class........... 344,877,099 1,276,305,999 1,621,183,098
Net Asset Value Per Share
Service Class/Pilot Class........... $ 1.00 $ 1.00 $ 1.00
</TABLE>
- ------------------------------------------
(1) The third column reflects pro forma combined information resulting from
the Reorganization of Pilot Growth and Income Fund and Value Stock
Appreciation Fund. It is contemplated that Stock Appreciation Fund will
also be reorganized into Pilot Growth and Income Fund; the fourth
column reflects pro forma combined information in the event that both
Reorganizations take place. It should be noted, however, that each
Reorganization is independent of and not contingent on the other.
(2) The third column reflects pro forma combined information resulting from
the reorganization of Pilot Growth and Income Fund and Stock
Appreciation Fund. It is contemplated that Value Stock Appreciation
Fund will also be reorganized into Pilot Growth and Income Fund; the
fourth column reflects pro forma combined information in the event that
both Reorganizations take place. It should be noted, however, that each
Reorganization is independent of and not contingent on the other.
(3) The third column reflects pro forma combined information resulting from
the Reorganization of Pilot Diversified Bond Income Fund and Bond
Income Fund. It is contemplated that Intermediate Bond Income Fund will
also be reorganized into Pilot Diversified Bond Income Fund; the fourth
column reflects pro forma combined information in the event that both
Reorganizations take place. It should be noted, however, that each
Reorganization is independent of and not contingent on the other.
(4) The third column reflects pro forma combined information resulting from
the Reorganization of Pilot Diversified Bond Income Fund and
Intermediate Bond Income Fund. It is contemplated that Bond Income Fund
will also be reorganized into Pilot Diversified Bond Income Fund; the
fourth column reflects pro forma combined information in the event that
both Reorganizations take place. It should be noted, however, that each
Reorganization is independent of and not contingent on the other.
<PAGE> 175
FORM N-14
PART C. OTHER INFORMATION
Item 15. 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 B of each Investment Advisory Agreement between the Registrant
and Boatmen's Trust Company (other than the Advisory Agreement with respect to
the International Equity Fund) provides for indemnification of Boatmen's Trust
Company or, in lieu thereof, contribution by the Registrant, under certain
circumstances.
Paragraph 7 of the Advisory Agreement between the Registrant and
Boatmen's Trust Company with respect to the International Equity Fund provides
for indemnification of Boatmen's Trust Company or, in lieu thereof, contribution
by the Registrant, under certain circumstances.
The Investment Management Agreement between the 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.
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.
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 trustees, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being registered,
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 16. Exhibits
The following exhibits are incorporated herein by reference unless
otherwise indicated:
C-1
<PAGE> 176
1. (a) Agreement and Declaration of Trust, dated July 15, 1982,
filed as Exhibit 1 to Registrant's Registration Statement on
Form N-1A (Registration Nos. 2-78440,811-3517)
(b) Amendment to Agreement and Declaration of Trust, dated
August 4, 1982, filed as Exhibit 1(b) to Post-Effective
Amendment No. 29 to Registrant's Registration Statement on
Form N-1A.
(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.
(d) Amendment to Agreement and Declaration of Trust, dated
January 2, 1991, filed as Exhibit 1(d) to Post-Effective
Amendment No. 29 to Registrant's Registration Statement on
Form N-1A.
(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.
(f) Amendment to Agreement and Declaration of Trust to Permit
Trustees to Establish a Mandatory Retirement Age for
Trustees, dated July 2, 1991, filed as Exhibit 1(f) to
Post-Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A.
(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 as Exhibit 1(g) to Post-Effective Amendment
No. 29 to Registrant's Registration Statement on Form N-1A.
(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.
(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.
(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.
(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.
C-2
<PAGE> 177
(l) Amendment to Agreement and Declaration of Trust to
Redesignate Series and Designate 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.
(m) 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 as Exhibit 1(n) to Post-Effective
Amendment No. 29 to Registrant's Registration Statement on
Form N-1A.
(n) Amendment to Agreement and Declaration of Trust to Designate
Shares of Small Capitalization Equity Fund, filed as Exhibit
1(o) to Post-Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A.
(o) Amendment to Agreement and Declaration of Trust to Designate
and Establish the Class B Shares of Pilot Kleinwort Benson
International Equity Fund, etc., filed as Exhibit 1(p) to
Post-Effective Amendment No. 31 to Registrant's Registration
Statement on Form N-1A.
(p) Amendment to Agreement and Declaration of Trust to
Redesignate Shares of Pilot Kleinwort Benson International
Equity Fund as Pilot International Equity Fund, filed as
Exhibit 1(q) to Post-Effective Amendment No. 31 to
Registrant's Registration Statement on Form N-1A.
(q) Amendment to Agreement and Declaration of Trust to
Designate and Establish Shares and Classes of Pilot
Diversified Bond Income Fund and Pilot Growth Fund, etc.,
filed as Exhibit 1(r) to Post-Effective Amendment No. 31
to Registrant's Registration Statement on Form N-1A.
2. (a) By-Laws, filed as Exhibit 2 to Registrant's Registration
Statement on Form N-1A.
(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.
(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.
(d) Amendment to the By-Laws adding Section 3.10, filed as
Exhibit 2(d) to Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form N-1A.
3. None.
4. Agreement and Plan of Reorganization, filed herewith as Appendix A
to the Combined Proxy Statement/Prospectus.
5. (a) None.
6. (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.
C-3
<PAGE> 178
(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.
(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.
(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.
(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.
(f) Investment Advisory Agreement between Registrant on behalf
of the Pilot Growth Fund, and Boatmen's Trust Company, filed
as Exhibit 5(f) to Post-Effective Amendment No. 30 to
Registrant's Registration Statement on Form N-1A.
(g) Investment Advisory Agreement between Registrant on behalf
of the Pilot Diversified Bond Income Fund, and Boatmen's
Trust Company, filed as Exhibit 5(g) to Post-Effective
Amendment No. 30 to Registrant's Registration Statement on
Form N-1A.
7. Distribution Agreement dated as of June 1, 1996 between Registrant
and Pilot Funds Distributors, Inc., filed herewith Exhibit 7.
8. None.
9. Custodian Agreement dated May 4, 1996 between Registrant and
Boatmen's Trust Company, filed herewith as Exhibit 9.
10. (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.
(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.
(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.
C-4
<PAGE> 179
(d) Agreement between Concord Financial Group, Inc. and Service
Organization 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.
(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.
(f) Form of Agreement between Concord Financial Group, Inc. and
Service Organization 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.
11. Opinion and consent of Goodwin, Procter & Hoar LLP as to the
legality of securities being registered, filed herewith as
Exhibit 11.
12. To be filed by Amendment.
13. (a) Transfer Agency Agreement dated as of December 18,
1995 between Registrant and BISYS Fund Services, Inc.,
filed herewith as Exhibit 13(a).
(b) Administration Agreement dated as of June 1, 1996 between
Registrant and BISYS Fund Services Limited Partnership,
filed herewith as Exhibit 13(b).
(c) 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.
(d) 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.
(e) 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.
14. (a) Consent of Arthur Andersen LLP filed herewith as Exhibit
14(a).
(b) Consent of Price Waterhouse LLP filed herewith as Exhibit
14(b).
15. Not applicable.
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<PAGE> 180
16. Conformed copy of Power of Attorney filed herewith as Exhibit 16.
17. (a) Declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940 of the Registrant filed herewith as
Exhibit 17(a).
(b) Forms of Proxy filed herewith as Exhibit 17(b).
(c) Prospectus dated January 30, 1996 for the Service Class of
Funds IV Trust.
(d) Statement of Additional Information dated January 30, 1996
for the Service Class of Funds IV Trust.
(e) Prospectus dated July __, 1996 for the Pilot Shares class
of Pilot Growth Fund and Pilot Diversified Bond Income Fund.
(f) Prospectus dated December 29, 1995 for the Pilot Shares
class of Pilot Growth and Income Fund.
(g) Prospectus dated December 29, 1995 for the Pilot Shares
class of Pilot Short-Term Diversified Assets Fund.
(h) Statement of Additional Information dated July __, 1996
for the Class A, Class B, and Pilot Shares classes of
Pilot Growth Fund and Pilot Diversified Bond Income Fund.
(i) Statement of Additional Information dated December 29,
1995 for the Class A, Class B, and Pilot Shares classes of
Pilot Growth and Income Fund.
(j) Statement of Additional Information dated December 29,
1995 for the Class A, Class B, and Pilot Shares classes of
Pilot Short-Term Diversified Assets Fund.
(k) Financial Statements and Accountants' Reports thereon as
contained in the Annual Report to Shareholders of Pilot
Growth and Income Fund dated August 31, 1995.
(l) Financial Statements and Accountants' Reports thereon as
contained in the Annual Report to Shareholders of Pilot
Short-Term Diversified Assets Fund dated August 31, 1995.
(m) Financial Statements and Accountants' Reports thereon as
contained in the Semi-Annual to Shareholders of Pilot
Growth and Income Fund dated February 29, 1996.
(n) Financial Statements and Accountants' Reports thereon as
contained in the Semi-Annual Report to Shareholders of
Pilot Short-Term Diversified Assets Fund dated
February 29, 1996.
(o) Financial Statements and Accountants' Reports thereon as
contained in the Annual Report to Shareholders of Funds IV
Trust dated June 30, 1995.
(p) Financial Statements and Accountants' Reports thereon as
contained in the Semi-Annual Report to Shareholders of
Funds IV Trust dated December 31, 1995.
Item 17. Undertakings
1. The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this registration statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
as amended, the reoffering prospectus will contain the information called for by
the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
2. The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the
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<PAGE> 181
amendment is effective, and that, in determining any liability under the 1933
Act, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering of them.
3. Registrant undertakes to file, by post-effective amendment, an
opinion of counsel supporting the tax consequences of the proposed
Reorganizations within a reasonable time after receipt of such opinion.
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<PAGE> 182
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of Columbus and State
of Ohio on the third day of July, 1996.
THE PILOT FUNDS
/s/ William J. Tomko
------------------------------------
By: William J. Tomko, President
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ William J. Tomko President July 3, 1996
- ------------------------------------ (Principal Executive Officer)
William J. Tomko
/s/ Martin R. Dean Treasurer July 3, 1996
- ------------------------------------ (Principal Accounting Officer and
Martin R. Dean Principal Financial Officer)
Trustee , 1996
- ------------------------------------
J. Hord Armstrong, III
Trustee , 1996
- ------------------------------------
Lee F. Fetter
/s/ Henry O. Johnston* Trustee July 3, 1996
- ------------------------------------
Henry O. Johnston
/s/ L. White Matthews, III* Trustee July 3, 1996
- ------------------------------------
L. White Matthews, III
/s/ Nicholas G. Penniman, IV* Trustee July 3, 1996
- ------------------------------------
Nicholas G. Penniman, IV
*By: /s/ William J. Tomko
------------------------------------
William J. Tomko, Attorney-in-fact
under powers of attorney filed
herewith
</TABLE>
C-8
<PAGE> 183
Exhibit INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
6(f) Investment Advisory Agreement between Registrant, on
behalf of Pilot Growth Fund, and Boatmen's Trust
Company dated May 8, 1996.
6(g) Investment Advisory Agreement between Registrant, on
behalf of Pilot Diversified Bond Income Fund, and
Boatmen's Trust Company dated May 8, 1996.
7 Distribution Agreement dated June 1, 1996 between
Registrant and Pilot Funds Distributors, Inc.
9 Custodian Agreement dated May 4, 1996 between
Registrant and Boatmen's Trust Company.
11 Opinion and consent of Goodwin, Procter & Hoar LLP as to
the legality of securities being registered.
13(a) Transfer Agency Agreement dated December 18, 1995 between
the Registrant and BISYS Fund Services, Inc.
13(b) Administration Agreement between the Registrant and BISYS
Fund Services Limited Partnership dated June 1, 1996.
14(a) Consent of Arthur Andersen LLP.
14(b) Consent of Price Waterhouse LLP.
16 Conformed copies of Powers of Attorney.
17(a) Declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940 of the Registrant.
17(b) Forms of Proxy.
17(c) Prospectus dated January 30, 1996 as supplemented June 18, 1996
for the Service Class of Funds IV Trust.
17(d) Statement of Additional Information dated January 30, 1996 for the
Service Class of Funds IV Trust.
17(e) Prospectus dated May 10, 1996 for Pilot Growth Fund and Pilot
Diversified Bond Income Fund.
17(f) Prospectus dated December 29, 1995 as supplemented June 30, 1996
for Pilot Growth and Income Fund.
17(g) Prospectus dated December 29, 1995 for Pilot Short-Term
Diversified Assets Fund.
17(h) Statement of Additional Information dated May 10, 1996
for Pilot Growth Fund and Pilot Diversified Bond Income
Fund.
17(i) Statement of Additional Information dated December 29,
1995 for Pilot Growth and Income Fund.
17(j) Statement of Additional Information dated December 29,
1995 for Pilot Short-Term Diversified Assets Fund.
17(k) Financial Statements and Accountants' Reports thereon as
Contained in the Annual Report to Shareholders of Pilot
Growth and Income Fund dated August 31, 1995.
</TABLE>
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<PAGE> 184
17(l) Financial Statements and Accountants' Reports thereon as
contained in the Annual Report to Shareholders of Pilot
Short-Term Diversified Assets Fund dated August 31, 1995.
17(m) Financial Statements and Accountants' Reports thereon as
contained in the Semi-Annual Report to Shareholders of Pilot
Short-Term Diversified Assets Fund dated February 29, 1996.
17(n) Financial Statements and Accountants' Reports thereon as
contained in the Semi-Annual Report to Shareholders of Pilot
Growth and Income Fund dated February 29, 1996.
17(o) Financial Statements and Accountants' Reports thereon as
contained in the Annual Report to Shareholders of Funds IV Trust
dated June 30, 1995.
17(p) Financial Statements and Accountants' Reports thereon as
contained in the Semi-Annual Report to Shareholders of Funds IV
Trust dated December 31, 1995.
C-10
<PAGE> 1
EXHIBIT 6(f)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 8th day of May, 1996 between THE PILOT FUNDS, a
Massachusetts business trust (the "Trust"), formerly Centerland Fund, on behalf
of the Pilot Growth Fund, and BOATMEN'S TRUST COMPANY, a Trust Company
organized under the laws of Missouri (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust is authorized to issue Units of beneficial interest
(hereafter referred to as "Shares") in separate series with each such series
representing the interests in a separate portfolio of securities and other
assets;
WHEREAS, the Trust has established and presently offers (or intends to offer)
Shares of beneficial interest in a portfolio currently known as the Pilot Growth
Fund, (the "Fund"); and
WHEREAS, the Trust desires to retain the Adviser to render investment advisory
services to the Trust with respect to the Fund as indicated herein and the
Adviser is willing to so render such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. Appointment of Adviser. The Trust hereby appoints the Adviser to
act as investment adviser to the Trust and the Fund for the periods
and on the terms herein set forth. The Adviser accepts such
appointment and agrees to render the services herein set forth, for
the compensation herein provided.
2. Delivery of Documents. The Trust has delivered (or will deliver as
soon as is possible) to the Adviser copies of each of the following
documents:
(a) Agreement and Declaration of Trust of the Trust dated as of
July 15, 1982 (such Agreement and Declaration of Trust, as
presently in effect and as amended from time to time, is herein
called the "Trust Agreement"), copies of which are also on file
with the Secretary of the Commonwealth of Massachusetts;
(b) By-Laws of the Trust (such By-Laws, as presently in effect and
as amended from time to time, are herein called the "By-Laws");
<PAGE> 2
(c) Certified resolutions of the Shareholder(s) and the
Trustees of the Trust approving the terms of this
Agreement;
(d) Custodian Agreement (including related fee schedule)
dated November 24, 1982 between the Trust and State
Street Bank and Trust Company (such Agreement, as
presently in effect and as amended and/or superseded
from time to time, is herein called the "Custodian
Agreement");
(e) Prospectus and Statement of Additional Information of
the Trust with respect to the Fund as currently in
effect (such Prospectus and Statement of Additional
Information, as currently in effect and as amended,
supplemented and/or superseded from time to time, is
herein called the "Prospectus"); and
(f) Registration Statement of the Trust under the Securities
Act of 1933, as amended (the "1933 Act"), and the 1940
Act on Form N-1 as filed with the Securities and
Exchange Commission (the "Commission") on July 16, 1982,
and as amended on Form N-1A (such Registration
Statement, as presently in effect and as amended from
time to time, is herein called the "Registration
Statement").
The Trust agrees to promptly furnish the Adviser from time to time with copies
of all amendments of or supplements to or otherwise current versions of any of
the foregoing documents not heretofore furnished.
3. Duties of Adviser.
(a) Subject to the general supervision of the Trustees of
the Trust, the Adviser shall manage the investment
operations of the Fund and the composition of the Fund's
assets, including the purchase, retention and
disposition thereof. In this regard, the Adviser:
(i) shall provide supervision of the Fund's
assets, furnish a continuous investment
program for the Fund, determine from time to
time what investments or securities will be
purchased, retained or sold by the Fund, and
what portion of the assets will be invested or
held uninvested as cash;
(ii) shall place orders with broker-dealers,
foreign currency dealers, futures commissions
merchants or others pursuant to the Adviser's
determinations in accordance with the Fund's
policies as expressed in the Registration
Statement; and
- 2 -
<PAGE> 3
(iii) may, on occasions when it deems the purchase or sale of a security
to be in the best interests of the Fund as well as its other
customers (including any other Fund or any other investment company
or trust or advisory account for which the Adviser acts as adviser),
aggregate, to the extent permitted by applicable laws and
regulations, the securities to be sold or purchased in order to
obtain the best net price and the most favorable execution. In such
event, allocation of the securities so purchased or sold, as well as
the expenses incurred in the transaction, will be made by the
Adviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to such
other customers.
(b) The Adviser, in the performance of its duties hereunder, shall act in
conformity with the Trust Agreement, By-Laws, Registration Statement and
Prospectus and with the instructions and directions of the Trustees of the
Trust, and will use its best efforts to conform to the requirements of the
1940 Act, the Investment Advisers Act of 1940 (to the extent applicable),
the Internal Revenue Code of 1986, as amended, relating to regulated
investment companies and all rules and regulations thereunder, the Insider
Trading and Securities Fraud Enforcement Act of 1988 (to the extent
applicable) and all other applicable federal and state laws, regulations
and rulings.
(c) The Adviser shall render to the Trustees of the Trust such periodic and
special reports as the Trustees may reasonably request.
(d) The Adviser shall notify the Trust of any material change in the management
of the Adviser within a reasonable time after such change.
(e) The Adviser shall immediately notify the Trust in the event that the
Adviser or any of its affiliates: (1) becomes aware that it is subject to a
statutory disqualification that prevents the Adviser from serving as
investment adviser pursuant to this Agreement; or (2) becomes aware that it
is the subject of an administrative proceeding or enforcement action by the
Securities and Exchange Commission or other regulatory authority. The
Adviser further agrees to notify the Trust immediately of any material fact
known to the Adviser respecting or relating to the Adviser that is not
contained in the Trust's Registration Statement regarding the Trust, or any
amendment or supplement thereto, but that is required to be disclosed
therein, and of any statement contained therein that becomes untrue in any
material respect.
-3-
<PAGE> 4
(f) The services of the Adviser hereunder are not deemed exclusive
and the Adviser shall be free to render similar services to
others so long as its services under this Agreement are not
impaired thereby.
4. Expenses
(a) During the term of this Agreement, the Adviser will pay all
costs incurred by it in connection with the performance of its
duties under paragraph 3 hereof, other than the cost (including
taxes and brokerage commissions, if any) of securities purchased
for the Fund.
(b) The Adviser agrees that its gross compensation for any fiscal
year shall not be greater than an amount which, when added to
the other expenses of the Fund, shall cause the aggregate
expenses of the Fund to equal the maximum expenses under the
lowest applicable expense limitation established pursuant to the
statutes or regulations of any jurisdiction in which the Shares
of the Fund may be qualified for offer and sale. Except to the
extent that such amount has been reflected in reduced payments
to the Adviser, the Adviser shall refund to the Fund the amount
of any payment received in excess of the limitation pursuant to
this section as promptly as practicable after the end of such
fiscal year, provided that the Adviser shall not be required to
pay the Fund an amount greater than the fee paid to the Adviser
in respect of such year pursuant to this Agreement. As used in
this section, "expenses" shall mean those expenses included in
the applicable expense limitation having the broadest
specifications thereof, and "expense limitation" means a limit
of the maximum annual expenses which may be incurred by the Fund
determined (i) by multiplying a fixed percentage by the average,
or by multiplying more than one such percentage by different
specified amounts of the average, of the values of the Fund's
net assets for a fiscal year or (ii) by multiplying a fixed
percentage by the Fund's net investment income for a fiscal
year. The words "lowest applicable expense limitation" shall be
construed to result in the largest reduction of the Adviser's
compensation for any fiscal year of the Fund; provided, however,
that nothing in this Agreement shall limit the Adviser's fees if
not required by an applicable statute or regulation referred to
above in this section.
The Adviser may waive all or a portion of its fees provided for
hereunder and such waiver shall be treated as a reduction in
purchase price of the Adviser's services. The Adviser shall be
contractually bound hereunder by the terms of any publicly
announced waiver of its fee, or any limitation of
- 4 -
<PAGE> 5
the Fund's expenses, as if such waiver or limitation were fully set
forth herein.
5. Compensation
(a) For the services provided and the expenses assumed by the Adviser
pursuant to this Agreement, the Trust will pay to the Adviser as
full compensation therefor a fee at an annual rate of .75% of the
Fund's average net assets.
(b) The fee will be computed based on net assets on each day and will
be paid to the Adviser monthly.
-5-
<PAGE> 6
6. Books and Records. The Adviser shall maintain all of the Trust's records
relating to the Adviser's duties with respect to the Fund. The Adviser
agrees that all records so maintained are the property of the Trust and
it will surrender promptly to the Trust any of such records upon the
Trust's request. The Adviser further agrees to preserve for the periods,
and in the manner, prescribed by the Rules of the Commission under the
1940 Act any such records as are required to be maintained by such
Rules. To the extent required by law, the Adviser shall furnish to
regulatory authorities having the requisite authority such records which
may be requested in order to ascertain whether the operations of the
Trust with respect to the Fund are being conducted in a manner
consistent with applicable laws and regulations.
7. Indemnification
(a) Subject to Section 36 of the 1940 Act to the extent applicable,
the Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust in
connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or
gross negligence in the performance of its obligations and
duties, or by reason of its reckless disregard of its
obligations and duties, under this Agreement.
(b) The Trust, on behalf of the Fund, hereby agrees to indemnify and
hold harmless the Adviser, its directors, officers and employees
and each person, if any, who controls the Adviser (collectively,
the "Indemnified Parties") against any and all losses, claims,
damages or liabilities, joint or several, relating to the Fund,
to which any such Indemnified Party may become subject under the
1933 Act, the Securities Exchange Act of 1934, the Advisers Act,
the 1940 Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon
(i) any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission to
state a material fact required to be stated or
necessary to make the statements made not misleading in
(x) the Registration Statement or the Prospectus, (y)
any advertisement or sales literature authorized by the
Trust for use in the offer and sale of Shares of the
Fund, or (z) any application or other document filed in
connection with the qualifications of the Trust of
Shares of the Fund under the Blue Sky or securities
- 6 -
<PAGE> 7
laws of any jurisdiction, except insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out
of or are based upon any such untrue statement or omission or
alleged untrue statement or omission (1) in a document prepared
by the Adviser, or (2) made in reliance upon and in conformity
with information furnished to the Trust by or on behalf of the
Adviser pertaining to or originating with the Adviser for use in
connection with any document referred to in clauses (x), (y) or
(z), or
(ii) subject in each case to clause (i) above, the Adviser acting as
investment adviser to the Trust with respect to the Fund;
and the Trust, from the assets of the Fund, will reimburse each Indemnified
Party for any legal or other expenses incurred by such Indemnified Party in
connection with investigating or defending any such loss, claim, damage,
liability or action.
(c) If the indemnification provided for in paragraph 7(b) is available in
accordance with the terms of such paragraph but is for any reason held by a
court in a final adjudication to be unavailable from the Trust, then the
Trust, from the assets of the Fund, shall contribute to the aggregate
amount paid or payable by the Trust and such Indemnified Party as a result
of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the Fund and such Indemnified Party in connection with
the operations of the Fund, (ii) the relative fault of the Trust with
respect to the Fund and such Indemnified Party, and (iii) any other
relevant equitable considerations. The Trust and the Adviser agree that it
would not be just and equitable if contribution pursuant to this
subparagraph (c) were determined by pro rata allocation or any other method
of allocation which does not take account of the equitable considerations
referred to above in this subparagraph (c). The amount paid or payable as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subparagraph (c) shall be deemed to
include any legal or other expenses incurred by the Trust and the
Indemnified Party in connection with investigating or defending any such
loss, claim, damage, liability or action. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
-7-
<PAGE> 8
(d) It is understood, however, that nothing in this paragraph 7
shall protect any Indemnified Party against, or entitle any
Indemnified Party to indemnification against, or contribution
with respect to, any liability to the Trust or its Shareholders
to which such Indemnified Party is subject, by reason of its
willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of any reckless
disregard of its obligations and duties, under this Agreement or
otherwise to an extent or in a manner inconsistent with Section
17(i) of the 1940 Act.
8. Duration and Termination. This Agreement, shall continue, unless sooner
terminated as provided herein, until May 31, 1997, and thereafter shall
continue automatically for periods of one year so long as each such
latter continuance is approved at least annually (a) by the vote of a
majority of the Trustees of the Trust who are not parties to this
Agreement or interested persons (as defined by the 1940 Act) of any such
party, cast in person at a meting called for the purpose of voting on
such approval, and (b) by the Trustees of the Trust or by vote of a
majority of the outstanding Shares (as defined with respect to voting
securities in the 1940 Act) representing the interests in the Fund;
provided, however, that this Agreement may be terminated by the Trust at
any time, without the payment of any penalty, by vote of a majority of
the Trustees of the Trust or by vote of a majority of the outstanding
Shares (as so defined) representing the interests in the Fund affected
thereby on 60 days' written notice to the Adviser, or by the Adviser at
any time, without the payment of any penalty, on 60 days' written notice
to the Trust. This Agreement will automatically and immediately
terminate in the event of its assignment (as defined by the 1940 Act).
9. Status of Adviser as Independent Contractor. The Adviser shall for all
purposes herein be deemed to be an independent contractor and shall,
unless otherwise expressly provided herein or authorized by the Trustees
of the Trust from time to time, have no authority to act for or
represent the Trust or Fund in any way or otherwise be deemed an agent
of the Trust or Fund.
10. Amendment of Agreement. This Agreement may be amended, changed or waived
only by an instrument in writing and by mutual consent, but the consent
of the Trust must be approved (a) by vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons (as defined in the 1940 Act) or any such party, cast
in person at a meeting called for the purpose of voting on such
amendment, and (b) by vote of a majority of the outstanding Shares (as
defined with respect to voting securities by the 1940 Act) representing
the interests in the Fund.
11. Limitation of Liability. The name "The Pilot Funds" refers to the
Trustees under the Declaration collectively as trustees and not as
individuals. The Declaration, a
- 8 -
<PAGE> 9
copy of which, together with all amendments thereto, is on file in the
Office of the Secretary of the Commonwealth of Massachusetts, provides
that no shareholder, Trustee, officer, employee or agent of the Trust,
shall be subject to claims against or obligations of the Trust to any
extent whatsoever, but that the Trust estate only shall be liable.
The Adviser is hereby expressly put on notice of the limitation of
liability as set forth in the Declaration and agrees that the
obligations assumed by the Trust pursuant to this Agreement shall be
limited in all cases to the Fund's assets, and the Adviser shall not
seek satisfaction of any such obligation from the shareholders or any
shareholder of the Trust or Fund or any other series of the Trust, or
from any Trustee, officer, employee or agent of the Trust. The Adviser
understands that the rights and obligations of each series under the
Declaration are separate and distinct from those of any and all other
series.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be construed in
accordance with applicable federal law and the laws of the Commonwealth
of Massachusetts and shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors subject
to the last sentence of paragraph 8, and, to the extent provided in
paragraph 7 hereof, each Indemnified Party. Anything herein to the
contrary notwithstanding, this Agreement shall not be construed in a
manner inconsistent with the 1940 Act, or in a manner which would cause
the Trust to fail to comply with the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended, nor shall this Agreement be
construed to require, or to impose any duty upon, either of the parties
to do anything in violation of any applicable laws or regulations. This
Agreement may be executed simultaneously in two counterparts, each of
which shall be deemed an original, but both of which together shall
constitute one and the same instrument. This Agreement shall supersede
all prior investment advisory or management agreements entered into
between the parties. This Agreement shall not apply to the management
of assets allocated to any series of the Trust other than the Fund.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
THE PILOT FUNDS
Attest:
By: /s/ William J. Tomko
- ------------------------------- -------------------------------
Title:
BOATMEN'S TRUST COMPANY
Attest:
By: /s/ David F. Toth
- ------------------------------- -------------------------------
Title: Sr. V.P.
-10-
<PAGE> 1
EXHIBIT 6(g)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 8th day of May, 1996 between THE PILOT FUNDS, a
Massachusetts business trust (the "Trust"), formerly Centerland Fund, on behalf
of the Pilot Diversified Bond Income Fund, and BOATMEN'S TRUST COMPANY, a Trust
Company organized under the laws of Missouri (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust is authorized to issue Units of beneficial interest
(hereafter referred to as "Shares") in separate series with each such series
representing the interests in a separate portfolio of securities and other
assets;
WHEREAS, the Trust has established and presently offers (or intends to offer)
Shares of beneficial interest in a portfolio currently known as the Pilot
Diversified Bond Income Fund, (the "Fund"); and
WHEREAS, the Trust desires to retain the Adviser to render investment advisory
services to the Trust with respect to the Fund as indicated herein and the
Adviser is willing to so render such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. Appointment of Adviser. The Trust hereby appoints the Adviser to
act as investment adviser to the Trust and the Fund for the
periods and on the terms herein set forth. The Adviser accepts
such appointment and agrees to render the services herein set
forth, for the compensation herein provided.
2. Delivery of Documents. The Trust has delivered (or will deliver
as soon as is possible) to the Adviser copies of each of the
following documents:
(a) Agreement and Declaration of Trust of the Trust dated as
of July 15, 1982 (such Agreement and Declaration of
Trust, as presently in effect and as amended from time
to time, is herein called the "Trust Agreement"), copies
of which are also on file with the Secretary of the
Commonwealth of Massachusetts;
(b) By-Laws of the Trust (such By-Laws, as presently in
effect and as amended from time to time, are herein
called the "By-Laws");
<PAGE> 2
(c) Certified resolutions of the Shareholder(s) and the
Trustees of the Trust approving the terms of this
Agreement;
(d) Custodian Agreement (including related fee schedule)
dated November 24, 1982 between the Trust and State
Street Bank and Trust Company (such Agreement, as
presently in effect and as amended and/or superseded
from time to time, is herein called the "Custodian
Agreement");
(e) Prospectus and Statement of Additional Information of
the Trust with respect to the Fund as currently in
effect (such Prospectus and Statement of Additional
Information, as currently in effect and as amended,
supplemented and/or superseded from time to time, is
herein called the "Prospectus"); and
(f) Registration Statement of the Trust under the
Securities Act of 1933, as amended (the "1933 Act"), and
the 1940 Act on Form N-1 as filed with the Securities
and Exchange Commission (the "Commission") on July 16,
1982, and as amended on Form N-1A (such Registration
Statement, as presently in effect and as amended from
time to time, is herein called the "Registration
Statement").
The Trust agrees to promptly furnish the Adviser from time to time with copies
of all amendments of or supplements to or otherwise current versions of any of
the foregoing documents not heretofore furnished.
3. Duties of Adviser.
(a) Subject to the general supervision of the Trustees of
the Trust, the Adviser shall manage the investment
operations of the Fund and the composition of the Fund's
assets, including the purchase, retention and
disposition thereof. In this regard, the Adviser:
(i) shall provide supervision of the Fund's assets,
furnish a continuous investment program for the
Fund, determine from time to time what
investments or securities will be purchased,
retained or sold by the Fund, and what portion
of the assets will be invested or held
uninvested as cash;
(ii) shall place orders with broker-dealers, foreign
currency dealers, futures commissions merchants
or others pursuant to the Adviser's
determinations in accordance with the Fund's
policies as expressed in the Registration
Statement; and
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<PAGE> 3
(iii) may, on occasions when it deems the purchase or sale of a
security to be in the best interests of the Fund as well as its
other customers (including any other Fund or any other
investment company or trust or advisory account for which the
Adviser acts as adviser), aggregate, to the extent permitted by
applicable laws and regulations, the securities to be sold or
purchased in order to obtain the best net price and the most
favorable execution. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Adviser in the manner it
considers to be the most equitable and consistent with its
fiduciary obligations to the Fund and to such other customers.
(b) The Adviser, in the performance of its duties hereunder, shall act in
conformity with the Trust Agreement, By-Laws, Registration Statement and
Prospectus and with the instructions and directions of the Trustees of
the Trust, and will use its best efforts to conform to the requirements
of the 1940 Act, the Investment Advisers Act of 1940 (to the extent
applicable), the Internal Revenue Code of 1986, as amended, relating to
regulated investment companies and all rules and regulations thereunder,
the Insider Trading and Securities Fraud Enforcement Act of 1988 (to the
extent applicable) and all other applicable federal and state laws,
regulations and rulings.
(c) The Adviser shall render to the Trustees of the Trust such periodic and
special reports as the Trustees may reasonably request.
(d) The Adviser shall notify the Trust of any material change in the
management of the Adviser within a reasonable time after such change.
(e) The Adviser shall immediately notify the Trust in the event that the
Adviser or any of its affiliates: (1) becomes aware that it is subject
to a statutory disqualification that prevents the Adviser from serving
as investment adviser pursuant to this Agreement; or (2) becomes aware
that it is the subject of an administrative proceeding or enforcement
action by the Securities and Exchange Commission or other regulatory
authority. The Adviser further agrees to notify the Trust immediately of
any material fact known to the Adviser respecting or relating to the
Adviser that is not contained in the Trust's Registration Statement
regarding the Trust, or any amendment or supplement thereto, but that is
required to be disclosed therein, and of any statement contained therein
that becomes untrue in any material respect.
- 3 -
<PAGE> 4
(f) The services of the Adviser hereunder are not deemed exclusive and
the Adviser shall be free to render similar services to others so long as
its services under this Agreement are not impaired thereby.
4. Expenses
(a) During the term of this Agreement, the Adviser will pay all costs
incurred by it in connection with the performance of its duties under
paragraph 3 hereof, other than the cost (including taxes and brokerage
commissions, if any) of securities purchased for the Fund.
(b) The Adviser agrees that its gross compensation for any fiscal year shall
not be greater than an amount which, when added to the other expenses of
the Fund, shall cause the aggregate expenses of the Fund to equal the
maximum expenses under the lowest applicable expense limitation
established pursuant to the statutes or regulations of any jurisdiction
in which the Shares of the Fund may be qualified for offer and sale.
Except to the extent that such amount has been reflected in reduced
payments to the Adviser, the Adviser shall refund to the Fund the amount
of any payment received in excess of the limitation pursuant to this
section as promptly as practicable after the end of such fiscal year,
provided that the Adviser shall not be required to pay the Fund an amount
greater than the fee paid to the Adviser in respect of such year pursuant
to this Agreement. As used in this section, "expenses" shall mean those
expenses included in the applicable expense limitation having the
broadest specifications thereof, and "expense limitation" means a limit
of the maximum annual expenses which may be incurred by the Fund
determined (i) by multiplying a fixed percentage by the average, or by
multiplying more than one such percentage by different specified amounts
of the average, of the values of the Fund's net assets for a fiscal year
or (ii) by multiplying a fixed percentage by the Fund's net investment
income for a fiscal year. The words "lowest applicable expense
limitation" shall be construed to result in the largest reduction of the
Adviser's compensation for any fiscal year of the Fund; provided,
however, that nothing in this Agreement shall limit the Adviser's fees if
not required by an applicable statute or regulation referred to above in
this section.
The Adviser may waive all or a portion of its fees provided for hereunder
and such waiver shall be treated as a reduction in purchase price of the
Adviser's services. The Adviser shall be contractually bound hereunder by
the terms of any publicly announced waiver of its fee, or any limitation
of
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<PAGE> 5
the Fund's expenses, as if such waiver or limitation were fully
set forth herein.
5. Compensation
(a) For the services provided and the expenses assumed by the Adviser
pursuant to this Agreement, the Trust will pay to the Adviser as
full compensation therefor a fee at an annual rate of .55% of the
Fund's average net assets.
(b) The fee will be computed based on net assets on each day and will
be paid to the Adviser monthly.
-5-
<PAGE> 6
6. Books and Records. The Adviser shall maintain all of the Trust's records
relating to the Adviser's duties with respect to the Fund. The Adviser
agrees that all records so maintained are the property of the Trust and
it will surrender promptly to the Trust any of such records upon the
Trust's request. The Adviser further agrees to preserve for the periods,
and in the manner, prescribed by the Rules of the Commission under the
1940 Act any such records as are required to be maintained by such
Rules. To the extent required by law, the Adviser shall furnish to
regulatory authorities having the requisite authority such records which
may be requested in order to ascertain whether the operations of the
Trust with respect to the Fund are being conducted in a manner
consistent with applicable laws and regulations.
7. Indemnification
(a) Subject to Section 36 of the 1940 Act to the extent applicable, the
Adviser shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Trust in connection with the
matters to which this Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence in the
performance of its obligations and duties, under this Agreement.
(b) The Trust, on behalf of the Fund, hereby agrees to indemnify and
hold harmless the Adviser, its directors, officers and employees
and each person, if any, who controls the Adviser (collectively,
the "Indemnified Parties") against any and all losses, claims,
damages or liabilities, joint or several, relating to the Fund, to
which any such Indemnified Party may become subject under the 1933
Act, the Securities Exchange Act of 1934, the Advisers Act, the
1940 Act or other federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon
(i) any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission to state
a material fact required to be stated or necessary to make
the statements made not misleading in (x) the Registration
Statement or the Prospectus, (y) any advertisement or sales
literature authorized by the Trust for use in the offer and
sale of Shares of the Fund, or (z) any application or other
document filed in connection with the qualification of the
Trust or Shares of the Fund under the Blue Sky or
securities
- 6 -
<PAGE> 7
laws of any jurisdiction, except insofar as such
losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any
such untrue statement or omission or alleged untrue
statement or omission (1) in a document prepared by
the Adviser, or (2) made in reliance upon and in
conformity with information furnished to the Trust by
or on behalf of the Adviser pertaining to or
originating with the Adviser for use in connection
with any document referred to in clauses (x), (y) or
(z), or
(ii) subject in each case to clause (i) above, the Adviser
acting as investment adviser to the Trust with
respect to the Fund;
and the Trust, from the assets of the Fund, will reimburse each
Indemnified Party for any legal or other expenses incurred by
such Indemnified Party in connection with investigating or
defending any such loss, claim, damage, liability or action.
(c) If the indemnification provided for in paragraph 7(b) is
available in accordance with the terms of such paragraph but is
for any reason held by a court in a final adjudication to be
unavailable from the Trust, then the Trust, from the assets of
the Fund, shall contribute to the aggregate amount paid or
payable by the Trust and such Indemnified Party as a result of
such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect
(i) the relative benefits received by the Fund and such
Indemnified Party in connection with the operations of the Fund,
(ii) the relative fault of the Trust with respect to the Fund
and such Indemnified Party, and (iii) any other relevant
equitable considerations. The Trust and the Adviser agree that
it would not be just and equitable if contribution pursuant to
this subparagraph (c) were determined by pro rata allocation or
any other method of allocation which does not take account of
the equitable considerations referred to above in this
subparagraph (c). The amount paid or payable as a result of the
losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subparagraph (c) shall be
deemed to include any legal or other expenses incurred by the
Trust and the Indemnified Party in connection with investigating
or defending any such loss, claim, damage, liability or action.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation.
- 7 -
<PAGE> 8
(d) It is understood, however, that nothing in this paragraph 7
shall protect any Indemnified Party against, or entitle any
Indemnified Party to indemnification against, or contribution
with respect to, any liability to the Trust or its Shareholders
to which such Indemnified Party is subject, by reason of its
willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of any reckless
disregard of its obligations and duties, under this Agreement or
otherwise to an extent or in a manner inconsistent with Section
17(i) of the 1940 Act.
8. Duration and Termination. This Agreement, shall continue, unless sooner
terminated as provided herein, until May 31, 1997, and thereafter shall
continue automatically for periods of one year so long as each such
latter continuance is approved at least annually (a) by the vote of a
majority of the Trustees of the Trust who are not parties to this
Agreement or interested persons (as defined by the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of voting on
such approval, and (b) by the Trustees of the Trust or by vote of a
majority of the outstanding Shares (as defined with respect to voting
securities in the 1940 Act) representing the interests in the Fund;
provided, however, that this Agreement may be terminated by the Trust at
any time, without the payment of any penalty, by vote of a majority of
the Trustees of the Trust or by vote of a majority of the outstanding
Shares (as so defined) representing the interests in the Fund affected
thereby on 60 days' written notice to the Adviser, or by the Adviser at
any time, without the payment of any penalty, on 60 days' written notice
to the Trust. This Agreement will automatically and immediately
terminate in the event of its assignment (as defined by the 1940 Act).
9. Status of Adviser as Independent Contractor. The Adviser shall for all
purposes herein be deemed to be an independent contractor and shall,
unless otherwise expressly provided herein or authorized by the Trustees
of the Trust from time to time, have no authority to act for or
represent the Trust or Fund in any way or otherwise be deemed an agent
of the Trust or Fund.
10. Amendment of Agreement. This Agreement may be amended, changed or
waived only by an instrument in writing and by mutual consent, but the
consent of the Trust must be approved (a) by vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons (as defined in the 1940 Act) of any such party, cast
in person at a meeting called for the purpose of voting on such
amendment, and (b) by vote of a majority of the outstanding Shares (as
defined with respect to voting securities by the 1940 Act) representing
the interests in the Fund.
11. Limitation of Liability. The name "The Pilot Funds" refers to the
Trustees under the Declaration collectively as trustees and not as
individuals. The Declaration, a
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<PAGE> 9
copy of which, together with all amendments thereto, is on file in the
Office of the Secretary of the Commonwealth of Massachusetts, provides
that no shareholder, Trustee, officer, employee or agent of the Trust,
shall be subject to claims against or obligations of the Trust to any
extent whatsoever, but that the Trust estate only shall be liable.
The Adviser is hereby expressly put on notice of the limitation of
liability as set forth in the Declaration and agrees that the
obligations assumed by the Trust pursuant to this Agreement shall be
limited in all cases to the Fund's assets, and the Adviser shall not
seek satisfaction of any such obligation from the shareholders or any
shareholder of the Trust or Fund or any other series of the Trust, or
from any Trustee, officer, employee or agent of the Trust. The Adviser
understands that the rights and obligations of each series under the
Declaration are separate and distinct from those of any and all other
series.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be construed in
accordance with applicable federal law and the laws of the Commonwealth
of Massachusetts and shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors subject to
the last sentence of paragraph 8, and, to the extent provided in
paragraph 7 hereof, each Indemnified Party. Anything herein to the
contrary notwithstanding, this Agreement shall not be construed in a
manner inconsistent with the 1940 Act, or in a manner which would cause
the Trust to fail to comply with the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended, nor shall this Agreement be
construed to require, or to impose any duty upon, either of the parties
to do anything in violation of any applicable laws or regulations. This
Agreement may be executed simultaneously in two counterparts, each of
which shall be deemed an original, but both of which together shall
constitute one and the same instrument. This Agreement shall supersede
all prior investment advisory or management agreements entered into
between the parties. This Agreement shall not apply to the management of
assets allocated to any series of the Trust other than the Fund.
- 9 -
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
THE PILOT FUNDS
Attest:
By: /s/ William J. Tomko
- ------------------------------ ------------------------------
Title:
BOATMEN'S TRUST COMPANY
Attest:
By: /s/ David F. Toth
- ------------------------------ ------------------------------
Title: Sr. V.P.
- 10 -
<PAGE> 1
Exhibit 7
---------
DISTRIBUTION AGREEMENT
AGREEMENT made this 1st day of June, 1996, between THE PILOT FUNDS (the
"Trust"), a Massachusetts business trust having its principal place of business
at 3435 Stelzer Road, Columbus, Ohio 43219, and PILOT FUNDS DISTRIBUTORS, INC.
("Distributor"), having its principal place of business at 3435 Stelzer Road,
Columbus, Ohio 43219.
WHEREAS, the Trust is an open-end management investment company,
organized as a Massachusetts business trust and registered with the Securities
and Exchange Commission (the "Commission") under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, it is intended that Distributor act as the distributor of the
units of beneficial interest ("Shares") of each of the investment portfolios of
the Trust, either now or hereafter created (such portfolios being referred to
individually as a "Fund" and collectively as the "Funds").
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Distributor.
-----------------------
1.1 Distributor will act as agent for the distribution of the
Shares covered by the registration statement and prospectus of the Trust then in
effect under the Securities Act of 1933, as amended (the "Securities Act"). As
used in this Agreement, the term "registration statement" shall mean Parts A
(the prospectus), B (the Statement of Additional Information) and C of each
registration statement that is filed on Form N-1A, or any successor thereto,
with the Commission, together with any amendments thereto. The term "prospectus"
shall mean each form of prospectus and Statement of Additional Information used
by the Funds for delivery to shareholders and prospective shareholders after the
effective dates of the above referenced registration statements, together with
any amendments and supplements thereto.
1.2 Distributor agrees to use appropriate efforts to solicit
orders for the sale of the Shares and will undertake such advertising and
promotion as it believes reasonable in connection with such solicitation. The
Trust understands that Distributor is now and may in the future be the
distributor of the shares of several investment companies or series (together,
"Companies") including Companies having investment objectives similar to those
of the Trust. The Trust further understands that investors and potential
investors in the Trust may invest in shares of such other Companies. The Trust
agrees that Distributor's duties to such Companies shall not be deemed in
conflict with its duties to the Trust under this paragraph 1.2.
Distributor shall, at its own expense, finance
appropriate activities which it deems reasonable, which are primarily intended
to result in the sale of the Shares, including, but not limited to, advertising,
compensation of underwriters, dealers and sales personnel, the printing and
<PAGE> 2
mailing of prospectuses to other than current Shareholders, and the printing and
mailing of sales literature.
1.3 In its capacity as distributor of the Shares, all
activities of Distributor and its partners, agents, and employees shall comply
with all applicable laws, rules and regulations, including, without limitation,
the 1940 Act, all rules and regulations promulgated by the Commission thereunder
and all rules and regulations adopted by any securities association registered
under the Securities Exchange Act of 1934.
1.4 Distributor will provide one or more persons, during
normal business hours, to respond to telephone questions with respect to the
Trust.
1.5 Distributor will transmit any orders received by it for
purchase or redemption of the Shares to the transfer agent and custodian for the
Funds.
1.6 Whenever in their judgment such action is warranted by
unusual market, economic or political conditions, or by abnormal circumstances
of any kind, the Trust's officers may decline to accept any orders for, or make
any sales of, the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7 Distributor will act only on its own behalf as principal
if it chooses to enter into selling agreements with selected dealers or others.
1.8 The Trust agrees at its own expense to execute any and
all documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.
1.9 The Trust shall furnish from time to time, for use in
connection with the sale of the Shares, such information with respect to the
Funds and the Shares as Distributor may reasonably request; and the Trust
warrants that the statements contained in any such information shall fairly show
or represent what they purport to show or represent. The Trust shall also
furnish Distributor upon request with: (a) unaudited semi-annual statements of
the Funds' books and accounts prepared by the Trust, (b) a monthly itemized list
of the securities in the Funds, (c) monthly balance sheets as soon as
practicable after the end of each month, and (d) from time to time such
additional information regarding the financial condition of the Funds as
Distributor may reasonably request.
1.10 The Trust represents to Distributor that, with respect
to the Shares, all registration statements and prospectuses filed by the Trust
with the Commission under the Securities Act have been carefully prepared in
conformity with requirements of said Act and rules and regulations of the
Commission thereunder. The registration statement and prospectus contain all
statements required to be stated therein in conformity with said Act and the
rules and regulations of said Commission and all statements of fact contained in
any such registration statement and
2
<PAGE> 3
prospectus are true and correct. Furthermore, neither any registration statement
nor any prospectus includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading to a purchaser of the Shares. The Trust may,
but shall not be obligated to, propose from time to time such amendment or
amendments to any registration statement and such supplement or supplements to
any prospectus as, in the light of future developments, may, in the opinion of
the Trust's counsel, be necessary or advisable. If the Trust shall not propose
such amendment or amendments and/or supplement or supplements within fifteen
days after receipt by the Trust of a written request from Distributor to do so,
Distributor may, at its option, terminate this Agreement. The Trust shall not
file any amendment to any registration statement or supplement to any prospectus
without giving Distributor reasonable notice thereof in advance; provided,
however, that nothing contained in this Agreement shall in any way limit the
Trust's right to file at any time such amendments to any registration statement
and/or supplements to any prospectus, of whatever character, as the Trust may
deem advisable, such right being in all respects absolute and unconditional.
1.11 The Trust authorizes Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of the Shares. The Trust agrees to indemnify, defend and hold Distributor, its
several partners and employees, and any person who controls Distributor within
the meaning of Section 15 of the Securities Act free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which Distributor, its partners
and employees, or any such controlling person, may incur under the Securities
Act or under common law or otherwise, arising out of or based upon any untrue
statement, or alleged untrue statement, of a material fact contained in any
registration statement or any prospectus or arising out of or based upon any
omission, or alleged omission, to state a material fact required to be stated in
either any registration statement or any prospectus or necessary to make the
statements in either thereof not misleading; provided, however, that the Trust's
agreement to indemnify Distributor, its partners or employees, and any such
controlling person shall not be deemed to cover any claims, demands, liabilities
or expenses arising out of any statements or representations as are contained in
any prospectus and in such financial and other statements as are furnished in
writing to the Trust by Distributor and used in the answers to the registration
statement or in the corresponding statements made in the prospectus, or arising
out of or based upon any omission or alleged omission to state a material fact
in connection with the giving of such information required to be stated in such
answers or necessary to make the answers not misleading; and further provided
that the Trust's agreement to indemnify Distributor and the Trust's
representations and warranties hereinbefore set forth in paragraph 1.10 shall
not be deemed to cover any liability to the Trust or its Shareholders to which
Distributor would otherwise be subject by reason of willful misfeasance, bad
faith or negligence in the performance of its duties, or by reason of
Distributor's reckless disregard of its obligations and duties under this
Agreement. The Trust's agreement to indemnify Distributor, its partners and
employees and any such controlling person, as aforesaid, is expressly
conditioned upon the Trust being notified of any action brought against
Distributor, its partner or employees, or any such controlling person, such
notification to be given by letter or by telegram addressed to the Trust at its
principal office in Columbus, Ohio and sent to
3
<PAGE> 4
the Trust by the person against whom such action is brought, within 10 days
after the summons or other first legal process shall have been served. The
failure to so notify the Trust of any such action shall not relieve the Trust
from any liability which the Trust may have to the person against whom such
action is brought by reason of any such untrue, or allegedly untrue, statement
or omission, or alleged omission, otherwise than on account of the Trust's
indemnity agreement contained in this paragraph 1.11. The Trust will be entitled
to assume the defense of any suit brought to enforce any such claim, demand or
liability, but, in such case, such defense shall be conducted by counsel of good
standing chosen by the Trust and approved by Distributor, which approval shall
not be unreasonably withheld. In the event the Trust elects to assume the
defense of any such suit and retain counsel of good standing approved by
Distributor, the defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them; but in case the
Trust does not elect to assume the defense of any such suit, or in case
Distributor reasonably does not approve of counsel chosen by the Trust, the
Trust will reimburse Distributor, its partners and employees, or the controlling
person or persons named as defendant or defendants in such suit, for the fees
and expenses of any counsel retained by Distributor or them. The Trust's
indemnification agreement contained in this paragraph 1.11 and the Trust's
representations and warranties in this Agreement shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
Distributor, its partners and employees, or any controlling person, and shall
survive the delivery of any Shares.
This Agreement of indemnity will inure exclusively to
Distributor's benefit, to the benefit of its several partners and employees, and
their respective estates, and to the benefit of the controlling persons and
their successors. The Trust agrees promptly to notify Distributor of the
commencement of any litigation or proceedings against the Trust or any of its
officers or Trustees in connection with the issue and sale of any Shares.
1.12 Distributor agrees to indemnify, defend and hold the
Trust, its several officers and Trustees and any person who controls the Trust
within the meaning of Section 15 of the Securities Act free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
costs of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which the Trust, its officers or
Trustees or any such controlling person, may incur under the Securities Act or
under common law or otherwise, but only to the extent that such liability or
expense incurred by the Trust, its officers or Trustees or such controlling
person resulting from such claims or demands, shall arise out of or be based
upon any untrue, or alleged untrue, statement of a material fact contained in
information furnished in writing by Distributor to the Trust and used in the
answers to any of the items of the registration statement or in the
corresponding statements made in the prospectus, or shall arise out of or be
based upon any omission, or alleged omission, to state a material fact in
connection with such information furnished in writing by Distributor to the
Trust required to be stated in such answers or necessary to make such
information not misleading. Distributor's agreement to indemnify the Trust, its
officers and Trustees, and any such controlling person, as aforesaid, is
expressly conditioned upon Distributor being notified of any action brought
against the Trust, its officers or Trustees, or any such controlling person,
such notification to be given by letter or telegram addressed to Distributor at
its principal
4
<PAGE> 5
office in Columbus, Ohio, and sent to Distributor by the person against whom
such action is brought, within 10 days after the summons or other first legal
process shall have been served. Distributor shall have the right of first
control of the defense of such action, with counsel of its own choosing,
satisfactory to the Trust, if such action is based solely upon such alleged
misstatement or omission on Distributor's part, and in any other event the
Trust, its officers or Trustees or such controlling person shall each have the
right to participate in the defense or preparation of the defense of any such
action. The failure to so notify Distributor of any such action shall not
relieve Distributor from any liability which Distributor may have to the Trust,
its officers or Trustees, or to such controlling person by reason of any such
untrue or alleged untrue statement, or omission or alleged omission, otherwise
than on account of Distributor's indemnity agreement contained in this paragraph
1.12.
1.13 No Shares shall be offered by either Distributor or the
Trust under any of the provisions of this Agreement and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Trust if and so
long as the effectiveness of the registration statement then in effect or any
necessary amendments thereto shall be suspended under any of the provisions of
the Securities Act or if and so long as a current prospectus as required by
Section 10(b)(2) of said Act is not on file with the Commission; provided,
however, that nothing contained in this paragraph 1.13 shall in any way restrict
or have an application to or bearing upon the Trust's obligation to repurchase
Shares from any Shareholder in accordance with the provisions of the Trust's
prospectus, Agreement and Declaration of Trust, or Bylaws.
1.14 The Trust agrees to advise Distributor as soon as
reasonably practical by a notice in writing delivered to Distributor or its
counsel:
(a) of any request by the Commission for amendments
to the registration statement or prospectus then
in effect or for additional information;
(b) in the event of the issuance by the Commission of
any stop order suspending the effectiveness of
the registration statement or prospectus then in
effect or the initiation by service of process on
the Trust of any proceeding for that purpose;
(c) of the happening of any event that makes untrue
any statement of a material fact made in the
registration statement or prospectus then in
effect or which requires the making of a change
in such registration statement or prospectus in
order to make the statements therein not
misleading; and
(d) of all action of the Commission with respect to
any amendment to any registration statement or
prospectus which may from time to time be filed
with the Commission.
For purposes of this section, informal requests by or
acts of the Staff of the
5
<PAGE> 6
Commission shall not be deemed actions of or requests by the Commission.
1.15 Distributor agrees on behalf of itself and its partners
and employees to treat confidentially and as proprietary information of the
Trust all records and other information relative to the Trust and its prior,
present or potential Shareholders, and not to use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder, except, after prior notification to and approval in writing by the
Trust, which approval shall not be unreasonably withheld and may not be withheld
where Distributor may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
1.16 This Agreement shall be governed by the laws of the
State of Ohio.
2. Fee.
---
Distributor shall receive from the Funds (the "Distribution Plan
Funds") a distribution fee at the rate and upon the terms and conditions set
forth in the Distribution and Shareholder Service Plan, which may be amended
from time to time. The Distributor's contractual right to such distribution fees
shall be the maximum fee set forth in the Distribution and Shareholder Service
Plan. The distribution fee shall be accrued daily and shall be paid on the first
business day of each month, or at such time(s) as the Distributor shall
reasonably request.
3. Sale and Payment.
----------------
Pursuant to the Agreement and Declaration of Trust dated as of
July 15, 1982, as amended, each Fund may be divided into separate classes of
Shares in which case the Shares of one or more classes may be subject to a sales
load and may be subject to the imposition of a distribution fee pursuant to the
Distribution and Service Plan referred to above. To the extent that Shares of a
Fund are sold at an offering price which includes a sales load or at net asset
value subject to a contingent deferred sales load with respect to certain
redemptions (either within a single class of Shares or pursuant to two or more
classes of Shares), such Shares shall hereinafter be referred to collectively as
"Load Shares" (in the case of Shares that are sold with a front-end sales load
or Shares that are sold subject to a contingent deferred sales load), "Front-End
Load Shares" or "CDSL Shares" and individually as a "Load Share," a "Front-End
Load Share" or a "CDSL Share." A Fund that contains Front-End Load Shares shall
hereinafter be referred to collectively as "Load Funds" or "Front-End Load
Funds" and individually as a "Load Fund" or a "Front-end Load Fund." A Fund that
contains CDSL Shares shall hereinafter be referred to collectively as "Load
Funds" or "CDSL Funds" and individually as a "Load Fund" or a "CDSL Fund." Under
this Agreement, the following provisions shall apply with respect to the sale
of, and payment for, Load Shares of the Funds.
3.1 Distributor shall have the right to purchase Load Shares
at their net asset value and to sell such Load Shares to the public against
orders therefor at the applicable public offering price, as defined in Section 4
hereof. Distributor shall also have the right to sell Load Shares to
6
<PAGE> 7
dealers against orders therefor at the public offering price less a concession
determined by Distributor, which concession shall not exceed the amount of the
sales charge or underwriting discount, if any, referred to in Section 4 below.
3.2 Prior to the time of delivery of any Load Shares by a
Load Fund to, or on the order of, Distributor, Distributor shall pay or cause to
be paid to the Load Fund or to its order an amount in Boston or New York
clearing house funds equal to the applicable net asset value of such Shares.
Distributor may retain so much of any sales charge or underwriting discount as
is not allowed by Distributor as a concession to dealers.
4. Public Offering Price.
---------------------
The public offering price of a Load Share shall be the net asset
value of such Load Share, plus any applicable sales charge, all as set forth in
the current prospectus of the Load Fund. The net asset value of Shares shall be
determined in accordance with the provisions of the Agreement and Declaration of
Trust and Bylaws of the Trust and the then-current prospectus of the Load Fund.
5. Issuance of Shares.
------------------
The Trust reserves the right to issue, transfer or sell Load
Shares at net asset value (a) in connection with the merger or consolidation of
the Trust or the Load Fund(s) with any other investment company or the
acquisition by the Trust or the Load Fund(s) of all or substantially all of the
assets or of the outstanding Shares of any other investment company; (b) in
connection with a pro rata distribution directly to the holders of Shares in the
nature of a stock dividend or split; (c) upon the exercise of subscription
rights granted to the holders of Shares on a pro rata basis; (d) in connection
with the issuance of Load Shares pursuant to any exchange and reinvestment
privileges described in any then-current prospectus of the Load Fund; and (e)
otherwise in accordance with any then-current prospectus of the Load Fund.
6. Term, Duration and Termination.
------------------------------
This Agreement shall become effective with respect to each Fund,
either now or hereafter created, as of the date first written above and, unless
sooner terminated as provided herein, shall continue until June 1, 1997.
Thereafter, if not terminated, this Agreement shall continue with respect to a
particular Fund automatically for successive one-year terms, provided that such
continuance is specifically approved at least annually by (a) by the vote of a
majority of those members of the Trust's Board of Trustees who are not parties
to this Agreement or interested persons of any such party, cast in person at a
meeting for the purpose of voting on such approval and (b) by the vote of the
Trust's Board of Trustees or the vote of a majority of the outstanding voting
securities of such Fund. This Agreement is terminable without penalty, on not
less than sixty days' prior written notice, by the Trust's Board of Trustees, by
vote of a majority of the outstanding voting securities of the Trust or by the
Distributor. This Agreement will also terminate automatically in the
7
<PAGE> 8
event of its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall have
the same meanings as ascribed to such terms in the 1940 Act.)
7. Limitation of Liability of the Trustees and Shareholders.
--------------------------------------------------------
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust personally, but shall bind only the
trust property of the Trust. The execution and delivery of this Agreement have
been authorized by the Trustees, and this Agreement has been signed and
delivered by an authorized officer of the Trust, acting as such, and neither
such authorization by the Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the Trust as provided in the Trust's Agreement and Declaration of
Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first written
above.
THE PILOT FUNDS PILOT FUNDS DISTRIBUTORS, INC.
By: /s/ William J. Tomko By: /s/ Steve Mintos
------------------------------- ------------------------------------
Title: Title:
---------------------------- ----------------------------------
Date: Date:
----------------------------- -----------------------------------
8
<PAGE> 1
Exhibit 9
---------
CUSTODIAN AGREEMENT
DATED AS OF: MAY 4, 1996
BETWEEN
THE PILOT FUNDS
AND
BOATMEN'S TRUST COMPANY
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - APPOINTMENT OF CUSTODIAN....................................................1
- ------------------------------------
ARTICLE II - POWERS AND DUTIES OF CUSTODIAN.............................................1
- -------------------------------------------
Section 2.1 Safekeeping..........................................................2
----------- -----------
Section 2.2 Manner of Holding Securities.........................................2
----------- ----------------------------
Section 2.3 Security Purchases...................................................2
----------- ------------------
Section 2.4 Exchanges of Securities..............................................3
----------- -----------------------
Section 2.5 Sales of Securities..................................................3
----------- -------------------
Section 2.6 Depositary Receipts..................................................4
----------- -------------------
Section 2.7 Exercise of Rights; Tender Offers....................................4
----------- ---------------------------------
Section 2.8 Stock Dividends, Rights, Etc.........................................4
----------- ----------------------------
Section 2.9 Options..............................................................4
----------- -------
Section 2.10 Futures Contracts....................................................5
------------ -----------------
Section 2.11 Borrowing............................................................5
------------ ---------
Section 2.12 Interest Bearing Deposits............................................5
------------ -------------------------
Section 2.13 Foreign Exchange Transactions........................................6
------------ -----------------------------
Section 2.14 Securities Loans.....................................................7
------------ ----------------
Section 2.15 Collections..........................................................7
------------ -----------
Section 2.16 Dividends, Distributions and Redemptions.............................7
------------ ----------------------------------------
Section 2.17 Proceeds from Shares Sold............................................7
------------ -------------------------
Section 2.18 Proxies, Notices, Etc................................................8
------------ ---------------------
Section 2.19 Bills and Other Disbursements........................................8
------------ -----------------------------
Section 2.20 Nondiscretionary Functions...........................................8
------------ --------------------------
Section 2.21 Bank Accounts........................................................8
------------ -------------
Section 2.22 Deposit of Fund Assets in Securities Systems.........................9
------------ --------------------------------------------
Section 2.23 Other Transfers.....................................................11
------------ ---------------
Section 2.24 Establishment of Segregated Account.................................11
------------ -----------------------------------
Section 2.25 Custodian's Books and Records.......................................11
------------ -----------------------------
Section 2.26 Opinion of Fund's Independent Certified Public Accountants..........12
------------ ----------------------------------------------------------
Section 2.27 Reports by Independent Certified Public Accountants.................12
------------ ---------------------------------------------------
Section 2.28 Overdraft Facility..................................................12
------------ ------------------
ARTICLE III - PROPER INSTRUCTIONS, SPECIAL
INSTRUCTIONS AND RELATED MATTERS..................................................12
Section 3.1 Proper Instructions and Special Instructions........................12
----------- --------------------------------------------
Section 3.2 Authorized Persons..................................................13
----------- ------------------
Section 3.3 Persons Having Access to Assets of the Portfolios...................14
----------- -------------------------------------------------
Section 3.4 Actions of Custodian Based on Proper Instructions and Special
----------- -------------------------------------------------------------
Instructions...............................................................14
------------
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV - SUBCUSTODIANS.............................................................14
Section 4.1 Domestic Subcustodians..............................................14
----------- ----------------------
Section 4.2 Foreign Subcustodians and Interim Subcustodians.....................15
----------- -----------------------------------------------
Section 4.3 Termination of a Subcustodian.......................................15
----------- -----------------------------
Section 4.4 Certification Regarding Foreign Subcustodians.......................16
----------- ---------------------------------------------
ARTICLE V - STANDARD OF CARE; INDEMNIFICATION..........................................16
Section 5.1 Standard of Care....................................................16
----------- ----------------
Section 5.2 Liability of Custodian for Actions of Other Persons.................17
----------- ---------------------------------------------------
Section 5.3 Indemnification.....................................................18
----------- ---------------
Section 5.4 Fund's Right to Proceed.............................................18
----------- -----------------------
ARTICLE VI - COMPENSATION..............................................................19
ARTICLE VII - TERMINATION..............................................................19
Section 7.1 Termination of Agreement as to the Fund.............................19
----------- ---------------------------------------
Section 7.2 Termination as to One or More Portfolios............................20
----------- ----------------------------------------
ARTICLE VIII - DEFINED TERMS...........................................................21
ARTICLE IX - MISCELLANEOUS.............................................................21
Section 9.1 Execution of Documents, Etc.........................................21
----------- ---------------------------
Section 9.2 Representative Capacity; Nonrecourse Obligations....................22
----------- ------------------------------------------------
Section 9.3 Several Obligations of the Fund and the Portfolios..................22
----------- --------------------------------------------------
Section 9.4 Representations and Warranties......................................22
----------- ------------------------------
Section 9.5 Entire Agreement....................................................23
----------- ----------------
Section 9.6 Waivers and Amendments..............................................23
----------- ----------------------
Section 9.7 Interpretation......................................................23
----------- --------------
Section 9.8 Captions............................................................23
----------- --------
Section 9.9 Governing Law.......................................................23
----------- -------------
Section 9.10 Notices.............................................................24
------------ -------
Section 9.11 Assignment..........................................................24
------------ ----------
Section 9.12 Counterparts........................................................24
------------ ------------
Section 9.13 Confidentiality; Survival of Obligations............................24
------------ ----------------------------------------
</TABLE>
(ii)
<PAGE> 4
APPENDIX
Appendix "A" - List of Portfolios
(iii)
<PAGE> 5
CUSTODIAN AGREEMENT
AGREEMENT made as of the 4th day of May, 1996 between The Pilot Funds
(the "Fund") and Boatmen's Trust Company (the "Custodian").
W I T N E S S E T H
-------------------
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the " 1940 Act");
WHEREAS, the Fund is organized with more than one series of shares,
each of which shall represent an interest in a separate portfolio of cash,
securities and other assets (all such existing and additional series now or
hereafter listed on Appendix "A" being hereinafter referred to individually, as
a "Portfolio," and collectively, as the "Portfolios"); and
WHEREAS, the Fund desires to appoint the Custodian as custodian on
behalf of each of its Portfolios in accordance with the provisions of the 1940
Act, and the rules and regulations thereunder, under the terms and conditions
set forth in this Agreement, and the Custodian has agreed so to act as
custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I - APPOINTMENT OF CUSTODIAN
------------------------------------
On behalf of each of its Portfolios, the Fund hereby employs and
appoints the Custodian as custodian, subject to the terms and provisions of this
Agreement. The Fund shall deliver to the Custodian, or shall cause to be
delivered to the Custodian, cash, securities and other assets owned by each of
its Portfolios from time to time during the term of this Agreement and shall
specify which of its Portfolios such cash, securities and other assets are to be
specifically allocated.
ARTICLE II - POWERS AND DUTIES OF CUSTODIAN
-------------------------------------------
As custodian, the Custodian shall have and perform the powers and
duties set forth in this Article II. Pursuant to and in accordance with Article
IV hereof, the Custodian may appoint one or more Subcustodians (as hereinafter
defined) to exercise the powers and perform the duties of the Custodian set
forth in this Article II and references to the Custodian in this Article II
shall include any Subcustodian so appointed.
<PAGE> 6
SECTION 2.1 SAFEKEEPING. The Custodian shall keep safely all cash,
securities and other assets of the Fund's Portfolios delivered to the Custodian
and, on behalf of such Portfolios, the Custodian shall, from time to time,
accept delivery of cash, securities and other assets for safekeeping.
SECTION 2.2 MANNER OF HOLDING SECURITIES.
(a) The Custodian shall at all times hold securities of the
Fund's Portfolios either: (i) by physical possession of the share certificates
or other instruments representing such securities in registered or bearer form;
(ii) in book-entry form by a Securities System (as hereinafter defined) in
accordance with the provisions of Section 2.22 below; (iii) with respect to
securities consisting of shares of a registered open-end investment company, by
maintenance of a shareholder account with the transfer agent of such investment
company; or (iv) in such other manner as is provided in Special Instructions.
(b) The Custodian shall at all times hold registered
securities of each Portfolio in the name of the Custodian, the Portfolio or a
nominee of either of them, unless specifically directed by Proper Instructions
to hold such registered securities in so-called street name; provided that, in
any event, all such securities and other assets shall be held in an account of
the Custodian containing only assets of a Portfolio, or only assets held by the
Custodian as a fiduciary or custodian for customers; and provided further, that
the records of the Custodian shall indicate at all times the Portfolio or other
customer for which such securities and other assets are held in such account and
the respective interests therein.
SECTION 2.3 SECURITY PURCHASES. Upon receipt of Proper Instructions
(as hereinafter defined), the Custodian shall pay for and receive securities
purchased for the account of a Portfolio, provided that payment shall be made by
the Custodian only upon receipt of the securities: (a) by the Custodian; (b) by
a clearing corporation of a national securities exchange of which the Custodian
is a member; or (c) by a Securities System. Notwithstanding the foregoing, upon
receipt of Proper Instructions: (i) in the case of a repurchase agreement, the
Custodian may release funds to a Securities System prior to the receipt of
advice from the Securities System that the securities underlying such repurchase
agreement have been transferred by book-entry into the Account (as hereinafter
defined) maintained with such Securities System by the Custodian, provided that
the Custodian's instructions to the Securities System require that the
Securities System may make payment of such funds to the other party to the
repurchase agreement only upon transfer by book-entry of the securities
underlying the repurchase agreement into the Account; (ii) in the case of time
deposits, call account deposits, currency deposits, and other deposits, foreign
exchange transactions, futures contracts or options, pursuant to Sections 2.9,
2.10, 2.12 and 2.13 hereof, the Custodian may make payment therefor before
receipt of an advice or confirmation evidencing said deposit or entry into such
transaction; (iii) in the case of the purchase of securities, the settlement of
which occurs outside of the United States of America, the Custodian may make
payment therefor and receive delivery of such securities in accordance with
local custom and practice generally accepted by Institutional Clients (as
hereinafter defined) in the country in which the settlement
2
<PAGE> 7
occurs, but in all events subject to the standard of care set forth in Article V
hereof; and (iv) in the case of the purchase of securities in which, in
accordance with standard industry custom and practice generally accepted by
Institutional Clients with respect to such securities, the receipt of such
securities and the payment therefor take place in different countries, the
Custodian may receive delivery of such securities and make payment therefor in
accordance with standard industry custom and practice for such securities
generally accepted by Institutional Clients, but in all events subject to the
standard of care set forth in Article V hereof. For purposes of this Agreement,
an "Institutional Client" shall mean a major commercial bank, corporation,
insurance company, or substantially similar institution, which, as a substantial
part of its business operations, purchases or sells securities and makes use of
custodial services.
SECTION 2.4 EXCHANGES OF SECURITIES. Upon receipt of Proper
Instructions, the Custodian shall exchange securities held by it for the account
of a Portfolio for other securities in connection with any reorganization,
recapitalization, split-up of shares, change of par value, conversion or other
event relating to the securities or the issuer of such securities, and shall
deposit any such securities in accordance with the terms of any reorganization
or protective plan. The Custodian shall, without receiving Proper Instructions:
surrender securities in temporary form for definitive securities; surrender
securities for transfer into the name of the Custodian, a Portfolio or a nominee
of either of them, as permitted by Section 2.2(b); and surrender securities for
a different number of certificates or instruments representing the same number
of shares or same principal amount of indebtedness, provided that the securities
to be issued will be delivered to the Custodian or a nominee of the Custodian.
SECTION 2.5 SALES OF SECURITIES. Upon receipt of Proper
Instructions, the Custodian shall make delivery of securities which have been
sold for the account of a Portfolio, but only against payment therefor in the
form of: (a) cash, certified check, bank cashier's check, bank credit, or bank
wire transfer; (b) credit to the account of the Custodian with a clearing
corporation of a national securities exchange of which the Custodian is a
member; or (c) credit to the Account of the Custodian with a Securities System,
in accordance with the provisions of Section 2.22 hereof. Notwithstanding the
foregoing: (i) in the case of the sale of securities, the settlement of which
occurs outside of the United States of America, such securities shall be
delivered and paid for in accordance with local custom and practice generally
accepted by Institutional Clients in the country in which the settlement occurs;
(ii) in the case of the sale of securities in which, in accordance with standard
industry custom and practice generally accepted by Institutional Clients with
respect to such securities, the delivery of such securities and receipt of
payment therefor take place in different countries, the Custodian may deliver
such securities and receive payment therefor in accordance with standard
industry custom and practice for such securities generally accepted by
Institutional Clients; and (iii) in the case of securities held in physical
form, such securities shall be delivered and paid for in accordance with "street
delivery custom" to a broker or its clearing agent, it being understood that the
Custodian shall not be responsible for the selection of or the failure or
inability to perform of such broker or its clearing agent.
3
<PAGE> 8
SECTION 2.6 DEPOSITARY RECEIPTS. Upon receipt of Proper
Instructions, the Custodian shall surrender securities to the depositary used
for such securities by an issuer of American Depositary Receipts or
International Depositary Receipts (hereinafter referred to, collectively, as
"ADRs"), against a written receipt therefor adequately describing such
securities and written evidence satisfactory to the Custodian that the
depositary has acknowledged receipt of instructions to issue ADRs with respect
to such securities in the name of the Custodian or a nominee of the Custodian,
for delivery to the Custodian at such place as the Custodian may from time to
time designate. Upon receipt of Proper Instructions, the Custodian shall
surrender ADRs to the issuer thereof, against a written receipt therefor
adequately describing the ADRs surrendered and written evidence satisfactory to
the Custodian that the issuer of the ADRs has acknowledged receipt of
instructions to cause its depositary to deliver the securities underlying such
ADRs to the Custodian.
SECTION 2.7 EXERCISE OF RIGHTS; TENDER OFFERS. Upon receipt of
Proper Instructions, the Custodian shall: (a) deliver warrants, puts, calls,
rights or similar securities to the issuer or trustee thereof, or to the agent
of such issuer or trustee, for the purpose of exercise or sale, provided that
the new securities, cash or other assets, if any, acquired as a result of such
actions are to be delivered to the Custodian; and (b) deposit securities upon
invitations for tenders thereof, provided that the consideration for such
securities is to be paid or delivered to the Custodian, or the tendered
securities are to be returned to the Custodian. Notwithstanding any provision of
this Agreement to the contrary, the Custodian shall take all necessary action,
unless otherwise directed to the contrary in Proper Instructions, to comply with
the terms of all mandatory or compulsory exchanges, calls, tenders, redemptions,
or similar rights of security ownership, and shall promptly notify the Fund of
such action in writing by facsimile transmission or in such other manner as the
Fund and the Custodian may agree in writing.
SECTION 2.8 STOCK DIVIDENDS, RIGHTS, ETC. The Custodian shall
receive and collect all stock dividends, rights and other items of like nature
and, upon receipt of Proper Instructions, take action with respect to the same
as directed in such Proper Instructions.
SECTION 2.9 OPTIONS. Upon receipt of Proper Instructions and in
accordance with the provisions of any agreement between the Custodian, any
registered broker-dealer and, if necessary, the Fund on behalf of any applicable
Portfolio relating to compliance with the rules of the Options Clearing
Corporation or of any registered national securities exchange or similar
organization(s), the Custodian shall: (a) receive and retain confirmations or
other documents, if any, evidencing the purchase or writing of an option on a
security or securities index by the applicable Portfolio; (b) deposit and
maintain in a segregated account, securities (either physically or by book-entry
in a Securities System), cash or other assets; and (c) pay, release and/or
transfer such securities, cash or other assets in accordance with notices or
other communications evidencing the expiration, termination or exercise of such
options furnished by the Options Clearing Corporation, the securities or options
exchange on which such options are traded, or such other organization as may be
responsible for handling such option transactions. The Fund, on behalf of its
Portfolios, and the broker-dealer shall be responsible for the sufficiency of
assets held in any segregated account established in compliance with
4
<PAGE> 9
applicable margin maintenance requirements and the performance of other terms of
any option contract.
SECTION 2.10 FUTURES CONTRACTS. Upon receipt of Proper Instructions,
or pursuant to the provisions of any futures margin procedural agreement among
the Fund, on behalf of any applicable Portfolio, the Custodian and any futures
commission merchant (a "Procedural Agreement"), the Custodian shall: (a) receive
and retain confirmations, if any, evidencing the purchase or sale of a futures
contract or an option on a futures contract by the applicable Portfolio; (b)
deposit and maintain in a segregated account, cash, securities and other assets
designated as initial, maintenance or variation "margin" deposits intended to
secure the applicable Portfolio's performance of its obligations under any
futures contracts purchased or sold or any options on futures contracts written
by the Portfolio, in accordance with the provisions of any Procedural Agreement
designed to comply with the rules of the Commodity Futures Trading Commission
and/or any commodity exchange or contract market (such as the Chicago Board of
Trade), or any similar organization(s), regarding such margin deposits; and (c)
release assets from and/or transfer assets into such margin accounts only in
accordance with any such Procedural Agreements. The Fund, on behalf of its
applicable Portfolios, and such futures commission merchant shall be responsible
for the sufficiency of assets held in the segregated account in compliance with
applicable margin maintenance requirements and the performance of any futures
contract or option on a futures contract in accordance with its terms.
SECTION 2.11 BORROWING. Upon receipt of Proper Instructions, the
Custodian shall deliver securities of a Portfolio to lenders or their agents, or
otherwise establish a segregated account as agreed to by the Fund on behalf of
such Portfolio and the Custodian, as collateral for borrowings effected by such
Portfolio, provided that such borrowed money is payable by the lender (a) to or
upon the Custodian's order, as Custodian for such Portfolio, and (b)
concurrently with delivery of such securities.
SECTION 2.12 INTEREST BEARING DEPOSITS. Upon receipt of Proper
Instructions directing the Custodian to purchase interest bearing fixed term and
call deposits (hereinafter referred to collectively, as "Interest Bearing
Deposits") for the account of a Portfolio, the Custodian shall purchase such
Interest Bearing Deposits in the name of the Portfolio with such banks or trust
companies (including the Custodian, any Subcustodian or any subsidiary or
affiliate of the Custodian) (hereinafter referred to as "Banking Institutions")
and in such amounts as the Fund may direct pursuant to Proper Instructions. Such
Interest Bearing Deposits may be denominated in U.S. Dollars or other
currencies, as the Fund on behalf of its Portfolio may determine and direct
pursuant to Proper Instructions. The Custodian shall include in its records with
respect to the assets of each Portfolio appropriate notation as to the amount
and currency of each such Interest Bearing Bank Deposit, the accepting Banking
Institution and all other appropriate details, and shall retain such forms of
advice or receipt evidencing such account, if any, as may be forwarded to the
Custodian by the Banking Institution. The responsibilities of the Custodian to
the Fund for Interest Bearing Deposits accepted on the Custodian's books in the
United States on behalf of the Fund's Portfolios shall be that of a
5
<PAGE> 10
U.S. bank for a similar deposit. With respect to Interest Bearing Deposits other
than those accepted on the Custodian's books, (a) the Custodian shall be
responsible for the collection of income as set forth in Section 2.15 and the
transmission of cash and instructions to and from such accounts; and (b) the
Custodian shall have no duty with respect to the selection of the Banking
Institution or, so long as the Custodian acts in accordance with Proper
Instructions, for the failure of such Banking Institution to pay upon demand.
Upon receipt of Proper Instructions, the Custodian shall take such reasonable
actions as the Fund deems necessary or appropriate to cause each such Interest
Bearing Deposit Account to be insured to the maximum extent possible by all
applicable deposit insurers including, without limitation, the Federal Deposit
Insurance Corporation.
SECTION 2.13 FOREIGN EXCHANGE TRANSACTIONS.
(a) FOREIGN EXCHANGE TRANSACTIONS OTHER THAN AS PRINCIPAL.
Upon receipt of Proper Instructions, the Custodian shall settle foreign exchange
contracts or options to purchase and sell foreign currencies for spot and future
delivery on behalf of and for the account of a Portfolio with such currency
brokers or Banking Institutions as the Fund may determine and direct pursuant to
Proper Instructions. The Custodian shall be responsible for the transmission of
cash and instructions to and from the currency broker or Banking Institution
with which the contract or option is made, the safekeeping of all certificates
and other documents and agreements evidencing or relating to such foreign
exchange transactions and the maintenance of proper records as set forth in
Section 2.25. The Custodian shall have no duty with respect to the selection of
the currency brokers or Banking Institutions with which the Fund deals on behalf
of its Portfolios or, so long as the Custodian acts in accordance with Proper
Instructions, for the failure of such brokers or Banking Institutions to comply
with the terms of any contract or option.
(b) FOREIGN EXCHANGE CONTRACTS AS PRINCIPAL. The Custodian
shall not be obligated to enter into foreign exchange transactions as principal.
However, if the Custodian has made available to the Fund its services as a
principal in foreign exchange transactions, upon receipt of Proper Instructions,
the Custodian shall enter into foreign exchange contracts or options to purchase
and sell foreign currencies for spot and future delivery on behalf of and for
the account of a Portfolio of the Fund with the Custodian as principal. The
Custodian shall be responsible for the selection of the currency brokers or
Banking Institutions and the failure of such currency brokers or Banking
Institutions to comply with the terms of any contract or option.
(c) PAYMENTS. Notwithstanding anything to the contrary
contained herein, upon receipt of Proper Instructions the Custodian may, in
connection with a foreign exchange contract, make free outgoing payments of cash
in the form of U.S. Dollars or foreign currency prior to receipt of confirmation
of such foreign exchange contract or confirmation that the countervalue currency
completing such contract has been delivered or received.
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SECTION 2.14 SECURITIES LOANS. Upon receipt of Proper Instructions,
the Custodian shall, in connection with loans of securities by a Portfolio,
deliver securities of such Portfolio to the borrower thereof prior to receipt of
the collateral, if any, for such borrowing; provided that, in cases of loans of
securities secured by cash collateral, the Custodian's instructions to the
Securities System shall require that the Securities System deliver the
securities of the Portfolio to the borrower thereof only upon receipt of the
collateral for such borrowing.
SECTION 2.15 COLLECTIONS. The Custodian shall, and shall cause any
Subcustodian to: (a) collect amounts due and payable to the Fund with respect to
portfolio securities and other assets of each of the Fund's Portfolios; (b)
promptly credit to the account of each applicable Portfolio all income and other
payments relating to portfolio securities and other assets held by the Custodian
hereunder upon Custodian's receipt of such income or payments or as otherwise
agreed in writing by the Custodian and the Fund; (c) promptly endorse and
deliver any instruments required to effect such collections; (d) promptly
execute ownership and other certificates and affidavits for all federal, state
and foreign tax purposes in connection with receipt of income, capital gains or
other payments with respect to portfolio securities and other assets of each
applicable Portfolio, or in connection with the purchase, sale or transfer of
such securities or other assets; and (e) promptly file any certificates or other
affidavits for the refund or reclaim of foreign taxes paid, and promptly notify
the Fund of any changes to law, interpretative rulings or procedures regarding
such reclaims, and otherwise use all available measures customarily used to
minimize the imposition of foreign taxes at source, and promptly inform the Fund
of alternative means of minimizing such taxes of which the Custodian shall
become aware (or with the exercise of reasonable care should have become aware);
provided, however, that with respect to portfolio securities registered in
so-called "street name", the Custodian shall use its best efforts to collect
amounts due and payable to the Fund with respect to its Portfolios. The
Custodian shall promptly notify the Fund in writing by facsimile transmission or
in such other manner as the Fund and the Custodian may agree in writing if any
amount payable with respect to portfolio securities or other assets of the
Portfolios of the Fund is not received by the Custodian when due. The Custodian
shall not be responsible for the collection of amounts due and payable with
respect to portfolio securities or other assets that are in default.
SECTION 2.16 DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS. The Custodian
shall promptly release funds or securities: (a) upon receipt of Proper
Instructions, to one or more Distribution Accounts designated by the Fund in
such Proper Instructions; or (b) upon receipt of Special Instructions, as
otherwise directed by the Fund, for the purpose of the payment of dividends or
other distributions to shareholders of each applicable Portfolio, and payment to
shareholders who have requested repurchase or redemption of their shares of the
Portfolio(s) (collectively, the "Shares"). For purposes of this Agreement, a
"Distribution Account" shall mean an account established at a Banking
Institution designated by the Fund on behalf of one or more of its Portfolios in
Special Instructions.
SECTION 2.17 PROCEEDS FROM SHARES SOLD. The Custodian shall receive
funds representing cash payments received for Shares issued or sold from time to
time by the Fund,
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and shall promptly credit such funds to the account(s) of the applicable
Portfolio(s). The Custodian shall promptly notify the Fund of Custodian's
receipt of cash in payment for Shares issued by the Fund by facsimile
transmission or in such other manner as the Fund and Custodian may agree in
writing. Upon receipt of Proper Instructions, the Custodian shall: (a) deliver
all federal funds received by the Custodian in payment for Shares in payment for
such investments as may be set forth in such Proper Instructions and at a time
agreed upon between the Custodian and the Fund; and (b) make federal funds
available to the Fund as of specified times agreed upon from time to time by the
Fund and the Custodian, in the amount of checks received in payment for Shares
which are deposited to the accounts of each applicable Portfolio.
SECTION 2.18 PROXIES, NOTICES, ETC. The Custodian shall deliver to
the Fund, in the most expeditious manner practicable, all forms of proxies, all
notices of meetings, and any other notices or announcements affecting or
relating to securities owned by the Portfolios that are received by the
Custodian, any Subcustodian, or any nominee of either of them, and, upon receipt
of Proper Instructions, the Custodian shall execute and deliver, or cause such
Subcustodian or nominee to execute and deliver, such proxies or other
authorizations as may be required. Except as directed pursuant to Proper
Instructions, neither the Custodian nor any Subcustodian or nominee shall vote
upon any such securities, or execute any proxy to vote thereon, or give any
consent or take any other action with respect thereto.
SECTION 2.19 BILLS AND OTHER DISBURSEMENTS. Upon receipt of Proper
Instructions, the Custodian shall promptly pay or cause to be paid, all bills,
statements, or other obligations of each Portfolio.
SECTION 2.20 NONDISCRETIONARY FUNCTIONS. The Custodian shall attend
to all nondiscretionary details in connection with the sale, exchange,
substitution, purchase, transfer or other dealings with securities or other
assets of each Portfolio held by the Custodian, except as otherwise directed
from time to time pursuant to Proper Instructions.
SECTION 2.21 BANK ACCOUNTS.
(a) ACCOUNTS WITH THE CUSTODIAN AND ANY SUBCUSTODIANS. The
Custodian may open and operate a bank account or accounts (hereinafter referred
to collectively, as "Bank Accounts") on the books of the Custodian or any
Subcustodian provided that such account(s) shall be in the name of the Custodian
or a nominee of the Custodian, for the account of a Portfolio, and shall be
subject only to the draft or order of the Custodian; provided however, that such
Bank Accounts in countries other than the United States may be held in an
account of the Custodian containing only assets held by the Custodian as a
fiduciary or custodian for customers, and provided further, that the records of
the Custodian shall indicate at all times the Portfolio or other customer for
which such securities and other assets are held in such account and the
respective interests therein. Such Bank Accounts may be denominated in either
U.S. Dollars or other currencies. The responsibilities of the Custodian to the
Fund for deposits accepted on the Custodian's books in the United States shall
be that of
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a U.S. bank for a similar deposit. The responsibilities of the Custodian to the
Fund for deposits accepted on any Subcustodian's books shall be governed by the
provisions of Section 5.2.
(b) ACCOUNTS WITH OTHER BANKING INSTITUTIONS. The Custodian
may open and operate Bank Accounts on behalf of a Portfolio, in the name of the
Custodian or a nominee of the Custodian, at a Banking Institution other than the
Custodian or any Subcustodian, provided that such account(s) shall be in the
name of the Custodian or a nominee of the Custodian, for the account of a
Portfolio, and shall be subject only to the draft or order of the Custodian;
provided however, that such Bank Accounts may be held in an account of the
Custodian containing only assets held by the Custodian as a fiduciary or
custodian for customers, and provided further, that the records of the Custodian
shall indicate at all times the Portfolio or other customer for which such
securities and other assets are held in such account and the respective
interests therein. Such Bank Accounts may be denominated in either U.S. Dollars
or other currencies. Subject to the provisions of Section 5.1 (a), the Custodian
shall be responsible for the selection of the Banking Institution and for the
failure of such Banking Institution to pay according to the terms of the
deposit.
(c) DEPOSIT INSURANCE. Upon receipt of Proper Instructions,
the Custodian shall take such reasonable actions as the Fund deems necessary or
appropriate to cause each deposit account established by the Custodian pursuant
to this Section 2.21 to be insured to the maximum extent possible by all
applicable deposit insurers including, without limitation, the Federal Deposit
Insurance Corporation.
SECTION 2.22 DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS. The
Custodian may deposit and/or maintain domestic securities owned by a Portfolio
in: (a) The Depository Trust Company; (b) the Participants' Trust Company; (c)
any book-entry system as provided in (i) Subpart 0 of Treasury Circular No. 300,
31 CFR 306.115, (ii) Subpart B of Treasury Circular Public Debt Series No.
27-76, 31 CFR 350.2, or (iii) the book-entry regulations of federal agencies
substantially in the form of 31 CFR 306.115; or (d) any other domestic clearing
agency registered with the Securities and Exchange Commission ("SEC") under
Section 17A of the Securities Exchange Act of 1934 (or as may otherwise be
authorized by the Securities and Exchange Commission to serve in the capacity of
depository or clearing agent for the securities or other assets of investment
companies) which acts as a securities depository and the use of which the Fund
has previously approved by Special Instructions (as hereinafter defined) (each
of the foregoing being referred to in this Agreement as a "Securities System").
Use of a Securities System shall be in accordance with applicable Federal
Reserve Board and SEC rules and regulations, if any, and subject to the
following provisions:
(i) The Custodian may deposit and/or maintain
securities held hereunder in a Securities System, provided that such
securities are represented in an account ("Account") of the Custodian
in the Securities System which Account shall not contain any assets of
the Custodian other than assets held as a fiduciary, custodian, or
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<PAGE> 14
otherwise for customers and shall be so designated on the books and
records of the Securities System.
(ii) The Securities System shall be obligated to
comply with the Custodian's directions with respect to the securities
held in such Account and shall not be entitled to a lien against the
assets in such Account for extensions of credit to the Custodian other
than for payment of the purchase price of such assets.
(iii) The Fund hereby designates the Custodian as the
party in whose name any securities deposited by the Custodian in the
Account are to be registered.
(iv) The books and records of the Custodian shall at
all times identify those securities belonging to each Portfolio which
are maintained in a Securities System.
(v) The Custodian shall pay for securities purchased
for the account of a Portfolio only upon (w) receipt of advice from the
Securities System that such securities have been transferred to the
Account of the Custodian, and (x) the making of an entry on the records
of the Custodian to reflect such payment and transfer for the account
of such Portfolio. The Custodian shall transfer securities sold for the
account of a Portfolio only upon (y) receipt of advice from the
Securities System that payment for such securities has been transferred
to the Account of the Custodian, and (z) the making of an entry on the
records of the Custodian to reflect such transfer and payment for the
account of such Portfolio. Copies of all advices from the Securities
System relating to transfers of securities for the account of a
Portfolio shall identify such Portfolio and shall be maintained for
such Portfolio by the Custodian. The Custodian shall deliver to the
Fund on the next succeeding business day daily transaction reports
which shall include each day's transactions in the Securities System
for the account of each applicable Portfolio. Such transaction reports
shall be delivered to the Fund or any agent designated by the Fund
pursuant to Proper Instructions, by computer or in such other manner as
the Fund and the Custodian may agree in writing.
(vi) The Custodian shall, if requested by the Fund
pursuant to Proper Instructions, provide the Fund with all reports
obtained by the Custodian or any Subcustodian with respect to a
Securities System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the Securities
System.
(vii) Upon receipt of Special Instructions, the
Custodian shall terminate the use of any Securities System (except the
federal book-entry system) on behalf of any Portfolio as promptly as
practicable and shall take all actions reasonably practicable to
safeguard the securities of any Portfolio maintained with such
Securities System.
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SECTION 2.23 OTHER TRANSFERS. Upon receipt of Special Instructions,
the Custodian shall make such other dispositions of securities, funds or other
property of a Portfolio in a manner or for purposes other than as expressly set
forth in this Agreement, provided that the Special Instructions relating to such
disposition shall include a statement of the purpose for which the delivery is
to be made, the amount of funds and/or securities to be delivered, and the name
of the person or persons to whom delivery is to be made, and shall otherwise
comply with the provisions of Sections 3.1 and 3.3 hereof.
SECTION 2.24 ESTABLISHMENT OF SEGREGATED ACCOUNT. Upon receipt of
Proper Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of a Portfolio, into which
account or accounts may be transferred cash and/or securities or other assets of
such Portfolio, including securities maintained by the Custodian in a Securities
System pursuant to Section 2.22 hereof, said account or accounts to be
maintained: (a) for the purposes set forth in Sections 2.9, 2.10 and 2.11
hereof, (b) for the purposes of compliance by the Portfolio with the procedures
required by Investment Company Act Release No. 10666, or any subsequent release
or releases of the SEC relating to the maintenance of segregated accounts by
registered investment companies; or (c) for such other purposes as set forth,
from time to time, in Special Instructions.
SECTION 2.25 CUSTODIAN'S BOOKS AND RECORDS. The Custodian shall
provide any assistance reasonably requested by the Fund in the preparation of
reports to the Fund's shareholders and others, audits of accounts, and other
ministerial matters of like nature. The Custodian shall maintain complete and
accurate records with respect to securities and other assets held for the
accounts of each Portfolio as required by the rules and regulations of the SEC
applicable to investment companies registered under the 1940 Act, including: (a)
journals or other records of original entry containing a detailed and itemized
daily record of all receipts and deliveries of securities (including certificate
and transaction identification numbers, if any), and all receipts and
disbursements of cash; (b) ledgers or other records reflecting (i) securities in
transfer, (ii) securities in physical possession, (iii) securities borrowed,
loaned or collateralizing obligations of each Portfolio, (iv) monies borrowed
and monies loaned (together with a record of the collateral therefor and
substitutions of such collateral), (v) dividends and interest received, (vi) the
amount of tax withheld by any person in respect of any collection by the
Custodian or any Subcustodian, and (vii) the amount of reclaims or refunds for
foreign taxes paid; and (c) cancelled checks and bank records related thereto.
The Custodian shall keep such other books and records of the Fund as the Fund
shall reasonably request. All such books and records maintained by the Custodian
shall be maintained in a form acceptable to the Fund and in compliance with the
rules and regulations of the SEC, including, but not limited to, books and
records required to be maintained by Section 31 (a) of the 1940 Act and the
rules and regulations from time to time adopted thereunder. All books and
records maintained by the Custodian pursuant to this Agreement shall at all
times be the property of the Fund and shall be available during normal business
hours for inspection and use by the Fund and its agents, including, without
limitation, its independent certified public accountants. Notwithstanding the
preceding sentence, the Fund shall not take any actions or cause the
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Custodian to take any actions which would cause, either directly or indirectly,
the Custodian to violate any applicable laws, regulations or orders.
SECTION 2.26 OPINION OF FUND'S INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS. The Custodian shall take all reasonable action as the Fund may
request to obtain from year to year favorable opinions from the Fund's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Fund's Form N-IA
and the Fund's Form N-SAR or other periodic reports to the SEC and with respect
to any other requirements of the SEC.
SECTION 2.27 REPORTS BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. At
the request of the Fund, the Custodian shall deliver to the Fund a written
report prepared by the Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.
SECTION 2.28 OVERDRAFT FACILITY. In the event that the Custodian is
directed by Proper Instructions to make any payment or transfer of funds on
behalf of a Portfolio for which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the Custodian on
behalf of such Portfolio, the Custodian may, in its discretion, provide an
overdraft (an "Overdraft") to the Fund on behalf of such Portfolio, in an amount
sufficient to allow the completion of such payment. Any Overdraft provided
hereunder: (a) shall be payable on the next Business Day, unless otherwise
agreed by the Fund and the Custodian; and (b) shall accrue interest from the
date of the Overdraft to the date of payment in full by the Fund on behalf of
the applicable Portfolio at a rate agreed upon in writing, from time to time, by
the Custodian and the Fund. The Custodian and the Fund acknowledge that the
purpose of such Overdrafts is to temporarily finance the purchase or sale of
securities for prompt delivery in accordance with the terms hereof, or to meet
emergency expenses not reasonably foreseeable by the Fund. The Custodian shall
promptly notify the Fund in writing (an "Overdraft Notice") of any Overdraft by
facsimile transmission or in such other manner as the Fund and the Custodian may
agree in writing.
ARTICLE III - PROPER INSTRUCTIONS, SPECIAL
------------------------------------------
INSTRUCTIONS AND RELATED MATTERS
--------------------------------
SECTION 3.1 PROPER INSTRUCTIONS AND SPECIAL INSTRUCTIONS.
(a) PROPER INSTRUCTIONS. As used herein, the term "Proper
Instructions" shall mean: (i) a tested telex, a written (including, without
limitation, facsimile transmission) request, direction, instruction or
certification signed or initialed by or on behalf of the Fund by
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<PAGE> 17
one or more Authorized Persons (as hereinafter defined); (ii) a telephonic or
other oral communication by one or more Authorized Persons; or (iii) a
communication effected directly between an electromechanical or electronic
device or system (including, without limitation, computers) by or on behalf of
the Fund by one or more Authorized Persons; PROVIDED, HOWEVER, that
communications of the types described in clauses (ii) and (iii) above purporting
to be given by an Authorized Person shall be considered Proper Instructions only
if the Custodian believes in good faith that such communications were given by
an Authorized Person with respect to the transaction involved. Proper
Instructions in the form of oral communications shall be confirmed by the Fund
by tested telex or in writing in the manner set forth in clause (i) above, but
the lack of such confirmation shall in no way affect any action taken by the
Custodian in reliance upon such oral instructions prior to the Custodian's
receipt of such confirmation. The Fund and the Custodian are hereby authorized
to record any and all telephonic or other oral instructions communicated to the
Custodian. Proper Instructions may relate to specific transactions or to types
or classes of transactions, and may be in the form of standing instructions.
(b) SPECIAL INSTRUCTIONS. As used herein, the term "Special
Instructions" shall mean Proper Instructions countersigned or confirmed in
writing by the Treasurer or any Assistant Treasurer of the Fund or any other
person designated by the Treasurer of the Fund in writing, which
countersignature or confirmation shall be (i) included on the same instrument
containing the Proper Instructions or on a separate instrument relating thereto,
and (ii) delivered by hand, by facsimile transmission, or in such other manner
as the Fund and the Custodian agree in writing.
(c) ADDRESS FOR PROPER INSTRUCTIONS AND SPECIAL
INSTRUCTIONS. Proper Instructions and Special Instructions shall be delivered to
the Custodian at the address and/or telephone, telecopy or telex number agreed
upon from time to time by the Custodian and the Fund.
SECTION 3.2 AUTHORIZED PERSONS. Concurrently with the execution of
this Agreement and from time to time thereafter, as appropriate, the Fund shall
deliver to the Custodian, duly certified as appropriate by a Treasurer or
Assistant Treasurer of the Fund, a certificate setting forth: (a) the names,
titles, signatures and scope of authority of all persons authorized to give
Proper Instructions or any other notice, request, direction, instruction,
certificate or instrument on behalf of the Fund (collectively, the "Authorized
Persons" and individually, an "Authorized Person"); and (b) the names, titles
and signatures of those persons authorized to issue Special Instructions. Such
certificate may be accepted and relied upon by the Custodian as conclusive
evidence of the facts set forth therein and shall be considered to be in full
force and effect until delivery to the Custodian of a similar certificate to the
contrary. Upon delivery of a certificate which deletes the name(s) of a person
previously authorized by the Fund to give Proper Instructions or to issue
Special Instructions, such persons shall no longer be considered an Authorized
Person or authorized to issue Special Instructions for the Fund.
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SECTION 3.3 PERSONS HAVING ACCESS TO ASSETS OF THE PORTFOLIOS.
Notwithstanding anything to the contrary contained in this Agreement, no
Authorized Person, Trustee, officer, employee or agent of the Fund shall have
physical access to the assets of any Portfolio of the Fund held by the Custodian
nor shall the Custodian deliver any assets of a Portfolio for delivery to an
account of such person; provided, however, that nothing in this Section 3.3
shall prohibit (a) any Authorized Person from giving Proper Instructions, or any
person authorized to issue Special Instructions from issuing Special
Instructions, so long as such action does not result in delivery of or access to
assets of any Portfolio prohibited by this Section 3.3; or (b) the Fund's
independent certified public accountants from examining or reviewing the assets
of the Portfolios of the Fund held by the Custodian. The Fund shall deliver to
the Custodian a written certificate identifying such Authorized Persons,
Trustees, officers, employees and agents of the Fund.
SECTION 3.4 ACTIONS OF CUSTODIAN BASED ON PROPER INSTRUCTIONS AND
SPECIAL INSTRUCTIONS. So long as and to the extent that the Custodian acts in
accordance with (a) Proper Instructions or Special Instructions, as the case may
be, and (b) the terms of this Agreement, the Custodian shall not be responsible
for the title, validity or genuineness of any property, or evidence of title
thereof, received by it or delivered by it pursuant to this Agreement.
ARTICLE IV - SUBCUSTODIANS
--------------------------
The Custodian may, from time to time, in accordance with the relevant
provisions of this Article IV, appoint one or more Domestic Subcustodians,
Foreign Subcustodians or Interim Subcustodians to act on behalf of a Portfolio.
(For purposes of this Agreement, all duly appointed Domestic Subcustodians,
Interim Subcustodians and Foreign Subcustodians, are hereinafter referred to
collectively, as "Subcustodians.")
SECTION 4.1 DOMESTIC SUBCUSTODIANS. The Custodian may, at any time
and from time to time, appoint any bank as defined in Section 2(a)(5) of the
1940 Act meeting the requirements of a custodian under Section 17(f) of the 1940
Act and the rules and regulations thereunder, to act on behalf of one or more
Portfolios as a subcustodian for purposes of holding cash, securities and other
assets of such Portfolios and performing other functions of the Custodian within
the United States (a "Domestic Subcustodian"); PROVIDED, THAT, the Custodian
shall notify the Fund in writing of the identity and qualifications of any
proposed Domestic Subcustodian at least thirty (30) days prior to appointment of
such Domestic Subcustodian, and the Fund may, in its sole discretion, by written
notice to the Custodian executed by an Authorized Person disapprove of the
appointment of such Domestic Subcustodian. If, following notice by the Custodian
to the Fund regarding appointment of a Domestic Subcustodian and the expiration
of thirty (30) days after the date of such notice, the Fund shall have failed to
notify the Custodian of its disapproval thereof, the Custodian may, in its
discretion, appoint such proposed Domestic Subcustodian as its subcustodian.
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SECTION 4.2 FOREIGN SUBCUSTODIANS AND INTERIM SUBCUSTODIANS.
(a) FOREIGN SUBCUSTODIANS. The Custodian or a Domestic
Subcustodian may, at any time and from time to time, appoint: (i) any bank,
trust company or other entity meeting the requirements of an "eligible foreign
custodian" under Section 17(f) of the 1940 Act and the rules and regulations
thereunder or by order of the Securities and Exchange Commission exempted
therefrom, or (ii) any bank as defined in Section 2(a)(5) of the 1940 Act
meeting the requirements of a custodian under Section 17(f) of the 1940 Act and
the rules and regulations thereunder to act on behalf of one or more Portfolios
as a subcustodian for purposes of holding cash, securities and other assets of
such Portfolios and performing other functions of the Custodian in countries
other than the United States of America (a "Foreign Subcustodian"); PROVIDED,
THAT, prior to the appointment of any Foreign Subcustodian, the Custodian or the
Domestic Subcustodian shall have obtained written confirmation of the approval
of the Board of Trustees of the Fund on behalf of its applicable Portfolio(s)
(which approval may be withheld in the sole discretion of such Board of
Trustees) with respect to (i) the identity and qualifications of any proposed
Foreign Subcustodian, (ii) the country or countries in which, and the securities
depositories or clearing agencies, if any, through which, any proposed Foreign
Subcustodian is authorized to hold securities and other assets of the applicable
Portfolio(s), and (iii) the form and terms of the subcustodian agreement to be
entered into between such proposed Foreign Subcustodian and the Custodian or
Domestic Subcustodian. The Fund shall be responsible for informing the Custodian
sufficiently in advance of a proposed investment by one of its Portfolios which
is to be held in a country in which no Foreign Subcustodian is authorized to
act, in order that there shall be sufficient time for the Custodian or Domestic
Subcustodian to effect the appropriate arrangements with a proposed foreign
subcustodian, including obtaining approval as provided in this Section 4.2(a).
Neither the Custodian nor the Domestic Subcustodian shall amend any subcustodian
agreement entered into with a Foreign Subcustodian, or agree to change or permit
any changes thereunder, or waive any rights under such agreement, which
materially affect a Fund's rights or the Foreign Subcustodian's obligations or
duties to a Fund under such agreement, except upon prior approval of the Fund
pursuant to Special Instructions.
(b) INTERIM SUBCUSTODIANS. Notwithstanding the foregoing,
in the event that a Portfolio shall invest in a security or other asset to be
held in a country in which no Foreign Subcustodian is authorized to act, the
Custodian shall promptly notify the Fund in writing by facsimile transmission or
in such other manner as the Fund and Custodian shall agree in writing of the
unavailability of an approved Foreign Subcustodian in such country; and the
Custodian shall, upon receipt of Special Instructions, appoint any Person
designated by the Fund in such Special Instructions to hold such security or
other asset. (Any Person appointed as a subcustodian pursuant to this Section
4.2(b) is hereinafter referred to as an "Interim Subcustodian.")
SECTION 4.3 TERMINATION OF A SUBCUSTODIAN. The Custodian shall (i)
cause each Domestic Subcustodian and Foreign Subcustodian to, and (ii) use
reasonable efforts to cause each Interim Subcustodian to, perform all of its
obligations in accordance with the terms and
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conditions of the subcustodian agreement between the Custodian and such Domestic
Subcustodian or Interim Subcustodian. In the event that the Custodian is unable
to cause such Subcustodian to fully perform its obligations thereunder, the
Custodian shall forthwith, upon the receipt of Special Instructions, terminate
such Subcustodian and, if necessary or desirable, appoint a replacement
Subcustodian in accordance with the provisions of Section 4.1, Section 4.2 or
Section 4.3, as the case may be. In addition to the foregoing, the Custodian (A)
may, at any time in its discretion, upon written notification to the Fund,
terminate any Domestic Subcustodian, Foreign Subcustodian or Interim
Subcustodian, and (B) shall, upon receipt of Special Instructions, terminate any
Subcustodian, in accordance with the termination provisions under the applicable
subcustodian agreement.
SECTION 4.4 CERTIFICATION REGARDING FOREIGN SUBCUSTODIANS. Upon
request of the Fund, the Custodian shall deliver to the Fund a certificate
stating: (i) the identity of each Foreign Subcustodian then acting on behalf of
the Custodian for the Fund and its Portfolios; (ii) the countries in which and
the securities depositories and clearing agents through which each such Foreign
Subcustodian is then holding cash, securities and other assets of any Portfolio
of the Fund; and (iii) such other information as may be requested by the Fund to
ensure compliance with Rule 17f-5 under the 1940 Act.
ARTICLE V - STANDARD OF CARE; INDEMNIFICATION
---------------------------------------------
SECTION 5.1 STANDARD OF CARE.
(a) GENERAL STANDARD OF CARE. The Custodian shall exercise
reasonable care and diligence in carrying out all of its duties and obligations
under this Agreement, and shall be liable to the Fund for all loss, damage and
expense suffered or incurred by the Fund or its Portfolios resulting from the
failure of the Custodian to exercise such reasonable care and diligence.
Notwithstanding the foregoing, under no circumstances shall the Custodian be
liable to the Fund or its Portfolios for consequential, special or incidental
damages.
(b) ACTIONS PROHIBITED BY APPLICABLE LAW, ETC. In no event
shall the Custodian incur liability hereunder if the Custodian or any
Subcustodian or Securities System, or any subcustodian, securities depository or
securities system utilized by any such Subcustodian, or any nominee of the
Custodian or any Subcustodian (individually, a "Person") is prevented, forbidden
or delayed from performing, or omits to perform, any act or thing which this
Agreement provides shall be performed or omitted to be performed, by reason of:
(i) any provision of any present or future law or regulation or order of the
United States of America, or any state thereof, or of any foreign country, or
political subdivision thereof or of any court of competent jurisdiction; or (ii)
any act of God or war or other similar circumstance beyond the control of the
Custodian.
(c) ADVICE OF COUNSEL. The Custodian shall be entitled to
receive and act upon advice of counsel on all matters. The Custodian shall be
without liability for any action
16
<PAGE> 21
reasonably taken or omitted in good faith pursuant to the advice of (i) counsel
for the Fund or Trustees of the Fund, or (ii) at the expense of the Custodian,
such other counsel as the Fund and the Custodian may agree upon; provided,
however, with respect to the performance of any action or omission of any action
upon such advice, the Custodian shall be required to conform to the standard of
care set forth in Section 5.1 (a).
(d) LIABILITY FOR PAST RECORDS. The Custodian shall have no
liability in respect of any loss, damage or expense suffered by the Fund,
insofar as such loss, damage or expense arises from the performance of the
Custodian's duties hereunder by reason of the Custodian's reliance upon records
that were maintained for the Fund by entities other than the Custodian prior to
the Custodian's appointment as custodian for the Fund.
SECTION 5.2 LIABILITY OF CUSTODIAN FOR ACTIONS OF OTHER PERSONS.
(a) DOMESTIC SUBCUSTODIANS AND FOREIGN SUBCUSTODIANS.
Notwithstanding the provisions of Section 5.1 to the contrary, the Custodian
shall have no more responsibility or liability to the Fund for any loss, damage
or expense suffered or incurred by the Fund or any of its Portfolios resulting
from the actions or omissions of a Domestic Subcustodian or Foreign Subcustodian
than any such Domestic Subcustodian or Foreign Subcustodian has to the
Custodian.
(b) INTERIM SUBCUSTODIANS. Notwithstanding the provisions
of Section 5.1 to the contrary, the Custodian shall not be liable to the Fund
for any loss, damage or expense suffered or incurred by the Fund or any of its
Portfolios resulting from the actions or omissions of an Interim Subcustodian
unless such loss, damage or expense is caused by, or results from, the
negligence, misfeasance or misconduct of the Custodian; provided, however, in
the event of any such loss, damage or expense, the Custodian shall take all
reasonable steps to enforce such rights as it may have against such Interim
Subcustodian to protect the interests of the Fund and the Portfolios.
(c) SECURITIES SYSTEMS. Notwithstanding the provisions of
Section 5.1 to the contrary, the Custodian shall not be liable to a Fund for any
loss, damage or expense suffered or incurred by the Fund or any of its
Portfolios resulting from the use by the Custodian of a Securities System,
unless such loss, damage or expense is caused by, or results from, the
negligence, misfeasance or misconduct of the Custodian; provided, however, that
in the event of any such loss, damage or expense, the Custodian shall take all
reasonable steps to enforce such rights as it may have against the Securities
System to protect the interests of the Fund and the Portfolios.
(d) REIMBURSEMENT OF EXPENSES. The Fund agrees to reimburse
the Custodian for all reasonable out-of-pocket expenses incurred by the
Custodian on behalf of the Fund in connection with the fulfillment of its
obligations under this Section 5.2; provided, however, that such reimbursement
shall not apply to expenses occasioned by or resulting from the negligence,
misfeasance or misconduct of the Custodian.
17
<PAGE> 22
SECTION 5.3 INDEMNIFICATION.
(a) INDEMNIFICATION OBLIGATIONS. Subject to the limitations
set forth in this Agreement, the Fund agrees to indemnify and hold harmless the
Custodian and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Custodian or its nominee
caused by or arising from actions taken by the Custodian on behalf of the Fund
in the performance of its duties and obligations under this Agreement; PROVIDED,
HOWEVER, that such indemnity shall not apply to loss, damage and expense
occasioned by or resulting from the negligence, misfeasance or misconduct of the
Custodian or its nominee. In addition, the Fund agrees to indemnify any Person
against any liability incurred by reason of taxes assessed to such Person, or
other loss, damage or expenses incurred by such Person, resulting from the fact
that securities and other property of the Fund's Portfolios are registered in
the name of such Person; provided, however, that in no event shall such
indemnification be applicable to income, franchise or similar taxes which may be
imposed or assessed against any Person.
(b) NOTICE OF LITIGATION, RIGHT TO PROSECUTE, ETC. Any
Person entitled to indemnification under Section 5.3(a) hereof shall promptly
notify the Fund in writing of the commencement of any litigation or proceeding
brought against such Person in respect of which indemnity may be sought under
this Section 5.3; PROVIDED, HOWEVER, that the failure to so notify the Fund
promptly will not relieve the Fund from any liability except to the extent that
the Fund shall have been prejudiced as a result of such failure. With respect to
claims in such litigation or proceedings for which indemnity by the Fund may be
sought and subject to applicable law and the ruling of any court of competent
jurisdiction, the Fund shall be entitled to participate in any such litigation
or proceeding and, after written notice from the Fund to any Person, the Fund
may assume the defense of such litigation or proceeding with counsel of its
choice at its own expense in respect of that portion of the litigation for which
the Fund may be subject to an indemnification obligation; provided, however, a
Person shall be entitled to participate in (but not control) at its own cost and
expense, the defense of any such litigation or proceeding if the Fund has not
acknowledged in writing its obligation to indemnify the Person with respect to
such litigation or proceeding. If the Fund is not permitted to participate or
control such litigation or proceeding under applicable law or by a ruling of a
court of competent jurisdiction, such Person shall reasonably prosecute such
litigation or proceeding. A Person shall not consent to the entry of any
judgment or enter into any settlement in any such litigation or proceeding
without providing the Fund with adequate notice of any such settlement or
judgment, and without the Fund's prior written consent. All Persons shall submit
written evidence to the Fund with respect to any cost or expense for which they
are seeking indemnification in such form and detail as the Fund may reasonably
request.
SECTION 5.4 FUND'S RIGHT TO PROCEED. Notwithstanding anything to
the contrary contained herein, the Fund shall have, at its election upon
reasonable notice to the Custodian, the right to enforce, to the extent
permitted by any applicable agreement and applicable law, the Custodian's rights
against any Subcustodian, Securities System, or other Person for loss, damage or
expense caused the Fund by such Subcustodian, Securities System, or other
Person,
18
<PAGE> 23
and shall be entitled to enforce the rights of the Custodian with respect to any
claim against such Subcustodian, Securities System or other Person, which the
Custodian may have as a consequence of any such loss, damage or expense, if and
to the extent that the Fund has not been made whole for any such loss or damage.
If the Custodian makes the Fund whole for any such loss or damage, the Custodian
shall retain the ability to enforce its rights directly against such
Subcustodian, Securities System or other Person. Upon the Fund's election to
enforce any rights of the Custodian under this Section 5.4, the Fund shall
reasonably prosecute all actions and proceedings directly relating to the rights
of the Custodian in respect of the loss, damage or expense incurred by the Fund;
provided that, so long as the Fund has acknowledged in writing its obligation to
indemnify the Custodian under Section 5.3 hereof with respect to such claim, the
Fund shall retain the right to settle, compromise and/or terminate any action or
proceeding in respect of the loss, damage or expense incurred by the Fund
without the Custodian's consent and provided further, that if the Fund has not
made an acknowledgment of its obligation to indemnify, the Fund shall not
settle, compromise or terminate any such action or proceeding without the
written consent of the Custodian, which consent shall not be unreasonably
withheld or delayed. The Custodian agrees to cooperate with the Fund and take
all actions reasonably requested by the Fund in connection with the Fund's
enforcement of any rights of the Custodian. The Fund agrees to reimburse the
Custodian for all reasonable out-of-pocket expenses incurred by the Custodian on
behalf of the Fund in connection with the fulfillment of its obligations under
this Section 5.4; provided, however, that such reimbursement shall not apply to
expenses occasioned by or resulting from the negligence, misfeasance or
misconduct of the Custodian.
ARTICLE VI - COMPENSATION
-------------------------
On behalf of each of its Portfolios, the Fund shall compensate the
Custodian in an amount, and at such times, as may be agreed upon in writing,
from time to time, by the Custodian and the Fund.
ARTICLE VII - TERMINATION
-------------------------
SECTION 7.1 TERMINATION OF AGREEMENT AS TO THE FUND.. With respect
to the Fund, this Agreement shall continue in full force and effect until the
first to occur of: (a) termination by the Custodian by an instrument in writing
delivered or mailed to the Fund, such termination to take effect not sooner than
ninety (90) days after the date of such delivery; (b) termination by the Fund by
an instrument in writing delivered or mailed to the Custodian, such termination
to take effect not sooner than ninety (90) days after the date of such delivery;
or (c) termination by the Fund by written notice delivered to the Custodian,
based upon the Fund's determination that there is a reasonable basis to conclude
that the Custodian is insolvent or that the financial condition of the Custodian
is deteriorating in any material respect, in which case termination shall take
effect upon the Custodian's receipt of such notice or at such later time as
19
<PAGE> 24
the Fund shall designate. In the event of termination pursuant to this Section
7.1 by the Fund, the Fund shall make payment of all accrued fees and
unreimbursed expenses within a reasonable time following termination and
delivery of a statement to the Fund setting forth such fees and expenses. The
Fund shall identify in any notice of termination a successor custodian or
custodians to which the cash, securities and other assets of its Portfolios
shall, upon termination of this Agreement, be delivered. In the event that no
written notice designating a successor custodian shall have been delivered to
the Custodian on or before the date when termination of this Agreement shall
become effective, the Custodian may deliver to a bank or trust company doing
business in the United States of its own selection, having an aggregate capital,
surplus, and undivided profits, as shown by its last published report, of not
less than $25,000,000, all securities and other assets of the Fund's Portfolios
held by the Custodian and all instruments held by the Custodian relative thereto
and all other property of the Fund's Portfolios held by the Custodian under this
Agreement. Thereafter, such bank or trust company shall be the successor of the
Custodian under this Agreement. In the event that securities and other assets of
the Fund's Portfolios remain in the possession of the Custodian after the date
of termination hereof owing to failure of the Fund to appoint a successor
custodian, the Custodian shall be entitled to compensation for its services in
accordance with the fee schedule most recently in effect, for such period as the
Custodian retains possession of such securities and other assets, and the
provisions of this Agreement relating to the duties and obligations of the
Custodian and the Fund shall remain in full force and effect. In the event of
the appointment of a successor custodian, it is agreed that the cash, securities
and other property owned by the Fund and held by the Custodian, any Subcustodian
or nominee shall be delivered to the successor custodian; and the Custodian
agrees to cooperate with the Fund in the execution of documents and performance
of other actions necessary or desirable in order to substitute the successor
custodian for the Custodian under this Agreement.
SECTION 7.2 TERMINATION AS TO ONE OR MORE PORTFOLIOS. This
Agreement may be terminated as to one or more of the Fund's Portfolios (but less
than all of its Portfolios) by delivery of an amended Appendix "A" deleting such
Portfolios pursuant to Section 9.6(b) hereof, in which case termination as to
such deleted Portfolios shall take effect ninety (90) days after the date of
such delivery. The execution and delivery of an amended Appendix "A" which
deletes one or more Portfolios shall constitute a termination of this Agreement
only with respect to such deleted Portfolio(s), shall be governed by the
preceding provisions of Section 7.1 as to the identification of a successor
custodian and the delivery of cash, securities and other assets of the
Portfolio(s) so deleted, and shall not affect the obligations of the Custodian
and the Fund hereunder with respect to the other Portfolios set forth in
Appendix "A," as amended from time to time.
20
<PAGE> 25
ARTICLE VIII - DEFINED TERMS
----------------------------
<TABLE>
The following terms are defined in the following sections:
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Account .................................................. 2.22
ADRs ..................................................... 2.6
Authorized Person(s) ..................................... 3.2
Banking Institution ...................................... 2.12(a)
Bank Accounts ............................................ 2.21
Distribution Account ..................................... 2.16
Domestic Subcustodian .................................... 4.1
Foreign Subcustodian ..................................... 4.2(a)
Fund ..................................................... Preamble
Institutional Client ..................................... 2.3
Interim Subcustodian ..................................... 4.2(b)
Overdraft ................................................ 2.28
Overdraft Notice ......................................... 2.28
Person ................................................... 5.1(b)
Portfolio ................................................ Preamble
Procedural Agreement ..................................... 2.10
Proper Instructions ...................................... 3.1(a)
SEC ...................................................... 2.22
Securities System ........................................ 2.22
Shares ................................................... 2.16
Special Instructions ..................................... 3.1(b)
Subcustodian ............................................. Article IV
1940 Act ................................................. Preamble
</TABLE>
ARTICLE IX - MISCELLANEOUS
--------------------------
SECTION 9.1 EXECUTION OF DOCUMENTS, ETC.
(a) ACTIONS BY THE FUND. Upon request, the Fund shall
execute and deliver to the Custodian such proxies, powers of attorney or other
instruments as may be reasonable and necessary or desirable in connection with
the performance by the Custodian or any Subcustodian of their respective
obligations to the Fund under this Agreement or any applicable subcustodian
agreement with respect to the Fund.
(b) ACTIONS BY CUSTODIAN. Upon receipt of Proper
Instructions, the Custodian shall execute and deliver to the Fund or to such
other parties as the Fund may designate in such Proper Instructions, all such
documents, instruments or agreements as may
21
<PAGE> 26
be reasonable and necessary or desirable in order to effectuate any of the
transactions contemplated hereby.
SECTION 9.2 REPRESENTATIVE CAPACITY; NONRECOURSE OBLIGATIONS. A
COPY OF THE DECLARATION OF TRUST OF THE FUND IS ON FILE WITH THE SECRETARY OF
STATE OF MASSACHUSETTS, AND NOTICE IS HEREBY GIVEN THAT THIS AGREEMENT IS NOT
EXECUTED ON BEHALF OF THE TRUSTEES OF THE FUND AS INDIVIDUALS, AND THE
OBLIGATIONS OF THIS AGREEMENT ARE NOT BINDING UPON ANY OF THE TRUSTEES,
OFFICERS, OR SHAREHOLDERS OF THE FUND INDIVIDUALLY, BUT ARE BINDING ONLY UPON
THE ASSETS AND PROPERTY OF THE FUND'S PORTFOLIOS. THE CUSTODIAN AGREES THAT NO
SHAREHOLDER, TRUSTEE OR OFFICER OF THE FUND MAY BE HELD PERSONALLY LIABLE OR
RESPONSIBLE FOR ANY OBLIGATIONS OF THE FUND ARISING OUT OF THIS AGREEMENT.
SECTION 9.3 SEVERAL OBLIGATIONS OF THE FUND AND THE PORTFOLIOS.
WITH RESPECT TO ANY OBLIGATIONS OF THE FUND ON BEHALF OF ANY OF ITS PORTFOLIOS
ARISING OUT OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE OBLIGATIONS
ARISING UNDER SECTIONS 2.28, 5.3, 5.4 and ARTICLE VI HEREOF, THE CUSTODIAN SHALL
LOOK FOR PAYMENT OR SATISFACTION OF ANY OBLIGATION SOLELY TO THE ASSETS AND
PROPERTY OF THE PORTFOLIO TO WHICH SUCH OBLIGATION RELATES AS THOUGH THE FUND
HAD SEPARATELY CONTRACTED WITH THE CUSTODIAN BY SEPARATE WRITTEN INSTRUMENT WITH
RESPECT TO EACH OF ITS PORTFOLIOS.
SECTION 9.4 REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES OF THE FUND. The Fund
hereby represents and warrants that each of the following shall be true, correct
and complete at all times during the term of this Agreement: (i) the Fund is
duly organized under the laws of its jurisdiction of organization and is
registered as an open-end management investment company under the 1940 Act; and
(ii) the execution, delivery and performance by the Fund of this Agreement are
(w) within its power, (x) have been duly authorized by all necessary action, and
(y) will not (A) contribute to or result in a breach of or default under or
conflict with any existing law, order, regulation or ruling of any governmental
or regulatory agency or authority, or (B) violate any provision of the Fund's
corporate charter, Declaration of Trust or bylaws, or any amendment thereof or
any provision of its most recent Prospectus or Statement of Additional
Information.
(b) REPRESENTATIONS AND WARRANTIES OF THE CUSTODIAN. The
Custodian hereby represents and warrants to the Fund that each of the following
shall be true, correct and complete at all times during the term of this
Agreement: (i) the Custodian is duly organized under the laws of its
jurisdiction of organization and qualifies to act as a custodian to open-end
management investment companies under the provisions of the 1940 Act; and (ii)
the
22
<PAGE> 27
execution, delivery and performance by the Custodian of this Agreement are (w)
within its power, (x) have been duly authorized by all necessary action, and (y)
will not (A) contribute to or result in a breach of or default under or conflict
with any existing law, order, regulation or ruling of any governmental or
regulatory agency or authority, or (B) violate any provision of the Custodian's
corporate charter, or other organizational document, or bylaws, or any amendment
thereof.
SECTION 9.5 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the Fund, on the one hand, and the Custodian, on
the other, with respect to the subject matter hereof and accordingly, supersedes
as of the effective date of this Agreement any custodian agreement heretofore in
effect between the Fund and the Custodian.
SECTION 9.6 WAIVERS AND AMENDMENTS. No provision of this Agreement
may be waived, amended or terminated except by a statement in writing signed by
the party against which enforcement of such waiver, amendment or termination is
sought; provided, however: (a) Appendix "A" listing the Portfolios of the Fund
for which the Custodian serves as custodian may be amended from time to time to
add one or more Portfolios, by the Fund's execution and delivery to the
Custodian of an amended Appendix "A", and the execution of such amended Appendix
by the Custodian, in which case such amendment shall take effect immediately
upon execution by the Custodian; and (b) Appendix "A" may be amended from time
to time to delete one or more Portfolios (but less than all of the Portfolios)
of the Fund, by the Fund's execution and delivery to the Custodian of an amended
Appendix "A", in which case such amendment shall take effect ninety (90) days
after such delivery, unless otherwise agreed by the Custodian and the Fund in
writing.
SECTION 9.7 INTERPRETATION. In connection with the operation of
this Agreement, the Custodian and the Fund may agree in writing from time to
time on such provisions interpretative of or in addition to the provisions of
this Agreement as may in their joint opinion be consistent with the general
tenor of this Agreement. No interpretative or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Agreement.
SECTION 9.8 CAPTIONS. Headings contained in this Agreement, which
are included as convenient references only, shall have no bearing upon the
interpretation of the terms of the Agreement or the obligations of the parties
hereto.
SECTION 9.9 GOVERNING LAW. Insofar as any question or dispute may
arise in connection with the custodianship of foreign securities pursuant to an
agreement with a Foreign Subcustodian that is governed by the laws of the State
of New York, the provisions of this Agreement shall be construed in accordance
with and governed by the laws of the State of New York, provided that in all
other instances this Agreement shall be construed in accordance with and
governed by the laws of the State of Missouri, in each case without giving
effect to principles of conflicts of law or choice of law of such jurisdiction.
23
<PAGE> 28
SECTION 9.10 NOTICES. Except in the case of Proper Instructions or
Special Instructions, notices and other writings contemplated by this Agreement
shall be delivered by hand or by facsimile transmission (provided that in the
case of delivery by facsimile transmission, notice shall also be mailed postage
prepaid to the parties at the following addresses:
(a) If to the Fund:
The Pilot Funds
3435 Steltzer Road
Columbus, Ohio 43219
Attn: William J. Tomko
Telephone: (614) 470-8043
Telefax: (614) 470-8715
(b) If to the Custodian:
Boatmen's Trust Company
100 North Broadway
St. Louis, Missouri 63178
Attn: David F. Toth
Telephone: (314) 466-4900
Telefax: (314) 466-3970
or to such other address as the Fund or the Custodian may have designated in
writing to the other.
SECTION 9.11 ASSIGNMENT. This Agreement shall be binding on and
shall inure to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that, subject to the provisions of Section 7.1
hereof, neither the Custodian nor any Fund may assign this Agreement or any of
its rights or obligations hereunder without the prior written consent of the
other party.
SECTION 9.12 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original. This
Agreement shall become effective when one or more counterparts have been signed
and delivered by the Fund and the Custodian.
SECTION 9.13 CONFIDENTIALITY; SURVIVAL OF OBLIGATIONS. The parties
hereto agree that each shall treat confidentially the terms and conditions of
this Agreement and all information provided by each party to the other regarding
its business and operations. All confidential information provided by a party
hereto shall be used by any other party hereto solely for the purpose of
rendering services pursuant to this Agreement and, except as may be required in
carrying out this Agreement, shall not be disclosed to any third party without
the prior consent
24
<PAGE> 29
of such providing party. The foregoing shall not be applicable to any
information that is publicly available when provided or thereafter becomes
publicly available other than through a breach of this Agreement, or that is
required to be disclosed by any bank examiner of the Custodian or any
Subcustodian, any auditor of the parties hereto, by judicial or administrative
process or otherwise by applicable law or regulation. The provisions of this
Section 9.13 and Sections 9.1, 9.2, 9.3, 9.9, Section 2.28, Section 3.4, Section
7.1, Article V and Article VI hereof and any other rights or obligations
incurred or accrued by any party hereto prior to termination of this Agreement
shall survive any termination of this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
THE PILOT FUNDS BOATMEN'S TRUST COMPANY
By: /s/ William J. Tomko By: /s/ David F. Toth
------------------------------ ------------------------------------
Name: William J. Tomko Name: David F. Toth
Title: President Title: Senior Vice President
25
<PAGE> 30
APPENDIX "A"
TO
CUSTODIAN AGREEMENT
BETWEEN
THE PILOT FUNDS AND BOATMEN'S TRUST COMPANY
Dated as of May 4, 1996
<TABLE>
The following is a list of the Portfolios for which the Custodian shall
serve under a Custodian Agreement dated as of (the "Custodian Agreement"):
<CAPTION>
NAME: EFFECTIVE AS OF:
- ---- ---------------
<S> <C>
Pilot Growth and Income Fund May 4, 1996
Pilot Equity Income Fund May 4, 1996
Pilot U.S. Government Securities Fund May 4, 1996
Pilot Intermediate U.S. Government Securities Fund May 4, 1996
Pilot Municipal Bond Fund May 4, 1996
Pilot Intermediate Municipal Bond Fund May 4, 1996
Pilot Short-Term U.S. Treasury Fund May 4, 1996
Pilot Short-Term Diversified Assets Fund May 4, 1996
Pilot Short-Term Tax-Exempt Diversified Fund May 4, 1996
Pilot Missouri Short-Term Tax-Exempt Fund May 4, 1996
Pilot International Equity Fund May 4, 1996
Pilot Small Capitalization Equity Fund May 4, 1996
Pilot Growth Fund May 4, 1996
Pilot Diversified Bond Income Fund May 4, 1996
</TABLE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Appendix
to be executed in its name and behalf as of the day and year first set forth
opposite each such Portfolio.
THE PILOT FUNDS BOATMEN'S TRUST COMPANY
By: /s/ William J. Tomko By: /s/ David F. Toth
------------------------------ ------------------------------------
Name: William J. Tomko Name: David F. Toth
Title: President Title: Senior Vice President
26
<PAGE> 1
EXHIBIT 11
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 583-1231
July 3, 1996
The Pilot Funds
3435 Stelzer Road
Columbus, OH 43219
Ladies and Gentlemen:
Reference is made to the registration statement on Form N-14 being filed
herewith with the Securities and Exchange Commission (the "Registration
Statement") with respect to certain shares of beneficial interest (the "Shares")
of The Pilot Funds, an unincorporated association of the type commonly referred
to as a Massachusetts business trust (the "Trust"), representing interests in
the Pilot Shares Class of Pilot Growth Fund, Pilot Growth and Income Fund, Pilot
Diversified Bond Income Fund, and Pilot Short-Term Diversified Assets Fund, each
a series of the Trust, to be issued pursuant to a certain Agreement and Plan of
Reorganization (the "Reorganization Agreement") between the Trust and FUNDS IV
Trust described in the Registration Statement.
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 below.
Based upon and subject to the foregoing, we are of the opinion that the
Shares, when issued in accordance with the terms of the Reorganization
Agreement, 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
Registration Statement.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
<PAGE> 1
Exhibit 13(a)
-------------
TRANSFER AGENCY AGREEMENT
-------------------------
AGREEMENT made this 18th day of December, 1995, between THE PILOT FUNDS
(the "Trust"), a Massachusetts business trust having its principal place of
business at 3435 Stelzer Road, Columbus, Ohio 43219, and BISYS FUND SERVICES,
INC. ("BISYS"), a Delaware corporation having its principal place of business at
3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform certain services for those
series of the Trust set forth in Schedule A attached hereto, as such Schedule
may be amended from time to time (individually referred to herein as a "Fund"
and collectively as the "Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services.
--------
BISYS shall perform for the Trust the transfer agent services
set forth in Schedule B hereto.
BISYS also agrees to perform for the Trust such special services
incidental to the performance of the services enumerated herein as agreed to by
the parties from time to time. BISYS shall perform such additional services as
are provided on an amendment to Schedule B hereof, in consideration of such fees
as the parties hereto may agree.
BISYS may, in its discretion and upon written notice to the
Trust, appoint in writing other parties qualified to perform transfer agency
services reasonably acceptable to the Trust (individually, a "Sub-transfer
Agent") to carry out some or all of its responsibilities under this Agreement
with respect to a Fund; provided, however, that the Sub-transfer Agent shall be
the agent of BISYS and not the agent of the Trust or such Fund, and that BISYS
shall be fully responsible for the acts of such Sub-transfer Agent and shall not
be relieved of any of its responsibilities hereunder by the appointment of such
Sub-transfer Agent.
2. Fees.
-----
The Trust shall pay BISYS for the services to be provided by
BISYS under this Agreement in accordance with, and in the manner set forth in,
Schedule C hereto. BISYS may increase the fees it charges pursuant to the fee
schedule; provided, however, that BISYS may not increase such fees until the
expiration of the Initial Term of this Agreement (as defined below),
<PAGE> 2
unless the Trust otherwise agrees to such change in writing. Fees for any
additional services to be provided by BISYS pursuant to an amendment to Schedule
B hereto shall be subject to mutual agreement at the time such amendment to
Schedule B is proposed.
3. Reimbursement of Expenses.
--------------------------
In addition to paying BISYS the fees described in Section 2
hereof, the Trust agrees to reimburse BISYS for BISYS' reasonable out-of-pocket
expenses in providing services hereunder, including without limitation, the
following:
(a) All freight and other delivery and bonding charges
incurred by BISYS in delivering materials to and from the
Trust and in delivering all materials to shareholders;
(b) All direct telephone, telephone transmission and telecopy
or other electronic transmission expenses incurred by
BISYS in communication with the Trust, the Trust's
investment adviser or custodian, dealers, shareholders or
others as required for BISYS to perform the services to
be provided hereunder;
(c) Costs of postage, couriers, stock computer paper,
statements, labels, envelopes, checks, reports, letters,
tax forms, proxies, notices or other form of printed
material which shall be required by BISYS for the
performance of the services to be provided hereunder;
(d) The cost of microfilm or microfiche of records or other
materials; and
(e) Any expenses BISYS shall incur at the written direction
of an Officer of the Trust thereunto duly authorized.
4. Effective Date.
---------------
This Agreement shall become effective as of the date first
written above (the "Effective Date").
5. Term.
-----
This Agreement shall continue in effect with respect to a Fund,
unless earlier terminated by either party hereto as provided hereunder, until
June 1, 1997. Thereafter, it shall be renewed automatically for successive
one-year terms unless written notice not to renew is given by the non-renewing
party to the other party at least 60 days prior to the expiration of the
then-current term; provided, however, that after such termination, for so long
as BISYS, with the written consent of the Trust, in fact continues to perform
any one or more of the services contemplated by this Agreement or any Schedule
or exhibit hereto, the provisions of this Agreement, including without
2
<PAGE> 3
limitation the provisions dealing with indemnification, shall continue in full
force and effect. Fees and reasonable out-of-pocket expenses incurred by BISYS
but unpaid by the Trust upon such termination shall be immediately due and
payable upon and notwithstanding such termination. BISYS shall be entitled to
collect from the Trust, in addition to the fees and disbursements provided by
Sections 2 and 3 hereof, the amount of all of BISYS' cash disbursements and a
reasonable fee (which fee shall be not less than one hundred and two percent
(102%) of the sum of the actual costs incurred by BISYS in performing such
service) for services in connection with BISYS' activities in effecting such
termination, including without limitation, the delivery to the Trust and/or its
distributor or investment adviser and/or other parties, of the Trust's property,
records, instruments and documents, or any copies thereof. To the extent that
BISYS may retain in its possession copies of any Trust documents or records
subsequent to such termination which copies had not been requested by or on
behalf of the Trust in connection with the termination process described above,
BISYS, for a reasonable fee, will provide the Trust with reasonable access to
such copies.
6. Uncontrollable Events.
----------------------
BISYS assumes no responsibility hereunder, and shall not be
liable for any damage, loss of data, delay or any other loss whatsoever caused
by events beyond its reasonable control.
7. Legal Advice.
-------------
BISYS shall notify the Trust at any time BISYS believes that it
is in need of the advice of counsel (other than counsel in the regular employ of
BISYS or any affiliated companies) with regard to BISYS' responsibilities and
duties pursuant to this Agreement; and after so notifying the Trust, BISYS, at
its discretion, shall be entitled to seek, receive and act upon advice of legal
counsel of its choosing, such advice to be at the expense of the Trust or Funds
unless relating to a matter involving BISYS' willful misfeasance, bad faith,
negligence or reckless disregard with respect to BISYS' responsibilities and
duties hereunder and BISYS shall in no event be liable to the Trust or any Fund
or any shareholder or beneficial owner of the Trust for any action reasonably
taken pursuant to such advice.
8. Instructions.
-------------
Whenever BISYS is requested or authorized to take action
hereunder pursuant to instructions from a shareholder, or a properly authorized
agent of a shareholder ("shareholder's agent"), concerning an account in a Fund,
BISYS shall be entitled to rely upon any certificate, letter or other instrument
or communication, believed by BISYS to be genuine and to have been properly
made, signed or authorized by an officer or other authorized agent of the Trust
or by the shareholder or shareholder's agent, as the case may be, and shall be
entitled to receive as conclusive proof of any fact or matter required to be
ascertained by it hereunder a certificate signed by an officer of the Trust or
any other person authorized by the Trust's Board of Trustees or by the
shareholder or shareholder's agent, as the case may be.
3
<PAGE> 4
As to the services to be provided hereunder, BISYS may rely
conclusively upon the terms of the Prospectuses and Statement of Additional
Information of the Trust relating to the Funds to the extent that such services
are described therein unless BISYS receives written instructions to the contrary
in a timely manner from the Trust.
9. Standard of Care; Reliance on Records and Instructions;
------------------------------------------------------
Indemnification.
----------------
BISYS shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to the Trust
for any action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties. BISYS hereby agrees to indemnify and hold harmless the Trust, and its
series, for any action taken or omitted by BISYS, in the exercise of its
responsibilities under this Agreement in bad faith, willful misfeasance,
negligence, or from reckless disregard by it of its obligations and duties. The
Trust agrees to indemnify and hold harmless BISYS, its employees, agents,
directors, officers and nominees from and against any and all claims, demands,
actions and suits, whether groundless or otherwise, and from and against any and
all judgments, liabilities, losses, damages, costs, charges, counsel fees and
other reasonable expenses of every nature and character arising out of or in any
way relating to BISYS' actions taken or nonactions with respect to the
performance of services under this Agreement or based, if applicable, upon
reasonable reliance on information, records, instructions or requests given or
made to BISYS by the Trust, the investment adviser and on any records provided
by any fund accountant or custodian thereof; provided that this indemnification
shall not apply to actions or omissions of BISYS in cases of its own bad faith,
willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties; and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, BISYS shall give
the Trust written notice of and reasonable opportunity to defend against said
claim in its own name or in the name of BISYS.
10. Record Retention and Confidentiality.
-------------------------------------
BISYS shall keep and maintain on behalf of the Trust all books
and records which the Trust or BISYS is, or may be, required to keep and
maintain pursuant to any applicable statutes, rules and regulations, including
without limitation Rules 31a-1 and 3la-2 under the Investment Company Act of
1940, as amended (the "1940 Act"), relating to the maintenance of books and
records in connection with the services to be provided hereunder. BISYS further
agrees that all such books and records shall be the property of the Trust and to
make such books and records available for inspection by the Trust or by the
Securities and Exchange Commission (the "Commission") at reasonable times and
otherwise to keep confidential all books and records and other information
relative to the Trust and its shareholders, except when requested to divulge
such information by duly-constituted authorities or court process, or requested
by a shareholder or shareholder's agent with respect to information concerning
an account as to which such shareholder has either a legal or beneficial
interest or when requested by the Trust, the shareholder, or shareholder's
agent, or the dealer of record as to such account.
4
<PAGE> 5
11. Reports.
--------
BISYS will furnish to the Trust and to its properly-authorized
auditors, investment advisers, examiners, distributors, dealers, underwriters,
salesmen, insurance companies and others designated by the Trust in writing,
such reports at such times as are prescribed in Schedule D attached hereto, or
as subsequently agreed upon by the parties pursuant to an amendment to Schedule
D. The Trust agrees to examine each such report or copy promptly and will report
or cause to be reported any errors or discrepancies therein not later than ten
business days from the receipt thereof. In the event that errors or
discrepancies, except such errors and discrepancies as may not reasonably be
expected to be discovered by the recipient within ten days after conducting a
diligent examination, are not so reported within the aforesaid period of time, a
report will for all purposes be accepted by and be binding upon the Trust and
any other recipient, and BISYS shall have no liability for errors or
discrepancies therein and shall have no further responsibility with respect to
such report except to perform reasonable corrections of such errors and
discrepancies within a reasonable time after requested to do so by the Trust.
12. Rights of Ownership.
--------------------
All computer programs and procedures developed to perform
services required to be provided by BISYS under this Agreement are the property
of BISYS. All records and other data except such computer programs and
procedures are the exclusive property of the Trust and all such other records
and data will be furnished to the Trust in appropriate usable form as soon as
practicable after termination of this Agreement for any reason.
13. Return of Records.
------------------
BISYS may at its option at any time, and shall promptly upon the
Trust's demand, turn over to the Trust and cease to retain BISYS' files, records
and documents created and maintained by BISYS pursuant to this Agreement which
are no longer needed by BISYS in the performance of its services or for its
legal protection. If not so turned over to the Trust, such documents and records
will be retained by BISYS for six years from the year of creation or such longer
period as may be required by law. At the end of such period, such records and
documents will be turned over to the Trust unless the Trust authorizes in
writing the destruction of such records and documents.
14. Bank Accounts.
--------------
The Trust and the Funds shall establish and maintain such bank
accounts with such bank or banks as are selected by the Trust, as are necessary
in order that BISYS may perform the services required to be performed hereunder.
To the extent that the performance of such services shall require BISYS directly
to disburse amounts for payment of dividends, redemption proceeds or other
purposes, the Trust and Funds shall provide such bank or banks with all
instructions and authorizations necessary for BISYS to effect such
disbursements.
5
<PAGE> 6
15. Representations of the Trust.
-----------------------------
The Trust certifies to BISYS that: (a) as of the close of
business on the Effective Date, each Fund which is in existence as of the
Effective Date has authorized unlimited shares, and (b) by virtue of its
Declaration of Trust, shares of each Fund which are redeemed by the Trust may be
sold by the Trust from its treasury, and (c) this Agreement has been duly
authorized by the Trust and, when executed and delivered by the Trust, will
constitute a legal, valid and binding obligation of the Trust, enforceable
against the Trust in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
16. Representations of BISYS.
-------------------------
BISYS represents and warrants that: (a) BISYS has been in, and
shall continue to be in, substantial compliance with all provisions of law,
including Section 17A(c) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), required in connection with the performance of its duties under
this Agreement; (b) the various procedures and systems which BISYS has
implemented with regard to safekeeping from loss or damage attributable to fire,
theft or any other cause of the blank checks, records, and other data of the
Trust and BISYS' records, data, equipment, facilities and other property used in
the performance of its obligations hereunder are adequate and that it will make
such changes therein from time to time as are required for the secure
performance of its obligations hereunder; and (c) this Agreement has been duly
authorized by BISYS and, when executed and delivered by BISYS, will constitute a
legal, valid and binding obligation of BISYS, enforceable against BISYS in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.
BISYS maintains and shall continue to maintain insurance
coverage in such amount as is reasonably necessary and customary for the
performance of the transfer agency services required in connection with the
performance of the duties provided for in this Agreement.
17. Insurance.
----------
BISYS shall notify the Trust should its insurance coverage with
respect to professional liability or errors and omissions coverage be canceled
or reduced. Such notification shall include the date of change and the reasons
therefor. BISYS shall notify the Trust of any material claims against it with
respect to services performed under this Agreement, whether or not they may be
covered by insurance, and shall notify the Trust from time to time as may be
appropriate of the total outstanding claims made by BISYS under its insurance
coverage.
18. Information to be Furnished by the Trust and Funds.
---------------------------------------------------
The Trust has furnished to BISYS the following:
6
<PAGE> 7
(a) Copies of the Declaration of Trust of the Trust and of
any amendments thereto.
(b) Copies of the following documents:
1. The Trust's By-Laws and any amendments thereto;
2. Certified copies of resolutions of the Board of
Trustees covering the following matters:
A. Approval of this Agreement and authorization
of a specified officer of the Trust to
execute and deliver this Agreement and
authorization for specified officers of the
Trust to instruct BISYS hereunder; and
B. Authorization of BISYS to act as Transfer
Agent for the Trust on behalf of the Funds.
(c) A list of all officers of the Trust, together with
specimen signatures of those officers, who are authorized
to instruct BISYS in all matters.
(d) Two copies of the following (if such documents are
employed by the Trust):
1. Prospectuses and Statement of Additional
Information;
2. Distribution Agreement; and
3. All other forms commonly used by the Trust or its
Distributor with regard to their relationships and
transactions with shareholders of the Funds.
(e) A certificate as to shares of beneficial interest of the
Trust authorized, issued, and outstanding as of the
Effective Date of BISYS' appointment as Transfer Agent
(or as of the date on which BISYS' services are
commenced, whichever is the later date) and as to receipt
of full consideration by the Trust for all shares
outstanding, such statement to be certified by the
Treasurer of the Trust.
19. Information Furnished by BISYS.
-------------------------------
SYS has furnished to the Trust the following:
(a) BISYS' Articles of Incorporation.
7
<PAGE> 8
(b) BISYS' Bylaws and any amendments thereto.
(c) Certified copies of actions of BISYS covering the
following matters:
1. Approval of this Agreement, and authorization of a
specified officer of BISYS to execute and deliver
this Agreement;
2. Authorization of BISYS to act as Transfer Agent
for the Trust.
(d) A copy of the most recent independent accountants' report
relating to internal accounting control systems as filed
with the Commission pursuant to Rule 17Ad-13 under the
Exchange Act.
20. Amendments to Documents.
------------------------
The Trust shall furnish BISYS with written copies of any
amendments to, or changes in, any of the items referred to in Section 18 hereof
forthwith upon such amendments or changes becoming effective. Accordingly, BISYS
shall furnish the Trust with written copies of any amendments to, or changes in,
any of the items referred to in Section 19 hereof forthwith upon such amendments
or changes becoming effective. In addition, the Trust agrees that no amendments
will be made to the Prospectuses or Statement of Additional Information of the
Trust which might have the effect of changing the procedures employed by BISYS
in providing the services agreed to hereunder or which amendment might affect
the duties of BISYS hereunder unless the Trust first obtains BISYS' approval of
such amendments or changes.
21. Reliance on Amendments.
-----------------------
BISYS may rely on any amendments to or changes in any of the
documents and other items to be provided by the Trust pursuant to Sections 18
and 20 of this Agreement and the Trust hereby agrees to indemnify and hold
harmless BISYS from and against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, counsel fees and other
reasonable expenses of every nature and character which may result from actions
or omissions on the part of BISYS in reasonable reliance upon such amendments
and/or changes. Although BISYS is authorized to rely on the above-mentioned
amendments to and changes in the documents and other items to be provided
pursuant to Sections 18 and 20 hereof, BISYS shall be under no duty to comply
with or take any action as a result of any of such amendments or changes unless
the Trust first obtains BISYS' written consent to and approval of such
amendments or changes. The Trust may rely on any amendments to or changes in any
of the documents and other items to be provided by BISYS pursuant to Sections 19
and 20 of this Agreement and BISYS hereby agrees to indemnify and hold harmless
the Trust from and against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, counsel fees and other
reasonable expenses of every nature and character which may result from actions
or omissions on the part of the Trust in reasonable reliance upon such
amendments and/or changes.
8
<PAGE> 9
22. Compliance with Law.
--------------------
Except for the obligations of BISYS set forth in Section 10
hereof, the Trust assumes full responsibility for the preparation, contents, and
distribution of each prospectus of the Trust as to compliance with all
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), the 1940 Act, and any other laws, rules and regulations of governmental
authorities having jurisdiction. BISYS shall have no obligation to take
cognizance of any laws relating to the sale of the Trust's shares. The Trust
represents and warrants that no shares of the Trust will be offered to the
public until the Trust's registration statement under the 1933 Act and the 1940
Act has been declared or becomes effective.
23. Notices.
--------
Any notice provided hereunder shall be sufficiently given when
sent by registered or certified mail to the party required to be served with
such notice at the following address: 3435 Stelzer Road, Columbus, Ohio 43219,
or at such other address as such party may from time to time specify in writing
to the other party pursuant to this Section.
24. Headings.
---------
Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
25. Assignment.
-----------
This Agreement and the rights and duties hereunder shall not be
assignable by either of the parties hereto except by the specific written
consent of the other party. This Section 25 shall not limit or in any way affect
BISYS' right to appoint a Sub-transfer Agent pursuant to Section 1 hereof.
26. Governing Law and Matters Relating to the Trust as a
----------------------------------------------------
Massachusetts Business Trust.
-----------------------------
This Agreement shall be governed by and provisions shall be
construed in accordance with the laws of the Commonwealth of Massachusetts. It
is expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the Trustees, shareholders, nominees, officers, agents or
employees of the Trust personally, but shall bind only the trust property of the
Trust and that no series of the Trust shall be liable for the obligations of any
other series of the Trust. The execution and delivery of this Agreement have
been authorized by the Trustees, and this Agreement has been signed and
delivered by an authorized officer of the Trust, acting as such, and neither
such authorization by the Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the Trust as provided in the Trust's Agreement and Declaration of
Trust.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE PILOT FUNDS
By: /s/ WILLIAM J. TOMKO
------------------------------------
BISYS FUND SERVICES, INC.
By: /s/ STEVE MINTOS
------------------------------------
10
<PAGE> 11
Dated: 2-20-96
-------
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE PILOT FUNDS
AND
BISYS FUND SERVICES, INC.
NAME OF FUND
- -------------------------------------
Small Capitalization Equity Fund (P)
Small Capitalization Equity Fund (A)
Small Capitalization Equity Fund (B)
Short Term Diversified Assets (P)
Short Term Diversified Assets (A)
Short Term Diversified Assets (I)
Short Term U.S. Treasury (P)
Short Term U.S. Treasury (A)
Short Term U.S. Treasury (I)
Missouri Short Term Tax-Exempt (P)
Missouri Short Term Tax-Exempt (A)
Missouri Short Term Tax-Exempt (I)
Short Term Tax-Exempt Diversified (P)
Short Term Tax-Exempt Diversified (A)
Short Term Tax-Exempt Diversified (I)
International Equity (P)
International Equity (A)
International Equity (I)
Growth and Income (P)
Growth and Income (R-A)
Growth and Income (R-B)
Equity Income (P)
Equity Income (R-A)
Equity Income (R-B)
Int. U.S. Government Sec. (P)
Int. U.S. Government Sec. (R-A)
Int. U.S. Government Sec. (R-B)
U.S. Government Secs. (P)
A-1
<PAGE> 12
U.S. Government Secs. (R-A)
U.S. Government Secs. (R-B)
Int. Municipal Bond (P)
Int. Municipal Bond (R-A)
Int. Municipal Bond (R-B)
Municipal Bond (P)
Municipal Bond (R-A)
Municipal Bond (R-B)
Growth (P)
Growth (A)
Growth (B)
Diversified Bond Income (P)
Diversified Bond Income (A)
Diversified Bond Income (B)
THE PILOT FUNDS
By: /s/ William J. Tomko
------------------------------------
BISYS FUND SERVICES, INC.
By: /s/ Steve Mintos
------------------------------------
A-2
<PAGE> 13
SCHEDULE B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE PILOT FUNDS
AND
BISYS FUND SERVICES, INC.
TRANSFER AGENCY SERVICES
------------------------
1. Shareholder Transactions
------------------------
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend option,
taxpayer identification numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10b-10 under the
Securities Exchange Act of 1934, as amended.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new shares,
through dividend reimbursement.
2. Shareholder Information Services
--------------------------------
a. Make information available to shareholder servicing unit and
other remote access units regarding trade date, share price,
current holdings, yields, and dividend information.
b. Produce detailed history of transactions through duplicate or
special order statements upon request.
c. Provide mailing labels for distribution of financial reports,
prospectuses, proxy statements or marketing material to current
shareholders.
B-1
<PAGE> 14
3. Compliance Reporting
--------------------
a. Provide reports to the Securities and Exchange Commission, the
National Association of Securities Dealers and the States in
which the Fund is registered.
b. Prepare and distribute appropriate Internal Revenue Service
forms for corresponding Fund and shareholder income and capital
gains.
c. Issue tax withholding reports to the Internal Revenue Service.
4. Dealer/Load Processing (if applicable)
--------------------------------------
a. Provide reports for tracking rights of accumulation and
purchases made under a Letter of Intent.
b. Account for separation of shareholder investments from
transaction sale charges for purchase of Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and
marketing expenses.
d. Track sales and commission statistics by dealer and provide for
payment of commissions on direct shareholder purchases in a load
Fund.
5. Shareholder Account Maintenance
-------------------------------
a. Maintain all shareholder records for each account in the Trust.
b. Issue customer statements on scheduled cycle, providing
duplicate second and third party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each shareholder.
B-2
<PAGE> 15
SCHEDULE C
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE PILOT FUNDS
AND
BISYS FUND SERVICES, INC.
TRANSFER AGENT FEES
-------------------
ANNUAL FEES:
- -----------
Annual per portfolio charge $27,000.00(1)
Annual per shareholder account charge - retail $23.00
Annual per shareholder account charge - institutional $15.00
Asset Based Fees:
Classes under $1 Billion 1.0 BP Annual Fee
Classes over $1 Billion .75 BP Annual Fee
Maximum Complex Fee:
Number of active classes x $18,000 plus the annual per account
charge
Additional Services:
- -------------------
Additional services such as IRA processing are subject to additional fees which
will be quoted upon request. Programming costs or database management fees for
special reports or specialized processing will be quoted upon request.
Out-of-pocket Expenses:
- ----------------------
BISYS shall be entitled to be reimbursed for all reasonable out-of-pocket
expenses including, but not limited to, the expenses set forth in Section 3 of
the Transfer Agency Agreement to which this Schedule C is attached.
- -----------------------------
(1)Assumes up to three classes. Additional classes are $16,000.00
C-1
<PAGE> 16
SCHEDULE D
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE PILOT FUNDS
AND
BISYS FUND SERVICES, INC.
REPORTS
-------
1. Daily Shareholder Activity Journal
2. Daily Fund Activity Summary Report
a. Beginning Balance
b. Dealer Transactions
c. Shareholder Transactions
d. Reinvested Dividends
e. Exchanges
f. Adjustments
g. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dealer Processing Reports
5. Monthly Dividend Reports
6. Sales Data Reports for Blue Sky Registration
7. Annual report by independent public accountants concerning BISYS'
shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of
the Securities Exchange Act of 1934, as amended.
D-1
<PAGE> 1
Exhibit 13(b)
-------------
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this 1st day of June, 1996, by and between
THE PILOT FUNDS, a Massachusetts business trust (the "Trust"), and BISYS FUND
SERVICES LIMITED PARTNERSHIP, d/b/a BISYS FUND SERVICES (the "Administrator"),
an Ohio limited partnership.
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of shares of beneficial interest ("Shares");
and
WHEREAS, the Trust desires the Administrator to provide, and the
Administrator is willing to provide, management and administrative services to
such series of the Trust as the Trust and the Administrator may agree on
("Portfolios") and as listed on Schedule A attached hereto and made a part of
this Agreement, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Administrator hereby agree as follows:
ARTICLE 1. RETENTION OF THE ADMINISTRATOR. The Trust hereby retains the
Administrator to act as the administrator of the Portfolios and to furnish the
Portfolios with the management and administrative services as set forth in
Article 2 below. The Administrator hereby accepts such employment to perform the
duties set forth below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Trust in any way and shall
not be deemed an agent of the Trust.
ARTICLE 2. ADMINISTRATIVE SERVICES. The Administrator shall perform or
supervise the performance by others of other administrative services in
connection with the operations of the Portfolios, and, on behalf of the Trust,
will investigate, assist in the selection of and conduct relations with
custodians, depositories, accountants, legal counsel, underwriters, brokers and
dealers, corporate fiduciaries, insurers, banks and persons in any other
capacity deemed to be necessary or desirable for the Portfolios' operations. The
Administrator shall provide the Trustees of the Trust with such reports
regarding investment performance as they may reasonably request but shall have
no responsibility for supervising the performance by any investment adviser or
sub-adviser of its responsibilities.
The Administrator shall provide the Trust with regulatory reporting, all
necessary office space, equipment, personnel, compensation and facilities
(including facilities for Shareholders' and Trustees' meetings) for handling the
affairs of the Portfolios and such other services as the Administrator shall,
from time to time, determine to be necessary to perform its obligations under
<PAGE> 2
this Agreement. In addition, at the request of the Board of Trustees, the
Administrator shall make reports to the Trust's Trustees concerning the
performance of its obligations hereunder.
Without limiting the generality of the foregoing, the Administrator
shall:
(a) calculate contractual Trust expenses and control all
disbursements for the Trust, and as appropriate compute the
Trust's yields, total return, expense ratios, portfolio,
turnover rate and, if required, portfolio average
dollar-weighted maturity;
(b) assist Trust counsel with the preparation of prospectuses,
statements of additional information, registration statements
and proxy materials;
(c) prepare such reports, applications and documents (including
reports regarding the sale and redemption of Shares as may be
required in order to comply with Federal and state securities
law) as may be necessary or desirable to register the Trust's
Shares with state securities authorities, monitor sale of Trust
Shares for compliance with state securities laws, and file with
the appropriate state securities authorities the registration
statements and reports for the Trust and the Trust's Shares and
all amendments thereto, as may be necessary or convenient to
register and keep effective the Trust and the Trust's Shares
with state securities authorities to enable the Trust to make a
continuous offering of its Shares;
(d) develop and prepare, with the assistance of the Trust's
investment adviser, communications to Shareholders, including
the annual report to Shareholders, coordinate the mailing of
prospectuses, notices, proxy statements, proxies and other
reports to Trust Shareholders, and supervise and facilitate the
proxy solicitation process for all shareholder meetings,
including the tabulation of shareholder votes;
(e) administer contracts on behalf of the Trust with, among others,
the Trust's investment adviser, distributor, custodian, transfer
agent and fund accountant;
(f) supervise the Trust's transfer agent with respect to the payment
of dividends and other distributions to Shareholders;
(g) calculate performance data of the Trust and its portfolios for
dissemination to information services covering the investment
company industry;
(h) coordinate and supervise the preparation and filing of the
Trust's tax returns;
(i) examine and review the operations and performance of the various
organizations providing services to the Trust or any Portfolio
of the Trust, including, without limitation, the Trust's
investment adviser, distributor, custodian, fund accountant,
transfer agent, outside legal counsel and independent public
accountants, and at the
2
<PAGE> 3
request of the Board of Trustees, report to the Board on the
performance of organizations;
(j) assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and printing
of the Trust's semi-annual and annual reports to Shareholders;
(k) assist with the design, development, and operation of Trust
Portfolios, including new classes, investment objectives,
policies and structure;
(l) provide individuals reasonably acceptable to the Trust's Board
of Trustees to serve as officers of the Trust, who will be
responsible for the management of certain of the Trust's affairs
as determined by the Trust's Board of Trustees;
(m) advise the Trust and its Board of Trustees on matters concerning
the Trust and its affairs;
(n) obtain and keep in effect fidelity bonds and trustees and
officers/errors and omissions insurance policies for the Trust
in accordance with the requirements of Rules 17g-1 and 17d-1
(7) under the 1940 Act as such bonds and policies are approved
by the Trust's Board of Trustees;
(o) monitor and advise the Trust and its Portfolios on their
registered investment company status under the Internal Revenue
Code of 1986, as amended;
(p) perform all administrative services and functions of the Trust
and each Portfolio to the extent administrative services and
functions are not provided to the Trust or such Portfolio
pursuant to the Trust's or such Portfolio's investment advisory
agreement, distribution agreement, custodian agreement, transfer
agent agreement and fund accounting agreement;
(q) furnish advice and recommendations with respect to other aspects
of the business and affairs of the Portfolios as the Trust and
the Administrator shall determine desirable; and
(r) prepare and file with the SEC the semi-annual report for the
Trust on Form N-SAR and all required notices pursuant to Rule
24f-2.
The Administrator shall perform such other services for the Trust that
are mutually agreed upon by the parties from time to time. Such services may
include performing internal audit examinations; mailing the annual reports of
the Portfolios; preparing an annual list of Shareholders; and mailing notices of
Shareholders' meetings, proxies and proxy statements, for all of which the Trust
will pay the Administrator's out-of-pocket expenses.
3
<PAGE> 4
ARTICLE 3. Allocation of Charges and Expenses.
----------------------------------
(A) THE ADMINISTRATOR. The Administrator shall furnish at its own
expense the executive, supervisory and clerical personnel necessary to perform
its obligations under this Agreement. The Administrator shall also provide the
items which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Trust as well as all Trustees of the
Trust who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Trust retained by the Trustees of the Trust
to perform services on behalf of the Trust.
(B) THE TRUST. The Trust assumes and shall pay or cause to be paid all
other expenses of the Trust not otherwise allocated herein, including, without
limitation, organization costs, taxes, expenses for legal and auditing services,
the expenses of preparing (including typesetting), printing and mailing reports,
prospectuses, statements of additional information, proxy solicitation material
and notices to existing Shareholders, all expenses incurred in connection with
issuing and redeeming Shares, the costs of custodial services, the cost of
initial and ongoing registration of the Shares under Federal and state
securities laws, fees and out-of-pocket expenses of Trustees who are not
affiliated persons of the Administrator or the Investment Adviser to the Trust
or any affiliated corporation of the Administrator or the investment Adviser,
insurance, interest, brokerage costs, litigation and other extraordinary or
nonrecurring expenses, and all fees and charges of investment advisers to the
Trust.
ARTICLE 4. Compensation of the Administrator.
---------------------------------
(A) ADMINISTRATION FEE. For the services to be rendered, the facilities
furnished and the expenses assumed by the Administrator pursuant to this
Agreement, the Trust shall pay to the Administrator compensation at an annual
rate specified in Schedule A attached hereto. Such compensation shall be
calculated and accrued daily, and paid to the Administrator monthly. The Trust
shall also reimburse the Administrator for its reasonable out-of-pocket
expenses, including the travel and lodging expenses incurred by officers and
employees of the Administrator in connection with attendance at Board meetings.
If this Agreement becomes effective subsequent to the first day of a
month or terminates before the last day of a month, the Administrator's
compensation for that part of the month in which this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as set
forth above. Payment of the Administrator's compensation for the preceding month
shall be made promptly.
(B) SURVIVAL OF COMPENSATION RATES. All rights of compensation under
this Agreement for services performed as of the termination date shall survive
the termination of this Agreement.
4
<PAGE> 5
ARTICLE 5. LIMITATION OF LIABILITY OF THE ADMINISTRATOR. The duties of
the Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in carrying out its duties hereunder, except a loss resulting from
willful misfeasance, bad faith or negligence in the performance of its duties,
or by reason of reckless disregard of its obligations and duties hereunder,
except as may otherwise be provided under provisions of applicable law which
cannot be waived or modified hereby. (As used in this Article 5, the term
"Administrator" shall include Trustees, officers, employees and other agents of
the Administrator as well as the Administrator itself.)
So long as the Administrator acts in good faith and with due diligence
and without negligence, the Trust assumes full responsibility and shall
indemnify the Administrator and hold it harmless from and against any and all
actions, suits and claims, whether groundless or otherwise, and from and against
any and all losses, damages, costs, charges, reasonable counsel fees and
disbursements, payments, expenses and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of said
administration, transfer agency, and dividend disbursing relationships to the
Trust or any other service rendered to the Trust hereunder. The indemnity and
defense provisions set forth herein shall indefinitely survive the termination
of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Trust may be asked to indemnify or hold the
Administrator harmless, the Trust shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Trust promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Trust, but failure to do so in good faith shall not affect the rights
hereunder.
The Trust shall be entitled to participate at its own expense or, if it
so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity provision. If the Trust elects to assume the defense
of any such claim, the defense shall be conducted by counsel chosen by the Trust
and satisfactory to the Administrator, whose approval shall not be unreasonably
withheld. In the event that the Trust elects to assume the defense of any suit
and retain counsel, the Administrator shall bear the fees and expenses of any
additional counsel retained by it. If the Trust does not elect to assume the
defense of a suit, it will reimburse the Administrator for the reasonable fees
and expenses of any counsel retained by the Administrator.
The Administrator may apply to the Trust at any time for instructions
and may consult counsel for the Trust or its own counsel and with accountants
and other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable
5
<PAGE> 6
or accountable for any action taken or omitted by it in good faith in accordance
with such instruction or with the opinion of such counsel, accountants or other
experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. The Administrator will not be held to have
notice of any change of authority of any officers, employee or agent of the
Trust until receipt of written notice thereof from the Trust.
ARTICLE 6. ACTIVITIES OF THE ADMINISTRATOR. The services of the
Administrator rendered to the Trust are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that trustees, officers, employees
and Shareholders of the Trust are or may be or become interested in the
Administrator, as directors, officers, employees and shareholders or otherwise
and that partners, officers and employees of the Administrator and its counsel
are or may be or become similarly interested in the Trust, and that the
Administrator may be or become interested in the Trust as a Shareholder or
otherwise.
ARTICLE 7. DURATION OF THIS AGREEMENT. The Term of this Agreement shall
be as specified in Schedule A hereto.
ARTICLE 8. ASSIGNMENT. This Agreement shall not be assignable by either
party without the written consent of the other party; provided, however, that
the Administrator may, at its expense, subcontract with any entity or person
concerning the provision of the services contemplated hereunder. The
Administrator shall not, however, be relieved of any of its obligations under
this Agreement by the appointment of such subcontractor and provided further,
that the Administrator shall be responsible, to the extent provided in Article 5
hereof, for all acts of such subcontractor as if such acts were its own. This
Agreement shall be binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and permitted assigns.
ARTICLE 9. AMENDMENTS. This Agreement may be amended by the parties
hereto only if such amendment is specifically approved (i) by the vote of a
majority of the Trustees of the Trust, and (ii) by the vote of a majority of the
Trustees of the Trust who are not parties to this Agreement or interested
persons of any such party, cast in person at a Board of Trustees meeting called
for the purpose of voting on such approval.
For special cases, the parties hereto may amend such procedures set
forth herein as may be appropriate or practical under the circumstances, and the
Administrator may conclusively assume that any special procedure which has been
approved by the Trust does not conflict with or violate any requirements of its
Declaration of Trust or then current prospectuses, or any rule, regulation or
requirement of any regulatory body.
ARTICLE 10. CERTAIN RECORDS. The Administrator shall maintain customary
records in connection with its duties as specified in this Agreement. Any
records required to be maintained and
6
<PAGE> 7
preserved pursuant to Rules 31a-1 and 31a-2 under the 1940 Act which are
prepared or maintained by the Administrator on behalf of the Trust shall be
prepared and maintained at the expense of the Administrator, but shall be the
property of the Trust and will be made available to or surrendered promptly to
the Trust on request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Trust and follow the Trust's
instructions as to permitting or refusing such inspection; provided that the
Administrator may exhibit such records to any person in any case where it is
advised by its counsel that it may be held liable for failure to do so, unless
(in cases involving potential exposure only to civil liability) the Trust has
agreed to indemnify the Administrator against such liability.
ARTICLE 11. DEFINITIONS OF CERTAIN TERMS. The terms "interested person"
and "affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
ARTICLE 12. NOTICE. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the last address furnished by the other party to the party giving
notice: if to the Trust, Attention: Secretary, The Pilot Funds, 3435 Stelzer
Road, Columbus, Ohio 43219; and if to the Administrator at 3435 Stelzer Road,
Columbus, Ohio 43219.
ARTICLE 13. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Ohio and the applicable provisions of
the 1940 Act. To the extent that the applicable laws of the State of Ohio, or
any of the provisions herein, conflict with the applicable provisions of the
1940 Act, the latter shall control.
ARTICLE 14. MULTIPLE ORIGINALS. This Agreement may be executed in two or
more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
ARTICLE 15. MATTERS RELATING TO THE TRUST AS A MASSACHUSETTS BUSINESS
TRUST. The names "The Pilot Funds" and "Trustees of The Pilot Funds" refer
respectively to the business trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated as of July 15, 1982, as amended, to which reference is hereby made
and a copy of which is on file at the office of the Secretary of the
Commonwealth of Massachusetts and elsewhere as required by law, and to any and
all amendments thereto so filed or hereafter filed. The obligations of "The
Pilot Funds" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, shareholders or
representatives of the Trust personally, but bind only the assets of the Trust,
and all persons dealing with any Portfolio must look solely to the assets of
the Trust belonging to such Portfolio for the enforcement of any claims against
the Trust.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
THE PILOT FUNDS
By: /s/ W. Eugene Spurbeck
------------------------------------
Attest: /s/ Bruce Treff
--------------------------------
BISYS FUND SERVICES LIMITED
PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By: /s/ Steve Mintos
------------------------------------
Attest: /s/ Eric Phipps
--------------------------------
8
<PAGE> 9
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
DATED AS OF JUNE 1, 1996
BETWEEN
THE PILOT FUNDS
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
Portfolios: This Agreement shall apply to all Portfolios of The Pilot Funds,
either now or hereafter created. The current portfolios of The
Pilot Funds are set forth below: Pilot Short-Term U.S. Treasury
Fund; Pilot Short-Term Diversified Assets Fund; Pilot Missouri
Short-Term Tax-Exempt Fund; Pilot Short-Term Tax-Exempt
Diversified Fund; Pilot U.S. Government Securities Fund; Pilot
Intermediate U.S. Government Securities Fund; Pilot Municipal
Bond Fund; Pilot Intermediate Municipal Bond Fund; Pilot Equity
Income Fund; Pilot Growth & Income Fund; Pilot International
Equity Fund; Pilot Small Capitalization Equity Fund; Pilot Growth
Fund; and Pilot Diversified Bond Income Fund (collectively, the
"Portfolios").
Fees: Pursuant to Article 4, in consideration of services rendered and
expenses assumed pursuant to this Agreement, each of the Funds
will pay the Administrator on the first business day of each
month, or at such time(s) as the Administrator shall request and
the parties hereto shall agree, a fee computed daily and paid as
specified below at the annual rate equal to .115% on the first
$1.5 billion; .110% on the next $1.5 billion; and .1075% in
excess of $3 billion of each Fund's average daily net assets. The
fee for the period from the day of the month this Agreement is
entered into until the end of that month shall be prorated
according to the proportion which such period bears to the full
monthly period. Upon any termination of this Agreement before the
end of any month, the fee for such part of a month shall be
prorated according to the proportion which such period bears to
the full monthly period and shall be payable upon the date of
termination of this Agreement.
For the purpose of determining fees payable to the Administrator,
the value of the net assets of a particular Fund shall be
computed in the manner described in the Fund's Declaration of
Trust or in the Prospectus or Statement of Additional Information
respecting that Fund as from time to time is in effect for the
computation of the value of such net assets in connection with
the determination of the liquidating value of the shares of such
Fund.
A-1
<PAGE> 10
The parties hereby confirm that the fees payable hereunder shall
be applied to each Portfolio as a whole, and not to separate
classes of shares within the portfolios.
Term: Pursuant to Article 7, the term of this Agreement shall commence
on June 1, 1996 and shall remain in effect through June 1, 1997
("Initial Term"). Thereafter, if not terminated, this Agreement
shall continue automatically as to a particular Fund for
successive terms of one year after the Initial Term, PROVIDED,
that such continuance is specifically approved (a) by a vote of a
majority of those members of the Board of Trustees of the Trust
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 Trust or by vote of a "majority of the
outstanding voting securities" of such Fund. In the event of a
material breach of this Agreement by either party, the
non-breaching party shall notify the breaching party in writing
of such breach and upon receipt of such notice, the breaching
party shall have 60 days to remedy the breach or the nonbreaching
party may immediately terminate this Agreement.
Notwithstanding the foregoing, after such termination for so long
as the Administrator, with the written consent of the Trust, in
fact continues to perform any one or more of the services
contemplated by this Agreement or any schedule or exhibit hereto,
the provisions of this Agreement, including without limitation
the provisions dealing with indemnification, shall continue in
full force and effect. Compensation due the Administrator and
unpaid by the Trust upon such termination shall be immediately
due and payable upon and notwithstanding such termination. The
Administrator shall be entitled to collect from the Trust, in
addition to the compensation described in this Schedule A, the
amount of all of the Administrator's cash disbursements for
services in connection with the Administrator's activities in
effecting such termination, including without limitation, the
delivery to the Trust and/or its designees of the Trust's
property, records, instruments and documents, or any copies
thereof. Subsequent to such termination, for a reasonable fee,
the Administrator will provide the Trust with reasonable access
to any Trust documents or records remaining in its possession.
A-2
<PAGE> 1
Exhibit 14(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated April 12, 1996 and
October 16, 1995 on the financial highlights for The Pilot Funds and to all
references to our firm included in or made a part of this Form N-14.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 2, 1996
<PAGE> 1
Exhibit 14(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use of our report dated August 24, 1995
relating to the June 30, 1995 financial statements of FUNDS IV Trust in the
Statement of Additional Information constituting part of the registration
statement on Form N-1A of FUNDS IV Trust, dated October 31, 1995 (the "N-1A
Registration Statement"), and to the incorporation of such report into the
Prospectus constituting part of the N-1A Registration Statement. Such
Prospectus and Statement of Additional Information are incorporated by
reference in the Combined Proxy Statement/Prospectus and related Statement of
Additional Information constituting parts of this registration statement on
Form N-14 of The Pilot Funds (the "N-14 Registration Statement"), and we
consent to the incorporation by reference of our report into the Combined Proxy
Statement/Prospectus and related Statement of Additional Information
constituting parts of the N-14 Registration Statement.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
New York, New York
July 3, 1996
<PAGE> 1
EXHIBIT 16
POWER OF ATTORNEY
I, the undersigned Trustee of The Pilot Funds (the "Trust"), do hereby
constitute and appoint William J. Tomko, George O. Martinez or Bruce Treff as my
true and lawful attorney-in-fact and agent, with full power and substitution
[and resubstitution], with full powers sign for me, in my name, place and stead
in any and all capacities, any and all Registration Statements of the Trust on
Form N-1A or N-14 and any and all amendments thereto filed with the Securities
and Exchange Commission to enable the Trust to comply with the provisions of the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, and the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission, hereby
ratifying and confirming my signature as it may be signed by my said attorney
and all said Registration Statements and amendments to said Registration
Statements.
IN WITNESS WHEREOF, I have hereunto set my hand on the date indicated
below.
/s/ Henry O. Johnston June 28, 1996
- -------------------------------
Henry O. Johnston
<PAGE> 2
POWER OF ATTORNEY
I, the undersigned Trustee of The Pilot Funds (the "Trust"), do hereby
constitute and appoint William J. Tomko, George O. Martinez or Bruce Treff as my
true and lawful attorney-in-fact and agent, with full power and substitution
[and resubstitution], with full powers sign for me, in my name, place and stead
in any and all capacities, any and all Registration Statements of the Trust on
Form N-1A or N-14 and any and all amendments thereto filed with the Securities
and Exchange Commission to enable the Trust to comply with the provisions of the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, and the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission, hereby
ratifying and confirming my signature as it may be signed by my said attorney
and all said Registration Statements and amendments to said Registration
Statements.
IN WITNESS WHEREOF, I have hereunto set my hand on the date indicated
below.
/s/ L. White Matthews, III June 28, 1996
- -------------------------------
L. White Matthews, III
<PAGE> 3
POWER OF ATTORNEY
I, the undersigned Trustee of The Pilot Funds (the "Trust"), do hereby
constitute and appoint William J. Tomko, George O. Martinez or Bruce Treff as my
true and lawful attorney-in-fact and agent, with full power and substitution
[and resubstitution], with full powers sign for me, in my name, place and stead
in any and all capacities, any and all Registration Statements of the Trust on
Form N-1A or N-14 and any and all amendments thereto filed with the Securities
and Exchange Commission to enable the Trust to comply with the provisions of the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, and the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission, hereby
ratifying and confirming my signature as it may be signed by my said attorney
and all said Registration Statements and amendments to said Registration
Statements.
IN WITNESS WHEREOF, I have hereunto set my hand on the date indicated
below.
/s/ Nicholas G. Penniman, IV June 28, 1996
- -------------------------------
Nicholas G. Penniman, IV
<PAGE> 1
Exhibit 17(a)
1933 Act Registration No.
1940 Act Registration No.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM N-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. ___ / /
Post-Effective Amendment No. ___ / /
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. ___ / /
(Check appropriate box or boxes.)
----------
CENTERLAND FUND
(Exact name of registrant as specified in charter)
111 West Jackson Blvd.
Chicago, Illinois 60604
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code
312-993-4400
----------
PAUL F. JOCK, II
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
312-861-2006
(Name and address of agent for service)
----------
Approximate date of proposed public offering: as soon as practicable
after this Registration Statement has become effective.
----------
It is proposed that this filing will become effective (check
appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) or rule 48B.
----------
Registrant hereby declares, pursuant to Rule 24f-2 promulgated under
the Investment Company Act of 1940, that an indefinite number of Portfolio A
Units, without par value, are being registered by this Registration Statement,
and Registrant is paying herewith the $500 fee required by such Rule.
----------
Registrant hereby amends this Registration Statement under the
Securities Act of 1933 on such date or dates as may be necessary to delay its
effective date until Registrant shall file a further amendment which
specifically states that this Registration Statement under the Securities Act
of 1933 shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement under the
Securities Act of 1933 shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
===============================================================================
<PAGE> 1
Exhibit 17(b)
FUNDS IV TRUST
AGGRESSIVE STOCK APPRECIATION FUND
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS -- SEPTEMBER , 1996
The undersigned appoints John J. Pileggi and Jean V. Fiore and each of
them, attorneys and proxies of the undersigned, with power of substitution, to
vote all shares of AGGRESSIVE STOCK APPRECIATION FUND (the "Fund") which the
undersigned is entitled to vote at the Special Meeting of Shareholders to be
held on , September , 1996 at : .m., New York time, and at any
adjournment thereof.
Please Complete, Sign and Date on Reverse Side and Mail in Accompanying
Postpaid Envelope.
(Continued on other side)
<PAGE> 2
(Continued from other side)
THE BOARD OF TRUSTEES FAVORS A VOTE FOR EACH PROPOSAL
1. To approve the proposed Agreement and Plan of Reorganization with respect to
the Fund and the transactions contemplated thereby as described in the
accompanying Combined Proxy Statement/Prospectus.
/ / FOR / / AGAINST / / ABSTAIN
2. To consider and act upon any other business as may properly come before the
Special Meeting and any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. WHEN
PROPERLY EXECUTED, IT SHALL BE VOTED IN THE MANNER SPECIFIED. IF NO
SPECIFICATION IS MADE, IT SHALL BE VOTED "FOR" THE APPROVAL OF PROPOSAL 1 AND IN
THE DISCRETION OF THE PERSONS NAMED AS PROXIES AS TO SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS THEREOF.
NOTE: This instrument must be signed by the
registered holder(s). When signing as
attorney, administrator, trustee or
guardian, please give your title as such.
-------------------------------------------------
Date
-------------------------------------------------
-------------------------------------------------
Signature(s)
<PAGE> 3
FUNDS IV TRUST
STOCK APPRECIATION FUND
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS -- SEPTEMBER , 1996
The undersigned appoints John J. Pileggi and Jean V. Fiore and each of
them, attorneys and proxies of the undersigned, with power of substitution, to
vote all shares of STOCK APPRECIATION FUND (the "Fund") which the undersigned is
entitled to vote at the Special Meeting of Shareholders to be held on
, September , 1996 at : .m., New York time, and at any
adjournment thereof.
Please Complete, Sign and Date on Reverse Side and Mail in Accompanying
Postpaid Envelope.
(Continued on other side)
<PAGE> 4
(Continued from other side)
THE BOARD OF TRUSTEES FAVORS A VOTE FOR EACH PROPOSAL
1. To approve the proposed Agreement and Plan of Reorganization with respect to
the Fund and the transactions contemplated thereby as described in the
accompanying Combined Proxy Statement/Prospectus.
/ / FOR / / AGAINST / / ABSTAIN
2. To consider and act upon any other business as may properly come before the
Special Meeting and any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. WHEN
PROPERLY EXECUTED, IT SHALL BE VOTED IN THE MANNER SPECIFIED. IF NO
SPECIFICATION IS MADE, IT SHALL BE VOTED "FOR" THE APPROVAL OF PROPOSAL 1 AND IN
THE DISCRETION OF THE PERSONS NAMED AS PROXIES AS TO SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS THEREOF.
NOTE: This instrument must be signed by the
registered holder(s). When signing as
attorney, administrator, trustee or
guardian, please give your title as such.
------------------------------------------------
Date
------------------------------------------------
------------------------------------------------
Signature(s)
<PAGE> 5
FUNDS IV TRUST
BOND INCOME FUND
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS -- SEPTEMBER , 1996
The undersigned appoints John J. Pileggi and Jean V. Fiore and each of
them, attorneys and proxies of the undersigned, with power of substitution, to
vote all shares of BOND INCOME FUND (the "Fund") which the undersigned is
entitled to vote at the Special Meeting of Shareholders to be held on
, September , 1996 at : .m., New York time, and at any
adjournment thereof.
Please Complete, Sign and Date on Reverse Side and Mail in Accompanying
Postpaid Envelope.
(Continued on other side)
<PAGE> 6
(Continued from other side)
THE BOARD OF TRUSTEES FAVORS A VOTE FOR EACH PROPOSAL
1. To approve the proposed Agreement and Plan of Reorganization with respect to
the Fund and the transactions contemplated thereby as described in the
accompanying Combined Proxy Statement/Prospectus.
/ / FOR / / AGAINST / / ABSTAIN
2. To consider and act upon any other business as may properly come before the
Special Meeting and any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. WHEN
PROPERLY EXECUTED, IT SHALL BE VOTED IN THE MANNER SPECIFIED. IF NO
SPECIFICATION IS MADE, IT SHALL BE VOTED "FOR" THE APPROVAL OF PROPOSAL 1 AND IN
THE DISCRETION OF THE PERSONS NAMED AS PROXIES AS TO SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS THEREOF.
NOTE: This instrument must be signed by the
registered holder(s). When signing as
attorney, administrator, trustee or
guardian, please give your title as such.
------------------------------------------------
Date
------------------------------------------------
------------------------------------------------
Signature(s)
<PAGE> 7
FUNDS IV TRUST
INTERMEDIATE BOND INCOME FUND
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS -- SEPTEMBER , 1996
The undersigned appoints John J. Pileggi and Jean V. Fiore and each of
them, attorneys and proxies of the undersigned, with power of substitution, to
vote all shares of INTERMEDIATE BOND INCOME FUND (the "Fund") which the
undersigned is entitled to vote at the Special Meeting of Shareholders to be
held on , September , 1996 at : .m., New York time, and at any
adjournment thereof.
Please Complete, Sign and Date on Reverse Side and Mail in Accompanying
Postpaid Envelope.
(Continued on other side)
<PAGE> 8
(Continued from other side)
THE BOARD OF TRUSTEES FAVORS A VOTE FOR EACH PROPOSAL
1. To approve the proposed Agreement and Plan of Reorganization with respect to
the Fund and the transactions contemplated thereby as described in the
accompanying Combined Proxy Statement/Prospectus.
/ / FOR / / AGAINST / / ABSTAIN
2. To consider and act upon any other business as may properly come before the
Special Meeting and any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. WHEN
PROPERLY EXECUTED, IT SHALL BE VOTED IN THE MANNER SPECIFIED. IF NO
SPECIFICATION IS MADE, IT SHALL BE VOTED "FOR" THE APPROVAL OF PROPOSAL 1 AND IN
THE DISCRETION OF THE PERSONS NAMED AS PROXIES AS TO SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS THEREOF.
NOTE: This instrument must be signed by the
registered holder(s). When signing as
attorney, administrator, trustee or
guardian, please give your title as such.
------------------------------------------------
Date
------------------------------------------------
------------------------------------------------
Signature(s)
<PAGE> 9
FUNDS IV TRUST
VALUE STOCK APPRECIATION FUND
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS -- SEPTEMBER , 1996
The undersigned appoints John J. Pileggi and Jean V. Fiore and each of
them, attorneys and proxies of the undersigned, with power of substitution, to
vote all shares of VALUE STOCK APPRECIATION FUND (the "Fund") which the
undersigned is entitled to vote at the Special Meeting of Shareholders to be
held on , September , 1996 at : .m., New York time, and at any
adjournment thereof.
Please Complete, Sign and Date on Reverse Side and Mail in Accompanying
Postpaid Envelope.
(Continued on other side)
<PAGE> 10
(Continued from other side)
THE BOARD OF TRUSTEES FAVORS A VOTE FOR EACH PROPOSAL
1. To approve the proposed Agreement and Plan of Reorganization with respect to
the Fund and the transactions contemplated thereby as described in the
accompanying Combined Proxy Statement/Prospectus.
/ / FOR / / AGAINST / / ABSTAIN
2. To consider and act upon any other business as may properly come before the
Special Meeting and any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. WHEN
PROPERLY EXECUTED, IT SHALL BE VOTED IN THE MANNER SPECIFIED. IF NO
SPECIFICATION IS MADE, IT SHALL BE VOTED "FOR" THE APPROVAL OF PROPOSAL 1 AND IN
THE DISCRETION OF THE PERSONS NAMED AS PROXIES AS TO SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS THEREOF.
NOTE: This instrument must be signed by the
registered holder(s). When signing as
attorney, administrator, trustee or
guardian, please give your title as such.
------------------------------------------------
Date
------------------------------------------------
------------------------------------------------
Signature(s)
<PAGE> 11
FUNDS IV TRUST
CASH RESERVE MONEY MARKET FUND
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS -- SEPTEMBER , 1996
The undersigned appoints John J. Pileggi and Jean V. Fiore and each of
them, attorneys and proxies of the undersigned, with power of substitution, to
vote all shares of CASH RESERVE MONEY MARKET FUND (the "Fund") which the
undersigned is entitled to vote at the Special Meeting of Shareholders to be
held on , September , 1996 at : .m., New York time, and at any
adjournment thereof.
Please Complete, Sign and Date on Reverse Side and Mail in Accompanying
Postpaid Envelope.
(Continued on other side)
<PAGE> 12
(Continued from other side)
THE BOARD OF TRUSTEES FAVORS A VOTE FOR EACH PROPOSAL
1. To approve the proposed Agreement and Plan of Reorganization with respect to
the Fund and the transactions contemplated thereby as described in the
accompanying Combined Proxy Statement/Prospectus.
/ / FOR / / AGAINST / / ABSTAIN
2. To consider and act upon any other business as may properly come before the
Special Meeting and any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. WHEN
PROPERLY EXECUTED, IT SHALL BE VOTED IN THE MANNER SPECIFIED. IF NO
SPECIFICATION IS MADE, IT SHALL BE VOTED "FOR" THE APPROVAL OF PROPOSAL 1 AND IN
THE DISCRETION OF THE PERSONS NAMED AS PROXIES AS TO SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS THEREOF.
NOTE: This instrument must be signed by the
registered holder(s). When signing as
attorney, administrator, trustee or
guardian, please give your title as such.
------------------------------------------------
Date
------------------------------------------------
------------------------------------------------
Signature(s)
<PAGE> 1
EXHIBIT 17(c)
FUNDS IV TRUST
CASH RESERVE MONEY MARKET FUND
SHORT-TERM TREASURY INCOME FUND
BOND INCOME FUND
INTERMEDIATE BOND INCOME FUND
STOCK APPRECIATION FUND
VALUE STOCK APPRECIATION FUND
AGGRESSIVE STOCK APPRECIATION FUND
SUPPLEMENT DATED JUNE 18, 1996
TO PROSPECTUS DATED JANUARY 31, 1996
The following Supplement is provided to update and should be read in
conjunction with the information provided in the Prospectus.
At a Meeting held on May 10, 1996 the Board of Trustees of Funds IV Trust
(the "Trust") approved an Agreement and Plan of Reorganization between Cash
Reserve Money Market Fund, Bond Income Fund, Intermediate Bond Income Fund,
Stock Appreciation Fund, Value Stock Appreciation Fund and Aggressive Stock
Appreciation Fund, (together, the "Merging Funds") and corresponding portfolios
of The Pilot Funds. The Pilot Funds are managed by Boatmen's Trust Company, an
affiliate of the Merging Funds' investment adviser, (each, a "Pilot Fund"). The
Pilot Fund corresponding to each Merging Fund is as follows:
Merging Fund Corresponding Pilot Fund
Cash Reserve Money Market Fund Pilot Short-Term Diversified Assets Fund
Bond Income Fund Pilot Diversified Bond Income Fund
Intermediate Bond Income Fund Pilot Diversified Bond Income Fund
Stock Appreciation Fund Pilot Growth and Income Fund
Value Stock Appreciation Fund Pilot Growth and Income Fund
Aggressive Stock Appreciation Fund Pilot Growth Fund
The Agreement and Plan of Reorganization provides for the transfer of
substantially all assets and stated liabilities of each aforementioned Merging
Fund in exchange for shares of the corresponding Pilot Fund, followed by
distribution of the Pilot Shares class of shares of the Pilot Fund to the
Merging Fund's shareholders. Each reorganization has been structured as a tax
free transaction and is subject to the satisfaction of various conditions,
including the approval of shareholders of the Merging Fund; however each
reorganization is a separate transaction and is not contingent upon the
approval or consummation of any other transaction.
The Trustees of the Trust approved the Agreement and Plan of
Reorganization and recommended that the Agreement and Plan of Reorganization be
submitted to shareholders of each Merging Fund for their approval. The
Trustees of The Pilot Funds have also approved the Agreement and Plan of
Reorganization at a shareholders' meeting to be held in the third quarter of
the year. Prior to the shareholders' meeting, shareholders of the Merging Funds
will receive a proxy statement/registration statement describing the proposed
reorganizations and The Pilot Funds. It is anticipated that, upon satisfaction
of the applicable conditions, the reorganizations will be consummated during
the fall of 1996.
At the May 10, 1996 Meeting, the Board of Trustees of the Trust also voted
to liquidate the Short-Term Treasury Income Fund (the "Liquidating Fund"),
pursuant to a Plan of Liquidation, which is subject to the satisfaction of
certain conditions, including approval of the shareholders of the Liquidating
Fund. Upon liquidation, the assets of the Liquidating Fund will be sold, and
the proceeds distributed to shareholders. Effective May 11, 1996 no new
subscriptions to the Liquidating Fund will be accepted. The Trustees of the
Trust approved the Plan of Liquidation and recommended that the Plan of
Liquidation be submitted to Liquidating Fund shareholders for their approval.
Liquidating Fund shareholders will have the right to vote on the Plan of
Liquidation. Shareholders of the Liquidating Fund will be sent additional
information in anticipation of a shareholders' meeting to be held during the
third quarter of this year. It is anticipated that, upon satisfaction of the
applicable conditions, the liquidation will be consummated during the fall of
1996 in advance of the reorganization transactions.
Finally, Stuart Hopkins has replaced Paul Worth as Portfolio Manager of
the Stock Appreciation Fund and Aggressive Appreciation Fund. Mr. Hopkins
currently manages the Value Stock Appreciation Fund.
<PAGE> 2
FUNDS IV TRUST 237 PARK AVENUE, NEW YORK, NEW YORK 10017
-----------------------------------------
GENERAL AND ACCOUNT INFORMATION:
(800) 557-3768
SERVICE CLASS PROSPECTUS
BANK IV, N.A. -- INVESTMENT ADVISOR
("BANK IV" OR THE "ADVISER")
AMR INVESTMENT SERVICES, INC. -- INVESTMENT ADVISOR
FOR THE CASH RESERVE MONEY MARKET FUND
("AMR")
FURMAN SELZ LLC -- ADMINISTRATOR AND SPONSOR
("FURMAN SELZ")
FUNDS IV DISTRIBUTOR INC. -- DISTRIBUTOR
("FFD" OR THE "DISTRIBUTOR")
This Prospectus describes eight funds, two money market funds (the "Money
Market Funds") and six non-money market funds (the "Non Money Market Funds")
(collectively, the "Funds"), all of which are managed by BANK IV, except the
Cash Reserve Money Market Fund, which is managed by AMR. The Funds and their
investment objectives are:
- The U.S. TREASURY RESERVE MONEY MARKET FUND seeks to provide investors with
as high a level of current income as is consistent with liquidity,
stability, maximum safety of principal and the maintenance of a stable $1.00
net asset value.
- The CASH RESERVE MONEY MARKET FUND seeks to provide investors with current
income, liquidity and the maintenance of a stable $1.00 net asset value by
investing in high quality, short-term obligations.
- The SHORT-TERM TREASURY INCOME FUND seeks to provide investors with as high
a level of current income as is consistent with liquidity and safety of
principal.
- The INTERMEDIATE BOND INCOME FUND seeks to provide investors with as high a
level of current income as is consistent with managing for total return by
investing in fixed income securities.
- The BOND INCOME FUND seeks to provide investors with as high a level of
current income as is consistent with managing for total return by investing
in fixed income securities.
- The STOCK APPRECIATION FUND seeks to provide investors with long-term
capital appreciation.
- The AGGRESSIVE STOCK APPRECIATION FUND seeks to provide investors with
aggressive long-term capital appreciation.
- The VALUE STOCK APPRECIATION FUND seeks to provide investors with long-term
capital appreciation and dividend income.
This Prospectus describes only the "Service Class" of each Fund. Each Fund
also offers a Premium Class of shares. See "Other Information"
- -- "Capitalization". The Funds are separate investment funds of FUNDS IV
Trust (the "Trust"), a Delaware business trust and registered management
investment company.
AN INVESTMENT IN SHARES OF THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET FUNDS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. SHARES OF THE
TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, BANK IV,
AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY, AND MAY INVOLVE
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION A PROSPECTIVE INVESTOR
SHOULD KNOW BEFORE INVESTING IN ANY OF THE FUNDS AND SHOULD BE READ AND RETAINED
FOR INFORMATION ABOUT EACH FUND.
A Statement of Additional Information (the "SAI"), dated January 30, 1996,
containing additional and more detailed information about the Funds has been
filed with the Securities and Exchange Commission ("SEC") and is hereby
incorporated by reference into this Prospectus. It is available without charge
and can be obtained by writing or calling the Funds at the address and
information numbers printed above.
------------------------
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.
The Date of this Prospectus is January 30, 1996.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Expenses............................................................. 3
Fee Table................................................................. 3
Financial Highlights...................................................... 5
Highlights................................................................ 6
The Investment Policies and Practices of the Funds........................ 11
Investment Restrictions................................................... 24
Risks of Investing in the Funds........................................... 24
Management of the Funds................................................... 26
Fund Share Valuation...................................................... 30
Pricing and Purchase of Fund Shares....................................... 31
Minimum Purchase Requirements............................................. 32
Individual Retirement Accounts............................................ 32
Exchange of Fund Shares................................................... 33
Redemption of Fund Shares................................................. 33
Dividends, Distributions and Federal Income Tax........................... 36
Other Information......................................................... 38
Appendix.................................................................. A-1
</TABLE>
2
<PAGE> 4
FUND EXPENSES
The following expense table lists the costs and expenses that an investor
in the Service Class of shares will incur either directly or indirectly as a
shareholder of a Fund. The information is based upon expenses during the first
year of operations ended June 30, 1995 adjusted to reflect current fees and
expenses. Shareholders in the Premium Class of shares may be subject to an
additional shareholder servicing charge of up to 0.50% of average daily net
assets.
FEE TABLE
<TABLE>
<CAPTION>
U.S.
TREASURY CASH SHORT-
RESERVE RESERVE TERM INTERMEDIATE AGGRESSIVE VALUE
MONEY MONEY TREASURY BOND BOND STOCK STOCK STOCK
MARKET MARKET INCOME INCOME INCOME APPRECIATION APPRECIATION APPRECIATION
FUND FUND FUND FUND FUND FUND FUND FUND
-------- ------- -------- ------------ ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price).............. None None None None None None None None
Maximum Sales Load Imposed on
Reinvested Dividends
(as a percentage of offering
price)...................... None None None None None None None None
Deferred Sales Load
(as a percentage of
redemption proceeds)........ None None None None None None None None
Redemption Fees(1)............ None None None None None None None None
Exchange Fees................. None None None None None None None None
Annual Fund Operating Expenses
(as a percentage of average
net assets)
Management Fees............... 0.15% 0.20% 0.30% 0.40% 0.40% 0.65% 0.745% 0.65%
12b-1 Fees
(after waivers)(2).......... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other Expenses................ 0.32% 0.30% 0.45% 0.35% 0.56% 0.35% 0.49% 0.53%
---- ---- ---- ---- ---- ---- ---- ----
TOTAL PORTFOLIO OPERATING
EXPENSES(1,2)............... 0.47% 0.50% 0.75% 0.75% 0.96% 1.00% 1.23% 1.18%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- ---------------
(1) Shareholders may be charged a wire redemption fee by their bank for
receiving a wire payment on their behalf.
(2) The fee under each Fund's Distribution Plan and Agreement is calculated
on the basis of the average net assets of each Fund at an annual rate not
to exceed 0.25%.
(3) Absent 12b-1 fee waivers, which may be discontinued at any time, Total
Portfolio Operating Expenses would be 0.72% for the U.S. Treasury Reserve
Money Market Fund, 0.75% for the Cash Reserve Money Market Fund, 1.00% for
the Short-Term Treasury Income Fund, 1.00% for the Intermediate Bond Income
Fund, 1.21% for the Bond Income Fund, 1.25% for the Stock Appreciation
Fund, 1.48% for the Aggressive Stock Appreciation Fund, and 1.43% for the
Value Stock Appreciation Fund.
3
<PAGE> 5
The purpose of this table is to assist a shareholder in the Service Class
of shares in understanding the various costs and expenses that an investor in
the Funds will bear.
EXAMPLE:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
U.S.
TREASURY CASH SHORT-
RESERVE RESERVE TERM INTERMEDIATE AGGRESSIVE VALUE
MONEY MONEY TREASURY BOND BOND STOCK STOCK STOCK
MARKET MARKET INCOME INCOME INCOME APPRECIATION APPRECIATION APPRECIATION
FUND FUND FUND FUND FUND FUND FUND FUND
-------- ------- -------- ------------ ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year........................ $ 5 $ 5 $ 8 $ 8 $ 10 $ 10 $ 13 $ 12
3 years....................... $15 $16 $24 $24 $ 31 $ 32 $ 39 $ 37
5 years....................... $26 $28 $42 $42 $ 53 $ 55 $ 68 $ 65
10 years...................... $59 $63 $93 $93 $118 $122 $149 $143
</TABLE>
- ---------------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual return; actual return may be greater or less than the assumed amount.
4
<PAGE> 6
FINANCIAL HIGHLIGHTS
The condensed financial information included below is supplementary
information to the financial statements contained in the Statement of Additional
Information, and sets forth certain information concerning the investment
results for Service Shares of the Fund for the period presented. The financial
statements and financial highlights for Service Shares of the Fund for the
period ended June 30, 1995 have been audited by Price Waterhouse LLP, whose
unqualified report thereon is contained in the Statement of Additional
Information.
The following table sets forth information for a Service Class Share of
beneficial interest outstanding throughout the period:
<TABLE>
<CAPTION>
VALUE STOCK
THE THE APPRECIATION
THE CASH SHORT TERM THE AGGRESSIVE FUND PERIOD
RESERVE TREASURY INTERMEDIATE THE BOND THE STOCK STOCK ENDING
MONEY MARKET INCOME BOND INCOME APPRECIATION APPRECIATION JUNE 30,
FUND* FUND** INCOME FUND** FUND** FUND** FUND** 1995***
------------ ---------- ------------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.......... $ 1.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- ------- -------- ------- -------- ------- -------
Income from Investment
Operations:
Net investment income........ 0.05 0.47 0.51 0.52 0.16 0.10 0.10
Net realized and unrealized
gain on securities.......... -- 0.20 0.19 0.35 1.05 0.87 0.93
-------- ------- -------- ------- -------- ------- -------
Total from Investment
Operations................. 0.05 0.67 0.70 0.87 1.21 0.97 1.03
-------- ------- -------- ------- -------- ------- -------
Less Distributions:
Dividend from net
investment income.......... (0.05) (0.47) (0.51) (0.52) (0.16) (0.10) (0.10)
-------- ------- -------- ------- -------- ------- -------
Net Asset Value, End
of Period................... $ 1.00 $ 10.20 $ 10.19 $ 10.35 $ 11.05 $ 10.87 $ 10.93
-------- ------- -------- ------- -------- ------- -------
Total Return****.............. 4.74% 6.95% 7.26% 9.05% 12.19% 9.81% 10.32%
Ratios/Supplemental Data:
Net Assets, End of Period
(in thousands)............. $274,663 $15,272 $ 129,317 $12,977 $131,239 $ 44,205 $20,690
Ratios of Expenses to Average
Net Assets Annualized...... 0.50% 0.75% 0.75% 0.96% 1.00% 1.23% 1.18%
Effect of waivers/
reimbursements on
expense ratio............... 0.04% 0.29% 0.02% 0.15% 0.02% -- 0.15%
Ratio of Net Investment
Income to Average Net
Assets Annualized.......... 5.40% 5.65% 6.10% 6.21% 1.89% 1.27% 2.52%
Portfolio Turnover Rate...... N/A 83.28% 107.54% 149.36% 46.37% 72.11% 16.74%
</TABLE>
- ---------------
* Fund commenced operations on August 19, 1994.
** Fund commenced operations on August 26, 1994.
*** Fund commenced operations on February 10, 1995.
**** Total return computed since inception not annualized.
5
<PAGE> 7
HIGHLIGHTS
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
This Prospectus describes eight funds, two money market funds and six
non-money market funds (collectively, the "Funds"), all of which are managed by
BANK IV, except the Cash Reserve Money Market Fund which is managed by AMR
Investment Services, Inc. Each Fund has distinct investment objectives and
policies.
MONEY MARKET FUNDS:
U.S. Treasury Reserve Money Market Fund. The investment objective of the
U.S. Treasury Reserve Money Market Fund is to seek as high a level of current
income as is consistent with liquidity, stability and maximum safety of
principal and the maintenance of a stable $1.00 net asset value per share. The
Fund invests exclusively in short-term obligations of the United States
Treasury, which are backed by the full faith and credit of the United States
Government, and repurchase agreements in respect of such obligations. This fund
is not currently in operation.
Cash Reserve Money Market Fund. The investment objectives of the Cash
Reserve Money Market Fund are current income, liquidity and the maintenance of a
stable $1.00 net asset value per share by investing in high quality, U.S.
dollar-denominated short-term obligations which are determined by the investment
advisor to present minimal credit risks.
The Cash Reserve Money Market Fund may invest in obligations permitted to
be purchased under Rule 2a-7 of the Investment Company Act of 1940 (the "1940
Act") including, but not limited to, (1) obligations of the U.S. Government or
its agencies or instrumentalities; (2) commercial paper, loan participation
interests, medium-term notes, asset-backed securities and other promissory
notes, including floating or variable rate obligations; and (3) domestic, Yankee
dollar and Eurodollar certificates of deposit, time deposits, bankers'
acceptances, commercial paper, bearer deposit notes and other promissory notes,
including floating or variable rate obligations issued by U.S. or foreign bank
holding companies and their bank subsidiaries, branches and agencies. The Cash
Reserve Money Market Fund will invest only in issuers or instruments that at the
time of purchase (1) have received the highest short-term rating by at least two
Nationally Recognized Statistical Rating Organizations ("NRSROs") such as "A-1"
by Standard & Poor's and "P-1" by Moody's; (2) are single rated and have
received the highest short-term rating by a NRSRO (and provided the purchase is
approved or ratified by the Board of Trustees); or (3) are unrated, but are
determined to be of comparable quality by AMR pursuant to guidelines approved by
the Board and subject to ratification by the Board. The Cash Reserve Money
Market Fund may also purchase securities on a "when-issued" basis and purchase
or sell them on a "forward commitment" basis.
The Cash Reserve Money Market Fund will concentrate its investments in
obligations issued by the banking industry. Concentration in this context means
the investment of more than 25% of the Cash Reserve Money Market Fund's assets
in such investments. However, for temporary defensive purposes during periods
when AMR believes that maintaining this concentration may be inconsistent with
the best interest of shareholders, the Cash Reserve Money Market Fund will not
maintain this concentration. The Cash Reserve Money Market Fund's policy of
concentration in the banking industry increases the Fund's exposure to market
conditions prevailing in that industry.
6
<PAGE> 8
The Cash Reserve Money Market Fund may also invest in variable amount
master demand obligations which are unsecured demand notes that permit the
indebtedness thereunder to vary, and provide for periodic adjustments in the
interest rate. Because master demand obligations are direct lending arrangements
between the Cash Reserve Money Market Fund and the issuer, they are not normally
traded. There is no secondary market for the notes; however, the period of time
remaining until payment of principal and accrued interest can be recovered under
a variable amount master demand obligation generally shall not exceed seven
days. To the extent this period is exceeded, the obligation in question would be
considered illiquid. Issuers of variable amount master demand obligations must
satisfy the same criteria as set forth for other promissory notes (e.g.,
commercial paper). The Cash Reserve Money Market Fund will invest in variable
amount master demand obligations only when such obligations are determined by
AMR, pursuant to guidelines established by the Board of Trustees, to be of
comparable quality to rated issuers or instruments eligible for investment by
the Cash Reserve Money Market Fund. In determining weighted average dollar
portfolio maturity, a variable amount master demand obligation will be deemed to
have a maturity equal to the longer of the period of time remaining until the
next readjustment of the interest rate or the period of time remaining until the
principal amount can be recovered from the issuer on demand.
Amortized Cost Method of Valuation for the Money Market Funds
Portfolio investments of each Money Market Fund are valued based on the
amortized cost valuation technique pursuant to Rule 2a-7 under the 1940 Act.
Obligations in which the Money Market Funds invest generally have remaining
maturities of 397 days or less, although instruments subject to repurchase
agreements and certain variable and floating rate obligations may bear longer
final maturities. The weighted average dollar portfolio maturity of each Money
Market Fund will not exceed 90 days. See the SAI for an explanation of the
amortized cost valuation method.
NON-MONEY MARKET FUNDS:
Short-Term Treasury Income Fund. The investment objective of this Fund is
to seek as high a level of current income as is consistent with liquidity and
safety of principal. The Fund invests at least 65% of its total assets in U.S.
Treasury obligations and it is the current intent of BANK IV to maintain an
average maturity range between 1 to 3 years.
Intermediate Bond Income Fund. The investment objective of the
Intermediate Bond Income Fund is to provide as high a level of current income as
is consistent with managing for total return by investing at least 65% of its
total assets in fixed income securities. The Fund invests primarily in high
quality fixed income securities such as U.S. Government securities, corporate
bonds and asset-backed securities (including mortgage-backed securities). A
minimum of 65% of the Fund's total assets will be invested in securities rated
"A" or better by a primary credit rating agency and the Fund will seek to
maintain a minimum average portfolio quality rating of "AA". All securities will
be rated "BBB" or better by a primary credit rating agency at the time of
purchase. Fixed income securities downgraded to below BBB subsequent to purchase
may be retained in the portfolio when deemed by the advisor to be in the best
interest of Fund shareholders. The Fund may also invest in convertible
securities, preferred stocks and debt of foreign governments or corporations.
Futures and/or options may be used to hedge the portfolio against reinvestment
and interest rate risk when deemed necessary. For purposes of this Fund, a
"bond" is defined as a debt instrument with a fixed interest rate. The average
maturity of the Intermediate Income Fund will generally range between three and
ten years.
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<PAGE> 9
Bond Income Fund. The investment objective of the Bond Income Fund is to
provide as high a level of current income as is consistent with managing for
total return by investing at least 65% of its total assets in fixed income
securities. The Fund primarily invests in high quality fixed income securities
such as U.S. Government securities, corporate bonds and asset-backed securities
(including mortgage-backed securities). A minimum of 65% of the portfolio will
be invested in securities rated "A" or better by a primary credit rating agency
and the Fund will seek to maintain a minimum average portfolio quality of "AA".
All securities will be rated "BBB" or better by a primary credit rating agency
at the time of purchase. Fixed income securities downgraded to below BBB
subsequent to purchase may be retained in the portfolio when deemed by the
advisor to be in the best interests of Fund shareholders. The Fund may also
invest in convertible securities, preferred stocks and debt of foreign
governments or corporations. Futures and/or options may be used to hedge the
portfolio against reinvestment and interest rate risk when deemed necessary. For
purposes of this Fund, a "bond" is defined as a debt instrument with a fixed
interest rate. The average maturity of the Bond Income Fund will generally range
between seven and fifteen years.
Stock Appreciation Fund. The objective of the Stock Appreciation Fund is
to seek long-term capital appreciation through investment in a diversified
portfolio of common stock (and securities convertible into common stock) of
domestic companies. The Fund may also invest, to a far lesser extent, in
securities of foreign companies, primarily through securities represented by
American Depositary Receipts (ADRs). Under normal market conditions, at least
65% of the Fund's total assets will consist of common stocks. Each stock that is
purchased will be selected on the weight of available evidence, including but
not limited to: (1) the company's fundamental business outlook and competitive
position, (2) the valuation of the security relative to its own historical
norms, to the industry in which the company competes, and to the market as a
whole, and (3) the momentum of earnings growth expected to be generated by the
company. BANK IV will seek to control performance risk in two ways: (1) relative
to the market, by diversifying investments across economic sectors and amongst
small-, medium-, and large-capitalization companies, and (2) by increasing the
level of money market reserves and/or employing hedging vehicles (futures and/or
options) when risks of a substantial stock market correction have risen to
levels where such action appears warranted. In addition, assets may be held in
securities convertible into common stock, debt securities (it is the Fund's
current intention to restrict these debt securities to those rated in the top
three quality categories by Moody's Investors Service, Inc. or Standard & Poor's
Corporation or determined to be of equivalent quality by BANK IV), cash or cash
equivalents, U.S. Government securities, or nonconvertible preferred stock.
Aggressive Stock Appreciation Fund. The objective of the Aggressive Stock
Appreciation Fund is to aggressively seek long-term capital appreciation through
investment in a diversified portfolio of common stock (and securities
convertible into common stock) of domestic companies. The Fund may also invest,
to a far lesser extent, in securities of foreign companies, primarily through
securities represented by ADRs. The Fund will invest primarily in the stocks of
companies expected to increase their earnings at a rate that exceeds the growth
rate expected of the market. (Periodically, however, the emphasis on growth as a
selection factor may be tempered by market conditions). While the Fund will
always hold a broad array of larger-capitalization stocks (approximately $4
billion and greater), there will often be an emphasis on investing in
mid-capitalization issues (between approximately $1 billion and $4 billion), and
to a much lesser extent, smaller-capitalization stocks (approximately $1 billion
market capitalization and under). The decision to emphasize stocks of mid- to
smaller-capitalization companies will be based on a positive outlook for the
market in general, favorable stock valuation comparisons relative to
larger-company stocks, and attractive relative growth characteristics.
8
<PAGE> 10
Under normal market conditions, at least 65% of the Fund's total assets will
consist of common stocks. Each stock that is purchased will be selected on the
weight of available evidence, including but not limited to: (1) the company's
fundamental business outlook and competitive position, (2) the momentum of
earnings growth expected to be generated by the company, and (3) the valuation
of the security relative to its own historic norms, to the industry in which the
company competes, and to the market as a whole. Although the Fund will have
representation in all major economic sectors and amongst small-, medium-, and
large-capitalization companies, BANK IV generally will attempt to add
considerable value relative to the market by emphasizing those stocks,
investment themes, and/or industry groups with the greatest overall appeal and
most attractive reward/risk characteristics. At times, the Fund may hold
considerable positions (relative to the market) in broadly-defined economic
sectors with growth potential unreflected in then current stock prices. BANK IV
may increase the level of money market reserves and/or employ hedging vehicles
(futures and/or options) when risks of a substantial market correction have
risen to levels where such action appears warranted. In addition, assets may be
held in securities convertible into common stocks, debt securities (it is the
Fund's current intention to restrict these debt securities to those rated in the
top three quality categories by Moody's Investors Service, Inc. or Standard &
Poor's Corporation or determined to be of equivalent quality by BANK IV), cash
or cash equivalents, U.S. Government securities, or nonconvertible preferred
stocks. Aggressive stock funds generally involve a higher degree of risk in
search of higher returns.
The Value Stock Appreciation Fund. The objective of the Value Stock
Appreciation Fund is to seek long-term capital appreciation and dividend income
through investment in a diversified portfolio of common stocks (and securities
convertible into common stock) of domestic companies. The Fund may also invest,
to a far lesser extent, in securities of foreign companies, primarily through
securities represented by American Depositary Receipts (ADRs). The Fund will
employ a "value style" of equity management. Stocks selected for use in the Fund
may generally be expected to exhibit the following characteristics: 1) sell at a
discount to their underlying "intrinsic value" determined by discounting the
stock's expected future dividends to their present day value and/or 2) possess
relative low price/ earnings ratios and/or 3) possess relative low price/cash
flow ratios. A "dividend discount model" methodology is a contributing component
in the determination of a stocks "intrinsic value". Frequently, these stocks may
have a higher-than-average dividend yield. Often, stocks exhibiting the above
noted characteristics are described as being "underowned" or "out of favor".
Stock investments are selected from a universe of high quality large, medium,
and small capitalization companies. Quality is determined based on a company's
fundamental financial strength, size and earnings visibility. Stocks are
purchased with a long-term investment time horizon in mind and are generally
sold when their market price rises above intrinsic value and/or their underlying
fundamentals begin to deteriorate. BANK IV may increase the level of money
market reserves and/or employ hedging vehicles (futures and/or options) when
risks of a substantial market correction have risen to levels where such action
appears warranted. In addition, assets may be held in securities convertible
into common stocks, straight debt securities (it is the Fund's current intention
to restrict these debt securities to those rated in the top three quality
categories by Moody's Investors Service, Inc. or Standard & Poor's Corporation
or determined to be of equivalent quality by BANK IV), cash or cash equivalents,
U.S. Government securities, or nonconvertible preferred stocks.
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<PAGE> 11
Short-Term Trading for the Stock Funds
Under certain market conditions, the Stock Appreciation Fund, Aggressive
Stock Appreciation Fund, and Value Stock Appreciation Fund may seek profits by
short-term trading. The length of time a Fund has held a particular security is
not generally a consideration in investment decisions. A change in the number of
securities owned by a Fund is known as "portfolio turnover". To the extent
short-term trading strategies are used, a Fund's portfolio turnover rate may be
higher than that of other mutual funds. Portfolio turnover generally involves
some expense to a Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and reinvestment in other
securities. Such transactions may result in realization of taxable capital
gains.
RISKS OF INVESTING IN THE FUNDS
The Money Market Funds attempt to maintain the value of their shares at a
constant $1.00 share price, although there can be no assurance that the Money
Market Funds will always be able to do so. The Money Market Funds may not
achieve as high a level of current income as other funds that do not limit their
investments to the high quality securities in which the Money Market Funds
invest.
The price per share of the Non-Money Market Funds will fluctuate with
changes in value of the investments held by each Fund. Additionally, there can
be no assurance that a Fund will achieve its investment objective or be
successful in preventing or minimizing the risk of loss that is inherent in
investing in particular types of securities. Such risks include the sensitivity
of the cash flows and yields of separately traded interest and principal
components of obligations to the rate of principal payments (including
prepayments). With respect to mortgage-backed securities, risks include a
similar sensitivity to the rate of prepayments in that, although the value of
fixed-income securities generally increases during periods of falling interest
rates, as a result of prepayments and other factors, this is not always the case
with respect to mortgage-backed securities. Asset-backed securities involve the
risk that such securities do not usually have the benefit of a complete security
interest in the related collateral. Positions in options, futures and options on
futures involve the risks that such options and futures may fail as hedging
techniques, that the loss from investing in futures transactions is potentially
unlimited and that closing transactions may not be effected where a secondary
liquid market does not exist. Further, investment in the securities of issuers
in any foreign country involves special risks and considerations not typically
associated with investing in U.S. issuers.
MANAGEMENT OF THE FUNDS
BANK IV acts as investment advisor to all of the Funds, except the Cash
Reserve Money Market Fund for which AMR acts as investment advisor. For its
services, BANK IV receives a fee from each Fund (other than the Cash Reserve
Money Market Fund) based upon each Fund's average daily net assets. AMR receives
a fee from the Cash Reserve Money Market Fund based upon that Fund's average
daily net assets. See "Fee Table" in this Prospectus.
Furman Selz acts as administrator and sponsor to the Funds. For its
services, Furman Selz receives a fee from the Funds based on each Fund's average
daily net assets. See "Management of the Fund" in this Prospectus. Funds IV
Distributor Inc. ("FFD") distributes the Funds' shares and may be reimbursed for
certain of its distribution-related expenses.
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<PAGE> 12
GUIDE TO INVESTING IN THE FUNDS IV FAMILY OF FUNDS
Purchase orders for the Money Market Funds received by 12:00 noon Eastern
time will become effective that day. Purchase orders for all other Funds
received by your broker or Service Organization in proper form prior to 4:15
p.m., Eastern time, and transmitted to FFD prior to 5:00 p.m. Eastern time, will
become effective that day.
<TABLE>
<S> <C>
- Minimum Initial Investment........................................ $1,000
- Minimum Initial Investment for IRAs............................... $ 250
- Minimum Subsequent Investment..................................... $ 50
</TABLE>
The Funds are purchased at net asset value.
Shareholders may exchange shares between Funds in the Trust by telephone or
mail. Exchanges may not be effected by facsimile.
<TABLE>
<S> <C>
- Minimum initial exchange........................................... $500
(minimum for subsequent exchanges)
</TABLE>
Shareholders may redeem shares by telephone, mail, wire, or by writing a
check (the Money Market Funds only). Shares may not be redeemed by facsimile.
- If a redemption request is received by 12:00 noon Eastern time,
proceeds for the Money Market Funds will be transferred to a
designated account that day.
- Minimum check amount is $500.
- The Funds reserve the right to redeem upon not less than 30 days'
notice all shares in a Fund's account which have an aggregate value of
$500 or less.
(Redemption by telephone, wire and check writing is not available for IRAs
and trust relationships of BANK IV.)
All dividends and distributions will be automatically paid in additional
shares at net asset value of the applicable Fund unless cash payment is
requested.
- Distributions for the Stock Appreciation Fund, Aggressive Stock
Appreciation Fund, and Value Stock Appreciation Fund are paid at least
once annually and distributions for the other Funds are paid monthly.
THE INVESTMENT POLICIES AND PRACTICES OF THE FUNDS
Each Fund is a separate investment fund or portfolio, commonly known as a
mutual fund. The Funds are portfolios of a Delaware business trust, FUNDS IV
Trust, organized under the laws of Delaware as an open-end, management
investment company. The Trust's Board of Trustees oversees the overall
management of the Funds and elects the officers of the Trust.
- The investment objective of the U.S. Treasury Reserve Money Market Fund
is to provide investors with as high a level of current income as is
consistent with liquidity, stability, maximum safety of principal and the
maintenance of a stable $1.00 net asset value per share.
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<PAGE> 13
- The investment objective of the Cash Reserve Money Market Fund is to
provide investors with current income, liquidity and the maintenance of a
stable $1.00 net asset value by investing in high quality, short-term
obligations.
- The investment objective of the Short-Term Treasury Income Fund is to
provide investors with as high a level of current income as is consistent
with liquidity and safety of principal.
- The investment objective of the Intermediate Bond Income Fund is to
provide investors with as high a level of current income as is consistent
with managing for total return by investing in fixed income securities.
- The investment objective of the Bond Income Fund is to provide investors
with as high a level of current income as is consistent with managing for
total return by investing in fixed income securities.
- The investment objective of the Stock Appreciation Fund is to provide
investors with long-term capital appreciation.
- The investment objective of the Aggressive Stock Appreciation Fund is to
provide investors with aggressive long-term capital appreciation.
- The investment objective of the Value Stock Appreciation Fund is to
provide investors with long-term capital appreciation and dividend
income.
Each Fund follows its own investment objectives and policies, including
certain investment restrictions. The SAI contains specific investment
restrictions which govern the Funds' investments. Those restrictions and the
Funds' investment objectives are fundamental policies, which means that they may
not be changed without a majority vote of shareholders of the affected Fund.
Except for the objectives and those restrictions specifically identified as
fundamental, all other investment policies and practices described in this
Prospectus and in the SAI are not fundamental and may change solely with Board
of Trustees approval.
BANK IV and AMR select investments and make investment decisions based on
the investment objective and policies of each Fund. The following is a
description of securities and investment practices.
U.S. Treasury Obligations (All Funds). The Funds may invest in U.S.
Treasury obligations, which are backed by the full faith and credit of the
United States Government as to the timely payment of principal and interest.
U.S. Treasury obligations consist of bills, notes, and bonds and separately
traded interest and principal component parts of such obligations known as
STRIPS which generally differ in their interest rates and maturities. U.S.
Treasury bills, which have original maturities of up to one year, notes, which
have maturities ranging from one year to 10 years, and bonds, which have
original maturities of 10 to 30 years, are direct obligations of the United
States Government.
U.S. Government Securities (All Funds, except U.S. Treasury Reserve Money
Market Fund and Short-Term Treasury Income Fund). U.S. Government securities
are obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. U.S. Government securities include debt securities issued or
guaranteed by U.S. Government-sponsored enterprises and federal agencies and
instrumentalities. Some types of U.S. Government securities are supported by the
full faith and credit of the United States Government or U.S. Treasury
guarantees, such as mortgage-backed certificates guaranteed by the Government
National Mortgage Association ("GNMA"). Other types of U.S. Government
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<PAGE> 14
securities, such as obligations of the Student Loan Marketing Association,
provide recourse only to the credit of the agency or instrumentality issuing the
obligation. In the case of obligations not backed by the full faith and credit
of the United States Government, the investor must look to the agency issuing or
guaranteeing the obligation for ultimate repayment.
Commercial Paper (All Funds, except U.S. Treasury Reserve Money Market Fund
and Short-Term Treasury Income Fund). Commercial paper includes short-term
unsecured promissory notes, variable rate demand notes and variable rate master
demand notes issued by both domestic and foreign bank holding companies,
corporations and financial institutions and United States Government agencies
and instrumentalities. All commercial paper purchased by the Funds is, at the
time of investment, rated in one of the top two rating categories of at least
one NRSRO, or, if not rated is, in the opinion of BANK IV or AMR, of an
investment quality comparable to rated commercial paper in which the Funds may
invest, or, with respect to the Cash Reserve Money Market Fund, (i) rated "P-1"
by Moody's Investors Service, Inc. ("Moody's") and "A-1" or better by Standard &
Poor's Corporation ("S&P") or in a comparable rating category by any two NRSROs
that have rated the commercial paper or (ii) rated in a comparable category by
only one such organization if it is the only organization that has rated the
commercial paper (and provided the purchase is approved or ratified by the Board
of Trustees).
Corporate Debt Securities (All Funds, except U.S. Treasury Reserve Money
Market Fund and Short-Term Treasury Income Fund). These Funds may purchase
corporate debt securities, subject to the rating and quality requirements
specified with respect to each Fund. The Funds may invest in both rated
commercial paper and rated corporate debt obligations of foreign issuers that
meet the same quality criteria applicable to investments by the Funds in
commercial paper and corporate debt obligations of domestic issuers. These
investments, therefore, are not expected to involve significant additional risks
as compared to the risks of investing in comparable domestic securities.
Generally, all foreign investments carry with them both opportunities and risks
not applicable to investments in securities of domestic issuers, such as risks
of foreign political and economic instability, adverse movements in foreign
exchange rates, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital, changes in foreign governmental
attitudes toward private investment (possibly leading to nationalization,
increased taxation or confiscation of foreign assets) and added difficulties
inherent in obtaining and enforcing a judgment against a foreign issuer of
securities should it default.
Mortgage-Related Securities (All Funds, except U.S. Treasury Reserve Money
Market Fund and Short-Term Treasury Income Fund). These Funds are permitted to
invest in mortgage-related securities subject to the rating and quality
requirements specified with respect to each such Fund. Mortgage pass-through
securities are securities representing interests in "pools" of mortgages in
which payments of both interest and principal on the securities are made
monthly, in effect, "passing through" monthly payments made by the individual
borrowers on the mortgage loans which underlie the securities (net of fees paid
to the issuer or guarantor of the securities). Early repayment of principal on
mortgage pass-through securities (arising from prepayments of principal due to
sale of the underlying property, refinancing, or foreclosure, net of fees and
costs which may be incurred) may expose a Fund to a lower rate of return upon
reinvestment of principal. Also, if a security subject to prepayment has been
purchased at a premium, in the event of prepayment the value of the premium
would be lost. Like other fixed-income securities, when interest rates rise, the
value of mortgage-related securities generally will decline; however, when
interest rates decline, the value of mortgage-related securities with prepayment
features may not increase as much as other fixed-income securities. In
recognition of
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<PAGE> 15
this prepayment risk to investors, the Public Securities Association (the "PSA")
has standardized the method of measuring the rate of mortgage loan principal
prepayments. The PSA formula, the Constant Prepayment Rate or other similar
models that are standard in the industry will be used by the Funds in
calculating maturity for purposes of investment in mortgage-related securities.
The inverse relation between interest rates and value of fixed income securities
will be more pronounced with respect to investments by the Fund in
mortgage-related securities, the value of which may be more sensitive to
interest rate changes.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by GNMA or guaranteed by agencies or instrumentalities of the U.S.
Government (in the case of securities guaranteed by the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"), which are supported only by the discretionary authority of the U.S.
Government to purchase the agency's obligations). Mortgage pass-through
securities created by non-governmental issuers (such as commercial banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers) may be supported in various forms of
insurance or guarantees issued by governmental entities.
Collateralized Mortgage Obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal on a CMO are paid,
in most cases, semi-annually. CMOs may be collateralized by whole mortgage loans
but are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured in multiple
classes, with each class bearing a different stated maturity or interest rate.
The inverse relation between interest rates and value of fixed income securities
will be more pronounced with respect to investments by the Fund in
mortgage-related securities, the value of which may be more sensitive to
interest rate changes.
Asset-Backed Securities (Cash Reserve Money Market Fund, Intermediate Bond
Income Fund and Bond Income Fund). These Funds are permitted to invest in
asset-backed securities, subject to the rating and quality requirements
specified with respect to each such Fund. Through the use of trusts and special
purpose subsidiaries, various types of assets, primarily home equity loans and
automobile and credit card receivables, are being securitized in pass-through
structures similar to the mortgage pass-through structures described above.
Consistent with the Funds' investment objectives, policies and quality
standards, a Fund may invest in these and other types of asset-backed securities
which may be developed in the future.
Asset-backed securities involve certain risks that are not posed by
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the benefit of a complete security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these securities. The risks associated with
asset-backed securities are often reduced by the addition of credit enhancements
such as a letter of credit from a bank, excess collateral or a third-party
guarantee.
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<PAGE> 16
Municipal Commercial Paper (Intermediate Bond Income Fund and Bond Income
Fund). Municipal commercial paper is a debt obligation with a stated maturity
of one year or less which is issued to finance seasonal working capital needs or
as short-term financing in anticipation of longer-term debt. Investments in
municipal commercial paper are limited to commercial paper which is rated at the
date of purchase: (i) "P-1" by Moody's and "A-1" or "A-1+" by S&P "P-2"
(Prime-2) or better by Moody's and "A-2" or better by S&P or (ii) in a
comparable rating category by any two of the NRSROs that have rated commercial
paper or (iii) in a comparable rating category by only one such organization if
it is the only organization that has rated the commercial paper or (iv) if not
rated, is, in the opinion of BANK IV, of comparable investment quality and
within the credit quality policies and guidelines established by the Board of
Trustees.
Issuers of municipal commercial paper rated "P-1" have a "superior capacity
for repayment of short-term promissory obligations". The "A-1" rating for
commercial paper under the S&P classification indicates that the "degree of
safety regarding timely payment is either overwhelming or very strong."
Commercial paper with "overwhelming safety characteristics" will be rated
"A-1+". Commercial paper receiving a "P-2" rating has a strong capacity for
repayment of short-term promissory obligations. Commercial paper rated "A-2" has
the capacity for timely payment although the relative degree of safety is not as
overwhelming as for issues designated "A-1". See the Appendix for a more
complete description of securities ratings.
Municipal Notes (Intermediate Bond Income Fund and Bond Income
Fund). Municipal notes are generally sold as interim financing in anticipation
of the collection of taxes, a bond sale or receipt of other revenue. Municipal
notes generally have maturities at the time of issuance of one year or less.
Investments in municipal notes are limited to notes which are rated at the date
of purchase: (i) MIG 1 or MIG 2 by Moody's and in a comparable rating category
by at least one other nationally recognized statistical rating organization that
has rated the notes, or (ii) in a comparable rating category by only one such
organization, including Moody's, if it is the only organization that has rated
the notes, or (iii) if not rated, are, in the opinion of BANK IV, of comparable
investment quality and within the credit quality policies and guidelines
established by the Board of Trustees.
Notes rated "MIG 1" are judged to be of the "best quality" and carry the
smallest amount of investment risk. Notes rated "MIG 2" are judged to be of
"high quality, with margins of protection ample although not as large as in the
preceding group."
Municipal Bonds (Intermediate Bond Income Fund and Bond Income
Fund). Municipal bonds generally have a maturity at the time of issuance of
more than one year. Municipal bonds may be issued to raise money for various
public purposes -- such as constructing public facilities and making loans to
public institutions. There are generally two types of municipal bonds: general
obligation bonds and revenue bonds. General obligation bonds are backed by the
taxing power of the issuing municipality and are considered the safest type of
municipal bond. Revenue bonds are backed by the revenues of a project or
facility -- tolls from a toll road, for example. Certain types of municipal
bonds are issued to obtain funding for privately operated facilities. Industrial
development revenue bonds (which are private activity bonds) are a specific type
of revenue bond backed by the credit and security of a private user, and
therefore investments in these bonds have more potential risk. Investments in
municipal bonds are limited to bonds which are rated at the time of purchase "A"
or better by a NRSRO. Municipal bonds generally have a maturity at the time of
issuance of more than one year.
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<PAGE> 17
Common Stocks (Stock Appreciation Fund, Aggressive Stock Appreciation Fund,
and Value Stock Appreciation Fund). Common stock represents the residual
ownership interest in the issuer after all of its obligations and preferred
stocks are satisfied. Common stock fluctuates in price in response to many
factors, including historical and prospective earnings of the issuer, the value
of its assets, general economic conditions, interest rates, investor perceptions
and market volatility.
Preferred Stocks (Intermediate Bond Income Fund, Bond Income Fund, Stock
Appreciation Fund, Aggressive Stock Appreciation Fund, and Value Stock
Appreciation Fund). Preferred stock has a preference over common stock in
liquidation and generally in dividends as well, but is subordinated to the
liabilities of the issuer in all respects. Preferred stock may or may not be
convertible into common stock. As a general rule, the market value of preferred
stock with a fixed dividend rate and no conversion element varies inversely with
interest rates and perceived credit risk. Because preferred stock is junior to
debt securities and other obligations of the issuer, deterioration in the credit
quality of the issuer will cause greater changes in the value of a preferred
stock than in a more senior debt security with similar stated yield
characteristics.
American Depository Receipts (Intermediate Bond Income Fund, Bond Income
Fund, Stock Appreciation Fund, Aggressive Stock Appreciation Fund, and Value
Stock Appreciation Fund). American Depository Receipts are U.S.
dollar-denominated receipts generally issued by domestic banks, which evidence
the deposit with the bank of the common stock of a foreign issuer and which are
publicly traded on exchanges or over-the-counter in the United States.
These Funds may each invest in both sponsored and unsponsored ADR programs.
There are certain risks associated with investments in unsponsored ADR programs.
Because the non-U.S. company does not actively participate in the creation of
the ADR program, the underlying agreement for service and payment will be
between the depository and the shareholder. The Company issuing the stock
underlying the ADR pays nothing to establish the unsponsored facility, as fees
for ADR issuance and cancellation are paid by brokers. Investors directly bear
the expenses associated with certificate transfer, custody and dividend payment.
In an unsponsored ADR program, there also may be several depositories with
no defined legal obligations to the non-U.S. company. The duplicate depositories
may lead to marketplace confusion because there would be no central source of
information to buyers, sellers and intermediaries. The efficiency of
centralization gained in a sponsored program can greatly reduce the delays in
delivery of dividends and annual reports. In addition, with respect to all ADRs
there is always the risk of loss due to currency fluctuations.
Investments in ADRs involve certain risks not typically involved in purely
domestic investments, including future foreign political and economic
developments, and the possible imposition of foreign governmental laws or
restrictions applicable to such investments. Securities of foreign issuers
through ADRs are subject to different economic, financial, political and social
factors. Individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. With respect to certain countries, there is the possibility
of expropriation of assets, confiscatory taxation, political or social
instability or diplomatic developments which could adversely affect the value of
the particular ADR. There may be less publicly available information about a
foreign company than about a U.S. company, and foreign companies may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those of U.S. companies.
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<PAGE> 18
Investment in Foreign Securities (Intermediate Bond Income Fund, Bond
Income Fund, Stock Appreciation Fund, Aggressive Stock Appreciation Fund, and
Value Stock Appreciation Fund). These Funds may each invest in securities of
foreign governmental and private issuers that are generally denominated in and
pay interest in U.S. dollars. Investments in foreign securities involve certain
considerations that are not typically associated with investing in domestic
securities. There may be less publicly available information about a foreign
issuer than about a domestic issuer. Foreign issuers also are not generally
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic issuers. In addition, with respect to
certain foreign countries, interest may be withheld at the source under foreign
income tax laws, and there is a possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic developments that could
adversely affect investments in securities of issuers located in those
countries.
Convertible and Exchangeable Securities (Intermediate Bond Income Fund,
Bond Income Fund, Stock Appreciation Fund, Aggressive Stock Appreciation Fund
and Value Stock Appreciation Fund). These Funds are permitted to invest in
convertible and exchangeable securities, subject to the rating and quality
requirements specified with respect to each such Fund. Convertible securities
generally offer fixed interest or dividend yields and may be converted either at
a stated price or stated rate for common or preferred stock. Exchangeable
securities may be exchanged on specified terms for common or preferred stock.
Although to a lesser extent than with fixed income 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 or exchangeable securities tends to vary with fluctuations in the
market value of the underlying common or preferred stock. Debt securities that
are convertible into or exchangeable for preferred or common stock are
liabilities of the issuer but are generally subordinated to senior debt of the
issuer.
Domestic and Foreign Bank Obligations (All Funds, except U.S. Treasury
Reserve Money Market Fund and Short-Term Treasury Income Fund). These
obligations include but are not restricted to certificates of deposit,
commercial paper, Yankee certificates of deposit, bankers' acceptances,
Eurodollar certificates of deposit and time deposits, promissory notes and
medium term deposit notes. The Funds will not invest in any obligations of their
affiliates, as defined under the 1940 Act.
Each Fund limits its investment in United States bank obligations to
obligations of United States banks (including foreign branches). Each Fund
limits its investment in foreign bank obligations to United States
dollar-denominated obligations of foreign banks (including United States
branches of foreign banks) which in the opinion of BANK IV or AMR, are of an
investment quality comparable to obligations of United States banks which may be
purchased by the Funds. There is no limitation on the amount of the Funds'
assets which may be invested in obligations of foreign banks which meet the
conditions set forth herein.
Fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Investments in fixed time deposits subject to withdrawal penalties
maturing from two days through seven days may not exceed 15% of the value of the
total assets of the Non-Money Market Funds and 10% of the value of the total
assets of the Money Market Funds.
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Obligations of foreign banks involve somewhat different investment risks
than those affecting obligations of United States banks, including the
possibilities that their liquidity could be impaired because of future political
and economic developments, that the obligations may be less marketable than
comparable obligations of United States banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal and interest on those obligations and that the
selection of those obligations may be more difficult because there may be less
publicly available information concerning foreign banks or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to United States
banks. In that connection, foreign banks are not subject to examination by any
United States Government agency or instrumentality.
Investments in Eurodollar and Yankeedollar obligations involve additional
risks. Most notably, there generally is less publicly available information
about foreign companies; there may be less governmental regulation and
supervision; they may use different accounting and financial standards; and the
adoption of foreign governmental restrictions may adversely affect the payment
of principal and interest on foreign investments. In addition, not all foreign
branches of United States banks are supervised or examined by regulatory
authorities as are United States banks, and such branches may not be subject to
reserve requirements.
Zero Coupon Securities (All Funds). The Funds may invest in zero coupon
securities. A zero coupon security pays no interest to its holder during its
life and is sold at a discount to its face value at maturity. The market prices
of zero coupon securities generally are more volatile than the market prices of
securities that pay interest periodically and are more sensitive to changes in
interest rates than non-zero coupon securities having similar maturities and
credit qualities.
Variable rate demand obligations (All Funds, except U.S. Treasury Reserve
Money Market Fund and Short-Term Treasury Income Fund). Variable rate demand
obligations have a maturity of 397 days or less with respect to the Money Market
Funds or five to twenty years with respect to the Non-Money Market Funds, but
carry with them the right of the holder to put the securities to a remarketing
agent or other entity on short notice, typically seven days or less. Generally,
the remarketing agent will adjust the interest rate every seven days (or at
other intervals corresponding to the notice period for the put), in order to
maintain the interest rate at the prevailing rate for securities with a
seven-day maturity. The remarketing agent is typically a financial intermediary
that has agreed to perform these services. Variable rate master demand
obligations permit a Fund to invest fluctuating amounts at varying rates of
interest pursuant to direct arrangements between the Funds, as lender, and the
borrower. Because the obligations are direct lending arrangements between the
Funds and the borrower, they will not generally be traded, and there is no
secondary market for them, although they are redeemable (and thus immediately
repayable by the borrower) at principal amount, plus accrued interest, at any
time. The borrower also may prepay up to the full amount of the obligation
without penalty. While master demand obligations, as such, are not typically
rated by credit rating agencies, if not so rated, a Fund may, under its minimum
rating standards, invest in them only if, in the opinion of BANK IV or AMR, they
are of an investment quality comparable to other debt obligations in which the
Funds may invest and are within the credit quality policies, guidelines and
procedures established by the Board of Trustees. See the SAI for further details
on variable rate demand obligations and variable rate master demand obligations.
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Other Mutual Funds (All Funds). Each Fund may invest in shares of other
open-end, management investment companies, subject to the limitations of the
1940 Act and subject to such investments being consistent with the overall
objective and policies of the Fund making such investment, provided that any
such purchases will be limited to short-term investments in shares of
unaffiliated investment companies. The purchase of securities of other mutual
funds results in duplication of expenses such that investors indirectly bear a
proportionate share of the expenses of such mutual funds including operating
costs, and investment advisory and administrative fees.
Options on Securities (All Funds, except U.S. Treasury Reserve Money Market
Fund and Cash Reserve Money Market Fund). The Funds may purchase put and call
options and write covered put and call options on securities in which each Fund
may invest directly and that are traded on registered domestic securities
exchanges or that result from separate, privately negotiated transactions (i.e.,
over-the-counter (OTC) options). The writer of a call option, who receives a
premium, has the obligation, upon exercise, to deliver the underlying security
against payment of the exercise price during the option period. The writer of a
put, who receives a premium, has the obligation to buy the underlying security,
upon exercise, at the exercise price during the option period.
The Funds may write put and call options on securities only if they are
covered, and such options must remain covered as long as the Fund is obligated
as a writer. A call option is covered if a Fund owns the underlying security
covered by the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration if the underlying security is held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A put option is covered if a Fund maintains cash, U.S. Treasury bills
or other high grade short-term obligations with a value equal to the exercise
price in a segregated account with its custodian.
The principal reason for writing put and call options is to attempt to
realize, through the receipt of premiums, a greater current return than would be
realized on the underlying securities alone. In return for the premium received
for a call option, the Funds forego the opportunity for profit from a price
increase in the underlying security above the exercise price so long as the
option remains open, but retain the risk of loss should the price of the
security decline. In return for the premium received for a put option, the Funds
assume the risk that the price of the underlying security will decline below the
exercise price, in which case the put would be exercised and the Fund would
suffer a loss. The Funds may purchase put options in an effort to protect the
value of a security it owns against a possible decline in market value.
Writing of options involves the risk that there will be no market in which
to effect a closing transaction. An exchange-traded option may be closed out
only on an exchange that provides a secondary market for an option of the same
series. OTC options are not generally terminable at the option of the writer and
may be closed out only by negotiation with the holder. There is also no
assurance that a liquid secondary market on an exchange will exist. In addition,
because OTC options are issued in privately negotiated transactions exempt from
registration under the Securities Act of 1933, there is no assurance that the
Funds will succeed in negotiating a closing out of a particular OTC option at
any particular time. If a Fund, as covered call option writer, is unable to
effect a closing purchase transaction in the secondary market or otherwise, it
will not be able to sell the underlying security until the option expires or it
delivers the underlying security upon exercise.
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The staff of the SEC has taken the position that purchased options not
traded on registered domestic securities exchanges and the assets used as cover
for written options not traded on such exchanges are generally illiquid
securities. However, the staff has also opined that, to the extent a mutual fund
sells an OTC option to a primary dealer that it considers creditworthy and
contracts with such primary dealer to establish a formula price at which the
fund would have the absolute right to repurchase the option, the fund would only
be required to treat as illiquid the portion of the assets used to cover such
option equal to the formula price minus the amount by which the option is
in-the-money. Pending resolution of the issue, the Funds will treat such options
and, except to the extent permitted through the procedure described in the
preceding sentence, assets as subject to each such Fund's limitation on
investments in securities that are not readily marketable.
Futures, Related Options and Options on Stock Indices (Stock Appreciation
Fund, Aggressive Stock Appreciation Fund, and Value Stock Appreciation
Fund). Each Fund may attempt to reduce the risk of investment in equity
securities by hedging a portion of its portfolio through the use of certain
futures transactions, options on futures traded on a board of trade and options
on stock indices traded on national securities exchanges. In addition, each Fund
may hedge a portion of its portfolio by purchasing such instruments during a
market advance or when BANK IV anticipates an advance. In attempting to hedge a
portfolio, a Fund may enter into contracts for the future delivery of securities
and futures contracts based on a specific security, class of securities or an
index, purchase or sell options on any such futures contracts, and engage in
related closing transactions. Each Fund will use these instruments primarily as
a hedge against changes resulting from market conditions in the values of
securities held in its portfolio or which it intends to purchase.
A stock index assigns relative weighing to the common stocks in the index,
and the index generally fluctuates with changes in the market values of these
stocks. A stock index futures contract is an agreement in which one party agrees
to deliver to the other an amount of cash equal to a specific dollar amount
times the difference between the value of a specific stock index at the close of
the last trading day of the contract and the price at which the agreement is
made. Each Fund will sell stock index futures only if the amount resulting from
the multiplication of the then current level of the indices upon which such
futures contracts are based, and the number of futures contracts which would be
outstanding, do not exceed one-third of the value of the Fund's net assets.
When a futures contract is executed, each party deposits with a broker or
in a segregated custodial account up to 5% of the contract amount, called the
"initial margin," and during the term of the contract, the amount of the deposit
is adjusted based on the current value of the futures contract by payments of
variation margin to or from the broker or segregated account.
In the case of options on stock index futures, the holder of the option
pays a premium and receives the right, upon exercise of the option at a
specified price during the option period, to assume the option writer's position
in a stock index futures contract. If the option is exercised by the holder
before the last trading day during the option period, the option writer delivers
the futures position, as well as any balance in the writer's futures margin
account. If it is exercised on the last trading day, the option writer delivers
to the option holder cash in an amount equal to the difference between the
option exercise price and the closing level of the relevant index on the date
the option expires. In the case of options on stock indexes, the holder of the
option pays a premium and receives the right, upon exercise of the option at a
specified price during the option period, to receive cash equal to the dollar
amount of the difference between the closing price of the relevant index and the
option exercise price times a specified multiple, called the "multiplier."
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During a market decline or when BANK IV anticipates a decline, each Fund
may hedge a portion of its portfolio by selling futures contracts or purchasing
puts on such contracts or on a stock index in order to limit exposure to the
decline. This provides an alternative to liquidation of securities positions and
the corresponding costs of such liquidation. Conversely, during a market advance
or when BANK IV anticipates an advance, each Fund may hedge a portion of its
portfolio by purchasing futures, options on these futures or options on stock
indices. This affords a hedge against a Fund not participating in a market
advance at a time when it is not fully invested and serves as a temporary
substitute for the purchase of individual securities which may later be
purchased in a more advantageous manner. Each Fund will sell options on futures
and on stock indices only to close out existing positions.
Interest Rate Futures Contracts (All Funds, except U.S. Treasury Reserve
Money Market Fund). These Funds may, to a limited extent, enter into interest
rate futures contracts -- i.e., contracts for the future delivery of securities
or index-based futures contracts -- that are, in the opinion of BANK IV,
sufficiently correlated with the Fund's portfolio. These investments will be
made primarily in an attempt to protect a Fund against the effects of adverse
changes in interest rates (i.e., "hedging"). When interest rates are increasing
and portfolio values are falling, the sale of futures contracts can offset a
decline in the value of a Fund's current portfolio securities. The Funds will
engage in such transactions primarily for bona fide hedging purposes.
Options on Interest Rate Futures Contracts (All Funds, except U.S. Treasury
Reserve Money Market Fund). These Funds may purchase put and call options on
interest rate futures contracts, which give a Fund the right to sell or purchase
the underlying futures contract for a specified price upon exercise of the
option at any time during the option period. Each Fund may also write (sell) put
and call options on such futures contracts. For options on interest rate futures
that a Fund writes, such Fund will receive a premium in return for granting to
the buyer the right to sell to the Fund or to buy from the Fund the underlying
futures contract for a specified price at any time during the option period. As
with futures contracts, each Fund will purchase or sell options on interest rate
futures contracts primarily for bona fide hedging purposes.
Risks of Options and Futures Contracts. One risk involved in the purchase
and sale of futures and options is that a Fund may not be able to effect closing
transactions at a time when it wishes to do so. Positions in futures contracts
and options on futures contracts may be closed out only on an exchange or board
of trade that provides an active market for them, and there can be no assurance
that a liquid market will exist for the contract or the option at any particular
time. To mitigate this risk, each Fund will ordinarily purchase and write
options only if a secondary market for the options exists on a national
securities exchange or in the over-the-counter market. Another risk is that
during the option period, if a Fund has written a covered call option, it will
have given up the opportunity to profit from a price increase in the underlying
securities above the exercise price in return for the premium on the option
(although the premium can be used to offset any losses or add to a Fund's
income) but, as long as its obligation as a writer continues, such Fund will
have retained the risk of loss should the price of the underlying security
decline. Investors should note that because of the volatility of the market
value of the underlying security, the loss from investing in futures
transactions is potentially unlimited. In addition, a Fund has no control over
the time when it may be required to fulfill its obligation as a writer of the
option. Once a Fund has received an exercise notice, it cannot effect a closing
transaction in order to terminate its obligation under the option and must
deliver the underlying securities at the exercise price.
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The Funds' successful use of stock index futures contracts, options on such
contracts and options on indices depends upon the ability of BANK IV to predict
the direction of the market and is subject to various additional risks. The
correlation between movements in the price of the futures contract and the price
of the securities being hedged is imperfect and the risk from imperfect
correlation increases in the case of stock index futures as the composition of
the Funds' portfolios diverge from the composition of the relevant index. Such
imperfect correlation may prevent the Funds from achieving the intended hedge or
may expose the Funds to risk of loss. In addition, if the Funds purchase futures
to hedge against market advances before they can invest in common stock in an
advantageous manner and the market declines, the Funds might create a loss on
the futures contract. Particularly in the case of options on stock index futures
and on stock indices, the Funds' ability to establish and maintain positions
will depend on market liquidity. The successful utilization of options and
futures transactions requires skills different from those needed in the
selection of the Funds' portfolio securities. The Funds believe that BANK IV
possesses the skills necessary for the successful utilization of such
transactions.
The Funds are permitted to engage in bona fide hedging transactions (as
defined in the rules and regulations of the Commodity Futures Trading
Commission) without any quantitative limitations. Futures and related option
transactions which are not for bona fide hedging purposes may be used provided
the total amount of the initial margin and any option premiums attributable to
such positions does not exceed 5% of each Fund's liquidating value after taking
into account unrealized profits and unrealized losses, and excluding any
in-the-money option premiums paid. The Funds will not market, and are not
marketing, themselves as commodity pools or otherwise as vehicles for trading in
futures and related options. The Funds will segregate liquid assets such as
cash, U.S. Government securities or other liquid high grade debt obligations to
cover the futures and options.
"When Issued" and "Forward Commitment" Transactions (All Funds). The Funds
may purchase securities on a when issued and delayed delivery basis and may
purchase or sell securities on a forward commitment basis. When issued or
delayed delivery transactions arise when securities are purchased by a Fund with
payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time of
entering into the transaction. A forward commitment transaction is an agreement
by a Fund to purchase or sell securities at a specified future date. When a Fund
engages in these transactions, the Fund relies on the buyer or seller, as the
case may be, to consummate the sale. Failure to do so may result in the Fund
missing the opportunity to obtain a price or yield considered to be
advantageous. When issued and delayed delivery transactions and forward
commitment transactions may be expected to occur a month or more before delivery
is due. However, no payment or delivery is made by a Fund until it receives
payment or delivery from the other party to the transaction. A separate account
containing only liquid assets such as cash, U.S. Government securities, or other
liquid high grade debt obligations equal to the value of purchase commitments
will be maintained until payment is made. Such securities have the effect of
leverage on the Funds and may contribute to volatility of a Fund's net asset
value. For further information, see the SAI.
Loans of Portfolio Securities (All Funds). To increase current income,
each Fund may lend its portfolio securities in an amount up to 33 1/3% of each
such Fund's total assets to brokers, dealers and financial institutions,
provided certain conditions are met, including the condition that each loan is
secured continuously by collateral maintained on a daily mark-to-market basis in
an amount at least equal to the current market value of the securities loaned.
These transactions involve a loan by the
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<PAGE> 24
applicable Fund and are subject to the same risks as repurchase agreements. For
further information, see the SAI.
Repurchase Agreements (All Funds, except the Short-Term Treasury Income
Fund). The Funds may enter into repurchase agreements with any bank and
broker-dealer which, in the opinion of the Trustees, presents a minimum risk of
bankruptcy. Under a repurchase agreement a Fund acquires securities and obtains
a simultaneous commitment from the seller to repurchase the securities at a
specified time and at an agreed upon yield. The agreements will be fully
collateralized and the value of the collateral, including accrued interest,
marked-to-market daily. The agreements may be considered to be loans made by the
purchaser, collateralized by the underlying securities. If the seller should
default on its obligation to repurchase the securities, a Fund may experience a
loss of income from the loaned securities and a decrease in the value of any
collateral, problems in exercising its rights to the underlying securities and
costs and time delays in connection with the disposition of securities. No Money
Market Fund may invest more than 10% and no Non-Money Market Fund may invest
more than 15% of its net assets in repurchase agreements maturing in more than
seven business days and in securities for which market quotations are not
readily available. For more information about repurchase agreements, see
"Investment Policies" in the SAI.
Reverse Repurchase Agreements (All Funds). The Funds may also enter into
reverse repurchase agreements to avoid selling securities during unfavorable
market conditions to meet redemptions. Pursuant to a reverse repurchase
agreement, a Fund will sell portfolio securities and agree to repurchase them
from the buyer at a particular date and price. Whenever a Fund enters into a
reverse repurchase agreement, it will establish a segregated account in which it
will maintain liquid assets in an amount at least equal to the repurchase price
marked to market daily (including accrued interest), and will subsequently
monitor the account to ensure that such equivalent value is maintained. The Fund
pays interest on amounts obtained pursuant to reverse repurchase agreements.
Reverse repurchase agreements are considered to be borrowings by a Fund under
the 1940 Act.
Portfolio Turnover. The Funds generally will not engage in the trading of
securities for the purpose of realizing short-term profits, but each Fund will
adjust its portfolio as it deems advisable in view of prevailing or anticipated
market conditions or fluctuations in interest rates to accomplish its respective
investment objective. For example, each Fund may sell portfolio securities in
anticipation of an adverse market movement. Other than for tax purposes,
frequency of portfolio turnover will not be a limiting factor if a Fund
considers it advantageous to purchase or sell securities. The Funds do not
anticipate that the respective annual portfolio turnover rates will exceed the
following: Short-Term Treasury Income Fund, 400%; Intermediate Income Fund,
500%; Bond Income Fund, 500%; Stock Appreciation Fund, 85%; Aggressive Stock
Appreciation Fund, 85%; and Value Stock Appreciation Fund, 85%. A high rate of
portfolio turnover involves correspondingly greater transaction expenses than a
lower rate, which expenses must be borne by each Fund and its shareholders. High
portfolio turnover rates may also make it more difficult for the Funds to
satisfy the requirement for qualification as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code"), that less than
30% of each Funds' gross income in any tax year be derived from gains on the
sale of securities held for less than less than three months.
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INVESTMENT RESTRICTIONS
(ALL FUNDS, EXCEPT AS INDICATED)
(1) No Fund may invest more than 15% (10% with respect to the Money Market
Funds) of the aggregate value of its net assets in investments which are
illiquid, or not readily marketable (including repurchase agreements having
maturities of more than seven calendar days, time deposits having maturities of
more than seven calendar days, and securities of foreign issuers that are not
listed on a recognized domestic or foreign securities exchange).
(2) No Fund may borrow money or pledge or mortgage its assets, except that
a Fund may borrow from banks up to 10% of the current value of its total net
assets for temporary or emergency purposes and those borrowings may be secured
by the pledge of not more than 15% of the current value of that Fund's total net
assets (but investments may not be purchased by a Fund while any such borrowings
exist).
(3) No Fund may make loans, except loans of portfolio securities and except
that a Fund may enter into repurchase agreements with respect to its portfolio
securities and may purchase the types of debt instruments described in this
Prospectus.
The foregoing investment restrictions and those described in the SAI as
fundamental are policies of each Fund which may be changed only when permitted
by law and approved by the holders of a majority of the applicable Fund's
outstanding voting securities as described under "Other Information -- Voting."
In addition, each Fund is a diversified fund. As such, each will not, with
respect to 75% of its total assets, invest more than 5% of its total assets in
the securities of any one issuer (except for U.S. Government securities), or
purchase more than 10% of the outstanding voting securities of any such issuer.
The Money Market Funds are subject to further diversification requirements with
respect to 100% of their assets. Also, each Fund will invest less than 25% of
its total assets in the securities of any one industry, excluding the Cash
Reserve Money Market Fund which may invest more than 25% of its total assets in
instruments issued by the banking industry. For this purpose, U.S. Government
securities (and repurchase agreements related thereto) are not considered
securities of a single industry.
If a percentage restriction on investment policies or the investment or use
of assets set forth in this Prospectus are adhered to at the time a transaction
is effected, later changes in percentage resulting from changing asset values
will not be considered a violation.
RISKS OF INVESTING IN THE FUNDS
CERTAIN RISK CONSIDERATIONS
The Money Market Funds attempt to maintain a constant net asset value of
$1.00 per share, although there can be no assurance that the Money Market Funds
will always be able to do so. The Money Market Funds may not achieve as high a
level of current income as other funds that do not limit their investment to the
high quality securities in which the Money Market Funds invest.
The price per share of each of the other Funds will fluctuate with changes
in value of the investments held by the Fund. For example, the value of a bond
Fund's shares will generally fluctuate
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<PAGE> 26
inversely with the movements in interest rates and a stock Fund's shares will
generally fluctuate as a result of numerous factors, including but not limited
to investors' expectations about the economy and corporate earnings and interest
rates. Shareholders of a Fund should expect the value of their shares to
fluctuate with changes in the value of the securities owned by that Fund.
Additionally, a Fund's investment in smaller companies may involve greater risks
than investments in large companies due to such factors as limited product
lines, markets and financial or managerial resources, and less frequently traded
securities that may be subject to more abrupt price movements than securities of
larger companies.
There is, of course, no assurance that a Fund will achieve its investment
objective or be successful in preventing or minimizing the risk of loss that is
inherent in investing in particular types of investment products. In order to
attempt to minimize that risk, BANK IV and AMR monitor developments in the
economy, the securities markets, and with each particular issuer. Also, as noted
earlier, each diversified Fund is managed within certain limitations that
restrict the amount of a Fund's investment in any single issuer.
Foreign Securities (All Funds, except the U.S. Treasury Reserve Money
Market Fund and Short-Term Treasury Income Fund). Investing in the securities
of issuers in any foreign country, including ADRs, involves special risks and
considerations not typically associated with investing in U.S. companies. These
include differences in accounting, auditing and financial reporting standards;
generally higher commission rates on foreign portfolio transactions; the
possibility of nationalization, expropriation or confiscatory taxation; adverse
changes in investment or exchange control regulations (which may include
suspension of the ability to transfer currency from a country); and political
instability which could affect U.S. investments in foreign countries.
Additionally, foreign securities and dividends and interest payable on those
securities may be subject to foreign taxes, including taxes withheld from
payments on those securities. Foreign securities often trade with less frequency
and volume than domestic securities and, therefore, may exhibit greater price
volatility. Additional costs associated with an investment in foreign securities
may include higher custodial fees than apply to domestic custodial arrangements
and transaction costs of foreign currency conversions. Changes in foreign
exchange rates also will affect the value of securities denominated or quoted in
currencies other than the U.S. dollar and, with respect to the Money Market
Fund, may affect the ability to maintain net asset value. A Fund's objectives
may be affected either unfavorably or favorably by fluctuations in the relative
rates of exchange between the currencies of different nations, by exchange
control regulations and by indigenous economic and political developments.
Through a Fund's flexible policies, management endeavors to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where, from time to time, it places a Fund's investments. See the SAI
for further information about foreign securities.
Small Capitalization Stocks (Stock Appreciation Fund, Aggressive Stock
Appreciation Fund, and Value Stock Appreciation Fund). Small capitalization
stocks are more volatile than larger capitalization stocks. The Fund may invest
in relatively new or unseasoned companies, which are in their early stages of
development, or small companies positioned in new and emerging industries.
Securities of small and unseasoned companies present greater risks than
securities of larger, more established companies. The companies in which the
Fund may invest may have relatively small revenues and limited product lines,
and may have a small share of the market for their products or services. Small
companies may lack depth of management. They may be unable to internally
generate funds necessary for growth or
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<PAGE> 27
potential development or to generate such funds through external financing on
favorable terms. They may be developing or marketing new products or services
for which markets are not yet established and may never become established. Due
to these and other factors, small companies may incur significant losses, and
investments in such companies are therefore speculative.
MANAGEMENT OF THE FUNDS
The business and affairs of each Fund are managed under the direction of
the Board of Trustees. Information about the Trustees, as well as the Trust's
executive officers, may be found in the SAI under the heading "Management
Trustees and Officers."
THE ADVISORS: BANK IV, N.A.
BANK IV, N.A. ("BANK IV") has provided investment advisory
services to the Funds since inception (except the Cash Reserve
Money Market Fund) pursuant to an Advisory Agreement with the
Trust (the "Advisory Agreement"). Subject to such policies as the
Trust's Board of Trustees may determine, BANK IV makes investment
decisions for the Funds. For the advisory services it provides to
the Funds, BANK IV receives fees based on average daily net
assets up to the following annualized rates: U.S. Treasury
Reserve Money Market Fund, 0.15%; Short-Term Treasury Income
Fund, 0.30%; Intermediate Bond Income Fund, 0.40%; Bond Income
Fund, 0.40%; Stock Appreciation Fund, 0.65%; Aggressive Stock
Appreciation Fund, 0.745%; and Value Stock Appreciation Fund,
0.65%. BANK IV does not receive advisory fees with respect to the
International Equity Fund, as long as the Fund remains completely
invested in the Portfolio or any other investment company.
Each of the portfolio managers listed below has significant
experience in managing investment portfolios similar to the
Funds. Ms. Janet Mullen, an Assistant Vice President of BANK IV,
is responsible for the day-to-day management of the Short-Term
Treasury Income Fund's portfolio. Ms. Mullen has been with BANK
IV since 1991 and was previously with The Columbian Securities
Corporation from 1987 to 1991. Mr. Brad Eppard, an Assistant Vice
President of BANK IV, is responsible for the day-to-day
management of the portfolios of the Intermediate Income Fund and
the Bond Income Fund. Mr. Eppard has been with BANK IV since 1992
and was previously with First Florida Bank from 1991 to 1992 and
Shenandoah Life Insurance Company from 1985 to 1991. Mr. Paul
Worth, Vice President of BANK IV, is responsible for the
day-to-day management of the portfolios of the Stock Appreciation
Fund and the Aggressive Stock Appreciation Fund. Mr. Worth has
been with BANK IV since 1986. Mr. Stuart Hopkins, Vice President
of BANK IV, is responsible for the day-to-day management of the
Value Stock Appreciation Fund's portfolio. Mr. Hopkins has been
with BANK IV and its Tulsa, Oklahoma predecessor since 1989.
BANK IV, whose predecessor was formed in 1887, is the largest
commercial bank in Kansas and provides banking, trust and
investment services to individuals and institutions. It is a
wholly-owned subsidiary of Fourth Financial Corporation. BANK IV
acts as the investment advisor to a wide variety of trusts,
individuals, institutions
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and corporations. Its investment management responsibilities, as
of February 1995, included accounts with aggregate assets of
approximately $3.1 billion. The principal business address of
BANK IV is 100 N. Broadway, Wichita, KS 67202.
On August 25, 1995, the Board of Directors of Fourth Financial
Corporation, the bank holding company which wholly owns BANK IV,
announced that they had approved an Agreement and Plan of Merger
for the acquisition of Fourth Financial Corporation and its
subsidiaries by Boatmen's Bancshares, Inc. of St., Louis,
Missouri. Boatmen's is the largest bank holding company in
Missouri and among the 30 largest bank holding companies in the
United States. Boatmen's also ranks among the 20 largest
providers of trust services in the nation, with approximately $45
billion in assets under management as of June 30, 1995. This
acquisition is subject to approval by the shareholders of both
Fourth Financial and Boatmen's (obtained December 12, 1995) and
by various regulatory authorities, but is expected to occur on
January 31, 1996. On January 15, 1996, the Trustees of the Trust
approved the assignment of the Trust's advisory contract with
Bank IV that is deemed to occur upon the consummation of this
acquisition.
AMR INVESTMENT SERVICES, INC.
AMR Investment Services, Inc. ("AMR"), located at 4333 Amon
Carter Boulevard, MD 5645, Fort Worth, Texas 76155, is a
wholly-owned subsidiary of AMR Corporation, the parent company of
American Airlines, Inc., and was organized in 1986 to provide
business management, advisory, administrative and asset
management consulting services. American Airlines, Inc. is not
responsible for investments made by AMR. As of February 1995, AMR
provides investment advice with respect to approximately $11.2
billion in assets, including approximately $8.0 billion of assets
on behalf of AMR Corporation and its primary subsidiary, American
Airlines, Inc. For the advisory services it provides to the Cash
Reserve Money Market Fund, AMR receives monthly fees based upon
average daily net assets at the annual rate of 0.20%.
Based upon the advice of counsel, BANK IV believes that the performance of
investment advisory services for the Funds will not violate the Glass-Steagall
Act or other applicable banking laws or regulations. However, future statutory
or regulatory changes, as well as future judicial or administrative decisions
and interpretations of present and future statutes and regulations, could
prevent BANK IV from continuing to perform such services for the Funds. If BANK
IV were prohibited from acting as investment advisor to the Funds, it is
expected that the Board of Trustees would recommend to shareholders approval of
a new investment advisory agreement with another qualified investment advisor
selected by the Board or that the Board would recommend other appropriate
action.
THE SPONSOR AND DISTRIBUTOR
Furman Selz LLC, 230 Park Avenue, New York, New York 10169, acts as Sponsor
of the Funds. Furman Selz is primarily an institutional brokerage firm with
membership on the New York, American, Boston, Midwest, Pacific and Philadelphia
Stock Exchanges. Furman Selz also serves as administrator
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and distributor of other mutual funds. FUNDS IV Distributor Inc. ("FFD") is an
affiliate of Furman Selz and was organized specifically to distribute the FUNDS
IV Funds.
In addition to sales charges paid to dealers, FFD may from time to time pay
a bonus or other incentive to dealers which employ registered representatives
who sell a minimum dollar amount of shares of the Funds. Such bonus or other
incentive may take the form of payment for travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered representatives
and members of their families to places within or without the United States, or
other bonuses, such as gift certificates or the cash equivalent of such bonuses.
The Funds have adopted a Rule 12b-1 Distribution Plan and Agreement (the
"Plan") pursuant to which each Fund may reimburse the Distributor on a monthly
basis for costs and expenses of the Distribution in connection with the
distribution and marketing of shares. These costs and expenses, which are
subject to a maximum limit of 0.25% per annum of the average daily net assets of
the Fund, include (i) advertising by radio, television, newspapers, magazines,
brochures, sales literature, direct mail or any other form of advertising, (ii)
expenses of employees or agents of the Distributor, including salary,
commissions, travel and related expenses, (iii) payments to broker-dealers and
financial institutions for services in connection with the distribution of
shares, including promotional incentives and fees calculated with reference to
the average daily net asset value of shares held by shareholders who have a
brokerage or other service relationship with the broker-dealer or other
institution receiving such fees, (iv) costs of printing prospectuses, statements
of additional information and other materials to be given or sent to prospective
investors, (v) such other similar services as the Trustees determine to be
reasonably calculated to result in the sale of shares of the Funds, (vi) costs
of shareholder servicing which may be incurred by broker-dealers, banks or other
financial institutions, and (vii) other direct and indirect distribution related
expenses, including the provision of services with respect to maintaining the
assets of the Funds. Each Fund will pay all costs and expenses in connection
with the preparation, printing and distribution of its Prospectus to current
shareholders and the operation of its Plan, including related legal and
accounting fees. No Fund will be liable for distribution expenditures made by
the Distributor in any given year in excess of the maximum amount payable under
the Plan for that Fund year.
ADMINISTRATIVE SERVICES
The Funds have also entered into an Administrative Services Contract with
Furman Selz pursuant to which Furman Selz provides certain management and
administrative services necessary for the Funds' operations including: (i)
general supervision of the operation of the Funds including coordination of the
services performed by the Funds' Advisors, transfer agent, custodian,
independent accountants and legal counsel, regulatory compliance, including the
compilation of information for documents such as reports to, and filings with,
the SEC and state securities commissions, and preparation of proxy statements
and shareholder reports for the Funds; (ii) general supervision relative to the
compilation of data required for the preparation of periodic reports distributed
to the Funds' Officers and Board of Trustees; and (iii) furnishing office space
and certain facilities required for conducting the business of the Funds. For
these services, Furman Selz receives from each Fund a fee, payable monthly, at
the annual rate of 0.15% of each Fund's average daily net assets. Pursuant to a
Services Agreement between the Trust and the Administrator, Furman Selz assists
the Trust with certain transfer and dividend disbursing agent functions and
receives a fee of $15 per account per year plus out-of-pocket expenses. Pursuant
to a Fund Accounting Agreement between the Trust and the
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<PAGE> 30
Administrator, the Administrator assists the Trust in calculating net asset
values and provides certain other accounting services for each Fund described
therein, for an annual fee of $30,000 per Fund plus out-of-pocket expenses.
SERVICE ORGANIZATIONS
Various banks, trust companies, broker-dealers (other than the Sponsor) or
other financial organizations (collectively, "Service Organizations") also may
provide administrative services for the Funds, such as maintaining shareholder
accounts and records. The Funds may pay fees to Service Organizations (which
vary depending upon the services provided) in amounts up to an annual rate of
0.05% of the daily net asset value of the Funds' shares owned by shareholders
with whom the Service Organization has a servicing relationship.
Some Service Organizations may impose additional or different conditions on
their clients, such as requiring their clients to invest more than a Fund's
minimum initial or subsequent investments or charging a direct fee for
servicing. If imposed, these fees would be in addition to any amounts which
might be paid to the Service Organization by the Funds. Each Service
Organization has agreed to transmit to its clients a schedule of any such fees.
Shareholders using Service Organizations are urged to consult with them
regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws provide that, among other
things, banks may not engage in the business of underwriting, selling or
distributing securities. There is currently no precedent prohibiting banks from
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or interpretations
of such laws, as well as changes in either Federal or state regulations relating
to the permissible activities of banks and their subsidiaries or affiliates,
could prevent a bank Service Organization from continuing to perform all or a
part of its servicing activities. If a bank were prohibited from so acting, its
shareholder clients would be permitted to remain shareholders of the Funds and
alternative means for continuing the servicing of such shareholders would be
sought. It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences.
OTHER EXPENSES
Each Fund bears all costs of its operations other than expenses
specifically assumed by Furman Selz, FFD, BANK IV or AMR. The costs borne by the
Funds include legal and accounting expenses; Trustees' fees and expenses;
insurance premiums; custodian and transfer agent fees and expenses; expenses
incurred in acquiring or disposing of the Funds' portfolio securities; expenses
of registering and qualifying the Funds' shares for sale with the SEC and with
various state securities commissions; expenses of obtaining quotations on the
Funds' portfolio securities and pricing of the Funds' shares; expenses of
maintaining the Funds' legal existence and of shareholders' meetings; and
expenses of preparation and distribution to existing shareholders of reports,
proxies and prospectuses. Each Fund bears its own expenses associated with its
establishment as a series of the Trust; these expenses are amortized over a
five-year period from the commencement of a Fund's operations. See "Management"
in the SAI. Trust expenses directly attributable to a Fund are charged to that
Fund; other expenses are allocated proportionately among all of the Funds in the
Trust in relation to the net assets of each Fund.
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PORTFOLIO TRANSACTIONS
Pursuant to the applicable Advisory Agreement, BANK IV and AMR place orders
for the purchase and sale of portfolio investments for the Funds' accounts with
brokers or dealers selected by it in its discretion. In effecting purchases and
sales of portfolio securities for the account of the Funds, BANK IV and AMR will
seek the best available price and most favorable execution of the Funds' orders.
Trading does, however, involve transaction costs. Transactions with dealers
serving as primary market makers reflect the spread between the bid and asked
prices. Purchases of underwritten issues may be made, which will include an
underwriting fee paid to the underwriter. Purchases and sales of securities are
generally placed by BANK IV with broker-dealers which, in BANK IV's judgment,
provide prompt and reliable execution at favorable security prices and
reasonable commission rates. BANK IV may cause a Fund to pay commissions higher
than another broker-dealer would have charged if BANK IV believes the commission
paid is reasonable in relation to the value of the brokerage and research
services received by BANK IV. Broker-dealers are selected on the basis of a
variety of factors such as reputation, capital strength, size and difficulty of
order, sale of Fund shares and research provided to BANK IV and AMR. Consistent
with its policy of seeking best execution of portfolio transactions, the Fund
may place orders to purchase or sell securities with affiliates. Affiliates will
not, however, execute as principal, any transactions for or with the Fund. The
Fund has adopted procedures under Rule 17e-1 of the Investment Company Act of
1940 governing brokerage transactions with affiliates.
FUND SHARE VALUATION
The net asset value per share of the Funds is calculated at 12:00 noon
(Eastern time) for the Money Market Funds and at 4:15 p.m. (Eastern time) for
each of the Non-Money Market Funds, Monday through Friday, on each day the New
York Stock Exchange is open for trading, which excludes the following business
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day; and the
following additional business holidays for the Money Market Funds: Martin Luther
King's Birthday, Columbus Day and Veterans Day. The net asset value per share of
each share class is computed by dividing the value of the net assets
attributable to each class (i.e., the value of the assets less the liabilities)
by the total number of such class's outstanding shares. All expenses, including
fees paid to the Advisor, Furman Selz and FFD, are accrued daily and taken into
account for the purpose of determining the net asset value. Expenses directly
attributable to a Fund are charged to the Fund; other expenses are allocated
proportionately among each Fund within the Trust in relation to the net assets
of each Fund, or on another reasonable basis. Each share class within the Fund
is charged with the direct expenses of that class and with a proportion of the
general expenses of the Fund. These general expenses (e.g., investment advisory
fees) are allocated among the classes of shares based on the relative value of
their outstanding shares.
Securities listed on an exchange are valued on the basis of the last sale
prior to the time the valuation is made. If there has been no sale since the
immediately previous valuation, then the current bid price is used. Quotations
are taken from the exchange where the security is primarily traded. Portfolio
securities which are primarily traded on foreign exchanges may be valued with
the assistance of a pricing service and are generally valued at the preceding
closing values of such securities on their respective exchanges, except that
when an occurrence subsequent to the time a foreign security is valued is likely
to have changed such value, then the fair value of those securities will be
determined
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by consideration of other factors by or under the direction of the Board of
Trustees. Over-the-counter securities are valued on the basis of the bid price
at the close of business on each business day. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by or at the direction of the Board of Trustees. Notwithstanding the
above, bonds and other fixed-income securities are valued by using market
quotations and may be valued on the basis of prices provided by a pricing
service approved by the Board of Trustees. All assets and liabilities initially
expressed in foreign currencies will be converted into U.S. dollars at the mean
between the bid and asked prices of such currencies against U.S. dollars as last
quoted by any major bank.
The Money Market Funds use the amortized cost method to value their
portfolio securities and seek to maintain a constant net asset value of $1.00
per share, although there may be circumstances under which this goal cannot be
achieved. The amortized cost method involves valuing a security at its cost and
amortizing any discount or premium over the period until maturity, regardless of
the impact of fluctuating interest rates on the market value of the security.
See the SAI for a more complete description of the amortized cost method.
PRICING AND PURCHASE OF FUND SHARES
Orders for the purchase of shares will be executed at the net asset value
per share next determined after an order has been received.
The following purchase procedures do not apply to certain fund or trust
accounts that are managed by BANK IV. The customer should consult his or her
trust administrator for proper instructions.
All funds received are invested in full and fractional shares of the
appropriate Fund. Certificates for shares are not issued. Furman Selz maintains
records of each shareholder's holdings of Fund shares, and each shareholder
receives a statement of transactions, holdings and dividends. The Funds reserve
the right to reject any purchase.
An investment may be made using any of the following methods:
Through an Authorized Broker, Investment Advisor or Service
Organization. Shares are available to new and existing shareholders through
authorized brokers, investment advisors and Service Organizations. To make an
investment using this method, simply complete a Purchase Application and contact
your broker, investment advisor or Service Organization with instructions as to
the amount you wish to invest. Your broker will then contact FFD to place the
order on your behalf on that day.
Orders received by your broker or Service Organization for the Non-Money
Market Funds in proper order prior to the determination of net asset value and
transmitted to FFD prior to the close of its business day (which is currently
5:00 p.m., Eastern time), will become effective that day. Orders for the Money
Market Funds received prior to 12:00 noon will become effective that day.
Brokers who receive orders are obligated to transmit them promptly. You should
receive written confirmation of your order within a few days of receipt of
instructions from your broker.
By Wire. Investments may be made directly through the use of wire
transfers of Federal funds. Contact your bank and request it to wire Federal
funds to the applicable Fund. In most cases, your bank will either be a member
of the Federal Reserve Banking System or have a relationship with a bank that
is. Your bank may charge a fee for handling the transaction. To purchase shares
by a Federal funds wire, please first contact Furman Selz Mutual Funds Client
Services at (800) 557-3768. They will
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<PAGE> 33
establish a record of information for the wire to insure the correct processing
of funds. You can reach the Wire Desk at (800) 557-3768.
Then, have your bank wire funds using the following instructions:
Investors Fiduciary Trust Company
Kansas City, MO 64105
ABA #1010-0362-1
ACCOUNT #751-3003
Further Credit to: Fund Name
As long as you have read the Prospectus, you may establish a new regular
account through the Wire Desk; IRAs may not be opened in this way. When new
accounts are established by wire, the distribution options will be set to
reinvest and the social security or tax identification number ("TIN") will not
be certified until a signed application is received. Completed applications
should be forwarded immediately to FFD. With the Purchase Application, the
shareholder can specify other distribution options and add any special features
offered by a Fund. Should any dividend distributions or redemptions be paid
before the TIN is certified, they will be subject to 31% Federal tax
withholding.
Institutional Accounts. Bank trust departments and other institutional
accounts may place orders directly with FFD by telephone at (800) 557-3768.
MINIMUM PURCHASE REQUIREMENTS
The minimum initial investment in the Funds is $1,000 unless the investor
is a purchaser who at the time of purchase, has a balance of $1,000 or more in
any of the FUNDS IV Funds, is a purchaser through a trust investment manager or
account manager or is administered by the Advisor, is an employee or an
ex-employee of Fourth Financial Corporation or is an employee of any of its
affiliates, AMR, Furman Selz, or any other service provider, or is an employee
of any trust customer of Fourth Financial Corporation or any of its affiliates.
Note that the minimum is $250 for an IRA, other than an IRA for which Fourth
Financial Corporation or any of its affiliates acts as trustee or custodian. Any
subsequent investments must be at least $50, including an IRA investment. All
initial investments should be accompanied by a completed Purchase Application. A
Purchase Application accompanies this Prospectus. Different minimums apply, and
a separate application is required for IRA investments. The Funds reserve the
right to reject purchase orders.
INDIVIDUAL RETIREMENT ACCOUNTS
All Funds may be used as a funding medium for IRAs. Shares may also be
purchased for IRAs established with Fourth Financial Corporation or any of its
affiliates or other authorized custodians. Completion of a special application
is required in order to create such an account, and the minimum initial
investment for an IRA is $250. Contributions to IRAs are subject to prevailing
amount limits set by the Internal Revenue Service. A $7.50 establishment fee and
an annual $15 maintenance and custody fee is payable with respect to each IRA,
and there will be a $12 termination fee when the account is closed. For more
information and IRA information, call the Funds at (800) 557-3768.
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EXCHANGE OF FUND SHARES
The Funds offer two convenient ways to exchange shares in one Fund for
shares in another Fund in the Trust. Before engaging in an exchange transaction,
a shareholder should read carefully the Prospectus describing the Fund into
which the exchange will occur, which is available without charge and can be
obtained by writing to the Fund at 237 Park Avenue, New York, New York 10017, or
by calling (800) 557-3768. A shareholder may not exchange shares of one Fund for
shares of another Fund if the new Fund is not qualified for sale in the state of
the shareholder's residence. The minimum amount for an initial exchange is $500.
No minimum is required in subsequent exchanges. The Trust may terminate or amend
the terms of the exchange privilege at any time.
A new account opened by exchange must be established with the same name(s),
address and social security number as the existing account. All exchanges will
be made based on the net asset value next determined following receipt of the
request by a Fund in good order, plus any applicable sales charge. An exchange
is taxable as a sale of a security on which a gain or loss may be recognized.
Shareholders should receive written confirmation of the exchange within a few
days of the completion of the transaction. Shareholders will receive at least 60
days' prior written notice of any modification or termination of the exchange
privilege.
Exchange by Mail. To exchange Fund shares by mail, simply send a letter of
instruction to Furman Selz. The letter of instruction must include: (i) your
account number; (ii) the Fund from and the Fund into which you wish to exchange
your investment; (iii) the dollar or share amount you wish to exchange; and (iv)
the signatures of all registered owners or authorized parties. All signatures
must be guaranteed by an eligible guarantor institution including a member of a
national securities exchange or by a commercial bank or trust company,
broker-dealers, credit unions and savings associations.
Exchange by Telephone. To exchange Fund shares by telephone or if you have
any questions simply call the Funds at (800) 557-3768. You should be prepared to
give the telephone representative the following information: (i) your account
number, social security or tax identification number and account registration;
(ii) the name of the Fund from and the Fund into which you wish to transfer your
investment; and (iii) the dollar or share amount you wish to exchange. The
conversation may be recorded to protect you and the Funds. Telephone exchanges
are available only if the shareholder so indicates by checking the "yes" box on
the Purchase Application. See "Redemption of Fund Shares -- By Telephone" for a
discussion of telephone transactions generally.
Automatic Investment Program. An eligible shareholder may also participate
in the Automatic Investment Program, an investment plan that automatically
debits money from the shareholder's bank account and invests it in one or more
of the Funds in the Trust through the use of electronic funds transfers or
automatic bank drafts. Shareholders may elect to make subsequent investments by
transfers of a minimum of $50 on either the fifth or twentieth day of each month
into their established Fund account. Contact the Funds for more information
about the Automatic Investment Program.
REDEMPTION OF FUND SHARES
Shareholders may redeem their shares, in whole or in part, on any business
day. Shares will be redeemed at the net asset value next determined after a
redemption request in good order has been received by the applicable Fund. See
"Determination of Net Asset Value." A redemption may be a taxable transaction on
which gain or loss may be recognized. Generally, however, gain or loss is not
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<PAGE> 35
expected to be realized on a redemption of shares of the Money Market Funds,
both of which seek to maintain a net asset value per share of $1.00.
Where the shares to be redeemed have been purchased by check, the
redemption request will be returned if the purchasing check has not cleared,
which may take up to 15 days. Shareholders may avoid this delay by investing
through wire transfers of Federal funds. During the period prior to the time the
shares are redeemed, dividends on the shares will continue to accrue and be
payable and the shareholder will be entitled to exercise all other beneficial
rights of ownership.
Once the shares are redeemed, a Fund will ordinarily send the proceeds by
check to the shareholder at the address of record on the next business day. The
Funds may, however, take up to seven days to make payment. This will not be the
customary practice. Also, if the New York Stock Exchange is closed (or when
trading is restricted) for any reason other than the customary weekend or
holiday closing or if an emergency condition as determined by the SEC merits
such action, the Funds may suspend redemptions or postpone payment dates.
Redemption Methods. To ensure acceptance of your redemption request, it is
important to follow the procedures described below. Although the Funds have no
present intention to do so, the Funds reserve the right to refuse or to limit
the frequency of any telephone or wire redemptions. Of course, it may be
difficult to place orders by telephone during periods of severe market or
economic change, and a shareholder should consider alternative methods of
communications, such as couriers. The Funds' services and their provisions may
be modified or terminated at any time by the Funds. If the Funds terminate any
particular service, they will do so only after giving written notice to
shareholders. Redemption by mail will always be available to shareholders.
You may redeem your shares using any of the following methods:
Through an Authorized Broker, Investment Advisor or Service
Organization. You may redeem your shares by contacting your broker or
investment advisor and instructing him or her to redeem your shares. He or she
will then contact FFD and place a redemption trade on your behalf. He or she may
charge you a fee for this service.
By Mail. You may redeem your shares by sending a letter directly to FFD.
To be accepted, a letter requesting redemption must include: (i) the Fund name
and account registration from which you are redeeming shares; (ii) your account
number; (iii) the amount to be redeemed, (iv) the signatures of all registered
owners; and (v) a signature guarantee by any eligible guarantor institution
including a member of a national securities exchange or a commercial bank or
trust company, broker-dealers, credit unions and savings associations.
Corporations, partnerships, trusts or other legal entities will be required to
submit additional documentation.
By Telephone. You may redeem your shares by calling the Funds toll free at
(800) 557-3768. You should be prepared to give the telephone representative the
following information: (i) your account number, social security number and
account registration; (ii) the Fund name from which you are redeeming shares;
and (iii) the amount to be redeemed. The conversation may be recorded to protect
you and the Funds. Telephone redemptions are available only if the shareholder
so indicates by checking the "yes" box on the Purchase Application or on the
Optional Services Form. The Funds employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. If the Funds fail to employ
such reasonable procedures, they may be liable for any loss, damage or expense
arising out of any telephone transactions purporting to be on a shareholder's
behalf. In order
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<PAGE> 36
to assure the accuracy of instructions received by telephone, the Funds require
some form of personal identification prior to acting upon instructions received
by telephone, record telephone instructions and provide written confirmation to
investors of such transactions. Redemption requests transmitted via facsimile
will not be accepted.
By Wire. You may redeem your shares by contacting the Funds by mail or
telephone and instructing them to send a wire transmission to your personal
bank. Proceeds of wire redemption for the Money Market Funds generally will be
transferred to the designated account on the day the request is received,
provided that it is received by 12:00 Noon (Eastern time).
Your instructions should include: (i) your account number, social security
or tax identification number and account registration; (ii) the Fund name from
which you are redeeming shares; and (iii) the amount to be redeemed. Wire
redemptions can be made only if the "yes" box has been checked on your Purchase
Application, and attach a copy of a void check of account where proceeds are to
be wired. Your bank may charge you a fee for receiving a wire payment on your
behalf.
Check Writing. A check redemption ($500 minimum, no maximum) feature is
available with respect to the Money Market Funds. Checks are free and may be
obtained from the Funds. It is not possible to use a check to close out your
account since additional shares accrue daily.
The above-mentioned services "By Telephone," "By Wire" and "Check Writing"
are not available for IRAs and trust relationships of BANK IV.
Systematic Withdrawal Plan. An owner of $10,000 or more of shares of a
Fund may elect to have periodic redemptions from his or her account to be paid
on a monthly, quarterly, semi-annual or annual basis. The minimum periodic
payment is $100. A sufficient number of shares to make the scheduled redemption
will normally be redeemed on the date selected by the shareholder. Depending on
the size of the payment requested and fluctuation in the net asset value, if
any, of the shares redeemed, redemptions for the purpose of making such payments
may reduce or even exhaust the account. A shareholder may request that these
payments be sent to a predesignated bank or other designated party. Capital
gains and dividend distributions paid to the account will automatically be
reinvested at net asset value on the distribution payment date.
Redemption of Small Accounts. Due to the disproportionately higher cost of
servicing small accounts, each Fund reserves the right to redeem, on not less
than 30 days' notice, an account in a Fund that has been reduced by a
shareholder to $500 or less. However, if during the 30-day notice period the
shareholder purchases sufficient shares to bring the value of the account above
$500, this restriction will not apply.
Redemption in Kind. All redemptions of shares of the Funds shall be made
in cash, except that the commitment to redeem shares in cash extends only to
redemption requests made by each shareholder of a Fund during any 90-day period
of up to the lesser of $250,000 or 1% of the net asset value of that Fund at the
beginning of such period. This commitment is irrevocable without the prior
approval of the SEC and is a fundamental policy of the Funds that may not be
changed without shareholder approval. In the case of redemption requests by
shareholders in excess of such amounts, the Board of Trustees reserves the right
to have the Funds make payment, in whole or in part, in securities or other
assets, in case of an emergency or any time a cash distribution would impair the
liquidity of a Fund to the detriment of the existing shareholders. In this
event, the securities would be valued in the same manner as the securities of
that Fund are valued. If the recipient were to sell such
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<PAGE> 37
securities, he or she could receive less than the redemption value of the
securities and could incur certain transaction costs.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX
Each Fund has qualified and intends to continue to qualify annually and to
elect to be treated as a regulated investment company pursuant to the provisions
of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
By so qualifying and electing, each Fund generally will not be subject to
Federal income tax to the extent that it distributes investment company taxable
income and net capital gains in the manner required under the Code.
Each Fund intends to distribute to its shareholders substantially all of
its investment company taxable income (which includes, among other items,
dividends and interest and the excess, if any, of net short-term capital gains
(generally including any net option premium income) over net long-term capital
losses). The Money Market Funds, the Intermediate Bond Income Fund, the Bond
Income Fund and the Short-Term Treasury Income Fund will declare distributions
of such income daily and pay those dividends monthly; the Stock Appreciation
Fund, the Aggressive Stock Appreciation Fund, and Value Stock Appreciation Fund
will pay dividends at least once annually. Each Fund intends to distribute, at
least annually, substantially all net capital gains (the excess of net long-term
capital gains over net short-term capital losses). In determining amounts of
capital gains to be distributed, any capital loss carryovers from prior years
will be applied against capital gains.
Distributions will be paid in additional Fund shares based on the net asset
value at the close of business on the payment date of the distribution, unless
the shareholder elects in writing, not less than five full business days prior
to the record date, to receive such distributions in cash. Dividends declared
in, and attributable to, the preceding month will be paid within five business
days after the end of each month.
In the case of the Money Market Funds, shares purchased will begin earning
dividends on the day the purchase order is executed and shares redeemed will
earn dividends through the previous day. Net investment income for a Saturday,
Sunday or a holiday will be declared as a dividend on the previous business day.
In the case of the other Funds that declare daily dividends, shares purchased
will begin earning dividends on the day after the purchase order is executed,
and shares redeemed will earn dividends through the day the redemption is
executed.
Investors who redeem all or a portion of Fund shares prior to a dividend
payment date will be entitled on the next dividend payment date to all dividends
declared but unpaid on those shares at the time of their redemption.
Distributions of investment company taxable income (regardless of whether
derived from dividends, interest or short-term capital gains) will be taxable to
shareholders as ordinary income. Distributions of net long-term capital gains
properly designated by a Fund as capital gain dividends will be taxable as
long-term capital gains, regardless of how long a shareholder has held his Fund
shares. Distributions are taxable in the same manner whether received in
additional shares or in cash.
Earnings of the Funds not distributed on a timely basis in accordance with
a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To prevent imposition of this tax, each Fund intends to comply with
this distribution requirement.
36
<PAGE> 38
A distribution, including an "exempt-interest dividend," will be treated as
paid on December 31 of the calendar year if it is declared by a Fund during
October, November, or December of that year to shareholders of record in such a
month and paid by a Fund during January of the following calendar year. Such
distributions will be treated as received by shareholders in the calendar year
in which the distributions are declared, rather than the calendar year in which
the distributions are received.
A Fund's distributions with respect to a given taxable year may exceed the
current and accumulated earnings and profits of that Fund available for
distribution. In that event, distributions in excess of such earnings and
profits would be characterized as a return of capital to shareholders for
Federal income tax purposes, thus reducing each shareholder's cost basis in his
Fund shares. Such distributions in excess of a shareholder's cost basis in his
shares would be treated as a gain realized from a sale of such shares.
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of a Fund, or upon receipt of a distribution in complete
liquidation of a 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. A loss realized by a shareholder on a redemption, sale,
or exchange of shares of a Fund held six months or less with respect to which
capital gain dividends have been paid will be characterized as a long-term
capital loss to the extent of such capital gain dividends.
It is anticipated that a portion of the dividends paid by the Funds (except
the Money Market Funds, Intermediate Bond Income and Bond Income Funds) will
qualify and be designated by such Funds as dividends eligible for the
dividends-received deduction available to corporations. The Code imposes various
limitations restricting the availability of the dividends received deduction.
Investors should consult their own tax advisers in this regard.
The Funds may be required to withhold for Federal income tax ("backup
withholding") 31% of the distributions and the proceeds of redemptions payable
to shareholders who fail to provide a correct taxpayer identification number or
to make required certifications, or where a Fund or shareholder has been
notified by the Internal Revenue Service that the shareholder is subject to
backup withholding. Most corporate shareholders and certain other shareholders
specified in the Code and regulations are exempt from backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's U.S. Federal income tax liability.
Those Funds that may invest in securities of foreign issuers may be subject
to withholding and other similar income taxes imposed by a foreign country. Each
of these Funds intends to elect, if it is eligible to do so under the Code, to
"pass-through" to its shareholders the amount of such foreign taxes paid. If
such an election is made by a Fund, each shareholder of that Fund would be
required to include in gross income the taxable dividends received and the
amount of pro rata share of those foreign taxes paid by the Fund. Each
shareholder would be entitled either to deduct (as an itemized deduction) his
pro rata share of the foreign taxes in computing his taxable income or to use it
(subject to limitations) as a foreign tax credit against his U.S. Federal income
tax liability. No deduction for foreign taxes may be claimed by a shareholder
who does not itemize deductions. Each shareholder will be notified within 60
days after the close of a Fund's taxable year whether the foreign taxes paid by
the Fund will "pass-through" for that year.
Shareholders will be notified annually by the Trust as to the Federal tax
status of distributions made by the Fund(s) in which they invest. Depending on
the residence of the shareholder for tax
37
<PAGE> 39
purposes, distributions also may be subject to state and local taxes, including
withholding taxes. Foreign shareholders may, for example, be subject to special
withholding requirements. Special tax treatment, including a penalty on certain
pre-retirement distributions, is accorded to accounts maintained as IRAs.
Shareholders should consult their own tax advisors as to the Federal, state and
local tax consequences of ownership of shares of the Funds in their particular
circumstances.
OTHER INFORMATION
CAPITALIZATION STRUCTURE
FUNDS IV Trust was organized as a Delaware business trust on May 2, 1994,
and currently consists of eleven separately managed portfolios. The Board of
Trustees may establish additional portfolios in the future. The capitalization
of the Trust consists solely of an unlimited number of shares of beneficial
interest with a par value of $0.001 each. When issued, shares of the Funds are
fully paid, non-assessable and freely transferable.
Each Fund also offers a Premium Class of shares. The Service Class shares
are offered at net asset value without a sales load only to certain
institutional investors, or other investors who at the time of purchase have a
balance of $1,000 or more invested in any of the FUNDS IV Funds, are purchased
through a trust investment manager or account manager or administered by the
Advisor, are employees or ex-employees of Fourth Financial Corporation or any of
its affiliates, employees of AMR, Furman Selz, or any other service provider, or
employees of any trust customer of Fourth Financial Corporation or any of its
affiliates. Shareholders in the Premium Class of shares may be subject to an
additional shareholder servicing charge of up to 0.50% of average net assets.
Call 800-557-3768 or contact your sales representative, broker-dealer or bank to
obtain more information about the Funds' classes of shares.
Under Delaware law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for indemnification
out of Trust property for all loss and expense of any shareholder held
personally liable for the obligations of the Trust. The risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations
and should be considered remote.
VOTING
Shareholders have the right to vote in the election of Trustees and on any
and all matters on which, by law or under the provisions of the Declaration of
Trust, they may be entitled to vote. The Trust is not required to hold regular
annual meetings of the Funds' shareholders and does not intend to do so. The
Trustees are required to call a meeting for the purpose of considering the
removal of a person serving as Trustee if requested in writing to do so by the
holders of not less than 10% of the outstanding shares of the Trust and in
connection with such meeting to comply with the shareholders' communications
provisions of Section 16(c) of the Act. See "Other Information -- Voting Rights"
in the SAI.
38
<PAGE> 40
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). As used in this Prospectus, the phrase "vote of a
majority of the outstanding shares" of a Fund (or the Trust) means the vote of
the lesser of: (1) 67% of the shares of a Fund (or the Trust) present at a
meeting if the holders of more than 50% of the outstanding shares are present in
person or by proxy; or (2) more than 50% of the outstanding shares of a Fund (or
the Trust).
PERFORMANCE INFORMATION
A Fund may, from time to time, include its yield and total return in
advertisements or reports to shareholders or prospective investors. Shareholders
of the Premium Class of shares will experience a lower net return on their
investment than shareholders of the Service Class of Shares because of the
additional shareholder servicing charge to which Premium Class shareholders are
subject. The methods used to calculate the yield and total return of the Funds
are mandated by the SEC. Quotations of "yield" for a Fund (other than the Money
Market Funds) will be based on the investment income per share during a
particular 30-day (or one month) period (including dividends and interest), less
expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the maximum public offering price
per share on the last day of the period.
Quotations of "yield" for the Money Market Funds will be based on the
income received by a hypothetical investment (less a pro-rata share of Fund
expenses) over a particular seven-day period, which is then "annualized" (i.e.,
assuming that the seven-day yield would be received for 52 weeks, stated in
terms of an annual percentage return on the investment).
"Effective yield" for the Money Market Funds is calculated in a manner
similar to that used to calculate yield, but includes the compounding effect of
earnings on reinvested dividends.
Quotations of yield and effective yield reflect only a Fund's performance
during the particular period on which the calculations are based. Yield and
effective yield for a Fund will vary based on changes in market conditions, the
level of interest rates and the level of that Fund's expenses, and no reported
performance figure should be considered an indication of performance which may
be expected in the future.
Quotations of average annual total return for a Fund (other than the Money
Market Funds) will be expressed in terms of the average annual compounded rate
of return of a hypothetical investment in that Fund over periods of 1, 5 and 10
years (up to the life of that Fund), reflect the deduction of a proportional
share of Fund expenses (on an annual basis), and assume that all dividends and
distributions are reinvested when paid.
Performance information for a Fund may be compared to various unmanaged
indices, such as those indices prepared by Lipper Analytical Services, Standard
& Poor's 500 Stock Index, the Dow Jones Industrial Average and other entities or
organizations which track the performance of investment companies. Any
performance information should be considered in light of the Fund's investment
objectives and policies, characteristics and quality of the Funds and the market
conditions during the time period indicated, and should not be considered to be
representative of what may be achieved in the future. For a description of the
methods used to determine yield and total return for the Funds, see the SAI.
39
<PAGE> 41
Each of the Short-Term Treasury Income Fund, Intermediate Bond Income Fund,
Stock Appreciation Fund, Aggressive Stock Appreciation Fund and Value Stock
Appreciation Fund is the successor to one or more collective investment funds
previously managed by BANK IV. Investors in the collective investment funds were
invited to invest in the corresponding FUNDS IV Fund at the inception of each
such Fund. The Cash Reserve Money Market Fund is substantially identical to the
American Advantage Money Market Fund, another mutual fund managed by AMR, the
investment advisor of the Cash Reserve Money Market Fund. Set forth below are
certain performance data for the collective investment funds and the American
Advantage Money Market Fund for the past five years. The data shown below
reflects total return for the periods shown, reduced by the expense ratio for
each corresponding FUNDS IV Fund as indicated in the Fee Table in this
Prospectus. This performance information is deemed relevant since the collective
investment funds and the American Advantage Money Market Fund have been managed
using the same investment objectives, policies and restrictions and portfolio
managers as those to be used by each corresponding FUNDS IV Fund. However, this
performance data is not necessarily indicative of the future performance of any
of the Funds.
BANK IV COLLECTIVE TRUST FUNDS
TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
CASH SHORT-TERM INTERMEDIATE AGGRESSIVE
RESERVE TREASURY BOND STOCK STOCK VALUE STOCK
MONEY INCOME INCOME APPRECIATION APPRECIATION APPRECIATION
MARKET FUND FUND FUND FUND FUND FUND
----------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1989........................ 9.2% 9.8% 11.5% 32.0% 26.7% 24.1%
1990........................ 8.2% 8.8% 6.6% -3.4% -3.2% 2.5%
1991........................ 6.5% 11.3% 14.9% 35.6% 40.2% 33.6%
1992........................ 3.8% 5.4% 6.9% 11.9% 19.2% 5.7%
1993........................ 3.0% 5.6% 8.3% 16.7% 19.9% 0.8%
5 Years
(Annualized).............. 6.1% 8.1% 9.6% 17.7% 19.8% 12.6%
</TABLE>
ACCOUNT SERVICES
All transactions in shares of the Funds will be reflected in a statement
for each shareholder. In those cases where a Service Organization or its nominee
is shareholder of record of shares purchased for its customer, the Funds have
been advised that the statement may be transmitted to the customer at the
discretion of the Service Organization.
Furman Selz acts as the Funds' transfer agent. The Trust compensates Furman
Selz, the Trust's administrator, pursuant to a Services Agreement described in
"Management of the Fund -- Administrative Services" of this Prospectus, for
providing personnel and facilities to perform dividend disbursing and transfer
agency-related services for the Trust.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Funds at 237 Park
Avenue, New York, New York 10017.
General and Account Information: (800) 557-3768.
40
<PAGE> 42
APPENDIX
DESCRIPTION OF MOODY'S BOND RATINGS:
Excerpts from Moody's description of its four highest bond ratings are
listed as follows: Aaa -- judged to be the best quality and they carry the
smallest degree of investment risk; Aa -- judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds; A -- possess many favorable investment attributes and are
to be considered as "upper medium grade obligations"; Baa -- considered to be
medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Other Moody's bond
descriptions include: Ba -- judged to have speculative elements, their future
cannot be considered as well assured; B -- generally lack characteristics of the
desirable investment; Caa -- are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest; Ca -- speculative in a high degree, often in default; C -- lowest
rated class of bonds, regarded as having extremely poor prospects.
Moody's also supplies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the security is in the higher end of its rating
category; the modifier 2 indicates a mid-range ranking; and modifier 3 indicates
a ranking toward the lower end of the category.
DESCRIPTION OF S&P'S BOND RATINGS:
Excerpts from S&P's description of its four highest bond ratings are listed
as follows: AAA -- highest grade obligations, in which capacity to pay interest
and repay principal is extremely strong; AA -- also qualify as high grade
obligations, having a very strong capacity to pay interest and repay principal,
and differs from AAA issues only in a small degree; A -- regarded as upper
medium grade, having a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories;
BBB -- regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
BB, B, CCC, CC: Debt rated in these categories is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CI: The "CI" rating is reserved for income bonds on which no interest is
being paid.
S&P applies indicators "+, -," no character, and relative standing within
the major rating categories.
DESCRIPTION OF MOODY'S RATINGS OF NOTES AND VARIABLE RATE DEMAND INSTRUMENTS:
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or MIG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable rate demand obligations) are
A-1
<PAGE> 43
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payments
relying on external liquidity.
MIG 1/VMIG 1: This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2: This denotes high quality. Margins of protection are ample
although not as large as in the preceding group.
A-2
<PAGE> 44
FUNDS IV
ADDRESS FOR
TRUST CLIENTS OF BANK IV
P.O. Box 1122
Wichita, Kansas 67201-1112
INVESTMENT ADVISORS
BANK IV, N.A.
100 North Broadway
Wichita, Kansas 67202
AMR Investment Services, Inc.
4333 Amon Carter Blvd., MD 5645
Fort Worth, Texas 76155
(Cash Reserve Money Market Fund only)
ADMINISTRATOR AND SPONSOR
Furman Selz LLC
230 Park Avenue
New York, New York 10169
DISTRIBUTOR
FUNDS IV Distributor Inc.
230 Park Avenue
New York, New York 10169
CUSTODIAN
BANK IV, N.A.
100 North Broadway
Wichita, Kansas 67202
COUNSEL
Baker & McKenzie
805 Third Avenue
New York, New York 10022
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
FUNDS IV TRUST
A FAMILY OF
MUTUAL FUNDS
The U.S. Treasury Reserve Money Market Fund seeks to provide investors with as
high a level of current income as is consistent with liquidity, stability,
maximum safety of principal and the maintenance of a stable $1.00 net asset
value per share
The Cash Reserve Money Market Fund seeks to provide investors with current
income, liquidity and the maintenance of a stable $1.00 net asset value by
investing in high quality, short-term obligations
The Short-Term Treasury Income Fund seeks to provide investors with as high a
level of current income as is consistent with liquidity and safety of principal
The Intermediate Bond Income Fund seeks to provide investors with as high a
level of current income as is consistent with managing for total return by
investing in fixed income securities managed for total return
The Bond Income Fund seeks to provide investors with as high a level of current
income as is consistent with managing for total return by investing in fixed
income securities
The Stock Appreciation Fund seeks to provide investors with long-term capital
appreciation
The Aggressive Stock Appreciation Fund seeks to provide investors with
aggressive long-term capital appreciation
The Value Stock Appreciation Fund seeks to provide investors with long-term
capital appreciation and dividend income
PROSPECTUS
January 30, 1996
Investment Advisor
BANK IV, N.A.
AMR INVESTMENT SERVICES, INC.
(Cash Reserve Money Market Fund Only)
<PAGE> 1
EXHIBIT 17(D)
FUNDS IV TRUST 237 PARK AVENUE, NEW YORK, NEW YORK 10017
-----------------------------------------
GENERAL AND ACCOUNT INFORMATION:
(800) 557-3768
BANK IV, N.A. -- INVESTMENT ADVISER
("BANK IV")
AMR INVESTMENT SERVICES, INC. -- INVESTMENT ADVISER
FOR THE CASH RESERVE MONEY MARKET FUND ("AMR")
FURMAN SELZ INCORPORATED -- ADMINISTRATOR AND SPONSOR
("FURMAN SELZ" OR THE "SPONSOR")
FUNDS IV DISTRIBUTOR INC. -- DISTRIBUTOR
("FFD" OR THE "DISTRIBUTOR")
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") describes two money
market funds (the "Money Market Funds") and nine non-money market funds (the
"Non-Money Market Funds") (collectively, the "Funds"), all of which are managed
by BANK IV, except the Cash Reserve Money Market Fund, which is managed by AMR.
The Funds are:
MONEY MARKET FUNDS
- U.S. Treasury Reserve Money Market Fund
- Cash Reserve Money Market Fund
NON-MONEY MARKET FUNDS
- Short-Term Treasury Income Fund
- Intermediate Bond Income Fund
- Bond Income Fund
- Stock Appreciation Fund
- Aggressive Stock Appreciation Fund
- Value Stock Appreciation Fund
- International Equity Fund
- U.S. Intermediate Tax Exempt Fund
- Kansas Intermediate Tax Exempt Fund
Each Fund constitutes a separate investment portfolio with distinct
investment objectives and policies. Shares of the Funds are sold to the public
by FFD as an investment vehicle for individuals, institutions, corporations and
fiduciaries, including customers of BANK IV or its affiliates.
This SAI is not a prospectus and is only authorized for distribution when
preceded or accompanied by a prospectus for the applicable Fund dated January
, 1996 (the "Prospectus"). This SAI contains additional and more detailed
information than that set forth in each Prospectus and should be read in
conjunction with the applicable Prospectus. The Prospectuses may be obtained
without charge by writing or calling the Funds at the address and information
numbers printed above.
January , 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT POLICIES....................................................... 2
INVESTMENT RESTRICTIONS................................................... 9
MANAGEMENT................................................................ 10
Trustees and Officers................................................... 10
Trustees and Officers of Core Trust..................................... 11
Investment Advisers..................................................... 14
International Portfolio................................................. 15
Distribution of Fund Shares............................................. 15
Distribution Plan....................................................... 16
Administrative Services................................................. 16
Service Organizations................................................... 17
EXPENSES AND EXPENSE LIMITS............................................... 18
DETERMINATION OF NET ASSET VALUE.......................................... 19
PORTFOLIO TRANSACTIONS.................................................... 20
Portfolio Turnover...................................................... 21
TAXATION.................................................................. 21
Kansas Tax Exempt Fund and U.S. Intermediate Tax Exempt Fund............
OTHER INFORMATION......................................................... 28
Capitalization.......................................................... 28
Voting Rights........................................................... 29
Custodian Transfer Agent and Dividend Disbursing Agent.................. 32
Experts................................................................. 32
Yield and Performance Information....................................... 32
FINANCIAL STATEMENTS...................................................... 34
</TABLE>
i
<PAGE> 3
INVESTMENT POLICIES
The Prospectuses discuss the investment objectives of the Funds and the
policies to be employed to achieve those objectives. This section contains
supplemental information concerning certain types of securities and other
instruments in which the Funds may invest, the investment policies and portfolio
strategies that the Funds may utilize, and certain risks attendant to such
investments, policies and strategies.
U.S. Government Agency Obligations (All Funds, except U.S. Treasury Reserve
Money Market Fund and Short-Term Treasury Income Fund). These Funds may invest
in obligations of agencies of the United States Government. Such agencies
include, among others, Farmers Home Administration, Federal Farm Credit System,
Federal Housing Administration, Government National Mortgage Association,
Maritime Administration, Small Business Administration, and The Tennessee Valley
Authority. The Funds may purchase securities issued or guaranteed by the
Government National Mortgage Association which represent participations in
Veterans Administration and Federal Housing Administration backed mortgage
pools. Obligations of instrumentalities of the United States Government include
securities issued by, among others, Federal Home Loan Banks, Federal Home Loan
Mortgage Corporation, Federal Land Banks, Federal National Mortgage Association
and the United States Postal Service. Some of these securities are supported by
the full faith and credit of the United States Treasury (e.g., Government
National Mortgage Association). Guarantees of principal by agencies or
instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the obligation so that in the event of a default prior to maturity
there might not be a market and thus no means of realizing the value of the
obligation prior to maturity.
Commercial Paper (All Funds, except Treasury Reserve Money Market Fund and
Short-Term Treasury Income Fund). Commercial paper includes short-term
unsecured promissory notes, variable rate demand notes and variable rate master
demand notes issued by domestic and foreign bank holding companies, corporations
and financial institutions and similar taxable instruments issued by government
agencies and instrumentalities. All commercial paper purchased by the Funds is,
at the time of investment, rated in one of the top two rating categories of at
least one Nationally Recognized Statistical Rating Organization ("NRSRO") or, if
not rated, are, in the opinion of BANK IV, of an investment quality comparable
to rated commercial paper in which the Funds may invest, or, with respect to the
Cash Reserve Money Market Fund, (i) rated "P-1" by Moody's Investors Service,
Inc. ("Moody's") and "A-1" or better by Standard & Poor's Corporation ("S&P") or
in a comparable rating category by any two NRSROs that have rated the commercial
paper or (ii) rated in a comparable category by only one such organization if it
is the only organization that has rated the commercial paper (and provided the
purchase is approved or ratified by the Board of Trustees).
Corporate Debt Securities (All Funds, except Kansas Tax Exempt Fund and
U.S. Intermediate Tax Exempt Fund). Fund investments in these securities are
limited to corporate debt securities (corporate bonds, debentures, notes and
similar corporate debt instruments) which meet the rating criteria established
for each Fund.
After purchase by a Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Fund. Neither
event will require a sale of such security by the Fund. However, the Fund's
Adviser will consider such event in its determination of whether the Fund should
continue to hold the security. To the extent the ratings given by a NRSRO may
change as a result of changes in such organizations or their rating systems, the
Fund will attempt to use
2
<PAGE> 4
comparable ratings as standards for investments in accordance with the
investment policies contained in the Prospectus and in this SAI.
Foreign Securities (Intermediate Bond Income Fund, Bond Income Fund, Stock
Appreciation Fund, Aggressive Stock Appreciation Fund, Value Stock Appreciation
Fund, and International Equity Fund). Changes in foreign exchange rates will
affect the value of securities denominated or quoted in currencies other than
the U.S. dollar.
Since the Funds may invest in securities denominated in currencies other
than the U.S. dollar, and since those Funds may temporarily hold funds in bank
deposits or other money market investments denominated in foreign currencies, a
Fund may be affected favorably or unfavorably by exchange control regulations or
changes in the exchange rate between such currencies and the dollar. Changes in
foreign currency exchange rates will influence values within the Fund from the
perspective of U.S. investors. Changes in foreign currency exchange rates may
also affect the value of dividends and interest earned, gains and losses
realized on the sale of securities, and net investment income and gains, if any,
to be distributed to shareholders by the Fund. The rate of exchange between the
U.S. dollar and other currencies is determined by the forces of supply and
demand in the foreign exchange markets. These forces are affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors.
Those Funds that purchase foreign currency-denominated securities may enter
into foreign currency exchange contracts in order to protect against uncertainty
in the level of future foreign exchange rates. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are entered into in the interbank market conducted between
currency traders (usually large commercial banks) and their customers. Forward
foreign currency exchange contracts may be bought or sold to protect a Fund
against a possible loss resulting from an adverse change in the relationship
between foreign currencies and the U.S. dollar, or between foreign currencies.
Although such contracts are intended to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time, they tend to
limit any potential gain which might result should the value of such currency
increase.
Bank Obligations (All Funds, except Treasury Reserve Money Market Fund,
Short-Term Treasury Income Fund, Kansas Tax Exempt Fund and U.S. Intermediate
Tax Exempt Fund). A description of the bank obligations which the Funds may
purchase is set forth in the Prospectuses. These obligations include, but are
not limited to, domestic, Eurodollar and Yankeedollar certificates of deposits,
time deposits, bankers' acceptances, commercial paper, bank deposit notes and
other promissory notes including floating or variable rate obligations issued by
U.S. or foreign bank holding companies and their bank subsidiaries, branches and
agencies. Certificates of deposit are issued against funds deposited in an
eligible bank (including its domestic and foreign branches, subsidiaries and
agencies), are for a definite period of time, earn a specified rate of return
and are normally negotiable. A bankers' acceptance is a short-term draft drawn
on a commercial bank by a borrower, usually in connection with a commercial
transaction. The borrower is liable for payment as is the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Eurodollar obligations are U.S. Dollar obligations issued outside the
United States by domestic or foreign entities. Yankeedollar obligations are U.S.
dollar obligations issued inside the United States by foreign entities. Bearer
deposit notes are obligations of a bank, rather than a bank holding company.
Similar to certificates of deposit,
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<PAGE> 5
deposit notes represent bank level investments and, therefore, are senior to all
holding company corporate debt.
Variable and Floating Rate Demand and Master Demand Obligations (All
Funds). The Funds may, from time to time, buy variable rate demand obligations
issued by corporations, bank holding companies and financial institutions and
similar taxable and tax-exempt instruments issued by government agencies and
instrumentalities. These securities will typically have a maturity of 397 days
or less with respect to the Money Market Funds or five to twenty years with
respect to the Non-Money Market Funds, but carry with them the right of the
holder to put the securities to a remarketing agent or other entity on short
notice, typically seven days or less. The obligation of the issuer of the put to
repurchase the securities may or may not be backed by a letter of credit or
other obligation issued by a financial institution. The purchase price is
ordinarily par plus accrued and unpaid interest.
The Funds may also buy variable rate master demand obligations. The terms
of these obligations permit the investment of fluctuating amounts by the Funds
at varying rates of interest pursuant to direct arrangements between a Fund, as
lender, and the borrower. They permit weekly, and in some instances, daily,
changes in the amounts borrowed. The Funds have the right to increase the amount
under the obligation at any time up to the full amount provided by the note
agreement, or to decrease the amount, and the borrower may prepay up to the full
amount of the obligation without penalty. The obligations may or may not be
backed by bank letters of credit. Because the obligations are direct lending
arrangements between the lender and the borrower, it is not generally
contemplated that they will be traded, and there is no secondary market for
them, although they are redeemable (and thus, immediately repayable by the
borrower) at principal amount, plus accrued interest, upon demand. The Funds
have no limitations on the type of issuer from whom the obligations will be
purchased. The Funds will invest in variable rate master demand obligations only
when such obligations are determined by the Adviser or AMR, pursuant to
guidelines established by the Board of Trustees, to be of comparable quality to
rated issuers or instruments eligible for investment by the Funds.
When-Issued and Delayed-Delivery Securities (All Funds). The Funds may
purchase securities on a when-issued or delayed-delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the transaction. The securities so purchased are subject to
market fluctuation during this period and no income accrues to the Fund until
settlement takes place. To facilitate such acquisitions, the Funds will maintain
with the custodian a separate account with a segregated portfolio of securities
in an amount at least equal to the value of such commitments. On the delivery
dates for such transactions, each Fund will meet obligations from maturities or
sales of the securities held in the separate account and/or from cash flow.
While the Funds normally enter into these transactions with the intention of
actually receiving or delivering the securities, they may sell these securities
before the settlement date or enter into new commitments to extend the delivery
date into the future, if BANK IV or AMR consider such action advisable as a
matter of investment strategy. Such securities have the effect of leverage on
the Funds and may contribute to volatility of a Fund's net asset value.
Loans of Portfolio Securities (All Funds). The Funds may lend their
portfolio securities to brokers, dealers and financial institutions, provided:
(1) the loan is secured continuously by collateral consisting of U.S. Government
securities or cash or approved bank letters of credit maintained on a daily
mark-to-market basis in an amount at least equal to the current market value of
the securities loaned; (2) the Funds may at any time call the loan and obtain
the return of the securities loaned within five business days; (3) the Funds
will receive any interest or dividends paid on the loaned
4
<PAGE> 6
securities; and (4) the aggregate market value of securities loaned will not at
any time exceed 33 1/3% of the total assets of a particular Fund.
The Funds will earn income for lending their securities because cash
collateral pursuant to these loans will be invested in short-term money market
instruments. In connection with lending securities, the Funds may pay reasonable
finders, administrative and custodial fees. Loans of securities involve a risk
that the borrower may fail to return the securities or may fail to provide
additional collateral.
Repurchase Agreements (All Funds, except the Short-Term Treasury Income
Fund). The Funds may invest in securities subject to repurchase agreements with
any bank or registered broker-dealer who, in the opinion of the Trustees,
present a minimum risk of bankruptcy. Such agreements may be considered to be
loans by the Funds for purposes of the Investment Company Act of 1940, as
amended (the "1940 Act"). A repurchase agreement is a transaction in which the
seller of a security commits itself at the time of the sale to repurchase that
security from the buyer at a mutually agreed-upon time and price. The repurchase
price exceeds the sale price, reflecting an agreed-upon interest rate effective
for the period the buyer owns the security subject to repurchase. The
agreed-upon rate is unrelated to the interest rate on that security. BANK IV and
AMR will monitor the value of the underlying security at the time the
transaction is entered into and at all times during the term of the repurchase
agreement to insure that the value of the security always equals or exceeds the
repurchase price. In the event of default by the seller under the repurchase
agreement, the Funds may have problems in exercising their rights to the
underlying securities and may incur costs and experience time delays in
connection with the disposition of such securities.
Reverse Repurchase Agreements (All Funds). The Funds may also enter into
reverse repurchase agreements to avoid selling securities during unfavorable
market conditions to meet redemptions. Pursuant to a reverse repurchase
agreement, a Fund will sell portfolio securities and agree to repurchase them
from the buyer at a particular date and price. Whenever a Fund enters into a
reverse repurchase agreement, it will establish a segregated account in which it
will maintain liquid assets in an amount at least equal to the repurchase price
marked to market daily (including accrued interest), and will subsequently
monitor the account to ensure that such equivalent value is maintained. The Fund
pays interest on amounts obtained pursuant to reverse repurchase agreements.
Reverse repurchase agreements are considered to be borrowings by a Fund under
the 1940 Act.
Illiquid Securities (All Funds). Each Fund has adopted a fundamental
policy with respect to investments in illiquid securities. Historically,
illiquid securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended ("Securities Act"), securities that are
otherwise not readily marketable and repurchase agreements having a maturity of
longer than seven days. Securities that have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
5
<PAGE> 7
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on
either an efficient institutional market in which the unregistered security can
be readily resold or on the issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
Each Fund may also invest in restricted securities issued under Section
4(2) of the Securities Act, which exempts from registration "transactions by an
issuer not involving any public offering." Section 4(2) instruments are
restricted in the sense that they can only be resold through the issuing dealer
and only to institutional investors; they cannot be resold to the general public
without registration. Restricted securities issued under Section 4(2) of the
Securities Act will be treated as illiquid and subject to the Fund's investment
restriction on illiquid securities.
The Commission has adopted Rule 144A, which allows a broader institutional
trading market for securities otherwise subject to restrictions on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act applicable to resales of certain securities
to qualified institutional buyers. It is the intent of the Funds to invest,
pursuant to procedures established by the Board of Trustees and subject to
applicable investment restrictions, in securities eligible for resale under Rule
144A which are determined to be liquid based upon the trading markets for the
securities.
Pursuant to guidelines set forth by and under the supervision of the Board
of Trustees, the Adviser and AMR will monitor the liquidity of restricted
securities in a Fund's portfolio. In reaching liquidity decisions, the Adviser
and AMR will consider, inter alia, the following factors: (1) the frequency of
trades and quotes for the security over the course of six months or as
determined in the discretion of the Investment Adviser; (2) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers over the course of six months or as determined in the
discretion of the Investment Adviser; (3) dealer undertakings to make a market
in the security; (4) the nature of the security and the marketplace in which it
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer); and (5) other factors, if
any, which the Adviser and AMR deem relevant. The Adviser and AMR will also
monitor the purchase of Rule 144A securities to assure that the total of all
Rule 144A securities held by a Fund does not exceed 10% of the Fund's average
daily net assets. Rule 144A securities which are determined to be liquid based
upon their trading markets will not, however, be required to be included among
the securities considered to be illiquid for purposes of Investment Restriction
No. 1. Investments in Rule 144A securities could have the effect of increasing
Fund illiquidity.
Warrants (International Equity Fund). International Portfolio may invest
in warrants, which are options to purchase an equity security at a specified
price (usually representing a premium over the applicable market value of the
underlying equity security at the time of the warrant's issuance) and usually
during a specified period of time. Unlike convertible securities and preferred
stocks, warrants do not pay a fixed dividend. Investments in warrants involve
certain risks, including the possible lack of a liquid market for the resale of
the warrants, potential price fluctuations as a result of speculation or other
factors and failure of the price of the underlying security to reach a level at
which the warrant can be prudently exercised (in which case the warrant may
expire without being exercised, resulting in the loss of International
Portfolio's entire investment therein).
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<PAGE> 8
Foreign Currency Transactions (International Equity Fund). Investments by
International Portfolio in securities of foreign companies will usually involve
the currencies of foreign countries. In addition, International Portfolio may
temporarily hold funds in bank deposits in foreign currencies pending the
completion of certain investment programs. Accordingly, the value of the assets
of International Portfolio, as measured in U.S. dollars, may be affected by
changes in foreign currency exchange rates and exchange control regulations. In
addition, International Portfolio may incur costs in connection with conversions
between various currencies. International Portfolio may conduct foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or by entering into foreign
currency forward basis at the spot rate prevailing in the foreign currency
exchange market or by entering into foreign currency forward contracts ("forward
contracts") to purchase or sell foreign currencies. 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 (usually less than one year) from the date of
the contract agreed upon by the parties, at a price at the time of the contract.
Forward contracts in the principal foreign currencies are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers and involve the risk that the other party
to the contract may fail to deliver currency when due, which could result in
losses to International Portfolio. A forward contract generally has no
requirement, and no commissions are charged at any stage for trades. Foreign
exchange dealers realize a profit based on the difference between the price at
which they buy and sell various currencies.
International Portfolio may enter into forward contracts under two
circumstances. First, with respect to specific transactions, when International
Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security. By entering into a forward contract for the purchase or
sale, for a fixed amount of dollars, of the amount of foreign currency involved
in the underlying security transactions, International Portfolio may be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date the security is purchased or sold and the date on which
payment is made or received.
Second, International Portfolio may enter into forward contracts in
connection with existing portfolio positions. For example, when the investment
adviser of International Portfolio believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar,
International Portfolio may enter into a forward contract to sell, for a fixed
amount of dollars, the amount of foreign currency approximating the value of
some or all of International Portfolio's investment securities denominated in
such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since 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 the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Forward contracts involve the
risk of inaccurate predictions of currency price movements, which may cause
International Portfolio to incur losses on these contracts and transaction
costs. Schroder does not intend to enter into forward contracts on a regular or
continuous basis and will not do so if, as a result, International Portfolio
will have more than 25 percent of the value of its total assets committed to
such contracts or the contracts would obligate International Portfolio to
deliver an
7
<PAGE> 9
amount of foreign currency in excess of the value of International Portfolio's
investment securities or other assets denominated in that currency.
At or before a settlement of a forward currency contract, International
Portfolio may either make delivery of the foreign currency or terminate its
contractual obligation to deliver the foreign currency by purchasing an
offsetting contract. If International Portfolio chooses to make delivery of the
foreign currency, it may be required to obtain the currency through the
conversion of assets of International Portfolio into the currency. International
Portfolio may close out a forward contract obligating it to purchase a foreign
currency by selling an offsetting contract. If International Portfolio engages
in an offsetting transaction, it will realize a gain or a loss to the extent
that there has been a change in forward contract prices. Additionally, although
forward contracts may tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain which might result should the value of such currency increase.
There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market is foreign currencies
in a global around-the-clock market.
When required by applicable regulatory guidelines, International Portfolio
will set aside cash, U.S. Government Securities or other liquid, high-grade debt
securities in a segregated account with its custodian in the prescribed amount.
Foreign Currency Options and Related Risks (International Equity
Fund). International Portfolio may take positions in options on foreign
currencies in order to hedge against the risk of foreign exchange fluctuation on
foreign securities International Portfolio holds in its portfolio or which it
intends to purchase. Options on foreign currencies are affected by the factors
discussed in "Options Strategies" and "Foreign Currency Transactions" above
which influence foreign exchange sales and investments generally.
The value of foreign currency options is dependent upon the value of the
foreign currency relative to the U.S. dollar and has no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, International
Portfolio may be disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for
the underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
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<PAGE> 10
INVESTMENT RESTRICTIONS
The following restrictions restate or are in addition to those described
under "Investment Restrictions" in the Prospectuses.
Each Fund, except as indicated, may not:
(1) Invest more than 15% (10% with respect to the Money Market Funds)
of the value of its net assets in investments which are illiquid (including
repurchase agreements having maturities of more than seven calendar days,
variable and floating rate demand and master demand notes not requiring
receipt of principal note amount within seven days notice and securities of
foreign issuers which are not listed on a recognized domestic or foreign
securities exchange);
(2) Borrow money or pledge, mortgage or hypothecate its assets, except
that a Fund may enter into reverse repurchase agreements or borrow from
banks up to 10% of the current value of its net assets (33 1/3% for the
International Equity Fund) for temporary or emergency purposes and those
borrowings may be secured by the pledge of not more than 15% of the current
value of its total net assets (but investments may not be purchased by the
Fund while any such borrowings exist);
(3) Issue senior securities, except insofar as a Fund may be deemed to
have issued a senior security in connection with any repurchase agreement
or any permitted borrowing;
(4) Make loans, except loans of portfolio securities and except that a
Fund may enter into repurchase agreements with respect to its portfolio
securities and may purchase the types of debt instruments described in its
Prospectus or the SAI;
(5) Invest in companies for the purpose of exercising control or
management;
(6) Invest more than 10% of its net assets in shares of other
investment companies, except that the International Equity Fund may invest
100% of its assets in the Portfolio;
(7) Invest in real property (including limited partnership interests
but excluding real estate investment trusts and master limited
partnerships), commodities, commodity contracts, or oil, gas and other
mineral resource, exploration, development, lease or arbitrage
transactions;
(8) Engage in the business of underwriting securities of other
issuers, except to the extent that the disposal of an investment position
may technically cause it to be considered an underwriter as that term is
defined under the Securities Act of 1933;
(9) Sell securities short, except to the extent that a Fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short;
(10) Purchase securities on margin, except that a Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities;
(11) Purchase or retain the securities of any issuer, if those
individual officers and Trustees of the Trust, BANK IV or AMR, the Sponsor,
or the Distributor, each owning beneficially more than 1/2 of 1% of the
securities of such issuer, together own more than 5% of the securities of
such issuer;
(12) Purchase a security if, as a result, more than 25% of the value
of its total assets would be invested in securities of one or more issuers
conducting their principal business activities in the same industry (except
with respect to the Cash Reserve Money Market Fund which may
9
<PAGE> 11
concentrate its investments in obligations issued by the banking industry),
provided that (a) this limitation shall not apply to obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities;
(b) wholly owned finance companies will be considered to be in the
industries of their parents; and (c) utilities will be divided according to
their services. For example, gas, gas transmission, electric and gas,
electric, and telephone will each be considered a separate industry;
(13) Invest more than 5% of its net assets in warrants which are
unattached to securities, included within that amount, no more than 2% of
the value of the Fund's net assets, may be warrants which are not listed on
the New York or American Stock Exchanges;
(14) Write, purchase or sell puts, calls or combinations thereof,
except that the equity and fixed income funds may purchase or sell puts and
calls as otherwise described in the Prospectus or SAI; however, no Fund
will invest more than 5% of its total assets in these classes of securities
for purposes other than bona fide hedging; or
(15) Invest more than 5% of the current value of its total assets in
the securities of companies which, including predecessors, have a record of
less than three years' continuous operation.
MANAGEMENT
TRUSTEES AND OFFICERS
The principal occupations of the Trustees and executive officers of the
Trust for the past five years are listed below. The address of each, unless
otherwise indicated, is 237 Park Avenue, New York, New York 10017. Trustees
deemed to be "interested persons" of the Trust for purposes of the 1940 Act are
indicated by an asterisk.
John J. Pileggi, Chairman of the Board of Trustees* -- 237 Park Avenue, New
York, New York 10017. Senior Managing Director, Furman Selz Incorporated.
G. L. Best, Trustee -- One Williams Center, Tulsa, Oklahoma 74172.
Treasurer, The Williams Companies.
Terry L. Carter, Trustee -- 901 N. Mingo Road, Tulsa, Oklahoma 74116.
Senior Vice President, QuikTrip Corporation.
Arthur B. Krause, Trustee -- 2330 Shawnee Mission Parkway, Westwood, Kansas
66205. Executive Vice President and Chief Financial Officer, Sprint Corporation.
George Mileusnic, Trustee -- 1526 Cole Blvd., Ste. 300, Golden, Colorado
80401. Executive Vice President, The Coleman Co., Inc.
Patrick J. Ryan, Trustee -- 101 N. Robinson, Corporate Tower, Oklahoma
City, Oklahoma 73102. Vice Chairman, Oklahoma Gas & Electric.
Donald Brostrom, Principal Financial and Accounting Officer -- 237 Park
Avenue, New York, New York 10017. Director/Fund Accounting, Furman Selz
Incorporated.
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<PAGE> 12
Joan V. Fiore, Secretary -- 237 Park Avenue, New York, New York 10017.
Managing Director and Counsel, Furman Selz Incorporated. Attorney with the
Securities and Exchange Commission from 1986 to 1991.
Theresa Donovan, Assistant Secretary -- 237 Park Avenue, New York, New York
10017. Assistant Director of Corporate Secretary Services, Furman Selz
Incorporated.
Sheryl Hirschfeld, Assistant Secretary -- 237 Park Avenue, New York, New
York 10017. Director, Furman Selz Incorporated; Dreyfus Corporation (1982-1994).
Trustees of the Trust not affiliated with the Sponsor receive from the
Trust an annual retainer of $1,000 and a fee of $1,000 for each Board of
Trustees meeting and $1,000 for each Board committee meeting of the Trust
attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Trustees who are affiliated with the Sponsor do not
receive compensation from the Trust.
Officers and Trustees of the Trust, as a group, own less than 1% of the
outstanding shares of the Funds.
The following table sets forth certain information regarding the
compensation of the Fund's trustees and officers. Except as disclosed below, no
executive officer or person affiliated with the Fund received compensation from
the Fund for the calendar year ended June 30, 1995 in excess of $60,000.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
BENEFITS ESTIMATED COMPENSATION
AGGREGATE ACCRUED AS PART ANNUAL BENEFITS FROM TRUST AND
COMPENSATION OF PORTFOLIO UPON PORTFOLIO COMPLEX
NAME OF TRUSTEE FROM TRUST EXPENSES RETIREMENT PAID TO TRUSTEES*
- --------------- ------------ --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Mr. Best............................. $7,000 $0 $0 $7,000
Mr. Carter........................... 7,000 0 0 7,000
Mr. Krause........................... 3,000 0 0 3,000
Mr. Mileusnic........................ 7,000 0 0 7,000
Mr. Ryan............................. 7,000 0 0 7,000
</TABLE>
TRUSTEES AND OFFICERS OF CORE TRUST
The following information relates to the principal occupations of each
Trustee and executive officer of the Core Trust during the past five years and
shows the nature of any affiliation with SCMI. Each of these individuals
currently serves in the same capacity for Schroder Capital Funds (Delaware), an
investment company with a series that invests all of its assets in the
Portfolio.
PETER E. GUERNSEY, Oyster Bay, New York -- a Trustee of the
Trust -- Insurance Consultant since August 1986; prior thereto Senior Vice
President, Marsh & McLennan, Inc., insurance brokers.
RALPH E. HANSMANN, 40 Wall Street, New York, New York -- a Trustee of the
Trust -- Private investor; Director, First Eagle Fund of America, Inc.;
Director, Verde Exploration, Ltd.; Trustee Emeritus, Institute for Advanced
Study; Trustee and Treasurer, New York Public Library; Life Trustee, Hamilton
College.
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<PAGE> 13
JOHN I. HOWELL, 7 Riverside Road, Greenwich, Connecticut -- a Trustee of
the Trust -- Private Consultant since February 1987; Director, American
International Group, Inc.; Director, American International Life Assurance
Company of New York.
LAUREN E. LUCKYN-MALONE(a), 787 Seventh Avenue, New York, New
York -- President and a Trustee of the Trust -- Director and Senior Vice
President of SCMI since February 1990; Director and President, Schroder
Advisors(b).
CLARENCE F. MICHALIS, 44 East 64th Street, New York, New York -- Chairman
and a Trustee of the Trust -- Chairman of the Board of Directors, Josiah Macy,
Jr. Foundation (charitable foundation).
HERMANN C. SCHWAB, 787 Seventh Avenue, New York, New York -- Chairman
(honorary) and a Trustee of the Trust -- retired since March 1988; prior
thereto, consultant to SCMI since February 1, 1984.
MARK J. SMITH(a), 33 Gutter Lane, London England -- a Vice-President of the
Trust -- First Vice President of SCMI since April 1990; Director and Vice
President, Schroder Advisors(b).
ROBERT G. DAVY, 787 Seventh Avenue, New York, New York -- a Vice-President
of the Trust -- First Vice-President of SCMI since July 1992; prior thereto,
employed by various affiliates of Schroders plc(b) in various positions in the
investment research and portfolio management areas since 1986.
RICHARD R. FOULKES, 787 Seventh Avenue, New York, New York -- a
Vice-President of the Trust -- Director of SCMI since 1979, Director of Schroder
Capital Management International Ltd. since 1989, and Executive Vice President
of both of these entities.
JOHN Y. KEFFER, 2 Portland Square, Portland, Maine -- a Vice-President of
the Trust -- President of Forum Financial Services, Inc., the Portfolio's
sub-administrator and Forum Financial Corp., the Portfolio's transfer and
dividend disbursing agent and fund accountant.
CATHERINE A. MAZZA, 787 Seventh Avenue, New York, New York -- a
Vice-President of the Trust -- Vice-President since September 1994; prior
thereto, held various marketing positions at Alliance Capital, an investment
adviser, since July 1985.
FARIBA TALEBI, 787 Seventh Avenue, New York, New York -- a Vice-President
of the Trust -- Vice-President of SCMI employed in various positions in the
investment research and portfolio management areas since 1987.
JOHN A. TROIANO(a), 787 Seventh Avenue, New York, New York -- a
Vice-President of the Trust -- Director and Senior Vice President of SCMI since
1991; prior thereto, employed by various affiliates of Schroders plc(b) in
various positions in the investment research and portfolio management areas
since 1981.
IRA L. UNSCHULD, 787 Seventh Avenue, New York, New York -- a Vice-President
of the Trust -- a Vice-President of SCMI since April, 1993 and an Associate from
July, 1990 to April, 1993; prior to July, employed by various financial
institutions as a securities or financial analyst.
ROBERT JACKOWITZ, 787 Seventh Avenue, New York, New York -- Treasurer of
the Trust -- Vice-President of SCMI since September 1995 and Assistant Treasurer
since January 1990.
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<PAGE> 14
MARGARET H. DOUGLAS-HAMILTON, 787 Seventh Avenue, New York, New
York -- Secretary of the Trust -- First Vice-President and General Counsel of
Schroders Incorporated(b) since May 1987; prior thereto, partner of Sullivan &
Worcester, a law firm.
DAVID I. GOLDSTEIN, 2 Portland Square, Portland, Maine -- Assistant
Treasurer and Assistant Secretary of the Trust -- Counsel, Forum Financial
Services, Inc. since 1991; prior thereto, associate at Kirkpatrick & Lockhart,
Washington, D.C.
THOMAS G. SHEEHAN, 2 Portland Square, Portland, Maine -- Assistant
Treasurer and Assistant Secretary of the Trust -- Counsel, Forum Financial
Services, Inc., since 1993; prior thereto, Special Counsel, U.S. Securities and
Exchange Commission, Division of Investment Management, Washington, D.C.
BARBARA GOTTLIEB, 787 Seventh Avenue, New York, New York -- Assistant
Secretary of the Trust -- [business history]
GERARDO MACHADO, 787 Seventh Avenue, New York, New York -- Assistant
Secretary of the Trust -- Assistant Portfolio Manager, SCMI.
- ---------------
(a) Interested Trustee of the Trust within the meaning of the 1940 Act.
(b) Schroder Advisors is a wholly-owned subsidiary of SCMI, which is a
wholly-owned subsidiary of Schroders Incorporated, which in turn is an
indirect, wholly-owned subsidiary of Schroders plc.
Officers and Trustees who are interested persons of the Trust receive no
salary, fees or compensation from the Portfolio. Independent Trustees of the
Portfolio receive an annual fee of $2,000 and a fee of $500 for each meeting of
the Board attended by them except in the case of Mr. Schwab, who receives an
annual fee of $3,000 for each meeting attended. The Portfolio has no bonus,
profit sharing, pension or retirement plans.
The following table provides estimated fees to be paid to each Trustee of
the Trust for the fiscal year ended October 31, 1996.
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM TRUST
BENEFITS ESTIMATED AND
ACCRUED ANNUAL PORTFOLIO
AGGREGATE AS PART OF BENEFITS COMPLEX
COMPENSATION PORTFOLIO UPON PAID TO
NAME OF TRUSTEE FROM TRUST EXPENSES RETIREMENT TRUSTEES*
- --------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Mr. Guernsey.................... $4,000 $0 $0 $15,000
Mr. Hansmann.................... 4,000 0 0 6,000
Mr. Howell...................... 4,000 0 0 15,000
Ms. Luckyn-Malone............... 0 0 0 0
Mr. Michalis.................... 4,000 0 0 6,000
Mr. Schwab...................... 6,000 0 0 8,000
Mr. Smith....................... 0 0 0 0
</TABLE>
- ---------------
* In addition to the Core Trust, "Fund Complex" includes Schroder Capital Funds
(Delaware), an open-end investment company for which SCMI serves as investment
adviser, and Schroder Asian Growth Fund, Inc., a closed-end investment company
for which SCMI serves as investment adviser.
13
<PAGE> 15
As of October 31, 1995, the officers and Trustees of the Core Trust owned,
in the aggregate, less than 1% of the Portfolio's outstanding shares.
While the Core Trust is a Delaware business trust, certain of its Trustees
or officers are residents of the United Kingdom and substantially all of their
assets may be located outside of the U.S. As a result it may be difficult for
U.S. investors to effect service upon such persons within the U.S., or to
realize judgments of courts of the U.S. predicated upon civil liberties of such
person under the Federal securities laws of the U.S. The Core Trust has been
advised that there is substantial doubt as to the enforceability in the United
Kingdom of such civil remedies and criminal penalties as are afforded by the
Federal Securities laws of the U.S. Also, it is unclear if extradition treaties
now in effect between the U.S. and the United Kingdom would subject such persons
to effective enforcement of the criminal penalties of such acts.
INVESTMENT ADVISERS: BANK IV, N.A.
BANK IV, N.A. has provided investment advisory services
to the Funds since inception (except the Cash Reserve
Money Market Fund) pursuant to an Advisory Agreement
with the Trust (the "Advisory Agreement"). Subject to
such policies as the Trust's Board of Trustees may
determine, BANK IV makes investment decisions for the
Funds (except the Cash Reserve Money Market Fund). The
Advisory Agreement provides that, as compensation for
services thereunder, BANK IV is entitled to receive
from each Fund it manages a monthly fee at an annual
rate based upon average daily net assets of the Fund as
set forth in the table of Fund Expenses in the
Prospectus.
BANK IV, whose predecessor was formed in 1887, is the
largest commercial bank in Kansas and provides banking,
trust and investment services to individuals and
institutions. It is a wholly-owned subsidiary of Fourth
Financial Corporation. BANK IV acts as the investment
adviser to a wide variety of trusts, individuals,
institutions and corporation. Its investment management
responsibilities, as of December 31, 1993, included
accounts with aggregate assets of approximately $2.1
billion. The principal business address of Bank IV is
100 N. Broadway, Wichita, KS 67202.
AMR INVESTMENT SERVICES, INC.
AMR Investment Services, Inc. ("AMR") provides
investment advisory services to the Cash Reserve Money
Market Fund pursuant to an Investment Advisory
Agreement with the Trust (the "AMR Agreement"). Subject
to such policies as the Trust's Board of Trustees may
determine, AMR makes investment decisions for the Cash
Reserve Money Market Fund. The AMR Agreement provides
that, as compensation for services thereunder, AMR is
entitled to receive from the Cash Reserve Money Market
a monthly fee (less waivers) at an annual rate based
upon average daily net assets of the Fund as set forth
in the table of Fund Expenses in the Prospectus.
AMR Investment Services, Inc. ("AMR"), located at 4333
Amon Carter Boulevard, MD5645, Fort Worth, Texas 76155,
is a wholly-owned subsidiary of AMR Corporation, the
parent company of American Airlines, Inc., and was
14
<PAGE> 16
organized in 1986 to provide business management,
advisory, administrative and asset management
consulting services.
As of December 31, 1993, AMR provided investment advice with respect to
over $12.2 billion in assets including approximately $7.5 billion of assets on
behalf of AMR Corporation and its primary subsidiary, American Airlines, Inc.
The Investment Advisory Contracts for the Funds will continue in effect for
a period beyond two years from the date of their execution only as long as such
continuance is approved annually (i) by the holders of a majority of the
outstanding voting securities of the Funds or by the Board of Trustees and (ii)
by a majority of the Trustees who are not parties to such Contract or
"interested persons" (as defined in the 1940 Act) of any such party. The
Contracts may be terminated without penalty by vote of the Trustees or the
shareholders of the Funds, or by BANK IV or AMR, on 60 days' written notice by
either party to the Contract and will terminate automatically if assigned.
INTERNATIONAL PORTFOLIO
Schroder acts as investment adviser to International Portfolio and is
required to furnish at its expense all services, facilities and personnel
necessary in connection with managing International Portfolio's investments and
effecting portfolio transactions for International Portfolio. The Advisory
Agreement between International Portfolio and Schroder will continue in effect
only if such continuance is specifically approved at least annually by the Board
of Trustees of Core Trust or by vote of the holders of beneficial interest of
International Portfolio, and in either case by a majority of the Trustees of
Core Trust who are not parties to the Advisory Agreement or interested persons
of any such party, at a meeting called for the purpose of voting on the Advisory
Agreement.
The Advisory Agreement with respect to International Portfolio is
terminable without penalty by International Portfolio on 60 days' written notice
when authorized either by vote of International Portfolio's shareholders or by a
vote of a majority of the Board of Trustees of Core Trust, or by Schroder on not
more than 60 days' nor less than 30 days' written notice, and will automatically
terminate in the event of its assignment. The Advisory Agreement also provides
that, with respect to International Portfolio, neither Schroder nor its
personnel shall be liable for any error of judgment or mistake of law or for any
act or omission in the performance if its or their duties to International
Portfolio, except for willful misfeasance, bad faith or gross negligence in the
performance of Schroder's or their duties or by reason of reckless disregard of
its or their obligations and duties under the Advisory Agreement. The Advisory
Agreement provides that Schroder may render service to others.
The advisory fees are accrued daily and paid monthly. Schroder, in its sole
discretion, may waive all or any portion of its advisory fee with respect to
International Portfolio.
DISTRIBUTION OF FUND SHARES
The Trust retains FUNDS IV Distributor Inc., an affiliate of Furman Selz,
to serve as principal underwriter for the shares of the Funds pursuant to a
Distribution Contract. The Distribution Contract provides that the Distributor
will use its best efforts to maintain a broad distribution of the Funds' shares
among bona fide investors and may enter into selling group agreements with
responsible dealers and dealer managers as well as sell the Funds' shares to
individual investors. The Distributor is not obligated to sell any specific
amount of shares.
15
<PAGE> 17
DISTRIBUTION PLAN
The Trustees of the Fund have voted to adopt a Master Distribution Plan
(the "Plan") pursuant to Rule 12b-1 of the Investment Company Act of 1940 (the
"1940 Act") after having concluded that there is a reasonable likelihood that
the Plan will benefit the Fund and its shareholders. The Plan provides for a
monthly payment by the Fund to the Distributor in such amounts that the
Distributor may request or for direct payment by the Fund, for certain costs
incurred under the Plan, subject to periodic Board approval, provided that each
such payment is based on the average daily value of the Fund's net assets during
the preceding month and is calculated at an annual rate not to exceed 0.25%.
(Certain expenses of the Fund may be reduced in accordance with applicable state
expense limitations. See "Fees and Expenses"). The Distributor will use all
amounts received under the Plan for payments to broker-dealers or financial
institutions (but not including banks) for their assistance in distributing
shares of the Fund and otherwise promoting the sale of Fund shares, including
payments in amounts based on the average daily value of Fund shares owned by
shareholders in respect of which the broker-dealer or financial institution has
a distributing relationship. The Distributor may also use all or any portion of
such fees to pay Fund expenses such as the printing and distribution of
prospectuses sent to prospective investors; the preparation, printing and
distribution of sales literature and expenses associated with media
advertisements.
The Plan provides for the Distributor to prepare and submit to the Board of
Trustees on a quarterly basis written reports of all amounts expended pursuant
to the Plan and the purpose for which such expenditures were made. The Plan
provides that it may not be amended to increase materially the costs which the
Fund may bear pursuant to the Plan without shareholder approval and that other
material amendments of the Plan must be approved by the Board of Trustees, and
by the Trustees who neither are "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 or in any related agreement, by vote cast in person at a
meeting called for the purpose of considering such amendments. The selection and
nomination of the Trustees of the Trust has been committed to the discretion of
the Trustees who are not "interested persons" of the Trust. The Plan and the
related Administrative Services Contract between the Trust and the Sponsor have
been approved, and are subject to annual approval, by the Board of Trustees and
by the Trustees who neither are "interested persons" nor have any direct or
indirect financial interest in the operation of the Plan or in the
Administrative Services Contract, by vote cast in person at a meeting called for
the purpose of voting on the Plan. The Board of Trustees and the Trustees who
are not "interested persons" and who have no direct or indirect financial
interest in the operation of the Plan or in the Administrative Services Contract
voted to approve the Plan at a meeting held on August 4, 1994. The Plan was
submitted to the shareholders of the Fund and approved at a special meeting held
on August 4, 1994. The Plan is terminable with respect to the Fund at any time
by a vote of a majority of the Trustees who are not "interested persons" of the
Trust and who have no direct or indirect financial interest in the operation of
the Plan or in the Administrative Services Contract or by vote of the holders of
a majority of the shares of the Fund. No payments were made pursuant to the Plan
on behalf of any of the Funds during the period ended June 30, 1995.
ADMINISTRATIVE SERVICES
Furman Selz provides management and administrative services necessary for
the operation of the Funds, including among other things, (i) preparation of
shareholder reports and communications, (ii) regulatory compliance, such as
reports to and filings with the Securities and Exchange Commission
16
<PAGE> 18
("SEC") and state securities commissions and (iii) general supervision of the
operation of the Funds, including coordination of the services performed by BANK
IV and AMR, the Distributor, transfer agent, custodians, independent
accountants, legal counsel and others. In addition, Furman Selz furnishes office
space and facilities required for conducting the business of the Funds and pays
the compensation of the Funds' officers, employees and Trustees affiliated with
Furman Selz. For these services, Furman Selz receives from each Fund a fee,
payable monthly, at the annual rate of 0.15% of each Fund's average daily net
assets.
The Administrative Services Contract is terminable with respect to the
Funds without penalty, at any time, by vote of a majority of the Trustees who
are not "interested persons" of the Trust and who have no direct or indirect
financial interest in the operation of the Administrative Services Contract upon
not more than 60 days written notice to the Administrator or by vote of the
holders of a majority of the shares of the Funds, or, upon 60 days notice, by
the Administrator. The Administrative Services Contract will terminate
automatically in the event of its assignment.
SERVICE ORGANIZATIONS
The Trust also contracts with banks (including BANK IV), trust companies,
broker-dealers (other than Furman Selz) or other financial organizations
("Service Organizations") to provide certain administrative services for the
Funds. Services provided by Service Organizations may include among other
things: providing necessary personnel and facilities to establish and maintain
certain shareholder accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with shareholders orders to purchase or redeem
shares; verifying and guaranteeing client signatures in connection with
redemption orders, transfers among and changes in shareholders designating
accounts; providing periodic statements showing a shareholder's account balance
and, to the extent practicable, integrating such information with other client
transactions; furnishing periodic and annual statements and confirmations of all
purchases and redemptions of shares in a shareholder's account; transmitting
proxy statements, annual reports, and updating prospectuses and other
communications from the Funds to shareholders; and providing such other services
as the Funds or a shareholder reasonably may request, to the extent permitted by
applicable statute, rule or regulation. Neither Furman Selz, nor the Distributor
will be a Service Organization or receive fees for servicing.
Some Service Organizations may impose additional or different conditions on
their clients, such as requiring their clients to invest more than the minimum
initial or subsequent investments specified by the Funds or charging a direct
fee for servicing. If imposed, these fees would be in addition to any amounts
which might be paid to the Service Organization by the Funds. Each Service
Organization has agreed to transmit to its clients a schedule of any such fees.
Shareholders using Service Organizations are urged to consult them regarding any
such fees or conditions.
The Glass-Steagall Act and other applicable laws, among other things,
prohibit banks from engaging in the business of underwriting, selling or
distributing securities. There currently is no precedent prohibiting banks from
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or interpretations
of such laws, as well as changes in either Federal or state statutes or
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, could prevent a bank from continuing to perform all
or a part of its servicing activities. In addition, state securities laws on
this issue may differ from the
17
<PAGE> 19
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
If a bank were prohibited from so acting, its shareholder clients would be
permitted to remain shareholders of the Trust and alternative means for
continuing the servicing of such shareholders would be sought. In that event,
changes in the operation of the Trust might occur and a shareholder serviced by
such a bank might no longer be able to avail itself of any services then being
provided by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these occurrences.
EXPENSES AND EXPENSE LIMITS
For the period ended June 30, 1995, BANK IV and AMR were entitled to and
voluntarily waived investment advisory fees as indicated below:
<TABLE>
<CAPTION>
BANK IV AMR
-------------------- --------------------
ENTITLED WAIVED ENTITLED WAIVED
-------- ------- -------- -------
<S> <C> <C> <C> <C>
The Cash Reserve Money Market Fund................ -- -- $440,249 $91,401
The Short-Term Treasury Income.................... $ 33,341 $15,251 -- --
The Intermediate Bond Income Fund................. 393,828 15,904 -- --
The Bond Income Fund.............................. 50,141 -- -- --
The Stock Appreciation Fund....................... 625,646 19,024 -- --
The Aggressive Stock Appreciation Fund............ 249,385 -- -- --
The Value Stock Appreciation Fund................. 46,639 -- -- --
</TABLE>
For the period ended June 30, 1995, Furman Selz was entitled to and
voluntarily waived administrative services and fund accounting fees as indicated
below:
<TABLE>
<CAPTION>
FURMAN SELZ
--------------------
ENTITLED WAIVED
-------- -------
<S> <C> <C>
The Cash Reserve Money Market Fund...................................... $356,160 --
The Short-Term Treasury Income Fund..................................... 41,986 $16,671
The Intermediate Bond Income Fund....................................... 173,000 --
The Bond Income Fund.................................................... 44,118 18,803
The Stock Appreciation Fund............................................. 169,695 --
The Aggressive Stock Appreciation Fund.................................. 75,527 --
The Value Stock Appreciation Fund....................................... 22,270 10,763
</TABLE>
Currently, California is the only state imposing limitations on the
expenses of the Funds. Those expense limitations are 2 1/2 percent of the first
$30 million of a Fund's average net assets, 2 percent of the next $70 million
and 1 1/2 percent of a Fund's remaining average net assets. If in any fiscal
year expenses of the Funds (excluding taxes, interest, expenses under the Plan,
brokerage commissions and other portfolio transaction expenses, other
expenditures which are capitalized in accordance with generally accepted
accounting principles and extraordinary expenses, but including the advisory and
administrative fees) exceed the expense limitations applicable to the Funds
imposed by the securities regulations of any state, Furman Selz and BANK IV or
AMR (with respect to the Cash Reserve Money
18
<PAGE> 20
Market Fund only) will reimburse the Funds for a portion of the excess with BANK
IV or AMR paying 60% and Furman Selz the remaining 40% of the excess.
Except for the expenses paid by the Bank IV or AMR and Furman Selz, the
Funds bear all costs of their operations.
DETERMINATION OF NET ASSET VALUE
As indicated under "Fund Share Valuation" in the applicable Prospectus, the
Money Market Funds use the amortized cost method to determine the value of their
portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The amortized
cost method involves valuing a security at its cost and amortizing any discount
or premium over the period until maturity regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
which the Funds would receive if the security were sold. During these periods,
the yield to a shareholder may differ somewhat from that which could be obtained
from a similar fund which utilizes a method of valuation based upon market
prices. Thus, during periods of declining interest rates, if the use of the
amortized cost method resulted in lower value of a Fund's portfolio on a
particular day, a prospective investor in the Fund would be able to obtain a
somewhat higher yield than would result from an investment in a fund utilizing
solely market values and existing Fund shareholders would receive
correspondingly less income. The converse would apply during periods of rising
interest rates.
Rule 2a-7 provides that in order to value its portfolio using the amortized
cost method, each Money Market Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase securities having remaining
maturities of 397 days or less and invest only in U.S. dollar denominated
eligible securities determined by the Trust's Board of Trustees to be of minimal
credit risks and which (1) have received the highest short-term rating by at
least two Nationally Recognized Statistical Rating Organizations ("NRSROs"),
such as "A-1" by Standard & Poor's and "P-1" by Moody's; (2) are single rated
and have received the highest short-term rating by a NRSRO; or (3) are unrated,
but are determined to be of comparable quality by the Adviser or AMR pursuant to
guidelines approved by the Board and subject to the ratification of the Board.
In addition, a Fund will not invest more than 5% of its total assets in the
securities (including the securities collateralizing a repurchase agreement) of,
or subject to puts issued by, a single issuer, except that, a Fund may invest in
U.S. Government securities or repurchase agreements that are collateralized by
U.S. Government securities without any such limitation, and the limitation with
respect to puts does not apply to unconditional puts if no more than 10% of a
Fund's total assets are invested in securities issued or guaranteed by the
issuer of the unconditional put. Investments in rated securities not rated in
the highest category by at least two rating organizations (or one rating
organization if the instrument was rated by only one such organization), and
unrated securities not determined by the Board of Trustees to be comparable to
those rated in the highest rating category, will be limited to 5% of a Fund's
total assets, with investment in any one such issuer being limited to no more
than the greater of 1% of a Fund's total assets or $1,000,000.
Pursuant to Rule 2a-7, the Board of Trustees is also required to establish
procedures designed to stabilize, to the extent reasonably possible, the price
per share of the Funds, as computed for the purpose of sales and redemptions, at
$1.00. Such procedures include review of the Fund's portfolio
19
<PAGE> 21
holdings by the Board of Trustees, at such intervals as it may deem appropriate,
to determine whether the net asset value of the Funds calculated by using
available market quotations deviates from $1.00 per share based on amortized
cost. The extent of any deviation will be examined by the Board of Trustees. If
such deviation exceeds 1/2 of 1%, the Board of Trustees will promptly consider
what action, if any, will be initiated. In the event the Board of Trustees
determines that a deviation exists which may result in material dilution or
other unfair results to investors or existing shareholders, the Board of
Trustees will take such corrective action as it regards as necessary and
appropriate, which may include selling portfolio instruments prior to maturity
to realize capital gains or losses or to shorten average portfolio maturity,
withholding dividends or establishing a net asset value per share by using
available market quotations.
The Non-Money Market Funds value their portfolio securities in accordance
with the procedures described in the Prospectus.
PORTFOLIO TRANSACTIONS
Investment decisions for the Funds and for the other investment advisory
clients of BANK IV and AMR are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. It also sometimes happens that two or
more clients simultaneously purchase or sell the same security, in which event
each day's transactions in such security are, insofar as possible, averaged as
to price and allocated between such clients in a manner which in the opinion of
BANK IV or AMR is equitable to each and in accordance with the amount being
purchased or sold by each. There may be circumstances when purchases or sales of
portfolio securities for one or more clients will have an adverse effect on
other clients.
The Funds have no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policies
established by the Trust's Board of Trustees, BANK IV and AMR are primarily
responsible for portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Funds to obtain the best results
taking into account the broker-dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities. While BANK IV and AMR generally
seek reasonably competitive spreads or commissions, the Funds will not
necessarily be paying the lowest spread or commission available.
Purchases and sales of securities will often be principal transactions in
the case of debt securities and equity securities traded otherwise than on an
exchange. The purchase or sale of equity securities will frequently involve the
payment of a commission to a broker-dealer who effects the transaction on behalf
of a Fund. Debt securities normally will be purchased or sold from or to issuers
directly or to dealers serving as market makers for the securities at a net
price. Generally, money market securities are traded on a net basis and do not
involve brokerage commissions.
The cost of executing portfolio securities transactions for the Money
Market Funds primarily consists of dealer spreads and underwriting commissions.
Under the 1940 Act, persons affiliated with
20
<PAGE> 22
the Funds or the Sponsor are prohibited from dealing with the Funds as a
principal in the purchase and sale of securities unless a permissive order
allowing such transactions is obtained from the SEC.
BANK IV may, in circumstances in which two or more broker-dealers are in a
position to offer comparable results, give preference to a dealer which has
provided statistical or other research services to BANK IV. By allocating
transactions in this manner, BANK IV is able to supplement its research and
analysis with the views and information of securities firms. These items, which
in some cases may also be purchased for cash, include such matters as general
economic and securities market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities.
Some of these services are of value to BANK IV in advising various of their
clients (including the Funds), although not all of these services are
necessarily useful and of value in managing the Funds. The management fee paid
by the Funds is not reduced because BANK IV or its affiliates receive such
services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the
"Act"), BANK IV may cause the Funds to pay a broker-dealer which provides
"brokerage and research services" (as defined in the Act) to BANK IV an amount
of disclosed commission for effecting a securities transaction for the Funds in
excess of the commission which another broker-dealer would have charged for
effecting that transaction.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Trustees may determine, BANK
IV and AMR may consider sales of shares of the Funds as a factor in the
selection of broker-dealers to execute portfolio transactions for the Funds.
PORTFOLIO TURNOVER
Changes may be made in the portfolio consistent with the investment
objectives and policies of the Funds whenever such changes are believed to be in
the best interests of the Funds and their shareholders. It is anticipated that
the annual portfolio turnover rate normally will not exceed the amounts stated
in the Funds' Prospectuses and financial statements. The portfolio turnover rate
is calculated by dividing the lesser of purchases or sales of portfolio
securities by the average monthly value of the Fund's portfolio securities. For
purposes of this calculation, portfolio securities exclude all securities having
a maturity when purchased of one year or less.
TAXATION
The Funds intend to qualify and elect annually to be treated as regulated
investment companies under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). To qualify as a regulated investment company, a Fund must
(a) distribute to shareholders at least 90% of its investment company taxable
income (which includes, among other items, dividends, taxable interest and the
excess of net short-term capital gains over net long-term capital losses); (b)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (c) derive less than 30% of its gross income from the sale or other
disposition of certain assets (namely,
21
<PAGE> 23
(i) stock or securities; (ii) options, futures, and forward contracts (other
than those on foreign currencies), and (iii) foreign currencies (including
options, futures, and forward contracts on such currencies) 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 3 months; and
(d) diversify its holdings so that, at the end of each quarter of the taxable
year, (i) at least 50% of the market value of the Fund's assets is represented
by cash and cash items (including receivables), U.S. Government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and not greater than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any one issuer (other than U.S. Government securities or
the securities of other regulated investment companies). In addition, a Fund
earning tax-exempt interest must, in each year, distribute at least 90% of its
net tax-exempt income. By meeting these requirements, the Funds generally will
not be subject to Federal income tax on their investment company taxable income
and net capital gains which are distributed to shareholders. If the Funds do not
meet all of these Code requirements, they will be taxed as ordinary corporations
and their distributions will be taxed to shareholders as ordinary income.
Amounts, other than tax-exempt interest, not distributed on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To prevent imposition of the excise tax, each Fund
must distribute for each calendar year an amount equal to the sum of (1) at
least 98% of its ordinary income (excluding any capital gains or losses) for the
calendar year, (2) at least 98% of the excess of its capital gains over capital
losses (adjusted for certain ordinary losses) for the one-year period ending
October 31 of such year, and (3) all ordinary income and capital gains net
income (adjusted for certain ordinary losses) for previous years that were not
distributed during such years. A distribution, including an "exempt-interest
dividend," will be treated as paid on December 31 of a calendar year if it is
declared by a Fund during October, November or December of that year to
shareholders of record on a date in such a month and paid by the Fund during
January of the following year. Such distributions will be taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.
Some Funds may invest in stocks of foreign companies that are classified
under the Code as passive foreign investment companies ("PFICs"). In general, a
foreign company is classified as a PFIC under the Code if at least one-half of
its assets constitutes investment-type assets or 75% or more of its gross income
is investment-type income. Under the PFIC rules, an "excess distribution"
received with respect to PFIC stock is treated as having been realized ratably
over the period during which the Fund held the PFIC stock. A Fund itself will be
subject to tax on the portion, if any, of the excess distribution that is
allocated to the Fund's holding period in prior taxable years (and an interest
factor will be added to the tax, as if the tax actually been payable in such
prior taxable years) even though the Fund distributes the corresponding income
to shareholders. Excess distributions include any gain from the sale of PFIC
stock as well as certain distributions from a PFIC. All excess distributions are
taxable as ordinary income.
A Fund may be able to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently may be available, a Fund generally would
be required to include in its gross income its share of the earnings of a PFIC
on a current basis, regardless of whether any distributions are received from
the PFIC. If this election is made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. In addition, other
elections may become available
22
<PAGE> 24
that would affect the tax treatment of PFIC stock held by a Fund. Each Fund's
intention to qualify annually as a regulated investment company may limit its
elections with respect to PFIC stock.
Because the application of the PFIC rules may affect, among other things,
the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC stock, as well as subject a Fund
itself to tax on certain income from PFIC stock, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC stock.
Distributions of investment company taxable income generally are taxable to
shareholders as ordinary income. Distributions from certain of the Funds may be
eligible for the dividends-received deduction available to corporations.
Distributions of net long term capital gains, if any, designated by the Funds as
long term capital gain dividends are taxable to shareholders as long-term
capital gain, regardless of the length of time the Funds' shares have been held
by a shareholder. All distributions are taxable to the shareholder in the same
manner whether reinvested in additional shares or received in cash. Shareholders
will be notified annually as to the Federal tax status of distributions.
Distributions by a Fund reduce the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a shareholder's cost
basis, such distribution, nevertheless, would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by the Funds. The price of shares
purchased at that time includes the amount of the forthcoming distribution.
Those purchasing just prior to a distribution will receive a distribution which
will nevertheless generally be taxable to them.
Upon the taxable disposition (including a sale or redemption) of shares of
a Fund, a shareholder may realize a gain or loss depending upon his basis in his
shares. Such gain or loss generally will be treated as capital gain or loss if
the shares are capital assets in the shareholders hands. Such gain or loss will
be long-term or short-term, generally depending upon the shareholder's holding
period for the shares. However, a loss realized by a shareholder on the
disposition of Fund shares with respect to which capital gain dividends have
been paid will, to the extent of such capital gain dividends, be treated as long
term capital loss if such shares have been held by the shareholder for six
months or less. A loss realized on the redemption, sale or exchange of Fund
shares will be disallowed to the extent an exempt-interest dividend was received
with respect to those shares if the shares have been held by the shareholder for
six months or less. Further, a loss realized on a disposition will be disallowed
to the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Shareholders receiving distributions in the form of additional shares will have
a cost basis for Federal income tax purposes in each share received equal to the
net asset value of a share of the Funds on the reinvestment date.
Under certain circumstances, the sales charge incurred in acquiring shares
of a Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of a Fund are
exchanged within 90 days after the date they were purchased and new shares of a
Fund are acquired without a sales charge or at a reduced sales charge. In that
case, the gain
23
<PAGE> 25
or loss recognized on the exchange will be determined by excluding from the tax
basis of the shares exchanged all or a portion of the sales charge incurred in
acquiring those shares. This exclusion applies to the extent that the otherwise
applicable sales charge with respect to the newly acquired shares is reduced as
a result of having incurred the sales charge initially. Instead, the portion of
the sales charge affected by this rule will be treated as a sales charge paid
for the new shares.
The taxation of equity options is governed by Code section 1234. Pursuant
to Code section 1234, the premium received by a Fund for selling a put or call
option is not included in income at the time of receipt. If the option expires,
the premium is short-term capital gain to the Fund. If the Fund enters into a
closing transaction, the difference between the amount paid to close out its
position and the premium received is short-term capital gain or loss. If a call
option written by a Fund is exercised, thereby requiring the Fund to sell the
underlying security, the premium will increase the amount realized upon the sale
of such security and any resulting gain or loss will be a capital gain or loss,
and will be long-term or short-term depending upon the holding period of the
security. With respect to a put or call option that is purchased by a Fund, if
the option is sold, any resulting gain or loss will be a capital gain or loss,
and will be long-term or short-term, depending upon the holding period of the
option. If the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option, in the case of a call Option, is
added to the basis of the purchased security and, in the case of a put option,
reduces the amount realized on the underlying security in determining gain or
loss.
Certain of the options, futures contracts, and forward foreign currency
exchange contracts that several of the Funds may invest in are so-called
"section 1256 contracts." With certain exceptions, gains or losses on section
1256 contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60/40"). Also, section 1256 contracts held by a Fund at the
end of each taxable year (and, generally, for purposes of the 4% excise tax, on
October 31 of each year) are "marked-to-market" with the result that unrealized
gains or losses are treated as though they were realized and the resulting gain
or loss is treated as 60/40 gain or loss.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by a Fund. In addition, losses realized
by a Fund on a position 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 such losses are realized. Because only a
few regulations implementing the straddle rules have been promulgated, the tax
consequences to a Fund of hedging transactions are not entirely clear. Hedging
transactions may increase the amount of short-term capital gain realized by a
Fund which is taxed as ordinary income when distributed to stockholders.
A Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of 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 must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income
24
<PAGE> 26
or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not engage in such hedging transactions.
Certain requirements that must be met under the Code in order for a Fund to
qualify as a regulated investment company may limit the extent to which a Fund
will be able to engage in transactions in options, futures, and forward
contracts.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues interest, dividends or other
receivables, or accrues expenses or other liabilities denominated in a foreign
currency, and the time the Fund actually collects such receivables, or pays such
liabilities, generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain options and forward and futures contracts, gains
or losses attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security or contract and the date of disposition
also are treated as ordinary gain or loss. These gains or losses, referred to
under the Code as "section 988" gains or losses, may increase, decrease, or
eliminate the amount of a Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other similar income taxes imposed by the foreign
country. If more than 50% of the value of a Fund's total assets at the close of
its taxable year consists of securities of foreign governments and corporations,
the Fund will be eligible and intends to elect to "pass-through" to its
shareholders the amount of such foreign taxes paid by the Fund. Pursuant to this
election, a shareholder would be required to include in gross income (in
addition to taxable dividends actually received) his pro rata share of the
foreign taxes paid by a Fund, and would be entitled either to deduct his pro
rata share of foreign taxes in computing his taxable income or to use it as a
foreign tax credit against his U.S. Federal income tax liability, subject to
limitations. No deduction for foreign taxes may be claimed by a shareholder who
does not itemize deductions, but such a shareholder may be eligible to claim the
foreign tax credit (see below). Each shareholder will be notified within 60 days
after the close of a Fund's taxable year whether the foreign taxes paid by a
Fund will "pass-through" for that year and, if so, such notification will
designate (a) the shareholder's portion of the foreign taxes paid to each such
country and (b) the portion of the dividend which represents income derived from
foreign sources.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his total foreign
source taxable income. For this purpose, if a Fund makes the election described
in the preceding paragraph, the source of the Fund's income flows through to its
shareholders. With respect to a Fund, gains from the sale of securities will be
treated as derived from U.S. sources and certain currency fluctuations gains,
including fluctuation gains from foreign currency-denominated debt securities,
receivables and payables, will be treated as ordinary income derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income has defined for purposes of the foreign tax
credit) including foreign source passive income of a Fund. The foreign tax
credit may offset only 90% of the alternative minimum tax imposed on
corporations and individuals, and foreign taxes generally may not be deducted in
computing alternative minimum taxable income.
The Funds are required to report to the Internal Revenue Service ("IRS")
all distributions except in the case of certain exempt shareholders. All such
distributions generally are subject to withholding of Federal income tax at a
rate of 31% ("backup withholding") in the case of non-exempt shareholders
25
<PAGE> 27
if (1) the shareholder fails to furnish the Funds with and to certify the
shareholder's correct taxpayer identification number or social security number,
(2) the IRS notifies the Funds or a shareholder that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he is not subject to backup withholding. If
the withholding provisions are applicable, any such distributions, whether
reinvested in additional shares or taken in cash, will be reduced by the amounts
required to be withheld. Backup withholding is not an additional tax. Any amount
withheld may be credited against the shareholders U.S. Federal income tax
liability. Investors may wish to consult their tax advisors about the
applicability of the backup withholding provisions.
The foregoing discussion relates only to Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, trusts and estates). Distributions by the Funds also
may be subject to state and local taxes and their treatment under state and
local income tax laws may differ from the Federal income tax treatment.
Distributions of a Fund which are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities may be exempt
from state and local taxes in certain states. Shareholders should consult their
tax advisors with respect to particular questions of Federal, state and local
taxation. Shareholders who are not U.S. persons should consult their tax
advisers regarding U.S. and foreign tax consequences of ownership of shares of
the Funds including the likelihood that distributions to them would be subject
to withholding of U.S. tax at a rate of 30% (or at a lower rate under a tax
treaty).
Kansas Tax Exempt Fund and U.S. Intermediate Tax Exempt Fund. Each of
these Funds intends to manage its portfolio so that it will be eligible to pay
"exempt-interest dividends" to shareholders. Each Fund will so qualify if, at
the close of each quarter of its taxable year, at least 50% of the value of its
total assets consists of state, municipal, and certain other securities, the
interest on which is exempt from the regular Federal income tax. To the extent
that a Fund's dividends distributed to shareholders are derived from such
interest income and are designated as exempt-interest dividends by the Fund,
they will be excludable from a shareholder's gross income for Federal income tax
purposes. Exempt-interest dividends, however, must be taken into account by
shareholders in determining whether their total incomes are large enough to
result in taxation of up to 85% of their Social Security benefits and certain
railroad retirement benefits. Each Fund will inform shareholders annually as to
the portion of the distributions from the Fund which constitute exempt-interest
dividends. In addition, for corporate shareholders of each Fund, exempt interest
dividends may comprise part or all of an adjustment to alternative minimum
taxable income. Exempt-interest dividends that are attributable to certain
private activity bonds, while not subject to the regular Federal income tax, may
constitute an item of tax preference for purposes of the alternative minimum
tax.
To the extent that a Fund's dividends are derived from its investment
company taxable income (which includes interest on its temporary taxable
investments and the excess of net short-term capital gain over net long-term
capital loss), they are considered ordinary (taxable) income for Federal income
tax purposes. Such dividends will not qualify for the dividends -- received
deduction for corporations. Distributions, if any, of net long-term capital
gains (the excess of net long-term capital gain over net short-term capital
loss) designated by a Fund as long-term capital gain dividends are taxable to
shareholders as long-term capital gain regardless of the length of time the
shareholder has owned shares of the Fund.
Upon redemption, sale or exchange of shares in one of these Funds, a
shareholder will realize a taxable gain or loss, depending on whether the gross
proceeds are more or less than the shareholder's
26
<PAGE> 28
tax basis for the shares. The discussion above provides additional detail about
the income tax consequences of disposing of Fund shares.
Deductions for interest expense incurred to acquire or carry shares of the
Fund may be subject to limitations that reduce, defer, or eliminate such
deductions. This includes limitations on deducting interest on indebtedness
properly allocable to investment property (which may include shares of the
Fund). In addition, a shareholder may not deduct a portion of interest on
indebtedness incurred or continue to purchase or carry shares of an investment
company (such as one of these Funds) paying exempt-interest dividends. Such
disallowance would be in an amount which bears the same ratio to the total of
such interest as the exempt-interest dividends bear to the total dividends,
excluding net capital gain dividends received by the shareholder. Under rules
issued by the IRS for determining when borrowed funds are considered used for
the purposes of purchasing or carrying particular assets, the purchase of shares
may be considered to have been made with borrowed funds even though the borrowed
funds are not directly traceable to the purchase of shares.
Certain of the debt securities acquired by the Funds may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income
is actually received by the Fund, original issue discount on a taxable debt
security earned in a given year generally is treated for Federal income tax
purposes as interest and, therefore, such income would be subject to the
distribution requirements of the Code. Original issue discount on an obligation,
the interest from which is exempt from Federal income tax, generally will
constitute tax-exempt interest income.
Some of the debt securities may be purchased by a Fund at a discount which
exceeds the original issue discount on such securities, if any. This additional
discount represents market discount for Federal income tax purposes. The gain
realized on the disposition of any debt security having market discount will be
treated as ordinary taxable income to the extent it does not exceed the accrued
market discount on such debt security. Generally, market discount accrues on a
daily basis for each day the debt security is held by the Fund at a constant
rate over the time remaining to the debt security's maturity or, at the election
of a Fund, at a constant yield to maturity which takes into account the
semi-annual compounding of interest.
Under Kansas law, a mutual fund which qualifies as a regulated investment
company generally must have at least 50% of its total assets in Kansas state and
local issues at the end of each quarter of its taxable year in order to be
eligible to pay dividends which will be exempt from Kansas personal income tax.
Generally, shareholders who are Kansas residents will not incur Kansas personal
income tax on the amount of exempt-interest dividends received by them from a
Fund and derived from Kansas state and local issues, whether taken in cash or
paid in additional shares. Gain on the sale or redemption of Fund shares is
subject to Kansas personal income tax.
Shareholders will normally be subject to Kansas personal income tax on
dividends paid from income derived from taxable securities and other taxable
investments, and from securities issued by states other than Kansas and on
distribution of capital and other taxable gains.
Each Fund will be required to report to the IRS all distributions of
investment company taxable income and net capital gains and gross proceeds from
the redemption or exchange of the Fund's shares, except in the case of certain
exempt shareholders. All such distributions and proceeds from the redemption or
exchange of the Fund's shares may be subject to withholding of Federal income
tax at
27
<PAGE> 29
the rate of 31% in the case of non-exempt shareholders who fail to furnish a
Fund with their taxpayer identification numbers and with required certifications
regarding their status under Federal income tax laws.
A deductible "environmental tax" of 0.12% is imposed on a corporation's
modified alternative minimum taxable income in excess of $2 million. The
environmental tax will be imposed even if the corporation is not required to pay
an alternative minimum tax because the corporation's regular income tax
liability exceeds its minimum tax liability. To the extent that exempt-interest
dividends paid by a Fund are included in alternative minimum taxable income,
corporate shareholders may be subject to the environmental tax.
Opinions relating to the validity of municipal securities and the exemption
of interest thereon from Federal income tax are rendered by bond counsel to the
issuers. The Funds, Bank IV and its affiliates, and the Funds' counsel make no
review of proceedings relating to the issuance of state or municipal securities
on the bases of such opinions.
Persons who may be "substantial users" (or "related persons" of substantial
users) of facilities financed by private activity bonds should consult their tax
advisers before purchasing shares of one of these Funds since the acquisition of
shares of the Fund may result in adverse tax consequences to them. In addition,
all shareholders of a Fund should consult their tax advisers about the tax
consequences to them of their investments in the Fund.
Changes in the tax law, including provisions relating to tax-exempt income,
frequently come under consideration. If such changes are enacted, the tax
consequences arising from an investment in Kansas Tax Exempt Fund or the US
Intermediate Tax Exempt Fund may be affected. Since FUNDS IV Trust does not
undertake to furnish tax advice, it is important for shareholders to consult
their tax advisers regularly about the tax consequences to them of investing in
one or more of the FUNDS IV Funds.
OTHER INFORMATION
CAPITALIZATION
The Trust is a Delaware business trust established under a Declaration of
Trust dated May 2, 1994 and currently consists of ten separately managed
portfolios. Each portfolio is comprised of two classes of shares -- the "Service
Class" and the "Premium Class". The capitalization of the Trust consists solely
of an unlimited number of shares of beneficial interest with a par value of
$0.001 each. The Board of Trustees may establish additional Funds (with
different investment objectives and fundamental policies) at any time in the
future. Establishment and offering of additional Funds will not alter the rights
of the Trust's shareholders. When issued, shares are fully paid, non-assessable,
redeemable and freely transferable. Shares do not have preemptive rights or
subscription rights. In any liquidation of a Fund, each shareholder is entitled
to receive his pro rata share of the net assets of that Fund.
Expenses incurred in connection with each Fund's organization and the
public offering of its shares have been deferred and are being amortized on a
straight-line basis over a period of not more than five years.
28
<PAGE> 30
VOTING RIGHTS
Under the Declaration of Trust, the Trust is not required to hold annual
meetings of each Fund's shareholders to elect Trustees or for other purposes.
When certain matters affect only one class of shares but not another, the
shareholders would vote as a class regarding such matters. It is not anticipated
that the Trust will hold shareholders' meetings unless required by law or the
Declaration of Trust. In this regard, the Trust will be required to hold a
meeting to elect Trustees to fill any existing vacancies on the Board if, at any
time, fewer than a majority of the Trustees have been elected by the
shareholders of the Trust. In addition, the Declaration of Trust provides that
the holders of not less than two-thirds of the outstanding shares of the Trust
may remove persons serving as Trustee either by declaration in writing or at a
meeting called for such purpose. The Trustees are required to call a meeting for
the purpose of considering the removal of persons serving as Trustee if
requested in writing to do so by the holders of not less than 10% of the
outstanding shares of the Trust. To the extent required by applicable law, the
Trustees shall assist shareholders who seek to remove any person serving as
Trustee.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
PRINCIPAL SHAREHOLDERS
As of October 18, 1995, the following persons owned of record or
beneficially 5% or more of each of the Fund's shares:
CASH RESERVE MONEY MARKET FUND
<TABLE>
<S> <C> <C>
SERVICE CLASS
BANK IV, N.A............................................... 301,000,448 Shares 99.93%
Attn: Central Trust Operations
100 North Market St.
Wichita, KS 67202
PREMIUM CLASS
Furman Selz Inc............................................ 5,899 Shares 98.97%
230 Park Avenue
New York, NY 10169
</TABLE>
29
<PAGE> 31
SHORT TERM TREASURY FIXED INCOME FUND
<TABLE>
<S> <C> <C>
SERVICE CLASS
BANK IV FBO................................................ 201,419 Shares 12.50%
Miller's Inc.-PST
100 North Market Street
Wichita, KS 67202
BANK IV FBO................................................ 182,457 Shares 11.32%
Palmer P/S Plan
100 Market Street
Wichita, KS 67202
BANK IV.................................................... 137,613 Shares 8.54%
WTA Surg. Group, P.A.
100 North Market Street
Wichita, KS 67202
PREMIUM CLASS
Furman Selz Inc............................................ 590 Shares 98.97%
230 Park Avenue
New York, NY 10169
</TABLE>
INTERMEDIATE BOND INCOME FUND
<TABLE>
<S> <C> <C>
SERVICE CLASS
BANK IV FBO................................................ 655,726 Shares 5.10%
FFC S&I
100 North Market St.
Wichita, KS 67202
PREMIUM CLASS
Furman Selz Inc............................................ 593 Shares 98.98%
230 Park Avenue
New York, NY 10169
</TABLE>
BOND INCOME FUND
<TABLE>
<S> <C> <C>
SERVICE CLASS
BANK IV FBO................................................ 163,495 Shares 7.80%
WTA Surg. Gr. P.A.
100 North Market St.
Wichita, KS 67202
BANK IV FBO................................................ 111,348 Shares 5.31%
Fourth Fin. Pension
100 North Market Street
Wichita, KS 67202
PREMIUM CLASS
Furman Selz Inc............................................ 593 Shares 98.98%
230 Park Avenue
New York, NY 10169
</TABLE>
30
<PAGE> 32
STOCK APPRECIATION FUND
<TABLE>
<S> <C> <C>
SERVICE CLASS
BANK IV FBO................................................ 794,308 Shares 6.44%
Fourth Fin. Pension
100 North Market Street
Wichita, KS 67202
BANK IV FBO................................................ 1,142,019 Shares 9.27%
FFC S&I
100 North Market Street
Wichita, KS 67202
PREMIUM CLASS
Furman Selz Inc............................................ 565 Shares 98.94%
230 Park Avenue
New York, NY 10169
</TABLE>
AGGRESSIVE STOCK APPRECIATION FUND
<TABLE>
<S> <C> <C>
SERVICE CLASS
BANK IV FBO................................................ 248,413 Shares 5.48%
WTA Surg. Gr. P.A.
100 North Market St.
Wichita, KS 67202
BANK IV FBO................................................ 266,826 Shares 5.89%
Fourth Fin. Pension
100 North Market Street
Wichita, KS 67202
PREMIUM CLASS
Furman Selz Inc............................................ 561 Shares 98.94%
230 Park Avenue
New York, NY 10169
</TABLE>
VALUE STOCK APPRECIATION FUND
<TABLE>
<S> <C> <C>
SERVICE CLASS
BANK IV FBO................................................ 146,486 Shares 7.21%
McElroy MPP
100 North Market St.
Wichita, KS 67202
BANK IV FBO................................................ 228,860 Shares 11.27%
Explorer Retirement
100 North Market Street
Wichita, KS 67202
</TABLE>
31
<PAGE> 33
VALUE STOCK APPRECIATION FUND
<TABLE>
<S> <C> <C>
BANK IV FBO................................................ 105,962 Shares 5.22%
Chandler USA
100 North Market Street
Wichita, KS 67202
BANK IV FBO................................................ 107,644 Shares 5.30%
Creek Nation MPP
100 North Market Street
Wichita, KS 67202
PREMIUM CLASS
Furman Selz Audit Acct..................................... 4 Shares 66.50%
P.O. Box 4490
New York, NY
IFTC Cust. for the IRA of Furman Selz Mutual Funds......... 2 Shares 33.50%
P.O. Box 4490
Grand Central Station
New York, NY 10163
</TABLE>
CUSTODIAN TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
BANK IV Kansas, N.A. acts as custodian of the Trust's assets. Furman Selz
acts as transfer agent for the Funds. The Trust compensates Furman Selz for
providing personnel and facilities to perform transfer agency related services
for the Trust at a rate intended to represent the cost of providing such
services. The International Equity Fund pays no custodian fees as long as all of
its assets are invested in another mutual fund, but incurs its pro-rata portion
of the custody fees of Chase Manhattan Bank as Portfolio Custodian. The Trustees
of the Portfolio have reviewed and approved custodial arrangements for
securities held outside of the United States in accordance with Rule 17f-5 of
the 1940 Act.
EXPERTS
Price Waterhouse LLP has been selected as the independent accountants for
the Trust. Price Waterhouse LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of certain SEC
filings. Price Waterhouse LLP's address is 1177 Avenue of the Americas, New
York, NY 10036.
YIELD AND PERFORMANCE INFORMATION
The Funds may, from time to time, include their yield, effective yield, tax
equivalent yield and average annual total return in advertisements or reports to
shareholders or prospective investors.
Current yield for the Money Market Funds will be based on the change in the
value of a hypothetical investment (exclusive of capital changes such as gains
or losses from the sale of securities and unrealized appreciation and
depreciation) over a particular seven-day period, less a pro-rata share of each
Fund's expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by 365/7,
with the resulting yield figure carried to at least the nearest hundredth of one
percent. "Effective yield" for the Money Market Funds assumes that all dividends
received during the base period have been reinvested. Calculation of "effective
yield" begins with the
32
<PAGE> 34
same "base period return" used in the calculation of yield, which is then
annualized to reflect weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)365/7] - 1.
Quotations of yield for the Non-Money Market Funds will be based on the
investment income per share earned during a particular 30-day period, less
expenses accrued during a period ("net investment income") and will be computed
by dividing net investment income by the maximum offering price per share on the
last day of the period, according to the following formula:
YIELD = 2[(a-b + 1) to the sixth power -1]
---
cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of any reimbursements), c = the average daily number of
shares outstanding during the period that were entitled to receive dividends,
and d = the maximum offering price per share on the last day of the period.
Quotations of tax-equivalent yield for Kansas Tax-Exempt Fund and the U.S.
Intermediate Tax-Exempt Fund will be calculated according to the following
formula:
TAX EQUIVALENT YIELD = ( E )
---
1-p
E = tax-exempt yield
p = stated income tax rate
Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in a Fund
over periods of 1, 5 and 10 years and since inception (up to the life of the
Fund), calculated pursuant to the following formula:
P (1 + T)(n) = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures will reflect the deduction of the maximum sales charge and a
proportional share of Fund expenses (net of certain reimbursed expenses) on an
annual basis, and will assume that all dividends and distributions are
reinvested when paid.
Quotations of yield and total return will reflect only the performance of a
hypothetical investment in the Funds during the particular time period shown.
Yield and total return for the Funds will vary based on changes in the market
conditions and the level of the Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its yields or total return to current or
prospective unit holders, the Funds also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indexed which may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs.
Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, or other unmanaged indices so that investors may compare the
Funds' results with those of a group of unmanaged securities
33
<PAGE> 35
widely regarded by investors as representative of the securities markets in
general; (ii) other groups of mutual funds tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds by
overall performance, investment objectives, and assets, or tracked by other
services, companies, publications, or persons who rank mutual funds on overall
performance or other criteria; and (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
Investors who purchase and redeem shares of the Funds through a customer
account maintained at a Service Organization may be charged one or more of the
following types of fees as agreed upon by the Service Organization and the
investor, with respect to the customer services provided by the Service
Organization: account fees (a fixed amount per month or per year); transaction
fees (a fixed amount per transaction processed); compensating balance
requirements (a minimum dollar amount a customer must maintain in order to
obtain the services offered); or account maintenance fees (a periodic charge
based upon a percentage of the assets in the account or of the dividends paid on
those assets). Such fees will have the effect of reducing the yield and average
annual total return of the Funds for those investors. Investors who maintain
accounts with the Trust as transfer agent will not pay these fees.
FINANCIAL STATEMENTS
Attached hereto are the following audited financial statements for the
Funds dated June 30, 1995.
34
<PAGE> 1
Exhibit 17(e)
FINANCIAL
DIRECTION May 10, 1996
THE
PILOT
FUNDS
PILOT GROWTH
FUND
PILOT DIVERSIFIED BOND
INCOME FUND
Pilot Shares
Prospectus Enclosed
1
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
EXPENSE SUMMARY 4
FINANCIAL HIGHLIGHTS 4
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS 6
Pilot Growth Fund 6
Pilot Diversified Bond Income Fund 7
PORTFOLIO INSTRUMENTS AND PRACTICES 8
RISK FACTORS 14
FUNDAMENTAL LIMITATIONS 14
INVESTING IN THE PILOT FUNDS 15
HOW TO BUY SHARES 15
HOW TO SELL SHARES 16
DIVIDENDS AND DISTRIBUTIONS 17
EXCHANGE PRIVILEGE 18
THE PILOT FAMILY OF FUNDS 18
THE BUSINESS OF THE FUND 19
FUND MANAGEMENT 19
TAX IMPLICATIONS 23
MEASURING PERFORMANCE 24
2
<PAGE> 3
THE PILOT FUNDS
PROSPECTUS FOR PILOT SHARES OF THE PILOT GROWTH AND PILOT DIVERSIFIED BOND
INCOME FUNDS
May 10, 1996
<TABLE>
<CAPTION>
PILOT FUND GOAL FOR INVESTORS WHO WANT
---------- ---- ----------------------
<S> <C> <C>
GROWTH Long-term capital growth through Capital growth over the long
investments primarily in equity term and are willing to
securities. accept the relative risks
associated with equity
investments.
DIVERSIFIED BOND Current income consistent with Current income from debt
INCOME preservation of capital by securities and are willing
investing primarily in debt to accept fluctuations in
securities. The Fund seeks price and yield.
total return as a secondary
objective and will have an average
weighted maturity of from five to
fifteen years.
</TABLE>
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 FUNDS INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. IN ADDITION, THE
AMOUNT OF DIVIDENDS PAID BY A FUND WILL GO UP AND DOWN. BOATMEN'S TRUST
COMPANY SERVES AS INVESTMENT ADVISER TO THE FUNDS, IS PAID A FEE FOR ITS
SERVICES, AND IS NOT AFFILIATED WITH PILOT FUNDS DISTRIBUTORS, INC., THE FUNDS'
DISTRIBUTOR.
This Prospectus describes Pilot Shares of the Pilot Growth and Pilot
Diversified Bond Income Funds. Pilot Shares are sold by Pilot Funds
Distributors, Inc. and selected broker-dealers to Boatmen's Trust Company, St.
Louis, Missouri ("Boatmen's") and its affiliated banks acting on behalf of
themselves and persons maintaining qualified trust, agency or custodial
accounts at such banks. Pilot Shares are sold and redeemed without payment of
any purchase or redemption charge imposed by the Funds, although Boatmen's and
its affiliated banks may charge their customer accounts for services provided
in connection with the purchase or redemption of shares. This Prospectus
describes concisely the information about the Funds that you should know before
investing. Please read it carefully and keep it for future reference.
More information about the Funds 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. The Statement of Additional Information, as it may be
revised from time to time, is dated May 10, 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.
3
<PAGE> 4
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 a 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 Funds' shareholder transaction
expenses and the operating expenses which the Funds expect to incur during the
current fiscal year on their Pilot Shares. Examples based on this information
are also provided.
PILOT SHARES
<TABLE>
<CAPTION>
PILOT DIVERSIFIED
PILOT GROWTH BOND INCOME
FUND FUND
---- ----
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases
(as a percentage of offering price) None None
Sales Charge Imposed on Reinvested Dividends None None
Deferred Sales Charge None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE
WAIVERS AND EXPENSE REIMBURSEMENTS (as a
percentage of average net assets):
Management Fees (after fee waivers)(1) 0.50% 0.40%
Distribution Payments 0.00% 0.00%
Other Expenses (after expense reimbursements)(2) 0.25% 0.25%
---- ----
Total Fund Operating
Expenses After Fee
Waivers and Expense
Reimbursements(1) 0.75% 0.65%
==== ====
</TABLE>
(1) 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 one of the Funds. The Adviser has agreed to waive a
portion of its management fee for each Fund until August 31, 1996.
Without waivers by the Adviser, investment management fees as a
percentage of net assets would be 0.75% and 0.55% for the Pilot Growth
and Pilot Diversified Bond Income Funds, respectively. The Adviser
and Administrator also have agreed to reimburse a portion of the
operating expenses of Pilot Shares of the Funds until August 31, 1996.
Absent the reimbursement of expenses, Other Expenses would be 0.77%
for Pilot Growth Fund and Pilot Diversified Bond Income Fund. Absent
waivers and expense reimbursements, the total operating expenses for
Pilot Shares of the Funds would be 1.52% for the Pilot Growth Fund and
1.32% for the Pilot Diversified Bond Income Fund.
(2) "Other Expenses" are based on estimated amounts for the current fiscal
year.
4
<PAGE> 5
EXAMPLE: Assume that the annual return on each of the Funds is 5%, and that
their 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
YEAR AFTER YEARS AFTER
PURCHASE PURCHASE
-------- --------
<S> <C> <C>
PILOT GROWTH FUND
Pilot Shares $8 $24
PILOT DIVERSIFIED BOND INCOME FUND
Pilot Shares $7 $21
</TABLE>
The Example shown above should not be considered a representation of future
investment returns or operating expenses. The Funds are new and actual
investment returns and operating expenses may be more or less than those shown.
5
<PAGE> 6
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The Pilot Funds use different investments and investment techniques in seeking
to achieve a Fund's investment objective. Each Fund does not use all of the
investments and investment techniques described below, which involve various
risks, and which are also described in the following sections. You should
consider whether one or both of the Funds best meets your investment goals.
Although each Fund will attempt 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 a Fund. However, shareholders will be given
at least 30 days' prior written notice in the event of a change in a Fund's
investment objective. If there is a change in investment objective,
shareholders should consider whether a Fund remains an appropriate investment
in light of their current financial position and needs. Unless otherwise
stated, each investment policy described below may be changed at any time by
The Pilot Funds' Board of Trustees without shareholder approval.
Pilot Growth Fund
The Pilot Growth Fund offers investors a means of participating in the equity
securities market.
The investment objective of the Pilot Growth Fund is to provide long-term
capital growth by investing primarily in equity securities. Under normal
circumstances, the Fund will invest at least 65% of its total assets in common
stock, warrants, and options to purchase common stock.
In making investment decisions for the Fund, the Adviser classifies
approximately 1000 companies by market value and growth characteristics on a
quarterly basis. Due to the number of possible growth stock investments, the
Adviser uses a selection process employing advanced quantitative techniques to
identify buy and sell candidates in an effort to select and hold those
companies which appear able to consistently achieve superior returns by
reinvesting profits into attractive new projects and products. Dividend income
is, therefore, incidental and not an objective of the Fund. The Adviser's
sophisticated investment approach uses an internally designed valuation process
which measures the persistence of future cash flows, the acceleration of
profitability, and evaluates a companies revenue generation relative to its
stock price. The goal of this investment process is to identify businesses
where superior growth appears sustainable and avoid or sell companies where
growth is beginning to deteriorate. The Fund will concentrate on long-term
growth industries where market leaders produce superior products and/or
services and demonstrate a competitive advantage.
The Pilot Growth Fund may also acquire debt obligations, including both
convertible and non-convertible corporate and government bonds, debentures,
zero coupon bonds and cash equivalents. "Cash equivalents" include commercial
paper (which is unsecured promissory notes issued by corporations);
certificates of deposit, bankers' acceptances, notes and time deposits issued
or supported by U.S. or foreign banks and savings institutions; repurchase
agreements; variable or floating rate notes; U.S. Government obligations;
and money market mutual fund shares. Under normal conditions, the Fund will
not invest more than 10% of its total assets in debt obligations, unless the
Fund assumes a temporary defensive position as discussed below. The Fund will
purchase only those debt obligations which are rated AA or better by at least
one Nationally Recognized Statistical Rating Organization ("NRSRO") or, if
unrated, are determined by the Adviser to be of comparable quality. (A
description of applicable ratings is attached to the Statement of Additional
Information as Appendix A.)
6
<PAGE> 7
The Fund may invest in the securities of foreign issuers, either directly in
the securities of such issuers or indirectly through American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs"). ADRs are receipts
typically issued by a United States bank or trust company, and EDRs are
receipts issued by a European financial institution evidencing ownership of the
underlying foreign securities. ADRs, in registered form, are designed for use
in the United States securities markets, while EDRs, in bearer form, are
generally designed for use in the European securities markets. These
securities may not be denominated in the same currency as the securities they
represent. The Fund will not invest more than 10% of its total assets in
foreign securities.
The Fund may also invest in futures contracts and options. From time to time,
the Funds may hold cash reserves that do not earn income. For a further
description of the Fund's policies with respect to convertible securities,
foreign securities and other instruments, see "Portfolio Instruments and
Practices" and "Risk Factors" below.
The Fund reserves the right to invest up to 100% of its assets in cash, cash
equivalents and debt obligations when the Adviser believes such a position is
advisable for temporary defensive purposes during periods of unusual market or
economic activity.
Pilot Diversified Bond Income Fund
The Pilot Diversified Bond Income Fund offers investors a means of
participating in the fixed income securities market.
The investment objective of the Pilot Diversified Bond Income Fund is to seek
current income consistent with preservation of capital by investing
primarily in debt securities. The Fund seeks total return as a secondary
objective. While there are no restrictions on the maturity of individual
securities selected by the Fund, the Fund's average weighted maturity will be
between five and fifteen years except during temporary defensive periods or
unusual market conditions.
Under normal circumstances, the Pilot Diversified Bond Income Fund invests at
least 65% of its total assets in "bonds", which term refers to instruments
identified as bond as well as debt securities debt obligations of both
U.S. and foreign corporate and government issuers. The Fund does not currently
intend to invest more than 10% of its total assets in foreign securities.
See "Pilot Growth Fund" above for a description of ADRs, EDRs, and cash
equivalents. The Fund will purchase only those debt securities rated A or
better by at least one NRSRO or, if unrated, determined by the Adviser to be of
comparable quality. If a portfolio security ceases to be rated at least A or if
the Adviser determines that an unrated security held by the Fund is no longer of
comparable quality, the Fund may continue to hold that security so long as the
security is rated at least BBB (or its equivalent) by at least one NRSRO or, if
unrated, is determined by the Adviser to be of comparable quality. The value of
such downgraded securities will not exceed 35% of the Fund's total assets.
The Fund may also invest in futures contracts and options. From time to time,
the Fund may also hold uninvested cash reserves which do not earn income. For
a further description of the Fund's policies with respect to foreign securities
and other instruments, see "Portfolio Instruments and Practices" and "Risk
Factors" below.
The value of the Fund's portfolio (and consequently its shares) is expected to
fluctuate inversely in relation to changes in the direction of interest rates.
7
<PAGE> 8
PORTFOLIO INSTRUMENTS AND PRACTICES
- --U.S. Government Obligations. EACH FUND may invest in securities issued or
guaranteed by the U.S. Government, as well as in obligations issued or
guaranteed by U.S. Government agencies and instrumentalities. Securities
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and times of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one
to ten years; and Treasury Bonds generally have initial maturities of greater
than ten years. Some obligations issued or guaranteed by certain U.S.
Government agencies and instrumentalities, such as the Government National
Mortgage Association, are supported by the U.S. Treasury; others, like the
Export-Import Bank, are supported by the issuer's right to borrow from the
Treasury; others, including the Federal National Mortgage Association, are
backed by the discretionary ability of the U.S. Government to purchase the
entity's obligations; and still others, like the Student Loan Marketing
Association, are backed solely by the issuer's credit. U.S. Government
obligations also include U.S. Government-backed trusts that hold obligations of
foreign governments and are guaranteed or backed by the full faith and credit
of the United States. There is no assurance that the U.S. Government would
support a U.S. Government-sponsored entity were it not required to do so by
law.
- --Asset-Backed and Mortgage-Backed Securities. EACH FUND may invest in
asset-backed securities (i.e. securities backed by installment sale contracts,
credit card receivables or other assets.) In addition, each Fund may make
significant investments in U.S. Government securities that are backed by
adjustable or fixed rate mortgage loans. The rate of prepayments on
asset-backed instruments and hence the life of the security, will be primarily
a function of current market rates and current conditions in the relevant
market. In calculating the average weighted maturity of a Fund's portfolio,
the maturity of asset-backed instruments will be based on estimates of average
life. The relationship between prepayments and interest rates may give some
high-yielding asset-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of prepayment tends to increase. During such
periods, the reinvestment of prepayment proceeds by a Fund will generally be at
lower rates than the rates that were carried by the obligations that have been
prepaid. Because of these and other reasons, an asset-backed security's total
return may be difficult to predict precisely. To the extent a Fund purchases
asset-backed securities at a premium, prepayments (which often may be made at
any time without penalty) may result in some loss of a Fund's principal
investment to the extent of any premiums paid.
The timely payment of principal and interest on mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association ("GNMA")
is backed by GNMA and the full faith and credit of the U.S. Government. These
guarantees, however, do not apply to the market value or yield of
mortgage-backed securities or the value of a Fund's shares. Also, GNMA and
other mortgage-backed securities may be purchased at a premium over the
maturity value of the underlying mortgages. This premium is not guaranteed and
will be lost if prepayment occurs. Each Fund may also invest in
mortgage-backed securities of other issuers, such as the Federal National
Mortgage Association, which are not guaranteed by the U.S. Government.
Moreover, each Fund may invest in debt securities which are secured with
collateral consisting of mortgage-backed securities and in other types of
mortgage-related securities. Unscheduled or early payments on the underlying
mortgage may shorten the effective maturities of mortgage-backed securities and
lessen their growth potential. A Fund may agree to purchase or sell these
securities with payment and delivery taking place at a future date. A decline
in interest rates may lead to a faster rate of repayment of the underlying
mortgages and expose a Fund to a lower rate of return on reinvestment. To the
extent that such mortgage-backed securities are
8
<PAGE> 9
held by a Fund, the prepayment right of mortgagors may limit the increase in
net asset value of the Fund because the value of the mortgage-backed securities
held by the Fund does not appreciate as rapidly as the price of non-callable
debt securities.
- --Corporate Obligations. EACH FUND may purchase corporate bonds and cash
equivalents that meet a Fund's quality and maturity limitations. These
investments may include obligations issued by Canadian corporations and
Canadian counterparts of U.S. corporations, Eurobonds, which are U.S.
dollar-denominated obligations of foreign issuers, and Yankee bonds, which are
U.S. dollar-denominated bonds issued by foreign issuers in the U.S., and
equipment trust certificates. Each Fund may also purchase obligations issued
by foreign corporations. Corporate bonds are subject to call risk during
periods of falling interest rates. Securities with high stated interest rates
may be prepaid (or called) prior to maturity, requiring a Fund to invest the
proceeds at generally lower interest rates.
Cash equivalents, such as commercial paper and other similar obligations
purchased by a Fund that have an original maturity of thirteen months or less,
will either have short-term ratings at the time of purchase in the top two
categories by one or more NRSROs or be issued by issuers with such ratings.
Unrated instruments of these types purchased by a Fund will be determined by
the Adviser to be of comparable quality.
- --Repurchase Agreements. EACH FUND may enter into repurchase agreements which
involve a purchase of portfolio securities subject to the seller's agreement to
repurchase them at an agreed upon time and price. The Funds will enter into
repurchase agreements only with financial institutions (such as banks and
broker-dealers) deemed to be creditworthy by the Adviser, pursuant to
guidelines established by the Board of Trustees. The term of these agreements
is usually from overnight to one week and in any event, the Funds intend that
such agreements will not have maturities longer than 60 days.
A repurchase agreement may be viewed as a fully collateralized loan of money by
a Fund to the seller. During the term of any repurchase agreement, the Adviser
will monitor the creditworthiness of the seller, and the seller must maintain
the value of the securities subject to the agreement in an amount that is
greater than the repurchase price. Default or bankruptcy of the seller would,
however, expose a Fund to possible loss because of adverse market action or
delays connected with the disposition of the underlying obligations. Because
of the seller's repurchase obligation, the securities subject to repurchase
agreements do not have maturity limitations.
- --Reverse Repurchase Agreements. EACH FUND is authorized to make limited
borrowings for temporary purposes by entering into reverse repurchase
agreements. Under such an agreement a Fund sells portfolio securities to
financial institutions (such as banks and broker-dealers) and then buys them
back later at an agreed-upon time and price. When a Fund enters into a reverse
repurchase agreement it will place in a separate custodial account either
liquid assets or high grade debt securities that have a value equal to or more
than the price a Fund must pay when it buys back the securities, and the
account will be continuously monitored by the Adviser to make sure the
appropriate value is maintained. Reverse repurchase agreements involve the
possible risk that the value of portfolio securities a Fund relinquishes may
decline below the price a Fund must pay when the transaction closes. Interest
paid by a Fund in a reverse repurchase or other borrowing transaction will
reduce a Fund's income. The Funds will only enter into reverse repurchase
agreements to avoid the need to sell portfolio securities to meet redemption
requests during unfavorable market conditions.
- --Variable and Floating Rate Instruments. EACH FUND may purchase variable and
floating rate instruments. These instruments may include variable amount
master demand notes, which are instruments under which the indebtedness
represented by the instrument as well as its interest rate may vary. Because
of the absence of a market in which to resell
9
<PAGE> 10
variable or floating rate instruments, a Fund might have trouble selling an
instrument should the issuer default or during periods when a Fund is not
permitted by agreement to demand payment of the instrument, and for this or
other reasons a loss could occur with respect to the instrument.
- --Zero Coupon Securities. EACH FUND may invest in zero coupon securities. Zero
coupon securities are debt obligations which do not entitle the holder to any
periodic payments of interest prior to maturity or a specified date when the
securities begin paying current interest (the "cash payment date") and
therefore are issued and traded at a discount from their face amounts or par
value. Such bonds carry an additional risk in that, unlike bonds which pay
interest throughout the period to maturity, a Fund will realize no cash until
the cash payment date and, if the issuer defaults, the Fund may obtain no
return at all on its investment.
A Fund will be required to include in income daily portions of original issue
discount accrued which will cause the Fund to be required to make distributions
of such amounts to shareholders annually, even if no payment is received before
the distribution date. These distributions must be made from the Fund's cash
assets or, if necessary, from the proceeds of sales of portfolio securities.
The Fund will not be able to purchase additional income producing securities
with cash used to make such distributions and its current income ultimately may
be reduced as a result.
- --Stripped Securities. EACH FUND may invest in instruments known as "stripped"
securities. These instruments include U.S. Treasury bonds and notes and
federal agency obligations on which the unmatured interest coupons have been
separated from the underlying obligation. These obligations are usually issued
at a discount to their "face value", and because of the manner in which
principal and interest are returned may exhibit greater price volatility than
more conventional debt securities. Each Fund may invest in "interest only"
stripped securities that have been issued by a federal instrumentality known as
the Resolution Funding Corporation and other stripped securities issued or
guaranteed by the U.S. Government, where the principal and interest components
are traded independently under the Separate Trading of Registered Interest and
Principal Securities program ("STRIPS"). Each Fund may also invest in
instruments that have been stripped by their holder, typically a custodian bank
or investment brokerage firm, and then resold in a custodian receipt program
under names such as TIGRS (Treasury Income Growth Receipts) and CATS
(Certificates of Accrual on Treasuries).
In addition, EACH FUND may purchase stripped mortgage-backed securities
("SMBS") issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks and other institutions.
SMBS, in particular, may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.
- --Participations and Trust Receipts. EACH FUND may purchase from domestic
financial institutions and trusts created by such institutions participation
interests and trust receipts in high quality debt securities. A participation
interest or receipt gives a Fund an undivided interest in the security in the
proportion that a Fund's participation interest or receipt bears to the total
principal amount of the security. Each Fund intends only to purchase
participations and trust receipts from an entity or syndicate, and do not
intend to serve as a co-lender in any such activity.
- --When-Issued Purchases, Forward Commitments and Delayed Settlements. EACH FUND
may purchase securities on a "when-issued" basis and purchase or sell
securities on a "forward commitment" basis. Additionally, the Funds may
purchase or sell securities on a "delayed settlement" basis.
10
<PAGE> 11
When-issued and forward commitment transactions, which involve a commitment by
a Fund to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), permit a Fund
to lock-in a price or yield on a security it intends to purchase or sell,
regardless of future changes in interest rates. Delayed settlement refers to a
transaction in the secondary market that will settle some time in the future.
These transactions involve the risk that the price or yield obtained may be
less favorable than the price or yield available when the delivery takes place.
When-issued purchases, forward commitments and delayed settlement transactions
are not expected to exceed 25% of the value of a Fund's total assets under
normal circumstances. In the event a Fund's when-issued purchases, forward
commitments and delayed settlement transactions ever exceeded 25% of the value
of its total assets, a Fund's liquidity and the ability of the Adviser to
manage the Fund might be adversely affected. These transactions will not be
entered into for speculative purposes but only in furtherance of a Fund's
investment objective.
- --Other Investment Companies. EACH FUND may invest in the securities of other
mutual funds that invest in the particular instruments in which a Fund itself
may invest subject to requirements of applicable securities laws. The Trust,
on behalf of each of the Funds, has sought relief from the SEC to permit each
Fund to invest in affiliated money market funds. Such relief is currently
pending before the SEC, and neither Fund will invest in an affiliated money
market fund unless and until relief is granted. When a Fund invests in another
mutual fund, it pays a pro rata portion of the advisory and other expenses of
that fund as a shareholder of that fund. These expenses are in addition to the
advisory and other expenses a Fund pays in connection with its own operations.
The Adviser may waive its advisory fee on that portion of any Fund's assets
which are invested in the securities of affiliated money market funds managed by
the Adviser or any of its affiliates.
- --Securities Lending. EACH FUND may lend securities held in its portfolio to
financial institutions (such as banks and broker-dealers) as a means of earning
additional income. These loans present risks of delay in receiving additional
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially.
However, securities loans will be made only to financial institutions the
Adviser deems to be of good standing, and will only be made if the Adviser
thinks the possible rewards from such loan justify the possible risks. A loan
will not be made if, as a result, the total amount of a Fund's outstanding
loans exceeds 33 1/3% of its total assets. Securities loans will be fully
collateralized.
- --Mortgage Rolls. THE PILOT DIVERSIFIED BOND INCOME FUND may enter into
transactions known as "mortgage dollar rolls" in which the Fund sells
mortgage-backed securities for current delivery and simultaneously contracts to
repurchase substantially similar securities in the future at a specified price
which reflects an interest factor and other adjustments. During the roll
period, the Fund does not receive principal and interest on the mortgage-backed
securities but it does earn interest on the cash proceeds of the initial sale.
In addition, the Fund is paid a fee as consideration for entering into the
commitment to purchase. Unless a roll has been structured so that it is
"covered," meaning that there exists an offsetting cash or cash-equivalent
security position that will mature at least by the time of settlement of the
roll transaction, cash or U.S. Government securities or other liquid high grade
debt instruments in the amount of the future purchase commitment will be set
apart for the Fund in a separate account at the custodian. Mortgage rolls are
not a primary investment technique for the Fund, and it is expected that, under
normal market conditions, the Fund's commitments under mortgage rolls will not
exceed 10% of the value of its total assets.
- --Options. EACH FUND may write covered call options, buy put options, buy call
options and sell, or "write," secured put options on particular securities or
various securities indices. A call option for a particular security gives the
purchaser of the option the right to buy, and a writer the obligation to sell,
the underlying security at the stated
11
<PAGE> 12
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security. The premium paid to the writer is the
consideration for undertaking the obligations under the option contract. A put
option for a particular security gives the purchaser the right to sell the
underlying security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
In contrast to an option on a particular security, an option on a securities
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option.
Options purchased by a Fund will not exceed 5%, and options written by a Fund
will not exceed 25%, of its net assets.
OPTIONS TRADING IS A HIGHLY SPECIALIZED ACTIVITY AND MAY CARRY GREATER THAN
ORDINARY INVESTMENT RISK. Purchasing options may result in the complete loss of
the amounts paid as premiums to the writer of the option. In writing a covered
call option, a Fund gives up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price (except to the
extent the premium represents such a profit). Moreover, it will not be able to
sell the underlying security until the covered call option expires or is
exercised or a Fund closes out the option. In writing a secured put option, a
Fund assumes the risk that the market value of the security will decline below
the exercise price of the option. The Funds may use options to manage their
exposure to changing interest rates and/or security prices. The use of covered
call and secured put options will not be a primary investment technique of any
Fund.
- --Futures and Related Options. EACH FUND may enter into futures contracts and
options on such futures contracts to protest against the effect of anticipated
market or interest rate fluctuations on securities that a Fund holds in its
portfolio or intends to sell or purchase. Futures contracts obligate a Fund,
at maturity, to take or make delivery of certain securities or the cash value
of a securities index. A Fund may not purchase or sell a futures contract (or
related option) except for bona fide hedging purposes unless immediately after
any such transaction the sum of the aggregate amount of margin deposits on its
existing futures positions and the amount of premiums paid for related options
is 5% or less of its total assets (after taking into account certain technical
adjustments).
EACH FUND may also purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Fund purchases an option on a
futures contract, it has the right to assume a position as a purchaser or
seller of a futures contract at a specified exercise price at any time during
the option period. When a Fund sells an option on a futures contract, it
becomes obligated to purchase or sell a futures contract if the option is
exercised. In anticipation of a market advance, a Fund may purchase call
options on futures contracts as a substitute for the purchase of futures
contracts to hedge against a possible increase in the price of securities which
a Fund intends to purchase. Similarly, if the value of a Fund's portfolio
securities is expected to decline, the Fund might purchase put options or sell
call options on futures contracts rather than sell futures contracts.
More information regarding futures contracts and related options can be found
in the Statement of Additional Information, which is available upon request.
- --Forward Foreign Currency Exchange Contracts. Because EACH FUND and may buy
and sell securities and receive dividend and interest proceeds in currencies
other than the U.S. dollar, the Funds may from time to time enter into forward
foreign currency exchange contracts ("forward contracts"). 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.
12
<PAGE> 13
The purpose of entering into these contracts is to minimize the risk to the
Funds 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. The use of currency transactions can result in a 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 a Fund than the performance it would have had if
it had not engaged in forward contracts.
- --Liquidity Considerations. An illiquid investment is any investment that
cannot be disposed of within seven days in the normal course of business at
approximately the amount at which it is valued by a Fund. Disposing of
illiquid investments may involve time-consuming negotiations and legal
expenses, and it may be difficult or impossible to dispose of such investments
promptly at an acceptable price. Additionally, the absence of a trading market
can make it difficult to value a security. For these and other reasons, a FUND
WILL NOT INVEST MORE THAN 15% OF ITS NET ASSETS IN ILLIQUID SECURITIES.
Illiquid securities include repurchase agreements, securities loans and time
deposits that do not permit a Fund to terminate them after seven days notice,
certain certificates of participation, trust receipts, stripped mortgage-backed
securities issued by private issuers, over-the-counter options and securities
that are not registered under the securities laws. Certain securities that
might otherwise be considered illiquid, however, such as some issues of
commercial paper and variable amount master demand notes with maturities of
nine months or less and securities for which the Adviser has determined
pursuant to guidelines adopted by the Board of Trustees that a liquid trading
market exists (including certain securities that may be purchased by
institutional investors under SEC Rule 144A), are not subject to this 15%
limitation.
- --Portfolio Turnover. Although EACH FUND may engage in short-term trading to
achieve its investment objective, annual portfolio turnover rates for the Funds
are not expected to exceed 100% during the next twelve months. Portfolio
turnover will not be a limiting factor in making investment decisions.
Portfolio turnover may occur for a variety of reasons, including the appearance
of a more favorable investment opportunity. Turnover may require payment of
brokerage commissions, impose other transaction costs and could increase the
amount of income received by a Fund that constitutes taxable capital gains. To
the extent capital gains are realized, distributions from the gains may be
ordinary income for federal tax purposes (see "The Business of the Fund--Tax
Implications").
- --Other Information. Certain brokers who are affiliated with The Pilot Funds
may act as broker for the Funds on exchange portfolio transactions, subject,
however, to procedures adopted by the Board of Trustees. Commissions, fees or
other remuneration paid to an affiliated broker must be at least as favorable
as those which the Trustees believe to be charged by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of time.
A transaction will not be placed with an affiliated broker if a Fund would have
to pay a commission rate less favorable than the affiliated broker's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers, except for accounts for which the affiliated
broker acts as a clearing broker for another brokerage firm, and any customers
of the affiliated broker not comparable to The Pilot Funds as determined by the
Board of Trustees.
The Pilot Funds has also adopted certain procedures which enable a Fund to
purchase certain instruments during the existence of an underwriting or selling
syndicate of which an affiliated broker is a member. These procedures
establish certain limitations on the amount of securities which can be
purchased in any single offering and on the amount of a Fund's assets which may
be invested in any single offering. Because of the active role
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<PAGE> 14
which may be played by affiliated brokers in the underwriting of securities, a
Fund's ability to purchase securities in the primary market may from time to
time be limited.
RISK FACTORS
- --General Risk Considerations. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However, there are certain specific risks of which you
should be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
be aware that in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates the market value will tend
to decrease. You should also be aware that in periods of declining interest
rates, the yields of investment portfolios comprised primarily of fixed income
securities will tend to be higher than prevailing market rates and, in periods
of rising interest rates, yields will tend to be somewhat lower. The Funds may
purchase zero-coupon bonds (i.e., discount debt obligations that do not make
periodic interest payments). Zero-coupon bonds are subject to greater market
fluctuations from changing interest rates than debt obligations of comparable
maturities which make current distributions of interest. Debt securities with
longer maturities, which tend to produce higher yields, are subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities. Changes in the financial strength of an issuer or changes
in the ratings of any particular security may also affect the value of these
investments. Fluctuations in the market value of fixed income securities
subsequent to their acquisition will not affect cash income from such
securities but will be reflected in a Fund's net asset value.
The value of the equity securities held by the Pilot Growth Fund can be
expected to vary in response to a variety of factors. Stock values fluctuate
in response to the activities of individual companies and in response to
general market and economic conditions. In general, equity securities are
subject to greater fluctuations in value than fixed income securities.
Therefore, while an investment in the Pilot Growth Fund is likely to have
greater potential for total return over the long term than an investment in the
Pilot Diversified Bond Income Fund, it also presents greater risk of loss.
- --Foreign Securities. There are risks and costs involved in investing in
securities of foreign issuers (including foreign governments), which are in
addition to the usual risks inherent in U.S. investments. Investments in
foreign securities may involve higher costs than investments in U.S.
securities, including higher transaction costs as well as the imposition of
additional taxes by foreign governments. In addition, foreign investments may
involve further risks associated with the level of currency exchange rates,
less complete financial information about the issuer, less market liquidity and
political instability. Future political and economic developments, the
possible imposition of withholding taxes on interest income, the possible
seizure or nationalization of foreign holdings, the possible establishment of
exchange controls or the adoption of other governmental restrictions might
adversely affect the payment of principal and interest on foreign obligations.
Additionally, foreign banks and foreign branches of domestic banks may be
subject to less stringent reserve requirements, and to different accounting,
auditing and recordkeeping requirements.
FUNDAMENTAL LIMITATIONS
Certain of the investment policies of each Fund may not be changed without a
vote of the 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
these fundamental limitations are
14
<PAGE> 15
summarized below, and all of the Funds' fundamental limitations are set out in
full in the Statement of Additional Information, which is available upon
request.
1. A 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 described in the Statement of Additional
Information).
2. A Fund may not invest (with certain limited exceptions, including U.S.
Government obligations, as described in the Statement of Additional
Information) more than 5% of its total assets in the securities of a
single issuer or subject to puts from any one issuer, except that up to 25% of
the total assets of each Fund can be invested without regard to the 5%
limitation. A Fund may not purchase more than 10% of the outstanding voting
securities of any issuer subject, however, to the foregoing 25% exception.
3. A Fund may not borrow money except as a temporary measure for extraordinary
or emergency purposes or except in connection with reverse repurchase
agreements and mortgage rolls; provided that the Fund will maintain asset
coverage of 300% for all borrowings.
4. A Fund may not make loans, except that it may invest in debt securities,
enter into repurchase agreements and lend its portfolio securities.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
In order to permit the sale of a Fund's shares (or a particular class of
shares) in some states, The Pilot Funds may agree to certain restrictions that
may be stricter than the investment policies and limitations discussed above.
If The Pilot Funds decide that any of these restrictions is no longer in a
Fund's (or class's) best interest, it may revoke its agreement to abide by such
restriction by no longer selling shares in the state involved.
INVESTING IN THE PILOT FUNDS
HOW TO BUY SHARES
Pilot Shares are sold on a continuous basis by Pilot Funds Distributors, Inc.
(the "Distributor").
Pilot Shares are sold to Boatmen's Trust Company (referred to as "Boatmen's" or
the "Adviser") and its affiliates (Boatmen's and such affiliates being
sometimes referred to herein individually as an "Institution" and collectively
as "Institutions") acting on behalf of themselves or their customers who
maintain qualified trust, agency or custodial accounts ("Customers").
Customers may include individuals, trusts, partnerships, institutions and
corporations. All share purchases are effected through a Customer's account at
an Institution through procedures established in connection with the
requirements of the account, and confirmations of share purchases and
redemptions will be sent to the Institution involved. Institutions (or their
nominees) will normally be the holders of record of Pilot Shares acting on
behalf of their Customers, and will reflect their Customers' beneficial
ownership of shares in the account statements provided by them to their
Customers. The exercise of voting rights and the delivery to Customers of
shareholder communications from the Funds will be governed by the Customers'
account agreements with the Institutions.
Pilot Shares are sold at the net asset value per share next determined after
receipt of a purchase order from an Institution by the Fund's transfer agent.
The minimum initial
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<PAGE> 16
investment in a Fund for an Institution is $500,000 with no minimum subsequent
investment. Institutions may establish different minimum investment
requirements for their Customers and may charge their Customers certain account
fees depending on the type of account a Customer has established with the
Institution. These fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income. Information concerning these minimum account requirements,
services and any charges should be obtained from the Institutions before a
customer authorizes the purchase of Fund shares, and this Prospectus should be
read in conjunction with any information so obtained.
Purchase orders placed by an Institution for Pilot Shares must be received by
the Funds' transfer agent before the close of regular trading hours (currently
3:00 p.m. Central time) on the New York Stock Exchange (the "Exchange") on a
day when the Exchange is open for trading (a "Business Day"), 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)). Payment for shares must be made by Institutions in federal funds
or other funds immediately available to the Funds' custodian no later than 3:00
p.m. (Central time) on the Business Day immediately following placement of the
purchase order. 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.
It is the responsibility of Institutions to transmit orders for purchases by
their Customers promptly to the Funds in accordance with their agreements with
their Customers, and to deliver required investments on a timely basis. If
federal funds are not received within the period described, the order will be
canceled, notice will be given, and the Institution will be responsible for any
loss to The Pilot Funds or its beneficial shareholders. Payments for shares of
a Fund may, at the discretion of the Adviser, be made in the form of securities
that are permissible investments for that Fund. For further information see
"In-Kind Purchases" in the Statement of Additional Information.
Purchase orders must include the purchasing Institution's tax identification
number. The Pilot Funds reserves the right to reject any purchase order or to
waive the minimum initial investment requirement. Payment for orders which are
not received or accepted will be returned after prompt notice. The issuance of
shares is recorded in the shareholder records of the Funds, and share
certificates will not be issued.
HOW TO SELL SHARES
Redemption orders are effected at the net asset value per share next determined
after receipt of the order from an Institution by The Pilot Funds' transfer
agent. The Pilot Funds imposes no charges when Pilot Shares are redeemed.
Institutions may charge fees to their Customers for their services in
connection with the instructions and limitations pertaining to the account at
the Institution.
The Funds may suspend the right of redemption or postpone the date of payment
upon redemption (as well as suspend the recordation of the transfer of its
shares) for such periods as permitted under the Investment Company Act of 1940.
The Pilot Funds intends to pay cash for all shares redeemed, but in unusual
circumstances may make payment wholly or partly in readily marketable portfolio
securities at their then market value equal to the redemption price if it
appears appropriate to do so in light of the Funds' responsibilities under the
Investment Company Act of 1940. See the Statement of Additional Information
("Additional Purchase and Redemption Information") for examples of when such
redemptions might be appropriate. In those cases, an investor
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<PAGE> 17
may incur brokerage costs in converting securities to cash. The Funds may also
redeem shares involuntarily if the balance has fallen below the minimum level
due to shareholder redemptions and not as a result of market fluctuations.
It is the responsibility of the Institutions to provide their customers with
statements of account with respect to transactions made for their accounts at
the Institutions.
Share balances may be redeemed pursuant to arrangements between Institutions
and their Customers. It is the responsibility of an Institution to transmit
redemption orders to The Pilot Funds' transfer agent and to credit its
Customers' accounts with the redemption proceeds on a timely basis. The
redemption proceeds for all Funds are normally wired to the redeeming
Institution the following Business Day after receipt of the order by the
transfer agent. The Pilot Funds reserves the right, however, to delay the
wiring of redemption proceeds for up to seven days after receipt of a
redemption order if, in the judgment of the Adviser, an earlier payment could
adversely affect a Fund.
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 net asset value of shares that are redeemed may be more or less than their
original cost, depending on a Fund's current net asset value.
Explanation of Sales Price
Pilot Shares of the Funds are sold at net asset value. Net asset value per
share is determined on each Business Day (as defined above) at 3:00 p.m.
(Central time) with respect to each Fund by adding the value of a Fund's
investments, cash and other assets attributable to its Pilot Shares,
subtracting the Fund's liabilities attributable to those shares, and then
dividing the result by the number of Pilot Shares in the Fund that are
outstanding. The assets of the Funds 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 these Funds that have sixty days or
less until they mature are valued at amortized cost, which generally
approximates market value. More information about valuation can be found in
the Funds' Statement of Additional Information, which is available upon
request.
DIVIDENDS AND DISTRIBUTIONS
Where do your dividends and distributions come from?
Dividends for each Fund are derived from its net investment income. For the
Pilot Diversified Bond Income Fund, it comes from the interest on the bonds and
other investments that it holds in its portfolio. For the Pilot Growth Fund,
net investment income is made up of dividends received from the stocks it
holds, as well as interest accrued on convertible securities, money market
instruments and other debt obligations held in its portfolio.
The Funds realize capital gains when they sell a security for more than its
cost. Each Fund may make distributions of its net realized capital gains, if
any, after any reductions for capital loss carryforwards.
What are your dividend and distribution options?
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<PAGE> 18
Shareholders of record receive dividends and net capital gain distributions.
Dividends and distributions will be paid in cash unless you specifically elect
to receive payment in additional shares of the same share class of a Fund for
which the dividend or distribution was declared. Your election and any
subsequent change should be made in writing to your Institution.
Your election is effective for dividends and distributions with record dates
(with respect to the Pilot Growth Fund) or payment dates (with respect to the
Pilot Diversified Bond Income Fund) after the date the Institution receives the
election.
When are dividends and distributions declared and paid?
<TABLE>
<CAPTION>
DIVIDENDS DIVIDENDS
FUND ARE DECLARED ARE PAID
---- ------------ --------
<S> <C> <C>
Pilot Growth Fund Monthly Monthly
Pilot Diversified Bond Income Fund(1) Daily Monthly within five
business days of
month end
</TABLE>
(1) Shares of the Pilot Diversified Bond Income Fund begin earning
dividends the first Business Day after acceptance of the purchase
order for which The Pilot Funds' custodian has received payment and
stop earning dividends the Business Day such shares are redeemed.
With respect to the Pilot Diversified Bond Income Fund, if all of the Pilot
Shares held by an Institution in such a Fund are redeemed, the Fund will make a
cash payment of any accrued dividends within five business days after
redemption.
Net capital gain distributions for each of the Funds, if any, are distributed
at least annually after any reductions for capital loss carryforwards.
EXCHANGE PRIVILEGE
If you wish, Pilot Shares of a Fund may be exchanged for Class A Shares of the
same Fund in connection with the distribution of assets held in a qualified
trust, agency or custodial account maintained with Boatmen's or its affiliates.
Similarly, a Customer may exchange Class A Shares for Pilot Shares of the same
Fund if the shares are to be held in such a qualified trust, agency or
custodial account. Pilot Shares of a Fund may also be exchanged for Pilot
Shares of any of the other investment portfolios of The Pilot Funds. These
exchanges are made without a sales charge at the net asset value of the
respective share classes or Fund. The particular class of shares or Fund you
are exchanging into must be registered for sale in your state. 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 Securities
and Exchange Commission.
THE PILOT FAMILY OF FUNDS
The Pilot Funds was organized on July 15, 1982 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 Agreement and Declaration of
Trust permits the Board of Trustees of The Pilot Funds to create separate
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<PAGE> 19
series or portfolios of shares. To date, fourteen 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. The Trustees have authorized the issuance of an unlimited
number of shares in each of three share classes (Pilot Shares, Class A Shares
and Class B Shares) in the Funds. Each Fund is classified as a diversified
company. Information regarding The Pilot Funds' other portfolios may be
obtained by contacting The Pilot Funds or the Distributor.
The Pilot Shares of the Funds are described in this prospectus. The Funds also
offer Class A and Class B Shares. Class A Shares are sold with maximum 4.5%
and 4.0% front-end sales charges, and Class B Shares are sold with maximum 4.5%
and 4.0% contingent deferred sales charges. Pilot, Class A and Class B Shares
bear their pro rata portion of all operating expenses paid by the Funds. In
addition, Class A and Class B Shares bear all payments under the Funds'
Distribution Plans (the "Plans"). Under the Plans the Distributor receives
fees for distribution and shareholder support services.
Payments under the Distribution Plan for Class A Shares may be made for
payments to broker-dealers and financial institutions under agreements with
those organizations for personal services provided to Class A shareholders
and/or the maintenance of Class A shareholder accounts. Payments under the
Distribution Plan for Class B Shares, in addition to being used for the same
purposes as payments under the Distribution Plan for Class A Shares, may be
used to reimburse sales commissions and other fees paid to broker-dealers who
sell Class B Shares and may also be used for advertising and marketing.
Payments under the Distribution Plan for Class A Shares may not exceed .25% (on
an annual basis) of the average daily net asset value of outstanding Class A
Shares. 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 outstanding
Class B Shares. Distribution payments under the Distribution Plans are subject
to the requirements of a rule under the Investment Company Act of 1940 known as
Rule 12b-1.
The Pilot Funds offers various services and privileges in connection with its
Class A and Class B Shares that are not offered in connection with its Pilot
Shares, including an automatic investment plan and an automatic withdrawal
plan. Class B Shares convert automatically to Class A Shares eight years after
the beginning of the calendar month in which the shares were purchased.
Persons selling or servicing Class A and Class B Shares of the Funds may
receive different compensation with respect to one particular class of shares
over another in the same Fund. For more information on Class A and Class B
Shares, call 800/71-PILOT.
SHAREHOLDERS ARE ENTITLED TO ONE VOTE FOR EACH FULL SHARE HELD AND
PROPORTIONATE FRACTIONAL VOTES FOR FRACTIONAL SHARES HELD. Shares of all the
Pilot Fund 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 on matters 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
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<PAGE> 20
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 each Fund, selecting the investments and
making purchase and sale orders. Its principal offices are located at 100
North Broadway, St. Louis, Missouri 63178-4737.
Administrator: BISYS Fund Services Limited Partnership (referred to as
"BISYS"), is responsible for coordinating the Funds' efforts and generally
overseeing the operation of the Funds' business. BISYS principal offices are
located at 3435 Stelzer Road, Columbus, Ohio 43219-3035. BISYS 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, whose ultimate corporate parent is the BISYS Group,
Inc., and a wholly-owned subsidiary of Concord that is located at 3435 Stelzer
Road, Columbus, Ohio 43219-3035.
Custodian: BOATMEN'S TRUST COMPANY (referred to as "Boatmen's") is responsible
for holding the investments purchased by each Fund. Boatmen's has its
principal offices at 100 North Broadway, St. Louis, Missouri 63178-4737.
Transfer Agent: BISYS FUND SERVICES, INC. (referred to as the "Transfer Agent")
is the transfer and dividend disbursing agent of the Funds. It maintains the
account records of all shareholders and administers the distribution of all
income earned as a result of investing in the Funds. The Transfer Agent is
located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
Fund Accountant: BISYS FUND SERVICES, INC. is the accounting agent responsible
for preparing the Funds' financial statements and determining daily net asset
value per share for the Funds.
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 businesses, governmental
units, pension and profit sharing plans and other institutions and
organizations. As of December 31, 1995, Boatmen's and its affiliates managed
$77 billion in assets ($44 billion over which they had investment discretion
and $33 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 Boatmen's, and more than fifty banks and trust
companies located in Arkansas, Illinois, Iowa, Kansas, Missouri, New Mexico,
Oklahoma, Tennessee and Texas; a mortgage banking company, a credit life
insurance company and a credit card bank.
Set forth below is certain performance data relating to a trust fund of the
Adviser, which has been managed with full investment authority by the Adviser.
This Commingled Fund has a substantially similar investment objective and uses
similar investment strategies and techniques as will be used by the Pilot
Diversified Bond Income Fund.
THE PERFORMANCE INFORMATION SET FORTH BELOW REFLECTS PAST PERFORMANCE AND IS
NOT NECESSARILY INDICATIVE OF THE FUTURE PERFORMANCE OF THE PILOT DIVERSIFIED
BOND INCOME FUND, OR ANY OF THE OTHER INVESTMENT PORTFOLIOS OF THE PILOT FUNDS.
Performance will
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<PAGE> 21
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
The Commingled Fund was not registered under the 1940 Act and therefore was not
subject to certain investment restrictions imposed by the Act. If the
Commingled Fund had been registered under the 1940 Act, its performance may
have been adversely affected.
PERFORMANCE FOR THE COMMINGLED FUND(1)
SHOWING AVERAGE ANNUAL TOTAL RETURNS(2) FOR VARIOUS
PERIODS ENDED ________ __, 199_
<TABLE>
<CAPTION>
AS ADJUSTED
TO REFLECT
PILOT SHARES
EXPENSES
--------
<S> <C>
One Year . %
-----
Life of Commingled Fund* . %
-----
</TABLE>
* The Commingled Fund commenced operations on January 1, 1992.
1. The Commingled Fund consists of the Active Core Bond Fund, a
collective investment trust, for which Boatmen's Trust Company serves
as trustee.
2. The average annual total returns are calculated in conformity with
Securities and Exchange Commission guidelines. In addition, these
returns are adjusted to reflect the performance that the Commingled
Fund would have experienced if estimated operating expenses applicable
to the Pilot Shares had been incurred during the periods shown.
Boatmen's utilizes a team approach in managing the Pilot Growth Fund.
Mr. Michael E. Kenneally, CFA, Senior Vice President and Director of Research
for Boatmen's, is part of the team responsible for the day to day management of
the Pilot Growth Fund's investment activities. Mr. Kenneally currently
oversees Boatmen's fundamental and quantitative research efforts as well as
passive and quantitative investment management. His additional
responsibilities include investment product development, international equity
investment, and equity derivative strategies. Mr. Kenneally holds both a
bachelor's degree in economics and an MBA in finance from the University of
Missouri. He joined Boatmen's in 1983 as an equity analyst, later became a
quantitative analyst, and subsequently worked as both a fixed-income portfolio
manager and an equity portfolio manager. Mr. Kenneally is also a member of the
Association for Investment Management and Research (AIMR), the St. Louis
Society of Financial Analysts, the Chicago Quantitative Alliance, and the
Society of Quantitative Analysts.
Mr. Daniel N. Ginsparg, Senior Portfolio Manager & Manager of Quantitative
Research, is part of the team responsible for the day to day management of the
Pilot Growth Fund's investment activities. Mr. Ginsparg is responsible for
quantitative research applications and is involved in the management of
Boatmen's Small-Capitalization Equity Fund. Mr. Ginsparg received both his
bachelor's degree and MBA from the University of Missouri. He joined Boatmen's
in 1989 and is a member of the Chicago Quantitative Alliance, the Society of
Quantitative Analysts, and the St. Louis Society of Financial Analysts.
21
<PAGE> 22
Mr. Joseph A. Bybee, CFA, Senior Portfolio Manager & Research Analyst, is part
of the team responsible for the day to day management of the Pilot Growth
Fund's investment activities. Mr. Bybee is the research analyst and portfolio
manager for Boatmen's growth equity portfolios, including the Eagle Growth
Equity Fund. He joined Boatmen's Trust Company of Texas, formerly Eagle
Management & Trust, in 1988. Mr. Bybee earned his bachelor's degree with
honors from the University of the South and his MBA with honors from the
University of Chicago. A Chartered Financial Analyst, Mr. Bybee is also a
member of the Houston Society of Financial Analysts.
The Fixed Income Committee of Boatmen's is primarily responsible for the
day-to-day management of the investment portfolio of the Pilot Diversified Bond
Income Fund.
Although expected to be infrequent, Boatmen's may consider the amount of Fund
shares sold by broker-dealers and others (including those who may be connected
with Boatmen's) in allocating orders for purchases and sales of portfolio
securities. This allocation may involve the payment of brokerage commissions
or dealer concessions. Boatmen's will not engage in this practice unless the
execution capability of and the amount received by such broker-dealer or other
company is believed to be comparable to what another qualified firm could
offer.
MORE ABOUT BISYS. BISYS Fund Services Limited Partnership ("BISYS") is a
subsidiary of The BISYS Group, Inc., 150 Clove Road, Little Falls, New Jersey
07424, a publicly owned company engaged in information processing, loan
servicing and 401(k) administration and recordkeeping services to and through
banking and other financial organizations. Under its Administration Agreement
with the Funds, BISYS 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.
Certain officers of the The Pilot Funds, namely Messrs. Martin Dean, W. Eugene
Spurbeck, George O. Martinez, William J. Tomko and Bruce Treff are also
employees and/or officers of BISYS, 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 Funds, the Funds incur 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.
Boatmen's is entitled to advisory fees that are calculated daily and payable
monthly at the annual rate of 0.75% of the Pilot Growth Fund's average daily
net assets and 0.55% of the Pilot Diversified Bond Income Fund's average daily
net assets.
For its services as administrator, BISYS 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 BISYS, 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.
Operating expenses borne by the Funds include taxes; interest; fees and
expenses of trustees and officers who are not also officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser, BISYS or any of their affiliates; Securities and Exchange Commission
fees; state securities registration and qualification fees; advisory fees;
administration fees; charges of the custodian and of the transfer and dividend
disbursing agent; certain insurance premiums; outside auditing
22
<PAGE> 23
and legal expenses; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to shareholders; costs of shareholder reports and
meetings; and any extraordinary expenses. Each Fund also pays any brokerage
fees, commissions and other transaction charges (if any) incurred in connection
with the purchase and sale of its portfolio securities.
FEE WAIVERS. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Boatmen's and the Funds' 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 a 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 a 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.
Federal Taxes. Each Fund intends to qualify as a "regulated investment company"
under the Internal Revenue Code (called the "Code"), meaning that to the extent
a Fund's earnings are passed on to shareholders as required by the Code, the
Fund itself generally will not be required to pay federal income taxes.
In order to so qualify, each Fund intends to pay as dividends at least 90% of
its investment company taxable income. Investment company taxable income
includes taxable interest, dividends and gains attributable to market discount
on taxable as well as tax-exempt securities. To the extent you receive such a
dividend based on either investment company taxable income or the excess of net
short-term capital gain over net long-term capital loss, you would treat that
dividend as ordinary income in determining your gross income for tax purposes,
whether you received it in the form of cash or additional shares. Unless you
are exempt from federal income taxes, the dividends you receive from each Fund
will be taxable to you as ordinary income. Also, to the extent that a Fund's
income consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate dividends-received
deduction.
Any distribution you receive of net long-term capital gain over net short-term
capital loss will be taxed as a long-term capital gain, no matter how long you
have held Fund shares. If you hold shares for six months or less, and during
that time receive a distribution that is taxable as a long-term capital gain,
any loss you might realize on the sale of those shares will be treated as a
long-term loss to the extent of the earlier capital gain distribution.
Before you purchase shares of a Fund, you should consider the effect of any
capital gain distributions (or if you are purchasing shares of the Pilot Growth
Fund, you should consider both dividends and capital gain distributions) that
are expected to be declared or that have been declared, but not yet paid. When
a Fund makes these payments, its share price will be reduced by the amount of
the payment, so that you will in effect have paid full price for the shares and
then received a portion of your price back as a taxable distribution or
dividend.
23
<PAGE> 24
Any dividends declared by a Fund in October, November or December of a
particular year and payable to shareholders during those months will be deemed
to have been paid by the Fund and received by shareholders on December 31 of
that year, so long as the dividends are actually paid in January of the
following year.
Shareholders in the Funds may realize a taxable gain or loss when redeeming,
transferring or exchanging shares of a Fund, generally depending on the
difference in the prices at which the shareholder purchased and sold the
shares. This gain or loss will be long-term or short-term, generally depending
on how long the shareholder held the shares.
Each Fund may be required to withhold federal income tax at the rate of 31% of
all taxable distributions payable to shareholders who fail to provide the Fund
with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an
additional tax. Any amounts withheld may be credited against the shareholder's
federal income tax liability.
Further information relating to tax consequences is contained in the Statement
of Additional Information.
STATE AND LOCAL TAXES GENERALLY. Because your state and local taxes may be
different than the federal taxes described above, you should see your tax
adviser regarding these taxes. In particular, except as stated below,
dividends paid by the Pilot Diversified Bond Income Fund may be taxable under
state or local law as dividend income, even though all or part of those
dividends come from interest on obligations that would be free of such income
taxes if held by you directly.
MEASURING PERFORMANCE
Performance information provides you with a method of measuring and monitoring
your investments. Each 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 each Fund may be calculated on an AVERAGE ANNUAL total return
basis or an AGGREGATE TOTAL RETURN basis. Average annual total 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.
YIELDS for the Funds are calculated for a specified 30-day (or one-month)
period by dividing the net income for the period by the maximum offering price
on the last day of the period, and annualizing the result on a semi-annual
basis. Net income used in yield calculations may be different than net income
used for accounting purposes.
Performance comparisons:
The Funds may compare their yields and total returns to those 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.
24
<PAGE> 25
Total return and yield 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.
The performance of the Funds may also be compared to data prepared by Lipper
Analytical Services, Inc., Mutual Fund Forecaster, Wiesenberger Investment
Companies Services, Morningstar or CDA Investment Technologies, Inc., and total
returns for these Funds 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.
PERFORMANCE QUOTATIONS WILL FLUCTUATE, AND 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, INC. 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 FUNDS' CALCULATIONS OF TOTAL RETURN
AND YIELD.
INQUIRIES REGARDING THE FUNDS 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 FUNDS 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 FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE FUNDS OR BY THEIR DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
25
<PAGE> 1
|
| Financial
| Direction December 29, 1995
LOGO
The PILOT GROWTH
Pilot AND INCOME FUND
Funds
PILOT EQUITY
PROSPECTUS ENCLOSED INCOME FUND
PILOT INTERMEDIATE
U.S. GOVERNMENT
SECURITIES FUND
PILOT
U.S. GOVERNMENT
SECURITIES FUND
PILOT INTERMEDIATE
MUNICIPAL BOND FUND
PILOT MUNICIPAL
BOND FUND
Pilot Shares
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY.................................................................................... 3
FINANCIAL HIGHLIGHTS............................................................................... 5
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS................................................... 7
Pilot Growth and Income Fund and Pilot Equity Income Fund..................................... 7
Pilot Intermediate U.S. Government Securities Fund and Pilot U.S. Government Securities
Fund......................................................................................... 8
Pilot Intermediate Municipal Bond Fund and Pilot Municipal Bond Fund.......................... 8
PORTFOLIO INSTRUMENTS AND PRACTICES.............................................................. 9
RISK FACTORS..................................................................................... 15
FUNDAMENTAL LIMITATIONS.......................................................................... 16
INVESTING IN THE PILOT FUNDS....................................................................... 16
HOW TO BUY SHARES................................................................................ 16
HOW TO SELL SHARES............................................................................... 17
DIVIDENDS AND DISTRIBUTIONS...................................................................... 18
EXCHANGE PRIVILEGE................................................................................. 18
THE PILOT FAMILY OF FUNDS.......................................................................... 19
THE BUSINESS OF THE FUND........................................................................... 19
FUND MANAGEMENT.................................................................................. 19
TAX IMPLICATIONS................................................................................. 22
MEASURING PERFORMANCE............................................................................ 23
</TABLE>
<PAGE> 3
THE PILOT FUNDS
LOGO
PROSPECTUS FOR PILOT SHARES OF THE PILOT GROWTH AND INCOME, PILOT EQUITY INCOME,
PILOT INTERMEDIATE U.S. GOVERNMENT SECURITIES, PILOT U.S. GOVERNMENT SECURITIES,
PILOT INTERMEDIATE MUNICIPAL BOND AND PILOT MUNICIPAL BOND FUNDS
December 29, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PILOT FUND GOAL FOR INVESTORS WHO WANT
- ------------------ ------------------------------------- -------------------------------------
<S> <C> <C>
GROWTH AND INCOME Capital appreciation and current Capital appreciation over the long
income through investments primarily term as well as current income and
in common stocks of U.S. companies. are willing to accept the relative
risks associated with equity
investments.
- ----------------------------------------------------------------------------------------------------
EQUITY INCOME Current income and, secondarily, Current income with the possibility
capital appreciation through of some price appreciation and are
investments primarily in common willing to accept the relative risks
stocks of above average financial associated with equity investments.
quality and securities convertible
into common stock.
- ----------------------------------------------------------------------------------------------------
INTERMEDIATE U.S. Current income and preservation of Current income from U.S. Government
GOVERNMENT capital through investments primarily securities and less principal
SECURITIES in U.S. Government securities and volatility than normally associated
repurchase agreements. The Fund will with a long- term fund.
generally have an average weighted
maturity of from three to ten years.
- ----------------------------------------------------------------------------------------------------
U.S. GOVERNMENT Current income and preservation of Current income from U.S. Government
SECURITIES capital through investments primarily securities and are willing to accept
in U.S. Government securities and fluctuations in price and yield.
repurchase agreements. The Fund will
generally have an average weighted
maturity of from five to thirty
years.
- ----------------------------------------------------------------------------------------------------
INTERMEDIATE Current income free of federal income Current income that is free from
MUNICIPAL BOND tax as is consistent with regular federal income tax and less
preservation of capital through principal volatility than normally
investments primarily in investment associated with a long-term fund.
grade municipal obligations. The Fund
will generally have an average
weighted maturity of from three to
ten years.
- ----------------------------------------------------------------------------------------------------
MUNICIPAL BOND Current income free of federal income Current income that is free from
tax as is consistent with regular federal income tax and are
preservation of capital through willing to accept fluctuations in
investments primarily in investment price and yield.
grade municipal obligations. The Fund
will generally have an average
weighted maturity of from five to
thirty years.
- ----------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE> 4
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 FUNDS INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. IN ADDITION, THE AMOUNT OF
DIVIDENDS PAID BY A FUND WILL GO UP AND DOWN. BOATMEN'S TRUST COMPANY SERVES AS
INVESTMENT ADVISER TO THE FUNDS, IS PAID A FEE FOR ITS SERVICES, AND IS NOT
AFFILIATED WITH PILOT FUNDS DISTRIBUTORS, INC., THE FUNDS' DISTRIBUTOR.
This Prospectus describes Pilot Shares of the Pilot Growth and Income, Pilot
Equity Income, Pilot Intermediate U.S. Government Securities, Pilot U.S.
Government Securities, Pilot Intermediate Municipal Bond and Pilot Municipal
Bond Funds. Pilot Shares are sold by Pilot Funds Distributors, Inc. and selected
broker-dealers to Boatmen's Trust Company, St. Louis, Missouri ("Boatmen's") and
its affiliated banks acting on behalf of themselves and persons maintaining
qualified trust, agency or custodial accounts at such banks. Pilot Shares are
sold and redeemed without payment of any purchase or redemption charge imposed
by the Funds, although Boatmen's and its affiliated banks may charge their
customer accounts for services provided in connection with the purchase or
redemption of shares. This Prospectus describes concisely the information about
the Funds that you should know before investing. Please read it carefully and
keep it for future reference.
More information about the Funds 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. The Statement of Additional Information, as it may be revised from
time to time, is dated December 29, 1995 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.
- --------------------------------------------------------------------------------
2
<PAGE> 5
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 a 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 Funds' shareholder transaction expenses and
the operating expenses which the Funds expect to incur during the current fiscal
year on their Pilot Shares. Examples based on this information are also
provided.
PILOT SHARES
<TABLE>
<CAPTION>
INTERMEDIATE
GROWTH U.S. U.S.
AND EQUITY GOVERNMENT GOVERNMENT INTERMEDIATE
INCOME INCOME SECURITIES SECURITIES MUNICIPAL MUNICIPAL
FUND FUND FUND FUND BOND FUND BOND FUND
------ ------ ------ ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed onw
Purchases (as a percentage of
offering price).................... None None None None None None
Sales Charge Imposed on Reinvested
Dividends.......................... None None None None None None
Deferred Sales Charge................. None None None None None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE
WAIVERS AND EXPENSE REIMBURSEMENTS (as a
percentage of average net assets):
Management Fees(1).................... 0.50% 0.50% 0.35% 0.40% 0.40% 0.45%
Distribution Payments................. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses........................ 0.25% 0.25% 0.22% 0.22% 0.18% 0.22%
------ ------ ------ ------ ------ ---------
Total Fund Operating Expenses After
Fee
Waivers and Expense
Reimbursements(1).................. 0.75% 0.75% 0.57% 0.62% 0.58% 0.67%
===== ===== ===== ===== ========= ========
- ---------------
<FN>
(1) 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 one of the
Funds. Without waivers by the Adviser, investment management fees as a
percentage of net assets would be .75%, .75%, .55%, .55%, .55% and .55% for
the Pilot Growth and Income, Pilot Equity Income, Pilot Intermediate U.S.
Government Securities, Pilot U.S. Government Securities, Pilot Intermediate
Municipal Bond and Pilot Municipal Bond Funds, respectively. The Adviser and
Administrator also expect to reimburse a portion of the operating expenses
of Pilot Shares of the Funds during the current fiscal year. Absent waivers
and expense reimbursements, the total operating expenses for Pilot Shares of
the Funds would be 1.15% for the Pilot Growth and Income Fund; 1.14% for the
Pilot Equity Income Fund; .87% for the Pilot Intermediate U.S. Government
Securities Fund; .87% for the Pilot U.S. Government Securities Fund; .81%
for the Pilot Intermediate Municipal Bond Fund; and .86% for the Pilot
Municipal Bond Fund. These waivers and reimbursements are voluntary and may
be terminated at any time with respect to any Fund at the discretion of the
Adviser or Administrator and without the consent of the Funds.
</TABLE>
3
<PAGE> 6
EXAMPLE: Assume that the annual return on each of the Funds is 5%, and that
their 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 YEARS YEARS YEARS
AFTER AFTER AFTER AFTER
PURCHASE PURCHASE PURCHASE PURCHASE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PILOT GROWTH AND INCOME FUND
Pilot Shares........................... $ 8 $ 24 $ 42 $ 93
PILOT EQUITY INCOME FUND
Pilot Shares........................... $ 8 $ 24 $ 42 $ 93
PILOT INTERMEDIATE U.S. GOVERNMENT
SECURITIES FUND
Pilot Shares........................... $ 6 $ 18 $ 32 $ 71
PILOT U.S. GOVERNMENT SECURITIES FUND
Pilot Shares........................... $ 6 $ 20 $ 35 $ 77
PILOT INTERMEDIATE MUNICIPAL BOND FUND
Pilot Shares........................... $ 6 $ 19 $ 32 $ 73
PILOT MUNICIPAL BOND FUND
Pilot Shares........................... $ 7 $ 21 $ 37 $ 83
<FN>
The Example shown above should not be considered a representation of future
investment returns or operating expenses. The Funds are new and actual
investment returns and operating expenses may be more or less than those shown.
</TABLE>
4
<PAGE> 7
THE PILOT FUNDS
FINANCIAL HIGHLIGHTS
The following data with respect to a Share of the Pilot Growth and Income Fund,
Pilot Equity Income Fund, Pilot Intermediate U.S. Government Securities Fund,
Pilot U.S. Government Securities Fund, Pilot Intermediate Municipal Bond Fund
and Pilot Municipal Bond Fund outstanding during the periods indicated have 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.
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights
Selected Data for a Share Outstanding Throughout the Period
- --------------------------------------------------------------------------------
Pilot Growth & Income Fund
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
----------------------------------------
NET REALIZED TOTAL
AND UNREALIZED INCOME DIVIDENDS NET ASSET
NET ASSET VALUE NET GAIN ON FROM FROM NET VALUE AT
AT BEGINNING INVESTMENT INVESTMENT INVESTMENT INVESTMENT END OF
OF PERIOD INCOME TRANSACTIONS OPERATIONS INCOME PERIOD
--------------- ---------- -------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
FOR THE FISCAL PERIOD NOVEMBER 7,
1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- -------------------------------------
1995--Pilot Shares................... $ 10.00 $ 0.17 $ 1.59 $ 1.76 $(0.17) $ 11.59
1995--Class A Shares(a).............. 10.44 0.09 1.14 1.23 (0.09) 11.58
1995--Class B Shares(e).............. 10.08 0.08 1.51 1.59 (0.08) 11.59
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIO
INFORMATION
ASSUMING NO
FEE WAIVER OR
EXPENSE
REIMBURSEMENT
-------------
RATIO OF NET
RATIO OF INVESTMENT NET ASSETS RATIO OF
EXPENSES INCOME PORTFOLIO AT END OF EXPENSES TO
TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD AVERAGE
RETURN(C) NET ASSETS(D) NET ASSETS(D) RATE (IN 000'S) NET ASSETS(D)
--------- ------------- ------------- --------- ---------- -------------
<S> <C>
FOR THE FISCAL PERIOD NOVEMBER 7,
1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- -------------------------------------
1995--Pilot Shares................... 17.72% 0.75% 1.98% 28% $109,423 1.15%
1995--Class A Shares(a).............. 11.78 1.00 1.65 28 697 1.40
1995--Class B Shares(e).............. 15.85 1.75 0.94 28 661 2.15
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIO OF NET
INVESTMENT
INCOME
TO AVERAGE
NET ASSETS(D)
-------------
FOR THE FISCAL PERIOD NOVEMBER 7,
1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- -------------------------------------
1995--Pilot Shares................... 1.58%
1995--Class A Shares(a).............. 1.25
1995--Class B Shares(e).............. 0.54
- ----------------------------------------------------
</TABLE>
Pilot Equity Income Fund
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot Shares................... $ 10.00 $ 0.35 $ 1.29 $ 1.64 $(0.35) $ 11.29
1995--Class A Shares(a).............. 10.24 0.18 1.12 1.30 (0.18) 11.36
1995--Class B Shares(b).............. 9.85 0.18 1.49 1.67 (0.18) 11.34
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1995--Pilot Shares................... 16.69% 0.75% 4.12% 37% $ 98,607 1.14%
<S> <C>
1995--Class A Shares(a).............. 12.78 1.00 3.70 37 311 1.39
1995--Class B Shares(b).............. 17.36 1.25 2.88 37 713 2.14
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1995--Pilot Shares................... 3.73%
1995--Class A Shares(a).............. 3.31
1995--Class B Shares(b).............. 2.49
- -------------------------------------------------
</TABLE>
Pilot Intermediate U.S. Government Securities Fund
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot Shares................... $ 10.00 $ 0.56 $ 0.44 $ 1.00 $(0.56) $ 10.44
1995--Class A Shares(f).............. 9.98 0.45 0.46 0.91 (0.45) 10.44
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot Shares................... 10.21% 0.57% 6.65% 87% $165,441 0.87%
1995--Class A Shares(f).............. 9.31 0.72 6.27 87 499 1.12
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
1995--Pilot Shares................... 6.35%
1995--Class A Shares(f).............. 5.87
- -------------------------------------------------
<FN>
- ------------
(a) Class A share activity commenced February 7, 1995.
(b) Class B share activity commenced January 12, 1995.
(c) 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 charge. Total return would
be reduced if sales charge were taken for Class A or Class B shares. Total return is not annualized.
(d) Annualized.
(e) Class B share activity commenced November 11, 1994.
(f) Class A share activity commenced December 21, 1994.
</TABLE>
5
<PAGE> 8
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
Pilot U.S. Government Securities Fund
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
----------------------------------------
NET REALIZED TOTAL
AND UNREALIZED INCOME DIVIDENDS NET ASSET
NET ASSET VALUE NET GAIN ON FROM FROM NET VALUE AT
AT BEGINNING INVESTMENT INVESTMENT INVESTMENT INVESTMENT END OF
OF PERIOD INCOME TRANSACTIONS OPERATIONS INCOME PERIOD
--------------- ---------- -------------- ---------- ---------- ---------
FOR THE FISCAL PERIOD NOVEMBER 7,
1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot Shares................... $ 10.00 $ 0.56 $ 1.20 $ 1.76 $(0.56) $ 11.20
1995--Class A Shares(a).............. 10.48 0.37 0.71 1.08 (0.37) 11.19
1995--Class B Shares(b).............. 10.05 0.46 1.14 1.60 (0.46) 11.19
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIO
INFORMATION
ASSUMING NO
FEE WAIVER OR
EXPENSE
REIMBURSEMENT
-------------
RATIO OF NET
RATIO OF INVESTMENT NET ASSETS RATIO OF
EXPENSES TO INCOME PORTFOLIO AT END OF EXPENSES TO
TOTAL AVERAGE TO AVERAGE TURNOVER PERIOD AVERAGE
RETURN(C) NET ASSETS(D) NET ASSETS(D) RATE (IN 000'S) NET ASSETS(C)
--------- ------------- ------------- --------- ---------- -------------
FOR THE FISCAL PERIOD NOVEMBER 7,
1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot Shares................... 18.03% 0.62% 6.45% 132% $137,261 0.87%
1995--Class A Shares(a).............. 10.41 0.82 5.76 132 87 1.12
1995--Class B Shares(b).............. 16.19 1.62 5.19 132 146 1.87
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIO OF NET
INVESTMENT
INCOME
TO AVERAGE
NET ASSETS(C)
-------------
FOR THE FISCAL PERIOD NOVEMBER 7,
1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- -------------------------------------
<S> <C>
1995--Pilot Shares................... 6.20%
1995--Class A Shares(a).............. 5.46
1995--Class B Shares(b).............. 4.94
- ----------------------------------------------------
Pilot Intermediate Municipal Bond Fund
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot Shares................... $ 10.00 $ 0.41 $ 0.49 $ 0.90 $(0.41) $ 10.49
1995--Class A Shares(e).............. 9.88 0.37 0.61 0.98 (0.37) 10.49
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot Shares................... 9.16% 0.58% 4.90% 8% $196,209 0.81%
1995--Class A Shares(e).............. 10.03 0.73 4.60 8 232 1.06
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
1995--Pilot Shares................... 4.67%
1995--Class A Shares(e).............. 4.27
- -------------------------------------------------
Pilot Municipal Bond Fund
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot Shares................... $ 10.00 $ 0.48 $ 0.70 $ 1.18 $(0.48) $ 10.70
1995--Class A Shares(a).............. 10.37 0.34 0.33 0.64 (0.34) 10.70
1995--Class B Shares(f).............. 10.02 0.33 0.63 0.95 (0.33) 10.65
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot Shares................... 12.00% 0.67% 5.63% 10% $150,934 0.86%
1995--Class A Shares(a).............. 6.54 0.87 5.26 10 340 1.11
1995--Class B Shares(f).............. 9.62 1.67 4.48 10 448 1.86
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
1995--Pilot Shares................... 5.44%
1995--Class A Shares(a).............. 5.02
1995--Class B Shares(f).............. 4.29
- -------------------------------------------------
<FN>
- ---------------
(a) Class A share activity commenced February 7, 1995.
(b) Class B share activity commenced November 10, 1994.
(c) 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
charge. Total return would be reduced if sales charge were taken for Class A
or Class B shares. Total return is not annualized.
(d) Annualized.
(e) Class A share activity commenced November 18, 1994.
(f) Class B share activity commenced December 27, 1994.
</TABLE>
6
<PAGE> 9
INVESTMENT OBJECTIVES, POLICIES
AND RISK FACTORS
The Pilot Funds uses a variety of different investments and investment
techniques in seeking to achieve a Fund's investment objective. Each Fund does
not use all of the investments and investment techniques described below, which
involve various risks, and which are also described in the following sections.
You should consider which Funds best meet your investment goals. Although each
Fund will attempt 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 a Fund. However, shareholders will be given at least 30
days' prior written notice in the event of a change in a Fund's investment
objective. If there is a change in a Fund's investment objective, shareholders
should consider whether the Fund remains an appropriate investment in light of
their then current financial position and needs. Unless otherwise stated, each
investment policy described below may be changed at any time by The Pilot Funds'
Board of Trustees without shareholder approval.
Pilot Growth and Income Fund and
Pilot Equity Income Fund
The Pilot Growth and Income Fund and the Pilot Equity Income Fund (sometimes
referred to together as the "Equity Funds") offer investors two alternatives for
participating in the equity securities market.
The investment objective of the Pilot Growth and Income Fund is to seek capital
appreciation and current income by investing primarily in common stocks of U.S.
companies. The Fund invests primarily in common stocks which demonstrate
favorable prospects for either capital growth or current dividend income. In
making investment decisions, the Adviser assesses factors such as current and
future earnings potential, existing resources and assets, trading liquidity,
marketing valuation and profitability. The Fund will invest, during normal
market and economic conditions, at least 65% of its total assets in common
stocks, preferred stocks and debt instruments convertible into common stock of
U.S. companies.
The investment objective of the Pilot Equity Income Fund is to seek current
income and, secondarily, capital appreciation through investments primarily in
common stocks of above average financial quality and securities convertible into
common stock. Under normal market and economic conditions, the Fund will invest
at least 65% of its total assets in common stocks, preferred stocks and
securities convertible into common stock of companies believed by the Adviser to
demonstrate sound management, future growth potential and the ability to pay
dividends. The Fund will attempt to achieve a yield that is greater than the
published composite yield of the securities comprising the Standard and Poor's
500 Composite Stock Index1 (the "S & P 500 Index"), a broad-based unmanaged
index of 500 companies listed on the New York Stock Exchange and which is
typically used as a performance benchmark for equity investments.
Each Fund may also acquire debt obligations, including both convertible and
non-convertible corporate and government bonds, debentures, zero coupon bonds
and cash equivalents. "Cash equivalents" include commercial paper (which is
unsecured promissory notes issued by corporations); certificates of deposit,
bankers' acceptances, notes and time deposits issued or supported by U.S. or
foreign banks and savings institutions; repurchase agreements; variable or
floating rate notes; U.S. Government obligations; and money market mutual fund
shares. Each Fund will purchase only those debt obligations which are rated
investment grade by at least one Nationally Recognized Statistical Rating
Organization ("NRSRO") or, if unrated, are determined by the Adviser to be of
comparable quality. (A description of applicable ratings is attached to the
Statement of Additional Information as Appendix A.) Obligations in the lowest of
the top four rating categories ("BBB" or "Baa") have certain speculative
characteristics and are subject to more credit and market risk than securities
with higher ratings. If a debt obligation held by a Fund ceases to be rated
investment grade by at least one NRSRO or if the Adviser determines that an
unrated debt obligation held by a Fund is no longer of comparable quality to an
investment grade debt obligation, the obligation will be sold in an orderly
manner as quickly as possible.
The convertible securities in which a Fund may invest include bonds, notes and
preferred stock that may be converted into common stock either at a stated price
or within a specified period of time. In investing in convertibles, a Fund is
looking for the opportunity, through the conversion feature, to participate in
the capital appreciation of the common stock into which the securities are
convertible, while earning higher current income than is available from the
common stock.
Additionally, each Fund may invest up to 20% of the value of its total assets in
the securities of foreign issuers, either directly in the securities of such
issuers or indirectly through American Depository Receipts
- ---------------
1 "Standard and Poor's(R)," "S & P(R)" and Standard and Poor's 500 Index(R)" are
registered trademarks of Standard and Poor's Corporation.
7
<PAGE> 10
("ADRs") and European Depository Receipts ("EDRs"). ADRs are receipts typically
issued by a United States bank or trust company, and EDRs are receipts issued by
a European financial institution evidencing ownership of the underlying foreign
securities. ADRs, in registered form, are designed for use in the United States
securities markets, while EDRs, in bearer form, are generally designed for use
in the European securities markets. These securities may not be denominated in
the same currency as the securities they represent.
Each Fund may also invest in futures contracts and options. From time to time,
the Funds may hold cash reserves that do not earn income. For a further
description of the Funds' policies with respect to convertible securities,
foreign securities and other instruments, see "Portfolio Instruments and
Practices" and "Risk Factors" below.
Each Fund reserves the right to invest up to 100% of its assets in cash, cash
equivalents and debt obligations when the Adviser believes such a position is
advisable for temporary defensive purposes during periods of unusual market or
economic activity.
Pilot Intermediate U.S. Government Securities Fund and Pilot U.S. Government
Securities Fund
The Pilot Intermediate U.S. Government Securities Fund and the Pilot U.S.
Government Securities Fund (sometimes referred to together as the "Government
Funds") offer investors two alternatives for participating in the fixed income
securities market with a concentration in U.S. Government securities. The
average weighted maturity of the Pilot Intermediate U.S. Government Securities
Fund is normally expected to be shorter than that of the Pilot U.S. Government
Securities Fund.
The investment objective of each Fund is to seek current income and preservation
of capital by investing primarily in U.S. Government securities and repurchase
agreements collateralized by such securities. While the maturity of individual
securities will not be restricted, except during temporary defensive periods or
unusual market conditions, the average weighted maturity of the Pilot
Intermediate U.S. Government Securities Fund will be between three and ten years
and the average weighted maturity of the Pilot U.S. Government Securities Fund
will be between five and thirty years.
Each Fund invests at least 65% of its total assets in U.S. Government securities
and repurchase agreements collateralized by such securities. Each Fund may
invest in a variety of U.S. Government securities, including U.S. Treasury
bonds, notes and bills, and obligations of a number of U.S. Government agencies
and instrumentalities. Each Fund may also invest in interests in the foregoing
securities, including collateralized mortgage obligations issued or guaranteed
by a U.S. Government agency or instrumentality. Securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities have historically had
a very low risk of loss of principal if held to maturity. The Funds, however,
can give no assurance that the U.S. Government would provide financial support
to its agencies or instrumentalities if it were not legally required to do so.
Each Fund may also invest up to 35% of its total assets in debt securities of
U.S. and foreign corporate and foreign government issuers, ADRs and EDRs, zero
coupon bonds and cash equivalents. See "Pilot Growth and Income Fund and Pilot
Equity Income Fund" above for a description of ADRs and EDRs and cash
equivalents. The Funds will purchase only those investments which are rated
investment grade by at least one NRSRO or, if unrated, are determined by the
Adviser to be of comparable quality. If a portfolio security held by a Fund
ceases to be rated investment grade by at least one NRSRO or if the Adviser
determines that an unrated portfolio security held by a Fund is no longer of
comparable quality to an investment grade security, the security will be sold in
an orderly manner as quickly as possible. See "Pilot Growth and Income Fund and
Pilot Equity Income Fund" above for a description of the risks of investing in
securities with the lowest investment grade rating. Additionally, each Fund may
also invest in futures contracts and options. From time to time, each Fund may
also hold uninvested cash reserves which do not earn income. For a further
description of the Funds' policies with respect to foreign securities and other
instruments, see "Portfolio Instruments and Practices" and "Risk Factors" below.
The value of each Fund's portfolio (and consequently its shares) is expected to
fluctuate inversely in relation to changes in the direction of interest rates.
Pilot Intermediate Municipal Bond Fund
and Pilot Municipal Bond Fund
The Pilot Intermediate Municipal Bond Fund and the Pilot Municipal Bond Fund
(sometimes referred to together as the "Municipal Bond Funds") offer investors
two alternatives for participating in the municipal securities market. The
average weighted maturity of the Pilot Intermediate Municipal Bond Fund is
normally expected to be shorter than the average weighted maturity of the Pilot
Municipal Bond Fund.
8
<PAGE> 11
The investment objective of each Fund is to seek current income free of federal
income tax as is consistent with preservation of capital. Each Fund seeks to
attain its objective by investing its assets primarily in debt obligations of
states, territories and possessions of the United States, the District of
Columbia and of their agencies, authorities, instrumentalities and political
sub-divisions ("Municipal Obligations") that are rated investment grade or above
by one or more NRSROs at the time of purchase. Obligations purchased by a Fund
that have not been assigned a rating will be determined by the Adviser to be of
comparable quality. See "Pilot Growth and Income Fund and Pilot Equity Income
Fund" above for a description of the risks of investing in securities with the
lowest investment grade ratings. If a portfolio security ceases to be rated
investment grade by at least one NRSRO or if the Adviser determines that an
unrated portfolio security held by a Fund is no longer of comparable quality to
an investment grade security, the security will be sold in an orderly manner as
quickly as possible. While each Fund has the flexibility to invest in Municipal
Obligations with short, medium or long term maturities, except during temporary
defensive periods or unusual market conditions, the average weighted maturity of
the Pilot Intermediate Municipal Bond Fund will be between three and ten years,
and the average weighted maturity of the Pilot Municipal Bond Fund will be
between five and thirty years.
Under normal market and economic conditions, each Fund will invest at least 80%
of its net assets in Municipal Obligations the interest on which is exempt from
regular federal income tax. In addition, under normal market conditions each
Fund may invest up to 20% of its net assets in taxable instruments, including
zero coupon bonds, cash equivalents and certain so-called private activity
bonds, which are a type of obligation that, although exempt from regular federal
income tax, may be subject to the federal alternative minimum tax. See "Pilot
Growth and Income Fund and Pilot Equity Income Fund" above for a description of
cash equivalents. The Funds may also invest in futures contracts and options.
From time to time, each Fund may also hold uninvested cash reserves that do not
earn income. For a further description of the Funds' policies with respect to
Municipal Obligations and other instruments, see "Portfolio Instruments and
Practices" and "Risk Factors" below.
Although the MUNICIPAL BOND FUNDS do not presently intend to do so on a regular
basis, either Fund may invest more than 25% of its total assets in Municipal
Obligations the interest on which comes solely from revenues of similar
projects. When a Fund's assets are concentrated in obligations payable from
revenues of similar projects or issued by issuers located in the same state, or
in industrial development bonds, the Fund will be subject to the particular
risks (including legal and economic conditions) relating to such securities to a
greater extent than if its assets were not so concentrated. Payment on Municipal
Obligations held by a Municipal Bond Fund relating to certain projects may be
secured by mortgages or deeds of trust. In the event of a default, enforcement
of a mortgage or deed of trust will be subject to statutory enforcement
procedures and limitations on obtaining deficiency judgments. Should a
foreclosure occur, collection of the proceeds from that foreclosure may be
delayed and the amount of the proceeds received may not be enough to pay the
principal or accrued interest on the defaulted Municipal Obligation.
The value of each Fund's portfolio (and consequently its shares) is expected to
fluctuate inversely in relation to changes in the direction of interest rates.
PORTFOLIO INSTRUMENTS AND PRACTICES
- --U.S. Government Obligations. EACH FUND may invest in securities issued or
guaranteed by the U.S. Government, as well as in obligations issued or
guaranteed by U.S. Government agencies and instrumentalities. Securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities
include U.S. Treasury securities, which differ only in their interest rates,
maturities and times of issuance: Treasury Bills have initial maturities of one
year or less; Treasury Notes have initial maturities of one to ten years; and
Treasury Bonds generally have initial maturities of greater than ten years. Some
obligations issued or guaranteed by certain U.S. Government agencies and
instrumentalities, such as the Government National Mortgage Association, are
supported by the U.S. Treasury; others, like the Export-Import Bank, are
supported by the issuer's right to borrow from the Treasury; others, including
the Federal National Mortgage Association, are backed by the discretionary
ability of the U.S. Government to purchase the entity's obligations; and still
others, like the Student Loan Marketing Association, are backed solely by the
issuer's credit. U.S. Government obligations also include U.S. Government-backed
trusts that hold obligations of foreign governments and are guaranteed or backed
by the full faith and credit of the United States. There is no assurance that
the U.S. Government would support a U.S. Government-sponsored entity were it not
required to do so by law.
9
<PAGE> 12
- --Asset-Backed and Mortgage-Backed Securities. EACH FUND may invest in
asset-backed securities (i.e., securities backed by installment sale contracts,
credit card receivables or other assets). In addition, each Fund may make
significant investments in U.S. Government securities that are backed by
adjustable or fixed rate mortgage loans. The rate of prepayments on asset-backed
instruments and hence the life of the security, will be primarily a function of
current market rates and current conditions in the relevant market. In
calculating the average weighted maturity of a Fund's portfolio, the maturity of
asset-backed instruments will be based on estimates of average life. The
relationship between prepayments and interest rates may give some high-yielding
asset-backed securities less potential for growth in value than conventional
bonds with comparable maturities. In addition, in periods of falling interest
rates, the rate of prepayment tends to increase. During such periods, the
reinvestment of prepayment proceeds by a Fund will generally be at lower rates
than the rates that were carried by the obligations that have been prepaid.
Because of these and other reasons, an asset-backed security's total return may
be difficult to predict precisely. To the extent a Fund purchases asset-backed
securities at a premium, prepayments (which often may be made at any time
without penalty) may result in some loss of a Fund's principal investment to the
extent of any premiums paid.
The timely payment of principal and interest on mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association ("GNMA") is
backed by GNMA and the full faith and credit of the U.S. Government. These
guarantees, however, do not apply to the market value or yield of
mortgage-backed securities or the value of a Fund's shares. Also, GNMA and other
mortgage-backed securities may be purchased at a premium over the maturity value
of the underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs. Each Fund may also invest in mortgage-backed securities of
other issuers, such as the Federal National Mortgage Association, which are not
guaranteed by the U.S. Government. Moreover, each Fund may invest in debt
securities which are secured with collateral consisting of mortgage-backed
securities and in other types of mortgage-related securities. Unscheduled or
early payments on the underlying mortgage may shorten the effective maturities
of mortgage-backed securities and lessen their growth potential. A Fund may
agree to purchase or sell these securities with payment and delivery taking
place at a future date. A decline in interest rates may lead to a faster rate of
repayment of the underlying mortgages and expose a Fund to a lower rate of
return on reinvestment. To the extent that such mortgage-backed securities are
held by a Fund, the prepayment right of mortgagors may limit the increase in net
asset value of the Fund because the value of the mortgage-backed securities held
by the Fund does not appreciate as rapidly as the price of non-callable debt
securities.
- --Municipal Obligations. Each of the MUNICIPAL BOND FUNDS will invest primarily
in Municipal Obligations. The two principal classifications of Municipal
Obligations are "general obligation" securities (which are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest) and "revenue" securities (which are payable only from
revenues received from the operation of a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source). A third type of Municipal Obligation, normally issued
by special purpose public authorities, is known as a "moral obligation" security
because if the issuer cannot meet its obligations it then draws on a reserve
fund, the restoration of which is a moral commitment but not a legal requirement
of the state or municipality which created the issuer. Private activity bonds
(such as bonds issued by industrial development authorities) are usually revenue
securities issued by or for public authorities to finance a privately operated
facility and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of such private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
Within the principal classifications described above there are a variety of
categories including municipal leases and certificates of participation.
Municipal lease obligations are issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Municipal leases (and participations in such leases) present
the risk that a municipality will not appropriate funds for the lease payments.
The Adviser, under the supervision of the Board of Trustees, will determine the
credit quality of any unrated municipal leases on an on-going basis, including
an assessment of the likelihood that the lease will not be canceled.
Securities acquired by each of the Municipal Bond Funds may be in the form of
custodial receipts evidencing rights to receive a specific future interest
payment, principal payment or both on certain Municipal
10
<PAGE> 13
Obligations. Such Obligations are held in custody by a bank on behalf of holders
of the receipts. These custodial receipts are known by various names, including
"Municipal Receipts," "Municipal Certificates of Accrual on Tax-Exempt
Securities" ("M-CATs") and "Municipal Zero-Coupon Receipts." The Funds may also
purchase from time to time participation interests in debt securities held by
trusts or financial institutions. A participation interest gives a Fund an
undivided interest in the security or securities involved. Participation
interests may have fixed, floating or variable rates of interest (although
securities held by the issuer may have longer maturities). If a participation
interest is unrated, the Adviser will have determined that the interest is of
comparable quality to those instruments in which the Fund may invest. For
certain participation interests, a Fund will have the right to demand payment
for all or any part of the Fund's participation interest, plus accrued interest.
As to these instruments, each Fund intends to exercise its right to demand
payment as needed to provide liquidity, to maintain or improve the quality of
its investment portfolio or upon a default (if permitted under the terms of the
instrument).
In addition, each Municipal Bond Fund may also hold other tax-exempt derivative
instruments, which may be in the form of tender options bonds, participations,
custodial receipts and bonds that have interest rates that re-set inversely to
changing short-term rates and/or have imbedded interest rate floors and caps.
Many of these derivative instruments are proprietary products that have been
recently developed by investment banking firms, and it is uncertain how these
instruments will perform under different economic and interest-rate scenarios.
In addition, because certain of these instruments are leveraged, their market
values may be more volatile than other types of Municipal Obligations and may
present greater potential for capital gain or loss. In some cases it may be
difficult to determine the fair value of a derivative instrument because of a
lack of reliable objective information and an established secondary market for
some instruments may not exist.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a tax-exempt derivative instrument or other types of
Municipal Obligations is tax-exempt and, accordingly, purchases of such
securities are based on the opinion of counsel to the sponsors of the
instruments. The Pilot Funds and the Adviser rely on these opinions and do not
intend to review the bases for them.
Municipal Obligations purchased by the Funds may be backed by letters of credit
or guarantees issued by domestic or foreign banks and other financial
institutions which are not subject to federal deposit insurance. Adverse
developments affecting the banking industry generally or a particular bank or
financial institution that has provided its credit or a guarantee with respect
to a Municipal Obligation held by a Fund could have an adverse effect on a
Fund's portfolio and the value of its shares. As described below under "Risk
Factors-Foreign Securities," foreign letters of credit and guarantees involve
certain risks in addition to those of domestic obligations.
- --Corporate Obligations. EACH FUND may purchase corporate bonds and cash
equivalents that meet a Fund's quality and maturity limitations. These
investments may include obligations issued by Canadian corporations and Canadian
counterparts of U.S. corporations, Eurobonds, which are U.S. dollar-denominated
obligations of foreign issuers, and Yankee bonds, which are U.S. dollar-
denominated bonds issued by foreign issuers in the U.S., and equipment trust
certificates. Each of the Equity Funds and Government Funds may also purchase
obligations issued by foreign corporations. Corporate bonds are subject to call
risk during periods of falling interest rates. Securities with high stated
interest rates may be prepaid (or called) prior to maturity, requiring a Fund to
invest the proceeds at generally lower interest rates.
Cash equivalents, such as commercial paper and other similar obligations
purchased by a Fund that have an original maturity of thirteen months or less,
will either have short-term ratings at the time of purchase in the top two
categories by one or more NRSROs or be issued by issuers with such ratings.
Unrated instruments of these types purchased by a Fund will be determined by the
Adviser to be of comparable quality.
- --Repurchase Agreements. EACH FUND, except the MUNICIPAL BOND FUNDS, may enter
into repurchase agreements which involve a purchase of portfolio securities
subject to the seller's agreement to repurchase them at an agreed upon time and
price. The Funds will enter into repurchase agreements only with financial
institutions (such as banks and broker-dealers) deemed to be creditworthy by the
Adviser, pursuant to guidelines established by the Board of Trustees. The term
of these agreements is usually from overnight to one week and in any event, the
Funds intend that such agreements will not have maturities longer than 60 days.
A repurchase agreement may be viewed as a fully collateralized loan of money by
a Fund to the seller. During the term of any repurchase agreement, the Adviser
will monitor the creditworthiness of the seller, and the seller must maintain
the value of the securities subject to the agreement in an amount that is
greater
11
<PAGE> 14
than the repurchase price. Default or bankruptcy of the seller would, however,
expose a Fund to possible loss because of adverse market action or delays
connected with the disposition of the underlying obligations. Because of the
seller's repurchase obligation, the securities subject to repurchase agreements
do not have maturity limitations.
- --Reverse Repurchase Agreements. EACH FUND is authorized to make limited
borrowings for temporary purposes by entering into reverse repurchase
agreements. Under such an agreement a Fund sells portfolio securities to
financial institutions (such as banks and broker-dealers) and then buys them
back later at an agreed-upon time and price. When a Fund enters into a reverse
repurchase agreement it will place in a separate custodial account either liquid
assets or high grade debt securities that have a value equal to or more than the
price a Fund must pay when it buys back the securities, and the account will be
continuously monitored by the Adviser to make sure the appropriate value is
maintained. Reverse repurchase agreements involve the possible risk that the
value of portfolio securities a Fund relinquishes may decline below the price a
Fund must pay when the transaction closes. Interest paid by a Fund in a reverse
repurchase or other borrowing transaction will reduce a Fund's income. The Funds
will only enter into reverse repurchase agreements to avoid the need to sell
portfolio securities to meet redemption requests during unfavorable market
conditions.
- --Variable and Floating Rate Instruments. EACH FUND may purchase variable and
floating rate instruments. These instruments may include variable amount master
demand notes, which are instruments under which the indebtedness represented by
the instrument as well as its interest rate may vary. Because of the absence of
a market in which to resell variable or floating rate instruments, a Fund might
have trouble selling an instrument should the issuer default or during periods
when a Fund is not permitted by agreement to demand payment of the instrument,
and for this or other reasons a loss could occur with respect to the instrument.
- --Zero Coupon Securities. EACH FUND may invest in zero coupon securities. Zero
coupon securities are debt obligations which do not entitle the holder to any
periodic payments of interest prior to maturity or a specified date when the
securities begin paying current interest (the "cash payment date") and therefore
are issued and traded at a discount from their face amounts or par value. Such
bonds carry an additional risk in that, unlike bonds which pay interest
throughout the period to maturity, a Fund will realize no cash until the cash
payment date and, if the issuer defaults, the Fund may obtain no return at all
on its investment.
A Fund will be required to include in income daily portions of original issue
discount accrued which will cause the Fund to be required to make distributions
of such amounts to shareholders annually, even if no payment is received before
the distribution date. These distributions must be made from the Fund's cash
assets or, if necessary, from the proceeds of sales of portfolio securities. The
Fund will not be able to purchase additional income producing securities with
cash used to make such distributions and its current income ultimately may be
reduced as a result.
- --Stripped Securities. EACH FUND may invest in instruments known as "stripped"
securities. These instruments include U.S. Treasury bonds and notes and federal
agency obligations on which the unmatured interest coupons have been separated
from the underlying obligation. These obligations are usually issued at a
discount to their "face value," and because of the manner in which principal and
interest are returned may exhibit greater price volatility than more
conventional debt securities. Each Fund may invest in "interest only" stripped
securities that have been issued by a federal instrumentality known as the
Resolution Funding Corporation and other stripped securities issued or
guaranteed by the U.S. Government, where the principal and interest components
are traded independently under the Separate Trading of Registered Interest and
Principal Securities program ("STRIPS"). Each Fund may also invest in
instruments that have been stripped by their holder, typically a custodian bank
or investment brokerage firm, and then resold in a custodian receipt program
under names such as TIGRS (Treasury Income Growth Receipts) and CATS
(Certificates of Accrual on Treasuries).
In addition, EACH FUND may purchase stripped mortgage-backed securities ("SMBS")
issued by the U.S. Government (or a U.S. Government agency or instrumentality)
or by private issuers such as banks and other institutions. SMBS, in particular,
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors.
- --Participations and Trust Receipts. EACH FUND may purchase from domestic
financial institutions and trusts created by such institutions participation
interests and trust receipts in high quality debt securities. A participation
interest or receipt gives a Fund an undivided interest in the security in the
proportion that a Fund's participation interest or receipt bears to the total
principal amount of the security. Each Fund
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<PAGE> 15
intends only to purchase participations and trust receipts from an entity or
syndicate, and do not intend to serve as a co-lender in any such activity.
- --When-Issued Purchases, Forward Commitments and Delayed Settlements. EACH FUND
may purchase securities on a "when-issued" basis and purchase or sell securities
on a "forward commitment" basis. Additionally, the Funds may purchase or sell
securities on a "delayed settlement" basis.
When-issued and forward commitment transactions, which involve a commitment by a
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), permit a Fund to
lock-in a price or yield on a security it intends to purchase or sell,
regardless of future changes in interest rates. Delayed settlement refers to a
transaction in the secondary market that will settle some time in the future.
These transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield available when the delivery takes place.
When-issued purchases, forward commitments and delayed settlement transactions
are not expected to exceed 25% of the value of a Fund's total assets under
normal circumstances. In the event a Fund's when-issued purchases, forward
commitments and delayed settlement transactions ever exceeded 25% of the value
of its total assets, a Fund's liquidity and the ability of the Adviser to manage
the Fund might be adversely affected. These transactions will not be entered
into for speculative purposes but only in furtherance of a Fund's investment
objective.
- --Stand-by Commitments. Each of the MUNICIPAL BOND FUNDS may acquire stand-by
commitments under which a dealer agrees to purchase certain Municipal
Obligations at the Fund's option at a price equal to amortized cost plus
interest. These commitments will be used only to assist in maintaining the
liquidity of the Funds, and not for trading purposes.
- --Other Investment Companies. EACH FUND may invest in the securities of other
mutual funds that invest in the particular instruments in which a Fund itself
may invest subject to requirements of applicable securities laws. The Trust, on
behalf of each of the Funds, has sought relief from the SEC to permit each Fund
to invest in affiliated money market funds. Such relief is currently pending
before the SEC. When a Fund invests in another mutual fund, it pays a pro rata
portion of the advisory and other expenses of that fund as a shareholder of that
fund. These expenses are in addition to the advisory and other expenses a Fund
pays in connection with its own operations. The Adviser may waive its advisory
fee on that portion of any Fund's assets which are invested in the securities of
affiliated money market funds managed by the Adviser or any of its affiliates.
- --Securities Lending. EACH FUND may lend securities held in its portfolio to
financial institutions (such as banks and broker-dealers) as a means of earning
additional income. These loans present risks of delay in receiving additional
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
securities loans will be made only to financial institutions the Adviser deems
to be of good standing, and will only be made if the Adviser thinks the possible
rewards from such loan justify the possible risks. A loan will not be made if,
as a result, the total amount of a Fund's outstanding loans exceeds 33 1/3% of
its total assets. Securities loans will be fully collateralized.
- --Mortgage Rolls. Each of the GOVERNMENT FUNDS may enter into transactions known
as "mortgage dollar rolls" in which a Fund sells mortgage-backed securities for
current delivery and simultaneously contracts to repurchase substantially
similar securities in the future at a specified price which reflects an interest
factor and other adjustments. During the roll period, a Fund does not receive
principal and interest on the mortgage-backed securities but it does earn
interest on the cash proceeds of the initial sale. In addition, a Fund is paid a
fee as consideration for entering into the commitment to purchase. Unless a roll
has been structured so that it is "covered," meaning that there exists an
offsetting cash or cash-equivalent security position that will mature at least
by the time of settlement of the roll transaction, cash or U.S. Government
securities or other liquid high grade debt instruments in the amount of the
future purchase commitment will be set apart for the Fund involved in a separate
account at the custodian. Mortgage rolls are not a primary investment technique
for any of the Funds, and it is expected that, under normal market conditions, a
Fund's commitments under mortgage rolls will not exceed 10% of the value of its
total assets.
- --Options. EACH FUND may write covered call options, buy put options, buy call
options and sell, or "write," secured put options on particular securities or
various securities indices. A call option for a particular security gives the
purchaser of the option the right to buy, and a writer the obligation to sell,
the underlying security at the stated exercise price at any time prior to the
expiration of the option, regardless of the market price of the security. The
premium paid to the writer is the consideration for undertaking the obligations
under the
13
<PAGE> 16
option contract. A put option for a particular security gives the purchaser the
right to sell the underlying security at the stated exercise price at any time
prior to the expiration date of the option, regardless of the market price of
the security. In contrast to an option on a particular security, an option on a
securities index provides the holder with the right to make or receive a cash
settlement upon exercise of the option.
Options purchased by a Fund will not exceed 5%, and options written by a Fund
will not exceed 25%, of its net assets. All options will be listed on a national
securities exchange and issued by the Options Clearing Corporation.
OPTIONS TRADING IS A HIGHLY SPECIALIZED ACTIVITY AND MAY CARRY GREATER THAN
ORDINARY INVESTMENT RISK. Purchasing options may result in the complete loss of
the amounts paid as premiums to the writer of the option. In writing a covered
call option, a Fund gives up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price (except to the
extent the premium represents such a profit). Moreover, it will not be able to
sell the underlying security until the covered call option expires or is
exercised or a Fund closes out the option. In writing a secured put option, a
Fund assumes the risk that the market value of the security will decline below
the exercise price of the option. The Funds may use options to manage their
exposure to changing interest rates and/or security prices. The use of covered
call and secured put options will not be a primary investment technique of any
Fund.
- --Futures and Related Options. EACH FUND may enter into futures contracts and
options on such futures contracts as a hedge against anticipated interest rate
fluctuations. Such fluctuations could have an effect on securities that a Fund
holds in its portfolio or intends to sell. Futures contracts obligate a Fund, at
maturity, to take or make delivery of certain securities or the cash value of a
securities index. A Fund may not purchase or sell a futures contract (or related
option) except for bona fide hedging purposes unless immediately after any such
transaction the sum of the aggregate amount of margin deposits on its existing
futures positions and the amount of premiums paid for related options is 5% or
less of its total assets (after taking into account certain technical
adjustments).
EACH FUND may also purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Fund purchases an option on a
futures contract, it has the right to assume a position as a purchaser or seller
of a futures contract at a specified exercise price at any time during the
option period. When a Fund sells an option on a futures contract, it becomes
obligated to purchase or sell a futures contract if the option is exercised. In
anticipation of a market advance, a Fund may purchase call options on futures
contracts as a substitute for the purchase of futures contracts to hedge against
a possible increase in the price of securities which a Fund intends to purchase.
Similarly, if the value of a Fund's portfolio securities is expected to decline,
the Fund might purchase put options or sell call options on futures contracts
rather than sell futures contracts.
More information regarding futures contracts and related options can be found in
the Statement of Additional Information, which is available upon request.
- --Forward Foreign Currency Exchange Contracts. Because each of the EQUITY FUNDS
and GOVERNMENT FUNDS may buy and sell securities and receive dividend and
interest proceeds in currencies other than the U.S. dollar, these Funds may from
time to time enter into forward foreign currency exchange contracts ("forward
contracts"). 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.
The purpose of entering into these contracts is to minimize the risk to the
Funds 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. The use of currency transactions can result in a 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 a Fund than the performance it would have had if
it had not engaged in forward contracts.
- --Liquidity Considerations. An illiquid investment is any investment that cannot
be disposed of within seven days in the normal course of business at
approximately the amount at which it is valued by a Fund. Disposing of illiquid
investments may involve time-consuming negotiations and legal expenses, and it
may be difficult or impossible to dispose of such investments promptly at an
acceptable price. Additionally, the absence of a trading market can make it
difficult to value a security. For these and other reasons a FUND WILL NOT
KNOWINGLY INVEST MORE THAN 15% OF ITS NET ASSETS IN ILLIQUID SECURITIES. In
addition, the Pilot Growth and Income Fund and Pilot Intermediate Government
Securities Fund each will limit its investments in securities which are
restricted as to disposition to 10% of their net assets. Illiquid securities
include repurchase agreements,
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<PAGE> 17
securities loans and time deposits that do not permit a Fund to terminate them
after seven days notice, certain certificates of participation, trust receipts,
tax-exempt derivative instruments, stripped mortgage-backed securities issued by
private issuers and securities that are not registered under the securities
laws. Certain securities that might otherwise be considered illiquid, however,
such as some issues of commercial paper and variable amount master demand notes
with maturities of nine months or less and securities for which the Adviser has
determined pursuant to guidelines adopted by the Board of Trustees that a liquid
trading market exists (including certain securities that may be purchased by
institutional investors under SEC Rule 144A), are not subject to this 15%
limitation.
- --Portfolio Turnover. EACH FUND may engage in short-term trading to achieve its
investment objective. The annual portfolio turnover rates for the FUNDS are not
expected to exceed 100% during the next twelve months. Portfolio turnover will
not be a limiting factor in making investment decisions. Portfolio turnover may
occur for a variety of reasons, including the appearance of a more favorable
investment opportunity. Turnover may require payment of brokerage commissions,
impose other transaction costs and could increase the amount of income received
by a Fund that constitutes taxable capital gains. To the extent capital gains
are realized, distributions from the gains may be ordinary income for federal
tax purposes (see "The Business of the Fund-- Tax Implications").
- --Other Information. Certain brokers who are affiliated with The Pilot Funds may
act as broker for the Funds on exchange portfolio transactions, subject,
however, to procedures adopted by the Board of Trustees. Commissions, fees or
other remuneration paid to an affiliated broker must be at least as favorable as
those which the Trustees believe to be charged by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time. A transaction
will not be placed with an affiliated broker if a Fund would have to pay a
commission rate less favorable than the affiliated broker's contemporaneous
charges for comparable transactions for its other most favored, but
unaffiliated, customers, except for accounts for which the affiliated broker
acts as a clearing broker for another brokerage firm, and any customers of the
affiliated broker not comparable to The Pilot Funds as determined by the Board
of Trustees.
The Pilot Funds has also adopted certain procedures which enable a Fund to
purchase certain instruments during the existence of an underwriting or selling
syndicate of which an affiliated broker is a member. These procedures establish
certain limitations on the amount of securities which can be purchased in any
single offering and on the amount of a Fund's assets which may be invested in
any single offering. Because of the active role which may be played by
affiliated brokers in the underwriting of securities, a Fund's ability to
purchase securities in the primary market may from time to time be limited.
RISK FACTORS
- --Foreign Securities. There are risks and costs involved in investing in
securities of foreign issuers (including foreign governments), which are in
addition to the usual risks inherent in U.S. investments. Investments in foreign
securities may involve higher costs than investments in U.S. securities,
including higher transaction costs as well as the imposition of additional taxes
by foreign governments. In addition, foreign investments may involve further
risks associated with the level of currency exchange rates, less complete
financial information about the issuer, less market liquidity and political
instability. Future political and economic developments, the possible imposition
of withholding taxes on interest income, the possible seizure or nationalization
of foreign holdings, the possible establishment of exchange controls or the
adoption of other governmental restrictions might adversely affect the payment
of principal and interest on foreign obligations. Additionally, foreign banks
and foreign branches of domestic banks may be subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements.
- --Convertible Securities. In general, the market value of a convertible security
is the higher of its "investment value" (i.e., its value as a fixed-income
security) or its "conversion value" (i.e., the value of the underlying shares of
common stock if the security is converted). As a fixed-income security, the
market value of a convertible security generally increases when interest rates
decline and generally decreases when interest rates rise. However, the price of
a convertible security also is influenced by the market value of the security's
underlying common stock. Thus, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines.
- --Other Risk Considerations. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However, there are certain specific risks of which you
should be aware.
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<PAGE> 18
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
be aware that in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates the market value will tend
to decrease. You should also be aware that in periods of declining interest
rates, the yields of investment portfolios comprised primarily of fixed income
securities will tend to be higher than prevailing market rates and, in periods
of rising interest rates, yields will tend to be somewhat lower. The Funds may
purchase zero-coupon bonds (i.e., discount debt obligations that do not make
periodic interest payments). Zero-coupon bonds are subject to greater market
fluctuations from changing interest rates than debt obligations of comparable
maturities which make current distributions of interest. Debt securities with
longer maturities, which tend to produce higher yields, are subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities. Changes in the financial strength of an issuer or changes in
the ratings of any particular security may also affect the value of these
investments. Fluctuations in the market value of fixed income securities
subsequent to their acquisition will not affect cash income from such securities
but will be reflected in a Fund's net asset value.
FUNDAMENTAL LIMITATIONS
Certain of the investment policies of each Fund may not be changed without a
vote of the 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
these fundamental limitations are summarized below, and all of the Funds'
fundamental limitations are set out in full in the Statement of Additional
Information, which is available upon request.
1. A 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).
2. A Fund may not invest (with certain limited exceptions, including U.S.
Government securities) more than 5% of its total assets in the securities of a
single issuer or subject to puts from any one issuer, except that up to 25% of
the total assets of each Fund can be invested without regard to the 5%
limitation. A Fund may not purchase more than 10% of the outstanding voting
securities of any issuer subject, however, to the foregoing 25% exception.
3. A Fund may not borrow money except as a temporary measure for extraordinary
or emergency purposes or except in connection with reverse repurchase agreements
and mortgage rolls; provided that the Fund will maintain asset coverage of 300%
for all borrowings.
4. A Fund may not make loans, except that it may invest in debt securities,
enter into repurchase agreements and lend its portfolio securities.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
In order to permit the sale of a Fund's shares (or a particular class of shares)
in some states, The Pilot Funds may agree to certain restrictions that may be
stricter than the investment policies and limitations discussed above. If The
Pilot Funds decides that any of these restrictions is no longer in a Fund's (or
class's) best interest, it may revoke its agreement to abide by such restriction
by no longer selling shares in the state involved.
INVESTING IN THE PILOT FUNDS
HOW TO BUY SHARES
Pilot Shares are sold on a continuous basis by Pilot Funds Distributors, Inc.
(the "Distributor").
Pilot Shares are sold to Boatmen's Trust Company (referred to as "Boatmen's" or
the "Adviser") and its affiliates (Boatmen's and such affiliates being sometimes
referred to herein individually as an "Institution" and collectively as
"Institutions") acting on behalf of themselves or their customers who maintain
qualified trust, agency or custodial accounts ("Customers"). Customers may
include individuals, trusts, partnerships, institutions and corporations. All
share purchases are effected through a Customer's account at an Institution
through procedures established in connection with the requirements of the
account, and confirmations of share purchases and redemptions will be sent to
the Institution involved. Institutions (or their nominees) will normally be the
holders of record of Pilot Shares acting on behalf of their Customers, and will
reflect their Customers' beneficial ownership of shares in the account
statements provided by them to their Customers. The exercise of voting rights
and the delivery to Customers of shareholder communications from the Funds will
be governed by the Customers' account agreements with the Institutions.
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<PAGE> 19
Pilot Shares are sold at the net asset value per share next determined after
receipt of a purchase order from an Institution by the Fund's transfer agent.
The minimum initial investment in a Fund for an Institution is $500,000 with no
minimum subsequent investment. Institutions may establish different minimum
investment requirements for their Customers and may charge their Customers
certain account fees depending on the type of account a Customer has established
with the Institution. These fees may include, for example, account maintenance
fees, compensating balance requirements or fees based upon account transactions,
assets or income. Information concerning these minimum account requirements,
services and any charges should be obtained from the Institutions before a
customer authorizes the purchase of Fund shares, and this Prospectus should be
read in conjunction with any information so obtained.
Purchase orders placed by an Institution for Pilot Shares must be received by
the Funds' transfer agent before the close of regular trading hours (currently
3:00 p.m. Central time) on the New York Stock Exchange (the "Exchange") on a day
when the Exchange is open for trading (a "Business Day"), 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)).
Payment for shares must be made by Institutions in federal funds or other funds
immediately available to the Funds' custodian no later than 3:00 p.m. (Central
time) on the Business Day immediately following placement of the purchase order.
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.
It is the responsibility of Institutions to transmit orders for purchases by
their Customers promptly to the Funds in accordance with their agreements with
their Customers, and to deliver required investments on a timely basis. If
federal funds are not received within the period described, the order will be
canceled, notice will be given, and the Institution will be responsible for any
loss to The Pilot Funds or its beneficial shareholders. Payments for shares of a
Fund may, at the discretion of the Adviser, be made in the form of securities
that are permissible investments for that Fund. For further information see
"In-Kind Purchases" in the Statement of Additional Information.
Purchase orders must include the purchasing Institution's tax identification
number. The Pilot Funds reserves the right to reject any purchase order or to
waive the minimum initial investment requirement. Payment for orders which are
not received or accepted will be returned after prompt notice. The issuance of
shares is recorded in the shareholder records of the Funds, and share
certificates will not be issued.
HOW TO SELL SHARES
Redemption orders are effected at the net asset value per share next determined
after receipt of the order from an Institution by The Pilot Funds' transfer
agent. The Pilot Funds imposes no charges when Pilot Shares are redeemed.
Institutions may charge fees to their Customers for their services in connection
with the instructions and limitations pertaining to the account at the
Institution.
The Funds may suspend the right of redemption or postpone the date of payment
upon redemption (as well as suspend the recordation of the transfer of its
shares) for such periods as permitted under the Investment Company Act of 1940.
The Pilot Funds intends to pay cash for all shares redeemed, but in unusual
circumstances may make payment wholly or partly in readily marketable portfolio
securities at their then market value equal to the redemption price if it
appears appropriate to do so in light of the Funds' responsibilities under the
Investment Company Act of 1940. See the Statement of Additional Information
("Additional Purchase and Redemption Information") for examples of when such
redemptions might be appropriate. In those cases, an investor may incur
brokerage costs in converting securities to cash. The Funds may also redeem
shares involuntarily if the balance has fallen below the minimum level due to
shareholder redemptions and not as a result of market fluctuations.
It is the responsibility of the Institutions to provide their customers with
statements of account with respect to transactions made for their accounts at
the Institutions.
Share balances may be redeemed pursuant to arrangements between Institutions and
their Customers. It is the responsibility of an Institution to transmit
redemption orders to The Pilot Funds' transfer agent and to credit its
Customers' accounts with the redemption proceeds on a timely basis. The
redemption proceeds for all Funds are normally wired to the redeeming
Institution the following Business Day after receipt of the order by the
transfer agent. The Pilot Funds reserves the right, however, to delay the wiring
of redemption proceeds for up to seven days after receipt of a
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<PAGE> 20
redemption order if, in the judgment of the Adviser, an earlier payment could
adversely affect a Fund.
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 net asset value of shares that are redeemed may be more or less than their
original cost, depending on a Fund's current net asset value.
Explanation of Sales Price
Pilot Shares of the Funds are sold at net asset value. NET ASSET VALUE PER SHARE
is determined on each Business Day (as defined above) at 3:00 p.m. (Central
time) with respect to each Fund by adding the value of a Fund's investments,
cash and other assets attributable to its Pilot Shares, subtracting the Fund's
liabilities attributable to those shares, and then dividing the result by the
number of Pilot Shares in the Fund that are outstanding. The assets of the Funds
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
these Funds that have sixty days or less until they mature are valued at
amortized cost, which generally approximates market value. More information
about valuation can be found in the Funds' Statement of Additional Information,
which is available upon request.
DIVIDENDS AND DISTRIBUTIONS
Where do your dividends and distributions come from?
Dividends for each Fund are derived from its net investment income. For the
Government and Municipal Bond Funds, it comes from the interest on the bonds and
other investments that they hold in their portfolios. For the Equity Funds, net
investment income is made up of dividends received from the stocks they hold, as
well as interest accrued on convertible securities, money market instruments and
other debt obligations held in their portfolios.
The Funds realize capital gains when they sell a security for more than its
cost. Each Fund may make distributions of its net realized capital gains, if
any, after any reductions for capital loss carryforwards.
What are your dividend and distribution options?
Shareholders of record receive dividends and net capital gain distributions.
Dividends and distributions will be paid in cash unless you specifically elect
to receive payment in additional shares of the same share class of a Fund for
which the dividend or distribution was declared. Your election and any
subsequent change should be made in writing to your Institution.
Your election is effective for dividends and distributions with record dates
(with respect to the Equity Funds) or payment dates (with respect to the
Government and Municipal Bond Funds) after the date the Institution receives the
election.
When are dividends and distributions declared and paid?
<TABLE>
<CAPTION>
DIVIDENDS
ARE DIVIDENDS
FUND DECLARED ARE PAID
- ------------------------------ -------- ------------------
<S> <C> <C>
Equity Funds.................. Monthly Monthly
Government Funds and Municipal
Bond Funds(1)............... Daily Monthly within
five business days
of month end
</TABLE>
- ------------
(1) Shares of the Government and Municipal Bond Funds begin earning dividends
the first Business Day after acceptance of the purchase order for which The
Pilot Funds' custodian has received payment and stop earning dividends the
Business Day such shares are redeemed.
With respect to the Government and Municipal Bond Funds, if all of the Pilot
Shares held by an Institution in such a Fund are redeemed, the Fund will make a
cash payment of any accrued dividends within five business days after
redemption.
Net capital gain distributions for each of the Funds, if any, are distributed at
least annually after any reductions for capital loss carryforwards.
EXCHANGE PRIVILEGE
If you wish, Pilot Shares of a Fund may be exchanged for Class A Shares of the
same Fund in connection with the distribution of assets held in a qualified
trust, agency or custodial account maintained with Boatmen's or its affiliates.
Similarly, a Customer may exchange Class A Shares for Pilot Shares of the same
Fund if the shares are to be held in such a qualified trust, agency or custodial
account. Pilot Shares of a Fund may also be exchanged for Pilot Shares of any of
the other investment portfolios of The Pilot Funds. These exchanges are made
without a sales charge at the net asset value of the respective share classes or
Fund. The
18
<PAGE> 21
particular class of shares or Fund you are exchanging into must be registered
for sale in your state. 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 Securities and Exchange Commission.
THE PILOT FAMILY OF FUNDS
The Pilot Funds was organized on July 15, 1982 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 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. The Trustees have authorized the issuance of an unlimited number of
shares in each of three share classes (Pilot Shares, Class A Shares and Class B
Shares) in the Funds. Each Fund is classified as a diversified company.
Information regarding The Pilot Funds' other portfolios may be obtained by
contacting The Pilot Funds or the Distributor.
The Pilot Shares of the Funds are described in this prospectus. The Funds also
offer Class A and Class B Shares. Class A Shares are sold with a maximum 4.5%
(4.0% for the Intermediate U.S. Government Securities Fund and Intermediate
Municipal Bond Fund) front-end sales charge, and Class B Shares are sold with a
maximum 4.5% (4.0% for the Intermediate U.S. Government Securities Fund and
Intermediate Municipal Bond Fund) contingent deferred sales charge. Pilot, Class
A and Class B Shares bear their pro rata portion of all operating expenses paid
by the Funds. In addition, Class A and Class B Shares bear all payments under
the Funds' Distribution Plans (the "Plans"). Under the Plans the Distributor
receives fees for distribution and shareholder support services.
Payments under the Distribution Plan for Class A Shares may be made for payments
to broker-dealers and financial institutions under agreements with those
organizations for personal services provided to Class A shareholders and/or the
maintenance of Class A shareholder accounts. Payments under the Distribution
Plan for Class B Shares, in addition to being used for the same purposes as
payments under the Distribution Plan for Class A Shares, may be used to
reimburse sales commissions and other fees paid to broker-dealers who sell Class
B Shares and may also be used for advertising and marketing. Payments under the
Distribution Plan for Class A Shares may not exceed .25% (on an annual basis) of
the average daily net asset value of outstanding Class A Shares. 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 outstanding Class B Shares.
Distribution payments under the Distribution Plans are subject to the
requirements of a rule under the Investment Company Act of 1940 known as Rule
12b-1.
The Pilot Funds offers various services and privileges in connection with its
Class A and Class B Shares that are not offered in connection with its Pilot
Shares, including an automatic investment plan and an automatic withdrawal plan.
Class B Shares convert automatically to Class A Shares eight years after the
beginning of the calendar month in which the shares were purchased. Persons
selling or servicing Class A and Class B Shares of the Funds may receive
different compensation with respect to one particular class of shares over
another in the same Fund.
SHAREHOLDERS ARE ENTITLED TO ONE VOTE FOR EACH FULL SHARE HELD AND PROPORTIONATE
FRACTIONAL VOTES FOR FRACTIONAL SHARES HELD. Shares of all the Pilot Fund
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 on matters 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.
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<PAGE> 22
SERVICE PROVIDERS
Adviser: BOATMEN'S TRUST COMPANY (referred to as "Boatmen's" or the "Adviser")
manages the investment portfolio of each Fund, selecting the investments and
making purchase and sale orders. Its principal offices are located at 100 North
Broadway, St. Louis, Missouri 63178-4737.
Administrator: CONCORD HOLDING CORPORATION (referred to as "Concord"), is
responsible for coordinating the Funds' efforts and generally overseeing the
operation of the Funds' 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 Funds. It maintains the
account records of all shareholders and administers the distribution of all
income earned as a result of investing in the Funds. The Transfer Agent is
located at 3435 Stelzer Road, Columbus, Ohio 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 businesses, governmental
units, pension and profit sharing plans and other institutions and
organizations. As of June 30, 1995, Boatmen's and its affiliates managed $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 Boatmen's, and more than fifty banks and trust
companies located in Arkansas, Illinois, Iowa, Kansas, Missouri, New Mexico,
Oklahoma, Tennessee and Texas; a mortgage banking company, a credit life
insurance company and a credit card bank.
Boatmen's utilizes a team approach in managing each of the Equity Funds. Randall
L. Yoakum, a Chartered Financial Analyst, is the team member primarily
responsible for managing the day-to-day investment operations of the Pilot
Growth and Income Fund. Mr. Yoakum is a Senior Vice President and Director of
Equity and Balanced Portfolio Management with Boatmen's. Mr. Yoakum is
responsible for overseeing all institutional equity and balanced portfolios. In
addition to serving as a member of Boatmen's Investment Policy Committee, Mr.
Yoakum manages the Value Plus collective fund and the Pilot Growth and Income
mutual fund. Prior to joining Boatmen's Trust, he served most recently as a
senior vice president and chief equity officer for Composite Research &
Management. Mr. Yoakum has over a decade of investment experience, and he is
presently a member of both the Association for Investment Management and
Research (AIMR) and the St. Louis Society of Financial Analysts. He has earned
the Chartered Financial Analyst designation as well as a bachelor's degree in
political science and finance from Pacific Lutheran University and an MBA from
Arizona State University.
Mr. Michael E. Kenneally, a Chartered Financial Analyst, is a Senior Vice
President and Director of Research for Boatmen's. Mr. Kenneally currently
oversees Boatmen's fundamental and quantitative research efforts as well as
passive and quantitative investment management. His additional responsibilities
include investment product development, international equity investment, and
equity derivative strategies. Mr. Kenneally holds both a bachelor's degree in
economics and an MBA in finance from the University of Missouri. He joined
Boatmen's in 1983 as an equity analyst, later became a quantitative analyst, and
subsequently worked as both a fixed-income portfolio manager and an equity
portfolio manager. Mr. Kenneally is also a member of the Association for
Investment Management and Research (AIMR), the St. Louis Society of Financial
Analysts, the Chicago Quantitative Alliance, and the Society of Quantitative
Analysts.
David W. Papendick, a Chartered Financial Analyst, is the team member primarily
responsible for the day-to-day investment operations of the Pilot Equity Income
Fund. Mr. Papendick has been associated with Boatmen's since 1973 and is
responsible for the management of pooled equity investment funds with current
assets of over $360 million. He also oversees Boatmen's equity analyst training
program and is a
20
<PAGE> 23
member of Boatmen's Investment Policy Committee. Prior to joining Boatmen's, Mr.
Papendick was associated with two regional brokerage and investment management
firms. Mr. Papendick earned his bachelor's degree from Washington University.
The Fixed Income Committee of Boatmen's is primarily responsible for the
day-to-day management of the investment portfolio of each of the Government
Funds and Municipal Bond Funds.
Although expected to be infrequent, Boatmen's may consider the amount of Fund
shares sold by broker-dealers and others (including those who may be connected
with Boatmen's) in allocating orders for purchases and sales of portfolio
securities. This allocation may involve the payment of brokerage commissions or
dealer concessions. Boatmen's will not engage in this practice unless the
execution capability of and the amount received by such broker-dealer or other
company is believed to be comparable to what another qualified firm could offer.
MORE ABOUT CONCORD. Concord is a Delaware corporation that was organized in 1987
to provide administrative services to mutual funds. Concord is a wholly-owned
subsidiary of The BISYS Group, Inc. 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 and the Distributor.
EXPENSES. In order to support the services described above, as well as other
matters essential to the operation of the Funds, the Funds incur 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.
Boatmen's is entitled to advisory fees that are calculated daily and payable
monthly at the annual rate of 0.75% of the Pilot Growth and Income Fund's
average daily net assets, 0.75% of the Pilot Equity Income Fund's average daily
net assets, 0.55% of the Pilot Intermediate U.S. Government Securities Fund's
average daily net assets, 0.55% of the Pilot U.S. Government Securities Fund's
average daily net assets, 0.55% of the Pilot Intermediate Municipal Bond Fund's
average daily net assets, and 0.55% of the Pilot Municipal Bond Fund's average
daily net assets. For the fiscal period ended August 31, 1995, the funds paid
advisory fees in the amount of 0.50%, 0.50%, 0.35%, 0.40%, 0.40% and 0.45% for
The Pilot Growth and Income Fund, Pilot Equity Income Fund, Pilot Intermediate
U.S. Government Securities Fund, Pilot U.S. Government Securities Fund, Pilot
Intermediate Municipal Bond Fund and Pilot Municipal Bond Fund, respectively.
Additionally, 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. For the fiscal period ended August 31, 1995, The Pilot Funds paid
administration fees to Concord in the amount of $0, $0, $28,065, $11,784,
$52,366 and $23,572 for The Pilot Growth and Income Fund, Pilot Equity Income
Fund, Pilot Intermediate U.S. Government Securities Fund, Pilot U.S. Government
Securities Fund, Pilot Intermediate Municipal Bond Fund and Pilot Municipal Bond
Fund, respectively.
Operating expenses borne by the Funds include taxes; interest; fees and expenses
of trustees and officers who are not also officers, directors, employees or
holders of 5% or more of the outstanding voting securities of the Adviser,
Concord or any of their affiliates; Securities and Exchange Commission fees;
state securities registration and qualification fees; advisory fees;
administration fees; charges of the custodian and of the transfer and dividend
disbursing agent; certain insurance premiums; outside auditing and legal
expenses; costs of preparing and printing prospectuses for regulatory purposes
and for distribution to shareholders; costs of shareholder reports and meetings;
and any extraordinary expenses. Each Fund also pays any brokerage fees,
commissions and other transaction charges (if any) incurred in connection with
the purchase and sale of its portfolio securities.
FEE WAIVERS. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Boatmen's and the Funds' other service providers, as well as
by certain mandatory expense limits imposed by some state
21
<PAGE> 24
securities regulators. However, as to any amounts voluntarily waived or
reimbursed, the service providers retain the ability to be reimbursed by a 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 a
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.
FEDERAL TAXES. Each Fund intends to qualify as a "regulated investment company"
under the Internal Revenue Code (called the "Code"), meaning that to the extent
a Fund's earnings are passed on to shareholders as required by the Code, the
Fund itself generally will not be required to pay federal income taxes.
In order to so qualify, each Fund intends to pay as dividends at least 90% of
its investment company taxable income. Investment company taxable income
includes taxable interest, dividends and gains attributable to market discount
on taxable as well as tax-exempt securities. To the extent you receive such a
dividend based on either investment company taxable income or the excess of net
short-term capital gain over net long-term capital loss, you would treat that
dividend as ordinary income in determining your gross income for tax purposes,
whether you received it in the form of cash or additional shares. Unless you are
exempt from federal income taxes, the dividends you receive from each Fund,
other than the "exempt interest dividends" from the Municipal Bond Funds, will
be taxable to you as ordinary income. Also, to the extent that a Fund's income
consists of dividends paid by U.S. corporations, a portion of the dividends paid
by the Fund may be eligible for the corporate dividends-received deduction.
In addition, each Municipal Bond Fund intends to pay at least 90% of its net
exempt-interest income as dividends known as "exempt-interest dividends". These
dividends may be treated by you as excludable from your gross income (unless the
exclusion would be disallowed because of your particular situation). You should
note that income that is not subject to federal income taxes may nonetheless
have to be considered along with other adjusted gross income in determining
whether any Social Security payments received by you are subject to federal
income taxes.
If a Municipal Bond Fund holds certain so-called "private activity bonds" issued
after August 7, 1986 shareholders will need to include as an item of tax
preference for purposes of the federal alternative minimum tax that portion of
the dividends paid by the Fund derived from interest received on such bonds. The
maximum federal alternative minimum tax rate is 28% for individuals. In
addition, corporations will need to take into account all exempt-interest
dividends paid by these Funds in determining certain adjustments for the federal
alternative minimum tax and the environmental tax.
Any distribution you receive of net long-term capital gain over net short-term
capital loss will be taxed as a long-term capital gain, no matter how long you
have held Fund shares. If you hold shares for six months or less, and during
that time receive a distribution that is taxable as a long-term capital gain,
any loss you might realize on the sale of those shares will be treated as a
long-term loss to the extent of the earlier capital gain distribution.
Before you purchase shares of a Fund, you should consider the effect of any
capital gain distributions (or if you are purchasing shares of the Equity Funds,
you should consider both dividends and capital gain distributions) that are
expected to be declared or that have been declared, but not yet paid. When a
Fund makes these payments, its share price will be reduced by the amount of the
payment, so that you will in effect have paid full price for the shares and then
received a portion of your price back as a taxable distribution or dividend.
Any dividends declared by a Fund in October, November or December of a
particular year and payable to shareholders during those months will be deemed
to have been paid by the Fund and received by shareholders on December 31 of
that year, so long as the dividends are actually paid in January of the
following year.
Shareholders in the Funds may realize a taxable gain or loss when redeeming,
transferring or exchanging shares of a Fund, generally depending on the
difference in the prices at which the shareholder purchased and sold the shares.
This gain or loss will be long-term or short-term, generally depending on how
long the shareholder held the shares.
Each Fund may be required to withhold federal income tax at the rate of 31% of
all taxable distributions
22
<PAGE> 25
payable to shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's federal income tax liability.
Further information relating to tax consequences is contained in the Statement
of Additional Information.
STATE AND LOCAL TAXES GENERALLY. Because your state and local taxes may be
different than the federal taxes described above, you should see your tax
adviser regarding these taxes. In particular, except as stated below, dividends
paid by the Government Funds and the Municipal Bond Funds may be taxable under
state or local law as dividend income, even though all or part of those
dividends come from interest on obligations that would be free of such income
taxes if held by you directly.
MEASURING PERFORMANCE
Performance information provides you with a method of measuring and monitoring
your investments. Each 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 each Fund may be calculated on an AVERAGE ANNUAL TOTAL RETURN
basis or an AGGREGATE TOTAL RETURN basis. Average annual total 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.
YIELDS for the Funds are calculated for a specified 30-day (or one-month) period
by dividing the net income for the period by the maximum offering price on the
last day of the period, and annualizing the result on a semi-annual basis. Net
income used in yield calculations may be different than net income used for
accounting purposes.
TAX-EQUIVALENT YIELDS for the Municipal Bond Funds show the amount of taxable
yield needed to produce an after-tax equivalent of a tax-free yield, and are
calculated by increasing the yield (as calculated above) by the amount necessary
to reflect the payment of federal income taxes at a stated rate.
Performance comparisons:
The Funds may compare their yields and total returns to those 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 and yield 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.
The performance of the Funds may also be compared to data prepared by Lipper
Analytical Services, Inc., Mutual Fund Forecaster, Wiesenberger Investment
Companies Services, Morningstar or CDA Investment Technologies, Inc., and total
returns for these Funds 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.
PERFORMANCE QUOTATIONS WILL FLUCTUATE, AND 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, INC. 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 FUNDS' CALCULATIONS OF TOTAL RETURN AND
YIELD.
INQUIRIES REGARDING THE FUNDS 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 FUNDS 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 FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
- ---------------------------------------------------------------
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PILVP1295P
<PAGE> 1
EXHIBIT 17(g)
- ----------------------------------------------------------------
- -----
Financial
Direction
LOGO PILOT SHORT-TERM
U.S. TREASURY FUND
PILOT SHORT-TERM
DIVERSIFIED ASSETS FUND
PILOT SHORT-TERM
TAX-EXEMPT
DIVERSIFIED FUND
PILOT MISSOURI
SHORT-TERM
TAX-EXEMPT FUND
PILOT SHARES
DECEMBER 29, 1995
The
Pilot
Funds
Prospectus enclosed
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
EXPENSE SUMMARY....................................................................................... 4
Shareholder Transaction Expenses.................................................................. 4
Annual Fund Operating Expenses.................................................................... 4
Example........................................................................................... 4
THE PILOT FUNDS FINANCIAL HIGHLIGHTS.................................................................. 6
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS...................................................... 11
Pilot Short-Term U.S. Treasury Fund............................................................... 11
Pilot Short-Term Diversified Assets Fund.......................................................... 11
Pilot Short-Term Tax-Exempt Diversified Fund and Pilot Missouri Short-Term Tax-Exempt Fund........ 11
PORTFOLIO INSTRUMENTS AND PRACTICES................................................................. 12
U.S. Government Securities........................................................................ 12
Foreign Securities................................................................................ 13
Repurchase Agreements............................................................................. 13
Municipal Instruments............................................................................. 14
State of Missouri................................................................................. 15
Loan Participations and Asset-Backed and Receivables-Backed Securities............................ 15
Other Investment Companies........................................................................ 15
Forward Commitments and When-Issued Securities.................................................... 16
Managing Liquidity................................................................................ 16
Other Risk Considerations......................................................................... 16
Additional Information............................................................................ 17
INVESTMENT LIMITATIONS.............................................................................. 17
Treasury, Diversified and Tax-Exempt Diversified Funds............................................ 17
Missouri Tax-Exempt Fund.......................................................................... 17
INVESTING IN THE PILOT FUNDS.......................................................................... 18
How to Buy Shares................................................................................. 18
EXPLANATION OF SALES PRICE............................................................................ 19
HOW TO SELL SHARES.................................................................................... 20
How to Redeem..................................................................................... 20
Payment of Redemption Proceeds and Dividends...................................................... 20
Check Redemption Privilege........................................................................ 20
EXCHANGES............................................................................................. 21
DIVIDENDS AND DISTRIBUTIONS........................................................................... 21
Where do your dividends and distributions come from?.............................................. 21
When are dividends and distributions declared and paid?........................................... 21
How are dividends and distributions declared and paid?............................................ 22
THE PILOT FAMILY OF FUNDS............................................................................. 22
THE BUSINESS OF THE FUND.............................................................................. 23
FUND MANAGEMENT....................................................................................... 23
Service Providers................................................................................. 23
Expenses.......................................................................................... 25
Fee Waivers....................................................................................... 25
TAX IMPLICATIONS...................................................................................... 26
MEASURING PERFORMANCE................................................................................. 27
Performance comparisons........................................................................... 27
</TABLE>
<PAGE> 3
THE PILOT FUNDS
LOGO
PROSPECTUS FOR PILOT SHARES
PILOT SHORT-TERM U.S. TREASURY FUND
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
December 29, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PILOT FUND GOAL FOR INVESTORS WHO WANT
- ----------------- -------------------------------------- --------------------------------------
<S> <C> <C>
SHORT-TERM Maximize current income to the extent Safety, liquidity and stability of
U.S. TREASURY consistent with the preservation of capital, consistent with current
capital and the maintenance of income, from U.S. Treasury securities.
liquidity by investing exclusively in
high-quality money market instruments.
- ---------------------------------------------------------------------------------------------------
SHORT-TERM Maximize current income to the extent Liquidity and stability of capital,
DIVERSIFIED consistent with the preservation of consistent with current income, from a
ASSETS capital and the maintenance of diversified portfolio of money market
liquidity by investing exclusively in securities.
high quality money market instruments.
- ---------------------------------------------------------------------------------------------------
SHORT-TERM Seek as high a level of current income Liquidity and stability of capital,
TAX-EXEMPT which is exempt from federal income consistent with current income which
DIVERSIFIED tax as is consistent with the is exempt from federal income tax.
preservation of capital.
- ---------------------------------------------------------------------------------------------------
MISSOURI Seek as high a level of current income Liquidity and stability of capital,
SHORT-TERM which is exempt from federal income consistent with current income which
TAX-EXEMPT tax as is consistent with the is exempt from federal income tax and,
preservation of capital. to the extent possible, Missouri
income tax.
- ---------------------------------------------------------------------------------------------------
</TABLE>
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.
SHARES OF THE PILOT MISSOURI SHORT-TERM TAX EXEMPT FUND ARE NOT OFFERED IN ALL
STATES.
- --------------------------------------------------------------------------------
1
<PAGE> 4
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. WHILE EACH FUND SEEKS TO MAINTAIN A STABLE
PRICE PER SHARE OF $1.00, THERE IS NO ASSURANCE THAT EACH FUND WILL BE ABLE TO
DO SO. INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL. IN ADDITION, THE AMOUNT OF DIVIDENDS PAID BY A FUND WILL
VARY. BOATMEN'S TRUST COMPANY SERVES AS INVESTMENT ADVISER TO EACH OF THE FUNDS
AND IS PAID A FEE FOR ITS SERVICES, AND IS NOT AFFILIATED WITH PILOT FUNDS
DISTRIBUTORS, INC., THE FUNDS' DISTRIBUTOR.
This Prospectus describes Pilot Shares in the Pilot Short-Term U.S. Treasury,
Pilot Short-Term Diversified Assets, Pilot Short-Term Tax-Exempt Diversified and
Pilot Missouri Short-Term Tax-Exempt Funds. This Prospectus describes concisely
the information about the Funds that you should know before investing. Please
read it carefully and keep it for future reference.
More information about the Funds 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
your Institution, by writing Pilot Funds Distributors, Inc., 3435 Stelzer Road,
Columbus, Ohio 43219-3035, or by calling 800/71-PILOT. The Statement of
Additional Information dated December 29, 1995, as amended or supplemented from
time to time, is incorporated by reference into (considered a part of) the
Prospectus.
2
<PAGE> 5
The Funds are particularly designed for customers of Boatmen's, its affiliates
and other Institutions seeking investment of short-term funds to obtain the
yields available on certain types of money market instruments while maintaining
maximum liquidity and constant net asset value (see "Net Asset Value").
Investment in the Funds permits the customer to participate in money market
transactions with a degree of diversification not normally available to the
individual investor. In addition, investment in the Funds relieves the customer
of many investment management and administrative burdens usually associated with
the direct purchase and sale of money market instruments. These include:
selection of portfolio investments; surveying the market for the best price at
which to buy and sell; valuation of portfolio securities; selection and
scheduling of maturities and reinvestment; receipt, delivery and safekeeping of
securities; and portfolio recordkeeping.
Each Fund seeks to maintain a stable net asset value of $1.00 per Share. To
facilitate this goal, each Fund's securities are valued by the amortized cost
method as permitted by a rule of the Securities and Exchange Commission (the
"SEC"). The SEC rule requires that all portfolio securities have at the time of
purchase a maximum remaining maturity of not more than 397 days and that each
Fund maintain a dollar-weighted average portfolio maturity of not more than 90
days.
Investments by each Fund must present minimal credit risk and be rated within
one of the two highest rating categories for short-term debt obligations by at
least two nationally recognized statistical rating organizations ("NRSROs")
assigning a rating to the security or issuer, or if only one NRSRO has assigned
a rating, by that NRSRO. Purchases of securities which are unrated or rated by
only one NRSRO must be approved or ratified by the Trustees except for purchases
made on behalf of the Pilot Short-Term Tax-Exempt Diversified Fund and the Pilot
Missouri Short-Term Tax-Exempt Fund (the "Tax-Exempt Funds"). Securities which
are rated (or that have been issued by an issuer that is rated with respect to a
class of short-term debt obligations, or any security within that class,
comparable in priority and quality with such securities) in the highest
short-term rating category by at least two NRSROs are designated "First Tier
Securities". Securities rated in the top two short-term rating categories by at
least two NRSROs, but which are not rated in the highest short-term rating
category by two or more NRSROs, are designated "Second Tier Securities".
Securities which are unrated may be purchased only if they are deemed to be of
comparable quality to First Tier or Second Tier rated securities. NRSROs include
Standard & Poor's Corporation, Moody's Investors Service, Inc., Fitch Investors
Service, Inc., Duff and Phelps, Inc., IBCA Limited and its affiliate IBCA Inc.,
and Thomson BankWatch, Inc. For a description of each NRSRO's rating categories,
see Appendix A to the Statement of Additional Information.
None of the Funds alone constitutes a complete investment program. There can be
no assurance that the Funds will be able to maintain a stable net asset value,
or that they will achieve their investment objectives.
- --------------------------------------------------------------------------------
3
<PAGE> 6
EXPENSE SUMMARY (1)(3)
SHAREHOLDER TRANSACTION EXPENSES are charges you pay directly when buying or
selling shares of a Fund.
ANNUAL FUND OPERATING EXPENSES are paid out of a Fund's assets and include fees
for portfolio management, maintenance of shareholder accounts, general Fund
administration, accounting and other services.
Examples based on this information are also provided.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
PILOT SHARES (3)
----------------------------------------------------------------
PILOT PILOT
PILOT PILOT SHORT-TERM MISSOURI
SHORT-TERM SHORT-TERM TAX-EXEMPT SHORT-TERM
U.S. TREASURY DIVERSIFIED ASSETS DIVERSIFIED TAX-EXEMPT
FUND FUND FUND FUND
------------- ------------------ ----------- ----------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases......... None None None None
Redemption Fees................................. None None None None
Exchange Fees................................... None None None None
ANNUAL FUND OPERATING EXPENSES (2)
(As a percentage of average net assets)
Management Fees (1)............................. 0.15% 0.15% 0.20% 0.20%
Other Expenses (4).............................. 0.13% 0.13% 0.13% 0.26%
-------- ----------- ------- -------
Total Operating Expenses (1)............... 0.28% 0.28% 0.33% 0.46%
======== =========== ======= =======
</TABLE>
EXAMPLE (3): Assume that the annual return on each of the Funds is 5%, and that
their 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>
PILOT SHORT-TERM U.S. TREASURY FUND
Pilot Shares................................. $3 $ 9 $16 $36
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
Pilot Shares................................. 3 9 16 36
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
Pilot Shares................................. 3 11 19 42
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
Pilot Shares................................. 5 15 26 58
</TABLE>
The Example shown above should not be considered a representation of past or
future investment returns or operating expenses. Actual investment returns and
operating expenses may be more or less than those shown. Actual expenses
may vary depending upon a variety of factors, including the actual performance
of a Fund, which may be greater or less than 5%.
4
<PAGE> 7
- ------------
Notes:
(1) The purpose of this Table is to assist investors in understanding the
various costs and expenses that an investor in the Funds will bear directly
or indirectly. It does not, however, reflect the fee which may be charged by
Boatmen's directly to its customers at an annual rate not to exceed .25% per
annum of the average daily balance of Pilot Shares in the customer's
account, which fee Boatmen's has advised is similar to that charged by it to
customers investing in any other money market fund. For the period January
1, 1996 until July 1, 1996, Boatmen's has agreed to voluntarily waive .03 of
1% from its new contractual fee rates, based on such Funds' average net
assets for the Pilot Short-Term U.S. Treasury Fund, Pilot Short-Term
Diversified Assets Fund and Pilot Short-Term Tax-Exempt Diversified Fund.
Accordingly, management fees for the period January 1, 1996 until July 1,
1996 for the Pilot Short-Term U.S. Treasury Fund and Pilot Short-Term
Diversified Assets Fund will be .12 of 1%, respectively and .17 of 1% for
the Pilot Short-Term Tax-Exempt Diversified Fund, based on such Funds'
average net assets.
(2) For further information concerning management fees, see the section entitled
"Management."
(3) The information set forth in the Table and Example relates only to Pilot
Shares of the Funds. Administration Shares and Investor Shares are subject
to different fees and expenses. See "The Pilot Family of Funds."
Administration Shares pay an account administration fee of up to .25 of 1%
of average daily net assets. Investor Shares pay a Rule 12b-1 fee of up to
.50 of 1% of average daily net assets. All other Fund expenses related to
Administration Shares and Investor Shares are the same as for Pilot Shares.
(4) The table does not reflect the allocation of any miscellaneous "class
expenses" (e.g., certain printing and registration expenses).
5
<PAGE> 8
THE PILOT FUNDS
FINANCIAL HIGHLIGHTS
The following data with respect to a Share of the Pilot Short-Term Diversified
Assets Fund, Pilot Short-Term U.S. Treasury Fund, Pilot Missouri Short-Term
Tax-Exempt Fund (formerly "Pilot Short-Term Tax-Exempt Fund") and Pilot
Short-Term Tax-Exempt Diversified Fund outstanding during the periods indicated
have 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. For periods shown, except as otherwise
noted, Goldman, Sachs & Co. served as investment adviser to each of the Pilot
Short-Term Tax-Exempt Diversified Fund and Pilot Missouri Short-Term Tax-Exempt
Fund, and Boatmen's Trust Company served as investment subadviser to the Pilot
Missouri Short-Term Tax-Exempt Fund.
The Administration Shares and the Investor Shares (formerly known as Centerland
Administration Shares and Centerland Service Shares, respectively) are two
classes of Shares first issued by the Funds during June, 1991 and July, 1992,
respectively. Accordingly, there are no financial highlights with respect to the
Funds for such Shares for periods prior to such dates. The financial highlights
presented below for periods prior to June, 1991 for the Administration Shares
and July, 1992 for the Investor Shares are historical information for Shares
that did not provide administration or additional services to Shareholders
pursuant to a separate Service Agreement. As indicated elsewhere in this
prospectus, the Service Organizations providing services pursuant to a Service
Agreement will receive a fee in an amount up to .25 of 1% (on an annualized
basis) of the average daily net asset value of the Administration Shares of the
applicable Fund and a fee in an amount up to .50 of 1% (on an annualized basis)
of the average daily net asset value of the Investor Shares of the applicable
Fund.
6
<PAGE> 9
THE PILOT FUNDS
------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SHORT-TERM DIVERSIFIED ASSETS FUND
------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------------
NET ASSET NET REALIZED TOTAL NET ASSET
VALUE AT NET GAIN ON INCOME FROM DISTRIBUTIONS VALUE AT
BEGINNING INVESTMENT INVESTMENT INVESTMENT TO END OF
FOR THE YEARS ENDED AUGUST 31,(F) OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS PERIOD
- --------------------------------- --------- ---------- ------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot shares.................. $1.00 $ 0.0554 $ -- $ 0.0554 $ (0.0554) $1.00
1995--Pilot Administration shares... 1.00 0.0529 -- 0.0529 (0.0529) 1.00
1995--Pilot Investor shares......... 1.00 0.0504 -- 0.0504 (0.0504) 1.00
1994--Pilot shares.................. 1.00 0.0353 0.0001 0.0354 (0.0354) 1.00
1994--Pilot Administration shares... 1.00 0.0328 0.0001 0.0329 (0.0329) 1.00
1994--Pilot Investor shares......... 1.00 0.0303 0.0001 0.0304 (0.0304) 1.00
1993--Pilot shares.................. 1.00 0.0325 0.0001 0.0326 (0.0326) 1.00
1993--Pilot Administration shares... 1.00 0.0298 0.0001 0.0299 (0.0299) 1.00
1993--Pilot Investor shares......... 1.00 0.0274 0.0001 0.0275 (0.0274) 1.00
1992--Pilot shares.................. 1.00 0.0452 -- 0.0452 (0.0452) 1.00
1992--Pilot Administration shares... 1.00 0.0396 0.0001 0.0397 (0.0397) 1.00
1992--Pilot Investor shares(a)...... 1.00 0.0043 -- 0.0043 (0.0043) 1.00
1991--Pilot shares.................. 1.00 0.0691 0.0003 0.0694 (0.0694) 1.00
1991--Pilot Administration
shares(b).......................... 1.00 0.0134 -- 0.0134 (0.0134) 1.00
1990--Pilot shares.................. 1.00 0.0829 -- 0.0829 (0.0829) 1.00
1989--Pilot shares.................. 1.00 0.0890 -- 0.0890 (0.0890) 1.00
1988--Pilot shares.................. 1.00 0.0703 -- 0.0703 (0.0703) 1.00
1987--Pilot shares.................. 1.00 0.0605 -- 0.0605 (0.0605) 1.00
1986--Pilot shares.................. 1.00 0.0736 -- 0.0735 (0.0735) 1.00
<CAPTION>
SHORT-TERM DIVERSIFIED ASSETS FUND
--------------------------------------------------------------------------------------------
RATIO INFORMATION
ASSUMING NO WAIVER OF
ADVISORY FEES AND
EXPENSE LIMITATIONS(D)
----------------------------
RATIO OF NET RATIO OF NET
RATIO OF INVESTMENT NET ASSETS RATIO OF INVESTMENT
NET EXPENSES INCOME TO AT END OF EXPENSES TO INCOME TO
TOTAL TO AVERAGE AVERAGE PERIOD AVERAGE NET AVERAGE NET
FOR THE YEARS ENDED AUGUST 31,(F) RETURN(E) NET ASSETS NET ASSETS (IN 000'S) ASSETS ASSETS
- --------------------------------- --------- ------------ ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot shares.................. 5.68% 0.23% 5.56% $1,056,624 0.24% 5.55%
1995--Pilot Administration shares... 5.42 0.48 5.22 231,688 0.49 5.21
1995--Pilot Investor shares......... 5.15 0.73 5.00 33,948 0.74 4.99
1994--Pilot shares.................. 3.60 0.15 3.53 857,795 0.29 3.40
1994--Pilot Administration shares... 3.35 0.40 3.28 303,288 0.54 3.15
1994--Pilot Investor shares......... 3.10 0.65 3.03 37,896 0.79 2.90
1993--Pilot shares.................. 3.29 0.12 3.25 1,293,667 0.29 3.08
1993--Pilot Administration shares... 3.04 0.37 2.98 378,262 0.54 2.81
1993--Pilot Investor shares......... 2.78 0.62 2.74 36,814 0.79 2.57
1992--Pilot shares.................. 4.68 0.12 4.52 1,939,568 0.29 4.35
1992--Pilot Administration shares... 4.42 0.37 3.95 271,606 0.54 3.78
1992--Pilot Investor shares(a)...... 3.24(c) 0.62(c) 3.14(c) 27,880 0.80(c) 2.96(c)
1991--Pilot shares.................. 7.27 0.12 6.91 1,425,385 0.29 6.74
1991--Pilot Administration
shares(b).......................... 5.77(c) 0.37(c) 5.68(c) 43,189 0.54(c) 5.51(c)
1990--Pilot shares.................. 8.65 0.16 8.29 1,202,805 0.33 8.12
1989--Pilot shares.................. 9.25 0.33 8.90 429,053 0.38 8.85
1988--Pilot shares.................. 7.25 0.31 7.03 402,799 0.38 6.96
1987--Pilot shares.................. 6.25 0.28 6.05 352,037 0.33 6.00
1986--Pilot shares.................. 7.52 0.27 7.36 398,668 0.32 7.31
</TABLE>
- ------------
(a) Pilot Investor share activity commenced during July of 1992.
(b) Pilot Administration share activity commenced during June of 1991.
(c) Annualized.
(d) The above does not reflect the fee which may be charged by Boatmen's
directly to its customers' accounts at an annual rate not to exceed 0.25% of
the average daily balance of Pilot shares in the customer's account.
(e) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption of
the investment at the net asset value at the end of the period.
(f) Prior to June 1, 1994, the Short-Term Diversified Assets Fund was advised
by Goldman Sachs Asset Management.
7
<PAGE> 10
THE PILOT FUNDS
------------------------
FINANCIAL HIGHLIGHTS--(CONTINUED)
<TABLE>
<CAPTION>
SHORT-TERM U.S. TREASURY FUND
------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------------
NET ASSET NET REALIZED TOTAL NET ASSET
VALUE AT NET GAIN ON INCOME FROM DISTRIBUTIONS VALUE AT
BEGINNING INVESTMENT INVESTMENT INVESTMENT TO END OF
FOR THE YEARS ENDED AUGUST 31,(F) OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS PERIOD
- --------------------------------- --------- ---------- ------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot shares................. $1.00 $ 0.0534 $ -- $0.0534 $ (0.0534) $1.00
1995--Pilot Administration shares.. 1.00 0.0509 -- 0.0509 (0.0509) 1.00
1995--Pilot Investor shares........ 1.00 0.0484 -- 0.0484 (0.0484) 1.00
1994--Pilot shares................. 1.00 0.0334 0.0002 0.0336 (0.0336) 1.00
1994--Pilot Administration shares.. 1.00 0.0309 0.0002 0.0311 (0.0311) 1.00
1994--Pilot Investor shares........ 1.00 0.0284 0.0002 0.0286 (0.0286) 1.00
1993--Pilot shares................. 1.00 0.0294 0.0006 0.0300 (0.0300) 1.00
1993--Pilot Administration shares.. 1.00 0.0269 0.0006 0.0275 (0.0275) 1.00
1993--Pilot Investor shares........ 1.00 0.0244 0.0007 0.0251 (0.0250) 1.00
1992--Pilot shares................. 1.00 0.0400 0.0014 0.0414 (0.0414) 1.00
1992--Pilot Administration shares.. 1.00 0.0362 0.0014 0.0378 (0.0378) 1.00
1992--Pilot Investor shares(a ).... 1.00 0.0048 0.0002 0.0050 (0.0050) 1.00
1991--Pilot shares................. 1.00 0.0644 0.0016 0.0659 (0.0659) 1.00
1991--Pilot Administration
shares(b)......................... 1.00 0.0124 0.0003 0.0127 (0.0127) 1.00
<CAPTION>
FOR THE PERIOD MARCH 26, 1990
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
1990--Pilot shares................. 1.00 0.0346 0.0001 0.0347 (0.0347) 1.00
<CAPTION>
SHORT-TERM U.S. TREASURY FUND
--------------------------------------------------------------------------------------------
RATIO INFORMATION
ASSUMING NO WAIVER
OF ADVISORY FEES(D)
----------------------------
RATIO OF NET NET ASSETS RATIO OF NET
RATIO OF INVESTMENT AT RATIO OF INVESTMENT
NET EXPENSES INCOME TO END OF EXPENSES TO INCOME TO
TOTAL TO AVERAGE AVERAGE PERIOD AVERAGE NET AVERAGE NET
FOR THE YEARS ENDED AUGUST 31,(F ) RETURN(E) NET ASSETS NET ASSETS (IN 000'S) ASSETS ASSETS
- ----------------------------------- --------- ------------ ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot shares................. 5.47% 0.23% 5.36% $1,191,447 0.24% 5.35%
1995--Pilot Administration shares.. 5.21 0.48 5.12 215,593 0.49 5.11
1995--Pilot Investor shares........ 4.94 0.73 4.82 131,074 0.74 4.81
1994--Pilot shares................. 3.40 0.16 3.34 843,111 0.28 3.24
1994--Pilot Administration shares.. 3.15 0.41 3.09 98,823 0.53 2.99
1994--Pilot Investor shares........ 2.90 0.66 2.84 156,132 0.78 2.74
1993--Pilot shares................. 3.04 0.14 2.94 942,109 0.30 2.78
1993--Pilot Administration shares.. 2.79 0.39 2.69 65,570 0.55 2.53
1993--Pilot Investor shares........ 2.53 0.64 2.44 193,764 0.80 2.28
1992--Pilot shares................. 4.30 0.24 4.00 887,321 0.30 3.94
1992--Pilot Administration shares.. 4.04 0.49 3.62 91,152 0.56 3.55
1992--Pilot Investor shares(a ).... 2.92(c) 0.71(c) 2.83(c) 212,920 0.81(c) 2.73(c)
1991--Pilot shares................. 6.89 0.24 6.44 588,141 0.29 6.39
1991--Pilot Administration
shares(b)......................... 5.53(c) 0.49(c) 5.24(c) 15,980 0.54(c) 5.19(c)
<CAPTION>
FOR THE PERIOD MARCH 26, 1990
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
1990--Pilot shares................. 8.05(c) 0.26(c) 7.94(c) 360,685 0.39(c) 7.81(c)
</TABLE>
- ------------
(a) Pilot Investor share activity commenced during July of 1992.
(b) Pilot Administration share activity commenced during June of 1991.
(c) Annualized.
(d) The above does not reflect the fee which may be charged by Boatmen's
directly to its customers' accounts at an annual rate not to exceed .25% of
the average daily balance of Pilot shares in the customer's account.
(e) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(f) Prior to June 1, 1994, the Short-Term U.S. Treasury Fund was advised by
Goldman Sachs Asset Management.
8
<PAGE> 11
THE PILOT FUNDS
------------------------
FINANCIAL HIGHLIGHTS--(CONTINUED)
<TABLE>
<CAPTION>
MISSOURI SHORT-TERM TAX-EXEMPT FUND
------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------------
NET ASSET NET REALIZED TOTAL NET ASSET
VALUE AT NET LOSS ON INCOME FROM DISTRIBUTIONS VALUE AT
BEGINNING INVESTMENT INVESTMENT INVESTMENT TO END OF
FOR THE YEARS ENDED AUGUST 31, OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS PERIOD
- ------------------------------ --------- ---------- ------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot shares(g)................. $1.00 $ 0.0332 $ -- $0.0332 $ (0.0332) $1.00
1995--Pilot Administration shares(g).. 1.00 0.0300 -- 0.0300 (0.0300) 1.00
1995--Pilot Investor shares(g)........ 1.00 0.0282 -- 0.0282 (0.0282) 1.00
1994--Pilot shares.................... 1.00 0.0220 -- 0.0220 (0.0220) 1.00
1994--Pilot Administration shares(f ). 1.00 0.0103 -- 0.0103 (0.0103) 1.00
1994--Pilot Investor shares........... 1.00 0.0170 -- 0.0170 (0.0170) 1.00
1993--Pilot shares.................... 1.00 0.0221 -- 0.0221 (0.0221) 1.00
1993--Pilot Investor shares........... 1.00 0.0171 -- 0.0171 (0.0172) 1.00
1992--Pilot shares.................... 1.00 0.0324 (0.0001) 0.0323 (0.0324) 1.00
1992--Pilot Investor shares(a)........ 1.00 0.0030 -- 0.0030 (0.0030) 1.00
<CAPTION>
FOR THE ELEVEN MONTHS ENDED AUGUST 31,(B)
- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1991--Pilot shares.................... 1.00 0.0435 -- 0.0435 (0.0435) 1.00
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1990--Pilot shares.................... 1.00 0.0547 -- 0.0547 (0.0547) 1.00
1989--Pilot shares.................... 1.00 0.0600 -- 0.0600 (0.0600) 1.00
<CAPTION>
FOR THE PERIOD APRIL 25, 1988
(COMMENCEMENT OF OPERATIONS)
THROUGH SEPTEMBER 30,
- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
1988--Pilot shares.................... 1.00 0.0210 -- 0.0210 (0.0210) 1.00
<CAPTION>
MISSOURI SHORT-TERM TAX-EXEMPT FUND
--------------------------------------------------------------------------------------------
RATIO INFORMATION
ASSUMING NO
REIMBURSEMENT OR
ABSORPTION OF ADVISORY
FEES AND DISTRIBUTION
EXPENSES(D)
----------------------------
RATIO OF NET RATIO OF RATIO OF NET
RATIO OF INVESTMENT NET ASSETS EXPENSES INVESTMENT
NET EXPENSES INCOME TO AT END OF TO INCOME TO
TOTAL TO AVERAGE AVERAGE PERIOD AVERAGE NET AVERAGE NET
FOR THE YEARS ENDED AUGUST 31, RETURN(E) NET ASSETS NET ASSETS (IN 000'S) ASSETS ASSETS
- -------------------------------------- --------- ------------ ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot shares(g)................. 3.37% 0.44% 3.21% $ 210,834 0.44% 3.31%
1995--Pilot Administration shares(g).. 3.05 0.69 3.06 4,555 0.69 3.06
1995--Pilot Investor shares(g)........ 2.86 0.94 2.83 11,222 0.94 2.83
1994--Pilot shares.................... 2.23 0.37 2.20 239,796 0.37 2.20
1994--Pilot Administration shares(f).. 2.04(c) 0.67(c) 2.03(c) -- 0.67(c) 2.03(c)
1994--Pilot Investor shares........... 1.73 0.87 1.70 9,364 0.87 1.70
1993--Pilot shares.................... 2.24 0.36 2.21 228,075 0.36 2.21
1993--Pilot Investor shares........... 1.73 0.86 1.71 7,819 0.86 1.71
1992--Pilot shares.................... 3.29 0.37 3.24 202,304 0.37 3.24
1992--Pilot Investor shares(a)........ 1.74(c) 0.87(c) 1.75(c) 10,696 0.87(c) 1.75(c)
<CAPTION>
FOR THE ELEVEN MONTHS ENDED AUGUST 31,(B)
- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1991--Pilot shares.................... 4.83(c) 0.38(c) 4.74(c) 166,499 0.61(c) 4.51(c)
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1990--Pilot shares.................... 5.61 0.42 5.47 152,375 0.67 5.22
1989--Pilot shares.................... 6.17 0.39 6.02 129,551 0.70 5.71
<CAPTION>
FOR THE PERIOD APRIL 25, 1988
(COMMENCEMENT OF OPERATIONS)
THROUGH SEPTEMBER 30,
- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
1988--Pilot shares.................... 4.86(c) 0.44(c) 4.93(c) 71,658 0.85(c) 4.52(c)
</TABLE>
- ------------
(a) Pilot Investor share activity commenced during July of 1992.
(b) Prior to a tax-free reorganization effective August 1, 1991, the Missouri
Short-Term Tax-Exempt Portfolio was a separate portfolio of the Locust
Street Fund and known as the Tax-Exempt Money Market Portfolio which was
advised by Boatmen's Trust Company and had a September 30 fiscal year-end.
(c) Annualized.
(d) The above does not reflect the fee which may be charged by Boatmen's
directly to its customers' accounts at an annual rate not to exceed 0.25% of
the average daily balance of Pilot shares in the customer's account.
(e) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption of
the investment at the net asset value at the end of the period.
(f) Pilot Administration share activity commenced during March of 1994.
(g) Prior to July 1, 1995, Goldman Sachs Asset Management served as the
investment adviser.
9
<PAGE> 12
THE PILOT FUNDS
------------------------
FINANCIAL HIGHLIGHTS--(CONTINUED)
<TABLE>
<CAPTION>
SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------------
NET ASSET NET REALIZED TOTAL NET ASSET
VALUE AT NET GAIN ON INCOME FROM DISTRIBUTIONS VALUE AT
BEGINNING INVESTMENT INVESTMENT INVESTMENT TO END OF
FOR THE YEARS ENDED AUGUST 31, OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS PERIOD
- ------------------------------ --------- ---------- ------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot shares(f)................ $1.00 $ 0.0353 $ -- $0.0353 $ (0.0353) $1.00
1995--Pilot Administration shares(f). 1.00 0.0328 -- 0.0328 (0.0328) 1.00
1995--Pilot Investor shares(e)(f).... 1.00 0.0195 -- 0.0195 (0.0195) 1.00
1994--Pilot shares................... 1.00 0.0240 -- 0.0240 (0.0240) 1.00
1994--Pilot Administration shares(d). 1.00 0.0208 -- 0.0208 (0.0208) 1.00
<CAPTION>
FOR THE PERIOD FEBRUARY 16, 1993
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
1993--Pilot shares................... 1.00 0.0121 -- 0.0121 (0.0121) 1.00
<CAPTION>
SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
--------------------------------------------------------------------------------------------
RATIO INFORMATION
ASSUMING NO WAIVER
OF ADVISORY FEES(A)
----------------------------
RATIO OF NET NET ASSET RATIO OF RATIO OF NET
RATIO OF INVESTMENT NET ASSET EXPENSES INVESTMENT
NET EXPENSES INCOME TO AT END OF TO INCOME TO
TOTAL TO AVERAGE AVERAGE PERIOD AVERAGE NET AVERAGE NET
FOR THE YEARS ENDED AUGUST 31, RETURN(B) NET ASSETS NET ASSETS (IN 000'S) ASSETS ASSETS
- ------------------------------ --------- ------------ ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot shares(f)................ 3.59% 0.28% 3.54% $ 397,783 0.29% 3.53%
1995--Pilot Administration shares(f). 3.36 0.53 3.36 14,443 0.54 3.35
1995--Pilot Investor shares(e)(f )... 1.96(g) 0.78(c) 3.15(c) 5 0.79(c) 3.14(c)
1994--Pilot shares................... 2.43 0.20 2.40 388,048 0.20 2.40
1994--Pilot Administration shares(d). 2.18(c) 0.45(c) 2.15(c) 3,040 0.45(c) 2.15(c)
<CAPTION>
FOR THE PERIOD FEBRUARY 16, 1993
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
1993--Pilot shares................... 2.23(c) 0.15(c) 2.21(c) 428,843 0.20(c) 2.16(c)
</TABLE>
- ------------
(a) The above does not reflect the fee which may be charged by Boatmen's
directly to its customers' accounts at an annual rate not to exceed 0.25% of
the average daily balance of Pilot shares in the customer's account.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption of
the investment at the net asset value at the end of the period.
(c) Annualized.
(d) Pilot Administration share activity commenced during September of 1993.
(e) Pilot Investor share activity commenced during January of 1995.
(f) Prior to July 1, 1995, Goldman Sachs Asset Management served as the
investment adviser.
(g) Not annualized.
10
<PAGE> 13
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The Pilot Funds uses a variety of different investments and investment
techniques in seeking to achieve a Fund's investment objective. Each Fund does
not use all of the investments and investment techniques described below, which
involve various risks, and which are also described in the following sections.
You should consider which Funds best meet your investment goals. Although each
Fund will attempt to achieve its investment objective, there can be no assurance
it will be successful.
The Pilot Funds intends to use its best efforts to maintain the net asset value
of each money market fund at $1.00 per share, although there can be no assurance
that it will be able to do so on a continuous basis.
Pilot Short-Term U.S. Treasury Fund
The investment objective of the Pilot Short-Term U.S. Treasury Fund (the
"Treasury Fund") is to maximize current income to the extent consistent with the
preservation of capital and the maintenance of liquidity by investing
exclusively in high quality money market instruments. The Fund intends to
achieve its objective by investing, under normal circumstances, at least 90% of
its total assets in securities issued or guaranteed by the U.S. Treasury and
repurchase agreements relating to such securities. You should note, however,
that shares of the Treasury Fund are not themselves issued or guaranteed by the
U.S. Government or any of its agencies. U.S. Government obligations include
Treasury bills, certain Treasury strips, certificates of indebtedness, notes and
bonds, and obligations of other agencies and instrumentalities that are backed
by the U.S. Treasury.
Pilot Short-Term Diversified Assets Fund
The investment objective of the Pilot Short-Term Diversified Assets Fund (the
"Diversified Fund") is to maximize current income to the extent consistent with
the preservation of capital and the maintenance of liquidity by investing
exclusively in high quality money market instruments. The Diversified Fund
pursues its objective by investing in a broad range of government, bank and
corporate obligations, both rated and unrated, asset backed securities,
participation interests and repurchase agreements. The Fund is permitted to
invest in unrated notes, paper or other instruments which are determined to be
of comparable high quality by Boatmen's pursuant to criteria established by the
Board of Trustees.
The Diversified Fund concentrates in the banking industry by investing 25% or
more of its total assets in bank obligations (whether domestic or foreign)
except that if adverse economic conditions prevail in the banking industry the
Diversified Fund may, for temporary defensive purposes, temporarily invest less
than 25% of its total assets in bank obligations. For this purpose, the
obligations of foreign banks and foreign branches of U.S. banks will be
considered "bank obligations." (See "Portfolio Instruments and
Practices--Foreign Securities.")
Investments in bank obligations include (i) obligations issued or guaranteed by
U.S. banks (including certificates of deposit, loan participation interests,
commercial paper, unsecured bank promissory notes and bankers' acceptances)
which have more than $1 billion in total assets at the time of purchase; (ii)
U.S. dollar denominated obligations issued or guaranteed (including fixed time
deposits) by foreign banks which have more than $1 billion in total assets at
the time of purchase; U.S. branches of such foreign banks (Yankee obligations),
foreign branches of such foreign banks, and foreign branches of U.S. banks
(Eurodollar obligations) having more than $1 billion in total assets at the time
of purchase. Such bank obligations may be general obligations of the parent bank
or may be limited to the issuing branch by the terms of the specific obligation
or by government regulation; and (iii) commercial paper issued by U.S. or
foreign commercial banks, which at the time of purchase are rated in the highest
rating category of at least one NRSRO or, if unrated, deemed of comparable
quality by the Adviser.
Pilot Short-Term Tax-Exempt Diversified Fund and
Pilot Missouri Short-Term Tax-Exempt Fund
The investment objective of the Pilot Short-Term Tax-Exempt Diversified Fund
(the "Tax-Exempt Diversified Fund") is to seek as high a level of current income
which is exempt from federal income tax, as is
11
<PAGE> 14
consistent with the preservation of capital. The Fund pursues its objective by
investing primarily in municipal obligations issued by or on behalf of states,
territories and possessions of the United States and their political
subdivisions, agencies, authorities and instrumentalities, and the District of
Columbia, the interest from which is, in the opinion of bond counsel, if any,
exempt from federal income tax ("Municipal Instruments"). As a matter of
fundamental policy, at least 80% of the Tax-Exempt Diversified Fund's annual
gross income will be derived from Municipal Instruments, except in extraordinary
circumstances when in Boatmen's opinion a temporary defensive posture is
appropriate.
The investment objective of the Pilot Missouri Short-Term Tax-Exempt Fund (the
"Missouri Tax-Exempt Fund") is to seek as high a level of current income which
is exempt from federal income tax as is consistent with the preservation of
capital. The Missouri Tax-Exempt Fund invests exclusively in high quality money
market instruments. The Fund seeks to achieve its objective by investing at
least 80% of its net assets during normal market conditions in debt obligations
issued by or on behalf of the State of Missouri, the interest on which is exempt
from regular Federal income tax, is not a tax preference item under the Federal
alternative minimum tax and is exempt from Missouri income taxes ("Missouri
Instruments"). The Missouri Tax-Exempt Fund attempts to maximize the amount of
income exempt from Missouri income tax to the extent that such available
obligations meet the Fund's quality standards and have a suitable yield. Because
there may be an insufficient supply of Missouri Instruments which meet the
Fund's quality and liquidity standards and have a suitable yield, a varying
percent of the Fund's income may at any one time be exempt from Missouri income
tax. Interest from Municipal Instruments other than Missouri Instruments may be
subject to Missouri income tax.
As a matter of fundamental policy, at least 80% of the Missouri Tax-Exempt
Fund's income will be exempt from federal income taxes, except in extraordinary
circumstances when in Boatmen's opinion a temporary defensive posture is
appropriate. The Fund anticipates being as fully invested as practicable in
municipal bonds and notes. However, because the Missouri Tax-Exempt Fund
presently does not intend to invest in taxable obligations other than "private
activity" bonds, there may be occasions when, as a result of maturities of
portfolio securities, or sales of shares, or in order to meet anticipated
redemption requests, the Fund may hold cash which is not earning income.
Investments by the Tax-Exempt Diversified Fund and the Missouri Tax-Exempt Fund
(the "Tax-Exempt Funds") in taxable money market instruments will be limited to
those meeting the quality standards of each Fund.
Instruments in which the Tax-Exempt Funds may invest, include:
(A) fixed rate notes and similar debt instruments rated in the highest
short-term rating category or in one of the two highest rating categories of at
least one NRSRO;
(B) variable and floating rate demand instruments rated (i) in the highest
rating category for municipal notes or (ii) in one of the two highest rating
categories for long-term instruments or (iii) in the highest rating category for
commercial paper and municipal notes with demand features of at least one NRSRO;
(C) tax-exempt commercial paper rated in the highest rating category of at least
one NRSRO;
(D) unrated notes, paper or other instruments which are determined to be of
comparable high quality by Boatmen's pursuant to criteria approved by the
Trustees and in accordance with the procedures reviewed and approved by the
Trustees; and
(E) municipal bonds rated in one of the two highest rating categories of at
least one NRSRO and unrated bonds determined to be of comparable quality by
Boatmen's pursuant to criteria approved by the Trustees.
In addition, the Missouri Tax-Exempt Fund may invest in other municipal
obligations rated in the highest short-term rating category or in one of the two
highest long-term rating categories of at least one NRSRO or, if unrated, deemed
to be of comparable quality by the Adviser.
PORTFOLIO INSTRUMENTS AND PRACTICES
- --U.S. Government Securities. U.S. Government Securities are obligations issued
or guaranteed as to principal or interest by the U.S. Government, its agencies,
authorities or instrumentalities. Some
12
<PAGE> 15
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 either by (a) the full faith and credit of the
U.S. Government (such as securities of the Government National Mortgage
Association), (b) the right of the issuer to borrow from the Treasury (such as
securities of the Student Loan Marketing Association), (c) the discretionary
authority of the U.S. Government to purchase the agency's obligations (such as
securities of the Federal National Mortgage Association and the Federal Home
Loan Mortgage Corporation), or (d) only the credit of the issuer. No assurance
can be given that the U.S. Government will provide financial support to U.S.
Government agencies, authorities or instrumentalities in the future.
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 and such participations may therefore be treated as
illiquid.
U.S. Government Securities may include zero coupon bonds (i.e., discount debt
obligations that do not make periodic interest payments). 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.
Zero coupon bonds are subject to greater market fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest.
Securities issued or guaranteed as to principal or interest by the U.S.
Government, its agencies, authorities or instrumentalities may 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 are not considered to be U.S. Government securities for the
purpose of determining whether 90% of the total assets of the Treasury Fund are
invested in U.S. Government securities and repurchase agreements relating to
such securities.
- --Foreign Securities. Investment in foreign securities and bank obligations may
present a greater degree of risk than investment in domestic securities because
of less publicly-available financial and other information, less securities
regulation, potential imposition of foreign withholding and other taxes, war,
expropriation or other adverse governmental actions. Foreign banks and their
foreign branches are not regulated by U.S. banking authorities, and generally
are not bound by the accounting, auditing and financial reporting standards
applicable to U.S. banks.
The DIVERSIFIED FUND may acquire U.S. dollar denominated obligations of the
International Bank for Reconstruction and Development (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.
- --Repurchase Agreements. EACH FUND may enter into repurchase agreements with
selected broker-dealers and with banks. A repurchase agreement is an agreement
under which a 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 security. The
Funds' 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, a 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. In
13
<PAGE> 16
evaluating whether to enter into a repurchase agreement, Boatmen's will consider
the credit worthiness of the seller pursuant to procedures reviewed and approved
by the Trustees.
- --Municipal Instruments. Municipal notes which may be purchased by the
DIVERSIFIED FUND and the TAX-EXEMPT FUNDS include tax anticipation notes,
revenue anticipation notes, bond anticipation notes, tax and revenue
anticipation notes and construction notes. Municipal bonds, which may be issued
to raise money for various public purposes, include general obligation bonds and
revenue bonds, and the Funds may hold both in any proportion. General obligation
bonds are backed by the taxing power of the issuing municipality and are
considered the safest type of bonds. Revenue bonds are backed by the revenues of
a project or facility such as tolls from a toll bridge. Industrial development
bonds (generally referred to under current tax law as "private activity bonds")
are a specific type of revenue bond backed by the credit and security of a
private issuer and therefore may have more potential risk. These bonds may be
issued in a variety of forms, including Commercial Paper, tender option bonds
and variable and floating rate securities.
The value of floating and variable rate obligations generally is more stable
than that of fixed rate obligations in response to changes in interest rate
levels. Variable and floating rate obligations usually carry rights that permit
the Funds to sell them at par value plus accrued interest upon short notice. The
issuers or financial intermediaries providing rights to sell may support their
ability to purchase the obligations by obtaining credit with liquidity supports.
These may include lines of credit, which are conditional commitments to lend,
letters of credit, which will ordinarily be irrevocable, both issued by domestic
banks or foreign banks which have a branch, agency or subsidiary in the United
States. (See "Portfolio Instruments and Practices--Foreign Securities.") When
considering whether an obligation meets a Fund's quality standards, the Fund
will look to the credit worthiness of the party providing the right to sell as
well as to the quality of the obligation itself. The Funds may consider the
maturity of a variable or floating rate Municipal Instrument to be shorter than
its ultimate maturity if a Fund has the right to demand prepayment of its
principal at specified intervals prior to the security's ultimate maturity,
subject to the conditions for using amortized cost valuation under the
Investment Company Act of 1940 (the "1940 Act"). EACH FUND may purchase such
variable or floating rate obligations from the issuers or may purchase
participations, a type of floating or variable rate obligation, which are
interests in a pool of municipal obligations held by a bank or other financial
institution.
EACH FUND may invest in municipal securities issued to finance private
activities, the interest from which is an item of tax preference to Shareholders
for purposes of the federal alternative minimum tax (See "Dividends and
Distributions" and "Tax Implications.") However, any such interest which a
Tax-Exempt Fund might earn will not be deemed to have been derived from
Municipal Instruments for purposes of determining whether at least 80% of the
Fund's annual gross income has been derived from such Instruments. The
TAX-EXEMPT DIVERSIFIED FUND does not currently intend to invest in such bonds.
As a non-fundamental policy, the MISSOURI TAX-EXEMPT FUND currently intends to
limit its income from private activity bonds to no more than 20% of the Fund's
income.
Ordinarily, the TAX-EXEMPT FUNDS expect that 100% of their portfolio securities
will be Municipal Instruments. However, the Funds may hold cash or invest in
short-term taxable securities as set forth above. Each Tax-Exempt Fund may
invest 25% or more of its total assets in Municipal Instruments which are
related in such a way that an economic, business or political development or
change affecting one Municipal Instrument would also affect the other Municipal
Instruments. For example, a Fund may so invest in (a) Municipal Instruments the
interest on which is paid solely from revenues of similar municipal projects
such as hospitals, electric utility systems, multi-family housing, nursing
homes, commercial facilities (including hotels) or life care facilities, (b)
Municipal Instruments whose issuers are in the same state (including, in the
case of the Missouri Tax-Exempt Fund, issuers in states other than Missouri), or
(c) industrial development obligations.
14
<PAGE> 17
EACH FUND may purchase Municipal Instruments which are backed by letters of
credit, which will ordinarily be irrevocable, issued by domestic banks or
foreign banks which have a branch, agency or subsidiary in the United States. In
addition, each Fund may acquire securities in the form of custodial receipts
which evidence ownership of future interest payments, principal payments or both
on obligations of certain state and local governments and authorities.
In order to enhance the liquidity, stability, or quality of a Municipal
Instrument, EACH FUND may acquire the right to sell the security to another
party at a guaranteed price and date. These rights may be referred to as puts,
demand features or standby commitments.
- --State of Missouri. The MISSOURI TAX EXEMPT FUND is more susceptible to risks
affecting issuers of Missouri Instruments than would be a comparable municipal
bond fund that does not emphasize these issuers to this degree. The
marketability and market value of Missouri Instruments may be affected by
economic factors in Missouri. These include the Missouri economy's heavy
dependence upon manufacturing, defense and agriculture, which tend to be
cyclical. Missouri and its political subdivisions are subject to the Hancock
Amendment, a constitutional amendment which limits taxing authority and
government spending. It imposes a limit on the total amount of taxes which the
State may impose and limits the revenues of counties and other political
subdivisions. Voter approval is required to exceed the limit, or to raise the
rate of an existing tax, license, or other fee at a rate faster than specified
limits. At the State level such limit is tied to personal income in Missouri,
and at the county and local level such limit is tied to the consumer price
index. The limitations do not apply to the payment of principal and interest on
bonds approved by the voters. However, such limitations could affect adversely
the ability of certain issuers to repay obligations which are not backed by the
full faith or taxing authority of Missouri or a political subdivision. If either
Missouri or any of its governmental entities are unable to meet their financial
obligations, the income derived by the Fund, the Fund's net asset value, the
ability to preserve or realize appreciation of the Fund's capital or the Fund's
liquidity could be adversely affected. An expanded discussion concerning
Missouri is contained in the Statement of Additional Information.
- --Loan Participations and Asset-Backed and Receivables-Backed Securities. The
DIVERSIFIED FUND may invest in loan participations. A loan participation is an
interest in a loan to a U.S. corporation (the borrower) which is administered
and sold by an intermediary bank. The borrower of the underlying loan will be
deemed to be the issuer of the participation interest except to the extent the
Fund derives its rights from the intermediary bank who sold the loan
participation. The Fund may only purchase participations from banks which have
total assets exceeding $1 billion. Loan participations will be treated as
illiquid if they cannot be sold at market price within seven days.
The Diversified Fund may also invest in asset-backed and receivables-backed
securities. These securities represent participations in, or are secured by and
payable from, pools of assets such as motor vehicle installment sale contracts,
installment loan contracts, leases of various types of real and personal
property, receivables from revolving credit (credit card) agreements and other
categories of receivables. Such asset pools are securitized through the use of
privately-formed trusts or special purpose corporations. Payments or
distributions of principal and interest may be guaranteed up to certain amounts
and for a certain time period by a letter of credit or a pool insurance policy
issued by a financial institution unaffiliated with the trust or corporation, or
other credit enhancements may be present.
The Fund may invest in new types of mortgage-related securities and in other
asset-backed securities that may be developed in the future to the extent
consistent with its investment objective and policies.
- --Other Investment Companies. EACH FUND may invest in the securities of other
mutual funds that invest in the particular instruments in which a Fund itself
may invest subject to requirements of applicable securities laws. The Trust, on
behalf of each of the Funds, has sought relief from the SEC to permit each Fund
to invest in affiliated money market funds. Such relief is currently pending
before the SEC. When a Fund invests in another mutual fund, it pays a pro rata
portion of the advisory and other expenses of that fund as a shareholder of that
fund. These expenses are
15
<PAGE> 18
in addition to the advisory and other expenses a Fund pays in connection with
its own operations. The Adviser may waive its advisory fee on that portion of
any Fund's assets which are invested in the securities of affiliated money
market funds managed by the Adviser or any of its affiliates.
- --Forward Commitments and When-Issued Securities. EACH FUND may purchase
securities on a "when-issued" basis and purchase or sell securities on a
"forward commitment" basis. When-issued and forward commitment transactions,
which involve a commitment by the Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit the Fund to lock in a price or yield on a security it
intends to purchase or sell, regardless of future changes in interest rates.
These transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield when the delivery takes place. These
transactions will not be entered into for speculative purposes but only in
furtherance of a Fund's investment objective. Although a Fund would generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring securities for its portfolio, such Fund may dispose of a
when-issued security or forward commitment prior to settlement if Boatmen's
deems it appropriate to do so and such disposition may give rise to a capital
gain or loss.
- --Managing Liquidity. Disposing of illiquid investments may involve
time-consuming negotiations and legal expenses, and it may be difficult or
impossible to dispose of such investments promptly at an acceptable price.
Additionally, the absence of a trading market can make it difficult to value a
security. For these and other reasons, as a matter of non-fundamental policy
which may be changed by the Trustees without shareholder approval, EACH OF THE
FUNDS DOES NOT KNOWINGLY INVEST MORE THAN 10% OF ITS NET ASSETS IN ILLIQUID
SECURITIES. For this purpose, not all securities which are restricted are deemed
to be illiquid. Illiquid securities include certain certificates of
participation and tax-exempt derivative securities that do not permit a Fund to
terminate them after seven days' notice. Certain securities that might otherwise
be considered illiquid, however, such as some issues of commercial paper and
securities for which Boatmen's has determined pursuant to guidelines adopted by
the Board of Trustees that a liquid trading market exists (including certain
securities that may be purchased by institutional investors under SEC Rule
144A), are not subject to this 10% limitation. In addition, certain repurchase
agreements which provide for settlement in more than seven days, but can be
liquidated before the nominal fixed term on seven days' or less notice, are
treated as liquid instruments.
- --Other Risk Considerations. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However there are certain additional risks of which you
should be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
recognize that in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase,and in periods of rising interest rates will tend to decrease. You
should also recognize that in periods of declining interest rates, the yields of
investment portfolios comprised primarily of fixed income securities will tend
to be higher than prevailing market rates and, in periods of rising interest
rates, yields will tend to be somewhat lower.
The Missouri Tax-Exempt Fund may invest more than 25% of its total assets in
municipal obligations the interest of which comes from issuers located in the
same state. When the Fund's assets are concentrated in obligations payable from
revenues of issuers located in the same state, the Fund will be subject to the
particular risks (including legal and economic conditions) relating to such
securities to a greater extent than if its assets were not so concentrated. In
addition, payment on Municipal Instruments related to certain projects in which
the Tax-Exempt Funds invest may be secured by mortgages or deeds of trust. In
the event of a default, enforcement of a mortgage or deed of trust will be
subject to statutory enforcement procedures on obtaining deficiency judgments.
Should a foreclosure occur, collection of the proceeds from that foreclosure may
be delayed and the amount of the proceeds received may not be enough to pay the
16
<PAGE> 19
principal or accrued interest on the defaulted Municipal Instruments.
The Missouri Tax-Exempt Fund is non-diversified, which means that the Fund is
not limited by the 1940 Act in the proportion of its assets that it may invest
in the obligations of a single issuer. The investment of a large percentage of
the Fund's assets in the securities of a small number of issuers may subject the
Fund to particular risks relating to such issuers to a greater extent than if
the Fund were diversified under the 1940 Act.
- --Additional Information. The Funds have adopted certain procedures under the
1940 Act which enable the Funds to purchase certain instruments during the
existence of an underwriting or selling syndicate of which Boatmen's National
Bank of St. Louis ("Boatmen's Bank"), an affiliate of Boatmen's, or Kleinwort
Benson Investment Management Americas Inc. is a member relating to the
instruments. These procedures establish, among other things, certain limitations
on the amount of debt securities which may be purchased in any single offering
and on the amount of a Fund's assets which may be invested in any single
offering. Accordingly, in view of Boatmen's Bank's active role in the
underwriting of debt securities, a Fund's ability to purchase debt securities in
the primary market may from time to time be limited.
INVESTMENT LIMITATIONS
Certain of the investment policies of each 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 Funds' fundamental
limitations are set out in greater detail in the Statement of Additional
Information, which is available upon request.
Treasury, Diversified and Tax-Exempt Diversified Funds
1. A 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,
investments in banking obligations by the Diversified Fund and investments in
Municipal Instruments by the Tax-Exempt Diversified Fund).
2. A 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. A 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
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.
Missouri Tax-Exempt Fund
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 and investments in Municipal Instruments).
2. The Fund may not borrow money except as a temporary measure for emergency
purposes and then only in amounts not exceeding one-third of the value 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 net
assets.
THE INVESTMENT OBJECTIVE OF EACH FUND IS FUNDAMENTAL AND ACCORDINGLY CANNOT BE
CHANGED WITHOUT THE APPROVAL OF A MAJORITY OF THE OUTSTANDING SHARES OF THAT
FUND. THE INVESTMENT POLICIES AND PRACTICES OF EACH OF THE TREASURY, DIVERSIFIED
AND TAX-EXEMPT DIVERSIFIED FUNDS, UNLESS OTHERWISE SPECIFICALLY STATED HEREIN,
ARE NOT FUNDAMENTAL AND CAN BE CHANGED BY THE FUNDS' TRUSTEES WITHOUT A
SHAREHOLDER VOTE; THE INVESTMENT POLICIES AND PRACTICES OF THE MISSOURI
TAX-EXEMPT
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FUND, OTHER THAN ITS NON-DIVERSIFIED STATUS, ARE FUNDAMENTAL, UNLESS OTHERWISE
SPECIFICALLY STATED HEREIN.
Pursuant to a rule of the Securities and Exchange Commission, each of the
Diversified Fund and the Treasury Fund may not invest more than 5% of its total
assets (taken at amortized cost) in the securities of any one issuer (except
U.S. Government Securities and repurchase agreements collateralized by such
securities). Each of such Funds may, however, invest more than 5% of its total
assets in the First Tier Securities of a single issuer for a period of up to
three business days after the purchase thereof, although a Fund may not make
more than one such investment at any time. Further, each of such Funds may not
invest more than the greater of (i) 1% of its total assets; or (ii) one million
dollars in the securities of a single issuer which were Second Tier Securities
when acquired by a Fund. In addition, each of such Funds may not invest more
than 5% of its total assets in securities which were Second Tier Securities when
acquired. Pursuant to the SEC rule, the foregoing restrictions are not
applicable to the Tax-Exempt Funds. The foregoing operating policies are more
restrictive than the fundamental policy set forth above, which would give a Fund
the ability to invest, with respect to 25% of its total assets, more than 5% of
its total assets in any one issuer. Each Fund operates in accordance with these
operating policies which comply with the SEC rule.
INVESTING IN THE PILOT FUNDS
How to Buy Shares
Pilot Shares are sold on a continuous basis by Pilot Funds Distributors, Inc.
(the "Distributor").
Pilot Shares are sold exclusively to customers of Boatmen's Trust Company
(referred to as "Boatmen's" or the "Adviser") and its affiliates (Boatmen's and
such affiliates being sometimes referred to herein individually as an
"Institution" and collectively as "Institutions") acting on behalf of themselves
or their customers who maintain qualified trust, agency or custodial accounts
("Customers"). Customers may include individuals, trusts, partnerships,
institutions and corporations. All share purchases are effected through a
Customer's account at an Institution through procedures established in
connection with the requirements of the account, and confirmations of share
purchases and redemptions will be sent to the Institution involved. Institutions
(or their nominees) will normally be the holders of record of Pilot Shares
acting on behalf of their Customers, and will reflect their Customers'
beneficial ownership of shares in the account statements provided by them to
their Customers. The exercise of voting rights and the delivery to Customers of
shareholder communications from the Funds will be governed by the Customers'
account agreements with the Institutions.
Institutions may charge their Customers certain account fees depending on the
type of account a Customer has established with the Institution. These fees may
include, for example, account maintenance fees, compensating balance
requirements or fees based upon account transactions, assets or income.
Information concerning these charges should be obtained from the Institutions
before a customer authorizes the purchase of Fund shares, and this Prospectus
should be read in conjunction with any information so obtained.
Pilot Shares may be purchased on any Business Day (as defined below) at the net
asset value next determined after receipt of both the purchase order and its
purchase price in Federal Funds. Payment will be effected by wiring Federal
Funds to the Custodian. Boatmen's has undertaken to arrange for the timely
transmittal of purchase orders to the Transfer Agent and of Federal Funds to the
Custodian. Purchases are made through a customer's account at Boatmen's or its
affiliate, as directed by the customer in an application form executed prior to
the customers' first purchase of Pilot Shares, except in the case of purchases
by a fiduciary account where purchases of Pilot Shares of a Fund are made as
directed by Boatmen's or an affiliate.
A customer of Boatmen's (other than a fiduciary account) may direct Boatmen's to
invest automatically any cash income balance and any cash principal balance of
the customers' account in Pilot Shares of a Fund. This automatic investment will
occur on each Business Day for each balance in its entirety. A
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customer maintaining an account at the trust department of a bank affiliated
with Boatmen's may instruct the bank to invest automatically through Boatmen's
any cash principal balance of the customers' account in Pilot Shares of a Fund
on the same basis as applicable to customers of Boatmen's or may give other
instructions to the bank within limits prescribed by the bank. Customers of
Boatmen's and its affiliates who wish to obtain additional information
concerning investment procedures or a Fund's current yield should call Boatmen's
at 314/466-3489. Other investors should call 800/29-PILOT. Additional copies of
this Prospectus, and copies of the Statement of Additional Information, may be
obtained from the Distributor, 3435 Stelzer Road, Columbus, Ohio 43219-3035.
In order to maximize earnings, the Funds try to be invested as completely as is
practicable. The Funds are normally required to make settlement in Federal Funds
for securities purchased. Accordingly, orders for Pilot Shares will become
effective on Business Days as follows: if an order is received by the Transfer
Agent by 2:00 p.m., Central time for the Diversified and Treasury Funds and by
12:00 Noon, Central time for the Tax-Exempt Funds, and Federal Funds are
received by the Custodian on the same day by 3:00 p.m., Central time, the order
is effective as of that day. Pilot Shares are deemed to have been purchased when
an order becomes effective and are entitled to income commencing on that day.
As used in this prospectus, the term "Business Day" refers to those days when
the New York Stock Exchange and the Custodian are open for business, which is
Monday through Friday except for holidays (scheduled holidays for 1996 are New
Years Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day
and Christmas Day). On those days when one or more of such organizations close
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.
It is the responsibility of Institutions to transmit orders for purchases by
their Customers promptly to the Funds in accordance with their agreements with
their Customers, and to deliver required investments on a timely basis. If
Federal Funds are not received within the period described, the order will be
canceled, notice will be given, and the Institution will be responsible for any
loss to The Pilot Funds or its beneficial shareholders. Payments for shares of a
Fund may, at the discretion of the Adviser, be made in the form of securities
that are permissible investments for that Fund.
Purchase orders must include the purchasing Institution's tax identification
number. The Pilot Funds reserves the right to reject any purchase order
including exchanges for any reason or to waive the minimum initial investment
requirement. The Funds also reserve the right to establish a minimum initial
and/or subsequent investment requirement and to change that requirement with
respect to any person or class of persons. Payment for orders which are not
received or accepted will be returned after prompt notice. The issuance of
shares is recorded in the shareholder records of the Funds, and share
certificates will not be issued.
EXPLANATION OF SALES PRICE
Pilot Shares of the Funds are sold at net asset value. Net asset value per share
is determined on each Business Day (as defined above) at 2:00 p.m., Central
time, for the Diversified and Treasury Funds, and 12:00 noon, Central time, for
the Tax-Exempt Funds with respect to each Fund by adding the value of a Fund's
investments, cash, and other assets attributable to its Pilot Shares,
subtracting the Fund's liabilities attributable to those shares, and then
dividing the result by the number of Pilot Shares in the Fund that are
outstanding. The Funds seek to maintain a net asset value of $1.00 per share. In
this connection, each Fund's securities are valued at its amortized cost, which
does not take into account unrealized securities gains or losses. This method
involves initially valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any premium paid or discount received. For
a more complete description of the amortized cost valuation method and its
effect on existing and prospective shareholders, see "Net Asset Value" in the
Statement of Additional Information.
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HOW TO SELL SHARES
How to Redeem
Redemption orders are effected at the net asset value per share next determined
after receipt of the order from an Institution by The Pilot Funds' transfer
agent. The Pilot Funds imposes no charges when Pilot Shares are redeemed.
Institutions may charge fees to their Customers for their services in connection
with the instructions and limitations pertaining to the account at the
Institution.
The Funds may suspend the right of redemption or postpone the date of payment
upon redemption (as well as suspend the recordation of the transfer of its
shares) for such periods as permitted under the 1940 Act.
The Pilot Funds intends to pay cash for all shares redeemed, but in unusual
circumstances may make payment wholly or partly in readily marketable portfolio
securities at their then market value equal to the redemption price if it
appears appropriate to do so in light of the Funds' responsibilities under the
1940 Act. See the Statement of Additional Information ("Redemptions"). In those
cases, an investor may incur brokerage costs in converting securities to cash.
Shares of a Fund are also redeemable at the unilateral option of the Funds if
the Trustees determine in their sole discretion that failure to so redeem may
have material adverse consequences to the Shareholders of such Fund. The Funds,
however, assume no responsibility to compel such redemptions. In the event
losses are sustained by a Fund, the Funds may reduce the number of outstanding
Shares in that Fund in order to maintain a net asset value per Share of $1.00.
Such reduction will be effected by having each Shareholder of that Fund
proportionally contribute to the Fund's capital the necessary Shares to restore
such net asset value per Share. Each Shareholder will be deemed to have agreed
to such contribution in these circumstances by his or her investment in the
Funds.
It is the responsibility of the Institutions to provide their customers with
statements of account with respect to transactions made for their accounts at
the Institutions.
Share balances may be redeemed pursuant to arrangements between Institutions and
their Customers. Redemptions of Pilot Shares of a Fund may be made in accordance
with the application form executed prior to the customer's first purchase of
Pilot Shares or pursuant to redemption drafts drawn on Boatmen's Bank of Rolla.
Redemptions by fiduciary accounts are made as an Institution directs.
Payment of Redemption Proceeds and Dividends
If a redemption request is received by the Transfer Agent from an Institution
before 1:30 p.m., Central time, for the Diversified and Treasury Funds and 11:00
a.m., Central time, for the Tax-Exempt Funds, the Pilot Shares to be redeemed do
not earn income on that day, but the proceeds will be available in the
Shareholder's account at an Institution or its affiliate on the same day (if it
is a Business Day). If a redemption request is received after that time, the
Pilot Shares to be redeemed earn income on the day the request is received, and
the proceeds will be available in the Shareholder's account at an Institution on
the following Business Day. Neither the Funds nor the Distributor or Transfer
Agent shall have any liability for any delay in the availability of proceeds in
a Shareholder's account. Institutions have undertaken to arrange for the timely
transmittal to the Transfer Agent of redemption requests and the timely
crediting to Shareholders' accounts at an Institution of redemption proceeds. In
order to effect timely transmittals and crediting, Institutions may establish
earlier times by which redemption directions must be received by it.
Institutions have undertaken to advise Shareholders if earlier times are
established.
Check Redemption Privilege
A Shareholder of any Fund may elect to have a special account with Boatmen's
Bank of Rolla (the "Bank") for the purpose of redeeming Shares from his or her
account in that Fund by check. When the Bank receives a completed signature card
and authorization form, the Shareholder will be provided with a supply of
checks. Checks drawn on this account may be payable to the order of any person
in any amount of $500 or more, but cannot be certified. The payee of the check
may cash or deposit it like any other check drawn on a bank. When such a check
is presented to
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the Bank for payment, a sufficient number of full and fractional Shares will be
redeemed to cover the amount of the check. Cancelled checks will be returned to
the Shareholder by the Bank.
The check redemption privilege enables a Shareholder to receive the dividends
declared on the Pilot Shares to be redeemed until such time as the check is
processed. Because of this feature, the check redemption privilege may not be
used for a complete liquidation of a Shareholder's account. If the amount of a
check is greater than the value of Pilot Shares held in the Shareholder's
account, the check will be returned unpaid, and the Shareholder may be subject
to extra charges.
The Transfer Agent reserves the right to impose conditions on or terminate the
check redemption privilege at any time with respect to a particular Shareholder
or all Shareholders in general. The Funds and the Bank reserve the right at any
time to suspend the procedure permitting redemption by check and intend to do so
in the event that federal legislation or regulations impose reserve requirements
or other restrictions deemed by the Trustees to be adverse to the interests of
other Shareholders of the Funds.
The Pilot Funds reserves the right, however, to delay the wiring of redemption
proceeds for up to seven days or longer after receipt of a redemption order if,
in the judgment of the Adviser, an earlier payment could adversely affect a
Fund.
EXCHANGES
Pilot Shares of the Fund may be exchanged for Pilot Shares of any other fund of
the Pilot Family of Funds, unless otherwise determined by the Trustees at the
time any new portfolios become available, at the net asset value next
determined. Prior to the completion of any exchange, investors must have the
Prospectus of the Fund into which they are exchanging. Shares can only be
exchanged in a state where the Shares to be received are registered.
For federal income tax purposes, an exchange is treated as a sale of the Shares
surrendered in the exchange, on which an investor may realize a gain or loss,
followed by a purchase of Shares received in the exchange. All telephone
exchanges must be registered in the same name(s) and with the same address as
are registered in the Fund from which the exchange is being made. Any election
to use telephone exchanges or redemptions will be administered by Boatmen's. In
times of drastic economic or market changes the telephone exchange privilege may
be difficult to implement. In an effort to prevent unauthorized or fraudulent
redemption requests by telephone, the Transfer Agent and Boatmen's employ
reasonable procedures specified by the Funds to confirm that such instructions
are genuine. Consequently, telephone requests will not be accepted to exchange
shares except to an identical account. The Funds may implement other procedures
from time to time. If reasonable procedures are not implemented, the Funds may
be liable for any loss due to unauthorized or fraudulent transactions. In all
other cases, neither the Funds nor the Distributor, Transfer Agent or Boatmen's
will be responsible for the authenticity of exchange instructions received by
telephone; thus, the total risk of loss for unauthorized transactions is on the
investor. Exchanges are available only in states where the exchange may legally
be made. An exchange fee may be imposed or the exchange privilege may be
modified or withdrawn at any time on 60 days' written notice.
DIVIDENDS AND DISTRIBUTIONS
Where do your dividends and distributions come from?
A Fund's net investment income consists of the excess of (i) accrued interest or
discount (including both original issue and market discount, if any) on
portfolio securities and (ii) any income of the Fund from sources other than
capital gains, over (iii) the amortization of market premium on portfolio
securities and (iv) the estimated expenses of the Fund, including a
proportionate share of the general expenses of the Funds.
When are dividends and distributions declared and paid?
Each Fund intends to declare substantially all of its net investment income
daily (as of 2:00 p.m., Central time, for the Diversified and Treasury Funds,
and as of 12:00 Noon, Central time, for the Tax-Exempt Funds) as a dividend and
distribute these dividends to Pilot Shareholders, monthly. Net short-term
capital gains, if any, will be distributed in accordance with the
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requirements of the Code, and may be reflected in the Funds' daily
distributions. Each Fund may distribute at least annually, on or about the close
of each calendar year, its long-term capital gains, if any.
How are dividends and distributions declared and paid?
Income dividends and capital gain distributions will be paid in cash or at the
election of the Shareholder will be reinvested in additional shares of the same
Fund. Any election to receive cash or to reinvest in additional Shares will be
administered by your Institution in a manner arranged for each Fund. Cash
distributions will be paid on or about the first business day of each month.
Although realized gains and losses on the assets of each Fund are reflected in
the net asset value of each Fund, they are not expected to be of an amount which
would affect a Fund's net asset value of $1.00 per Share.
Should a Fund incur or anticipate any unusual expense, loss or depreciation
which could adversely affect income or net asset value, the Trustees would at
that time consider whether to adhere to the present income accrual and
distribution policy described above or to revise it in light of the then
prevailing circumstances. For example, the Trustees might reduce or suspend
Shareholder income accruals in order to prevent to the extent possible the net
asset value of such Fund from being reduced below $1.00 per Share. Thus, such
expenses, losses or depreciation could result in a Shareholder receiving no
income for the period during which he held the Shares.
THE PILOT FAMILY OF FUNDS
The Pilot Funds was organized on July 15, 1982 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 (Pilot
Shares, Investor Shares and Administration Shares) in these Funds. Information
regarding The Pilot Funds' other portfolios may be obtained by contacting The
Pilot Funds or the Distributor.
Each Pilot Share, Investor Share and Administration 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 the
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. Administration 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 Administration
Shares. Administration Shares bear the cost of administration fees at the annual
rate of up to .25 of 1% of the average daily net asset value of such Shares.
Investor Shares may be purchased for accounts held in the name of an institution
that provides certain account administration and Shareholder liaison services to
its customers, including maintenance of account records, processing orders to
purchase, redeem and exchange Investor Shares, responding to customer inquiries
and assisting customers with investment procedures. Investor Shares bear the
cost of service fees at the annual rate of up to .50 of 1% of the average daily
net asset value of such Shares. Please refer to the Statement of Additional
Information for the Administration Shares and Investor Shares for a more
complete description of such services. It is possible that an institution (a
"Service Organization") or its affiliate may offer different classes of Shares
to its customers and thus receive
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different compensation with respect to different classes of Shares of the same
Fund. Each Service Organization offering both Administration Shares and Investor
Shares intends to limit the availability of such Shares to different types of
investors. 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.
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.
If a proposal concerning the Administration Plan or Service Plan is submitted to
holders of Administration Shares or Investor Shares, respectively, Service
Organizations holding Administration or Investor Shares for their own accounts
have undertaken to vote such Shares in the same proportions as the vote by
customers of such Shares held for the account of such customers of the Service
Organization.
Persons selling or servicing different classes of shares of the Funds may
receive different compensation with respect to one particular class of shares as
opposed to another in the same Fund.
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.
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.
Effective June 30, 1995, the name of the Pilot Short-Term Tax-Exempt Fund was
changed to the Pilot Missouri Short-Term Tax-Exempt Fund.
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") manages the
investment portfolio of each 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
location.
Administrator: CONCORD HOLDING CORPORATION (referred to as "Concord"), is
responsible for coordinating the Funds' efforts and generally overseeing the
operation of the Funds' business. Concord's principal offices are located at
3435 Stelzer Road, Columbus, Ohio 43219-3035.
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 a wholly-owned subsidiary of Concord and is the transfer and dividend
disbursing agent of the Funds. It maintains the account records of all
shareholders and administers the distribution of all income earned as a result
of investing in the Funds. The Transfer Agent is located at 3435 Stelzer Road,
Columbus, Ohio 43219-3035.
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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 businesses, 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 Agreements with the Funds, Boatmen's, subject to the general
supervision of the Funds' Trustees, manages the investment operations of each
Fund and the composition of each Fund's assets, including the purchase,
retention, and disposition thereof.
Boatmen's pays all costs incurred by it in connection with the performance of
its duties under the Advisory Agreements, other than the cost (including taxes
and brokerage commissions, if any) of securities purchased for the Funds and the
cost of preparing tax returns, shareholder reports and prospectuses and reports
filed with regulatory authorities.
Boatmen's began serving as investment adviser to the Treasury Fund and
Diversified Fund on June 1, 1994 and began serving as investment adviser to the
Tax-Exempt Diversified Fund and Missouri Tax-Exempt Fund effective July 1, 1995.
Goldman Sachs, acting through its separate operating division, Goldman Sachs
Asset Management, served as investment adviser to the Tax-Exempt Diversified
Fund and Missouri Tax-Exempt Fund prior to July 1, 1995.
Under the new advisory agreements effective July 1, 1995, Boatmen's is entitled
to receive advisory fees on a monthly basis at an annual rate of .15 of 1% of
the Diversified Fund's average net assets, .15 of 1% of the Treasury Fund's
average net assets, .20 of 1% of the Tax-Exempt Diversified Fund's average net
assets and .20 of 1% of the Missouri Tax-Exempt Fund's average net assets. It is
Boatmen's current intention to waive voluntarily .05 of 1% from its new
contractual fee rates for each of the Treasury, Diversified and Tax-Exempt
Diversified Funds, based on each such Fund's average net assets on an annualized
basis, for each such Fund for the period July 1, 1995 until January 1, 1996, and
.03 of 1% from its new contractual fee rates, based on each such Fund's average
net assets on an annualized basis, for the period January 1, 1996 until July 1,
1996. For the fiscal year ended August 31, 1995 total advisory fees paid by the
Diversified Fund and Treasury Fund were .07% and .08%, respectively. For the
fiscal year ended August 31, 1994 (under the former advisory agreements from
September 1, 1993 to June 1, 1994, and from June 1, 1994 to August 31, 1994),
total advisory fees paid by the Diversified Fund and Treasury Fund were .07% and
.08%, respectively.
For the fiscal year ended August 31, 1995, each of the Diversified and Treasury
Funds paid an advisory fee of $998,016 and $972,623, respectively. For the
fiscal year ended August 31, 1994, each of the Diversified and Treasury Funds
paid an advisory fee of $1,679,800 and $1,366,594, respectively. Goldman Sachs
received $1,453,413 and $1,154,974, respectively, and Boatmen's received
$226,387 and $211,620, respectively.
For the period ended June 30, 1995, Goldman Sachs & Co. acted as the investment
adviser to the Tax-Exempt Diversified Fund and Missouri Tax-Exempt Fund.
Boatmen's acts as an administrator by providing shareholder administrative
services with respect to investments by its and its affiliates' customers in
Pilot Shares of the Funds. Boatmen's maintains Shareholders' records and
otherwise acts as servicing agent with respect to their investments. Any
Shareholder inquiries should be directed to it. Boatmen's telephone number is
(314) 466-3489.
Boatmen's may assess a fee directly against the account of each customer of
Boatmen's and its affiliates who beneficially owns Pilot Shares at an annual
rate not to exceed .25 of 1% of the average
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daily balance of Pilot Shares (based upon the value at which the Pilot Shares
are then being sold and redeemed by the Funds) in the customer's account. If
imposed, this fee will be computed monthly on the basis of the average daily
balance in the account and deducted from the account monthly. Boatmen's has
advised the Funds that (a) the monthly statement it provides will show income
net of the fee assessed against the customers' accounts, (b) this will be the
only compensation which Boatmen's receives for serving as administrator with
respect to Pilot Shares of the Funds, and (c) Boatmen's and its affiliates will
continue to charge their usual and customary fees to all their customers
(including those who invest in the Funds) for performing agency, custodial and
fiduciary services.
MORE ABOUT CONCORD. Concord is a Delaware corporation that was organized in 1987
to provide administrative services to mutual funds. Under its Administration
Agreement with each Fund, Concord currently functions as administrator for over
$30 billion in mutual fund assets. 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. Concord is a wholly-owned subsidiary of The
BISYS Group, Inc. Certain officers of The Pilot Funds, namely Messrs. Martin
Dean, Lester J. Lay, George O. Martinez, William J. Tomko and Robert Tuch and
Ms. Susan L. West, officers of The Pilot Funds, are also employees and/or
officers of Concord or its affiliate, The BISYS Group, Inc., and the
Distributor.
EXPENSES. In order to support the services described above, as well as other
matters essential to the operation of the Funds, the Funds incur 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.
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, 1995, The Pilot Funds paid administration fees to
Concord in the amount of $1,357,012, $1,479,697, $293,693 and $449,267 for the
Pilot Short-Term U.S. Treasury Fund, Pilot Short-Term Diversified Assets Fund,
Pilot Missouri Short-Term Tax-Exempt Fund and Pilot Short-Term Tax-Exempt
Diversified Fund, respectively.
The Funds are responsible for all expenses incurred by the Funds, other than
those expressly borne by Boatmen's, Concord or the Transfer Agent under the
Advisory, 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 Funds' custodian, brokerage fees and commissions, any portfolio
losses, state and federal registration fees for qualifying Funds 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 Funds' Shareholders and regulatory authorities,
compensation and expenses of its Trustees and extraordinary expenses incurred by
the Funds.
FEE WAIVERS. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Boatmen's and the Funds' other service providers, as well as
by
25
<PAGE> 28
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 a Fund for such amounts prior
to their fiscal year end. These waivers and reimbursements would increase the
yield to investors when made but would decrease yields if a 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.
Each 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, each 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, a Fund generally will not incur a federal income or excise
tax on any investment company taxable income and net capital gains that are
distributed to its Shareholders in accordance with certain timing requirements
of the Code.
Dividends distributed by the Tax-Exempt Funds that are derived from interest
income exempt from federal income taxation and are designated by a Fund as
"exempt-interest dividends" will be exempt from federal income taxation.
Dividends of investment company taxable income, which generally includes the
excess of net short-term capital gains over net long-term capital losses and
interest (including original issue discount and market discount), less expenses,
will be taxable to Shareholders as ordinary income. Because no portion of the
dividends paid by any Fund is expected to consist of dividends paid by U.S.
corporations, no portion of the dividends paid by any Fund is expected to 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 gain dividends" by a Fund will be taxable
as long-term capital gains regardless of how long the Shareholders have held
their Funds Shares. The Funds are not normally expected to realize any long-term
capital gains or losses. 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 distributions received from a Fund for federal income tax
purposes, including any distributions that may constitute a return of capital.
Investments in zero coupon securities (other than tax-exempt zero coupon
securities) will result in income to a 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 a 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 a 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.
A Fund that invests in foreign securities 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 deductions with
respect to such taxes.
26
<PAGE> 29
In addition to federal taxes, a Shareholder may be subject to state and local
taxes on payments received from a Fund. A state tax exemption may be available
in some states to the extent distributions of a 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.
The Tax-Exempt Diversified Fund intends to satisfy certain requirements of the
Code for the payment of "exempt-interest dividends" not included in
shareholders' federal gross income. In addition, to the extent that
distributions made by the Missouri Tax-Exempt Fund qualify as "exempt-interest
dividends" for federal income tax purposes, are derived from interest on
Missouri Instruments and are designated by the Missouri Tax-Exempt Fund as
"state income tax exempt-interest dividends," these distributions will be exempt
from Missouri income tax, the earnings and profits tax of Kansas City and the
City of St. Louis earnings tax. Shares of the Missouri Tax-Exempt Fund and
income dividends and other distributions from the Missouri Tax-Exempt Fund are
not excludable in computing Missouri franchise taxes on corporations and
financial institutions. Distributions of long-term and short-term capital gains,
if any, that are includable in federal adjusted gross income will be subject to
Missouri income taxation, but will not be subject to the earnings and profits
tax of Kansas City or, for individuals in an individual capacity, the City of
St. Louis earnings tax. Shares of the Missouri Tax-Exempt Fund are not subject
to Missouri personal property taxes.
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. Each Fund may quote its performance in advertisements or
shareholder communications.
UNDERSTANDING PERFORMANCE MEASURES: YIELD, EFFECTIVE YIELD AND TAX EQUIVALENT
YIELD will be calculated separately for Pilot Shares, Administration Shares and
Investor Shares. Because each such class of Shares is subject to different
expenses, the net yield of such classes of the same Fund for the same period may
differ. Absent a waiver of administration or service fees, the yield of Pilot
Shares will exceed that of other shares.
The YIELD of a Fund refers to the income generated by an investment in the Fund
over a seven-day period (which period will be stated in the advertisement). This
income is then annualized; that is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52 week
period and is shown as a percentage of the investment.
The EFFECTIVE YIELD is calculated similarly but, when annualized, the net income
earned by an investment in a Fund is assumed to be reinvested. The effective
yield will be slightly higher than the yield because of the compounding effect
of this assumed reinvestment.
TAX-EQUIVALENT YIELDS for the Tax-Exempt Diversified and Missouri Tax-Exempt
Funds show the amount of taxable yield needed to produce an after-tax equivalent
of a tax-free yield, and are calculated by increasing the yield (as calculated
above) by the amount necessary to reflect the payment of federal income taxes at
a stated rate.
Performance comparisons:
The Funds may compare their yields to those of mutual funds with similar
investment objectives and to relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
mutual fund performance.
Yield 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.
The performance of the Funds may also be compared to data prepared by Lipper
Analytical Services, Inc., Mutual Fund Forecaster, Wiesenberger Investment
Companies Services, Morningstar or CDA Investment Technologies, Inc..
INVESTMENT RESULTS OF A FUND ARE BASED ON HISTORICAL PERFORMANCE AND PERFORMANCE
QUOTATIONS WILL FLUCTUATE. YOU SHOULD NOT CONSIDER QUOTATIONS TO BE
27
<PAGE> 30
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 BIS OR ANOTHER INSTITUTION MAY CHARGE DIRECTLY TO ITS CUSTOMER ACCOUNTS IN
CONNECTION WITH AN INVESTMENT IN THE FUNDS WILL NOT BE INCLUDED IN THE FUNDS'
CALCULATIONS OF YIELD.
INQUIRIES REGARDING THE FUNDS 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
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUNDS 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 FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
28
<PAGE> 31
PILMMP1295P
<PAGE> 1
EXHIBIT 17(h)
THE PILOT FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219
STATEMENT OF ADDITIONAL INFORMATION
May 10, 1996
PILOT SHARES, CLASS A SHARES AND CLASS B SHARES
THE PILOT FUNDS (THE "TRUST") IS AN OPEN-END, MANAGEMENT INVESTMENT
COMPANY (OR MUTUAL FUND) CONSISTING OF FOURTEEN PORTFOLIOS, TWO OF WHICH
PORTFOLIOS (THE "FUNDS") ARE OFFERED HEREBY. THE FUNDS ARE:
PILOT GROWTH FUND; AND
PILOT DIVERSIFIED BOND INCOME FUND;
BOATMEN'S TRUST COMPANY ("BOATMEN'S") SERVES AS THE INVESTMENT ADVISER
TO EACH FUND. PILOT FUNDS DISTRIBUTORS, INC. SERVES AS EACH FUND'S DISTRIBUTOR,
AND ITS PARENT, BISYS FUND SERVICES LIMITED PARTNERSHIP, SERVES AS EACH FUND'S
ADMINISTRATOR.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUSES DATED MAY 10, 1996 WITH RESPECT TO
PILOT SHARES, CLASS A SHARES AND CLASS B SHARES OF THE FUNDS 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 FUNDS 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.
B-1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Policies And Practices Of The Funds . . . . . . . . . . . . . B-3
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . B-15
Trustees And Officers . . . . . . . . . . . . . . . . . . . . . . . . . . B-17
Investment Adviser, Administrator, Distributor And Transfer Agent . . . . B-20
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . B-23
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-24
Matters Relating to Class A Shares and Class B Shares . . . . . . . . . . B-25
Additional Purchase and Redemption Information . . . . . . . . . . . . . B-27
Calculation Of Performance Quotations . . . . . . . . . . . . . . . . . . B-31
Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-33
Organization And Capitalization . . . . . . . . . . . . . . . . . . . . . B-37
Custodian And Subcustodian . . . . . . . . . . . . . . . . . . . . . . . B-39
Independent Accountants And Counsel . . . . . . . . . . . . . . . . . . . B-39
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-30
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
B-2
<PAGE> 3
INVESTMENT POLICIES AND PRACTICES OF THE FUNDS
The following discussion elaborates on the description of each Fund's
investment policies and practices contained in the Prospectuses. 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 OBLIGATIONS
Each Fund may invest in U.S. Government obligations. Examples of the
types of U.S. Government obligations that may be held by the Funds include, in
addition to U.S. Treasury bonds, notes and bills, the obligations of the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Tennessee Valley Authority, Resolution Funding Corporation and
Maritime Administration. Obligations 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 obligations 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. Obligations 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
Each 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. The Pilot Intermediate Municipal Bond Fund and Pilot
Municipal Bond Fund (the "Municipal Bond Funds") may acquire custodial receipts
that evidence ownership of future interest payments, principal payments or both
on certain municipal notes and bonds. Custodial receipts will be treated as
illiquid securities.
CORPORATE DEBT SECURITIES
Each Fund may invest in corporate debt securities of domestic issuers of
all types and maturities, such as bonds, debentures, notes 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). Each Fund
may also invest in corporate debt securities of foreign issuers.
B-3
<PAGE> 4
U.S. AND FOREIGN BANK OBLIGATIONS
These obligations include negotiable certificates of deposit, banker's
acceptances and fixed time deposits. Each 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. Each 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 a 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 a Fund's right to transfer a beneficial interest in
the deposit to a third party.
Each Fund limits its investments in foreign bank obligations (i.e.,
obligations of foreign branches and subsidiaries of domestic banks, and
domestic and foreign branches and agencies of foreign banks) to obligations of
banks which at the time of investment are branches or subsidiaries of domestic
banks which meet the criteria in the preceding paragraphs or are branches or
agencies of foreign banks which (i) have more than $10 billion, or the
equivalent in other currencies, in total assets; (ii) in terms of assets are
among the 75 largest foreign banks in the world; (iii) have branches or
agencies in the United States; and (iv) in the opinion of Boatmen's, pursuant
to criteria established by the Board of Trustees of the Trust, are of an
investment quality comparable to obligations of domestic banks which may be
purchased by a Fund. These obligations may be general obligations of the parent
bank in addition to the issuing branch or subsidiary, but the parent bank's
obligations may be limited by the terms of the specific obligation or by
governmental regulation. Each Fund also limits its investments in foreign bank
obligations to banks, branches and subsidiaries located in Western Europe
(United Kingdom, France, Germany, Belgium, The Netherlands, Italy and
Switzerland), Scandinavia (Denmark and Sweden), Australia, Japan, the Cayman
Islands, the Bahamas and Canada. Each Fund will limit its investment in
securities of foreign banks to not more than 10% of total assets at the time of
investment.
Each Fund may also make interest-bearing savings deposits in commercial
and savings banks in amounts not in excess of 5% of the total assets of the
Fund.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS
Each Fund may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment or delayed settlement basis. These
transactions involve a commitment by a 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 and delayed settlement
transactions are negotiated directly with the other party, and such commitments
are not traded on exchanges.
A Fund will purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment or delayed settlement 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, a Fund may dispose of or renegotiate a commitment after entering into
it. A Fund also may sell securities it has committed to purchase before those
securities are delivered to the Fund on the settlement date. A Fund may
realize a capital gain or loss in connection with these transactions.
When a Fund purchases securities on a when-issued, forward commitment or
delayed settlement 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
or delayed settlement transaction 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
B-4
<PAGE> 5
ensure that a Fund will maintain sufficient assets at all times to cover its
obligations under when-issued purchases, forward commitments and delayed
settlements.
CONVERTIBLE SECURITIES
Each 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 Pilot Growth Fund
will be rated at least AA by an NRSRO or, if unrated, determined by Boatmen's
to be of comparable quality. Similarly, all convertible securities purchased
by the Pilot Diversified Bond Income Fund will be rated at least A by an NRSRO
or, if unrated, determined by Boatmen's 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 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.
B-5
<PAGE> 6
FOREIGN SECURITIES
Both Funds may invest in foreign securities either directly or
indirectly through American Depository Receipts ("ADRs"), which are receipts
issued by an American bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer, or through European Depository Receipts
("EDRs"), which are receipts issued by European financial institutions
evidencing ownership of underlying securities issued by a foreign issuer. ADRs
may be listed on a national securities exchange or may trade in the
over-the-counter market. ADR prices are denominated in United States dollars
while EDR prices are generally denominated in foreign currencies. The
securities underlying an ADR or EDR will normally be denominated in a foreign
currency. The underlying securities may be subject to foreign government taxes
which could reduce the yield on such securities.
Investors should recognize that investing in foreign securities involves
certain special considerations which are not typically associated with
investing in United States securities and which may favorably or unfavorably
affect a Fund's performance. 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 each Fund are
uninvested and no return is earned thereon. Also, delivery of securities before
payment may be required in some countries. The inability of a Fund to make
intended security purchases due to settlement problems could cause a Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to a 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 a Fund will
endeavor to achieve the most favorable net results on its portfolio
transactions. Further, a 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. Each
Fund seeks to mitigate the risks associated with the foregoing considerations
through diversification and continuous professional management.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Funds 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 individually negotiated and privately traded in
the interbank market by 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.
B-6
<PAGE> 7
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. Closing
purchase transactions with respect to forward contracts are usually effected
with the currency trader who is a party to the original forward contract. A
Fund may be required to segregate assets, consisting of cash, U.S. government
securities or other high grade liquid debt securities to cover forward
contracts that require it to purchase foreign currency.
When the Adviser 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. This
practice is referred to as "cross-hedging." The amount in question could be
less than or equal to the value of a Fund's securities denominated in the less
attractive currency.
A Fund may also enter into a forward contract to sell a currency that is
linked to a currency that Boatmen's believes to be less attractive and buy a
currency that Boatmen's believes to be more attractive (or a currency that is
linked to currency that Boatmen's 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 Boatmen's 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 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.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES
Each Fund may invest in securities backed by installment contracts,
credit card receivables and other assets. These asset-backed securities
represent interests in pools of assets in which payment of both interest and
principal on the securities are made monthly, thus in effect passing through
(net of fees paid to the issuer or guarantor of the securities) the monthly
payments made by the individual borrowers on the assets that underlie the
asset-backed securities. Each Fund may also make significant investments in
U.S. Government securities that are backed by adjustable or fixed-rate mortgage
loans.
The average life of an asset-backed or mortgage-backed instrument varies
with the maturities of the underlying instruments. In the case of mortgages,
maturities may be a maximum of forty years. The average life of an
asset-backed or mortgage-backed instrument is likely to be substantially less
than the original maturity of the asset or mortgage pools underlying the
security as the result of scheduled principal payments and prepayments. This
may be particularly true for mortgage-backed securities.
Non-mortgage asset-backed securities involve certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do not
have the benefit of the same security interest in the underlying collateral.
Credit card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, many of
which have given debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of automobile
receivables permit the servicers to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that
of the holders of the related automobile receivables. In addition, because of
the large number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of the automobile
receivables may not have an effective security interest in all of the
obligations backing such receivables. Therefore, there is a possibility that
recoveries on repossessed collateral may not, in some cases, be able to support
payments on these securities.
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Presently there are several types of mortgage-backed securities issued
or guaranteed by U.S. Government agencies, including guaranteed mortgage
pass-through certificates, which provide the holder with a pro rata interest in
the underlying mortgages, and collateralized mortgage obligations ("CMOs"),
which provide the holder with a specified interest in the cash flow of a pool
of underlying mortgages or other mortgage-backed securities. Issuers of CMOs
frequently elect to be taxed as a pass-through entity known as real estate
mortgage investment conduits, or REMICs. CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. Although the relative payment rights of these classes can be structured
in a number of different ways, most often payments of principal are applied to
the CMO classes in the order of their respective stated maturities.
CMO classes may include accrual certificates (also known as "Z-Bonds"),
which only accrue interest at a specified rate until other specified classes
have been retired and are converted thereafter to interest-paying securities.
They may also include planned amortization classes ("PAC") which generally
require, within certain limits, that specified amounts of principal be applied
on each payment date, and generally exhibit less yield and market volatility
than other classes. The Funds will not purchase "residual" CMO interests, which
normally exhibit the greatest price volatility.
CMOs can expose a Fund to more volatility and interest rate risk than
other types of mortgage-backed obligations.
REPURCHASE AGREEMENTS
Each 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., a 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
Funds, that utilize them. Such risks are not unique to the Funds but are
inherent in repurchase agreements. The Funds seek 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 Investment Company Act of 1940 (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, a Fund would be at risk of losing some or
all of the principal and income involved in the transaction. To minimize this
risk, the Funds utilize custodians and subcustodians that Boatmen's believes
follow customary securities industry practice with respect to repurchase
agreements, and Boatmen's 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
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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 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.
Each Fund may also enter into repurchase agreements with any party
deemed creditworthy by Boatmen's 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 a
Fund may purchase.
REVERSE REPURCHASE AGREEMENTS
At the time a Fund enters into a reverse repurchase agreement (an
agreement under which a Fund sells portfolio securities and agrees to
repurchase them at an agreed-upon date and price), it will place in a
segregated custodial account liquid assets such as U.S. Government securities
or other liquid high-grade debt securities having a value equal to or greater
than the repurchase price (including accrued interest) and will subsequently
monitor the account to ensure that such value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the price of the securities it is obligated to
repurchase. Reverse repurchase agreements are considered to be borrowings under
the 1940 Act.
VARIABLE AND FLOATING RATE INSTRUMENTS
With respect to the variable and floating rate instruments that may be
acquired by the Funds as described in the Prospectuses, Boatmen's will consider
the earning power, cash flows and other liquidity ratios of the issuers and
guarantors of such instruments and, if the instrument is subject to a demand
feature, will monitor their financial status to meet payment on demand.
In determining a Fund's average weighted portfolio maturity, an
instrument will usually be deemed to have a maturity equal to the longer of the
period remaining until the next regularly scheduled interest rate adjustment or
the time the Fund involved can recover payment of principal as specified in the
instrument. Such instruments which are U.S. Government obligations and certain
variable rate instruments having a nominal maturity of 397 days or less when
purchased by the Fund involved, however, will be deemed to have maturities
equal to the period remaining until the next interest rate adjustment.
LENDING OF PORTFOLIO SECURITIES
When a Fund lends its securities, it continues to receive interest (and
dividends with respect to the Growth Fund) on the securities loaned and may
simultaneously earn interest on the investment of the cash loan collateral
which will be invested in readily marketable, high-quality, short-term
obligations. Although voting rights, or rights to consent, attendant to
securities on loan pass to the borrower, such loans will be called so that the
securities may be voted by a Fund if a material event affecting the investment
is to occur. Portfolio loans will be continuously secured by collateral equal
at all times in value to at least the market value of the securities loaned
plus accrued interest. Collateral for such loans may include cash, U.S.
Government securities, securities of U.S. Government agencies and
instrumentalities or an irrevocable letter of credit issued by a bank which
meets the investment standards of a Fund for short-term instruments. There may
be risks of delay in receiving additional collateral or in recovering the
securities loaned or even a loss of rights in the collateral should the
borrower of the securities fail financially.
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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. 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.
"STRIPPED SECURITIES"
As stated in the Prospectuses, each Fund may purchase stripped
securities issued or guaranteed by the U.S. Government, where the principal and
interest components are traded independently under the Separate Trading of
Registered Interest and Principal of Securities program ("STRIPS"). Under
STRIPS, the principal and interest components are individually numbered and
separately issued by the U.S. Treasury at the request of depository financial
institutions, which then trade the component parts independently.
In addition, each Fund may purchase stripped mortgage-backed securities
("SMBS") issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks and other institutions.
If the underlying obligations experience greater than anticipated prepayments
of principal, a Fund may fail to fully recover its initial investment. The
market value of the class consisting entirely of principal payments can be
extremely volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest are generally higher
than prevailing market yields on other mortgage-backed obligations because
their cash flow patterns are also volatile and there is a greater risk that the
initial investment will not be full recovered. SMBS issued by the U.S.
Government (or a U.S. Government agency or instrumentality) may be considered
liquid under guidelines established by the Trust's Board of Trustees if they
can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of a Fund's per share net
asset value.
Although "stripped" securities may not pay interest to holders prior to
maturity, federal income tax regulations require a Fund to recognize as
interest income a portion of the bond's discount each year. This income must
then be distributed to shareholders along with other income earned by the Fund.
To the extent that any shareholders in a Fund elect to receive their dividends
in cash rather than reinvest such dividends in additional Fund shares, cash to
make these distributions will have to be provided from the assets of the Fund
or other sources such as proceeds of sales of Fund shares and/or sales of
portfolio securities. In such cases, the Fund will not be able to purchase
additional income producing securities with cash used to make such
distributions and its current income may ultimately be reduced as a result.
PARTICIPATION INTERESTS AND TRUST RECEIPTS
As stated in the Prospectuses, each Fund may purchase from domestic
financial institutions and trusts created by such institutions participation
interests and trust receipts in high quality debt securities. A participation
interest or receipt gives a Fund an undivided interest in the security in the
proportion that a Fund's participation interest or receipt bears to the total
principal amount of the security. As to certain instruments for which a Fund
will be able to demand payment, a Fund intends to exercise its right to do so
only upon a default under the terms of the security, as needed to provide
liquidity, or to maintain or improve the quality of its
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investment portfolio. It is possible that a participation interest or trust
receipt may be deemed to be an extension of credit by a Fund to the issuing
financial institution rather than to the obligor of the underlying security and
may not be directly entitled to the protection of any collateral security
provided by the obligor. In such event, the ability of a Fund to obtain
repayment could depend on the issuing financial institution.
Participation interests and trust receipts may have fixed, floating or
variable rates of interest, and will have remaining maturities of thirteen
months or less (as defined by the Securities and Exchange Commission). If a
participation interest or trust receipt is unrated, Boatmen's will have
determined that the interest or receipt is of comparable quality to those
instruments in which the Fund involved may invest pursuant to guidelines
approved by the Board of Trustees. For certain participation interests or trust
receipts a Fund will have the right to demand payment, on not more than 30
days' notice, for all or any part of the Fund's participation interest or trust
receipt in the securities involved, plus accrued interest.
WARRANTS
Warrants are privileges issued by corporations enabling the owner to
subscribe to and purchase a specified number of shares of the corporation at a
specified price during a specified period of time. The prices of warrants do
not necessarily correlate with the prices of the underlying securities. The
purchase of warrants involves the risk that the purchaser could lose the
purchase value of the warrant if the right to subscribe to additional shares is
not exercised prior to the warrant's expiration. Also, the purchase of warrants
involves the risk that the effective price paid for the warrant added to the
subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in the
level of the underlying security.
OPTIONS ON SECURITIES AND INDICES
Each Fund may purchase and sell (write) both call and put options listed
on securities exchanges as well as over-the-counter options (options not traded
on exchanges). Such options may relate to particular securities or to various
indices.
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
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.) Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter ("OTC") options generally are
established through negotiation with the other party to the option contract.
Although this type of arrangement allows a Fund greater flexibility to tailor
an option to its needs, OTC options generally involve greater credit risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchanges where they are traded.
If an option written by a 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 a 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) or, in
the case of some OTC options, by fulfilling the terms of any agreement with the
counterparty permitting
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a Fund to close out the option. There can be no assurance, however, that a
closing purchase or sale transaction can be effected when a Fund desires.
A 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 indices. 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 a 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 a 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 foregoes, 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 a 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 a 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.
FUTURES CONTRACTS
Each Fund may enter into futures contracts on securities and futures
contracts based on securities indices and securities, which futures are traded
on exchanges that are licensed and regulated by the Commodity Futures Trading
Commission ("CFTC"). Each 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. Futures contracts
and related options entered into by the Funds will be entered into consistent
with CFTC regulations.
Each 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 a Fund or securities
with price-fluctuation characteristics similar to those of its portfolio
securities. If, in the opinion of Boatmen's, there is a sufficient degree of
correlation between price trends for a Fund's securities and futures contracts
based on indices, a 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 a Fund's securities will substantially be offset
by appreciation in the value of the futures position. On other occasions a Fund
may take a "long" position by purchasing futures contracts. This would be done,
for example, when a 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.
Each 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.
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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. Each 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. Each Fund's position in the futures market will be
marked-to-market on a daily basis; the Funds 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,
a 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 indices 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 indices 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.
OPTIONS ON FUTURES CONTRACTS
Each 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. 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 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
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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.
A Fund will not purchase or sell (write) options on futures contracts
unless, in the opinion of Boatmen's, the market for such options has sufficient
liquidity that the risks associated with such options transactions are at
acceptable levels.
LIMITATIONS ON USE OF FUTURES TRANSACTIONS AND RISK CONSIDERATIONS
Each Fund will incur brokerage fees in connection with its futures
transactions, and each 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 a Fund may
benefit from the use of such contracts, unanticipated changes in securities
prices 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 a 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 a Fund may be exposed to risk of
loss.
Tax-related requirements may limit the extent to which a Fund may engage
in futures and related options transactions.(See "Tax Information.")
RESTRICTED AND OTHER ILLIQUID SECURITIES
A Fund may purchase securities that are not registered under the
Securities Act of 1933 or have some other legal or contractual restrictions 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, as stated in the
Prospectuses, a Fund will not invest more than 15% of the value of its net
assets in illiquid securities, including restricted securities, unless the
Trust's 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 Boatmen's
the daily function of determining and monitoring liquidity of securities. The
Trustees may also delegate to its Valuation Committee valuation decisions. 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 each 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 a Fund to the extent that qualified institutional buyers become
for a time uninterested in purchasing these restricted securities.
COMBINED TRANSACTIONS
A Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple forward foreign currency
exchange contracts and any combination of futures, options and forward foreign
currency exchange contracts ("component" transactions), instead of a single
transaction, as part of a single hedging strategy when, in the opinion of
Boatmen's, it is in the best interest of a Fund to do so and
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where underlying hedging strategies are permitted by a 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 a
Fund to provide cash, securities or currencies to complete such transactions
will entail that Fund's either segregating assets in an account with, or on the
books of, the Trust's custodian, or otherwise "covering" the transaction as
described below. For example, a call option written by a 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 that
Fund to have portfolio securities that correlate with the index. A put option
written by a Fund also will require that Fund to have available assets
sufficient to purchase the securities the Fund would be obligated to buy if the
put is exercised.
A forward foreign currency contract that obligates a 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, a 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, a Fund could own securities substantially replicating
the movement of the particular index.
In the case of a futures contract, a 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 a 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. A 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, a 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 that Fund. Moreover, instead of segregating assets if a 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.
INVESTMENT RESTRICTIONS
The Trust, on behalf of each Fund, has adopted fundamental investment
restrictions numbered 1 through 9 which may not be changed with respect to a
Fund without the approval of the holders of a majority of that Fund's
outstanding voting shares. Investment restrictions numbered i through ix are
not fundamental policies and may be changed at any time by vote of a majority
of the Trustees of the Trust.
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 Trust
or the Fund means the vote of the lesser of: (i) 67% or more of the shares of
the Trust or Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Trust or Fund are present or represented by proxy, or
(ii) more than 50% of the outstanding shares of the Trust or Fund.
B-15
<PAGE> 16
As a matter of fundamental policy, each Fund may not:
1) Purchase or sell real estate, except that each Fund may
purchase securities of issuers which deal in real estate and may
purchase securities which are secured by interests in real estate
and except that each Fund reserves freedom of action to hold and
to sell real estate acquired as a result of the Fund's ownership
of securities.
2) Acquire any other investment company or investment company
security except in connection with a merger, consolidation,
reorganization or acquisition of assets or where otherwise
permitted by the 1940 Act.
3) Act as an underwriter of securities within the meaning of
the Securities Act of 1933 except to the extent that the purchase
of obligations directly from the issuer thereof in accordance
with the Fund's investment objective(s), policies and limitations
may be deemed to be underwriting and except to the extent that it
may be deemed an underwriter in connection with the disposition
of the Fund's portfolio securities.
4) Borrow money, except as a temporary measure for
extraordinary or emergency purposes or except in connection with
reverse repurchase agreements and mortgage rolls; provided that
the Fund maintains asset coverage of 300% for all borrowings.
5) Issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur and except for shares
of the separate classes or series of the Fund 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
purposes of this restriction.
6) Purchase or sell commodity contracts.
7) Make loans, except that each Fund may purchase and hold
debt instruments and enter into repurchase agreements in
accordance with its investment objective(s) and policies and may
lend portfolio securities.
8) Purchase securities of any one issuer (other than
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or certificates of deposit for any
such securities) if, immediately after such purchase, more than
5% of the value of the Fund's total assets would be invested in
the securities of such issuer, or more than 10% of the issuer's
outstanding voting securities would be owned by the Fund or the
Trust; except that up to 25% of the value of a Fund's total
assets may be invested without regard to the foregoing
limitations. For purposes of this limitation, (a) a security is
considered to be issued by the entity (or entities) whose assets
and revenues back the security, and (b) a guarantee of a security
shall not be deemed to be a security issued by the guarantor when
the value of securities issued and guaranteed by the guarantor,
and owned by the Fund, does not exceed 10% of the value of the
Fund's total assets.
9) Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to
be invested in the securities of one or more issuers conducting
their principal business activities in the same industry,
provided that (a) there is no limitation with respect to (i)
instruments issued (as defined with respect to fundamental policy
No. 8 above) or guaranteed by the United States, any state,
territory or possession of the United States, the District of
Columbia or any of their authorities, agencies, instrumentalities
or political subdivisions and (ii) repurchase agreements secured
by the instruments described in clause (i); (b) wholly-owned
finance companies will be considered to be in the industries of
their parents if their activities are primarily related to
financing the activities of the parents; and (c) utilities will
be divided
B-16
<PAGE> 17
according to their services, for example, gas, gas transmission,
electric and gas, electric and telephone will each be considered a
separate industry.
As a matter of non-fundamental policy, each Fund may not:
(i) Purchase, write or sell put options, call options,
straddles, spreads, or any combination thereof, except for
transactions in options on securities, securities indices,
futures contracts and options on futures contracts.
(ii) Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a)
this investment limitation shall not apply to a Fund's
transactions in futures contracts and related options, and
(b) a Fund may obtain short-term credit as may be necessary
for the clearance of purchases and sales of portfolio
securities.
(iii) Invest in oil, gas or mineral exploration or
development programs, or related leases.
(iv) Purchase securities of unseasoned issuers, at which
time, including predecessors, at the time of purchase have
been in operation for less than three years if the value of
a Fund's aggregate investment in such securities will
exceed 5% of its total assets.
(v) Purchase equity securities of issuers that are not
readily marketable if the value of a Fund's aggregate
investment in such securities will exceed 5% of its total
assets.
(vi) Lend its securities if collateral values are not
continuously maintained at no less than 100% by market to
market daily.
(vii) Invest more than 5% of its net assets in warrants,
valued at lower of cost or market. In addition the Trust
on behalf of each Fund, will not invest more than 2% of its
net assets in warrants not listed on the New York or
American Stock Exchange.
(viii) Purchase or sell real estate, or real estate limited
partnership interests.
(ix) Purchase securities of issuers restricted as to
disposition if the value of its aggregate investment in
such classes of securities will exceed 10% of its total
assets.
(x) Purchase securities of companies for the purpose of
exercising control.
(xi) Purchase any security while borrowings in excess of
5% of net assets are outstanding.
For purposes of the foregoing 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, a Fund.
Investment limitation (6) above does not prevent a Fund from purchasing
and selling financial futures contracts, options on financial futures
contracts, or any other similar financial instruments to the extent such
activities are otherwise permitted by that Fund's investment limitations and
policies.
TRUSTEES AND OFFICERS
Information pertaining to the Trustees and officers of the Trust is set
forth below. Trustees and officers deemed to be "interested persons" of the
Trust for purposes of the 1940 Act are indicated by an asterisk.
B-17
<PAGE> 18
<TABLE>
<CAPTION>
Principal Occupation(s)
Name and Address Position(s) with Trust During Past 5 Years
- ----------------------------------------- ---------------------------- ----------------------------------------------
<S> <C> <C>
J. Hord Armstrong, III (54) Trustee Chairman and CEO, D&K Wholesale Drug, Inc., a
8000 Maryland Avenue distributor of pharmaceutical products, since 1987.
Suite 1190
St. Louis, Missouri 63105
Lee F. Fetter (42) Chairman Chief Operating and Financial Officer of Washington
660 S. Euclid, Box 8003 University School of Medicine since 1983.
St. Louis, Missouri 63110
Henry O. Johnston* (58) Trustee President of Fordyce Four, Incorporated, a corporation
9650 Clayton Road engaged in the acquisition and management of personal
St. Louis, Missouri 63124 investments.
L. White Matthews, III (49) Trustee Executive Vice President of Finance since 1987, Union
Eighth and Eaton Avenues Pacific Corporation, a company engaged in
Bethlehem, Pennsylvania 18018 transportation, exploration and refining of
hydrocarbons, mining and real estate.
Nicholas G. Penniman, IV (57) Trustee Publisher, St. Louis Post-Dispatch since 1986. Senior
900 N. Tucker Boulevard Vice President of Pulitzer Publishing Company since
St. Louis, Missouri 63101 1986.
William J. Tomko (37) President Vice President, BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Martin R. Dean (32) Treasurer Manager, Mutual Fund Accounting, BISYS Fund Services,
3435 Stelzer Road Inc. since May 1994. Prior thereto, Senior Manager,
Columbus, Ohio 43219 KPMG Peat Marwick
George O. Martinez (36) Secretary Senior Vice President and Director of Legal and
3435 Stelzer Road Compliance Services of BISYS Fund Services, Inc. since
Columbus, Ohio 43219 April 1995. Prior thereto, Vice President and
Associate General Counsel of Alliance Capital
Management, L.P.
Bruce Treff (29) Assistant Secretary [bio]
3435 Stelzer Road
Columbus, Ohio 43219
</TABLE>
B-18
<PAGE> 19
<TABLE>
<CAPTION>
Principal Occupation(s)
Name and Address Position(s) with Trust During Past 5 Years
- ----------------------------------------- ---------------------------- ----------------------------------------------
<S> <C> <C>
Sheldon A. Jones (57) Assistant Secretary Partner of the law firm of Dechert Price & Rhoads.
Ten Post Office Square South
Boston, Massachusettsd 02109
</TABLE>
The Agreement and Declaration of Trust of the Trust (the "Trust
Agreement") provides that, subject to its provisions, the business of the Trust
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 Investment Management Americas Inc. (investment manager to the
International Equity Fund), Concord and their respective affiliates. The Trust
has 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.
The following table provides information relating to the aggregate
compensation to be received by the Trustees from the Registrant for the fiscal
year ended August 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Total Compensation
Aggregate Pension or Estimated From Registrant
Name of Compensation Retirement Benefits Annual Benefits and Fund Complex
Person, Position From Registrant Upon Retirement Upon Retirement Paid to Person
---------------- --------------- ------------------ --------------- ---------------------
<S> <C> <C> <C> <C>
J. Hord Armstrong, III $14,000 0 0 $14,000
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
</TABLE>
____________________
* "Interested person" of the Funds for purposes of the 1940 Act.
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 $13,000 per year and $2,000 for each
Trustee meeting
B-19
<PAGE> 20
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, ADMINISTRATOR, DISTRIBUTOR AND TRANSFER AGENT
THE ADVISER
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 each Fund pursuant to separate Investment Advisory
Agreements (the "Advisory Agreements") between the Trust, on behalf of each
Fund, and Boatmen's. As adviser, Boatmen's is responsible for the management of
each Fund's assets, subject to the supervision of the Trustees of the Trust.
The Trust 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 Trust, owns shares amounting to less than one-tenth
of one percent (.001%) of the outstanding shares of common stock of Boatmen's
Bancshares, Inc.
Each 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 Trust, except liability to the Trust 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. Each
Agreement provides that the Trust 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 Trust 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 .___ of 1% of the average daily net assets of the Pilot
Growth Fund and .__ of 1% of the average daily net assets of the Pilot
Diversified Bond Income Fund.
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 each Fund.
The Trust is responsible for all expenses incurred by the Funds, other
than those expressly borne by Boatmen's, the Distributor, and BISYS
under the Advisory, Distribution, Administration or Transfer Agency Agreements.
Such expenses include, without limitation, the fees payable to Boatmen's,
Concord and the Transfer Agent, fees and expenses incurred in connection with
membership in investment company organizations, the fees and expenses of the
Trust's custodian and fund accounting agent, brokerage fees and commissions,
any portfolio losses, filing fees for the registration or qualification of
Trust Shares under federal or state securities laws, expenses of the
organization of the Trust, 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 Trust 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 Trust's Shareholders and
regulatory authorities, compensation and expenses of its Trustees and
extraordinary expenses incurred by the Trust. If, however, in any fiscal year,
the sum of a Fund's expenses (excluding taxes, interest, brokerage and
extraordinary expenses such as for litigation) exceeds the expense limitations
applicable to such Fund imposed by state securities administrators, as such
limitations may be lowered or raised from time to time, the Trust's agreements
with Boatmen's provide that the respective Fund is entitled to be reimbursed by
Boatmen's to the
B-20
<PAGE> 21
extent required by these expense limitations. As of the date hereof, the most
restrictive expense limitation imposed by state securities administrators of
which the Trust is aware provides that annual expenses (as defined) may not
exceed 2-1/2% of the first $30,000,000 of a 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 Trust, on
behalf of a 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 Agreements for the Funds were approved by the Trustees,
including the "non-interested" Trustees, on February 20, 1996. Each Advisory
Agreement will remain in effect until July 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 each Fund (as
defined under "Investment Restrictions") or by the Trustees of the Trust, and
by the vote of a majority of the "non-interested" Trustees. Each 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
Trust or by vote of a majority of the outstanding Shares of the Fund affected
thereby (as defined under "Investment Restrictions") on 60 days' written notice
to Boatmen's, and by Boatmen's on 60 days' written notice to the Trust.
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 Trust 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 Trust.
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 Trust, the Trust 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 Trust's
method of operations would affect the net asset value per share of any 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
Trust expects that Boatmen's would consider the possibility of offering to
provide some or all of the services now provided by Concord and the
Distributor. 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.
THE ADMINISTRATOR
BISYS Fund Services Limited Partnership ("BISYS"), with principal offices
at 3435 Stelzer Road, Columbus, Ohio 43219, serves as the Fund's administrator.
BISYS also serves as administrator to several other investment companies.
BISYS is a subsidiary of the BISYS Group, Inc.
BISYS provides administrative services for the Funds as described in
their Prospectuses pursuant to an Administration Agreement dated as of June 1,
1996. The Agreement will continue in effect with respect to each Fund until
June 1, 1997 and thereafter will be automatically extended as to a particular
Fund for successive periods of one year, provided that such continuance is
specifically approved: (a) by a vote of a majority of those members of the Board
of Trustees of the Trust who are not parties to the Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such
B-21
<PAGE> 22
approval, and (b) by the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of such Fund (as defined under
"Investment Restrictions"). The Agreement is terminable by the Board of
Trustees of the Trust with regard to any Fund, without the payment 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, BISYS is entitled to
receive an administration fee from the Trust, which is calculated based on the
net assets of all investment portfolios of the Trust combined. Under the
Administration Agreement, each Fund pays its pro rata share of an annual fee to
BISYS, computed daily and payable monthly, of .115 of 1% of the Trust's average
net assets up to $1.5 billion, .110 of 1% of the Trust's average net assets on
the next $1.5 billion, and .1075 of 1% of the Trust's average net assets in
excess of $3 billion. From time to time, Concord may waive fees or reimburse the
Trust for expenses, either voluntarily or as required by certain state
securities laws.
BISYS will bear all expenses in connection with the performance of its
services under the Administration Agreement for the Trust with the exception of
fees charged by Boatmens Trust Company for certain fund accounting services
which are borne by the Funds.
The Administration Agreement provides that BISYS shall not be liable for
any error of judgment or mistake of law or any loss suffered by any 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 BISYS's duties or from the reckless disregard by BISYS of its obligations and
duties thereunder.
THE DISTRIBUTOR
Pilot Funds Distributors Inc. (referred to as the "Distributor"), is a
registered broker-dealer and a wholly-owned subsidiary of Concord, located at
3435 Stelzer Road, Columbus, Ohio 43219. Pending the registration of Pilot
Funds Distributors, Inc. in all states, Concord Financial Group, Inc. will act
as the Fund's distributor in those states in which Pilot Funds Distributors,
Inc. is not currently registered to sell Fund shares.
The Distribution Agreement with the Distributor will continue in effect
with respect to each Fund until June 1, 1997 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 Trust and who have no
direct or indirect financial interest in the operation of any plan that has
been adopted by the Trust 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
Trust or by vote of a majority of the outstanding voting securities of the
Trust (as defined under "Investment Restrictions"). The Agreement is terminable
by the Trust 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 of such class (as
defined under "Investment Restrictions") on 60 days' written notice to the
Distributor, or by the Distributor at any time, without payment of any penalty,
on 60 days' written notice to the Trust.
THE TRANSFER AGENT
BISYS Fund Services, Inc. (the "Transfer Agent"), located at 3435
Stelzer Road, Columbus, Ohio 43219, serves as the Funds' transfer agent and
dividend disbursing agent. Under its Transfer Agency Agreement with the Trust,
the Transfer Agent, has undertaken with the Trust to: (i) record the issuance,
transfer and redemption of shares, (ii) provide confirmations of purchases and
redemptions, or monthly statements in lieu thereof, as well as certain other
statements, (iii) provide certain information to the Trust's custodian and the
relevant sub-custodian in connection with redemptions, (iv) provide dividend
crediting and certain disbursing
B-22
<PAGE> 23
agent services, (v) maintain shareholder accounts, (vi) provide certain state
Blue Sky and other information, (vii) provide shareholders and certain
regulatory authorities with tax related information, (viii) respond to
shareholder inquiries, and (ix) render certain other miscellaneous services.
PORTFOLIO TRANSACTIONS
As investment adviser, Boatmen's is responsible for decisions to buy and
sell securities for each 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. On occasion, certain
money market instruments may be purchased directly from an issuer, in which
case no commissions or discounts are paid.
In placing orders for portfolio securities of a Fund, Boatmen's is
required to give primary consideration to obtaining the most favorable price
and efficient execution. This means that Boatmen's 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, Boatmen's 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 Boatmen's generally seeks reasonably competitive spreads or
commissions, a Fund will not necessarily be paying the lowest spread or
commission available. Within the framework of this policy, Boatmen's will
consider research and investment services provided by brokers or dealers who
effect or are parties to portfolio transactions of a Fund, Boatmen's, 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 Boatmen's in connection with all of its investment
activities, and some of such services obtained in connection with the execution
of transactions for a 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 a Fund; and the services furnished by such brokers may be used by
Boatmen's in providing investment advisory and investment management services
for the Trust.
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 Trust.
In certain instances there may be securities which are suitable for more
than one portfolio of the Trust as well as for one or more of the other clients
of Boatmen's. Investment decisions for each Fund and for Boatmen'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
B-23
<PAGE> 24
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 a Fund is concerned. The Trust believes that over time
its ability to participate in volume transactions will produce superior
executions for the Funds.
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the reporting period
by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities, including options,
whose maturities or expiration dates at the time of acquisition are one year or
less. Portfolio turnover may vary greatly from year to year as well as within
a particular year, and may be affected by cash requirements for redemption of
shares and by requirements which enable the Funds to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making portfolio
decisions.
NET ASSET VALUE
The net asset value per Share of each Fund is determined by the Funds'
custodian at 3:00 p.m., Central time (4:00 p.m., Eastern time), on each
Business Day as defined in the Prospectuses. 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 Trust will reconsider the time at which net asset value is
computed. In addition, each Trust may compute its net asset value as of any
time permitted pursuant to any exemption, order or statement of the Securities
and Exchange Commission or its staff.
Portfolio securities of each 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 Trust'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 Trust'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 Boatmen's and approved by the Trustees of the Trust, which
prices reflect broker/dealer supplied valuations and electronic data processing
techniques if those prices are deemed by Boatmen's to be representative of
market values at the Trust's valuation time; (d) options and futures contracts
are valued at the last sale price on the market prior to the Trust'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
Trust'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 Boatmen's 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 Trust, including use of a
Valuation Committee. Money market instruments held by a Fund with a remaining
maturity of sixty days or less will be valued by the amortized cost method.
Portfolio 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 Trust'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 Trust.
B-24
<PAGE> 25
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 Trust. 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 on days on which a 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 Trust's valuation
time will not be reflected in a Fund's calculation of net asset values unless
Boatmen's deems that the particular event would materially affect net asset
value, in which case an adjustment will be made.
The proceeds received by the Funds and each additional portfolio
established by the Trustees of the Trust 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 each 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 Trust. Expenses with respect to the Funds 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 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 Funds
(excluding preparation and printing expenses necessary for the continued
registration of the Funds' 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 Funds 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
Funds 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 Funds, the Trust may pay the Distributor for (a) expenses
incurred in connection with advertising and marketing shares of the Funds,
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 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 Funds necessary for accounting or subaccounting; (vii) if
required by law, forwarding shareholder communications from the Funds (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.
B-25
<PAGE> 26
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 Funds or other investment portfolios or companies
that are affiliated persons of the Funds, 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 Funds. 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 a 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 "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 respective Plans will benefit the Funds and
Class A and Class B Shareholders, respectively. The Plans are 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 Plans, 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 Plans 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.
B-26
<PAGE> 27
Banks may act as Service Organizations and receive payments under the
Distribution Plans 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 Funds. These fees would be in addition
to any amounts which might be received under the respective Plans. 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 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 to Boatmen's Trust Company, St. Louis, MO,
ABA # ___________, Re: PFTC, f/b/o Pilot Funds Incoming Wire Account DDA No.
_________, 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 each Fund are sold with a front-end sales charge. As
described in the Prospectus for Class A Shares of the Funds, 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 Funds 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.
B-27
<PAGE> 28
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 a
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 Funds for
which orders for wire redemption are received by the Trust after the close of
regular 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 particular 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 Funds' 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 the other Funds;
Class B Shares for Class B Shares of the other Funds; and Pilot Shares for
Pilot Shares of the other Funds and 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.
B-28
<PAGE> 29
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 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 same 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 Funds
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
B-29
<PAGE> 30
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 Funds and the members, and must be able
to arrange for mailings to members at reduced or no cost to the
Distributor.
MISCELLANEOUS
Certificates for shares will not be issued.
With respect to the Funds, 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 reserves the right to require a shareholder to redeem
involuntarily shares in an account (other than an IRA or Qualified Retirement
Plan account) if the balance held of record by the shareholder drops below
$1,000 and such shareholder does not increase such balance to $1,000 or more
upon 30 days' notice. The Trust will not require a shareholder to redeem shares
of a Fund if the balance held of record by the shareholder is less than $1,000
solely because of a decline in the net asset value of the Fund's shares or
because the shareholder has made an initial investment in a lower amount as
provided for in the Funds' Prospectuses. The Trust may also redeem shares
involuntarily if such redemption is appropriate to carry out the Trust's
responsibilities under the 1940 Act.
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
B-30
<PAGE> 31
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 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, the yields and the total returns of the Funds may be
quoted in advertisements, shareholder reports or other communications to
shareholders. Performance information with respect to the Funds is generally
available by calling (800) 71-PILOT. Yields and total returns as reported in
the following publications may be used to compare the performance of the Funds
or any one of them to that of other mutual funds with similar investment
objectives and to stock and other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds: 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.
From time to time, the Funds may include general comparative
information, such as statistical data regarding inflation, securities indices
or the features or performance of alternative investments, in advertisements,
sales literature and reports to shareholders. The Funds may also include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of any Fund.
In addition, in such communication, Boatmen's may offer opinions on
current economic conditions.
YIELD CALCULATIONS
The yields for the respective share classes of a Fund are calculated
separately by dividing the net investment income per share (as described below)
earned by the Fund during a 30-day (or one month) period by the maximum
offering price per share (including the maximum front-end sales charge of 4.50%
for Class A Shares of the Growth Fund or 4.0% for the Diversified Bond Income
Fund on the last day of the period and annualizing the result on a semi-annual
basis by adding one to the quotient, raising the sum to the power of six,
subtracting one from the result and then doubling the difference. The Fund's
net investment income per share earned during the period with respect to a
particular class is based on the average daily number of shares outstanding in
the class during the period entitled to receive dividends and includes
dividends and interest earned during the period attributable to that class
minus expenses accrued for the period attributable to the class, net of
reimbursements. This calculation can be expressed as follows:
Yield equals 2/(a-b/cd plus 1)6 minus 1
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = maximum offering price per share on the last day
of the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated
B-31
<PAGE> 32
dividend rate of the security each day that the security is in the Fund. Except
as noted below, interest earned on debt obligations held by a Fund is calculated
by computing the yield to maturity of each obligation held by the Fund based on
the market value of the obligation (including actual accrued interest) at the
close of business on the last business day of each month, or, with respect to
obligations purchased during the month, the purchase price (plus actual accrued
interest), and dividing the result by 360 and multiplying the quotient by the
market value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the subsequent
month that the obligation is held by the Fund. For purposes of this
calculation, it is assumed that each month contains 30 days. The maturity of an
obligation with a call provision is the next call date on which the obligation
reasonably may be expected to be called or, if none, the maturity date. With
respect to debt obligations purchased at a discount or premium, the formula
generally calls for amortization of the discount or premium. The amortization
schedule will be adjusted monthly to reflect changes in the market values of
such debt obligations.
With respect to mortgage or other receivables-backed obligations which
are expected to be subject to monthly payments of principal and interest ("pay
downs"), (a) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the period;
and (b) a Fund may elect either (i) to amortize the discount and premium on the
remaining security, based on the cost of the security, to the weighted average
maturity date, if such information is available, or to the remaining term of
the security, if any, if the weighted average maturity date is not available,
or (ii) not to amortize discount or premium on the remaining security.
Undeclared earned income will be subtracted from the maximum offering
price per share (variable "d" in the formula). Undeclared earned income is the
net investment income which, at the end of the base period, has not been
declared as a dividend, but is reasonably expected to be and is declared and
paid as a dividend shortly thereafter.
TOTAL RETURN CALCULATIONS
Each Fund computes its average annual total return separately for its
separate share classes by determining the average annual compounded rates of
return during specified periods that equate the initial amount invested in a
particular share class to the ending redeemable value of such investment in the
class. This is done by dividing the ending redeemable value of a hypothetical
$1,000 initial payment by $1,000 and raising the quotient to a power equal to
one divided by the number of years (or fractional portion thereof) covered by
the computation and subtracting one from the result. This calculation can be
expressed as follows:
T equals (ERV/P) 1/n minus 1
Where: T = average annual total return.
ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in
terms of years.
Each Fund computes its aggregate total returns separately for its
separate share classes by determining the aggregate rates of return during
specified periods that likewise equate the initial amount invested in a
particular share class to the ending redeemable value of such investment in the
class. The formula for calculating aggregate total return is as follows:
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aggregate total return = ERV/P minus 1
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming complete redemption
of the hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations. In addition, a Fund's
average annual total return and aggregate total return quotations reflect the
deduction of the maximum front-end sales charge in connection with the purchase
of Class A Shares and the deduction of any applicable contingent deferred sales
charge with respect to Class B Shares.
Each Fund may also advertise total return data without reflecting sales
charges in accordance with the rules of the Securities and Exchange Commission.
Quotations that do not reflect such sales charges will, of course, be higher
than quotations that do.
Unlike bank deposits or other investments that pay a fixed yield or
return for a stated period of time, the return for a 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 each Fund. The return of a
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, aggregate total return and yield are
calculated separately for Pilot Shares, Class A Shares and Class B Shares.
Pilot Shares, Class A Shares and Class B Shares are subject to different fees
and expenses and may have different performance for the same period.
TAX INFORMATION
Each 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, each 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 (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.
Each 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
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year, provided that the Fund distributes at least 90% of its investment company
taxable income and its net tax-exempt interest income, if any, each taxable
year. In order to avoid a 4% federal excise tax, each 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 loss)
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, including an "exempt-interest dividend," will be treated as
having been paid on December 31 of the current calendar year if it is declared
by a Fund in October, November or December with a record date in such a month
and paid 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 a Fund's investment company taxable income will be
treated as ordinary income in the hands of Shareholders. If a portion of a
Fund's income consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may 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 a 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 a 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 a Fund in zero coupon securities (other than tax-exempt
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 a Fund must distribute to maintain its
status as a regulated investment company and to avoid the payment of federal
income tax and the 4% excise tax. Similarly, investments in tax-exempt zero
coupon securities will result in a Fund accruing tax-exempt income each year
that the securities are held, even though the Fund receives no cash payments of
tax-exempt interest. This tax-exempt income is included in determining the
amount of net tax-exempt interest income which a Fund must distribute to
maintain its status as a regulated investment company.
Gain derived by a Fund from the disposition of any market discount bonds
(i.e., bonds purchased other than at original issue, where the face value of
the bonds exceeds their purchase price), 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 a Fund for selling a put or call option is not included in
income at the time of receipt. If the option expires, the premium is
short-term capital gain to the Fund. If the Fund enters into a closing
transaction, the difference between the amount paid to close out its position
and the premium received is short-term capital gain or loss. If a call option
written by a Fund is exercised, thereby requiring the Fund to sell the
underlying security, the premium will increase the amount realized upon the
sale of such security and any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term depending upon the holding period of
the security. With respect to a put or call option that is purchased by a Fund,
if the option is sold, any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term, depending upon the holding period of
the option. If the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the option. If
the option is exercised, the cost of the option, in the case of a call option,
is added to the basis of the purchased security and, in the case of a put
option, reduces the amount realized on the underlying security in determining
gain or loss.
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Certain options, futures contracts and forward contracts in which a Fund
may invest are "section 1256 contracts." Gains or losses on section 1256
contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60/40"); however, foreign currency gains or losses (as
discussed below) arising from certain section 1256 contracts may be treated as
ordinary income or loss. Also, section 1256 contracts held by a Fund at the end
of each taxable year (and, generally, for purposes of the 4% excise tax, on
October 31 of each year) are "marked-to-market" (that is, treated as sold at
fair market value), resulting in unrealized gains or losses being treated as
though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Funds of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by a Fund which is taxed as ordinary
income when distributed to its Shareholders.
Each Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
may operate to accelerate the recognition of gains or losses from the affected
straddle 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
each 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 a Fund accrues receivables, or liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables, or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain 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 a Fund's investment company
taxable income to be distributed to its Shareholders as ordinary income.
If a 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 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.
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Each Fund which invests in foreign equity securities 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, a 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 a 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.
Each Fund which invests in foreign securities may be subject to foreign
withholding taxes on its investments in such securities. These taxes may be
reduced under the terms of applicable tax treaties, and each Fund intends to
satisfy any procedural requirements to qualify for benefits under these
treaties. In the unlikely 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.
It is not expected, however, that more than 50% of any Fund's total assets will
consist of stock or securities of foreign corporations and, consequently, it is
not expected that Shareholders will be eligible to claim a foreign tax credit
or deduction with respect to foreign taxes paid by any Fund.
Each Fund will be required to report to the Internal Revenue Services
(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 a Fund with the payee's taxpayer identification number ("TIN") under
penalties of perjury, (b) the IRS notifies a Fund that the TIN furnished by the
payee is incorrect, (c) the IRS notifies a 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 is his or her social
security number. The Trust 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 a Fund.
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<PAGE> 37
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 a 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 Funds may be subject to state or local taxes in jurisdictions in
which the Funds may be deemed to be doing business. In addition, in those
states or localities which have income tax laws, the treatment of the Trust and
its Shareholders under such laws may differ from their treatment under Federal
income tax laws. Also, an investment in the Funds may have different tax
consequences for Shareholders than would a direct investment in the securities
held by the Funds. 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 Funds 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.
Shareholders are advised to consult their own tax advisers with respect
to the particular tax consequences to them of an investment in a Fund.
ORGANIZATION AND CAPITALIZATION
The Trust 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 Trust 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 Trust 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
fourteen Funds, two of which are offered herein and known as the Pilot Growth
Fund and the Pilot Diversified Bond Income Fund. Each Share of each Fund has a
par value of $.001. It represents an equal proportionate interest in that 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
a Fund, Shareholders thereof are entitled to share pro rata in the net assets
belonging to that 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 each of the Funds: Pilot Shares, Class A Shares and Class B
Shares.
Except as noted above with respect to the Distribution Plans for Class A
Shares and Class B Shares, shares of the Funds bear the same types of ongoing
expenses with respect to the Fund to which they belong. In addition, Class A
Shares are subject to a front-end sales charge and Class B Shares are subject
to a contingent deferred sales charge as described in the Prospectuses. The
Classes also have different exchange privileges, and Class B Shares are subject
to conversion as described in the Prospectus for those Shares. In the event of
a liquidation or dissolution of the Trust or an individual Fund, shareholders
of a particular Fund would be entitled to receive the assets available for
distribution belonging to the Fund, and a proportionate distribution, based
upon the relative net asset values of the Trust's respective investment
portfolios, of any general assets not belonging to any particular portfolio
which are available for distribution. Shareholders of a Fund are entitled to
participate in the net distributable assets of the particular Fund involved on
liquidation, based on the number of shares of the Fund that are held by each
shareholder, except that Class A Shares of a particular Fund will be solely
responsible for that Fund's payments pursuant to the Distribution Plan for
those Shares and Class B
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<PAGE> 38
Shares of a particular Fund will be solely responsible for that Fund's payments
pursuant to the Distribution Plan for those Shares.
Each Pilot Share, Class A Share and Class B Share is entitled to one
vote. Fractional shares are entitled to proportionate fractional votes. Holders
of all outstanding shares of a particular Fund will vote together in the
aggregate and not by class on all matters, except that only Class A Shares of a
Fund will be entitled to vote on matters submitted to a vote of shareholders
pertaining to such Fund's Distribution Plan for Class A Shares and only Class B
Shares of a Fund will be entitled to vote on matters submitted to a vote of
shareholders pertaining to such Fund's Distribution Plan for Class B Shares.
Further, shareholders of all of the Funds, as well as those of any other
investment portfolio now or hereafter offered by the Trust, will vote together
in the aggregate and not separately on a Fund-by-Fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted to
the holders of the outstanding voting securities of an investment company such
as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each Fund
affected by the matter. A Fund is affected by a matter unless it is clear that
the interests of each Fund in the matter are substantially identical or that
the matter does not affect any interest of the Fund. Under the Rule, the
approval of an investment advisory agreement or change in a fundamental
investment policy would be effectively acted upon with respect to a Fund only
if approved by a majority of the outstanding shares of such Fund. However, the
Rule also provides that the ratification of the appointment of independent
accountants, the approval of principal underwriting contracts and the election
of Trustees may be effectively acted upon by shareholders of the Trust voting
together in the aggregate without regard to particular investment portfolios.
Shares have neither cumulative voting rights nor any preemptive rights
and only such conversion and exchange rights as the Board of Trustees may grant
in its discretion. When issued for payment as described in the Prospectuses,
shares will be fully paid and nonassessable, except as expressly set forth
below.
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 Trust owned beneficially less than 1% of the outstanding
shares of the Funds.
SHAREHOLDER AND TRUSTEE LIABILITY
The Trust 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 Trust. Notice of such disclaimer will normally be given in
each agreement, obligation or instrument entered into or executed by the Trust
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 Trust
shall, upon request, assume the defense of any claim made against a Shareholder
for any act or obligation of the Trust, 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 a 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 Trust 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 Trust and
upon reports made to the Trust 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
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judgment or mistakes of fact or law. The Declaration of Trust provides that the
Trust will indemnify Trustees and officers of the Trust against liabilities and
expenses reasonably incurred in connection with litigation in which they may be
involved because of their positions with the Trust, unless it is determined, in
the manner provided in the Declaration of Trust, that they have not acted in
good faith in the reasonable belief that, in the case of conduct in their
official capacity with the Trust, their conduct was in the best interests of
the Trust and that, in all other cases, their conduct was at least not opposed
to the best interest of the Trust (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.
No series of the Trust is liable for the liabilities or obligations of
any other series of the Trust.
CUSTODIAN AND SUBCUSTODIAN
Boatmen's Trust Company ("Boatmen's"), 100 North Broadway, St. Louis,
Missouri 63178 is the custodian of the Funds' assets. Boatmen's has retained
Bankers Trust Company ("Bankers Trust") as subcustodian to maintain custody of
certain domestic assets. Bankers Trust also makes available its network of
foreign subcustodians to hold certain foreign securities purchased by the
Funds.
INDEPENDENT ACCOUNTANTS AND COUNSEL
Arthur Andersen LLP, independent public accountants, One International
Place, Boston, Massachusetts 02110, have been selected as auditors of the
Funds. In addition to providing audit services, Arthur Andersen LLP prepares
the Trust's federal and state tax returns and provides consultation and
assistance on accounting, internal control and related matters.
Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109,
serves as general counsel to the Trust.
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APPENDIX A
DESCRIPTION OF SECURITIES RATINGS(1)
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 upper most 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
____________________
(1) The ratings indicated herein are believed to be the most recent
ratings available at the date of this Statement of Additional Information for
the securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which will be given to these securities on the
date of the Funds taxable year ends.
A-1
<PAGE> 41
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 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(2)
AAA: Debt rated AAA has the highest rating assigned by Standard &
Poor's. This rating indicates an extremely strong capacity to pay and 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.
____________________
(2) Rates all governmental bodies having $1,000,000 or more of debt
outstanding, unless adequate information is not available.
A-2
<PAGE> 42
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.
A-3
<PAGE> 43
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.
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.
A-4
<PAGE> 44
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.
A-5
<PAGE> 1
EXHIBIT 17(i)
THE PILOT FUNDS
3435 Stelzer Road
Columbus, Ohio 43219
- ------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
December 29, 1995
PILOT SHARES, CLASS A SHARES and CLASS B SHARES
- ------------------------------------------------------------------------------
The Pilot Funds (the "Trust") is an openend, management investment
company (or mutual fund) consisting of eleven portfolios, six of which
portfolios (the "Funds") are offered hereby. The Funds are:
Pilot Growth and Income Fund;
Pilot Equity Income Fund;
Pilot Intermediate U.S. Government Securities Fund;
Pilot U.S. Government Securities Fund;
Pilot Intermediate Municipal Bond Fund; and
Pilot Municipal Bond Fund.
Boatmen's Trust Company ("Boatmen's") serves as the investment adviser
to each Fund. Pilot Funds Distributors, Inc. serves as each Fund's distributor,
and its parent, Concord Holding Corporation ("Concord"), serves as each Fund's
administrator.
This Statement of Additional Information is not a Prospectus, should be
read in conjunction with the Prospectuses dated December 29, 1995 with respect
to Pilot Shares, Class A Shares and Class B Shares of the Funds 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 Funds 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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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-------
<S> <C>
Investment Policies And Practices Of The Funds ......................... B - 3
Investment Restrictions ................................................ B - 20
Trustees And Officers .................................................. B - 23
Investment Adviser, Administrator, Distributor And Transfer Agent....... B - 26
Portfolio Transactions ................................................. B - 30
Net Asset Value ........................................................ B - 32
Matters Relating to Class A Shares and Class B Shares .................. B - 33
Additional Purchase and Redemption Information ......................... B - 35
Calculation Of Performance Quotations .................................. B - 40
Tax Information ........................................................ B - 43
Organization And Capitalization ........................................ B - 48
Custodian And Subcustodians ............................................ B - 50
Independent Accountants And Counsel .................................... B - 50
Miscellaneous .......................................................... B - 51
Appendix ............................................................... A - 1
</TABLE>
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<PAGE> 3
INVESTMENT POLICIES AND PRACTICES OF THE FUNDS
The following discussion elaborates on the description of each
Fund's investment policies and practices contained in the
Prospectuses. 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 OBLIGATIONS
Each Fund may invest in U.S. Government obligations. Examples
of the types of U.S. Government obligations that may be held by
the Funds include, in addition to U.S. Treasury bonds, notes and
bills, the obligations of the Federal Home Loan Banks, Federal
Farm Credit Banks, Federal Land Banks, Federal Housing
Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government
National Mortgage Association, Federal National Mortgage
Association, General Services Administration, Student Loan
Marketing Association, Central Bank for Cooperatives, Federal
Home Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Tennessee Valley Authority, Resolution Funding
Corporation and Maritime Administration. Obligations 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 obligations 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. Obligations 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
Each 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. The Pilot Intermediate
Municipal Bond Fund and Pilot Municipal Bond Fund (the
"Municipal Bond Funds") may acquire custodial receipts that
evidence ownership of future interest payments, principal
payments or both on certain municipal notes and bonds. Custodial
receipts will be treated as illiquid securities.
CORPORATE DEBT SECURITIES
Each Fund may invest in corporate debt securities of domestic
issuers of all types and maturities, such as bonds, debentures,
notes 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
B-3
<PAGE> 4
common stock are offered as a unit). Each Fund except the Municipal Bond
Funds may also invest in corporate debt securities of foreign
issuers.
The corporate debt securities in which the Funds will invest
will be rated investment grade by at least one Nationally
Recognized Statistical Rating Organization ("NRSRO") (e.g., BBB
or above by Standard & Poor's Corporation ["S&P"] or Baa or
above by Moody's Investors Services, Inc. ["Moody's"]).
Commercial paper purchased by the Funds will be rated in the top
two categories by an NRSRO. Corporate debt securities that are
not rated may be purchased by such Funds if they are determined
by Boatmen's to be of comparable quality under the direction of
the Board of Trustees of the Trust. If the rating of any
corporate debt security held by a Fund falls below such ratings
or if Boatmen's determines that an unrated corporate debt
security is no longer of comparable quality, then such security
shall be disposed of in an orderly manner as quickly as
possible. 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. Each 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. Each 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 a 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 a Fund's right to transfer a
beneficial interest in the deposit to a third party.
Each Fund limits its investments in foreign bank obligations
(i.e., obligations of foreign branches and subsidiaries of
domestic banks, and domestic and foreign branches and agencies
of foreign banks) to obligations of banks which at the time of
investment are branches or subsidiaries of domestic banks which
meet the criteria in the preceding paragraphs or are branches or
agencies of foreign banks which (i) have more than $10 billion,
or the equivalent in other currencies, in total assets; (ii) in
terms of assets are among the 75 largest foreign banks in the
world; (iii) have branches or agencies in the United States; and
(iv) in the opinion of Boatmen's, pursuant to criteria
established by the Board of Trustees of the Trust, are of an
investment quality comparable to obligations of domestic banks
which may be purchased by a Fund. These obligations may be
general obligations of the parent bank in addition to the
issuing branch or subsidiary, but the parent bank's obligations
may be limited by the terms of the specific obligation or by
governmental regulation. Each Fund also limits its investments
in foreign bank obligations to banks, branches and subsidiaries
located in Western Europe (United Kingdom, France, Germany,
Belgium, The Netherlands, Italy and Switzerland), Scandinavia
(Denmark and Sweden), Australia, Japan, the Cayman Islands, the
Bahamas and Canada. Each Fund will limit its investment in
securities of foreign banks to not more than 20 % of total
assets at the time of investment.
Each Fund may also make interest-bearing savings deposits in
commercial and savings banks in amounts not in excess of 5% of
the total assets of the Fund.
MUNICIPAL OBLIGATIONS
Each of the Municipal Bond Funds generally invests in Municipal
Obligations. Municipal Obligations are issued by or on behalf of
states, territories and possessions of the United States
B-4
<PAGE> 5
and their political subdivisions, agencies, authorities and
instrumentalities and the District of Columbia to obtain funds for various
public purposes. The interest on most of these obligations is generally exempt
from regular federal income tax. The two principal classifications of Municipal
Obligations are "notes" and "bonds."
NOTES. Municipal notes are generally used to provide for
short-term capital needs and generally have maturities of one
year or less. Municipal notes include tax anticipation notes,
revenue anticipation notes, bond anticipation notes, tax and
revenue anticipation notes, construction loan notes, tax-exempt
commercial paper and certain receipts for Municipal Obligations.
Tax and revenue anticipation notes are sold to finance working
capital needs of municipalities. Tax anticipation notes are
generally payable from specific tax revenues expected to be
received at a future date. They are usually general obligations
of the issuer. Revenue anticipation notes are issued in
expectation of receipt of other types of revenue such as state
aid to be received by a local issuer. They are not usually
general obligations of the issuer. Tax anticipation notes and
revenue anticipation notes are generally issued in anticipation
of various seasonal revenues such as income, sales, use and
business taxes as well as intergovernmental aid. Bond
anticipation notes are sold to provide interim financing. These
notes are generally issued in anticipation of long-term
financing in the market. In most cases, these monies provide for
the repayment of the notes and the notes are not secured by any
other source. Construction loan notes are sold to provide
construction financing. These notes are secured by mortgage
notes insured by the Federal Housing Authority; however, the
proceeds from the issuance may be less than the economic
equivalent of the payment of principal and interest on the
mortgage notes if there had been a default. Tax-exempt
commercial paper consists of short-term unsecured promissory
notes issued by a state or local government or an authority or
agency thereof.
Each Fund may also acquire securities in the form of custodial
receipts which evidence ownership of future interest payments,
principal payments or both on certain state and local
governmental and authority obligations when, in the opinion of
bond counsel, interest payments with respect to such custodial
receipts are exempt from federal income taxes. Such obligations
are held in custody by a bank on behalf of the holders of the
receipts. These custodial receipts are known by various names,
including "Municipal Receipts" ("MRs") and "Municipal
Certificates of Accrual on Tax-Exempt Securities" ("M-CATS").
There are a number of other types of notes issued for different
purposes and secured differently from those described above.
BONDS. Municipal bonds, which generally meet longer term
capital needs and have maturities of more than one year when
issued, have two principal classifications, "general obligation"
bonds and "revenue" bonds.
General obligation bonds are issued by entities such as states,
counties, cities, towns and regional districts and are used to
fund a wide range of public projects including the construction
or improvement of schools, highways and roads, water and sewer
systems and a variety of other public purposes. The basic
security of general obligation bonds is the issuer's pledge of
its faith, credit and taxing power for the payment of principal
and interest. The taxes that can be levied for the payment of
debt service may be limited or unlimited as to rate or amount or
special assessments.
Revenue bonds have been issued to fund a wide variety of
capital projects, including electric, gas, water and sewer
systems; highways, bridges and tunnels; port and airport
facilities; colleges and universities; and hospitals. The
principal security for a revenue bond is generally the net
revenues derived from a particular facility or group of
facilities or, in some cases, from the proceeds of a special
excise tax or other specific revenue source. Although the
principal security
B-5
<PAGE> 6
behind these bonds varies widely, many issuers provide additional
security in the form of a debt service reserve fund whose monies
may also be used to make principal and interest payments on
the issuer's obligations. Housing finance authorities have
a wide range of security including partially or fully
insured, rent subsidized mortgages, collateralized mortgages,
and the net revenues from housing or other public projects.
In addition to a debt service reserve fund, some authorities
provide further security in the form of a state's ability
(without obligation) to make up deficiencies in the debt
service reserve fund. Lease rental revenue bonds issued
by a state or local authority for capital projects are secured
by annual lease rental payments from the state or locality to
the authority sufficient to cover debt service on the
authority's obligations. Such obligations shall be treated as
illiquid securities, unless the Board of Trustees determines
that they are liquid.
Private activity bonds, a term that includes certain types of
bonds, the proceeds of which are used to a specified extent for
the benefit of persons other than governmental units, although
nominally issued by municipal authorities, are generally secured
not by the taxing power of the municipality but by the revenues
of the authority derived from payments by the industrial user.
Each of the Municipal Bond Funds may invest in private activity
bonds. The interest from such bonds would be an item of tax
preference to Shareholders under the federal alternative minimum
tax.
Generally, the Municipal Obligations that may be purchased by
the Pilot Intermediate Municipal Bond Fund will have remaining
effective maturities between three and ten years. Each Municipal
Bond Fund may also purchase long-term bonds (sometimes referred
to as "Put Bonds"), which are subject to a Fund's commitment to
put the bond back to the issuer at par at a designated time and
the issuer's commitment to so purchase the bond at such price
and time. For purposes of computing the Pilot Intermediate
Municipal Bond Fund's average weighted maturity, an instrument
will be treated as having a maturity earlier than its stated
maturity date if the instrument has technical features (such as
puts or demand features) or a variable rate of interest which,
in the judgment of Boatmen's, will result in the instrument
being valued in the market as though it has the earlier
maturity.
Each of the Municipal Bond Funds may purchase long-term
fixed-rate bonds that have been coupled with an option granted
by a third party financial institution allowing the Fund, at
periodic intervals (usually every six months, but in no event
more than every twelve months), to tender (or "put") its bonds
to the institution and receive the face value thereof. The Fund
may be assessed "tender fees" for each tender period at a rate
equal to the difference between the bonds' fixed coupon rate and
the rate, as determined by a remarketing or similar agent, that
would cause the bonds coupled with the tender option to trade at
par on the date of such determination.
In addition to the instruments described above, there are a
variety of hybrid and special types of Municipal Obligations as
well as numerous differences in the security of Municipal
Obligations both within and between the two principal
classifications above.
Each of the Municipal Bond Funds may purchase Municipal
Obligations that are backed by letters of credit issued by
domestic banks or foreign banks that have a branch, agency or
subsidiary in the United States. See "Foreign Securities" for
information concerning credit risks of foreign bank obligations.
Certain Municipal Obligations may be insured at the time of
issuance as to the timely payment of principal and interest. The
insurance policies will usually be obtained by the issuer of the
Municipal Obligations at the time of its original issuance. In
the event that the issuer defaults on an interest or principal
payment, the insurer of the obligation is required to make
payment to the bondholders upon proper notification. There is,
however, no guarantee that the insurer will meet its
obligations. In addition, such insurance will not protect
against market fluctuations caused by changes in interest rates
and other factors. Each of the Municipal Bond Funds may, from time to
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<PAGE> 7
time, invest more than 25% of its total assets in Municipal
Obligations covered by insurance policies.
For the purpose of the investment restrictions of each Fund,
the identification of the "issuer" of Municipal Obligations that
are not general obligation bonds is made by Boatmen's on the
basis of the characteristics of the obligation as described
above, the most significant of which is the source of funds for
the payment of principal of and interest on such obligations.
An entire issue of Municipal Obligations may be purchased by
one or a small number of institutional investors such as one of
the Municipal Bond Funds. Unlike securities that must be
registered under the Securities Act of 1933 prior to offer and
sale, unless an exemption from such registration is available,
Municipal Obligations that are not publicly offered may
nevertheless be readily marketable. A secondary market exists
for Municipal Obligations that were not publicly offered
initially.
Securities purchased for each of the Municipal Bond Funds are
subject to the policy on holdings of securities that are not
readily marketable. Boatmen's determines whether a Municipal
Obligation is readily marketable based on whether it may be sold
in a reasonable time consistent with the customs of the
municipal markets (usually seven days) at a price (or interest
rate) which accurately reflects its value. Boatmen's believes
that the quality standards applicable to the Funds' investments
enhance marketability. In addition, standby commitments and
demand obligations also enhance marketability.
Yields on Municipal Obligations depend on a variety of factors,
including municipal bond market conditions, the size of a
particular offering, the maturity of the obligation and the
quality of the issue. Higher quality Municipal Obligations tend
to have a lower yield than lower quality obligations. Municipal
Obligations are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if
any, that may be enacted by Congress or state legislatures
extending the time for payment of principal or interest, or
both, or imposing other constraints upon enforcement of such
obligations or municipalities' power to levy taxes. Litigation
or other conditions may materially affect the power or ability
of any issuer to pay when due principal of and interest on its
Municipal Obligations.
Each of the Municipal Bond Funds may also purchase resource
recovery bonds. The viability of the resource recovery project,
environmental protection regulations and project operator tax
incentives may affect the value and credit quality of resource
recovery bonds.
Neither Municipal Bond Fund currently intends to invest in
taxable obligations; however, each Fund may from time to time
invest a portion of its assets in fixed-income obligations whose
interest payments are subject to federal income tax. Each Fund
may invest in taxable obligations pending the investment or
reinvestment in Municipal Obligations of proceeds from sales of
Fund Shares or sales of portfolio securities. Each Fund may also
invest in highly liquid, taxable obligations to avoid the
necessity of liquidating portfolio investments to meet
redemption requests by Fund Shareholders.
From time to time, proposals have been introduced before
Congress for the purpose of restricting or eliminating the
federal income tax exemption for the interest on Municipal
Obligations. For example, pursuant to federal tax legislation
passed in 1986, interest on certain private activity bonds must
be included in an investor's federal alternative minimum taxable
income, and corporate investors must include all tax-exempt
interest in their federal alternative minimum taxable income.
The Trust cannot, of course, predict what legislation, if any,
may be proposed in the future as regards the income tax status
of interest on Municipal Obligations, or which proposals, if
any, might be enacted. Such proposals, while pending or if
enacted, might materially and adversely affect the availability
of Municipal Obligations for investment by the Municipal Bond
Funds and the liquidity and value of those Funds' portfolios. In
such an event, the Trust would reevaluate the
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investment objectives and policies of the Municipal Bond Funds
and consider possible changes in their structure or possible dissolution.
STANDBY COMMITMENTS
In order to enhance the liquidity, stability or quality of
Municipal Obligations, each of the Municipal Bond Funds may
acquire the right to sell a security to another party at a
guaranteed price and date. Such a right to resell may be
referred to as a put, demand feature or "standby commitment,"
depending on its characteristics. The aggregate price that a
Fund pays for securities with standby commitments may be higher
than the price that the Fund otherwise would pay for the
securities.
Standby commitments may involve letters of credit issued by
domestic or foreign banks supporting the other party's ability
to purchase the security from a Fund. The right to sell may be
exercisable on demand or at specified intervals, and may form
part of a security or be acquired separately by the Fund. In
considering whether a security meets a Fund's quality standards,
Boatmen's will look to the creditworthiness of the party
providing the Fund with the right to sell as well as to the
quality of the security itself.
No value is assigned to the standby commitments for purposes of
determining the Fund's net asset value. The cost of a standby
commitment is carried as unrealized depreciation from the time
of purchase until it is exercised or expires. Because the value
of a standby commitment is dependent on the ability of the
standby commitment writer to meet its obligation to repurchase,
each Fund's policy is to enter into standby commitment
transactions only with banks, brokers or dealers that represent
a minimal risk of default. The duration of standby commitments
will not be a factor in determining the average weighted
maturity of a Fund. There is no assurance that standby
commitments will be available to a Fund, nor have the Funds
assumed that such commitments would continue to be available
under all market conditions.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS
Each Fund may purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment or delayed
settlement basis. These transactions involve a commitment by a
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 and delayed settlement transactions are negotiated
directly with the other party, and such commitments are not
traded on exchanges.
A Fund will purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment or delayed
settlement 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,
a Fund may dispose of or renegotiate a commitment after entering
into it. A Fund also may sell securities it has committed to
purchase before those securities are delivered to the Fund on
the settlement date. A Fund may realize a capital gain or loss
in connection with these transactions.
When a Fund purchases securities on a when-issued, forward
commitment or delayed settlement 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 or delayed settlement transaction 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
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that a Fund will maintain sufficient assets at all times to cover
its obligations under when-issued purchases, forward commitments
and delayed settlements.
CONVERTIBLE SECURITIES
The Pilot Growth and Income Fund and the Pilot Equity Income
Fund (the "Equity Funds") 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 Equity Funds will be
rated at least investment grade by an NRSRO or, if unrated,
determined by Boatmen's 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 Equity Funds 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 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
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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
Each of the Equity Funds and the Pilot Intermediate U.S.
Government Securities Fund and Pilot U.S. Government Securities
Fund (the "Government Funds") may invest in foreign securities
either directly or indirectly through American Depository
Receipts ("ADRs"), which are receipts issued by an American
bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer, or through European
Depository Receipts ("EDRs"), which are receipts issued by
European financial institutions evidencing ownership of
underlying securities issued by a foreign issuer. ADRs may be
listed on a national securities exchange or may trade in the
over-the-counter market. ADR prices are denominated in United
States dollars while EDR prices are generally denominated in
foreign currencies. The securities underlying an ADR or EDR will
normally be denominated in a foreign currency. The underlying
securities may be subject to foreign government taxes which
could reduce the yield on such securities.
Investors should recognize that investing in foreign securities
involves certain special considerations which are not typically
associated with investing in United States securities and which
may favorably or unfavorably affect a Fund's performance.
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 each Fund are
uninvested and no return is earned thereon. Also, delivery of
securities before payment may be required in some countries. The
inability of a Fund to make intended security purchases due to
settlement problems could cause a Fund to miss attractive
investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in
losses to a 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 a
Fund will endeavor to achieve the most favorable net results on
its portfolio transactions. Further, a 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. Each 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 Equity Funds and Government Funds 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 individually
negotiated and privately traded in the interbank market by
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. Closing purchase
transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original
forward contract. A Fund may be required to segregate assets,
consisting of cash, U.S. government securities or other high
grade liquid debt securities to cover forward contracts that
require it to purchase foreign currency.
When the Adviser 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. This practice is referred to as
"cross-hedging." The amount in question could be less than or
equal to the value of a Fund's securities denominated in the
less attractive currency.
A Fund may also enter into a forward contract to sell a
currency that is linked to a currency that Boatmen's believes to
be less attractive and buy a currency that Boatmen's believes to
be more attractive (or a currency that is linked to currency
that Boatmen's 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 Boatmen's 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 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.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES
Each Fund may invest in securities backed by installment
contracts, credit card receivables and other assets. These
asset-backed securities represent interests in pools of assets
in which payment of both interest and principal on the
securities are made monthly, thus in effect passing through (net
of fees paid to the issuer or guarantor of the securities) the
monthly payments made by the individual borrowers on the assets
that underlie the asset-backed securities. Each Fund may also
make significant investments in U.S. Government securities that
are backed by adjustable or fixed-rate mortgage loans.
The average life of an asset-backed or mortgage-backed
instrument varies with the maturities of the underlying
instruments. In the case of mortgages, maturities may be a maximum
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of forty years. The average life of an asset-backed or
mortgage-backed instrument is likely to be substantially less
than the original maturity of the asset or mortgage pools
underlying the security as the result of scheduled principal
payments and prepayments. This may be particularly true for
mortgage-backed securities.
Non-mortgage asset-backed securities involve certain risks that
are not presented by mortgage-backed securities. Primarily,
these securities do not have the benefit of the same security
interest in the underlying collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit
laws, many of which have given debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the
servicers to retain possession of the underlying obligations. If
the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile
receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of
the automobile receivables may not have an effective security
interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries on repossessed
collateral may not, in some cases, be able to support payments
on these securities.
Presently there are several types of mortgage-backed securities
issued or guaranteed by U.S. Government agencies, including
guaranteed mortgage pass-through certificates, which provide the
holder with a pro rata interest in the underlying mortgages, and
collateralized mortgage obligations ("CMOs"), which provide the
holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities.
Issuers of CMOs frequently elect to be taxed as a pass-through
entity known as real estate mortgage investment conduits, or
REMICs. CMOs are issued in multiple classes, each with a
specified fixed or floating interest rate and a final
distribution date. Although the relative payment rights of
these classes can be structured in a number of different ways,
most often payments of principal are applied to the CMO classes
in the order of their respective stated maturities.
CMO classes may include accrual certificates (also known as
"Z-Bonds"), which only accrue interest at a specified rate
until other specified classes have been retired and are
converted thereafter to interest-paying securities. They may
also include planned amortization classes ("PAC") which
generally require, within certain limits, that specified amounts
of principal be applied on each payment date, and generally
exhibit less yield and market volatility than other classes. The
Funds will not purchase "residual" CMO interests, which normally
exhibit the greatest price volatility.
CMOs can expose a Fund to more volatility and interest rate
risk than other types of mortgage-backed obligations.
REPURCHASE AGREEMENTS
Each 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., a 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.
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Repurchase agreements pose certain risks for all entities,
including the Funds, that utilize them. Such risks are not
unique to the Funds but are inherent in repurchase agreements.
The Funds seek 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 Investment Company Act of 1940 (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, a Fund would be at risk of losing some or
all of the principal and income involved in the transaction. To
minimize this risk, the Funds utilize custodians and
subcustodians that Boatmen's believes follow customary
securities industry practice with respect to repurchase
agreements, and Boatmen's 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 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.
Each Fund may also enter into repurchase agreements with any
party deemed creditworthy by Boatmen's 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 a Fund may
purchase.
REVERSE REPURCHASE AGREEMENTS
At the time a Fund enters into a reverse repurchase agreement
(an agreement under which a Fund sells portfolio securities and
agrees to repurchase them at an agreed-upon date and price), it
will place in a segregated custodial account liquid assets such
as U.S. Government securities or other liquid high-grade debt
securities having a value equal to or greater than the
repurchase price (including accrued interest) and will
subsequently monitor the account to ensure that such value is
maintained. Reverse repurchase agreements involve the risk that
the market value of the securities sold by a Fund may decline
below the price of the securities it is obligated to repurchase.
Reverse repurchase agreements are considered to be borrowings
under the 1940 Act.
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VARIABLE AND FLOATING RATE INSTRUMENTS
With respect to the variable and floating rate instruments that
may be acquired by the Funds as described in the Prospectuses,
Boatmen's will consider the earning power, cash flows and other
liquidity ratios of the issuers and guarantors of such
instruments and, if the instrument is subject to a demand
feature, will monitor their financial status to meet payment on
demand.
In determining a Fund's average weighted portfolio maturity, an
instrument will usually be deemed to have a maturity equal to
the longer of the period remaining until the next regularly
scheduled interest rate adjustment or the time the Fund involved
can recover payment of principal as specified in the instrument.
Such instruments which are U.S. Government obligations and
certain variable rate instruments having a nominal maturity of
397 days or less when purchased by the Fund involved, however,
will be deemed to have maturities equal to the period remaining
until the next interest rate adjustment.
LENDING OF PORTFOLIO SECURITIES
When a Fund lends its securities, it continues to receive
interest (and dividends with respect to the Equity Funds) on the securities
loaned and may simultaneously earn interest on the investment of the cash loan
collateral which will be invested in readily marketable, high-quality,
short-term obligations. Although voting rights, or rights to consent,
attendant to securities on loan pass to the borrower, such loans will be called
so that the securities may be voted by a Fund if a material event affecting the
investment is to occur. Portfolio loans will be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned plus accrued interest. Collateral for such loans may include
cash, U.S. Government securities, securities of U.S. Government agencies and
instrumentalities or an irrevocable letter of credit issued by a bank which
meets the investment standards of a Fund for short-term instruments. There may
be risks of delay in receiving additional collateral or in recovering the
securities loaned or even a loss of rights in the collateral should the
borrower of the securities fail financially.
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.
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"STRIPPED SECURITIES"
As stated in the Prospectuses, each Fund may purchase stripped
securities issued or guaranteed by the U.S. Government, where the principal and
interest components are traded independently under the Separate Trading of
Registered Interest and Principal of Securities program ("STRIPS"). Under
STRIPS, the principal and interest components are individually numbered and
separately issued by the U.S. Treasury at the request of depository financial
institutions, which then trade the component parts independently.
In addition, each Fund may purchase stripped mortgage-backed securities
("SMBS") issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks and other institutions. If
the underlying obligations experience greater than anticipated prepayments of
principal, a Fund may fail to fully recover its initial investment. The market
value of the class consisting entirely of principal payments can be extremely
volatile in response to changes in interest rates. The yields on a class of
SMBS that receives all or most of the interest are generally higher than
prevailing market yields on other mortgage-backed obligations because their cash
flow patterns are also volatile and there is a greater risk that the initial
investment will not be full recovered. SMBS issued by the U.S. Government (or a
U.S. Government agency or instrumentality) may be considered liquid under
guidelines established by the Trust's Board of Trustees if they can be disposed
of promptly in the ordinary course of business at a value reasonably close to
that used in the calculation of a Fund's per share net asset value.
Although "stripped" securities may not pay interest to holders prior to
maturity, federal income tax regulations require a Fund to recognize as interest
income a portion of the bond's discount each year. This income must then be
distributed to shareholders along with other income earned by the Fund. To the
extent that any shareholders in a Fund elect to receive their dividends in cash
rather than reinvest such dividends in additional Fund shares, cash to make
these distributions will have to be provided from the assets of the Fund or
other sources such as proceeds of sales of Fund shares and/or sales of portfolio
securities. In such cases, the Fund will not be able to purchase additional
income producing securities with cash used to make such distributions and its
current income may ultimately be reduced as a result.
PARTICIPATION INTERESTS AND TRUST RECEIPTS
As stated in the Prospectuses, each Fund may purchase from domestic
financial institutions and trusts created by such institutions participation
interests and trust receipts in high quality debt securities. A participation
interest or receipt gives a Fund an undivided interest in the security in the
proportion that a Fund's participation interest or receipt bears to the total
principal amount of the security. As to certain instruments for which a Fund
will be able to demand payment, a Fund intends to exercise its right to do so
only upon a default under the terms of the security, as needed to provide
liquidity, or to maintain or improve the quality of its investment portfolio.
It is possible that a participation interest or trust receipt may be deemed to
be an extension of credit by a Fund to the issuing financial institution rather
than to the obligor of the underlying security and may not be directly entitled
to the protection of any collateral security provided by the obligor. In such
event, the ability of a Fund to obtain repayment could depend on the issuing
financial institution.
Participation interests and trust receipts may have fixed,
floating or variable rates of interest, and will have remaining
maturities of thirteen months or less (as defined by the
Securities and Exchange Commission). If a participation interest
or trust receipt is unrated, Boatmen's will have determined that
the interest or receipt is of comparable quality to those
instruments in which the Fund involved may invest pursuant to
guidelines approved by the Board of Trustees. For certain
participation interests or trust receipts a Fund will have the
right to demand payment, on not more than 30 days' notice, for
all or any part of the Fund's participation interest or trust
receipt in the securities involved, plus accrued interest.
B-15
<PAGE> 16
WARRANTS
Warrants are privileges issued by corporations enabling the
owner to subscribe to and purchase a specified number of shares
of the corporation at a specified price during a specified
period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The
purchase of warrants involves the risk that the purchaser could
lose the purchase value of the warrant if the right to subscribe
to additional shares is not exercised prior to the warrant's
expiration. Also, the purchase of warrants involves the risk
that the effective price paid for the warrant added to the
subscription price of the related security may exceed the value
of the subscribed security's market price such as when there is
no movement in the level of the underlying security.
OPTIONS ON SECURITIES AND INDICES
Each Fund may purchase and sell (write) both call and put
options listed on a national securities exchange and issued by
the Options Clearing Corporation. Such options may relate to
particular securities or to various indices.
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 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 a 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 a 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 a Fund desires.
A 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 indices. 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
a 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
B-16
<PAGE> 17
would have to exercise the option to realize any profit or the
option may expire worthless. If a 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 foregoes, 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 a 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 a 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.
FUTURES CONTRACTS
Each Fund may enter into futures contracts on securities and
futures contracts based on securities indices, which futures are
traded on exchanges that are licensed and regulated by the
Commodity Futures Trading Commission ("CFTC"). Each 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. Futures
contracts and related options entered into by the Funds will be
entered into consistent with CFTC regulations.
Each 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 a Fund or securities with
price-fluctuation characteristics similar to those of its
portfolio securities. If, in the opinion of Boatmen's, there is
a sufficient degree of correlation between price trends for a
Fund's securities and futures contracts based on indices, a 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 a Fund's securities will
substantially be offset by appreciation in the value of the
futures position. On other occasions a Fund may take a "long"
position by purchasing futures contracts. This would be done,
for example, when a 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. Each 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. Each 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. Each Fund's position
in the futures market will be marked-to-market on a daily basis;
the Funds 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, a 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.
B-17
<PAGE> 18
Futures contracts on securities indices 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
indices 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.
OPTIONS ON FUTURES CONTRACTS
Each 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. 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 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.
B-18
<PAGE> 19
A Fund will not purchase or sell (write) options on futures
contracts unless, in the opinion of Boatmen's, the market for
such options has sufficient liquidity that the risks associated
with such options transactions are at acceptable levels.
LIMITATIONS ON USE OF FUTURES TRANSACTIONS AND RISK CONSIDERATIONS
Each Fund will incur brokerage fees in connection with its
futures transactions, and each 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
a Fund may benefit from the use of such contracts, unanticipated
changes in securities 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 a 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 a Fund may be exposed to risk
of loss.
Tax-related requirements may limit the extent to which a Fund
may engage in futures and related options transactions.(See "Tax
Information.")
RESTRICTED AND OTHER ILLIQUID SECURITIES
A Fund may purchase securities that are not registered under
the Securities Act of 1933 or have some other legal or
contractual restrictions 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, as stated in the
Prospectuses, a Fund will not invest more than 15% of the value
of its net assets in illiquid securities, including restricted
securities, unless the Trust's 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
Boatmen's the daily function of determining and monitoring
liquidity of securities. The Trustees may also delegate to its
Valuation Committee valuation decisions. 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 each 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 a Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these
restricted securities.
COMBINED TRANSACTIONS
A Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple
forward foreign currency exchange contracts and any combination
of futures, options and forward foreign currency exchange
contracts ("component" transactions), instead of a single
transaction, as part of a single hedging strategy when, in the
opinion of Boatmen's, it is in the best interest of a Fund to do
so and where underlying hedging strategies are permitted by a
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 a Fund to provide cash, securities or currencies to
complete such transactions will entail that Fund either
segregating assets in an account with, or on the books of, the
Trust's custodian, or otherwise "covering" the
B-19
<PAGE> 20
transaction as described below. For example, a call option written
by a 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 that Fund to have portfolio securities that correlate
with the index. A put option written by a Fund also will require
that Fund to have available assets sufficient to purchase the
securities the Fund would be obligated to buy if the put is
exercised.
A forward foreign currency contract that obligates a 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, a 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, a Fund could own securities
substantially replicating the movement of the particular index.
In the case of a futures contract, a 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 a 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. A
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, a 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 that Fund. Moreover,
instead of segregating assets if a 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.
INVESTMENT RESTRICTIONS
The Trust, on behalf of each Fund, has adopted fundamental
investment restrictions numbered 1 through 12 which may not be
changed with respect to a Fund without the approval of the holders of
a majority of that Fund's outstanding voting shares. Investment
restrictions numbered 13 through 15 are not fundamental policies and may be
changed at any time by vote of a majority of the Trustees of the Trust.
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 Trust or the Fund means the
vote of the lesser of: (i) 67% or more of the shares of the
Trust or Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust or Fund are present
or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Trust or Fund.
As a matter of fundamental policy, each Fund may not:
B-20
<PAGE> 21
(1) Purchase or sell real estate, except that each Fund may
purchase securities of issuers which deal in real
estate and may purchase securities which are secured by
interests in real estate and except that each Fund reserves
freedom of action to hold and to sell real estate acquired as a
result of the Fund's ownership of securities.
(2) Acquire any other investment company or investment company
security except in connection with a merger, consolidation,
reorganization or acquisition of assets or where
otherwise permitted by the 1940 Act.
(3) Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except to the extent that the
purchase of obligations directly from the issuer thereof in
accordance with the Fund's investment objective(s), policies
and limitations may be deemed to be underwriting and except to
the extent that it may be deemed an underwriter in connection
with the disposition of the Fund's portfolio securities.
(4) Borrow money, except as a temporary measure for extraordinary
or emergency purposes or except in connection with
reverse repurchase agreements and mortgage rolls; provided that
the Fund maintains asset coverage of 300% for all borrowings.
(5) Issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur and except
for shares of the separate classes or series of the Fund
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 purposes of this restriction.
(6) Purchase or sell commodity contracts.
(7) Make loans, except that each Fund may purchase and hold debt
instruments and enter into repurchase agreements in
accordance with its investment objective(s) and policies and
may lend portfolio securities.
(8) Purchase securities of companies for the purpose of exercising
control.
(9) Purchase securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government, its
agencies or instrumentalists or certificates of deposit for any
such securities) if, immediately after such purchase, more than
5% of the value of the Fund's total assets would be invested in
the securities of such issuer, or more than 10% of the issuer's
outstanding voting securities would be owned by the Fund or the
Trust; except that up to 25% of the value of a Fund's total
assets may be invested without regard to the foregoing
limitations. For purposes of this limitation, (a) a security
is considered to be issued by the entity (or entities) whose
assets and revenues back the security, and (b) a guarantee of a
security shall not be deemed to be a security issued by the
guarantor when the value of securities issued and guaranteed by
the guarantor, and owned by the Fund, does not exceed 10% of
the value of the Fund's total assets.
In addition, neither Municipal Bond Fund may:
(10) Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of
purchase to be invested in the securities of one or more
issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with
respect to (i) instruments issued or guaranteed by the United
States, any state, territory or possession of the United
States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political
B-21
<PAGE> 22
subdivisions, (ii) instruments issued by domestic
branches of U.S. banks and (iii) repurchase agreements secured
by the instruments described in clauses (i) and (ii); (b)
wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily
related to financing the activities of the parents; and (c)
utilities will be divided according to their services, for
example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry.
(11) Invest less than 80% of its net assets in securities the
interest on which is exempt from federal income tax,
except during defensive periods or during periods of unusual
market conditions. For purposes of this fundamental policy,
Municipal Obligations that are subject to federal alternative
minimum tax are considered taxable.
In addition, the Equity and Government Funds may not:
(12) Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of
purchase to be invested in the securities of one or more
issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with
respect to (i) instruments issued (as defined with respect to
fundamental policy No. 10 above) or guaranteed by the United
States, any state, territory or possession of the United
States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions and (ii)
repurchase agreements secured by the instruments described in
clause (i); (b) wholly-owned finance companies will be
considered to be in the industries of their parents if their
activities are primarily related to financing the activities of
the parents; and (c) utilities will be divided according to
their services, for example, gas, gas transmission, electric
and gas, electric and telephone will each be considered a
separate industry.
As a matter of non-fundamental policy, each Fund may not:
(13) Purchase, write or sell put options, call options, straddles,
spreads, or any combination thereof, except for
transactions in options on securities, securities indices,
futures contracts and options on futures contracts.
(14) Purchase securities on margin, make short sales of securities
or maintain a short position, except that (a) this
investment limitation shall not apply to a Fund's transactions
in futures contracts and related options, and (b) a Fund may
obtain short-term credit as may be necessary for the clearance
of purchases and sales of portfolio securities.
(15) Invest in oil, gas or mineral exploration or development
programs, or related leases.
(16) Purchase securities of unseasoned issuers, at which time,
including predecessors, at the time of purchase have been in
operation for less than three years.
(17) Purchase equity securities of issuers that are not readily
marketable if the value of a Fund's aggregate investment in
such securities will exceed 5% of its total assets.
(18) Lend its securities if collateral values are not continuously
maintained at no less than 100% by market to market daily.
(19) Invest more than 5% of its net assets in warrants, valued at
lower of cost or market. In addition the Trust on behalf of
each Fund, will not invest more than 2%
B-22
<PAGE> 23
of its net assets in warrants not listed on the New York or
American Stock Exchange.
(20) Purchase or sell real estate, or real estate limited
partnership interests.
As a non-fundamental policy, the Pilot Growth and Income
Fund and the Pilot Intermediate U.S. Government Securities
Fund may not:
(21) Purchase securities of issuers restricted as to disposition if
the value of its aggregate investment in such classes of
securities will exceed 10% of its total assets.
For purposes of the foregoing 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, a Fund.
TRUSTEES AND OFFICERS
Information pertaining to the Trustees and officers of the
Trust is set forth below. Trustees and officers deemed to be
"interested persons" of the Trust for purposes of the 1940 Act
are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupation(s)
Name and Address Position(s) with Trust During Past 5 Years
- ------------------------------- ----------------------------- ---------------------------------
<S> <C> <C>
J. Hord Armstrong, III (54) Trustee Chairman and CEO, D&K
8000 Maryland Avenue Wholesale Drug, Inc., a
Suite 1190 distributor of pharmaceutical
St. Louis, Missouri 63105 products, since 1987.
David Holford Benson* (57) Trustee Chairman, Kleinwort Charter
Kleinwort Benson Limited Investment Trust plc. since
P.O. Box 560 March 1992. Non-Executive
20 Fenchurch Street Director of Kleinwort Benson
London, EC3 P3DB Group plc. (formerly Vice
Chairman).
Lee F. Fetter (42) Chairman Chief Operating and Financial
660 S. Euclid, Box 8003 Officer of Washington
St. Louis, Missouri 63110 University School of Medicine
since 1983.
Henry O. Johnston (58) Trustee President of Fordyce Four,
9650 Clayton Road Incorporated, a corporation
St. Louis, Missouri 63124 engaged in the acquisition and
management of personal
investments.
</TABLE>
B-23
<PAGE> 24
<TABLE>
<CAPTION>
Principal Occupation(s)
Name and Address Position(s) with Trust During Past 5 Years
- ------------------------------- ----------------------------- ---------------------------------
<S> <C> <C>
L. White Matthews, III (49) Trustee Executive Vice President of
Eighth and Eaton Avenues Finance since 1987, Union
Bethlehem, Pennsylvania 18018 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. Senior
St. Louis, Missouri 63101 Vice President of Pulitzer
Publishing Company since
1986.
Susan L. West* (36) President Chief Operating Officer, July
125 West 55th Street 1993 to date; prior thereto,
New York, New York 10019 Executive Vice President of
Concord Holding Corporation.
William J. Tomko (36) Vice President Vice President, BISYS Fund
3435 Stelzer Road 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.
Lester J. Lay (32) Assistant Treasurer Vice President, Mutual Fund
125 West 55th Street Accounting, of Concord
New York, New York 10019 Holding Corporation and
Concord Financial Group from
November 1994 to date.
Assistant Vice President,
Mutual Fund Accounting, Dean
Witter InterCapital Inc.,
October 1985 to November
1994.
</TABLE>
B-24
<PAGE> 25
<TABLE>
<CAPTION>
Principal Occupation(s)
Name and Address Position(s) with Trust During Past 5 Years
- ------------------------------- ----------------------------- ---------------------------------
<S> <C> <C>
George O. Martinez (36) Secretary Senior Vice President and
3435 Stelzer Road 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 Trust (the "Trust
Agreement") provides that, subject to its provisions, the business of the Trust
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).
B-25
<PAGE> 26
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 Investment
Management Americas Inc. (investment manager to the Pilot
Kleinwort Benson International Equity Fund), Concord and their
respective affiliates. The Trust has 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.
The following table provides information relating to the
aggregate compensation to be received by the Trustees from the Registrant for
the fiscal year ended August 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Total Compen-
Pension or Estimated sation From
Aggregate Retirement Annual Registrant and
Name of Compensation Benefits Upon Benefits Upon Fund Complex
Person, Position From Registrant Retirement Retirement Paid to Persons
<S> <C> <C> <C> <C>
J. Hord Armstrong, III $14,000 0 0 $14,000
David Hartford 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 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, ADMINISTRATOR, DISTRIBUTOR AND TRANSFER AGENT
THE ADVISER
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 each Fund pursuant to
separate Investment Advisory Agreements (the "Advisory
Agreements") between the Trust, on behalf of each Fund, and
Boatmen's. As adviser, Boatmen's is responsible for the
management of each Fund's assets, subject to the supervision of
the Trustees of the Trust.
B-26
<PAGE> 27
The Trust 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 Trust, owns
shares amounting to less than one-tenth of one percent (.001%)
of the outstanding shares of common stock of Boatmen's
Bancshares, Inc.
Each 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
Trust, except liability to the Trust 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. Each Agreement provides that the
Trust 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 Trust 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
.75 of 1% of the average daily net assets of each of the Pilot
Growth and Income Fund and Pilot Equity Income Fund and
.55 of 1% of the average daily net assets of each of the Pilot
Intermediate U.S. Government Securities Fund, Pilot U.S.
Government Securities Fund, Pilot Intermediate Municipal Bond
Fund and Pilot Municipal Bond Fund. Boatmen's has made
additional voluntary undertakings to waive their fees. For the
period ended August 31, 1995, Boatman's received advisory fees
(net of waivers) in the amount of $325,447, $331,383, $340,310,
$415,164, $547,737, and $498,166 for the Pilot Growth and Income
Fund, Pilot Equity Income Fund, Pilot Intermediate U.S.
Government Securities Fund, Pilot U.S. Government Securities
Fund, Pilot Intermediate Municipal Bond Fund and Pilot Municipal
Bond Fund respectively. For the same period, Boatmen's waived
fees and reimbursed expenses in the amount of $211,618,
$198,417, $215,601, $155,704, $225,063, and $109,745 for the
same respective Portfolios.
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 each Fund.
The Trust is responsible for all expenses incurred by the
Funds, other than those expressly borne by Boatmen's, the
Distributor, Concord and the Transfer Agent under the Advisory,
Distribution, Administration or Transfer Agency Agreements. Such
expenses include, without limitation, the fees payable to
Boatmen's, Concord and the Transfer Agent, fees and expenses
incurred in connection with membership in investment company
organizations, the fees and expenses of the Trust's custodian
and fund accounting agent, brokerage fees and commissions, any
portfolio losses, filing fees for the registration or
qualification of Trust Shares under federal or state securities
laws, expenses of the organization of the Trust, 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 Trust 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 Trust's
Shareholders and regulatory authorities, compensation and
expenses of its Trustees and extraordinary expenses incurred by
the Trust. If, however, in any fiscal year, the sum of a Fund's
expenses (excluding taxes, interest, brokerage and extraordinary
expenses such as for litigation) exceeds the expense limitations
applicable to such Fund imposed by state securities
administrators, as such limitations may be lowered or raised
from time to time, the Trust's agreements with Boatmen's provide
that the respective Fund is entitled to be reimbursed by
Boatmen's 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 Trust is
aware provides that annual expenses (as defined) may not exceed
2-1/2% of the first $30,000,000 of a Fund's average net assets,
plus 2% of the next $70,000,000 of such assets,
B-27
<PAGE> 28
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 Trust, on behalf of a 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 Agreements for the Funds were approved by the
Trustees, including the "non-interested" Trustees, on July 25,
1994. Each Advisory Agreement will remain in effect until July
31, 1996 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 each Fund
(as defined under "Investment Restrictions") or by the Trustees
of the Trust, and by the vote of a majority of the
"non-interested" Trustees. Each 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 Trust or by vote of a majority of the
outstanding Shares of the Fund affected thereby (as defined
under "Investment Restrictions") on 60 days' written notice to
Boatmen's, and by Boatmen's on 60 days' written notice to the
Trust.
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 Trust 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 Trust.
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 Trust, the Trust
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 Trust's
method of operations would affect the net asset value per share
of any 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 Trust expects that
Boatmen's would consider the possibility of offering to provide
some or all of the services now provided by Concord and the
Distributor. 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.
THE ADMINISTRATOR
Concord Holding Corporation ("Concord"), with principal offices
at 3435 Stelzer Road, Columbus, Ohio 43219, was organized in
June of 1987. Concord also serves as administrator to several
other investment companies. Concord is a wholly-owned
subsidiary of The BISYS Group, Inc.
Concord provides administrative services for the Funds as
described in their Prospectuses pursuant to an Administration
Agreement dated as of March 31, 1994. The Agreement will
continue in effect with respect to each Fund until May 31, 1998
and thereafter will be automatically extended as to a particular
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
B-28
<PAGE> 29
Board of Trustees of the Trust who are not parties to
the 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 Trust or by vote of a majority of the
outstanding voting securities of such Fund (as defined under
"Investment Restrictions"). The Agreement is terminable by the
Board of Trustees of the Trust with regard to any Fund, without
the payment 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 Trust, which
is calculated based on the net assets of all investment
portfolios of the Trust 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 Trust's average net assets up to $1.5 billion, .110 of 1% of
the Trust's average net assets on the next $1.5 billion, and
.1075 of 1% of the Trust's average net assets in excess of $3
billion. From time to time, Concord may waive fees or reimburse
the Trust for expenses, either voluntarily or as required by
certain state securities laws. For the period ended August 31,
1995, Concord voluntarily waived fees in the amount of $79,443,
$78,905, $84,789, $103,393, $103,532, and $100,185 for the Pilot
Growth and Income Fund, Pilot Equity Income Fund, Pilot
Intermediate U.S. Government Securities Fund, Pilot U.S.
Government Securities Fund, Pilot Intermediate Municipal Bond
Fund and Pilot Municipal Bond Fund, respectively.
Concord will bear all expenses in connection with the
performance of its services under the Administration Agreement
for the Trust 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 any 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.
THE DISTRIBUTOR
Pilot Funds Distributors Inc. (referred to as the
"Distributor"), is a registered broker-dealer and a
wholly-owned subsidiary of Concord, located at 3435 Stelzer
Road, Columbus, Ohio 43219. Pending the registration of Pilot
Funds Distributors, Inc. in all states, Concord Financial Group,
Inc. will act as the Fund's distributor in those states in which
Pilot Funds Distributors, Inc. is not currently registered to
sell Fund shares.
The Distribution Agreement with the Distributor will continue
in effect with respect to each 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 Trust and who
have no direct or indirect financial interest in the operation
of any plan that has been adopted by the Trust 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 Trust or by vote of a majority of the
outstanding voting securities of the Trust (as defined under
"Investment Restrictions"). The Agreement is terminable by the
Trust 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 of such class (as defined under
"Investment Restrictions") on 60 days' written notice to the
Distributor, or by the Distributor at any time, without payment
of any penalty, on 60 days' written notice to the Trust. For
the Funds'
B-29
<PAGE> 30
fiscal period ended August 31, 1995, Pilot Funds Distributors,
Inc. received $6,349 in underwriting commissions and retained $0.
THE TRANSFER AGENT
BISYS Fund Services, Inc. (the "Transfer Agent"), located at 3435
Stelzer Road, Columbus, Ohio 43219, serves as the Funds' transfer agent and
dividend disbursing agent. Under its Transfer Agency Agreement with the Trust,
the Transfer Agent, has undertaken with the Trust to: (i) record the issuance,
transfer and redemption of shares, (ii) provide confirmations of purchases and
redemptions, or monthly statements in lieu thereof, as well as certain other
statements, (iii) provide certain information to the Trust's custodian and the
relevant sub-custodian in connection with redemptions, (iv) provide dividend
crediting and certain disbursing agent services, (v) maintain shareholder
accounts, (vi) provide certain state Blue Sky and other information, (vii)
provide shareholders and certain regulatory authorities with tax related
information, (viii) respond to shareholder inquiries, and (ix) render certain
other miscellaneous services. For the fiscal year September 1,
1994 through August 31, 1995, Primary Funds Service Corp., the
Fund's former transfer agent, received a fee of $178,800 in the
capacity of transfer agent.
PORTFOLIO TRANSACTIONS
As investment adviser, Boatmen's is responsible for decisions
to buy and sell securities for each 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. On occasion, certain money market
instruments may be purchased directly from an issuer, in which
case no commissions or discounts are paid.
In placing orders for portfolio securities of a Fund, Boatmen's
is required to give primary consideration to obtaining the most
favorable price and efficient execution. This means that
Boatmen's 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, Boatmen's 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 Boatmen's generally seeks reasonably competitive spreads
or commissions, a Fund will not necessarily be paying the lowest
spread or commission available. Within the framework of this
policy, Boatmen's will consider research and investment services
provided by brokers or dealers who effect or are parties to
portfolio transactions of a Fund, Boatmen's, 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 Boatmen's in connection with all of its investment
activities, and some of such services obtained in connection
with the execution of transactions for a Fund may be used in
managing other investment accounts. Conversely, brokers
B-30
<PAGE> 31
furnishing such services may be selected for the execution of
transactions of such other accounts, whose aggregate assets are
far larger than those of a Fund; and the services furnished by
such brokers may be used by Boatmen's in providing investment
advisory and investment management services for the Trust.
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 Trust.
In certain instances there may be securities which are suitable
for more than one Fund as well as for one or more of the other
clients of Boatmen's. Investment decisions for each Fund and for
Boatmen'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 a Fund is concerned. The Trust
believes that over time its ability to participate in volume
transactions will produce superior executions for the Funds.
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the reporting period
by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities, including options,
whose maturities or expiration dates at the time of acquisition are one year or
less. Portfolio turnover may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements which enable the Funds to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making portfolio
decisions. For the fiscal year ended August 31, 1995, the portfolio turnover
rates for the Funds were 28%, 37%, 87%, 132%, 8% and 10% for the Pilot Growth
and Income Fund, Pilot Equity Income Fund, Pilot Intermediate U.S. Government
Securities Fund, Pilot U.S. Government Securities Fund, Pilot Intermediate
Municipal Bond Fund and Pilot Municipal Bond Fund, respectively.
For the fiscal year ended August 31, 1995, the brokerage commissions
paid by the Funds were as follows:
B-31
<PAGE> 32
<TABLE>
<CAPTION>
Total Total Amount Brokerage
Total Brokerage of Transactions Commissions
Brokerage Commissions on Which Paid To
Commissions Paid To Affiliated Commissions Brokers Providing
Paid Persons (1) Were Paid (2) Research
---- ----------- ------------- --------
<S> <C> <C> <C> <C>
Growth and Income $97,007 $0 $78,300,728 $42,089
Fund
Equity Income Fund $88,938 $0 $59,960,082 $21,034
Intermediate U.S. $0 $0 $0 $0
Government Securities
Fund
U.S. Government $0 $0 $0 $0
Securities Fund
Intermediate Municipal $0 $0 $0 $0
Bond Fund
Municipal Bond Fund $0 $0 $0 $0
<FN>
(1) Percentage of total commissions paid.
(2) Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
</TABLE>
NET ASSET VALUE
The net asset value per Share of each Fund is determined by the
Funds' custodian at 3:00 p.m., Central time (4:00 p.m., Eastern
time), on each Business Day as defined in the Prospectuses. 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 Trust will reconsider the time at
which net asset value is computed. In addition, each Trust may
compute its net asset value as of any time permitted pursuant to
any exemption, order or statement of the Securities and Exchange
Commission or its staff.
Portfolio securities of each 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 Trust'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 Trust'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 Boatmen's and approved by the Trustees of the Trust, which
prices reflect broker/dealer supplied valuations and electronic data processing
techniques if those prices are deemed by Boatmen's to be representative of
market values at the Trust's valuation time; (d) options and futures contracts
are valued at the last sale price on the market prior to the Trust'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
Trust's valuation time determined on the basis of prices
B-32
<PAGE> 33
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 Boatmen's 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 Trust, including use
of a Valuation Committee. Money market instruments held by a Fund with a
remaining maturity of sixty days or less will be valued by the amortized cost
method.
Portfolio 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 Trust'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 Trust.
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 Trust. 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 on days on which a 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 Trust's valuation time will not be reflected
in a Fund's calculation of net asset values unless Boatmen's deems that the
particular event would materially affect net asset value, in which case an
adjustment will be made.
The proceeds received by the Funds and each additional portfolio
established by the Trustees of the Trust 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 each 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 Trust. Expenses with respect to the Funds 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 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 Funds
(excluding preparation and printing expenses necessary for the continued
registration of the Funds' 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 Funds 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 Funds 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
B-33
<PAGE> 34
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
Funds, the Trust may pay the Distributor for (a) expenses incurred in
connection with advertising and marketing shares of the Funds, 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 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 Funds
necessary for accounting or subaccounting; (vii) if required by law, forwarding
shareholder communications from the Funds (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 Funds or other investment portfolios or companies
that are affiliated persons of the Funds, 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
B-34
<PAGE> 35
the conditions of an exemptive order granted by the
Securities and Exchange Commission in connection with the
creation of multiple classes of shares in the Funds (the
"Order"). 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 (and the Order), 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 a 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 "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 respective Plans will benefit
the Funds and Class A and Class B Shareholders, respectively.
The Plans are 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 Plans, 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 Plans 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 Plans 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 Funds.
These fees would be in addition to any amounts which might be
received under the respective Plans. 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
B-35
<PAGE> 36
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
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 each Fund are sold with a front-end sales
charge. As described in the Prospectus for Class A Shares of the
Funds, 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 each of the Funds 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 a 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
B-36
<PAGE> 37
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 Funds for which orders for wire redemption are
received by the Trust after the close of regular 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 particular 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 Funds' 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 the other Funds; Class B Shares for Class B Shares of the
other Funds; and Pilot Shares for Pilot Shares of the other
Funds and 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
B-37
<PAGE> 38
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 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 same 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 Funds 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 Funds and the
members, and must be able to arrange for mailings to members at
reduced or no cost to the Distributor.
B-38
<PAGE> 39
MISCELLANEOUS
Certificates for shares will not be issued.
With respect to the Funds, 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 reserves the right to require a shareholder to redeem
involuntarily shares in an account (other than an IRA or
Qualified Retirement Plan account) if the balance held of record
by the shareholder drops below $1,000 and such shareholder does
not increase such balance to $1,000 or more upon 30 days'
notice. The Trust will not require a shareholder to redeem
shares of a Fund if the balance held of record by the
shareholder is less than $1,000 solely because of a decline in
the net asset value of the Fund's shares or because the
shareholder has made an initial investment in a lower amount as
provided for in the Funds' Prospectuses. The Trust may also
redeem shares involuntarily if such redemption is appropriate to
carry out the Trust's responsibilities under the 1940 Act.
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 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.
B-39
<PAGE> 40
CALCULATION OF PERFORMANCE QUOTATIONS
From time to time, the yields and the total returns of the
Funds may be quoted in advertisements, shareholder reports or
other communications to shareholders. Performance information
with respect to the Funds is generally available by calling
(800) 71-PILOT. Yields and total returns as reported in the
following publications may be used to compare the performance of
the Funds or any one of them to that of other mutual funds with
similar investment objectives and to stock and other relevant
indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance
of mutual funds: 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.
From time to time, the Funds may include general comparative
information, such as statistical data regarding inflation,
securities indices or the features or performance of alternative
investments, in advertisements, sales literature and reports to
shareholders. The Funds may also include calculations, such as
hypothetical compounding examples, which describe hypothetical
investment results in such communications. Such performance
examples will be based on an express set of assumptions and are
not indicative of the performance of any Fund.
In addition, in such communication, Boatmen's may offer
opinions on current economic conditions.
YIELD CALCULATIONS
The yields for the respective share classes of a Fund are
calculated separately by dividing the net investment income per
share (as described below) earned by the Fund during a 30-day
(or one month) period by the maximum offering price per share
(including the maximum front-end sales charge of 4.50% for Class
A Shares (4.00% for the Pilot Intermediate Government Securities
and Pilot Intermediate Municipal Bond Funds)) on the last day of
the period and annualizing the result on a semi-annual basis by
adding one to the quotient, raising the sum to the power of six,
subtracting one from the result and then doubling the
difference. The Fund's net investment income per share earned
during the period with respect to a particular class is based on
the average daily number of shares outstanding in the class
during the period entitled to receive dividends and includes
dividends and interest earned during the period attributable to
that class minus expenses accrued for the period attributable to
the class, net of reimbursements. This calculation can be
expressed as follows:
a-b
Yield = 2 [ ( ---- + 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 = maximum offering price per share on the last day of the period.
For the purpose of determining net investment income earned
during the period (variable "a" in the formula), dividend income
on equity securities held by a Fund is recognized by accruing
1/360 of the stated dividend rate of the security each day that
the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by
computing the
B-40
<PAGE> 41
yield to maturity of each obligation held by the
Fund based on the market value of the obligation (including
actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations
purchased during the month, the purchase price (plus actual
accrued interest), and dividing the result by 360 and
multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent
month that the obligation is held by the Fund. For purposes of
this calculation, it is assumed that each month contains 30
days. The maturity of an obligation with a call provision is the next call
date on which the obligation reasonably may be expected to be called or, if
none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market values of such debt obligations.
Interest earned on tax-exempt obligations that are issued
without original issue discount and have a current market
discount is calculated by using the coupon rate of interest
instead of the yield to maturity. In the case of tax-exempt
obligations that are issued with original issue discount but
which have discounts based on current market value that exceed
the then-remaining portion of the original issue discount
(market discount), the yield to maturity is the imputed rate
based on the original issue discount calculation. On the other
hand, in the case of tax-exempt obligations that are issued with
original issue discount but which have the discounts based on
current market value that are less than the then-remaining
portion of the original issue discount (market premium), the
yield to maturity is based on the market value.
With respect to mortgage or other receivables-backed
obligations which are expected to be subject to monthly payments
of principal and interest ("pay downs"), (a) gain or loss
attributable to actual monthly pay downs are accounted for as an
increase or decrease to interest income during the period; and
(b) a Fund may elect either (i) to amortize the discount and
premium on the remaining security, based on the cost of the
security, to the weighted average maturity date, if such
information is available, or to the remaining term of the
security, if any, if the weighted average maturity date is not
available, or (ii) not to amortize discount or premium on the
remaining security.
Undeclared earned income will be subtracted from the maximum
offering price per share (variable "d" in the formula).
Undeclared earned income is the net investment income which, at
the end of the base period, has not been declared as a dividend,
but is reasonably expected to be and is declared and paid as a
dividend shortly thereafter.
The 30 day yield for each Fund as of August 31, 1995 was as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Pilot Shares
-------------- -------------- ------------
<S> <C> <C> <C>
Pilot U.S. Government Securities Fund 5.36% 4.82% 5.81%
- -----------------------------------------------------------------------------------------------
Pilot Intermediate U.S. Government
Securities Fund 5.29% N/A 5.67%
- -----------------------------------------------------------------------------------------------
Pilot Municipal Bond Fund 4.64% 4.38% 5.37%
- -----------------------------------------------------------------------------------------------
Pilot Intermediate Municipal
Bond Fund 3.74% N/A 4.05%
- -----------------------------------------------------------------------------------------------
Pilot Equity Income Fund 3.58% 3.00% 3.98%
- -----------------------------------------------------------------------------------------------
Pilot Growth and Income Fund 1.50% 0.83% 1.82%
- -----------------------------------------------------------------------------------------------
</TABLE>
The "tax-equivalent" yield of each Municipal Bond Fund for a
particular share class is computed by (a) dividing the portion
of the Fund's yield for a particular class (calculated as above)
that is exempt from federal income taxes by one minus a stated
federal income tax rate; and (b) adding the quotient to that
portion, if any, of such yield that is not exempt from federal
income tax.
B-41
<PAGE> 42
The tax-equivalent yield for each Fund as of August 31, 1995
was as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Pilot Shares
-------------- -------------- ------------
<S> <C> <C> <C>
Pilot Municipal Bond Fund 7.68% 7.25% 8.89%
- --------------------------------------------------------------------------------
Pilot Intermediate Municipal
Bond Fund 6.19% N/A 6.71%
- --------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN CALCULATIONS
Each Fund computes its average annual total return separately
for its separate share classes by determining the average annual
compounded rates of return during specified periods that equate
the initial amount invested in a particular share class to the
ending redeemable value of such investment in the class. This is
done by dividing the ending redeemable value of a hypothetical
$1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional
portion thereof) covered by the computation and subtracting one
from the result. This calculation can be expressed as follows:
ERV
T = [ ( - - - - ) 1/n - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms
of years.
Each Fund computes its aggregate total returns separately for
its separate share classes by determining the aggregate rates of
return during specified periods that likewise equate the initial
amount invested in a particular share class to the ending
redeemable value of such investment in the class. The formula
for calculating aggregate total return is as follows:
ERV
aggregate total return = [ ( - - - - - 1)].
P
The calculations of average annual total return and aggregate
total return assume the reinvestment of all dividends and
capital gain distributions on the reinvestment dates during the
period. The ending redeemable value (variable "ERV" in each
formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring
charges at the end of the period covered by the computations. In
addition, a Fund's average annual total return and aggregate
total return quotations reflect the deduction of the maximum
front-end sales charge in connection with the purchase of Class
A Shares and the deduction of any applicable contingent deferred
sales charge with respect to Class B Shares.
Each Fund may also advertise total return data without
reflecting sales charges in accordance with the rules of the
Securities and Exchange Commission. Quotations that do not
reflect such sales charges will, of course, be higher than
quotations that do.
B-42
<PAGE> 43
Unlike bank deposits or other investments that pay a fixed
yield or return for a stated period of time, the return for a
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 each Fund. The return of a
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, aggregate total return, yield and
tax equivalent yield are calculated separately for Pilot Shares,
Class A Shares and Class B Shares. Pilot Shares, Class A Shares
and Class B Shares are subject to different fees and expenses
and may have different performance for the same period.
The aggregate total return for each of the Funds since its inception
as of August 31, 1995 was as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Pilot Shares
-------------- -------------- ------------
<S> <C> <C> <C>
Pilot Growth and Income Fund 6.81% 10.64% 17.72%
- --------------------------------------------------------------------------------
Pilot Equity Income Fund 7.51% 11.78% 16.69%
- --------------------------------------------------------------------------------
Pilot U.S. Government
Securities Fund 5.48% 10.96% 18.03%
- --------------------------------------------------------------------------------
Pilot Intermediate U.S.
Government Securities Fund 5.25% N/A 10.74%
- --------------------------------------------------------------------------------
Pilot Municipal Bond Fund 1.39% 4.60% 12.00%
- --------------------------------------------------------------------------------
Pilot Intermediate Municipal
Bond Fund 5.65% N/A 9.16%
- --------------------------------------------------------------------------------
</TABLE>
TAX INFORMATION
Each 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, each
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
(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.
Each 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,
B-43
<PAGE> 44
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 company taxable income and its net tax-exempt
interest income, if any, each taxable year. In order to avoid a
4% federal excise tax, each 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 loss) 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, including an "exempt-interest dividend," will be treated as
having been paid on December 31 of the current calendar year if it is declared
by a Fund in October, November or December with a record date in such a month
and paid during January of the following calendar year. Such distributions will
be taxable to Shareholders in the calendar year in which the distributions are
declared.
The Trust intends that the Municipal Bond Funds will each
qualify under the Code to pay "exempt-interest dividends" to
their respective Shareholders. A Municipal Bond Fund will be so
qualified if, at the close of each quarter of its taxable year,
at least 50% of the value of its total assets consists of
securities on which the interest payments are exempt from
federal income tax. To the extent that dividends distributed by
a Fund to each of its Shareholders are derived from interest
income exempt from federal income tax and are designated as
"exempt-interest dividends" by the Fund, they will be
excludable from the gross income of the Shareholders for federal
income tax purposes. "Exempt-interest dividends," however, must
be taken into account by Shareholders in determining whether
their total income is large enough to result in taxation of up
to one-half (85%, for taxable years beginning after 1993) of
their social security benefits and certain railroad retirement
benefits. It should also be noted that tax-exempt interest on
private activity bonds in which each of the Municipal Bond Funds
may invest generally is treated as a tax preference item for
purposes of the alternative minimum tax for corporate and
individual Shareholders. Each Municipal Bond Fund will inform
its respective Shareholders annually as to the portion of the
distributions from the Fund which constituted "exempt-interest
dividends."
Dividends paid out of a Fund's investment company taxable
income will be treated as ordinary income in the hands of
Shareholders. If a portion of a Fund's income consists of
dividends paid by U.S. corporations, a portion of the dividends
paid by the Fund may 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 a 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 a 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 a Fund in zero coupon securities (other than
tax-exempt 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 a Fund must
distribute to maintain its status as a regulated investment
company and to avoid the payment of federal income tax and the
4% excise tax. Similarly, investments in tax-exempt zero coupon
securities will result in a Fund accruing tax-exempt income each
year that the securities are held, even though the Fund receives
no cash payments of tax-exempt interest. This tax-exempt income
is included in determining the amount of net tax-exempt
B-44
<PAGE> 45
interest income which a Fund must distribute to maintain its status as a
regulated investment company.
Gain derived by a Fund from the disposition of any market
discount bonds (i.e., bonds purchased other than at original
issue, where the face value of the bonds exceeds their purchase
price), 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 a Fund for selling a
put or call option is not included in income at the time of
receipt. If the option expires, the premium is short-term
capital gain to the Fund. If the Fund enters into a closing
transaction, the difference between the amount paid to close out
its position and the premium received is short-term capital gain
or loss. If a call option written by a Fund is exercised,
thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such
security and any resulting gain or loss will be a capital gain
or loss, and will be long-term or short-term depending upon the
holding period of the security. With respect to a put or call
option that is purchased by a Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will
be long-term or short-term, depending upon the holding period of
the option. If the option expires, the resulting loss is a
capital loss and is long-term or short-term, depending upon the
holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to
the basis of the purchased security and, in the case of a put
option, reduces the amount realized on the underlying security
in determining gain or loss.
Certain options, futures contracts and forward contracts in
which a Fund may invest are "section 1256 contracts." Gains or
losses on section 1256 contracts generally are considered 60%
long-term and 40% short-term capital gains or losses ("60/40");
however, foreign currency gains or losses (as discussed below)
arising from certain section 1256 contracts may be treated as
ordinary income or loss. Also, section 1256 contracts held by a
Fund at the end of each taxable year (and, generally, for
purposes of the 4% excise tax, on October 31 of each year) are
"marked-to-market" (that is, treated as sold at fair market
value), resulting in unrealized gains or losses being treated as
though they were realized.
Generally, the hedging transactions undertaken by a Fund may
result in "straddles" for U.S. federal income tax purposes. The
straddle rules may affect the character of gains (or losses)
realized by a Fund. In addition, losses realized by a Fund on
positions that are part of a straddle may be deferred under the
straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the
losses are realized. Because only a few regulations implementing
the straddle rules have been promulgated, the tax consequences
to the Funds of engaging in hedging transactions are not
entirely clear. Hedging transactions may increase the amount of
short-term capital gain realized by a Fund which is taxed as
ordinary income when distributed to its Shareholders.
Each Fund may make one or more of the elections available under
the Code which are applicable to straddles. If a Fund makes any
of the elections, the amount, character and timing of the
recognition of gains or losses from the affected straddle
positions will be determined under rules that vary according to
the election(s) made. The rules applicable under certain of the
elections may operate to accelerate the recognition of gains or
losses from the affected straddle 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.
B-45
<PAGE> 46
The 30% Limitation and the diversification requirements
applicable to each 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 a Fund accrues
receivables, or liabilities denominated in a foreign currency
and the time the Fund actually collects such receivables, or
pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain
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 a Fund's investment company taxable
income to be distributed to its Shareholders as ordinary income.
If a 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 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.
Each Fund which invests in foreign equity securities 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, a 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 a 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. Furthermore, a loss realized by a
Shareholder on the redemption, sale or exchange of Shares in
each of the Municipal Bond Funds with respect to which
exempt-interest dividends have been paid will, to the extent of
such exempt-interest dividends, be disallowed if such Shares
have been held by the Shareholders for less than six months.
B-46
<PAGE> 47
Under the Code, a Shareholder may not deduct that portion of
interest on indebtedness incurred or continued to purchase or
carry shares of an investment company paying exempt-interest
dividends (such as the Shares of each of the Municipal Bond
Funds) which bears the same ratio to the total of such interest
as the exempt-interest dividends bear to the total dividends
(excluding net capital gain dividends) received by the
Shareholder. In addition, under rules issued by the Internal
Revenue Service for determining when borrowed funds are
considered to be used to purchase or carry particular assets,
the purchase of Shares may be considered to have been made with
borrowed funds even though the borrowed funds are not directly
traceable to such purchase.
Each Fund which invests in foreign securities may be subject to
foreign withholding taxes on its investments in such securities.
These taxes may be reduced under the terms of applicable tax
treaties, and each Fund intends to satisfy any procedural
requirements to qualify for benefits under these treaties. In
the unlikely 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. It is not
expected, however, that more than 50% of any Fund's total assets
will consist of stock or securities of foreign corporations and,
consequently, it is not expected that Shareholders will be
eligible to claim a foreign tax credit or deduction with respect
to foreign taxes paid by any Fund.
Each Fund will be required to report to the Internal Revenue
Services (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 a Fund with the payee's taxpayer
identification number ("TIN") under penalties of perjury, (b)
the IRS notifies a Fund that the TIN furnished by the payee is
incorrect, (c) the IRS notifies a 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 is his or her social security
number. The Trust 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 a 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 a 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.
B-47
<PAGE> 48
STATE AND LOCAL
The Funds may be subject to state or local taxes in
jurisdictions in which the Funds may be deemed to be doing
business. In addition, in those states or localities which have
income tax laws, the treatment of the Trust and its Shareholders
under such laws may differ from their treatment under Federal
income tax laws. Also, an investment in the Funds may have
different tax consequences for Shareholders than would a direct
investment in the securities held by the Funds. 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 Funds 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.
In certain states, distributions made by each of the Municipal
Bond Funds which are derived from interest on obligations of
that state or any municipality or political subdivision thereof
may be exempt from taxation.
Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an
investment in a Fund. Persons who may be "substantial users" or
"related persons" of substantial users) of facilities financed
by industrial development bonds should consult their tax
advisers before purchasing units of the Municipal Bond Funds.
The term "substantial user" generally includes any "non-exempt
person" who regularly uses in his or her trade or business a
part of a facility financed by industrial development bonds.
Generally, an individual will not be a "related person" of a
substantial user under the Code unless the person or his or her
immediate family owns directly or indirectly in the aggregate
more than a 50% equity interest in the substantial user.
ORGANIZATION AND CAPITALIZATION
The Trust 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 Trust 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 Trust 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 eleven Funds, six of
which are offered herein and known as the Pilot Growth and
Income Fund, the Pilot Equity Income Fund, the Pilot
Intermediate U.S. Government Securities Fund, the Pilot U.S.
Government Securities Fund, the Pilot Intermediate Municipal
Bond Fund and the Pilot Municipal Bond Fund. Each Share of each
Fund has a par value of $.001. It represents an equal
proportionate interest in that 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 a Fund, Shareholders thereof are entitled to share pro rata
in the net assets belonging to that 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 each of the Funds: Pilot Shares,
Class A Shares and Class B Shares.
Except as noted above with respect to the Distribution Plans
for Class A Shares and Class B Shares, shares of the Funds bear
the same types of ongoing expenses with respect to the Fund to
which they belong. In addition, Class A Shares are subject to a
front-end sales charge and Class B Shares are subject to a
contingent deferred sales charge as described in the
Prospectuses. The Classes also have different exchange
privileges, and Class B Shares are subject to conversion as
B-48
<PAGE> 49
described in the Prospectus for those Shares. In the event of a
liquidation or dissolution of the Trust or an individual Fund,
shareholders of a particular Fund would be entitled to receive
the assets available for distribution belonging to the Fund, and
a proportionate distribution, based upon the relative net asset
values of the Trust's respective investment portfolios, of any
general assets not belonging to any particular portfolio which
are available for distribution. Shareholders of a Fund are
entitled to participate in the net distributable assets of the
particular Fund involved on liquidation, based on the number of
shares of the Fund that are held by each shareholder, except
that Class A Shares of a particular Fund will be solely
responsible for that Fund's payments pursuant to the
Distribution Plan for those Shares and Class B Shares of a
particular Fund will be solely responsible for that Fund's
payments pursuant to the Distribution Plan for those Shares.
Each Pilot Share, Class A Share and Class B Share is entitled
to one vote. Fractional shares are entitled to proportionate
fractional votes. Holders of all outstanding shares of a
particular Fund will vote together in the aggregate and not by
class on all matters, except that only Class A Shares of a Fund
will be entitled to vote on matters submitted to a vote of
shareholders pertaining to such Fund's Distribution Plan for
Class A Shares and only Class B Shares of a Fund will be
entitled to vote on matters submitted to a vote of shareholders
pertaining to such Fund's Distribution Plan for Class B Shares.
Further, shareholders of all of the Funds, as well as those of
any other investment portfolio now or hereafter offered by the
Trust, will vote together in the aggregate and not separately on
a Fund-by-Fund basis, except as otherwise required by law or
when permitted by the Board of Trustees. Rule 18f-2 under the
1940 Act provides that any matter required to be submitted to
the holders of the outstanding voting securities of an
investment company such as the Trust shall not be deemed to have
been effectively acted upon unless approved by the holders of a
majority of the outstanding shares of each Fund affected by the
matter. A Fund is affected by a matter unless it is clear that
the interests of each Fund in the matter are substantially
identical or that the matter does not affect any interest of the
Fund. Under the Rule, the approval of an investment advisory
agreement or change in a fundamental investment policy would be
effectively acted upon with respect to a Fund only if approved
by a majority of the outstanding shares of such Fund. However,
the Rule also provides that the ratification of the appointment
of independent accountants, the approval of principal
underwriting contracts and the election of Trustees may be
effectively acted upon by shareholders of the Trust voting
together in the aggregate without regard to particular
investment portfolios.
Shares have neither cumulative voting rights nor any preemptive
rights and only such conversion and exchange rights as the Board
of Trustees may grant in its discretion. When issued for payment
as described in the Prospectuses, shares will be fully paid and
nonassessable, except as expressly set forth below.
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 Trust owned beneficially less than
1% of the outstanding shares of the Funds.
SHAREHOLDER AND TRUSTEE LIABILITY
The Trust 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 Trust. Notice of such disclaimer
will normally be given in each agreement,
B-49
<PAGE> 50
obligation or instrument entered into or executed by the Trust 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 Trust shall, upon request, assume the
defense of any claim made against a Shareholder for any act or
obligation of the Trust, 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 a
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
Trust 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 Trust and upon reports made to the
Trust 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 Trust will indemnify Trustees and officers of
the Trust against liabilities and expenses reasonably incurred
in connection with litigation in which they may be involved
because of their positions with the Trust, unless it is
determined, in the manner provided in the Declaration of Trust,
that they have not acted in good faith in the reasonable belief
that, in the case of conduct in their official capacity with the
Trust, their conduct was in the best interests of the Trust and
that, in all other cases, their conduct was at least not opposed
to the best interest of the Trust (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.
No series of the Trust is liable for the liabilities or
obligations of any other series of the Trust.
CUSTODIAN AND SUBCUSTODIANS
State Street Bank and Trust Company ("State Street"), 225
Franklin Street, Boston, Massachusetts 02110 is the custodian of
the Funds' assets and also maintains the Trust's accounting
records. State Street has established a network of foreign
subcustodians to hold certain foreign securities purchased by
the Funds, 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 Funds. In addition to providing
audit services, Arthur Andersen LLP prepares the Trust's federal
and state tax returns and provides consultation and assistance
on accounting, internal control and related matters.
Goodwin, Procter & Hoar, Exchange Place, Boston, Massachusetts
02109, serves as general counsel to the Trust.
B-50
<PAGE> 51
MISCELLANEOUS
The following table indicates each additional person known by
the Fund to own beneficially 5% or more of each Pilot Fund
listed below as of December 18, 1995.
<TABLE>
<CAPTION>
Name and Address Percent of Total Outstanding Shares of Class
---------------- --------------------------------------------
<S> <C>
PILOT U.S. GOVERNMENT SECURITIES FUND - CLASS B:
Donaldson Lufkin Jenrette Securities 23.9%
Corporation Inc.
P. O. Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette Securities 10.54%
Corporation Inc.
P. O. Box 2052
Jersey City, NJ 07303-2052
C. Wayne Hood 9.1%
Bobbie June Hood TTEES
Hood Family Trust
U/A DTD 05/10/90
8501 SW 89th Street
Oklahoma City, OK 73169-1701
Boatmens Bank Cust 9.0%
FBO James W. Hoeffler
IRA Rollover
800 Market LBP 1805
Saint Louis, MO 63101-2506
Mary S. Neighbor & Julia M. Evans, JTWROS 7.6%
5633 Potomac
Saint Louis, MO 63139-1507
Constance Seithel 6.8%
5332 Murdoch
Saint Louis, MO 63109-2951
PILOT GROWTH AND INCOME FUND - CLASS B:
Glenn Jackson 8.26%
6442 Landsdowne
St. Louis, MO 63109
</TABLE>
B-51
<PAGE> 52
<TABLE>
<CAPTION>
Name and Address Percent of Total Outstanding Shares of Class
---------------- --------------------------------------------
<S> <C>
PILOT INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND - CLASS A:
Alene Allen TOD 5.49%
Mary E. Francis
Subject to STA TOD Rules
5813 St. Charles Road
Columbia, MO 65202-3025
Alene Allen TOD 5.49%
Joann Allen
Subject to STA TOD Rules
5813 St. Charles Road
Columbia, MO 65202-3025
Alene Allen TOD 5.49%
Thomas Edward Allen
Subject to STA TOD Rules
5813 St. Charles Road
Columbia, MO 65202-3025
PILOT MUNICIPAL BOND FUND - CLASS B:
Donaldson Lufkin Jenrette Securities
Corporation Inc. 20.9%
P. O. Box 2052
Jersey City, NJ 07303-2052
Ralph H. Warnhoff TTEE 8.97%
Ralph H. Warnhoff Trust
U/A DTD 12/08/93
1302 Torrey Pines Drive
Columbia, MO 65203-4826
Wynard Earl Aslin TTEE 7.27%
Wynard Earl Aslin Family Trust
U/A DTD 11/01/90
1307 Garden Court
Columbia, MO 65203-2243
Virginia B. Pree TTEE 7.07%
Virginia B. Pree Rev. Living Trust
U/A DTD 10/07/92
418 N. Clay Avenue Apt. F
Kirkwood, MO 63122-3957
Donaldson Lufkin Jenrette Securities 6.41%
Corporation Inc.
P. O. Box 2052
Jersey City, NJ 07303-2052
</TABLE>
B-52
<PAGE> 53
<TABLE>
<CAPTION>
Name and Address Percent of Total Outstanding Shares of Class
---------------- --------------------------------------------
<S> <C>
Mary S. Neighbor & Julia M. Evans, JTWROS 6.07%
5633 Potomac
Saint Louis, MO 63139-1507
Donaldson Lufkin Jenrette Securities 6.05%
Corporation Inc.
P. O. Box 2052
Jersey City, NJ 07303-2052
Matilde Baima 5.63%
Steve F. Baima &
Janice M. Fleming JTWROS
306 N. Hard Road
Benld, IL 62009
E. H. Petering 5.54%
Nancy P. Lissant TTEES
Ernestine H. Petering Rev Trust
U/A DTD 01/18/94
31 North Old Orchard Apt. 226
Webster Grove, MO 63119-2656
</TABLE>
B-53
<PAGE> 54
APPENDIX
DESCRIPTION OF SECURITIES RATINGS(1)
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 upper most 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.
_____________
1 The ratings indicated herein are believed to be the most recent
ratings available at the date of this Statement of Additional
Information for the securities listed. Ratings are generally
given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake
no obligation to do so, and the ratings indicated do not necessarily
represent ratings which will be given to these securities on the date
of the Funds' taxable year ends.
A-1
<PAGE> 55
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 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(2)
AAA: Debt rated AAA has the highest rating assigned by Standard
& Poor's. This rating indicates an extremely strong capacity to
pay and 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.
___________________
2 Rates all governmental bodies having $1,000,000 or more of debt
outstanding, unless adequate information is not available.
A-2
<PAGE> 56
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.
A-3
<PAGE> 57
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.
A-4
<PAGE> 58
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.
A-5
<PAGE> 1
EXHIBIT 17(j)
THE PILOT FUNDS
3435 Stelzer Road
Columbus, Ohio 43219
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 29, 1995
PILOT SHARES
- -------------------------------------------------------------------------------
The Pilot Funds (the "Funds") is an open-end, management investment
company (or mutual fund) consisting of multiple portfolios, four of which
portfolios (the "Funds") are described herein:
Pilot Short-Term U.S. Treasury Fund (the "Treasury Fund");
Pilot Short-Term Diversified Assets Fund (the "Diversified Fund");
Pilot Short-Term Tax-Exempt Diversified Fund (the "Tax-Exempt Diversified
Fund"); and
Pilot Missouri Short-Term Tax-Exempt Fund (the "Tax-Exempt Fund").
Boatmen's Trust Company ("Boatmen's") serves as investment adviser to the
Funds. Pilot Funds Distributors, Inc. ("PFD") serves as each Fund's
distributor, and its parent, Concord Holding Corporation ("Concord"), serves as
each Fund's administrator. The Tax-Exempt Diversified Fund and the Tax-Exempt
Fund are sometimes referred to as the "Tax-Exempt Funds."
This Statement of Additional Information is not a Prospectus, and should
be read in conjunction with the Prospectus for the Pilot Shares (the
"Prospectus") dated December 29, 1995, as may be amended or supplemented from
time to time, which may be obtained without charge from institutions ("Service
Organizations") that hold Pilot Shares for the benefit of their customers, or
by writing to Pilot Funds Distributors Inc., 3435 Stelzer Road, Columbus, Ohio
43219.
<PAGE> 2
TABLE OF CONTENTS
INVESTMENT POLICIES AND PRACTICES OF THE PORTFOLIOS . . . . . . . . . . . 4
U.S. Government Securities . . . . . . . . . . . . . . . . . . . . . 4
Custodial Receipts . . . . . . . . . . . . . . . . . . . . . . . . . 4
Bank and Corporate Obligations . . . . . . . . . . . . . . . . . . . 4
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . 5
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . 6
Asset-Backed and Receivables-Backed Securities . . . . . . . . . . . . 6
Forward Commitments and When-Issued Securities . . . . . . . . . . . . 7
Variable Amount Master Demand Notes . . . . . . . . . . . . . . . . . 8
Variable Rate and Floating Rate Demand Instruments . . . . . . . . . . 8
Loan Participation . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Municipal Obligations . . . . . . . . . . . . . . . . . . . . . . . 10
Investing in Missouri . . . . . . . . . . . . . . . . . . . . . . . 12
Standby Commitments . . . . . . . . . . . . . . . . . . . . . . . . 16
Tax-Exempt Fund Taxable Obligations . . . . . . . . . . . . . . . . 16
Restricted and Other Illiquid Securities . . . . . . . . . . . . . . 16
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 17
Treasury Fund, Diversified Fund and Tax-Exempt Diversified Fund . . 17
Tax-Exempt Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 19
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . 21
THE INVESTMENT ADVISER, ADMINISTRATOR, DISTRIBUTOR
AND TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . 25
The Administrator, Distributor and Transfer Agent . . . . . . . . . 26
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 29
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
CALCULATION OF YIELD QUOTATIONS . . . . . . . . . . . . . . . . . . . . . 31
TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
State and Local . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ORGANIZATION AND CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . 36
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . 37
CUSTODIAN AND SUBCUSTODIANS . . . . . . . . . . . . . . . . . . . . . . . 38
INDEPENDENT ACCOUNTANTS AND COUNSEL . . . . . . . . . . . . . . . . . . . 38
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SHAREHOLDER ADMINISTRATIVE SERVICES . . . . . . . . . . . . . . . . . . . 38
-2-
<PAGE> 3
APPENDIX: DESCRIPTION OF SECURITIES RATINGS . . . . . . . . . . . . 40
-3-
<PAGE> 4
PILOT SHARES
INVESTMENT POLICIES AND PRACTICES OF THE PORTFOLIOS
The following discussion elaborates on the description of each 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
A Fund may invest in separately traded principal and interest components
of securities issued or guaranteed by the U.S. Treasury. The principal and
interest components of selected securities are traded independently under the
Separate Trading of Registered Interest and Principal of Securities program
("STRIPS"). Under the STRIPS program, the principal and interest components
are individually numbered and separately issued by the U.S. Treasury at the
request of depository financial institutions, which then trade the component
parts independently.
CUSTODIAL RECEIPTS
The Diversified 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. Although it has no current intent, the
Treasury Fund could invest more than 10% of its total assets in custodial
receipts if the staff of the Securities and Exchange Commission ("SEC") changes
its current policy that such evidences of ownership do not constitute
Government Securities for purposes of Section 35(d) of the Investment Company
Act of 1940 (the "1940 Act"). The Tax-Exempt Funds may acquire custodial
receipts that evidence ownership of future interest payments, principal
payments or both on certain municipal notes and bonds.
BANK AND CORPORATE OBLIGATIONS
Commercial paper represents short-term unsecured promissory notes
typically issued in bearer form by banks or bank holding companies,
corporations, and finance companies. The commercial paper purchased by the
Funds consists of direct U.S. dollar denominated obligations of domestic or
foreign issuers. Bank obligations in which the Funds may invest include
certificates of deposit, bankers' acceptances, fixed time deposits and bank
notes. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning
a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. Fixed time deposits are
bank obligations payable at a stated maturity date and bearing interest at a
fixed rate. Fixed time deposits may be withdrawn on demand by the investor,
but may be subject
-4-
<PAGE> 5
to early withdrawal penalties which vary depending upon market conditions and
the remaining maturity of the obligation. There are no contractual
restrictions on the right to transfer a beneficial interest in a fixed time
deposit to a third party, although there is no market for such deposits. Bank
notes and bankers acceptances rank junior to domestic deposit liabilities of
the bank and pari passu with other senior, unsecured obligations of the bank.
Bank notes are classified as "other borrowings" on a bank's balance sheet,
while deposit notes and certificates of deposit are classified as deposits.
Bank notes are not insured by the Federal Deposit Insurance Corporation or any
other insurer. Deposit notes are insured by the Federal Deposit Insurance
Corporation only to the extent of $100,000 per depositor per bank. Certain
fixed time deposits maturing in more than seven days may be deemed to be
illiquid securities.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with selected
broker-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 Funds' 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
Funds, that utilize them. Such risks are not unique to the Funds but are
inherent in repurchase agreements. The Funds seek 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, a Fund would be at risk of losing some
or all of the principal and income involved in the transaction. To minimize
this risk, the Funds utilize custodians and subcustodians that Boatmen's
believes follow customary securities industry practice with respect to
repurchase agreements, and Boatmen's 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.
-5-
<PAGE> 6
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 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 liquid
instruments.
FOREIGN SECURITIES
The Diversified Fund may invest in U.S. dollar denominated foreign
securities and certificates of deposit, bankers' acceptances and fixed time
deposits and other obligations issued by major foreign banks, foreign branches
of U.S. banks, U.S. branches of foreign banks, and foreign branches of foreign
banks. Investments can include fixed time deposits in Cayman Island branches
of such banks. The Tax-Exempt Funds may also invest in municipal instruments
backed by letters of credit issued by certain of such banks. Under current SEC
rules relating to the use of the amortized cost method of portfolio securities
valuation, these Funds are restricted to purchasing U.S. dollar denominated
securities, but are not otherwise precluded from purchasing securities of
foreign issuers.
Investments in foreign securities and bank obligations may involve
considerations different from investments in domestic securities due to limited
publicly available information; non-uniform accounting standards; the possible
imposition of withholding or confiscatory taxes, the possible adoption of
foreign governmental restrictions affecting the payment of principal and
interest, expropriation, or other adverse political or economic developments.
In addition, it could be more difficult to obtain and enforce a judgment
against a foreign issuer or a foreign branch of a domestic bank.
ASSET-BACKED AND RECEIVABLES-BACKED SECURITIES
The securitization techniques used to develop mortgage-backed securities
are now being applied to a broad range of assets. Through the use of trusts
and special purpose corporations, various types of assets, including automobile
loans, computer leases, trade receivables and credit card receivables, are
being securitized in pass-through structures similar to the mortgage
pass-through structures. Consistent with its investment objectives and
policies, the Diversified Fund may invest in these and other types of
asset-backed securities that may be developed in the future. However, the Fund
will generally not invest in an asset-backed security if the income received
with respect to its investment constitutes rental income or other income not
treated as qualifying income under the 90% test described in "Tax Information"
below. In general, the collateral supporting these securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments with interest rate fluctuations.
Several types of asset-backed and receivable-backed securities have
already been offered to investors, for example Certificates for Automobile
Receivables(SM) ("CARS(SM)") and interests in pools
-6-
<PAGE> 7
of credit card receivables. CARS(SM) represent undivided fractional interests
in a trust ("CAR Trust") whose assets consist of a pool of motor vehicle retail
installment sales contracts and security interests in the vehicles securing the
contracts. Payments of principal and interest on CARS(SM) are passed through
monthly to certificate holders, and are guaranteed up to certain amounts and
for a certain time period by a letter of credit issued by a financial
institution unaffiliated with the trustee or originator of the CAR Trust. An
investor's return on CARS(SM) may be affected by early prepayment of principal
on the underlying vehicle sales contracts. If the letter of credit is
exhausted, the CAR Trust may be prevented from realizing the full amount due on
a sales contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the obtaining of deficiency judgments
following such sales or because of depreciation, damage or loss of a vehicle,
the application of federal and state bankruptcy and insolvency laws, or other
factors. As a result, certificate holders may experience delays in payments or
losses if the letter of credit is exhausted.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. There is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
Asset-backed securities are often backed by a pool of assets representing
the obligations of a number of different parties. To lessen the effect of
failures by obligors on underlying assets to make payments, the securities may
contain elements of credit support which fall into two categories: (i)
liquidity protection, and (ii) protection against losses resulting from
ultimate default by an obligor or servicer. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of
assets, to ensure that the receipt of payments on the underlying pool occurs in
a timely fashion. Protection against losses results from payment of the
insurance obligations on at least a portion of the assets in the pool. This
protection may be provided through guarantees, policies or letters of credit
obtained by the issuer or sponsor from third parties, through various means of
structuring the transaction or through a combination of such approaches. The
degree of credit support provided for each issue is generally based on
historical information reflecting the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
The availability of asset-backed securities may be affected by legislative
or regulatory developments. It is possible that such developments may require
the Diversified Fund to dispose of any then existing holdings of such
securities.
Consistent with the Diversified Fund's investment objectives and policies,
the Fund also may invest in other types of asset-backed and receivables-backed
securities.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES
Each 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 when 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
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transactions are negotiated directly with the other party, and such commitments
are not traded on exchanges, but may be traded over-the-counter.
A 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, a Fund may dispose of or
negotiate a commitment after entering into it. A 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. For purposes of determining a Fund's
average dollar weighted maturity, the maturity of when-issued or forward
commitment securities will be calculated from the commitment date.
When a 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 liquid high grade debt securities
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.
VARIABLE AMOUNT MASTER DEMAND NOTES
Each Fund may purchase variable amount master demand notes. These
obligations permit the investment of fluctuating amounts at varying rates of
interest pursuant to direct arrangements between the Fund (as lender) and the
borrower. These notes are direct lending arrangements between lenders and
borrowers, and are not generally transferable, nor are they ordinarily rated by
a Nationally Recognized Statistical Rating Organization ("NRSRO"). The Fund
may invest in these notes only if Boatmen's believes that, as of the time of
investment, the notes are of a quality comparable to the other obligations in
which a Fund may invest.
VARIABLE RATE AND FLOATING RATE DEMAND INSTRUMENTS
Each Fund may purchase variable and floating rate demand instruments that
are tax-exempt municipal obligations and other debt securities that possess a
floating or variable interest rate adjustment formula. These instruments also
permit a Fund to demand payment of the principal balance plus unpaid accrued
interest upon a specified number of days' notice to the issuer or its agent.
The demand feature may be backed by a bank letter of credit or guarantee issued
with respect to such instrument.
The terms of the variable or floating rate demand instruments that a Fund
may purchase provide that interest rates are adjustable at intervals ranging
from daily up to six months, and the adjustments are based upon current market
levels, the prime rate of a bank or other appropriate interest rate adjustment
index as provided in the respective instruments. Some of these instruments are
payable on demand on a daily basis or on not more than seven days' notice.
Others, such as instruments with quarterly or semiannual interest rate
adjustments, may be put back to the issuer on designated days on not more than
thirty days' notice. Still others are automatically called by the issuer
unless the Fund instructs otherwise. A Fund will determine the variable or
floating rate demand instruments that it will purchase in accordance with
procedures approved by the Trustees to minimize credit risks. Accordingly, any
variable or floating rate demand instrument must be of high quality with
respect to both its long-term and short-term aspects, except that where credit
support is provided even if the issuer defaults in the payment of
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<PAGE> 9
principal or interest, the Fund may rely only on the high quality character of
the short-term aspect of the variable or floating rate demand instrument, i.e.,
the right to sell. A variable or floating rate demand instrument which is
unrated must have high quality characteristics similar to other obligations
rated high quality. Boatmen's may determine that an unrated variable or
floating rate demand instrument meets a Fund's quality criteria by reason of
being backed by a letter of credit or guarantee issued by a bank that meets the
quality criteria for that Fund. Thus, either the credit of the issuer of the
obligation or the guarantor bank or both will meet the quality standards of the
Fund.
The maturity of the variable or floating rate demand instruments held by a
Fund will ordinarily be deemed to be the longer of: (1) the notice period
required before the Fund is entitled to receive payment of the principal amount
of the instrument through demand, or (2) the period remaining until the
instrument's next interest rate adjustment. The acquisition of variable or
floating rate demand notes for a Fund must also meet the requirements of rules
issued by the SEC applicable to the use of the amortized cost method of
securities valuation.
A Fund may invest in variable or floating rate demand instruments in the
form of participation interests in variable or floating rate tax-exempt
obligations held by financial institutions (usually commercial banks). Such
participation interests provide the Fund with a specific undivided interest (up
to 100%) in an obligation and the right to demand payment of the unpaid
principal balance plus accrued interest on the participation interest from the
financial institution upon a specific number of days' notice. In addition, the
participation interest generally is backed by an irrevocable letter of credit
or guarantee from the institution. The institution usually retains fees out of
the interest paid on the obligation for servicing the obligation and providing
the letter of credit.
LOAN PARTICIPATION
The Diversified Fund may purchase participation interests with remaining
maturities of thirteen months or less in loans of any maturity. Such loans
must be to issuers in whose obligations the Fund may invest. Any participation
purchased by the Fund must be issued by a bank in the United States with assets
exceeding $1 billion. Because the issuing bank does not guarantee the
participation in any way, it is subject to the credit risks generally
associated with the underlying corporate borrower. In addition, because it may
be necessary under the terms of the loan participation for the Fund to assert
through the issuing bank such rights as may exist against the underlying
corporate borrower, in the event that the underlying corporate borrower should
fail to pay principal and interest when due, the Fund could be subject to
delays, expenses and risks which are greater than those which would have been
involved if the Fund had purchased a direct obligation (such as commercial
paper) of the borrower. Moreover, under the terms of the loan participation,
the purchasing Fund may be regarded as a creditor of the issuing bank (rather
than of the underlying corporate borrower), so that the Fund also may be
subject to the risk that the issuing bank may become insolvent. Further, in
the event of the bankruptcy or insolvency of the corporate borrower, the loan
participation might be subject to certain defenses that can be asserted by a
borrower as a result of improper conduct by the issuing bank. The secondary
market, if any, for these loan participation interests is limited, and any such
participation purchased by the Fund may be treated as illiquid.
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MUNICIPAL OBLIGATIONS
The Diversified Fund and the Tax-Exempt Funds may invest in municipal
obligations. Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their political
subdivisions, agencies, authorities and instrumentalities and the District of
Columbia to obtain funds for various public purposes. The interest on most of
these obligations is generally exempt from regular federal income tax. The two
principal classifications of municipal obligations are "notes" and "bonds."
NOTES. Municipal notes are generally used to provide for short-term
capital or operating cash flow needs and generally have maturities of one year
or less. Municipal notes include tax anticipation notes, revenue anticipation
notes, bond anticipation notes, tax and revenue anticipation notes, tax-exempt
commercial paper and certain receipts for municipal obligations.
Tax anticipation notes are sold to finance working capital needs of
municipalities. They are generally payable from specific tax revenues expected
to be received at a future date. They are often general obligations of the
issuer, secured by the taxing power for payment of principal and interest.
Revenue anticipation notes are issued in expectation of receipt of other types
of revenue such as federal revenues available under the Federal Revenue Sharing
Program. They are often general obligations of the issuer. Tax anticipation
notes and revenue anticipation notes are generally issued in anticipation of
various seasonal revenues such as income, sales, use and business taxes. Bond
anticipation notes are sold to provide interim financing in anticipation of
long-term financing in the market. In most cases, these monies provide for the
repayment of the notes and the notes are not secured by any other source.
Tax-exempt commercial paper consists of short-term unsecured promissory notes
issued by a state or local government or an authority or agency thereof. The
Funds may also acquire securities in the form of custodial receipts which
evidence ownership of future interest payments, principal payments or both on
certain state and local governmental and authority obligations when, in the
opinion of bond counsel, they are exempt from federal income tax. Such
obligations are held in custody by a bank on behalf of the holders of the
receipts. These custodial receipts are known by various names, including
"Municipal Receipts" and "Municipal Certificates of Accrual on Tax-Exempt
Securities." There are a number of other types of notes issued for different
purposes and secured differently from those described above.
BONDS. Municipal bonds, which generally meet longer term capital needs and
have maturities of more than one year when issued, have two principal
classifications, "general obligation" bonds and "revenue" bonds.
General obligation bonds are issued by entities such as states, counties,
cities, towns and regional districts and are used to fund a wide range of
public projects including the construction or improvement of schools, highways
and roads, water and sewer systems and a variety of other public purposes. The
basic security of general obligation bonds is the issuer's pledge of its faith,
credit, and taxing power for the payment of principal and interest. The taxes
that can be levied for the payment of debt service may be limited or unlimited
as to rate or amount or special assessments.
Revenue bonds have been issued to fund a wide variety of capital projects
including: electric, gas, water and sewer systems; highways, bridges and
tunnels; port and airport facilities; colleges and universities; and hospitals.
The principal security for a revenue bond is generally the net revenues derived
from a particular facility or group of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service
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<PAGE> 11
reserve fund whose monies may also be used to make principal and interest
payments on the issuer's obligations. Housing finance authorities have a wide
range of security including partially or fully insured, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. In addition to a debt service reserve fund, some authorities provide
further security in the form of a state's ability (without obligation) to make
up deficiencies in the debt service reserve fund. Lease rental revenue bonds
issued by a state or local authority for capital projects are secured by annual
lease rental payments from the state or locality to the authority sufficient to
cover debt service on the authority's obligations.
Private activity bonds, a term that includes certain types of bonds, the
proceeds of which are used to a specified extent for the benefit of persons
other than governmental units, although nominally issued by municipal
authorities, are generally not secured by the taxing power of the municipality
but are secured by the revenues of the authority derived from payments by the
industrial user. The Tax-Exempt Diversified Fund does not intend to invest in
recently issued private activity bonds. The Tax-Exempt Fund may invest in
private activity bonds. The interest from such bonds would be an item of tax
preference to Shareholders under the federal alternative minimum tax.
Municipal bonds with a series of maturity dates are called serial bonds.
The serial bonds which the Funds may purchase are limited to short-term serial
bonds, those with original or remaining maturities of 13 months or less. The
Funds may purchase long-term bonds provided that they have a remaining maturity
of 13 months or less or, in the case of bonds called for redemption, the date
on which the redemption payment must be made is within 13 months. The Funds
may also purchase long-term bonds (sometimes referred to as "Put Bonds"), which
are subject to a Fund's commitment to put the bond back to the issuer at par at
a designated time within 13 months and the issuer's commitment to so purchase
the bond at such price and time. The Funds may purchase long-term fixed-rate
bonds that have been coupled with an option granted by a third party financial
institution allowing the Fund, at periodic intervals (usually every six months,
but in no event more than every twelve months), to tender (or "put") its bonds
to the institution and receive the face value thereof. The Fund may be
assessed "tender fees" for each tender period at a rate equal to the difference
between the bonds' fixed coupon rate and the rate, as determined by a
remarketing or similar agent, that would cause the bonds coupled with the
tender option to trade at par on the date of such determination.
These bonds coupled with puts, as well as standby commitments (discussed
below), may present tax issues. With either type of investment, the Tax-Exempt
Funds intend to take the position that they are the owners of municipal
obligations acquired subject to a third-party put, and that tax-exempt interest
earned with respect to such municipal obligations will be tax-exempt in their
bonds. There is no assurance that the Internal Revenue Service will agree with
such position in any particular case. Additionally, the federal income tax
treatment of certain other aspects of these investments, including the
treatment of any tender fees or swap payments, in relation to various regulated
investment company tax provision is unclear.
In addition to general obligation bonds, revenue bonds and serial bonds,
there are a variety of hybrid and special types of municipal obligations as
well as numerous differences in the security of municipal obligations both
within and between the two principal classifications above.
The Tax-Exempt Funds may purchase municipal instruments that are backed by
letters of credit issued by domestic banks or foreign banks that have a branch,
agency or subsidiary in the United States. See "Foreign Securities" for
information concerning credit risks of foreign bank obligations.
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For the purpose of investment restrictions of the Funds, the
identification of the "issuer" of municipal obligations that are not general
obligation bonds is made by Boatmen's on the basis of the characteristics of
the obligation as described above, the most significant of which is the source
of funds for the payment of principal of and interest on such obligations.
An entire issue of municipal obligations may be purchased by one or a
small number of institutional investors such as one of the Funds. Thus, the
issue may not be said to be publicly offered. Unlike securities which must be
registered under the Securities Act of 1933 prior to offer and sale, unless an
exemption from such registration is available, municipal obligations which are
not publicly offered may nevertheless be readily marketable. A secondary market
exists for municipal obligations which were not publicly offered initially.
Securities purchased for the Tax-Exempt Funds are subject to the policy on
holdings of securities which are not readily marketable. Boatmen's determines
whether a municipal obligation is readily marketable based on whether it may be
sold in a reasonable time consistent with the customs of the municipal markets
(usually seven days) at a price (or interest rate) which accurately reflects
its value. Boatmen's believes that the quality standards applicable to the
Funds' investments enhance marketability. In addition, standby commitments and
demand obligations also enhance marketability.
Yields on municipal obligations depend on a variety of factors, including
money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation and the quality of the
issue. Higher quality municipal obligations tend to have a lower yield than
lower rated obligations. Municipal obligations are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, extending the
time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations or municipalities to levy
taxes. There is also the possibility that as a result of litigation or other
conditions the power or ability of any one or more issuers to pay when due
principal of and interest on its or their municipal obligations may be
materially affected.
INVESTING IN MISSOURI
The following information as to certain Missouri risk factors is given to
investors in view of the Tax-Exempt Fund's policy of concentrating its
investments in Missouri issuers. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from recent official statements relating to securities offerings of
Missouri issuers.
Missouri has a diverse economy based upon manufacturing, commerce, trade,
agriculture and mining. The State's proximity to the geographic and population
centers of the nation makes the State an attractive location for business and
industry. Earnings and employment are distributed among the manufacturing,
service and trade sectors in a close approximation of the national average,
lessening the State's cyclical sensitivity to a downturn in any single sector.
Wholesale and retail trade, services and manufacturing together account for
approximately 67% of Missouri's non-agricultural employment. The unemployment
rate in Missouri exceeded the national average in the 1983 recession period,
fell below the national average in 1984-86, 1989 and 1991-92 and exceeded the
national average in 1987, 1988 and 1990.
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The Missouri portions of the St. Louis and Kansas City metropolitan areas
contain approximately 1,855,000 and 961,000 residents, respectively,
constituting over 53% of Missouri's 1990 estimated population of approximately
5,117,000. St. Louis is an important site for banking and manufacturing
activity, as well as a distribution and transportation center, with eleven
Fortune 500 companies (as well as other major educational, financial,
insurance, retail, wholesale and transportation companies and institutions)
headquartered there. Kansas City is a major agribusiness center and an
important center for finance and industry. Economic reversals in either of
these two areas would have a major impact on the overall economic condition of
the State of Missouri.
Manufacturing is a leading component of Missouri's economy. To the extent
that the economy suffers a recessionary period, the manufacturing sector, which
relies heavily on durable goods such as automobiles and electric and electronic
equipment, could be adversely affected.
Defense related business plays an important role in Missouri's economy.
In addition to the large number of civilians employed at the various military
installations and training bases in the State, aircraft and related businesses
in Missouri are the recipients of substantial annual dollar volumes of defense
contract awards. McDonnell Douglas Corporation is the State's largest
employer, employing approximately 30,000 employees in Missouri in 1994. From
1977 through 1991, Missouri has ranked in the top six states in total military
contract awards and ranked eighth in 1992, compared to its population ranking
as the nation's fifteenth largest state. To the extent that changes in
military appropriations were enacted by the United States Congress, Missouri
could be disproportionately affected.
Article X, Section 16-24 of the Constitution of Missouri (the "Hancock
Amendment") imposes a limit on the amount of taxes that may be imposed by the
State and on the amount of taxes, licenses and fees that may be imposed by
local government units in any fiscal year. The details of the Hancock
Amendment are complex; the amendment has been the subject of several judicial
decisions and further clarification from implementing legislation and
subsequent judicial decisions may be necessary.
The Hancock Amendment provides that the State may not collect revenues in
any fiscal year that exceed by more than one percent total State revenues for
the fiscal year ended June 30, 1981, adjusted annually based on increases in
the average personal income of Missouri residents. If the revenue limit is
exceeded by more than one percent in any fiscal year, a refund of the excess
revenues collected by the State is required.
The revenue limit may be exceeded if the Governor declares an emergency
and expenditures above the limit are approved by a two-thirds vote of each
house of the Missouri legislature. The revenue limit can also be exceeded if
the voters of the State of Missouri approve a constitutional amendment
authorizing new or increased taxes or revenues. In addition, the revenue limit
does not apply to taxes imposed for the payment of principal and interest on
bonds approved by the voters and authorized under the Missouri Constitution.
The Hancock Amendment does not prohibit increasing State taxes so long as State
revenues are expected to be less than the revenue limit.
The Hancock Amendment further provides that the State may not reduce the
State financed portion of the cost of any existing activity or service required
of a county or political subdivision and that the cost of any new activity or
service required by the State must be funded by the State. In addition, State
expenditures in any fiscal year may not exceed the established revenue limit
plus federal and surplus funds.
The Hancock Amendment generally prohibits counties and other political
subdivisions (all local government Units having the power to tax) from levying
any new or increased tax, license or
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<PAGE> 14
fee without the approval of the required majority of voters; however, the
Missouri Supreme Court has ruled that increases in specific charges for certain
services actually provided are not subject to the Hancock Amendment. If the
required majority of voters approve the issuance of debt obligations and the
levy of taxes or imposition of licenses or fees necessary to meet payments of
principal and interest on such debt obligation, existing taxes, licenses or
fees may be increased or new taxes, licenses or fees imposed without violating
the Hancock Amendment. Missouri constitutional or statutory provisions other
than the Hancock Amendment may require greater than majority approval for the
valid issuance of debt obligations.
Counties and other political subdivisions (but not the State) may increase
taxes without regard to the Hancock Amendment to pay principal and interest on
obligations if such obligations were authorized to be issued prior to the
adoption of the Hancock Amendment.
If the tax base of a county or other political subdivision with respect to
a tax, fee or license is broadened, the Hancock Amendment requires the tax levy
or fee to be reduced to yield the same estimated gross revenue as on the prior
base. Even if the assessed value of property in the county or other political
subdivision (excluding the value of new construction and improvements)
increases at a rate exceeding the consumer price index, the Hancock Amendment
limits any percentage increase in property tax revenues to the percentage
increase in the consumer price index and requires a rollback of taxes if
assessed values of real property increase faster than the consumer price index.
The Hancock Amendment limitations do not apply to the tax levy on the
assessed valuation of new construction and improvements.
To the extent that the payment of general obligation bonds issued by the
State of Missouri or a county or other political subdivision is dependent on
revenues from the levy of taxes and such obligations have been issued after the
date of the Hancock Amendment's adoption, November 4, 1980, the ability of the
State of Missouri or the appropriate local Unit to levy sufficient taxes to pay
the debt service on such bonds may be affected, unless there has been specific
voter approval of the issuance of such bonds and the levy of such taxes as are
necessary to pay the principal and interest on such bonds.
Debt obligations issued by certain State issuers, including those of the
Board of Public Buildings of the State of Missouri and the Department of
Natural Resources of the State of Missouri, are payable either solely or
primarily from the rentals, incomes and revenues of specific projects financed
with the proceeds of the debt obligations and are not supported by the taxing
powers of the State or of the issuer of the bonds. The Hancock Amendment may
most strongly affect such state revenue bonds, since they are dependent in
whole or in part on State appropriations to provide sufficient revenues to pay
principal and interest. Unless such bonds are approved by the voters of
Missouri, under the Hancock Amendment, taxes cannot be raised to cover the
state appropriations necessary to provide revenues to pay principal and
interest on the bonds.
Consequently, there may be insufficient state revenues available to permit
the State legislature to make appropriations adequate to enable the issuer to
make timely payment of principal and interest on such State revenue bonds. For
example, in the case of the Board of Public Buildings of the State of Missouri,
the payment of principal and interest on debt obligations is dependent solely
on the appropriation by the State legislature of sufficient funds to pay the
rentals of State agencies occupying buildings constructed by the Board of
Public Buildings. State park revenue bonds of the Department of Natural
Resources of the State of Missouri are in part dependent on revenues generated
by operations of the particular project and in part on State
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<PAGE> 15
appropriations. Consequently, payment of principal and interest on such State
revenue bonds, relating to specific projects and not supported by the taxing
power of the State of Missouri, may not be made or may not be made in a timely
fashion because of the inability of the State to appropriate sufficient funds
for the payment of such bonds (or to make up shortfalls therein) due to the
limitations on State taxes and expenditures imposed by the Hancock Amendment,
the inability of the issuer to generate sufficient income or revenue from the
project to make such payment or a combination of such factors.
As described above, general obligation bonds and revenue bonds of counties
or other political subdivision issuers may also be affected by the tax, license
and fee limitations of the Hancock Amendment. Unless the required voter
approval of such debt obligations and the imposition of taxes to pay them is
obtained prior to their issuance, the Hancock Amendment imposes limitations on
the imposition of new taxes and the increase of existing taxes which may be
necessary to pay principal and interest on general obligations bonds of local
issuers. The limitations contained in the Hancock Amendment also may affect
the payment of principal and interest on bonds and other obligations issued by
local governmental units and supported by the revenues generated from user
fees, licenses or other fees and charges, unless the requisite voter approval
of the issuance of such bonds or other obligations, and the approval of the
assessment of such fees or other charges as may be necessary to pay the
principal and interest on such bonds or other obligations, has been obtained
prior to their issuance.
Debt obligations of certain other state and local agencies and authorities
are not, by the terms of their respective authorizing statutes, obligations of
the state or any political subdivision, public instrumentality or authority,
county, municipality or other state or local unit of government. Illustrative
of such issuers are the Missouri Housing Development Commission, the State
Environmental Improvement and Energy Resources Authority, the Health and
Educational Facilities Authority of the State of Missouri, the Missouri Higher
Education Loan Authority, the Industrial Development Board of the State of
Missouri, the Missouri Agricultural and Small Business Development Authority
and other similar bodies organized on a local level under similar state
authorizing statutes such as the various local industrial development
authorities. The debt obligations of such issuers are payable only from the
revenues generated by the project or program financed from the proceeds of the
debt obligations they issue, and the Hancock Amendment has no application.
In November 1992, Missouri voters approved a constitutional amendment
which removed the net proceeds of fuel taxes allocated to counties, cities,
towns and villages from the definition of "total state revenues" in the Hancock
Amendment. This change became effective July 1, 1993.
Under Missouri law, property tax abatement and tax increment financing can
be made available to encourage redevelopment projects. Neither tax abatement
nor tax increment financing diminishes tax revenues collected in affected
areas, but instead act to freeze such revenues at current levels and thereby
deprive the taxing authority of future increases in ad valorem property tax
revenues which would otherwise result from increases in assessed valuations in
affected areas.
In addition to the spending limitation imposed by the Hancock Amendment,
the Missouri General Assembly has proposed a Constitutional amendment which
would prohibit the General Assembly in any fiscal year from increasing taxes or
fees without voter approval that in total produce new annual revenues greater
than either $50 million adjusted annually by the percentage change in the
person income of Missouri for the second previous fiscal year, or by 1% of
total state revenue, whichever is less. In emergency situations, as defined by
the Hancock Amendment, the General Assembly could increase taxes, licenses or
fees for one year above the limit without
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voter approval. The proposed amendment to the Constitution is scheduled to be
voted upon on April 19, 1996.
Another proposed constitutional amendment would allow school districts to
increase their bond indebtedness from 10 to 15 percent of the value of taxable
tangible property located in the district. No vote on such amendment has been
scheduled.
STANDBY COMMITMENTS
In order to enhance the liquidity, stability or quality of municipal
obligations, the Tax-Exempt Funds may acquire the right to sell a security to
another party at a guaranteed price and date. Such a right to resell may be
referred to as a put, demand feature or "standby commitment," depending on its
characteristics. The aggregate price which a Fund pays for securities with
standby commitments may be higher than the price which otherwise would be paid
for the securities.
Standby commitments may involve letters of credit issued by domestic or
foreign banks supporting the other party's ability to purchase the security
from the Fund. The right to sell may be exercisable on demand or at specified
intervals, and may form part of a security or be acquired separately by the
Fund. In considering whether a security meets a Fund's quality standards, the
Fund will look to the creditworthiness of the party providing the Fund with the
right to sell as well as the quality of the security itself.
The Funds value municipal obligations which are subject to standby
commitments at amortized cost. The exercise price of the standby commitments
is expected to approximate such amortized cost. No value is assigned to the
standby commitments for purposes of determining a Fund's net asset value. The
cost of a standby commitment is carried as unrealized depreciation from the
time of purchase until it is exercised or expires. Since the value of a
standby commitment is dependent on the ability of the standby commitment writer
to meet its obligation to repurchase, each Fund's policy is to enter into
standby commitment transactions only with banks, brokers or dealers which
represent a minimal risk of default. The duration of standby commitments will
not be a factor in determining the weighted average maturity of a Fund. There
is no assurance that standby commitments will be available to a Fund nor have
the Funds assumed that such commitments would continue to be available under
all market conditions.
TAX-EXEMPT FUND TAXABLE OBLIGATIONS
The Tax-Exempt Funds do not currently intend to invest in taxable
obligations; however, from time to time each Fund may invest a portion of its
assets on a temporary basis in fixed-income obligations whose interest payments
are subject to federal or, in the case of the Tax-Exempt Fund, Missouri income
tax. In addition to the temporary defensive investments described in the
Prospectus, each Fund may invest in taxable obligations pending the investment
or reinvestment in municipal bonds of proceeds from sales of Fund Shares or
sales of portfolio securities. A Fund may also invest in highly liquid,
taxable obligations in order to avoid the necessity of liquidating portfolio
investments to meet redemption requests by Fund Shareholders.
RESTRICTED AND OTHER ILLIQUID SECURITIES
A Fund may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933, including restricted securities
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act of 1933. However, a Fund will not invest more than 10% of the
value of its net assets in securities which are illiquid, which may include
restricted
-16-
<PAGE> 17
securities, unless the Funds' Board of Trustees determines, based upon a
continuing review of the trading markets for the specific restricted security,
that such restricted securities are liquid. The Board of Trustees may adopt
guidelines and delegate to Boatmen's the daily function of determining and
monitoring liquidity of restricted securities. The Board, however, will retain
sufficient oversight and be ultimately responsible for the determinations,
since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid. The
Board will carefully monitor each 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 a Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.
INVESTMENT RESTRICTIONS
The Funds have adopted certain fundamental policies, which may not be
changed with respect to any Fund without the approval of the holders of a
majority of the outstanding voting Shares of that Fund as defined in the 1940
Act.
TREASURY FUND, DIVERSIFIED FUND AND TAX-EXEMPT DIVERSIFIED FUND
As a matter of fundamental policy, the Treasury Fund, the Diversified Fund
or the Tax-Exempt Diversified 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) 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 by banks and (e) the
Diversified Fund will invest more than 25% of the value of its total assets in
bank obligations (whether foreign or domestic) except that if adverse economic
conditions prevail in the banking industry the Diversified Fund may, for
defensive purposes, temporarily invest less than 25% of the value of its total
assets in bank obligations (for the purposes of this restriction, state and
municipal governments and their agencies or authorities are not deemed to be
industries).
(2) Make loans, except to the extent that the purchase of debt
obligations in accordance with each Fund's investment objective and policies
and 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, or (b) from
banks, provided that immediately after any such borrowing all borrowings of the
Fund do not exceed one-third of the Fund's total assets. While any Fund has
borrowings outstanding in an amount exceeding 5% of its total assets the Funds
will not make any purchases of portfolio instruments for that 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), commodities, commodity contracts or oil and gas
interests, or purchase any voting securities or invest in companies for the
purpose of exercising control or management.
-17-
<PAGE> 18
(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 in accordance with its investment
objective and portfolio management policies), make short sales of securities,
or maintain a short position.
(6) Mortgage, pledge or hypothecate any assets, except to secure
permitted borrowings.
(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 the investment restriction in item (1), each foreign
government will be considered a separate industry. For purposes of the
restriction in item (7) above, a guaranty of an instrument will be considered a
separate security (subject to certain exclusions allowed under the 1940 Act).
The exceptions to item (3), above, with regard to borrowing are not for
investment leverage purposes, but are solely for extraordinary or emergency
purposes and to facilitate management of the Funds by enabling the Funds to
meet redemption requests when the liquidation of portfolio instruments is
deemed to be disadvantageous or not possible. If, due to market fluctuations
or other reasons, the net assets of a Fund fall below 300% of its borrowings,
the Funds would promptly reduce the borrowings of such Fund in accordance with
the 1940 Act. To do this, the Funds may have to sell a portion of such Fund's
investments at a time when it may be disadvantageous to do so.
In addition to the foregoing fundamental investment restrictions, so long
as it remains a policy of the Ohio Division of Securities, the Funds, on behalf
of the Treasury and Diversified Funds, may not purchase or retain the
securities of an issuer if, to the Funds' 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.
So long as it remains a restriction of the Ohio Division of Securities,
the Funds, on behalf of the Treasury and Diversified Funds, 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 either Fund
in all such issuers to exceed 10% of each Fund's total assets.
In addition, the Trustees have approved the following non-fundamental
investment restrictions on behalf of the Treasury Fund, the Diversified Fund
and the Tax-Exempt Diversified Fund: it will not, on behalf of such Funds: (a)
invest in or write puts, calls or combinations thereof (except that the
Diversified Fund and the Tax-Exempt Diversified Fund may acquire puts in
connection with the acquisition of a debt instrument), or (b) purchase
securities on margin (except for delayed delivery or when-issued transactions
or such short-term credits as are necessary for the clearance of transactions).
Pursuant to an SEC rule, the Diversified Fund and the Treasury Fund may
not invest more than 5% of their total assets in the securities of any one
issuer (except U.S. Government securities or repurchase agreements
collateralized by such obligations). Each of such Funds may, however,
-18-
<PAGE> 19
invest more than 5% of its total assets in the First Tier Securities of a
single issuer for a period of up to three business days after the purchase
thereof, although a Fund may not make more than one such investment at any
time. Securities which are rated in the highest short-term rating category by
at least two Nationally Recognized Statistical Rating Organizations ("NRSROs")
are designated "First Tier Securities." Further, each of such Funds will not
invest more than: (i) the greater of 1% of its total assets, or (ii) one
million dollars in the securities of a single issuer which were Second Tier
Securities when acquired by a Fund. In addition, each of such Funds may not
invest more than 5% of its total assets in securities which were Second Tier
Securities when acquired by a Fund. Securities rated in the top two short-term
rating categories by at least two NRSROs, but which are not rated in the
highest category by two or more NRSROs, are designated "Second Tier
Securities." Pursuant to SEC Rule 2a-7 the foregoing restrictions are not
applicable to the Tax-Exempt Funds. "NRSROs" include Standard & Poor's
Corporation, Moody's Investors Service, Inc., Duff & Phelps, Inc., Fitch
Investors Service, Inc., IBCA Limited and its affiliate IBCA Inc., and Thomson
BankWatch, Inc. For a description of their rating categories, see Appendix A.
TAX-EXEMPT FUND
As a matter of fundamental policy, the Tax-Exempt Fund may not:
(1) Purchase the securities of any issuer (other than obligations issued
or guaranteed by the Government of the United States or its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's total assets
(taken at current value) would be invested in the securities of issuers having
their principal business activities in the same industry.
(2) Make loans, except: (a) through the purchase of all or a portion of
an issue of debt securities in accordance with its investment objective,
policies and limitations, or (b) by engaging in repurchase agreements with
respect to portfolio securities, or (c) by lending securities to other parties,
provided that no securities loan may be made, if, as a result, more than
33-1/3% of the value of its total assets would be lent to other parties.
(3) Borrow money, except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33-1/3% of the value of its total assets (less liabilities other than
borrowings) and may not purchase any security while borrowings representing
more than 5% of its net assets are outstanding. Any borrowings that come to
exceed 33-1/3% of the value of the Fund's total assets by reason of a decline
in net assets will be reduced within three days to the extent necessary to
comply with the 33-1/3% limitation.
(4) Purchase or sell physical commodities or real estate unless acquired
as a result of the ownership of securities (but this shall not prevent the Fund
from purchasing and selling futures contracts or marketable securities issued
by companies or other entities or investment vehicles that deal in real estate
or interests therein, nor shall this prevent the Fund from purchasing interests
in pools of real estate mortgage loans).
(5) Underwrite securities issued by others (except to the extent that the
Fund may be deemed to be an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities).
(6) Issue bonds or any other class of securities preferred over shares of
the Fund in respect of the Fund's assets or earnings, provided that the Fund
may establish additional series or classes of shares in accordance with its
Declaration of Trust.
-19-
<PAGE> 20
(7) Sell securities short, unless it owns, or by virtue of ownership of
other securities has the right to obtain, securities equivalent in kind and
amount to the securities sold short, and provided that transactions in futures
contracts are not deemed to constitute short sales.
To the extent that limitation (7) allows the Fund to engage in certain
short sales, and that limitation (4) allows the Fund to purchase or sell
physical commodities or real estate and purchase and sell futures contracts,
the Fund does not plan on doing so in the coming year. For purposes of the
foregoing restriction (1), municipal governments and their agencies and
authorities are not deemed to be industries.
As a matter of non-fundamental policy, the Tax-Exempt Fund may not:
(a) Purchase securities on margin, 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.
(b) Purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities) if,
as a result thereof, more than 5% of the value of its total assets would be
invested in the securities of companies which, including predecessors, have a
record of less than 3 years continuous operation.
(c) Purchase or otherwise acquire any security or enter into a repurchase
agreement with respect to any security if, as a result, more than 10% of the
value of its net assets would be invested in securities subject to legal or
contractual restrictions on resale (restricted securities), securities for
which there is no readily available market, and repurchase agreements not
entitling the holder to payment of interest and principal within seven days.
(d) Purchase any security if, as a result, more than 10% of the value of
its total assets would be invested in the securities of other investment
companies, purchase securities of other investment companies except in the open
market where no commission other than the ordinary broker's commission is paid,
or purchase or retain securities of any other open-end investment company;
provided that this section (d) shall not apply to securities acquired as part
of a merger or consolidation.
(e) Invest in arbitrage programs or in oil, gas or other mineral
exploration or development programs.
The foregoing non-fundamental investment restrictions of the Funds may be
changed or terminated without the approval of Shareholders. The Funds have
undertaken to the State of Texas not to engage in the lending of its portfolio
securities.
For purposes of the foregoing limitations, any limitation which 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, one of the
Funds.
-20-
<PAGE> 21
As used in this Statement of Additional Information, with respect to
matters required to be submitted to Shareholders by the provisions of the 1940
Act, the term "majority of the outstanding Shares" of either the Funds or a
particular Fund of the Funds 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.
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
Suite 1190 Drug, Inc., a
St. Louis, Missouri 63105 distributor of
pharmaceutical
products,
since 1987.
David Holford Benson*(57) Trustee Chairman,
Kleinwort Benson Limited Kleinwort Charter
P.O. Box 560 Investment Trust
20 Fenchurch Street plc. since March
London EC3 P3DB 1992.
Non-executive
Director of
Kleinwort Benson
Group plc.
(formerly Vice
Chairman).
Lee F. Fetter (42) Chairman Chief Operating
660 S. Euclid, Box 8003 and Financial
St. Louis, Missouri 63110 Officer of
Washington
University School
of Medicine since
1983.
Henry O. Johnston (58) Trustee President of
9650 Clayton Road Fordyce Four,
St. Louis, Missouri 63124 Incorporated, a
corporation
engaged
in the
acquisition and
management of
personal
investments.
</TABLE>
-21-
<PAGE> 22
<TABLE>
<S> <C> <C>
L. White Matthews, III (49) Trustee Executive Vice
Eighth and Eaton Avenues President of Finance
Bethlehem, Pennsylvania 18018 since 1987, 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
900 N. Tucker Boulevard Post-Dispatch since
St. Louis, Missouri 63101 1986. Senior Vice
President Pulitzer
Publishing Company
since 1986.
Susan L. West* (36) President Chief Operating
125 West 55th Street Officer, July 1993 to
New York, New York 10019 date; prior thereto,
Executive Vice
President of Concord
Holding Corporation.
William J. Tomko (36) 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
Columbus, Ohio 43219 Fund Services, Inc.
since May 1994.
Prior thereto, Senior
Manager, KPMG Peat
Marwick.
Lester J. Lay (32) Assistant Treasurer Vice President,
125 West 55th Street Mutual Fund
New York, New York 10019 Accounting, of
Concord Holding
Corporation and
Concord Financial
Group from November
1994 to date.
Assistant Vice
President, Mutual
Fund Accounting,
Dean Witter
InterCapital, Inc.,
October 1985 to
November 1994.
</TABLE>
-22-
<PAGE> 23
<TABLE>
<S> <C> <C>
George O. Martinez (36) Secretary Senior Vice
3435 Stelzer Road President and
Columbus, Ohio 43219 Director of Legal
and 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
Ten Post Office Square South firm of Dechert Price
Boston, Massachusetts 02109 & Rhoads.
</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.,
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 for comparable transactions with
other customers.
Each officer holds comparable positions with certain other investment
companies for which Concord or its affiliates serve as administrator and/or
distributor.
-23-
<PAGE> 24
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.
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Pension or Estimated Total Compensation
Aggregate Retirement Annual From Registrant
Compensation Benefits Upon Benefits Upon and 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 Hartford 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
</TABLE>
* "Interested person" of the Funds for purposes of the 1940 Act.
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 year ended August 31, 1995,
distributed to or accrued for the account of the non-interested Trustees (four
persons), amounted to approximately $53,000, which represented the total
compensation paid by the Funds to the Trustees during that year.
-24-
<PAGE> 25
THE INVESTMENT ADVISER, ADMINISTRATOR, DISTRIBUTOR
AND TRANSFER AGENT
INVESTMENT ADVISER
Boatmen's Trust Company, a subsidiary of Boatmen's Bancshares, Inc.,
P.O. Box 14737, 100 North Broadway, St. Louis, Missouri 63178, acts as
investment adviser to the Funds. As adviser, Boatmen's is responsible for the
management of each Fund's assets pursuant to separate Advisory Agreements
between each Fund and Boatmen's.
The Funds have 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 (0.1%) of the outstanding shares of common stock of Boatmen's
Bancshares, Inc.
Under each Advisory Agreement, Boatmen's, subject to the supervision of the
Trustees of the Funds, manages the investment operations of each of the Funds.
Each 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.
Each 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.
Boatmen's began serving as investment adviser to the Treasury Fund and
Diversified Fund on June 1, 1994 and began serving as investment adviser to the
Tax-Exempt Diversified Fund and Tax-Exempt Fund on July 1, 1995. Goldman
Sachs, acting through its separate operating division, Goldman Sachs Asset
Management, served as investment adviser to the Tax-Exempt Diversified Fund and
Missouri Tax-Exempt Fund prior to July 1, 1995.
Under the new advisory agreements effective July 1, 1995, Boatmen's is
entitled to receive advisory fees on a monthly basis at an annual rate of .15
of 1% of the Diversified Fund's average net assets, .15 of 1% of the Treasury
Funds's average net assets, .20 of 1% of the Tax-Exempt Diversified Fund's
average net assets and .20 of 1% of the Tax-Exempt Fund's average net assets.
It is Boatmen's current intention to waive voluntarily .05 of 1% from its new
contractual fee rates for each of the Treasury, Diversified and Tax-Exempt
Diversified Funds, based on each such Fund's average net assets on an
annualized basis, for each such Fund for the period July 1, 1995 until January
1, 1996, and .03 of 1% from its new contractual fee rates, based on each such
Fund's average net assets on an annualized basis, for the period January 1,
1996 until July 1, 1996. For the fiscal year ended August 31, 1995, total
advisory fees paid by the Diversified Fund and Treasury Fund were .07% and .08%
of each Fund's net assets, respectively. For the fiscal year ended August 31,
1994 (under the former advisory agreements from September 1, 1993 to June 1,
1994, and from June 1, 1994 to August 31, 1994), total advisory fees paid by
the Diversified Fund and Treasury Fund were .07% and .08%, respectively.
For the fiscal year ended August 31, 1995, total advisory fees paid by the
Tax-Exempt Fund were .20% of net assets and .17% of the net assets of the
Tax-Exempt Diversified Fund. For the fiscal year ended August 31, 1994, during
which Goldman Sachs acted as investment adviser to each of the Tax-Exempt
Funds, the compensation received by Goldman
-25-
<PAGE> 26
Sachs for services and expenses (net of fees waived) constituted .28% of the
net assets of the Tax-Exempt Fund and .14% of the net assets of the Tax-Exempt
Diversified Fund.
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 commissions, if any) of securities
purchased for each Fund.
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 their arrangements with Boatmen's and change their
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 any
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
perform 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.
The Advisory Agreements for the Treasury Fund, Diversified Fund, Tax-Exempt
Diversified Fund and Tax-Exempt Fund were approved by the Trustees, including
the "non-interested" Trustees (as defined under "Investment Restrictions"), on
February 28, 1995. Each Advisory Agreement will remain in effect until June
30, 1997, and will continue in effect thereafter only if such continuance is
specifically approved at least annually: (1) by vote of a majority of the
outstanding shares of each such Fund (as defined under "Investment
Restrictions") or by the Trustees of the Funds, and (2) by the vote of a
majority of the "non-interested" Trustees. Each 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 affected thereby (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.
THE ADMINISTRATOR, DISTRIBUTOR AND TRANSFER AGENT
Concord Holding Corporation ("Concord"), with principal offices at 3435
Stelzer Road, Columbus, Ohio 43219, was organized in June of 1987. Concord
also serves as administrator to several other investment companies.
-26-
<PAGE> 27
Concord provides administrative services for the Funds as described in
their Prospectuses pursuant to an Administration Agreement dated as of March
31, 1994. The Agreement will continue in effect with respect to each Fund
until May 31, 1996 and thereafter will be automatically extended as to a
particular 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 such Fund. The Agreement is terminable by the Board of Trustees
of the Funds with regard to any Fund, without the payment 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 amount of the administrator fee
paid by the Funds to Concord was $1,198,735. For the fiscal year September 1,
1994 through August 31, 1995, the Treasury, Diversified, Tax-Exempt Diversified
and Tax-Exempt Funds paid Concord $1,357,012, $1,479,697, $449,267 and
$293,693, respectively, for the performance of administrative services during
such period.
Prior to March 31, 1994, Goldman Sachs, as part of its responsibilities
under the investment advisory agreement then in effect, administered the Funds'
business affairs.
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 any 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, acts as the
exclusive distributor of the shares of each of the Funds 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. No compensation is payable by the Funds
to PFD for its distribution services.
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<PAGE> 28
The Distribution Agreement with PFD will continue in effect with respect
to each 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
Funds. The Agreement is terminable by the Funds 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 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
Funds.
BISYS Fund Services, Inc. (the "Transfer Agent"), located at 3435 Stelzer
Road, Columbus, Ohio 43219, serves as the Funds' transfer agent and dividend
disbursing agent. Under its Transfer Agency Agreement with the Funds, the
Transfer Agent, has undertaken with the Funds to: (i) record the issuance,
transfer and redemption of shares, (ii) provide confirmations of purchases and
redemptions, or monthly statements in lieu thereof, as well as certain other
statements, (iii) provide certain information to the Funds' custodian and the
relevant sub-custodian in connection with redemptions, (iv) provide dividend
crediting and certain disbursing agent services, (v) maintain shareholder
accounts, (vi) provide certain state Blue Sky and other information, (vii)
provide shareholders and certain regulatory authorities with tax related
information, (viii) respond to shareholder inquiries, and (ix) render certain
other miscellaneous services. For the fiscal year September 1, 1994 through
August 31, 1995, Concord Financial Services, Inc., the Funds' former transfer
agent, received a fee of $14,493 in the capacity of transfer agent. Prior to
June 1, 1994, Goldman, Sachs & Co. served as the Funds' transfer agent.
EXPENSES
The Funds are responsible for all expenses other than those expressly
borne by Boatmen's, Concord and Concord Financial Services, Inc. under the
Advisory Agreements, Administration Agreement and Transfer Agency Agreement.
Such expenses include, without limitation, the fees payable to Boatmen's,
Concord and Concord Financial Services, Inc., the fees and expenses of the
Funds' custodian, brokerage fees and commissions, any portfolio losses, filing
fees for the registration or qualification of the Funds' Shares under federal
or state securities laws, expenses of the organization of the Funds, fees and
expenses incurred by the Funds in connection with membership 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 Funds' Shareholders and regulatory
authorities, compensation and expenses of its Trustees and extraordinary
expenses incurred by the Funds. If, however, in any fiscal year, the sum of a
Fund's expenses (excluding taxes, interest, brokerage and extraordinary
expenses such as for litigation) exceeds the expense limitations applicable to
such Fund imposed by state securities administrators, as such limitations may
be lowered or raised from time to time, the Funds' agreements with Boatmen's
provide that the respective Fund is entitled to be reimbursed to the extent
required by these expense limitations. As of August 31, 1995, the most
restrictive expense limitation imposed by state securities administrators of
which the Funds are aware provides that annual expenses (as defined) may not
exceed 2-1/2% of the first $30,000,000 of a Fund's average net assets, plus 2%
of the next $70,000,000 of such assets
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<PAGE> 29
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 Funds 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.
PORTFOLIO TRANSACTIONS
Boatmen's places the portfolio transactions of the respective Funds and of
all other accounts managed by Boatmen's for execution with many firms.
Boatmen's uses their best efforts to obtain execution of portfolio transactions
at prices which are advantageous to each Fund and at reasonably competitive
spreads or (when a disclosed commission is being charged) at reasonably
competitive commission rates. In seeking such execution, Boatmen's will use
their 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 general execution and operational
capabilities of the firm, 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. Securities purchased and sold by the Funds are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through broker-dealers and banks acting for their own account rather than as
brokers, or otherwise involve transactions directly with the issuer of such
securities.
In certain instances there may be securities which are suitable for more
than one Fund advised by Boatmen's as well as for one or more of the other
clients of Boatmen's. Investment decisions for each Fund and for Boatmen's
other clients are made with a view to 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 clients
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 a Fund is concerned. The Funds believe
that over time its ability to participate in volume transactions will produce
superior executions for the Funds.
During the fiscal year ended August 31, 1995, the Funds acquired/sold
securities of its regular brokers/dealers: Prudential Funding Corp., Bear
Stearns Co., Inc., Dean Witter Discover and Co., J. P. Morgan, Lehman Bros.,
Merrill Lynch, and State Street Bank & Trust.
NET ASSET VALUE
The net asset value per Share of each Fund is determined by the Funds'
custodian at 2:00 p.m., Central time (3:00 p.m., Eastern time), for the
Diversified and Treasury Funds and 12:00 Noon, Central time, (1:00 p.m.
Eastern time) for the Tax-Exempt Funds on each Business Day. A Business Day
means any day on which the New York Stock Exchange and the Custodian are open
for business and the New York Stock Exchange (the "Exchange") is open for
trading, which is Monday through Friday except for holidays (scheduled holidays
for 1996 are: New Year's Day,
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<PAGE> 30
Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas Day).
Pursuant to a rule of the SEC, the Funds' securities are valued using the
amortized cost method of valuation in an effort to maintain a constant net
asset value of $1.00 per Share, which the Board of Trustees has determined to
be in the best interest of the Funds and their shareholders. This method
involves valuing a security at cost on the date of acquisition and thereafter
assuming a constant accretion of a discount or amortization of a premium to
maturity, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price a Fund would receive if it sold the instrument.
During such periods, the yield to an investor in a Fund may differ somewhat
from that obtained in a similar investment company which uses available market
quotations to value all of its portfolio securities. During periods of
declining interest rates, the quoted yield on Shares of a Fund may tend to be
higher than a like computation made by a fund with identical investments
utilizing a method of valuation based upon market prices and estimates of
market prices for all of its portfolio instruments. Thus, if the use of
amortized cost by a Fund resulted in a lower aggregate portfolio value on a
particular day, a prospective investor in the Fund would be able to obtain a
somewhat higher yield if he purchased Shares of the Fund on that day than could
be obtained from investment in a fund utilizing solely market values, and
existing investors in the Fund would receive less investment income. The
converse would apply in a period of rising interest rates.
The Trustees have established procedures designed to stabilize, to the
extent reasonably possible, each Fund's price per Share as computed for the
purpose of sales and redemptions at $1.00. These procedures include review of
a Fund by the Trustees, at such intervals as they deem appropriate, to
determine whether its net asset value calculated by using available market
quotations (or an appropriate substitute which reflects market conditions)
deviates from $1.00 per Share based on amortized cost, as well as review of
methods used to calculate the deviation. If such deviation exceeds 1/2 of 1%,
the Trustees will promptly consider what action, if any, will be initiated. In
the event that the Trustees should determine that a deviation exists which
could result in material dilution or other unfair results to investors or
existing Shareholders, they will take such corrective action as they may deem
to be necessary and appropriate, including: selling portfolio instruments prior
to maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding part or all of dividends or payment of distributions from
capital or capital gains; redeeming shares in kind; or establishing a net asset
value per Share by using available market quotations or equivalents. In
addition, the Trustees have the authority: (1) to reduce or increase the number
of Shares outstanding on a pro rata basis, and (2) to offset each Shareholder's
pro rata portion of the deviation between the net asset value per Share and
$1.00 from the Shareholder's accrued dividend account or from future dividends.
Each Fund may hold cash for the purpose of stabilizing its net asset value per
Share. Holdings of cash, on which no return is earned, would tend to lower the
yield on such Fund's Shares. Such procedures also provide for certain action
to be taken with respect to portfolio securities which experience a downgrade
in rating or suffer a default.
In order to continue to use the amortized cost method of valuation, each
Fund's investments, including repurchase agreements, must be U.S.
dollar-denominated instruments which the Trustees determine to present minimal
credit risk and be rated within one of the two highest rating categories for
short-term debt obligations by at least two major rating agencies assigning a
rating to the security or issuer, or if only one rating agency has assigned a
rating, by that agency. Purchases by the Diversified and Treasury Funds of
securities which are unrated or rated by only one rating agency must be
approved or ratified by the Trustees. Securities which are unrated may be
purchased only if they are deemed to be of comparable quality to rated
securities.
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<PAGE> 31
Each of the Funds may not maintain a dollar-weighted average portfolio
maturity of more than 90 days nor purchase portfolio securities with maximum
remaining maturities of more than 13 months (13 months is defined herein and in
the rule to equal 397 days). However, a Fund may also, consistent with the
provisions of the above-mentioned rule, invest in securities with a maturity of
more than 13 months, provided that the security is either a variable U.S.
Government security, or a floating or variable rate security with certain
demand interest rate reset features. Should the disposition of a portfolio
security result in a dollar-weighted average portfolio maturity of more than 90
days, that Fund will invest its available cash in such a manner as to reduce
such maturity to 90 days or less as soon as reasonably practicable.
REDEMPTIONS
The Funds may suspend the right of redemption of Shares of any Fund and
may postpone payment for any period: (i) during which the New York Stock
Exchange is closed other than customary weekend and holiday closings or during
which trading on the New York Stock Exchange is restricted, (ii) when the SEC
determines that a state of emergency exists which may make payment or transfer
not reasonably practicable, (iii) as the SEC may by order permit for the
protection of the Shareholders of the Funds, or (iv) at any other time when the
Funds may, under applicable laws and regulations, suspend payment on the
redemption of its Shares.
The Funds agree to redeem Shares of each Fund solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Fund during any 90-day
period for any one Shareholder. The Funds reserve the right to pay other
redemptions, either total or partial, by a distribution in kind of securities
(instead of cash) from the applicable Fund's portfolio although the Funds have
no current intention to do so. The securities distributed in such a
distribution would be valued at the same value as that assigned to them in
calculating the net asset value of the Shares being redeemed. If a Shareholder
receives a distribution in kind, he or she should expect to incur transaction
costs when he or she converts the securities to cash.
CALCULATION OF YIELD QUOTATIONS
Each Fund's yield quotations are calculated by a standard method
prescribed by the rules of the SEC. Under this method, the yield quotation is
based on an hypothetical account having a balance of exactly one Share at the
beginning of a seven-day period.
The yield quotation is computed as follows: the net change, exclusive of
capital changes (i.e., realized gains and losses from the sale of securities
and unrealized appreciation and depreciation), in the value of a hypothetical
pre-existing account having a balance of one Share at the beginning of the base
period is determined by dividing the net change in account value by the value
of the account at the beginning of the base period. This base period return is
then multiplied by 365/7 with the resulting yield figure carried to the nearest
100th of 1%. Such yield quotations shall take into account all fees that are
charged to a Fund.
Each Fund also may advertise a quotation of effective yield for a
7-calendar day period. Effective yield is computed by compounding the
unannualized base period return determined as in the preceding paragraph by
adding 1 to that return, raising the sum to the 365/7 power and subtracting one
from the result, according to the following formula:
(365/7)
Effective Yield = [(base period return + 1) ] - 1.
The Tax-Exempt Funds may also advertise a tax equivalent yield which is
computed by dividing that portion of the Fund's yield (as computed above) which
is tax-exempt by one minus a
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<PAGE> 32
stated income tax rate and adding the quotient to that portion, if any, of the
yield of the Fund that is not tax-exempt and a tax equivalent effective yield
computed by compounding the tax equivalent yield on a weekly basis.
Unlike bank deposits or other investments which pay a fixed yield or
return for a stated period of time, the return for a 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 each Fund. The return of a
Fund may not be readily comparable to other investment alternatives because of
differences in the foregoing variables and in the methods used to value
portfolio securities, compute expenses, and calculate return.
Yield, effective yield, tax equivalent yield and tax equivalent effective
yield are calculated separately for Pilot Shares, Administration Shares and
Investor Shares. Each type of Share is subject to different fees and expenses
and may have differing yields for the same period.
The yield of each Fund with respect to Pilot Shares, Administration Shares
and Investor Shares for the seven day period ended August 31, 1995 was as
follows:
<TABLE>
<CAPTION>
Tax Equivalent
-------------- Tax Equivalent
Yield Effective Yield Yield Effective Yield
----- --------------- ----- ---------------
<S> <C> <C> <C> <C>
Treasury Fund
Pilot Shares 5.72% 5.88% N/A N/A
Administration Shares 5.45% 5.60% N/A N/A
Investor Shares 5.19% 5.32% N/A N/A
Diversified Fund
Pilot Shares 5.81% 5.98% N/A N/A
Administration Shares 5.55% 5.70% N/A N/A
Investor Shares 5.29% 5.43% N/A N/A
Tax-Exempt Fund
Pilot Shares 3.37% 3.43% 5.58% 5.73%
Administration Shares 3.11% 3.16% 5.15% 5.28%
Investor Shares 2.86% 2.90% 4.74% 4.85%
Tax-Exempt Diversified Fund
Pilot Shares 3.46% 3.52% 5.73% 5.89%
Administration Shares 3.20% 3.25% 5.30% 5.44%
Investor Shares 2.94% 2.98% 4.87% 4.99%
</TABLE>
- --------------------------
* Assuming such Shares had been outstanding and are subject to
maximum service fees.
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<PAGE> 33
The quotations of tax equivalent yield set forth in advertising,
marketing and other Funds literature are based on a federal marginal tax rate of
39.6%. Tax-equivalent yield may be higher when combined with Missouri state
personal income tax rates.
From time to time, the Funds may publish an indication of one or more
Fund's past performance as measured by independent sources, such as Lipper
Analytical Services, Incorporated, Weisenberger Investment Companies Service,
Donoghue's Money 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
Each 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 or policies by any governmental agency or bureau.
In order to qualify as a regulated investment company, each 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
and 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,
securities of other regulated investment companies, and other securities, with
such other securities limited for any one issuer to an amount not greater than
5% of the Fund's assets and 10% of the outstanding voting securities of that
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.
Each 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 company taxable income and its net
tax-exempt interest income, if any, each taxable year. In order to avoid a 4%
federal excise tax, each 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 loss) for such year, at
least 98% of the excess of its capital gains over its capital 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, including an "exempt-interest dividend,"
will be treated as having been paid on December 31 of the current calendar year
if it is declared by a Fund in October, November or December with a record date
in such a month and paid during January of the following calendar year. Such
distributions will be taxable to Shareholders in the calendar year in which the
distributions are declared.
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<PAGE> 34
The Funds intend that the Tax-Exempt Funds each will qualify under the
Code to pay "exempt-interest dividends" to its Shareholders. The Tax-Exempt
Funds will be so qualified if, at the close of each quarter of their taxable
year, at least 50% of the value of their total assets consists of securities on
which the interest payments are exempt from federal income tax. To the extent
that dividends distributed by the Tax-Exempt Funds to their Shareholders are
derived from interest income exempt from federal income tax and are designated
as "exempt-interest dividends" by the Tax-Exempt Funds, they will be excludable
from the gross income of the Shareholders for federal income tax purposes.
"Exempt-interest dividends," however, must be taken into account by
Shareholders in determining whether their total income is large enough to
result in taxation of up to 85% of their social security benefits and certain
railroad retirement benefits. It should also be noted that tax-exempt interest
on private activity bonds in which a Tax-Exempt Fund may invest generally is
treated as a tax preference item for purposes of the alternative minimum tax
for corporate and individual Shareholders. The Tax-Exempt Funds will inform
Shareholders annually as to the portion of the distributions from such Funds
which constituted "exempt-interest dividends."
Dividends paid out of a Fund's investment company taxable income will be
treated as ordinary income in the hands of Shareholders. Because no portion of
a Fund's income is expected to consist of dividends paid by U.S. corporations,
no portion of such dividends is expected to 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 a 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 a Fund. The Funds are
not normally expected to realize any long-term capital gains or losses.
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 a Fund in zero coupon securities (other than tax-exempt
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 a Fund must distribute to maintain its
status as a regulated investment company and to avoid the payment of federal
income tax and the 4% excise tax. Similarly, investments in tax-exempt zero
coupon securities will result in a Fund accruing tax-exempt income each year
that the securities are held, even though the Fund receives no cash payments of
tax-exempt interest. This tax-exempt income is included in determining the
amount of net tax-exempt interest income which a Fund must distribute to
maintain its status as a regulated investment company.
Gain derived by a Fund from the disposition of any market discount bonds
(i.e., bonds purchased other than at original issue, where the face value of
the bonds exceeds their purchase price), 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.
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 a 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
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<PAGE> 35
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. Furthermore, a loss realized by a
Shareholder on the redemption, sale or exchange of Shares in the Tax-Exempt
Funds with respect to which exempt-interest dividends have been paid will, to
the extent of such exempt-interest dividends, be disallowed if such Shares have
been held by the Shareholder for less than six months.
Under the Code, a Shareholder may not deduct that portion of interest on
indebtedness incurred or continued to purchase or carry shares of an investment
company paying exempt-interest dividends (such as the Shares of the Tax-Exempt
Funds) which bears the same ratio to the total of such interest as the
exempt-interest dividends bear to the total dividends (excluding net capital
gain dividends) received by the Shareholder. In addition, under rules issued
by the Internal Revenue Service for determining when borrowed funds are
considered to be used to purchase or carry particular assets, the purchase of
Shares may be considered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to such purchase.
Each 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 each Fund intends to satisfy any
procedural requirements to qualify for benefits under these treaties. In the
unlikely 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 share 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. It is not expected, however, that
more than 50% of a Fund's total assets will consist of stock or securities of
foreign corporations and, consequently, it is not expected that Shareholders
will be eligible to claim a foreign tax credit or deduction with respect to
foreign taxes paid by a Fund.
Each 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 a Fund with the payee's taxpayer identification number ("TIN") under
penalties of perjury, (b) the IRS notifies a Fund that the TIN furnished by the
payee is incorrect, (c) the IRS notifies a 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 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.
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<PAGE> 36
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 a 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 a 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 Funds may be subject to state or local taxes in jurisdictions in which
the Funds may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of the Funds and its
Shareholders under such laws may differ from their treatment under Federal
income tax laws. Also, an investment in the Funds may have different tax
consequences for Shareholders than would a direct investment in the securities
held by the Funds. 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 investments by the Funds 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.
To the extent that distributions made by the Tax-Exempt Fund qualify as
"exempt-interest dividends" for federal income tax purposes, are derived from
interest on obligations of the state of Missouri or any of its political
subdivisions or authorities, and are designated by the Tax-Exempt Fund as
"state income tax exempt-interest dividends," these distributions will be
exempt from Missouri income taxation.
Shareholders are advised to consult their own tax advisers with respect to
the particular tax consequences to them of an investment in a Fund. Persons
who may be "substantial users" (or "related persons" of substantial users) of
facilities financed by industrial development bonds should consult their tax
advisers before purchasing shares of the Tax-Exempt Funds. The term
"substantial user" generally includes any "non-exempt person" who regularly
uses in his or her trade or business a part of a facility financed by
industrial development bonds. Generally, an individual will not be a "related
person" of a substantial user under the Code unless the person or his or her
immediate family owns directly or indirectly in the aggregate more than a 50%
equity interest in the substantial user.
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, four of which are offered herein and known as
the Pilot Short-Term Diversified
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<PAGE> 37
Assets Fund, the Pilot Short-Term U.S. Treasury Fund, the Pilot Short-Term
Tax-Exempt Diversified Fund and the Pilot Missouri Short-Term Tax-Exempt Fund.
Each Share of each Fund has a par value of $.001. It represents an equal
proportionate interest in that 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 a Fund, Shareholders thereof are
entitled to share pro rata in the net assets belonging to that 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 each of the Funds
offered hereby: Pilot Shares, Administration Shares and Investor Shares. Each
Pilot Share, Administration Share and Investor Share is entitled to one vote
per Share: however, separate votes will be taken by each Fund or class (or by
one or more Funds voting as a single class if similarly affected) on matters
affecting only that individual Fund or class (or those affected Funds or
classes) or as otherwise required by law. Fractional Shares are entitled to
proportionate 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.
To the knowledge of the Funds, as of December 15, 1995, the following
persons owned beneficially and/or of record 5% or more of the outstanding
Shares of any of the Funds (with percentage ownership of the Fund indicated in
parentheses):
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 a 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
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<PAGE> 38
Declaration of Trust provides that the Funds will indemnify the 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 Trust, 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 interests
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, 225 Franklin Street, Boston,
Massachusetts 02110, is the Funds' custodian. State Street also maintains the
Funds' accounting records. State Street has appointed Bank of America, N.T.
and S.A., P.O. Box 37000, San Francisco, California 94137; Chemical Bank N.A.,
270 Park Avenue, New York, New York 10017; State Street London Limited, State
Street House, 12 Nicholas Lane, London EC4N 7BN, Great Britain; Bank of New
York, 48 Wall Street, New York, New York 10286; Morgan Guaranty Trust, 23 Wall
Street, New York, New York 10015; and Bankers Trust Company, 280 Park Avenue,
New York, New York 10017 as subcustodians to hold certain securities purchased
by the Funds, 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
Funds. In addition to 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
of the Funds incorporated by reference into this Statement of Additional
Information (under "Financial Statements") are from the Funds' annual report
for the year ended August 31, 1995, and the data set forth under "Selected Per
Share Data and Ratios" in the Prospectus have been audited by Arthur Andersen
LLP, as indicated in their report with respect thereto, and are included in
reliance upon the authority of said firm as experts in giving the reports.
Goodwin, Procter & Hoar, Exchange Place, Boston, Massachusetts 02109,
serves as general counsel to the Funds.
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.
SHAREHOLDER ADMINISTRATIVE SERVICES
Boatmen's provides certain Shareholder administrative services for
investments by its own customers and those of affiliates in the Funds, pursuant
to a letter agreement with the Funds. In carrying out its duties, Boatmen's
has undertaken to: (1) act as holder of record of all Shares for the beneficial
holders thereof ("Shareholders"), (2) establish and maintain Shareholder
accounts and records, including the furnishing of transfer and dividend
disbursement agent services, (3) answer
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<PAGE> 39
customer inquiries regarding the current yield of the Funds, and certain other
administrative matters (e.g., account status information), (4) process purchase
and redemption transactions, including redemption drafts and transmittal of
purchase orders, funds and redemption requests, and the disbursement of the
proceeds of redemptions, (5) provide periodic statements to each Shareholder
showing account balances and all transactions since the last statement, and (6)
mail reports and proxy materials to Shareholders.
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<PAGE> 40
APPENDIX: DESCRIPTION OF SECURITIES RATINGS
MOODY'S INVESTORS SERVICE, INC.
LONG-TERM RATINGS
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.
Moody's applies numerical modifiers, 1, 2, and 3 in the Aa category. The
modifier 1 indicates that the security ranks in the higher end of the Aa
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of the Aa category.
SHORT-TERM RATINGS
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.
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade ("MIG"). 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.
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<PAGE> 41
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 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
LONG-TERM RATINGS
AAA: Bonds rated AAA are highest grade debt obligations. This rating
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances
they differ 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.
SHORT-TERM RATINGS
A-1: Standard & Poor's short-term 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." 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
LONG-TERM RATINGS
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.
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<PAGE> 42
SHORT-TERM RATINGS
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.
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.
FITCH INVESTORS SERVICE, INC.
LONG-TERM RATINGS
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+."
Plus ("+") and minus ("-") signs are used with a rating symbol to indicate
the relative position of a credit within the AA rating category.
SHORT-TERM RATINGS
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 with "F-1"+ and "F-1" ratings.
LOC: The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
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<PAGE> 43
IBCA LIMITED AND IBCA, INC.
LONG-TERM RATINGS
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 unlikely 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.
"+" or "-" may be appended to denote relative status within major rating
categories.
SHORT-TERM RATINGS
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 satisfactory capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic, or financial conditions.
THOMSON BANKWATCH, INC.
LONG-TERM RATINGS
AAA: The highest category; indicates a superior ability to repay principal
and interest on a timely basis.
AA: The second highest category; indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category. Ratings in the Long-Term Debt categories
may include a plus ("+") or minus ("-") designation which indicates where
within the respective category the issue is placed.
SHORT-TERM RATINGS
TBW-1: The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2: The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
The TBW Short-Term Ratings apply only to unsecured instruments that have a
maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an
untimely payment of principal and interest.
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<PAGE> 1
EXHIBIT 17(k)
1
THE PILOT FUNDS
Dear Shareholder:
We are pleased to present you with the Annual Report of the Pilot domestic
equity and fixed income funds for the twelve months ended August 31, 1995.
The Funds benefited from several favorable economic and investment
trends during this period. Steady growth in the U.S. economy resulted in
substantial increase in earnings by many U.S. companies, often exceeding the
bullish projections of Wall Street analysts. At the same time, inflationary
trends proved surprisingly tame, as the consumer price index stayed in the
range of 2.5% to 3.0% throughout most of the past twelve months. This
combination of events proved favorable for U.S. stock and bond markets, since
many equity and fixed income securities registered strong gains.
As you can see in the following performance reports, the Pilot
domestic equity and fixed income funds have performed well since the Funds'
inception on November 7, 1994. This performance, combined with positive
customer response, enabled the Pilot domestic equity and fixed income Funds to
grow to over $862 million in assets in less than one year. These results confirm
our belief that our customers continue to value solid, well-managed mutual
funds as a means to achieving their financial goals.
As a result, we plan to enlarge The Pilot Fund family by drawing on
Boatmen's Trust Company's small capitalization management expertise to manage a
new Pilot Small Cap Equity Fund, scheduled to become available in December,
1995 (subject to SEC approval). Boatmen's has extensive experience selecting
promising companies in this fast growing market sector. The Fund may appeal to
investors seeking opportunities for greater long-term capital growth - with
greater risk - than those offered by large, established companies. This Fund
would be appropriate for the aggressive growth portion of a balanced portfolio.
Should you have any questions or wish to find out more about any of The
Pilot Funds, please call us directly at 1-800-71-PILOT. (717-4568)
Sincerely,
David F. Toth
Senior Vice President
Boatmen's Trust Company
- ------------------------------------------------------------------------------
Distributor: Pilot Funds Distributors, Inc.
Investments in The Pilot Funds are not insured by the FDIC, are not bank
deposits or obligations, or guaranteed by Boatmen's Trust Company or its
affiliates. Investments involve risk, including the possible loss of principal.
The Funds are advised by Boatmen's Trust Company, a non-bank subsidiary of
Boatmen's Bancshares, Inc., and are distributed by Pilot Funds Distributors,
Inc., which is not affiliated with Boatmen's Trust Company. Boatmen's Trust
Company receives fees for providing investment advisory services to the Funds.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE> 2
2
FUND HIGHLIGHTS
Total Returns Since Inception
as of August 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Pilot Shares Class A Shares Class B Shares
NAV NAV POP NAV POP
------------ --- --- --- ---
Pilot Growth and Income
Fund 17.72% 11.78% 6.77% 15.85% 11.35%
Inception Date and
Maximum Sales Load or CDSC 11/7/94 2/7/95 4.5% 11/11/94 4.5%
_________________________________________________________________________________________
Pilot Equity Income Fund 16.69% 12.78% 7.72% 17.36% 12.86%
Inception Date and Maximum
Sales Load or CDSC 11/7/94 2/7/95 4.5% 1/12/94 4.5%
_________________________________________________________________________________________
Pilot U.S. Government
Securities Fund 18.03% 10.41% 5.48% 16.19% 11.69%
Inception Date and Maximum
Sales Load or CDSC 11/7/94 2/7/95 4.5% 11/10/94 4.5%
_________________________________________________________________________________________
Pilot Intermediate U.S.
Government Securities Fund 10.21% 9.31% 4.89% N/A N/A
Inception Date and Maximum
Sales Load or CDSC 11/7/94 2/7/95 4.5%
_________________________________________________________________________________________
Pilot Municipal Bond Fund 12.00% 6.54% 1.74% 9.62% 5.12%
Inception Date and Maximum
Sales Load or CDSC 11/7/94 2/7/95 4.5% 12/27/94 4.5%
__________________________________________________________________________________________
Pilot Intermediate Municipal
Bond Fund 9.16% 10.03% 5.65% N/A N/A
Inception Date and Maximum
Sales Load or CDSC 11/7/94 11/18/95 4.0%
__________________________________________________________________________________________
</TABLE>
Past performance in not a guarantee of future results. Investment returns
and principal values will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
Note: This table reflects the fact that Class A and Class B Shares are
subject to different fees and expenses. Class A Shares are subject to a
front-end sales load of up to 4.5% of the offering price and a Rule 12b-1 fee of
up to .25 of 1%. Class B Shares are subject to Contingent Deferred Sales Charges
for redemptions before the periods outlined in the Funds' prospectus and a Rule
12b-1 fee of up to 1%. All other Fund expenses related to Class A and B Shares
are the same as for Pilot Shares.
The S&P 500(R) Index is an unmanaged broad-based index of 500 companies
listed on the New York Stock Exchange. The Lehman Brothers Government Bond Index
and the Lehman Brothers Intermediate Government Bond Index are unmanaged and
represent the returns of government bonds with an average maturity of
approximately nine and five years. The Lehman Brothers Municipal Bond Index and
the Lehman Brothers 5-Year Municipal Bond Index are unmanaged and represent the
returns of municipal bonds with an average maturity of approximately nine and
five years, respectively.
These indices do not reflect the deduction of expenses associated with
mutual funds, such as investment management and accounting fees. The Funds'
performance reflects the deduction of fees for these value-added services.
Past performance is not predictive of future results.
Sources: Standard & Poor's, Lehman Brothers Inc.
<PAGE> 3
3
Growth of a $10,000 Investment vs. a Benchmark Since Inception as of August 31,
1995
PILOT GROWTH AND INCOME FUND-PILOT SHARES
<TABLE>
<CAPTION>
Measurement Period S&P 500 Index Pilot Growth & Income Fund
(Fiscal Year Covered)
<S> <C> <C>
FYE 11/7/94 $10,000 $10,000
FYE 8/31/95 $12,404 $11,772
</TABLE>
PILOT U.S. GOVERNMENT SECURITIES FUND-PILOT SHARES
<TABLE>
<CAPTION>
Measurement Period Lehman Brothers Government Pilot U.S. Government
(Fiscal Year Covered) Bond Index Securities Fund
<S> <C> <C>
FYE 11/7/94 $10,000 $10,000
FYE 8/31/95 $11,586 $11,277
</TABLE>
PILOT MUNICIPAL BOND FUND-PILOT SHARES
<TABLE>
<CAPTION>
Measurement Period Lehman Municipal Pilot Municipal
(Fiscal Year Covered) Bond Index Bond Fund
<S> <C> <C>
FYE 11/7/94 $10,000 $10,000
FYE 8/31/95 $11,456 $11,314
</TABLE>
PILOT EQUITY INCOME FUND-PILOT SHARES
<TABLE>
<CAPTION>
Measurement Period S&P 500 Index Pilot Equity Income Fund
(Fiscal Year Covered)
<S> <C> <C>
FYE 11/7/94 $10,000 $10,000
FYE 8/31/95 $12,404 $11,669
</TABLE>
PILOT INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND-PILOT SHARES
<TABLE>
<CAPTION>
Measurement Period Lehman Brothers Intermediate Pilot Intermediate U.S.
(Fiscal Year Covered) Government Bond Index Government Securities Fund
<S> <C> <C>
FYE 11/7/94 $10,000 $10,000
FYE 8/31/95 $11,035 $10,995
</TABLE>
PILOT INTERMEDIATE MUNICIPAL BOND FUND-PILOT SHARES
<TABLE>
<CAPTION>
Measurement Period Lehman Brothers 5-Year Pilot Intermediate
(Fiscal Year Covered) Municipal Bond Index Municipal Bond Fund
<S> <C> <C>
FYE 11/7/94 $10,000 $10,000
FYE 8/31/95 $11,035 $10,966
</TABLE>
<PAGE> 4
LETTERS FROM THE FUNDS' MANAGERS 4
Pilot Growth and Income Fund
DEAR SHAREHOLDER:
The Fund produced a strong return from the fiscal year ended August 31, 1995.
Since the Fund's inception on November 7, 1994, Pilot Shares of the Fund, which
are available to trust customers, returned 17.72% (Class A and B Shares, which
are available to retail customers, returned 11.78% and 15.85% at NAV,
respectively, for the same period).
Investment Philosophy
Our investment discipline is geared toward removing the emotion from investment
decisions. We invest in mid to large-sized "good businesses" on the basis of
their long-term relative value, not their current popularity. An emphasis on
"good businesses" first, and on valuations second, is central to our approach.
Many factors determine whether a business is good or not: such as a competitive
strategy, a sustainable product or service mix, and a management team that can
adapt to its environment. Our research analysts focus on assessing these and
other characteristics to identify competitive advantages which lead to sound
investments.
PORTFOLIO AND S&P 500(R) INDEX
COMPOSITION BY SECTOR
AS OF 8/31/95
<TABLE>
<CAPTION>
Pilot Growth S&P 500(R)
and Income Fund Index
--------------- ----------
<S> <C> <C>
Finance 16.9% 12.6%
Materials & Processing 5.5 8.0
Industrial Goods & Services 12.0 9.8
Retailing 7.0 6.6
Consumer Staples 9.8 11.4
Consumer Cyclicals 8.7 8.5
Health Care 9.9 9.5
Energy 6.9 9.8
Technology 7.2 11.6
Utilities 11.8 12.2
</TABLE>
<PAGE> 5
Investment Environment
Market psychology has been decidedly positive for the stock market throughout
1995. We believe two factors have been primarily responsible for the stock
market strength: lower interest rates and technology mania. Economic euphoria
in the form of the elusive "soft landing" -- slow growth and controlled
inflation -- has resulted in a significant reduction in interest rates during
1995. This reduction in interest rates has led to renewed confidence in stocks.
Likewise, investor sentiment regarding technology is extremely bullish. Many
technology stocks -- including Texas Instruments and Intel Corporation -- have
nearly doubled in price during 1995. We believe psychology, not fundamentals,
has caused these revaluations.
Top Ten Holdings*
as of 8/31/95
<TABLE>
<CAPTION>
Company % of Portfolio
- ------- --------------
<S> <C>
Boeing Corporation 3.3%
AT&T Corporation 3.3
Chevron Corporation 3.2
Automatic Data Processing, Inc. 3.1
MCI Communications Corporation 3.1
Unicom Corporation 3.0
Merck & Company, Inc. 3.0
Royal Dutch Petroleum Co. (ADR) 3.0
PacifiCorp 3.0
Anheuser Busch Cos., Inc., Rights 3.0
</TABLE>
* Portfolio holdings are subject to change.
Portfolio Positioning
As a result of extremes in valuations within the technology sector, we have
underweighted this sector throughout the year. This underweighting, and specific
technology stock selection, prevented the Fund from performing even better than
it has. Overweightings in Finance and Aerospace/Defense stocks contributed
nicely to the Fund's performance. As long-term investors, we continue to
emphasize stocks within these and other sectors that meet our time-proven
formula for success: purchasing stock in good businesses at attractive
valuations.
Sincerely,
Randall L. Yoakum, CFA
Senior Vice President,
Director of Equity and Balanced Portfolio
Management
Boatmen's Trust Company
<PAGE> 6
6
LETTERS FROM THE FUNDS' MANAGERS
Pilot Equity Income Fund
Dear Shareholder:
The Fund completed its first fiscal year as a registered mutual fund on August
31, 1995 with a total return of 16.69% for the Pilot Shares, which are available
to trust customers (for Class A and B Shares, which are available to retail
customers, NAV returns were 12.78% and 17.36%, respectively).
Investment Philosophy
In managing the Equity Income Fund, we follow a disciplined valuation approach
to identify companies that represent superior long-term investment values. We
also emphasize companies which offer high current dividend yields. At the end of
our fiscal year we held 37 individual securities with 28 common stocks and 9
convertible securities. Our use of convertibles has helped to maintain a higher
yield for the Fund which stood at approximately 4% at fiscal year-end.
Average Portfolio Composition*
as of 8/31/95
[PIE CHART]
Convertible Bonds & Preferred Stock 21%
Cash 4%
Equity Securities 75%
Portfolio and S&P 500(R) Index*
Composition by Sector
as of 8/31/95
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Pilot Equity S&P 500(R)
Income Fund Index
------------ ----------
<S> <C> <C>
Finance 16.8% 12.6%
Materials & Processing 7.6 8.0
Industrial Goods & Services 4.2 9.8
Retailing 2.9 6.6
Consumer Staples 13.1 11.4
Consumer Cyclicals 5.4 8.5
Health Care 9.7 9.5
Energy 12.7 9.8
Technology 0.0 11.6
Utilities 27.6 12.2
- ---------------------------------------------------------------------------------
</TABLE>
* Portfolio holdings are subject to change.
<PAGE> 7
7
Top Ten Holdings*
as of 8/31/95
<TABLE>
<CAPTION>
- ------------------------------------------------------
Company % of Portfolio
- ------- --------------
<S> <C>
CIGNA Corp. 4.7
Unicom Corporation 4.1
Oklahoma Gas & Electric Company 4.1
ConAgra Inc. 3.9
Philip Morris Company, Inc. 3.8
Aetna Life & Casualty Company 3.8
Consolidated Edison Co. NY 3.4
Kimberly Clark Corporation 3.3
PacifiCorp 3.2
Cooper Industries Inc. (Pfd.) 3.1
- ------------------------------------------------------
</TABLE>
* Portfolio holdings are subject to change.
We believe two major macroeconomic factors affected the Fund's
investments this year: first, the downward trend in interest rates, and
second, the strong performance of technology stocks. The first has made it
harder to maintain our high yield profile in the Fund, while the second
adversely affected performance. Due to the very nominal yields in the
technology area, we had no individual investments in this industry. Since this
was the single best performing group of stocks in the market this year, it had
a decidedly negative impact on our portfolio performance. We would expect this
trend to eventually run its course and concurrently our relative performance
should show gradual improvement. Through most of the year the underweighting in
technology was offset by overweighting in finance, energy, and utilities. We
continue to have above average exposure in these three sectors and believe that
some of the better long-term values, as well as higher yields, are offered by
the companies within them. Over the period of a full market cycle this
commitment to value and yield should result in positive relative performance.
Sincerely,
David W. Papendick, CFA
Vice President,
Senior Portfolio Manager
Boatmen's Trust Company
<PAGE> 8
LETTER FROM THE PORTFOLIO MANAGERS 8
Pilot U.S. Government Securities Fund
Pilot Intermediate U.S. Government Securities Fund
DEAR SHAREHOLDER:
Through August, economic conditions during 1995 have generally provided a
favorable environment for fixed income investments. Following a tumultuous
1994, in which strong economic growth spurred rising inflation fears and a
series of interest rate increases by the Federal Reserve, the economic
landscape this year has been quite rewarding to bond investors. News of slower
business activity during the first half of 1995 has dramatically calmed
inflation concerns, driving long-term interest rates lower and bond prices
higher. The net result has been strong year-to-date returns for investors,
including shareholders of The Pilot U.S. Government Securities Fund and The
Pilot Intermediate U.S. Government Securities Fund.
Pilot U.S. Government Securities Fund
In early 1995, it paid to take an aggressive position in bonds. At the onset of
the year, long-term interest rates were near 8% while inflation, as measured by
the Consumer Price Index, was running below 3%. Those circumstances provided
investors with a rare opportunity to capture "real", or inflation-adjusted,
yields of more than 5%. The Pilot U.S. Government Securities Fund was well
positioned to benefit from this environment by maintaining an average maturity
and duration well above the market averages. As market yields declined, and the
potential for further
<TABLE>
<CAPTION>
Maturity Distribution of Securities*
as of 8/31/95
<S> <C>
0-10 Years 49%
10-20 Years 0%
20-30 Years 51%
</TABLE>
<TABLE>
<CAPTION>
Security Holdings*
as of 8/31/95
<S> <C>
U.S. Treasury Bonds 98.7%
Repurchase Agreements
and Other 1.3%
</TABLE>
*Portfolio holdings are subject to change.
<PAGE> 9
9
gains became more moderate, the Fund gradually adopted a more conservative
structure. While the average maturity and duration of the Fund remain slightly
above those of the Lehman Brothers Government Bond Index and comparable market
benchmarks, the maturity profile of the Fund is meaningfully less aggressive
than it was at the beginning of the year.
Pilot Intermediate U.S. Government Securities Fund
Consistent with its objectives, The Pilot Intermediate U.S. Government
Securities Fund generally maintains a conservative stance with regard to its
average maturity and overall portfolio structure. To limit potential volatility
in performance, the Fund targets investments solely in bonds and notes maturing
in 10 years of less. Despite this conservative stance, the Fund has generated
solid returns from income and market appreciation through August. Consistent
with our overall economic outlook and management strategy, the Fund maintained
an average maturity and duration slightly longer than its comparative market
benchmark, the Lehman Brothers Government Intermediate Index, at the beginning
of 1995. As market yields declined, the average maturity and duration were
reduced to levels essentially equal to the Intermediate Index.
<TABLE>
MATURITY DISTRIBUTION OF SECURITIES*
as of 8/31/95
[GRAPH]
<S> <C>
0-3 Years 63%
3-5 Years 15%
5-10 Years 35%
</TABLE>
<TABLE>
SECURITIES HOLDINGS*
as of 8/31/95
[PIE CHART]
<S> <C>
U.S. Treasury Notes 79.0%
Corporate Obligations 11.9%
Asset Backed Obligations 6.7%
Repurchase Agreements 2.4%
</TABLE>
* Portfolio holdings are subject to change.
<PAGE> 10
10
LETTER FROM THE PORTFOLIO MANAGERS
Looking Ahead
Our long-term outlook for inflation, interest rates, and bond performance
remains quite favorable, but our constructive view is moderated by near-term
concerns. Signs of renewed strength in the economy continue to emerge. Interest
costs to homeowners and businesses have declined, while personal income and
wealth are generally expanding. These are favorable developments for most of
us, but we feel too much "good news" can begin to push interest rates higher and
bond prices lower should inflation pressures begin to rise.
At present yield levels, bonds continue to offer value to long-term
investors, but we believe a somewhat more conservative stance is called for. We
have positioned the two Pilot U.S. Government Securities Funds accordingly.
Sincerely,
Frank J. Aten, CPA
Senior Vice President,
Director of Taxable Fixed Income
Boatmen's Trust Company
<PAGE> 11
Pilot Municipal Bond Fund
Pilot Intermediate Municipal Bond Fund
DEAR SHAREHOLDER:
Since the inception of the two Pilot Municipal Bond Funds on November 7, 1994,
there have been several major drivers in the tax-exempt bond market. First, the
Federal Reserve has slowed the economy from its above-potential pace causing
inflation to recede and the bond market to rally. This, coupled with a 40%
reduction in new municipal bond supply, generated a strong rally in the
tax-exempt market through April. The next major driver has been the prospect of
tax reform which could serve to reduce the attractiveness of all municipal
bonds. These proposals, which range from a flat tax to a value-added tax,
caused demand for tax-exempts to wane, especially for longer maturity bonds,
Market repositioning out of longer maturity bonds into shorter maturity bonds
caused the yield curve to steepen, erasing some of the earlier gains long
municipals had seen. The final driver in the market was slower economic and
inflation news than had been anticipated, allowing the Federal Reserve to reduce
the Federal Funds Rate by 25 basis points. The municipal market cautiously
responded to this positive news but remained cognizant of the possibility that
tax reform still looms ahead.
Pilot Municipal Bond Fund
The Pilot Municipal Bond Fund maintained a duration longer than the Lehman
Brothers Municipal Bond Index for most of the past year due to our inflation
outlook and the inflation-adjusted yields available. However, as these real
yields declined and tax-reform proposals continued, we adopted a more
conservative stance and moved the duration of the Fund very close to the Index.
The Fund continued to purchase high quality revenue bonds with good call
protection to enhance the tax-free income generated by the portfolio.
MATURITY DISTRIBUTION OF SECURITIES*
as of 8/31/95
[BAR GRAPH -- DATA TO COME]
* Portfolio holdings are subject to change.
<PAGE> 12
Portfolio Sector Allocation*
as of 8/31/95
[PIE CHART-READING CLOCKWISE]
<TABLE>
<S> <C>
Insured 31.8%
Government Back 12.0%
Electric Utility 10.1%
Water/Sewer 7.5%
Transportation 2.2%
Hospital 1.6%
IDR 1.9%
Miscellaneous 4.4%
General Obligation 28.5%
<CAPTION>
Portfolio Allocation by State*
as of 8/31/95
[PIE CHART-READING CLOCKWISE]
<S> <C>
Other 27.6%
Arizona 3.4%
California 8.8%
Florida 7.5%
Georgia 3.6%
Illinois 7.9%
Michigan 3.3%
Missouri 20.6%
Texas 7.2%
Washington 10.1%
<CAPTION>
Investment Ratings of Securities*
as of 8/31/95
[PIE CHART-READING CLOCKWISE]
<S> <C>
Other 0.2%
A 14.5%
AA 40.2%
AAA 45.1%
</TABLE>
*Portfolio holdings are subject to change.
Pilot Intermediate Municipal Bond Fund
Since inception on November 7, 1994, The Pilot Intermediate Municipal Bond Fund
has maintained a duration consistent with the Lehman Brothers 5-Year Municipal
Bond Index. This reflects our more cautious stance on the near-term outlook for
short rates. In addition, yields on short tax-exempt bonds have been
unattractive to their taxable counterparts due to buyers flocking to this area
of the yield curve in light of potential tax reform. We have continued to look
for opportunities to increase yield through purchases of higher coupon bonds
that can be held until maturity. Our emphasis on high quality remains intact.
Our Parameters for Investing
Our philosophy for the two Pilot Municipal Bond Funds centers on a conservative
approach to investing. We believe credit quality is of the utmost importance
and, as such, invest only in high quality or high grade bonds. The income earned
from the Funds is exempt from federal taxes. Certain investors, however, may be
subject to the alternative minimum tax and/or to state and local taxes. Our
internal investment guidelines limit the average maturity on The Pilot
Intermediate Municipal Bond Fund to three to ten years which is much shorter
than the average intermediate municipal bond fund. In managing both Pilot Funds
we attempt to maximize after-tax returns by limiting realized capital gains.
<PAGE> 13
Maturity Distribution of Securities*
as of 8/31/95
[BAR GRAPH--DATA TO COME]
Portfolio Section Allocation*
as of 8/31/95
[PIE CHART-READING CLOCKWISE]
<TABLE>
<S> <C>
General Obligation 47.7%
Insured 25.4%
Government Backed 2.2%
Electric Utility 8.5%
Water/Sewer 7.2%
Transportation 2.0%
Hospital 2.4%
Miscellaneous 4.6%
<CAPTION>
Investment Ratings of Securities*
as of 8/31/95
[PIE CHART-READING CLOCKWISE]
<S> <C>
AAA 33.1%
AA 54.8%
A 10.7%
Other 1.4%
<CAPTION>
Portfolio Allocation by State*
as of 8/31/95
[PIE CHART-READING CLOCKWISE]
<S> <C>
Other 34.2%
Arizona 7.2%
California 5.0%
Hawaii 4.7%
Illinois 5.2%
Missouri 14.0%
New Jersey 3.8%
Texas 13.4%
Washington 9.0%
Wisconsin 3.5%
</TABLE>
Looking Ahead
A subdued inflation environment continues to support our longer-term bond market
outlook. We do recognize, however, that at current interest rates the market may
be somewhat overvalued. In addition, volatility is likely to be higher than
normal as tax-reform proposals and presidential campaign rhetoric weigh on the
tax-exempt market. Therefore, we will continue to maintain the duration of both
The Pilot Municipal Bond Fund and The Pilot Intermediate Municipal Bond Fund
near their respective benchmarks.
Sincerely,
Jennifer R. Wacker, CPA
Vice President,
Director of Tax-Exempt Fixed Income
Boatmen's Trust Company
*Portfolio holdings are subject to change.
<PAGE> 14
PILOT GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 2)
- -------------------------------------------------------------
<S> <C>
COMMON STOCKS--95.9%
CONSUMER CYCLICAL--8.7%
AUTOMOTIVE--1.9%
70,000 Ford Motor Co. $ 2,143,750
-------------
HOUSING & FURNISHING--2.1%
60,000 Owens Corning Fiberglass Corp.* 2,355,000
-------------
MEDIA--4.7%
30,000 McGraw-Hill Companies, Inc. 2,362,500
150,000 Tele-Communications, Inc., Class A* 2,775,000
-------------
5,137,500
-------------
CONSUMER STAPLES--9.8%
BEVERAGE & TOBACCO--4.9%
55,000 Anheuser Busch Cos., Inc. 3,141,875
30,000 Philip Morris Cos., Inc. 2,238,750
-------------
5,380,625
-------------
FOOD PROCESSING--4.9%
168,000 Archer Daniels Midland Co. 2,793,000
98,000 Sara Lee Corp. 2,719,500
-------------
5,512,500
-------------
ENERGY--6.9%
DIVERSIFIED NATURAL GAS--0.9%
29,000 Enron Corp. 975,125
-------------
INTEGRATED OIL--6.0%
70,000 Chevron Corp. 3,386,250
27,000 Royal Dutch Petroleum Co. (ADR) 3,219,750
-------------
6,606,000
-------------
FINANCE--17.0%
BANKING--6.2%
40,098 BankAmerica Corp. 2,265,537
40,785 Chemical Banking Corp. 2,375,726
30,000 J.P. Morgan and Company 2,186,250
-------------
6,827,513
-------------
FINANCIAL SERVICES--2.8%
47,582 Federal Home Loan Mortgage Corp. 3,057,143
-------------
<CAPTION>
Value
Shares Description (Note 2)
- -------------------------------------------------------------
<S> <C>
INSURANCE--8.0%
40,000 AETNA Life and Casualty Co. $ 2,730,000
21,000 General RE Corp. 3,121,125
37,000 Marsh & McClennan Companies, Inc. 3,047,875
-------------
8,899,000
-------------
HEALTHCARE--9.9%
MEDICAL SUPPLIES & SERVICES--4.7%
70,000 Mallinckrodt Group, Inc. 2,633,750
80,000 U.S. Healthcare, Inc. 2,560,000
-------------
5,193,750
-------------
PHARMACEUTICALS--5.2%
64,576 Merck & Co., Inc. 3,220,728
54,000 Schering-Plough Corp. 2,517,750
-------------
5,738,478
-------------
INDUSTRIAL GOODS & SERVICES--12.0%
AEROSPACE--7.6%
55,000 Boeing Co. 3,506,250
42,000 Lockheed Martin Corp. 2,556,750
30,000 Raytheon Co. 2,426,250
-------------
8,489,250
-------------
COMMERCIAL SERVICES--2.5%
95,000 WMX Technologies, Inc. 2,790,625
-------------
MANUFACTURING--1.9%
54,380 Cooper Industries, Inc. 2,066,440
-------------
MATERIALS & PROCESSING--5.5%
CHEMICALS--SPECIALTY--3.7%
107,000 Pall Corp. 2,340,625
36,206 Sigma Aldrich 1,737,888
-------------
4,078,513
-------------
PAPER & FOREST PRODUCTS--1.8%
25,000 International Paper Co. 2,046,875
-------------
RETAILING--7.0%
DEPARTMENT STORES--5.2%
33,000 Dayton Hudson Corp. 2,413,125
25,000 May Department Stores Co. 1,059,375
71,000 Sears Roebuck & Co. 2,298,625
-------------
5,771,125
-------------
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
See Notes to Financial Statements.
14
<PAGE> 15
PILOT GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 2)
- -------------------------------------------------------------
<S> <C>
SPECIALTY STORES--1.8%
50,000 Home Depot, Inc. $ 1,993,750
-------------
TECHNOLOGY--7.2%
COMPUTERS & OFFICE EQUIPMENT--2.0%
52,000 Apple Computer 2,236,000
-------------
SOFTWARE & SERVICES--5.2%
50,000 Automatic Data Processing, Inc. 3,250,000
140,000 Novell, Inc.* 2,520,000
-------------
5,770,000
-------------
UTILITIES--11.9%
COMMUNICATION--6.1%
62,000 AT & T Corp. 3,503,000
135,000 MCI Communications Corp. 3,248,438
-------------
6,751,438
-------------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares Description (Note 2)
- -------------------------------------------------------------
<S> <C>
ELECTRIC POWER--5.8%
175,000 PacifiCorp $ 3,171,875
115,000 Unicom Corp. 3,234,375
-------------
6,406,250
- -------------------------------------------------------------
TOTAL COMMON STOCKS (cost $93,414,117) 106,226,650
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
(000)
- -------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENT--4.3%
$4,777 Repurchase agreement with State
Street Bank and Trust, dated
8/31/95, 5.80% due 9/01/95, with a
maturity value of $4,777,770
(cost $4,777,000) (see Footnote A) 4,777,000
- -------------------------------------------------------------
TOTAL INVESTMENTS--100.2% (cost $98,191,117) 111,003,650
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.2%) (222,336)
- -------------------------------------------------------------
NET ASSETS--100.0% $ 110,781,314
- -------------------------------------------------------------
</TABLE>
ADR--American Depository Receipt.
* Non-income producing security.
Footnote A
Collateralized by $4,670,000 U.S. Treasury Note, 6.875%, due 3/31/97 with a
value of $4,874,313.
- ----------------------------------------------------------
- ----------------------------------------------------------
See Notes to Financial Statements.
15
<PAGE> 16
PILOT EQUITY INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 2)
- -------------------------------------------------------------
<S> <C>
COMMON STOCKS--75.2%
CONSUMER STAPLES--5.6%
BEVERAGES AND TOBACCO--5.6%
49,404 Philip Morris Companies Inc. $ 3,686,773
70,000 UST Inc. 1,907,500
------------
5,594,273
------------
ENERGY--8.6%
INTEGRATED OIL--8.6%
33,524 AMOCO Corp. 2,137,155
19,409 Atlantic Richfield Co. 2,118,007
27,645 Exxon Corp. 1,900,594
37,645 Texaco Inc. 2,437,514
------------
8,593,270
------------
FINANCE 14.1%
BANKING--5.4%
35,288 Bankers Trust New York Corp. 2,430,461
89 Chase Manhattan Corp., Warrants Exp.
6/30/96* 2,069
41,000 J.P. Morgan and Company 2,987,875
------------
5,420,405
------------
INSURANCE--6.1 %
53,991 Aetna Life and Casualty Company 3,684,886
24,702 Cigna Corp. 2,389,919
------------
6,074,805
------------
MISCELLANEOUS FINANCE--2.6 %
63,519 American Express Co. 2,564,580
------------
HEALTHCARE--9.3%
PHARMACEUTICALS--9.3%
35,147 American Home Products Corp. 2,706,319
35,359 Bristol-Myers Squibb Co. 2,426,511
100,577 Glaxo Wellcome PLC (ADR) 2,388,704
35,288 Merck & Co., Inc. 1,759,989
------------
9,281,523
------------
MATERIALS AND PROCESSING--8.2%
CHEMICALS (BASIC)--2.7%
45,875 Akzo Nobel N. V. (ADR) 2,706,625
------------
<CAPTION>
Value
Shares Description (Note 2)
- -------------------------------------------------------------
<S> <C>
CHEMICALS (SPECIALTY)--2.3%
54,111 Betz Laboratories, Inc. $ 2,265,898
------------
PAPER AND FOREST PRODUCTS--3.2%
50,000 Kimberly Clark Corp. 3,193,750
------------
RETAILING--2.8%
DEPARTMENT AND DISCOUNT STORES--2.8%
62,000 J.C. Penney, Inc. 2,805,500
------------
UTILITIES--26.6%
COMMUNICATIONS--6.6%
73,519 GTE Corp. 2,692,633
24,702 NYNEX Corp. 1,111,590
63,000 U. S. West, Inc. 2,740,500
------------
6,544,723
------------
ELECTRIC POWER--17.1%
115,857 Allegheny Power Systems, Inc. 2,824,014
115,000 Consolidated Edison Company New York,
Inc. 3,248,750
110,000 Oklahoma Gas & Electric Co. 3,891,250
169,660 PacifiCorp 3,075,088
141,154 UNICOM Corp. 3,969,956
------------
17,009,058
------------
NATURAL GAS AND WATER--2.9%
113,800 NICOR, Inc. 2,916,125
- --------------------------------------------------------------
TOTAL COMMON STOCKS (cost $65,724,960) 74,970,535
- --------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS--13.2%
CONSUMER STAPLES--3.8%
FOOD PROCESSING--3.8%
97,043 ConAgra Inc., Series E, $1.6875 3,748,286
------------
CONSUMER CYCLICAL--5.1%
AUTOMOTIVE--2.7%
27,645 Ford Motor Co., Class A 2,754,133
------------
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
See Notes to Financial Statements.
16
<PAGE> 17
PILOT EQUITY INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 2)
- --------------------------------------------------------------
<S> <C>
MEDIA--2.4%
100,000 Times Mirror Co., Series B, $1.374 $ 2,412,500
------------
ENERGY--1.9%
INTEGRATED OIL--1.9%
35,288 Ashland Inc., $3.125 1,879,086
------------
MATERIALS AND PROCESSING--2.4%
PAPER AND FOREST PRODUCTS--2.4%
50,000 International Paper Co., 5.25%, 144A 2,362,500
- --------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $12,738,668) 13,156,505
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Maturity
(000) Rate Date
- -----------------------------------------------------------------
<S> <C>
CONVERTIBLE BONDS--7.9%
FINANCE--2.1%
INSURANCE--2.1%
$ 1,503 Cigna Corp. 8.20% 7/10/10 2,096,685
------------
ENERGY--1.7%
INTEGRATED OIL--1.7%
1,764 Pennzoil Co. 4.75 10/01/03 1,666,980
------------
INDUSTRIAL GOODS & SERVICES--4.1%
COMMERCIAL SERVICES--1.1%
1,058 Browning Ferris
Industries 6.75 7/18/05 1,052,710
------------
<CAPTION>
Principal
Amount Maturity Value
(000) Rate Date (Note 2)
- -----------------------------------------------------------------
<S> <C>
MANUFACTURING--3.0%
$ 2,922 Cooper Industries,
Inc. 7.05% 1/01/15 $ 2,995,050
- -----------------------------------------------------------------
TOTAL CONVERTIBLE BONDS (cost $6,975,945) 7,811,425
- -----------------------------------------------------------------
REPURCHASE AGREEMENTS--3.5%
3,519 Repurchase agreement with State Street
Bank and Trust, dated 8/31/95, 5.80% due
9/01/95, with a maturity value of
$3,519,567 (cost $3,519,000)
(See Footnote A) 3,519,000
- -----------------------------------------------------------------
TOTAL INVESTMENTS--99.8% (cost $88,958,573) 99,457,465
OTHER ASSETS IN EXCESS OF LIABILITIES--0.2% 173,541
- -----------------------------------------------------------------
NET ASSETS--100.0% $ 99,631,006
----------------------------------------------------------
</TABLE>
ADR--American Depository Receipt.
* Non-income producing security.
Footnote A
Collateralized by $3,440,000 U.S. Treasury Note, 6.875%, due 3/31/97, with a
market value of $3,590,500.
- ----------------------------------------------------------
- ----------------------------------------------------------
See Notes to Financial Statements.
17
<PAGE> 18
PILOT U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Maturity Value
(000) Rate Date (Note 2)
- ---------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--97.5%
U.S. TREASURY BONDS--49.9%
$ 57,800 U.S. Treasury Bond 7.50 % 11/15/16 $ 62,586,418
5,800 U.S. Treasury Bond 7.125 2/15/23 6,056,476
------------
68,642,894
------------
U.S. TREASURY NOTES--47.6%
9,500 U.S. Treasury Note 4.25 11/30/95 9,470,265
10,500 U.S. Treasury Note 6.50 9/30/96 10,583,685
10,500 U.S. Treasury Note 6.875 10/31/96 10,629,570
9,800 U.S. Treasury Note 7.25 11/30/96 9,968,462
14,000 U.S. Treasury Note 6.875 2/28/97 14,214,340
10,500 U.S. Treasury Note 6.50 4/30/97 10,609,935
------------
65,476,257
TOTAL U.S. GOVERNMENT OBLIGATIONS
(cost $125,678,942) 134,119,151
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000) (Note 2)
- ---------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENTS--1.3%
$ 1,766 Repurchase agreement with State
Street Bank and Trust, dated
8/31/95, 5.80% due 9/01/95, with a
maturity value of $1,766,285 (cost
$1,766,000) (See Footnote A) 1,766,000
TOTAL INVESTMENTS--98.8%
(cost $127,444,942) 135,885,151
OTHER ASSETS IN EXCESS OF LIABILITIES--1.2% 1,608,458
NET ASSETS--100.0% $137,493,609
</TABLE>
- ----------------------------------------------------------
Footnote A
Collateralized by $1,870,000 U.S. Treasury Note, 5.75%, due 8/15/03 with a
market value of $1,804,550.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
18
<PAGE> 19
PILOT INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Maturity Value
(000) Rate Date (Note 2)
- ------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS
--78.7%
U.S. TREASURY NOTES--78.7%
$ 16,000 U.S. Treasury Note 8.125% 2/15/98 $ 16,792,480
25,000 U.S. Treasury Note 7.875 11/15/04 27,621,000
45,500 U.S. Treasury Note 7.50 2/29/96 45,912,230
7,000 U.S. Treasury Note 7.125 2/29/00 7,280,000
2,500 U.S. Treasury Note 6.50 8/15/97 2,529,675
6,250 U.S. Treasury Note 6.50 5/15/05 6,329,125
21,500 U.S. Treasury Note 6.25 2/15/03 21,476,565
2,700 U.S. Treasury Note 6.125 5/15/98 2,712,663
- -----------------------------------------------------------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS
(cost $126,549,783) 130,653,738
- -----------------------------------------------------------------
CORPORATE OBLIGATIONS--11.8%
ELECTRIC UTILITIES--1.1%
2,000 Southern
California
Edison Co. 5.45 6/15/98 1,931,180
-------------
FINANCE AND BANKING--7.1%
1,000 American General
Finance Corp. 7.25 4/15/00 1,026,300
2,650 Ford Motor
Credit Co. 6.25 2/26/98 2,650,609
2,500 NBD Bank N.A.,
Indiana 7.50 2/28/98 2,570,800
2,500 Norwest Corp. 7.875 1/30/97 2,564,275
2,000 Transamerica
Financial Corp. 6.80 3/15/99 2,020,720
1,000 USAA Capital
Corp., Medium
Term Note 4.76 1/28/97 982,680
-------------
11,815,384
-------------
FOREIGN GOVERNMENT--0.9%
1,500 Ontario Province 6.125 6/28/00 1,475,085
-------------
INDUSTRIALS--2.7%
2,000 J.C.Penney, Inc. 5.375 11/15/98 1,945,980
<CAPTION>
Principal
Amount Maturity Value
(000) Rate Date (Note 2)
- -----------------------------------------------------------------
<S> <C>
$ 2,500 Wal Mart Stores,
Inc. 5.50 % 9/15/97 $ 2,466,975
-------------
4,412,955
- -----------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(cost $18,978,628) 19,634,604
- -----------------------------------------------------------------
ASSET-BACKED OBLIGATIONS--6.8%
2,565 Banc One Credit
Card Master
Trust 94-BA 7.55 12/15/99 2,637,128
2,200 Discover Card
Master Trust
93-2A 5.40 11/16/01 2,143,614
2,525 Peoples Bank
Credit Card
Master Trust
94-1A 5.10 8/15/97 2,491,847
1,450 Standard Credit
Card Master
Trust 93-3A 5.50 2/07/00 1,412,387
2,400 Standard Credit
Card Master
Trust 95-3A 7.85 2/07/02 2,524,222
- -----------------------------------------------------------------
TOTAL ASSET BACKED OBLIGATIONS
(cost $10,782,784) 11,209,198
- -----------------------------------------------------------------
REPURCHASE AGREEMENT--2.4%
3,921 Repurchase agreement with State Street
Bank and Trust, dated 8/31/95, 5.80%
due 9/01/95, with a maturity value of
$3,921,632 (cost $3,921,000)
(See Footnote A) 3,921,000
- -----------------------------------------------------------------
TOTAL INVESTMENTS--99.7% (cost $160,232,195) 165,418,540
OTHER ASSETS IN EXCESS OF LIABILITIES--1.3% 521,588
- -----------------------------------------------------------------
NET ASSETS--100.0% $ 165,940,128
- -----------------------------------------------------------------
</TABLE>
Footnote A
Collateralized by $3,835,000 U.S. Treasury Note, 6.875%, due 3/31/97 with a
market value of $4,002,781.
- ----------------------------------------------------------
- ----------------------------------------------------------
See Notes to Financial Statements.
19
<PAGE> 20
PILOT MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (Unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS--96.8%
ALABAMA--0.7%
$1,000.. Huntsville, G.O. Aa/AA 6.75% 4/01/11 $ 1,057,465
------------
ARIZONA--3.4%
300 Flagstaff, Series A, G.O., (FGIC Insured) Aaa/AAA 4.50 7/01/08 274,433
700 Phoenix, Series C, G.O. Aa/AA+ 5.10 7/01/13 649,606
400 Pima County University School Dist., Series D, G.O. (FGIC
Insured) Aaa/AAA 6.10 7/01/11 412,345
2,000 Salt River Proj. Agric. Impt. & Power Dist. Electric
Systems Rev Series C Aa/AA 6.25 1/01/19 2,034,830
900 Salt River Proj. Agric., Series C Aa/AA 5.00 1/01/16 805,707
900 Tucson, Series 1984-G, G.O. (FGIC Insured) Aaa/AAA 6.25 7/01/16 927,769
------------
5,104,690
------------
CALIFORNIA--8.9%
400 California State, G.O. A1/A 9.10 11/01/01 494,439
200 California State, G.O. A1/A 9.00 6/01/02 248,572
1,000 California State, Non-Callable A1/A 7.10 9/01/02 1,138,564
500 California State, Series AM, G.O. A1/A+ 9.00 10/01/02 626,518
200 California State, Series-AQ, G.O. A1/A+ 9.10 10/01/02 251,798
200 California State, Series AM, G.O. A1/A+ 9.00 10/01/03 254,176
1,000 California State, G.O. A1/A 7.00 8/01/04 1,147,067
200 California State, Series AN, G.O. A1/A+ 9.00 4/01/05 257,654
200 California State, G.O. A1/A 7.20 4/01/05 230,694
700 California State, G.O. A1/A 7.00 8/01/05 802,474
400 California State, G.O. A1/A 7.10 3/01/07 459,546
400 California State University Rev., Revenue Bonds Aaa/AAA 6.00 11/01/10 410,678
500 Long Beach Water Rev., Revenue Bonds Aa/AA 6.00 5/01/14 503,868
200 Los Angeles Dept. Water & Power Waterworks Rev. Aa/AA 7.70 5/15/07 221,554
1,000 Los Angeles Wastewater Systems Rev., Series C, (MBIA
Insured) Aaa/AAA 5.50 6/01/14 949,459
500 Los Angeles County Met Trans. Authority Sales Tax Rev.
Prop. A- Series A, (MBIA Insured) Aaa/AAA 5.63 7/01/18 473,528
400 Los Angeles County Sanitation Dist. Fin. Authority Rev.
Cap Proj.-Series A Aa/AA 5.38 10/01/13 372,815
2,000 Metropolitan Water Dist Southern, Revenue Bonds Aa/AA 5.75 7/01/15 1,962,722
500 San Francisco Rapid Transit Dist Sales Tax Rev. (AMBAC
Insured) Aaa/AAA 6.75 7/01/11 562,618
700 San Francisco City & County Sewer Rev., (AMBAC Insured) Aaa/AAA 5.50 10/01/15 663,327
600 San Francisco City & County Pub. Utils. Common Water Rev.
Series A, Revenue Bonds Aa/AA 6.00 11/01/15 600,000
500 University Revs, Proj.-Series C, (AMBAC Insured) Aaa/AAA 5.25 9/01/16 450,054
500 University Revs, Proj.-Series C, (AMBAC Insured) Aaa/AAA 5.00 9/01/14 448,996
------------
13,531,121
------------
COLORADO--0.1%
200 Colorado Springs Utils, Series A Aa/AA 6.50 11/15/15 209,992
------------
FLORIDA--7.5%
2,500 Broward County School Dist, G.O. A1/AA- 5.60 2/15/07 2,547,692
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
20
<PAGE> 21
PILOT MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (Unaudited) Rate Date (Note 2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLORIDA (continued)
$ 500 Florida State Board Education Cap Outlay, G.O. Aa/AA 6.13% 6/01/10 $ 519,935
400 Florida State Board Education Cap. Outlay, G.O., Series D Aa/AA 5.20 6/01/13 373,581
1,000 Florida State Board Education Cap. Outlay, G.O. Aa/AA 5.50 6/01/14 961,465
700 Florida State Board Education Cap. Outlay, G.O., Series D Aa/AA 5.00 6/01/15 630,794
200 Florida State Board Education Cap. Outlay, G.O., Series A Aa/AA 7.25 6/01/23 220,084
700 Florida State Board Education Cap. Outlay, G.O., Series E Aa/AA 5.25 6/01/18 640,903
300 Florida State Board Education Public Education, G.O.,
Series B1 Aaa /AAA 7.88 6/01/19 334,135
400 Jacksonville Electric Authority Rev.-St. Johns River
Power Park Systems , Series 10 Aa1/AA 5.50 10/01/13 386,212
2,000 Jacksonville Electric Authority Rev.-St. Johns River
Power Park Systems Aaa/AAA 5.38 10/01/15 1,885,082
200 Jacksonville Electric Authority Rev.-St. Johns River
Power Park Systems ,Series 5 Aaa/AAA 9.50 10/01/20 204,964
600 Jacksonville Trans. Authority, G.O. Aaa/AAA 9.00 1/01/04 675,070
1,200 Orlando Utils Common Water & Electric Rev., Series D Aa/AA- 6.75 10/01/17 1,332,860
700 Orlando Utils Common Water & Electric Rev., Series A Aa/AA- 5.50 10/01/12 681,824
------------
11,394,601
------------
GEORGIA--3.6%
1,100 Atlanta, G.O. Aa/AA 5.60 12/01/11 1,103,391
600 Atlanta, G.O. Aa/AA 5.60 12/01/15 593,497
800 De Kalb County, G.O. Aa1/AA+ 5.25 1/01/20 744,911
200 Fulton County Water & Sew Rev., (FGIC Insured) Aaa/AAA 6.38 1/01/14 213,917
300 Municipal Electric Authority Rev., Series V A/A+ 6.50 1/01/12 317,379
1,000 Municipal Electric Authority Rev., Series V A/A+ 6.60 1/01/18 1,078,347
1,000 Municipal Electric Authority Rev., Series B A/NR 6.25 1/01/12 1,033,084
400 Henry County School Dist., G.O., (MBIA Insured) Aaa/AAA 6.00 8/01/14 407,352
------------
5,491,878
------------
HAWAII--0.1%
200 Hawaii State, Series BW, G.O. Aa/AA 6.25 3/01/12 209,476
------------
ILLINOIS--7.9%
400 Chicago, Series 1993, G.O., (FGIC Insured) Aaa/AAA 5.38 1/01/13 377,977
600 Chicago Met. Water-Cap.. Impt., G.O. Aa/AA 5.50 12/01/12 579,847
400 Chicago Park Dist.-Cap. Impt, G.O., (FGIC Insured) Aaa/AAA 6.05 1/01/13 404,792
600 Du Page County, Ref. Jail Proj., G.O. Aaa/AAA 5.50 1/01/13 576,001
600 Du Page County, Ref. Jail Proj., G.O. Aaa/AAA 5.60 1/01/21 567,400
600 Du Page Water Common Water Rev. Aa/AA 5.25 5/01/14 554,896
200 Illinois State, G.O. A1/AA- 9.50 11/01/03 224,339
400 Illinois State, G.O. NR/AA- 8.00 10/01/04 439,023
2,340 Illinois State, G.O. A1/AA- 5.88 6/01/11 2,354,059
2,000 Illinois State, G.O. Aaa/AAA 6.00 2/01/16 2,004,792
800 Illinois State, G.O. A1/AA- 5.50 8/01/18 746,721
600 Illinois State, G.O. A1/AA- 5.80 4/01/19 579,061
700 Illinois State Sales Tax Rev., Series S A1/AAA 5.25 6/15/18 635,986
1,550 Northwest Suburban Municipal Joint Action Water Supply
Systems Rev. Series A, (MBIA Insured) Aaa/AAA 5.90 5/01/15 1,533,855
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
21
<PAGE> 22
PILOT MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (Unaudited) Rate Date (Note 2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILLINOIS (continued)
$ 400 Western Illinois University Revs., Ref.-Auxiliary Facs.
Systems, (MBIA Insured) Aaa/AAA 5.25% 4/01/12 $ 372,312
------------
11,951,061
------------
KANSAS--1.8%
2,000 Kansas State Dept. Trans. Hwy. Rev., Series A Aa/AA 6.00 9/01/07 2,063,082
700 Kansas State Dept. Trans. Hwy. Rev. Aa/AA 5.38 3/01/13 671,637
------------
2,734,719
------------
KENTUCKY--0.6%
1,000 Kentucky State Turnpike Authority Economic Development
Rev. Aa/AA 5.63 7/01/15 970,839
------------
LOUISIANA--0.6%
400 Louisiana State, G.O. Aaa/AAA 9.38 10/01/03 409,850
400 Louisiana State, Series B, G.O. Aaa/A 8.00 5/01/03 432,733
------------
842,583
------------
MAINE--0.5%
700 Turnpike Authority Turnpike Rev, (MBIA Insured) Aaa/AAA 6.00 7/01/14 709,392
------------
MASSACHUSETTS--2.2%
2,500 Massachusetts, Series A, G.O. (MBIA Insured) Aaa/AAA 5.75 3/01/13 2,486,265
400 Massachusetts, Series A, G.O. A1/A+ 5.00 1/01/14 356,670
500 Massachusetts, Series A, G.O. (MBIA Insured) Aaa/AAA 5.90 8/01/16 494,643
------------
3,337,578
------------
MICHIGAN--3.3%
1,750 Byron Center Public Schools Aaa/AAA 5.97 5/01/15 1,759,425
1,000 Environmental Protection Proj., G.O. A1/AA 6.25 11/01/12 1,063,020
300 Hudsonville Public Schools, Series B, G.O., (FGIC
Insured) Aaa/AAA 6.00 5/01/14 302,557
1,000 Lakeshore Public Schools Aaa/AAA 5.75 5/01/15 980,306
1,000 Michigan State Trunk Line Aaa/AAA 5.63 11/15/14 973,575
------------
5,078,883
------------
MINNESOTA--0.5%
800 Convention Ctr Facs, G.O. Aaa/AAA 5.45 4/01/13 777,930
------------
MISSOURI--20.7%
400 Ballwin, G.O. Aa/NR 5.75 9/01/12 394,036
300 Board Pub Building State Office Building Special Oblig. Aa/AA 6.40 12/01/10 307,712
400 Environmental Impt. & Energy Res. Auth. Water Poll. Ct.-
Revolving FD-Multipart-Series A Aa/NR 6.45 7/01/08 425,092
500 Environmental Impt. & Energy Res. Auth. Water Poll. Ct.-
Revolving FD-Springfield PJ-A Aa/NR 7.00 10/01/10 543,212
300 Environmental Impt. & Energy Res. Auth. Water Poll. Ct.-
Revolving FD-Multipart-A Aa/NR 6.88 6/01/14 325,730
400 Environmental Impt. & Energy Res. Auth. Water Poll. Ct.-
Revolving FD-Multipart-Series A Aa/NR 6.55 7/01/14 419,562
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
22
<PAGE> 23
PILOT MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (Unaudited) Rate Date (Note 2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MISSOURI (continued)
$ 200 Environmental Impt. & Energy Res. Auth. Water Poll. Ct.-
Revolving FD-Multipart-Series A Aa/NR 6.05% 7/01/15 $ 198,838
1,100 Environmental Impt. & Energy Res. Authority Env. Impt.
Rev.- Union Electric Co. (AMBAC-TCRS Insured) Aaa/AAA 7.40 5/01/20 1,206,728
200 Environmental Impt. & Energy Res. Authority Env. Impt.
Rev.- Union Electric Co., Series A A1/A+ 7.40 5/01/20 217,330
200 Health & Educational Facs. Authority Rev.-Gen.
Tuition-St. Louis University, (AMBAC Insured) Aaa/AAA 6.50 8/01/16 207,362
400 Health & Educational Facs. Authority Rev.-St. Louis
University, Series A, (AMBAC Insured) Aaa/AAA 7.75 6/01/07 427,878
200 Health & Educational Facs. Authority Health Facs. Rev.,
Barnes-Jewish Inc. Christian-A Aa/AA 5.20 5/15/11 181,957
200 Health & Educational Facs. Authority Health Facs.
Rev.-Baptist Hosp, Series B Aaa/AAA 8.20 11/15/07 203,831
1,500 Health & Educational Facs. Authority Health Facs.
Rev.-Barnes Hosp NR/AAA 7.13 12/15/09 1,707,478
400 Health & Educational Facs. Authority Health Facs. Rev.-
Children's Mercy Hosp. Proj. (MBIA Insured) Aaa/AAA 5.63 5/15/12 394,004
500 Health & Educational Facs. Authority Health Facs.
Rev.-Deacnes Hlth. Svcs. Corp., (FGIC Insured) Aaa/AAA 6.75 4/01/15 517,650
500 Health & Educational Facs. Authority Health Facs.
Rev.-Deacnes Hlth. Svcs. Corp., (FGIC Insured) Aaa/AAA 6.75 4/01/07 522,303
200 Health & Educational Facs. Authority Health Facs.
Rev.-Hlth. Care Proj., Series B, (MBIA Insured) Aaa/AAA 7.00 6/01/15 224,480
290 Health & Educational Facs. Authority Health Facs.
Rev.-Jewish Hosp St. Louis, (FGIC Insured) Aaa/AAA 7.25 7/01/15 307,896
500 Health & Educational Facs. Authority Health Facs.
Rev.-Sisters Of Mercy Hlth.-A Aa/AA 6.25 6/01/15 503,285
900 Health & Educational Facs. Authority Health Facs Rev.-SSM
Health Care Proj., (BIG Insured) Aaa/AAA 7.75 6/01/16 997,137
700 Health & Educational Facs. Authority Health Facs.
Rev.-St. Louis University, (AMBAC Insured) Aaa/AAA 5.00 10/01/10 653,513
900 Health & Educational Facs. Authority Health Facs.
Rev.-St. Lukes Episcopal-Presbyterian, (FGIC Insured) Aaa/AAA 6.88 12/01/07 935,108
200 Health & Educational Facs. Authority Health Facs.
Rev.-St. Lukes Episcopal Hosp, (FGIC Insured) Aaa/AAA 6.80 12/01/03 215,911
1,000 Independence School Dist, G.O. A1/NR 6.25 3/01/11 1,037,296
200 Jackson County Ind. Dev. Authority Health Care Corp.
Rev.- St. Joseph Health Center Proj. (BIG Insured) Aaa/AAA 8.25 7/01/07 218,435
300 Jefferson City School Dist., Series A Aa/NR 6.70 3/01/11 330,933
400 Kansas City Apartment Rev., Series B, (MBIA Insured) Aaa/AAA 7.20 9/01/08 437,047
500 Kansas City Apartment Rev., Series B, (MBIA Insured) Aaa/AAA 7.20 9/01/09 544,409
400 Kansas City, G.O. Aa/AA 5.75 10/01/07 410,732
400 Kansas City, G.O. Aa/AA 5.75 10/01/11 403,679
1,000 Kansas City-Var. Purpose, G.O. Aa/AA 6.00 3/01/08 1,026,313
400 Mehlville School District 09, G.O., (MBIA Insured) Aaa/AAA 6.00 2/15/13 408,665
1,625 Missouri State Aaa/AAA 5.60 4/01/15 1,615,359
5,000 Missouri State-Third State Building, G.O. Aaa/AAA 7.50 8/01/07 5,261,950
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
23
<PAGE> 24
PILOT MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (Unaudited) Rate Date (Note 2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MISSOURI (continued)
$1,750 Missouri State Housing Development Commission Aaa/AAA 6.10% 9/01/14 $ 1,722,952
400 Ritenour Cons School Dist., Series A, G.O., (FGIC
Insured) Aaa/AAA 6.00 2/01/10 409,580
400 Rolla School Dist. No. 31, G.O. A/NR 6.38 3/01/14 414,317
400 Springfield School Dist. No. R-12, Series A, G.O., (MBIA
Insured) Aaa/AAA 5.25 3/01/11 383,223
800 Springfield Waterworks Rev., Series A Aa/A+ 5.50 5/01/19 749,714
500 St. Louis County Pattonville R-3 School Dist., G.O.,
(FGIC Insured) Aaa/AAA 6.25 2/01/10 544,210
200 St. Louis County Pkwy School, Series A, G.O. Aa/NR 6.00 7/01/10 203,225
500 St. Louis County-Ref. & Impt., Series B, G.O. Aa1/NR 5.40 2/01/10 490,655
200 St. Louis Ind. Dev. Auth-Anheuser-Busch Co. Proj. A1/AA- 6.65 5/01/16 210,624
500 University City School Dist., G.O., (MBIA Insured) Aaa/AAA 6.20 2/15/14 509,856
800 University Revs., Hosp. & Clinics Impt. Aaa/AAA 7.38 11/01/10 917,842
500 University Revs., Ref. & Impt.-Systems Facs. Aa/AA+ 5.38 11/01/13 470,659
400 University Revs., Series A, (AMBAC Insured) Aaa/AAA 6.50 11/01/11 421,748
200 University Revs., Series B, (AMBAC Insured) Aaa/AAA 6.50 11/01/11 210,874
------------
31,392,330
------------
NEBRASKA--1.1%
800 Pub. Power Dist. Rev.-Power Supply Systems A1/A+ 6.13 1/01/15 805,568
400 Pub. Power Dist. Rev.-Power Supply Systems A1/A+ 5.75 1/01/20 381,356
400 Omaha Pub. Power Dist. Elec. Rev., Series B Aa/AA 6.20 2/01/17 415,451
------------
1,602,375
------------
NEVADA--2.1%
1,400 Clark County-Ref & Impt. Trans., Series A, G.O., (MBIA
Insured) Aaa/AAA 6.00 6/01/12 1,421,519
1,000 Las Vegas-Clark County Libr. Dist., G.O., (FGIC Insured) Aaa/AAA 6.00 2/01/12 1,015,020
800 Nevada State-Nev. Muni. Bd. Bk. Proj. No. 42, G.O. Aa/AA 5.88 9/01/12 817,310
------------
3,253,849
------------
NEW JERSEY--0.4%
500 New Jersey State, Series B, G.O. Aa1/AA+ 6.25 01/15/05 549,025
------------
NEW MEXICO--0.4%
400 New Mexico State University Revs., Ref. & Impt A1/AA 5.75 4/01/16 390,090
200 Santa Fe Rev., (AMBAC Insured) Aaa/AAA 6.25 6/01/15 206,224
------------
596,314
------------
NEW YORK--3.3%
2,000 New York State Energy Resh A1/AA 6.10 8/15/20 2,006,484
3,000 New York State Local Government Assistance Aaa/AAA 6.00 4/01/16 2,975,316
------------
4,981,800
------------
NORTH CAROLINA--2.0%
2,000 Eastern Muni. Power, Series A, (FGIC Insured) Aaa/AAA 6.20 1/01/12 2,064,112
1,000 Muni. Power Agy.-Catawba Elec. Rev., (MBIA Insured) Aaa/AAA 6.00 1/01/10 1,039,973
------------
3,104,085
------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
24
<PAGE> 25
PILOT MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (Unaudited) Rate Date (Note 2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OHIO--0.5%
$ 700 Lakota Loc. School Dist., G.O., (AMBAC Insured) Aaa/AAA 6.25% 12/01/14 $ 724,007
------------
OREGON--2.4%
200 Oregon State, G.O. Aa/AA- 8.75 10/01/97 218,420
200 Oregon State, G.O. Aa/AA- 9.00 10/01/95 200,830
200 Oregon State, G.O. Aa/AA- 11.00 12/01/99 250,720
2,900 Portland Sewer Systems Rev., Series A A1/A+ 6.25 6/01/15 2,956,495
------------
3,626,465
------------
PENNSYLVANIA--0.3%
500 Pennsylvania State Higher Education, Series J, (AMBAC
Insured) Aaa/AAA 5.63 6/15/19 479,706
------------
SOUTH CAROLINA--1.3%
1,000 Piedmont Muni. Power Agy. Elec., Series A, (FGIC Insured) Aaa/AAA 6.50 1/01/16 1,047,335
400 Pub. Svc. Auth., Series C A1/AA- 7.30 7/01/21 419,202
500 Pub. Svc. Auth. Rev., Series B Aaa/AAA 7.10 7/01/21 571,222
------------
2,037,759
------------
TEXAS--7.2%
700 Austin Util. Systems Rev., Series A Aaa /AAA 8.00 11/15/16 818,554
500 Austin Util. Systems Rev., Combined-Series A Aaa /A 9.50 5/15/15 605,133
400 Austin Util. Systems Rev., Combined, (BIG Insured) Aaa /AAA 8.63 11/15/12 490,798
1,000 Austin Util. Systems Rev., NR/AAA 7.30 5/15/17 1,144,808
400 Austin Water Sewer & Elec. Ref. Rev. NR/NR 14.00 11/15/01 537,234
2,110 Bexar Metropolitan Water Dist. Waterworks Aaa/AAA 6.00 5/01/15 2,113,298
400 Cypress-Fairbanks Indpt. School Dist., G.O. Aaa/AAA 5.75 2/01/08 404,893
200 Harris County-Road Bds Aaa/NR 7.80 1/01/03 234,141
700 Harris County Toll Rd.-Sub Lien Rev., G.O. Aa/AA+ 6.75 8/01/14 744,888
500 Houston Water Systems Rev., Prior Lien Aaa/AAA 7.40 12/01/17 544,881
900 San Antonio Elec. & Gas Aa1/AA 5.00 2/01/14 810,651
1,100 San Antonio Water Rev., (MBIA Insured) Aaa/AAA 6.50 5/15/10 1,160,386
400 Tarrant County Water Ctl & Impt. Dist. No. 001 Water
Rev., (AMBAC Insured) Aaa/AAA 4.75 3/01/12 352,288
1,000 Texas State, Ref.-Superconducting-Series C, G.O. Aa/AA 6.00 4/01/12 1,003,927
------------
10,965,880
------------
UTAH--1.7%
500 Intermountain Power Agy. Power Supply Rev., Series B Aa/AA 5.25 7/01/17 447,385
800 Intermountain Power Agy. Power Supply Rev., Series A Aa/AA 5.50 7/01/20 738,933
1,300 Salt Lake City Water & Swr., (AMBAC Insured) Aaa/AAA 6.10 2/01/14 1,322,144
------------
2,508,462
------------
VERMONT--0.2%
400 Vermont State, Series B, G.O. Aa/AA- 4.75 10/15/11 361,030
------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
25
<PAGE> 26
PILOT MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (Unaudited) Rate Date (Note 2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIRGINIA--0.6%
$400 Norfolk Water Rev., (AMBAC Insured) Aaa/AAA 5.38% 11/01/23 $ 364,397
500 Trans. Board Trans. Contract Rev-Northern Trans. Dist.
PG, Series C Aa/AA 5.50 5/15/15 481,904
------------
846,301
------------
WASHINGTON--10.2%
900 King & Snohomish Counties School Dist. No. 417
Northshore, G.O., (MBIA Insured) Aaa/AAA 6.30 6/01/13 929,192
1,035 King County Library Systems, G.O. Aa/AA- 6.15 12/01/10 1,081,052
300 Seattle Met Municipality, G.O. Aa/A+ 5.65 1/01/20 287,734
2,000 Seattle Muni. Light & Power Rev Aa/AA 6.63 7/01/16 2,113,854
500 Seattle Muni. Light & Power Rev., Series B Aa/AA 5.75 8/01/08 510,102
1,400 Seattle Water Systems Rev Aa/AA 5.50 6/01/18 1,331,907
500 Tacoma Elec. Systems Rev., Series B, (AMBAC Insured) Aaa/AAA 5.90 1/01/05 525,800
500 Washington State, G.O. Aaa/AAA 8.90 10/01/03 548,058
200 Washington State, G.O. Aaa/AAA 8.75 9/01/10 200,000
400 Washington State, G.O. Aaa/AAA 9.40 5/01/05 414,596
200 Washington State, G.O., Ref.-Series 86D Aaa/AAA 8.00 9/01/05 208,186
200 Washington State-Motor Vehicle Fuel Tax, Series E, G.O. Aaa/AAA 8.00 9/01/05 208,186
300 Washington State, G.O. Aaa/AAA 7.75 12/01/07 331,627
5,000 Washington State, G.O., Series A Aa/AA 6.75 2/01/15 5,474,845
300 Washington State, G.O., Series A & AT-6 Aa/AA 6.25 2/01/11 315,182
200 Public Power Supply Systems Nuclear Proj. No. 1 Rev Aaa/AAA 14.38 7/01/01 269,181
400 Public Power Supply Systems Nuclear Proj. No. 1 Rev.,
Series A Proj. 11 Aa/AA 7.25 7/01/06 450,248
300 Public Power Supply Systems Nuclear Proj. No. 1 Rev.,
Series B Aa/AA 7.25 7/01/09 334,876
------------
15,534,626
------------
WISCONSIN--0.7%
1,000 Wisconsin State, Series A, G.O. Aa/AA 5.80 11/01/08 1,039,175
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (cost $138,013,965) 147,005,397
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares
(000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
TAX-EXEMPT MONEY MARKET MUTUAL FUND--3.5%
5,241 Federated Tax Exempt Obligation Fund 5,240,637
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--100.3% (cost $143,254,602) 152,246,034
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.3)% (524,868)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS--100.0% $151,721,166
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AMBAC -- American Municipal Bond Assurance Corporation
BIG -- Bond Investors Guaranty
FGIC -- Financial Guaranty Insurance Corporation
G.O. -- General Obligation
MBIA -- Municipal Bond Insurance Association
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
26
<PAGE> 27
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (Unaudited) Rate Date (Note 2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS--97.4%
ALASKA--0.2%
$ 500 Anchorage Tel. Util. Rev. Ref. Bonds, Ser. A (AMBAC
Insured) Aaa/AAA 4.00 % 12/01/98 $ 494,572
------------
ARIZONA--7.1%
600 Arizona St. Transn. Brd. Highway Rev. Ref. Bonds. Aa/AAA 4.25 7/01/98 602,036
300 Flagstaff, Ser. 1991A (FGIC Insured) Aaa/AAA 8.50 7/01/98 334,008
1,100 Glendale G.O. Ref. Bonds (FGIC Insured) Aaa/AAA 4.95 7/01/01 1,122,253
600 Maricopa County High Sch. Dist. 210, G.O. Ref. Bonds Aa/AA 4.40 7/01/98 603,621
300 Maricopa County High Sch. Dist. 210, G.O. Ref. Bonds,
Ser. D Aa/AA 6.70 7/01/03 333,538
300 Maricopa County Sch. Dist. 48, G.O. Ref. Bonds, Ser. 1991 Aa/AA- 6.00 7/01/00 313,979
3,000 Mesa G.O. Ref. Bonds (FGIC Insured) Aaa/AAA 5.35 7/01/00 3,114,744
900 Mesa G.O. Ref. Bonds (MBIA Insured) Aaa/AAA 5.00 7/01/03 915,694
900 Phoenix G.O. Ref. Bonds Aa/AA+ 5.40 7/01/97 921,526
300 Pima County G.O. NR/NR 7.10 7/01/99 321,618
900 Pima County G.O. Ref. Bonds Aa/A+ 5.35 7/01/00 936,805
700 Pima County Sch. Dist. No. 1, G.O., Proj. 1989, Ser. E
(FGIC Insured) Aaa/AAA 4.40 7/01/99 701,677
400 Pima County Sch. Dist. No. 1, G.O., Ref. Bonds, Preref.
7/01/01 @ 101 (MBIA Insured) Aaa/AAA 6.70 7/01/04 445,802
600 Salt River Proj., Agric. Impt. & Pwr. Dist. Rev. Bonds,
Ser. D Aa/AA 5.10 1/01/99 615,660
800 Salt River Proj., Agric. Rev. Ref. Bonds, Ser. C Aa/AA 4.30 1/01/02 783,887
400 Tempe, Ser. 1992 Aa/AA+ 5.60 7/01/00 419,426
600 Tucson Wtr. Rev. Ref. Bonds, Ser. A (AMBAC Insured) A1/A+ 4.90 7/01/98 610,594
800 University Az., Univ. Rev. Ref. Bonds A1/AA 4.00 6/01/99 785,482
------------
13,882,350
------------
CALIFORNIA--4.9%
300 California St. A1/A 5.70 10/01/00 317,020
400 California St. A1/A 7.00 8/01/04 458,827
2,000 California St., Pub. Imps. A1/A 5.25 3/01/00 2,069,544
1,100 California St., Sch. & Pub. Imps. A1/A 4.80 3/01/00 1,115,544
900 Contra Costa Wtr. Dist. Rev. Bonds, Ser. G (MBIA Insured) Aaa/AAA 5.40 10/01/03 938,849
700 Los Angeles County Flood Ctl. G.O. Ref. Bonds Aa1/AA 4.50 5/01/00 702,006
900 Los Angeles G.O. Bonds, Ser. A (MBIA Insured) Aaa/AAA 5.40 9/01/03 938,559
1,100 Metropolitan Wtr. Dist. Southn. Rev. Bonds, Ser. 1992 Aa/AA 4.85 7/01/99 1,128,930
700 Riverside Swr. Rev. Ref. Bonds (FGIC Insured) Aaa/AAA 4.80 8/01/01 710,050
600 San Diego Open Space Pk. Facs., Dist. No. 1, G.O. Ref.
Bonds Aaa/AA+ 5.125 1/01/00 617,792
600 University Ca., Multi. Purp. Projs.-C, Rev. Ref. Bonds
(AMBAC Insured) Aaa/AAA 4.80 9/01/04 593,527
------------
9,590,648
------------
COLORADO--1.2%
300 Colorado Springs Utils. Rev., Ser. A Aa/AA 6.625 11/15/04 331,569
300 Denver City & County, G.O. Bonds Aa/AA 6.375 8/01/03 326,908
300 Denver City & County, G.O. Bonds Aa/AA 6.500 8/01/04 327,279
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
27
<PAGE> 28
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (Unaudited) Rate Date (Note 2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLORADO (continued)
$ 400 Denver City & County, Various Purpose G.O. Bonds, Ser. A Aa/AA 5.50 % 8/01/99 $ 418,437
900 Platte Riv. Pwr. Auth. Rev. Bonds, Ser. CC Aa/A+ 4.625 6/01/00 907,963
------------
2,312,156
------------
CONNECTICUT--1.8%
600 Connecticut St. G.O. Ref. Bonds, Ser. B Aa/AA- 5.65 11/15/98 628,732
900 Connecticut St. G.O. Ref. Bonds, Ser. C Aa/AA- 4.50 3/15/97 908,243
700 Connecticut St. Pub. Imps. G.O. Bonds, Ser. D Aa/AA- 4.60 8/01/00 709,194
1,000 Connecticut St. Pub. Imps. G.O. Ref. Bonds, Ser. B Aa/AA- 4.80 3/15/01 1,016,505
300 Connecticut St., Ser. A Aa/AA- 6.60 3/01/04 330,608
------------
3,593,282
------------
DELAWARE--1.1%
600 Delaware St. G.O. Ref. Bonds, Ser. C Aa1/AA+ 4.50 7/01/97 606,917
700 Delaware St. Pub. Imps. G.O. Bonds, Ser. A Aa1/AA+ 4.30 3/01/99 701,126
800 Delaware St. Sch. Imps. G.O. Bonds, Ser. A Aa1/AA+ 4.60 3/01/00 808,419
------------
2,116,462
------------
DISTRICT OF COLUMBIA--0.6%
1,100 District of Columbia G.O. Bonds, Ser. A (AMBAC Insured) Aaa/AAA 7.00 6/01/98 1,173,216
------------
FLORIDA--3.1%
1,000 Broward County Sch. Dist., G.O. Ref. Bonds A1/AA- 5.10 2/15/02 1,014,243
500 Florida St. Brd. Ed. Cap. Outlay, G.O. Ref. Bonds, Ser.
1992A Aa/AA 5.70 6/01/03 530,789
1,100 Jacksonville Elec. Auth., St. Johns River, Rev. Ref.
Bonds, Ser. 8 Aa1/AA 4.10 10/01/98 1,100,914
1,500 Jacksonville Elec. Auth., St. Johns River, Rev. Ref.
Bonds, Ser. 10 Aa1/AA 4.60 10/01/00 1,515,521
300 Jacksonville Elec. Auth., St. Johns River, Spcl. Oblig.
Bonds Aa1/AA 6.40 10/01/00 327,335
1,000 Orlando Utils. Commn. Wtr. & Elec. Rev. Ref. Bonds Aa1/AA 5.20 10/01/00 1,037,430
600 Tampa Guaranteed Entitlement Rev. Ref. Bonds (AMBAC
Insured) Aaa/AAA 6.50 10/01/99 650,560
------------
6,176,792
------------
GEORGIA--1.4%
900 De Kalb County G.O. Ref. Bonds Aa1/AA+ 4.90 1/01/99 919,075
300 Georgia Mun. Elec. Auth. Pwr. Rev. Ref. Bonds , Ser. Q A/A+ 7.40 1/01/98 320,000
300 Georgia Mun. Elec. Auth. Pwr. Rev. Ref. Bonds , Ser. U A/A+ 6.80 1/01/03 330,184
200 Georgia St. Pub. Imps., Ser. C Aaa/AA+ 6.50 4/01/04 225,328
300 Georgia St., Sch. & Pub. Imps., Ser. D Aaa/AA+ 7.00 11/01/00 337,146
700 Gwinnett County G.O. Ref. Bonds, Ser. 1992 Aa1/AA+ 4.875 1/01/99 714,189
------------
2,845,922
------------
HAWAII--4.6%
700 Hawaii County, Ser. 1993A (FGIC Insured) Aaa/AAA 4.80 5/01/00 709,886
600 Hawaii St., G.O. Ref. Bonds, Ser. 1992BW Aa/AA 5.50 3/01/99 624,153
900 Hawaii St., G.O. Ref. Bonds, Ser. CC Aa/AA 4.60 2/01/00 908,922
1,000 Hawaii St., Sch. & Pub. Imps., Ser. BU Aa/AA 5.85 11/01/01 1,073,036
300 Hawaii St., Ser. BZ Aa/AA 5.40 10/01/01 313,406
2,000 Hawaii St., Ser. CJ Aa/AA 5.625 1/01/02 2,099,640
600 Honolulu City & County, G.O. Ref. Bonds, Ser. B Aa/AA 4.60 10/01/99 608,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
28
<PAGE> 29
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (Unaudited) Rate Date (Note 2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HAWAII (continued)
$ 900 Honolulu City & County, G.O. Ref. Bonds, Ser. 1992 One Aa/AA 5.375% 6/01/99 $ 934,855
500 Honolulu City & County, Pub. Imps., Ser. 1994A Aa/AA 5.00 4/01/99 512,491
1,300 Honolulu City & County, Pub. Imps., Ser. A Aa/AA 5.25 1/01/01 1,343,202
------------
9,127,591
------------
ILLINOIS--5.1%
2,165 Chicago Met. Wtr. Reclamation. Dist. Aa/AA 5.75 12/01/01 2,297,528
1,100 Chicago Met. Wtr. Reclamation. Dist. Aa/AA 5.00 12/01/02 1,115,946
600 Chicago Wtr. Rev. Ref. Bonds (AMBAC Insured) Aaa/AAA 5.60 11/01/04 624,824
100 Du Page County Jail Proj., G.O. Rev. Bonds Aaa/AAA 9.00 1/01/00 118,696
300 Du Page County Stormwtr. Proj., G.O. Rev. Bonds Aaa/AAA 9.00 1/01/00 356,088
900 Du Page Wtr. Commn. Rev. Ref. Bonds Aa/AA 5.00 5/01/02 909,083
1,100 Illinois St. G.O. Bonds A1/AA- 5.50 8/01/03 1,145,024
1,100 Illinois St. Public & Sch. Imps. G.O. Bonds A1/AA- 4.50 8/01/99 1,107,815
1,300 Illinois St. Toll Hwy. Priority Rev. Ref., Ser. A A1/A 4.50 1/01/00 1,292,854
600 Northwest Subn. Mun. Wtr. Agy. Rev. Ref. Bonds (MBIA
Insured) Aaa/AAA 5.40 5/01/99 621,513
500 Waukegan G.O. Ref. Bonds (FGIC Insured) Aaa/AAA 5.40 1/01/00 517,903
------------
10,107,274
------------
INDIANA--0.5%
900 Indiana Mun. Pwr. Supply Sys. Rev. Ref. Bonds, Ser. B
(MBIA Insured) Aaa/AAA 5.375 1/01/03 919,614
------------
KANSAS--0.6%
100 Johnson County Uni. Sch. Dist. No. 229, G.O. Ref. Bonds
(FGIC Insured) Aaa/AAA 7.10 3/01/99 105,116
300 Kansas St. Dept. Transn. Hwy. Rev. Bonds, Ser. A Aa/AA 4.10 9/01/00 292,714
700 Topeka G.O. Ref. Bonds, Ser. C Aa/NR 4.40 8/15/97 705,991
------------
1,103,821
------------
KENTUCKY--0.4%
700 Kentucky St. Tpk. Auth. Econ. Dev. Revitalization Projs.
(AMBAC Insured) Aaa/AAA 4.90 7/01/00 716,272
------------
LOUISIANA--0.8%
500 Louisiana St. Gen. Purp. Pub. Impt. (MBIA Insured) Aaa/AAA 4.50 8/01/97 503,085
300 Louisiana St., G.O. Ref. Bonds, Ser. A Baa1/A 6.60 8/01/97 311,542
700 Louisiana St., Ser. A (MBIA Insured) Aaa/AAA 6.70 8/01/98 743,997
------------
1,558,624
------------
MARYLAND--1.2%
600 Anne Arundel County Cons. Gen. Impt. Bonds Aa/AA+ 4.40 2/01/00 604,291
600 Maryland St. Dept. Transn. Rev. Ref. Bonds Aa/AA 4.00 12/15/97 600,621
1,100 Washington Subn. San Dist., Gen. Constr. Ref. Aa1/AA 3.75 6/01/98 1,091,158
------------
2,296,070
------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
29
<PAGE> 30
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (Unaudited) Rate Date (Note 2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MASSACHUSETTS--1.1%
$1,000 Massachusetts St. G.O. Ref., Ser. B A1/A+ 5.00% 11/01/01 $ 1,018,514
300 Massachusetts St. G.O., Ser. B A1/A+ 7.25 4/01/99 329,817
300 Massachusetts St. G.O., Ser. C A1/A+ 7.00 12/01/97 319,623
400 Massachusetts St. G.O., Ser. D A1/A+ 6.375 7/01/00 430,698
------------
2,098,652
------------
MICHIGAN--1.1%
900 Michigan St. Recreation Prog., Ser. 1992 A1/AA 5.50 11/01/99 937,604
600 Michigan St. Trunk Line, Ser. 1994A A1/AA- 5.25 11/15/00 617,269
600 University Mi., Univ. Rev. Ref., Student Fee Aa1/AA+ 4.60 4/01/99 608,285
------------
2,163,158
------------
MINNESOTA--1.7%
900 Metro Council, Minneapolis-St. Paul, Ser. A Aaa/AAA 5.00 12/01/04 908,101
300 Minnesota St. Various Purp. Bonds Aa1/AA+ 6.40 8/01/99 323,145
900 Minnesota St., G.O. Ref. Bonds Aa1/AA+ 4.875 8/01/00 916,892
300 Ramsey County, Ref. Cap. Impt., Ser. C Aaa/AA+ 5.15 12/01/00 310,424
900 St. Paul Swr. Rev. Ref. Bonds (AMBAC Insured) Aaa/AAA 5.10 12/01/01 917,282
------------
3,375,844
------------
MISSOURI--13.8%
300 Clay County Pub. Sch. Dist. 53, Ser. B (MBIA Insured) Aaa/AAA 5.00 3/01/03 301,864
400 Columbia Ref. Aa/AA 5.20 10/01/00 412,764
100 Independence Sch. Dist. G.O. Bonds A1/NR 6.10 3/01/01 106,318
300 Kansas City Arpt. Rev. Bonds A/A 7.40 9/01/98 320,639
200 Kansas City Pub. Safety G.O. Bonds Aa/AA 6.20 9/01/97 204,587
1,300 Kansas City Sch. Dist. Bldg., Leasehold Rev. Ser. A,
Preref. 2/01/98 @ 102 (FGIC Insured) Aaa/AAA 7.90 2/01/08 1,431,621
300 Kansas City Various Purp. G.O. Bonds Aa/AA 6.30 3/01/03 320,930
300 Kansas City Various Purp. G.O. Bonds Aa/AA 6.40 3/01/04 322,363
600 Kansas City Various Purp. G.O. Bonds Aa/AA 6.00 3/01/07 621,547
200 Kansas City Wtr. Rev. Bonds, Ser. B (AMBAC Insured) Aa/AA 6.60 12/01/02 210,025
300 Mehlville Sch. Dist. No. 9 (MBIA Insured) Aaa/AAA 5.00 2/15/00 305,988
400 Metro St. Louis Swr. Dist., Miss. Riv. Subdiv., G.O. Ref
Bonds (FGIC Insured) Aaa/AAA 6.30 2/15/01 428,323
400 Metro St. Louis Swr. Dist., Miss. Riv. Subdiv., G.O. Ref
Bonds (FGIC Insured) Aaa/AAA 6.40 2/15/02 428,922
200 Missouri St. Environmental Impt. & Energy Res. Auth.,
Wtr. Polltn. Cntl. Rev. Bonds, Ser. A Aa/NR 5.40 7/01/97 204,357
100 Missouri St. Environmental Impt. & Energy Res. Auth.,
Wtr. Polltn. Cntl. Rev. Bonds, Ser. A Aa/NR 5.80 7/01/99 104,703
300 Missouri St. Hlth & Edl. Facs. Auth. Rev., Gen. Tuition,
St. Louis Univ. (AMBAC Insured) Aaa/AAA 6.10 8/01/99 317,489
600 Missouri St. Hlth & Edl. Facs. Auth., Rev. Ref., St.
Louis Univ. (AMBAC Insured) Aaa/AAA 4.10 10/01/00 587,582
100 Missouri St. Hlth & Edl. Facs. Auth., Rev. Ref., St.
Lukes Hosp., Kansas City (MBIA Insured) Aaa/AAA 6.50 11/15/02 110,500
300 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.
Insd. St. Lukes Episcp./Presb. (FGIC Insured) Aaa/AAA 4.70 12/01/98 303,948
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
30
<PAGE> 31
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (Unaudited) Rate Date (Note 2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MISSOURI (continued)
$ 200 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.
Insd.-St. Lukes Episcopal Hosp. (FGIC Insured) Aaa/AAA 6.60% 12/01/00 $ 215,584
300 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.
Ref. & Impt. Christian Hlth., A (FGIC Insured) Aaa/AAA 6.40 2/15/00 322,022
300 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.
Ref. & Impt. Sisters of Mercy, Ser. E Aa/AA 7.00 6/01/98 317,576
300 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.
Ref. & Impt. Christian Hlth., A (FGIC Insured) Aaa/AAA 6.25 2/15/98 313,772
700 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.
Ref. & Impt. Sisters of Mercy, Ser. E Aa/AA 7.00 6/01/99 752,207
600 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.
Ref. & Impt.-Christian Hlth., A, Preref. 2/15/01 @ 102 Aaa/AAA 6.60 2/15/02 666,973
1,500 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.
Ref., SSM Hlth. Care, Ser. AA (MBIA Insured) Aaa/AAA 5.40 6/01/00 1,553,154
600 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.
Rev., BJC Hlth. Sys., Ser. A Aa/AA 5.90 5/15/04 626,917
1,300 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.,
Barnes-Jewish Inc. Christian, A Aa/AA 3.90 5/15/97 1,288,312
1,200 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.,
Barnes-Jewish Inc. Christian, A Aa/AA 4.00 5/15/98 1,181,812
200 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.,
Barnes Hosp. NR/AAA 6.55 12/15/97 209,426
200 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.,
Barnes Hosp. NR/AAA 6.65 12/15/98 213,875
200 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.,
Barnes Hosp. NR/AAA 6.75 12/15/99 216,062
300 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.,
Insd.- St. Lukes Episcopal-Presb., Ser. B (FGIC
Insured) Aaa/AAA 4.50 12/01/97 302,473
300 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.,
Mo. Baptist Med. Center, Ser. 1990A NR/NR 7.30 7/01/99 330,134
200 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.,
SSM Hlth. Care Projs., Ser. B (MBIA Insured) Aaa/AAA 6.50 6/01/98 211,493
400 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.,
SSM Hlth. Care Proj. (MBIA Insured) Aaa/AAA 7.00 6/01/97 419,362
200 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.,
SSM Hlth. Care Projs., Ser. B (MBIA Insured) Aaa/AAA 6.40 6/01/97 207,641
1,000 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.,
St. Louis Childrens Hosp. (MBIA Insured) Aaa/AAA 5.40 5/15/99 1,031,708
600 Missouri St. Hlth. & Edl. Facs. Auth., Hlth. Facs. Rev.,
St. Lukes Hlth. Sys. (MBIA Insured) Aaa/AAA 4.25 11/15/01 586,838
400 Missouri St. Office Bldg. Spcl. Oblig., Ser. A 1991 Aa/AA 5.90 12/01/01 425,702
200 Missouri St. Ser. 1989A Wtr. Pollutn. Cntl. Aaa/AAA 7.75 9/01/96 208,081
200 Missouri St. Wtr. Pollutn. Cntl. B, Preref. 11/01/01 @
100 Aaa/AAA 5.70 11/01/02 211,792
300 Missouri St. Wtr. Pollutn. Cntl. B, Preref. 11/01/01 @
100 Aaa/AAA 5.80 11/01/03 319,283
900 Missouri St., Third ST. Bldg., G.O. Ref. Bonds, Ser. A Aaa/AAA 5.00 8/01/01 927,828
300 Missouri St., Third ST. Bldg., G.O. Ref. Bonds, Ser. B Aaa/AAA 5.50 11/01/01 315,979
300 Springfield Sch. Dist. No. R12, Sch. Bldg., G.O. Ref.
Bonds, Ser. A (FGIC Insured) Aaa/AAA 6.40 3/01/03 323,714
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
31
<PAGE> 32
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (Unaudited) Rate Date (Note 2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MISSOURI (continued)
$ 300 Springfield Sch. Dist. No. R12, Sch. Bldg., G.O. Ref.
Bonds, Ser. A (FGIC Insured) Aaa/AAA 6.40% 3/01/04 $ 323,714
300 Springfield Sch. Dist. No. R12, Sch. Bldg., G.O. Ref.
Bonds, Ser. A (FGIC Insured) Aaa/AAA 6.25 3/01/05 320,810
400 Springfield Wtrwks Rev. Ref. Bonds, Ser. B Aa/A+ 4.75 5/01/02 400,000
1,300 St. Louis County Ref. & Impt., Ser. A Aa1/NR 4.80 2/01/03 1,296,738
200 St. Louis County Regional Conv. & Sports Cmplx., Ser. B A/BBB+ 6.20 8/15/98 207,959
100 St. Louis County Regional Conv. & Sports Cmplx., Ser. B A/BBB+ 6.30 8/15/99 105,013
600 St. Louis County, Pattonville Sch. Dist. No. R-3 (FGIC
Insured) Aaa/AAA 5.70 2/01/01 631,301
500 St. Louis County, Rockwood Sch. Dist. No. R-6, Preref.
2/01/99 @ 100 Aaa/NR 6.00 2/01/01 526,072
400 St. Louis County, Rockwood Sch. Dist. No. R-6, Preref.
2/01/99 @ 100 Aaa/NR 6.00 2/01/02 420,857
700 St. Louis County, Rockwood Sch. Dist. No. R-6, Ref. Bonds Aa/NR 5.00 2/01/03 700,399
300 St. Louis Sch. Dist. (FGIC Insured) Aaa/AAA 6.50 4/01/03 331,950
100 University Mo., Univ. Rev. Ref. Bonds, Ser. A (AMBAC
Insured) Aaa/AAA 6.05 11/01/96 102,422
200 University Mo., Univ. Rev. Ref. Bonds, Ser. A (AMBAC
Insured) Aaa/AAA 6.10 11/01/97 207,988
200 University Mo., Univ. Rev. Ref. Bonds, Ser. A (AMBAC
Insured) Aaa/AAA 6.20 11/01/98 210,760
200 University Mo., Univ. Rev. Ref. Bonds, Ser. B (AMBAC
Insured) Aaa/AAA 6.05 11/01/96 204,960
200 University Mo., Univ. Rev. Ref. Bonds, Ser. B (AMBAC
Insured) Aaa/AAA 6.10 11/01/97 207,988
100 University Mo., Univ. Rev. Ref. Bonds, Ser. B (AMBAC
Insured) Aaa/AAA 6.20 11/01/98 105,380
------------
27,048,501
------------
NEBRASKA--1.6%
1,000 Nebraska Pub. Pwr. Dist. Rev., Pwr. Supply Sys. A1/A+ 5.30 1/01/02 1,028,608
700 Nebraska Pub. Pwr. Dist. Rev. Ref. Elec. Sys., Ser. A A1/A+ 4.90 1/01/04 684,969
900 Omaha Pub. Pwr. Dist. Elec. Rev., Ser. A NR/AAA 5.40 2/01/98 924,123
600 Omaha Pub. Pwr. Dist. Elec. Rev., Ser. D Aa/AA 4.75 2/01/04 582,553
------------
3,220,253
------------
NEVADA--2.2%
400 Clark County G.O. Rev. Bonds, Ser. A (AMBAC Insured) Aaa/AAA 5.50 6/01/98 412,924
300 Clark County Sch. Dist., Ser A. (MBIA Insured) Aaa/AAA 6.50 6/01/02 330,715
1,000 Nevada St. Mun. Bd. Bk. No. 38-39-A NR/NR 6.00 7/01/01 1,074,015
1,000 Nevada St., Ser. A Aa/AA 5.80 5/01/00 1,054,532
1,500 Washoe County G.O. Refunding Bonds (AMBAC Insured) Aaa/AAA 5.00 9/01/01 1,522,506
------------
4,394,692
------------
NEW JERSEY--3.8%
1,100 Bergen County Util. Auth., Wtr. Pollution Cntrl. Rev.,
Ser. B (FGIC Insured) Aaa/AAA 5.50 12/15/02 1,150,931
3,000 New Jersey G.O. Bonds Aa1/AA+ 5.125 1/01/02 3,079,701
1,100 New Jersey St. Trans. Tr. Fd. Auth., Ser. A (AMBAC
Insured) Aaa/AAA 5.20 12/15/00 1,139,996
2,000 New Jersey St. Trans. Tr. Fd. Auth., Ser. B (MBIA
Insured) Aaa/AAA 5.00 6/15/02 2,030,902
------------
7,401,530
------------
NEW MEXICO--2.1%
1,400 Albuquerque G.O. Bonds, Ser. A & B Aa/AA 4.70 7/01/00 1,416,811
100 Albuquerque Jt. Wtr. & Swr. Sys. Rev. Ref., Ser. A A1/AA 4.00 7/01/99 98,841
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
32
<PAGE> 33
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (Unaudited) Rate Date (Note 2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW MEXICO (continued)
$2,000 New Mexico St. Cap. Projs. G.O. Bonds Aa1/AA+ 5.25 % 9/01/03 $ 2,042,258
600 New Mexico St. Severance Tax, Ser. B Aa/AA 5.10 7/01/00 614,205
------------
4,172,115
------------
NEW YORK--1.1%
300 New York St. G.O. A/A- 6.75 6/15/99 323,030
600 New York St. Various Purp. G.O. Bonds A/A- 6.60 11/15/98 639,568
1,100 New York St. Various Purp. G.O. Bonds A/A- 6.70 11/15/99 1,190,814
------------
2,153,412
------------
NORTH CAROLINA--0.2%
300 North Carolina St. G.O. Aaa/AAA 5.60 4/01/00 317,975
------------
OHIO--1.0%
700 Columbus City Sch. Dist. Ref. (FGIC Insured) Aaa/AAA 4.00 12/01/96 701,235
900 Columbus G.O. Ref. Bonds, Ser. D Aa1/AA+ 4.75 9/15/00 914,080
300 Ohio St. Wtr. Dev. Auth. Rev., Pure Wtr. Ser. I (MBIA
Insured) Aaa/AAA 7.00 6/01/99 326,126
------------
1,941,441
------------
OREGON--1.4%
1,300 Portland Swr. Sys. Rev., Ser. A A1/A+ 5.45 6/01/03 1,360,897
1,300 Washington County Uni. Swr. Agy. (AMBAC Insured) Aaa/AAA 5.30 10/01/01 1,341,493
------------
2,702,390
------------
RHODE ISLAND--0.4%
800 Pawtucket G.O. Bonds (FGIC Insured) Aaa/AAA 5.25 4/15/01 820,678
------------
TENNESSEE--0.9%
300 Hamilton County, Ser. 1994 Aa/NR 5.00 7/01/00 309,720
600 Metro. Govt., Nashville & Davidson County, Tn., Elec.
Rev., Ser. B Aa/AA 5.625 5/15/03 634,895
900 Shelby County G.O. Ref. Bonds, Ser. A Aa/AA+ 5.30 3/01/98 927,140
------------
1,871,755
------------
TEXAS--13.2%
700 Arlington Permanent Impt. Ref. Bonds Aa/AA 4.80 8/15/01 698,907
500 Austin Pub. Impt. Ref. Bonds Aa/AA 4.50 9/01/98 502,506
1,100 Austin Util. Sys. Rev. Ref. Comb., Ser. A A/A 5.00 5/15/01 1,106,424
500 Austin Util. Sys. Rev. Ref. Comb., Ser. A (AMBAC Insured) Aaa/AAA 6.50 11/15/03 552,840
900 Colorado River Mun. Wtr. Dist. (AMBAC Insured) Aaa/AAA 5.00 1/01/04 905,979
2,000 Dallas-Fort Worth Regl. Arpt. Rev. Bonds (MBIA Insured) Aaa/AAA 4.75 11/01/01 2,015,828
1,000 Dallas G.O. Ref. Bonds Aa1/AAA 5.20 2/15/98 1,024,957
900 Dallas Ref., Dallas Denton & Collin Co. Aa1/AAA 4.45 2/15/99 906,574
2,400 Dallas Wtrwks. & Swr. Sys. Rev. Ref. Bonds Aa/AA 4.50 4/01/00 2,402,868
900 Garland G.O. Ref. Bonds Aa/AA 5.50 8/15/99 933,578
900 Houston Ref., Ser. 1993D Aa/AA- 4.70 3/01/01 892,266
2,500 Houston Wtr. & Swr. Sys. Rev., Ser. A (MBIA Insured) Aaa/AAA 5.80 12/01/04 2,638,872
400 Lower Co. River Auth. Rev. Ref. Bonds A1/AA- 6.90 1/01/01 419,955
400 Lower Co. River Auth. Rev., Preref. 1/01/97 @ 102 NR/AA- 7.00 1/01/03 422,773
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
33
<PAGE> 34
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (Unaudited) Rate Date (Note 2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXAS (continued)
$1,100 San Antonio Elec. & Gas Rev. Ref. Bonds Aa1/AA 4.00 % 2/01/00 $ 1,053,905
1,100 San Antonio Elec. & Gas Rev. Ref., Libor Reserve 2 Aa1/AA 5.20 2/01/01 1,131,282
900 San Antonio Wtr. Rev. Ref. Bonds (FGIC Insured) Aaa/AAA 5.40 5/15/97 923,658
2,200 Texas A & M Univ. Rev. Ref. Bonds Aa/AA 5.95 5/15/05 2,355,476
900 Texas St. Pub. Fin. Auth., Ser. B Aa/AA 5.00 10/01/01 907,943
900 Texas St. Ref., Ser. A Aa/AA 5.70 10/01/03 942,646
1,100 Texas St. Superconducting, 1992 C Aa/AA 5.35 4/01/01 1,127,653
300 Texas Wtr. Dev. Brd. Rev. Bonds Aa/AAA 4.00 7/15/98 297,820
300 University Tx., Perm. Univ. Fd. Rev. Ref. Bonds Aa1/AA+ 6.70 7/01/05 330,965
1,100 University Tx., Univ. Rev. Ref., Gen. Tuition Aa1/AA 5.10 8/15/99 1,130,867
300 University Tx., Univ. Rev. Ref., Gen. Tuition Aa1/AA 5.20 8/15/00 309,632
------------
25,936,174
------------
UTAH--1.2%
300 Davis County Sch. Dist. G.O. Bonds, Preref. 12/01/01 @
100 (FGIC Insured) Aaa/AAA 6.45 6/01/02 329,995
900 Intermountain Pwr. Agy., Pwr. Supply Rev. Ref., Ser. B Aa/AA 5.20 7/01/98 917,005
1,100 Utah St. G.O. Bonds, Ser. A & B Aaa/AAA 4.40 7/01/99 1,103,792
------------
2,350,792
------------
VERMONT--0.1%
100 Vermont St. G.O. Ref. Bonds, Ser. B Aa/AA- 4.875 8/01/98 101,324
------------
VIRGINIA--3.4%
1,620 Chesapeake Bay Bridge & Tunnel Rev. Bonds (FGIC Insured) Aaa/AAA 5.10 7/01/01 1,668,443
1,100 Fairfax County Ref., Ser. A Aaa/AAA 4.70 6/01/00 1,121,969
1,000 Norfolk G.O. Bonds Aa/AA 5.25 6/01/01 1,040,122
1,100 Norfolk G.O. Ref. Bonds Aa/AA 4.30 6/01/98 1,108,740
700 Norfolk G.O. Ref. Bonds, Ser. A Aa/AA 4.60 6/01/01 705,230
1,100 Prince William County Ref., Ser. C Aa/AA 4.50 8/01/01 1,102,795
------------
6,747,299
------------
WASHINGTON--9.0%
700 King County Ref., Ser. 1993C Aa1/AA+ 4.00 6/01/98 698,160
600 King County Ref., Ser. A Aa1/AA+ 5.25 12/01/01 625,564
2,500 King County Ref., Ser. C Aa1/AA+ 5.625 6/01/02 2,643,363
300 Snohomish County Sch. Dist. 2, Ser. A (MBIA Insured) Aaa/AAA 6.80 6/01/03 330,283
400 Spokane G.O. Aa/AA 8.50 1/01/00 461,636
800 Tacoma Elec. Sys. Rev. Ref. Bonds (FGIC Insured) Aaa/AAA 5.50 1/01/01 826,398
2,500 Tacoma Elec. Sys. Rev. Ref., Ser. B (AMBAC Insured) Aaa/AAA 5.90 1/01/05 2,629,000
600 Tacoma Swr. Rev. Ref., Ser. B (FGIC Insured) Aaa/AAA 5.50 12/01/03 621,257
1,000 Tacoma, Ser. A A1/A+ 5.75 7/01/02 1,050,556
400 Washington St. Pub. Pwr. Supply, Nuclear Proj. No. 1,
Ser. A Aa/AA 7.00 7/01/96 408,947
700 Washington St. Pub. Pwr. Supply, Nuclear Proj. No. 1,
Ser. C Aa/AA 7.25 7/01/97 733,074
600 Washington St. Pub. Pwr. Supply, Nuclear Proj. No. 1,
Ser. C Aa/AA 7.30 7/01/98 642,028
400 Washington St. Pub. Pwr. Supply, Nuclear Proj. No. 3,
Ser. A Aa/AA 7.00 7/01/96 408,947
300 Washington St. Pub. Pwr. Supply, Nuclear Proj. No. 3,
Ser. B Aa/AA 7.10 7/01/98 319,439
600 Washington St. Ref. Aa/AA 4.80 9/01/98 612,592
900 Washington St. Ref., Ser. R 92C Aa/AA 5.60 9/01/01 950,585
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
34
<PAGE> 35
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (Unaudited) Rate Date (Note 2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WASHINGTON (continued)
$ 900 Washington St. Ref., Ser. R 94A Aa/AA 3.90 % 8/01/97 $ 900,305
600 Washington St., Preref. 6/01/98 @ 100 Aaa/AAA 7.30 6/01/00 647,129
900 Washington St., Ser. 93A Aa/AA 5.25 10/01/00 935,717
500 Washington St., Ser. B Aa/AA 6.30 6/01/02 541,687
600 Yakima County Sch. Dist. No. 7 (MBIA Insured) Aaa/AAA 5.50 12/01/03 629,537
------------
17,616,204
------------
WISCONSIN--3.5%
1,300 Green Bay Area Pub. Sch. Dist. Ref. Aa/NR 3.90 4/01/98 1,293,022
800 Milwaukee County, Ser. 1994A A1/AA- 5.00 12/01/00 813,226
300 Milwaukee Met. Swr. Dist., Ser. A Aa/AA 7.00 9/01/00 333,673
400 Milwaukee Met. Swr. Dist., Ser. A Aa/AA 6.70 10/01/00 439,951
600 Milwaukee Ref., Ser. 1992 Aa1/AA+ 5.70 6/01/99 631,308
300 Milwaukee, Ser. BZ Aa1/AA+ 6.375 6/15/03 324,005
600 Wisconsin St. G.O., Ser. A Aa/AA 5.75 5/01/00 635,352
300 Wisconsin St. G.O., Ser. D Aa/AA 6.00 5/01/00 320,813
900 Wisconsin St. Ref., Ser. 1 Aa/AA 5.10 11/01/01 929,720
1,100 Wisconsin St. Ref., Ser. 3 Aa/AA 4.25 11/01/99 1,102,444
------------
6,823,514
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (cost $182,437,558) 191,272,369
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
(000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
TAX-EXEMPT MONEY MARKET MUTUAL FUND--1.7%
3,335 Federated Tax Exempt Obligation Fund (cost $3,334,759) 3,334,759
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--99.1% (cost $185,772,317) 194,607,128
OTHER ASSETS IN EXCESS OF LIABILITIES--0.9% 1,834,302
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS--100.0% $196,441,430
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Corporation
G.O. -- General Obligation
MBIA -- Municipal Bond Insurance Association
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
35
<PAGE> 36
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE
U.S. U.S.
GOVERNMENT GOVERNMENT INTERMEDIATE
GROWTH AND EQUITY SECURITIES SECURITIES MUNICIPAL MUNICIPAL
INCOME FUND INCOME FUND FUND FUND BOND FUND BOND FUND
------------- ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in securities, at
value (cost $98,191,117;
$88,958,573; $127,444,942;
$160,232,195; $143,254,602; and
$185,772,317, respectively).... $ 111,003,650 $ 99,457,465 $ 135,885,151 $ 165,418,540 $ 152,246,034 $ 194,607,128
Cash............................ 164 298 461 886 -- --
Dividends receivable............ 236,656 386,898 -- -- -- --
Interest receivable............. 770 96,837 2,347,687 1,228,313 2,264,059 2,568,111
Receivable for Portfolio shares
sold........................... 47,640 48,052 35,500 339,848 130,000 235,000
Deferred organization costs and
other assets................... 78,488 78,704 79,275 79,113 79,452 79,967
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS.................... 111,367,368 100,068,254 138,348,074 167,066,700 154,719,545 197,490,206
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Advisory fees payable........... 43,562 39,567 45,993 48,526 57,092 66,031
Administration fees payable..... -- -- 2,887 8,528 6,285 13,720
Distribution expenses payable
(Class A Shares)............... 57 193 21 22 57 21
Distribution expenses payable
(Class B Shares)............... 1,340 1,388 183 -- 682 --
Payable for investment
securities purchased........... -- -- -- -- 2,086,677 --
Dividends payable............... 168,013 291,298 666,637 868,404 684,471 769,158
Payable for Portfolio shares
redeemed....................... 284,968 18,429 18,825 102,564 53,781 84,260
Other accrued expenses.......... 88,114 86,373 119,919 98,528 109,334 115,586
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES............... 586,054 437,248 854,465 1,126,572 2,998,379 1,048,776
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS...................... $ 110,781,314 $ 99,631,006 $ 137,493,609 $ 165,940,128 $ 151,721,166 $ 196,441,430
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE
($1.00 PAR VALUE, UNLIMITED
NUMBER OF SHARES AUTHORIZED):
PILOT SHARES:
Net assets...................... $ 109,423,331 $ 98,607,149 $ 137,260,859 $ 165,441,463 $ 150,933,899 $ 196,209,003
Shares of beneficial interest
issued and outstanding......... 9,442,613 8,735,804 12,256,939 15,840,048 14,102,794 18,702,336
Net asset value................. $11.59 $11.29 $11.20 $10.44 $10.70 $10.49
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES:
Net assets...................... $ 696,839 $ 311,272 $ 86,681 $ 498,665 $ 339,679 $ 232,427
Shares of beneficial interest
issued and outstanding 60,167 27,404 7,743 47,766 31,743 22,167
Net asset value................. $11.58 $11.36 $11.19 $10.44 $10.70 $10.49
Sales charge--4.50%, 4.50%,
4.50%, 4.00%, 4.50, and 4.00%,
respectively, of offering
price.......................... $0.55 $0.54 $0.53 $0.44 $0.50 $0.44
Maximum Offering Price.......... $12.13 $11.90 $11.72 $10.88 $11.20 $10.93
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Net assets...................... $ 661,144 $ 712,585 $ 146,069 -- $ 447,588 --
Shares of beneficial interest
issued and outstanding......... 57,043 62,820 13,049 -- 42,017 --
Net asset value................. $11.59 $11.34 $11.19 -- $10.65 --
- ---------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Shares of beneficial interest,
at par......................... $ 9,559,823 $ 8,826,028 $ 12,277,731 $ 15,887,814 $ 14,176,554 $ 18,724,503
Additional paid-in capital...... 85,877,346 79,280,938 111,164,620 144,262,899 128,219,300 168,549,038
Accumulated undistributed net
realized gains from investment
transactions................... 2,531,612 1,025,148 5,611,049 603,070 333,880 333,078
Net unrealized appreciation of
investments.................... 12,812,533 10,498,892 8,440,209 5,186,345 8,991,432 8,834,811
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, AUGUST 31, 1995..... $ 110,781,314 $ 99,631,006 $ 137,493,609 $ 165,940,128 $ 151,721,166 $ 196,441,430
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
36
<PAGE> 37
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Statements of Operations
For the period November 7, 1994 (commencement of operations)
through August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY INTERMEDIATE INTERMEDIATE
GROWTH AND INCOME U.S. GOVERNMENT U.S. GOVERNMENT MUNICIPAL MUNICIPAL
INCOME FUND FUND SECURITIES FUND SECURITIES FUND BOND FUND BOND FUND
------------ ------------ --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of
foreign taxes of
$12,640 on Growth and
Income Fund and
$26,382 on Equity
Income Fund)......... $ 1,764,418 $ 2,883,232 $ -- $ -- $ -- $ --
Interest............... 177,408 552,351 7,324,794 7,276,472 6,937,095 7,653,701
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME........... 1,941,826 3,435,583 7,324,794 7,276,472 6,937,095 7,653,701
- ---------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees.......... 537,065 529,800 570,868 555,911 607,911 772,800
Administration fees.... 79,443 78,905 115,177 112,854 123,757 155,898
Distribution expenses
(Class A Shares)..... 415 193 68 257 797 266
Distribution expenses
(Class B Shares)..... 2,209 1,496 313 -- 335 --
Audit fees............. 51,091 51,091 51,091 51,091 51,091 51,091
Transfer agent fees and
expenses............. 29,800 29,800 29,800 29,800 29,800 29,800
Custodian fees and
expenses............. 46,793 35,849 41,663 36,191 34,994 16,031
Reports to
shareholders......... 23,840 23,840 23,840 23,840 23,840 23,840
Registration fees...... 28,195 28,412 41,488 40,655 44,704 59,223
Amortization of
organization
expenses............. 11,933 11,933 11,933 11,933 11,933 11,933
Legal fees............. 2,086 3,874 6,556 1,490 5,960 5,066
Trustees' fees......... 596 894 1,490 298 1,490 1,192
Other expenses......... 8,728 10,373 9,965 8,386 9,833 9,075
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES......... 822,194 806,460 904,252 872,706 946,445 1,136,215
- ---------------------------------------------------------------------------------------------------------------------------------
Less: Fee waivers and
expense
reimbursements by
adviser,
administrator, and
distributor.......... (291,061) (277,322) (259,097) (299,211) (209,930) (328,595)
- ---------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES........... 531,133 529,138 645,155 573,495 736,515 807,620
- ---------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT
INCOME............... 1,410,693 2,906,445 6,679,639 6,702,977 6,200,580 6,846,081
- ---------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAINS FROM
INVESTMENTS:
Net realized gains from
investment
transactions......... 2,531,612 1,025,148 5,611,049 603,070 333,880 333,078
Net change in
unrealized
appreciation of
investments.......... 12,812,533 10,498,892 8,440,209 5,186,345 8,991,432 8,834,811
- ---------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAINS FROM
INVESTMENTS.......... 15,344,145 11,524,040 14,051,258 5,789,415 9,325,312 9,167,889
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS........... $ 16,754,838 $ 14,430,485 $20,730,897 $12,492,392 $ 15,525,892 $ 16,013,970
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
37
<PAGE> 38
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the period November 7, 1994 (commencement of operations)
through August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE
U.S. U.S.
EQUITY GOVERNMENT GOVERNMENT INTERMEDIATE
GROWTH AND INCOME SECURITIES SECURITIES MUNICIPAL MUNICIPAL
INCOME FUND FUND FUND FUND BOND FUND BOND FUND
------------- ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income..... $ 1,410,693 $ 2,906,445 $ 6,679,639 $ 6,702,977 $ 6,200,580 $ 6,846,081
Net realized gains from
investment
transactions............ 2,531,612 1,025,148 5,611,049 603,070 333,880 333,078
Net change in unrealized
appreciation of
investments............. 12,812,533 10,498,892 8,440,209 5,186,345 8,991,432 8,834,811
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations... 16,754,838 14,430,485 20,730,897 12,492,392 15,525,892 16,013,970
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from
net investment income:
Pilot Shares.............. (1,405,927) (2,899,282) (6,676,446) (6,696,515) (6,191,471) (6,841,198)
Class A Shares............ (2,695) (2,859) (1,568) (6,462) (5,179) (4,883)
Class B Shares............ (2,071) (4,304) (1,625) -- (3,930) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets
from distributions to
shareholders................ (1,410,693) (2,906,445) (6,679,639) (6,702,977) (6,200,580) (6,846,081)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio share transactions
Proceeds from shares
issued.................. 108,627,918 97,830,026 132,691,392 175,708,067 152,916,334 218,287,220
Proceeds from shares
issued to shareholders
in reinvestment of
dividends............... 29,706 11,124 6,753 37,493 11,041 9,603
Cost of shares redeemed... (13,220,455) (9,734,184) (9,255,794) (15,594,847) (10,531,521) (31,023,282)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
from Portfolio share
transactions................ 95,437,169 88,106,966 123,442,351 160,150,713 142,395,854 187,273,541
- ---------------------------------------------------------------------------------------------------------------------------------
Total increase................ 110,781,314 99,631,006 137,493,609 165,940,128 151,721,166 196,441,430
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period........... -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
End of period................. $ 110,781,314 $ 99,631,006 $137,493,609 $165,940,128 $ 151,721,166 $ 196,441,430
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
38
<PAGE> 39
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
1. GENERAL
The Pilot Growth and Income Fund, the Pilot Equity Income Fund, the Pilot U.S.
Government Securities Fund, the Pilot Intermediate U.S. Government Securities
Fund, the Pilot Municipal Bond Fund, and the Pilot Intermediate Municipal Bond
Fund are separate portfolios (individually a "Portfolio"; collectively, the
"Portfolios") of The Pilot Funds (the "Fund"). The Fund is a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended
(the 1940 Act), as an open-end management investment company. All of the
Portfolios are diversified. The Fund currently offers eleven Portfolios. The
accompanying financial statements are those of the six Portfolios only.
The Portfolios each offer three classes of shares: Class A Shares, Class B
Shares and Pilot Shares. Each class of shares is substantially the same, except
that Class A Shares and Class B Shares bear the fees payable under the Fund's
Distribution Plan.
All of the Portfolios commenced operations on November 7, 1994, by selling Pilot
Shares. Class A Shares were first sold on the following dates: Intermediate
Municipal Bond Fund--November 18, 1994; Intermediate U.S. Government Securities
Fund--December 21, 1994; Growth and Income Fund, Equity Income Fund and U.S.
Government Securities Fund--February 7, 1995. The Class B Shares were first sold
on the following dates: U.S. Government Securities Fund--November 10, 1994;
Growth and Income Fund--November 11, 1994; Municipal Bond Fund-- December 27,
1994; Equity Income--January 12, 1995. Class B Shares of Intermediate U.S.
Government Securities Fund and Intermediate Municipal Bond Fund have not been
sold as of August 31, 1995.
Boatmen's Trust Company ("Boatmen's") serves as the Fund's investment adviser.
Concord Holding Corporation ("Concord") serves as the Fund's Administrator and
Pilot Funds Distributor Inc. (the "Distributor"), a wholly owned subsidiary of
Concord, serves as the distributor of the Fund's shares. Concord is a
wholly-owned subsidiary of The BISYS Group, Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by
the Portfolios in the preparation of their financial statements. The policies
are in conformity with generally accepted accounting principles.
A. Investment Valuation
Portfolio securities are valued as follows: (a) securities that are traded on
any U.S. or foreign stock exchange or the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") are valued at the last sale price
on that exchange or NASDAQ prior to the Portfolio'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 price 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
Portfolio's valuation time or, if no sale occurs, at the mean between the last
bid price and asked price; (c) debt securities are valued by a pricing service
selected by Boatmen's and approved by the Trustees of the Fund; these prices
reflect broker/dealer supplied valuations and electronic data processing
techniques if those prices are deemed by Boatmen's to be representative of
market values at the Portfolio's valuation time; and (d) all other securities
and assets, for which quotations supplied are not representative of current
market values or for which quotations are not readily available, are valued at
fair value as determined in good faith pursuant to procedures established by the
Trustees of the Fund. Money market instruments held by a Portfolio with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value.
- ----------------------------------------------------------
- ----------------------------------------------------------
39
<PAGE> 40
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
B. Securities Transactions and Investment Income
Securities transactions are recorded on the trade date. Realized gains and
losses on sales of investments are calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, including
accretion of discounts and amortization of premiums on investments, is accrued
daily.
The investment income of each Portfolio is allocated to the separate classes of
shares based upon their relative net asset values.
C. Repurchase Agreements
The custodian for the Portfolios and other banks acting in a subcustodian
capacity take possession of the collateral pledged for investments in repurchase
agreements. The underlying collateral is valued daily on a mark-to-market basis
to determine that the value, including accrued interest, is not less than 102%
of the repurchase price, including accrued interest. In the event of the
seller's default of the obligation to repurchase, the Portfolios have the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings.
D. Dividends to Shareholders
Dividends of the U.S. Government Securities Fund, the Intermediate U.S.
Government Securities Fund, the Municipal Bond Fund and the Intermediate
Municipal Bond Fund are declared daily to shareholders of record at the close of
business on the day of declaration and paid monthly. Dividends of the Growth and
Income Fund and the Equity Income Fund are declared and paid monthly to
shareholders of record at the close of business on the day of declaration.
Distributions of net realized gains, if any, will be paid at least annually.
However, to the extent that net realized gains of a Portfolio can be offset by
capital loss carryovers, such gains will not be distributed. Dividends and
distributions are recorded by the Portfolios on the ex-dividend date.
E. Federal Taxes
It is each Portfolio's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute each
year substantially all of its investment company taxable and tax-exempt income
to its shareholders. Accordingly, no federal tax provisions are required.
F. Organizational Expenses
Concord paid the organizational expenses of the Portfolio's in the amount of
approximately $534,000 ($89,000 for each Portfolio). The Portfolios have
reimbursed Concord for these costs which have been deferred and are being
amortized by the Portfolios on the straight line method over a period not to
exceed five years from the commencement of operations.
G. Expenses
Expenses incurred by the Fund that do not specifically relate to an individual
portfolio are allocated to the portfolios based on each portfolio's relative net
assets.
The expenses (other than expenses incurred under the Distribution Plans) of each
Portfolio are allocated to the separate classes of shares based upon their
relative net asset values.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
A. Advisory Agreement
Boatmen's is the investment adviser for each Portfolio pursuant to separate
Investment Advisory Agreements and is responsible for managing the investment
operations of the Portfolios. For its services, Boatmen's is entitled to a fee,
accrued daily and paid monthly, at an annual rate equal to 0.75 of 1% of the
average daily net assets of each of the
- ----------------------------------------------------------
- ----------------------------------------------------------
40
<PAGE> 41
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
Growth and Income Fund and the Equity Income Fund and 0.55 of 1% of the average
daily net assets of each of the U.S. Government Securities Fund, the
Intermediate U.S. Government Securities Fund, the Municipal Bond Fund and the
Intermediate Municipal Bond Fund.
Boatmen's has voluntarily agreed to limit the fees it receives from each
Portfolio to the following annual rates: 0.50 of 1% of the average daily net
assets of each of the Growth and Income Fund and the Equity Income Fund; 0.45 of
1% of the average daily net assets of the Municipal Bond Fund; 0.40 of 1% of the
average daily net assets of each of the U.S. Government Securities Fund and the
Intermediate Municipal Bond Fund; and 0.35 of 1% of the average daily net assets
of the Intermediate U.S. Government Securities Fund.
Additionally, Boatmen's has voluntarily agreed to reimburse each of the
Portfolio's expenses to the extent that such expenses exceed the following
limits as percentages of average daily net assets (excluding distribution fees
for Class A Shares and Class B Shares) 0.75% of the Growth and Income Fund and
Equity Income Fund; 0.70% of the Municipal Bond Fund; 0.65% of the U.S.
Government Securities Fund and Intermediate Municipal Bond Fund; and 0.60% of
the Intermediate U.S. Government Securities Fund. For the period ended August
31, 1995, Boatmen's waived fees and/or reimbursed expenses in the following
amounts:
<TABLE>
<S> <C>
Growth and Income Fund.......................... $ 211,618
Equity Income Fund.............................. 198,417
U.S. Government Securities Fund................. 155,704
Intermediate U.S. Government Securities Fund.... 215,601
Municipal Bond Fund............................. 109,745
Intermediate Municipal Bond Fund................ 225,063
</TABLE>
B. Administration Agreement
The Portfolios have entered into an Administration Agreement with Concord.
Pursuant to the terms of this agreement, Concord is responsible for assisting in
all aspects of the operations of each of the Portfolios. For its services,
Concord is entitled to a fee, accrued daily and paid monthly, at an annual rate
of 0.115% of the first $1.5 billion of the aggregate average net assets of all
of the portfolios constituting the Fund, plus 0.11% of the next $1.5 billion of
such assets, plus 0.1075% of such assets in excess of $3.0 billion. For the
period ended August 31, 1995, Concord voluntarily waived a portion of its fees
as administrator. The fee waivers were equal to the following amounts:
<TABLE>
<S> <C>
Growth and Income Fund.......................... $ 79,443
Equity Income Fund.............................. 78,905
U.S. Government Securities Fund................. 103,393
Intermediate U.S. Government Securities Fund.... 84,789
Municipal Bond Fund............................. 100,185
Intermediate Municipal Bond Fund................ 103,532
</TABLE>
C. Transfer Agent Agreement
Concord Financial Services ("CFS"), a wholly-owned subsidiary of Concord, is the
sub-transfer agent for the Pilot Share Class of the Portfolios. Each Portfolio
incurred fees of $12,500 for the transfer agent services provided.
D. Distribution Agreements
The Pilot Funds adopted Distribution Plans pursuant to Rule 12b-1 under the 1940
Act 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 A Shares may not exceed .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
- ----------------------------------------------------------
- ----------------------------------------------------------
41
<PAGE> 42
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
5. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Portfolios are summarized below:
PILOT GROWTH AND INCOME FUND (000 OMITTED):
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1995
--------------------
SHARES AMOUNT
------- ---------
<S> <C> <C>
Pilot Shares*
Issued.............................. 10,643 $ 107,297
Reinvestment of dividends........... 2 25
Redeemed............................ (1,202) (13,174)
------- ---------
Net increase--Pilot..................... 9,443 94,148
------- ---------
Class A Shares**
Issued.............................. 62 695
Reinvestment of dividends........... -- 3
Redeemed............................ (2) (29)
------- ---------
Net increase--Class A................... 60 669
------- ---------
Class B Shares***
Issued.............................. 58 636
Reinvestment of dividends........... -- 2
Redeemed............................ (1) (18)
------- ---------
Net increase--Class B................... 57 620
------- ---------
Net increase in Portfolio............... 9,560 $ 95,437
====== =========
</TABLE>
- ---------------
* For the period November 7, 1994 (commencement of operations) through August
31, 1995.
** For the period February 7, 1995 (commencement of operations) through August
31, 1995.
*** For the period November 11, 1994 (commencement of operations) through August
31, 1995.
PILOT EQUITY INCOME FUND (000 OMITTED):
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1995
-------------------
SHARES AMOUNT
------- --------
<S> <C> <C>
Pilot Shares*
Issued............................... 9,631 $ 96,783
Reinvestment of dividends............ -- 5
Redeemed............................. (895) (9,671)
------- --------
Net increase--Pilot...................... 8,736 87,117
------- --------
Class A Shares**
Issued............................... 27 300
Reinvestment of dividends............ -- 3
Redeemed............................. -- (3)
------- --------
Net increase--Class A.................... 27 300
------- --------
Class B Shares***
Issued............................... 68 746
Reinvestment of dividends............ -- 4
Redeemed............................. (5) (60)
------- --------
Net increase--Class B.................... 63 690
------- --------
Net increase in Portfolio................ 8,826 $ 88,107
====== =======
</TABLE>
- ---------------
* For the period November 7, 1994 (commencement of operations) through August
31, 1995.
** For the period February 7, 1995 (commencement of operations) through August
31, 1995.
*** For the period January 12, 1995 (commencement of operations) through August
31, 1995.
- ----------------------------------------------------------
- ----------------------------------------------------------
43
<PAGE> 43
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
PILOT U.S. GOVERNMENT SECURITIES FUND (000 OMITTED):
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1995
--------------------
SHARES AMOUNT
------- ---------
<S> <C> <C>
Pilot Shares*
Issued.............................. 13,109 $ 132,462
Reinvestment of dividends........... -- 3
Redeemed............................ (852) (9,250)
------- ---------
Net increase--Pilot..................... 12,257 123,215
------- ---------
Class A Shares**
Issued.............................. 8 88
Reinvestment of dividends........... -- 2
Redeemed............................ -- (6)
------- ---------
Net increase--Class A................... 8 84
------- ---------
Class B Shares***
Issued.............................. 13 141
Reinvestment of dividends........... -- 2
Redeemed............................ -- --
------- ---------
Net increase--Class B................... 13 143
------- ---------
Net increase in Portfolio............... 12,278 $ 123,442
====== =========
</TABLE>
- ---------------
* For the period November 7, 1994 (commencement of operations) through August
31, 1995.
** For the period February 7, 1995 (commencement of operations) through August
31, 1995.
*** For the period November 10, 1994 (commencement of operations) through August
31, 1995.
PILOT INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
(000 OMITTED):
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1995
--------------------
SHARES AMOUNT
------- ---------
<S> <C> <C>
Pilot Shares*
Issued.............................. 17,349 $ 175,132
Reinvestment of dividends........... 3 34
Redeemed............................ (1,512) (15,511)
------- ---------
Net increase--Pilot..................... 15,840 159,655
------- ---------
Class A Shares**
Issued.............................. 56 577
Reinvestment of dividends........... -- 3
Redeemed............................ (8) (84)
------- ---------
Net increase--Class A................... 48 496
------- ---------
Net increase in Portfolio............... 15,888 $ 160,151
====== =========
</TABLE>
- ---------------
* For the period November 7, 1994 (commencement of operations) through August
31, 1995.
** For the period December 21, 1994 (commencement of operations) through August
31, 1995.
- ----------------------------------------------------------
- ----------------------------------------------------------
44
<PAGE> 44
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
PILOT MUNICIPAL BOND FUND (000 OMITTED):
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1995
--------------------
SHARES AMOUNT
------- ---------
<S> <C> <C>
Pilot Shares*
Issued.............................. 15,116 $ 152,081
Reinvestment of dividends........... -- 4
Redeemed............................ (1,013) (10,476)
------- ---------
Net increase--Pilot..................... 14,103 141,609
------- ---------
Class A Shares**
Issued.............................. 32 334
Reinvestment of dividends........... -- 5
Redeemed............................ -- --
------- ---------
Net increase--Class A................... 32 339
------- ---------
Class B Shares***
Issued.............................. 47 501
Reinvestment of dividends........... -- 2
Redeemed............................ (5) (55)
------- ---------
Net increase--Class B................... 42 448
------- ---------
Net increase in Portfolio............... 14,177 $ 142,396
====== =========
</TABLE>
- ---------------
* For the period November 7, 1994 (commencement of operations) through August
31, 1995.
** For the period February 7, 1995 (commencement of operations) through August
31, 1995.
*** For the period December 27, 1994 (commencement of operations) through August
31, 1995.
PILOT INTERMEDIATE MUNICIPAL BOND FUND
(000 OMITTED):
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1995
--------------------
SHARES AMOUNT
------- ---------
<S> <C> <C>
Pilot Shares*
Issued.............................. 21,735 $ 218,063
Reinvestment of dividends........... 1 9
Redeemed............................ (3,033) (31,023)
------- ---------
Net increase--Pilot..................... 18,703 187,049
------- ---------
Class A Shares**
Issued.............................. 22 225
Reinvestment of dividends........... -- --
Redeemed............................ -- --
------- ---------
Net increase--Class A................... 22 225
------- ---------
Net increase in Portfolio............... 18,725 $ 187,274
====== =========
</TABLE>
- ---------------
* For the period November 7, 1994 (commencement of operations) through August
31, 1995.
** For the period November 18, 1994 (commencement of operations) through August
31, 1995.
- ----------------------------------------------------------
- ----------------------------------------------------------
45
<PAGE> 45
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Pilot Growth and Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------------
NET REALIZED TOTAL DIVIDENDS NET ASSET
NET ASSET VALUE NET AND UNREALIZED INCOME FROM FROM NET VALUE AT
AT BEGINNING INVESTMENT GAINS FROM INVESTMENT INVESTMENT END OF TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME PERIOD RETURN(c)
--------------- ---------- -------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD NOVEMBER 7, 1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- ---------------------------------
1995--Pilot Shares............... $ 10.00 $ 0.17 $ 1.59 $1.76 $(0.17) $ 11.59 17.72%
1995--Class A Shares(a).......... 10.44 0.09 1.14 1.23 (0.09) 11.58 11.78
1995--Class B Shares(b).......... 10.08 0.08 1.51 1.59 (0.08) 11.59 15.85
<CAPTION>
RATIO INFORMATION
ASSUMING NO FEE WAIVER OR
EXPENSE REIMBURSEMENT
-------------------------------
RATIO OF NET RATIO OF NET
RATIO OF INVESTMENT NET ASSETS RATIO OF INVESTMENT
EXPENSES INCOME PORTFOLIO AT END OF EXPENSES INCOME
TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
NET ASSETS(d) NET ASSETS(d) RATE (IN 000'S) NET ASSETS(d) NET ASSETS(d)
------------- ------------- -------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD NOVEMBER 7, 1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- ---------------------------------
1995--Pilot Shares............... 0.75% 1.98% 28% $109,423 1.15% 1.58%
1995--Class A Shares(a).......... 1.00 1.65 28 697 1.40 1.25
1995--Class B Shares(b).......... 1.75 0.94 28 661 2.15 0.54
</TABLE>
- ------------
(a) Class A share activity commenced February 7, 1995.
(b) Class B share activity commenced November 11, 1994.
(c) 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
charge. Total return would be reduced if sales charges were taken for Class
A Shares or Class B Shares. Total return is not annualized.
(d) Annualized.
- --------------------------------------------------------------------------------
Pilot Equity Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------------
NET REALIZED TOTAL DIVIDENDS NET ASSET
NET ASSET VALUE NET AND UNREALIZED INCOME FROM FROM NET VALUE AT
AT BEGINNING INVESTMENT GAINS FROM INVESTMENT INVESTMENT END OF TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME PERIOD RETURN(c)
--------------- ---------- -------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD NOVEMBER 7, 1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- ---------------------------------
1995--Pilot Shares............... $ 10.00 $ 0.35 $ 1.29 $1.64 $(0.35) $ 11.29 16.69%
1995--Class A Shares(a).......... 10.24 0.18 1.12 1.30 (0.18) 11.36 12.78
1995--Class B Shares(b).......... 9.85 0.18 1.49 1.67 (0.18) 11.34 17.36
<CAPTION>
RATIO INFORMATION
ASSUMING NO FEE WAIVER OR
EXPENSE REIMBURSEMENT
-------------------------------
RATIO OF NET RATIO OF NET
RATIO OF INVESTMENT NET ASSETS RATIO OF INVESTMENT
EXPENSES INCOME PORTFOLIO AT END OF EXPENSES INCOME
TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
NET ASSETS(d) NET ASSETS(d) RATE (IN 000'S) NET ASSETS(d) NET ASSETS(d)
------------- ------------- -------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD NOVEMBER 7, 1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- ---------------------------------
1995--Pilot Shares............... 0.75% 4.12% 37% $ 98,607 1.14% 3.73%
1995--Class A Shares(a).......... 1.00 3.70 37 311 1.39 3.31
1995--Class B Shares(b).......... 1.75 2.88 37 713 2.14 2.49
</TABLE>
- ------------
(a) Class A share activity commenced February 7, 1995.
(b) Class B share activity commenced January 12, 1995.
(c) 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
charge. Total return would be reduced if sales charges were taken for Class
A Shares or Class B Shares. Total return is not annualized.
(d) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
46
<PAGE> 46
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
Pilot U.S. Government Securities Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------
NET NET
ASSET REALIZED NET
VALUE AND TOTAL DIVIDENDS ASSET
AT UNREALIZED INCOME FROM VALUE
BEGINNING NET GAINS FROM NET AT
OF INVESTMENT FROM INVESTMENT INVESTMENT END OF TOTAL
PERIOD INCOME INVESTMENTS OPERATIONS INCOME PERIOD RETURN(c)
------- ----- ----- ----- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD NOVEMBER 7, 1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- --------------------------------
1995--Pilot Shares.............. $ 10.00 $0.56 $1.20 $1.76 $(0.56) $ 11.20 18.03%
1995--Class A Shares(a)......... 10.48 0.37 0.71 1.08 (0.37) 11.19 10.41
1995--Class B Shares(b)......... 10.05 0.46 1.14 1.60 (0.46) 11.19 16.19
<CAPTION>
RATIO INFORMATION
ASSUMING NO FEE
WAIVER OR
EXPENSE
REIMBURSEMENT
-------------------
RATIO RATIO
OF OF
RATIO NET RATIO NET
OF INVESTMENT NET OF INVESTMENT
EXPENSES INCOME ASSETS EXPENSES INCOME
TO TO AT END OF TO TO
AVERAGE AVERAGE PORTFOLIO PERIOD AVERAGE AVERAGE
NET NET TURNOVER (IN NET NET
ASSETS(d) ASSETS(d) RATE 000'S) ASSETS(d) ASSETS(d)
---- ---- ---- --------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD NOVEMBER 7, 1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- --------------------------------
1995--Pilot Shares.............. 0.62% 6.45% 132% $ 137,261 0.87% 6.20%
1995--Class A Shares(a)......... 0.82 5.76 132 87 1.12 5.46
1995--Class B Shares(b)......... 1.62 5.19 132 146 1.87 4.94
</TABLE>
- ------------
(a) Class A share activity commenced February 7, 1995.
(b) Class B share activity commenced November 10, 1994.
(c) 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
charge. Total return would be reduced if sales charges were taken for Class
A Shares or Class B Shares. Total return is not annualized.
(d) Annualized.
- --------------------------------------------------------------------------------
Pilot Intermediate U.S. Government Securities Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------
NET NET
ASSET REALIZED NET
VALUE AND TOTAL DIVIDENDS ASSET
AT UNREALIZED INCOME FROM VALUE
BEGINNING NET GAINS FROM NET AT END
OF INVESTMENT FROM INVESTMENT INVESTMENT OF TOTAL
PERIOD INCOME INVESTMENTS OPERATIONS INCOME PERIOD RETURN(b)
------- ----- ----- ----- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD NOVEMBER 7, 1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- ------------------------------
1995--Pilot Shares............ $ 10.00 $0.56 $0.44 $1.00 $(0.56) $ 10.44 10.21%
1995--Class A Shares(a)....... 9.98 0.45 0.46 0.91 (0.45) 10.44 9.31
<CAPTION>
RATIO INFORMATION
ASSUMING NO FEE
WAIVER OR
EXPENSE
REIMBURSEMENT
-------------------
RATIO RATIO
OF OF
RATIO NET RATIO NET
OF INVESTMENT NET OF INVESTMENT
EXPENSES INCOME ASSETS AT EXPENSES INCOME
TO TO END OF TO TO
AVERAGE AVERAGE PORTFOLIO PERIOD AVERAGE AVERAGE
NET NET TURNOVER (IN NET NET
ASSETS(c) ASSETS(c) RATE 000'S) ASSETS(c) ASSETS(c)
---- ---- --- --------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD NOVEMBER 7,
1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- ------------------------------
1995--Pilot Shares............ 0.57% 6.65% 87% $ 165,441 0.87% 6.35%
1995--Class A Shares(a)....... 0.72 6.27 87 499 1.12 5.87
</TABLE>
- ------------
(a) Class A share activity commenced December 21, 1994
(b) 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
charge. Total return would be reduced if sales charges were taken for Class
A shares. Total return is not annualized.
(c) Annualized
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
47
<PAGE> 47
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
Pilot Municipal Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------
NET NET
ASSET REALIZED NET
VALUE AND TOTAL DIVIDENDS ASSET
AT UNREALIZED INCOME FROM VALUE
BEGINNING NET GAINS FROM NET AT END
OF INVESTMENT FROM INVESTMENT INVESTMENT OF TOTAL
PERIOD INCOME INVESTMENTS OPERATIONS INCOME PERIOD RETURN(c)
------- ----- ----- ----- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD NOVEMBER 7,
1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- ------------------------------
1995--Pilot Shares............ $ 10.00 $0.48 $0.70 $1.18 $(0.48) $ 10.70 12.00%
1995--Class A Shares(a)....... 10.37 0.34 0.33 0.64 (0.34) 10.70 6.54
1995--Class B Shares(b)....... 10.02 0.33 0.63 0.95 (0.33) 10.65 9.62
<CAPTION>
RATIO INFORMATION
ASSUMING NO FEE
WAIVER OR
EXPENSE
REIMBURSEMENT
-------------------
RATIO RATIO
OF OF
RATIO NET RATIO NET
OF INVESTMENT NET OF INVESTMENT
EXPENSES INCOME ASSETS AT EXPENSES INCOME
TO TO END OF TO TO
AVERAGE AVERAGE PORTFOLIO PERIOD AVERAGE AVERAGE
NET NET TURNOVER (IN NET NET
ASSETS(d) ASSETS(d) RATE 000'S) ASSETS(d) ASSETS(d)
---- ---- --- --------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD NOVEMBER 7,
1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- ------------------------------
1995--Pilot Shares............ 0.67% 5.63% 10% $ 150,934 0.86% 5.44%
1995--Class A Shares(a)....... 0.87 5.26 10 340 1.11 5.02
1995--Class B Shares(b)....... 1.67 4.48 10 448 1.86 4.29
</TABLE>
- ------------
(a) Class A share activity commenced February 7, 1995.
(a) Class B share activity commenced December 27, 1994.
(c) 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
charge. Total return would be reduced if sales charges were taken for Class
A Shares or Class B Shares. Total return is not annualized.
(d) Annualized.
- --------------------------------------------------------------------------------
Pilot Intermediate Municipal Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------
NET NET
ASSET REALIZED NET
VALUE AND TOTAL DIVIDENDS ASSET
AT UNREALIZED INCOME FROM VALUE
BEGINNING NET GAINS FROM NET AT
OF INVESTMENT FROM INVESTMENT INVESTMENT END OF TOTAL
PERIOD INCOME INVESTMENTS OPERATIONS INCOME PERIOD RETURN(b)
------- ----- ----- ----- ------ ------- -----
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD NOVEMBER 7, 1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- -------------------------------
1995--Pilot Shares............. $ 10.00 $0.41 $0.49 $0.90 $(0.41) $ 10.49 9.16%
1995--Class A Shares(a)........ 9.88 0.37 0.61 0.98 (0.37) 10.49 10.03
<CAPTION>
RATIO INFORMATION
ASSUMING NO FEE
WAIVER OR
EXPENSE
REIMBURSEMENT
-------------------
RATIO RATIO
OF OF
RATIO NET RATIO NET
OF INVESTMENT NET OF INVESTMENT
EXPENSES INCOME ASSETS EXPENSES INCOME
TO TO AT END OF TO TO
AVERAGE AVERAGE PORTFOLIO PERIOD AVERAGE AVERAGE
NET NET TURNOVER (IN NET NET
ASSETS(C) ASSETS(C) RATE 000'S) ASSETS(C) ASSETS(C)
---- ---- --- --------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD NOVEMBER 7, 1994
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- -------------------------------
1995--Pilot Shares............. 0.58% 4.90% 8% $ 196,209 0.81% 4.67%
1995--Class A Shares(a)........ 0.73 4.60 8 232 1.06 4.27
</TABLE>
- ------------
(a) Class A share activity commenced November 18, 1994.
(b) 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
charge. Total return would be reduced if sales charges were taken for Class
A shares. Total return is not annualized.
(c) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
48
<PAGE> 48
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of the
Pilot Growth and Income Fund,
Pilot Equity Income Fund,
Pilot U.S. Government Securities Fund,
Pilot Intermediate U.S. Government Securities Fund,
Pilot Municipal Bond Fund and
Pilot Intermediate Municipal Bond Fund
of The Pilot Funds:
We have audited the accompanying statements of assets and liabilities of the
Pilot Growth and Income Fund, Pilot Equity Income Fund, Pilot U.S. Government
Securities Fund, Pilot Intermediate U.S. Government Securities Fund, Pilot
Municipal Bond Fund and Pilot Intermediate Municipal Bond Fund (the "Funds") of
The Pilot Funds (a Massachusetts business trust), including the portfolios of
investments as of August 31, 1995, and the related statements of operations and
changes in net assets and financial highlights for the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of the Funds as of August 31, 1995, the results of their operations for
the period then ended, the changes in their net assets and the financial
highlights for the periods presented in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 16, 1995
49
<PAGE> 49
PIL6AB95A
Financial
Direction
[THE PILOT FUNDS LOGO]
Pilot Growth and
Income Fund
Pilot Equity
Income Fund
Pilot U.S. Government
Securities Fund
Pilot Intermediate
U.S. Government
Securities Fund
Pilot Municipal
Bond Fund
Pilot Intermediate
Municipal Bond Fund
ANNUAL REPORT
August 31, 1995
THE
PILOT
FUNDS
NOT FDIC Insured
Distributor: Pilot Funds Distributors, Inc.
10/95
<PAGE> 1
EXHIBIT 17(l)
PILOT MONEY MARKET FUNDS
7-Day Current Yields as of August 31, 1995
<TABLE>
<CAPTION>
Pilot Shares Pilot Administration Shares Pilot Investor Shares
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pilot Short-Term U.S. Treasury Fund 5.72% 5.45% 5.19%
- ----------------------------------------------------------------------------------------------------------------------------
Pilot Short-Term Diversified Assets Fund 5.81% 5.55% 5.29%
- ----------------------------------------------------------------------------------------------------------------------------
Pilot Missouri Short-Term Tax-Exempt Fund* 3.37% 3.11% 2.86%
- ----------------------------------------------------------------------------------------------------------------------------
Pilot Short-Term Tax-Exempt Diversified Fund* 3.46% 3.20% 2.94%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. Yields will fluctuate as
market conditions change. An investment in the Funds is neither insured nor
guaranteed by the U.S. Government, and there can be no assurance that the Funds
will be able to maintain a stable net asset value of $1.00 per share.
* A portion of the income may be subject to the alternative minimum tax and to
certain state and local taxes.
Pilot Short-Term U.S. Treasury Fund -
Pilot Shares** 7-Day Yield at Month-End
[BAR CHART - DESCRIPTION TO BE SUPPLIED]
Pilot Short-Term Diversified Assets Fund -
Pilot Shares** 7-Day Yield at Month-End
[BAR CHART- DESCRIPTION TO BE SUPPLIED]
Pilot Missouri Short-Term Tax-Exempt Fund-
Pilot Shares** 7-Day Yield at Month-End
[BAR CHART - DESCRIPTION TO BE SUPPLIED]
Pilot Short-Term Tax-Exempt Diversified Fund-
Pilot Shares** 7-Day Yield at Month-end
[BAR CHART - DESCRIPTION TO BE SUPPLIED]
**Pilot Administration Shares and Pilot Investor Shares pay administration and
12b-1 fees of 0.25% and 0.50%, respectively. Consequently, yields on these
shares would have been lower for the periods shown.
<PAGE> 2
LETTER FROM THE FUNDS MANAGEMENT
DEAR SHAREHOLDER:
We are please to present you with the Annual Report of the Pilot money market
funds for the twelve months ended August 31, 1995.
This period was marked by a number of positive developments for the Funds
and for the industry as a whole. More attractive short-term rates combined with
an increasing number of individual and institutional shareholders helped fuel a
large rise in total money fund assets. As a result, the total assets in the
four Pilot Money Market Funds rose 30% to $3.5 billion. Major factors in our
success were favorable industry trends combined with expanded use of our
Corporate Cash Sweep program in Iowa, Arkansas, and Kansas City.
We also completed the transfer of our tax-exempt funds' investment
management function to Boatmen's Trust Company. We think this will enable
closer coordination between the Funds' operations and investment management, and
ultimately improve efficiency. Boatmen's Trust Company is one of the nation's
leading money managers, with over 100 years of experience managing the assets of
individuals, corporations and non-profit institutions.
In another initiative aimed at enhancing our service to shareholders, we
converted THE PILOT SHORT-TERM TAX-EXEMPT FUND to THE PILOT MISSOURI SHORT-TERM
TAX-EXEMPT FUND, the first -- and only -- tax-exempt money fund intended
primarily for the residents of Missouri. With Missouri residents facing a
maximum combined effective state and federal income tax rate of 43.5%, we think
this is an important new fund for our customers.
Should you have any questions or wish to find out more about any of The
Pilot Funds, please call us directly at 1-800-71-PILOT (717-4568).
Thank you for choosing The Pilot Funds to help meet your investment needs.
Sincerely,
David F. Toth
SENIOR VICE PRESIDENT
Boatmen's Trust Company
- --------------------------------------------------------------------------------
Distributor: Pilot Funds Distributors, Inc.
INVESTMENTS IN THE PILOT FUNDS ARE NOT INSURED BY THE FDIC, ARE NOT BANK
DEPOSITS OR OBLIGATIONS, OR GUARANTEED BY BOATMEN'S TRUST COMPANY OR ITS
AFFILIATES. INVESTMENTS INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THE FUNDS ARE ADVISED BY BOATMEN'S TRUST COMPANY, A NON-BANK SUBSIDIARY OF
BOATMEN'S BANCSHARES, INC., AND ARE DISTRIBUTED BY PILOT FUNDS DISTRIBUTORS,
INC., WHICH IS NOT AFFILIATED WITH BOATMEN'S TRUST COMPANY. BOATMEN'S TRUST
COMPANY RECEIVES FEES FOR PROVIDING INVESTMENT ADVISORY SERVICES TO THE FUNDS.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE> 3
Pilot Short-Term U.S. Treasury Fund
Pilot Short-Term Diversified Assets Fund
DEAR SHAREHOLDER:
After nearly a doubling of short-term rates in 1994, market expectations were
biased toward a continuation of Federal Reserve tightening going into 1995.
Contrary to consensus expectations, economic activity decelerated markedly in
the first quarter of 1995. This had the effect of changing expectations from
tightening to an eventual easing of monetary policy. While the July Fed easing
of 25 basis points was minimal, the shift in short-term rates resulting from
changing perception was much greater.
Pilot Short-Term U.S. Treasury Fund
To provide shareholders with the opportunity to benefit from an environment
characterized by uncertainty, The Pilot Short-Term U.S. Treasury Fund has
tailored its investment tactics to benefit from market concerns. Recently the
Fund has employed a relatively neutral stance to interest rate changes. While
the Fund's average days to maturity is slightly shorter than the average days to
maturity of competing funds with similar objectives and guidelines, we have
concentrated our purchases of Treasury bills and notes with a maturity structure
that should out-perform other investments given our assessment of the current
state of the economy. This strategy is being executed with investments
primarily in repurchase agreements backed by the U.S. Treasury, as well as
selected U.S. Treasury bills and notes. As a result, the Fund has been able to
provide liquidity and preserve shareholders' principal without sacrificing
yield.
Pilot Short-Term Diversified Asset Fund
Amid considerable market volatility this year, the conservative investment
strategy of The Pilot Short-Term Diversified Assets Fund was also ideally suited
to investors seeking stability of principal. During the first quarter, the
defensive tactics of the Fund enabled it to extend the long-standing record of
highly competitive yields. Most recently, the Fund has employed a neutral
stance to interest rate changes by maintaining the weighted average days to
maturity at approximately 36 days. While the Fund's average is slightly shorter
than the average of competing funds with similar objectives and guidelines, we
have concentrated our investments in securities that we believe will outperform
other alternative investments given our assessment of the current state of the
economy. The Fund's emphasis on floating rate securities
AVERAGE DAYS TO MATURITY
[BAR GRAPH - DESCRIPTION TO BE SUPPLIED]
- - Pilot Short-Term U.S. Treasury Fund
- - Pilot Short-Term Diversified Assets Fund
<PAGE> 4
4
LETTER FROM THE PORTFOLIO MANAGERS
has shifted to one and three month rate resets as opposed to weekly and daily
resets to reflect a weaker economy during the second quarter of 1995. Our
maturity structure reflects our belief that the economy remains steady with
stronger growth emerging later in the year.
The role of derivatives in investing continues to be a topic for discussion
in news reports and boardrooms. We would like to again reaffirm our position
that those securities that have been cited by the SEC as inappropriate for
investment by funds which seek to maintain a stable net asset value, or those
securities that, through our analysis indicate a potential to not approximate
par value, have no place in our conservative investment approach.
Looking Ahead
While signs of progress towards an economic soft landing appeared in the second
quarter, the current expansion continues to roll along with the majority of
signals pointing to an economy that will not be derailed. After four years of
investment-led expansion, growth is adequate but not excessive. While inflation
may have appeared to peak, the risk in an older expansion cycle is historically
biased for an increase in pricing pressures. Therefore our investment philosophy
continues to stress high credit quality investments purchased in a manner that
helps ensure stability of principal at competitive yields.
Sincerely,
Frank J. Aten, CFA
SENIOR VICE PRESIDENT
DIRECTOR, TAXABLE FIXED INCOME
Boatmen's Trust Company
David W. Brooks
PORTFOLIO MANAGER
TAXABLE FIXED INCOME
Boatmen's Trust Company
- --------------------------------------------------------------------------------
PILOT SHORT-TERM U.S. TREASURY FUND
Portfolio Composition as of 8/31/95*
<TABLE>
<S> <C>
U.S. Treasury Bills and Notes ............................................ 42%
Repurchase Agreements .................................................... 58%
</TABLE>
- --------------------------------------------------------------------------------
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
Portfolio Composition as of 8/31/95*
<TABLE>
<S> <C>
Tier 1 Commercial Paper .................................................. 27%
Repurchase Agreements .................................................... 21%
Domestic Bank Obligations ................................................ 3%
Foreign Bank Obligations ................................................. 12%
Corporate Obligations .................................................... 9%
Time Deposits ............................................................ 12%
U.S. Government Obligations .............................................. 16%
</TABLE>
*Portfolio holdings are subject to change.
<PAGE> 5
5
LETTER FROM THE PORTFOLIO MANAGERS
Pilot Missouri Short-Term Tax-Exempt Fund
Pilot Short-Term Tax-Exempt Diversified Fund
DEAR SHAREHOLDER:
After nearly a doubling of short-term rates in 1994, market expectations were
biased toward a continuation of Federal Reserve tightening going into 1995.
Contrary to consensus expectations, economic activity decelerated markedly in
the first quarter of 1995. This had the effect of changing expectations from
tightening to an eventual easing of monetary policy. While the July Fed easing
of 25 basis points was minimal, the shift in short-term rates resulting from
changing perception was much greater. During the third quarter of 1995,
Boatmen's Trust Company assumed the management of The Pilot Missouri Short-Term
Tax-Exempt Fund and The Pilot Short-Term Tax-Exempt Diversified Fund.
Pilot Missouri Short-Term Tax-Exempt Fund
The Pilot Missouri Short-Term Tax-Exempt Fund has continued to target a weighted
average maturity of plus or minus five days to the IBC/Donoghue's Tax-Exempt
Money Fund Average. Currently, The Pilot Missouri Short-Term Tax-Exempt Fund has
a weighted average maturity of 59 days with a 7-day yield of 3.32% versus
IBC/Donoghue's Fund Average of 53 days with a 7-day yield of 3.21%. One of the
most significant changes in the Fund since taking over management in July has
been the percentage increase of Missouri issues held. The Missouri allocation
was increased to 88% of Fund assets. In addition to increasing the number of
Missouri issues held in the Fund, we increased the liquidity of the Fund by
holding a larger percentage of variable rate demand instruments with daily
liquidity. Holding this type of security offers the Fund the flexibility to more
readily meet cash flow demands. The assets of The Pilot Missouri Short-Term
Tax-Exempt Fund have decreased by approximately $22 million, or about 9% in the
past year, taking net assets down to approximately $226 million.
- --------------------------------------------------------------------------------
AVERAGE DAYS TO MATURITY
[GRAPH -- DESCRIPTION TO BE SUPPLIED BY CUSTOMER]
<PAGE> 6
6
LETTER FROM THE PORTFOLIO MANAGERS
Pilot Short-Term Tax-Exempt Diversified Fund
The Pilot Short-Term Tax-Exempt Diversified Fund has continued to target a
weighted average maturity of plus or minus five days to the IBC/Donoghue's
Tax-Exempt Money Fund Average. Presently, we have an average maturity of 56 days
with a 7-day yield of 3.40% versus IBC/Donoghue's fund average of 54 days with a
7-day yield of 3.44%. This strategy of keeping the Fund neutral to our peer
group coupled with conservative investment guidelines has allowed us to perform
well over the past year. However, municipal bonds in general have underperformed
U.S. Government securities due primarily to the flat-tax proposals. In the past
six months, municipal bond mutual funds have incurred redemptions of over $600
million dollars. In addition, investors have been unwilling to commit new funds
to the tax-exempt market with all of its uncertainties when the equity market
was presenting an irresistible alternative. In spite of these market conditions,
The Pilot Short-Term Tax-Exempt Diversified Fund saw an increase in assets over
last year of approximately $21 million, or about 5% in the past year, bringing
total net assets to approximately $412 million.
- --------------------------------------------------------------------------------
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
Portfolio Composition as of 8/31/95*
<TABLE>
<S> <C>
Missouri ................................................................. 85%
Other .................................................................... 15%
</TABLE>
- --------------------------------------------------------------------------------
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
Portfolio Composition as of 8/31/95*
<TABLE>
<S> <C>
Other .................................................................... 41%
California ............................................................... 7%
Florida .................................................................. 11%
Georgia .................................................................. 8%
Illinois ................................................................. 6%
Missouri ................................................................. 11%
New York ................................................................. 7%
Texas .................................................................... 9%
</TABLE>
*Portfolio holdings are subject to change.
<PAGE> 7
7
LETTER FROM THE PORTFOLIO MANAGERS
Looking Ahead
Individuals who invest in the tax-exempt market will have a tough choice to make
in the year ahead as municipals will probably underperform treasuries until
after a decision is made regarding the flat-tax. However, the long-end of the
municipal curve will probably feel the impact of the flat-tax issue more than
the short-end, as investors who chose to stay in the tax-exempt market move in
on the curve to minimize underperformance while continuing to receive tax-exempt
income.
Sincerely,
Jennifer R. Wacker, CFAJ
VICE PRESIDENT, DIRECTOR OF
TAX-EXEMPT FIXED INCOME
Boatmen's Trust Company
Dawn Daggy-Mangerson
PORTFOLIO MANAGER
Boatmen's Trust Company
Please place broker/dealer information here.
-------------------------------------------------
-------------------------------------------------
<PAGE> 8
PILOT SHORT-TERM U.S. TREASURY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Maturity Value
(000) Description Rate Date (Note 2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--42.1%
U.S. TREASURY BILLS--37.3%
$ 40,000 U.S. Treasury Bill 5.10 %* 9/07/95 $ 39,966,066
250,000 U.S. Treasury Bill 5.18 * 9/14/95 249,533,263
250,000 U.S. Treasury Bill 5.44 * 9/21/95 249,248,333
35,000 U.S. Treasury Bill 6.023* 11/16/95 34,569,228
--------------
573,316,890
--------------
U.S. TREASURY NOTES--4.8%
25,000 U.S. Treasury Note 8.50 11/15/95 25,119,018
50,000 U.S. Treasury Note 4.00 1/31/96 49,590,359
--------------
74,709,377
- --------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (amortized cost $648,026,267) 648,026,267
- --------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--58.3%
380,670 Repurchase agreement with J.P. Morgan, Inc., dated 8/31/95,
5.80% due 9/01/95, with a maturity value of $380,731,686
(see Footnote A) 380,670,356
365,397 Repurchase agreement with Lehman Brothers, dated 8/31/95,
5.85% due 9/01/95, with a maturity value of $365,455,889
(see Footnote B) 365,396,512
75,000 Repurchase agreement with Merrill Lynch, dated 8/31/95, 5.70%
due 9/01/95, with a maturity value of $75,011,875
(see Footnote C) 75,000,000
75,425 Repurchase agreement with State Street Bank and Trust, dated
8/31/95, 5.80% due 9/01/95, with a maturity value of
$75,437,152 (see Footnote D) 75,425,000
- --------------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (amortized cost $896,491,868) 896,491,868
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--100.4% (amortized cost $1,544,518,135) 1,544,518,135
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.4%) (6,404,280)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS--100.0% $1,538,113,855
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Effective yield
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
8
<PAGE> 9
PILOT SHORT-TERM U.S. TREASURY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
Footnote A
Collateralized by $27,271,000 U.S. Treasury Bonds, with various coupon rates
and maturities ranging from 11/15/95 through 8/15/23 and $346,807,000 U.S.
Treasury Notes, with various coupon rates and maturities ranging from
5/15/97 through 7/31/97; with an aggregate value of $388,285,275.
Footnote B
Collateralized by $40,200,000 U.S. Treasury Bonds, with various coupon rates
and maturities ranging from 11/15/21 through 8/15/25, $196,463,000 U.S.
Treasury Notes, with various coupon rates and maturities ranging from
8/15/00 through 5/15/04, $87,933,000 U.S. Treasury Strip Interest Payments,
with maturities ranging from 8/15/97 through 11/15/99, and $73,052,000 U.S.
Treasury Non-Callable Strips, with various coupon rates and maturities
ranging from 11/15/95 through 2/15/03; with an aggregate value of
$372,679,879.
Footnote C
Collateralized by $58,799,000 U.S. Treasury Bonds, with various coupon rates
and maturities ranging from 11/15/95 through 8/15/25 and $9,590,000 U.S.
Treasury Notes, with various coupon rates and maturities ranging from
1/15/00 through 1/31/00; with an aggregate value of $76,500,453.
Footnote D
Collateralized by $70,155,000 U.S. Treasury Note, 7.50%, due 11/15/16 with a
value of $76,938,874.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
9
<PAGE> 10
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) Description (Unaudited) Rate Date (Note 2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER--26.3%
DOMESTIC--26.3%
$ 20,000 Browning Ferris Industries, Inc. P1/A1 5.74% 9/25/95 $ 19,923,467
50,000 Dupont E.I. De Nemours & Co. P1/A1+ 6.02 10/03/95 49,732,444
20,000 Eiger Capital Corp. P1/A1+ 5.77 9/20/95 19,939,094
30,000 ITT Hartford Group, Inc. P1/A1 5.72 9/13/95 29,942,800
10,000 ITT Hartford Group, Inc. P1/A1 5.75 10/31/95 9,904,167
25,000 Merrill Lynch & Co., Inc. P1/A1+ 5.77 9/15/95 24,943,903
25,000 Merrill Lynch & Co., Inc. P1/A1+ 5.64 1/31/96 24,404,667
28,200 Monsanto Co. P1/A1 6.03 9/20/95 28,110,254
25,000 New Center Asset Trust P1/A1+ 5.78 9/05/95 24,983,944
25,000 New Center Asset Trust P1/A1 5.73 10/13/95 24,832,875
25,000 Prudential Funding Corp. P1/A1+ 5.76 9/06/95 24,980,000
20,000 Northern Telecom, Inc. P1/A1 5.76 9/07/95 19,980,800
20,000 RTZ America, Inc. P1/A1+ 5.74 9/22/95 19,933,033
26,756 Southern California Gas Co. P1/A1+ 5.56 5/03/96 25,743,583
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (amortized cost $347,355,031) 347,355,031
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATION NOTES--15.1%
27,000 Federal Home Loan Bank Variable Rate Note* Aaa/AAA** 5.94 9/01/95 26,998,995
30,000 Federal Home Loan Bank Variable Rate Note* Aaa/AAA** 5.82 9/29/95 29,954,920
27,000 Federal Home Loan Bank Variable Rate Note* Aaa/AAA** 5.92 9/01/95 26,997,876
25,000 Federal National Mortgage Association Variable Aaa/AAA** 5.58 9/05/95 24,988,834
Rate Note*
20,000 Federal National Mortgage Association Variable Aaa/AAA** 5.58 9/05/95 20,000,000
Rate Note*
40,700 Student Loan Marketing Association Variable Rate Aaa/AAA** 5.85 9/05/95 40,842,682
Note*
30,000 Student Loan Marketing Association Variable Rate Aaa/AAA** 5.71 9/05/95 30,000,000
Note*
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATION NOTES (amortized cost $199,783,307) 199,783,307
- ---------------------------------------------------------------------------------------------------------------------------------
MASTER NOTE--3.8%
50,000 Anchor National Life Insurance Co. Variable Rate NR/NR 6.03 9/01/95 50,000,000
Note* (amortized cost $50,000,000)
- ---------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS--8.6%
30,000 AT&T Capital Corp. Variable Rate Note* A3/A 5.82 9/01/95 30,000,000
10,000 Bear Stearns Co., Inc. Variable Rate Note* A2/A 5.96 9/06/95 10,000,000
35,000 Bear Stearns Co., Inc. Variable Rate Note* A2/A 6.06 9/01/95 35,000,000
14,520 Dean Witter Discover and Co. Variable Rate Note* A2/A 6.37 9/15/95 14,524,010
25,000 Dean Witter Discover and Co. A2/A 5.00 9/01/95 24,872,080
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS (amortized cost $114,396,090) 114,396,090
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
10
<PAGE> 11
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) Description (Unaudited) Rate Date (Note 2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TIME DEPOSITS--11.3%
FOREIGN--7.5%
$ 50,000 Abbey National Bank P1/A1+ 5.78% 9/11/95 $ 50,000,000
50,000 ABN-AMRO Bank NV P1/A1+ 5.78 9/01/95 50,000,000
--------------
100,000,000
--------------
DOMESTIC--3.8%
50,000 PNC Bank NA P1/A1 5.75 9/05/95 50,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL TIME DEPOSITS (amortized cost $150,000,000) 150,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT--14.3%
YANKEE--11.7%
50,000 Bayerische Landesbank P1/A1+ 6.05 7/24/96 50,000,000
25,000 Credit Agricole P1/A1+ 5.79 10/16/95 25,000,309
50,000 Royal Bank of Canada P1/A1+ 6.12 9/01/95 50,000,000
10,000 Societe Generale P1/A1+ 5.77 10/03/95 9,999,571
20,000 Societe Generale P1/A1+ 5.77 10/06/95 19,999,431
--------------
154,999,311
--------------
DOMESTIC--2.6%
33,500 National Bank of Detroit Corp. P1/A1+ 5.77 9/21/95 33,500,168
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT (amortized cost $188,499,479) 188,499,479
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
11
<PAGE> 12
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENTS--20.7%
$108,365 Repurchase agreement with Lehman Brothers, dated $ 108,364,571
8/31/95, 5.83%, due 9/01/95, with a maturity
value of $108,382,120. (cost $108,364,571)
(See Footnote A)
105,000 Repurchase agreement with J.P. Morgan, dated 105,000,000
8/31/95, 5.80%, due 9/01/95, with a maturity
value of $105,016,917. (cost $105,000,000)
(See Footnote B)
60,841 Repurchase agreement with State Street Bank and 60,841,000
Trust, dated 8/31/95, 5.80%, due 9/01/95, with a
maturity value of $60,850,802. (cost
$60,841,000)
(See Footnote C)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (amortized cost $274,205,571) 274,205,571
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--100.1% (amortized cost $1,324,239,478) 1,324,239,478
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.1%) (1,979,634)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS--100.0% $1,322,259,844
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Variable rate security. The interest rate, which will change periodically, is
based on bank prime rates or an index of market interest rates. The rate
reflected is the rate in effect August 31, 1995. Maturity date reflects the
later of the next interest rate change date or the next put date.
** Implied Rating.
Footnote A
Collateralized by $174,638,971 Government National Mortgage Association
Bonds, with various coupon rates, and maturities ranging from 10/15/00
through 6/20/25 with an aggregate value of $110,520,461.
Footnote B
Collateralized by a $111,665,000 U.S. Treasury Bill, due 5/30/96 with a
value of $107,101,251.
Footnote C
Collateralized by a $56,590,000 U.S. Treasury Bond, 7.50%, due 11/15/16 with
a value of $62,062,160.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
12
<PAGE> 13
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) Description (Unaudited) Rate Date (Note 2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS--103.2%
ALABAMA--0.9%
$ 2,000 Columbia Indl. Dev. Brd., Poll. Ctl. Rev.,
Alabama Power Co., Ser. B* (A2/VMIG1)(A/A-1) 3.50 % 9/01/95 $ 2,000,000
-------------
FLORIDA--1.9%
200 Manatee County Poll. Ctl. Rev., Florida
Power & Lighting Co.* (A1/VMIG1)(AA-/A-1+) 3.50 9/01/95 200,000
3,500 Martin County Poll. Ctl. Rev., Florida Power
& Lighting Co.* (A1/VMIG1)(AA-/A-1+) 3.50 9/01/95 3,500,000
600 St. Lucie County Poll. Ctl. Rev., Florida
Power & Lighting Co.* (A1/VMIG1)(AA-/A-1+) 3.35 9/01/95 600,000
-------------
4,300,000
-------------
GEORGIA--5.8%
1,300 Burke County Dev. Auth., Poll. Ctl. Rev.
Ser. 2* (A1/VMIG1)(A+/A-1) 3.30 9/01/95 1,300,000
6,700 Burke County Dev. Auth., Poll. Ctl. Rev.
Ser. 8* (A1/VMIG1)(A+/A-1) 3.40 9/01/95 6,700,000
2,000 Georgia Mun. Gas Auth., Southern Portfolio
I, Proj. D (LC-Wachovia Bank & Trust)* (NR/NR)(AA+/A-1+) 3.85 9/13/95 2,000,000
2,200 Monroe County Dev. Auth., Poll. Ctl. Rev.,
Georgia Power Co. Scherer, 1st Ser.* (A1/VMIG1)(A+/A-1) 3.30 9/01/95 2,200,000
1,000 Monroe County Dev. Auth., Poll. Ctl. Rev.,
Georgia Power Co. Scherer, 2nd Ser.* (A1/VMIG1)(A+/A-1) 3.60 9/01/95 1,000,000
-------------
13,200,000
-------------
MISSOURI--88.9%
5,000 Berkeley Indl. Dev. Auth. Rev. Bonds, Flight
Safety Intl. Inc. Proj.* (Aa2)(NR) 3.75 9/07/95 5,000,000
700 Berkeley Indl. Dev. Auth. Rev. Bonds,
Wetterau Proj.* (Aa3)(NR) 3.65 9/07/95 700,000
4,500 Columbia Schl. Dist. Tax & Rev. Antic. Nts. (MIG1)(NR) 4.00 4/01/96 4,514,063
6,800 Columbia Wtr. & Elec. Rev. Bonds, Ser. B
(LC-Toronto Dominion Bank)* (Aa2/VMIG1)(AA/A-1+) 3.50 9/06/95 6,800,000
1,000 Independence Indl. Dev. Auth., Resthaven
Proj. (LC-Credit Local De France)* (NR/NR)(AAA/A-1+) 3.55 9/06/95 1,000,000
1,000 Independence Wtr. Util. Rev. Bonds
(LC-National Westminster) (Aa2/VMIG1)(NR/NR) 3.75 10/06/95 1,000,000
2,300 Independence Wtr. Util. Rev. Bonds
(LC-National Westminster) (Aa2/VMIG1)(NR/NR) 3.75 11/01/95 2,300,000
2,400 Kansas City Indl. Dev. Auth., Multi-Family
Hsg. Rev. Bonds, Timblane Vlg. Apts. Proj.
(LC-Security Pac. National Bank)* (Aa3/VMIG1)(NR/NR) 3.80 9/07/95 2,400,000
4,000 Kansas City Indl. Dev. Hosp.* (Aa3/VMIG1)(NR/NR) 3.55 9/07/95 4,000,000
810 Mexico IDA Indl. Rev. Bonds, Wetterau Inc.
PJ A* (Aa3)(NR) 3.65 9/07/95 810,000
815 Mexico IDA Indl. Rev. Bonds, Wetterau Inc.
PJ B* (Aa3)(NR) 3.65 9/07/95 815,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
13
<PAGE> 14
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) Description (Unaudited) Rate Date (Note 2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MISSOURI (continued)
$ 16,700 Missouri St. Envrmnt. Impt. & Enrgy. Res.
Auth., Env. Impt. Rev., Kansas City Pwr.* (A2/VMIG1)(A-/A-1) 3.60 % 9/06/95 $ 16,700,000
3,020 Missouri St. Envrmnt. Impt. & Enrgy. Res.
Auth., Poll. Ctl. Rev., Monsanto Co.
Proj.* (A1/P-1)(NR/NR) 3.50 9/06/95 3,020,000
14,795 Missouri St. Envrmnt. Impt. & Enrgy. Res.
Auth., Poll Ctl. Rev., Noranda Aluminum
Inc. Proj.* (Aa3)(NR) 3.60 9/06/95 14,795,000
6,500 Missouri St. Envrmnt. Impt. & Enrgy. Res.
Auth., Poll. Ctl. Rev., Unelec. Co. Proj.,
Ser. A (LC-Union Bank of Switzerland) (Aaa/P-1)(AAA/A-1+) 4.15 10/19/95 6,500,000
13,500 Missouri St. Envrmnt. Impt. & Enrgy. Res.
Auth., Poll. Ctl. Rev., Unelec. Co. Proj.,
Ser. B (LC-Westdeutsche Landesbank) (Aa1/P-1)(AA+/A-1+) 4.15 9/13/95 13,500,000
2,000 Missouri St. Envrmnt. Impt. & Enrgy. Res.
Auth., Poll. Ctl. Rev., Unelec. Co. Proj.,
Ser. B (LC-Westdeutsche Landesbank) (Aa1/P-1)(AA+/A-1+) 3.95 10/04/95 2,000,000
4,500 Missouri St. Hlth. & Edl. Facs. Auth. Rev.,
Christian Hlth. Svcs., A (LC-Morgan
Guaranty Trust)* (NR/NR)(AA-/A-1+) 3.55 9/06/95 4,500,000
4,000 Missouri St. Hlth. & Edl. Facs. Auth. Rev.,
Washington Univ., Ser. A* (Aa1/VMIG1)(AA-/A-1+) 3.50 9/01/95 4,000,000
4,800 Missouri St. Hlth. & Edl. Facs. Auth. Rev.,
Washington Univ., Ser. B* (Aa/VMIG1)(AA-/A-1+) 3.50 9/01/95 4,800,000
2,400 Missouri St. Hlth. & Edl. Facs. Auth., Edl.
Facs. Rev., Washington Univ. Proj.* (Aa/VMIG1)(AA-/A-1+) 3.55 9/06/95 2,400,000
2,900 Missouri St. Hlth. & Edl. Facs. Auth., Edl.
Facs. Rev., Washington Univ. Proj., Ser.
A* (Aa/VMIG1)(AA-/A-1+) 3.55 9/06/95 2,900,000
2,500 Missouri St. Hlth. & Edl. Facs. Auth., Edl.
Facs. Rev., Washington Univ. Proj., Ser.
B* (Aa/VMIG1)(AA-/A-1+) 3.55 9/06/95 2,500,000
9,490 Missouri St. Hlth. & Edl. Facs. Auth., Hlth.
Facs. Rev., Barnes Hosp. Proj.* (Aa1/VMIG1)(AAA/A-1+) 3.45 9/06/95 9,490,000
3,300 Missouri St. Hlth. & Edl. Facs. Auth., Hlth.
Facs. Rev. Sisters Mercy Ref., B* (Aa/VMIG1)(AA/A-1+) 3.50 9/07/95 3,300,000
10,800 Missouri St. Hlth. & Edl. Facs. Auth., Hlth.
Facs. Rev., Sisters Mercy Hlth., Ser. B* (Aa/VMIG1)(AA/A-1+) 3.50 9/07/95 10,800,000
700 Missouri St. Hlth. & Edl. Facs. Auth., Hlth.
Facs. Rev., Sisters Mercy Hlth., Ser. D* (Aa/VMIG1)(AA/A-1) 3.50 9/07/95 700,000
8,600 Missouri St. Hlth. & Edl. Facs. Auth., Hlth.
Facs. Rev., SSM Hlth. Care, Ser. C
(LC-Mitsubishi Ltd.) (Aa3/VMIG1)(NR/NR) 3.70 10/06/95 8,600,000
5,000 Missouri St. Hlth. & Edl. Facs. Auth., Hlth.
Facs. Rev., SSM Hlth. Care, Ser. C
(LC-Mitsubishi Ltd.) (Aa3/VMIG1)(NR/NR) 3.85 10/27/95 5,000,000
3,400 Missouri St. Hlth. & Edl. Facs. Auth., Hlth.
Facs. Rev., St. Lukes Episcopal Presb.,
Ser. B (FGIC Insured)* (Aaa)(AAA) 3.40 9/01/95 3,400,000
2,000 Missouri St. Hlth. & Edl. Facs. Auth., Sch.
Dist. Advance Fdg. Proj., Ser. C (NR)(Sp1+) 4.50 9/19/95 2,011,200
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
14
<PAGE> 15
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) Description (Unaudited) Rate Date (Note 2)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MISSOURI (continued)
$ 11,000 Missouri St. Hlth. & Edl. Facs. Auth., Sch.
Dist. Advance Fdg. Proj., Ser. E (NR)(Sp1+) 4.50 % 9/19/95 $ 11,001,554
4,000 St. Louis County Indl. Dev. Auth. Rev.* (Aa3)(NR) 3.65 9/07/95 4,000,000
5,100 St. Louis County Indl. Dev. Auth. Rev.,
Riverport Assoc. Proj. (LC-Union Bank of
Switzerland)* (NR)(AAA/A-1+) 3.80 9/06/95 5,100,000
5,000 St. Louis County Indl. Dev. Auth. Rev.,
Wetterau Inc. Proj. (LC-Wachovia B&T)* (Aa2)(NR) 3.65 9/07/95 5,000,000
5,500 St. Louis Planned Indl., Alumax Foils Proj.
(LC-PNC Bank, Pittsburgh)* (Aa3)(NR) 3.65 9/07/95 5,500,000
9,000 St. Louis Tax & Rev. Antic. Nts. (MIG1)(Sp1+) 4.50 6/20/96 9,044,779
11,500 University Mo., Cap. Projs. Nts., Ser. FY
1995-96 (MIG1)(Sp1+) 4.75 6/28/96 11,589,452
-------------
201,491,048
-------------
NEW MEXICO--0.4%
900 Farmington Util. Sys. Rev., Preref. 5/15/96
@ 102 (FGIC Insured) (Aaa)(AAA) 9.625 5/15/05 953,131
-------------
NEW YORK--0.6%
1,300 New York City Mun. Wtr. Fin. Auth., Wtr. &
Swr. Sys. Rev., Ser. A (FGIC Insured)* (Aaa/VMIG1)(AAA/A-1+) 3.60 9/01/95 1,300,000
-------------
TEXAS--4.5%
200 Southwest Higher Ed. Auth. Inc., Southern
Methodist Univ. (LC-Morgan Guaranty
Trust)* (Aa1/VMIG1)(NR/NR) 3.50 9/01/95 200,000
10,000 Texas St., Tax & Rev. Antic. Nts., Ser. A** (MIG1)(Sp1+) 4.75 8/30/96 10,066,050
-------------
10,266,050
-------------
WYOMING--0.2%
400 Lincoln County Poll. Ctl. Rev., Exxon Proj.
B* (Aaa/P-1)(AAA/A-1+) 3.35 9/01/95 400,000
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (cost $233,910,229) 233,910,229
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
15
<PAGE> 16
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
(000) Description (Note 2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
TAX-EXEMPT MONEY MARKET MUTUAL FUND--1.9%
$ 4,305 Federated Tax Exempt Obligation Fund
(cost $4,305,000) $ 4,305,000
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--105.1% (cost $238,215,229) 238,215,229
LIABILITIES IN EXCESS OF OTHER ASSETS--(5.1%) (11,604,642)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS--100.0% $ 226,610,587
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Variable Rate Security. The interest rate, which will change periodically, is
based on bank prime rates or an index of market interest rates. The rate
reflected is the rate in effect August 31, 1995. Maturity date reflects the
later of next interest rate change date or the next put date.
** Represents security purchased on a when-issued basis.
LC -- Letter of Credit.
FGIC-- Financial Guaranty Insurance Corporation.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
16
<PAGE> 17
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) Description (Unaudited) Rate Date (Note 2)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALABAMA--1.6%
$ 6,400 Columbia Industrial Development Board,
Pollution Control Revenue, Alabama
Power Co. Project, Series B* (A2/VMIG1)(A/A-1) 3.50% 9/01/95 $ 6,400,000
-------------
ARIZONA--2.1%
8,800 Phoenix Ind. Dev. Auth., Del Mar Terrace
Apts. Proj. (LC-Bank of America)* (Aa3/VMIG1)(NR/NR) 3.70 9/07/95 8,800,000
-------------
COLORADO--1.5%
3,000 Colorado State General Fund Revenue, Tax &
Revenue Anticipation Notes, Series A (NR/SP1+) 4.50 6/26/96 3,020,103
3,000 Lower Colorado River Authority* (NR/NR)(NR/NR) 3.40 9/12/95 3,000,000
-------------
6,020,103
-------------
CONNECTICUT--3.6%
12,300 Connecticut State, Special Assessment
Unemployment Compensation, Connecticut
Unemployment, Series B (LC-Mitsubishi Bank
Ltd.) (Aa3/VMIG1)(AA-/A-1+) 3.60 9/06/95 12,300,000
2,600 Connecticut State, Spec. Tax Oblig. Rev.,
Second Lien (LC-Ind. Bank of Japan Trust)* (A1/VMIG1)(A+/A-1) 3.65 9/06/95 2,600,000
-------------
14,900,000
-------------
DISTRICT OF COLUMBIA--3.4%
5,700 District of Colombia Rev., ACES-Georgetown
Univ., Ser. C* (A1/NR)(A+/A-1+) 3.70 9/06/95 5,700,000
7,300 District of Colombia Rev., ACES-Georgetown
Univ., Ser. D* (A1/NR)(A+/A-1+) 3.70 9/06/95 7,300,000
1,100 District of Colombia Rev., ACES-Georgetown
Univ., Ser. E* (A1/NR)(A+/A-1+) 3.70 9/06/95 1,100,000
-------------
14,100,000
-------------
FLORIDA--9.5%
8,405 Florida Local Govt. Fin., Auth. Rev.* (NR/NR)(NR/NR) 3.85 9/28/95 8,405,000
3,500 Martin County Pollution Control Revenue,
Florida Power & Light Co. Project* (A1/VMIG1)(AA-/A-1+) 3.50 9/01/95 3,500,000
1,900 Putnam County Dev. Auth., Pollution Control
Rev., Florida Power & Light Co.* (A1/VMIG1)(AA-/A-1+) 3.50 9/01/95 1,900,000
9,700 St. Lucie County Pollution Control Rev.,
Florida Power & Light Co. (NR/A-) 3.50 9/01/95 9,700,000
13,550 Sunshine State Government Fin. Auth.
(LC-Union Bank of Switz. & National
Westminster Bk.)* (Aa2/VMIG1)(NR/NR) 3.85 9/07/95 13,550,000
2,100 Volusia County Health Facilities Authority,
Alliance Community* (LC-Rabobank
Nederland) (NR/NR)(AAA/A-1+) 3.60 9/01/95 2,100,000
-------------
39,155,000
-------------
GEORGIA--12.5%
3,500 Burke County Dev. Auth., Pollution Control
Rev., Georgia Power Plant Proj., 4th
Series* (A1/VMIG1)(A+/A-1) 3.60 9/01/95 3,500,000
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
17
<PAGE> 18
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) Description (Unaudited) Rate Date (Note 2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GEORGIA (continued)
$ 8,100 Burke County Dev. Auth., Pollution Control
Rev., Georgia Power Plant, 3rd Series* (Aa2/NR)(A2/NR) 3.40% 9/01/95 $ 8,100,000
6,000 Cobb County Dev. Auth. Pollution Control
Rev., Georgia Power. Co. Plant Proj.
(LC-Trust Co. Bank)* (A1/VMIG1)(NR/NR) 3.75 9/06/95 6,000,000
7,000 Albany Dougherty Payroll, Development
Authority Pollution Control Revenue,
Philip Morris Co., Inc.* (A2/P1)(A/A-1) 3.75 9/06/95 7,000,000
6,600 Fulco Hosp. Auth. Rev., Piedmont Hosp. Proj.
(LC-Trust Co. Bank)* (NR/NR)(AA-/A-1+) 3.75 9/06/95 6,600,000
3,200 Monroe County Georgia Dev. Auth., Pollution
Control Rev., Gulf Power Co. Plant, 2nd
Series* (A1/VMIG1)(A+/A-1) 3.60 9/01/95 3,200,000
2,000 Monroe County Georgia Dev. Auth., Pollution
Control Rev., Georgia Power Co., 1st
Series* (A1/VMIG1)(A+/A-1) 3.30 9/01/95 2,000,000
15,000 Municipal Electric Auth. Rev., Proj. One,
Ser. E* (Baa1/VMIG1)(A/A-1) 3.95 9/06/95 15,000,000
-------------
51,400,000
-------------
ILLINOIS--2.9%
12,000 Illinois State, Revenue Anticipation
Certificates (MIG1/Sp1+) 4.50 5/10/96 12,056,286
-------------
INDIANA--2.6%
10,700 Indiana Health Fac. Fin. Auth., Hops. Rev.
ACES-Methodist Hosp., Ser B* (Aa/VMIG1)(AA-/A-1+) 3.40 9/06/95 10,700,000
-------------
IOWA--2.4%
5,000 Chillicothe Pollution Control Revenue,
Midwest Power System, Inc., Series A* (A2/VMIG1)(A/A-1) 3.60 9/06/95 5,000,000
5,000 Salix Pollution Control Rev., Midwest Pwr.
Sys. Inc.* (A2/VMIG1)(A+/A-1) 3.60 9/06/95 5,000,000
-------------
10,000,000
-------------
KANSAS--0.2%
1,000 Burlington Kansas Pollution Control, Kansas
City Power & Light Proj. A (LC-Toronto
Dominion Bank)* (NR/NR)(AA/A-1+) 3.60 9/07/95 1,000,000
-------------
KENTUCKY--1.5%
6,000 Mason County Pollution Control Rev., Eastern
Kentucky Power Co-Op* (NR/NR)(AA-/A-1+) 3.60 9/06/95 6,000,000
-------------
LOUISIANA--2.2%
3,050 Louisiana State G.O., Ser. A (LC-Credit
Local De France)* (Aaa/VMIG1)(AAA+/A-1+) 3.65 9/07/95 3,050,000
6,200 East Baton Rouge Parish Pollution Control
Revenue, Exxon Project* (Aaa/P1)(AAA/A-1+) 3.30 9/01/95 6,200,000
-------------
9,250,000
-------------
MARYLAND--0.7%
2,800 Anne Arundel County Port Facilities Revenue,
Baltimore Gas & Electric Co.* (A2/VMIG1)(A/A-1) 3.65 9/11/95 2,800,000
-------------
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
18
<PAGE> 19
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) Description (Unaudited) Rate Date (Note 2)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MICHIGAN--2.8%
$ 1,500 Delta County Economic Development Corp.,
Environmental Improvement Revenue, Mead
Escanaba Paper, Series A (LC-Swiss Bank)* (Aa1/P1)(NR/NR) 3.60% 9/07/95 $ 1,500,000
5,000 Grenada County Revenue, Georgia Pacific
Corp. Project (LC-Sumitomo Bank, Ltd.)* (A1/NR)(NR/NR) 3.75 9/06/95 5,000,000
5,000 Michigan State Underground, Var. Ser. I
(LC-Canadian Imperial Bank)* (Aa3/VMIG1)(AA-/A-1+) 3.60 9/06/95 5,000,000
-------------
11,500,000
-------------
MISSOURI--16.1%
4,300 Berkeley Industrial Dev. Auth. Rev.,
Wetterau Proj.* (Aa3/NR)(NR/NR) 3.65 9/06/95 4,300,000
3,350 Independence Water Utility Revenue
(LC-National Westminster)* (Aa2/VMIG1)(NR/NR) 3.65 10/11/95 3,350,000
14,700 Kansas City Multi-Family Housing Revenue,
Timblane Village Apt. Proj. (LC-Bank of
America)* (Aa3/VMIG1)(NR/NR) 3.80 9/07/95 14,700,000
10,975 Missouri State Env. Impt. & Energy Res.
Auth., Pollution Control Rev., Union
Electric Co. Proj., Ser. B
(LC-Westdeutsche Landesbank)* (Aa1/P-1)(AA+/A-1+) 4.15 9/13/95 10,975,000
9,000 Missouri State Env. Impt. & Energy Res.
Auth., Pollution Control Rev., Monsanto
Co. Proj.* (A1/P-1)(NR/NR) 3.50 9/06/95 9,000,000
800 Missouri State Env. Impt. & Energy Res.
Auth., Pollution Control Rev., Kansas City
Power and Light* (A2/VMIG1)(A-/A-1) 3.60 9/06/95 800,000
4,600 Missouri State Health & Edl. Facs. Auth.,
Edl. Facs. Rev. Sisters Mercy Health, Ser.
B (SPA-Amro Bank)* (Aa/VMIG1)(AA-/A-1+) 3.50 9/07/95 4,600,000
6,100 Missouri State Health & Edl. Facs. Auth.,
Edl. Facs. Rev. Sisters Mercy Health, Ser.
D (SPA-Amro Bank)* (Aa/VMIG1)(AA-/A-1+) 3.50 9/07/95 6,100,000
1,600 Missouri State Health & Edl. Facs. Auth.,
Edl. Facs. Rev. Washington Univ. Proj.,
Ser. B* (Aa/VMIG1)(AA-/A-1+) 3.90 9/05/95 1,600,000
1,900 Missouri State Health & Edl. Facs. Auth.,
Edl. Facs. Rev. ACES-SSM Health Care
Proj., Ser. A (LC-Ind. Bank of Japan)* (A1/VMIG1)(NR/NR) 3.50 9/07/95 1,900,000
4,000 Missouri State Health & Edl. Facs. Auth.,
Edl. Facs. Rev. Christian Health Svcs.,
Ser. B (LC-Morgan Guaranty Trust)* (NR/NR)(AA-/A-1+) 3.55 9/06/95 4,000,000
1,000 Missouri State Health Educational School
District Advance Funding Program Notes,
Ser. E (NR/Sp1+) 4.50 8/19/96 1,005,965
1,000 St. Louis Ind. Dev. Auth.* (NR/NR)(NR/NR) 3.65 9/07/95 1,000,000
3,000 University Missouri Cap. Proj. Notes,
Ser. FY 1995-96 (MIG1/Sp1+) 4.75 6/28/96 3,022,296
-------------
66,353,261
-------------
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
19
<PAGE> 20
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) Description (Unaudited) Rate Date (Note 2)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MONTANA--3.0%
$ 10,800 Montana State Board of Investments, Payroll
Tax Workers Comp.* (A/VMIG1)(NR/NR) 3.65% 9/06/95 $ 10,800,000
1,400 Montana State Health Facs. Auth. Rev.
Healthcare Pooled Loan Proj., Ser. A (FGIC
Insured)* (Aaa/VMIG1)(AAA/A-1+) 3.50 9/07/95 1,400,000
-------------
12,200,000
-------------
NEW YORK--2.7%
3,500 New York, G.O., Series B (FGIC Insured)* (Aaa/VMIG1)(AAA/A-1+) 3.60 9/01/95 3,500,000
2,300 New York, G.O., Series B (FGIC Insured)* (Aaa/VMIG1)(AAA/A-1+) 3.60 9/01/95 2,300,000
1,000 New York, G.O., Sub-Series B-4 (FGIC
Insured)* (Aaa/VMIG1)(AAA/A-1+) 3.60 9/01/95 1,000,000
4,300 New York, G.O., Sub-Series B-4 (LC-Union
Bank of Switzerland)* (Aaa/VMIG1)(AAA/A-1+) 3.60 9/01/95 4,300,000
100 New York City Municipal Water Financing
Authority Wtr. & Swr., Sys, Rev., Series A
(FGIC Insured)* (Aaa/VMIG1)(AAA/A-1+) 3.60 9/01/95 100,000
-------------
11,200,000
-------------
PENNSYLVANIA--0.5%
2,000 Allegheny County Industrial Development
Authority Revenue, U.S. Steel
Environmental Improvement (LC-Norinchukin
Bank)* (A1/P1)(AA/A-1+) 3.65 9/11/95 2,000,000
RHODE ISLAND--0.7%
3,000 Rhode Island State, Tax Anticipation Notes
(LC-Union Bank of Switzerland) (MIG1/Sp1+) 4.50 6/28/96 3,020,158
-------------
SOUTH CAROLINA--0.5%
2,150 York County Pollution Control Rev. Electric
Proj. NRU-84N-1* (Aa3/MIG1)(AA-/A-1) 3.60 9/06/95 2,150,000
-------------
TEXAS--15.4%
3,000 Brazos River Authority Pollution Control
Revenue, Monsanto Co. Project* (A1/P1)(NR/NR) 3.55 9/06/95 3,000,000
2,500 Fort Worth* (NR/NR)(NR/NR) 3.75 11/01/95 2,500,000
2,300 Harris County Health Facilities Development
Corp., Hospital Revenue, St. Lukes
Episcopal, Series C (SPA-Morgan Guaranty
Trust)* (NR/NR)(AA/A-1+) 3.40 9/01/95 2,300,000
10,000 Harris County Tax Anticipation Notes (MIG1/Sp1+) 4.25 2/28/96 10,031,298
3,200 Harris County Health Facilities Development
Corp., Hospital Revenue, St. Lukes
Episcopal, Series D (SPA-Morgan Guaranty
Trust)* (NR/NR)(AA/A-1+) 3.40 9/01/95 3,200,000
3,700 Harris County Health Facilities Development
Corp., Hospital Revenue, Texas Children,
Series B2 (SPA-NationsBank of Texas)* (Aa/VMIG1)(NR/NR) 3.55 9/06/95 3,700,000
1,000 Harris County Industrial Development Corp.
Pollution Control Revenue* (Aaa/NR)(AAA/A-1+) 3.35 9/01/95 1,000,000
6,100 San Antonio Electic & Gas System (NR/NR)(NR/NR) 4.20 10/11/95 6,100,000
500 Southwest Higher Educational Authority Inc.
Southern Methodist University (LC-Morgan
Guaranty Trust)* (Aa/VMIG1)(NR/NR) 3.50 9/01/95 500,000
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
20
<PAGE> 21
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) Description (Unaudited) Rate Date (Note 2)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXAS (continued)
$ 8,100 Texas State Public Financing Authority
Revenue, Series B (P-1/A-1+) 4.20% 10/03/95 $ 8,100,000
23,000 Texas State Tax & Rev. Antic. Notes, Series
A** (MIG1/Sp1+) 4.75 8/30/96 23,149,300
-------------
63,580,598
-------------
WASHINGTON--3.7%
7,800 Washington State Public Power Supply, Sys.
Nuclear Proj. No. 3, Series 3A-1 (LC-Bank
of America)* (Aa3/VMIG1)(A+/A-1) 3.60 9/06/95 7,800,000
7,500 Washington State Public Power Supply, Sys.
Nuclear Proj. No. 3, Series 3A-2 (LC-Indl.
Bank Japan Ltd.)* (A1/VMIG1)(A+/A-1) 3.65 9/06/95 7,500,000
-------------
15,300,000
-------------
WISCONSIN--2.4%
5,000 Milwaukee Revenue School Order Note, Ser. B (MIG1/Sp1+) 4.50 8/22/96 5,023,352
5,000 Milwaukee Revenue School Order Note, Ser. B (MIG1/Sp1+) 4.75 8/22/96 5,037,435
-------------
10,060,787
-------------
WYOMING--1.8%
7,500 Converse County Pollution Control Rev.
Pacifcorp Proj. (LC-Union Bank of
Switzerland)* (Aaa/VMIG1)(AAA/A-1+) 4.15 9/13/95 7,500,000
-------------
TAX-EXEMPT MONEY MARKET MUTUAL FUND--1.4%
5,835 Federated Tax Exempt Obligation Fund
(cost $5,835,000) 3.61 9/01/95 5,835,000
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--97.8% (amortized cost $403,281,193) 403,281,193
OTHER ASSETS IN EXCESS OF LIABILITIES--2.2% 8,949,661
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS--100.0% $ 412,230,854
</TABLE>
- --------------------------------------------------------------------------------
* Variable rate security. The interest rate, which will change periodically, is
based on bank prime rates or an index of market interest rates. The rate
reflected is the rate in effect August 31, 1995. Maturity date reflects the
later of the next interest rate change date or next put date.
** Represents security purchased on a when-issued basis.
ACES -- Adjustable Convertible Extendible Securities.
LC -- Letter of credit
MBIA -- Municipal Bond Insurance Association.
FGIC -- Financial Guaranty Insurance Corporation.
SPA -- Standby Purchase Agreement
GO -- General Obligation
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
21
<PAGE> 22
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MISSOURI SHORT-TERM
SHORT-TERM SHORT-TERM SHORT-TERM TAX-EXEMPT
U.S. TREASURY DIVERSIFIED TAX-EXEMPT DIVERSIFIED
FUND ASSETS FUND FUND FUND
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investment in securities, at value and amortized cost......... $ 648,026,267 $1,050,033,907 $ 238,215,229 $ 403,281,193
Repurchase agreements, at amortized cost...................... 896,491,868 274,205,571 -- --
Receivable for investment securities sold..................... -- -- -- 20,096,311
Cash.......................................................... 1,893 529 3,167,751 11,463,616
Interest receivable........................................... 948,063 4,723,873 1,017,444 1,738,536
Deferred organization costs and other assets.................. 89,303 82,130 79,370 133,043
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS.................................................. 1,545,557,394 1,329,046,010 242,479,794 436,712,699
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Advisory fees payable......................................... 128,144 111,575 40,393 51,871
Administration fees payable................................... 141,828 129,155 22,354 39,952
Administration Service fees payable (Pilot Administration
Shares)..................................................... 44,484 13,862 1,814 2,642
Investor Service fees payable (Pilot Investor Shares)......... 58,896 48,839 4,863 --
Payable for investment securities purchased................... -- -- 15,125,475 23,149,300
Dividends payable............................................. 7,019,095 6,263,593 666,766 1,224,360
Other accrued expenses........................................ 51,092 219,142 7,542 13,720
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES............................................. 7,443,539 6,786,166 15,869,207 24,481,845
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS.................................................... $1,538,113,855 $1,322,259,844 $ 226,610,587 $ 412,230,854
- -------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING ($0.001 PAR VALUE, UNLIMITED NUMBER OF
SHARES AUTHORIZED):
Pilot Shares.................................................. 1,191,556,006 1,056,565,783 210,867,457 397,810,341
Pilot Administration Shares................................... 215,612,393 231,669,742 4,556,323 14,442,921
Pilot Investor Shares......................................... 131,092,406 33,945,669 11,223,937 5,094
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL SHARES OUTSTANDING...................................... 1,538,260,805 1,322,181,194 226,647,717 412,258,356
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Offering Price and Redemption Price per
Share....................................................... $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Shares of beneficial interest, at par......................... 1,538,261 1,322,181 226,648 412,258
Additional paid-in capital.................................... 1,536,722,544 1,320,859,013 226,421,069 411,846,098
Accumulated undistributed net investment income............... 6 -- -- --
Accumulated undistributed net realized gains (losses) from
investment transactions..................................... (146,956) 78,650 (37,130) (27,502)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, AUGUST 31, 1995................................... $1,538,113,855 $1,322,259,844 $ 226,610,587 $ 412,230,854
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
22
<PAGE> 23
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Statements of Operations
For the year ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-TERM MISSOURI SHORT-TERM
U.S. SHORT-TERM SHORT-TERM TAX-EXEMPT
TREASURY DIVERSIFIED TAX-EXEMPT DIVERSIFIED
FUND ASSETS FUND FUND FUND
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest.................................... $ 68,183,848 $ 76,481,246 $ 9,909,075 $ 15,393,417
- ----------------------------------------------------------------------------------------------------------
EXPENSES
Advisory fees............................... 1,099,328 1,110,554 685,198 538,662
Administration fees......................... 1,357,012 1,479,697 293,693 449,267
Administration Service Fees (Pilot
Administration Shares).................... 353,371 703,026 7,552 23,899
Investor Service Fees (Pilot Investor
Shares)................................... 732,261 173,029 51,152 17
Audit fees.................................. 38,831 43,164 20,347 12,696
Transfer agent fees and expenses............ 1,846 10,321 2,326 --
Custodian fees and expenses................. 162,472 230,201 54,113 23,015
Reports to shareholders..................... 16,936 23,099 2,764 3,531
Registration fees........................... 49,494 88,795 19,614 18,677
Amortization of organization expenses....... 8,829 22,662 42,187 10,774
Legal fees.................................. 42,488 62,484 7,537 11,932
Trustees' fees.............................. 21,775 31,254 5,223 5,879
Other expenses.............................. 101,717 97,342 31,999 80,854
- ----------------------------------------------------------------------------------------------------------
TOTAL EXPENSES.............................. 3,986,360 4,075,628 1,223,705 1,179,203
- ----------------------------------------------------------------------------------------------------------
Less fee waived by adviser.................. (126,705) (112,538) -- (35,353)
- ----------------------------------------------------------------------------------------------------------
NET EXPENSES................................ 3,859,655 3,963,090 1,223,705 1,143,850
- ----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME....................... 64,324,193 72,518,156 8,685,370 14,249,567
- ----------------------------------------------------------------------------------------------------------
REALIZED LOSSES FROM INVESTMENTS
Net realized losses from investment
transactions.............................. (99,326) (126,776) (26,998) (17,838)
- ----------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................ $ 64,224,867 $ 72,391,380 $ 8,658,372 $ 14,231,729
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
23
<PAGE> 24
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-TERM SHORT-TERM
U.S. TREASURY FUND DIVERSIFIED ASSETS FUND
---------------------------------- ----------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1995 AUGUST 31, 1994
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income......................... $ 64,324,193 $ 37,306,014 $ 72,518,156 $ 49,995,523
Net realized gains (losses) from investment
transactions................................ (99,326) 213,641 (126,776) 208,299
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations...................................... 64,224,867 37,519,655 72,391,380 50,203,822
- -----------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment
income:
Pilot Shares.................................. (50,061,109) (29,516,577) (56,135,624) (37,516,687)
Pilot Administration Shares................... (7,236,770) (2,875,386) (14,769,836) (11,205,688)
Pilot Investor Shares......................... (7,049,513) (4,903,057) (1,730,773) (1,161,799)
- -----------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholders from net
investment income............................... (64,347,392) (37,295,020) (72,636,233) (49,884,174)
- -----------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net realized gains
from investment transactions:
Pilot Shares.................................. -- (256,659) -- (53,242)
Pilot Administration Shares................... -- (24,553) -- (15,778)
Pilot Investor Shares......................... -- (52,170) -- (1,678)
- -----------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholders from net realized
gains from investment transactions.............. -- (333,382) -- (70,698)
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio share transactions:
Proceeds from shares sold..................... 7,633,890,413 5,961,488,267 6,079,682,781 8,211,790,998
Reinvestment of dividends..................... 12,508,935 7,135,641 13,612,333 9,673,675
Cost of shares redeemed....................... (7,206,228,934) (6,071,892,181) (5,969,699,418) (8,731,547,061)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
Portfolio share transactions.................... 440,170,414 (103,268,273) 123,595,696 (510,082,388)
- -----------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets........... 440,047,889 (103,377,020) 123,350,843 (509,833,438)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period............................... 1,098,065,966 1,201,442,986 1,198,909,001 1,708,742,439
- -----------------------------------------------------------------------------------------------------------------------------
End of period (including accumulated undistributed
net investment income of $6, $23,205, $0,
$118,077, $0, $1,216, $0, and $288,
respectively)................................... $ 1,538,113,855 $ 1,098,065,966 $ 1,322,259,844 $ 1,198,909,001
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
24
<PAGE> 25
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-TERM
MISSOURI SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
TAX-EXEMPT FUND -------------------------------
----------------------------------- YEAR ENDED YEAR ENDED
YEAR ENDED YEAR ENDED AUGUST 31, AUGUST 31,
AUGUST 31, 1995 AUGUST 31, 1994 1995 1994
--------------- --------------- ------------- -------------
<S> <C> <C> <C>
$ 8,685,370 $ 6,103,836 $ 14,249,567 $ 11,072,873
)
(26,998 -- (17,838) (120)
-----------------------------------------------------------------------
8,658,372 6,103,836 14,231,729 11,072,753
-----------------------------------------------------------------------
(8,297,281) (5,931,101) (13,962,657) (11,048,957)
(89,381) (8,364) (287,100) (23,628)
(299,924) (164,371) (98) --
-----------------------------------------------------------------------
(8,686,586) (6,103,836) (14,249,855) (11,072,585)
-----------------------------------------------------------------------
-- -- -- --
-- -- -- --
-- -- -- --
-----------------------------------------------------------------------
-- -- -- --
-----------------------------------------------------------------------
1,021,732,285 1,088,909,282 601,226,465 740,262,478
2,892,628 2,352,692 262,723 14,430
(1,047,146,227) (1,077,995,681) (580,327,778) (778,032,209)
-----------------------------------------------------------------------
(22,521,314) 13,266,293 21,161,410 (37,755,301)
-----------------------------------------------------------------------
(22,549,528) 13,266,293 21,143,284 (37,755,133)
-----------------------------------------------------------------------
249,160,115 235,893,822 391,087,570 428,842,703
-----------------------------------------------------------------------
$ 226,610,587 $ 249,160,115 $ 412,230,854 $ 391,087,570
-----------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
25
<PAGE> 26
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
1. GENERAL
The Pilot Short-Term U.S. Treasury Fund, Pilot Short-Term Diversified Assets
Fund, Pilot Missouri Short-Term Tax-Exempt Fund (formerly the Pilot Short-Term
Tax-Exempt Fund), and Pilot Short-Term Tax-Exempt Diversified Fund are separate
money market portfolios (individually, a "Portfolio"; collectively, the
"Portfolios") of The Pilot Funds (the "Fund"). The Fund is a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management investment company. All of the
Portfolios are diversified except for the Missouri Short-Term Tax-Exempt Fund.
Shares of the Fund are offered exclusively to customers of Boatmen's Trust
Company ("Boatmen's"), its affiliates and to customers of other participating
service organizations. The Fund currently offers eleven Portfolios. The
accompanying financial statements are those of the four Portfolios only.
The Portfolios each offer three classes of shares: Pilot Shares, Pilot
Administration Shares and Pilot Investor Shares. Each class of shares is
substantially the same, except that Pilot Administration Shares bear the fees
payable under the Portfolios' Administration Plan, and Pilot Investor Shares
bear the fees payable under the Portfolios' Service Plan.
Boatmen's serves as the Fund's investment adviser. Concord Holding Corporation
("Concord") serves as the Fund's administrator and Pilot Funds Distributor Inc.
(the "Distributor"), a wholly-owned subsidiary of Concord, serves as the
distributor of the Fund's shares. Concord is a wholly-owned subsidiary of The
BISYS Group, Inc.
At a meeting of shareholders held on May 24, 1995, shareholders approved
Advisory Agreements for the Missouri Short-Term Tax-Exempt Fund and the
Short-Term Tax-Exempt Diversified Fund with Boatmen's and voted to terminate the
existing Advisory Agreements with Goldman Sachs Asset Management ("GSAM"), a
separate operating division of Goldman, Sachs & Co. The vote also terminated the
existing sub-advisory agreement with Boatmen's for the Missouri Short-Term
Tax-Exempt Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by
the Portfolios in the preparation of their financial statements. The policies
are in conformity with generally accepted accounting principles.
A. Investment Valuation
The Portfolios use the amortized cost method for valuing portfolio securities.
Under this method, all investments purchased at a discount or premium are valued
by amortizing the difference between the original purchase price and maturity
value of the issue over the period to maturity. In addition, the Portfolios may
not (a) purchase any instrument with a remaining maturity greater than thirteen
months unless such instrument is subject to a demand feature, or (b) maintain a
dollar-weighted-average maturity which exceeds 90 days.
B. Securities Transactions and Investment Income
Securities transactions are recorded on a trade date basis. Interest income is
determined on the basis of interest accrued, premium amortized and discount
accreted.
The investment income of each Portfolio is allocated to the separate classes of
shares based upon their relative net asset values.
C. Repurchase Agreements
The custodian for the Portfolios and other banks acting in a sub-custodian
capacity take possession of the collateral pledged for investments in repurchase
agreements. The underlying collateral is valued daily on a mark-to-market basis
to determine that the value, including accrued interest, is not less than 102%
of the repurchase price, including accrued interest. In the event of the
seller's default of the obligation to repurchase, the Portfolios have the right
to liquidate the collateral and apply the proceeds in satisfaction
- ----------------------------------------------------------
- ----------------------------------------------------------
26
<PAGE> 27
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
of the obligation. Under certain circumstances, in the event of default or
bankruptcy by the other party to the agreement, realization and/or retention of
the collateral may be subject to legal proceedings.
D. Dividends to Shareholders
Dividends are declared daily to shareholders of record at the close of business
on the day of declaration and paid monthly. Distributions of net realized gains,
if any, will be paid at least annually. However, to the extent that net realized
gains of a Portfolio can be offset by capital loss carryovers, such gains will
not be distributed. Dividends and distributions are recorded by the Portfolios
on the ex-dividend date.
E. Federal Taxes
It is each Portfolio's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute each
year substantially all of its investment company taxable and tax-exempt income
to its shareholders. Accordingly, no federal tax provisions are required.
Amortized cost of investments is substantially the same for federal income tax
purposes and financial reporting purposes.
F. Expenses
Expenses incurred by the Fund that do not specifically relate to an individual
portfolio are allocated to the portfolios based on each portfolio's relative net
assets.
The expenses (other than expenses incurred under the Administration and Service
Plans) of each Portfolio are allocated to the separate classes of shares based
upon their relative net asset values.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
A. Advisory Agreements
Boatmen's is the investment adviser for each Portfolio pursuant to separate
Investment Advisory Agreements and is responsible for managing the investment
operations of the Portfolios. With respect to the Short-Term U.S. Treasury Fund
and the Short-Term Diversified Assets Fund, for the period September 1, 1994
through June 30, 1995, Boatmen's was entitled to a fee, accrued daily and paid
monthly, at an annual rate of 0.08% of each Portfolio's first $1 billion of
average daily net assets, plus 0.04% of such average daily net assets in excess
of $1 billion. Effective July 1, 1995, the Advisory Agreements were amended to
increase the fees of both Portfolios to an annual rate of 0.15% of the average
daily net assets.
Prior to July 1, 1995, GSAM was the investment adviser for the Missouri
Short-Term Tax-Exempt Fund and the Short-Term Tax-Exempt Diversified Fund. Under
the investment advisory agreement, GSAM managed the investment operations of the
two Portfolios. Pursuant to the agreement, GSAM was entitled to a fee from the
Missouri Short-Term Tax-Exempt Fund and the Short-Term Tax-Exempt Diversified
Fund at the following annual rates:
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
0.27% of the Portfolio's
first $750 million average net assets plus
0.25% of the next $750 million of such assets plus
0.23% of such assets in excess of $1.5 billion
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
0.12% of the Portfolio's
first $750 million average net assets, plus
0.11% of next $750 million of such assets plus
0.10% of such assets in excess of $1.5 billion.
Prior to July 1, 1995, on a quarterly basis, Boatmen's reviewed the portfolio
and investment strategy of the Missouri Short-Term Tax-Exempt Fund pursuant to a
sub-
- ----------------------------------------------------------
- ----------------------------------------------------------
27
<PAGE> 28
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
advisory agreement among the Fund (on behalf of the Missouri Short-Term
Tax-Exempt Fund), GSAM and Boatmen's, and consulted with GSAM as needed
concerning the Portfolio's investments. As compensation for the services
rendered under the sub-advisory agreement, GSAM paid Boatmen's a quarterly
sub-advisory fee computed at an annual rate of 0.10% of the Portfolio's average
daily net assets.
Effective July 1, 1995, Boatmen's became the investment adviser for the Missouri
Short-Term Tax-Exempt Fund and the Short-Term Tax-Exempt Diversified Fund.
Pursuant to the terms of the Advisory Agreements, Boatmen's is responsible for
managing the investment operations of these two Portfolios. For its services,
Boatmen's is entitled to a fee from each Portfolio at an annual rate of 0.20% of
average daily net assets.
Boatmen's currently intends to waive voluntarily 0.05% from its new contractual
fee rates for the Short-Term U.S. Treasury Fund, the Short-Term Diversified
Assets Fund, and the Short-Term Tax-Exempt Diversified Fund, based on each
Portfolio's average daily net assets on an annualized basis, for each such
Portfolio for the period July 1, 1995 until January 1, 1996, and 0.03% from its
new contractual fee rates, based on each Portfolio's average daily net assets on
an annualized basis, for the period January 1, 1996 until July 1, 1996. For the
year ended August 31, 1995, Boatmen's waived fees in the following amounts:
<TABLE>
<S> <C>
Short-Term U.S. Treasury Fund................... $ 126,705
Short-Term Diversified Assets Fund.............. 112,538
Short-Term Tax-Exempt Diversified Fund.......... 35,353
</TABLE>
B. Administration Agreement
The Portfolios have entered into an Administration Agreement with Concord.
Pursuant to the terms of this agreement, Concord is responsible for assisting in
all aspects of the operations of each of the Portfolios. For its services,
Concord is entitled to a fee, accrued daily and paid monthly, at an annual rate
of 0.115% of the first $1.5 billion of the aggregate average net assets of all
of the portfolios constituting the Fund, plus 0.11% of the next $1.5 billion of
such assets, plus 0.1075% of such assets in excess of $3.0 billion.
C. Transfer Agent Agreement
Concord Financial Services ("CFS"), a wholly-owned subsidiary of Concord, is the
transfer agent for the Portfolios. CFS does not receive a fee for the transfer
agent services it provides.
D. Distribution Agreement
The Distributor does not receive a fee under its Distribution Agreement.
4. ADMINISTRATION AND INVESTOR PLANS
The Fund has adopted Administration and Investor Plans. These plans allow for
Pilot Administration Shares and Pilot Investor Shares, respectively, to
compensate service organizations, which may include Boatmen's, Concord and their
affiliates for providing varying levels of account administration and
shareholder liaison services to customers who are beneficial owners of such
shares. The Administration and Investor Plans provide for compensation to the
service organizations in an amount up to 0.25% and 0.50% (on an annualized
basis), respectively, of the average daily net asset value of the respective
shares. During the year ended August 31, 1995, affiliates of the Fund received
the following fees pursuant to the Administration and Investor Plans:
<TABLE>
<CAPTION>
ADMINISTRATION INVESTOR
FUND PLAN PLAN
- -------------------------------- -------------- --------------
<S> <C> <C>
Short-Term U.S. Treasury Fund... $353,371 $ 732,261
Short-Term Diversified Assets
Fund.......................... 703,026 173,029
Missouri Short-Term Tax-Exempt
Fund.......................... 7,552 51,152
Short-Term Tax-Exempt
Diversified Fund.............. 23,899 17
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
28
<PAGE> 29
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
5. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Portfolios are summarized below:
PILOT SHORT-TERM U.S. TREASURY FUND
(000 OMITTED) (AT $1.00 PER SHARE):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1995 1994
---------- ----------
<S> <C> <C>
Pilot Shares
Shares issued.................. 2,313,451 1,547,629
Reinvestment of dividends...... 151 32
Shares redeemed................ (1,965,257) (1,646,493)
---------- ----------
Net increase (decrease) in Pilot
Shares........................... 348,345 (98,832)
---------- ----------
Pilot Administration Shares
Shares issued.................. 2,834,858 1,847,890
Reinvestment of dividends...... 5,415 2,343
Shares redeemed................ (2,723,506) (1,816,953)
---------- ----------
Net increase in Pilot
Administration Shares............ 116,767 33,280
---------- ----------
Pilot Investor Shares
Shares issued.................. 2,485,581 2,565,969
Reinvestment of dividends...... 6,943 4,761
Shares redeemed................ (2,517,466) (2,608,446)
---------- ----------
Net decrease in Pilot Investor
Shares........................... (24,942) (37,716)
---------- ----------
Total increase (decrease) in
Portfolio Shares................. 440,170 (103,268)
========== ==========
</TABLE>
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
(000 OMITTED) (AT $1.00 PER SHARE):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1995 1994
---------- ----------
<S> <C> <C>
Pilot Shares
Shares issued.................. 1,554,497 2,864,829
Reinvestment of dividends...... 152 427
Shares redeemed................ (1,355,685) (3,301,265)
---------- ----------
Net increase (decrease) in Pilot
Shares........................... 198,964 (436,009)
---------- ----------
Pilot Administration Shares
Shares issued.................. 3,925,718 4,732,062
Reinvestment of dividends...... 11,755 8,212
Shares redeemed................ (4,008,968) (4,815,354)
---------- ----------
Net decrease in Pilot
Administration Shares............ (71,495) (75,080)
---------- ----------
Pilot Investor Shares
Shares issued.................. 599,468 614,900
Reinvestment of dividends...... 1,705 1,034
Shares redeemed................ (605,046) (614,927)
---------- ----------
Net increase (decrease) in Pilot
Investor Shares.................. (3,873) 1,007
---------- ----------
Total increase (decrease) in
Portfolio Shares................. 123,596 (510,082)
========== ==========
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
29
<PAGE> 30
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
(000 OMITTED) (AT $1.00 PER SHARE):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1995 1994
---------- ----------
<S> <C> <C>
Pilot Shares
Shares issued................... 839,422 951,862
Reinvestment of dividends....... 2,540 2,191
Shares redeemed................. (870,898) (942,334)
---------- ----------
Net increase (decrease) in Pilot
Shares............................ (28,936) 11,719
---------- ----------
Pilot Administration Shares*
Shares issued................... 62,333 37,669
Reinvestment of dividends....... 69 4
Shares redeemed................. (57,846) (37,672)
---------- ----------
Net increase in Pilot Administration
Shares............................ 4,556 1
---------- ----------
Pilot Investor Shares
Shares issued................... 119,978 99,378
Reinvestment of dividends....... 283 158
Shares redeemed................. (118,402) (97,990)
---------- ----------
Net increase in Pilot Investor
Shares............................ 1,859 1,546
---------- ----------
Total increase (decrease) in
Portfolio Shares.................. (22,521) 13,266
========= =========
</TABLE>
- ---------------
* The Missouri Short-Term Tax-Exempt Fund and the Short-Term Tax-Exempt
Diversified Fund Pilot Administration Shares commenced offering March of 1994
and September of 1993, respectively.
** The Short-Term Tax-Exempt Diversified Fund Pilot Investor Shares commenced
offering January of 1995.
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
(000 OMITTED) (AT $1.00 PER SHARE):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1995 1994
---------- ----------
<S> <C> <C>
Pilot Shares
Shares issued................... 504,042 731,555
Reinvestment of dividends....... -- --
Shares redeemed................. (494,289) (772,351)
---------- ----------
Net increase (decrease) in Pilot
Shares............................ 9,753 (40,796)
---------- ----------
Pilot Administration Shares*
Shares issued................... 97,179 8,707
Reinvestment of dividends....... 263 15
Shares redeemed................. (86,039) (5,681)
---------- ----------
Net increase in Pilot Administration
Shares............................ 11,403 3,041
---------- ----------
Pilot Investor Shares**
Shares issued................... 5 --
Reinvestment of dividends....... -- --
Shares redeemed................. -- --
---------- ----------
Net increase in Pilot Investor
Shares............................ 5 --
---------- ----------
Total increase (decrease) in
Portfolio Shares.................. 21,161 (37,755)
========= =========
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
30
<PAGE> 31
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Pilot Short-Term U.S. Treasury Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------
TOTAL
NET REALIZED INCOME NET ASSET
NET ASSET VALUE NET GAINS FROM FROM DISTRIBUTIONS VALUE AT
AT BEGINNING INVESTMENT INVESTMENT INVESTMENT TO END OF
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS PERIOD
--------------- ---------- ------------ ---------- ------------- ---------
FOR THE YEAR ENDED AUGUST 31,
- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot Shares................. $1.00 $ 0.0534 $ -- $ 0.0334 $ 0.0534 $1.00
1995--Pilot Administration
Shares............................ 1.00 0.0509 -- 0.0509 0.0509 1.00
1995--Pilot Investor Shares........ 1.00 0.0484 -- 0.0484 0.0484 1.00
1994--Pilot shares(c).............. 1.00 0.0334 0.0002 0.0336 0.0336 1.00
1994--Pilot Administration
shares(c)......................... 1.00 0.0309 0.0002 0.0311 0.0311 1.00
1994--Pilot Investor shares(c)..... 1.00 0.0284 0.0002 0.0286 0.0286 1.00
1993--Pilot shares................. 1.00 0.0294 0.0006 0.0300 0.0300 1.00
1993--Pilot Administration
shares............................ 1.00 0.0269 0.0006 0.0275 0.0275 1.00
1993--Pilot Investor shares........ 1.00 0.0244 0.0007 0.0251 0.0250 1.00
1992--Pilot shares................. 1.00 0.0400 0.0014 0.0414 0.0414 1.00
1992--Pilot Administration
shares............................ 1.00 0.0362 0.0014 0.0376 0.0378 1.00
1992--Pilot Investor shares(a)..... 1.00 0.0048 0.0002 0.0050 0.0050 1.00
1991--Pilot shares................. 1.00 0.0644 0.0016 0.0660 0.0659 1.00
1991--Pilot Administration
shares(b)......................... 1.00 0.0124 0.0003 0.0127 0.0127 1.00
<CAPTION>
RATIO INFORMATION ASSUMING
NO FEE WAIVER OR EXPENSE
REIMBURSEMENT(e)
----------------------------
RATIO OF NET RATIO OF NET
RATIO OF NET INVESTMENT NET ASSETS RATIO OF INVESTMENT
EXPENSES INCOME AT END OF EXPENSES TO INCOME
TOTAL TO AVERAGE TO AVERAGE PERIOD AVERAGE TO AVERAGE
RETURN(f) NET ASSETS NET ASSETS (IN 000'S) NET ASSETS NET ASSETS
--------- ------------ ------------ ------------ ----------- ------------
FOR THE YEAR ENDED AUGUST 31,
- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot Shares................. 5.47% 0.23% 5.36% $ 1,191,447 0.24% 5.35%
1995--Pilot Administration
Shares............................ 5.21 0.48 5.12 215,593 0.49 5.11
1995--Pilot Investor Shares........ 4.94 0.73 4.82 131,074 0.74 4.81
1994--Pilot shares(c).............. 3.40 0.16 3.34 843,111 0.28 3.24
1994--Pilot Administration
shares(c)......................... 3.15 0.41 3.09 98,823 0.53 2.99
1994--Pilot Investor shares(c)..... 2.90 0.66 2.84 156,132 0.78 2.74
1993--Pilot shares................. 3.04 0.14 2.94 942,109 0.30 2.78
1993--Pilot Administration
shares............................ 2.79 0.39 2.69 65,570 0.55 2.53
1993--Pilot Investor shares........ 2.53 0.64 2.44 193,764 0.80 2.28
1992--Pilot shares................. 4.30 0.24 4.00 887,321 0.30 3.94
1992--Pilot Administration
shares............................ 4.04 0.49 3.62 91,152 0.56 3.55
1992--Pilot Investor shares(a)..... 2.92(d) 0.71(d) 2.83(d) 212,920 0.81(d) 2.73(d)
1991--Pilot shares................. 6.89 0.24 6.44 588,141 0.29 6.39
1991--Pilot Administration
shares(b)......................... 5.53(d) 0.49(d) 5.24(d) 15,980 0.54(d) 5.19(d)
</TABLE>
- ------------
(a) Pilot Investor Shares commenced offering during July of 1992.
(b) Pilot Administration Shares commenced offering during June of 1991.
(c) Prior to June 1, 1994, Goldman Sachs Asset Management served as the
investment adviser.
(d) Annualized.
(e) The above does not reflect the fee which may be charged by Boatmen's
directly to its customers' accounts at an annual rate not to exceed 0.25% of
the average daily balance of Pilot shares in the customer's account.
(f) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption of
the investment at the net asset value at the end of the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
31
<PAGE> 32
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
Pilot Short-Term Diversified Assets Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------
TOTAL
NET REALIZED INCOME NET ASSET
NET ASSET VALUE NET GAINS FROM FROM DISTRIBUTIONS VALUE AT
AT BEGINNING INVESTMENT INVESTMENT INVESTMENT TO END OF
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS PERIOD
--------------- ---------- ------------ ---------- ------------- ---------
FOR THE YEAR ENDED AUGUST 31,
- -----------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot Shares................. $1.00 $ 0.0554 $ -- $ 0.0554 $(0.0554) $1.00
1995--Pilot Administration
Shares............................ 1.00 0.0529 -- 0.0529 (0.0529) 1.00
1995--Pilot Investor Shares........ 1.00 0.0504 -- 0.0504 (0.0504) 1.00
1994--Pilot shares(c).............. 1.00 0.0353 0.0001 0.0354 (0.0354) 1.00
1994--Pilot Administration
shares(c)......................... 1.00 0.0328 0.0001 0.0329 (0.0329) 1.00
1994--Pilot Investor shares(c)..... 1.00 0.0303 0.0001 0.0304 (0.0304) 1.00
1993--Pilot shares................. 1.00 0.0325 0.0001 0.0326 (0.0326) 1.00
1993--Pilot Administration shares
.................................. 1.00 0.0298 0.0001 0.0299 (0.0299) 1.00
1993--Pilot Investor shares........ 1.00 0.0274 0.0001 0.0275 (0.0274) 1.00
1992--Pilot shares................. 1.00 0.0452 -- 0.0452 (0.0452) 1.00
1992--Pilot Administration shares
.................................. 1.00 0.0396 0.0001 0.0397 (0.0397) 1.00
1992--Pilot Investor shares(a)..... 1.00 0.0043 -- 0.0043 (0.0043) 1.00
1991--Pilot shares................. 1.00 0.0691 0.0003 0.0694 (0.0694) 1.00
1991--Pilot Administration
shares(b)......................... 1.00 0.0134 -- 0.0134 (0.0134) 1.00
<CAPTION>
RATIO INFORMATION ASSUMING
NO FEE WAIVER OR EXPENSE
REIMBURSEMENT(e)
----------------------------
RATIO OF NET RATIO OF NET
RATIO OF NET INVESTMENT NET ASSETS RATIO OF INVESTMENT
EXPENSES INCOME AT END OF EXPENSES TO INCOME
TOTAL TO AVERAGE TO AVERAGE PERIOD AVERAGE TO AVERAGE
RETURN(f) NET ASSETS NET ASSETS (IN 000'S) NET ASSETS NET ASSETS
--------- ------------ ------------ ------------ ----------- ------------
FOR THE YEAR ENDED AUGUST 31,
- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot Shares................. 5.68% 0.23% 5.56% $ 1,056,624 0.24% 5.55%
1995--Pilot Administration
Shares............................ 5.42 0.48 5.22 231,688 0.49 5.21
1995--Pilot Investor Shares........ 5.15 0.73 5.00 33,948 0.74 4.99
1994--Pilot shares(c).............. 3.60 0.15 3.53 857,795 0.29 3.40
1994--Pilot Administration
shares(c)......................... 3.35 0.40 3.28 303,288 0.54 3.15
1994--Pilot Investor shares(c)..... 3.10 0.65 3.03 37,896 0.79 2.90
1993--Pilot shares................. 3.29 0.12 3.25 1,293,667 0.29 3.08
1993--Pilot Administration shares.. 3.04 0.37 2.98 378,262 0.54 2.81
1993--Pilot Investor shares........ 2.78 0.62 2.74 36,814 0.79 2.57
1992--Pilot shares................. 4.68 0.12 4.52 1,939,568 0.29 4.35
1992--Pilot Administration shares.. 4.42 0.37 3.95 271,606 0.54 3.78
1992--Pilot Investor shares(a)..... 3.24(d) 0.62(d) 3.14(d) 27,880 0.80(d) 2.96(d)
1991--Pilot shares................. 7.27 0.12 6.91 1,425,385 0.29 6.74
1991--Pilot Administration
shares(b)......................... 5.77(d) 0.37(d) 5.68(d) 43,189 0.54(d) 5.51(d)
</TABLE>
- ------------
(a) Pilot Investor Shares commenced offering during July of 1992.
(b) Pilot Administration Shares commenced offering during June of 1991.
(c) Prior to June 1, 1994, Goldman Sachs Asset Management served as the
investment adviser.
(d) Annualized.
(e) The above does not reflect the fee which may be charged by Boatmen's
directly to its customers' accounts at an annual rate not to exceed 0.25% of
the average daily balance of Pilot shares in the customer's account.
(f) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption of
the investment at the net asset value at the end of the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
32
<PAGE> 33
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
Pilot Missouri Short-Term Tax-Exempt Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------
TOTAL
NET REALIZED INCOME NET ASSET
NET ASSET VALUE NET GAINS FROM FROM DISTRIBUTIONS VALUE AT
AT BEGINNING INVESTMENT INVESTMENT INVESTMENT TO END OF
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS PERIOD
--------------- ---------- ------------ ---------- ------------- ---------
FOR THE YEAR ENDED AUGUST 31,
- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot Shares(g)................ $1.00 $ 0.0332 $ -- $ 0.0332 $ (0.0332) $1.00
1995--Pilot Administration
Shares(g)........................... 1.00 0.0300 -- 0.0300 (0.0300) 1.00
1995--Pilot Investor Shares(g)....... 1.00 0.0282 -- 0.0282 (0.0282) 1.00
1994--Pilot shares................... 1.00 0.0220 -- 0.0220 (0.0220) 1.00
1994--Pilot Administration
shares(a)........................... 1.00 0.0103 -- 0.0103 (0.0103) 1.00
1994--Pilot Investor shares.......... 1.00 0.0170 -- 0.0170 (0.0170) 1.00
1993--Pilot shares................... 1.00 0.0221 -- 0.0221 (0.0221) 1.00
1993--Pilot Investor shares.......... 1.00 0.0171 -- 0.0171 (0.0172) 1.00
1992--Pilot shares................... 1.00 0.0324 (0.0001) 0.0323 (0.0324) 1.00
1992--Pilot Investor shares(b)....... 1.00 0.0030 -- 0.0030 (0.0030) 1.00
FOR THE ELEVEN MONTHS
ENDED AUGUST 31,(c)
- -------------------------------------
1991--Pilot shares................... 1.00 0.0435 -- 0.0435 (0.0435) 1.00
<CAPTION>
RATIO INFORMATION ASSUMING
NO FEE WAIVER OR EXPENSE
REIMBURSEMENT(e)
----------------------------
RATIO OF NET RATIO OF NET
RATIO OF NET INVESTMENT NET ASSETS RATIO OF INVESTMENT
EXPENSES INCOME AT END OF EXPENSES TO INCOME
TOTAL TO AVERAGE TO AVERAGE PERIOD AVERAGE TO AVERAGE
RETURN(f) NET ASSETS NET ASSETS (IN 000'S) NET ASSETS NET ASSETS
--------- ------------ ------------ ------------ ----------- ------------
FOR THE YEAR ENDED AUGUST 31,
- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot Shares(g)................ 3.37% 0.44% 3.31% $ 210,834 0.44% 3.31%
1995--Pilot Administration
Shares(g)........................... 3.05 0.69 3.06 4,555 0.69 3.06
1995--Pilot Investor Shares(g)....... 2.86 0.94 2.83 11,222 0.94 2.83
1994--Pilot shares................... 2.23 0.37 2.20 239,796 0.37 2.20
1994--Pilot Administration
shares(a)........................... 2.04(d) 0.67(d) 2.03(d) -- 0.67(d) 2.03(d)
1994--Pilot Investor shares.......... 1.73 0.87 1.70 9,364 0.87 1.70
1993--Pilot shares................... 2.24 0.36 2.21 228,075 0.36 2.21
1993--Pilot Investor shares.......... 1.73 0.86 1.71 7,819 0.86 1.71
1992--Pilot shares................... 3.29 0.37 3.24 202,304 0.37 3.24
1992--Pilot Investor shares(b)....... 1.74(d) 0.87(d) 1.75(d) 10,696 0.87(d) 1.75(d)
FOR THE ELEVEN MONTHS
ENDED AUGUST 31,(C)
- -------------------------------------
1991--Pilot shares................... 4.83(d) 0.38(d) 4.74(d) 166,499 0.61(d) 4.51(d)
</TABLE>
- ------------
(a) Pilot Administration Shares commenced offering during March of 1994.
(b) Pilot Investor Shares commenced offering during July of 1992.
(c) Prior to a tax-free reorganization effective August 1, 1991, the Missouri
Short-Term Tax-Exempt Fund was a separate portfolio of the Locust Street
Fund and known as the Tax-Exempt Money Market Portfolio which was advised by
Boatmen's Trust Company and had a September 30 fiscal year-end.
(d) Annualized.
(e) The above does not reflect the fee which may be charged by Boatmen's
directly to its customers' accounts at an annual rate not to exceed 0.25% of
the average daily balance of Pilot shares in the customer's account.
(f) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption of
the investment at the net asset value at the end of the period.
(g) Prior to July 1, 1995 Goldman Sachs Asset Management served as the
investment adviser.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
33
<PAGE> 34
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
Pilot Short-Term Tax-Exempt Diversified Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------
TOTAL
NET REALIZED INCOME NET ASSET
NET ASSET VALUE NET GAINS FROM FROM DISTRIBUTIONS VALUE AT
AT BEGINNING INVESTMENT INVESTMENT INVESTMENT TO END OF
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS PERIOD
--------------- ---------- ------------ ---------- ------------- ---------
FOR THE YEAR ENDED AUGUST 31,
- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995--Pilot Shares(g)................. $1.00 $ 0.0353 $ -- $ 0.0353 $ (0.0353) $1.00
1995--Pilot Administration
Shares(g)............................ 1.00 0.0328 -- 0.0328 (0.0328) 1.00
1995--Pilot Investor Shares(b)(g)..... 1.00 0.0195 -- 0.0195 (0.0195) 1.00
1994--Pilot shares.................... 1.00 0.0240 -- 0.0240 (0.0240) 1.00
1994--Pilot Administration
shares(a)............................ 1.00 0.0208 -- 0.0208 (0.0208) 1.00
FOR THE PERIOD FEBRUARY 16, 1993
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- --------------------------------------
1993--Pilot shares.................... 1.00 0.0121 -- 0.0121 (0.0121) 1.00
<CAPTION>
RATIO INFORMATION ASSUMING
NO FEE WAIVER OR EXPENSE
REIMBURSEMENT(e)
----------------------------
RATIO OF NET RATIO OF NET
RATIO OF NET INVESTMENT NET ASSETS RATIO OF INVESTMENT
EXPENSES INCOME AT END OF EXPENSES TO INCOME
TOTAL TO AVERAGE TO AVERAGE PERIOD AVERAGE TO AVERAGE
RETURN(f) NET ASSETS NET ASSETS (IN 000'S) NET ASSETS NET ASSETS
--------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED AUGUST 31,
- --------------------------------------
1995--Pilot Shares(g)................. 3.59% 0.28% 3.54% $ 397,783 0.29% 3.53%
1995--Pilot Administration
Shares(g)............................ 3.33 0.53 3.36 14,443 0.54 3.35
1995--Pilot Investor Shares(b)(g)..... 1.96(d) 0.78(c) 3.15(c) 5 0.79(c) 3.14(c)
1994--Pilot shares.................... 2.43 0.20 2.40 388,048 0.20 2.40
1994--Pilot Administration
shares(a)............................ 2.18(c) 0.45(c) 2.15(c) 3,040 0.45(c) 2.15(c)
FOR THE PERIOD FEBRUARY 16, 1993
(COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31,
- --------------------------------------
1993--Pilot shares.................... 2.23(c) 0.15(c) 2.21(c) 428,843 0.20(c) 2.16(c)
</TABLE>
- ------------
(a) Pilot Administration Shares commenced offering during September of 1993.
(b) Pilot Investor Shares commenced offering during January of 1995.
(c) Annualized.
(d) Not annualized.
(e) The above does not reflect the fee which may be charged by Boatmen's
directly to its customers' accounts at an annual rate not to exceed 0.25% of
the average daily balance of Pilot shares in the customer's account.
(f) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption of
the investment at the net asset value at the end of the period.
(g) Prior to July 1, 1995, Goldman Sachs Asset Management served as the
investment adviser.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
34
<PAGE> 35
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of the Pilot Short-Term U.S. Treasury Fund,
Pilot Short-Term Diversified Assets Fund, Pilot Missouri Short-Term Tax-Exempt
Fund, and Pilot Short-Term Tax-Exempt Diversified Fund of The Pilot Funds:
We have audited the accompanying statements of assets and liabilities of the
Pilot Short-Term U.S. Treasury Fund, Pilot Short-Term Diversified Assets Fund,
Pilot Missouri Short-Term Tax-Exempt Fund (formerly Pilot Short-Term Tax-Exempt
Fund) and Pilot Short-Term Tax-Exempt Diversified Fund (the Pilot Money Market
Funds) of The Pilot Funds (a Massachusetts business trust), including the
portfolios of investments as of August 31, 1995, and the related statements of
operations for the year then ended, and the statements of changes in net assets
and financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Pilot Money Market Funds as of August 31, 1995, the results of their operations,
the changes in their net assets and the financial highlights for the periods
presented in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
October 16, 1995
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
- ----------------------------------------------------
Pilot Short-Term U.S. Treasury Fund, Pilot Short-Term Diversified Assets Fund,
Pilot Missouri Short-Term Tax-Exempt Fund and Pilot Short-Term Tax-Exempt
Diversified have determined that all dividends and distributions paid during the
year ended August 31, 1995 were paid from net investment income and net realized
capital gains and are subject to federal income tax.
35
<PAGE> 36
FINANCIAL PILOT SHORT-TERM
DIRECTION U.S. TREASURY FUND
PILOT SHORT-TERM
[PILOT LOGO] DIVERSIFIED ASSETS FUND
PILOT MISSOURI
SHORT-TERM
TAX-EXEMPT FUND
PILOT SHORT-TERM
TAX-EXEMPT
DIVERSIFIED FUND
A N N U A L R E P O R T
August 31, 1995
THE
PILOT
FUNDS
________________
NOT FDIC Insured
________________
Distributor: Pilot Funds Distributors, Inc.
10/95
PILMMKT95A
<PAGE> 1
EXHIBIT 17(m)
LETTER FROM THE FUNDS MANAGEMENT 1
Pilot Money Market Funds
7-Day Current Yields as of February 29, 1996
<TABLE>
<CAPTION>
Pilot Shares Pilot Administration Shares Pilot Investor Shares
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pilot Short-Term U.S. Treasury Fund 5.07% 4.82% 4.57%
Pilot Short-Term Diversified Assets Fund 5.19% 4.94% 4.69%
Pilot Missouri Short-Term Tax-Exempt Fund* 3.00% 2.75% 2.50%
Pilot Short-Term Tax-Exempt Diversified Fund* 3.07% 2.82% 2.57%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. Yields will fluctuate as
market conditions change. An investment in the Funds is neither insured nor
guaranteed by the U.S. Government, and there can be no assurance that the Funds
will be able to maintain a stable net asset value of $1.00 per share.
* A portion of the income from these Funds may be subject to the federal
alternative minimum tax and to certain state and local taxes.
Pilot Short-Term U.S. Treasury Fund
Pilot Shares** 7-Day Yield at Month-End
[BAR GRAPH--DATA TO COME]
Pilot Missouri Short-Term Tax-Exempt Fund
Pilot Shares** 7-Day Yield at Month-End
[BAR GRAPH--DATA TO COME]
Pilot Short-Term Diversified Assets Fund
Pilot Shares ** 7-Day Yield at Month End
[BAR GRAPH--DATA TO COME]
Pilot Short-Term Tax-Exempt Diversified Fund
Pilot Shares** 7-Day Yield at Month-End
[BAR GRAPH--DATA TO COME]
** Pilot Administration Shares and Pilot Investor Shares pay administration and
investor service fees of 0.25% and 0.50%, respectively. Consequently, yields
on these shares would have been lower for the periods shown.
<PAGE> 2
LETTER FROM THE FUNDS MANAGEMENT 2
Dear Shareholder:
We are pleased to present you with the Semi-Annual Report for the Pilot Money
Market Funds for the six months ended February 29, 1996.
Two developments during this period deserve mention. The Federal
Reserve twice lowered the Federal Funds rate. In addition, political debate
surrounding tax reform and the flat tax weakened municipal bond yields
slightly, though we expect this to be temporary.
This Semi-Annual Report marks the first full period for which Boatmen's
Trust Company has served as investment manager for all the Pilot Money Market
Funds. We are gratified with the response of investors, who have now increased
their total net assets in the four Pilot Money Market Funds to $4.1 billion, a
17% increase from six months ago.
Thank you for choosing The Pilot Funds to help meet your investment
needs. Should you have any questions or wish to learn more about any of The
Pilot Funds, please call your local Boatmen's Representative or The Pilot Funds
at 1-800-71-PILOT (717-4568).
Sincerely,
David F. Toth
Senior Vice President
Boatmen's Trust Company
- ---------
The Funds are advised by Boatmen's Trust Company, a non-bank subsidiary of
Boatmen's Bancshares, Inc., and are distributed by Pilot Funds Distributors,
Inc., which is not affiliated with Boatmen's Trust Company. Boatmen's Trust
Company receives fees for providing investment advisory services to the Funds.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE> 3
LETTERS FROM THE PORTFOLIO MANAGERS 3
Pilot Short-Term U.S. Treasury Fund
Pilot Short-Term Diversified Assets Fund
Dear Shareholder:
During the six months ending February 29, 1996, the Federal Reserve Board twice
decreased the level of short-term interest rates in its ongoing effort to
balance economic growth and inflation. As a result, yields on taxable money
market investments declined substantially during the period. The conservative
investment strategies of the Pilot Short-Term U.S. Treasury Fund and the Pilot
Short-Term Diversified Assets Fund were ideally suited to investors seeking
stability of principal. The Funds employed defensive tactics during the year in
order to provide competitive yields.
[AVERAGE DAYS TO MATURITY GRAPH]
Pilot Short-Term U.S. Treasury Fund
To provide shareholders with attractive yields, the Pilot Short-Term U.S.
Treasury Fund extended its weighted average days to maturity (WAM) in an effort
to preserve current interest rates for a longer period of time. Recently, the
Fund's WAM extended to 41 days, which is consistent with competing funds with
similar objectives and guidelines. We have concentrated our purchases of U.S.
Treasury bills and notes with a maturity structure that we feel should
outperform other investments given our assessment of the current state of the
economy. The key to this strategy is emphasizing U.S. Treasury bills and notes
with slightly longer maturities and reducing our exposure to repurchase
agreements. As a result, the Fund has been able to provide liquidity and
preserve shareholders' principal without sacrificing yield to the extent
short-term rates have declined.
Pilot Short-Term Diversified Assets Fund
Most recently, the Fund maintained its weighted average days to maturity at
approximately 31 days. While the Fund's average is consistent with competing
funds with similar objectives and guidelines, we have concentrated our
investments in securities that should outperform alternative investments given
our assessment of the current state of the economy. Our purpose is to insulate
investors from an overly
<PAGE> 4
LETTERS FROM THE PORTFOLIO MANAGERS 4
optimistic view of declining rates by purchasing securities with longer
maturities. The Fund's emphasis on floating rate securities has shifted to
reflect a weaker fourth quarter in 1995, while the maturity structure reflects
our belief that the economy will remain steady with stronger growth emerging
early next year.
Looking Ahead
We do not anticipate a recession during 1996. The presence of ample credit
availability and rising personal income, combined with the favorable wealth
effects of 1995's roaring financial markets and the strong competitive position
of U.S. products and services in world markets, should all contribute to
relative economic stability going forward. For these same reasons, we also
believe that Federal Reserve policy is not excessively restrictive. A healthy
supply of credit, strong wage growth, soaring stock and bond prices, rising real
estate values, and weak exchange rates for the dollar are simply not
characteristics of overly "tight" monetary policy. As such, we do not believe
the Federal Reserve will reduce short-term rates from current levels in the
near future and we see short-term rates actually rising over the course of
1996.
Sincerely,
Frank J. Aten, CFA
SENIOR VICE PRESIDENT
DIRECTOR OF TAXABLE FIXED INCOME
Boatmen's Trust Company
David W. Brooks
PORTFOLIO MANAGER
TAXABLE FIXED INCOME
Boatmen's Trust Company
PILOT SHORT-TERM U.S. TREASURY FUND
Portfolio Composition as of 2/29/96*
[CHART]
U.S. Treasury Bills and Notes 43%
Repurchase Agreements 57%
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
Portfolio Composition as of 2/29/96*
[CHART]
Tier 1 Commercial Paper 40%
Repurchase Agreements 20%
Foreign Bank Obligations 15%
Corporate Obligations 5%
Floating Rate Notes-Agencies 11%
Floating Rates Notes-Corporate 8%
Floating Rates Notes-Certificates
of Deposit 1%
* Portfolio holdings are subject to change.
<PAGE> 5
5
Pilot Missouri Short-Term Tax-Exempt Fund
Pilot Short-Term Tax-Exempt Diversified Fund
DEAR SHAREHOLDER:
The fixed income markets experienced a sensational year in 1995. The municipal
market posted strong returns, but lagged other sectors due to increased
uncertainties with respect to municipal securities. Municipal yields were held
back primarily by prospects for tax reform, particularly the "flat tax" issue.
In addition to the tax reform issue,there was concern over the impact a slowing
economy would have on state finances, combined with Washington's attempts to
reduce aid to state and local governments.
Pilot Missouri Short-Term Tax-Exempt Fund
For the majority of 1995, the Pilot Missouri Short-Term Tax-Exempt Fund remained
neutral with its peer group by targeting a weighted average maturity of plus or
minus five days to the IBC/Donoghue's(R) Tax-Exempt Money Fund Average (a
composite index of short-term tax-exempt money market instruments). During the
fourth quarter, however, the Fund offset year-end technicals that affect the
short-term municipal market by shifting from a strictly neutral posture to a
slightly longer stance. This was accomplished by targeting five days longer than
the IBC/Donoghue's(R) Fund Average Days to Maturity. As the short end of the
municipal curve traded up in lock-step with the treasury market, the Fund
performed slightly better than the IBC/Donoghue's(R) Average for the quarter. By
the end of January, 1996, the Fund shifted back to a neutral stance as year-end
technicals abated. The Fund had net assets of approximately $253 million, an
average maturity of 42 days, and a 7-day yield of 3.00% (Pilot Shares) as of
February 29, 1996. The Fund also continued to maintain its allocation of
Missouri issues, which stood at approximately 85%.
Average Days to Maturity
[CHART]
- - Pilot Missouri Short-Term Tax-Exempt Fund
- - Pilot Short-Term Tax-Exempt Diversified Fund
<PAGE> 6
LETTERS FROM THE PORTFOLIO MANAGERS 6
Pilot Short-Term Tax-Exempt Diversified Fund
In 1995, the Pilot Short-Term Tax-Exempt Diversified Fund remained neutral to
the IBC/Donoghue's(R) Tax-Exempt Money Fund Average by targeting a weighted
average maturity comparable to that average. In order to offset year-end
technicals, the Fund shifted from a strictly neutral posture to a slightly
longer stance by targeting five days longer than the IBC/Donoghue's(R)
Tax-Exempt Fund Average Days to Maturity. After the year-end technicals
diminished in late January, the Fund moved back to a neutral position versus its
peer group. This strategy worked well as the short end of the municipal market
continued to trade in tandem with the treasury market, which declined in yield
by roughly 100 basis points for the year. The Fund had approximately $385
million in assets, an average maturity of 42 days, and a 7-day yield of 3.07%
(Pilot Shares) as of February 29, 1996.
Pilot Missouri Short-Term Tax-Exempt Fund
Portfolio Composition as of 2/29/96*
[CHART]
Missouri 85%
Other 15%
Pilot Short-Term Tax-Exempt Diversified Fund
Portfolio Composition as of 2/29/96*
[CHART]
Other 40%
Florida 6%
Georgia 11%
Illinois 4%
Missouri 25%
New York 1%
Texas 13%
* Portfolio holdings are subject to change.
<PAGE> 7
7
Looking Ahead
In 1996 we believe the municipal market will be affected by the issues
prevalent last year, although to a lesser degree, because the market perceives
as remote the passage of major tax reform eliminating preferential treatment of
state and local securities. The objective of a flat tax is to have a single low
rate of taxation without many of the current exemptions, most notably: employer
purchased medical insurance, mortgage interest, and preferential treatment of
interest on municipal bonds. The flat tax issue is unlikely to be passed in
1996, if at all, and will most likely become an issue for debate during the
election process. Therefore, even if some form of flat tax were passed in 1997,
it probably would not affect taxes until 1998 and beyond.
Sincerely,
Jennifer R. Wacker, CFA
VICE PRESIDENT, DIRECTOR OF
TAX-EXEMPT FIXED INCOME
Boatmen's Trust Company
Dawn Daggy-Mangerson
PORTFOLIO MANAGER
Boatmen's Trust Company
Please place broker/dealer information here.
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
<PAGE> 8
PILOT SHORT-TERM U.S. TREASURY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Maturity Amortized
(000) Description Rate Date Cost
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--39.5%
U.S. TREASURY BILLS--22.0%
$ 100,000 U.S. Treasury Bill 5.34%* 3/07/96 $ 99,911,083
50,000 U.S. Treasury Bill 5.32* 4/04/96 49,748,778
275,000 U.S. Treasury Bill 5.00* 4/18/96 273,168,500
--------------
422,828,361
--------------
U.S. TREASURY NOTES--17.5%
50,000 U.S. Treasury Note 7.75 3/31/96 50,085,186
24,605 U.S. Treasury Note 7.63 4/30/96 24,681,536
75,000 U.S. Treasury Note 4.25 5/15/96 74,814,517
25,000 U.S. Treasury Note 5.13 3/31/96 24,989,682
85,000 U.S. Treasury Note 5.88 5/31/96 85,041,800
50,000 U.S. Treasury Note 6.88 2/28/97 50,765,625
25,000 U.S. Treasury Note 9.38 4/15/96 25,114,497
--------------
335,492,843
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (cost $758,321,204) 758,321,204
- -----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--53.4%
78,618 Repurchase agreement with Lehman Brothers, dated 2/29/96, 5.42%, due
3/01/96
(See Footnote A) 78,617,566
435,700 Repurchase agreement with Merrill Lynch, dated 2/29/96, 5.39%, due
3/01/96
(See Footnote B) 435,699,830
426,770 Repurchase agreement with J.P. Morgan, dated 2/29/96, 5.42%, due
3/01/96
(See Footnote C) 426,770,308
85,000 Repurchase agreement with State Street Bank and Trust, dated 2/29/96,
5.35%, due 3/01/96
(See Footnote D) 85,000,000
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (cost $1,026,087,704) 1,026,087,704
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--92.9% (cost $1,784,408,908) 1,784,408,908
OTHER ASSETS IN EXCESS OF LIABILITIES--7.1% 136,286,638
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS--100.0% $1,920,695,546
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
* Effective yield.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 9
PILOT SHORT-TERM U.S. TREASURY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
Footnote A
Collateralized by $78,330,000 U.S. Treasury Notes, with coupon rates and
maturities ranging from 5.62% to 8.62% and 5/31/97 through 8/31/97,
respectively with an aggregate value of $80,184,089.
Footnote B
Collateralized by $323,927,000 U.S. Treasury Bonds, with coupon rates and
maturities ranging from 9.25% to 11.25% and 2/15/15 through 2/15/16,
respectively with an aggregate value of $444,416,190.
Footnote C
Collateralized by $420,106,000 U.S. Treasury Notes, with coupon rates and
maturities ranging from 5.63% to 9.38% and 4/15/96 through 10/15/97,
respectively with an aggregate value of $435,309,442.
Footnote D
Collateralized by $67,035,000 U.S. Treasury Bonds, 9.25%, due 2/15/16 with a
value of $86,703,136.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
9
<PAGE> 10
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Amortized
(000) Description (Unaudited) Rate Date Cost
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER--35.8%
$ 20,000 AKZO America, Inc. P1/A1 5.17% 4/22/96 $ 19,850,645
15,000 Bear Stearns Co., Inc. P1/A1+ 5.64 3/15/96 14,967,100
25,000 Browning Ferris Industries, Inc. P1/A1+ 5.21 3/11/96 24,963,820
20,000 Ciesco, Inc. P1/A1 5.30 4/04/96 19,899,889
50,000 CIT Group Holdings, Inc. P1/A1 5.15 4/26/96 49,599,444
25,000 CPC International, Inc. P1/A1+ 5.66 4/04/96 24,866,361
30,000 Ciesco LP P1/A1+ 5.19 4/24/96 29,768,700
25,000 CommerzBank P1/A1 5.66 3/14/96 25,001,007
50,000 Eiger Capital Corp. P1/A1+ 5.25 4/03/96 49,759,375
25,000 Fleet Funding Corp. P1/A1 5.25 4/11/96 24,850,521
25,000 Ford Motor Credit Corp. P1/A1+ 5.46 3/20/96 24,927,958
1,900 General Electric Capital Corp. P1/A1 5.45 4/04/96 1,890,220
10,000 Hanson Finance UK PLC P1/A1 5.65 3/04/96 9,995,292
35,000 Hanson Finance UK PLC P1/A1 5.20 4/30/96 34,696,667
50,000 IBM Credit Corp. P1/A1+ 5.27 3/06/96 49,963,403
25,000 Merrill Lynch & Co., Inc. P1/A1+ 5.17 4/26/96 24,798,944
50,000 Morgan Stanley Group, Inc. P1/A1 5.32 4/22/96 49,615,778
20,000 NBD Bancorp., Inc. P1/A1+ 5.20 4/02/96 19,907,484
4,000 NationsBank, Corp. P1/A1+ 4.75 8/15/96 3,980,298
25,000 PNC Funding Corp. P1/A1+ 5.19 5/03/96 25,000,735
26,756 Southern California Gas Co. P1/A1+ 5.56 5/03/96 26,495,664
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (cost $554,799,305) 554,799,305
- ------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--12.3%
25,000 Federal Farm Credit Banks Aaa/AAA** 4.95 3/03/97 24,951,172
50,000 Federal National Mortgage Association* Aaa/AAA** 5.15 3/01/96 49,947,223
20,000 Federal National Mortgage Association* Aaa/AAA** 4.99 3/05/96 20,000,000
25,000 Federal National Mortgage Association* Aaa/AAA** 4.99 3/05/96 24,990,205
40,700 Student Loan Marketing Association* Aaa/AAA** 5.34 3/05/96 40,810,662
30,000 Student Loan Marketing Association* Aaa/AAA** 5.20 3/05/96 30,000,000
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATION NOTES (cost $190,699,262) 190,699,262
- ------------------------------------------------------------------------------------------------------------------------------
MASTER NOTES--9.7%
50,000 Anchor National Life Insurance Co. P1/A1+ 5.53 8/01/96 50,000,000
35,000 Bear Stearns Co., Inc. P1/A1+ 5.69 5/22/96 35,000,000
15,000 IBM Credit Corp. P1/A1+ 6.40 4/29/96 15,021,799
50,000 NationsBank, Dallas NA P1/A1+ 5.65 11/01/96 50,040,147
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL MASTER NOTES (cost $150,061,946) 150,061,946
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE> 11
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Amortized
(000) Description (Unaudited) Rate Date Cost
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS--6.1%
$ 25,000 Dean Witter Discover Co. A2/A 5.00% 4/01/96 $ 24,981,383
23,000 Glaxo Welcome PLC A1/A 5.15 4/22/96 22,828,906
2,300 Phillip Morris Co., Inc. A3/A 8.75 12/01/96 2,360,954
45,000 USL Capital Corp. A1/A 6.02 10/31/96 45,037,422
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS (cost $95,208,665) 95,208,665
- ------------------------------------------------------------------------------------------------------------------------------
TIME DEPOSITS--11.6%
FOREIGN--8.4%
40,000 Bayerische Vereinsbank N/R 5.45 4/09/96 39,763,833
40,000 Banque Nationale De Paris A1 5.20 4/15/96 40,000,496
25,000 Societe Generale P1/A1+ 5.25 4/05/96 25,000,000
25,000 Toronto Dominion Bank P1/A1+ 5.44 4/29/96 25,000,000
--------------
129,764,329
--------------
DOMESTIC--3.2%
50,000 UBS Finance, Inc. P1/A1 5.45 3/01/96 50,000,000
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL TIME DEPOSITS (cost $179,764,329) 179,764,329
- ------------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT--6.1%
20,000 Abbey National PLC London P1/A1+ 5.47 4/09/96 19,999,891
20,000 Royal Bank of Canada P1/A1+ 6.32 12/13/96 19,987,190
35,000 Societe Generale P1/A1+ 5.40 4/05/96 35,000,820
20,000 National Westminster Bank PLC P1/A1+ 5.50 3/12/96 20,000,121
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT (cost $94,988,022) 94,988,022
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE> 12
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Amortized
(000) Description Cost
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--20.0%
$ 50,000 Repurchase agreement with Lehman Brothers, dated $ 50,000,000
2/23/96, 5.22%, due 3/01/96
(See Footnote A)
15,683 Repurchase agreement with Lehman Brothers, dated 15,682,759
2/29/96, 5.43%, due 3/01/96
(See Footnote B)
101,411 Repurchase agreement with J. P. Morgan, dated 101,411,039
2/29/96, 5.42%, due 3/01/96
(See Footnote C)
118,223 Repurchase agreement with Merrill Lynch, dated 118,222,617
2/29/96, 5.43%, due 3/01/96
(See Footnote D)
25,000 Repurchase agreement with State Street Bank and 25,000,000
Trust, dated 2/29/96, 5.35%, due 3/01/96
(See Footnote E)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (cost $310,316,415) 310,316,415
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--101.7% (cost $1,575,837,944) 1,575,837,944
LIABILITIES IN EXCESS OF OTHER ASSETS--(1.7%) (25,671,569)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS--100.0% $1,550,166,375
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
* Variable rate security.
** Implied Rating.
Footnote A
Collateralized by $62,730,000 Federal National Mortgage Association Bonds,
0.00%, with maturity dates ranging from 12/1/22 through 7/1/24, with an
aggregate value of $51,001,639.
Footnote B
Collateralized by $13,205,000 and $2,590,000 U.S. Treasury Notes, 6.00% and
5.50%, with maturity dates of 8/31/97 and 9/30/97, respectively, with an
aggregate value of $15,996,457.
Footnote C
Collateralized by $104,945,000 U.S. Treasury Bills, with maturity date of
6/13/96, with a value of $103,443,237.
Footnote D
Collateralized by $211,512,452 U.S. Government Agency Securities, with
various coupon rates ranging from 0.0% to 7.5% and maturity dates ranging
from 3/01/00 to 2/01/31 with an aggregate value of $120,589,037.
Footnote E
Collateralized by $19,720,000 U.S. Treasury Bonds, 9.25%, with maturity date
of 2/15/16, with a value of $25,505,870.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
12
<PAGE> 13
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Amortized
(000) Description (Unaudited) Rate Date Cost
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL SECURITIES--97.8%
COLORADO--0.5%
$ 250 Adams Arapahoe Counties School District 28 (Aa2)(NR) 10.00% 12/01/96 $ 260,015
1,065 Adams County School District (Aa2)(NR) 5.25 12/01/96 1,077,838
------------
1,337,853
------------
FLORIDA--1.9%
2,600 Manatee County PCR, Florida Power & Light
Co.* (A1/VMIG1)(AA-/A-1+) 3.45 9/01/24 2,600,000
1,000 Martin County PCR, Florida Power & Light Co.* (A1/VMIG1)(AA-/A-1+) 3.45 9/01/24 1,000,000
1,300 St. Lucie County PCR, Florida Power & Light
Co.* (A1/VMIG1)(AA-/A-1+) 3.45 1/01/26 1,300,000
------------
4,900,000
------------
GEORGIA--1.0%
1,000 Burke County Development Authority, PCR
Series 8* (A1/VMIG1)(A+/A-1) 3.45 10/01/24 1,000,000
1,600 Burke County Development Authority, PCR
Series 5* (A1/VMIG1)(A+/A-1) 3.45 9/01/25 1,600,000
------------
2,600,000
------------
KENTUCKY--0.4%
1,000 University of Louisville Revenue,
Consolidated Educational Building Series K (Aa2)(NR) 4.50 5/01/96 1,001,937
------------
MICHIGAN--0.4%
1,100 University of Michigan Revenue, Hospital
Series A* (NR)(NR) 3.45 12/01/27 1,100,000
------------
MINNESOTA--0.7%
1,700 Minneapolis, St. Paul Children's Health Care,
Series B* (A)(NR) 3.45 8/15/25 1,700,000
------------
MISSOURI--84.2%
5,000 Berkeley IDR Bonds, Wetterau Project* (Aa3)(NR) 3.30 9/01/04 5,000,000
5,000 Berkeley IDR Bonds, Flight Safety
International Inc. Project* (Aa2)(NR) 3.35 7/01/08 5,000,000
4,500 Columbia School District, TAN (MIG1)(NR) 4.00 4/01/96 4,502,047
10,800 Columbia Water & Electric Revenue Bonds,
Series B (LC-Toronto Dominion Bank)* (Aa2/VMIG1)(AA/A-1+) 3.15 12/01/15 10,800,000
450 Columbia (AA)(NR) 6.90 4/01/96 451,202
4,100 Columbia Special Obligation, (LC-Toronto
Dominion Bank) (AA)(NR) 3.15 6/01/08 4,100,000
2,900 Independence Water Utility Revenue Bonds
(LC-National Westminster)* (Aa2/VMIG1)(NR/NR) 3.20 3/05/96 2,900,000
5,350 Independence Water Utility Revenue Bonds
(LC-National Westminster)* (Aa2/VMIG1)(NR/NR) 3.65 3/07/96 5,350,000
1,000 Independence IDR, Resthaven Project* (AAA)(A-1+) 3.30 2/01/25 1,000,000
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE> 14
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Amortized
(000) Description (Unaudited) Rate Date Cost
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
MISSOURI (continued)
$ 2,400 Kansas City IDR, Multi-Family Housing Revenue
Bonds, Timblane Village Apartments Project
(LC-Security Pacific National Bank)* (Aa3/VMIG1)(NR/NR) 3.30% 6/01/08 $ 2,400,000
4,000 Kansas City IDR Hosp.* (Aa3/VMIG1)(NR/NR) 3.13 12/31/08 4,000,000
445 Kansas City Municipal Assistance Corp.
Leasehold H ROE Bartle A (Aa3)(NR) 3.70 4/15/96 445,000
1,385 Kansas City School District Building, Capital
Improvement Project (Aa3)(NR) 3.65 2/01/97 1,387,471
810 Mexico IDR Bonds, Wetterau Inc. Project A* (Aa3)(NR) 3.35 12/01/98 810,000
815 Mexico IDR Bonds, Wetterau Inc. Project B* (Aa3)(NR) 3.35 12/01/98 815,000
11,100 Missouri Environment Improvement & Energy
Resources Authority, Environment
Improvement Revenue, Kansas City Power* (A2/VMIG1)(A-/A-1) 3.30 9/01/17 11,100,000
5,020 Missouri Environment Improvement & Energy
Resources Authority, PCR, Monsanto Co.
Project* (A1/P-1)(NR/NR) 3.20 6/01/23 5,020,000
6,795 Missouri Environment Improvement & Energy
Resources Authority, PCR (Aaa/P-1)(AAA/A-1+) 3.50 10/01/02 6,795,000
6,500 Missouri Environment Improvement & Energy
Resources Authority, PCR, Union Electric
Co. Project, Series A (LC-Union Bank of
Switzerland) (Aaa/P-1)(AAA/A-1+) 3.20 4/08/96 6,500,000
13,500 Missouri Environment Improvement & Energy
Resources Authority, PCR, Union Electric
Co. Project, Series B (LC-Westdeutsche
Landesbank) (Aa1/P-1)(AA+/A-1+) 3.80 3/07/96 13,500,000
3,600 Missouri Environment Improvement & Energy
Resources Authority, PCR, Kansas City Power (Aa1/P-1)(AA+/A-1+) 3.30 7/01/17 3,600,000
4,000 Missouri Health & Educational Facilities
Authority Revenue, Series A* (Aa1/VMIG1)(AA-/A-1+) 3.15 12/01/16 4,000,000
500 Missouri Health & Educational Facilities
Authority Revenue, Washington University,
Freeman Hospital Project (Aa/VMIG1)(AA-/A-1+) 7.30 9/01/96 519,851
5,000 Missouri Health & Educational Facilities
Authority, Educational Facilities Revenue,
Washington University Project* (Aa/VMIG1)(AA-/A-1+) 3.45 3/01/17 5,000,000
900 Missouri Health & Educational Facilities
Authority, Educational Facilities Revenue,
Washington University Project, Series C* (Aa/VMIG1)(AA-/A-1+) 3.35 9/01/30 900,000
4,800 Missouri Health & Educational Facilities
Authority, Educational Facilities Revenue,
Series B (Aa/VMIG1)(AA-/A-1+) 3.45 3/01/17 4,800,000
4,990 Missouri Health & Educational Facilities
Authority, Health Facilities Revenue,
Barnes, Hospital Project* (Aa1/VMIG1)(AAA/A-1+) 3.20 12/01/15 4,990,000
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE> 15
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Amortized
(000) Description (Unaudited) Rate Date Cost
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
MISSOURI (continued)
$ 1,300 Missouri Health & Educational Facilities
Authority, Health Facilities Revenue,
Sisters Mercy Ref., A (Aa/VMIG1)(AA/A-1+) 3.60% 12/01/96 $ 1,300,000
8,600 Missouri Health & Educational Facilities
Authority, Health Facilities Revenue, SSM
Health Care, Series C (LC-Mitsubishi Ltd.) (Aa3/VMIG1)(NR/NR) 3.35 3/05/96 8,600,000
2,000 Missouri Health & Educational Facilities
Authority Revenue* (Aa3/VMIG1)(AA/A-1+) 3.20 11/01/19 2,000,000
2,500 Missouri Health & Educational Facilities
Authority, Health Facilities Revenue* (Aa3/VMIG1)(AA/A-1+) 3.20 12/01/19 2,500,000
5,800 Missouri Health & Educational Facilities
Authority Revenue, Series C* (Aa3/VMIG1)(AA/A-1+) 3.15 6/01/19 5,800,000
1,900 Missouri Health & Educational Facilities
Authority Revenue* (Aa3/VMIG1)(AA/A-1+) 3.15 6/01/19 1,900,000
5,200 Missouri Health & Educational Facilities
Authority Revenue* (Aa3/VMIG1)(AA/A-1+) 3.15 6/01/14 5,200,000
2,200 Missouri Health & Educational Facilities
Authority Revenue* (Aa3/VMIG1)(AA/A-1+) 3.45 9/01/09 2,200,000
1,000 Missouri Health & Educational Facilities
Authority Revenue, Louis University* (Aa3/VMIG1)(AA/A-1+) 3.55 12/20/98 1,000,000
2,800 Missouri Health & Educational Facilities
Authority Revenue* (Aa3/VMIG1)(AA/A-1+) 3.45 9/01/10 2,800,000
2,400 Missouri Health & Educational Facilities
Authority Revenue, Series B* (Aa3/VMIG1)(AA/A-1+) 3.45 9/01/10 2,400,000
3,000 Missouri Health & Educational Facilities
Authority Revenue* (Aa3/VMIG1)(AA/A-1+) 3.30 11/29/00 3,000,000
2,000 Missouri Health & Educational Facilities
Authority Revenue* (Aa3/VMIG1)(AA/A-1+) 3.30 11/01/25 2,000,000
2,000 Missouri Health & Educational Facilities
Authority Revenue, School District Notes,
Series C (Aa3/VMIG1)(AA/A-1+) 4.50 8/19/96 2,011,200
470 Missouri Health & Educational Facilities
Authority Revenue, School District Notes,
Series E (Aa3/VMIG1)(AA/A-1+) 4.50 8/01/96 471,107
1,000 Missouri Health & Educational Facilities
Authority Revenue, School District Notes,
Series E (Aa3/VMIG1)(AA/A-1+) 4.50 8/19/96 1,005,145
3,000 Missouri Health & Educational Facilities
Authority Revenue, School District Notes,
Series G (Aa3/VMIG1)(AA/A-1+) 4.50 8/19/96 3,018,692
3,000 Missouri Health & Educational Facilities
Authority Revenue, School District Notes,
Series H (Aa3/VMIG1)(AA/A-1+) 4.50 8/19/96 3,015,094
1,000 Missouri, GO (Aaa/P-1)(AAA/A-1+) 7.50 8/01/96 1,035,835
400 Missouri, GO* (Aaa/P-1)(AAA/A-1+) 7.40 8/01/03 417,086
1,100 Missouri Fourth State Building, Series A (Aaa/P-1)(AAA/A-1+) 8.00 4/01/96 1,104,065
600 Missouri Water Pollution Control, Series B (Aaa/P-1)(AAA/A-1+) 7.75 11/01/96 618,103
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
15
<PAGE> 16
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Amortized
(000) Description (Unaudited) Rate Date Cost
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
MISSOURI (continued)
$ 585 Missouri Water Pollution Control, Revolving
Fund PG, Series E (Aaa/P-1)(AAA/A-1+) 3.75% 7/01/96 $ 585,000
3,070 St. Charles County IDR, Casalon Apartments
Project* (Aa3)(NR) 3.25 9/01/25 3,070,000
8,000 St. Louis County IDR* (Aa3)(NR) 3.35 12/01/03 8,000,000
785 St. Louis County IDR, Rockwood School (Aa3)(NR) 7.30 2/01/97 814,280
4,000 St. Louis County IDR* (Aa3)(NR) 3.35 5/01/09 4,000,000
5,500 St. Louis Planned Industrial Expansion
Authority, Alumax Foils Project (LC-PNC
Bank)* (Aa3)(NR) 3.35 12/01/05 5,500,000
9,750 St. Louis TAN (MIG1)(Sp1+) 4.50 6/20/96 9,768,961
11,750 University of Missouri, Capital Projects
Notes, Series FY 1995-96 (MIG1)(Sp1+) 4.75 6/28/96 11,786,004
------------
212,606,143
------------
NEW MEXICO--0.4%
900 Farmington Utility Systems Revenue,
Prerefunded 5/15/96 @ 102 (FGIC Insured) (Aaa)(AAA) 9.63 5/15/96 928,252
------------
NEW YORK--1.6%
4,000 Municipal Water Finance Authority, Water &
Sewer Systems Revenue, Series A (FGIC
Insured)* (Aaa/VMIG1)(AAA/A-1+) 3.35 6/15/25 4,000,000
------------
NORTH CAROLINA--2.7%
4,100 Raleigh Durham Airport Authority, American
Airlines, Series A (Aaa/AAA) 3.45 11/01/15 4,100,000
2,600 Raleigh Durham Airport Authority, American
Airlines, Series B (Aaa/AAA) 3.45 11/01/15 2,600,000
------------
6,700,000
------------
PENNSYLVANIA--1.2%
1,000 Bethel Park School District (A1/A+) 6.75 2/01/97 1,031,137
1,000 Carnegie Mellon University, High Educational
Revenue* (Aaa/AAA) 3.45 11/01/27 1,000,000
1,000 State Turnpike Commission Revenue, Series L (Aaa/AAA) 5.80 12/01/96 1,018,523
------------
3,049,660
------------
TEXAS--2.8%
1,000 San Antonio, GO (Aaa/AAA) 5.10 8/01/96 1,006,807
6,000 Texas TAN, Series A (Aa/AA) 4.75 8/30/96 6,019,625
------------
7,026,432
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL SECURITIES (cost $246,950,277) 246,950,277
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE> 17
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Maturity Amortized
(000) Description Rate Date Cost
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT MONEY MARKET MUTUAL FUND--1.7%
$ 4,205 Federated Tax-Exempt Obligation Fund
(cost $4,205,000) 3.29% 1/24/00 $ 4,205,000
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--99.5% (cost $251,155,277) 251,155,277
OTHER ASSETS IN EXCESS OF LIABILITIES--0.5% 1,390,844
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS--100.0% $252,546,121
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
* Variable Rate Security.
FGIC -- Financial Guaranty Insurance Corporation.
GO -- General Obligation.
IDR -- Industrial Development Revenue.
LC -- Letter of Credit.
PCR -- Pollution Control Revenue.
TAN -- Tax Anticipation Notes.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
17
<PAGE> 18
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Amortized
(000) Description (Unaudited) Rate Date Cost
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL SECURITIES--100.3%
COLORADO--1.3%
$ 3,000 Colorado General Fund Revenue, TAN, Series A (NR/SP1+) 4.50% 6/27/96 $ 3,007,907
2,000 Lower Colorado River Authority* (NR/NR)(NR/NR) 3.25 4/08/96 2,000,000
------------
5,007,907
------------
CONNECTICUT--3.2%
12,300 Connecticut Special Assessment Unemployment
Compensation, Series B, (LC-Mitsubishi
Bank Ltd) (Aa3/VMIG1)(AA-/A-1+) 3.50 11/01/01 12,300,000
------------
DISTRICT OF COLUMBIA--3.6%
5,700 District of Columbia Revenue,
ACES-Georgetown University, Series C* (A1/NR)(A+/A-1+) 3.75 4/01/12 5,700,000
7,300 District of Colombia Revenue,
ACES-Georgetown University, Series D* (A1/NR)(A+/A-1+) 3.75 4/01/17 7,300,000
1,100 District of Colombia Revenue,
ACES-Georgetown University, Series E* (A1/NR)(A+/A-1+) 3.75 4/01/18 1,100,000
------------
14,100,000
------------
FLORIDA--6.3%
1,300 Manatee County PCR, Florida Power & Light
Co. Project (Aa/AA) 3.45 9/01/24 1,300,000
380 Putnam County Development Authority, PCR,
Florida Power & Light Co.* (A1/VMIG1)(AA-/A-1+) 3.45 9/01/24 380,000
7,900 St. Lucie County PCR, Florida Power & Light
Co. (NR/A-) 3.45 1/01/26 7,900,000
13,950 Sunshine State Government Finance Authority,
(LC-Union Bank of Switzerland & National
Westminster Bank)* (Aa2/VMIG1)(NR/NR) 3.25 3/27/96 13,950,000
800 Volusia County Health Facilities Authority,
Alliance Community* (LC-Rabobank
Nederland) (NR/NR)(AAA/A-1+) 3.40 9/01/20 800,000
------------
24,330,000
------------
GEORGIA--10.5%
7,000 Albany Dougherty Payroll, Development
Authority, PCR, Philip Morris Co., Inc.* (A2/P1)(A/A-1) 3.30 10/01/05 7,000,000
1,000 Burke County Development Authority, PCR,
Georgia Power Plant Project, 4th Series* (A1/VMIG1)(A+/A-1) 3.45 9/01/25 1,000,000
6,000 Cobb County Development Authority, PCR,
Georgia Power Co. Plant Project (LC-Trust
Co. Bank)* (A1/VMIG1)(NR/NR) 3.30 7/01/11 6,000,000
6,600 Fulco Hospital Authority Revenue, Piedmont
Hospital Project, (LC-Trust Co. Bank)* (NR/NR)(AA-/A-1+) 3.30 2/01/07 6,600,000
15,000 Municipal Electric Authority Revenue,
Project One, Series E* (A/A) 3.25 3/15/96 15,000,000
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
18
<PAGE> 19
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Amortized
(000) Description (Unaudited) Rate Date Cost
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
GEORGIA (continued)
$ 2,000 Municipal Gas Authority Revenue, Southern
Portfolio I, Project D (A/A) 3.15% 5/23/96 $ 2,000,000
2,400 Georgia State, Series A (Aaa/AA+) 6.50 12/01/96 2,453,131
510 Walton County, School District (Aa1/AA+) 5.00 1/01/97 514,553
------------
40,567,684
------------
ILLINOIS--4.0%
3,350 Cook County (Aaa/AAA) 3.20 4/03/96 3,350,000
12,000 Illinois State, Revenue Anticipation
Certificates (MIG1/Sp1+) 4.50 5/10/96 12,015,635
------------
15,365,635
------------
INDIANA--2.3%
6,700 Indiana Health Facilities Finance Authority,
Hospital Revenue, ACES-Methodist Hospital,
Series B* (Aa/VMIG1)(AA-/A-1+) 3.15 9/01/22 6,700,000
2,000 Indianapolis Public Improvement Bond Bank (Aaa/AAA) 4.50 7/11/96 2,005,657
------------
8,705,657
------------
KANSAS--0.5%
2,000 Burlington Kansas PCR, Kansas City Power &
Light Project A, (LC-Toronto Dominion
Bank)* (NR/NR)(AA/A-1+) 3.10 3/05/96 2,000,000
------------
KENTUCKY--1.5%
5,900 Mason County PCR, Eastern Kentucky Power
Co.* (NR/NR)(AA-/A-1+) 3.30 10/15/14 5,900,000
------------
LOUISIANA--1.9%
3,050 Louisiana State GO, Series A, (LC-Credit
Local De France)* (Aaa/VMIG1)(AAA+/A-1+) 3.10 3/05/96 3,050,000
1,000 Louisiana State Offshore Term, Deepwater
Port Revenue 3.45 9/01/08 1,000,000
3,100 East Baton Rouge Parish PCR, Exxon Project* (Aaa/P1)(AAA/A-1+) 3.40 3/01/22 3,100,000
------------
7,150,000
------------
MARYLAND--0.9%
3,300 Anne Arundel County Port Facilities Revenue,
Baltimore Gas & Electric Co.* (A2/VMIG1)(A/A-1) 3.30 5/13/96 3,300,000
------------
MICHIGAN--9.5%
5,000 Grenada County Revenue, Georgia Pacific
Corp. Project, (LC-Sumitomo Bank, Ltd)* (A1/NR)(NR/NR) 3.30 12/01/14 5,000,000
8,000 Michigan (Aaa/AAA) 4.00 9/30/96 8,041,055
15,200 Michigan Underground, Var Series I
(LC-Canadian Imperial Bank)* (Aa3/VMIG1)(AA-/A-1+) 3.20 12/01/04 15,200,000
5,600 University of Michigan Revenue, Hospital,
Series A (Aa1/AA+) 3.45 12/01/27 5,600,000
2,700 University of Michigan Revenue, Medical
Services Plan, Series A (Aa1/AA+) 3.45 12/01/27 2,700,000
------------
36,541,055
------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
19
<PAGE> 20
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Amortized
(000) Description (Unaudited) Rate Date Cost
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
MINNESOTA--0.8%
$ 3,000 Minnesota School District Tax & AID, TAN,
Series B** (Aa1/AA+) 3.25% 3/14/97 $ 3,021,780
------------
MISSOURI--25.0%
14,700 Kansas City Multi-Family Housing Revenue,
Timblane Village Apartments Project
(LC-Security Pacific National Bank)* (Aa3/VMIG1)(NR/NR) 3.30 6/01/08 14,700,000
10,975 Missouri Environment Improvement & Energy
Resources Authority, PCR, Union Electric
Co Project-Series B (LC-Westdeutsche
Landesbank)* (Aa1/P-1)(AA+/A-1+) 3.80 3/07/96 10,975,000
4,000 Missouri Environment Improvement & Energy
Resources Authority, PCR, Monsanto Co
Project* (A1/P-1)(NR/NR) 3.20 6/01/23 4,000,000
2,000 Missouri Environment Improvement & Energy
Resources Authority, PCR, Kansas City
Power & Light* (A2/VMIG1)(A-/A-1) 3.30 7/01/17 2,000,000
800 Missouri Environment Improvement & Energy
Resources Authority, PCR, Kansas City
Power & Light* (A2/VMIG1)(A-/A-1) 3.30 9/01/17 800,000
2,000 Missouri Environment Improvement & Energy
Resources Authority, Series B (A2/VMIG1)(A-/A-1) 3.15 5/16/96 2,000,000
3,000 Missouri Environment Improvement & Energy
Resources Authority, PCR (A2/VMIG1)(A-/A-1) 3.50 10/01/20 3,000,000
6,500 Missouri Health & Educational Facilities
Authority, Educational Facilities Revenue,
Sisters Mercy Health, Series B (SPA-Amro
Bank)* (Aa/VMIG1)(AA-/A-1+) 3.45 3/01/17 6,500,000
5,800 Missouri Health & Educational Facilities
Authority, Educational Facilities Revenue,
Washington University Project, Series B* (Aa/VMIG1)(AA-/A-1+) 3.45 3/01/17 5,800,000
4,000 Missouri Health & Educational Facilities
Authority, Educational Facilities Revenue,
ACES-SSM Health Care Project, Series A
(LC-Industrial Bank of Japan)* (A1/VMIG1)(NR/NR) 3.20 11/01/19 4,000,000
9,600 Missouri Health & Educational Facilities
Authority, Educational Facilities Revenue,
Christian Health Services, Series B
(LC-Morgan Guaranty Trust)* (NR/NR)(AA-/A-1+) 3.15 6/01/19 9,600,000
6,100 Missouri Health & Educational Facilities (Aaa/AAA) 3.15 6/01/19 6,100,000
1,600 Missouri Health & Educational Facilities (Aaa/AAA) 3.35 6/01/06 1,600,000
3,000 Missouri Health & Educational Facilities (Aaa/AAA) 3.45 9/01/10 3,000,000
10,500 Missouri Health & Educational Facilities,
Barnes Hospital Project (Aaa/AAA) 3.20 12/01/15 10,500,000
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
20
<PAGE> 21
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Amortized
(000) Description (Unaudited) Rate Date Cost
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
MISSOURI (continued)
$ 1,000 St. Louis Industrial Development Authority* (NR/NR)(NR/NR) 3.35% 5/01/09 $ 1,000,000
2,800 St. Louis, Tax & Revenue, Anticipated notes (Aa1/NR) 4.50 6/20/96 2,808,995
8,000 University of Missouri Capital Project
Notes, Series FY 1995-96 (MIG1/Sp1+) 4.75% 6/28/96 8,023,135
------------
96,407,130
------------
MONTANA--3.2%
10,800 Montana State Board of Investments, Payroll
Tax Workers Compensation* (A/VMIG1)(NR/NR) 3.35 6/01/20 10,800,000
1,400 Montana Health Facilities Authority Revenue,
Healthcare Pooled Loan Project, Series A
(FGIC Insured)* (Aaa/VMIG1)(AAA/A-1+) 3.25 12/01/15 1,400,000
------------
12,200,000
------------
NEW YORK--1.4%
5,300 New York City Municipal Water Financing
Authority, Water & Sewer System Revenue,
Series A (FGIC Insured)* (Aaa/VMIG1)(AAA/A-1+) 3.35 6/15/25 5,300,000
------------
NORTH CAROLINA--3.6%
5,400 Raleigh Durham Airport Authority, American
Airline, Series A (Aaa/AAA) 3.45 11/01/15 5,400,000
5,200 Raleigh Durham Airport Authority, American
Airline, Series B (Aaa/AAA) 3.45 11/01/05 5,200,000
3,200 Raleigh Durham Airport Authority, American
Airline, Series B (Aaa/AAA) 3.45 11/01/15 3,200,000
------------
13,800,000
------------
OHIO--0.4%
1,500 Ohio, Series S (Aaa/AAA) 3.75 5/15/96 1,501,189
------------
RHODE ISLAND--0.8%
3,000 Rhode Island TAN, (LC-Union Bank of
Switzerland) (MIG1/Sp1+) 4.50 6/28/96 3,007,969
------------
SOUTH CAROLINA--0.5%
2,100 York County PCR, Electric Project NRU-84N-1* (Aa3/MIG1)(AA-/A-1) 3.30 9/15/14 2,100,000
------------
TEXAS--12.0%
2,500 Fort Worth* (NR/NR)(NR/NR) 3.30 5/15/96 2,500,000
3,400 Harris County Health Facilities Development
Corp., Hospital Revenue, St. Lukes
Episcopal, Series C, (SPA-Morgan Guaranty
Trust)* (NR/NR)(AA/A-1+) 3.45 2/15/16 3,400,000
5,700 Harris County Health Facilities Development
Corp., Hospital Revenue, St. Lukes
Episcopal, Series D, (SPA-Morgan Guaranty
Trust)* (NR/NR)(AA/A-1+) 3.45 2/15/16 5,700,000
3,700 Harris County Health Facilities Development
Corp., Hospital Revenue, Texas Children,
Series B2, (SPA-NationsBank of Texas)* (Aa/VMIG1)(NR/NR) 3.30 10/01/19 3,700,000
335 Lewisville Water & Sewer Revenue 8.05 2/15/97 348,910
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
21
<PAGE> 22
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Amortized
(000) Description (Unaudited) Rate Date Cost
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
TEXAS (continued)
$ 6,100 San Antonio Electric & Gas System (NR/NR)(NR/NR) 3.80% 3/14/96 $ 6,100,000
1,000 Texas, Series A (P-1/A-1+) 6.00 10/01/96 1,012,514
20,000 Texas TAN, Series A (MIG1/Sp1+) 4.75 8/30/96 20,064,600
2,230 Travis County, CTFS Obligation, Series B (Aa1/AA) 6.85 3/01/96 2,230,000
1,300 Trinity River Authority (Aa1/AA) 7.50 8/01/96 1,321,241
------------
46,377,265
------------
WASHINGTON--3.8%
5,300 Washington Public Power Supply System,
Nuclear Project No. 3, Series 3A-1
(LC-Bank of America)* (Aa3/VMIG1)(A+/A-1) 3.20 7/01/18 5,300,000
7,500 Washington Public Power Supply System,
Nuclear Project No. 3, Series 3A-2,
(LC-Industrial Bank of Japan Ltd.)* (A1/VMIG1)(A+/A-1) 3.20 7/01/18 7,500,000
2,000 Washington Refunded Motor Vehicle Fuel,
Series R 93C (Aa/AA) 3.85 9/01/96 2,001,905
------------
14,801,905
------------
WISCONSIN--3.0%
5,000 Milwaukee Revenue, School Order Note, Series
B (MIG1/Sp1+) 4.50 8/22/96 5,011,414
5,000 Milwaukee Revenue, School Order Note, Series
B (MIG1/Sp1+) 4.75 8/22/96 5,018,296
1,565 Wisconsin, Series 1 (Aa/AA) 4.00 5/01/96 1,567,066
------------
11,596,776
------------
WYOMING--0.3%
1,000 Lincoln County PCR, Exxon Project B (Aa/AA) 3.35 11/01/14 1,000,000
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL SECURITIES--100.3% (cost $386,381,952) 386,381,952
- -----------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT MONEY MARKET FUND--0.4%
1,787 Federated Tax-Exempt Obligation Fund
(cost $1,787,070) 1,787,070
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--100.7% (cost $388,169,022) 388,169,022
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.7%) (2,850,829)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS--100.0% $385,318,193
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
* Variable rate security.
** Represents security purchased on a when-issued basis.
ACES -- Adjustable Convertible Extendible Securities.
FGIC -- Financial Guaranty Insurance Company.
GO -- General Obligation.
LC -- Letter of credit.
MBIA -- Municipal Bond Insurance Association.
PCR -- Pollution Control Revenue.
TAN -- Tax Anticipation Notes.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
22
<PAGE> 23
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MISSOURI SHORT-TERM
SHORT-TERM SHORT-TERM SHORT-TERM TAX-EXEMPT
U.S. TREASURY DIVERSIFIED TAX-EXEMPT DIVERSIFIED
FUND ASSETS FUND FUND FUND
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investment in securities, at amortized cost............. $ 758,321,204 $1,265,521,529 $ 251,155,277 $ 388,169,022
Repurchase agreements, at cost.......................... 1,026,087,704 310,316,415 -- --
Receivable from brokers for investments sold............ 188,274,202 -- -- --
Cash.................................................... -- 697,353 196 --
Interest receivable..................................... 6,023,544 5,242,638 2,009,481 2,696,057
Deferred organization costs and other assets............ 245,190 125,372 35,085 115,654
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS............................................ 1,978,951,844 1,581,903,307 253,200,039 390,980,733
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Advisory fees payable................................... 164,078 144,619 38,633 48,108
Administration fees payable............................. 154,126 138,859 21,299 33,618
Service fees payable (Pilot Administration Shares)...... 37,372 43,124 2,405 2,921
Service fees payable (Pilot Investor Shares)............ 60,334 15,660 4,696 13
Payable to brokers for investments purchased............ 50,774,966 24,951,172 -- 4,592,324
Dividends payable....................................... 6,983,740 6,201,977 564,054 912,389
Other accrued expenses.................................. 81,682 241,521, 22,831 73,167
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES....................................... 58,256,298 31,736,932 653,918 5,662,540
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS.............................................. $1,920,695,546 $1,550,166,375 $ 252,546,121 $ 385,318,193
- -----------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING ($0.001 PAR VALUE, UNLIMITED NUMBER
OF SHARES AUTHORIZED):
Pilot Shares............................................ 1,577,003,353 1,276,305,999 224,437,605 370,729,073
Pilot Administration Shares............................. 191,908,233 235,407,954 15,495,466 14,590,295
Pilot Investor Shares................................... 151,978,421 38,326,681 12,630,338 5,170
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL SHARES OUTSTANDING................................ 1,920,890,007 1,550,040,634 252,563,409 385,324,538
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Offering Price and Redemption Price per
Share................................................. $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Shares of beneficial interest, at par................... $ 1,920,890 $ 1,550,041 $ 252,563 $ 385,325
Additional paid-in capital.............................. 1,918,969,117 1,548,490,593 252,310,846 384,939,213
Accumulated undistributed net realized gains (losses)
from investment transactions.......................... (194,461) 125,741 (17,288) (6,345)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS, FEBRUARY 29, 1996........................... $1,920,695,546 $1,550,166,375 $ 252,546,121 $ 385,318,193
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
23
<PAGE> 24
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Statements of Operations
For the six months ended February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-TERM MISSOURI SHORT-TERM
U.S. SHORT-TERM SHORT-TERM TAX-EXEMPT
TREASURY DIVERSIFIED TAX-EXEMPT DIVERSIFIED
FUND ASSETS FUND FUND FUND
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest.............................................. $ 47,925,791 $ 41,300,313 $ 4,355,555 $ 7,478,561
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
Advisory fees......................................... 1,272,398 1,074,170 232,888 397,230
Administration fees................................... 936,607 790,676 128,573 219,288
Administration Service Fees (Pilot Administration
Shares)............................................. 272,386 285,592 9,122 17,262
Investor Service Fees (Pilot Investor Shares)......... 369,338 96,514 28,064 13
Audit fees............................................ 30,583 19,304 31,940 29,478
Transfer agent fees and expenses...................... 1,236 4,896 1,530 720
Custodian fees and expenses........................... 76,440 81,572 53,384 18,995
Reports to shareholders............................... 40,384 37,946 5,146 10,589
Registration fees..................................... 77,578 34,216 15,756 19,233
Amortization of organization expenses................. 4,388 17,293 21,069 7,099
Legal fees............................................ 31,850 53,152 6,146 7,824
Trustees' fees........................................ 12,066 18,243 2,052 3,017
Other expenses........................................ 27,702 9,466 3,144 89,084
- -------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES........................................ 3,152,956 2,523,040 538,814 819,832
- -------------------------------------------------------------------------------------------------------------------
Less fee waived by adviser............................ (370,613) (310,996) -- (87,762)
- -------------------------------------------------------------------------------------------------------------------
NET EXPENSES.......................................... 2,782,343 2,212,044 538,814 732,070
- -------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME................................. 45,143,448 39,088,269 3,816,741 6,746,491
- -------------------------------------------------------------------------------------------------------------------
NET REALIZED GAINS (LOSSES) FROM INVESTMENT
TRANSACTIONS........................................ (47,505) 47,091 19,842 21,157
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... $ 45,095,943 $ 39,135,360 $ 3,836,583 $ 6,767,648
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
24
<PAGE> 25
[THIS PAGE INTENTIONALLY LEFT BLANK]
25
<PAGE> 26
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-TERM SHORT-TERM
U.S. TREASURY FUND DIVERSIFIED ASSETS FUND
---------------------------------- ----------------------------------
FOR THE FOR THE
SIX MONTHS SIX MONTHS
ENDED FOR THE ENDED FOR THE
FEBRUARY 29, YEAR ENDED FEBRUARY 29, YEAR ENDED
1996 AUGUST 31, 1995 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income......................... $ 45,143,448 $ 64,324,193 $ 39,088,269 $ 72,518,156
Net realized gains (losses) from investment
transactions................................ (47,505) (99,326) 47,091 (126,776)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations...................................... 45,095,943 64,224,867 39,135,360 72,391,380
- -----------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment
income:
Pilot Shares.................................. (35,911,213) (50,061,109) (32,105,902) (56,135,624)
Pilot Administration Shares................... (5,617,920) (7,236,770) (6,015,952) (14,769,836)
Pilot Investor Shares......................... (3,614,321) (7,049,513) (966,415) (1,730,773)
- -----------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholders from net
investment income............................... (45,143,454) (64,347,392) (39,088,269) (72,636,233)
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio share transactions:
Proceeds from shares issued................... 5,034,259,007 7,633,890,413 2,780,364,572 6,079,682,781
Dividends reinvested.......................... 8,898,701 12,508,935 6,406,322 13,612,333
Cost of shares redeemed....................... (4,660,528,506) (7,206,228,934) (2,558,911,454) (5,969,699,418)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
Portfolio share transactions.................... 382,629,202 440,170,414 227,859,440 123,595,696
- -----------------------------------------------------------------------------------------------------------------------------
Total increase (decrease)......................... 382,581,691 440,047,889 227,906,531 123,350,843
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period............................... 1,538,113,855 1,098,065,966 1,322,259,844 1,198,909,001
- -----------------------------------------------------------------------------------------------------------------------------
End of period..................................... $ 1,920,695,546 $ 1,538,113,855 $ 1,550,166,375 $ 1,322,259,844
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
26
<PAGE> 27
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MISSOURI SHORT-TERM SHORT-TERM
TAX-EXEMPT FUND TAX-EXEMPT DIVERSIFIED FUND
--------------------------------------- ---------------------------------------
FOR THE FOR THE FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 1996 AUGUST 31, 1995 FEBRUARY 29, 1996 AUGUST 31, 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
$ 3,816,741 $ 8,685,370 $ 6,746,491 $ 14,249,567
19,842 (26,998) 21,157 (17,838)
- ---------------------------------------------------------------------------------------
3,836,583 8,658,372 6,767,648 14,231,729
- ---------------------------------------------------------------------------------------
(3,548,499) (8,297,281) (6,532,951) (13,962,657)
(110,647) (89,381) (213,467) (287,100)
(157,595) (299,924) (73) (98)
- ---------------------------------------------------------------------------------------
(3,816,741) (8,686,586) (6,746,491) (14,249,855)
- ---------------------------------------------------------------------------------------
274,481,908 1,021,732,285 229,607,249 601,226,465
1,049,411 2,892,628 213,294 262,723
(249,615,627) (1,047,146,227) (256,754,361) (580,327,778)
- ---------------------------------------------------------------------------------------
25,915,692 (22,521,314) (26,933,818) 21,161,410
- ---------------------------------------------------------------------------------------
25,935,534 (22,549,528) (26,912,661) 21,143,284
- ---------------------------------------------------------------------------------------
226,610,587 249,160,115 412,230,854 391,087,570
- ---------------------------------------------------------------------------------------
$ 252,546,121 $ 226,610,587 $ 385,318,193 $ 412,230,854
- ---------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 28
[THIS PAGE INTENTIONALLY LEFT BLANK]
28
<PAGE> 29
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
1. GENERAL
The Pilot Short-Term U.S. Treasury Fund, the Pilot Short-Term Diversified Assets
Fund, the Pilot Missouri Short-Term Tax-Exempt Fund, and the Pilot Short-Term
Tax-Exempt Diversified Fund are separate money market portfolios (individually,
a "Portfolio"; collectively, the "Portfolios") of The Pilot Funds (the "Fund").
The Fund is a Massachusetts business trust registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company. All of the Portfolios are diversified except for the
Missouri Short-Term Tax-Exempt Fund. Shares of the Fund are offered exclusively
to customers of Boatmen's Trust Company ("Boatmen's"), its affiliates and to
customers of other participating service organizations. The Fund currently
offers twelve portfolios. The accompanying financial statements are those of the
four Portfolios only.
The Short-Term U.S. Treasury Fund and Short-Term Diversified Assets Fund seek to
maximize current income to the extent consistent with the preservation of
capital and the maintenance of liquidity by investing exclusively in
high-quality money market instruments. The Missouri Short-Term Tax-Exempt Fund
and Short-Term Tax-Exempt Diversified Fund seek as high a level of current
income which is exempt from federal income tax as is consistent with the
preservation of capital.
The Portfolios each offer three classes of shares: Pilot Shares, Pilot
Administration Shares and Pilot Investor Shares. Each class of shares is
substantially the same, except that Pilot Administration Shares bear the fees
payable under the Portfolios' Administration Plan, and Pilot Investor Shares
bear the fees payable under the Portfolios' Service Plan.
Boatmen's serves as the Fund's investment adviser. Concord Holding Corporation
("Concord") serves as the Fund's administrator and Pilot Funds Distributor Inc.
(the "Distributor"), a wholly-owned subsidiary of Concord, serves as the
distributor of the Fund's shares. Concord is a wholly-owned subsidiary of The
BISYS Group, Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consistently
followed by the Portfolios in the preparation of the financial statements. The
policies are in conformity with generally accepted accounting principles. The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and expenses
for the period. Actual results could differ from those estimates.
A. Investment Valuation
The Portfolios use the amortized cost method for valuing portfolio securities.
Under this method, all investments purchased at a discount or premium are valued
by amortizing the difference between the original purchase price and maturity
value of the issue over the period to maturity. In addition, the Portfolios may
not (a) purchase any instrument with a remaining maturity greater than thirteen
months unless such instrument is subject to a demand feature, or (b) maintain a
dollar-weighted-average maturity which exceeds 90 days.
B. Securities Transactions and Investment Income
Securities transactions are recorded on a trade date basis. Interest income is
determined on the basis of interest accrued, premium amortized and discount
accreted.
The investment income of each Portfolio is allocated to the separate classes of
shares based upon their relative net asset values.
- ----------------------------------------------------------
- ----------------------------------------------------------
29
<PAGE> 30
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
C. Repurchase Agreements
The custodian for the Portfolios and other banks acting in a subcustodian
capacity take possession of the collateral pledged for investments in repurchase
agreements. The underlying collateral is valued daily on a mark-to-market basis
to determine that the value, including accrued interest, is not less than 102%
of the repurchase price, including accrued interest. In the event of the
seller's default of the obligation to repurchase, the Portfolios have the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings.
D. Dividends to Shareholders
Dividends are declared daily to shareholders of record at the close of business
on the day of declaration and paid monthly. Distributions of net realized gains,
if any, will be paid at least annually. However, to the extent that net realized
gains of a Portfolio can be offset by capital loss carryovers, such gains will
not be distributed. Dividends and distributions are recorded by the Portfolios
on the ex-dividend date.
E. Federal Taxes
It is each Portfolio's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute each
year substantially all of its investment company taxable and tax-exempt income
to its shareholders. Accordingly, no federal tax provisions are required.
Amortized cost of investments is substantially the same for federal income tax
purposes and financial reporting purposes.
F. Organizational Expenses
Costs incurred by the Fund in connection with its organization and registration
of shares have been deferred and are amortized using the straight-line method
over a period not to exceed five years from the commencement of the public
offering of shares of the Portfolios.
G. Expenses
Expenses incurred by the Fund that do not specifically relate to an individual
portfolio are allocated to the portfolios based on each portfolio's relative net
assets.
The expenses (other than expenses incurred under the Administration and Service
Plans) of each Portfolio are allocated to the separate classes of shares based
upon their relative net asset values.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
A. Advisory Agreements
Boatmen's is the investment adviser for each Portfolio pursuant to separate
Investment Advisory Agreements and is responsible for managing the investment
operations of the Portfolios. For its services, Boatmen's is entitled to a fee,
accrued daily and paid monthly, at an annual rate equal to 0.15% of the average
daily net assets of each of the Short-Term U.S. Treasury Fund and the Short-Term
Diversified Assets Fund and 0.20% of the average daily net assets of each of the
Missouri Short-Term Tax-Exempt Fund and the Short-Term Tax-Exempt Diversified
Fund.
Boatmen's currently intends to waive voluntarily 0.05% from its contractual fee
rates for the Short-Term U.S. Treasury Fund, the Short-Term Diversified Assets
Fund, and the Short-Term Tax-Exempt Diversified Assets Fund, based on each
Portfolios average daily net assets on an annualized basis, for each such
Portfolio for the period
- ----------------------------------------------------------
- ----------------------------------------------------------
30
<PAGE> 31
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
July 1, 1995 until January 1, 1996, and 0.03% from its contractual fee rates,
based on each Portfolios average daily net assets on an annualized basis, for
the period January 1, 1996 until July 1, 1996. For the six months ended February
29, 1996 Boatmen's waived fees in the following amounts:
<TABLE>
<S> <C>
Short-Term U.S. Treasury Fund................... $ 370,613
Short-Term Diversified Assets Fund.............. 310,996
Short-Term Tax-Exempt Diversified Fund.......... 87,762
</TABLE>
B. Administration Agreement
The Portfolios have entered into an Administration Agreement with Concord.
Pursuant to the terms of this agreement, Concord is responsible for assisting in
all aspects of the operations of each of the Portfolios. For its services,
Concord is entitled to a fee, accrued daily and paid monthly, at an annual rate
of 0.115% of the first $1.5 billion of the aggregate average daily net assets of
all of the portfolios constituting the Fund, plus 0.11% of the next $1.5 billion
of such net assets, plus 0.1075% of such net assets in excess of $3.0 billion.
C. Transfer Agent Agreement
Concord Financial Services ("CFS"), a wholly-owned subsidiary of Concord, is the
transfer agent for the Portfolios. CFS does not receive a fee for the transfer
agent services it provides.
D. Administration and Investor Plans
The Fund has adopted Administration and Investor Plans which allow for Pilot
Administration Shares and Pilot Investor Shares, respectively, to compensate
service organizations, which may include Boatmen's, Concord and their affiliates
for providing varying levels of account administration and shareholder liaison
services to customers who are beneficial owners of such shares. The
Administration and Investor Plans provide for compensation to the service
organizations in an amount up to 0.25% and 0.50% (on an annualized basis),
respectively, of the average daily net asset value of the respective shares.
During the six months ended February 29, 1996, affiliates of the Fund received
the following fees pursuant to the Administration and Investor Plans:
<TABLE>
<CAPTION>
ADMINISTRATION INVESTOR
FUND PLAN PLAN
- --------------------------------- -------------- --------
<S> <C> <C>
Short-Term U.S. Treasury Fund.... $272,386 $369,338
Short-Term Diversified Assets
Fund........................... 285,592 96,514
Missouri Short-Term Tax-Exempt
Fund........................... 9,122 28,064
Short-Term Tax-Exempt Diversified
Fund........................... 17,262 13
</TABLE>
E. Distribution Agreement
The Distributor does not receive a fee under its Distribution Agreement.
- ----------------------------------------------------------
- ----------------------------------------------------------
31
<PAGE> 32
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the
Portfolios are as follows (000 omitted)
(at $1.00 per share):
PILOT SHORT-TERM U.S. TREASURY FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 29, AUGUST 31,
1996 1995
------------ ----------
<S> <C> <C>
Pilot Shares:
Proceeds from shares
issued.................... 1,735,613 2,313,451
Dividends reinvested........ 88 151
Cost of shares redeemed..... (1,350,254) (1,965,257)
-------- --------
Change in net assets from Pilot
share transactions............ 385,447 348,345
======== ========
Pilot Administration Shares:
Proceeds from shares
issued.................... 2,071,048 2,834,858
Dividends reinvested........ 5,187 5,415
Cost of shares redeemed..... (2,099,939) (2,723,506)
-------- --------
Change in net assets from Pilot
Administration share
transactions.................. (23,704) 116,767
======== ========
Pilot Investor Shares:
Proceeds from shares
issued.................... 1,227,597 2,485,581
Dividends reinvested........ 3,624 6,943
Cost of shares redeemed..... (1,210,335) (2,517,466)
-------- --------
Change in net assets from Pilot
Investor share transactions... 20,886 (24,942)
======== ========
</TABLE>
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 29, AUGUST 31,
1996 1995
------------ ----------
<S> <C> <C>
Pilot Shares:
Proceeds from shares issued... 914,972 1,554,497
Dividends reinvested.......... 26 152
Cost of shares redeemed....... (695,258) (1,355,685)
-------- --------
Change in net assets from Pilot
share transactions.............. 219,740 198,964
======== ========
Pilot Administration Shares:
Proceeds from shares issued... 1,554,386 3,925,718
Dividends reinvested.......... 5,425 11,755
Cost of shares redeemed....... (1,556,073) (4,008,968)
-------- --------
Change in net assets from Pilot
Administration share
transactions.................... 3,738 (71,495)
======== ========
Pilot Investor Shares:
Proceeds from shares issued... 311,005 599,468
Dividends reinvested.......... 956 1,705
Cost of shares redeemed....... (307,580) (605,046)
-------- --------
Change in net assets from Pilot
Investor share transactions..... 4,381 (3,873)
======== ========
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
32
<PAGE> 33
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 29, AUGUST 31,
1996 1995
------------ ----------
<S> <C> <C>
Pilot Shares:
Proceeds from shares issued.... 190,129 839,422
Dividends reinvested........... 791 2,540
Cost of shares redeemed........ (177,350) (870,898)
-------- --------
Change in net assets from Pilot
share transactions............... 13,570 (28,936)
======== ========
Pilot Administration Shares:
Proceeds from shares issued.... 46,172 62,333
Dividends reinvested........... 97 69
Cost of shares redeemed........ (35,330) (57,846)
-------- --------
Change in net assets from Pilot
Administration share
transactions..................... 10,939 4,556
======== ========
Pilot Investor Shares:
Proceeds from shares issued.... 38,180 119,978
Dividends reinvested........... 162 283
Cost of shares redeemed........ (36,936) (118,402)
-------- --------
Change in net assets from Pilot
Investor share transactions...... 1,406 1,859
======== ========
</TABLE>
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 29, AUGUST 31,
1996 1995
------------ ----------
<S> <C> <C>
Pilot Shares:
Proceeds from shares issued.... 224,105 504,042
Dividends reinvested........... -- --
Cost of shares redeemed........ (251,186) (494,289)
-------- --------
Change in net assets from Pilot
share transactions............... (27,081) 9,753
======== ========
Pilot Administration Shares:
Proceeds from shares issued.... 5,502 97,179
Dividends reinvested........... 213 263
Cost of shares redeemed........ (5,568) (86,039)
-------- --------
Change in net assets from Pilot
Administration share
transactions..................... 147 11,403
======== ========
Pilot Investor Shares*:
Proceeds from shares issued.... -- 5
Dividends reinvested........... -- --
Cost of shares redeemed........ -- --
-------- --------
Change in net assets from Pilot
Investor share
transactions................. -- 5
======== ========
<FN>
* The Short-Term Tax-Exempt Diversified Fund Pilot Investor Shares commenced
offering January of 1995.
- ----------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
33
<PAGE> 34
PILOT SHORT-TERM U.S. TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 29, 1996 YEAR ENDED AUGUST 31, 1995
---------------------------------------- ----------------------------------------
PILOT ADMINISTRATION INVESTOR PILOT ADMINISTRATION INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES
---------- -------------- -------- ---------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- ---------- -------- --------
Investment Activities
Net investment income................... 0.0269 0.0256 0.0244 0.0534 0.0509 0.0484
Net realized gains from investment
transactions.......................... -- -- -- -- -- --
---------- -------- -------- ---------- -------- --------
Total from Investment Activities........ 0.0269 0.0256 0.0244 0.0534 0.0509 0.0484
Distributions to shareholders............... (0.0269) (0.0256) (0.0244) (0.0534) (0.0509) (0.0484)
---------- -------- -------- ---------- -------- --------
Net Asset Value, End of Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ========== ======== ========
Total Return(c)............................. 2.72% 2.59% 2.46% 5.47% 5.21% 4.94%
Ratios/Supplemental Data:
Net Assets at end of period (000)....... $1,576,844 $191,889 $151,963 $1,191,447 $215,593 $131,074
Ratio of expenses to average net
assets(d)............................. 0.25%(e) 0.50%(e) 0.75%(e) 0.23% 0.48% 0.73%
Ratio of net investment income
to average net assets(d).............. 5.42%(e) 5.17%(e) 4.92%(e) 5.36% 5.12% 4.82%
Ratio of expenses to average net
assets assuming no waiver or expense
reimbursement(d)...................... 0.29%(e) 0.54%(e) 0.79%(e) 0.24% 0.49% 0.74%
Ratio of net investment income to
average net assets assuming no waiver
or
expense reimbursement(d).............. 5.38%(e) 5.13%(e) 4.88%(e) 5.35% 5.11% 4.81%
<FN>
- ---------------
(a) Pilot Investor Shares commenced offering during July 1992.
(b) Prior to June 1, 1994, Goldman Sachs Asset Management served the Portfolio
as investment adviser.
(c) Total return would have been lower had certain expenses not been reduced
during the periods presented and is not annualized.
(d) Does not reflect the fee which may be charged by Boatmen's directly to its
customers' accounts at an annual rate not to exceed 0.25% of the average
daily balance of Pilot Shares in the customers' accounts.
(e) Annualized.
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
34
<PAGE> 35
PILOT SHORT-TERM U.S. TREASURY FUND
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1994(b) YEAR ENDED AUGUST 31, 1993(b) YEAR ENDED AUGUST 31, 1992(b)
-------------------------------------- -------------------------------------- --------------------------------------
PILOT ADMINISTRATION INVESTOR PILOT ADMINISTRATION INVESTOR PILOT ADMINISTRATION INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES(A)
-------- -------------- -------- -------- -------------- -------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- -------- -------- ------- -------- -------- ------- --------
0.0334 0.0309 0.0284 0.0294 0.0269 0.0244 0.0400 0.0362 0.0048
0.0002 0.0002 0.0002 0.0006 0.0006 0.0007 0.0014 0.0014 0.0002
-------- ------- -------- -------- ------- -------- -------- ------- --------
0.0336 0.0311 0.0286 0.0300 0.0275 0.0251 0.0414 0.0376 0.0050
(0.0336) (0.0311) (0.0286) (0.0300) (0.0275) (0.0250) (0.0414) (0.0378) (0.0050)
-------- ------- -------- -------- ------- -------- -------- ------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======== ======== ======= ======== ======== ======= ========
3.40% 3.15% 2.90% 3.04% 2.79% 2.53% 4.30% 4.04% 2.92%(e)
$843,111 $ 98,823 $156,132 $942,109 $ 65,570 $193,764 $887,321 $ 91,152 $212,920
0.16% 0.41% 0.66% 0.14% 0.39% 0.64% 0.24% 0.49% 0.71%(e)
3.34% 3.09% 2.84% 2.94% 2.69% 2.44% 4.00% 3.62% 2.83%(e)
0.28% 0.53% 0.78% 0.30% 0.55% 0.80% 0.30% 0.56% 0.81%(e)
3.24% 2.99% 2.74% 2.78% 2.53% 2.28% 3.94% 3.55% 2.73%(e)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 36
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 29, 1996 YEAR ENDED AUGUST 31, 1995
---------------------------------------- ----------------------------------------
PILOT ADMINISTRATION INVESTOR PILOT ADMINISTRATION INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES
---------- -------------- -------- ---------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- ---------- -------- --------
Investment Activities
Net investment income............. 0.0274 0.0262 0.0249 0.0554 0.0529 0.0504
Net realized gains from investment
transactions.................... -- -- -- -- -- --
---------- -------- -------- ---------- -------- --------
Total from Investment
Activities...................... 0.0274 0.0262 0.0249 0.0554 0.0529 0.0504
Distributions to shareholders......... (0.0274) (0.0262) (0.0249) (0.0554) (0.0529) (0.0504)
---------- -------- -------- ---------- -------- --------
Net Asset Value, End of Period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ========== ======== ========
Total Return(c)....................... 2.78% 2.65% 2.52% 5.68% 5.42% 5.15%
Ratios/Supplemental Data:
Net Assets at end of period
(000)........................... $1,276,403 $235,433 $ 38,330 $1,056,624 $231,688 $ 33,948
Ratio of expenses to average net
assets(d)....................... 0.26%(e) 0.51%(e) 0.76%(e) 0.23% 0.48% 0.73%
Ratio of net investment income to
average net assets(d)........... 5.51%(e) 5.26%(e) 5.01%(e) 5.56% 5.22% 5.00%
Ratio of expenses to average net
assets assuming no waiver or
expense reimbursement(d)........ 0.30%(e) 0.55%(e) 0.80%(e) 0.24% 0.49% 0.74%
Ratio of net investment income to
average net assets assuming
no waiver or expense
reimbursement(d)................ 5.47%(e) 5.22%(e) 4.97%(e) 5.55% 5.21% 4.99%
</TABLE>
- ---------------
(a) Pilot Investor Shares commenced offering during July 1992.
(b) Prior to June 1, 1994, Goldman Sachs Asset Management served the Portfolio
as investment adviser.
(c) Total return would have been lower had certain expenses not been reduced
during the periods presented and is not annualized.
(d) Does not reflect the fee which may be charged by Boatmen's directly to its
customers' accounts at an annual rate not to exceed 0.25% of the average
daily balance of Pilot Shares in the customers' accounts.
(e) Annualized.
-----------------------------------------------------------------------------
See Notes to Financial Statements.
36
<PAGE> 37
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1994(b) YEAR ENDED AUGUST 31, 1993(b) YEAR ENDED AUGUST 31, 1992(b)
-------------------------------------- ---------------------------------------- ----------------------------------------
PILOT ADMINISTRATION INVESTOR PILOT ADMINISTRATION INVESTOR PILOT ADMINISTRATION INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES(A)
-------- -------------- -------- ---------- -------------- -------- ---------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ---------- -------- -------- ---------- -------- --------
0.0353 0.0328 0.0303 0.0325 0.0298 0.0274 0.0452 0.0396 0.0043
0.0001 0.0001 0.0001 0.0001 0.0001 0.0001 -- 0.0001 --
-------- -------- -------- ---------- -------- -------- ---------- -------- --------
0.0354 0.0329 0.0304 0.0326 0.0299 0.0275 0.0452 0.0397 0.0043
(0.0354) (0.0329) (0.0304) (0.0326) (0.0299) (0.0274) (0.0452) (0.0397) (0.0043)
-------- -------- -------- ---------- -------- -------- ---------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========== ======== ======== ========== ======== ========
3.60% 3.35% 3.10% 3.29% 3.04% 2.78% 4.68% 4.42% 3.24%(e)
$857,795 $303,288 $ 37,896 $1,293,667 $378,262 $ 36,814 $1,939,568 $271,606 $ 27,880
0.15% 0.40% 0.65% 0.12% 0.37% 0.62% 0.12% 0.37% 0.62%(e)
3.53% 3.28% 3.03% 3.25% 2.98% 2.74% 4.52% 3.95% 3.14%(e)
0.29% 0.54% 0.79% 0.29% 0.54% 0.79% 0.29% 0.54% 0.80%(e)
3.40% 3.15% 2.90% 3.08% 2.81% 2.57% 4.35% 3.78% 2.96%(e)
</TABLE>
37
<PAGE> 38
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 29, 1996 YEAR ENDED AUGUST 31, 1995(b)
-------------------------------------- --------------------------------------
PILOT ADMINISTRATION INVESTOR PILOT ADMINISTRATION INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES
-------- -------------- -------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Investment Activities
Net investment income................. 0.0165 0.0152 0.0140 0.0332 0.0300 0.0282
Net realized gains (losses) from
investment transactions............. -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total from Investment
Activities.......................... 0.0165 0.0152 0.0140 0.0332 0.0300 0.0282
Distributions to shareholders............. (0.0165) (0.0152) (0.0140) (0.0332) (0.0300) (0.0282)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total Return(c)........................... 1.66% 1.53% 1.41% 3.37% 3.05% 2.86%
Ratios/Supplemental Data:
Net Assets at end of
period (000)........................ $224,422 $ 15,495 $ 12,629 $210,834 $ 4,555 $ 11,222
Ratio of expenses to average net
assets(d)........................... 0.43%(e) 0.68%(e) 0.93%(e) 0.44% 0.69% 0.94%
Ratio of net investment income to
average net assets(d)............... 3.31%(e) 3.03%(e) 2.82%(e) 3.31% 3.06% 2.83%
Ratio of expenses to average net
assets assuming no waiver or expense
reimbursement(d).................... 0.43%(e) 0.68%(e) 0.93%(e) 0.44% 0.69% 0.94%
Ratio of net investment income to
average net assets assuming
no waiver or expense
reimbursement(d).................... 3.31%(e) 3.03%(e) 2.82%(e) 3.31% 3.06% 2.83%
- ---------------
<FN>
(a) Pilot Investor Shares commenced offering during July 1992.
(b) Prior to July 1, 1995, Goldman Sachs Asset Management served the Portfolio
as investment adviser.
(c) Total return would have been lower had certain expenses not been reduced
during the periods presented and is not annualized.
(d) Does not reflect the fee which may be charged by Boatmen's directly to its
customers' accounts at an annual rate not to exceed 0.25% of the average
daily balance of Pilot Shares in the customers' accounts.
(e) Annualized.
(f) Pilot Administration Shares commenced offering during March of 1994.
</TABLE>
------------------------------------------------------------------------------
See Notes to Financial Statements.
38
<PAGE> 39
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
YEAR ENDED AUGUST 31, 1994(b) AUGUST 31, 1993(b) AUGUST 31, 1992(b)
-------------------------------------------- ----------------------- ------------------------
PILOT ADMINISTRATION INVESTOR PILOT INVESTOR PILOT INVESTOR
SHARES SHARES(F) SHARES SHARES SHARES SHARES SHARES(A)
-------- -------------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- ---------
0.220 0.0103 0.0170 0.0221 0.0171 0.0324 0.0030
-- -- -- -- -- (0.0001) --
-------- -------- -------- -------- -------- -------- ---------
0.220 0.0103 0.0170 0.0221 0.0171 0.0323 0.0030
(0.0220) (0.0103) (0.0170) (0.0221) (0.0172) (0.0324) (0.0030)
-------- -------- -------- -------- -------- -------- ---------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== =========
2.23% 2.04%(e) 1.73% 2.24% 1.73% 3.29% 1.74%(e)
$239,796 $ -- $ 9,364 $228,075 $ 7,819 $202,304 $ 10,696
0.37% 0.67%(e) 0.87% 0.36% 0.86% 0.37% 0.87%(e)
2.20% 2.03%(e) 1.70% 2.21% 1.71% 3.24% 1.75%(e)
0.37% 0.67%(e) 0.87% 0.36% 0.86% 0.37% 0.87%(e)
2.20% 2.03%(e) 1.70% 2.21% 1.71% 3.24% 1.75%(e)
</TABLE>
39
<PAGE> 40
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 1996 AUGUST 31, 1995(B)
-------------------------------------- --------------------------------------
PILOT ADMINISTRATION INVESTOR PILOT ADMINISTRATION INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES(A)
-------- -------------- -------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Investment Activities
Net investment income................ 0.0169 0.0157 0.0144 0.0353 0.0328 0.0195
Net realized gains from investment
transactions....................... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total from Investment Activities..... 0.0169 0.0157 0.0144 0.0353 0.0328 0.0195
Distributions to shareholders............ (0.0169) (0.0157) (0.0144) (0.0353) (0.0328) (0.0195)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total Return(c).......................... 1.70% 1.58% 1.45% 3.59% 3.33% 1.96%
Ratios/Supplemental Data:
Net Assets at end of period (000).... $370,723 $ 14,590 $ 5 $397,783 $ 14,443 $ 5
Ratio of expenses to average net
assets(d).......................... 0.36%(e) 0.61%(e) 0.86%(e) 0.28% 0.53% 0.78%(e)
Ratio of net investment income to
average net assets(d).............. 3.41%(e) 3.09%(e) 2.85%(e) 3.54% 3.36% 3.15%(e)
Ratio of expenses to average net
assets assuming no waiver or
expense reimbursement(d)........... 0.40%(e) 0.65%(e) 0.90%(e) 0.29% 0.54% 0.79%(e)
Ratio of net investment income to
average net assets assuming no
waiver or expense
reimbursement(d)................... 3.37%(e) 3.05%(e) 2.81%(e) 3.53% 3.35% 3.14%(e)
- ---------------
<FN>
(a) Pilot Investor Shares commenced offering during January 1995.
(b) Prior to July 1, 1995, Goldman Sachs Asset Management served the Portfolio
as investment adviser.
(c) Total return would have been lower had certain expenses not been reduced
during the periods presented and is not annualized.
(d) Does not reflect the fee which may be charged by Boatmen's directly to its
customers' accounts at an annual rate not to exceed 0.25% of the average
daily balance of Pilot Shares in the customers' accounts.
(e) Annualized.
(f) Pilot Administration Shares commenced offering during September 1993.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
40
<PAGE> 41
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 16, 1993
(COMMENCEMENT OF
OPERATIONS)
YEAR ENDED AUGUST 31, THROUGH
1994(b) AUGUST 31, 1993(b)
-------------------------- ------------------
PILOT ADMINISTRATION PILOT
SHARES SHARES(f) SHARES
-------- -------------- ------------------
<S> <C> <C>
$ 1.00 $ 1.00 $ 1.00
-------- -------- --------
0.0240 0.0208 0.0121
-- -- --
-------- -------- --------
0.0240 0.0208 0.0121
(0.0240) (0.0208) (0.0121)
-------- -------- --------
$ 1.00 $ 1.00 $ 1.00
======== ======== ========
2.43% 2.18%(e) 2.23%(e)
$388,048 $ 3,040 $428,843
0.20% 0.45%(e) 0.15%(e)
2.40% 2.15%(e) 2.21%(e)
0.20% 0.45%(e) 0.20%(e)
2.40% 2.15%(e) 2.16%(e)
</TABLE>
41
<PAGE> 42
- --------------------------------------------------------------------------------
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of the Pilot Short-Term U.S. Treasury Fund,
Pilot Short-Term Diversified Assets Fund, Pilot Missouri Short-Term Tax-Exempt
Fund, and Pilot Short-Term Tax-Exempt Diversified Fund of The Pilot Funds:
We have audited the accompanying statements of assets and liabilities of the
Pilot Short-Term U.S. Treasury Fund, Pilot Short-Term Diversified Assets Fund,
Pilot Missouri Short-Term Tax-Exempt Fund (formerly Pilot Short-Term Tax-Exempt
Fund) and Pilot Short-Term Tax-Exempt Diversified Fund (the Pilot Money Market
Funds) of The Pilot Funds (a Massachusetts business trust), including the
portfolios of investments as of February 29, 1996, and the related statements of
operations for the period then ended, and the statements of changes in net
assets and financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 29, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Pilot Money Market Funds as of February 29, 1996, the results of their
operations, the changes in their net assets and the financial highlights for the
periods presented in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
April 12, 1996
42
<PAGE> 43
FINANCIAL Pilot Short-Term
DIRECTION U.S. Treasury Fund
LOGO Pilot Short-Term
Diversified Assets Fund
Pilot Missouri
Short-Term
Tax-Exempt Fund
Pilot Short-Term
Tax-Exempt
Diversified Fund
SEMI-ANNUAL REPORT
February 29, 1996
NOT May lose value
FDIC No Bank Guarantee
INSURED
Distributor: Pilot Funds Distributors, Inc. 4/96
PILMMF96MID
- -------------
Bulk Rate
U.S. Postage
PAID
Cleveland, OH
Permit No. 1
- -------------
<PAGE> 1
EXHIBIT 17(n)
1
LETTER FROM THE FUNDS' MANAGEMENT
DEAR SHAREHOLDER:
We are pleased to present you with the Semi-Annual Report of the Pilot domestic
equity and fixed income funds for the six months ended February 29, 1996.
The Pilot domestic equity and fixed income funds registered strong
performance during the period. Overall, the Funds benefited from strong results
of the stock and bond markets throughout 1995 and the beginning of 1996.
Inflation for 1995 was again below 3.0%. Though the economy slowed somewhat,
the stock market rose due to, among other factors, the continued strength of
corporate earnings. Investors seemed to believe that interest rates would trend
lower over the long term, which rallied bond prices.
Following the well-received introduction of the PILOT SMALL
CAPITALIZATION EQUITY FUND in December, we continue to expand the Pilot Fund
family. The new PILOT GROWTH EQUITY FUND and PILOT DIVERSIFIED INCOME BOND FUND
are scheduled to become available later this year.* Boatmen's Trust Company will
manage the new Funds, drawing on expertise gained from more than 100 years of
investing in equity and fixed income securities. The Funds' portfolio managers
will utilize Boatmen's disciplined processes for equity and fixed income
security selection. These two new Funds have distinct objectives and investing
styles that make them appropriate for portions of a balanced portfolio.
In the coming months we will be stream-lining internal operations at
The Pilot Funds. If you are a shareholder of other Pilot Funds,
*Information contained herein is subject to completion or amendment.
Registration statements relating to these securities have been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statements become
effective. This communication shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
For more information and a prospectus please call 1-800-71-PILOT (717-4568).
Please read the prospectus carefully before investing or sending money.
- -------------------------------------------------------------------------------
THE FUNDS ARE ADVISED BY BOATMEN'S TRUST COMPANY, A NON-BANK SUBSIDIARY OF
BOATMEN'S BANCSHARES, INC., AND ARE DISTRIBUTED BY PILOT FUNDS DISTRIBUTORS,
INC., WHICH IS NOT AFFILIATED WITH BOATMEN'S TRUST COMPANY. BOATMEN'S TRUST
COMPANY RECEIVES FEES FOR PROVIDING INVESTMENT ADVISORY SERVICES TO THE FUNDS.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE> 2
2
you may have received more than one statement in the past. By consolidating
certain operational functions, we will be able to detail all of your Pilot
stock and bond positions on a single statement. We continually strive for
excellence, not only in performance, but in shareholder service as well.
Thank you for choosing The Pilot Funds to help meet your long-term
investment needs. Should you have any questions or wish to learn more about any
of The Pilot Funds, please call your local Boatmen's Representative or The
Pilot Funds at 1-800/71-PILOT (717-4568).
Sincerely,
David F. Toth
SENIOR VICE PRESIDENT
Boatmen's Trust Company
<PAGE> 3
3
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS Pilot Shares Class A Shares Class B Shares
as of February 29, 1996 NAV NAV POP NAV CDSC
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pilot Growth & Income Fund
Since Inception 23.82% 24.00% 18.75% 22.13% 18.86%
1 Year 24.94% 24.34% 18.71% 23.76% 19.26%
Inception Date and Maximum Sales Load or CDSC 11/7/94 2/7/95 4.5% 11/11/94 4.5%
- ------------------------------------------------------------------------------------------------------------------------------
Pilot Equity Income Fund
Since Inception 24.75% 27.20% 21.82% 29.48% 25.63%
1 Year 27.43% 27.18% 21.46% 26.51% 22.01%
Inception Date and Maximum Sales Load or CDSC 11/7/94 2/7/95 4.5% 1/12/95 4.5%
- ------------------------------------------------------------------------------------------------------------------------------
Pilot Small Capitalization Equity Fund*
Aggregate Since Inception 2.17% 1.95% -2.63% -2.05% -2.45%
Inception Date and Maximum Sales Load or CDSC 12/12/95 12/12/95 4.5% 12/12/95 4.5%
- ------------------------------------------------------------------------------------------------------------------------------
Pilot U.S. Government Securities Fund
Since Inception 16.81% 13.80% 9.00% 15.16% 11.84%
1 Year 12.98% 12.75% 7.69% 11.86% 7.36%
Inception Date and Maximum Sales Load or CDSC 11/7/94 2/7/95 4.5% 11/10/94 4.5%
- ------------------------------------------------------------------------------------------------------------------------------
Pilot Intermediate U.S. Government Securities Fund
Since Inception 10.42% 10.69% 6.93% N/A N/A
1 Year 9.29% 9.12% 4.71% N/A N/A
Inception Date and Maximum Sales Load or CDSC 11/7/94 12/21/94 4.0%
- ------------------------------------------------------------------------------------------------------------------------------
Pilot Municipal Bond Fund
Since Inception 13.59% 11.50% 6.75% 12.74% 8.98%
1 Year 10.13% 10.05% 5.06% 8.55% 4.05%
Inception Date and Maximum Sales Load or CDSC 11/7/94 2/7/95 4.5% 12/27/94 4.5%
- ------------------------------------------------------------------------------------------------------------------------------
Pilot Intermediate Municipal Bond Fund
Since Inception 9.37% 10.14% 6.70% N/A N/A
1 Year 8.33% 8.18% 3.81% N/A N/A
Inception Date and Maximum Sales Load or CDSC 11/7/94 11/18/94 4.0%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Small capitalization funds typically carry additional risks since smaller
companies generally have a higher risk of failure and by definition are not
as well established as "blue chip" companies. Historically, smaller companies'
stocks have experienced a greater degree of market volatility than average.
Past performance is not a guarantee of future results. Investment returns and
principal values will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
Note: This table reflects the fact that Class A and Class B Shares are subject
to different fees and expenses. Class A Shares are subject to a front-end sales
load of up to 4.5% of the offering price and a Rule 12b-1 fee of up to .25 of
1%. Class B Shares are subject to Contingent Deferred Sales Charges for
redemptions before the periods outlined in the Funds' prospectuses and a Rule
12b-1 fee of up to 1%. All other Fund expenses related to Class A and B Shares
are the same as for Pilot Shares.
<PAGE> 4
4
LETTERS FROM THE PORTFOLIO MANAGERS
Pilot Growth and Income Fund
DEAR SHAREHOLDER:
The Fund produced a strong return of 12.44% (Pilot Shares) for the six-month
period ended February 29, 1996. Since the Fund's inception on November 7, 1994,
Pilot Shares of the Fund, which are available to trust customers, returned
23.82%.
Investment Philosophy
Our investment discipline is geared toward removing the emotion from investment
decisions. We invest in mid to large-sized "good businesses" on the basis of
their long-term relative value, not their current popularity. An emphasis on
"good businesses" first, and on valuations second, is central to our approach.
Many factors determine whether a business is good: a competitive strategy, a
sustainable product or service mix, and a management team that can adapt to its
environment. Our research analysts focus on assessing these and other
characteristics to identify competitive advantages.
______________________________________________________________________________
Portfolio and S&P 500(R)* Index
Composition by Sector*
as of 2/29/96
<TABLE>
<CAPTION>
Pilot Growth S&P 500
and Income Fund Index**
- ------------------------------------------------------------------------------
<S> <C> <C>
Finance 16.3% 13.2%
Materials & Processing 7.0 7.1
Industrial Goods & Services 10.0 10.3
Retailing 6.0 6.2
Consumer Staples 11.7 12.2
Consumer Cyclicals 8.1 8.1
Health Care 11.3 10.4
Energy 9.9 9.8
Technology 6.9 10.9
Utilities 12.8 11.8
- -------------------------------------------------------------------------------
</TABLE>
* Portfolio holdings are subject to change.
** The Standard & Poor's 500 Stock Index (S&P 500) is an unmanaged index
typically used as a standard for common stock performance.
<PAGE> 5
5
Investment Environment
During the past six months, the stock market responded positively to the
low-inflation, moderate-growth environment. The strong performance continued
throughout the fourth quarter of 1995, despite a growing number of
weaker-than-expected earnings forecasts. With numerous indicators pointing to
continued moderate growth and relatively subdued inflation, the underlying
fundamentals of the equity market remain supportive. Given the remarkable
strength of the market over the last year, some degree of profit-taking is
possible in the near term, however, such periods are likely to be mild and
short-lived.
Top Ten Holdings*
as of 2/29/96
<TABLE>
<CAPTION>
Company % of Portfolio
- ------------------------------------------------
<S> <C>
Royal Dutch Petroleum Co. 3.8%
AT&T Co. 3.6
Chemical Banking Corp. 3.3
U.S. Healthcare Inc. 3.2
Crown Cork & Seal Inc. 3.1
Raytheon Co. 3.1
MCI Communications Corp. 3.1
Marsh & McLennan Companies Inc. 3.0
Ford Motor Co. 3.0
SmithKline Beecham 2.9
- ------------------------------------------------
</TABLE>
*Portfolio holdings are subject to change.
Portfolio Positioning
The Pilot Growth and Income Fund benefited during this period from an
overweighted position in the finance sector. The Fund reduced this position by
taking profits throughout the year, though it still remains overweighted. The
Fund underweighted its technology holdings, and therefore underperformed
relative to the S&P(R) 500 Index. Our fundamental analysis continues to view
particular "stand-out" technology stocks as overvalued, and therefore they
have not been considered for purchase. As long-term investors, we continue to
emphasize our time-proven formula: purchasing stock in good businesses at
attractive valuations.
Sincerely,
Randall L. Yoakum, CFA
Senior Vice President,
Director of Equity and Balanced
Portfolio Management
Boatmen's Trust Company
<PAGE> 6
LETTERS FROM PORTFOLIO MANAGERS 6
Pilot Equity Income Fund
Dear Shareholder:
For the six-month period ending February 29, 1996, the Pilot Equity Income Fund
had a total return of 14.55% (Pilot Shares) which compared to 11.79% for the
Lipper Equity Income Fund(R) Index (a composite index of the top 30 largest
equity income funds) and the total return of 15.30% for the S&P 500* Index.
Investment Philosophy
We follow a disciplined valuation approach to identify companies that represent
superior long-term investment values. We generally invest in larger, established
companies, selecting those which offer what we believe are the best relative
values. We also emphasize companies which offer high current dividend yields.
This approach seeks to provide competitive long-term results with controlled
risk exposure.
Average Portfolio Composition*
9/1/95 -- 2/29/96
Convertible Bonds & Preferred Stock 15%
Cash 3%
Equity Securities 82%
Portfolio and S&P 500(R) Index
Composition by Sector*
as of 2/29/96
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Pilot Equity S&P 500
Income Fund Index**
------------ -------
<S> <C> <C>
Finance 13.8% 13.2%
Materials & Processing 9.8 7.1
Industrial Goods & Services 6.1 10.3
Retailing 2.8 6.2
Consumer Staples 16.4 12.2
Consumer Cyclicals 3.0 8.1
Health Care 7.4 10.4
Energy 15.9 9.8
Technology 0.0 10.9
Utilities 24.8 11.8
- -----------------------------------------------------------------------
</TABLE>
* Portfolio holdings are subject to change.
** The Standard & Poor's 500 Stock Index (S&P 500) is an unmanaged index
typically used as a standard for common stock performance.
<PAGE> 7
7
Top Ten Holdings*
as of 2/29/96
<TABLE>
<CAPTION>
- ------------------------------------------------------
Company % of Portfolio
- ------- --------------
<S> <C>
Phillip Morris 4.1%
Oklahoma Gas & Electric Company 3.8
Unicom Corporation 3.8
ConAgra Inc. 3.5
Cooper Industries Inc. 3.4
Aetna Life & Casualty Company 3.4
Dow Chemical Company 3.2
Kimberly Clark Corporation 3.2
Ashland Inc. (Pfd.) 3.2
Consolidated Edison 3.2
- ------------------------------------------------------
</TABLE>
* Portfolio holdings are subject to change.
General Discussion
Over the past six months there has been a steady shift out of convertible bonds
and preferred stock into common stock. This was partially due to several of the
convertibles being called and the reduction in attractive new investments in
this portion of the market.
The portfolio remains diversified with exposure to most industry
sectors. The single exception is technology where we have no holdings at this
time. The weightings in the various sectors shifted marginally, with the
reductions in finance, health care and utilities offset by increases in
materials, consumer staples and energy. The new year brings with it new
opportunities, and as seen so far, increased volatility over the near term. As
always, we remain positioned in the higher yielding sectors of the market.
Sincerely,
David W. Papendick, CFA
Senior Vice President,
Senior Portfolio Manager
Boatmen's Trust Company
<PAGE> 8
8
LETTERS FROM THE PORTFOLIO MANAGERS
Small Capitalization Equity Fund
Dear Shareholder:
Since its inception on December 22, 1995, the Fund has returned 2.17% (Pilot
Shares) for the period ended February 29, 1996.
Investment Objective
The Fund's objective is to provide shareholders with long-term capital growth
by investing primarily in equity securities of smaller domestic companies. The
Fund invests a minimum of 65% of its total assets in equity securities of
companies with a market capitalization of $1 billion or less.
Investment Environment
During the period since the Fund's inception, the market for small company
stocks has cooled from its torrid pace of 1995. The beginning of 1996 saw a
bottoming out of interest rates in the expectation that the economy was headed
for continued gradual growth. Earnings expectations for many rapidly growing
companies peaked in 1996, with some profit taking occurring at year-end.
Prospects for 1996 look favorable for the small company market with continued
growth in the economy and many sectors performing beyond expectations.
Portfolio and Russell 2000(R) Index
Composition by Sector*
as of 2/29/96
<TABLE>
<CAPTION>
Pilot Small Russell
Capitalization 2000(R)
Equity Fund Index**
- --------------------------------------------------------
<S> <C> <C>
Finance 15.8% 23.5%
Materials & Processing 10.5 9.8
Producer Durables 13.2 7.8
Consumer Discretionary 15.9 15.5
Consumer Staples 3.0 2.9
Health Care 5.8 12.1
Energy 7.8 4.4
Technology 13.9 12.6
Utilities 11.1 5.8
Transportation 3.0 4.0
Other 0.0 1.5
- --------------------------------------------------------
</TABLE>
* Portfolio holdings are subject to change.
** The Russell 2000(R) Index is an unmanaged index
representing 2000 small capitalized companies and
is typically used as a measure of small cap stocks.
<PAGE> 9
9
TOP TEN HOLDINGS*
as of 2/29/96
<TABLE>
<CAPTION>
Company % of Portfolio
- ------- --------------
<S> <C>
Chronimed 1.7%
Paragon Trade Brands, Inc. 1.7
Sbarro 1.6
TNP Enterprises 1.6
Conn. Natural Gas 1.5
Advanta 1.5
California Energy 1.5
Inacom Corporation 1.5
Logicon 1.4
NU Horizons Electronics Corp. 1.4
</TABLE>
*Portfolio holdings are subject to change.
Portfolio Positioning
While the roaring markets of 1995 were a boon to financial companies, the
market outlook for 1996 shows signs of slackening, particularly on the fixed
income side. For this reason, financial stocks look less attractive, and we are
beginning to underweight them in the Fund.
Prospects for smaller companies in the retail sector, which is a sub-component
of the consumer discretionary sector, continue to improve. Many companies in
the industry addressed operational issues and consumer sales were stronger than
expected despite January's inclement weather. As prospects for the Spring
appear strong, we will continue to overweight this sector. Energy companies
enjoyed strong results as oil prices rallied off strong global demand, and
prospects for Iraqi oil coming to the world market faded. Last year proved to
be a strong period for interest-sensitive utilities as interest rates steadily
declined over the course of 1995. Against a background of strong market demand
for utility services and limited overcapacity, this environment helped
utilities produce solid dividends throughout the year. As rates show signs of
bottoming, however, we will look to reduce our overweighting in this sector.
Sincerely,
Daniel Ginsparg
SENIOR PORTFOLIO MANAGER
Boatmen's Trust Company
Michael Kenneally
SENIOR VICE PRESIDENT
Boatmen's Trust Company
<PAGE> 10
10
LETTERS FROM THE PORTFOLIO MANAGERS
Pilot U.S. Government Securities Fund
Pilot Intermediate U.S. Government Securities Fund
Dear Shareholder:
Following an unsettling 1994 characterized by sharply higher interest rates,
fixed income investors were richly rewarded in 1995. The dramatic declines in
long-term interest rates during the past year reflected four principal factors:
news of slower economic growth, a sharp inflow of foreign investment in U.S.
bonds, a resurgence of speculative leveraged bond trading,and heightened
optimism regarding the budget deficit reduction efforts in Washington. Yields on
intermediate and long-term U.S. Treasury bonds generally declined by 2% or more
during 1995. As a result, the broad U.S. bond market posted its single best year
since 1985, and its fifth best year since the 1930s, in terms of total return
from income and price appreciation. More importantly, outstanding returns for
shareholders characterized the first full year of operations for the Pilot U.S.
Government Securities Funds.
Pilot U.S. Government Securities Fund
At the beginning of 1995, the Pilot U.S. Government Securities Fund was
aggressively positioned to benefit from declining interest rates. When market
yields declined, as we anticipated, the Fund gradually adopted a much more
neutral structure. Our strategy of
Pilot U.S. Government Securities Fund
Maturity Distribution of Securities*
as of 2/29/96
[CHART]
0-5 Years 52%
5-10 Years 12%
10-20 Years 32%
Pilot U.S. Government Securities Fund
Security Holdings*
as of 2/29/96
[PIE CHART]
U.S. Treasury Bonds 33.1%
Repurchase Agreements and Other 2.0%
U.S. Treasury Notes 64.9%
* Portfolio holdings are subject to change.
<PAGE> 11
11
actively managing the maturity structure of the Fund based on the level of
"real" inflation-adjusted yields is the key to our efforts to provide
shareholders with favorable long-term results. The aggressive posture of the
Fund during 1995 resulted in strong gains from income and price appreciation.
The more conservative structure currently in place has helped preserve those
gains as interest rates edged somewhat higher in the first two months of 1996.
Pilot Intermediate U.S. Government Securities Fund
Consistent with its objectives, the Pilot Intermediate U.S. Government
Securities Fund maintains a conservative stance with regard to its average
maturity and portfolio structure. To provide stability of principal and to
limit potential volatility in performance, the Fund targets investments solely
in fixed income securities maturing in 10 years or less. Despite this
conservative stance, the Fund generated solid double-digit returns from income
and market appreciation during 1995. Perhaps more importantly, the conservative
structure of the Fund has safeguarded those results as market rates have risen
in early 1996. The Fund remains ideally suited to clients seeking a competitive
level of income with relative stability in the value of invested principal.
Pilot Intermediate U.S. Government Securities Fund
Maturity Distribution of Securities*
as of 2/29/96
[CHART]
0-3 Years 40%
3-5 Years 38%
5-10 Years 22%
Pilot Intermediate U.S. Government Securities Fund
Security Holdings*
as of 2/29/96
[PIE CHART]
U.S. Treasury Notes 79.8%
Corporate Obligations 12.0%
Asset Backed Obligations 6.8%
Repurchase Agreements 1.4%
* Portfolio holdings are subject to change.
<PAGE> 12
LETTERS FROM THE PORTFOLIO MANAGERS 12
Looking Ahead
We do not anticipate a recession during 1996. The presence of ample credit
availability and rising personal income, combined with the favorable wealth
effects of 1995's roaring financial markets and the strong competitive position
of U.S. products and services in world markets, should all contribute to
relative economic stability going forward. For these same reasons, we also
believe that Federal Reserve policy is not excessively restrictive. A healthy
supply of credit, strong wage growth, soaring stock and bond prices, rising
real estate values, and weak exchange rates for the dollar are not
characteristics of overly "tight" monetary policy. As such, we do not believe
that the Federal Reserve will reduce short-term rates from current levels in the
near future.
Investors should recognize that bond returns in 1996 are likely to be
much more moderate than those of 1995. While the long-term outlook for Federal
Reserve policy, inflation and interest rates seems very favorable, opportunities
for further near-term gains seem limited. In particular, the developments of
1995 have left "real" inflation-adjusted bond yields near the lower end of
ranges that have prevailed throughout the past decade. While we continue to
advise clients to maintain a core position in bonds, we do recommend a moderate
stance in terms of average maturity and portfolio structure. We have positioned
the Pilot Government Securities Funds accordingly.
Sincerely,
Frank J. Aten, CFA
Senior Vice President
Director of Taxable Fixed Income
Boatmen's Trust Company
Scott P. Leiberton, CFA
Portfolio Manager
Taxable Fixed Income
Boatmen's Trust Company
<PAGE> 13
13
Pilot Municipal Bond Fund
Pilot Intermediate Municipal Bond Fund
DEAR SHAREHOLDER:
Against the backdrop of slower economic growth and lower interest rates, the
municipal market was able to turn in a strong performance for the six-month
period ending February 29, 1996. However, unlike other fixed income markets, the
ride was far from smooth. Flat-tax proposals, which would eliminate municipal
bonds' tax-advantaged position, caused investors to flee the municipal market
through most of the summer of 1995. Investors who stayed in the market chose to
invest in shorter maturities. Longer maturity municipals naturally suffered.
The stronger performance exhibited by shorter maturities was short-lived,
however, as the cheapness of longer maturities finally attracted investors
despite tax reform fears. During the fourth quarter of 1995, long municipal
bonds appreciated in price close to 1% while short and intermediate municipal
bonds were unchanged. For all of 1995, the Pilot Municipal Bond Fund and the
Pilot Intermediate Municipal Bond Fund turned in competitive performances of
16.99% and 10.89%, respectively, for the Pilot shares. The price appreciation
that municipals enjoyed during 1995 continued into 1996. The seasonal reduction
in tax-exempt supply allowed municipals to substantially outperform their
taxable counterparts.
Pilot Municipal Bond Fund
The Pilot Municipal Bond Fund maintained a duration modestly longer than the
Lehman Brothers Municipal Bond(R) Index (a representative index of municipal
bonds with maturities longer than one year) during 1995. This reflected our
positive outlook for interest rates and our focus of providing competitive
tax-free income. During the last half of the year the Fund continued to take
advantage of opportunities to improve call protection and increase the tax-free
income to our shareholders by purchasing high quality revenue bonds that offer
essential services to communities. Limiting taxable capital gains also
continued to be a central focus.
- ---------------------------------------------------------------------------
<TABLE>
PILOT MUNICIPAL BOND FUND
MATURITY DISTRIBUTION OF SECURITIES*
as of 2/29/96
<S> <C>
0-10 Years 8%
10-20 Years 68%
20-30 Years 22%
</TABLE>
*Portfolio holdings are subject to change.
<PAGE> 14
LETTERS FROM THE PORTFOLIO MANAGERS 14
<TABLE>
<CAPTION>
PILOT MUNICIPAL BOND FUND
PORTFOLIO SECTOR ALLOCATION*
as of 2/29/96
<S> <C>
Insured 35.8%
Government-Backed 10.4% 10.4%
Electric Utility 10.0%
Water/Sewer 7.1%
Transportation 2.2%
Hospital 1.4%
IDR 1.8%
Miscellaneous 4.7%
General Obligation 26.6%
</TABLE>
<TABLE>
<CAPTION>
PILOT MUNICIPAL BOND FUND
PORTFOLIO ALLOCATION BY STATE*
as of 2/29/96
<S> <C>
Other 23.4%
Arizona 3.4%
California 10.4%
Florida 6.7%
Georgia 3.6%
Illinois 7.6%
Michigan 5.3%
Missouri 19.1%
Texas 9.2%
Washington 11.3%
</TABLE>
<TABLE>
<CAPTION>
PILOT MUNICIPAL BOND FUND
INVESTMENT RATINGS OF SECURITIES*
as of 2/29/96
<S> <C>
Other 0.3%
A 19.6%
AA 31.6%
AAA 48.5%
</TABLE>
*Portfolio holdings are subject to change.
Pilot Intermediate Municipal Bond Fund
During the last half of 1995, the Pilot Intermediate Municipal Bond Fund
maintained a duration consistent with the Lehman Brothers 5-Year Municipal
Bond(R) Index (a representative index of municipal bonds with maturities
between 4 and 6 years). This conservative stance reflected not only our
feelings that short-term interest rates were overvalued based on
inflation-adjusted yields, but also our desire to limit the potential
volatility of the Fund. We continued to consolidate smaller holdings by
selectively selling low-coupon bonds and by purchasing high-quality revenue
bonds that offered more income to our shareholders.
Our Parameters for Investing
Our philosophy for the two Pilot Municipal Bond Funds centers on a conservative
approach to investing. We believe credit quality is of the utmost importance
and consequently invest only in high-quality bonds. Our internal investment
guidelines limit the average maturity on the Pilot Intermediate Municipal Bond
Fund to three to seven years, shorter than the average intermediate municipal
bond fund. In managing both Pilot Municipal Bond Funds, we attempt to maximize
after-tax returns by limiting realized capital gains.
Looking Ahead
Although we remain positive on the longer-term outlook for interest rates, we
feel that the potential for near-term gains in the bond
<PAGE> 15
15
PILOT INTERMEDIATE MUNICIPAL BOND FUND
MATURITY DISTRIBUTION OF SECURITIES* as of 2/29/96
[GRAPH]
0-3 Years 18%
0-5 Years 38%
5-10 Years 42%
10-20 Years 3%
market is limited. Although the municipal market has continued to appreciate so
far in 1996 based on reduced supply, as supply returns to more normal levels,
the market is at risk of correction due to the relative outperformance versus
taxable bonds. The presidential election should add further volatility to the
market as various tax reform proposals are brought to light. Therefore, we will
maintain a conservative stance in both Pilot Municipal Bond Funds. Our focus
will continue to be adding incremental income for our shareholders without
sacrificing quality.
Sincerely,
Jennifer R. Wacker, CFA
Vice President,
Director of Tax-Exempt Fixed Income
Boatmen's Trust Company
PILOT INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO SECTOR ALLOCATION* as of 2/29/96
[PIE CHART]
General Obligation 44.9%
Insured 29.5%
Government-Backed 2.2%
Electric Utility 7.1%
Water/Sewer 6.6%
Transportation 1.8%
Hospital 2.1%
Miscellaneous 5.8%
PILOT INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO ALLOCATION BY STATE* as of 2/29/96
[PIE CHART]
Other 33.7%
Arizona 7.1%
California 5.4%
Hawaii 4.5%
Illinois 5.9%
Missouri 13.7%
New Jersey 3.6%
Texas 13.3%
Washington 10.1%
Wisconsin 2.7%
PILOT INTERMEDIATE MUNICIPAL BOND FUND
INVESTMENT RATINGS OF SECURITIES* as of 2/29/96
[PIE CHART]
Other 0.2%
A 12.5%
AA 49.3%
AAA 38.0%
*Portfolio holdings are subject to change.
<PAGE> 16
PILOT GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C>
- ---------------------------------------------------------------
COMMON STOCKS--94.7%
CONSUMER CYCLICAL--7.6%
AUTOMOTIVE--3.0%
155,000 Ford Motor Co. $ 4,843,750
-------------
HOUSING & FURNISHING--1.8%
70,000 Owens Corning Fiberglass Corp.* 2,843,750
-------------
MEDIA--2.8%
215,000 Tele-Communications, Inc.,
Class A 4,515,000
-------------
CONSUMER STAPLES--8.4%
BEVERAGE & TOBACCO--5.5%
65,000 Anheuser Busch Cos., Inc. 4,379,375
45,000 Philip Morris Cos., Inc. 4,455,000
-------------
8,834,375
-------------
FOOD PROCESSING--2.9%
240,000 Archer Daniels Midland Co. 4,620,000
-------------
ENERGY--9.3%
INTEGRATED OIL--9.3%
40,000 Atlantic Richfield Co. 4,380,000
80,000 Chevron Corp. 4,450,000
44,000 Royal Dutch Petroleum Co. (ADR) 6,061,000
-------------
14,891,000
-------------
FINANCE--17.2%
BANKING--6.2%
65,000 BankAmerica Corp. 4,631,250
75,000 Chemical Banking Corp. 5,371,875
-------------
10,003,125
-------------
FINANCIAL SERVICES--2.7%
52,000 Federal Home Loan Mortgage Corp. 4,290,000
-------------
HOLDING COMPANIES--1.8%
70,000 Temple Inland, Inc. 2,817,500
-------------
<CAPTION>
Value
Shares (Note 2)
- ---------------------------------------------------------------
<S> <C>
INSURANCE--6.5%
20,000 Aetna Life and Casualty Co. $ 1,512,500
28,000 General RE Corp. 4,028,500
50,000 Marsh & McClennan Companies, Inc. 4,856,250
-------------
10,397,250
-------------
HEALTH CARE--10.7%
MEDICAL SUPPLIES & SERVICES--3.2%
105,000 U.S. Healthcare, Inc. 5,118,750
-------------
PHARMACEUTICALS--7.5%
64,576 Merck & Co., Inc. 4,278,160
54,000 Schering-Plough Corp. 3,030,750
85,000 Smithkline Beecham 4,653,750
-------------
11,962,660
-------------
INDUSTRIAL GOODS & SERVICES--12.5%
AEROSPACE--5.0%
40,000 Lockheed Martin Corp. 3,050,000
100,000 Raytheon Co. 5,012,500
-------------
8,062,500
-------------
COMMERCIAL SERVICES--2.6%
145,000 WMX Technologies, Inc. 4,132,500
-------------
METAL & PLASTIC--4.9%
75,000 Cooper Industries, Inc. 2,896,875
107,000 Crown Cork & Seal, Inc. 5,042,375
-------------
7,939,250
-------------
MANUFACTURING--2.7%
CONSUMER PRODUCTS--2.7%
57,000 Kimberly Clark Corp. 4,353,375
-------------
MATERIALS & PROCESSING--1.7%
PAPER & FOREST PRODUCTS--1.7%
77,000 International Paper Co. 2,743,125
-------------
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
See Notes to Financial Statements.
16
<PAGE> 17
PILOT GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C>
- --------------------------------------------------------------
RETAILING--6.0%
DEPARTMENT STORES--3.8%
56,000 Dayton Hudson Corp. $ 4,165,000
42,380 May Department Stores Co. 1,975,968
-------------
6,140,968
-------------
SPECIALTY STORES--2.2%
145,000 Toys R Us* 3,461,875
-------------
TECHNOLOGY--4.5%
COMPUTERS & OFFICE EQUIPMENT--1.7%
100,000 Apple Computer 2,750,000
-------------
SOFTWARE & SERVICES--2.8%
117,000 Automatic Data Processing, Inc. 4,533,750
-------------
UTILITIES--14.1%
COMMUNICATION--8.7%
92,000 AT & T Corp. 5,854,768
170,000 MCI Communications Corp. 4,972,500
57,000 Motorola Inc. 3,092,250
-------------
13,919,518
-------------
ELECTRIC POWER--5.4%
215,000 PacificCorp 4,461,250
130,000 Unicom Corp. 4,160,000
-------------
8,621,250
- --------------------------------------------------------------
TOTAL COMMON STOCKS (cost $129,847,775) 151,795,271
- --------------------------------------------------------------
<CAPTION>
Principal
Amount Value
(000) (Note 2)
- --------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENT--5.8%
$ 9,241 Repurchase agreement with State
Street Bank and Trust, 5.35%,
dated 2/29/96, due 3/1/96 (cost
$9,241,000) (see Footnote A) 9,241,000
- --------------------------------------------------------------
TOTAL INVESTMENTS--100.5% (cost $139,088,775) 161,036,271
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.5%) (758,231)
- --------------------------------------------------------------
NET ASSETS--100.0% $160,278,040
- --------------------------------------------------------------
</TABLE>
ADR--American Depository Receipt.
* Non-income producing security.
Footnote A
Collateralized by $9,490,000 U.S. Treasury Note, 5.13%, due 2/28/98 with a
value of $9,430,688.
- ----------------------------------------------------------
- ----------------------------------------------------------
See Notes to Financial Statements.
17
<PAGE> 18
PILOT EQUITY INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C>
- --------------------------------------------------------------
COMMON STOCKS--84.8%
CONSUMER CYCLICAL--2.9%
AUTOMOTIVE--2.9%
115,271 Ford Motor Co. $ 3,602,219
-------------
CONSUMER STAPLES--12.6%
BEVERAGES AND TOBACCO--6.5%
49,404 Philip Morris Companies Inc. 4,890,996
90,000 UST Inc. 3,195,000
-------------
8,085,996
-------------
FOOD PROCESSING--6.1%
98,763 Con Agra Inc. 4,160,391
60,000 General Mills, Inc. 3,450,000
-------------
7,610,391
-------------
ENERGY--10.0%
INTEGRATED OIL--10.0%
33,524 AMOCO Corp. 2,329,918
19,409 Atlantic Richfield Co. 2,125,285
27,645 Exxon Corp. 2,197,778
20,000 Royal Dutch Petroleum Co. 2,755,000
37,645 Texaco Inc. 3,002,189
-------------
12,410,170
-------------
FINANCE--15.1%
BANKING--4.9%
46,000 BankAmerica Corp. 3,277,500
43,288 Bankers Trust New York Corp. 2,797,487
89 Chase Manhattan Corp., Warrants Exp.
6/30/96* 3,582
-------------
6,078,569
-------------
INSURANCE--5.6%
53,991 Aetna Life and Casualty Company 4,083,069
30,000 Marsh & Mclennan Co., Inc. 2,913,750
-------------
6,996,819
-------------
MISCELLANEOUS FINANCE--4.6%
41,000 J. P. Morgan & Co. 3,356,875
60,000 Temple-Inland, Inc. 2,415,000
-------------
5,771,875
-------------
<CAPTION>
Value
Shares (Note 2)
- --------------------------------------------------------------
<S> <C>
HEALTHCARE--7.1%
PHARMACEUTICALS--7.1%
35,147 American Home Products Corp. $ 3,461,980
35,359 Bristol-Myers Squibb Co. 3,009,935
35,288 Merck & Co., Inc. 2,337,830
-------------
8,809,745
-------------
MANUFACTURING--2.6%
AUTO PARTS--2.6%
55,000 Eaton Corp. 3,183,125
-------------
MATERIALS AND PROCESSING--8.0%
CHEMICALS (BASIC)--3.1%
48,000 Dow Chemical Co. 3,852,000
-------------
PAPER AND FOREST PRODUCTS--4.9%
50,000 Kimberly Clark Corp. 3,818,750
50,000 Union Camp Corp. 2,331,250
-------------
6,150,000
-------------
RETAILING--2.7%
DEPARTMENT AND DISCOUNT STORES--2.7%
70,000 J. C. Penney 3,325,000
-------------
UTILITIES--23.8%
COMMUNICATIONS--5.2%
73,519 GTE Corp. 3,152,127
24,702 NYNEX Corp. 1,272,153
63,000 U. S. West, Inc. 2,063,250
-------------
6,487,530
-------------
ELECTRIC POWER--15.9%
115,000 Consolidated Edison Company New
York, Inc. 3,751,875
110,000 Oklahoma Gas & Electric Co. 4,537,500
179,660 PacificCorp 3,727,945
141,154 UNICOM Corp. 4,516,928
100,000 Western Resources, Inc. 3,200,000
-------------
19,734,248
-------------
</TABLE>
- ----------------------------------------------------------
See Notes to Financial Statements.
18
<PAGE> 19
PILOT EQUITY INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C>
- --------------------------------------------------------------
NATURAL GAS AND WATER--2.7%
123,800 NICOR, Inc. $ 3,327,125
- --------------------------------------------------------------
TOTAL COMMON STOCKS (cost $86,333,816) 105,424,812
- --------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS--7.8%
ENERGY--5.3%
INTEGRATED OIL--3.0%
61,288 Ashland Inc., $3.125 3,792,195
-------------
OIL & GAS--2.3%
52,000 UNOCAL Corp., 144A 2,814,500
-------------
MATERIALS AND PROCESSING--2.5%
PAPER AND FOREST PRODUCTS--2.5%
70,000 International Paper Co., 5.25%, 144A 3,132,500
- --------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $9,847,722) 9,739,195
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Maturity
(000) Rate Date
<S> <C> <C> <C>
- -----------------------------------------------------------------
CONVERTIBLE BONDS--3.3%
INDUSTRIAL GOODS & SERVICES--3.3%
MANUFACTURING--3.3%
$ 3,922 Cooper Industries,
Inc. 7.05% 1/01/15 $ 4,083,783
- -----------------------------------------------------------------
TOTAL CONVERTIBLE BONDS (cost $3,909,040) 4,083,783
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000) (Note 2)
- -----------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENT--3.9%
$ 4,800 Repurchase agreement with State Street
Bank and Trust, 5.35%, dated
2/29/96, due 3/1/96 (cost $4,800,000) $ 4,800,000
- -----------------------------------------------------------------
TOTAL INVESTMENTS--99.8% (cost $104,890,578) 124,047,790
OTHER ASSETS IN EXCESS OF LIABILITIES--0.2% 304,400
- -----------------------------------------------------------------
NET ASSETS--100.0% $ 124,352,190
- -----------------------------------------------------------------
<FN>
ADR--American Depository Receipt.
* Non-income producing security.
Footnote A
Collateralized by $4,930,000 U.S. Treasury Note, 5.13%, due 2/28/98, with a
market value of $4,899,188.
- -----------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
19
<PAGE> 20
PILOT SMALL CAPITALIZATION EQUITY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C>
- -------------------------------------------------------------
COMMON STOCKS--79.3%
CONSUMER CYCLICAL--7.4%
AUTOMOTIVE--1.0%
10,000 Champion Enterprises, Inc.* $ 302,500
------------
HOUSING & FURNISHING--5.9%
6,400 Blount International, Inc. 195,200
12,100 Bush Industries, Inc. 266,200
7,100 Continental Homes Holding Corp. 146,437
15,400 Kaufman & Broad Home Corp. 236,775
11,500 NCI Building Systems, Inc.* 333,500
7,300 Oakwood Homes Corp. 325,762
7,500 Pulte Corp. 224,062
------------
1,727,936
------------
MEDIA--0.5%
2,625 International Family
Entertainment-- Class B* 40,031
2,400 Pulitzer Publishing Co. 121,200
------------
161,231
------------
CONSUMER GOODS & STAPLES--2.8%
BEAUTY & HEALTH PRODUCTS--0.7%
2,900 Alberto Culver Co.--Class B 102,587
4,700 Church & Dwight, Inc. 95,175
------------
197,762
------------
BEVERAGE & TOBACCO--0.9%
8,500 Robert Mondavi Corp.* 250,750
------------
FOOD PRODUCTS & PROCESSING--1.2%
15,600 Ben & Jerry's Homemade, Inc.--
Class A* 243,750
2,900 Eskimo Pie Corp. 54,194
8,500 John B. Sanfilippo & Sons, Inc. 63,750
------------
361,694
------------
ENERGY--6.2%
DRILLING--1.7%
33,200 Parker Drilling Co.* 199,200
15,600 Reading & Bates Corp. 298,350
------------
497,550
------------
GEOTHERMAL--1.2%
15,300 California Energy, Inc.* 340,425
------------
<CAPTION>
Value
Shares (Note 2)
- -------------------------------------------------------------
<S> <C>
INTEGRATED OIL & GAS--3.3%
20,900 Tom Brown, Inc.* $ 271,700
45,150 Comstock Resources, Inc.* 214,462
9,100 Diamond Shamrock, Inc. 277,550
2,646 Forest Oil Corp.* 29,767
14,800 Texas Meridian Resources Corp. 183,150
------------
976,629
------------
FINANCE--12.5%
BANKING--3.7%
4,900 Brenton Banks, Inc. 112,700
6,900 Commercial Federal Corp. 259,612
5,400 Deposit Guarantee Corp. 255,150
19,300 National City Corp. 265,375
5,900 ONBANCorp, Inc. 199,125
------------
1,091,962
------------
BROKERAGE--1.1%
4,700 Morgan Keegan, Inc. 57,575
24,500 Southwest Securities Group, Inc. 272,562
------------
330,137
------------
FINANCIAL SERVICES--4.1%
8,300 Aames Financial Corp. 272,862
7,200 Advanta Corp.--Class A 343,800
7,300 Capstead Mortgage Corp.--REIT* 166,988
10,900 Downey Financial Corp. 238,438
9,400 North American Mortgage Co. 193,875
------------
1,215,963
------------
INSURANCE--3.6%
4,600 Berkley W.R. Corp. 208,150
5,600 Equitable Iowa Cos. 216,300
10,600 First American Financial Corp. 299,450
2,100 Frontier Insurance Group, Inc. 64,575
6,600 Arthur J. Gallagher & Co. 258,225
------------
1,046,700
------------
HEALTH CARE--5.2%
MEDICAL SUPPLIES & SERVICES--3.6%
6,000 Ballard Medical Products 99,000
11,100 Bergen Brunswig Corp. 267,787
5,000 Bio-Rad Laboratories, Inc.* 193,125
4,800 Coherent, Inc.* 218,400
9,100 Vital Signs, Inc. 268,450
------------
1,046,762
------------
</TABLE>
- -------------------------------------------------------------
See Notes to Financial Statements.
20
<PAGE> 21
PILOT SMALL CAPITALIZATION EQUITY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C>
- -------------------------------------------------------------
PHARMACEUTICALS--1.6%
18,800 Chronimed, Inc.* $ 392,450
12,000 Syncor International Corp. 76,500
------------
468,950
------------
INDUSTRIAL GOODS & SERVICES--12.8%
CHEMICALS--1.3%
26,600 International Specialty Products,
Inc.* 329,175
4,100 NL Industries, Inc. 56,887
------------
386,062
------------
COMMERCIAL SERVICES--1.1%
14,400 Applied Bioscience International,
Inc.* 102,600
20,600 Calgon Carbon Corp.* 231,750
------------
334,350
------------
CONSTRUCTION--0.6%
6,500 Granite Construction, Inc. 180,375
------------
ELECTRONICS--7.6%
13,600 Core Industries, Inc. 188,700
3,600 Electro Scientific Industries,
Inc.* 77,400
9,700 Komag, Inc.* 304,337
10,600 Logicon, Inc. 336,550
21,300 Nu Horizon Electronics Corp.* 332,812
13,300 Pioneer Standard Electronics, Inc. 186,200
9,930 Sterling Electronics Corp. 156,397
17,500 TNP Enterprise, Inc. 365,313
7,900 Watkins Johnson Co.* 290,325
------------
2,238,034
------------
ENVIRONMENT--1.1%
14,700 Zurn Industries, Inc. 317,888
------------
METAL & PLASTIC--1.1%
17,760 Wyman-Gordon Co.* 315,240
------------
LEISURE--0.3%
GAMING RESORTS & HOTELS--0.3%
3,900 Rio Hotel & Casino, Inc. 53,625
2,300 WMS Industries, Inc.* 41,400
------------
95,025
------------
<CAPTION>
Value
Shares (Note 2)
- -------------------------------------------------------------
<S> <C>
MANUFACTURING--11.1%
COMMUNICATIONS EQUIPMENTS--1.1%
4,700 Communications Systems, Inc. $ 70,500
8,000 Network Equipment Technologies* 238,000
------------
308,500
------------
CONSUMER PRODUCTS--1.3%
15,200 Paragon Trade Brands, Inc.* 383,800
------------
MACHINERY--2.8%
10,900 Credence Systems Corp.* 207,100
4,200 DT Industries, Inc.* 64,050
12,200 Gardner Denver Machinery, Inc.* 247,050
15,200 Standard Products Co. 315,400
------------
833,600
------------
MANUFACTURING--MISC.--5.6%
4,200 Amsco International, Inc.* 65,625
3,700 Applied Power, Inc. 112,388
5,400 Charter Power Systems, Inc. 157,275
5,400 Dionex Corp.* 202,500
12,900 Esterline Technologies Corp.* 287,025
10,300 Photronic, Inc.* 226,600
17,900 Proxim, Inc.* 333,388
9,400 Tuscarora, Inc. 225,600
6,500 Worldtex, Inc.* 30,875
------------
1,641,276
------------
TEXTILE--0.3%
4,400 Culp, Inc. 47,300
1,100 Springs Industries, Inc. 47,575
------------
94,875
------------
MATERIALS & PROCESSING--0.7%
PAPER & FOREST PRODUCTS--0.7%
4,200 Albany International Corp.-- Class
A* 81,375
2,300 Chesapeake Corp. 59,225
3,900 Glatfelter P. H. Co. 64,838
------------
205,438
------------
RETAILING--7.2%
DEPARTMENT STORES--0.7%
7,000 Neiman Marcus Group, Inc.* 139,125
3,000 Proffitt's, Inc.* 78,750
------------
217,875
------------
</TABLE>
- -------------------------------------------------------------
See Notes to Financial Statements.
21
<PAGE> 22
PILOT SMALL CAPITALIZATION EQUITY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C>
- --------------------------------------------------------------
GROCERY STORES--0.5%
8,600 Riser Foods, Inc. $ 154,800
------------
SPECIALTY STORES--5.1%
8,100 Catherine's Stores Corp.* 59,738
31,770 Eagle Hardware & Garden, Inc.* 324,650
6,400 Fabri Centers of America, Inc.* 78,400
18,700 Inacom Corp.* 338,938
9,000 Pacific Sunwear of California* 74,250
11,400 Quiksilver, Inc. 330,600
11,900 Ross Stores, Inc. 291,550
------------
1,498,126
------------
WAREHOUSE--0.9%
11,400 Waban, Inc.* 256,500
------------
SERVICES--4.6%
AIRLINES--1.1%
19,200 USAir Group, Inc.* 324,000
------------
RESTAURANT--1.3%
15,300 Sbarro, Inc.* 380,588
------------
SERVICES--MISC.--2.0%
5,300 Corrections Corp. of America* 251,750
5,100 Filenet Corp.* 323,850
------------
575,600
------------
WHOLESALING--0.2%
2,600 Custom Chrome, Inc.* 65,000
------------
TECHNOLOGY--2.2%
COMPUTERS & OFFICE EQUIPMENT--0.5%
6,600 American Business Products, Inc.* 155,100
------------
<CAPTION>
Value
Shares (Note 2)
- -----------
<S> <C>
SEMICONDUCTOR--1.0%
14,200 International Semiconductor Co.* $ 291,100
------------
SOFTWARE & SERVICES--0.7%
5,750 Marcam Corp.* 74,031
1,900 Sterling Commerce* 126,588
------------
200,619
------------
UTILITIES--6.3%
ELECTRIC POWER--4.6%
5,400 Central Hudson Gas & Electric Co. 157,950
11,900 Central Maine Power Co. 174,038
17,800 Central Vermont Public Services 255,875
3,700 Commonwealth Energy Systems 174,825
2,000 IES Industries, Inc.* 58,000
10,100 Northwestern Public Service Co. 301,738
3,600 St. Joseph Light & Power Co. 117,000
35,000 Tuscon Electric Power Co.* 113,750
------------
1,353,176
------------
NATURAL GAS--1.7%
15,100 Connecticut Natural Gas Corp. 356,738
2,700 Piedmont Natural Gas, Inc. 60,750
2,200 Southeastern Michigan Gas 37,950
2,200 Washington Energy Co. 44,000
------------
499,438
- -------------------------------------------------------------
TOTAL COMMON STOCKS (cost $22,951,582) 23,323,336
- -------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------
See Notes to Financial Statements.
22
<PAGE> 23
PILOT SMALL CAPITALIZATION EQUITY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
(000) (Note 2)
- -------------------------------------------------------------
<S> <C>
U.S. TREASURY BILLS--1.3%
$ 200 U.S. Treasury Bill, 4.76%,
12/12/96** $ 192,437
200 U.S. Treasury Bill, 5.06%,
12/12/96** 192,023
- -------------------------------------------------------------
TOTAL U.S. TREASURY BILLS (cost $384,460) 384,460
- -------------------------------------------------------------
REPURCHASE AGREEMENT--18.9%
$ 5,571 Repurchase agreement with State
Street Bank and Trust, 5.35%,
dated 2/29/96, due 3/1/96 (cost
$5,571,000) (see Footnote A) 5,571,000
- -------------------------------------------------------------
TOTAL INVESTMENTS--99.5% (cost $28,907,042) 29,278,796
OTHER ASSETS IN EXCESS OF LIABILITIES--0.5% 157,301
- -------------------------------------------------------------
NET ASSETS--100.0% $ 29,436,097
- -------------------------------------------------------------
</TABLE>
Footnote A
Collateralized by $5,720,000 U.S. Treasury Note, 5.13%, due 2/28/98 with a
value of $5,684,250.
* Non-income producing security.
** Securities deposited into a segregated custodial account for futures margin
requirements.
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS SETTLEMENT UNREALIZED
TYPE LONG(B) MONTH GAIN
<S> <C> <C> <C>
- --------------------------------------------------------------
FUTURES CONTRACTS
S & P MIDCAP 400 46 Mar-96 $189,734
S & P MIDCAP 400 10 Jun-96 --
- -------------------------------------------------------------
$189,734
- -------------------------------------------------------------
</TABLE>
(b) Each S&P MIDCAP Contract represents $50,000 in notional par value. The total
net notional amount and net market value for the futures contracts shown
above are $2,800,000 and $6,372,700, respectively. The determination of
notional amounts does not consider market risk factors and therefore
notional amounts as presented here are indicative only of volume of activity
and not a measure of market risk.
- ----------------------------------------------------------
See Notes to Financial Statements.
23
<PAGE> 24
PILOT U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Maturity Value
(000) Rate Date (Note 2)
<S> <C> <C> <C>
- ---------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--96.8%
U.S. TREASURY BONDS--32.6%
$ 38,000 U.S. Treasury Bond 7.50 % 11/15/16 $ 41,811,780
2,500 U.S. Treasury Bond 7.13 2/15/23 2,651,175
------------
44,462,955
------------
U.S. TREASURY NOTES--64.2%
15,000 U.S. Treasury Note 6.50 9/30/96 15,107,850
5,500 U.S. Treasury Note 6.88 10/31/96 5,557,585
14,800 U.S. Treasury Note 7.25 11/30/96 15,005,868
13,000 U.S. Treasury Note 6.88 2/28/97 13,195,000
10,000 U.S. Treasury Note 6.50 4/30/97 10,129,700
9,900 U.S. Treasury Note 5.63 11/30/00 9,845,847
9,300 U.S. Treasury Note 5.75 8/15/03 9,145,992
9,300 U.S. Treasury Note 6.50 8/15/05 9,513,621
------------
87,501,463
- ---------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(cost $126,975,623) 131,964,418
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000) (Note 2)
<S> <C>
- ---------------------------------------------------------------
REPURCHASE AGREEMENT--2.1%
$ 2,795 Repurchase agreement with State
Street Bank and Trust, dated
2/29/96, 5.35% due 3/01/96 (Cost
$2,795,000)
(See Footnote A)
$ 2,795,000
- ---------------------------------------------------------------
TOTAL INVESTMENTS--98.9% (cost $129,770,623) 134,759,418
OTHER ASSETS IN EXCESS OF LIABILITIES--1.1% 1,496,170
- ---------------------------------------------------------------
NET ASSETS--100.0% $136,255,588
</TABLE>
- ---------------------------------------------------------------
Footnote A
Collateralized by $2,870,000 U.S. Treasury Notes, 5.13%, due 2/28/98 with a
value of $2,852,063.
- ----------------------------------------------------------
See Notes to Financial Statements.
24
<PAGE> 25
PILOT INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Maturity Value
(000) Rate Date (Note 2)
<S> <C> <C> <C>
- -----------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--79.4%
U.S. TREASURY NOTES--79.4%
$ 27,000 U.S. Treasury Note 6.50% 8/15/97 $ 27,426,060
11,000 U.S. Treasury Note 8.13 2/15/98 11,536,250
9,500 U.S. Treasury Note 6.13 5/15/98 9,624,640
52,000 U.S. Treasury Note 7.13 2/29/00 54,607,044
18,500 U.S. Treasury Note 5.63 11/30/00 18,398,805
28,500 U.S. Treasury Note 6.25 2/15/03 28,917,255
9,500 U.S. Treasury Note 7.88 11/15/04 10,596,965
8,000 U.S. Treasury Note 6.50 5/15/05 8,187,520
- -----------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(cost $168,291,787) 169,294,539
- -----------------------------------------------------------------
CORPORATE OBLIGATIONS--11.8%
BEVERAGES--0.5%
1,000 PepsiCo., Inc. 7.63 11/01/98 1,042,182
-------------
ELECTRIC UTILITIES--0.9%
2,000 Southern California
Edison Co. 5.45 6/15/98 1,978,900
-------------
FINANCE AND BANKING--5.6%
1,000 American General
Finance Corp. 7.25 4/15/00 1,041,630
2,650 Ford Motor Credit
Co. 6.25 2/26/98 2,675,546
2,500 NBD Bank N.A.,
Indiana 7.50 2/28/98 2,582,925
2,500 Norwest Corp. 7.88 1/30/97 2,556,100
2,000 Transamerica
Financial Corp. 6.80 3/15/99 2,042,160
1,000 USAA Capital Corp.,
Medium Term Note 4.76 1/28/97 995,440
-------------
11,893,801
-------------
HEALTH CARE PRODUCTS--0.5%
1,000 American Home
Products 7.70 2/15/00 1,055,460
-------------
<CAPTION>
Principal
Amount Maturity Value
(000) Rate Date (Note 2)
<S> <C> <C> <C>
- -----------------------------------------------------------------
INDUSTRIALS--2.8%
$ 3,000 J.C. Penney, Inc. 5.38% 11/15/98 $ 2,964,750
3,000 Wal Mart Stores,
Inc. 5.50 9/15/97 2,989,440
-------------
5,954,190
-------------
TOBACCO--1.5%
3,000 Phillip Morris
Cos., Inc. 9.25 12/01/97 3,169,290
- -----------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS (cost $24,374,711) 25,093,823
- -----------------------------------------------------------------
ASSET BACKED OBLIGATIONS--6.8%
2,565 Banc One Credit
Card Master Trust
94-BA 7.55 12/15/99 2,641,950
3,700 Discover Card
Master Trust
93-2A 5.40 11/16/01 3,661,816
2,900 Peoples Bank Credit
Card Master Trust
94-1A 5.10 8/15/97 2,888,197
2,800 Standard Credit
Card Master Trust
93-3A 5.50 2/07/00 2,771,104
2,400 Standard Credit
Card Master Trust
95-3A 7.85 2/07/02 2,546,232
- -----------------------------------------------------------------
TOTAL ASSET BACKED OBLIGATIONS (cost $14,008,342) 14,509,299
- -----------------------------------------------------------------
REPURCHASE AGREEMENT--4.1%
8,714 Repurchase agreement with State Street
Bank and Trust, dated 2/29/96, 5.35%
due 3/01/96, (cost $8,714,000)
(See Footnote A) 8,714,000
- -----------------------------------------------------------------
TOTAL INVESTMENTS--102.1% (cost $ 215,388,840) 217,611,661
LIABILITIES IN EXCESS OF OTHER ASSETS--(2.1%) (4,364,776)
- -----------------------------------------------------------------
NET ASSETS--100.0% $ 213,246,885
- -----------------------------------------------------------------
</TABLE>
Footnote A
Collateralized by $8,945,000 U.S. Treasury Notes, 5.13%, due 2/28/98, with a
market value of $8,889,094.
- ----------------------------------------------------------
See Notes to Financial Statements.
25
<PAGE> 26
PILOT MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS--96.4%
ARIZONA--3.3%
$2,000 Maricopa County, Scottsdale School District Aa/AA 5.00% 7/01/01 $ 1,914,220
400 Pima County University School District, Series D, G.O.
(FGIC Insured) Aaa/AAA 6.10 7/01/11 422,096
2,000 Salt River Project, Agriculture Improvement & Power
District Electric Systems Revenue, Series C Aa/AA 6.25 1/01/19 2,108,400
900 Tucson, Series 1984-G, G.O. (FGIC Insured) Aaa/AAA 6.25 7/01/16 959,544
------------
5,404,260
------------
CALIFORNIA--10.0%
400 California State, G.O. A1/A 9.10 11/01/01 491,832
200 California State, G.O. A1/A 9.00 6/01/02 248,336
500 California State, Series AM, G.O. A1/A+ 9.00 10/01/02 626,435
200 California State, Series-AQ, G.O. A1/A+ 9.10 10/01/02 251,700
1,000 California State, Non-Callable A1/A 7.10 9/01/02 1,147,320
200 California State, Series AM, G.O. A1/A+ 9.00 10/01/03 255,574
1,000 California State, G.O. A1/A 7.00 8/01/04 1,161,150
200 California State, Series AN, G.O. A1/A+ 9.00 4/01/05 261,012
200 California State, G.O. A1/A 7.20 4/01/05 235,604
700 California State, G.O. A1/A 7.00 8/01/05 817,733
400 California State, G.O. A1/A 7.10 3/01/07 475,588
400 California State University Revenue Bonds Aaa/AAA 6.00 11/01/10 424,016
500 Long Beach Water Revenue Bonds Aa/AA 6.00 5/01/14 521,980
200 Los Angeles, Water & Power Waterworks Revenue Aa/AA 7.70 5/15/07 217,718
1,000 Los Angeles Wastewater Systems Revenue, Series C,
(MBIA Insured) Aaa/AAA 5.50 6/01/14 994,210
500 Los Angeles County, Metropolitan Transportation Authority
Sales Tax Revenue Prop A-Series A, (MBIA Insured) Aaa/AAA 5.63 7/01/18 495,250
400 Los Angeles County Sanitation District Authority Revenue,
Capital Project, Series A Aa/AA 5.38 10/1/13 387,392
2,000 Metropolitan Water District Southern, Revenue Bonds Aaa/AAA 5.75 7/01/15 2,033,100
500 San Francisco Rapid Transit District Sales Tax Revenue
(AMBAC Insured) Aaa/AAA 6.75 7/01/11 578,230
700 San Francisco City & County Sewer Revenue, (AMBAC
Insured) Aaa/AAA 5.50 10/01/15 687,624
600 San Francisco City & County Public Utilities Common Water
Revenue, Series A Aa/AA 6.00 11/01/15 613,794
2,595 San Francisco International Airport Revenue Bond, Series
9B Aaa/AAA 5.25 5/01/13 2,523,326
500 University Revenue, Project-Series C, (AMBAC Insured) Aaa/AAA 5.25 9/01/16 475,900
500 University Revenue, Project-Series C, (AMBAC Insured) Aaa/AAA 5.00 9/01/14 471,210
------------
16,396,034
------------
COLORADO--0.1%
200 Colorado Springs Utilities, Series A Aa/AA 6.50 11/15/15 217,812
------------
FLORIDA--6.4%
2,500 Broward County School District, G.O. A1/AA- 5.60 2/15/07 2,619,875
500 Florida State Board Education Capital Outlay, G.O. Aa/AA 6.13 6/01/10 529,410
1,000 Florida State Board Education Capital Outlay, G.O. Aa/AA 5.50 6/01/14 996,480
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
26
<PAGE> 27
PILOT MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
FLORIDA (continued)
$ 700 Florida State Board Education Capital Outlay, G.O.,
Series D Aa/AA 5.00% 6/01/15 $ 660,296
200 Florida State Board Education Capital Outlay, G.O.,
Series A Aa/AA 7.25 6/01/23 222,414
300 Florida State Board Education Public Education, G.O.,
Series B1 Aaa /AAA 7.88 6/01/19 331,830
400 Jacksonville Electric Authority Revenue-St Johns River
Power Park Systems, Series 10 Aa1/AA 5.50 10/01/13 399,532
2,000 Jacksonville Electric Authority Revenue-St Johns River
Power Park Systems Aaa/AAA 5.38 10/01/15 1,956,100
600 Jacksonville Transportation, Series 1985 Aaa/AAA 9.00 1/01/04 666,708
1,200 Orlando Utilities Common Water & Electric Revenue, Series
D Aa/AA- 6.75 10/01/17 1,406,580
700 Orlando Utilities Common Water & Electric Revenue, Series
A Aa/AA- 5.50 10/01/12 702,030
------------
10,491,255
------------
GEORGIA--3.5%
1,100 Atlanta, G.O. Aa/AA 5.60 12/01/11 1,143,857
600 Atlanta, G.O. Aa/AA 5.60 12/01/15 604,944
800 De Kalb County, G.O. Aa1/AA+ 5.25 1/01/20 773,552
200 Fulton County Water & Sewer Revenue, (FGIC Insured) Aaa/AAA 6.38 1/01/14 223,344
300 Municipal Electric Authority Revenue, Series V A/A 6.50 1/01/12 328,062
1,000 Municipal Electric Authority Revenue, Series V A/A 6.60 1/01/18 1,111,470
1,000 Municipal Electric Authority Revenue, Series B A/A 6.25 1/01/12 1,067,530
400 Henry County School District, G.O., (MBIA Insured) Aaa/AAA 6.00 8/01/14 421,168
------------
5,673,927
------------
HAWAII--0.1%
200 Hawaii State, Series BW, G.O. Aa/AA 6.25 3/01/12 223,304
------------
ILLINOIS--7.3%
400 Chicago, Series 1993, G.O., (FGIC Insured) Aaa/AAA 5.38 1/01/13 392,372
600 Chicago Metro Water-Capital Improvement, G.O. Aa/AA 5.50 12/01/12 614,496
400 Chicago Park District-Capital Improvement, G.O., (FGIC
Insured) Aaa/AAA 6.05 1/01/13 413,764
600 Du Page County, Ref. Jail Project, G.O. Aaa/AAA 5.50 1/01/13 602,028
600 Du Page County, Ref. Jail Project, G.O. Aaa/AAA 5.60 1/01/21 608,016
600 Du Page, Common Water Revenue Aa/AA 5.25 5/01/14 584,880
200 Illinois State, G.O. A1/AA- 9.50 11/01/03 220,154
400 Illinois State, G.O. NR/AA- 8.00 10/01/04 433,248
2,340 Illinois State, G.O. A1/AA- 5.88 6/01/11 2,427,071
2,000 Illinois State, G.O. Aaa/AAA 6.00 2/01/16 2,069,460
800 Illinois State, G.O. A1/AA- 5.50 8/01/18 776,896
600 Illinois State, G.O. A1/AA- 5.80 4/01/19 603,150
700 Illinois State Sales Tax Revenue, Series S A1/AAA 5.25 6/15/18 664,699
1,550 Northwest Suburban Municipal Joint Action Water Supply
Systems Revenue, Series A, (MBIA Insured) Aaa/AAA 5.90 5/01/15 1,578,365
------------
11,988,599
------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
27
<PAGE> 28
PILOT MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
KANSAS--1.8%
$2,000 Kansas State Department Transportation Highway Revenue,
Series A Aa/AA 6.00% 9/01/07 $ 2,170,020
700 Kansas State Department Transportation Highway Revenue Aa/AA 5.38 3/01/13 691,173
------------
2,861,193
------------
KENTUCKY--0.6%
1,000 Kentucky State Turnpike Authority Economic Development
Revenue Aaa/AAA 5.63 7/01/15 1,012,020
------------
LOUISIANA--0.3%
400 Louisiana State, Series B, G.O. Aaa/A- 8.00 5/01/03 427,156
------------
MAINE--0.4%
700 Turnpike Authority Revenue, (MBIA Insured) Aaa/AAA 6.00 7/01/14 724,990
------------
MASSACHUSETTS--1.9%
2,500 Massachusetts, Series A, G.O. (MBIA Insured) Aaa/AAA 5.75 2/01/13 2,567,100
500 Massachusetts, Series A, G.O. (MBIA Insured) Aaa/AAA 5.90 8/01/16 515,255
------------
3,082,355
------------
MICHIGAN--5.1%
1,750 Byron Center Public Schools Aaa/AAA 5.97 5/01/15 1,814,575
1,000 Environmental Protection Project, G.O. Aa/AA 6.25 11/01/12 1,110,030
1,400 Ferndale School District Refunding Bond Aaa/AAA 5.38 5/01/16 1,373,708
300 Hudsonville Public Schools, Series B, G.O., (FGIC
Insured) Aaa/AAA 6.00 5/01/14 312,000
1,000 Lakeshore Public Schools Aaa/AAA 5.75 5/01/15 1,014,720
1,000 Michigan State Trunk Line Aaa/AAA 5.63 11/15/14 1,004,290
1,700 Oxford Community School District Aaa/AAA 5.30 5/01/11 1,705,916
------------
8,335,239
------------
MISSOURI--18.5%
300 Board Public Building State Office Building Special
Obligation Aa/AA 6.40 12/01/10 321,627
400 Environment Improvement & Energy Resource Authority,
Water Pollution Control-Revolving FD-Multipart-Series A Aa/NR 6.45 7/01/08 441,976
500 Environment Improvement & Energy Resource Authority,
Water Pollution Control-Revolving FD-Springfield PJ-A Aa/NR 7.00 10/01/10 559,275
300 Environment Improvement & Energy Resource Authority,
Water Pollution Control-Revolving FD-Multipart-A Aa/NR 6.88 6/01/14 331,299
400 Environment Improvement & Energy Resource Authority,
Water Pollution Control-Revolving FD-Multipart-Series A Aa/NR 6.55 7/01/14 431,824
200 Environment Improvement & Energy Resource Authority,
Water Pollution Control-Revolving FD-Multipart-Series A Aa/NR 6.05 7/01/15 210,166
1,100 Environment Improvement & Energy Resource Authority,
Environment Improvement Revenue-Union Electric Co.
(AMBAC-TCRS) Aaa/AAA 7.40 5/01/20 1,215,764
200 Environment Improvement & Energy Resource Authority,
Environment Improvement Revenue-Union Electric Co.,
Series A A1/A+ 7.40 5/01/20 220,810
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
28
<PAGE> 29
PILOT MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
MISSOURI (continued)
$ 200 Health & Educational Facilities Authority Revenue-General
Tuition-St. Louis University, (AMBAC Insured) Aaa/AAA 6.50% 8/01/16 $ 217,108
200 Health & Educational Facilities Authority Revenue-General
Tuition-St. Louis University, (AMBAC Insured) Aaa/AAA 6.50 8/01/16 217,108
400 Health & Educational Facilities Authority Revenue-St.
Louis University, Series A, (AMBAC Insured) Aaa/AAA 7.75 6/01/07 424,476
1,500 Health & Educational Facilities Authority, HFR-Barnes
Horp NR/AAA 7.13 12/15/09 1,716,120
400 Health & Educational Facilities Authority, HFR-Children's
Mercy Hosp. Proj. (MBIA Insured) Aaa/AAA 5.63 5/15/12 402,960
500 Health & Educational Facilities Authority, HFR-Deacnes
Health Services Corp., (FGIC Insured) Aaa/AAA 6.75 4/01/15 519,390
500 Health & Educational Facilities Authority, HFR-Deacnes
Hlth Svcs Corp., (FGIC) Aaa/AAA 6.75 4/01/07 518,910
200 Health & Educational Facilities Authority, HFR-Health
Care Project, Series B, (MBIA Insured) Aaa/AAA 7.00 6/01/15 225,080
290 Health & Educational Facilities Authority, HFR-Jewish
Hospital
St Louis, (FGIC Insured) Aaa/AAA 7.25 7/01/15 304,598
500 Health & Educational Facilities Authority, HFR-Sisters Of
Mercy Health-A Aa/AA 6.25 6/01/15 527,570
900 Health & Educational Facilities Authority, HFR-SSM Health
Care Project, (BIG Insured) Aaa/AAA 7.75 6/01/16 993,105
700 Health & Educational Facilities Authority, HFR-St. Louis
University, (AMBAC Insured) Aaa/AAA 5.00 10/01/10 672,651
900 Health & Educational Facilities Authority, HFR-St Lukes
Episcopl-Presbyterian, (FGIC Insured) Aaa/AAA 6.88 12/01/07 950,742
200 Health & Educational Facilities Authority, HFR-St Lukes
Episcopal Hospital, (FGIC Insured) Aaa/AAA 6.80 12/01/03 219,252
1,000 Independence School District, G.O. A1/NR 6.25 3/01/11 1,101,770
200 Jackson County Industrial Development Authority Health
Care Corp. Revenue-St Joseph Health Center Project (BIG
Insured) Aaa/AAA 8.25 7/01/07 215,974
300 Jefferson City School District, Series A Aa/NR 6.70 3/01/11 348,153
400 Kansas City Airport Revenue, Series B, (MBIA Insured) Aaa/AAA 7.20 9/01/08 447,564
500 Kansas City Airport Revenue, Series B, (MBIA Insured) Aaa/AAA 7.20 9/01/09 559,455
400 Kansas City, G.O. Aa/AA 5.75 10/01/07 418,888
400 Kansas City, G.O. Aa/AA 5.75 10/01/11 410,084
1,000 Kansas City-Various Purpose, G.O. Aa/AA 6.00 3/01/08 1,043,660
400 Mehlville School District 09, G.O., (MBIA Insured) Aaa/AAA 6.00 2/15/13 417,408
1,625 Missouri State Aaa/AAA 5.60 4/01/15 1,657,175
4,000 Missouri State-Third State Building, G.O. Aaa/AAA 7.50 8/01/07 4,150,800
1,750 Missouri State Housing Development Commission Aaa/AAA 6.10 9/01/14 1,777,423
400 Ritenour Cons School District, Series A, G.O., (FGIC
Insured) Aaa/AAA 6.00 2/01/10 416,928
400 Rolla School District No 31, G.O. A/NR 6.38 3/01/14 425,564
400 Springfield School District No R-12, Series A, G.O.,
(MBIA Insured) Aaa/AAA 5.25 3/01/11 399,172
800 Springfield Waterworks Revenue, Series A Aa/A+ 5.50 5/01/19 806,224
500 St Louis County Pattonville R-3 School District, G.O.,
(FGIC Insured) Aaa/AAA 6.25 2/01/10 548,980
200 St Louis County Parkway School, Series A, G.O. Aa/NR 6.00 7/01/10 211,242
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
29
<PAGE> 30
PILOT MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
MISSOURI (continued)
$ 500 St Louis County-Refunding & Improvement, Series B, G.O. Aa1/NR 5.40% 2/01/10 $ 505,135
200 St Louis Industrial Development Authority-Anheuser-Busch
Co. Project A1/AA- 6.65 5/01/16 223,862
500 University City School District, G.O., (MBIA Insured) Aaa/AAA 6.20 2/15/14 530,845
800 University Revenue, Hospital & Clinics Improvement Aaa/AAA 7.38 11/01/10 921,352
500 University Revenue, Refunding & Improvement-Systems
Facilities Aa/AA+ 5.38 11/01/13 493,510
400 University Revenue, Series A, (AMBAC Insured) Aaa/AAA 6.50 11/01/11 434,800
200 University Revenue, Series B, (AMBAC Insured) Aaa/AAA 6.50 11/01/11 217,400
------------
30,108,071
------------
NEBRASKA--1.0%
800 Public Power District Revenue-Power Supply Systems A1/A+ 6.13 1/01/15 831,664
400 Public Power District Revenue-Power Supply Systems A1/A+ 5.75 1/01/20 404,096
400 Omaha Public Power District Electric Revenue, Series B Aa/AA 6.20 2/01/17 439,780
------------
1,675,540
------------
NEVADA--2.7%
1,400 Clark County-Refunding & Improvement Transportation,
Series A, G.O., (MBIA Insured) Aaa/AAA 6.00 6/01/12 1,481,200
1,000 Las Vegas-Clark County Library District, G.O., (FGIC
Insured) Aaa/AAA 6.00 2/01/12 1,042,820
800 Nevada State-Municipal Bond Bank Project No 42, G.O. Aa/AA 5.88 9/01/12 830,120
1,000 Nevada State-Municipal Bond Bank Project No 42, G.O. Aa/AA 5.50 11/01/17 981,310
------------
4,335,450
------------
NEW JERSEY--0.3%
500 New Jersey State, Series A, G.O. Aa1/AA+ 6.25 1/15/05 550,655
------------
NEW MEXICO--0.4%
400 New Mexico State University Revenue, Refunding &
Improvement A1/AA 5.75 4/01/16 411,412
200 Santa Fe Revenue (AMBAC Insured) Aaa/AAA 6.25 6/01/15 222,400
------------
633,812
------------
NEW YORK--3.1%
2,000 New York State Energy Resh A1/AA 6.10 8/15/20 2,045,900
3,000 New York State Local Government Assistance A/A 6.00 4/01/16 3,100,350
------------
5,146,250
------------
NORTH CAROLINA--1.9%
2,000 Eastern Municipal Power, Series A, (FGIC Insured) Aaa/AAA 6.20 1/01/12 2,099,480
1,000 Municipal Power Agency-Catawba Electric Revenue, (MBIA
Insured) Aaa/AAA 6.00 1/01/10 1,084,260
------------
3,183,740
------------
OHIO--0.5%
700 Lakota Loc School District, G.O., (AMBAC Insured) Aaa/AAA 6.25 12/01/14 745,626
------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
30
<PAGE> 31
PILOT MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
OREGON--2.2%
$ 200 Oregon State, G.O. Aa/AA- 8.75% 10/01/97 $ 215,820
200 Oregon State, G.O. Aa/AA- 11.00 12/01/99 247,988
2,900 Portland Sewer Systems Revenue, Series A A1/A+ 6.25 6/01/15 3,100,535
------------
3,564,343
------------
PENNSYLVANIA--0.3%
500 Pennsylvania State Higher Education, Series J, (AMBAC
Insured) Aaa/AAA 5.63 6/15/19 497,700
------------
SOUTH CAROLINA--0.9%
1,000 Piedmont Municipal Power Agency Electric , Series A,
(FGIC Insured) Aaa/AAA 6.50 1/01/16 1,127,500
400 Public Service Authority, Series C Aa/AA- 7.30 7/01/21 413,228
------------
1,540,728
------------
TEXAS--8.9%
700 Austin Utilities Systems Revenue, Series A Aaa/AAA 8.00 11/15/16 815,815
500 Austin Utilities Systems Revenue, Combined-Series A Aaa/AAA 9.50 5/15/15 598,760
400 Austin Utilities Systems Revenue, Combined, (BIG Insured) Aaa/AAA 8.63 11/15/12 488,292
1,000 Austin Utilities Systems Revenue NR/AAA 7.30 5/15/17 1,147,290
10 Austin Water Sewer & Electric Refunding Revenue A/A- 14.00 11/15/01 13,393
385 Austin Water Sewer & Electric Refunding Revenue A/A- 14.00 11/15/01 524,193
3,610 Bexar Metropolitan Water District Waterworks Aaa/AAA 6.00 5/01/15 3,749,527
400 Cypress-Fairbanks Independent School District, G.O.,
(PSFG Insured) Aaa/AAA 5.75 2/01/08 413,708
1,000 Dallas Independent School District Aaa/AAA 5.70 8/15/12 1,021,180
200 Harris County-Road Bonds Aaa/NR 7.80 1/01/03 237,736
700 Harris County Toll Road-Sub Lien Revenue, G.O. Aa/AA 6.75 8/01/14 770,525
500 Houston Water Systems Revenue, Prior Lien Aaa/AAA 7.40 12/01/17 540,660
1,000 San Antonio Electric & Gas Aaa/AAA 5.38 2/01/16 973,140
2,000 San Antonio Electric & Gas Aaa/AAA 5.38 2/01/18 1,947,238
1,100 San Antonio Water Revenue, (MBIA Insured) Aaa/AAA 6.50 5/15/10 1,196,305
------------
14,437,762
------------
UTAH--2.7%
500 Intermountain Power Agency Power Supply Revenue, Series B Aa/AA 5.25 7/01/17 473,570
800 Intermountain Power Agency Power Supply Revenue, Series A Aa/AA- 5.50 7/01/20 770,864
2,000 Intermountain Power Agency Power Supply Revenue, Series A Aa/AA- 5.00 7/01/16 1,879,465
1,300 Salt Lake City Water & Sewer, (AMBAC Insured) Aaa/AAA 6.10 2/01/14 1,345,162
------------
4,469,061
------------
VIRGINIA--0.5%
400 Norfolk Water Revenue, (AMBAC Insured) Aaa/AAA 5.38 11/01/23 384,668
500 Transportation Board Contract Revenue-Northern District
PG, Series C Aa/AA 5.50 5/15/15 494,695
------------
879,363
------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
31
<PAGE> 32
PILOT MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
WASHINGTON--11.0%
$ 900 King & Snohomish Counties School District No 417
Northshore, G.O., (MBIA Insured) Aaa/AAA 6.30% 6/01/13 $ 941,022
1,035 King County Library Systems, G.O. Aa/AA- 6.15 12/01/10 1,115,906
300 Seattle Metropolitan Municipality, G.O. Aa/A+ 5.65 1/01/20 301,005
2,000 Seattle Metropolitan Municipality, Series X Aaa/AAA 5.50 1/01/16 1,973,700
2,000 Seattle Municipal Light & Power Revenue Aa/AA 6.63 7/01/16 2,165,380
500 Seattle Municipal Light & Power Revenue, Series B Aa/AA 5.75 8/01/08 519,540
1,400 Seattle Water Systems Revenue Aa/AA 5.50 6/01/18 1,382,178
500 Tacoma Electric Systems Revenue, Series B, (AMBAC
Insured) Aaa/AAA 5.90 1/01/05 534,665
500 Washington State, G.O. Aaa/AAA 8.90 10/01/03 539,330
400 Washington State, G.O. Aaa/AAA 9.40 5/01/05 403,804
200 Washington State, G.O., Refunding-Series 86D Aaa/AAA 8.00 9/01/05 204,666
200 Washington State-Motor Vehicle Fuel Tax, Series E, G.O. Aaa/AAA 8.00 9/01/05 204,666
300 Washington State, G.O. Aaa/AAA 7.75 12/01/07 329,700
5,000 Washington State, G.O., Series A Aa/AA 6.75 2/01/15 5,799,650
300 Washington State, G.O., Series A & AT-6 Aa/AA 6.25 2/01/11 331,717
200 Public Power Supply Systems Nuclear Project No 1 Revenue Aaa/AAA 14.38 7/01/01 259,786
400 Public Power Supply Systems Nuclear Project No 1 Revenue,
Series A Project 11 Aa/AA 7.25 7/01/06 460,324
300 Public Power Supply Systems Nuclear Project No 1 Revenue,
Series B Aa/AA 7.25 7/01/09 345,516
------------
17,812,555
------------
WISCONSIN--0.7%
1,000 Wisconsin State, Series A, G.O. Aa/AA 5.80 11/01/08 1,087,010
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (cost $145,407,963) 157,505,810
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
(000)
- ------
<S> <C>
TAX-EXEMPT MONEY MARKET MUTAL FUND--2.3%
3,848 Federated Tax-Exempt Obligation Fund (Cost $3,848,202) 3,848,202
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--98.7% (cost $149,256,165) 161,354,012
OTHER ASSETS IN EXCESS OF LIABILITIES--1.3% 2,053,316
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS--100.0% $163,407,328
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
AMBAC -- AMBAC Indemnity Corporation
BIG -- Bond Investors Guaranty
FGIC -- Financial Guaranty Insurance Corporation
G.O. -- General Obligation
HFR -- Health Facilities Revenue
MBIA -- Municipal Bond Insurance Association
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
32
<PAGE> 33
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS--96.1%
ARIZONA--6.8%
$2,000 Arizona State Transportation Board Excise Tax Aaa/AAA 5.50 % 7/01/02 $ 2,119,000
600 Arizona State Transportation Board Highway Revenue
Refunding Bonds Aa/AAA 4.25 7/01/98 604,590
300 Flagstaff, Series 1991A (FGIC Insured) Aaa/AAA 8.50 7/01/98 329,277
1,100 Glendale G.O. Refunding Bonds (FGIC Insured) Aaa/AAA 4.95 7/01/01 1,135,200
600 Maricopa County High School District 210, G.O. Refunding
Bonds Aa/AA 4.40 7/01/98 606,702
300 Maricopa County High School District 210, G.O. Refunding
Bonds, Series D Aa/AA 6.70 7/01/03 333,873
300 Maricopa County School District 48, G.O. Refunding Bonds,
Series 1991 Aa/AA- 6.00 7/01/00 314,259
3,000 Mesa G.O. Refunding Bonds (FGIC Insured) Aaa/AAA 5.35 7/01/00 3,145,740
900 Mesa G.O. Refunding Bonds (MBIA Insured) Aaa/AAA 5.00 7/01/03 932,859
900 Phoenix G.O. Refunding Bonds Aa/AA+ 5.40 7/01/97 920,565
300 Pima County G.O. NR/NR 7.10 7/01/99 319,545
900 Pima County G.O. Refunding Bonds Aa/A+ 5.35 7/01/00 939,735
400 Pima County School District No. 1, G.O., Refunding Bonds,
Prerefunded 7/01/01 @ 101 (MBIA Insured) Aaa/AAA 6.70 7/01/04 449,408
600 Salt River Project, Agriculture Improvement & Power
District Revenue Bonds, Series D Aa/AA 5.10 1/01/99 615,636
800 Salt River Project, Agriculture Revenue Refunding Bonds,
Series C Aa/AA 4.30 1/01/02 795,480
400 Tempe, Series 1992 Aa/AA+ 5.60 7/01/00 421,288
600 Tucson Water Revenue Refunding Bonds, Series A (AMBAC
Insured) A1/A+ 4.90 7/01/98 612,492
------------
14,595,649
------------
CALIFORNIA--5.2%
300 California State A1/A 5.70 10/01/00 318,402
400 California State A1/A 7.00 8/01/04 464,460
2,000 California State, Public Improvements A1/A 5.25 3/01/00 2,075,620
1,100 California State, School & Public Improvements A1/A 4.80 3/01/00 1,123,594
900 Contra Costa Water District Revenue Bonds, Series G (MBIA
Insured) Aaa/AAA 5.40 10/01/03 948,501
700 Los Angeles County Flood Control G.O. Refunding Bonds Aa1/AA 4.50 5/01/00 709,226
900 Los Angeles G.O. Bonds, Series A (MBIA Insured) Aaa/AAA 5.40 9/01/03 951,003
1,100 Metropolitan Water District Southern Revenue Bonds,
Series 1992 Aa/AA 4.85 7/01/99 1,129,788
1,400 Metropolitan Water District Southern Revenue Bonds,
Series B Aaa/AAA 4.10 7/01/02 1,374,894
700 Riverside Sewer Revenue Refunding Bonds (FGIC Insured) Aaa/AAA 4.80 8/01/01 715,001
600 San Diego Open Space Park Facilities, District No. 1,
G.O. Refunding Bonds Aaa/AA+ 5.13 1/01/00 623,670
600 University of California, Multi. Purpose Projects--C,
Revenue Refunding Bonds (AMBAC Insured) Aaa/AAA 4.80 9/01/04 606,246
------------
11,040,405
------------
COLORADO--1.1%
300 Colorado Springs Utilities Revenue, Series A Aa/AA 6.63 11/15/04 335,538
300 Denver City & County, G.O. Bonds Aa/AA 6.38 8/01/03 329,067
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
33
<PAGE> 34
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
COLORADO (continued)
$ 300 Denver City & County, G.O. Bonds Aa/AA 6.50 % 8/01/04 $ 329,334
400 Denver City & County, Various Purpose G.O. Bonds, Series A Aa/AA 5.50 8/01/99 416,708
900 Platte River Power Authority Revenue Bonds, Series CC Aa/A+ 4.63 6/01/00 915,705
------------
2,326,352
------------
CONNECTICUT--1.7%
600 Connecticut State G.O. Refunding Bonds, Series B Aa/AA- 5.65 11/15/98 627,822
900 Connecticut State G.O. Refunding Bonds, Series C Aa/AA- 4.50 3/15/97 909,477
700 Connecticut State Public Improvements G.O. Bonds, Series D Aa/AA- 4.60 8/01/00 712,250
1,000 Connecticut State Public Improvements G.O. Refunding
Bonds, Series B Aa/AA- 4.80 3/15/01 1,024,190
300 Connecticut State, Series A Aa/AA- 6.60 3/01/04 331,965
------------
3,605,704
------------
DELAWARE--1.0%
600 Delaware State G.O. Refunding Bonds, Series C Aa1/AA+ 4.50 7/01/97 608,046
700 Delaware State Public Improvements G.O. Bonds, Series A Aa1/AA+ 4.30 3/01/99 706,839
800 Delaware State School Improvements G.O. Bonds, Series A Aa1/AA+ 4.60 3/01/00 814,576
------------
2,129,461
------------
DISTRICT OF COLUMBIA--0.5%
1,100 District of Columbia G.O. Bonds, Series A (AMBAC Insured) Aaa/AAA 7.00 6/01/98 1,163,855
------------
FLORIDA--2.4%
1,000 Broward County School District, G.O. Refunding Bonds A1/AA- 5.10 2/15/02 1,034,650
500 Florida State Board Education Capital Outlay, G.O.
Refunding Bonds, Series 1992A Aa/AA 5.70 6/01/03 538,900
1,500 Jacksonville Electric Authority, St. Johns River, Revenue
Refunding Bonds, Series 10 Aa1/AA 4.60 10/01/00 1,528,425
300 Jacksonville Electric Authority, St. Johns River, Special
Obligation Bonds Aa1/AA 6.40 10/01/00 327,966
1,000 Orlando Utilities Community Water & Electric Revenue
Refunding Bonds Aa1/AA 5.20 10/01/00 1,043,710
600 Tampa Guaranteed Entitlement Revenue Refunding Bonds
(AMBAC Insured) Aaa/AAA 6.50 10/01/99 650,070
------------
5,123,721
------------
GEORGIA--2.1%
900 De Kalb County G.O. Refunding Bonds Aa1/AA+ 4.90 1/01/99 921,843
300 Georgia Municipal Electric Authority Power Revenue
Refunding Bonds, Series Q A/A+ 7.40 1/01/98 315,783
300 Georgia Municipal Electric Authority Power Revenue
Refunding Bonds, Series U A/A+ 6.80 1/01/03 330,165
200 Georgia State Public Improvements, Series C Aaa/AA+ 6.50 4/01/04 227,104
300 Georgia State, School & Public Improvements, Series D Aaa/AA+ 7.00 11/01/00 336,105
700 Gwinnett County G.O. Refunding Bonds, Series 1992 Aa1/AA+ 4.88 1/01/99 716,527
1,615 Gwinnett County School District, Series A Aa1/AA 5.10 2/01/01 1,677,307
------------
4,524,834
------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
34
<PAGE> 35
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
HAWAII--4.3%
$ 700 Hawaii County, Series 1993A (FGIC Insured) Aaa/AAA 4.80 % 5/01/00 $ 715,820
600 Hawaii State, G.O. Refunding Bonds, Series 1992BW Aa/AA 5.50 3/01/99 622,884
900 Hawaii State, G.O. Refunding Bonds, Series CC Aa/AA 4.60 2/01/00 907,317
1,000 Hawaii State, School & Public Improvements, Series BU Aa/AA 5.85 11/01/01 1,073,380
300 Hawaii State, Series BZ Aa/AA 5.40 10/01/01 315,729
2,000 Hawaii State, Series CJ Aa/AA 5.63 1/01/02 2,115,020
600 Honolulu City & County, G.O. Refunding Bonds,
Series B Aa/AA 4.60 10/01/99 610,254
900 Honolulu City & County, G.O. Refunding Bonds,
Series 1992 One Aa/AA 5.38 6/01/99 934,965
500 Honolulu City & County, Public Improvements, Series 1994A Aa/AA 5.00 4/01/99 513,140
1,300 Honolulu City & County, Public Improvements, Series A Aa/AA 5.25 1/01/01 1,345,734
------------
9,154,243
------------
ILLINOIS--5.7%
2,165 Chicago Metropolitan Water Reclamation. District Aa/AA 5.75 12/01/01 2,325,253
1,100 Chicago Metropolitan Water Reclamation. District Aa/AA 5.00 12/01/02 1,136,102
600 Chicago Water Revenue Refunding Bonds (AMBAC Insured) Aaa/AAA 5.60 11/01/04 631,020
100 Du Page County Jail Project, G.O. Revenue Bonds Aaa/AAA 9.00 1/01/00 116,393
300 Du Page County Stormwater Project, G.O. Revenue Bonds Aaa/AAA 9.00 1/01/00 349,179
900 Du Page Water Community Revenue Refunding Bonds Aa/AA 5.00 5/01/02 928,791
1,100 Illinois State G.O. Bonds A1/AA- 5.50 8/01/03 1,162,194
1,100 Illinois State Public & School Improvements G.O. Bonds A1/AA- 4.50 8/01/99 1,113,111
1,900 Illinois State Sales Tax Revenue Bonds, Series Q A1/AAA 5.30 6/15/00 1,970,376
1,300 Illinois State Toll Highway Priority Revenue Refunding,
Series A A1/A 4.50 1/01/00 1,303,094
600 Northwest Suburban Municipal Water Agency Revenue
Refunding Bonds (MBIA Insured) Aaa/AAA 5.40 5/01/99 620,316
500 Waukegan G.O. Refunding Bonds (FGIC Insured) Aaa/AAA 5.40 1/01/00 520,235
------------
12,176,064
------------
INDIANA--0.4%
900 Indiana Municipal Power Supply Systems Revenue Refunding
Bonds, Series B (MBIA Insured) Aaa/AAA 5.38 1/01/03 940,383
------------
KANSAS--0.5%
100 Johnson County University School District No. 229, G.O.
Refunding Bonds (FGIC Insured) Aaa/AAA 7.10 3/01/99 104,437
300 Kansas State Department Transportation Highway Revenue
Bonds, Series A Aa/AA 4.10 9/01/00 292,671
700 Topeka G.O. Refunding Bonds, Series C Aa/NR 4.40 8/15/97 708,288
------------
1,105,396
------------
KENTUCKY--0.3%
700 Kentucky State Turnpike Authority Economic Development
Revitalization Projects (AMBAC Insured) Aaa/AAA 4.90 7/01/00 716,086
------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
35
<PAGE> 36
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
LOUISIANA--0.7%
$ 500 Louisiana State General Purpose Public Improvement
(MBIA Insured) Aaa/AAA 4.50 % 8/01/97 $ 504,795
300 Louisiana State, G.O. Refunding Bonds, Series A Baa1/A- 6.60 8/01/97 310,167
700 Louisiana State, Series A (MBIA Insured) Aaa/AAA 6.70 8/01/98 739,879
------------
1,554,841
------------
MAINE--0.5%
1,000 Maine Muni Bond Bank, Series E Aaa/AAA 5.25 11/01/04 1,048,100
------------
MARYLAND--0.6%
600 Anne Arundel County Cons. General Improvement Bonds Aa/AA+ 4.40 2/01/00 603,612
600 Maryland State Department Transportation Revenue
Refunding Bonds Aa/AA 4.00 12/15/97 604,482
------------
1,208,094
------------
MASSACHUSETTS--2.3%
1,000 Massachusetts State G.O. Refunding, Series B A1/A+ 5.00 11/01/01 1,034,240
300 Massachusetts State G.O., Series B A1/A+ 7.25 4/01/99 328,638
300 Massachusetts State G.O., Series C A1/A+ 7.00 12/01/97 317,592
400 Massachusetts State G.O., Series D A1/A+ 6.38 7/01/00 434,524
1,260 Massachusetts State G.O., Series D A1/A+ 5.13 11/01/01 1,316,121
1,500 Massachusetts State Turnpike Authority, Series A A1/A+ 5.00 6/01/99 1,550,311
------------
4,981,426
------------
MICHIGAN--1.0%
900 Michigan State Recreation Program, Series 1992 A1/AA 5.50 11/01/99 943,875
600 Michigan State Trunk Line, Series 1994A A1/AA- 5.25 11/15/00 615,492
600 University Mi., University Revenue Refunding, Student Fee Aa1/AA+ 4.60 4/01/99 606,312
------------
2,165,679
------------
MINNESOTA--1.6%
900 Metro Council, Minneapolis-St. Paul, Series A Aaa/AAA 5.00 12/01/04 920,070
300 Minnesota State Various Purpose Bonds Aa1/AA+ 6.40 8/01/99 322,893
900 Minnesota State, G.O. Refunding Bonds Aa1/AA+ 4.88 8/01/00 926,721
300 Ramsey County, Refunding Capital Improvement, Series C Aaa/AA+ 5.15 12/01/00 313,422
900 St. Paul Sewer Revenue Refunding Bonds (AMBAC Insured) Aaa/AAA 5.10 12/01/01 925,146
------------
3,408,252
------------
MISSOURI--13.2%
300 Clay County Public School District 53, Series B (MBIA
Insured) Aaa/AAA 5.00 3/01/03 308,001
400 Columbia Refunding Aa/AA 5.20 10/01/00 417,820
100 Independence School District G.O. Bonds A1/NR 6.10 3/01/01 108,004
300 Kansas City Airport Revenue Bonds A/A 7.40 9/01/98 322,296
1,000 Kansas City Municipal Assistance Corporate Bonds Aaa/AAA 4.80 4/15/03 1,014,390
200 Kansas City Public Safety G.O. Bonds Aa/AA 6.20 9/01/97 202,534
1,300 Kansas City School District Building, Leasehold Revenue
Series A Prerefunded 2/01/98 @ 102 (FGIC Insured) Aaa/AAA 7.90 2/01/08 1,425,008
300 Kansas City Various Purpose G.O. Bonds Aa/AA 6.30 3/01/03 322,779
300 Kansas City Various Purpose G.O. Bonds Aa/AA 6.40 3/01/04 322,719
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
36
<PAGE> 37
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
MISSOURI (continued)
$ 600 Kansas City Various Purpose G.O. Bonds Aa/AA 6.00 % 3/01/07 $ 628,890
200 Kansas City Water Revenue Bonds, Series B (AMBAC Insured) Aa/AA 6.60 12/01/02 209,158
300 Mehlville School District No. 9 (MBIA Insured) Aaa/AAA 5.00 2/15/00 308,631
400 Metro St. Louis Sewer District, Mississippi River
Subdivision, G.O. Refunding Bonds (FGIC Insured) Aaa/AAA 6.30 2/15/01 428,372
400 Metro St. Louis Sewer District, Mississippi River
Subdivision, G.O. Refunding Bonds (FGIC Insured) Aaa/AAA 6.40 2/15/02 428,316
200 Missouri State Environmental Improvement & Energy
Resource Authority, Water Pollution Control Revenue
Bonds, Series A Aa/NR 5.40 7/01/97 204,258
300 Missouri State Health & Educational Facilities Authority
Revenue, General Tuition, State Louis University
(AMBAC Insured) Aaa/AAA 6.10 8/01/99 317,799
600 Missouri State Health & Educational Facilities Authority,
Revenue Refunding, State Louis University (AMBAC
Insured) Aaa/AAA 4.10 10/01/00 593,574
100 Missouri State Health & Educational Facilities Authority,
Revenue Refunding, State Lukes Hospital, Kansas City
(MBIA Insured) Aaa/AAA 6.50 11/15/02 112,191
300 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue Insured St. Lukes
Episcopal/Presbyterian (FGIC Insured) Aaa/AAA 4.70 12/01/98 307,335
200 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue Insured--St. Lukes Episcopal
Hospital (FGIC Insured) Aaa/AAA 6.60 12/01/00 217,876
300 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue Refunding & Improvement
Christian Health, A (FGIC Insured) Aaa/AAA 6.40 2/15/00 324,885
300 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue Refunding & Improvement
Sisters of Mercy, Series E Aa/AA 7.00 6/01/98 317,217
300 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue Refunding & Improvement
Christian Health, A (FGIC Insured) Aaa/AAA 6.25 2/15/98 314,505
700 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue Refunding & Improvement
Sisters of Mercy, Series E Aa/AA 7.00 6/01/99 754,754
600 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue Refunding &
Improvement--Christian Health, A, Prerefunded 2/15/01 @
102 Aaa/AAA 6.60 2/15/02 672,012
1,500 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue Refunding, SSM Health Care,
Series AA
(MBIA Insured) Aaa/AAA 5.40 6/01/00 1,562,610
600 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue, BJC Health Systems, Series A Aa/AA 5.90 5/15/04 637,134
1,300 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue, Barnes-Jewish Inc.
Christian, A Aa/AA 3.90 5/15/97 1,297,829
1,200 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue, Barnes-Jewish Inc.
Christian, A Aa/AA 4.00 5/15/98 1,195,200
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
37
<PAGE> 38
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
MISSOURI (continued)
$ 200 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue, Barnes Hospital NR/AAA 6.55 % 12/15/97 $ 210,234
200 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue, Barnes Hospital NR/AAA 6.65 12/15/98 214,876
200 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue, Barnes Hospital NR/AAA 6.75 12/15/99 218,724
300 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue, Insured--St. Lukes
Episcopal-Presbyterian, Series B (FGIC Insured) Aaa/AAA 4.50 12/01/97 305,004
300 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue, Mo. Baptist Medical Center,
Series 1990A NR/NR 7.30 7/01/99 330,489
200 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue, SSM Health Care Projects,
Series B
(MBIA Insured) Aaa/AAA 6.50 6/01/98 211,690
400 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue, SSM Health Care Project
(MBIA Insured) Aaa/AAA 7.00 6/01/97 417,044
200 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue, SSM Health Care Projects,
Series B
(MBIA Insured) Aaa/AAA 6.40 6/01/97 207,082
1,000 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue, St. Louis Childrens Hospital
(MBIA Insured) Aaa/AAA 5.40 5/15/99 1,043,050
600 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue, St. Lukes Health Systems
(MBIA Insured) Aaa/AAA 4.25 11/15/01 595,176
400 Missouri State Office Building Special Obligation, Series
A 1991 Aa/AA 5.90 12/01/01 434,328
200 Missouri State Series 1989A Water Pollution Control Aaa/AAA 7.75 9/01/96 204,360
200 Missouri State Water Pollution Control. B, Prerefunded.
11/01/01 @ 100 Aaa/AAA 5.70 11/01/02 214,430
300 Missouri State Water Pollution Control B, Prerefunded
11/01/01 @ 100 Aaa/AAA 5.80 11/01/03 323,139
900 Missouri State, Third State Building, G.O. Prerefunding
Bonds, Series A Aaa/AAA 5.00 8/01/01 937,107
300 Missouri State, Third State Building, G.O. Prerefunding
Bonds, Series B Aaa/AAA 5.50 11/01/01 320,367
300 Springfield School District No. R12, School Building,
G.O. Refunding Bonds, Series A (FGIC Insured) Aaa/AAA 6.40 3/01/03 324,657
300 Springfield School District No. R12, School Building,
G.O. Refunding Bonds, Series A (FGIC Insured) Aaa/AAA 6.40 3/01/04 323,964
300 Springfield School District No. R12, School Building,
G.O. Refunding Bonds, Series A (FGIC Insured) Aaa/AAA 6.25 3/01/05 321,978
400 Springfield Waterworks Revenue Refunding Bonds, Series B Aa/A+ 4.75 5/01/02 415,984
1,300 St. Louis County Refunding & Improvement, Series A Aa1/NR 4.80 2/01/03 1,321,333
200 St. Louis County Regional Convention & Sports Complex,
Series B A/BBB+ 6.20 8/15/98 208,392
100 St. Louis County Regional Convention & Sports Complex,
Series B A/BBB+ 6.30 8/15/99 105,550
600 St. Louis County, Pattonville School District No. R-3
(FGIC Insured) Aaa/AAA 5.70 2/01/01 637,584
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
38
<PAGE> 39
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
MISSOURI (continued)
$ 500 St. Louis County, Rockwood School District No. R-6,
Prerefunded 2/01/99 @ 100 Aaa/NR 6.00 % 2/01/01 $ 528,555
400 St. Louis County, Rockwood School District No. R-6,
Prerefunded 2/01/99 @ 100 Aaa/NR 6.00 2/01/02 422,844
700 St. Louis County, Rockwood School District No. R-6,
Refunding Bonds Aa/NR 5.00 2/01/03 716,786
300 St. Louis School District (FGIC Insured) Aaa/AAA 6.50 4/01/03 337,911
100 University Mo., University Revenue Refunding Bonds,
Series A (AMBAC Insured) Aaa/AAA 6.05 11/01/96 101,833
200 University Mo., University Revenue Refunding Bonds,
Series A (AMBAC Insured) Aaa/AAA 6.10 11/01/97 207,170
200 University Mo., University Revenue Refunding Bonds,
Series A (AMBAC Insured) Aaa/AAA 6.20 11/01/98 210,760
200 University Mo., University Revenue Refunding Bonds,
Series B (AMBAC Insured) Aaa/AAA 6.05 11/01/96 203,666
200 University Mo.,University Revenue Refunding Bonds, Series
B (AMBAC Insured) Aaa/AAA 6.10 11/01/97 207,170
100 University Mo., University Revenue Refunding Bonds,
Series B (AMBAC Insured) Aaa/AAA 6.20 11/01/98 105,380
------------
28,164,714
------------
NEBRASKA--1.2%
1,000 Nebraska Public Power District Revenue, Power Supply
Systems A1/A+ 5.30 1/01/02 1,039,470
900 Omaha Public Power District Electric Revenue, Series A NR/AAA 5.40 2/01/98 931,221
600 Omaha Public Power District Electric Revenue, Series D Aa/AA 4.75 2/01/04 605,088
------------
2,575,779
------------
NEVADA--2.1%
400 Clark County G.O. Revenue Bonds, Series A (AMBAC Insured) Aaa/AAA 5.50 6/01/98 414,436
300 Clark County School District, Series A (MBIA Insured) Aaa/AAA 6.50 6/01/02 330,813
1,000 Nevada State Municipal Bond Bank No. 38-39-A NR/NR 6.00 7/01/01 1,075,110
1,000 Nevada State, Series A Aa/AA 5.80 5/01/00 1,059,970
1,500 Washoe County G.O. Refunding Bonds (AMBAC Insured) Aaa/AAA 5.00 9/01/01 1,552,320
------------
4,432,649
------------
NEW JERSEY--3.5%
1,100 Bergen County Utilities Authority, Water Pollution
Control Revenue, Series B (FGIC Insured) Aaa/AAA 5.50 12/15/02 1,168,178
3,000 New Jersey G.O. Bonds Aa1/AA+ 5.125 1/01/02 3,105,780
1,100 New Jersey State Transportation Authority, Series A
(AMBAC Insured) Aaa/AAA 5.20 12/15/00 1,144,682
2,000 New Jersey State Transportation Authority, Series B
(MBIA Insured) Aaa/AAA 5.00 6/15/02 2,062,840
------------
7,481,480
------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
39
<PAGE> 40
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NEW MEXICO--1.9%
$1,400 Albuquerque G.O. Bonds, Series A & B Aa/AA 4.70 % 7/01/00 $ 1,431,766
2,000 New Mexico State Capital Projects G.O. Bonds Aa1/AA+ 5.25 9/01/03 2,052,160
600 New Mexico State Severance Tax, Series B Aa/AA 5.10 7/01/00 616,356
------------
4,100,282
------------
NEW YORK--1.5%
300 New York State G.O. A/A- 6.75 6/15/99 323,361
600 New York State Various Purpose G.O. Bonds A/A- 6.60 11/15/98 642,120
1,100 New York State Various Purpose G.O. Bonds A/A- 6.70 11/15/99 1,193,896
1,000 New York State Tollway Authority Bonds, Series B Aaa/AAA 5.00 4/01/00 1,028,870
------------
3,188,247
------------
NORTH CAROLINA--0.1%
300 North Carolina State G.O. Aaa/AAA 5.60 4/01/00 316,707
------------
OHIO--0.9%
700 Columbus City School District Refunding (FGIC Insured) Aaa/AAA 4.00 12/01/96 702,093
900 Columbus G.O. Refunding Bonds, Series D Aaa/AAA 4.75 9/15/00 923,562
300 Ohio State Water Development Authority Revenue, Pure
Water Series I (MBIA Insured) Aaa/AAA 7.00 6/01/99 327,537
------------
1,953,192
------------
OREGON--1.3%
1,300 Portland Sewer Systems Revenue, Series A A1/A+ 5.45 6/01/03 1,376,297
1,300 Washington County University Sewer Agency (AMBAC Insured) Aaa/AAA 5.30 10/01/01 1,368,367
------------
2,744,664
------------
RHODE ISLAND--0.4%
800 Pawtucket G.O. Bonds (FGIC Insured) Aaa/AAA 5.25 4/15/01 833,752
------------
TENNESSEE--0.9%
300 Hamilton County, Series 1994 Aa/NR 5.00 7/01/00 308,781
600 Metropolitan Government, Nashville & Davidson County,
Tn., Electric Revenue, Series B Aa/AA 5.625 5/15/03 642,192
900 Shelby County G.O. Refunding Bonds, Series A Aa/AA+ 5.30 3/01/98 924,570
------------
1,875,543
------------
TEXAS--12.8%
700 Arlington Permanent Improvement Refunding Bonds Aa/AA 4.80 8/15/01 717,493
500 Austin Public Improvement Refunding Bonds Aa/AA 4.50 9/01/98 508,590
1,100 Austin Utilities Systems Revenue Refunding Combination,
Series A A/A 5.00 5/15/01 1,120,042
500 Austin Utilities Systems Revenue Refunding Combination,
Series A
(AMBAC Insured) Aaa/AAA 6.50 11/15/03 554,260
900 Colorado River Municipal Water District (AMBAC Insured) Aaa/AAA 5.00 1/01/04 912,393
2,000 Dallas-Fort Worth Regional Airport Revenue Bonds (MBIA
Insured) Aaa/AAA 4.75 11/01/01 2,033,580
1,000 Dallas G.O. Refunding Bonds Aa1/AAA 5.20 2/15/98 1,025,970
900 Dallas Refunding, Dallas Denton & Collin Company Aa1/AAA 4.45 2/15/99 911,124
2,400 Dallas Waterworks & Sewer Systems Revenue Refunding Bonds Aa/AA 4.50 4/01/00 2,426,616
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
40
<PAGE> 41
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
TEXAS (continued)
$ 900 Garland G.O. Refunding Bonds Aa/AA 5.50 % 8/15/99 $ 940,950
900 Houston Refunding, Series 1993D Aa/AA- 4.70 3/01/01 916,002
2,500 Houston Water & Sewer Systems Revenue, Series A (MBIA
Insured) Aaa/AAA 5.80 12/01/04 2,685,750
400 Lower Company River Authority Revenue Refunding Bonds A1/AA- 6.90 1/01/01 415,044
400 Lower Company River Authority Revenue, Prerefunded
1/01/97 @ 102 NR/AA- 7.00 1/01/03 418,996
1,100 San Antonio Electric & Gas Revenue Refunding Bonds Aa1/AA 4.00 2/01/00 1,091,332
1,000 San Antonio Electric & Gas Revenue Refunding, Libor
Reserve 2 Aa1/AA 5.20 2/01/01 1,038,480
1,100 San Antonio Electric & Gas Revenue Refunding, Libor
Reserve 2 Aa1/AA 5.20 2/01/01 1,138,401
900 San Antonio Water Revenue Refunding Bonds (FGIC Insured) Aaa/AAA 5.40 5/15/97 918,504
2,200 Texas A & M University Revenue Refunding Bonds Aa/AA 5.95 5/15/05 2,410,078
900 Texas State Public Finance Authority, Series B Aa/AA 5.00 10/01/01 926,847
900 Texas State Refunding, Series A Aa/AA 5.70 10/01/03 974,016
1,100 Texas State Superconducting, 1992 C Aa/AA 5.35 4/01/01 1,147,509
300 Texas Water Development Board Revenue Bonds Aa/AAA 4.00 7/15/98 301,533
300 University of Texas., Permanent Fund, Revenue Refunding
Bond Aa1/AA+ 6.70 7/01/05 337,158
1,100 University of Texas., Revenue Refunding Bond Aa1/AA 5.10 8/15/99 1,133,902
300 University of Texas., Revenue Refunding Bond Aa1/AA 5.20 8/15/00 311,670
------------
27,316,240
------------
UTAH--2.1%
300 Davis County School District G.O. Bonds, Prerefunded
12/01/01 @ 100 (FGIC Insured) Aaa/AAA 6.45 6/01/02 331,665
2,000 Intermountain Power Agency Obligation Aaa/AAA 5.05 7/01/01 2,056,180
900 Intermountain Power Agency, Power Supply Revenue
Refunding, Series B Aa/AA 5.20 7/01/98 924,273
1,100 Utah State G.O. Bonds, Series A & B Aaa/AAA 4.40 7/01/99 1,115,213
------------
4,427,331
------------
VIRGINIA--3.2%
1,620 Chesapeake Bay Bridge & Tunnel Revenue Bonds (FGIC
Insured) Aaa/AAA 5.10 7/01/01 1,676,279
1,100 Fairfax County Refunding, Series A Aaa/AAA 4.70 6/01/00 1,123,650
1,000 Norfolk G.O. Bonds Aa/AA 5.25 6/01/01 1,043,590
1,100 Norfolk G.O. Refunding Bonds Aa/AA 4.30 6/01/98 1,110,230
700 Norfolk G.O. Refunding Bonds, Series A Aa/AA 4.60 6/01/01 709,380
1,100 Prince William County Refunding, Series C Aa/AA 4.50 8/01/01 1,113,112
------------
6,776,241
------------
WASHINGTON--9.7%
700 King County Refunding, Series 1993C Aa1/AA+ 4.00 6/01/98 704,438
600 King County Refunding, Series A Aa1/AA+ 5.25 12/01/01 630,540
2,500 King County Refunding, Series C Aa1/AA+ 5.625 6/01/02 2,670,925
3,000 Pierce County School District Refunding Aaa/AAA 5.00 12/01/03 3,100,860
300 Snohomish County School District 2, Series A (MBIA
Insured) Aaa/AAA 6.80 6/01/03 333,780
400 Spokane G.O. Aa/AA 8.50 1/01/00 458,592
800 Tacoma Electric System Revenue Refunding Bonds (FGIC
Insured) Aaa/AAA 5.50 1/01/01 837,096
2,500 Tacoma Electric System Revenue Refunding, Series B
(AMBAC Insured) Aaa/AAA 5.90 1/01/05 2,673,325
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
41
<PAGE> 42
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Moody's/S&P
Amount Ratings Maturity Value
(000) (unaudited) Rate Date (Note 2)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
WASHINGTON (continued)
$ 600 Tacoma Sewer Revenue Refunding, Series B (FGIC Insured) Aaa/AAA 5.50 % 12/01/03 $ 634,380
1,000 Tacoma, Series A A1/A+ 5.75 7/01/02 1,065,210
400 Washington State Public Power Supply, Nuclear Project No.
1, Series A Aa/AA 7.00 7/01/96 404,664
700 Washington State Public Power Supply, Nuclear Project No.
1, Series C Aa/AA 7.25 7/01/97 726,845
600 Washington State Public Power Supply, Nuclear Project No.
1, Series C Aa/AA 7.30 7/01/98 637,548
400 Washington State Public Power Supply, Nuclear Project No.
3, Series A Aa/AA 7.00 7/01/96 403,376
300 Washington State Public Power Supply, Nuclear Project No.
3, Series B Aa/AA 7.10 7/01/98 317,466
600 Washington State Refunding Aa/AA 4.80 9/01/98 612,972
900 Washington State Refunding, Series R 92C Aa/AA 5.60 9/01/01 957,564
900 Washington State Refunding, Series R 94A Aa/AA 3.90 8/01/97 903,888
600 Washington State, Prerefunded 6/01/98 @ 100 Aaa/AAA 7.30 6/01/00 643,944
900 Washington State, Series 93A Aa/AA 5.25 10/01/00 939,672
500 Washington State, Series B Aa/AA 6.30 6/01/02 542,760
600 Yakima County School District No. 7 (MBIA Insured) Aaa/AAA 5.50 12/01/03 640,818
------------
20,840,663
------------
WISCONSIN--2.6%
800 Milwaukee County, Series 1994A A1/AA- 5.00 12/01/00 825,800
300 Milwaukee Metropolitan Sewer District, Series A Aa/AA 7.00 9/01/00 333,261
400 Milwaukee Metropolitan Sewer District, Series A Aa/AA 6.70 10/01/00 440,144
600 Milwaukee Refunding, Series 1992 Aa1/AA+ 5.70 6/01/99 629,910
300 Milwaukee, Series BZ Aa1/AA+ 6.375 6/15/03 324,528
600 Wisconsin State G.O., Series A Aa/AA 5.75 5/01/00 637,434
300 Wisconsin State G.O., Series D Aa/AA 6.00 5/01/00 322,149
900 Wisconsin State Refunding, Series 1 Aa/AA 5.10 11/01/01 940,347
1,100 Wisconsin State Refunding, Series 3 Aa/AA 4.25 11/01/99 1,109,207
------------
5,562,780
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (cost $195,603,338) 205,558,809
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares
(000)
- ------
<S> <C> <C> <C> <C> <C>
TAX-EXEMPT MONEY MARKET MUTUAL FUND--3.0%
6,227 Federated Tax Exempt Obligation Fund (cost $6,227,234) $ 6,227,234
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--99.1% (cost $201,830,572) 211,786,043
OTHER ASSETS IN EXCESS OF LIABILITIES--0.9% 2,012,251
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS--100.0% $213,798,294
- ---------------------------------------------------------------------------------------------------------------------------------
AMBAC -- AMBAC Indemnity Corporation
FGIC -- Financial Guaranty Insurance Corporation
GO -- General Obligation
MBIA -- Municipal Bond Insurance Association
- ---------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
42
<PAGE> 43
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL
GROWTH AND EQUITY CAPITALIZATION
INCOME FUND INCOME FUND EQUITY FUND
------------ ------------ -------------------
<S> <C> <C> <C>
ASSETS:
Investment in securities, at value (cost $129,847,775; $100,090,578; and
$23,336,042; respectively)............................................. $151,795,271 $119,247,790 $23,707,796
Repurchase agreements, at cost.......................................... 9,241,000 4,800,000 5,571,000
- -----------------------------------------------------------------------------------------------------------------------------
161,036,271 124,047,790 29,278,796
Cash.................................................................... 233 723 366
Dividends receivable.................................................... 297,705 467,807 9,866
Interest receivable..................................................... 1,373 46,290 828
Receivable for Portfolio shares issued.................................. 574,237 282,727 194,040
Receivable from investment advisor...................................... -- -- 30,471
Deferred organization costs and other assets............................ 72,694 73,527 39,174
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS............................................................ 161,982,513 124,918,864 29,553,541
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Advisory fees payable................................................... 62,732 49,607 30,323
Administration fees payable............................................. 13,860 9,662 --
Distribution expenses payable (Class A Shares).......................... 1,198 540 49
Distribution expenses payable (Class B Shares).......................... 2,967 2,628 206
Payable to brokers for investments purchased............................ 1,292,275 -- --
Dividends payable....................................................... 190,958 358,936 10,839
Payable for Portfolio shares redeemed................................... 69,361 64,146 --
Net variation margin on open futures contracts.......................... -- -- 59,800
Other accrued expenses.................................................. 71,122 81,155 16,227
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES....................................................... 1,704,473 566,674 117,444
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS.............................................................. $160,278,040 $124,352,190 $29,436,097
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE: ($1.00
PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED)
PILOT SHARES:
Net assets.............................................................. $156,537,553 $122,071,653 $28,678,786
Shares of beneficial interest issued and outstanding.................... 12,384,869 9,848,845 2,817,098
Net asset value......................................................... $12.64 $12.39 $10.18
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES:
Net assets.............................................................. $ 1,762,540 $ 656,587 $ 349,484
Shares of beneficial interest issued and outstanding.................... 139,471 52,604 34,332
Net asset value......................................................... $12.64 $12.48 $10.18
- -----------------------------------------------------------------------------------------------------------------------------
Sales charge--4.50%, 4.50%, and 4.50%, respectively, of offering
price.................................................................. 0.60 0.59 0.48
- -----------------------------------------------------------------------------------------------------------------------------
Maximum offering price.................................................. $13.24 $13.07 $10.66
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Net assets.............................................................. $ 1,977,947 $ 1,623,950 $ 407,827
Shares of beneficial interest issued and outstanding.................... 156,394 130,274 39,998
Net asset value......................................................... $12.65 $12.47 $10.20
- -----------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Shares of beneficial interest, at par................................... $ 12,680,734 $ 10,031,723 $ 2,891,428
Additional paid-in capital.............................................. 121,140,882 92,819,415 25,840,545
Accumulated undistributed net realized gains from investment and futures
transactions........................................................... 4,508,928 2,343,840 142,636
Net unrealized appreciation from investments and futures................ 21,947,496 19,157,212 561,488
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS, FEBRUARY 29, 1996........................................... $160,278,040 $124,352,190 $29,436,097
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
43
<PAGE> 44
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE INTERMEDIATE
U.S. GOVERNMENT U.S. GOVERNMENT MUNICIPAL MUNICIPAL
SECURITIES FUND SECURITIES FUND BOND FUND BOND FUND
---------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securities, at value (cost $126,975,623;
$206,674,840; $149,256,165; and $201,830,572,
respectively)........................................ $131,964,418 $208,897,661 $161,354,012 $211,786,043
Repurchase agreements, at cost........................ 2,795,000 8,714,000 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
134,759,418 217,611,661 161,354,012 211,786,043
Cash.................................................. 837 71 -- --
Interest receivable................................... 2,056,755 1,453,775 2,326,325 2,668,538
Receivable for Portfolio shares issued................ 211,402 956,650 188,000 305,860
Receivable from brokers for investments sold.......... -- -- 369,956 --
Deferred organization costs and other assets.......... 72,550 72,887 73,092 73,406
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS.......................................... 137,100,962 220,095,044 164,311,385 214,833,847
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Advisory fees payable................................. 43,738 57,486 58,649 67,670
Administration fees payable........................... 12,883 18,098 14,304 18,648
Distribution expenses payable (Class A Shares)........ 223 431 586 346
Distribution expenses payable (Class B Shares)........ 1,029 -- 1,106 --
Payable to brokers for investments purchased.......... -- 5,724,638 -- --
Dividends payable..................................... 581,421 907,293 655,893 760,666
Payable for Portfolio shares redeemed................. 120,610 81,818 86,017 108,726
Other accrued expenses................................ 85,470 58,395 87,502 79,497
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES..................................... 845,374 6,848,159 904,057 1,035,553
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS............................................ $136,255,588 $213,246,885 $163,407,328 $213,798,294
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE: ($1.00 PAR VALUE PER SHARE, UNLIMITED
NUMBER OF SHARES AUTHORIZED)
PILOT SHARES:
Net assets............................................ $135,226,402 $212,565,215 $161,797,518 $213,538,155
Shares of beneficial interest issued and
outstanding.......................................... 12,423,556 20,394,789 14,748,797 20,255,693
Net asset value....................................... $10.88 $10.42 $10.97 $10.54
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES:
Net assets............................................ $ 234,253 $ 681,670 $ 712,959 $ 260,139
Shares of beneficial interest issued and
outstanding.......................................... 21,526 65,444 65,031 24,696
Net asset value....................................... $10.88 $10.42 $10.96 $10.53
- ---------------------------------------------------------------------------------------------------------------------------------
Sales charge--4.50%, 4.00%, 4.50%, and 4.00%,
respectively,
of offering price.................................... 0.51 0.43 0.52 0.44
- ---------------------------------------------------------------------------------------------------------------------------------
Maximum offering price................................ $11.39 $10.85 $11.48 $10.97
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Net assets............................................ $ 794,933 -- $ 896,851 --
Shares of beneficial interest issued and
outstanding.......................................... 73,068 -- 82,141 --
Net asset value....................................... $10.88 -- $10.92 --
- ---------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Shares of beneficial interest, at par................. $ 12,518,150 $ 20,460,233 $ 14,895,969 $ 20,280,389
Additional paid-in capital............................ 113,651,199 187,847,005 135,399,854 183,418,692
Accumulated undistributed net realized gains from
investment transactions.............................. 5,097,444 2,716,826 1,013,658 143,742
Net unrealized appreciation from investments.......... 4,988,795 2,222,821 12,097,847 9,955,471
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, FEBRUARY 29, 1996......................... $136,255,588 $213,246,885 $163,407,328 $213,798,294
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
44
<PAGE> 45
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Statements of Operations
For the six months ended February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY
GROWTH AND INCOME SMALL CAPITALIZATION
INCOME FUND FUND EQUITY FUND(A)
----------- ----------- --------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes of $9,510 on Growth and Income Fund and
$2,742 on Equity Income Fund)........................................ $1,514,332 $2,304,433 $ 37,155
Interest............................................................... 162,363 282,445 76,010
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME........................................................... 1,676,695 2,586,878 113,165
- ----------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees.......................................................... 514,954 418,140 40,431
Administration fees.................................................... 75,815 61,556 4,460
Distribution expenses (Class A Shares)................................. 1,422 559 68
Distribution expenses (Class B Shares)................................. 6,661 5,661 277
Audit fees............................................................. 16,580 18,820 3,600
Transfer agent fees and expenses....................................... 15,720 14,120 419
Custodian fees and expenses............................................ 31,992 33,810 12,880
Reports to shareholders................................................ 8,160 8,160 3,120
Registration fees...................................................... 25,610 25,629 17,840
Amortization of organization expenses.................................. 9,340 9,420 880
Legal fees............................................................. 2,780 2,526 1,600
Trustees' fees......................................................... 1,393 1,153
Other expenses......................................................... 4,402 4,289 240
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES......................................................... 714,829 603,843 85,815
- ----------------------------------------------------------------------------------------------------------------------------
Less: Fee waivers and expense reimbursements by advisor, administrator,
and distributor...................................................... (199,897 ) (179,480 ) (45,039)
- ----------------------------------------------------------------------------------------------------------------------------
NET EXPENSES........................................................... 514,932 424,363 40,776
- ----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME.................................................. 1,161,763 2,162,515 72,389
- ----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS FROM INVESTMENTS:
Net realized gains from investment and futures transactions............ 5,138,879 4,019,759 142,636
Net change in unrealized appreciation from investments and futures..... 9,134,963 8,658,320 561,488
- ----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENTS..................... 14,273,842 12,678,079 704,124
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $15,435,605 $14,840,594 $776,513
- ----------------------------------------------------------------------------------------------------------------------------
(a) For the period from December 12, 1995 (commencement of operations) through
February 29, 1996.
- ----------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
45
<PAGE> 46
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Statements of Operations
For the six months ended February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE INTERMEDIATE
U.S. GOVERNMENT U.S. GOVERNMENT MUNICIPAL MUNICIPAL
SECURITIES FUND SECURITIES FUND BOND FUND BOND FUND
--------------- --------------- ---------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest................................................... $ 4,306,731 $ 6,170,371 $4,666,896 $5,358,391
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME............................................... 4,306,731 6,170,371 4,666,896 5,358,391
- ------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees.............................................. 382,624 513,938 432,695 560,694
Administration fees........................................ 76,816 103,172 86,866 112,562
Distribution expenses (Class A Shares)..................... 193 755 567 293
Distribution expenses (Class B Shares)..................... 2,329 -- 2,827 --
Audit fees................................................. 16,980 18,420 17,540 22,260
Transfer agent fees and expenses........................... 14,680 14,440 14,440 16,040
Custodian fees and expenses................................ 29,250 24,780 30,990 25,370
Reports to shareholders.................................... 8,160 8,160 8,160 9,120
Registration fees.......................................... 30,755 33,652 33,205 42,579
Amortization of organization expenses...................... 9,740 9,340 9,420 9,260
Legal fees................................................. 2,810 4,490 4,120 4,840
Trustees' fees............................................. 1,518 2,079 1,700 2,465
Other expenses............................................. 4,631 4,802 4,816 5,214
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................. 580,486 738,028 647,346 810,697
- ------------------------------------------------------------------------------------------------------------------------------
Less: Fee waivers and expense reimbursements by advisor,
administrator, and distributor........................... (126,382) (197,886) (99,117) (163,421)
- ------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES............................................... 454,104 540,142 548,229 647,276
- ------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME...................................... 3,852,627 5,630,229 4,118,667 4,711,115
- ------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENTS:
Net realized gains from investment transactions............ 5,097,444 3,036,878 1,161,675 268,499
Net change in unrealized appreciation from investments..... (3,451,414) (2,963,524) 3,106,415 1,120,660
- ------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENTS......... 1,646,030 73,354 4,268,090 1,389,159
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....... $ 5,498,657 $ 5,703,583 $8,386,757 $6,100,274
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
46
<PAGE> 47
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
-----------------------------------------
FOR THE PERIOD
FOR THE SIX MONTHS NOVEMBER 7, 1994
ENDED FEBRUARY 29, THROUGH AUGUST 31,
1996 1995(a)
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income....................... $ 1,161,763 $ 1,410,693
Net realized gains from investment and
futures transactions...................... 5,138,879 2,531,612
Net change in unrealized appreciation from
investments and futures................... 9,134,963 12,812,533
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations.................................... 15,435,605 16,754,838
- -----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment
income:
Pilot Shares................................ (1,149,233) (1,405,927)
Class A Shares.............................. (8,102) (2,695)
Class B Shares.............................. (4,428) (2,071)
- -----------------------------------------------------------------------------------------------
Total dividends to shareholders from net
investment income............................. (1,161,763) (1,410,693)
- -----------------------------------------------------------------------------------------------
Dividends to shareholders from net realized
gains:
Pilot Shares................................ (3,103,049) --
Class A Shares.............................. (26,472) --
Class B Shares.............................. (32,042) --
- -----------------------------------------------------------------------------------------------
Total dividends to shareholders from net
realized gains................................ (3,161,563) --
- -----------------------------------------------------------------------------------------------
Portfolio share transactions:
Proceeds from shares issued................. 45,167,587 108,627,918
Dividends reinvested........................ 911,880 29,706
Cost of shares redeemed..................... (7,695,020) (13,220,455)
- -----------------------------------------------------------------------------------------------
Net increase in net assets from Portfolio share
transactions.................................. 38,384,447 95,437,169
- -----------------------------------------------------------------------------------------------
Total increase................................. 49,496,726 110,781,314
- -----------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period............................ 110,781,314 --
- -----------------------------------------------------------------------------------------------
End of period.................................. $160,278,040 $ 110,781,314
- -----------------------------------------------------------------------------------------------
<CAPTION>
SMALL CAPITALIZATION
EQUITY INCOME FUND EQUITY FUND
---------------------------------------------- --------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE SIX MONTHS NOVEMBER 7, 1994 DECEMBER 12, 1995
ENDED FEBRUARY 29, THROUGH AUGUST 31, THROUGH FEBRUARY 29,
1996 1995(a) 1996(a)
------------------ ------------------- --------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income....................... $ 2,162,515 $ 2,906,445 $ 72,389
Net realized gains from investment and
futures transactions...................... 4,019,759 1,025,148 142,636
Net change in unrealized appreciation from
investments and futures................... 8,658,320 10,498,892 561,488
- -------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations.................................... 14,840,594 14,430,485 776,513
- -------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment
income:
Pilot Shares................................ (2,138,238) (2,899,282) (72,029)
Class A Shares.............................. (8,070) (2,859) (291)
Class B Shares.............................. (16,207) (4,304) (69)
- -------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholders from net
investment income............................. (2,162,515) (2,906,445) (72,389)
- -------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net realized
gains:
Pilot Shares................................ (2,661,530) -- --
Class A Shares.............................. (10,717) -- --
Class B Shares.............................. (28,820) -- --
- -------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholders from net
realized gains................................ (2,701,067) -- --
- -------------------------------------------------------------------------------------------------------------------------
Portfolio share transactions:
Proceeds from shares issued................. 19,015,929 97,830,026 28,873,041
Dividends reinvested........................ 342,525 11,124 45,037
Cost of shares redeemed..................... (4,614,282) (9,734,184) (186,105)
- -------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from Portfolio share
transactions.................................. 14,744,172 88,106,966 28,731,973
- -------------------------------------------------------------------------------------------------------------------------
Total increase................................. 24,721,184 99,631,006 29,436,097
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period............................ 99,631,006 -- --
- -------------------------------------------------------------------------------------------------------------------------
End of period.................................. $124,352,190 $99,631,006 $ 29,436,097
- -------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Period from commencement of operations.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
47
<PAGE> 48
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE
U.S. GOVERNMENT SECURITIES FUND U.S. GOVERNMENT SECURITIES FUND
----------------------------------------- -----------------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE SIX MONTHS NOVEMBER 7, 1994 FOR THE SIX MONTHS NOVEMBER 7, 1994
ENDED THROUGH ENDED THROUGH
FEBRUARY 29, 1996 AUGUST 31, 1995(a) FEBRUARY 29, 1996 AUGUST 31, 1995(a)
------------------ ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............... $ 3,852,627 $ 6,679,639 $ 5,630,229 $ 6,702,977
Net realized gains from investment
transactions...................... 5,097,444 5,611,049 3,036,878 603,070
Net change in unrealized
appreciation from investments..... (3,451,414) 8,440,209 (2,963,524) 5,186,345
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations....................... 5,498,657 20,730,897 5,703,583 12,492,392
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net
investment income:
Pilot Shares........................ (3,838,029) (6,676,446) (5,612,516) (6,696,515)
Class A Shares...................... (4,170) (1,568) (17,713) (6,462)
Class B Shares...................... (10,428) (1,625) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholders from net
investment income..................... (3,852,627) (6,679,639) (5,630,229) (6,702,977)
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net
realized gains:
Pilot Shares........................ (5,585,839) -- (920,212) --
Class A Shares...................... (6,785) -- (2,910) --
Class B Shares...................... (18,425) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholders from net
realized gains........................ (5,611,049) -- (923,122) --
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio share transactions:
Proceeds from shares issued......... 11,934,049 132,691,392 63,929,456 175,708,067
Proceeds from shares issued to
shareholders in reinvestment of
dividends......................... 272,307 6,753 354,730 37,493
Cost of shares redeemed............. (9,479,358) (9,255,794) (16,127,661) (15,594,847)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
Portfolio share transactions.......... 2,726,998 123,442,351 48,156,525 160,150,713
- ---------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease)............... (1,238,021) 137,493,609 47,306,757 165,940,128
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period..................... 137,493,609 -- 165,940,128 --
- ---------------------------------------------------------------------------------------------------------------------------------
End of period........................... $136,255,588 $ 137,493,609 $213,246,885 $ 165,940,128
- ---------------------------------------------------------------------------------------------------------------------------------
(a) Period from commencement of operations.
- ---------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
48
<PAGE> 49
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
----------------------------------------- -----------------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE SIX MONTHS NOVEMBER 7, 1994 FOR THE SIX MONTHS NOVEMBER 7, 1994
ENDED THROUGH ENDED THROUGH
FEBRUARY 29, 1996 AUGUST 31, 1995(a) FEBRUARY 29, 1996 AUGUST 31, 1995(a)
------------------ ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............... $ 4,118,667 $ 6,200,580 $ 4,711,115 $ 6,846,081
Net realized gains from investment
transactions...................... 1,161,675 333,880 268,499 333,078
Net change in unrealized
appreciation from investments..... 3,106,415 8,991,432 1,120,660 8,834,811
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations....................... 8,386,757 15,525,892 6,100,274 16,013,970
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net
investment income:
Pilot Shares........................ (4,095,297) (6,191,471) (4,705,873) (6,841,198)
Class A Shares...................... (11,418) (5,179) (5,242) (4,883)
Class B Shares...................... (11,952) (3,930) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholders from net
investment income..................... (4,118,667) (6,200,580) (4,711,115) (6,846,081)
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net
realized gains:
Pilot Shares........................ (478,674) -- (457,443) --
Class A Shares...................... (1,491) -- (392) --
Class B Shares...................... (1,732) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholders from net
realized gains........................ (481,897) -- (457,835) --
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio share transactions:
Proceeds from shares issued......... 16,975,116 152,916,334 29,105,172 218,287,220
Proceeds from shares issued to
shareholders in reinvestment of
dividends......................... 56,771 11,041 85,669 9,603
Cost of shares redeemed............. (9,131,918) (10,531,521) (12,765,301) (31,023,282)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
Portfolio transactions................ 7,899,969 142,395,854 16,425,540 187,273,541
- ---------------------------------------------------------------------------------------------------------------------------------
Total increase.......................... 11,686,162 151,721,166 17,356,864 196,441,430
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period..................... 151,721,166 -- 196,441,430 --
- ---------------------------------------------------------------------------------------------------------------------------------
End of period........................... $163,407,328 $ 151,721,166 $213,798,294 $ 196,441,430
- ---------------------------------------------------------------------------------------------------------------------------------
(a) Period from commencement of operations.
- ---------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
49
<PAGE> 50
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
1. GENERAL
The Pilot Growth and Income Fund, the Pilot Equity Income Fund, the Pilot Small
Capitalization Equity Fund, the Pilot U.S. Government Securities Fund, the Pilot
Intermediate U.S. Government Securities Fund, the Pilot Municipal Bond Fund, and
the Pilot Intermediate Municipal Bond Fund are separate portfolios (individually
a "Portfolio"; collectively, the "Portfolios") of The Pilot Funds (the "Fund").
The Fund is a Massachusetts business trust registered under the Investment
Company Act of 1940, as amended (the 1940 Act), as an open-end management
investment company. All of the Portfolios are diversified. The Fund currently
offers twelve portfolios. The accompanying financial statements are those of the
seven Portfolios only.
The Portfolios each offer three classes of shares: Pilot Shares, Class A Shares,
and Class B Shares. Each class of shares is substantially the same, except that
Class A Shares and Class B Shares bear the fees payable under the Fund's
Distribution Plan.
The Small Capitalization Equity Fund commenced operations on December 12, 1995,
by offering Pilot Shares, Class A Shares, and Class B Shares. Class B Shares of
Intermediate U.S. Government Securities Fund and Intermediate Municipal Bond
Fund have not been sold as of February 29, 1996.
The Growth and Income Fund seeks capital appreciation and current income through
investments primarily in common stocks of U.S. Companies. The Equity Income Fund
seeks current income and, secondarily, capital appreciation through investments
primarily in common stocks of above-average financial quality and securities
convertible into common stock. The Small Capitalization Equity Fund seeks
long-term capital growth by investing primarily in equity securities of
companies with market capitalizations of $1 billion or less. The Municipal Bond
Fund and Intermediate Municipal Bond Fund seek current income free of federal
income tax as is consistent with preservation of capital through investments
primarily in investment grade municipal obligations.
At a meeting of the Board of Trustees on February 20, 1996, the Trustees of the
Fund approved a change in investment objectives and policies of the U.S.
Government Securities Fund and the Intermediate U.S. Government Securities Fund.
Effective June 1, 1996, these Portfolios will seek total return and preservation
of capital by investing primarily in U.S. Government Securities and repurchase
agreements secured by such securities. These Portfolios will emphasize the
capital appreciation component of total return.
Boatmen's Trust Company ("Boatmen's") serves as the Fund's investment adviser.
Concord Holding Corporation ("Concord") serves as the Fund's administrator and
Pilot Funds Distributor Inc. (the "Distributor"), a wholly-owned subsidiary of
Concord, serves as the distributor of the Fund's shares. Concord is a
wholly-owned subsidiary of The BISYS Group, Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by
the Portfolios in the preparation of their financial statements. The policies
are in conformity with generally accepted accounting principles. The preparation
of financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual results could differ from those estimates.
A. Investment Valuation
Portfolio securities are valued as follows: (a) securities that are traded on
any U.S. or foreign stock exchange or the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") are valued at the last sale price
on that exchange or NASDAQ prior to the Portfolio's valuation time; if no sale
occurs, securities traded on a U.S. exchange or NASDAQ are valued at the mean
between
- ----------------------------------------------------------
- ----------------------------------------------------------
50
<PAGE> 51
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
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 Portfolio'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 Boatmen's
and approved by the Trustees of the Fund; these prices reflect broker/dealer
supplied valuations and electronic data processing techniques if those prices
are deemed by Boatmen's to be representative of market values at the Portfolio's
valuation time; and (d) all other securities and assets, for which quotations
supplied are not representative of current market values or for which quotations
are not readily available, are valued at fair value as determined in good faith
pursuant to procedures established by the Trustees of the Fund. Money market
instruments held by a Portfolio with a remaining maturity of sixty days or less
are valued at amortized cost which approximates market value.
B. Securities Transactions and Investment Income
Securities transactions are recorded on the trade date. Realized gains and
losses on sales of investments are calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, including
accretion of discounts and amortization of premiums on investments, is accrued
daily.
The investment income of each Portfolio is allocated to the separate classes of
shares based upon their relative net asset values.
C. Repurchase Agreements
The custodian for the Portfolios and other banks acting in a subcustodian
capacity take possession of the collateral pledged for investments in repurchase
agreements. The underlying collateral is valued daily on a mark-to-market basis
to determine that the value, including accrued interest, is not less than 102%
of the repurchase price, including accrued interest. In the event of the
seller's default of the obligation to repurchase, the Portfolios have the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings.
D. Futures Contracts
The Small Capitalization Equity Fund may enter into futures contracts on
securities and futures based on securities indices. The Portfolio 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.
Futures contracts involve brokerage costs, which may be less than 1% of the
contract price, and require the Portfolio to deposit as margin into a segregated
custodial account an amount of cash or liquid securities equal to approximately
2% to 5% of the value of each futures contract. The Portfolio's position in the
futures market will be marked-to-market on a daily basis; the Portfolio 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
Portfolio may instead make or take delivery of the underlying securities
whenever it appears economically advantageous for it to do so.
Futures contracts on securities indices do not require the physical delivery of
securities, but merely provide for gains and losses resulting from changes in
the market value of a 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
- ----------------------------------------------------------
- ----------------------------------------------------------
51
<PAGE> 52
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
comprising the index on which the futures contract is based.
E. Dividends to Shareholders
Dividends of the U.S. Government Securities Fund, the Intermediate U.S.
Government Securities Fund, the Municipal Bond Fund and the Intermediate
Municipal Bond Fund are declared daily to shareholders of record at the close of
business on the day of declaration and paid monthly. Dividends of the Growth and
Income Fund, the Equity Income Fund, and the Small Capitalization Equity Fund
are declared and paid monthly to shareholders of record at the close of business
on the day of declaration. Distributions of net realized gains, if any, will be
paid at least annually. However, to the extent that net realized gains of a
Portfolio can be offset by capital loss carryovers, such gains will not be
distributed. Dividends and distributions are recorded by the Portfolios on the
ex-dividend date.
F. Federal Taxes
It is each Portfolio's policy to comply or continue to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute each year substantially all of its investment
company taxable and tax-exempt income to its shareholders. Accordingly, no
federal tax provisions are required.
G. Organizational Expenses
Costs incurred by the Fund in connection with its organization and registration
of shares have been deferred and are amortized using the straight line method
over a period not to exceed five years from the commencement of the public
offering of shares of the Portfolios.
H. Expenses
Expenses incurred by the Fund that do not specifically relate to an individual
portfolio are allocated to the portfolios based on each portfolio's relative net
assets.
The expenses (other than expenses incurred under the Distribution Plans) of each
Portfolio are allocated to the separate classes of shares based upon their
relative net asset values.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
A. Advisory Agreement
Boatmen's is the investment adviser for each Portfolio pursuant to separate
Investment Advisory Agreements and is responsible for managing the investment
operations of the Portfolios. For its services, Boatmen's is entitled to a fee,
accrued daily and paid monthly, at an annual rate equal to 1.00% of the average
daily net assets of the Small Capitalization Equity Fund; 0.75% of the average
daily net assets of each of the Growth and Income Fund and the Equity Income
Fund; and 0.55% of the average daily net assets of each of the U.S. Government
Securities Fund, the Intermediate U.S. Government Securities Fund, the Municipal
Bond Fund and the Intermediate Municipal Bond Fund.
Boatmen's has voluntarily agreed to limit the fees it receives from each
Portfolio to the following annual rates: 0.75% of the average daily net assets
of the Small Capitalization Equity Fund; 0.50% of the average daily net assets
of each of the Growth and Income Fund and the Equity Income Fund; 0.45% of the
average daily net assets of the Municipal Bond Fund; 0.40% of the average daily
net assets of each of the U.S. Government Securities Fund and the Intermediate
Municipal Bond Fund; and 0.35% of the average daily net assets of the
Intermediate U.S. Government Securities Fund.
Additionally, Boatmen's has voluntarily agreed to reimburse each of the
Portfolio's expenses to the extent that such expenses exceed the following
limits as percentages of average daily net assets (excluding distribution fees
for Class A Shares and Class B Shares): 1.00% of the Small Capitalization Equity
Fund; 0.75% of the Growth and Income Fund and Equity Income Fund; 0.70% of the
- ----------------------------------------------------------
- ----------------------------------------------------------
52
<PAGE> 53
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
Municipal Bond Fund; 0.65% of the U.S. Government Securities Fund and the
Intermediate Municipal Bond Fund; and 0.60% of the Intermediate U.S. Government
Securities Fund. For the period ended February 29, 1996, Boatmen's waived fees
and/or reimbursed expenses in the following amounts:
<TABLE>
<S> <C>
Growth and Income Fund.......................... $ 171,694
Equity Income Fund.............................. 141,204
Small Capitalization Equity Fund................ 40,579
U.S. Government Securities Fund................. 104,352
Intermediate U.S. Government Securities Fund.... 186,886
Municipal Bond Fund............................. 78,672
Intermediate Municipal Bond Fund................ 152,917
</TABLE>
B. ADMINISTRATION AGREEMENT
The Portfolios have entered into an Administration Agreement with Concord.
Pursuant to the terms of this agreement, Concord is responsible for assisting in
all aspects of the operations of each of the Portfolios. For its services,
Concord is entitled to a fee, accrued daily and paid monthly, at an annual rate
of 0.115% of the first $1.5 billion of the aggregate average net assets of all
of the portfolios constituting the Fund, plus 0.11% of the next $1.5 billion of
such assets, plus 0.1075% of such assets in excess of $3.0 billion. For the
period ended February 29, 1996, Concord voluntarily waived a portion of its fees
as administrator. The fee waivers were equal to the following amounts:
<TABLE>
<S> <C>
Growth and Income Fund........................... $ 28,203
Equity Income Fund............................... 38,276
Small Capitalization Equity Fund................. 4,460
U.S. Government Securities Fund.................. 22,030
Intermediate U.S. Government Securities Fund..... 10,698
Municipal Bond Fund.............................. 20,332
Intermediate Municipal Bond Fund................. 10,387
</TABLE>
C. Transfer Agent Agreement
Concord Financial Services ("CFS"), a wholly-owned subsidiary of Concord, is the
transfer agent for the Pilot Share Class of the Portfolios. The Portfolios
incurred fees and expenses of $89,859 for the transfer agent services provided.
D. Distribution Agreements
The Portfolios adopted Distribution Plans pursuant to Rule 12b-1 under the 1940
Act 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 A Shares may not exceed .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 as well as expenses related to other promotional and
distribution activities.
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
- ----------------------------------------------------------
- ----------------------------------------------------------
53
<PAGE> 54
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
may be reimbursed by a Portfolio 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.
The Distributor has voluntarily agreed to limit the fees it receives on Class A
Shares from the following Portfolios to the following annual rates: .20 of 1% of
the average daily net asset value of the U.S. Government Securities Fund and the
Municipal Bond Fund; and .15 of 1% of the average daily net asset value of the
Intermediate U.S. Government Securities Fund and the Intermediate Municipal Bond
Fund.
4. SECURITIES TRANSACTIONS
For the period ended February 29, 1996, the cost of purchases and the proceeds
from sales of portfolio securities (excluding short-term investments) were as
follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------- -------------
<S> <C> <C>
Growth and Income Fund......... $ 64,334,764 $ 33,039,992
Equity Income Fund............. 43,443,800 32,821,185
Small Capitalization Equity
Fund......................... 23,302,355 310,550
U.S. Government Securities
Fund*........................ 50,837,945 54,452,145
Intermediate U.S. Government
Securities Fund**............ 126,822,312 79,405,814
Municipal Bond Fund............ 19,347,778 13,164,221
Intermediate Municipal Bond
Fund......................... 19,485,762 6,769,117
</TABLE>
- ---------------
* 100% of purchases and sales are of U.S. Government securities.
** Includes purchases and sales of U.S. Government securities of $116,874,023
and $77,896,484, respectively.
At February 29, 1996, the cost of each Portfolio's securities for federal income
tax purposes was substantially the same as for financial reporting purposes.
Accordingly, the Portfolio's had the following amounts of net unrealized
appreciation and depreciation:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION NET
------------ ----------- ------------
<S> <C> <C> <C>
Growth and Income
Fund................ $ 24,224,628 $ 2,277,132 $ 21,947,496
Equity Income Fund.... 20,004,322 847,110 19,157,212
Small Capitalization
Equity Fund......... 1,144,279 772,525 371,754
U.S. Government
Securities Fund..... 5,538,783 549,988 4,988,795
Intermediate U.S.
Government
Securities Fund..... 3,291,618 1,081,168 2,210,450
Municipal Bond Fund... 12,378,891 281,044 12,097,847
Intermediate Municipal
Bond Fund........... 9,979,428 23,957 9,955,471
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
54
<PAGE> 55
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
5. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Portfolios are as follows (000 omitted):
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
----------------------------------
SIX MONTHS NOVEMBER 7, 1994
ENDED THROUGH
FEBRUARY 29, AUGUST 31,
1996 1995(a)
------------ -----------------
<S> <C> <C>
CAPITAL TRANSACTIONS:
Pilot Shares:
Proceeds from shares issued........................... $ 42,925 $ 107,297
Dividends reinvested.................................. 841 25
Cost of shares redeemed............................... (7,592) (13,174)
-------- ---------
Change in net assets from Pilot share transactions.... $ 36,174 $ 94,148
======== =========
Class A Shares(b):
Proceeds from shares issued........................... $ 1,007 $ 695
Dividends reinvested.................................. 34 3
Cost of shares redeemed............................... (54) (29)
-------- ---------
Change in net assets from Class A share
transactions........................................ $ 987 $ 669
======== =========
Class B Shares(c):
Proceeds from shares issued........................... $ 1,236 $ 636
Dividends reinvested.................................. 37 2
Cost of shares redeemed............................... (49) (18)
-------- ---------
Change in net assets from Class B share
transactions........................................ $ 1,224 $ 620
======== =========
SHARE TRANSACTIONS:
Pilot Shares:
Issued................................................ 3,489 10,643
Reinvested............................................ 68 2
Redeemed.............................................. (615) (1,202)
-------- ---------
Change in Pilot Shares................................ 2,942 9,443
======== =========
Class A Shares(b):
Issued................................................ 80 62
Reinvested............................................ 3 --
Redeemed.............................................. (4) (2)
-------- ---------
Change in Class A Shares.............................. 79 60
======== =========
Class B Shares(c):
Issued................................................ 100 58
Reinvested............................................ 3 --
Redeemed.............................................. (4) (1)
-------- ---------
Change in Class B Shares.............................. 99 57
======== =========
<CAPTION>
SMALL
CAPITALIZATION
EQUITY INCOME FUND EQUITY FUND
-------------------------------------- -----------------
SIX MONTHS NOVEMBER 7, 1994 DECEMBER 12, 1995
ENDED THROUGH THROUGH
FEBRUARY 29, AUGUST 31, FEBRUARY 29,
1996 1995(a) 1996(a)
------------ ----------------- -----------------
<S> <C> <C> <C>
CAPITAL TRANSACTIONS:
Pilot Shares:
Proceeds from shares issued........................... $ 17,884 $96,783 $28,130
Dividends reinvested.................................. 281 5 45
Cost of shares redeemed............................... (4,556) (9,671) (186)
-------- ------- -------
Change in net assets from Pilot share transactions.... $ 13,609 $87,117 $27,989
======== ======= =======
Class A Shares(b):
Proceeds from shares issued........................... $ 333 $ 300 $ 342
Dividends reinvested.................................. 17 3 --
Cost of shares redeemed............................... (41) (3) --
-------- ------- -------
Change in net assets from Class A share
transactions........................................ $ 310 $ 300 $ 342
======== ======= =======
Class B Shares(c):
Proceeds from shares issued........................... $ 799 $ 746 $ 401
Dividends reinvested.................................. 44 4 --
Cost of shares redeemed............................... (18) (60) --
-------- ------- -------
Change in net assets from Class B share
transactions........................................ $ 825 $ 690 $ 401
======== ======= =======
SHARE TRANSACTIONS:
Pilot Shares:
Issued................................................ 1,465 9,631 2,832
Reinvested............................................ 23 -- 4
Redeemed.............................................. (375) (895) (19)
-------- ------- -------
Change in Pilot Shares................................ 1,113 8,736 2,817
======== ======= =======
Class A Shares(b):
Issued................................................ 27 27 34
Reinvested............................................ 1 -- --
Redeemed.............................................. (3) -- --
-------- ------- -------
Change in Class A Shares.............................. 25 27 34
======== ======= =======
Class B Shares(c):
Issued................................................ 64 68 40
Reinvested............................................ 4 -- --
Redeemed.............................................. (1) (5) --
-------- ------- -------
Change in Class B Shares.............................. 67 63 40
======== ======= =======
<FN>
- ---------------
(a) Period from commencement of operations.
(b) Class A Shares commenced operations February 7, 1995 for the Growth and
Income Fund and Equity Income Fund.
(c) Class B Shares commenced operations November 11, 1994 and January 12, 1995
for the Growth and Income Fund and Equity Income Fund, respectively.
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE> 56
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
February 29, 1996
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE
U.S. GOVERNMENT U.S. GOVERNMENT
SECURITIES FUND SECURITIES FUND
------------------------------- -------------------------------
SIX MONTHS NOVEMBER 7, 1994 SIX MONTHS NOVEMBER 7, 1994
ENDED THROUGH ENDED THROUGH
FEBRUARY 29, AUGUST 31, FEBRUARY 29, AUGUST 31,
1996 1995(a) 1996 1995(a)
------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Pilot Shares:
Proceeds from shares issued... $ 11,068 $132,462 $ 63,686 $175,132
Dividends reinvested.......... 238 3 345 34
Cost of shares redeemed....... (9,405) (9,250) (16,060) (15,511)
-------- -------- -------- --------
Change in net assets from
Pilot share transactions.... $ 1,901 $123,215 $ 47,971 $159,655
======== ======== ======== ========
Class A Shares(b):
Proceeds from shares issued... $ 222 $ 88 $ 243 $ 577
Dividends reinvested.......... 6 2 10 3
Cost of shares redeemed....... (74) (6) (68) (84)
-------- -------- -------- --------
Change in net assets from
Class A share
transactions................ $ 154 $ 84 $ 185 $ 496
======== ======== ======== ========
Class B Shares(c):
Proceeds from shares issued... $ 644 $ 141 $ -- $ --
Dividends reinvested.......... 28 2 -- --
Cost of shares redeemed....... -- -- -- --
-------- -------- -------- --------
Change in net assets from
Class B share
transactions................ $ 672 $ 143 $ -- $ --
======== ======== ======== ========
SHARE TRANSACTIONS:
Pilot Shares:
Issued........................ 969 13,109 6,044 17,349
Reinvested.................... 21 -- 33 3
Redeemed...................... (823) (852) (1,522) (1,512)
-------- -------- -------- --------
Change in Pilot Shares........ 167 12,257 4,555 15,840
======== ======== ======== ========
Class A Shares(b):
Issued........................ 19 8 23 56
Reinvested.................... 1 -- 1 --
Redeemed...................... (6) -- (6) (8)
-------- -------- -------- --------
Change in Class A Shares...... 14 8 18 48
======== ======== ======== ========
Class B Shares(c):
Issued........................ 58 13 -- --
Reinvested.................... 2 -- -- --
Redeemed...................... -- -- -- --
-------- -------- -------- --------
Change in Class B Shares...... 60 13 -- --
======== ======== ======== ========
<CAPTION>
MUNICIPAL MUNICIPAL INTERMEDIATE
BOND FUND BOND FUND MUNICIPAL BOND FUND
------------ ------------ ------------------------------
SIX MONTHS NOVEMBER 7, 1994 SIX MONTHS NOVEMBER 7, 1994
ENDED THROUGH ENDED THROUGH
FEBRUARY 29, AUGUST 31, FEBRUARY 29, AUGUST 31,
1996 1995(a) 1996 1995(a)
------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Pilot Shares:
Proceeds from shares issued... $ 16,165 $152,081 $ 28,854 $218,063
Dividends reinvested.......... 34 4 83 9
Cost of shares redeemed....... (9,104) (10,476) (12,538) (31,023)
-------- -------- ------- --------
Change in net assets from
Pilot share transactions.... $ 7,095 $141,609 $ 16,399 $187,049
======== ======== ======= ========
Class A Shares(b):
Proceeds from shares issued... $ 378 $ 334 $ 251 $ 225
Dividends reinvested.......... 12 5 3 --
Cost of shares redeemed....... (25) -- (228) --
-------- -------- ------- --------
Change in net assets from
Class A share
transactions................ $ 365 $ 339 $ 26 $ 225
======== ======== ======= ========
Class B Shares(c):
Proceeds from shares issued... $ 432 $ 501 $ -- $ --
Dividends reinvested.......... 11 2 -- --
Cost of shares redeemed....... (3) (55) -- --
-------- -------- ------- --------
Change in net assets from
Class B share
transactions................ $ 440 $ 448 $ -- $ --
======== ======== ======= ========
SHARE TRANSACTIONS:
Pilot Shares:
Issued........................ 1,478 15,116 2,734 21,735
Reinvested.................... 3 -- 8 1
Redeemed...................... (835) (1,013) (1,189) (3,033)
-------- -------- ------- --------
Change in Pilot Shares........ 646 14,103 1,553 18,703
======== ======== ======= ========
Class A Shares(b):
Issued........................ 34 32 25 22
Reinvested.................... 1 -- -- --
Redeemed...................... (2) -- (22) --
-------- -------- ------- --------
Change in Class A Shares...... 33 32 3 22
======== ======== ======= ========
Class B Shares(c):
Issued........................ 39 47 -- --
Reinvested.................... 1 -- -- --
Redeemed...................... -- (5) -- --
-------- -------- ------- --------
Change in Class B Shares...... 40 42 -- --
======== ======== ======= ========
<FN>
- ---------------
(a) Period from commencement of operations.
(b) Class A Shares commenced operations February 7, 1995, December 21, 1994,
February 7, 1995 and November 18, 1994 for the U.S. Government Securities
Fund, Intermediate U.S. Government Securities Fund, Municipal Bond Fund, and
Intermediate Municipal Bond Fund, respectively.
(c) Class B Shares commenced operations November 10, 1994 and December 27, 1994
for the U.S. Government Securities Fund and Municipal Bond Fund,
respectively. Class B Shares of the Intermediate U.S. Government Securities
Fund and Intermediate Municipal Bond Fund have not been sold as of February
29, 1996.
</TABLE>
56
<PAGE> 57
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Pilot Growth and Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 29,
1996 PERIOD ENDED AUGUST 31, 1995
------------------------------- ------------------------------------
PILOT CLASS A CLASS B PILOT CLASS A CLASS B
SHARES SHARES SHARES SHARES(a) SHARES(b) SHARES(c)
------- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $ 11.59 $ 11.58 $ 11.59 $ 10.00 $10.44 $10.08
------- ------- ------- -------- ------ ------
Investment Activities
Net investment income............. 0.10 0.09 0.04 0.17 0.09 0.08
Net realized and unrealized gains
from investments................ 1.33 1.34 1.34 1.59 1.14 1.51
------- ------- ------- -------- ------ ------
Total from Investment
Activities...................... 1.43 1.43 1.38 1.76 1.23 1.59
Distributions
From net investment income........ (0.10) (0.09) (0.04) (0.17) (0.09) (0.08)
From net realized gains........... (0.28) (0.28) (0.28) -- -- --
------- ------- ------- -------- ------ ------
Total distributions............... (0.38) (0.37) (0.32) (0.17) (0.09) (0.08)
------- ------- ------- -------- ------ ------
Net Asset Value, End of Period........ $ 12.64 $ 12.64 $ 12.65 $ 11.59 $ 11.58 $ 11.59
======== ======= ======= ======== ======= =======
Total Return(d)....................... 12.44% 12.38% 11.97% 17.72% 11.78% 15.85%
Ratios/Supplemental Data:
Net Assets at end of period
(000)........................... $156,538 $ 1,763 $ 1,978 $109,423 $ 697 $ 661
Ratio of expenses to average net
assets.......................... 0.74%(e) 0.99%(e) 1.74%(e) 0.75%(e) 1.00%(e) 1.75%(e)
Ratio of net investment income to
average net assets.............. 1.70%(e) 1.43%(e) 0.66%(e) 1.98%(e) 1.65%(e) 0.94%(e)
Ratio of expenses to average net
assets assuming no waiver or
expense reimbursement........... 1.03%(e) 1.27%(e) 2.02%(e) 1.15%(e) 1.40%(e) 2.15%(e)
Ratio of net investment income to
average net assets assuming no
waiver or expense
reimbursement................... 1.41%(e) 1.15%(e) 0.38%(e) 1.58%(e) 1.25%(e) 0.54%(e)
Portfolio turnover rate(f)........ 26.13% 26.13% 26.13% 28.00% 28.00% 28.00%
<FN>
- ---------------
(a) Pilot Shares commenced activity November 7, 1994.
(b) Class A Shares commenced activity February 7, 1995.
(c) Class B Shares commenced activity November 11, 1994.
(d) Total return excludes sales charge of Class A Shares and Class B Shares,
would have been lower had certain expenses not been reduced during the
periods presented, and is not annualized.
(e) Annualized.
(f) Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing among the classes of shares issued.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
57
<PAGE> 58
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Pilot Equity Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 29,
1996 PERIOD ENDED AUGUST 31, 1995
------------------------------- --------------------------------------
PILOT CLASS A CLASS B PILOT CLASS A CLASS B
SHARES SHARES SHARES SHARES(a) SHARES(b) SHARES(c)
--------- ------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 11.29 $ 11.36 $ 11.34 $ 10.00 $ 10.24 $ 9.85
-------- ------- ------- -------- ------- -------
Investment Activities
Net investment income............... 0.23 0.21 0.17 0.35 0.18 0.18
Net realized and unrealized gains
from investments.................. 1.40 1.42 1.43 1.29 1.12 1.49
-------- ------- ------- -------- ------- -------
Total from Investment Activities.... 1.63 1.63 1.60 1.64 1.30 1.67
Distributions
From net investment income.......... (0.23) (0.21) (0.17) (0.35) (0.18) (0.18)
From net realized gains............. (0.30) (0.30) (0.30) -- -- --
-------- ------- ------- -------- ------- -------
Total distributions................. (0.53) (0.51) (0.47) (0.35) (0.18) (0.18)
-------- ------- ------- -------- ------- -------
Net Asset Value, End of Period.......... $ 12.39 $ 12.48 $ 12.47 $ 11.29 $ 11.36 $ 11.34
======== ======= ======= ======== ======= =======
Total Return(d)......................... 14.55% 14.44% 14.14% 16.69% 12.78% 17.36%
Ratios/Supplemental Data:
Net Assets at end of period (000)... $122,072 $ 657 $ 1,624 $ 98,607 $ 311 $ 713
Ratio of expenses to average net
assets............................ 0.75%(e) 1.00%(e) 1.75%(e) 0.75%(e) 1.00%(e) 1.75%(e)
Ratio of net investment income to
average net assets................ 3.89%(e) 3.62%(e) 2.88%(e) 4.12%(e) 3.70%(e) 2.88%(e)
Ratio of expenses to average net
assets assuming no waiver or
expense reimbursement............. 1.07%(e) 1.32%(e) 2.07%(e) 1.14%(e) 1.39%(e) 2.14%(e)
Ratio of net investment income to
average net assets assuming no
waiver or expense reimbursement... 3.57%(e) 3.30%(e) 2.56%(e) 3.73%(e) 3.31%(e) 2.49%(e)
Portfolio turnover rate(f).......... 31.23% 31.23% 31.23% 37.00% 37.00% 37.00%
<FN>
- ---------------
(a) Pilot Shares commenced activity November 7, 1994.
(b) Class A Shares commenced activity February 7, 1995.
(c) Class B Shares commenced activity January 12, 1995.
(d) Total return excludes sales charge of Class A Shares and Class B Shares,
would have been lower had certain expenses not been reduced during the
periods presented, and is not annualized.
(e) Annualized.
(f) Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing among the classes of shares issued.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
58
<PAGE> 59
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Pilot Small Capitalization Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 12, 1995 THROUGH
FEBRUARY 29, 1996(a)
--------------------------------------
PILOT CLASS A CLASS B
SHARES SHARES SHARES
---------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.................................... $ 10.00 $10.00 $10.00
--------- ------ ------
Investment Activities
Net investment income............................................... 0.04 0.01 0.01
Net realized and unrealized gains from investments and futures...... 0.18 0.18 0.20
--------- ------ ------
Total from Investment Activities.................................... 0.22 0.19 0.21
Distributions
From net investment income.......................................... (0.04) (0.01) (0.01)
From net realized gains............................................. -- -- --
--------- ------ ------
Total distributions................................................. (0.04) (0.01) (0.01)
--------- ------ ------
Net Asset Value, End of Period.......................................... $ 10.18 $10.18 $10.20
========= ====== ======
Total Return(b)......................................................... 2.17% 1.95% 2.05%
Ratios/Supplemental Data:
Net Assets at end of period (000)................................... $ 28,679 $ 349 $ 408
Ratio of expenses to average net assets............................. 0.97%(c) 1.23%(c) 2.01%(c)
Ratio of net investment income to average net assets................ 1.75%(c) 1.07%(c) 0.25%(c)
Ratio of expenses to average net assets assuming no waiver or
expense reimbursement............................................. 2.05%(c) 2.13%(c) 2.91%(c)
Ratio of net investment income (loss) to average net assets assuming
no waiver or expense reimbursement................................ 0.67%(c) 0.17%(c) (0.65%)(c)
Portfolio turnover rate(d).......................................... 2.27% 2.27% 2.27%
<FN>
- ---------------
(a) Period from commencement of operations.
(b) Total return from date of inception excludes sales charge of Class A Shares
and Class B Shares, would have been lower had certain expenses not been
reduced during the periods presented, and is not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing among the classes of shares issued.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
59
<PAGE> 60
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Pilot U.S. Government Securities Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 29,
1996 PERIOD ENDED AUGUST 31, 1995
------------------------------- ------------------------------------
PILOT CLASS A CLASS B PILOT CLASS A CLASS B
SHARES SHARES SHARES SHARES(a) SHARES(b) SHARES(c)
--------- ------- ------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $ 11.20 $ 11.19 $ 11.19 $ 10.00 $ 10.48 $ 10.05
--------- ------- ------- -------- --------- ---------
Investment Activities
Net investment income........... 0.31 0.30 0.26 0.56 0.37 0.46
Net realized and unrealized
gains from investments........ 0.13 0.14 0.14 1.20 0.71 1.14
--------- ------- ------- -------- --------- ---------
Total from Investment
Activities.................... 0.44 0.44 0.40 1.76 1.08 1.60
Distributions
From net investment income...... (0.31) (0.30) (0.26) (0.56) (0.37) (0.46)
From net realized gains......... (0.45) (0.45) (0.45) -- -- --
--------- ------- ------- -------- --------- ---------
Total distributions............. (0.76) (0.75) (0.71) (0.56) (0.37) (0.46)
--------- ------- ------- -------- --------- ---------
Net Asset Value, End of Period...... $ 10.88 $ 10.88 $ 10.88 $ 11.20 $ 11.19 $ 11.19
======== ======= ======= ======== ========= =========
Total Return(d)..................... 3.89% 3.88% 3.47% 18.03% 10.41% 16.19%
Ratios/Supplemental Data:
Net Assets at end of period
(000)......................... $ 135,226 $ 234 $ 795 $137,261 $ 87 $ 146
Ratio of expenses to average net
assets........................ 0.65%(e) 0.82%(e) 1.65%(e) 0.62%(e) 0.82%(e) 1.62%(e)
Ratio of net investment income
to average net assets......... 5.54%(e) 5.35%(e) 4.50%(e) 6.45%(e) 5.76%(e) 5.19%(e)
Ratio of expenses to average net
assets assuming no waiver or
expense reimbursement......... 0.83%(e) 1.05%(e) 1.82%(e) 0.87%(e) 1.12%(e) 1.87%(e)
Ratio of net investment income
to average net assets assuming
no waiver or expense
reimbursement................. 5.36%(e) 5.12%(e) 4.33%(e) 6.20%(e) 5.46%(e) 4.94%(e)
Portfolio turnover rate(f)...... 37.64% 37.64% 37.64% 132.00% 132.00% 132.00%
<FN>
- ---------------
(a) Pilot Shares commenced activity November 7, 1994.
(b) Class A Shares commenced activity February 7, 1995.
(c) Class B Shares commenced activity November 10, 1994.
(d) Total return excludes sales charge of Class A Shares and Class B Shares,
would have been lower had certain expenses not been reduced during the
periods presented, and is not annualized.
(e) Annualized.
(f) Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing among the classes of shares issued.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
60
<PAGE> 61
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Pilot Intermediate U.S. Government Securities Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
FEBRUARY 29, 1996 AUGUST 31, 1995
-------------------- ----------------------
PILOT CLASS A PILOT CLASS A
SHARES SHARES SHARES(A) SHARES(B)
--------- ------- -------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................... $ 10.44 $ 10.44 $ 10.00 $ 9.98
--------- ------- -------- ------
Investment Activities
Net investment income............................... 0.32 0.31 0.56 0.45
Net realized and unrealized gains from
investments....................................... 0.03 0.03 0.44 0.46
--------- ------- -------- ------
Total from Investment Activities.................... 0.35 0.34 1.00 0.91
Distributions
From net investment income.......................... (0.32) (0.31) (0.56) (0.45)
From net realized gains............................. (0.05) (0.05) -- --
--------- ------- -------- ------
Total distributions................................. (0.37) (0.36) (0.56) (0.45)
--------- ------- -------- ------
Net Asset Value, End of Period.......................... $ 10.42 $ 10.42 $ 10.44 $10.44
========= ======= ======== ======
Total Return(c)......................................... 3.34% 3.26% 10.21% 9.31%
Ratios/Supplemental Data:
Net Assets at end of period (000)................... $ 212,565 $ 682 $165,441 $ 499
Ratio of expenses to average net assets............. 0.58%(d) 0.73%(d) 0.57%(d) 0.72%(d)
Ratio of net investment income to average net
assets............................................ 6.01%(d) 5.86%(d) 6.65%(d) 6.27%(d)
Ratio of expenses to average net assets assuming no
waiver or expense reimbursement................... 0.79%(d) 1.04%(d) 0.87%(d) 1.12%(d)
Ratio of net investment income to average net assets
assuming no waiver or expense reimbursement....... 5.80%(d) 5.55%(d) 6.35%(d) 5.87%(d)
Portfolio turnover rate(e).......................... 43.61% 43.61% 87.00% 87.00%
<FN>
- ---------------
(a) Pilot Shares commenced activity November 7, 1994.
(b) Class A Shares commenced activity December 21, 1994.
(c) Total return excludes sales charge of Class A Shares, would have been lower
had certain expenses not been reduced during the periods presented, and is
not annualized.
(d) Annualized.
(e) Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
61
<PAGE> 62
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Pilot Municipal Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 29,
1996 PERIOD ENDED AUGUST 31, 1995
------------------------------- ------------------------------------
PILOT CLASS A CLASS B PILOT CLASS A CLASS B
SHARES SHARES SHARES SHARES(a) SHARES(b) SHARES(c)
--------- ------- ------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.70 $ 10.70 $ 10.65 $ 10.00 $10.37 $10.02
--------- ------- ------- -------- ------ ------
Investment Activities
Net investment income............... 0.29 0.27 0.23 0.48 0.34 0.33
Net realized and unrealized gains
from investments.................. 0.30 0.29 0.30 0.70 0.33 0.63
--------- ------- ------- -------- ------ ------
Total from Investment Activities.... 0.59 0.56 0.53 1.18 0.67 0.96
Distributions
From net investment income.......... (0.29) (0.27) (0.23) (0.48) (0.34) (0.33)
From net realized gains............. (0.03) (0.03) (0.03) -- -- --
--------- ------- ------- -------- ------ ------
Total distributions................. (0.32) (0.30) (0.26) (0.48) (0.34) (0.33)
--------- ------- ------- -------- ------ ------
Net Asset Value, End of Period.......... $ 10.97 $ 10.96 $ 10.92 $ 10.70 $10.70 $10.65
========= ====== ======= ======== ====== ======
Total Return(d)......................... 5.54% 5.34% 5.03% 12.00% 6.54% 9.62%
Ratios/Supplemental Data:
Net Assets at end of period (000)... $ 161,798 $ 713 $ 897 $150,934 $ 340 $ 448
Ratio of expenses to average net
assets............................ 0.69%(e) 0.89%(e) 1.69%(e) 0.67%(e) 0.87%(e) 1.67%(e)
Ratio of net investment income to
average net assets................ 5.24%(e) 5.03%(e) 4.23%(e) 5.63%(e) 5.26%(e) 4.48%(e)
Ratio of expenses to average net
assets assuming no waiver or
expense reimbursement............. 0.82%(e) 1.06%(e) 1.82%(e) 0.86%(e) 1.11%(e) 1.86%(e)
Ratio of net investment income to
average net assets assuming no
waiver or expense reimbursement... 5.11%(e) 4.86%(e) 4.10%(e) 5.44%(e) 5.02%(e) 4.29%(e)
Portfolio turnover rate(f).......... 8.75% 8.75% 8.75% 10.00% 10.00% 10.00%
<FN>
- ---------------
(a) Pilot Shares commenced activity November 7, 1994.
(b) Class A Shares commenced activity February 7, 1995.
(c) Class B Shares commenced activity December 27, 1994.
(d) Total return excludes sales charge of Class A Shares and Class B Shares,
would have been lower had certain expenses not been reduced during the
periods presented, and is not annualized.
(e) Annualized.
(f) Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing among the classes of shares issued.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
62
<PAGE> 63
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Pilot Intermediate Municipal Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
FEBRUARY 29, 1996 AUGUST 31, 1995
-------------------- ----------------------
PILOT CLASS A PILOT CLASS A
SHARES SHARES SHARES(a) SHARES(b)
--------- ------- -------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $ 10.49 $ 10.49 $ 10.00 $ 9.88
--------- ------- -------- --------
Investment Activities
Net investment income................................... 0.24 0.23 0.41 0.37
Net realized and unrealized gains from investments...... 0.07 0.06 0.49 0.61
--------- ------- -------- --------
Total from Investment Activities........................ 0.31 0.29 0.90 0.98
Distributions
From net investment income.............................. (0.24) (0.23) (0.41) (0.37)
From net realized gains................................. (0.02) (0.02) -- --
--------- ------- -------- --------
Total distributions..................................... (0.26) (0.25) (0.41) (0.37)
--------- ------- -------- --------
Net Asset Value, End of Period.............................. $ 10.54 $ 10.53 $ 10.49 $10.49
======== ====== ======== =======
Total Return(c)............................................. 3.03% 2.86% 9.16% 10.03%
Ratios/Supplemental Data:
Net Assets at end of period (000)....................... $ 213,538 $ 260 $196,209 $ 232
Ratio of expenses to average net assets................. 0.63%(d) 0.78%(d) 0.58%(d) 0.73%(d)
Ratio of net investment income to average net assets.... 4.62%(d) 4.47%(d) 4.90%(d) 4.60%(d)
Ratio of expenses to average net assets assuming no
waiver or expense reimbursement....................... 0.79%(d) 1.03%(d) 0.81%(d) 1.06%(d)
Ratio of net investment income to average net assets
assuming no waiver or expense reimbursement........... 4.46%(d) 4.22%(d) 4.67%(d) 4.27%(d)
Portfolio turnover rate(e).............................. 3.51% 3.51% 8.00% 8.00%
<FN>
- ---------------
(a) Pilot Shares commenced activity November 7, 1994.
(b) Class A Shares commenced activity November 18, 1994.
(c) Total return excludes sales charge of Class A Shares and Class B Shares,
would have been lower had certain expenses not been reduced during the
periods presented, and is not annualized.
(d) Annualized.
(e) Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
63
<PAGE> 64
- --------------------------------------------------------------------------------
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of the Pilot Growth and Income Fund, Pilot
Equity Income Fund, Pilot Small Capitalization Equity Fund, Pilot U.S.
Government Securities Fund, Pilot Intermediate U.S. Government Securities Fund,
Pilot Municipal Bond Fund and Pilot Intermediate Municipal Bond Fund of The
Pilot Funds:
We have audited the accompanying statements of assets and liabilities of the
Pilot Growth and Income Fund, Pilot Equity Income Fund, Pilot Small
Capitalization Equity Fund, Pilot U.S. Government Securities Fund, Pilot
Intermediate U.S. Government Securities Fund, Pilot Municipal Bond Fund and
Pilot Intermediate Municipal Bond Fund (the "Funds") of The Pilot Funds (a
Massachusetts business trust), including the portfolios of investments as of
February 29, 1996, and the related statements of operations for the period then
ended and the statements of changes in net assets and financial highlights for
the periods presented. These financial statements and financial highlights are
the responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 29, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of the Funds as of February 29, 1996, the results of their operations
for the period then ended, the changes in their net assets and the financial
highlights for the periods presented in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 12, 1996
64
<PAGE> 65
Financial Direction
[PILOT LOGO]
Pilot Growth and Income Fund
Pilot Equity Income Fund
Pilot Small Capitalization Equity Fund
Pilot U.S. Government Securities Fund
Pilot Intermediate U.S. Government Securities Fund
Pilot Municipal Bond Fund
Pilot Intermediate Municipal Bond Fund
Semi-Annual Report
February 29, 1996
NOT
FDIC
INSURED
May Lose Value
No Bank Guarantee
Distributor: Pilot Funds Distributors, Inc. 4/96
<PAGE> 1
EXHIBIT 17(O)
FUNDS IV
Address for:
TRUST CLIENTS OF BANK IV
- ------------------------
P.O. Box 1122
Wichita, Kansas 67201-1122
INVESTMENT ADVISERS
- -------------------
BANK IV Kansas, N.A.
100 North Broadway
Wichita, Kansas 67202
AMR Investment Services, Inc.
4333 Amon Carter Blvd., MD 5645
Fort Worth, Texas 76155
(Cash Reserve Money Market Fund Only)
ADMINISTRATOR
- -------------
Furman Selz Incorporated
230 Park Avenue
New York, New York 10169
DISTRIBUTOR
- -----------
FUNDS IV Distributor, Inc.
230 Park Avenue
New York, New York 10169
CUSTODIAN
- ---------
BANK IV Kansas, N.A.
100 North Broadway
Wichita, Kansas 67202
COUNSEL
- -------
Baker & McKenzie
805 Third Avenue
New York, New York 10022
INDEPENDENT ACCOUNTANTS
- -----------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
FUNDS IV Distributor, Inc. is not a bank, and shares of FUNDS IV Trust are not
deposits or obligations of, or endorsed or guaranteed by, BANK IV Kansas, N.A.
or its affiliates, nor are they federally insured by the Federal Deposit
Insurance Corporation ("FDIC"), the Federal Reserve Board or any other agency.
Shares of the Funds involve investment risk, including possible loss of
principal.
FF 06/95
FUNDS IV
--------
EX 17(O)
FUNDS IV TRUST
A Family of Mutual Funds
ANNUAL REPORT
June 30, 1995
Investment Advisers
BANK IV KANSAS, N.A.
AMR INVESTMENT SERVICES, INC.
(Cash Reserve Money Market Fund Only)
<PAGE> 2
[LOGO]
July 19, 1995
Dear Shareholder:
On behalf of everyone at FUNDS IV Trust, we are pleased to send you our
first annual report on the financial condition of the FUNDS IV Trust, for the
period ended June 30, 1995. This report includes investment summaries and
detailed financial information for the FUNDS IV Funds as well as an overview of
economic factors that may influence your investments.
ECONOMIC OUTLOOK
The Funds' fiscal year ended June 30, 1995 was marked by strong economic
growth through the last several months of calendar year 1994, with continuing
concerns by the Federal Reserve Board and investors that wholesale and consumer
inflation would be rekindled. Interest rates rose steadily during the last half
of calendar year 1994. Multiple Federal Reserve interest rate hikes put
significant pressure on bond prices.
Rising interest rates along with the threat of renewed inflation contained
stock prices during the latter half of 1994 which made stocks generally less
attractive, and raised investor concerns about future corporate borrowing costs
and earnings, resulting in a difficult stock market environment throughout 1994.
The first half of calendar year 1995 has been a much more favorable
environment in the securities markets with both bond and stock funds producing
strong positive returns. Signs of economic moderation since February have
allowed interest rates to decline and inflation, currently running at about a 3%
annual rate, does not appear to be heating up. Economic excesses which normally
are corrected by recession such as high factory utilization, rapidly rising
inflation, industrial production, strong retail sales and building inventories,
are not currently present in the economy, boding well for continuing moderate
economic growth.
The recent quarter-point cut in the Fed Funds rate to 5.75% instituted by
the Federal Reserve on July 5, 1995, suggests the Federal Reserve Board's belief
that inflationary pressures have receded and that there has been a shift from
growth-restraint to growth-encouragement by the central bank.
We believe the current Federal Reserve bias towards easing bodes well for
both bond and stock markets over the near term.
CASH RESERVE MONEY MARKET FUND
For the period ended June 30, 1995, the Service Class of the FUNDS IV Cash
Reserve Money Market Fund ranked 47 out of 136 Institutional Money Funds as
reported by Lipper Analytical Services with an annualized total return of 5.90%.
On February 1, 1995, the Federal Reserve increased interest rates 50 basis
points. The Fund achieved its healthy performance during this environment of
rising interest rates by investing in LIBOR based variable rate obligations,
while maintaining an average maturity of less than 45 days. On February 1, the
Fund's weighted average maturity was just 31 days.
<PAGE> 3
However, shortly thereafter, during the second quarter of 1995, the economy
started to exhibit signs of a slowdown. As a result, a shift in portfolio
strategy was implemented which included lengthening the Fund's weighted average
maturity. This reversal in portfolio strategy has proved to be very timely
because on July 6, for the first time in almost three years, the Federal Reserve
lowered interest rates by 25 basis points. On July 6, the Fund's weighted
average maturity was 73 days.
In addition, the Fund's performance benefited by investing in obligations
of issuers whose credit quality was determined to be improving, then
subsequently upgraded by a Nationally Recognized Statistical Rating
Organization. These issuers included: Caterpillar Financial Services; General
Motors Acceptance Corp.; First National Bank of Boston; and others.
We believe your Fund is well positioned to continue to achieve competitive
performance results for the remainder of 1995.
Michael W. Fields
C.I.O. -- Fixed Income
AMR Investment Services, Inc.
SHORT-TERM TREASURY INCOME FUND
The FUNDS IV Short-Term Treasury Income Fund's objective is to provide
investors with as high a level of current income as is consistent with liquidity
and safety of principal.
The Short-Term Treasury Income Fund commenced operations August 26, 1994,
and has produced a total return to investors of 6.95% in the ten months ending
June 30, 1995. The Fund is invested exclusively in short-term U.S. Treasury
securities, and U.S. Treasury backed money market reserves. The weighted average
maturity of the Fund will generally range between two and three years depending
upon the returns generated by short-term U.S. Treasury securities. From the
inception of the Fund, the yield of the three-year U.S. Treasury Notes rose from
6.5% to a high of 7.8% at the end of 1994. This trend reversed in early 1995 and
the yield on the three-year treasury has declined steadily throughout 1995 to
its most recent level of 5.7%. The duration of the Fund, (a key measure of the
price sensitivity of a portfolio of fixed-income securities), ranged from a
defensively positioned low of 1.9 years while interest rates were rising, to a
more aggressively positioned high of 2.5 years, the current level. Our
proprietary Bond Risk Model score is used to guide changes in overall Fund
strategy and duration relative to the benchmark index. Since the date of
inception, the Fund performance trailed slightly the Lehman Mutual Fund Short
(1-5) U.S. Treasury Index by approximately one-half of 1 percent.
The portfolio manager for The Short-Term Treasury Income Fund is Ms. Janet
L. Mullen.
The following graph illustrates the total return based on a $10,000
investment in Service Class of the Fund made at the date of inception of the
Fund (August 26, 1994) compared to the performance of the Lehman Mutual Fund
Short (1-5) U.S. Treasury Index over the same period. Performance of Premium
Class of the Fund will be less than the line shown in the graph based on the
differences in fees paid by shareholders investing in Premium Class of the Fund.
Past performance is not predictive of future performance.
<PAGE> 4
[GRAPH]
*Assumes reinvestment of all dividends and distributions. Total returns are
aggregate since inception (not annualized) and reflect the effect of certain
fee waivers.
The Lehman Mutual Fund Short (1-5) U.S. Treasury Index is a widely accepted
unmanaged index of bond market performance consisting of all Treasury securities
with maturities of one to five years.
<TABLE>
TOTAL RETURNS+
<CAPTION>
% RETURN
--------
<S> <C>
The Short-Term Treasury Income Fund
Inception (August 26, 1994) through June 30, 1995
Service Class................................................................. +6.95%
Premium Class................................................................. +6.95%
<FN>
+Aggregate total return (not annualized); assuming reinvestment of dividends and
distributions; reflects the effect of certain fee waivers.
</TABLE>
INTERMEDIATE BOND INCOME FUND
The FUNDS IV Intermediate Bond Income Fund's objective is to provide
investors with a high level of current income as is consistent with managing for
total return by investing in a portfolio of intermediate maturity government and
investment grade corporate securities.
The Intermediate Bond Income Fund produced a total return of 7.26% for the
period from August 26, 1994 (commencement of operations) to June 30, 1995. The
principal factor impacting fund performance during the year was changes in the
levels of interest rates. During the first half of the fiscal year (through
year-end 1994), the Net Asset Value (NAV) per share fell as bond prices drifted
lower from rising interest rates. However, the Fund performed well versus its
benchmark index due to its shorter maturity structure. During the second half of
the Fund's fiscal year, bond prices rebounded strongly as interest rates fell on
economic weakness and reduced inflationary fears, and the Fund's NAV per share
rose above its beginning value. In early 1995, the credit rating of a corporate
bond held within the Fund was downgraded below the Fund's acceptable quality
parameters by a major debt rating service. This downgrade negatively impacted
the Fund's performance. The other corporate
<PAGE> 5
holdings within the Fund have generally performed well. Overall portfolio
quality remains high and there will be continued emphasis on high quality
corporate securities.
At June 30, 1995, the Fund had approximately 95% of its assets invested in
U.S. Government obligations and corporate securities rated "A" or higher by
Moody's and/or Standard and Poor's Corporation. The average maturity of the Fund
has recently been lengthened to just over five years to enhance returns as
interest rates fall.
The portfolio manager for The Intermediate Bond Income Fund is Mr. Brad D.
Eppard.
The following graph illustrates the total return based on a $10,000
investment in Service Class of the Fund made at the date of inception of the
Fund (August 26, 1994) compared to the performance of the Lehman Intermediate
Government/Corporate Bond Index over the same period. Performance of Premium
Class of the Fund will be less than the line shown in the graph based on the
differences in fees paid by shareholders investing in Premium Class of the Fund.
Past performance is not predictive of future performance.
[GRAPH]
*Assumes reinvestment of all dividends and distributions. Total returns are
aggregate since inception (not annualized) and reflect the effect of certain
fee waivers.
The Lehman Intermediate Government/Corporate Bond Index is a widely
accepted unmanaged index of bond market performance which includes fixed rate
debt issues rated investment grade or higher with maturities ten years or less;
all returns are market value weighted exclusive of accrued interest.
<TABLE>
TOTAL RETURNS+
<CAPTION>
% RETURN
--------
<S> <C>
The Intermediate Bond Income Fund
Inception (August 26, 1994) through June 30, 1995
Service Class................................................................. +7.26%
Premium Class................................................................. +7.26%
<FN>
+Aggregate total return (not annualized); assuming reinvestment of dividends and
distributions; reflects the effect of certain fee waivers.
</TABLE>
<PAGE> 6
BOND INCOME FUND
The FUNDS IV Bond Income Fund's objective is to provide investors with as
high a level of current income as is consistent with managing for total return
by investing in fixed income securities.
The Bond Income Fund produced a total return of 9.05% for the period from
August 26, 1994 (commencement of operations) to June 30, 1995. The Fund is
managed for total return in an effort to enhance fund performance. The principal
factor impacting fund performance during the year was changes in the levels of
interest rates. During the first half of the fiscal year (through year-end
1994), the Net Asset Value (NAV) per share fell as bond prices drifted lower
from rising interest rates. However, the Fund performed well versus its
benchmark index due to its shorter maturity structure. During the second half of
the Fund's fiscal year, bond prices rebounded strongly as interest rates fell on
economic weakness and reduced inflationary fears. The Fund's NAV per share rose
above its beginning value. In early 1995, the credit rating of a corporate bond
held within the Fund was downgraded below the Fund's acceptable quality
parameters by a major debt rating service. This downgrade negatively impacted
the Fund's performance. The other corporate holdings within the Fund have
generally performed well. Overall portfolio quality remains high and continued
emphasis on high quality corporate securities should enhance performance going
forward.
At June 30, 1995, the Fund has approximately 95% of its assets invested in
U.S. Government obligations and corporate securities rated "A" or higher by
Moody's and/or Standard and Poor's Corporation. The average maturity of the Fund
has recently been lengthened to nearly ten years to enhance returns as interest
rates fall.
The portfolio manager for The Bond Income Fund is Mr. Brad D. Eppard.
The following graph illustrates the total return based on a $10,000
investment in Service Class of the Fund made at the date of inception of the
Fund (August 26, 1994) compared to the performance of the Lehman
Government/Corporate Bond Index over the same period. Performance of Premium
Class of the Fund will be less than the line shown in the graph based on the
differences in fees paid by shareholders investing in Premium Class of the Fund.
Past performance is not predictive of future performance.
[GRAPH]
*Assumes reinvestment of all dividends and distributions. Total returns are
aggregate since inception (not annualized) and reflect the effect of certain
fee waivers.
<PAGE> 7
The Lehman Government/Corporate Bond Index is a widely accepted unmanaged
index consisting of all publicly issued obligations of the U.S. Treasury, U.S.
Government agencies, instrumentalities, corporate debt guaranteed by the U.S.
Government and fixed rate debt issues with at least one year to maturity; all
returns are market value weighted exclusive of accrued interest.
<TABLE>
TOTAL RETURNS+
<CAPTION>
% RETURN
--------
<S> <C>
The Bond Income Fund
Inception (August 26, 1994) through June 30, 1995
Service Class................................................................. +9.05%
Premium Class................................................................. +9.05%
<FN>
+Aggregate total return (not annualized); assuming reinvestment of dividends and
distributions; reflects the effect of certain fee waivers.
</TABLE>
STOCK APPRECIATION FUND
The objective of The FUNDS IV Stock Appreciation Fund is to seek long-term
capital appreciation through investment in a diversified portfolio of common
stock. Permissible investments include U.S. common stocks and foreign stocks
represented by American Depository Receipts (ADR's). Stocks are selected based
on a number of factors that include fundamental business outlook, valuation
relative to other companies in the same industry and the company's own
historical norms and earnings momentum. Substantial short-term cash reserves (up
to 35%) may be held as a defensive measure when stock market risk appears high.
At June 30, 1995, the Fund held modest levels of cash and cash equivalents
and, throughout the first half of the calendar year, had gradually increased its
emphasis in economically-sensitive stocks and technology issues. During the
first six months of 1995, our model of market indicators improved substantially,
allowing us to redeploy heavy reserves of cash equivalents held at year-end
1994. Our basic tools of analysis, coupled with a growing belief that the
Federal Reserve would lower interest rates, led us to increase our weightings in
capital goods, finance, raw materials, and technology -- as well as
interest-rate sensitive financials. At the same time, we de-emphasized many
"defensive" segments of the market such as utilities and consumer staples.
Although the Fund's disciplined investment parameters limit the degree of
concentration in any one area of the market (broad diversification is always
sought) we do believe that the longer-term outlook generally favors industrial
and technology stocks over consumer-oriented issues.
The portfolio manager for The Stock Appreciation Fund is Mr. Paul D. Worth.
The following graph illustrates the total return based on a $10,000
investment in Service Class of the Fund made at the date of inception of the
Fund (August 26, 1994) compared to the performance of the S&P 500 Total Return
Index over the same period. Performance of Premium Class of the Fund will be
less than the line shown in the graph based on the differences in fees paid by
shareholders investing in Premium Class of the Fund. Past performance is not
predictive of future performance.
<PAGE> 8
[GRAPH]
*Assumes reinvestment of all dividends and distributions. Total returns are
aggregate since inception (not annualized) and reflect the effect of certain
fee waivers.
The S&P 500 Total Return Index is a widely accepted unmanaged index of
stock market performance which reflects the reinvestment of income dividends
and, where applicable, capital gain distributions.
<TABLE>
TOTAL RETURNS+
<CAPTION>
% RETURN
--------
<S> <C>
The Stock Appreciation Fund
Inception (August 26, 1994) through June 30, 1995
Service Class................................................................ +12.19%
Premium Class................................................................ +12.19%
<FN>
+Aggregate total return (not annualized); assuming reinvestment of dividends and
distributions; reflects the effect of certain fee waivers.
</TABLE>
AGGRESSIVE STOCK APPRECIATION FUND
The objective of The FUNDS IV Aggressive Stock Appreciation Fund is to
aggressively seek long-term capital appreciation through investment in a
diversified portfolio of common stock. Permissible investments include U.S.
common stocks and foreign stocks represented by American Depository Receipts
(ADR's). While the Fund will always hold a broad array of larger capitalization
stocks (stocks with market capitalization of approximately $4 billion and
greater), there will often be an emphasis on investing in mid-capitalization
issues, and to a much lesser extent, smaller-capitalization stocks
(approximately $1 billion and under). Stocks are selected based on a number of
factors including fundamental business outlook, valuation relative to other
companies in the same industry and the company's own historical norms and
earnings momentum. In addition, the Fund may hold considerable positions
(relative to the market) in broadly-defined economic sectors with growth
potential unreflected in then-current stock prices. Substantial short-term cash
reserves (up to 35%) may be held during defensive periods when stock market risk
appears high.
<PAGE> 9
At June 30, 1995, the Fund was fully-invested and, throughout the first
half of the calendar year, had significantly boosted its emphasis in
economically-sensitive stocks and technology issues. During the first six months
of 1995, our model of market indicators improved substantially, allowing us to
redeploy heavy reserves of cash equivalents held at year-end 1994. Our basic
tools of analysis, coupled with a growing belief that the Federal Reserve would
lower interest rates, led us to increase our weightings in capital goods,
finance, raw materials, and technology -- as well as interest-rate sensitive
financials. At the same time, we de-emphasized many "defensive" segments of the
market such as utilities and consumer staples. The Fund remains well-exposed to
selected stocks in the mid-capitalization area of the market, an area which
provides a particularly compelling reward/risk tradeoff -- compared to the
large-cap segment -- given the valuations of secondary stocks relative to their
growth prospects.
The portfolio manager for The Aggressive Stock Appreciation Fund is Mr.
Paul D. Worth.
The following graph illustrates the total return based on a $10,000
investment in Service Class of the Fund made at the date of inception of the
Fund (August 26, 1994) compared to the performance of the S&P 500 Total Return
Index over the same period. Performance of Premium Class of the Fund will be
less than the line shown in the graph based on the differences in fees paid by
shareholders investing in Premium Class of the Fund. Past performance is not
predictive of future performance.
[GRAPH]
*Assumes reinvestment of all dividends and distributions. Total returns are
aggregate since inception (not annualized).
The S&P 500 Total Return Index is a widely accepted unmanaged index of
stock market performance which reflects the reinvestment of income dividends
and, where applicable, capital gain distributions.
<TABLE>
TOTAL RETURNS+
<CAPTION>
% RETURN
--------
<S> <C>
The Aggressive Stock Appreciation Fund
Inception (August 26, 1994) through June 30, 1995
Service Class................................................................. +9.81%
Premium Class................................................................. +9.81%
<FN>
+Aggregate total return (not annualized); assuming reinvestment of dividends and
distributions.
</TABLE>
<PAGE> 10
VALUE STOCK APPRECIATION FUND
The objective of The FUNDS IV Value Stock Appreciation Fund is to seek
long-term capital appreciation and dividend income through investment in a
diversified portfolio of common stocks (and securities convertible into common
stocks) of domestic companies. The Fund may also invest, to a far lesser extent,
in securities of foreign companies, primarily through securities represented by
American Depository Receipts (ADR's).
The Fund employs a "value style" of equity management. Stocks are selected
for purchase when they sell at a discount to their underlying "intrinsic" value.
We determine a stock's intrinsic value by discounting its expected future
dividends to the present value of such dividends. This process of calculating a
stock's intrinsic value is frequently referred to as a "dividend discount
model". Holdings are often characterized by stocks with relatively low
price/earnings ratios, and/or low price/cash flow ratios. Another characteristic
may be higher-than-average dividend yield. Quite often, the stocks will fall
into categories of being under-owned or "out of favor". Equity investments are
selected from a pool of high-quality large, medium, and small capitalization
stocks. The determination of high-quality is based on the Investment Adviser's
assessment of a company's financial strength, size and earnings variability.
Stocks are purchased with a long-term time horizon in mind and are generally
sold when their market price rises above intrinsic value and/or their underlying
fundamentals begin to deteriorate.
At June 30, 1995 the Fund held modest levels of cash and cash equivalents
and had throughout the first half of the calendar year. On average, the Fund's
holdings sell at a 15% discount to their intrinsic value as determined by the
Investment Adviser (the S&P 500, meanwhile, is selling at a 5% discount) and are
displaying positive earnings momentum. The average growth rate for the stocks in
the Fund is 10% (vs the S&P of 10%). The average price/earnings multiple is
about equivalent to the market's. The current dividend yield of 2.9% slightly
exceeds the S&P 500 of 2.5%. Two of the Fund's other key characteristics remain
superior to the market. The average return on assets is 9.4% (versus 3.1% for
the S&P 500) and average return on equity is 24.1% (versus 17.1% for the S&P
500).
The portfolio manager for The Value Stock Appreciation Fund is Mr. Stuart
Hopkins.
The following graph illustrates the total return based on a $10,000
investment in Service Class of the Fund made at the date of inception of the
Fund (February 10, 1995) compared to the performance of the S&P 500 Total Return
Index over the same period. Performance of Premium Class of the Fund will be
less than the line shown in the graph based on the differences in fees paid by
shareholders investing in Premium Class of the Fund. Past performance is not
predictive of future performance.
<PAGE> 11
[GRAPH]
*Assumes reinvestment of all dividends and distributions. Total returns are
aggregate since inception (not annualized) and reflect the effect of certain
fee waivers.
The S&P 500 Total Return Index is a widely accepted unmanaged index of
stock market performance which reflects the reinvestment of income dividends
and, where applicable, capital gain distributions.
<TABLE>
TOTAL RETURNS+
<CAPTION>
% RETURN
--------
<S> <C>
The Value Stock Appreciation Fund
Inception (February 10, 1995) through June 30, 1995
Service Class................................................................ +10.32%
Premium Class................................................................ +10.32%
<FN>
+Aggregate total return (not annualized); assuming reinvestment of dividends and
distributions; reflects the effect of certain fee waivers.
</TABLE>
Thank you for your continued support of the FUNDS IV Trust. We value your
business and look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ John J. Pileggi
JOHN J. PILEGGI
Chairman of the Board
<PAGE> 12
FUNDS IV TRUST
<TABLE>
THE CASH RESERVE MONEY MARKET FUND
Portfolio of Investments
June 30, 1995
<CAPTION>
CREDIT PRINCIPAL VALUE
RATINGS* AMOUNT (NOTE 2A)
- ---------- ------------ ------------
<S> <C> <C> <C>
CORPORATE NOTES -- 54.1%
BANKING SERVICES -- 31.7%
TBW-1/D-1 BanPonce Corp. VR Medium Term Note 6.25%,
02/16/96(a)........................................ $13,000,000 $ 13,000,000
TBW-1/D-1 Barnett Banks, Inc. VR Medium Term Note 6.063%,
11/28/95(a)........................................ 10,000,000 10,000,000
TBW-1/D-1 First National Bank of Boston Bank Note 5.75%,
12/04/95........................................... 13,000,000 13,000,000
TBW-1/P-1 KeyCorp VR Medium Term Note 6.113%, 12/21/95(a)...... 12,000,000 12,000,000
A-1/P-1 Old Kent Bank & Trust Co. Grand Rapids VR Bank Note
6.25%, 01/16/96(a)................................. 13,000,000 13,000,000
Shawmut Bank Connecticut, N.A. VR Medium Term Notes:
TBW-1/P-1 6.000%, 03/25/96(a).................................. 5,000,000 5,000,000
TBW-1/P-1 6.208%, 05/10/96(a).................................. 8,000,000 8,000,000
TBW-1/P-1 Wells Fargo & Co. VR Medium Term Note 6.043%,
01/19/96(a)........................................ 13,000,000 12,998,561
------------
86,998,561
------------
PERSONAL CREDIT -- 10.0%
P-1/F-1 American Honda Finance VR Medium Term Note 6.213%,
02/06/96(a)(e)..................................... 14,000,000 14,000,000
General Motors Acceptance Corp. VR Medium Term Notes:
F-1/D-1 6.275%, 02/22/96(a).................................. 5,500,000 5,498,784
F-1/D-1 6.213%, 03/01/96(a).................................. 8,000,000 7,998,422
------------
27,497,206
------------
SECURITIES FIRMS -- 12.4%
A-1/P-1 The Bear Stearns Cos., Inc. VR Medium Term Note
6.376%, 09/15/95(a)................................ 10,000,000 10,000,000
A-1+/P-1 Goldman Sachs Group L.P. Promissory Note 6.063%,
08/18/95(b)........................................ 14,000,000 14,000,000
TBW-1/A-1 Lehman Brothers Holdings, Inc. VR Demand Master Note
6.291%, 08/22/95(a)................................ 10,000,000 10,000,000
------------
34,000,000
------------
TOTAL CORPORATE NOTES................................ 148,495,767
------------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
1
<PAGE> 13
FUNDS IV TRUST
<TABLE>
THE CASH RESERVE MONEY MARKET FUND
Portfolio of Investments (continued)
June 30, 1995
<CAPTION>
CREDIT PRINCIPAL VALUE
RATINGS* AMOUNT (NOTE 2A)
- ---------- ------------ ------------
<S> <C> <C> <C>
COMMERCIAL PAPER(D) --21.1%
BUSINESS CREDIT -- 5.1%
F-1/D-1 FINOVA Capital Corp. 6.23%, 08/22/95................. $14,000,000 $ 13,877,656
------------
FINANCIAL SERVICES -- 4.6%
A-1/D-1 Caterpillar Financial Services Corp. 6.04%,
11/17/95........................................... 13,000,000 12,708,872
------------
PERSONAL CREDIT -- 8.2%
F-1/D-1 Aristar, Inc. 6.15%, 09/05/95........................ 10,000,000 9,890,550
A-1/P-1 Ford Motor Credit Co. 5.81%, 02/20/96................ 13,000,000 12,535,250
------------
22,425,800
------------
SECURITIES FIRMS -- 3.2%
TBW-1/A1 PaineWebber Group, Inc. 6.23%, 08/22/95.............. 9,000,000 8,921,350
TOTAL COMMERCIAL PAPER............................... 57,933,678
YANKEE CERTIFICATES OF DEPOSIT(A) -- 14.5%
A-1/P-1 Banca CRT Financial Corp. VR 6.125%, 08/24/95........ 10,000,000 10,000,000
TBW-1/A1 Kansallis-Osaki-Pankki VR Demand 6.25%, 09/18/95..... 10,000,000 10,000,000
TBW-1/P-1 Postipankki Ltd. VR Demand 6.25%, 09/20/95........... 10,000,000 10,000,000
A-1/P-1 Svenska Handelsbanken, Inc. VR 6.105%, 08/24/95...... 10,000,000 10,000,000
------------
TOTAL YANKEE CERTIFICATES OF DEPOSIT................. 40,000,000
BANKERS' ACCEPTANCES (D) -- 8.2%
A-1/P-1 Bank of Tokyo, Ltd. Los Angeles 6.07%, 11/06/95...... 13,000,000 12,730,524
A-1/P-1 Fuji Bank, Ltd. New York 5.93%, 12/18/95............. 10,000,000 9,731,778
------------
TOTAL BANKERS' ACCEPTANCES........................... 22,462,302
------------
TIME DEPOSIT -- 2.0%
A-1/P-1 Bank Brussels Lambert Cayman 6.375%, 07/03/95........ 5,521,745 5,521,745
------------
TOTAL INVESTMENTS -- 99.9% (COST $274,413,492)+...... 274,413,492
OTHER ASSETS LESS LIABILITIES -- 0.1%................ 255,529
------------
NET ASSETS -- 100.0%................................. $274,669,021
============
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
2
<PAGE> 14
FUNDS IV TRUST
<TABLE>
THE SHORT-TERM TREASURY INCOME FUND
Portfolio of Investments
June 30, 1995
<CAPTION>
PRINCIPAL VALUE
AMOUNT COST (NOTE 2A)
---------- ------------ -----------
<S> <C> <C> <C>
U.S. TREASURY NOTES -- 98.5%
7.625%, 04/30/96...................................... $2,250,000 $ 2,279,701 $ 2,283,052
7.375%, 05/15/96...................................... 600,000 600,965 608,016
7.250%, 11/30/96...................................... 1,500,000 1,519,576 1,528,485
8.000%, 01/15/97...................................... 1,000,000 1,020,521 1,031,500
7.375%, 11/15/97...................................... 750,000 752,132 774,690
5.125%, 04/30/98...................................... 825,000 808,938 808,929
5.375%, 05/31/98...................................... 250,000 241,599 246,585
8.250%, 07/15/98...................................... 225,000 234,398 239,418
7.125%, 10/15/98...................................... 1,000,000 1,013,535 1,035,650
6.500%, 04/30/99...................................... 500,000 502,355 508,885
6.750%, 05/31/99...................................... 1,500,000 1,467,909 1,540,170
7.750%, 11/30/99...................................... 1,500,000 1,557,083 1,600,230
6.375%, 01/15/00...................................... 1,750,000 1,750,000 1,774,954
7.750%, 01/31/00...................................... 1,000,000 1,005,577 1,068,660
----------- -----------
TOTAL U.S. TREASURY NOTES............................. 14,754,289 15,049,224
----------- -----------
MONEY MARKET FUND*** -- 0.2%
Federated U.S. Treasury Cash Reserve Fund............. 34,429 34,429 34,429
----------- -----------
TOTAL INVESTMENTS -- 98.7%............................ $14,788,718 15,083,653
==========
OTHER ASSETS LESS LIABILITIES -- 1.3%................. 194,288
-----------
NET ASSETS -- 100.0%.................................. $15,277,941
===========
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
3
<PAGE> 15
FUNDS IV TRUST
<TABLE>
THE INTERMEDIATE BOND INCOME FUND
Portfolio of Investments
June 30, 1995
<CAPTION>
CREDIT PRINCIPAL VALUE
RATINGS** AMOUNT COST (NOTE 2A)
- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
U.S. TREASURY NOTES -- 44.1%
8.500%, 08/15/95........................ $ 3,000,000 $ 3,007,658 $ 3,009,420
7.250%, 11/30/96........................ 3,000,000 3,014,160 3,056,970
6.750%, 05/31/99........................ 10,000,000 9,971,315 10,267,799
8.000%, 08/15/99........................ 4,000,000 4,310,756 4,290,600
7.500%, 10/31/99........................ 8,000,000 8,174,790 8,450,480
7.750%, 02/15/01........................ 5,000,000 5,169,049 5,406,550
7.500%, 11/15/01........................ 4,000,000 4,084,156 4,295,720
6.375%, 08/15/02........................ 7,000,000 6,622,029 7,089,039
7.500%, 02/15/05........................ 7,000,000 7,584,710 7,629,859
6.500%, 05/15/05........................ 3,500,000 3,608,840 3,576,265
----------- -----------
TOTAL U.S. TREASURY NOTES............... 55,547,463 57,072,702
----------- -----------
U.S. GOVERNMENT AGENCY
OBLIGATION -- 3.0%
Federal Farm Credit Bank Medium Term
Note 8.13%, 01/17/96(c)............... 3,850,000 3,853,724 3,885,574
----------- -----------
MORTGAGE-BACKED SECURITIES -- 5.6%
FEDERAL HOME LOAN MORTGAGE CORP. -- 3.2%
Series 1727 Class PC CMO REMIC
6.25%, 03/15/03..................... 4,300,000 3,945,852 4,146,776
----------- -----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 2.4%
Series 1994-85 Class G PAC CMO
REMIC 6.00%, 07/25/07............... 3,200,000 2,878,080 3,031,499
----------- -----------
TOTAL MORTGAGE-BACKED SECURITIES........ 6,823,932 7,178,275
----------- -----------
CORPORATE BONDS AND NOTES -- 35.5%
AUTO & TRUCKS -- 4.3%
A-/A3 Chrysler Corp. 10.95%, 08/01/97(c)...... 3,500,000 3,808,809 3,941,875
A+/A1 Ford Motor Co. 9.00%, 09/15/01.......... 1,500,000 1,593,770 1,681,875
----------- -----------
5,402,579 5,623,750
----------- -----------
BANKING SERVICES -- 5.8%
A+/A1 Citicorp Medium Term Note 8.80%,
02/01/97(c)........................... 4,000,000 4,000,000 4,360,000
A/A2 NationsBank Corp. 7.50%, 02/15/97....... 3,000,000 2,997,869 3,067,500
----------- -----------
6,997,869 7,427,500
----------- -----------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
4
<PAGE> 16
FUNDS IV TRUST
<TABLE>
THE INTERMEDIATE BOND INCOME FUND
Portfolio of Investments (continued)
June 30, 1995
<CAPTION>
CREDIT PRINCIPAL VALUE
RATINGS** AMOUNT COST (NOTE 2A)
- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
CONSUMER PRODUCTS -- 0.6%
A-/A3 International Paper Co. 9.70%,
03/15/00.............................. $ 400,000 $ 434,450 $ 452,000
A/A2 Philip Morris Cos., Inc. 6.375%,
01/15/98.............................. 350,000 343,237 349,562
----------- -----------
777,687 801,562
----------- -----------
FINANCIAL SERVICES -- 18.9%
AA-/Aa3 Associates Corp. of North America 7.50%,
05/15/99.............................. 3,000,000 2,992,267 3,112,500
A/A3 AT&T Capital Corp. Medium Term Note
7.59%, 01/31/97....................... 3,500,000 3,520,336 3,578,750
AA/A2 Capital Holdings Corp. Medium Term Note
8.90%, 10/20/99....................... 500,000 530,061 541,875
A/A2 Dean Witter Discover & Co. 5.00%,
04/01/96.............................. 2,000,000 1,958,346 1,988,040
A/A2 Ford Motor Credit Co. Medium Term Note
8.00%, 12/02/96....................... 275,000 279,625 282,562
AAA/Aaa General Electric Capital Corp. Medium
Term Note 7.85%, 01/17/97............. 4,500,000 4,509,753 4,618,125
A/Baa1 Lehman Brothers Inc. 10.00%, 05/15/99... 4,000,000 4,287,280 4,390,000
BBB/Baa1 Salomon Inc. Medium Term Note 5.45%,
03/01/96.............................. 2,000,000 1,984,167 1,987,600
A+/A1 Texaco Capital Inc. 9.00%, 11/15/96..... 500,000 515,812 518,750
NR/Aa2 Town & Country Funding Corp. 5.85%,
08/15/98(c)........................... 3,500,000 3,327,244 3,404,800
----------- -----------
23,904,891 24,423,002
----------- -----------
RETAIL -- DEPARTMENT STORES -- 5.7%
A+/A1 J.C. Penney Co. 6.875%, 06/15/99........ 3,500,000 3,438,818 3,556,875
Wal-Mart Stores, Inc.:
AA/Aa1 5.500%, 03/01/98...................... 550,000 531,225 539,687
AA/Aa1 8.625%, 04/01/01...................... 3,000,000 3,116,434 3,307,500
----------- -----------
7,086,477 7,404,062
----------- -----------
TELECOMMUNICATIONS -- 0.2%
AA/A1 Southwestern Bell Telephone Co. 8.30%,
06/01/96.............................. 300,000 304,971 305,625
----------- -----------
TOTAL CORPORATE BONDS AND NOTES......... 44,474,474 45,985,501
----------- -----------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
5
<PAGE> 17
FUNDS IV TRUST
<TABLE>
THE INTERMEDIATE BOND INCOME FUND
Portfolio of Investments (continued)
June 30, 1995
<CAPTION>
CREDIT PRINCIPAL VALUE
RATINGS** AMOUNT COST (NOTE 2A)
- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
FOREIGN BONDS AND NOTES -- 8.8%
BANKING SERVICES -- 1.3%
A+/A1 Export-Import Bank of Korea Medium Term
Note 7.85%, 11/01/96.................. $1,650,000 $ 1,665,173 $ 1,676,813
------------ ------------
FINANCIAL SERVICES -- 2.0%
A+/A1 Ford Capital B.V. 9.00%, 06/01/96....... 2,500,000 2,548,126 2,567,900
------------ ------------
FOREIGN GOVERNMENT -- 5.5%
A+/A1 Hydro-Quebec Debenture Series GW 9.75%,
01/15/03(c)........................... 3,000,000 3,379,102 3,408,750
AA/A1 Italy Global Bond 6.00%, 09/27/03....... 4,000,000 3,514,949 3,760,000
------------ ------------
6,894,051 7,168,750
------------ ------------
TOTAL FOREIGN BONDS AND NOTES........... 11,107,350 11,413,463
------------ ------------
MONEY MARKET FUND*** -- 1.1%
Federated Prime Obligations Money
Market Fund........................... 1,381,293 1,381,293 1,381,293
------------ ------------
TOTAL INVESTMENTS -- 98.1%.............. $123,188,236 126,916,808
============
OTHER ASSETS LESS LIABILITIES -- 1.9%... 2,406,087
------------
NET ASSETS -- 100.0%.................... $129,322,895
============
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
6
<PAGE> 18
FUNDS IV TRUST
<TABLE>
THE BOND INCOME FUND
Portfolio of Investments
June 30, 1995
<CAPTION>
CREDIT PRINCIPAL VALUE
RATINGS** AMOUNT COST (NOTE 2A)
- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 45.3%
U.S. TREASURY BONDS -- 19.2%
7.250%, 05/15/16...................... $1,250,000 $ 1,224,179 $ 1,327,975
8.125%, 08/15/19...................... 1,000,000 996,020 1,165,150
------------ -----------
2,220,199 2,493,125
------------ -----------
U.S. TREASURY NOTES -- 26.1%
6.375%, 08/15/02...................... 2,200,000 2,107,643 2,227,984
6.500%, 05/15/05...................... 500,000 515,549 510,895
7.500%, 02/15/05...................... 600,000 650,118 653,988
------------ -----------
3,273,310 3,392,867
------------ -----------
TOTAL U.S. TREASURY OBLIGATIONS......... 5,493,509 5,885,992
------------ -----------
MORTGAGE-BACKED SECURITIES -- 8.5%
FEDERAL HOME LOAN MORTGAGE CORP. -- 4.8%
Series 1727 Class PC CMO REMIC
6.25%, 03/15/03..................... 650,000 596,466 626,838
------------ -----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 3.7%
Series 1994-85 Class G PAC CMO
REMIC 6.00%, 07/25/07............... 500,000 449,700 473,672
------------ -----------
TOTAL MORTGAGE-BACKED SECURITIES........ 1,046,166 1,100,510
------------ -----------
CORPORATE BONDS AND NOTES -- 40.5%
AUTO & TRUCKS -- 4.3%
A-/A3 Chrysler Corp. 10.95%, 08/01/97(c)...... 500,000 544,115 563,125
------------ -----------
BANKING SERVICES -- 8.1%
A+/A1 Citicorp Medium Term Note 8.80%,
02/01/97(c)........................... 500,000 500,000 545,000
A/A2 NationsBank Corp. 7.50%, 02/15/97....... 500,000 499,645 511,250
------------ -----------
999,645 1,056,250
------------ -----------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
7
<PAGE> 19
FUNDS IV TRUST
<TABLE>
THE BOND INCOME FUND
Portfolio of Investments (continued)
June 30, 1995
<CAPTION>
CREDIT PRINCIPAL VALUE
RATINGS** AMOUNT COST (NOTE 2A)
- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
FINANCIAL SERVICES -- 19.9%
AA-/Aa3 Associates Corp. of North America 7.50%,
05/15/99.............................. $500,000 $ 498,711 $ 518,750
A/A3 AT&T Capital Corp. Medium Term Note
7.59%, 01/31/97....................... 500,000 502,905 511,250
AAA/Aaa General Electric Capital Corp. Medium
Term Note 7.85%, 01/17/97............. 500,000 501,083 513,125
A/Baa1 Lehman Brothers Inc. 10.00%, 05/15/99... 500,000 535,910 548,750
NR/Aa2 Town & Country Funding Corp. 5.85%,
08/15/98(c)........................... 500,000 475,320 486,400
----------- -----------
2,513,929 2,578,275
----------- -----------
RETAIL -- DEPARTMENT STORES -- 8.2%
A+/A1 J.C. Penney Co. 6.875%, 06/15/99........ 500,000 491,260 508,125
AA/Aa1 Wal-Mart Stores, Inc. 8.625%,
04/01/01.............................. 500,000 519,406 551,250
----------- -----------
1,010,666 1,059,375
----------- -----------
TOTAL CORPORATE BONDS AND NOTES......... 5,068,355 5,257,025
----------- -----------
FOREIGN GOVERNMENT BOND -- 2.2%
A+/A1 Hydro-Quebec Debenture Series GW 9.75%,
01/15/03(c)........................... 250,000 281,592 284,062
----------- -----------
MONEY MARKET FUND*** -- 1.9%
Federated Prime Obligations Money Market
Fund.................................. 242,213 242,213 242,213
----------- -----------
TOTAL INVESTMENTS -- 98.4%.............. $12,131,835 12,769,802
===========
OTHER ASSETS LESS LIABILITIES -- 1.6%... 213,270
-----------
NET ASSETS -- 100.0%.................... $12,983,072
===========
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
8
<PAGE> 20
FUNDS IV TRUST
<TABLE>
THE STOCK APPRECIATION FUND
Portfolio of Investments
June 30, 1995
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- -------- ------------- ------------
<S> <C> <C> <C>
COMMON STOCKS -- 98.7%
AEROSPACE/DEFENSE -- 3.3%
26,000 Boeing Co. ............................................ $ 1,409,725 $ 1,628,250
11,000 Lockheed Martin Corp................................... 530,750 694,375
25,500 Raytheon Co. .......................................... 1,743,775 1,979,438
------------- ------------
3,684,250 4,302,063
------------- ------------
AUTO & TRUCKS -- 2.0%
44,000 Ford Motor Co. ........................................ 1,338,500 1,309,000
27,000 General Motors Corp. .................................. 1,312,387 1,265,625
------------- ------------
2,650,887 2,574,625
------------- ------------
BANKING SERVICES -- 1.8%
29,500 First Interstate Bancorp .............................. 2,305,834 2,367,375
------------- ------------
BEVERAGES -- 1.8%
38,000 The Coca-Cola Co. ..................................... 1,905,478 2,422,500
------------- ------------
BROADCASTING -- 3.9%
11,000 Capital Cities/ABC, Inc................................ 980,013 1,188,000
115,000 Heritage Media Corp.++................................. 2,567,123 3,320,625
25,000 Tele-Communications, Inc. Class A++.................... 559,375 585,937
------------- ------------
4,106,511 5,094,562
------------- ------------
CHEMICALS -- 3.7%
4,500 Cabot Corp. ........................................... 221,422 237,375
10,000 Dow Chemical Co. ...................................... 741,668 718,750
22,700 duPont (E.I.) de Nemours & Co. ........................ 1,370,513 1,560,625
21,000 Eastman Chemical Co. .................................. 1,157,828 1,249,500
6,500 IMC Global, Inc. ...................................... 319,481 351,813
850 Monsanto Co. .......................................... 71,081 76,606
21,500 Morton International, Inc. ............................ 623,715 628,875
------------- ------------
4,505,708 4,823,544
------------- ------------
COMPUTERS -- 3.6%
44,000 Comdisco, Inc. ........................................ 976,000 1,336,500
15,000 Compaq Computer Corp.++................................ 617,103 680,625
28,800 International Business Machines Corp. ................. 2,294,387 2,764,800
------------- ------------
3,887,490 4,781,925
------------- ------------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
9
<PAGE> 21
FUNDS IV TRUST
<TABLE>
THE STOCK APPRECIATION FUND
Portfolio of Investments (continued)
June 30, 1995
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- -------- ------------- ------------
<S> <C> <C> <C>
COMMON STOCKS -- (CONTINUED)
COMPUTER SOFTWARE & SERVICES -- 2.6%
27,000 Computer Associates International, Inc. ............... $ 1,378,373 $ 1,829,250
18,000 Microsoft Corp.++ ..................................... 1,086,750 1,626,750
------------- ------------
2,465,123 3,456,000
------------- ------------
COSMETICS/PERSONAL CARE -- 0.5%
15,000 Gillette Co. .......................................... 551,063 669,375
------------- ------------
ELECTRONICS -- 4.5%
36,000 Advanced Micro Devices, Inc.++......................... 1,277,006 1,309,500
30,000 General Electric Co. .................................. 1,585,375 1,691,250
17,000 Hewlett-Packard Co. ................................... 950,661 1,266,500
10,000 Intel Corp. ........................................... 562,812 633,125
15,000 Teradyne, Inc.++....................................... 450,000 980,625
------------- ------------
4,825,854 5,881,000
------------- ------------
ELECTRICAL EQUIPMENT -- 2.1%
35,000 AMP, Inc. ............................................. 1,356,702 1,478,750
45,600 Baldor Electric Co. ................................... 1,043,100 1,305,300
------------- ------------
2,399,802 2,784,050
------------- ------------
ENTERTAINMENT -- 0.8%
18,000 The Walt Disney Co. ................................... 920,100 1,001,250
------------- ------------
ENVIRONMENTAL CONTROL -- 1.4%
50,000 Browning-Ferris Industries, Inc. ...................... 1,655,973 1,806,250
------------- ------------
FINANCIAL SERVICES -- 7.8%
20,000 ADVANTA Corp. Class B.................................. 592,500 755,000
82,500 American Express Co. .................................. 2,456,650 2,897,813
35,000 Citicorp............................................... 1,597,554 2,025,625
27,000 Equifax, Inc. ......................................... 776,250 901,125
12,000 Federal National Mortgage Association.................. 1,075,200 1,132,500
36,000 J.P. Morgan & Co., Inc. ............................... 2,317,650 2,524,500
------------- ------------
8,815,804 10,236,563
------------- ------------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
10
<PAGE> 22
FUNDS IV TRUST
<TABLE>
THE STOCK APPRECIATION FUND
Portfolio of Investments (continued)
June 30, 1995
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- -------- ------------- ------------
<S> <C> <C> <C>
COMMON STOCKS -- (CONTINUED)
FOOD PROCESSING -- 4.0%
74,000 Archer-Daniels-Midland Co. ............................ $ 1,305,368 $ 1,378,250
43,500 Philip Morris Cos., Inc. .............................. 2,839,873 3,235,313
21,000 Sara Lee Corp. ........................................ 575,612 598,500
------------- ------------
4,720,853 5,212,063
------------- ------------
FOOTWEAR -- 0.5%
7,700 Nike, Inc. Class B..................................... 652,148 646,800
------------- ------------
FOREST PRODUCTS & PAPERS -- 4.1%
12,000 Georgia Pacific Corp. ................................. 922,350 1,041,000
11,000 International Paper Co. ............................... 879,925 943,250
17,500 Union Camp Corp. ...................................... 889,163 1,012,813
52,000 Weyerhaeuser Co. ...................................... 2,120,938 2,450,500
------------- ------------
4,812,376 5,447,563
------------- ------------
HOLDING COMPANIES -- 0.4%
4,400 ITT Corp. ............................................. 378,950 517,000
------------- ------------
HOMEBUILDERS -- 0.4%
30,062 Clayton Homes, Inc. ................................... 474,980 492,265
------------- ------------
HOUSEHOLD PRODUCTS -- 2.6%
26,000 Colgate-Palmolive Co. ................................. 1,803,188 1,901,250
21,000 Procter & Gamble Co. .................................. 1,308,300 1,509,375
------------- ------------
3,111,488 3,410,625
------------- ------------
INSURANCE -- 3.6%
28,500 American International Group, Inc. .................... 2,923,301 3,249,000
11,200 General Re Corp. ...................................... 1,411,710 1,499,400
------------- ------------
4,335,011 4,748,400
------------- ------------
LEISURE -- 0.9%
32,000 The Coleman Co., Inc.++................................ 1,078,025 1,136,000
------------- ------------
MACHINERY -- 3.5%
29,000 Caterpillar, Inc. ..................................... 1,734,620 1,863,250
32,000 Deere & Co. ........................................... 2,573,315 2,740,000
------------- ------------
4,307,935 4,603,250
------------- ------------
MISCELLANEOUS MANUFACTURING -- 2.0%
44,000 Eastman Kodak Co. ..................................... 2,149,434 2,667,500
------------- ------------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
11
<PAGE> 23
FUNDS IV TRUST
<TABLE>
THE STOCK APPRECIATION FUND
Portfolio of Investments (continued)
June 30, 1995
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- -------- ------------- ------------
<S> <C> <C> <C>
COMMON STOCKS -- (CONTINUED)
MEDICAL SERVICES -- 1.3%
39,000 Columbia/HCA Healthcare Corp. ......................... $ 1,474,375 $ 1,686,750
------------- ------------
METALS -- 1.9%
41,000 Aluminum Co. of America................................ 1,867,487 2,055,125
15,000 Cyprus Amax Minerals Co. .............................. 440,625 427,500
------------- ------------
2,308,112 2,482,625
------------- ------------
MINING -- 1.0%
50,000 Barrick Gold Corp. .................................... 1,109,875 1,262,500
------------- ------------
OIL/GAS -- 6.0%
49,000 Amoco Corp. ........................................... 2,935,832 3,264,625
20,000 Chevron Corp. ......................................... 847,500 932,500
20,000 Exxon Corp. ........................................... 1,195,000 1,412,500
8,000 Mobil Corp. ........................................... 665,000 768,000
8,000 Royal Dutch Petroleum Co. New York Shares ADR.......... 921,118 975,000
16,600 Tosco Corp. ........................................... 518,750 529,125
------------- ------------
7,083,200 7,881,750
------------- ------------
OIL/GAS EQUIPMENT -- 0.7%
44,000 Baker Hughes, Inc. .................................... 859,100 902,000
------------- ------------
PHARMACEUTICALS -- 10.2%
50,000 Abbott Laboratories.................................... 1,556,400 2,025,000
25,000 Allergan, Inc. ........................................ 650,000 678,125
55,500 Bristol-Myers Squibb Co. .............................. 3,380,217 3,780,938
12,000 Johnson & Johnson...................................... 740,536 811,500
68,000 Merck & Co., Inc. ..................................... 2,796,709 3,332,000
11,500 Pfizer, Inc. .......................................... 823,250 1,062,312
13,000 R.P. Scherer Corp.++................................... 498,875 549,250
29,600 Schering-Plough........................................ 1,047,076 1,306,100
------------- ------------
11,493,063 13,545,225
------------- ------------
RESTAURANTS/FOOD SERVICE -- 0.6%
20,000 McDonald's Corp. ...................................... 690,688 782,500
------------- ------------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
12
<PAGE> 24
FUNDS IV TRUST
<TABLE>
THE STOCK APPRECIATION FUND
Portfolio of Investments (continued)
June 30, 1995
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- -------- ------------- ------------
<S> <C> <C> <C>
COMMON STOCKS -- (CONTINUED)
RETAIL-DEPARTMENT STORES -- 2.8%
10,000 J.C. Penney Co. ....................................... $ 419,881 $ 480,000
120,000 Wal-Mart Stores, Inc. ................................. 3,066,277 3,210,000
------------- ------------
3,486,158 3,690,000
------------- ------------
RETAIL-SPECIALTY LINE -- 1.8%
28,300 Home Depot, Inc. ...................................... 1,279,502 1,149,687
10,650 OfficeMax, Inc.++...................................... 223,508 296,869
9,750 PETsMART, Inc.++ ...................................... 227,500 280,312
10,000 Toys "R" Us, Inc.++.................................... 370,000 292,500
7,000 Walgreen Co. .......................................... 350,350 350,875
------------- ------------
2,450,860 2,370,243
------------- ------------
TELECOMMUNICATIONS -- 6.5%
29,000 AT&T Corp. ............................................ 1,587,750 1,540,625
16,000 AirTouch Communications, Inc.++........................ 436,000 456,000
82,000 GTE Corp. ............................................. 2,550,975 2,798,250
24,000 Motorola, Inc. ........................................ 1,414,497 1,611,000
44,000 SBC Communications, Inc. .............................. 1,837,000 2,095,500
------------- ------------
7,826,222 8,501,375
------------- ------------
TOYS -- 0.3%
14,500 Mattel, Inc............................................ 329,150 377,000
------------- ------------
TRANSPORTATION -- 0.2%
4,000 Conrail, Inc........................................... 220,500 222,500
------------- ------------
UTILITIES-ELECTRIC -- 3.6%
20,000 California Energy Co., Inc.++.......................... 350,000 327,500
20,000 CILCORP., Inc. ........................................ 592,500 727,500
29,000 Duke Power Co. ........................................ 1,112,148 1,203,500
71,000 PacifiCorp............................................. 1,333,485 1,331,250
43,500 Unicom Corp. .......................................... 1,103,263 1,158,187
------------- ------------
4,491,396 4,747,937
------------- ------------
TOTAL COMMON STOCKS.................................... 114,523,776 129,534,953
------------- ------------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
13
<PAGE> 25
FUNDS IV TRUST
<TABLE>
THE STOCK APPRECIATION FUND
Portfolio of Investments (continued)
June 30, 1995
<CAPTION>
PRINCIPAL VALUE
AMOUNT COST (NOTE 2A)
- --------- ------------- ------------
<S> <C> <C> <C>
MONEY MARKET FUND*** -- 0.3%
$425,269 Federated Prime Obligations Money Market Fund.......... $ 425,269 $ 425,269
------------ ------------
TOTAL INVESTMENTS -- 99.0%............................. $114,949,045 129,960,222
============
OTHER ASSETS LESS LIABILITIES -- 1.0%.................. 1,285,115
------------
NET ASSETS -- 100.0%................................... $131,245,337
============
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
14
<PAGE> 26
FUNDS IV TRUST
<TABLE>
THE AGGRESSIVE STOCK APPRECIATION FUND
Portfolio of Investments
June 30, 1995
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- ----------- ------------ -----------
<S> <C> <C> <C>
COMMON STOCKS -- 98.7%
AEROSPACE/DEFENSE -- 3.4%
3,000 Lockheed Martin Corp................................... $ 144,750 $ 189,375
6,000 Raytheon Co............................................ 432,300 465,750
18,100 Rockwell International Corp............................ 845,784 828,075
------------ -----------
1,422,834 1,483,200
------------ -----------
AIRLINES -- 1.0%
6,000 Delta Airlines, Inc. .................................. 439,425 442,500
------------ -----------
BEVERAGES -- 0.7%
4,500 The Coca-Cola Co. ..................................... 241,485 286,875
------------ -----------
BROADCASTING -- 6.1%
4,900 Capital Cities/ABC, Inc. .............................. 439,870 529,200
71,500 Heritage Media Corp.++................................. 1,587,433 2,064,563
5,000 International Family Entertainment, Inc. Class B++..... 73,125 78,750
------------ -----------
2,100,428 2,672,513
------------ -----------
CHEMICALS -- 8.5%
14,000 Cabot Corp............................................. 619,656 738,500
5,300 duPont (E.I.) de Nemours & Co. ........................ 319,988 364,375
14,100 Eastman Chemical Co. .................................. 750,951 838,950
13,900 IMC Global, Inc. ...................................... 642,916 752,338
6,150 Monsanto Co. .......................................... 514,294 554,269
17,500 Morton International, Inc. ............................ 525,115 511,875
------------ -----------
3,372,920 3,760,307
------------ -----------
COMPUTERS -- 7.8%
5,200 Apple Computer, Inc. .................................. 209,950 241,475
43,000 Comdisco, Inc. ........................................ 1,031,381 1,306,125
8,000 Compaq Computer Corp.++................................ 346,181 363,000
16,000 International Business Machines Corp. ................. 1,278,843 1,536,000
------------ -----------
2,866,355 3,446,600
------------ -----------
COMPUTER SOFTWARE & SERVICES -- 1.7%
11,000 Computer Associates International, Inc. ............... 584,187 745,250
------------ -----------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
15
<PAGE> 27
FUNDS IV TRUST
<TABLE>
THE AGGRESSIVE STOCK APPRECIATION FUND
Portfolio of Investments (continued)
June 30, 1995
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- ----------- ------------ -----------
<S> <C> <C> <C>
COMMON STOCKS -- (CONTINUED)
ELECTRONICS -- 7.4%
35,500 Advanced Micro Devices, Inc.++ ........................ $ 1,155,575 $ 1,291,313
8,800 Hewlett-Packard Co. ................................... 569,863 655,600
15,000 Intel Corp. ........................................... 848,927 949,687
6,000 Teradyne, Inc.++....................................... 180,000 392,250
------------ -----------
2,754,365 3,288,850
------------ -----------
ELECTRICAL EQUIPMENT -- 2.2%
7,000 AMP, Inc. ............................................. 309,526 295,750
16,800 Baldor Electric Co. ................................... 384,300 480,900
5,625 Molex, Inc. Class A.................................... 180,000 205,313
------------ -----------
873,826 981,963
------------ -----------
ENTERTAINMENT -- 0.5%
4,000 The Walt Disney Co. ................................... 170,000 222,500
------------ -----------
ENVIRONMENTAL CONTROL -- 2.3%
28,000 Browning-Ferris Industries, Inc. ...................... 977,212 1,011,500
------------ -----------
FINANCIAL SERVICES -- 9.2%
8,250 ADVANTA Corp. Class B.................................. 244,406 311,438
18,000 American Express Co. .................................. 583,534 632,250
26,000 Citicorp............................................... 1,189,427 1,504,750
15,000 Equifax, Inc. ......................................... 431,250 500,625
5,500 First Interstate Bancorp............................... 434,611 441,375
30,400 Lehman Brothers Holdings, Inc. ........................ 665,238 665,000
------------ -----------
3,548,466 4,055,438
------------ -----------
FOOD PROCESSING -- 1.9%
15,500 Archer-Daniels-Midland Co. ............................ 301,190 288,688
7,500 Philip Morris Cos., Inc. .............................. 513,219 557,812
------------ -----------
814,409 846,500
------------ -----------
FOOTWEAR -- 1.1%
6,000 Nike, Inc. Class B..................................... 453,294 504,000
------------ -----------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
16
<PAGE> 28
FUNDS IV TRUST
<TABLE>
THE AGGRESSIVE STOCK APPRECIATION FUND
Portfolio of Investments (continued)
June 30, 1995
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- ----------- ------------ -----------
<S> <C> <C> <C>
COMMON STOCKS -- (CONTINUED)
FOREST PRODUCTS & PAPERS -- 4.5%
7,000 International Paper Co. ............................... $ 562,644 $ 600,250
7,975 Rayonier, Inc. ........................................ 278,821 283,113
11,700 Union Camp Corp. ...................................... 588,072 677,137
8,700 Weyerhaeuser Co. ...................................... 378,450 409,988
------------ -----------
1,807,987 1,970,488
------------ -----------
HOLDING COMPANIES -- 1.0%
3,800 ITT Corp. ............................................. 374,395 446,500
------------ -----------
HOMEBUILDERS -- 1.0%
27,750 Clayton Homes, Inc. ................................... 424,580 454,406
------------ -----------
INSURANCE -- 3.7%
6,500 American International Group, Inc. .................... 683,467 741,000
8,000 Chubb Corp. ........................................... 665,013 641,000
2,000 General Re Corp. ...................................... 225,750 267,750
------------ -----------
1,574,230 1,649,750
------------ -----------
LEISURE -- 2.0%
25,000 The Coleman Co., Inc.++................................ 833,128 887,500
------------ -----------
MACHINERY -- 5.6%
14,900 Atchison Casting Corp.++............................... 247,713 214,188
8,500 Caterpillar, Inc. ..................................... 509,438 546,125
18,000 Deere & Co. ........................................... 1,402,768 1,541,250
3,300 York International Corp. .............................. 135,300 148,500
------------ -----------
2,295,219 2,450,063
------------ -----------
MISCELLANEOUS MANUFACTURING -- 2.3%
15,800 Eastman Kodak Co. ..................................... 775,225 957,875
2,400 Hillenbrand Industries, Inc. .......................... 78,600 74,700
------------ -----------
853,825 1,032,575
------------ -----------
MEDICAL SERVICES -- 0.9%
9,680 Columbia/HCA Healthcare Corp. ......................... 325,875 418,660
------------ -----------
METALS -- 1.8%
16,000 Cyprus Amax Minerals Co. .............................. 437,969 456,000
10,000 Kennametal, Inc. ...................................... 332,488 352,500
------------ -----------
770,457 808,500
------------ -----------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
17
<PAGE> 29
FUNDS IV TRUST
<TABLE>
THE AGGRESSIVE STOCK APPRECIATION FUND
Portfolio of Investments (continued)
June 30, 1995
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- ----------- ------------ -----------
<S> <C> <C> <C>
COMMON STOCKS -- (CONTINUED)
MINING -- 1.0%
18,000 Barrick Gold Corp. .................................... $ 404,150 $ 454,500
------------ -----------
OIL/GAS -- 2.7%
12,500 Amoco Corp. ........................................... 746,950 832,813
11,500 Tosco Corp. ........................................... 359,375 366,562
------------ -----------
1,106,325 1,199,375
------------ -----------
OIL/GAS EQUIPMENT -- 1.6%
35,000 Baker Hughes, Inc. .................................... 686,693 717,500
------------ -----------
PHARMACEUTICALS -- 10.3%
11,000 Abbott Laboratories.................................... 338,250 445,500
21,000 Allergan, Inc. ........................................ 599,587 569,625
14,300 Amgen, Inc.++ ......................................... 1,092,436 1,150,255
6,800 Bristol-Myers Squibb Co. .............................. 431,290 463,250
7,000 Johnson & Johnson...................................... 431,243 473,375
9,300 Merck & Co., Inc. ..................................... 404,085 455,700
7,000 Pfizer, Inc. .......................................... 575,063 646,625
7,800 R.P. Scherer Corp.++................................... 299,325 329,550
------------ -----------
4,171,279 4,533,880
------------ -----------
PUBLISHING & PRINTING -- 0.2%
4,000 Bowne & Co., Inc. ..................................... 86,500 68,500
------------ -----------
RETAIL-SPECIALTY LINE -- 1.1%
3,600 OfficeMax, Inc.++...................................... 75,680 100,350
13,950 PETsMART, Inc.++....................................... 325,500 401,062
------------ -----------
401,180 501,412
------------ -----------
TELECOMMUNICATIONS -- 2.6%
3,500 Motorola, Inc. ........................................ 229,863 234,938
19,500 SBC Communications, Inc. .............................. 814,125 928,688
------------ -----------
1,043,988 1,163,626
------------ -----------
TOYS -- 1.1%
17,812 Mattel, Inc. .......................................... 404,332 463,112
------------ -----------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
18
<PAGE> 30
FUNDS IV TRUST
<TABLE>
THE AGGRESSIVE STOCK APPRECIATION FUND
Portfolio of Investments (continued)
June 30, 1995
<CAPTION>
SHARES/
PRINCIPAL VALUE
AMOUNT COST (NOTE 2A)
- ----------- ------------ -----------
<S> <C> <C> <C>
COMMON STOCKS -- (CONTINUED)
TRANSPORTATION -- 0.7%
5,250 Conrail, Inc. ......................................... $ 289,406 $ 292,030
----------- -----------
UTILITIES-ELECTRIC -- 0.8%
10,400 California Energy Co., Inc.++.......................... 182,000 170,300
5,500 CILCORP, Inc. ......................................... 162,938 200,062
----------- -----------
344,938 370,362
----------- -----------
TOTAL COMMON STOCKS.................................... 38,817,693 43,630,735
----------- -----------
MONEY MARKET FUND*** -- 0.9%
$411,303 Federated Prime Obligations Money Market Fund.......... 411,303 411,303
----------- -----------
TOTAL INVESTMENTS -- 99.6%............................. $39,228,996 44,042,038
===========
OTHER ASSETS LESS LIABILITIES -- 0.4%.................. 169,180
-----------
NET ASSETS -- 100.0%................................... $44,211,218
===========
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
19
<PAGE> 31
FUNDS IV TRUST
<TABLE>
THE VALUE STOCK APPRECIATION FUND
Portfolio of Investments
June 30, 1995
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- --------- ------------ -----------
<S> <C> <C> <C>
COMMON STOCKS -- 82.3%
AEROSPACE/DEFENSE -- 6.2%
9,495 Raytheon Co. ............................................ $ 655,155 $ 737,049
11,885 Rockwell International Corp. ............................ 451,630 543,739
------------ -----------
1,106,785 1,280,788
------------ -----------
AUTO PARTS -- 3.0%
16,190 Genuine Parts Co. ....................................... 625,339 613,196
------------ -----------
BEVERAGES -- 2.5%
8,095 The Coca-Cola Co. ....................................... 430,047 516,056
------------ -----------
BREWERY -- 2.3%
8,325 Anheuser-Busch Cos., Inc. ............................... 450,590 473,484
------------ -----------
CHEMICAL -- 4.3%
9,595 Betz Laboratories, Inc. ................................. 414,744 434,174
10,460 PPG Industries, Inc. .................................... 384,355 449,780
------------ -----------
799,099 883,954
------------ -----------
ELECTRONICS -- 5.3%
9,920 General Electric Co. .................................... 515,840 559,240
8,500 Intel Corp. ............................................. 328,844 538,156
------------ -----------
844,684 1,097,396
------------ -----------
ELECTRICAL EQUIPMENT -- 2.4%
6,830 Emerson Electric Co. .................................... 448,219 488,345
------------ -----------
FINANCIAL SERVICES -- 2.8%
8,130 J.P. Morgan & Co., Inc. ................................. 514,222 570,116
------------ -----------
FOOD PROCESSING -- 5.8%
7,610 Heinz (H.J.) Co. ........................................ 306,303 337,694
11,560 Philip Morris Cos., Inc. ................................ 709,495 859,775
------------ -----------
1,015,798 1,197,469
------------ -----------
FOOTWEAR -- 1.9%
37,035 Stride Rite Corp. ....................................... 453,679 384,238
------------ -----------
FOREST PRODUCTS & PAPERS -- 1.6%
5,680 Union Camp Corp. ........................................ 284,000 328,730
------------ -----------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
20
<PAGE> 32
FUNDS IV TRUST
<TABLE>
THE VALUE STOCK APPRECIATION FUND
Portfolio of Investments (continued)
June 30, 1995
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- --------- ------------ -----------
<S> <C> <C> <C>
COMMON STOCKS -- (CONTINUED)
HOLDING COMPANIES -- 2.2%
25,485 Hanson PLC ADR........................................... $ 458,160 $ 449,173
1,274 U.S. Industries, Inc.++.................................. 24,109 17,358
------------ -----------
482,269 466,531
------------ -----------
HOMEBUILDERS -- 2.3%
29,000 Clayton Homes, Inc. ..................................... 495,320 474,875
------------ -----------
INSURANCE -- 4.7%
4,319 American International Group, Inc. ...................... 449,176 492,366
5,970 Chubb Corp. ............................................. 471,178 478,346
------------ -----------
920,354 970,712
------------ -----------
METALS--DIVERSIFIED -- 2.5%
8,900 Phelps Dodge Corp. ...................................... 492,437 525,100
------------ -----------
MISCELLANEOUS MANUFACTURING -- 2.5%
9,085 Minnesota Mining & Manufacturing Co. .................... 480,369 520,116
------------ -----------
PERSONAL CARE -- 2.5%
12,300 Tambrands, Inc. ......................................... 511,987 525,825
------------ -----------
PHARMACEUTICALS -- 9.9%
13,775 Abbott Laboratories...................................... 478,681 557,888
3,100 American Home Products Corp. ............................ 215,063 239,863
8,000 Bristol-Myers Squibb Co. ................................ 490,000 545,000
14,545 Merck & Co., Inc. ....................................... 585,436 712,705
------------ -----------
1,769,180 2,055,456
------------ -----------
PUBLISHING & PRINTING -- 4.7%
8,900 Dun & Bradstreet Corp. .................................. 455,026 467,250
21,805 John H. Harland Co. ..................................... 480,436 498,789
------------ -----------
935,462 966,039
------------ -----------
RESTAURANTS/FOOD SERVICE -- 1.8%
9,804 McDonald's Corp. ........................................ 329,660 383,582
------------ -----------
RETAIL/DEPARTMENT STORES -- 2.5%
19,345 Wal-Mart Stores, Inc. ................................... 459,668 517,479
------------ -----------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
21
<PAGE> 33
FUNDS IV TRUST
<TABLE>
THE VALUE STOCK APPRECIATION FUND
Portfolio of Investments (continued)
June 30, 1995
<CAPTION>
SHARES/
PRINCIPAL VALUE
AMOUNT COST (NOTE 2A)
- --------- ------------ -----------
<S> <C> <C> <C>
COMMON STOCKS -- (CONTINUED)
TELECOMMUNICATIONS -- 4.3%
13,720 GTE Corp. ............................................... $ 472,059 $ 468,196
8,975 SBC Communications, Inc. ................................ 408,138 427,434
----------- -----------
880,197 895,630
----------- -----------
TEXTILES -- 2.4%
9,400 VF Corp. ................................................ 479,931 505,250
----------- -----------
TRANSPORTATION -- 1.9%
17,518 Alexander & Baldwin, Inc. ............................... 385,396 389,775
----------- -----------
Total Common Stocks...................................... 15,594,692 17,030,142
----------- -----------
U.S. TREASURY BILLS(D) -- 11.0%
$300,000 5.73%, 07/06/95.......................................... 299,767 299,767
900,000 5.83%, 08/17/95.......................................... 893,338 893,338
600,000 5.85%, 08/24/95.......................................... 594,888 594,888
500,000 5.74%, 08/31/95.......................................... 495,272 495,264
----------- -----------
TOTAL U.S. TREASURY BILLS................................ 2,283,265 2,283,257
----------- -----------
MONEY MARKET FUNDS*** -- 4.9%
201,538 Federated Government Obligations Money Market Fund....... 201,538 201,538
800,000 Federated Prime Obligations Money Market Fund............ 800,000 800,000
----------- -----------
TOTAL MONEY MARKET FUNDS................................. 1,001,538 1,001,538
----------- -----------
TOTAL INVESTMENTS -- 98.2%............................... $18,879,495 20,314,937
===========
OTHER ASSETS LESS LIABILITIES -- 1.8%.................... 374,614
-----------
NET ASSETS -- 100.0%..................................... $20,689,551
===========
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
22
<PAGE> 34
FUNDS IV TRUST
<TABLE>
Footnotes to Portfolios
* Short-Term Credit Ratings given by the following Nationally Recognized
Statistical Rating Organizations which represent instrument of the highest
quality (unaudited):
<CAPTION>
Duff & Phelps Fitch Investor IBCA Moody's Investors Standard & Poor's Thompson
Credit Rating Services, Inc. Ltd. Service, Inc. Corp. BankWatch
- -------------- --------------- ---- ------------------ ------------------ ----------
<S> <C> <C> <C> <C> <C>
D-1 F-1 A1 P-1 A-1 TBW-1
</TABLE>
<TABLE>
** Long-Term Credit Ratings given by Standard & Poor's Corp. and Moody's
Investors Service, Inc. (unaudited).
<CAPTION>
Standard & Poor's Moody's
- ----------------- --------
<C> <C> <S>
AAA Aaa Instrument judged to be of the best quality and
carrying the smallest amount of credit risk.
AA Aa Instrument judged to be of high quality by all
standards.
A A Instrument judged to be adequate by all standards.
BBB Baa Instrument judged to be of moderate quality by all
standards.
NR NR Not Rated. In the opinion of the Investment Advisers,
instrument judged to be of comparable investment
quality to related securities which may be purchased
by the Funds.
</TABLE>
Items which possess the strongest investment attributes of their category
are given that letter rating followed by a number. The Standard & Poor's
Corp. may modify the ratings by the addition of a plus or minus sign to show
relative standing within the major rating categories. Moody's applies
numerical modifiers to designate relative standings within the generic
rating categories.
U.S. Government issues have assumed ratings of AAA/Aaa.
*** Money Market Funds have credit ratings of AAA/Aaa.
+ The cost of securities for Federal income tax purposes is substantially the
same.
++ Non-income producing security.
(a) Maturity date shown is the final maturity date; rate shown represents the
yield to next interest reset date.
(b) Security restricted as to resale. The total value of restricted security is
5.10% of net assets.
(c) Maturity date shown is the first callable date.
(d) Rate shown is yield to maturity on date of purchase.
(e) Security may only be sold to qualified institutional buyers.
See accompanying notes to financial statements.
23
<PAGE> 35
FUNDS IV TRUST
Footnotes to Portfolios (continued)
INVESTMENT PERCENTAGES SHOWN ARE CALCULATED AS A PERCENTAGE OF NET ASSETS.
<TABLE>
ABBREVIATIONS USED IN THE PORTFOLIOS:
<CAPTION>
<S> <C>
ADR American Depository Receipts
CMO Collateralized Mortgage Obligation
PAC Planned Amortization Class
REMIC Real Estate Mortgage Investment Conduit
VR Variable Rate
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 36
FUNDS IV TRUST
<TABLE>
Statement of Assets and Liabilities
June 30, 1995
<CAPTION>
THE THE THE
CASH RESERVE SHORT-TERM INTERMEDIATE THE
MONEY MARKET TREASURY BOND INCOME BOND INCOME
FUND INCOME FUND FUND FUND
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securities, at value (cost
$274,413,492, $14,788,718, $123,188,236,
and $12,131,835, respectively) (Note 2A)....... $274,413,492 $15,083,653 $126,916,808 $12,769,802
Cash............................................. -- 13,868 -- 1,188
Interest receivable.............................. 1,673,341 227,251 2,441,701 254,028
Receivable from Investment Adviser............... 46,222 -- -- --
Receivable for Fund shares sold.................. -- -- 272,858 26,107
Unamortized organizational costs (Note 2E)....... 19,024 19,125 19,125 19,125
Other assets..................................... 1,835 36 935 133
------------ ----------- ------------ -----------
Total assets................................... 276,153,914 15,343,933 129,651,427 13,070,383
------------ ----------- ------------ -----------
LIABILITIES:
Payable to Custodian............................. -- -- 181,953 --
Dividend payable................................. 1,287,283 14,568 24,015 1,584
Payable for Fund shares redeemed................. -- 250 6,265 --
Investment Advisory fee payable (Note 3)......... -- 18,090 26,395 50,141
Administrative services fee payable (Note 4)..... 33,884 -- 15,862 --
Shareholder servicing fee payable (Note 5)....... 11,295 5,558 5,287 6,268
Custodian fee payable (Note 6)................... 6,777 3,334 3,172 3,761
Fund accounting fee payable (Note 4)............. 3,948 2,741 3,116 3,209
Transfer agent fee payable (Note 6).............. 415 500 1,550 730
Other accrued liabilities........................ 141,291 20,951 60,917 21,618
------------ ----------- ------------ -----------
Total liabilities.............................. 1,484,893 65,992 328,532 87,311
------------ ----------- ------------ -----------
NET ASSETS......................................... $274,669,021 $15,277,941 $129,322,895 $12,983,072
============ =========== ============ ===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par
value of $0.001 per share); unlimited number
of shares authorized........................... $ 274,669 $ 1,498 $ 12,687 $ 1,254
Additional paid-in capital....................... 274,394,352 14,980,364 126,636,612 12,499,063
Accumulated undistributed net realized gain
(loss) on investment transactions.............. -- 1,144 (1,054,976) (155,212)
Net unrealized appreciation on investments....... -- 294,935 3,728,572 637,967
------------ ----------- ------------ -----------
Net assets applicable to shares of beneficial
interest outstanding............................. $274,669,021 $15,277,941 $129,322,895 $12,983,072
============ =========== ============ ===========
SHARES OF BENEFICIAL INTEREST:
SERVICE CLASS:
Shares of beneficial interest outstanding...... 274,663,143 1,497,570 12,685,895 1,253,851
=========== ========= ========== =========
Net asset value, maximum offering price and
redemption price per share outstanding....... $1.00 $10.20 $10.19 $10.35
===== ====== ====== ======
PREMIUM CLASS:
Shares of beneficial interest outstanding...... 5,878 589 591 591
===== ====== ====== ======
Net asset value, maximum offering price and
redemption price per share outstanding....... $1.00 $10.20 $10.19 $10.35
===== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
25
<PAGE> 37
FUNDS IV TRUST
<TABLE>
Statement of Assets and Liabilities (continued)
June 30, 1995
<CAPTION>
THE
THE AGGRESSIVE THE
STOCK STOCK VALUE STOCK
APPRECIATION APPRECIATION APPRECIATION
FUND FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS:
Investment in securities, at value (cost $114,949,045,
$39,228,996, and $18,879,495, respectively) (Note 2A)...... $129,960,222 $44,042,038 $20,314,937
Cash......................................................... 1,146,514 86,005 7,993
Receivable for securities sold............................... 1,357,379 410,627 352,000
Receivable for Fund shares sold.............................. 531,150 37,199 9,669
Interest and dividends receivable............................ 240,702 49,917 52,114
Unamortized organizational costs (Note 2E)................... 19,125 19,125 32,315
Other assets................................................. 873 308 --
------------ ----------- -----------
Total assets............................................... 133,255,965 44,645,219 20,769,028
------------ ----------- -----------
LIABILITIES:
Payable for securities purchased............................. 1,855,282 355,349 --
Dividend payable............................................. 15,924 4,177 357
Payable for Fund shares redeemed............................. 4,707 -- 500
Investment Advisory fee payable (Note 3)..................... 49,616 26,453 46,639
Administrative services fee payable (Note 4)................. 15,840 5,326 --
Shareholder servicing fee payable (Note 5)................... 5,280 1,775 3,588
Custodian fee payable (Note 6)............................... 3,168 1,065 2,153
Fund accounting fee payable (Note 4)......................... 3,116 3,231 2,716
Transfer agent fee payable (Note 6).......................... 1,450 2,182 279
Other accrued liabilities.................................... 56,245 34,443 23,245
------------ ----------- -----------
Total liabilities.......................................... 2,010,628 434,001 79,477
------------ ----------- -----------
NET ASSETS..................................................... $131,245,337 $44,211,218 $20,689,551
============ =========== ===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of
$0.001
per share); unlimited number of shares authorized.......... $ 11,876 $ 4,066 $ 1,892
Additional paid-in capital................................... 118,716,266 40,453,328 19,028,845
Undistributed (distribution in excess of) net investment
income..................................................... 133 -- (25)
Accumulated undistributed net realized gain (loss) on
investment transactions.................................... (2,494,115) (1,059,218) 223,397
Net unrealized appreciation on investments................... 15,011,177 4,813,042 1,435,442
------------ ----------- -----------
Net assets applicable to shares of beneficial interest
outstanding.................................................. $131,245,337 $44,211,218 $20,689,551
============ =========== ===========
SHARES OF BENEFICIAL INTEREST:
SERVICE CLASS:
Shares of beneficial interest outstanding.................. 11,875,695 4,064,941 1,892,489
========== ========= =========
Net asset value, maximum offering price and redemption
price per share outstanding.............................. $11.05 $10.87 $10.93
====== ====== ======
PREMIUM CLASS:
Shares of beneficial interest outstanding.................. 570 567 6
====== ====== ======
Net asset value, maximum offering price and redemption
price per share outstanding.............................. $11.05 $10.87 $10.93
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 38
FUNDS IV TRUST
<TABLE>
Statement of Operations
For the Period Ended June 30, 1995
<CAPTION>
THE THE THE
CASH RESERVE SHORT-TERM INTERMEDIATE THE
MONEY MARKET TREASURY BOND INCOME BOND INCOME
FUND* INCOME FUND** FUND** FUND**
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
INTEREST INCOME................................... $12,985,168 $713,545 $ 6,754,756 $ 897,991
----------- -------- ----------- ----------
EXPENSES:
Investment Advisory (Note 3).................... 440,249 33,341 393,828 50,141
Administrative services (Note 4)................ 330,187 16,671 147,685 18,803
Shareholder servicing (Note 5).................. 110,063 5,558 49,229 6,268
Registration.................................... 98,504 6,205 33,004 5,204
Custodian (Note 6).............................. 66,037 3,334 29,537 3,761
Legal........................................... 42,025 2,180 19,329 2,741
Fund accounting (Note 4)........................ 27,960 27,828 30,759 29,466
Audit........................................... 21,135 10,550 15,100 11,882
Reports to shareholders......................... 18,789 968 8,794 1,176
Trustees........................................ 17,403 889 8,069 1,097
Insurance....................................... 11,117 218 5,672 806
Amortization of organization expenses (Note
2E)........................................... 3,984 3,883 3,883 3,883
Transfer agent (Note 6)......................... 1,462 2,566 9,880 2,735
Miscellaneous................................... 8,799 1,152 4,778 1,271
----------- -------- ----------- ----------
Net expenses before waivers................... 1,197,714 115,343 759,547 139,234
Expenses waived by Investment Advisers
& Administrator (Notes 3 & 4)............... (91,401) (31,922) (15,904) (18,803)
----------- -------- ----------- ----------
Net expenses.................................... 1,106,313 83,421 743,643 120,431
----------- -------- ----------- ----------
NET INVESTMENT INCOME............................. 11,878,855 630,124 6,011,113 777,560
----------- -------- ----------- ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain (loss) on investment
transactions.................................. -- 1,144 (1,054,976) (155,212)
Net change in unrealized appreciation on
investments................................... -- 294,935 3,728,572 637,967
----------- -------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS..................................... -- 296,079 2,673,596 482,755
----------- -------- ----------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $11,878,855 $926,203 $ 8,684,709 $1,260,315
=========== ======== =========== ==========
<FN>
* Fund commenced operations on August 19, 1994.
** Fund commenced operations on August 26, 1994.
</TABLE>
See accompanying notes to financial statements.
27
<PAGE> 39
FUNDS IV TRUST
<TABLE>
Statement of Operations (continued)
For the Period Ended June 30, 1995
<CAPTION>
THE
THE AGGRESSIVE THE
STOCK STOCK VALUE STOCK
APPRECIATION APPRECIATION APPRECIATION
FUND* FUND* FUND**
------------ ------------ ------------
<S> <C> <C> <C>
NET INVESTMENT INCOME:
INCOME:
Dividends...................................................... $ 1,847,945 $ 519,878 $ 191,509
Interest....................................................... 933,384 317,905 74,627
----------- ---------- ---------
2,781,329 837,783 266,136
----------- ---------- ---------
EXPENSES:
Investment Advisory (Note 3)................................... 625,646 249,385 46,639
Administrative services (Note 4)............................... 144,380 50,212 10,763
Shareholder servicing (Note 5)................................. 48,127 16,738 3,587
Registration................................................... 32,003 15,104 7,504
Fund accounting (Note 4)....................................... 30,877 30,316 12,530
Custodian (Note 6)............................................. 28,876 10,042 2,153
Legal.......................................................... 15,531 7,776 1,582
Audit.......................................................... 14,978 11,737 5,790
Transfer agent (Note 6)........................................ 9,150 8,187 743
Reports to shareholders........................................ 8,445 2,943 633
Trustees....................................................... 7,777 2,724 227
Insurance...................................................... 5,300 1,866 --
Amortization of organization expenses (Note 2E)................ 3,883 3,883 2,685
Miscellaneous.................................................. 4,592 2,269 901
----------- ---------- ---------
Net expenses before waivers.................................. 979,565 413,182 95,737
Expenses waived by Investment Adviser & Administrator (Notes
3 & 4)..................................................... (19,024) -- (10,763)
----------- ---------- ---------
Net expenses................................................... 960,541 413,182 84,974
----------- ---------- ---------
NET INVESTMENT INCOME............................................ 1,820,788 424,601 181,162
----------- ---------- ---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain (loss) on investment transactions............ (2,494,115) (1,059,218) 223,397
Net change in unrealized appreciation on investments........... 15,011,177 4,813,042 1,435,442
----------- ---------- ---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS.................. 12,517,062 3,753,824 1,658,839
----------- ---------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $14,337,850 $ 4,178,425 $1,840,001
=========== =========== ==========
<FN>
* Fund commenced operations on August 26, 1994.
** Fund commenced operations on February 10, 1995.
</TABLE>
See accompanying notes to financial statements.
28
<PAGE> 40
FUNDS IV TRUST
<TABLE>
Statement of Changes in Net Assets
For the Period Ended June 30, 1995
<CAPTION>
THE THE THE
CASH RESERVE SHORT-TERM INTERMEDIATE THE
MONEY MARKET TREASURY BOND INCOME BOND INCOME
FUND* INCOME FUND** FUND** FUND**
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income.......................... $ 11,878,855 $ 630,124 $ 6,011,113 $ 777,560
Net realized gain (loss) on investment
transactions................................. -- 1,144 (1,054,976) (155,212)
Net change in unrealized appreciation on
investments.................................. -- 294,935 3,728,572 637,967
------------- ----------- ------------ ----------
Net increase in net assets resulting from
operations..................................... 11,878,855 926,203 8,684,709 1,260,315
------------- ----------- ------------ ----------
Distributions to Shareholders:
Net investment income:
Service Class................................ (11,878,590) (629,853) (6,010,821) (777,262)
Premium Class................................ (265) (271) (292) (298)
------------- ----------- ------------ ----------
(11,878,855) (630,124) (6,011,113) (777,560)
------------- ----------- ------------ ----------
Transactions in Shares of Beneficial Interest:
Proceeds from sales of shares:
Service Class................................ 504,606,671 19,068,124 151,855,281 18,704,493
Premium Class................................ -- -- -- --
------------- ----------- ------------ ----------
504,606,671 19,068,124 151,855,281 18,704,493
------------- ----------- ------------ ----------
Net asset value of shares issued in
reinvestment of distributions:
Service Class.............................. 7,113 535,484 5,850,294 756,287
Premium Class.............................. 263 269 290 295
------------- ----------- ------------ ----------
7,376 535,753 5,850,584 756,582
------------- ----------- ------------ ----------
Cost of shares redeemed:
Service Class................................ (229,956,257) (4,633,246) (31,067,797) (6,971,989)
Premium Class................................ -- -- -- --
------------- ----------- ------------ ----------
(229,956,257) (4,633,246) (31,067,797) (6,971,989)
------------- ----------- ------------ ----------
Net increase in net assets derived from
transactions in shares of beneficial
interest....................................... 274,657,790 14,970,631 126,638,068 12,489,086
------------- ----------- ------------ ----------
NET INCREASE IN NET ASSETS....................... 274,657,790 15,266,710 129,311,664 12,971,841
NET ASSETS:
Beginning of period............................ 11,231 11,231 11,231 11,231
------------- ----------- ------------ ----------
End of period.................................. $ 274,669,021 $15,277,941 $129,322,895 $12,983,072
============= =========== ============ ===========
<FN>
* Fund commenced operations on August 19, 1994.
** Fund commenced operations on August 26, 1994.
</TABLE>
See accompanying notes to financial statements.
29
<PAGE> 41
FUNDS IV TRUST
<TABLE>
Statement of Changes in Net Assets (continued)
For the Period Ended June 30, 1995
<CAPTION>
THE
THE AGGRESSIVE THE
STOCK STOCK VALUE STOCK
APPRECIATION APPRECIATION APPRECIATION
FUND* FUND* FUND**
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income....................................... $ 1,820,788 $ 424,601 $ 181,162
Net realized gain (loss) on investment transactions......... (2,494,115) (1,059,218) 223,397
Net change in unrealized appreciation on investments........ 15,011,177 4,813,042 1,435,442
------------ ------------ -----------
Net increase in net assets resulting from operations.......... 14,337,850 4,178,425 1,840,001
------------ ------------ -----------
Distributions to Shareholders:
Net investment income:
Service Class............................................. (1,820,567) (424,543) (181,187)
Premium Class............................................. (88) (58) --
------------ ------------ -----------
(1,820,655) (424,601) (181,187)
------------ ------------ -----------
Transactions in Shares of Beneficial Interest:
Proceeds from sales of shares:
Service Class............................................. 141,795,146 52,202,929 19,959,592
Premium Class............................................. -- -- --
------------ ------------ -----------
141,795,146 52,202,929 19,959,592
------------ ------------ -----------
Net asset value of shares issued in reinvestment of
distributions:
Service Class............................................. 1,792,471 415,956 180,830
Premium Class............................................. 88 57 --
------------ ------------ -----------
1,792,559 416,013 180,830
------------ ------------ -----------
Cost of shares redeemed:
Service Class............................................. (24,870,794) (12,172,779) (1,109,805)
Premium Class............................................. -- -- --
------------ ------------ -----------
(24,870,794) (12,172,779) (1,109,805)
------------ ------------ -----------
Net increase in net assets derived from transactions in shares
of beneficial interest...................................... 118,716,911 40,446,163 19,030,617
------------ ------------ -----------
NET INCREASE IN NET ASSETS.................................... 131,234,106 44,199,987 20,689,431
NET ASSETS:
Beginning of period......................................... 11,231 11,231 120
------------ ------------ -----------
End of period............................................... $131,245,337 $ 44,211,218 $20,689,551
============ ============ ===========
Undistributed (Distribution in excess of) Net Investment
Income...................................................... $133 -- $(25)
==== === ====
<FN>
* Fund commenced operations on August 26, 1994.
** Fund commenced operations on February 10, 1995.
</TABLE>
See accompanying notes to financial statements.
30
<PAGE> 42
FUNDS IV TRUST
Notes to Financial Statements
June 30, 1995
1. DESCRIPTION AND ORGANIZATION
FUNDS IV Trust (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company. The Trust was organized as a Delaware business trust on May 2, 1994 and
currently consists of ten portfolios: The U.S. Treasury Reserve Money Market
Fund, The Cash Reserve Money Market Fund, The Short-Term Treasury Income Fund,
The Intermediate Bond Income Fund, The Bond Income Fund, The Stock Appreciation
Fund, The Aggressive Stock Appreciation Fund, The Value Stock Appreciation Fund,
The U.S. Intermediate Tax Exempt Fund, and The Kansas Intermediate Tax Exempt
Fund (each, a "Fund", collectively, the "Funds"). Each Fund comprises two
classes of shares, the Service Class and the Premium Class. The capitalization
of the Trust consists solely of an unlimited number of shares of beneficial
interest with a par value of $0.001 each.
Currently, seven of the Funds are active. The Cash Reserve Money Market
Fund commenced operations on August 19, 1994; The Short-Term Treasury Income
Fund, The Intermediate Bond Income Fund, The Bond Income Fund, The Stock
Appreciation Fund, and The Aggressive Stock Appreciation Fund commenced
operations on August 26, 1994. The Value Stock Appreciation Fund commenced
operations on February 10, 1995. As of June 30, 1995, The U.S. Treasury Reserve
Money Market Fund, The U.S. Intermediate Tax Exempt Fund, and The Kansas
Intermediate Tax Exempt Fund had not commenced operations.
Prior to the commencement of operations dates, none of the Funds had any
operations other than organization matters and the sale to FUNDS IV Distributor,
Inc. ("FFD"), the Trust's Distributor, of shares of beneficial interest
representing the initial capital of the Funds. As of June 30, 1995, no Premium
Class shares had been issued other than initial shares sold to FFD.
Each class of shares outstanding bears the same dividend, liquidation and
other rights and conditions, except that the Service Class shares and the
Premium Class shares may bear separate shareholder servicing expenses, different
transfer agency and printing and postage expenses. Each class of shares has
exclusive voting rights with respect to matters affecting only that class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements:
A) SECURITY VALUATION: The Funds (except The Cash Reserve Money Market
Fund) value investments at the last sales price on the securities
exchange which such securities are primarily traded. Over-the-counter
securities, or exchange traded securities for which there are no
transactions, are valued at the current bid price. Bonds and other fixed
income securities may be valued on the basis of prices provided by a
pricing service approved by the Board of Trustees. In the absence of
market quotations, investments are valued at fair value as determined in
good faith by, or at the direction of the Board of Trustees. Short-term
securities which mature in 60 days or less are valued at amortized cost,
if their term to
31
<PAGE> 43
FUNDS IV TRUST
Notes to Financial Statements (continued)
June 30, 1995
maturity at purchase was 60 days or less, or by amortizing their value
on the 61st day prior to maturity, if their original term to maturity at
purchase exceeded 60 days.
Investment securities of The Cash Reserve Money Market Fund are
valued under the amortized cost method, which approximates current
market value. Under this method, securities are valued at cost when
purchased and, thereafter, a constant proportionate amortization of any
discount or premium is recorded until maturity of the security.
B) INVESTMENT TRANSACTIONS AND INCOME: Investment transactions are
recorded on the trade date. Identified cost of investments sold is used
to calculate gain and loss on sales for both financial statement and
Federal income tax purposes. Interest income, including the
amortization of discount or premium, is recorded as earned. Dividend
income is recorded on the ex-dividend date.
C) DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS TO SHAREHOLDERS: Dividends from
net investment income are declared daily and paid monthly, generally on
the first business day of each month, for The Cash Reserve Money Market
Fund, The Short-Term Treasury Income Fund, The Intermediate Bond Income
Fund, and The Bond Income Fund. In the case of The Stock Appreciation
Fund, The Aggressive Stock Appreciation Fund, and The Value Stock
Appreciation Fund, dividends paid at least annually. Each Fund will
distribute, at least annually, substantially all net capital gains, if
any, earned by the Fund. The amount of dividends and distributions are
determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To
the extent these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their federal tax
basis treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and net
realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains.
D) FEDERAL INCOME TAXES: Each Fund is a separate taxable entity for Federal
income tax purposes, and intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as
amended. By so qualifying, each Fund will not be subject to Federal
income taxes to the extent that it distributes all of its "investment
company taxable income," as defined in the Code, and net capital gains,
if any, to its shareholders. Each Fund also intends to meet the
distribution requirements to avoid the payment of an excise tax.
Accordingly, no provision for Federal income taxes is required.
E) ORGANIZATIONAL COSTS: Costs incurred in connection with the
organization and initial registration of each Fund have been deferred
and are being amortized on a straight-line basis for a five-year period
beginning with the commencement of operations of each Fund. In the
event that any of the initial shares of the Funds owned by FFD are
redeemed during the amortization period, the redemption proceeds will
be reduced by a pro rata portion of any unamortized deferred
organization expenses in the same proportion as the number of initial
32
<PAGE> 44
FUNDS IV TRUST
Notes to Financial Statements (continued)
June 30, 1995
shares being redeemed bears to the number of initial shares outstanding
at the time of redemption.
F) DETERMINATION OF NET ASSET VALUE AND ALLOCATION OF EXPENSES: Expenses
directly attributable to a Fund are charged to that Fund; other
expenses are allocated proportionately among each Fund within the Trust
in relation to the net assets of each Fund, or on another reasonable
basis. In calculating net asset value per share of each class,
investment income and expenses, other than class-specific expenses, are
allocated daily to each class of shares based upon the proportion of
net assets of each class at the beginning of each day (for daily
dividend Funds, based on the value of outstanding settled shares).
3. INVESTMENT ADVISERS
BANK IV KANSAS, N.A. ("BANK IV") provides investment advisory services to
the Funds (except The Cash Reserve Money Market Fund). BANK IV is a wholly-owned
subsidiary of Fourth Financial Corporation and it acts as the investment adviser
to a wide variety of trusts, individuals, institutions and corporations.
AMR Investment Services, Inc. ("AMR") provides investment advisory services
to The Cash Reserve Money Market Fund. AMR is a wholly-owned subsidiary of AMR
Corporation, the parent company of American Airlines, Inc. It was organized in
1986 to provide business management, advisory, administrative, and asset
management consulting services.
<TABLE>
Pursuant to the separate Advisory Agreements, BANK IV and AMR act as
Investment Advisers and, subject to the supervision and direction of the Trust's
Board of Trustees, direct the investments of the Funds in accordance with their
investment objectives and policies, make investment decisions and place orders
to purchase and sell securities for the Funds. As compensation for their
investment advisory services, the Advisers are each entitled to receive from the
respective Funds they advise a monthly fee at an annual rate of the average
daily net assets of the Funds as indicated below:
<S> <C>
The Cash Reserve Money Market Fund................................... 0.200%
The Short-Term Treasury Income Fund.................................. 0.300%
The Intermediate Bond Income Fund.................................... 0.400%
The Bond Income Fund................................................. 0.400%
The Stock Appreciation Fund.......................................... 0.650%
The Aggressive Stock Appreciation Fund............................... 0.745%
The Value Stock Appreciation Fund.................................... 0.650%
</TABLE>
33
<PAGE> 45
FUNDS IV TRUST
Notes to Financial Statements (continued)
June 30, 1995
<TABLE>
For the period ended June 30, 1995, BANK IV and AMR were entitled to and
voluntarily waived investment advisory fees as indicated below:
<CAPTION>
BANK IV AMR
------------------ ------------------
ENTITLED WAIVED ENTITLED WAIVED
-------- ------- -------- -------
<S> <C> <C> <C> <C>
The Cash Reserve Money Market Fund...... -- -- $440,249 $91,401
The Short-Term Treasury Income Fund..... $ 33,341 $15,251 -- --
The Intermediate Bond Income Fund....... 393,828 15,904 -- --
The Bond Income Fund.................... 50,141 -- -- --
The Stock Appreciation Fund............. 625,646 19,024 -- --
The Aggressive Stock Appreciation
Fund.................................. 249,385 -- -- --
The Value Stock Appreciation Fund....... 46,639 -- -- --
</TABLE>
4. ADMINISTRATOR AND SPONSOR
Furman Selz Incorporated ("Furman Selz") serves as the Trust's
Administrator and Sponsor. Pursuant to a Administrative Services Contract
between the Trust and Furman Selz, Furman Selz provides management and
administrative services for the operation of the Funds, furnishes office space
and certain facilities required for conducting the business of the Funds and
pays the compensation of the Trust's officers affiliated with Furman Selz.
As compensation for its administrative services, Furman Selz receives a
monthly fee at an annual rate of 0.15% of each Fund's average daily net assets.
In addition, Furman Selz also provides fund accounting services for the
Funds pursuant to a Fund Accounting Agreement between the Trust and Furman Selz.
As compensation for its accounting services, Furman Selz receives from each Fund
an annual fee of $30,000 plus out-of-pocket expenses.
<TABLE>
For the period ended June 30, 1995, Furman Selz was entitled to and
voluntarily waived administrative services and fund accounting fees as indicated
below:
<CAPTION>
FURMAN SELZ
-----------------
ENTITLED WAIVED
-------- -------
<S> <C> <C>
The Cash Reserve Money Market Fund......................... $356,160 --
The Short-Term Treasury Income Fund........................ 41,986 $16,671
The Intermediate Bond Income Fund.......................... 173,000 --
The Bond Income Fund....................................... 44,118 18,803
The Stock Appreciation Fund................................ 169,695 --
The Aggressive Stock Appreciation Fund..................... 75,527 --
The Value Stock Appreciation Fund.......................... 22,270 10,763
</TABLE>
Currently, California is the only state imposing limitations on the
expenses of the Funds. If, in any fiscal year, the total expenses of a Fund
(excluding taxes, interest, distribution expenses, brokerage commissions,
certain portfolio transaction expenses, other expenditures which are capitalized
in accordance with generally accepted accounting principles and extraordinary
expenses, but including the advisory and administrative services fees) exceed
the expense limitations applicable to that Fund
34
<PAGE> 46
FUNDS IV TRUST
Notes to Financial Statements (continued)
June 30, 1995
imposed by the securities regulations, BANK IV, or AMR (with respect to The Cash
Reserve Money Market Fund only), and Furman Selz will reimburse the Funds for a
portion of the excess with BANK IV or AMR paying 60% and Furman Selz the
remaining 40% of the excess. Aggregate annual expenses shall not normally exceed
2 1/2% of the first $30 million of the average net assets, 2% of the next $70
million of the average net assets, and 1 1/2% of the remaining average net
assets. For the period ended June 30, 1995, there were no reimbursements
required as a result of these expense limitations for the Funds.
5. SERVICE ORGANIZATIONS
The Trust contracts with banks, trust companies, brokers-dealers, or other
financial organizations ("Service Organizations") to provide certain
administrative services for the Funds. Such services, which are described more
fully in the Statement of Additional Information, may include, among other
things: (i) maintaining shareholder accounts and records; (ii) processing
purchase and redemption transactions; (iii) providing periodic statements
showing a shareholder's account balance; (iv) furnishing periodic and annual
statements, annual reports, prospectuses, and other communications from the
Funds to share-
holders.
Each Service Organization has agreed to transmit a schedule to its clients
of any additional fees or conditions that may be applicable to the investment of
the Funds' shares.
For the services provided, the Funds may pay fees to Service Organizations
at an annual rate of up to 0.05% of the average daily net asset value of the
Funds' Service Class shares owned by shareholders with whom the Service
Organization has a servicing relationship. The Premium Class shares may bear an
additional shareholder servicing charge of up to 0.50%, annually, of the average
daily net assets. For the period ended June 30, 1995, Service Class shares and
Premium Class shares bore shareholder servicing fees of 0.05%.
<TABLE>
For the period ended June 30, 1995, BANK IV earned shareholder servicing
fees as indicated below:
<S> <C>
The Cash Reserve Money Market Fund................................ $110,063
The Short-Term Treasury Income Fund............................... 5,558
The Intermediate Bond Income Fund................................. 49,229
The Bond Income Fund.............................................. 6,268
The Stock Appreciation Fund....................................... 48,127
The Aggressive Stock Appreciation Fund............................ 16,738
The Value Stock Appreciation Fund................................. 3,587
</TABLE>
6. OTHER TRANSACTIONS WITH AFFILIATES
The Trust retains FUNDS IV Distributor, Inc., a subsidiary of Furman Selz,
to serve as principal underwriter for the shares of the Funds pursuant to a
Distribution Contract. FFD will use its best efforts to maintain a broad
distribution of the Funds' shares among bona fide investors and may enter
35
<PAGE> 47
FUNDS IV TRUST
Notes to Financial Statements (continued)
June 30, 1995
into selling group agreements with responsible dealers as well as sell the
Funds' shares to individual investors.
Pursuant to a Services Agreement between the Trust and Furman Selz, Furman
Selz acts as transfer agent for the Funds and assists the Trust with certain
transfer and dividend disbursing agent functions and receives a fee of $15 per
account per year plus out-of-pocket expenses.
<TABLE>
For the period ended June 30, 1995, Furman Selz earned transfer agent fees
as indicated below:
<S> <C>
The Cash Reserve Money Market Fund.................................. $ 258
The Short-Term Treasury Income Fund................................. 1,647
The Intermediate Bond Income Fund................................... 7,548
The Bond Income Fund................................................ 1,456
The Stock Appreciation Fund......................................... 7,174
The Aggressive Stock Appreciation Fund.............................. 5,252
The Value Stock Appreciation Fund................................... 563
</TABLE>
BANK IV serves as the Trust's custodian, and receives a monthly fee at an
annual rate of 0.03% of each Fund's average daily net assets.
<TABLE>
For the period ended June 30, 1995, BANK IV earned custodian fees as
indicated below:
<S> <C>
The Cash Reserve Money Market Fund................................. $66,037
The Short-Term Treasury Income Fund................................ 3,334
The Intermediate Bond Income Fund.................................. 29,537
The Bond Income Fund............................................... 3,761
The Stock Appreciation Fund........................................ 28,876
The Aggressive Stock Appreciation Fund............................. 10,042
The Value Stock Appreciation Fund.................................. 2,153
</TABLE>
7. PORTFOLIO SECURITY TRANSACTIONS
<TABLE>
The cost of securities purchases ("purchases") and proceeds from securities
sold ("sales"), (excluding short-term securities) for the period ended June 30,
1995 were as follows:
<CAPTION>
U.S. GOVERNMENT
COMMON STOCKS AND BONDS OBLIGATIONS
-------------------------- --------------------------
PURCHASES SALES PURCHASES SALES
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
The Short-Term Treasury Income Fund........ -- -- $ 23,616,234 $ 8,807,946
The Intermediate Bond Income Fund.......... $ 84,786,489 $27,794,088 143,540,111 77,503,406
The Bond Income Fund....................... 10,918,095 5,368,848 19,685,203 13,169,289
The Stock Appreciation Fund................ 157,622,372 40,601,537 -- --
The Aggressive Stock Appreciation Fund..... 61,874,252 21,995,700 -- --
The Value Stock Appreciation Fund.......... 17,578,295 2,206,887 -- --
</TABLE>
36
<PAGE> 48
FUNDS IV TRUST
Notes to Financial Statements (continued)
June 30, 1995
<TABLE>
Unrealized appreciation (depreciation) at June 30, 1995 based on cost of
securities for Federal income tax purposes is as follows:
<CAPTION>
GROSS GROSS NET
AGGREGATE UNREALIZED UNREALIZED UNREALIZED
COST APPRECIATION DEPRECIATION APPRECIATION
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
The Short-Term Treasury Income Fund.......... $ 14,788,718 $ 294,944 $ (9) $ 294,935
The Intermediate Bond Income Fund............ 123,188,236 3,781,304 (52,732) 3,728,572
The Bond Income Fund......................... 12,131,835 642,621 (4,654) 637,967
The Stock Appreciation Fund.................. 114,991,157 15,408,005 (438,940) 14,969,065
The Aggressive Stock Appreciation Fund....... 39,292,416 4,991,608 (241,986) 4,749,622
The Value Stock Appreciation Fund............ 18,879,495 1,557,080 (121,638) 1,435,442
</TABLE>
<TABLE>
8. CAPITAL SHARE TRANSACTIONS
The Trust is authorized to issue an unlimited number of shares of
beneficial interest with a par value of $0.001 each. Transactions in shares of
the Funds for the period ended June 30, 1995 were as follows:
<CAPTION>
THE CASH RESERVE THE SHORT-TERM
MONEY MARKET FUND TREASURY INCOME FUND
---------------------------- ----------------------------
SERVICE CLASS PREMIUM CLASS SERVICE CLASS PREMIUM CLASS
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold................................... 504,606,671 -- 1,909,207 --
Shares issued in reinvestment of
distributions............................... 7,113 263 53,737 28
------------ ----- --------- ---
504,613,784 263 1,962,944 28
Shares redeemed............................... (229,956,257) -- (465,936) --
------------ ----- --------- ---
Net increase in shares........................ 274,657,527 263 1,497,008 28
Beginning of period........................... 5,616 5,615 562 561
------------ ----- --------- ---
End of period................................. 274,663,143 5,878 1,497,570 589
============ ===== ========= ===
</TABLE>
<TABLE>
<CAPTION>
THE INTERMEDIATE THE
BOND INCOME FUND BOND INCOME FUND
---------------------------- ----------------------------
SERVICE CLASS PREMIUM CLASS SERVICE CLASS PREMIUM CLASS
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold.................................... 15,236,808 -- 1,872,843 --
Shares issued in reinvestment of
distributions................................ 589,850 30 76,453 --
---------- --- --------- ---
15,826,658 30 1,949,296 30
Shares redeemed................................ (3,141,325) -- (696,007) --
---------- --- --------- ---
Net increase in shares......................... 12,685,333 30 1,253,289 30
Beginning of period............................ 562 561 562 561
---------- --- --------- ---
End of period.................................. 12,685,895 591 1,253,851 591
========== === ========= ===
</TABLE>
37
<PAGE> 49
FUNDS IV TRUST
<TABLE>
Notes to Financial Statements (continued)
June 30, 1995
<CAPTION>
THE STOCK THE AGGRESSIVE STOCK
APPRECIATION FUND APPRECIATION FUND
---------------------------- ----------------------------
SERVICE CLASS PREMIUM CLASS SERVICE CLASS PREMIUM CLASS
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold.................................... 14,137,595 -- 5,220,643 --
Shares issued in reinvestment of
distributions................................ 174,961 9 41,285 6
---------- --- ---------- ---
14,312,556 9 5,261,928 6
Shares redeemed................................ (2,437,423) -- (1,197,549) --
---------- --- ---------- ---
Net increase in shares......................... 11,875,133 9 4,064,379 6
Beginning of period............................ 562 561 562 561
---------- --- ---------- ---
End of period.................................. 11,875,695 570 4,064,941 567
========== === ========== ===
</TABLE>
<TABLE>
<CAPTION>
THE VALUE
STOCK APPRECIATION FUND
----------------------------
SERVICE CLASS PREMIUM CLASS
------------- -------------
<S> <C> <C>
Shares sold.................................... 1,978,935 --
Shares issued in reinvestment of
distributions................................ 16,932 --
--------- --
1,995,867 --
Shares redeemed................................ (103,384) --
--------- --
Net increase in shares......................... 1,892,483 --
Beginning of period............................ 6 6
--------- --
End of period.................................. 1,892,489 6
========= ==
</TABLE>
9. At June 30, 1995, The Intermediate Bond Income Fund, The Stock Appreciation
Fund and The Aggressive Stock Appreciation Fund had net capital loss carryover
of approximately $62,000, $410,000 and $214,000, respectively, which will be
available through June 30, 2003 to offset future capital gains to the extent
provided by Federal income tax regulations. Additionally, capital losses
incurred after October 31 ("post-October losses") within the taxable year are
deemed to arise on the first business day of a Fund's next taxable year. The
Intermediate Bond Income Fund, The Bond Income Fund, The Stock Appreciation Fund
and The Aggressive Stock Appreciation Fund incurred and will elect to defer
post-October net capital losses of approximately $993,000, $159,000, $2,042,000
and $782,000, respectively.
38
<PAGE> 50
FUNDS IV TRUST
<TABLE>
Financial Highlights
For a share of beneficial interest outstanding throughout the period
<CAPTION>
THE
CASH RESERVE
MONEY MARKET FUND
--------------------
PERIOD ENDED
JUNE 30, 1995*
--------------------
SERVICE PREMIUM
CLASS CLASS
------- -------
<S> <C> <C>
Net Asset Value, Beginning of Period..................................... $ 1.00 $ 1.00
------- ------
Income from Investment Operations:
Net investment income.................................................. 0.05 0.05
------- ------
Less Distributions:
Dividend from net investment income.................................... (0.05) (0.05)
------- ------
Net Asset Value, End of Period........................................... $ 1.00 $ 1.00
======= ======
Total Return**........................................................... 4.74% 4.74%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands)............................... $274,663 $ 6
Ratio of Expenses to Average Net Assets Annualized+.................... 0.50% 0.50%
Ratio of Net Investment Income to Average Net Assets Annualized........ 5.40% 5.40%
<FN>
- ---------------
+ Ratio of expenses before effect of waivers annualized................. 0.54% 1.04%
* Fund commenced operations on August 19, 1994.
** Total return computed since inception not annualized.
</TABLE>
39
<PAGE> 51
FUNDS IV TRUST
<TABLE>
Financial Highlights (continued)
For a share of beneficial interest outstanding throughout the period
<CAPTION>
THE
SHORT-TERM THE
TREASURY INTERMEDIATE BOND THE BOND
INCOME FUND INCOME FUND INCOME FUND
----------------- ----------------- ------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JUNE 30, 1995* JUNE 30, 1995* JUNE 30, 1995*
----------------- ----------------- ------------------
SERVICE PREMIUM SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS CLASS CLASS
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........ $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income..................... 0.47 0.47 0.51 0.51 0.52 0.52
Net realized and unrealized gain on
securities............................. 0.20 0.20 0.19 0.19 0.35 0.35
------ ------ ------ ------ ------ ------
Total from Investment Operations.......... 0.67 0.67 0.70 0.70 0.87 0.87
------ ------ ------ ------ ------ ------
Less Distributions:
Dividend from net investment income....... (0.47) (0.47) (0.51) (0.51) (0.52) (0.52)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period.............. $10.20 $10.20 $10.19 $10.19 $10.35 $10.35
====== ====== ====== ====== ====== ======
Total Return**.............................. 6.95% 6.95% 7.26% 7.26% 9.05% 9.05%
Ratios/Supplemental Data:
Net Assets, End of Period (in
thousands)............................. $15,272 $6 $129,317 $6 $12,977 $6
Ratio of Expenses to Average Net Assets
Annualized+............................ 0.75% 0.75% 0.75% 0.75% 0.96% 0.96%
Ratio of Net Investment Income to
Average Net Assets Annualized.......... 5.65% 5.65% 6.10% 6.10% 6.21% 6.21%
Portfolio Turnover Rate................... 83.28% 83.28% 1 07.54% 107.54% 149.36% 149.36%
<FN>
- ---------------
+ Ratio of expenses before effect of
waivers annualized...................... 1.04% 1.54% 0.77% 1.27% 1.11% 1.61%
* Fund commenced operations on August 26, 1994.
** Total return computed since inception not annualized.
</TABLE>
40
<PAGE> 52
FUNDS IV TRUST
<TABLE>
Financial Highlights (continued)
For a share of beneficial interest outstanding throughout the period
<CAPTION>
THE
THE STOCK AGGRESSIVE STOCK THE VALUE STOCK
APPRECIATION FUND APPRECIATION FUND APPRECIATION FUND
----------------- ----------------- ------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JUNE 30, 1995* JUNE 30, 1995* JUNE 30, 1995**
----------------- ----------------- ------------------
SERVICE PREMIUM SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS CLASS CLASS
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........ $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income..................... 0.16 0.16 0.10 0.10 0.10 0.10
Net realized and unrealized gain on
securities............................. 1.05 1.05 0.87 0.87 0.93 0.93
------ ------ ------ ------ ------ ------
Total from Investment Operations.......... 1.21 1.21 0.97 0.97 1.03 1.03
------ ------ ------ ------ ------ ------
Less Distributions:
Dividend from net investment income....... (0.16) (0.16) (0.10) (0.10) (0.10) (0.10)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period.............. $11.05 $11.05 $10.87 $10.87 $10.93 $10.93
====== ====== ====== ====== ====== ======
Total Return***............................. 12.19% 12.19% 9.81% 9.81% 10.32% 10.32%
Ratios/Supplemental Data:
Net Assets, End of Period (in
thousands)............................. $131,239 $6 $44,205 $6 $20,690 --
Ratio of Expenses to Average Net Assets
Annualized+............................ 1.00% 1.00% 1.23% 1.23% 1.18% 1.18%
Ratio of Net Investment Income to
Average Net Assets Annualized.......... 1.89% 1.89% 1.27% 1.27% 2.52% 2.52%
Portfolio Turnover Rate................... 46.37% 46.37% 72.11% 72.11% 16.74% 16.74%
<FN>
- ---------------
+ Ratio of expenses before effect of
waivers annualized.................... 1.02% 1.52% 1.23% 1.73% 1.33% 1.83%
* Fund commenced operations on August 26, 1994.
** Fund commenced operations on February 10, 1995.
*** Total return computed since inception not annualized.
</TABLE>
41
<PAGE> 53
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and
Shareholders of FUNDS IV Trust
In our opinion, the accompanying statement of assets and liabilities,
including the portfolios of investments, and the related statements of
operations, of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of The Cash Reserve
Money Market Fund, The Short-Term Treasury Income Fund, The Intermediate Bond
Income Fund, The Bond Income Fund, The Stock Appreciation Fund, The Aggressive
Stock Appreciation Fund, and The Value Stock Appreciation Fund (seven of the
portfolios constituting FUNDS IV Trust, hereafter referred to as the "Trust") at
June 30, 1995, and the results of each of their operations, the changes in each
of their net assets and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at June 30,
1995 by correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
August 24, 1995
<PAGE> 54
<TABLE>
TAX STATUS OF DIVIDENDS PAID (UNAUDITED)
The following table represents the tax status of dividends and
distributions paid by the Funds during the fiscal year ended June 30, 1995.
Certain portions of this information were previously reported to you on Form
1099 at the close of calendar year 1994. This information is presented in order
to comply with regulatory requirements and requires no current action on your
part.
<CAPTION>
INCOME DIVIDENDS
PAID PER SHARE % OF INCOME
----------------- DERIVED FROM
SERVICE PREMIUM GOVERNMENT
CLASS CLASS SECURITIES
------- ------- ------------
<S> <C> <C> <C>
The Cash Reserve Money Market Fund................................ $0.046 $0.046 --
The Short-Term Treasury Income Fund............................... 0.474 0.474 98.5%
The Intermediate Bond Income Fund................................. 0.510 0.510 44.0
The Bond Income Fund.............................................. 0.519 0.519 42.7
The Stock Appreciation Fund....................................... 0.156 0.156 24.7
The Aggressive Stock Appreciation Fund............................ 0.103 0.103 29.1
The Value Stock Appreciation Fund................................. 0.099 0.099 18.0
</TABLE>
Additionally, 100% of the income dividends paid by The Stock Appreciation
Fund, The Aggressive Stock Appreciation Fund, and The Value Stock Appreciation
Fund qualify for the dividends received deduction available to corporations.
<PAGE> 55
FUNDS IV TRUST
<TABLE>
BOARD OF TRUSTEES
<S> <C>
JOHN J. PILEGGI+ CHAIRMAN OF THE BOARD
Senior Managing Director, Furman Selz Incorporated
G.L. BEST* Vice President of Finance and Administration,
Williams Energy Ventures
TERRY L. CARTER* Senior Vice President, QuikTrip Corporation
ARTHUR B. KRAUSE Executive Vice President and Chief Financial
Officer, Sprint Corporation
GEORGE MILEUSNIC* Chief Financial Officer, The Coleman Company, Inc.
PATRICK J. RYAN* Vice Chairman, Oklahoma Gas and Electric Company
* Member of Audit and Nominating Committees
+ Trustee who is an "interested person" of the
Trust, as that term is defined in the
Investment Company Act of 1940.
- --------------------------------------------------------------------------------
OFFICERS
JOHN J. PILEGGI President
DONALD E. BROSTROM Vice President and Treasurer
JOAN V. FIORE Secretary
THERESA DONOVAN Assistant Secretary
SHERYL HIRSCHFELD Assistant Secretary
</TABLE>
<PAGE> 56
(This Page Intentionally Left Blank)
<PAGE> 1
EXHIBIT 17(p)
[FUNDS IV TRUST LOGO]
February 23, 1996
Dear Shareholder:
On behalf of everyone at FUNDS IV Trust, we are pleased to send you this
semi-annual report on the financial condition of the FUNDS IV Trust for the six
months ended December 31, 1995. Included are investment summaries and detailed
financial information for the FUNDS IV Funds and each portfolio of investments.
An overview of economic factors has been included to assist in your financial
investments.
ECONOMIC REVIEW AND MARKET OUTLOOK
STOCK AND BOND MARKETS SURGE IN 1995
Modest economic growth and contained inflationary pressures encouraged
investors to buy both stocks and bonds during the second half of 1995. Bond
prices were pushed higher as long-term Treasury yields fell below 6.0%. The
rally in bonds was further fueled by the Federal Reserve Board's action of
cutting the Fed funds rate 25 basis points to a target of 5.5%. The bond market
also benefited from investor optimism that Congress and the president would come
to an agreement that would eventually balance the budget and reduce the federal
deficit.
The bond market rally helped fuel a strong equity market as well. The drop
in rates not only helped to directly boost profits for a host of financial and
utility issues, but also increased the price investors were willing to pay for
the future earnings of stocks in general. This had an especially powerful impact
on selected stocks whose future cash flows were deemed to be most predictable.
BUDGET ACCORD COULD MEAN LOWER INTEREST RATES IN 1996
We are cautiously constructive on the bond market going into 1996. However,
counting on another drop in long-term interest rates like that seen in the
second half of 1995 is not recommended. However, short-term rates (the so-called
"front-end" of the yield curve) could play catch-up in 1996. Though we believe
the economy will continue to experience slow growth and low inflation during
1996, we think the market will need another catalyst to move rates lower. The
direction of interest rates for 1996 will be largely dependent on the fiscal
policy agreed upon by Congress and the president. If an agreement can be reached
that will result in a viable budget that contains provisions for balancing the
budget over a reasonable time and reducing the massive federal deficit, interest
rates should move lower. However, if an agreement is not reached over the near
term, we may experience a sharp drop in bond prices resulting in higher interest
rates.
While earnings growth in 1996 is not forecast to match the robust gains
seen in 1995, a high single-digit percentage year-to-year profit increase would
be supportive of additional gains in stocks. Despite 1995's market surge and the
more subdued 1996 profit outlook, most stocks still have valuations that seem
reasonable in the context of today's low interest-rate environment.
Finally, three sources of demand may help stocks in 1996: 1) continued
inflow into stock mutual funds from individuals whose stock exposure is still
well below historical extremes; 2) continued merger and buyback activity on the
heels of 1995 when $400 billion in stock effectively left the market;
<PAGE> 2
and 3) a resurgence in demand from underinvested foreigners, likely to be
emboldened by a further rise in the U.S. dollar.
A cautionary word about fixed income return expectations for 1996:
It is very unlikely and we do not anticipate that fixed income market
returns in 1996 will match or even approach the double-digit total returns
generated in 1995 given the current low level of interest rates. We would
anticipate, even in a somewhat favorable economic and market environment, that
fixed income returns in 1996 are likely to equal coupon return plus one or two
percent price appreciation.
A cautionary word about equity return expectations for 1996:
It is not likely, nor do we expect to see equity market index returns in
1996 that match or even approach those generated by the Standard & Poor 500
Stock Index in 1995. The 37.5% return in 1995 was the best showing for the S&P
500 in 37 years and was exceptional by any measure. We believe, if 1996 proves
to be a positive market environment for stocks, that the annual return on
equities is likely to approximate the normalized long-term annual return rate
for large company stocks, as reported by Ibbottson Associates, of 10.2%.
CASH RESERVE MONEY MARKET FUND
For the six months ended December 31, 1995, the Service Class of The FUNDS
IV Cash Reserve Money Market Fund ranked 59 out of 136 Institutional Money Funds
as reported by Lipper Analytical Services with an annualized total return of
5.77%.
On July 6, 1995 in response to waning inflation, the Federal Reserve
lowered interest rates by 25 basis points. The Fund achieved its healthy
performance during this environment of falling interest rates by investing in
longer-term fixed rate obligations and maintaining a longer average maturity. On
July 6, 1995 the Fund's weighted average maturity was 73 days.
During the end of the fourth quarter, the economy began to show signs of a
slowdown. In order to simulate the economy, on December 19, 1995, the Federal
Reserve lowered interest rates by 25 basis points. The Fund was well positioned
for this additional rate cut, as the portfolio strategy included maintaining a
longer weighted average maturity. On December 19, 1995, the Fund's weighted
average maturity was 76 days. And on December 31, 1995 it was 71 days.
The Fund's above average performance can be attributed primarily to
investing in longer-term obligations (such as six month commercial paper and
bankers' acceptances) during this period of compelling economic fundamentals of
slower growth and low inflation.
We believe your Fund is well positioned to continue to achieve above
average performance results for 1996.
Michael W. Fields C.I.U.--Fixed Income AMR Investment Services, Inc.
SHORT-TERM TREASURY INCOME FUND
The FUNDS IV Short-Term Treasury Income Fund's objective is to provide
investors with as high a level of current income as is consistent with liquidity
and safety of principal.
The Fund is invested exclusively in short-term U.S. Treasury securities,
and U.S. Treasury backed money market reserves. The weighted average maturity of
the Fund will generally range between two and three years, depending upon the
returns generated by the short-term U.S. Treasury securities. For the six-month
period ended December 31, 1995, the Fund generated a total return to investors
of 4.3%,
<PAGE> 3
and ended the period with a weighted average maturity of 2.9 years. During the
last six months of 1995, the yield on three-year U.S. Treasury Notes rose to a
high of 6.2% in August, before ending the year at the low of 5.25%. The duration
of the Fund (a key measure of the price sensitivity of a portfolio of
fixed-income securities) ranged from a defensively positioned low of 101% of the
index duration in August when interest rates were rising, to a high of 121% of
the index duration in October when interest rates continued their downward
trend. The Fund ended the year 1995 with a duration of 110% of the index. Our
proprietary Bond Risk Modes score is used to guide changes in overall Fund
strategy and duration relative to the benchmark index. For the six-month period
ended December 31, 1995, the Fund performance trailed slightly the Lehman Mutual
Fund Short (1-5) year U.S. Treasury Index by approximately 20 basis points after
all fees and expenses.
The portfolio manager for The Short-Term Treasury Income Fund is Ms. Janet
L. Mullen.
INTERMEDIATE BOND INCOME FUND
The FUNDS IV Intermediate Bond Income Fund's objective is to provide
investors with a high level of current income as is consistent with managing for
total return by investing in a portfolio of intermediate maturity government and
investment grade corporate securities.
The Intermediate Bond Income Fund produced a total return of 5.02% for the
six months July 1, 1995 to December 31, 1995. The principal factor impacting
Fund performance during the period was changes in the levels of interest rates.
During the first half of the fiscal year, the Net Asset Value (NAV) per share
rose as bond prices moved higher in response to falling interest rates. Holdings
within the Fund generally performed well although Fund performance modestly
trailed the 5.23% return of its benchmark index, the Lehman Intermediate
Government/Corporate Bond Index. The Fund's solid performance is attributed to
its relatively longer duration and maturity structure during a period of
declining interest rates.
At December 31, 1995, the Fund had approximately 96% of its net assets
invested in U.S. Government obligations and corporate securities rated "A" or
higher by Moody's Investor Services, Inc. and/or Standard and Poor's
Corporation.
On December 31, 1995 the average maturity of the portfolio was 6.1 years
and the average portfolio quality rating at the end of the period was "AAA".
The portfolio manager for The Intermediate Bond Income Fund is Mr. Brad D.
Eppard.
BOND INCOME FUND
The FUNDS IV Bond Income Fund's objective is to provide investors with as
high a level of current income as is consistent with managing for total return
by investing in fixed income securities comprised primarily of Treasuries and
investment grade corporate bonds. The major difference between the FUNDS IV Bond
Income Fund and the FUNDS IV Intermediate Bond Income Fund is the Bond Income
Fund's higher exposure to bonds with maturities longer than 10 years.
The Bond Income Fund produced a total return net of expenses of 6.80% for
the six months July 1, 1995 to December 31, 1995, performing well versus its
benchmark index, the Lehman Government/Corporate Bond Index which returned 6.66%
for the same period. The Fund is managed for total return in an effort to
enhance Fund performance. The principal factor impacting Fund performance during
the period was changes in the levels of interest rates. Net Asset Value (NAV)
per share rose as bond prices rebounded strongly as interest rates fell on
economic weakness and reduced inflationary fears.
<PAGE> 4
On December 31, 1995 the average maturity of the portfolio was 9.2 years
and the Fund had approximately 97% of its net assets invested in U.S. Government
obligations and corporate securities rated "A" or higher by Moody's Investor
Services, Inc. and/or Standard and Poor's Corporation resulting in an average
portfolio quality rating at the end of the period of "AAA".
The portfolio manager for The Bond Income Fund is Mr. Brad D. Eppard.
STOCK APPRECIATION FUND
The objective of The FUNDS IV Stock Appreciation Fund is to seek long-term
capital appreciation through investment in a diversified portfolio of common
stocks. Permissible investments include U.S. common stocks and foreign stocks
represented by American Depository Receipts (ADR's). Stocks are selected based
on a number of factors that include fundamental business outlook, valuation
relative to other companies in the same industry, and the company's own
historical norms and earnings momentum. Substantial short-term cash reserves (up
to 35%) may be held as a defensive measure when stock market risk appears high.
At December 31, 1995, the Fund held modest levels of cash and cash
equivalents. The Fund held approximate market weightings in the energy, health
care, raw materials, technology, transportation, and utilities sectors. The Fund
held higher than market weightings in the capital goods, consumer services,
consumer durables, and finance sectors, while maintaining less than market
weightings in the consumer non-durable, miscellaneous, and retail sectors. On
average, the Fund's holdings sell at a price equal to their intrinsic value as
determined by the Investment Adviser (the S&P 500 Index, meanwhile is selling at
a 11% discount) and are displaying positive earnings momentum. The average
projected growth rate for the stocks in the Fund is 12% (versus the S&P 500 of
10%). The average price/earnings multiple is about equivalent to the market's.
The current dividend yield of 2.0% slightly trails the S&P 500 of 2.3%. The
dollar weighted median market capitalization for the Fund is $20.1 billion. The
average return on equity is 20.0% (versus 17.4% for the S&P 500).
The portfolio manager of The Stock Appreciation Fund is Mr. Paul D. Worth.
AGGRESSIVE STOCK APPRECIATION FUND
The objective of The FUNDS IV Aggressive Stock Appreciation Fund is to
aggressively seek long-term capital appreciation through investment in a
diversified portfolio of common stocks. Permissible investments include U.S.
common stocks and foreign stocks represented by American Depository Receipts
(ADR's). While the Fund will always hold a broad array of larger capitalization
stocks (stocks with market capitalization of approximately $4 billion and
greater), there will often be an emphasis on investing in mid-capitalization
issues, and to a much lesser extent, smaller-capitalization stocks
(approximately $1 billion and under). Stocks are selected based on a number of
factors including fundamental business outlook, valuation relative to other
companies in the same industry, and the company's own historical norms and
earnings momentum. In addition, the Fund may hold considerable positions
(relative to the market) in broadly-defined economic sectors whose growth
potential is not reflected in current stock prices. Substantial short-term cash
reserves may be held during defensive periods when stock market risk appears
high.
At December 31, 1995, the Fund was fully-invested as it had been through
much of the second half of the calendar year. The Fund held approximate market
weightings in the consumer durables, technology, and transportation sectors. The
Fund held higher than market weightings in the capital goods, consumer services,
finance, raw materials, and retail sectors, while maintaining less than market
weightings the in consumer non-durable, miscellaneous, energy, health care, and
utilities sectors. On
<PAGE> 5
average, the Fund's holdings sell at a price equal to their intrinsic value as
determined by the Investment Adviser (the S&P 500 Index, meanwhile is selling at
a 11% discount) and are displaying positive earnings momentum. The average
projected growth rate for the stocks in the Fund is 15% (versus the S&P 500 of
10%). The average price/earnings multiple is 22.1 (versus the S&P 500 of 17.4).
The current dividend yield of 1.3% is less than the S&P 500 2.3%. The dollar
weighted median market capitalization for the Fund is $5.6 billion. The average
return on equity is 18.0% (versus 17.4% for the S&P 500). The Fund remains
well-exposed to selected stocks in the mid-capitalization area of the market, an
area which provides a particularly compelling reward/risk tradeoff -- compared
to the large-cap segment -- given the valuation of secondary stocks relative to
their growth prospects.
The portfolio manager for The Aggressive Stock Appreciation Fund is Mr.
Paul D. Worth.
VALUE STOCK APPRECIATION FUND
The objective of The FUNDS IV Value Stock Appreciation Fund is to seek
long-term capital appreciation and dividend income through investment in a
diversified portfolio of common stocks (and securities convertible into common
stocks) of domestic companies. The Fund may also invest, to a far lesser extent,
in securities of foreign companies, primarily through securities represented by
American Depository Receipts (ADR's).
The Fund employs a "value style" of equity management. Stocks are selected
for purchase when they sell at a discount to their underlying "intrinsic" value.
We determine a stock's intrinsic value by discounting its expected future
dividends to the present value of such dividends. This process of calculating a
stock's intrinsic value is frequently referred to as a "dividend discount
model". Holdings are often characterized by stocks with relatively low
price/earnings ratios, and/or low price/cash flow ratios. Another characteristic
may be higher-than-average dividend yield. Quite often, the stocks will fall
into categories of being under-owned or "out of favor". Equity investments are
selected from a pool of high-quality large, medium, and small capitalization
stocks. The determination of high-quality is based on the Investment Adviser's
assessment of a company's financial strength, size and earnings variability.
Stocks are purchased with the long-term time horizon in mind and are generally
sold when their market price rises above intrinsic value and/or their underlying
fundamentals begin to deteriorate.
At December 31, 1995, the Fund held modest levels of cash and cash
equivalents as was the case throughout the first half of the calendar year. On
average, the Fund's holdings sell at a 21% discount to their intrinsic value as
determined by the Investment Adviser (the S&P 500 Index, meanwhile is selling at
a 11% discount) and are displaying positive earnings momentum. The average
growth rate for the stocks in the Fund is 10% (versus the S&P 500 of 10%). The
average price/earnings multiple is about equivalent to the market's. The current
dividend yield of 3.0% slightly exceeds the S&P 500 of 2.3%. Two of the Fund's
other key characteristics remain superior to the market. The average return on
assets is 9.5% (versus 3.0% for the S&P 500) and average return on equity is
25.2% (versus 17.4% for the S&P 500).
The portfolio manager for The Value Stock Appreciation Fund is Mr. Stuart
Hopkins.
<PAGE> 6
(This Page Intentionally Left Blank)
<PAGE> 7
FUNDS IV TRUST
THE CASH RESERVE MONEY MARKET FUND
Portfolio of Investments (unaudited)
December 31, 1995
<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATINGS** AMOUNT (NOTE 2A)
- ---------- ----------- ------------
<S> <C> <C> <C>
CORPORATE NOTES -- 53.0%
BANKING SERVICES -- 16.2%
TBW-1/D-1 BanPonce Corp. VR Medium Term Note 6.00%,
02/16/96(a)........................................ $13,000,000 $ 13,000,000
TBW-1/D-1 BanPonce Corp. VR Medium Term Note 5.91%,
12/18/96(a)........................................ 3,000,000 3,000,000
A-1/P-1 Chemical Banking Corp. VR Medium Term Note 6.24%,
04/15/96(a)........................................ 5,410,000 5,414,240
TBW-1/P-1 Shawmut Bank Connecticut, N.A. VR Medium Term Note
5.68%, 03/25/96(a)................................. 5,000,000 5,000,000
TBW-1/P-1 Shawmut Bank Connecticut, N.A. VR Medium Term Note
5.90%, 05/10/96(a)................................. 8,000,000 8,000,000
TBW-1/P-1 Wells Fargo & Co. VR Medium Term Note 5.79%,
01/19/96(a)........................................ 13,000,000 12,999,871
----------
47,414,111
----------
BUSINESS CREDIT -- 5.1%
P-1/TBW-1 Heller Financial, Inc. VR Demand Master Note 5.94%,
10/25/96(a)........................................ 15,000,000 15,000,000
----------
PERSONAL CREDIT -- 9.4%
P-1/F-1 American Honda Finance Corp. VR Medium Term Note
5.93%, 02/06/96(a)................................. 14,000,000 14,000,000
P-1/F-1 General Motors Acceptance Corp. VR Medium Term Note
6.01%, 02/22/96(a)................................. 5,500,000 5,499,732
P-1/F-1 General Motors Acceptance Corp. VR Medium Term Note
6.03%, 03/01/96(a)................................. 8,000,000 7,999,611
----------
27,499,343
----------
SECURITIES FIRMS -- 22.3%
A-1/P-1 Bear Stearns Cos., Inc. VR Medium Term Note 5.68%,
01/17/96(a)........................................ 13,000,000 13,000,000
A-1+/P-1 Goldman Sachs Group Limited Partnership Promissory
Note 5.81%, 03/04/96(b)............................ 16,000,000 16,000,000
TBW-1/A-1 Lehman Brothers Holdings, Inc. VR Demand Master Note
5.99%, 08/22/96(a)................................. 14,000,000 14,000,000
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
1
<PAGE> 8
FUNDS IV TRUST
THE CASH RESERVE MONEY MARKET FUND
Portfolio of Investments (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATINGS** AMOUNT (NOTE 2A)
- --------- ---------- -----------
<S> <C> <C> <C>
CORPORATE NOTES -- (CONTINUED)
SECURITIES FIRMS -- (CONTINUED)
A-1+/P-1 Merrill Lynch & Co., Inc. VR Medium Term Note 5.79%,
01/14/97(a)........................................ $16,000,000 $ 15,996,597
A-1+/P-1 Morgan Stanley Group, Inc. VR Medium Term Note 6.19%,
07/02/96(a)........................................ 6,000,000 6,007,422
------------
65,004,019
------------
TOTAL CORPORATE NOTES................................ 154,917,473
------------
COMMERCIAL PAPER -- 7.0%
BANKING SERVICES -- 1.7%
TBW-1/P-1 A B Spintab, 5.79% 04/17/96.......................... 5,000,000 4,916,035
------------
SECURITIES FIRMS -- 5.3%
TBW-1/A1 PaineWebber Group, Inc., 5.68% 08/23/96.............. 16,000,000 15,430,778
------------
TOTAL COMMERCIAL PAPER............................... 20,346,813
------------
YANKEE CERTIFICATES OF DEPOSIT -- 19.9%
A-1/P-1 Banca CRT Financial Corp. VR 5.68%, 09/24/96(a)...... 14,000,000 14,000,000
A-1/P-1 Industrial Bank of Japan, Ltd. New York 6.20%,
02/15/96........................................... 14,000,000 14,000,000
TBW1/P-1 Merita Bank New York VR Demand Deposit 5.875%,
10/18/96(a)........................................ 15,000,000 15,000,000
TBW-1/P-1 Postipankki Bank, Ltd. VR Demand Deposit 5.81%,
09/20/96(a)........................................ 15,000,000 15,000,000
------------
TOTAL YANKEE CERTIFICATES OF DEPOSIT................. 58,000,000
------------
BANKERS' ACCEPTANCES -- 19.9%
A-1/P-1 Bank of Tokyo, Ltd. Los Angeles 6.08%, 02/23/96...... 10,000,000 9,912,108
A-1/P-1 Dai-Ichi Kangyo Bank, Ltd. New York 6.19%,
04/15/96........................................... 10,000,000 9,831,417
A-1/P-1 Dai-Ichi Kangyo Bank, Ltd. Los Angeles 5.86%,
05/20/96........................................... 5,000,000 4,889,167
A-1/P-1 Industrial Bank of Japan, Ltd. New York 5.88%,
04/30/96........................................... 2,000,000 1,961,800
A-1/P-1 Mitsubishi Bank, Ltd. New York 6.04%, 04/04/96....... 6,000,000 5,908,193
A-1/P-1 Mitsubishi Bank, Ltd. New York 5.80%, 05/22/96....... 10,000,000 9,777,533
A-1/P-1 Sanwa Bank, Ltd. New York 6.07%, 02/06/96............ 5,000,000 4,970,100
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
2
<PAGE> 9
FUNDS IV TRUST
THE CASH RESERVE MONEY MARKET FUND
Portfolio of Investments (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATINGS** AMOUNT (NOTE 2A)
- --------- ------------ ------------
<S> <C> <C> <C>
BANKERS' ACCEPTANCES -- (CONTINUED)
A-1/P-1 Sanwa Bank, Ltd. New York 5.87%, 02/20/96............ $ 5,000,000 $ 4,960,278
A-1/P-1 Sanwa Bank, Ltd. New York 5.87%, 03/15/96............ 6,000,000 5,929,700
------------
TOTAL BANKERS' ACCEPTANCES........................... 58,140,296
------------
TIME DEPOSIT -- 0.2%
A-1/P-1 Bank Brussels Lambert Cayman 5.875%, 01/02/96........ 460,867 460,867
------------
TOTAL INVESTMENTS -- 100.0% (COST $291,865,449)+..... 291,865,449
LIABILITIES IN EXCESS OF OTHER ASSETS -- 0.0%........ (62,493)
------------
NET ASSETS -- 100.0%................................. $291,802,956
============
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
3
<PAGE> 10
FUNDS IV TRUST
THE SHORT-TERM TREASURY INCOME FUND
Portfolio of Investments (unaudited)
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT COST (NOTE 2A)
---------- ------------ -----------
<S> <C> <C> <C>
U.S. TREASURY NOTES -- 98.0%
8.00%, 01/15/97....................................... $1,000,000 $ 1,015,686 $ 1,027,950
5.50%, 07/31/97....................................... 2,000,000 1,992,613 2,010,700
7.375%, 11/15/97...................................... 750,000 751,681 778,365
5.125%, 04/30/98...................................... 825,000 811,591 823,597
5.375%, 05/31/98...................................... 250,000 242,931 250,910
8.25%, 07/15/98....................................... 200,000 207,084 214,264
5.875%, 08/15/98...................................... 700,000 701,436 711,207
7.125%, 10/15/98...................................... 1,000,000 1,011,629 1,048,690
5.50%, 11/15/98....................................... 4,000,000 4,018,354 4,029,200
6.50%, 04/30/99....................................... 500,000 502,073 518,655
6.75%, 05/31/99....................................... 1,500,000 1,471,500 1,567,485
7.75%, 11/30/99....................................... 1,500,000 1,551,360 1,626,525
6.375%, 01/15/00...................................... 1,750,000 1,750,000 1,815,572
7.75%, 01/31/00....................................... 1,000,000 1,005,051 1,087,250
------------ -----------
TOTAL U.S. TREASURY NOTES............................. 17,032,989 17,510,370
------------ -----------
MONEY MARKET FUND*** -- 0.5%
Federated U.S. Treasury Cash Reserve Fund............. 97,768 97,768 97,768
------------ -----------
TOTAL INVESTMENTS -- 98.5%............................ $ 17,130,757 17,608,138
==========
OTHER ASSETS LESS LIABILITIES -- 1.5%................. 259,403
-----------
NET ASSETS -- 100.0%.................................. $17,867,541
==========
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
4
<PAGE> 11
FUNDS IV TRUST
THE INTERMEDIATE BOND INCOME FUND
Portfolio of Investments (unaudited)
December 31, 1995
<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATINGS* AMOUNT COST (NOTE 2A)
- -------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
U.S. TREASURY NOTES -- 49.0%
5.875%, 07/31/97.......................... $ 2,000,000 $ 2,014,718 $ 2,021,020
5.125%, 03/31/98.......................... 6,000,000 5,970,371 5,993,819
6.125%, 05/15/98.......................... 7,000,000 7,071,523 7,143,639
8.875%, 11/15/98.......................... 7,000,000 7,657,756 7,668,989
6.75%, 05/31/99........................... 10,000,000 9,974,365 10,449,899
7.50%, 10/31/99........................... 8,000,000 8,156,978 8,593,440
7.75%, 02/15/01........................... 5,000,000 5,156,448 5,523,700
6.375%, 08/15/02.......................... 8,000,000 7,667,295 8,401,439
7.875%, 11/15/04.......................... 7,000,000 7,626,352 8,105,860
------------- ------------
TOTAL U.S. TREASURY NOTES................. 61,295,806 63,901,805
------------- ------------
U.S. GOVERNMENT AGENCY OBLIGATION -- 3.0%
Federal Farm Credit Bank Medium Term Note
8.13%, 01/17/96(c)...................... 3,850,000 3,852,526 3,850,000
------------- ------------
CORPORATE BONDS AND NOTES -- 46.4%
AEROSPACE/DEFENSE -- 3.1%
A+/A2 International Lease Finance Corp. Medium
Term Note 8.26%, 02/15/05............... 3,500,000 3,768,566 3,981,250
------------- ------------
BANKING SERVICES -- 5.5%
A-/A3 First Union Corp. 6.55%, 10/15/05(c)...... 4,000,000 3,971,070 4,115,000
A/A2 NationsBank Corp. 7.50%, 02/15/97......... 3,000,000 2,998,492 3,067,500
------------- ------------
6,969,562 7,182,500
------------- ------------
CONSUMER PRODUCTS -- 0.3%
A-/A3 International Paper Co. 9.70%, 03/15/00... 400,000 431,302 457,500
------------- ------------
ELECTRONICS -- 2.4%
AA/Aa3 Motorola, Inc. 6.50%, 09/01/05(c)......... 3,000,000 3,000,000 3,150,000
------------- ------------
FINANCIAL SERVICES -- 22.8%
AA-/Aa3 Associates Corp. of North America 7.50%,
05/15/99................................ 3,000,000 2,993,066 3,161,250
A/A3 AT&T Capital Corp. Medium Term Note 7.59%,
01/31/97................................ 3,500,000 3,513,982 3,578,750
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
5
<PAGE> 12
FUNDS IV TRUST
THE INTERMEDIATE BOND INCOME FUND
Portfolio of Investments (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATINGS* AMOUNT COST (NOTE 2A)
- -------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
FINANCIAL SERVICES -- (CONTINUED)
AA/A2 Capital Holdings Corp. Medium Term Note
8.90%, 10/20/99......................... $ 500,000 $ 526,989 $ 548,125
A/A2 Dean Witter Discover & Co. 5.00%,
04/01/96................................ 2,000,000 1,985,922 1,997,500
A+/A1 Ford Motor Credit Co. 9.00%, 09/15/01..... 1,500,000 1,587,685 1,715,625
A+/A1 Ford Motor Credit Co. Global Bond 6.25%,
02/26/98................................ 2,000,000 1,997,926 2,027,500
A/A2 Ford Motor Credit Co. Medium Term Note
8.00%, 12/02/96......................... 275,000 278,016 281,188
AAA/Aaa General Electric Capital Corp. Medium Term
Note 7.85%, 01/17/97.................... 4,500,000 4,506,611 4,612,500
BBB+/A3 General Motors Acceptance Corp. Medium
Term Note 7.875%, 02/28/97.............. 3,000,000 3,050,213 3,078,750
A/A2 Household Finance Corp. 6.375%,
06/30/00................................ 4,000,000 3,930,552 4,070,000
AA/Aa3 National Rural Utilities Cooperative
Finance Corp. 6.50%, 09/15/02........... 4,000,000 3,991,364 4,110,000
A+/A1 Texaco Capital Inc. 9.00%, 11/15/96....... 500,000 510,143 515,625
------------- ------------
28,872,469 29,696,813
------------- ------------
RETAIL -- DEPARTMENT STORES -- 5.8%
A+/A1 J.C. Penney Co. 6.875%, 06/15/99.......... 3,500,000 3,445,583 3,622,500
AA/Aa1 Wal-Mart Stores, Inc. 5.50%, 03/01/98..... 550,000 534,516 550,000
AA/Aa1 Wal-Mart Stores, Inc. 8.625%, 04/01/01.... 3,000,000 3,108,116 3,371,250
------------- ------------
7,088,215 7,543,750
------------- ------------
SECURITIES FIRMS -- 3.2%
A/Baa1 Lehman Brothers Holdings, Inc. 7.375%,
05/15/07................................ 4,000,000 4,117,515 4,165,000
------------- ------------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
6
<PAGE> 13
FUNDS IV TRUST
THE INTERMEDIATE BOND INCOME FUND
Portfolio of Investments (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATINGS* AMOUNT COST (NOTE 2A)
- -------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
TELECOMMUNICATIONS -- 3.3%
AA-/A1 GTE North, Inc. Series A 6.00%,
01/15/04................................ $ 4,000,000 $ 3,861,194 $ 3,990,000
AA/A1 Southwestern Bell Telephone Co. 8.30%,
06/01/96................................ 300,000 302,243 303,375
------------- ------------
4,163,437 4,293,375
------------- ------------
TOTAL CORPORATE BONDS AND NOTES........... 58,411,066 60,470,188
------------- ------------
MONEY MARKET FUND*** -- 0.4%
Federated Prime Obligations Money
Market Fund............................. 627,245 627,245 627,245
------------- ------------
TOTAL INVESTMENTS -- 98.8%................ $ 124,186,643 128,849,238
===========
OTHER ASSETS LESS LIABILITIES -- 1.2%..... 1,521,721
------------
NET ASSETS -- 100.0%...................... $130,370,959
===========
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
7
<PAGE> 14
FUNDS IV TRUST
THE BOND INCOME FUND
Portfolio of Investments (unaudited)
December 31, 1995
<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATINGS* AMOUNT COST (NOTE 2A)
- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 76.3%
U.S. TREASURY BONDS -- 20.9%
7.25%, 05/15/16......................... $2,750,000 $ 2,819,293 $ 3,140,197
8.125%, 08/15/19........................ 1,000,000 996,038 1,257,460
7.625%, 02/15/25........................ 1,500,000 1,714,325 1,833,450
---------- -----------
5,529,656 6,231,107
---------- -----------
U.S. TREASURY NOTES -- 55.4%
5.875%, 07/31/97........................ 2,000,000 2,016,141 2,021,020
5.125%, 03/31/98........................ 1,000,000 995,062 998,970
6.125%, 05/15/98........................ 3,000,000 3,053,867 3,061,560
7.75%, 12/31/99......................... 1,000,000 1,068,550 1,085,720
7.125%, 02/29/00........................ 3,000,000 3,123,224 3,195,870
6.375%, 08/15/02........................ 2,000,000 1,920,813 2,100,360
5.75%, 08/15/03......................... 1,500,000 1,485,524 1,520,175
7.875%, 11/15/04........................ 1,000,000 1,089,479 1,157,980
6.50%, 08/15/05......................... 1,250,000 1,300,841 1,332,687
---------- -----------
16,053,501 16,474,342
---------- -----------
TOTAL U.S. TREASURY OBLIGATIONS......... 21,583,157 22,705,449
---------- -----------
CORPORATE BONDS AND NOTES -- 20.9%
BANKING SERVICES -- 3.4%
A-/A3 First Union Corp. 6.55%, 10/15/05(c).... 500,000 496,384 514,375
A/A2 NationsBank Corp. 7.50%, 02/15/97....... 500,000 499,749 511,250
---------- -----------
996,133 1,025,625
---------- -----------
FINANCIAL SERVICES -- 9.7%
AA-/Aa3 Associates Corp. of North America 7.50%,
05/15/99.............................. 500,000 498,845 526,875
A/A3 AT&T Capital Corp. Medium Term Note
7.59%, 01/31/97....................... 500,000 501,998 511,250
A/A2 Dean Witter Discover & Co. 6.25%,
03/15/00.............................. 300,000 295,429 303,750
A+/A1 Ford Motor Credit Co. Global Bond 6.25%,
02/26/98.............................. 500,000 499,481 506,875
AAA/Aaa General Electric Capital Corp. Medium
Term Note 7.85%, 01/17/97............. 500,000 500,734 512,500
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
8
<PAGE> 15
FUNDS IV TRUST
THE BOND INCOME FUND
Portfolio of Investments (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATINGS* AMOUNT COST (NOTE 2A)
- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
FINANCIAL SERVICES -- (CONTINUED)
AA/Aa3 National Rural Utilities Cooperative
Finance Corp. 6.50%, 09/15/02......... $ 500,000 $ 498,921 $ 513,750
---------- -----------
2,795,408 2,875,000
---------- -----------
OIL/GAS -- 2.5%
AAA/Aa2 Shell Oil Co. 6.70%, 08/15/02........... 700,000 715,617 731,500
---------- -----------
RETAIL -- DEPARTMENT STORES -- 3.6%
A+/A1 J.C. Penney Co. 6.875%, 06/15/99........ 500,000 492,227 517,500
AA/Aa1 Wal-Mart Stores, Inc. 8.625%,
04/01/01.............................. 500,000 518,020 561,875
---------- -----------
1,010,247 1,079,375
---------- -----------
SECURITIES FIRMS -- 1.7%
A/Baa1 Lehman Brothers Holdings, Inc. 7.375%,
05/15/07.............................. 500,000 514,689 520,624
---------- -----------
TOTAL CORPORATE BONDS AND NOTES......... 6,032,094 6,232,124
---------- -----------
MONEY MARKET FUND*** -- 2.1%
Federated Prime Obligations Money Market
Fund.................................. 620,058 620,058 620,058
---------- -----------
TOTAL INVESTMENTS -- 99.3%.............. $28,235,309 29,557,631
==========
OTHER ASSETS LESS LIABILITIES -- 0.7%... 208,774
-----------
NET ASSETS -- 100.0%.................... $29,766,405
===========
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
9
<PAGE> 16
FUNDS IV TRUST
THE STOCK APPRECIATION FUND
Portfolio of Investments (unaudited)
December 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- -------- ------------- ------------
<C> <S> <C> <C>
COMMON STOCKS -- 98.2%
AEROSPACE/DEFENSE -- 3.9%
26,000 Boeing Co. ............................................ $ 1,409,725 $ 2,037,750
21,000 Lockheed Martin Corp. ................................. 1,198,854 1,659,000
51,000 Raytheon Co. .......................................... 1,743,775 2,409,750
------------- ------------
4,352,354 6,106,500
------------- ------------
AUTO & TRUCKS -- 3.6%
155,000 Ford Motor Co. ........................................ 4,716,391 4,495,000
20,000 General Motors Corp. .................................. 985,250 1,057,500
------------- ------------
5,701,641 5,552,500
------------- ------------
BANKING SERVICES -- 3.0%
29,500 First Interstate Bancorp .............................. 2,305,834 4,026,750
12,500 Mellon Bank Corp. ..................................... 667,727 671,875
------------- ------------
2,973,561 4,698,625
------------- ------------
BEVERAGES -- 2.3%
38,000 The Coca-Cola Co. ..................................... 1,905,478 2,821,500
14,000 PepsiCo, Inc. ......................................... 721,700 782,250
------------- ------------
2,627,178 3,603,750
------------- ------------
BROADCASTING -- 3.6%
11,000 Capital Cities/ABC, Inc. .............................. 980,013 1,357,125
127,500 Heritage Media Corp.++................................. 2,941,422 3,267,188
25,000 Tele-Communications, Inc. Class A++.................... 422,877 496,875
10,000 Viacom, Inc. Class B++................................. 497,450 473,750
------------- ------------
4,841,762 5,594,938
------------- ------------
CHEMICALS -- 4.0%
18,500 Air Products & Chemicals, Inc. ........................ 948,081 975,875
28,500 Cabot Corp. ........................................... 1,411,117 1,535,438
22,700 DuPont (E.I.) de Nemours & Co. ........................ 1,370,513 1,586,163
34,000 IMC Global, Inc. ...................................... 943,444 1,389,750
21,500 Morton International, Inc. ............................ 623,715 771,312
------------- ------------
5,296,870 6,258,538
------------- ------------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
10
<PAGE> 17
FUNDS IV TRUST
THE STOCK APPRECIATION FUND
Portfolio of Investments (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- -------- ------------- ------------
<C> <S> <C> <C>
COMMON STOCKS -- (CONTINUED)
COMPUTERS -- 3.8%
66,000 Comdisco, Inc. ........................................ $ 976,000 $ 1,493,250
65,000 Compaq Computer Corp.++................................ 3,108,403 3,120,000
14,000 International Business Machines Corp. ................. 1,358,945 1,284,500
------------- ------------
5,443,348 5,897,750
------------- ------------
COMPUTER SOFTWARE & SERVICES -- 0.5%
9,000 Microsoft Corp.++ ..................................... 543,375 789,750
------------- ------------
COSMETICS/PERSONAL CARE -- 0.5%
15,000 Gillette Co. .......................................... 551,063 781,875
------------- ------------
ELECTRICAL EQUIPMENT -- 0.8%
60,000 Baldor Electric Co. ................................... 915,000 1,207,500
------------- ------------
ELECTRONICS -- 3.0%
22,000 General Electric Co. .................................. 1,475,100 1,584,000
8,500 Hewlett-Packard Co. ................................... 529,325 711,875
35,000 Intel Corp. ........................................... 2,156,640 1,986,250
18,000 Teradyne, Inc.++....................................... 270,000 450,000
------------- ------------
4,431,065 4,732,125
------------- ------------
ENTERTAINMENT -- 0.7%
18,000 The Walt Disney Co. ................................... 920,100 1,062,000
------------- ------------
FINANCIAL SERVICES -- 10.2%
38,000 ADVANTA Corp. Class B.................................. 1,272,000 1,382,250
69,000 American Express Co. .................................. 2,080,338 2,854,875
41,000 Citicorp............................................... 2,102,754 2,757,250
26,000 Donaldson, Lufkin & Jenrette Securities, Inc.++ ....... 785,405 812,500
30,000 Equifax, Inc. ......................................... 431,250 641,250
20,500 Federal National Mortgage Association.................. 1,979,881 2,544,562
36,000 J.P. Morgan & Co., Inc. ............................... 2,317,650 2,889,000
50,000 Lehman Brothers Holdings, Inc. ........................ 1,124,100 1,062,500
25,000 MBNA Corp. ............................................ 975,750 921,875
------------- ------------
13,069,128 15,866,062
------------- ------------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
11
<PAGE> 18
FUNDS IV TRUST
THE STOCK APPRECIATION FUND
Portfolio of Investments (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- -------- ------------- ------------
<C> <S> <C> <C>
COMMON STOCKS -- (CONTINUED)
FOOD PROCESSING -- 3.8%
47,000 Philip Morris Cos., Inc. .............................. $ 3,119,610 $ 4,253,500
50,000 Sara Lee Corp. ........................................ 1,444,063 1,593,750
------------- ------------
4,563,673 5,847,250
------------- ------------
FOOTWEAR -- 3.4%
76,000 Nike, Inc. Class B..................................... 3,318,751 5,291,500
------------- ------------
FOREST PRODUCTS & PAPERS -- 0.4%
15,000 Champion International Corp. .......................... 825,255 630,000
------------- ------------
HOLDING COMPANIES -- 2.0%
26,000 ITT Corp. ............................................. 2,997,366 3,061,500
------------- ------------
HOMEBUILDERS -- 1.0%
75,000 Clayton Homes, Inc. ................................... 1,155,570 1,603,125
------------- ------------
HOUSEHOLD PRODUCTS -- 0.6%
10,500 Procter & Gamble Co. .................................. 654,150 871,500
------------- ------------
INSURANCE -- 3.1%
34,100 American International Group, Inc. .................... 2,370,422 3,154,250
11,200 General Re Corp. ...................................... 1,411,710 1,736,000
------------- ------------
3,782,132 4,890,250
------------- ------------
LEISURE -- 0.7%
32,000 The Coleman Co., Inc.++................................ 1,078,025 1,124,000
------------- ------------
MACHINERY -- 3.4%
75,000 Case Corp. ............................................ 2,718,495 3,431,250
14,500 Caterpillar, Inc. ..................................... 902,831 851,875
30,000 Deere & Co. ........................................... 874,544 1,057,500
------------- ------------
4,495,870 5,340,625
------------- ------------
MISCELLANEOUS MANUFACTURING -- 1.1%
26,000 Eastman Kodak Co. ..................................... 1,279,584 1,742,000
------------- ------------
MEDICAL SERVICES -- 1.5%
45,000 Columbia/HCA Healthcare Corp. ......................... 1,754,425 2,283,750
------------- ------------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
12
<PAGE> 19
FUNDS IV TRUST
THE STOCK APPRECIATION FUND
Portfolio of Investments (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- -------- ------------- ------------
<C> <S> <C> <C>
COMMON STOCKS -- (CONTINUED)
METALS -- 2.0%
29,000 Aluminum Co. of America................................ $ 1,355,937 $ 1,533,375
50,000 Kennametal, Inc. ...................................... 1,754,886 1,587,500
------------- ------------
3,110,823 3,120,875
------------- ------------
MINING -- 0.8%
50,000 Barrick Gold Corp. .................................... 1,109,875 1,318,750
------------- ------------
OIL/GAS -- 8.3%
44,000 Amoco Corp. ........................................... 2,645,832 3,162,500
75,000 Chevron Corp. ......................................... 3,612,000 3,937,500
39,000 Exxon Corp. ........................................... 2,600,012 3,124,875
8,000 Mobil Corp. ........................................... 665,000 896,000
8,000 Royal Dutch Petroleum Co. New York Shares ADR.......... 921,118 1,129,000
16,600 Tosco Corp. ........................................... 518,750 632,875
------------- ------------
10,962,712 12,882,750
------------- ------------
OIL/GAS EQUIPMENT -- 0.7%
44,000 Baker Hughes, Inc. .................................... 859,100 1,072,500
------------- ------------
PHARMACEUTICALS -- 8.6%
12,500 Allergan, Inc. ........................................ 325,000 406,250
10,000 Amgen, Inc.++.......................................... 504,810 593,750
20,000 Bristol-Myers Squibb Co. .............................. 1,268,054 1,717,500
12,000 Johnson & Johnson...................................... 740,536 1,027,500
26,000 Eli Lilly & Co. ....................................... 1,138,830 1,462,500
102,000 Merck & Co., Inc. ..................................... 4,718,909 6,706,500
11,500 Pfizer, Inc. .......................................... 424,344 724,500
13,500 Schering-Plough........................................ 477,552 739,125
------------- ------------
9,598,035 13,377,625
------------- ------------
RESTAURANTS/FOOD SERVICES -- 0.6%
20,000 McDonald's Corp. ...................................... 690,688 902,500
------------- ------------
RETAIL -- DEPARTMENT STORES -- 0.5%
32,000 Wal-Mart Stores, Inc. ................................. 858,416 716,000
------------- ------------
RETAIL -- GROCERY -- 1.0%
42,000 Kroger Co.++........................................... 1,390,725 1,575,000
------------- ------------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
13
<PAGE> 20
FUNDS IV TRUST
THE STOCK APPRECIATION FUND
Portfolio of Investments (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL VALUE
AMOUNT COST (NOTE 2A)
- --------- ------------- ------------
<C> <S> <C> <C>
COMMON STOCKS -- (CONTINUED)
RETAIL -- SPECIALTY LINE -- 1.9%
26,500 CompUSA, Inc.++....................................... $ 1,101,101 $ 824,812
65,000 OfficeMax, Inc.++..................................... 1,295,346 1,454,375
9,750 PETsMART, Inc.++ ..................................... 227,500 302,250
14,000 Walgreen Co. ......................................... 350,350 418,250
------------- ------------
2,974,297 2,999,687
------------- ------------
TELECOMMUNICATIONS -- 7.5%
40,000 AT&T Corp. ........................................... 2,284,050 2,590,000
97,000 GTE Corp. ............................................ 3,136,725 4,268,000
9,000 Motorola, Inc. ....................................... 723,082 513,000
76,000 SBC Communications, Inc. ............................. 3,573,975 4,370,000
------------- ------------
9,717,832 11,741,000
------------- ------------
TOYS -- 0.3%
14,500 Mattel, Inc. ......................................... 329,150 445,875
------------- ------------
TRANSPORTATION -- 0.7%
10,000 Conrail, Inc. ........................................ 597,300 700,000
2,500 UAL Corp.++........................................... 369,187 446,250
------------- ------------
966,487 1,146,250
------------- ------------
UTILITIES -- ELECTRIC -- 4.4%
28,500 California Energy Co., Inc.++......................... 513,996 555,750
20,000 CILCORP., Inc. ....................................... 592,500 847,500
29,000 Duke Power Co. ....................................... 1,112,149 1,373,875
125,000 Unicom Corp. ......................................... 3,651,338 4,093,750
------------- ------------
5,869,983 6,870,875
------------- ------------
TOTAL COMMON STOCKS................................... 126,009,369 153,007,100
------------- ------------
MONEY MARKET FUND*** -- 0.5%
$793,631 Federated Prime Obligations Money Market Fund......... 793,631 793,631
------------- ------------
TOTAL INVESTMENTS -- 98.7%............................ $ 126,803,000 153,800,731
===========
OTHER ASSETS LESS LIABILITIES -- 1.3%................. 1,974,625
------------
NET ASSETS -- 100.0%.................................. $155,775,356
===========
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
14
<PAGE> 21
FUNDS IV TRUST
THE AGGRESSIVE STOCK APPRECIATION FUND
Portfolio of Investments (unaudited)
December 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- ----------- ------------ -----------
<C> <S> <C> <C>
COMMON STOCKS -- 99.4%
AEROSPACE/DEFENSE -- 2.1%
3,000 Lockheed Martin Corp................................... $ 144,750 $ 237,000
18,100 Rockwell International Corp............................ 845,784 957,038
------------ -----------
990,534 1,194,038
------------ -----------
AUTO & TRUCKS -- 1.1%
20,500 Ford Motor Co. ........................................ 664,856 594,500
------------ -----------
BANKING SERVICES -- 5.8%
11,300 First Interstate Bancorp............................... 1,018,417 1,542,450
10,500 Mellon Bank Corp. ..................................... 560,891 564,375
26,000 State Street Boston Corp. ............................. 1,008,270 1,170,000
------------ -----------
2,587,578 3,276,825
------------ -----------
BROADCASTING -- 6.4%
4,900 Capital Cities/ABC, Inc. .............................. 439,870 604,537
80,000 Heritage Media Corp.++................................. 1,840,608 2,050,000
5,000 International Family Entertainment, Inc. Class B++..... 73,125 81,875
17,700 Viacom, Inc. Class B++................................. 879,024 838,538
------------ -----------
3,232,627 3,574,950
------------ -----------
CHEMICALS -- 7.5%
10,000 Air Products & Chemicals, Inc.......................... 512,476 527,500
21,000 Cabot Corp............................................. 988,636 1,131,375
5,000 Eastman Chemical Co. .................................. 270,423 313,125
36,000 IMC Global, Inc. ...................................... 903,984 1,471,500
6,150 Monsanto Co. .......................................... 514,294 753,375
------------ -----------
3,189,813 4,196,875
------------ -----------
COMPUTER SOFTWARE & SERVICES -- 1.1%
11,000 Computer Associates International, Inc. ............... 404,093 625,625
------------ -----------
COMPUTERS -- 7.4%
75,000 Comdisco, Inc. ........................................ 1,250,791 1,696,875
37,000 Compaq Computer Corp.++................................ 1,786,395 1,776,000
7,300 International Business Machines Corp. ................. 721,461 669,775
------------ -----------
3,758,647 4,142,650
------------ -----------
ELECTRICAL EQUIPMENT -- 1.0%
25,200 Baldor Electric Co. ................................... 384,300 507,150
------------ -----------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
15
<PAGE> 22
FUNDS IV TRUST
THE AGGRESSIVE STOCK APPRECIATION FUND
Portfolio of Investments (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- ----------- ------------ -----------
<C> <S> <C> <C>
COMMON STOCKS -- (CONTINUED)
ELECTRONICS -- 2.3%
500 Advanced Micro Devices, Inc.++ ........................ $ 17,025 $ 8,250
3,400 Hewlett-Packard Co. ................................... 233,586 284,750
15,000 Intel Corp. ........................................... 915,228 851,250
6,000 Teradyne, Inc.++....................................... 90,000 150,000
------------ -----------
1,255,839 1,294,250
------------ -----------
ENTERTAINMENT -- 1.3%
31,500 Grand Casinos, Inc.++ ................................. 855,256 732,375
------------ -----------
FINANCIAL SERVICES -- 12.0%
19,000 ADVANTA Corp. Class B.................................. 662,802 691,125
18,000 American Express Co. .................................. 583,534 744,750
18,500 Citicorp............................................... 952,358 1,244,125
34,000 Donaldson, Lufkin & Jenrette Securities, Inc.++........ 1,035,843 1,062,500
30,000 Equifax, Inc. ......................................... 431,250 641,250
10,000 Federal National Mortgage Association.................. 1,093,132 1,241,250
51,000 Lehman Brothers Holdings, Inc. ........................ 1,137,620 1,083,750
------------ -----------
5,896,539 6,708,750
------------ -----------
FOOD PROCESSING -- 1.2%
7,500 Philip Morris Cos., Inc. .............................. 513,219 678,750
------------ -----------
FOOTWEAR -- 3.9%
31,500 Nike, Inc. Class B..................................... 1,593,930 2,193,187
------------ -----------
FOREST PRODUCTS & PAPERS -- 1.7%
16,000 Champion International Corp. .......................... 923,211 672,000
7,975 Rayonier, Inc. ........................................ 278,821 266,166
------------ -----------
1,202,032 938,166
------------ -----------
HOLDING COMPANIES -- 1.4%
6,800 ITT Corp. ............................................. 743,661 800,700
------------ -----------
HOMEBUILDERS -- 2.6%
69,000 Clayton Homes, Inc. ................................... 1,040,840 1,474,875
------------ -----------
INSURANCE -- 0.5%
2,000 General Re Corp. ...................................... 225,750 310,000
------------ -----------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
16
<PAGE> 23
FUNDS IV TRUST
THE AGGRESSIVE STOCK APPRECIATION FUND
Portfolio of Investments (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- ----------- ------------ -----------
<C> <S> <C> <C>
COMMON STOCKS -- (CONTINUED)
LEISURE -- 1.6%
25,000 The Coleman Co., Inc.++................................ $ 833,128 $ 878,125
------------ -----------
MACHINERY -- 3.6%
14,900 Atchison Casting Corp.++............................... 247,713 178,800
40,000 Case Corp. ............................................ 1,426,205 1,830,000
------------ -----------
1,673,918 2,008,800
------------ -----------
MEDICAL SERVICES -- 0.9%
9,680 Columbia/HCA Healthcare Corp. ......................... 325,875 491,260
------------ -----------
METALS -- 3.5%
16,500 Aluminum Co. of America................................ 933,328 872,438
34,000 Kennametal, Inc. ...................................... 1,185,177 1,079,500
------------ -----------
2,118,505 1,951,938
------------ -----------
MINING -- 0.9%
19,700 Barrick Gold Corp. .................................... 450,336 519,587
------------ -----------
MISCELLANEOUS MANUFACTURING -- 0.1%
2,400 Hillenbrand Industries, Inc. .......................... 78,600 81,300
------------ -----------
OIL/GAS -- 2.4%
12,500 Amoco Corp. ........................................... 746,950 898,438
11,500 Tosco Corp. ........................................... 359,375 438,437
------------ -----------
1,106,325 1,336,875
------------ -----------
OIL/GAS EQUIPMENT -- 1.5%
35,000 Baker Hughes, Inc. .................................... 686,693 853,125
------------ -----------
PHARMACEUTICALS -- 7.6%
7,000 Allergan, Inc. ........................................ 202,475 227,500
25,600 Amgen, Inc.++ ......................................... 1,005,894 1,520,000
7,000 Johnson & Johnson...................................... 431,243 599,375
28,600 Merck & Co., Inc. ..................................... 1,544,988 1,880,450
------------ -----------
3,184,600 4,227,325
------------ -----------
PUBLISHING & PRINTING -- 2.0%
55,000 Bowne & Co., Inc. ..................................... 1,102,093 1,100,000
------------ -----------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
17
<PAGE> 24
FUNDS IV TRUST
THE AGGRESSIVE STOCK APPRECIATION FUND
Portfolio of Investments (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL VALUE
AMOUNT COST (NOTE 2A)
- ----------- ------------ -----------
<C> <S> <C> <C>
COMMON STOCKS -- (CONTINUED)
RETAIL -- SPECIALTY LINE -- 7.4%
37,000 CompUSA, Inc.++........................................ $ 1,507,220 $ 1,151,625
33,500 Corporate Express, Inc.++ ............................. 804,000 1,009,188
46,000 OfficeMax, Inc.++...................................... 959,605 1,029,250
29,950 PETsMART, Inc.++....................................... 774,330 928,450
------------ -----------
4,045,155 4,118,513
------------ -----------
TELECOMMUNICATIONS -- 3.7%
11,000 Motorola, Inc. ........................................ 836,033 627,000
25,000 SBC Communications, Inc. .............................. 1,113,838 1,437,500
------------ -----------
1,949,871 2,064,500
------------ -----------
TOYS -- 1.0%
17,812 Mattel, Inc. .......................................... 404,332 547,719
------------ -----------
TRANSPORTATION -- 2.0%
10,000 Conrail, Inc. ......................................... 583,350 700,000
2,300 UAL Corp.++............................................ 337,171 410,550
------------ -----------
920,521 1,110,550
------------ -----------
UTILITIES -- ELECTRIC -- 1.9%
43,000 California Energy Co., Inc.++.......................... 786,991 838,500
5,500 CILCORP, Inc. ......................................... 162,937 233,061
------------ -----------
949,928 1,071,561
------------ -----------
TOTAL COMMON STOCKS.................................... 48,369,394 55,604,844
------------ -----------
MONEY MARKET FUND*** -- 1.9%
$1,063,125 Federated Prime Obligations Money Market Fund.......... 1,063,125 1,063,125
------------ -----------
TOTAL INVESTMENTS -- 101.3%............................ $ 49,432,519 56,667,969
==========
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.3%)........ (722,563)
-----------
NET ASSETS -- 100.0%................................... $55,945,406
==========
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
18
<PAGE> 25
FUNDS IV TRUST
THE VALUE STOCK APPRECIATION FUND
Portfolio of Investments (unaudited)
December 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- ----------- ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS -- 93.4%
AEROSPACE/DEFENSE -- 5.9%
16,224 Raytheon Co. .......................................... $ 569,493 $ 766,584
14,395 Rockwell International Corp. .......................... 567,628 761,136
---------- ----------
1,137,121 1,527,720
---------- ----------
AUTO PARTS -- 2.8%
17,890 Genuine Parts Co. ..................................... 696,484 733,490
---------- ----------
BEVERAGES -- 2.3%
8,095 The Coca-Cola Co. ..................................... 430,047 601,054
---------- ----------
BREWERY -- 2.7%
10,345 Anheuser-Busch Cos., Inc. ............................. 566,609 691,822
---------- ----------
CHEMICAL -- 1.8%
10,460 PPG Industries, Inc. .................................. 384,355 478,545
---------- ----------
ELECTRONICS -- 5.4%
10,320 General Electric Co. .................................. 544,730 743,040
11,825 Intel Corp. ........................................... 537,428 671,069
---------- ----------
1,082,158 1,414,109
---------- ----------
FINANCIAL SERVICES -- 8.7%
6,410 Federal National Mortgage Association.................. 701,282 795,641
9,230 J.P. Morgan & Co., Inc. ............................... 603,158 740,708
20,210 MBNA Corp. ............................................ 714,482 745,244
---------- ----------
2,018,922 2,281,593
---------- ----------
FOOD PROCESSING -- 6.8%
12,700 General Mills Inc. .................................... 725,607 733,425
11,560 Philip Morris Cos., Inc. .............................. 709,495 1,046,180
---------- ----------
1,435,102 1,779,605
---------- ----------
FOREST PRODUCTS & PAPERS -- 1.9%
10,500 Union Camp Corp. ...................................... 560,009 500,063
---------- ----------
INSURANCE -- 5.5%
8,078 American International Group, Inc. .................... 600,101 747,215
7,070 Chubb Corp. ........................................... 570,244 684,023
---------- ----------
1,170,345 1,431,238
---------- ----------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
19
<PAGE> 26
FUNDS IV TRUST
THE VALUE STOCK APPRECIATION FUND
Portfolio of Investments (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- ----------- ---------- ----------
<C> <S> <C> <C>
COMMON STOCKS -- (CONTINUED)
MISCELLANEOUS MANUFACTURING -- 2.3%
9,085 Minnesota Mining & Manufacturing Co. .................. $ 480,369 $ 601,881
---------- ----------
OIL/GAS -- 9.9%
20,775 Ashland, Inc. ......................................... 700,770 729,722
4,713 Atlantic Richfield Co. ................................ 543,334 521,965
8,452 Exxon Corp. ........................................... 619,859 677,216
4,635 Royal Dutch Petroleum Co. New York Shares ADR.......... 567,860 654,114
---------- ----------
2,431,823 2,583,017
---------- ----------
PERSONAL CARE -- 2.3%
12,300 Tambrands, Inc. ....................................... 511,987 587,325
---------- ----------
PHARMACEUTICALS -- 8.5%
13,775 Abbott Laboratories.................................... 478,681 575,106
8,000 Bristol-Myers Squibb Co. .............................. 490,000 687,000
14,545 Merck & Co., Inc. ..................................... 585,436 956,334
---------- ----------
1,554,117 2,218,440
---------- ----------
PUBLISHING & PRINTING -- 4.6%
11,610 Dun & Bradstreet Corp. ................................ 619,592 751,747
21,805 John H. Harland Co. ................................... 480,436 455,179
---------- ----------
1,100,028 1,206,926
---------- ----------
RESTAURANTS/FOOD SERVICES -- 1.7%
9,804 McDonald's Corp. ...................................... 329,660 442,405
---------- ----------
RETAIL -- DEPARTMENT STORES -- 3.4%
10,586 May Department Stores Co. ............................. 444,729 447,258
19,345 Wal-Mart Stores, Inc. ................................. 459,668 432,844
---------- ----------
904,397 880,102
---------- ----------
TELECOMMUNICATIONS -- 4.8%
16,995 GTE Corp. ............................................. 614,440 747,780
8,975 SBC Communications, Inc. .............................. 408,138 516,062
---------- ----------
1,022,578 1,263,842
---------- ----------
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
20
<PAGE> 27
FUNDS IV TRUST
THE VALUE STOCK APPRECIATION FUND
Portfolio of Investments (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL VALUE
AMOUNT COST (NOTE 2A)
- ---------- ------------ -----------
<C> <S> <C> <C>
COMMON STOCKS -- (CONTINUED)
TEXTILES -- 1.9%
9,400 VF Corp. .............................................. $ 479,931 $ 495,850
---------- ----------
TOBACCO -- 2.9%
22,535 UST, Inc. ............................................. 657,850 752,106
---------- ----------
TRANSPORTATION -- 1.5%
17,518 Alexander & Baldwin, Inc. ............................. 385,396 402,914
---------- ----------
UTILITIES -- 5.8%
26,675 Central & South West Corp. ............................ 736,117 743,566
16,869 Consolidated Natural Gas Co. .......................... 671,585 765,431
---------- ----------
1,407,702 1,508,997
---------- ----------
TOTAL COMMON STOCKS.................................... 20,746,990 24,383,044
---------- ----------
U.S. TREASURY BILLS -- 7.2%
$1,000,000 5.27% 01/25/96 (d)..................................... 996,533 996,533
900,000 5.33% 03/07/96 (d)..................................... 891,312 891,599
---------- ----------
TOTAL U.S. TREASURY BILLS.............................. 1,887,845 1,888,132
---------- ----------
TOTAL INVESTMENTS -- 100.6%............................ $ 22,634,835 26,271,176
==========
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.6%)........ (170,820)
----------
NET ASSETS -- 100.0%................................... $26,100,356
==========
</TABLE>
See Footnotes to Portfolios and accompanying notes to financial statements.
21
<PAGE> 28
FUNDS IV TRUST
Footnotes to Portfolios (unaudited)
* Long-Term Credit Ratings given by Standard & Poor's Corp. and Moody's
Investors Services, Inc. (unaudited).
<TABLE>
<CAPTION>
Standard & Poor's Moody's
- ----------------- --------
<S> <C> <C>
AAA Aaa Instrument judged to be of the best quality and
carrying the smallest amount of investment risk.
AA Aa Instrument judged to be of high quality by all
standards.
A A Instrument judged to be adequate by all standards.
BBB Baa Instrument judged to be of moderate quality by all
standards.
</TABLE>
Items which possess the strongest investment attributes of their category
are given that letter rating following by a number. The Standard & Poor's
Corp. may modify the ratings by the addition of a plus or minus sign to show
relative standing within the major rating categories.
U.S. Government issues have assumed ratings of AAA/Aaa.
** Short-Term Credit Ratings given by the following Nationally Recognized
Statistical Rating Organizations which represent instrument of the highest
quality (unaudited):
<TABLE>
<CAPTION>
Duff & Phelps Fitch Investor IBCA Moody's Investors Standard & Poor's Thompson
Credit Rating Services, Inc. Ltd. Services, Inc. Corp. BankWatch
- -------------- --------------- ---- ------------------ ------------------ ----------
<S> <C> <C> <C> <C> <C>
D-1 F-1 A1 P-1 A-1 TBW-1
</TABLE>
*** Money Market Funds have credit ratings of AAA/Aaa.
+ The cost of securities for Federal income tax purposes is substantially the
same.
++ Non-income producing security.
(a) Maturity date shown is the final maturity date; rate shown represents the
yield to next interest reset date.
(b) Security restricted as to resale. The total value of restricted security is
5.45% of net assets.
(c) Maturity date shown is the first callable date or put date.
(d) Rate shown is yield to maturity on date of purchase.
INVESTMENT PERCENTAGES SHOWN ARE CALCULATED AS A PERCENTAGE OF NET ASSETS.
ABBREVIATIONS USED IN THE PORTFOLIOS:
<TABLE>
<CAPTION>
<S> <C>
ADR American Depository Receipts
VR Variable Rate
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 29
FUNDS IV TRUST
Statement of Assets and Liabilities (unaudited)
December 31, 1995
<TABLE>
<CAPTION>
THE THE THE
CASH RESERVE SHORT-TERM INTERMEDIATE THE
MONEY MARKET TREASURY BOND INCOME BOND INCOME
FUND INCOME FUND FUND FUND
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value (cost
$291,865,449, $17,130,757, $124,186,643 and
$28,235,309, respectively) (Note 2A)......... $291,865,449 $17,608,138 $128,849,238 $29,557,631
Cash........................................... -- 70,456 27,853 --
Interest receivable............................ 1,533,634 269,581 2,201,751 541,114
Unamortized organizational costs (Note 2E)..... 16,690 15,708 16,937 16,937
Other assets................................... 15,759 997 6,918 696
------------ ----------- ------------ -----------
Total assets................................. 293,431,532 17,964,880 131,102,697 30,116,378
------------ ----------- ------------ -----------
LIABILITIES:
Payable to Custodian........................... -- -- -- 186,164
Dividend payable............................... 1,465,491 81,134 630,844 124,542
Investment Advisory fee payable (Note 3)....... 53,444 9,504 44,261 17,212
Administrative services fee payable (Note 4)... 40,083 -- 16,598 3,908
Shareholder servicing fee payable (Note 5)..... 13,361 746 5,533 1,199
Custodian fee payable (Note 6)................. 8,016 448 3,320 719
Fund accounting fee payable (Note 4)........... 3,319 2,463 5,219 3,004
Transfer agent fee payable (Note 6)............ 718 805 2,332 904
Other accrued expenses......................... 44,144 2,239 23,631 12,321
------------ ----------- ------------ -----------
Total liabilities............................ 1,628,576 97,339 731,738 349,973
------------ ----------- ------------ -----------
NET ASSETS....................................... $291,802,956 $17,867,541 $130,370,959 $29,766,405
============ =========== ============= ===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par
value of $0.001 per share); unlimited number
of shares authorized......................... $ 291,802 $ 1,729 $ 12,544 $ 2,770
Additional paid-in capital..................... 291,510,160 17,341,681 125,125,823 28,314,324
Accumulated undistributed net realized gain on
investment transactions...................... 994 46,750 569,997 126,989
Net unrealized appreciation on investments..... -- 477,381 4,662,595 1,322,322
----------- ----------- ------------- -----------
Net assets applicable to shares of beneficial
interest outstanding........................... $291,802,956 $17,867,541 $130,370,959 $29,766,405
=========== =========== ============= ===========
SHARES OF BENEFICIAL INTEREST:
SERVICE CLASS:
Shares of beneficial interest outstanding.... 291,795,947 1,728,339 12,543,678 2,769,079
=========== =========== ============= ===========
Net asset value, maximum offering price and
redemption price per share outstanding..... $1.00 $10.33 $10.39 $10.75
====== ======= ====== =======
PREMIUM CLASS:
Shares of beneficial interest outstanding.... 6,015 603 605 605
====== ======= ====== =======
Net asset value, maximum offering price and
redemption price per share outstanding..... $1.00 $10.33 $10.39 $10.75
====== ======= ====== =======
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 30
FUNDS IV TRUST
Statement of Assets and Liabilities (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
THE
THE AGGRESSIVE THE
STOCK STOCK VALUE STOCK
APPRECIATION APPRECIATION APPRECIATION
FUND FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS:
Investment in securities, at value (cost $126,803,000,
$49,432,519 and $22,634,835, respectively) (Note 2A)...... $153,800,731 $56,667,969 $26,271,176
Cash........................................................ 127,986 -- --
Receivable for investments sold............................. 2,018,733 -- --
Dividends and interest receivable........................... 330,589 59,723 55,907
Unamortized organizational costs (Note 2E).................. 16,937 16,937 31,546
Other assets................................................ 7,519 2,672 1,510
------------ ------------ ------------
Total Assets.............................................. 156,302,495 56,747,301 26,360,139
------------ ------------ ------------
LIABILITIES:
Payable to Custodian........................................ -- 294,278 196,926
Payable for investments purchased........................... 389,827 431,548 --
Investment Advisory fee payable (Note 3).................... 84,802 34,850 29,621
Administrative services fee payable (Note 4)................ 19,570 7,017 3,275
Shareholder servicing fee payable (Note 5).................. 6,523 2,339 1,092
Custodian fee payable (Note 6).............................. 3,914 1,403 655
Fund accounting fee payable (Note 4)........................ 3,225 3,128 3,605
Transfer agent fee payable (Note 6)......................... 1,801 2,036 1,892
Other accrued expenses...................................... 17,477 25,296 22,717
------------ ------------ ------------
Total Liabilities......................................... 527,139 801,895 259,783
------------ ------------ ------------
NET ASSETS.................................................... $155,775,356 $55,945,406 $26,100,356
============= ============ ============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of
$0.001
per share); unlimited number of shares authorized......... $ 12,702 $ 4,793 $ 2,173
Additional paid-in capital.................................. 128,344,045 48,765,572 22,313,734
Accumulated undistributed (distributions in excess of) net
investment income......................................... 736 3,017 (338)
Accumulated undistributed net realized gain (loss) on
investment transactions................................... 420,142 (63,426) 148,446
Net unrealized appreciation on investments.................. 26,997,731 7,235,450 3,636,341
------------ ------------ ------------
Net assets applicable to shares of beneficial interest
outstanding................................................. $155,775,356 $55,945,406 $26,100,356
============= ============ ============
SHARES OF BENEFICIAL INTEREST:
SERVICE CLASS:
Shares of beneficial interest outstanding................. 12,701,079 4,792,709 2,172,900
========== ========== ==========
Net asset value, maximum offering price and redemption
price per share outstanding............................. $12.26 $11.67 $12.01
====== ======= =======
PREMIUM CLASS:
Shares of beneficial interest outstanding................. 576 575 6
====== ======= =======
Net asset value, maximum offering price and redemption
price per share outstanding............................. $12.26 $11.67 $12.01
====== ======= =======
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 31
FUNDS IV TRUST
Statement of Operations (unaudited)
For the Six Months Ended December 31, 1995
<TABLE>
<CAPTION>
THE THE THE
CASH RESERVE SHORT-TERM INTERMEDIATE THE
MONEY MARKET TREASURY BOND INCOME BOND INCOME
FUND INCOME FUND FUND FUND
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Interest.................................... $9,005,131 $ 516,732 $4,418,633 $ 648,210
---------- -------- ---------- ----------
EXPENSES:
Investment Advisory (Note 3)................ 299,764 24,589 265,658 40,077
Administrative services (Note 4)............ 224,823 12,294 99,622 15,029
Shareholder servicing (Note 5).............. 74,941 4,098 33,208 5,010
Custodian (Note 6).......................... 44,964 2,459 19,924 3,006
Audit....................................... 16,552 2,258 14,202 7,993
Reports to shareholders..................... 16,415 904 7,859 1,023
Fund accounting (Note 4).................... 16,336 15,619 19,768 17,310
Legal....................................... 11,493 714 6,327 675
Registration................................ 8,613 1,951 9,808 3,997
Trustees.................................... 7,580 408 3,786 575
Insurance................................... 7,063 168 3,555 493
Amortization of organization expenses (Note
2E)....................................... 2,334 3,417 2,187 2,187
Transfer agent (Note 6)..................... 1,321 1,998 7,902 1,867
Miscellaneous............................... 4,419 1,244 4,292 1,620
---------- -------- ---------- ----------
Net expenses before waivers............... 736,618 72,121 498,098 100,862
Expenses waived by Administrator
(Note 4)................................ -- (12,294) -- (9,129)
---------- -------- ---------- ----------
Net expenses................................ 736,618 59,827 498,098 91,733
---------- -------- ---------- ----------
NET INVESTMENT INCOME......................... 8,268,513 456,905 3,920,535 556,477
---------- -------- ---------- ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment
transactions.............................. 4,409 60,019 1,624,973 282,201
Net change in unrealized appreciation of
investments............................... -- 182,446 934,023 684,355
---------- -------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS................................. 4,409 242,465 2,558,996 966,556
---------- -------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................. $8,272,922 $ 699,370 $6,479,531 $1,523,033
========== ======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
25
<PAGE> 32
FUNDS IV TRUST
Statement of Operations (unaudited) (continued)
For the Six Months Ended December 31, 1995
<TABLE>
<CAPTION>
THE
THE AGGRESSIVE THE
STOCK STOCK VALUE STOCK
APPRECIATION APPRECIATION APPRECIATION
FUND FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
NET INVESTMENT INCOME:
INCOME:
Dividends.................................................... $ 1,416,676 $ 320,689 $ 290,616
Interest..................................................... 107,885 51,568 94,147
----------- ---------- ----------
1,524,561 372,257 384,763
----------- ---------- ----------
EXPENSES:
Investment Advisory (Note 3)................................. 471,690 192,062 75,914
Administrative services (Note 4)............................. 108,851 38,671 17,519
Shareholder servicing (Note 5)............................... 36,284 12,890 5,839
Custodian (Note 6)........................................... 21,770 7,734 3,506
Fund accounting (Note 4)..................................... 18,325 17,715 17,249
Audit........................................................ 12,050 14,023 12,356
Registration................................................. 8,207 4,816 3,616
Legal........................................................ 8,053 2,615 924
Reports to shareholders...................................... 8,011 3,994 1,330
Transfer agent (Note 6)...................................... 6,630 4,665 3,162
Trustees..................................................... 3,651 2,157 596
Insurance.................................................... 3,367 1,187 65
Amortization of organization expenses (Note 2E).............. 2,187 2,187 769
Miscellaneous................................................ 3,500 3,432 2,104
----------- ---------- ----------
Net expenses before waivers................................ 712,576 308,148 144,949
Expenses waived by Administrator (Note 4).................. -- -- (14,244)
----------- ---------- ----------
Net expenses................................................. 712,576 308,148 130,705
----------- ---------- ----------
NET INVESTMENT INCOME.......................................... 811,985 64,109 254,058
----------- ---------- ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions................. 3,676,587 1,699,432 297,905
Net change in unrealized appreciation on investments......... 11,986,554 2,422,408 2,200,899
----------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................ 15,663,141 4,121,840 2,498,804
----------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $ 16,475,126 $4,185,949 $2,752,862
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 33
FUNDS IV TRUST
Statement of Changes in Net Assets (unaudited)
<TABLE>
<CAPTION>
THE CASH RESERVE THE SHORT-TERM
MONEY MARKET FUND(a) TREASURY INCOME FUND(b)
---------------------------- ----------------------------
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
1995 1995 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income......................... $ 8,268,513 $ 11,878,855 $ 456,905 $ 630,124
Net realized gain on investment
transactions................................ 4,409 -- 60,019 1,144
Net change in unrealized appreciation on
investments................................. -- -- 182,446 294,935
------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations.................................. 8,272,922 11,878,855 699,370 926,203
------------ ------------ ------------ ------------
Distributions to Shareholders From:
Net Investment Income:
Service Class............................... (8,268,348) (11,878,590) (456,735) (629,853)
Premium Class............................... (165) (265) (170) (271)
------------ ------------ ------------ ------------
(8,268,513) (11,878,855) (456,905) (630,124)
------------ ------------ ------------ ------------
Net Realized Capital Gain:
Service Class............................... (3,415) -- (14,408) --
Premium Class............................... -- -- (5) --
------------ ------------ ------------ ------------
(3,415) -- (14,413) --
------------ ------------ ------------ ------------
Transactions in Shares of Beneficial Interest:
Proceeds from sales of shares:
Service Class............................... 244,582,629 504,606,671 3,465,608 19,068,124
Premium Class............................... -- -- -- --
------------ ------------ ------------ ------------
244,582,629 504,606,671 3,465,608 19,068,124
------------ ------------ ------------ ------------
Net asset value of shares issued in
reinvestment of distributions:
Service Class............................. 5,088 7,113 321,815 535,484
Premium Class............................. 137 263 147 269
------------ ------------ ------------ ------------
5,225 7,376 321,962 535,753
------------ ------------ ------------ ------------
Cost of shares redeemed:
Service Class............................... (227,454,913) (229,956,257) (1,426,022) (4,633,246)
Premium Class............................... -- -- -- --
------------ ------------ ------------ ------------
(227,454,913) (229,956,257) (1,426,022) (4,633,246)
------------ ------------ ------------ ------------
Net increase in net assets derived from
transactions in shares of beneficial
interest...................................... 17,132,941 274,657,790 2,361,548 14,970,631
------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS...................... 17,133,935 274,657,790 2,589,600 15,266,710
NET ASSETS:
Beginning of period........................... 274,669,021 11,231 15,277,941 11,231
------------ ------------ ------------ ------------
End of period................................. $291,802,956 $274,669,021 $17,867,541 $ 15,277,941
============= ============ ============= ============
</TABLE>
(a) Fund commenced operations on August 19, 1994.
(b) Fund commenced operations on August 26, 1994.
See accompanying notes to financial statements.
27
<PAGE> 34
FUNDS IV TRUST
Statement of Changes in Net Assets (unaudited) (continued)
<TABLE>
<CAPTION>
THE INTERMEDIATE THE BOND
BOND INCOME FUND(a) INCOME FUND(a)
---------------------------- ----------------------------
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
1995 1995 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income......................... $ 3,920,535 $ 6,011,113 $ 556,477 $ 777,560
Net realized gain (loss) on investment
transactions................................ 1,624,973 (1,054,976) 282,201 (155,212)
Net change in unrealized appreciation on
investments................................. 934,023 3,728,572 684,355 637,967
------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations.................................. 6,479,531 8,684,709 1,523,033 1,260,315
------------ ------------ ------------ ------------
Distributions to Shareholders From:
Net Investment Income:
Service Class............................... (3,920,352) (6,010,821) (556,302) (777,262)
Premium Class............................... (182) (292) (175) (298)
------------ ------------ ------------ ------------
(3,920,534) (6,011,113) (556,477) (777,560)
------------ ------------ ------------ ------------
Transactions in Shares of Beneficial Interest:
Proceeds from sales of shares:
Service Class............................... 18,680,087 151,855,281 16,515,140 18,704,493
Premium Class............................... -- -- -- --
------------ ------------ ------------ ------------
18,680,087 151,855,281 16,515,140 18,704,493
------------ ------------ ------------ ------------
Net asset value of shares issued in
reinvestment of distributions:
Service Class............................. 3,070,055 5,850,294 385,069 756,287
Premium Class............................. 150 290 144 295
------------ ------------ ------------ ------------
3,070,205 5,850,584 385,213 756,582
------------ ------------ ------------ ------------
Cost of shares redeemed:
Service Class............................... (23,261,225) (31,067,797) (1,083,576) (6,971,989)
Premium Class............................... -- -- -- --
------------ ------------ ------------ ------------
(23,261,225) (31,067,797) (1,083,576) (6,971,989)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets derived
from transactions in shares of beneficial
interest...................................... (1,510,933) 126,638,068 15,816,777 12,489,086
------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS...................... 1,048,064 129,311,664 16,783,333 12,971,841
NET ASSETS:
Beginning of period........................... 129,322,895 11,231 12,983,072 11,231
------------ ------------ ------------ ------------
End of period................................. $130,370,959 $129,322,895 $29,766,405 $ 12,983,072
============ ============ ============ ============
</TABLE>
(a) Fund commenced operations on August 26, 1994.
See accompanying notes to financial statements.
28
<PAGE> 35
FUNDS IV TRUST
Statement of Changes in Net Assets (unaudited) (continued)
<TABLE>
<CAPTION>
THE STOCK THE AGGRESSIVE STOCK
APPRECIATION FUND(a) APPRECIATION FUND(a)
---------------------------- ----------------------------
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
1995 1995 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income......................... $ 811,985 $ 1,820,788 $ 64,109 $ 424,601
Net realized gain (loss) on investment
transactions................................ 3,676,587 (2,494,115) 1,699,432 (1,059,218)
Net change in unrealized appreciation on
investments................................. 11,986,554 15,011,177 2,422,408 4,813,042
------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations.................................. 16,475,126 14,337,850 4,185,949 4,178,425
------------ ------------ ------------ ------------
Distributions to Shareholders From:
Net Investment Income:
Service Class............................... (811,345) (1,820,567) (61,085) (424,543)
Premium Class............................... (37) (88) (7) (58)
------------ ------------ ------------ ------------
(811,382) (1,820,655) (61,092) (424,601)
------------ ------------ ------------ ------------
Net Realized Capital Gain:
Service Class............................... (762,295) -- (703,555) --
Premium Class............................... (35) -- (85) --
------------ ------------ ------------ ------------
(762,330) -- (703,640) --
------------ ------------ ------------ ------------
Transactions in Shares of Beneficial Interest:
Proceeds from sales of shares:
Service Class............................... 23,029,862 141,795,146 11,686,641 52,202,929
Premium Class............................... -- -- -- --
------------ ------------ ------------ ------------
23,029,862 141,795,146 11,686,641 52,202,929
------------ ------------ ------------ ------------
Net asset value of shares issued in
reinvestment of distributions:
Service Class............................. 1,498,145 1,792,471 724,851 415,956
Premium Class............................. 72 88 88 57
------------ ------------ ------------ ------------
1,498,217 1,792,559 724,939 416,013
------------ ------------ ------------ ------------
Cost of shares redeemed:
Service Class............................... (14,899,474) (24,870,794) (4,098,609) (12,172,779)
Premium Class............................... -- -- -- --
------------ ------------ ------------ ------------
(14,899,474) (24,870,794) (4,098,609) (12,172,779)
------------ ------------ ------------ ------------
Net increase in net assets derived from
transactions in shares of beneficial
interest...................................... 9,628,605 118,716,911 8,312,971 40,446,163
------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS...................... 24,530,019 131,234,106 11,734,188 44,199,987
NET ASSETS:
Beginning of period........................... 131,245,337 11,231 44,211,218 11,231
------------ ------------ ------------ ------------
End of period................................. $155,775,356 $131,245,337 $55,945,406 $ 44,211,218
============= ============= ============= ============
Undistributed net investment income............. $736 $133 $3,017 --
===== ==== ======= ====
</TABLE>
(a) Fund commenced operations on August 26, 1994.
See accompanying notes to financial statements.
29
<PAGE> 36
FUNDS IV TRUST
Statement of Changes in Net Assets (unaudited) (continued)
<TABLE>
<CAPTION>
THE VALUE STOCK
APPRECIATION FUND(a)
----------------------------
SIX MONTHS PERIOD
ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1995
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income.................................................... $ 254,058 $ 181,162
Net realized gain on investment transactions............................. 297,905 223,397
Net change in unrealized appreciation on investments..................... 2,200,899 1,435,442
------------ ------------
2,752,862 1,840,001
------------ ------------
Distributions to Shareholders From:
Net Investment Income:
Service Class.......................................................... (254,370) (181,187)
Premium Class.......................................................... (1) --
------------ ------------
(254,371) (181,187)
------------ ------------
Net Realized Capital Gain:
Service Class.......................................................... (372,855) --
Premium Class.......................................................... (1) --
------------ ------------
(372,856) --
------------ ------------
Transactions in Shares of Beneficial Interest:
Proceeds from sales of shares:
Service Class.......................................................... 5,069,341 19,959,592
Premium Class.......................................................... -- --
------------ ------------
5,069,341 19,959,592
------------ ------------
Net asset value of shares issued in reinvestment of distributions:
Service Class.......................................................... 608,762 180,830
Premium Class.......................................................... 1 --
------------ ------------
608,763 180,830
------------ ------------
Cost of shares redeemed:
Service Class.......................................................... (2,392,934) (1,109,805)
Premium Class.......................................................... -- --
------------ ------------
(2,392,934) (1,109,805)
------------ ------------
Net increase in net assets derived from transactions in shares of
beneficial interest...................................................... 3,285,170 19,030,617
------------ ------------
NET INCREASE IN NET ASSETS................................................. 5,410,805 20,689,431
NET ASSETS:
Beginning of period...................................................... 20,689,551 120
------------ ------------
End of period............................................................ $26,100,356 $ 20,689,551
============= ============
Distributions in excess of net investment income........................... $(338) $(25)
====== ====
</TABLE>
(a) Fund commenced operations on February 10, 1995.
See accompanying notes to financial statements.
30
<PAGE> 37
FUNDS IV TRUST
Notes to Financial Statements (unaudited)
December 31, 1995
1. DESCRIPTION AND ORGANIZATION
FUNDS IV Trust (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company. The Trust was organized as a Delaware business trust on May 2, 1994 and
currently consists of eleven portfolios: The U.S. Treasury Reserve Money Market
Fund, The Cash Reserve Money Market Fund, The Short-Term Treasury Income Fund,
The Intermediate Bond Income Fund, The Bond Income Fund, The Stock Appreciation
Fund, The Aggressive Stock Appreciation Fund, The Value Stock Appreciation Fund,
The U.S. Intermediate Tax Exempt Fund, The Kansas Intermediate Tax Exempt Fund,
and The International Equity Fund (each, a "Fund", collectively, the "Funds").
Each Fund comprises two classes of shares, the Service Class and the Premium
Class. The capitalization of the Trust consists solely of an unlimited number of
shares of beneficial interest with a par value of $0.001 each.
Currently, seven of the Funds are active. The Cash Reserve Money Market
Fund commenced operations on August 19, 1994; The Short-Term Treasury Income
Fund, The Intermediate Bond Income Fund, The Bond Income Fund, The Stock
Appreciation Fund, and The Aggressive Stock Appreciation Fund commenced
operations on August 26, 1994. The Value Stock Appreciation Fund commenced
operations on February 10, 1995. As of December 31, 1995, The U.S. Treasury
Reserve Money Market Fund, The U.S. Intermediate Tax Exempt Fund, The Kansas
Intermediate Tax Exempt Fund, and The International Equity Fund had not
commenced operations.
Prior to the commencement of operations, none of the Funds had any
operations other than organization matters and the sale to FUNDS IV Distributor,
Inc. ("FFD"), the Trust's Distributor, of shares of beneficial interest
representing the initial capital of the Funds.
Each class of shares outstanding bears the same dividend, liquidation and
other rights and conditions, except that the Service Class shares and the
Premium Class shares may bear separate shareholder servicing expenses, different
transfer agency and printing and postage expenses. Each class of shares has
exclusive voting rights with respect to matters affecting only that class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements:
A) SECURITY VALUATION: The Funds (except The Cash Reserve Money Market
Fund) value investments at the last sales price on the securities
exchange on which such securities are primarily traded. Over-the-counter
securities, or exchange traded securities for which there are no
transactions, are valued at the current bid price. Bonds and other fixed
income securities may be valued on the basis of prices provided by a
pricing service approved by the Board of Trustees. In the absence of
market quotations, investments are valued at fair value as determined in
good faith by, or at the direction of the Board of Trustees. Short-term
securities which mature in 60 days or less are valued at amortized cost,
if their term to
31
<PAGE> 38
FUNDS IV TRUST
Notes to Financial Statements (unaudited) (continued)
December 31, 1995
maturity at purchase was 60 days or less, or by amortizing their value
on the 61st day prior to maturity, if their original term to maturity at
purchase exceeded 60 days.
Investment securities of The Cash Reserve Money Market Fund are
valued using the amortized cost method which approximates current market
value. Under this method, securities are valued at cost when purchased
and, thereafter, a constant proportionate amortization of any discount
or premium is recorded until maturity of the security.
B) INVESTMENT TRANSACTIONS AND INCOME: Investment transactions are
recorded on the trade date. Identified cost of investments sold is used
to calculate gain and loss on sales for both financial statement and
Federal income tax purposes. Interest income, including the
amortization of discount or premium, is recorded as earned. Dividend
income is recorded on the ex-dividend date.
C) DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS TO SHAREHOLDERS: Dividends from
net investment income are declared daily and paid monthly, generally on
the first business day of each month, for The Cash Reserve Money Market
Fund, The Short-Term Treasury Income Fund, The Intermediate Bond Income
Fund, and The Bond Income Fund. In the case of The Stock Appreciation
Fund, The Aggressive Stock Appreciation Fund, and The Value Stock
Appreciation Fund, dividends are paid at least annually. Each Fund will
distribute, at least annually, substantially all net capital gains, if
any, earned by the Fund. The amount of dividends and distributions are
determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To
the extent these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their Federal tax
basis treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and net
realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains.
D) FEDERAL INCOME TAXES: Each Fund is a separate taxable entity for Federal
income tax purposes, qualified and intends to continue to qualify as a
"regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended. By so qualifying, each Fund will not
be subject to Federal income taxes to the extent that it distributes all
of its "investment company taxable income" as defined in the Code, and
net capital gains, if any, to its shareholders. Each Fund also intends
to meet the distribution requirements to avoid the payment of an excise
tax. Accordingly, no provision for Federal income taxes is required.
E) ORGANIZATIONAL COSTS: Costs incurred in connection with the
organization and initial registration of each Fund have been deferred
and are being amortized on a straight-line basis for a five-year period
beginning with the commencement of operations of each Fund. In the
event that any of the initial shares of the Funds owned by FFD are
redeemed during the amortization period, the redemption proceeds will
be reduced by a pro rata portion of any unamortized deferred
organization expenses in the same proportion as the number of initial
32
<PAGE> 39
FUNDS IV TRUST
Notes to Financial Statements (unaudited) (continued)
December 31, 1995
shares being redeemed bears to the number of initial shares outstanding
at the time of redemption.
F) DETERMINATION OF NET ASSET VALUE AND ALLOCATION OF EXPENSES: Expenses
directly attributable to a Fund are charged to that Fund; other
expenses are allocated proportionately among each Fund within the Trust
in relation to the net assets of each Fund, or on another reasonable
basis. In calculating net asset value per share of each class,
investment income and expenses, other than class-specific expenses, are
allocated daily to each class of shares based upon the proportion of
net assets of each class at the beginning of each day (for daily
dividend Funds, based on the value of outstanding settled shares).
3. INVESTMENT ADVISERS
BANK IV KANSAS, N.A. ("BANK IV") provides investment advisory services to
the Funds (except The Cash Reserve Money Market Fund). BANK IV is a wholly-owned
subsidiary of Fourth Financial Corporation ("Fourth Financial") and it acts as
the investment adviser to a wide variety of trusts, individuals, institutions
and corporations.
On January 31, 1996, Fourth Financial, the corporate parent of BANK IV (the
investment adviser to the Funds) merged, pursuant to an Agreement and Plan of
Merger (the "Merger Agreement") with Boatmen's Bancshares, Inc. ("Boatmen's").
The Merger Agreement provides, among other things, for the merger of Fourth
Financial with and into a wholly-owned subsidiary of Boatmen's (the "Merger").
The Merger resulted in one of the nation's 30 largest bank holding
companies, with estimated assets of over $40 billion. As of September 30, 1995,
Fourth Financial was the nation's 71st largest bank holding company, with assets
of over $7.5 billion, and Boatmen's was the nation's 30th largest bank holding
company with assets of approximately $33 billion. Boatmen's and its subsidiaries
provide a broad range of financial services to individuals and businesses
through offices in nine states. Boatmen's manages or otherwise oversees the
investment of over $45 billion in assets belonging to a wide range of clients,
including the Pilot Family of Funds.
On January 15, 1996, the Trustees of Funds IV Trust approved the assignment
of the Trust's advisory contract with BANK IV that is deemed to occur upon the
consummation of this Merger.
AMR Investment Services, Inc. ("AMR") provides investment advisory services
to The Cash Reserve Money Market Fund. AMR is a wholly-owned subsidiary of AMR
Corporation, the parent company of American Airlines, Inc. It was organized in
1986 to provide business management, advisory, administrative, and asset
management consulting services.
Pursuant to the separate Advisory Agreements, BANK IV and AMR act as
Investment Advisers and, subject to the supervision and direction of the Trust's
Board of Trustees, direct the investments of the Funds in accordance with their
investment objectives and policies, make investment decisions and place orders
to purchase and sell securities for the Funds. As compensation for their
investment advisory services, the Advisers are each entitled to receive from the
respective Funds they advise a
33
<PAGE> 40
FUNDS IV TRUST
Notes to Financial Statements (unaudited) (continued)
December 31, 1995
monthly fee at an annual percentage rate of the average daily net assets of the
Funds as indicated below:
<TABLE>
<S> <C>
The Cash Reserve Money Market Fund................................... 0.200%
The Short-Term Treasury Income Fund.................................. 0.300%
The Intermediate Bond Income Fund.................................... 0.400%
The Bond Income Fund................................................. 0.400%
The Stock Appreciation Fund.......................................... 0.650%
The Aggressive Stock Appreciation Fund............................... 0.745%
The Value Stock Appreciation Fund.................................... 0.650%
</TABLE>
For the six months ended December 31, 1995, BANK IV and AMR were entitled
to and received investment advisory fees as indicated below:
<TABLE>
<CAPTION>
BANK IV AMR
-------- --------
<S> <C> <C>
The Cash Reserve Money Market Fund....................... -- $299,764
The Short-Term Treasury Income Fund...................... $ 24,589 --
The Intermediate Bond Income Fund........................ 265,658 --
The Bond Income Fund..................................... 40,077 --
The Stock Appreciation Fund.............................. 471,690 --
The Aggressive Stock Appreciation Fund................... 192,062 --
The Value Stock Appreciation Fund........................ 75,914 --
</TABLE>
4. ADMINISTRATOR
Furman Selz LLC, formerly Furman Selz Incorporated ("Furman Selz") serves
as the Trust's Administrator. Pursuant to a Administrative Services Contract
between the Trust and Furman Selz, Furman Selz provides management and
administrative services for the operation of the Funds, furnishes office space
and certain facilities required for conducting the business of the Funds and
pays the compensation of the Trust's officers affiliated with Furman Selz.
As compensation for its administrative services, Furman Selz receives a
monthly fee at an annual rate of 0.15% of each Fund's average daily net assets.
For the six months ended December 31, 1995, Furman Selz was entitled to and
voluntarily waived administrative services fees as indicated below:
<TABLE>
<CAPTION>
FURMAN SELZ
------------------
ENTITLED WAIVED
-------- -------
<S> <C> <C>
The Cash Reserve Money Market Fund........................ $224,823 --
The Short-Term Treasury Income Fund....................... 12,294 $12,294
The Intermediate Bond Income Fund......................... 99,622 --
The Bond Income Fund...................................... 15,029 9,129
The Stock Appreciation Fund............................... 108,851 --
The Aggressive Stock Appreciation Fund.................... 38,671 --
The Value Stock Appreciation Fund......................... 17,519 14,244
</TABLE>
34
<PAGE> 41
FUNDS IV TRUST
Notes to Financial Statements (unaudited) (continued)
December 31, 1995
In addition, Furman Selz also provides fund accounting services for the
Funds pursuant to a Fund Accounting Agreement between the Trust and Furman Selz.
As compensation for its accounting services, Furman Selz receives from each Fund
an annual fee of $30,000 plus out-of-pocket expenses.
Currently, California is the only state imposing limitations on the
expenses of the Funds. If, in any fiscal year, the total expenses of a Fund
(excluding taxes, interest, distribution expenses, brokerage commissions,
certain portfolio transaction expenses, other expenditures which are capitalized
in accordance with generally accepted accounting principles and extraordinary
expenses, but including the advisory and administrative services fees) exceed
the expense limitations applicable to that Fund imposed by the securities
regulations, BANK IV, or AMR (with respect to The Cash Reserve Money Market Fund
only), and Furman Selz will reimburse the Funds for a portion of the excess with
BANK IV or AMR paying 60% and Furman Selz the remaining 40% of the excess.
Aggregate annual expenses shall not normally exceed 2 1/2% of the first $30
million of the average net assets, 2% of the next $70 million of the average net
assets, and 1 1/2% of the remaining average net assets. For the six months ended
December 31, 1995, there were no reimbursements required as a result of these
expense limitations for the Funds.
5. SERVICE ORGANIZATIONS
The Trust contracts with banks, trust companies, brokers-dealers, or other
financial organizations ("Service Organizations") to provide certain
administrative services for the Funds. Such services, which are described more
fully in the Statement of Additional Information, may include, among other
things: (i) maintaining shareholder accounts and records; (ii) processing
purchase and redemption transactions; (iii) providing periodic statements
showing a shareholder's account balance; and (iv) furnishing periodic and annual
statements, annual reports, prospectuses, and other communications from the
Funds to shareholders.
Each Service Organization has agreed to transmit a schedule to its clients
of any additional fees or conditions that may be applicable to the investment of
the Funds' shares.
For the services provided, the Funds may pay fees to Service Organizations
at an annual rate of up to 0.05% of the average daily net asset value of the
Funds' Service Class shares owned by shareholders with whom the Service
Organization has a servicing relationship. The Premium Class shares may bear an
additional shareholder servicing charge of up to 0.50%, annually, of the average
daily net assets. For the six months ended December 31, 1995, Service Class
shares and Premium Class shares incurred shareholder servicing fees of 0.05%.
35
<PAGE> 42
FUNDS IV TRUST
Notes to Financial Statements (unaudited) (continued)
December 31, 1995
For the six months ended December 31, 1995, BANK IV earned shareholder
servicing fees as indicated below:
<TABLE>
<S> <C>
The Cash Reserve Money Market Fund................................. $74,941
The Short-Term Treasury Income Fund................................ 4,098
The Intermediate Bond Income Fund.................................. 33,208
The Bond Income Fund............................................... 5,010
The Stock Appreciation Fund........................................ 36,284
The Aggressive Stock Appreciation Fund............................. 12,890
The Value Stock Appreciation Fund.................................. 5,839
</TABLE>
6. OTHER TRANSACTIONS WITH AFFILIATES
The Trust retains FFD, a subsidiary of Furman Selz, to serve as principal
underwriter for the shares of the Funds pursuant to a Distribution Contract. FFD
will use its best efforts to maintain a broad distribution of the Funds' shares
among bona fide investors and may enter into selling group agreements with
responsible dealers as well as sell the Funds' shares to individual investors.
Pursuant to a Services Agreement between the Trust and Furman Selz, Furman
Selz acts as transfer agent for the Funds and assists the Trust with certain
transfer and dividend disbursing agent functions. For these transfer agent
services, Furman Selz receives a fee of $15 per account per year plus
out-of-pocket expenses.
For the six months ended December 31, 1995, Furman Selz earned transfer
agent fees as indicated below:
<TABLE>
<S> <C>
The Cash Reserve Money Market Fund.................................. $ 202
The Short-Term Treasury Income Fund................................. 1,291
The Intermediate Bond Income Fund................................... 5,546
The Bond Income Fund................................................ 1,327
The Stock Appreciation Fund......................................... 5,606
The Aggressive Stock Appreciation Fund.............................. 4,204
The Value Stock Appreciation Fund................................... 1,216
</TABLE>
BANK IV serves as the Trust's custodian and receives a monthly fee at an
annual rate of 0.03% of each Fund's average daily net assets.
For the six months ended December 31, 1995, BANK IV earned custodian fees
as indicated below:
<TABLE>
<S> <C>
The Cash Reserve Money Market Fund................................. $44,964
The Short-Term Treasury Income Fund................................ 2,459
The Intermediate Bond Income Fund.................................. 19,924
The Bond Income Fund............................................... 3,006
The Stock Appreciation Fund........................................ 21,770
The Aggressive Stock Appreciation Fund............................. 7,734
The Value Stock Appreciation Fund.................................. 3,506
</TABLE>
36
<PAGE> 43
FUNDS IV TRUST
Notes to Financial Statements (unaudited) (continued)
December 31, 1995
7. PORTFOLIO SECURITY TRANSACTIONS
The cost of securities purchased ("purchases") and proceeds from securities
sold ("sales"), (excluding short-term securities) for the six months ended
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
COMMON STOCKS AND BONDS OBLIGATIONS
------------------------- -------------------------
PURCHASES SALES PURCHASES SALES
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
The Short-Term Treasury Income Fund.......... -- -- $10,822,297 $ 8,584,797
The Intermediate Bond Income Fund............ $34,208,695 $ 3,238,593 57,893,398 59,523,839
The Bond Income Fund......................... 3,520,508 2,921,520 26,633,742 11,771,312
The Stock Appreciation Fund.................. 57,926,289 50,117,284 -- --
The Aggressive Stock Appreciation Fund....... 29,137,639 21,285,390 -- --
The Value Stock Appreciation Fund............ 8,720,475 3,866,082 -- --
</TABLE>
Unrealized appreciation (depreciation) at December 31, 1995 based on cost
of securities for Federal income tax purposes is as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET
AGGREGATE UNREALIZED UNREALIZED UNREALIZED
COST APPRECIATION DEPRECIATION APPRECIATION
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
The Short-Term Treasury Income Fund......... $ 17,130,757 $ 477,381 -- $ 477,381
The Intermediate Bond Income Fund........... 124,186,643 4,665,121 $ 2,526 4,662,595
The Bond Income Fund........................ 28,235,309 1,322,322 -- 1,322,322
The Stock Appreciation Fund................. 126,803,000 28,645,516 1,647,785 26,997,731
The Aggressive Stock Appreciation Fund...... 49,432,519 8,723,946 1,488,496 7,235,450
The Value Stock Appreciation Fund........... 2,634,835 3,769,737 133,396 3,636,341
</TABLE>
8. CAPITAL SHARE TRANSACTIONS
The Trust is authorized to issue an unlimited number of shares of
beneficial interest with a par value of $0.001 each. Transactions in shares of
the Funds for the periods from commencement of operation through June 30, 1995
and the six months ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
THE CASH RESERVE MONEY MARKET FUND
-----------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 30, 1995
---------------------- ----------------------
SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Shares sold..................................... 244,582,629 -- 504,606,671 --
Shares issued in reinvestment of
distributions................................. 5,088 137 7,113 263
------------ ------- ------------ -------
244,587,717 137 504,613,784 263
Shares redeemed................................. (227,454,913) -- (229,956,257) --
------------ ------- ------------ -------
Net increase in shares.......................... 17,132,804 137 274,657,527 263
Beginning of period............................. 274,663,143 5,878 5,616 5,615
------------ ------- ------------ -------
End of period................................... 291,795,947 6,015 274,663,143 5,878
=========== ======= =========== =======
</TABLE>
37
<PAGE> 44
FUNDS IV TRUST
Notes to Financial Statements (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
THE SHORT-TERM TREASURY INCOME FUND
-----------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 30, 1995
---------------------- ----------------------
SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Shares sold..................................... 338,801 -- 1,909,207 --
Shares issued in reinvestment of
distributions................................. 31,516 14 53,737 28
------------ ------- ------------ -------
370,317 14 1,962,944 28
Shares redeemed................................. (139,548) -- (465,936) --
------------ ------- ------------ -------
Net increase in shares.......................... 230,769 14 1,497,008 28
Beginning of period............................. 1,497,570 589 562 561
------------ ------- ------------ -------
End of period................................... 1,728,339 603 1,497,570 589
=========== ======= =========== =======
</TABLE>
<TABLE>
<CAPTION>
THE INTERMEDIATE BOND INCOME FUND
----------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 30, 1995
--------------------- ----------------------
SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS
----------- ------- ------------ -------
<S> <C> <C> <C> <C>
Shares sold...................................... 1,770,293 -- 15,236,808 --
Shares issued in reinvestment of distributions... 362,206 14 589,850 30
----------- ------- ------------ -------
2,132,499 14 15,826,658 30
Shares redeemed.................................. (2,274,716) -- (3,141,325) --
----------- ------- ------------ -------
Net increase (decrease) in shares................ (142,217) 14 12,685,333 30
Beginning of period.............................. 12,685,895 591 562 561
----------- ------- ------------ -------
End of period.................................... 12,543,678 605 12,685,895 591
========== ======= =========== =======
</TABLE>
<TABLE>
<CAPTION>
THE BOND INCOME FUND
----------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 30, 1995
--------------------- ----------------------
SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS
----------- ------- ------------ -------
<S> <C> <C> <C> <C>
Shares sold...................................... 1,580,403 -- 1,872,843 --
Shares issued in reinvestment of distributions... 36,948 14 76,453 30
----------- ------- ------------ -------
1,617,351 14 1,949,296 30
Shares redeemed.................................. (102,123) -- (696,007) --
----------- ------- ------------ -------
Net increase in shares........................... 1,515,228 14 1,253,289 30
Beginning of period.............................. 1,253,851 591 562 561
----------- ------- ------------ -------
End of period.................................... 2,769,079 605 1,253,851 591
========== ======= =========== =======
</TABLE>
38
<PAGE> 45
FUNDS IV TRUST
Notes to Financial Statements (unaudited) (continued)
December 31, 1995
<TABLE>
<CAPTION>
THE STOCK APPRECIATION FUND
----------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 30, 1995
--------------------- ----------------------
SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS
----------- ------- ------------ -------
<S> <C> <C> <C> <C>
Shares sold...................................... 1,970,695 -- 14,137,595 --
Shares issued in reinvestment of distributions... 123,349 6 174,961 9
----------- ------- ------------ -------
2,094,044 6 14,312,556 9
Shares redeemed.................................. (1,268,660) -- (2,437,423) --
----------- ------- ------------ -------
Net increase in shares........................... 825,384 6 11,875,133 9
Beginning of period.............................. 11,875,695 570 562 561
----------- ------- ------------ -------
End of period.................................... 12,701,079 576 11,875,695 570
========== ======= =========== =======
</TABLE>
<TABLE>
<CAPTION>
THE AGGRESSIVE STOCK APPRECIATION FUND
----------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 30, 1995
--------------------- ----------------------
SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS
----------- ------- ------------ -------
<S> <C> <C> <C> <C>
Shares sold...................................... 1,021,036 -- 5,220,643 --
Shares issued in reinvestment of distributions... 63,346 8 41,285 6
----------- ------- ------------ -------
1,084,382 8 5,261,928 6
Shares redeemed.................................. (356,614) -- (1,197,549) --
----------- ------- ------------ -------
Net increase in shares........................... 727,768 8 4,064,379 6
Beginning of period.............................. 4,064,941 567 562 561
----------- ------- ------------ -------
End of period.................................... 4,792,709 575 4,064,941 567
========== ======= =========== =======
</TABLE>
<TABLE>
<CAPTION>
THE VALUE STOCK APPRECIATION FUND
----------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 30, 1995
--------------------- ----------------------
SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS
----------- ------- ------------ -------
<S> <C> <C> <C> <C>
Shares sold...................................... 439,343 -- 1,978,935 --
Shares issued in reinvestment of distributions... 50,807 -- 16,932 --
----------- ------- ------------ -------
490,150 -- 1,995,867 --
Shares redeemed.................................. (209,739) -- (103,384) --
----------- ------- ------------ -------
Net increase in shares........................... 280,411 -- 1,892,483 --
Beginning of period.............................. 1,892,489 6 6 6
----------- ------- ------------ -------
End of period.................................... 2,172,900 6 1,892,489 6
========== ======= =========== =======
</TABLE>
39
<PAGE> 46
FUNDS IV TRUST
Financial Highlights (unaudited)
For a share of beneficial interest outstanding throughout each period
<TABLE>
<CAPTION>
THE CASH RESERVE MONEY MARKET FUND
------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 30, 1995*
------------------- -------------------
SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- -------- -------
Income from Investment Operations:
Net investment income............................... 0.03 0.03 0.05 0.05
-------- ------- -------- -------
Less Distributions:
Dividends from net investment income................ (0.03) (0.03 ) (0.05) (0.05 )
-------- ------- -------- -------
Net Asset Value, End of Period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======== =======
Total Return**........................................ 2.80% 2.80% 4.74% 4.74%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands)............ $291,797 $6 $274,663 $6
Ratios of Net Expenses to Average Net Assets+....... 0.49% 0.49% 0.50% 0.50%
Ratios of Expenses Before Effect of Waivers+........ 0.49% 0.99% 0.54% 1.04%
Ratios of Net Investment Income to
Average Net Assets+.............................. 5.51% 5.51% 5.40% 5.40%
- ---------------
* Fund commenced operations on August 19, 1994.
** Total return not annualized.
+ Annualized.
</TABLE>
40
<PAGE> 47
FUNDS IV TRUST
Financial Highlights (unaudited) (continued)
For a share of beneficial interest outstanding throughout each period
<TABLE>
<CAPTION>
THE SHORT-TERM TREASURY INCOME FUND
----------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 30, 1995*
------------------ ------------------
SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................... $ 10.20 $10.20 $ 10.00 $10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income................................. 0.28 0.28 0.47 0.47
Net realized and unrealized gain on securities........ 0.14 0.14 0.20 0.20
------- ------- ------- -------
Total from Investment Operations...................... 0.42 0.42 0.67 0.67
------- ------- ------- -------
Less Distributions From:
Net investment income................................. (0.28) (0.28) (0.47) (0.47)
Net realized capital gain............................. (0.01) (0.01) -- --
------- ------- ------- -------
Total Distributions................................... (0.29) (0.29) (0.47) (0.47)
------- ------- ------- -------
Net Asset Value, End of Period.......................... $ 10.33 $10.33 $ 10.20 $10.20
======= ======= ======= =======
Total Return**.......................................... 4.23% 4.23% 6.95% 6.95%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands).............. $17,862 $6 $15,272 $6
Ratios of Net Expenses to Average Net Assets+......... 0.73% 0.73% 0.75% 0.75%
Ratios of Expenses Before Effect of Waivers+.......... 0.88% 1.38% 1.04% 1.54%
Ratios of Net Investment Income to
Average Net Assets+................................ 5.56% 5.56% 5.65% 5.65%
Portfolio Turnover Rate............................... 53.77% 53.77% 83.28% 83.28%
- ---------------
* Fund commenced operations on August 26, 1994.
** Total return not annualized.
+ Annualized.
</TABLE>
41
<PAGE> 48
FUNDS IV TRUST
Financial Highlights (unaudited) (continued)
For a share of beneficial interest outstanding throughout each period
<TABLE>
<CAPTION>
THE INTERMEDIATE BOND INCOME FUND
------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 30, 1995*
------------------- -------------------
SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $ 10.19 $10.19 $ 10.00 $10.00
-------- ------- -------- -------
Income from Investment Operations:
Net investment income................................ 0.30 0.30 0.51 0.51
Net realized and unrealized gain on securities....... 0.20 0.20 0.19 0.19
-------- ------- -------- -------
Total from Investment Operations..................... 0.50 0.50 0.70 0.70
-------- ------- -------- -------
Less Distributions:
Dividends from net investment income................. (0.30) (0.30) (0.51) (0.51)
-------- ------- -------- -------
Net Asset Value, End of Period......................... $ 10.39 $10.39 $ 10.19 $10.19
======== ======= ======== =======
Total Return**......................................... 5.02% 5.02% 7.26% 7.26%
Ratios/Supyplemental Data:
Net Assets, End of Period (in thousands)............. $130,365 $6 $129,317 $6
Ratios of Net Expenses to Average Net Assets+........ 0.75% 0.75% 0.75% 0.75%
Ratios of Expenses Before Effect of Waivers+......... 0.75% 1.25% 0.77% 1.27%
Ratios of Net Investment Income to Average Net
Assets+ ........................................... 5.89% 5.89% 6.10% 6.10%
Portfolio Turnover Rate.............................. 71.77% 71.77% 107.54% 107.54%
- ---------------
* Fund commenced operations on August 26, 1994.
** Total return not annualized.
+ Annualized.
</TABLE>
42
<PAGE> 49
FUNDS IV TRUST
Financial Highlights (unaudited) (continued)
For a share of beneficial interest outstanding throughout each period
<TABLE>
<CAPTION>
THE BOND INCOME FUND
----------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 30, 1995*
------------------ ------------------
SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................... $ 10.35 $10.35 $ 10.00 $10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income................................. 0.29 0.29 0.52 0.52
Net realized and unrealized gain on securities........ 0.40 0.40 0.35 0.35
------- ------- ------- -------
Total from Investment Operations...................... 0.69 0.69 0.87 0.87
------- ------- ------- -------
Less Distributions:
Dividends from net investment income.................. (0.29) (0.29) (0.52) (0.52)
------- ------- ------- -------
Net Asset Value, End of Period.......................... $ 10.75 $10.75 $ 10.35 $10.35
======= ======= ======= =======
Total Return**.......................................... 6.80% 6.80% 9.05% 9.05%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands).............. $29,760 $6 $12,977 $6
Ratios of Net Expenses to Average Net Assets+......... 0.91% 0.91% 0.96% 0.96%
Ratios of Expenses Before Effect of Waivers+.......... 1.00% 1.50% 1.11% 1.61%
Ratios of Net Investment Income to Average Net
Assets+ ............................................ 5.51% 5.51% 6.21% 6.21%
Portfolio Turnover Rate............................... 76.67% 76.67% 149.36% 149.36%
- ---------------
* Fund commenced operations on August 26, 1994.
** Total return not annualized.
+ Annualized.
</TABLE>
43
<PAGE> 50
FUNDS IV TRUST
Financial Highlights (unaudited) (continued)
For a share of beneficial interest outstanding throughout each period
<TABLE>
<CAPTION>
THE STOCK APPRECIATION FUND
------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 30, 1995*
------------------- -------------------
SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................. $ 11.05 $11.05 $ 10.00 $10.00
-------- ------- -------- -------
Income from Investment Operations:
Net investment income............................... 0.07 0.07 0.16 0.16
Net realized and unrealized gain on securities...... 1.27 1.27 1.05 1.05
-------- ------- -------- -------
Total from Investment Operations.................... 1.34 1.34 1.21 1.21
-------- ------- -------- -------
Less Distributions From:
Net investment income............................... (0.07) (0.07) (0.16) (0.16)
Net realized capital gains.......................... (0.06) (0.16) -- --
-------- ------- -------- -------
Total Distributions................................. (0.13) (0.13) (0.16) (0.16)
-------- ------- -------- -------
Net Asset Value, End of Period........................ $ 12.26 $12.26 $ 11.05 $11.05
======== ======= ======== =======
Total Return**........................................ 12.11% 12.11% 12.19% 12.19%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands)............ $155,768 $7 $131,239 $6
Ratios of Net Expenses to Average Net Assets+....... 0.98% 0.98% 1.00% 1.00%
Ratios of Expenses Before Effect of Waivers+........ 0.98% 1.48% 1.02% 1.52%
Ratios of Net Investment Income to
Average Net Assets+.............................. 1.12% 1.12% 1.89% 1.89%
Portfolio Turnover Rate............................. 35.63% 35.63% 46.37% 46.37%
- ---------------
* Fund commenced operations on August 26, 1994.
** Total return not annualized.
+ Annualized.
</TABLE>
44
<PAGE> 51
FUNDS IV TRUST
Financial Highlights (unaudited) (continued)
For a share of beneficial interest outstanding throughout each period
<TABLE>
<CAPTION>
THE AGGRESSIVE STOCK APPRECIATION FUND
----------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 30, 1995*
------------------ ------------------
SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................... $ 10.87 $10.87 $ 10.00 $10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income................................. 0.02 0.02 0.10 0.10
Net realized and unrealized gain on securities........ 0.94 0.94 0.87 0.87
------- ------- ------- -------
Total from Investment Operations...................... 0.96 0.96 0.97 0.97
------- ------- ------- -------
Less Distributions From:
Net investment income................................. (0.02) (0.02) (0.10) (0.10)
Net realized capital gains............................ (0.14) (0.14) -- --
------- ------- ------- -------
Total Distributions................................... (0.16) (0.16) (0.10) (0.10)
------- ------- ------- -------
Net Asset Value, End of Period.......................... $ 11.67 $11.67 $ 10.87 $10.87
======= ======= ======= =======
Total Return**.......................................... 8.89% 8.89% 9.81% 9.81%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands).............. $55,939 $6 $44,205 $6
Ratios of Net Expenses to Average Net Assets+......... 1.19% 1.19% 1.23% 1.23%
Ratios of Expenses Before Effect of Waivers+.......... 1.19% 1.69% 1.23% 1.73%
Ratios of Net Investment Income to
Average Net Assets+................................ 0.25% 0.25% 1.27% 1.27%
Portfolio Turnover Rate............................... 42.91% 42.91% 72.11% 72.11%
- ---------------
* Fund commenced operations on August 26, 1994.
** Total return not annualized.
+ Annualized.
</TABLE>
45
<PAGE> 52
FUNDS IV TRUST
Financial Highlights (unaudited) (continued)
For a share of beneficial interest outstanding throughout each period
<TABLE>
<CAPTION>
THE VALUE STOCK APPRECIATION FUND
----------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 30, 1995*
------------------ ------------------
SERVICE PREMIUM SERVICE PREMIUM
CLASS CLASS CLASS CLASS
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................... $ 10.93 $10.93 $ 10.00 $10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income................................. 0.13 0.13 0.10 0.10
Net realized and unrealized gain on securities........ 1.25 1.25 0.93 0.93
------- ------- ------- -------
Total from Investment Operations...................... 1.38 1.38 1.03 1.03
------- ------- ------- -------
Less Distributions From:
Net investment income................................. (0.13) (0.13) (0.10) (0.10)
Net realized capital gain............................. (0.17) (0.17) -- --
------- ------- ------- -------
Total Distributions................................... (0.30) (0.30) (0.10) (0.10)
------- ------- ------- -------
Net Asset Value, End of Period.......................... $ 12.01 $12.01 $ 10.93 $10.93
======= ======= ======= =======
Total Return**.......................................... 12.64% 12.64% 10.32% 10.32%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands).............. $26,100 -- $20,690 --
Ratios of Net Expenses to Average Net Assets+......... 1.15% 1.15% 1.18% 1.18%
Ratios of Expenses Before Effect of Waivers+.......... 1.24% 1.74% 1.33% 1.83%
Ratios of Net Investment Income to Average Net
Assets+ ............................................ 2.17% 2.17% 2.52% 2.52%
Portfolio Turnover Rate............................... 19.38% 19.38% 16.74% 16.74%
- ---------------
* Fund commenced operations on February 10, 1995.
** Total return not annualized.
+ Annualized.
</TABLE>
46
<PAGE> 53
(This Page Intentionally Left Blank)
<PAGE> 54
(This Page Intentionally Left Blank)
<PAGE> 55
FUNDS IV TRUST
BOARD OF TRUSTEES
<TABLE>
<S> <C>
JOHN J. PILEGGI+ CHAIRMAN OF THE BOARD
Senior Managing Director, Furman Selz LLC
G.L. BEST* Vice President of Finance and Administration,
Williams Energy Ventures
TERRY L. CARTER* Senior Vice President, QuikTrip Corporation
ARTHUR B. KRAUSE Executive Vice President and Chief Financial Officer,
Sprint Corporation
GEORGE MILEUSNIC* Chief Financial Officer, The Coleman Company, Inc.
PATRICK J. RYAN* Vice Chairman, Oklahoma Gas and Electric Company
</TABLE>
* Member of Audit and Nominating Committees
+ Trustee who is an "interested person" of the
Trust, as that term is defined in the
Investment Company Act of 1940.
- --------------------------------------------------------------------------------
OFFICERS
<TABLE>
<S> <C>
JOHN J. PILEGGI President
DONALD E. BROSTROM Vice President and Treasurer
JOAN V. FIORE Secretary
THERESA DONOVAN Assistant Secretary
SHERYL HIRSCHFELD Assistant Secretary
</TABLE>
<PAGE> 56
FUNDS IV
Address for:
TRUST CLIENTS OF BANK IV
- ------------------------
P.O. Box 1122
Wichita, KS 67201-1122
INVESTMENT ADVISERS
- -------------------
BANK IV Kansas, N.A.
100 North Broadway
Wichita, Kansas 67202
AMR Investment Services, Inc.
4333 Amon Carter Blvd., MD 5645
Fort Worth, Texas 76155
(Cash Reserve Money Markey Fund Only)
ADMINISTRATOR
- -------------
Furman Selz LLC
230 Park Avenue
New York, New York 10169
DISTRIBUTOR
- -----------
FUNDS IV Distributor, Inc.
230 Park Avenue
New York, New York 10169
CUSTODIAN
- ---------
BANK IV Kansas, N.A.
100 North Broadway
Wichita, Kansas 67202
COUNSEL
- -------
Baker & McKenzie
805 Third Avenue
New York, New York 10022
FUNDS IV Distributor, Inc. is not a bank, and shares of FUNDS IV Trust are not
deposits or obligations of, or endorsed or guaranteed by, BANK IV Kansas, N.A.
or its affiliates, nor are they federally insured by the Federal Deposit
Insurance Corporation ("FDIC"), the Federal Reserve Board or any other
agency. Shares of the Funds involve investment risk, including possible loss
of principal. There is no assurance that the Cash Reserve Money Market Fund
will be able to maintain a stable net asset value of $1.00 per share.
FF 1295
FUNDS IV
FUNDS IV Trust
A Family of Mutual Funds
SEMI-ANNUAL REPORT
December 31, 1995
Investment Advisers
BANK IV KANSAS, N.A.
AMR INVESTMENT SERVICES, INC.
(Cash Reserve Money Market Fund Only)
